A number of readers have raised important questions that I need to address, but before turning my attention to that I have decided to finish my exposition. I am sure it is clear that I have vastly more to say than I am putting into this little multipart essay – I mean, I have published two books and a number of lengthy articles on the subject. My purpose here has been simply to highlight my claim that it is possible to bring the literary criticism and the mathematical economics together in a fruitful fashion.
I am fond of saying that Karl Marx was the greatest student of society who ever lived and I genuinely believe that, but I do not think he was a prophet or messenger from God. He was a student of society, which means that he looked at the world around them, studied it as deeply as he could, analyzed it as best he could, got a great many things – important things – right, and of course got a number of things wrong. Today, I want to talk about what he got wrong or more broadly what he failed to foresee, because understanding those failures or inadequacies can help us to understand a good deal about the world in which we live.
As I see it, Karl Marx got four big things wrong or failed to foresee them. The first of these concerned how the capitalist class would evolve; the second concerned how the consciousness of the working class would evolve; the third concerned what would happen to capital; and the fourth concerned what would happen to labor. That is a lot of big things. Before I turn to them one by one, let me repeat that Marx got the very biggest thing dead right. He was right about it when he wrote and he is still right about it. One can express that one big thing in a simple sentence only nine words long and those nine words remain the most difficult nine words for the greatest economists in the world to comprehend. Here they are:
Capitalism rests on the exploitation of the working class.
The first thing Marx failed to foresee was that the capitalists, despite their vicious leave no prisoners competition with one another, would manage in a crisis to band together sufficiently to save capitalism itself. Marx was correct that the booms and busts characteristic of early capitalism would get worse and worse until there was a worldwide economic crash. But to put the matter simply in a phrase, Marx failed to foresee Keynes. He understood that the state was the executive committee of the capitalist class but he did not see that the committee would prove capable of pulling capitalism back from the brink each time its own self-destructive expansion and competition threatened its survival.
The second thing Marx failed to foresee or to appreciate was the power and permanence of the national, racial, and religious identifications that in the early days tended to set German workers against French workers, white workers against black workers, Catholic workers against Protestant workers, and all Christian workers against Muslim workers. In the second decade of the 20th century, socialists like my grandfather confidently predicted that German and French workingmen would not willingly go into the trenches and kill one another for their capitalist masters. Indeed, at the beginning of the first world war, many socialists were pacifists, not out of religious conviction but out of a belief that workers would and ought to be united across national boundaries by their class position in the ever more international capitalist economy. One hundred years later, we are compelled to face the bitter truth that in the lives and passions of hundreds of millions of men and women worldwide, class solidarity is trumped by patriotic nationalism, religious fervor, or racial animosity.
The third thing Marx failed to foresee was that capitalism, as it grew in the way that he anticipated it would, would morph into shareholder ownership of capitalist enterprises. I have talked about this before on this blog and I will not go into any detail about something that is, after all, familiar to us all because it is the world in which we live. Since Marx insisted that the functioning of capitalism could not be traced to the personalities or desires or greed of individual capitalists but had to be understood systematically and structurally, his theory was well positioned to adapt to the new form that capitalism took, but he himself did not, so far as I know, anticipate the rise of the limited liability joint stock enterprise. The complete divorce in the general case (Jeff Bezos to the contrary notwithstanding) of ownership from managerial control is, looked at one way, the perfection and logical conclusion of the tendencies that Marx perceived in the earliest days of the development of capitalism, but of course he did not foresee how it would play out in detail.
And fourth – perhaps most important, to my way of thinking – Marx completely failed to see that a permanent steeply pyramidal structure of jobs, wages, and salaries would become the seemingly unalterable face of mature capitalism. When Marx was writing, capitalism was systematically destroying traditional crafts and guilds and breaking down structures of job knowledge and performance that had characterized the pre-capitalist era. The world that Marx was looking at seemed to be reducing the workers to an undifferentiated mass of semiskilled machine operatives who lacked both tools and skills in particular historical crafts. Indeed, it was this development which encouraged him to believe that class consciousness would grow as workers first in one factory, then in one industry, then in many industries, then in one nation, and finally worldwide would come to understand their common interest in uniting and confronting capital. But what happened in the 20th century was the emergence of a steep pyramid of jobs and compensations. A manual worker making a barely survivable wage might, from an analytical perspective, occupy the same position in the structure of a capitalist economy as a middle manager of a large corporation making perhaps 40 or 50 times as much money, wearing a suit, getting fringe benefits, and so forth, but there was no likelihood whatsoever that the two of them would make common cause against their common exploiter. Indeed, as my two old University of Massachusetts friends and colleagues Sam Bowles and Herb Gintis demonstrated in a lovely mathematical essay, one could show that in the modern capitalist world relative exploitation had replaced absolute exploitation, so that not only did capital exploit its high paid employees, but they in turn relatively exploited employees further down in the pyramid of wages and salaries.
It follows from all of this that there is a very serious need not to reject Marx’s fundamental insight concerning the exploitative character of capitalism but rather to continue developing modern understandings of contemporary capitalism grounded in that fundamental insight and completely attendant to the realities of 21st-century international capitalism.
This analysis, which echoes somewhat the analysis I offered in my essay “The Future of Socialism,” goes some way toward explaining to those of us still in mourning why socialism has not succeeded capitalism.