A good many years ago, I wrote a long paper entitled "The Future of Socialism." It was occasioned by reflection on a famous passage from Marx's Contribution to a Critique of Political Economy, an 1859 work that served as a preliminary sketch for Capital. Here is the passage, from the Preface:
"No social order disappears before all of the productive forces for which there is room in it have been developed, and new, higher relations of production never appear before the material components of their existence have matured in the womb of the old society."
In this passage, which expresses one of his deepest and most valuable insights, Marx was thinking primarily of the centuries-long process by which capitalist social relations grew "within the womb" of feudalism, eventually resulting in a series of violent upheavals that permanently put paid to the old feudal order and established capitalism as the dominant economic form of his world, and ours. But it occurred to me that we could only evaluate the possibility of a socialist future by trying to think through what it would look like for the material of new, higher relations of production to mature in the womb of capitalism.
My focus in that paper was the capitalist firm, and I drew for my analysis on some apparently unpromising materials from the specialist literature of financial accounting theory. I never published the paper, and had it not been for two invitations several years ago to speak -- one at the City University of New York, the other at the University of Pennsylvania Law School [arranged, of course, by my son, Tobias] -- its arguments might never have seen the light of day.
I should like now to return to Marx's provocative insight and try whether it can help us to understand the direction in which the world is being led by the current financial crisis. I should caution my readers that I am entirely an amateur when it comes to the theory and practice of international finance, but despite that fact, I think I may have some ideas to lay before you that you will find useful and suggestive.
First, let me explicate Marx's statement, as I understand it. A social order, such as feudalism or capitalism, is a complex structure of productive activities, with their associated systems of law, religion, and politics, and even philosophy, art, literature, and family relationships. In every social order about which history provides us any information, more is produced in each cycle of production than is required simply to keep people alive and conduct the next cycle of production. The existence of this surplus immediately poses three questions, the answers to which define the nature of the social order. The three questions are: First, who gets the surplus? Second, how do the surplus getters get the surplus? and Third, what do the surplus-getters do with the surplus when they get it?
In a capitalist economy, the answers to these three questions are as follows: First, the surplus is for the most part appropriated by entrepreneurs, financiers, and their hangers-on, although under conditions particularly favorable, some portion of the surplus may be wrested from their hands by the workers; Second, capital appropriates the surplus by excluding the workers from ownership of or access to the means of production, forcing them to work longer and more arduous hours than would be required merely to reproduce their conditions of existence -- This forced labor, or exploitation, is masked by the appearance of what is referred to as a "free market" for labor, which appears to make the wage-labor bargain a freely entered into contract completely analogous to the contracts entered into in the marketplace by entrepreneurs in their exchanges with other entrepreneurs; Finally, in a capitalist social order [but not, for example, in a feudal social order], capital, while paying itself lavish rewards and living luxuriously, devotes most of the surplus to expanding the sphere of production. It is compelled to do so by the pressures of competition, thus fueling rapid rates of economic growth unlike anything seen under earlier social orders. [Notice that I speak of Capital, rather than of capitalists. I adopt this facon de parler, echoing Marx, to convey the fact that in analysing a social order, it is the structural features of that order rather than the personal characteristics of the individuals who occupy the several positions in it that are important in understanding how the social order functions.]
How does a transition take place from one social order to another? Marx asks. Clearly not simply as the result of a fiat from a powerful ruler. A visionary Charlemagne, inspired as he took office on Christmas Day, 800 A.D. by the dream of a capitalist order, could not have "skipped a stage" and ordered pre-feudal Europe to proceed directly to the establishment of a laisser-faire market economy. None of the conditions required for the emergence of a capitalist economy existed at that time. Virtually the entire population was illiterate and innumerate, save for the Clergy. Such markets as existed were primitive, episodic, and dominated by mere barter of goods or periodic sale of luxury items. Not before these and many more elements of a capitalist economy had developed "within the womb" of feudalism was it possible for merchants to undertake [the literal translation of "entreprendre"] production of commodities for profitable sale in a free market.
Exactly the same general proposition is true with regard to the possibility of a transition from capitalism to socialism. The distinguishing mark of capitalism is ever greater rationalization of the sphere of production combined with ever greater irrationality in the sphere of distribution. Gluts in the presence of famine. Men and women homeless while home starts dwindle to virtually nothing. Empty hospital beds as the sick die for lack of health insurance.
It is not difficult to see that capitalism is massively irrational, inflicting absolutely needless suffering on those whose needs could easily be met by its productive capacity. Nor is it difficult to imagine an alternative social order in which the productive capacity of society would be rationally managed and planned in such a manner as to serve the needs of the population, rather than merely endlessly to expand the accumulations of wealth held in private hands. But although we can imagine such a society, it is not the case that it can merely be wished or legislated into existence. Indeed, it is not even the case that it can be made to exist by brute force, any more than Charlemagne could have imposed capitalism on Europe at the swordpoints of his paladins. A debate about just this question broke out among the sophisticated leaders of the Bolshevik revolution. Suddenly finding themselves in command of a vast nation whose economy was essentially feudal, with a nascent and undeveloped capitalist sector in European Russia, they asked themselves whether they could skip the capitalist stage and move directly to the establishment of socialism. The simple answer, of course, was No, but it is not difficult to see why these men, having at great risk seized control of their country's government, did not then simply turn it over to the few capitalists they could find, saying, as they walked out of the Kremlin, "call us when you have managed to advance Russia to a stage of Late Capitalism." The result, predictably, was a command economy neither capitalist nor socialist. Marx was right, even though his most successful epigones refused to acknowledge it.