A history of economic thought by Screpanti and Zamagni

¶ … socialist economic thought and that of Marx

Socialist Economic Theories

In order to develop the different theories of socialist economic thought and that of Marx, we look at a description of the contributions by different socialists in the field of economics. These socialists include Sismondi, Proudhon, Godwin, Owen, and Ricard. We also look further into Marx's economic thoughts and his contributions to the history of economic thought.

Sismondi and Proudhon

The socialists made significant contributions to shaping the history of economic thought in the former half of the 19th century. They developed a set of fairly similar doctrines, despite a diversity of cultural backgrounds and approaches to economics. The element that unified these authors was the Ricardian economic thought that was felt, at diverse levels and in diverse ways, by all of the socialist economists belonging to the age, from Sismondi, Owen, and Rodbertus to Proudhon and the economists labeled as 'Ricardian socialists'.

A theoretician of the capitalist production anarchy, Jean-Charles-Leonard Simonde de Sismondi criticized the Say's law of markets, believing that its failure to work correctly was a consequence of unequal income distribution. Sismondi considered laissez-faire to be a weapon of the capitalist system against workers, who were compelled to accept nothing but subsistence wages leading to their progressive impoverishment due to technical progress and competition. He pointed out that the low level of consumption by workers hindered the achievement of surplus. Sismondi was the first socialist economist who developed a model of under-consumption on the basis of unequal income distribution. This is analogous to the argument put forth by Malthus. However, Sismondi proposed to resolve this problem by the redistribution of wealth from capitalists to workers, rather than from capitalists to landowners; this goal could have earned fulfillment by way of intervention from the State. Sismondi's socialism, without encouraging violent revolutions or demanding private property abolition, aimed at constructing a society which was governed by small craft and agricultural producers, with the industry sharing its profits with workers as well, division of land into small sections, extensive and efficient system of social security and steeply progressive death duties. Sismondi is thus considered to be the founding economist of the wave of thought known today by the term 'social economy' (Screpanti and Zamagi).

Pierre-Joseph Proudhon followed a similar course some few years down the line. His theory was closer to Fourier's than to that of Saint-Simon's. He advocated the abolition of the excesses of private property, not private property itself. Further, he promoted liberty of individuals against any type of control by the State. His socialist theory assumed the capability of people to organize themselves spontaneously; he aspired to construct an economy that was comprised of industrial and artisan cooperatives. He spurned class struggle, suggesting free credit to be the key instrument in constructing socialism -- in this manner, workers would have the ability to amass capital for themselves (Screpanti and Zamagi).

Godwin and Owen

The division between organicists and libertarian socialists in England can be understood from the divergent positions of Godwin and Owen. In his 1793 work, 'An Enquiry Concerning Political Justice', William Godwin attempted to create a socialist theoretical structure based on utilitarianism. He reached a criticism of the justification made by Locke with regards to private property, using similar arguments as those that Rousseau had employed to criticize the natural-law notion of the seventeenth century. Godwin is of the view that every individual only has the right to possess those goods that are essential for his personal satisfaction, and that no individual possesses the right of maximization of his personal satisfaction by impairing others' satisfaction. To the extent that private property contradicts the law of justice, it is considered unlawful. This idea is based solely on the right of property and its sanction by the government. Godwin claimed that social justice and individual liberty are like the two faces of a single coin. He was of the opinion that individuals can be liberated from oppression through abolishing both the State and private property. Godwin assumed that individuals are basically good and rational, possessing the means to realize their objectives by means of persuasion instead of violence.

In contrast, Robert Owen's philosophy took a pessimistic stance with regards to mankind. He failed to acknowledge a natural aspiration for liberty in individuals. On the contrary, he assumed that an individual's character could be molded simply by an alteration to his living conditions (Screpanti and Zamagi)

Marx's thought

Marx was of the opinion that the history of economic thought came to a significant crossroads after 1830. The moment the social group termed as 'industrial bourgeoisie' rose to power by virtue of proletariat assistance in France and England, it attempted to change its alliances away from the proletariat. At that point in time, the class conflict against the proletariat was deemed more important, while the struggles against landowners came to a halt. The bourgeoisie now needed to prove that the enlightened dream of an economic society where all citizens were free had finally reached its realization -- that oppression and exploitation were no longer present in the society, that every citizen received in accordance with what he/she gave, and class conflicts, or rather classes themselves, no longer needed to exist. At this juncture, a theory based on classes and class conflicts served no longer; the more beneficial theories would be those of harmonization of interests and collaborating productive factors. Therefore, since the 'bourgeois economists' had betrayed the scientific inheritance of the classical economy, this inheritance was handed to socialist economists. The interests of the working class were then represented as being coincident with the interests of the collective whole. This marks the beginning of socialists' cognitive interests in penetration of the bourgeois society's physiology. It was believed by Marx that, while waiting to take over the world, the proletariat took over science from the bourgeoisie (Screpanti and Zamagi).

This explains capital's standing in the history of economic thought. As per Marx's view, this defined his capability to identify the boundaries of political economy. It should not be forgotten that Marx's theory was, in fact, a 'criticism of political economy'. Marx differs from classical economists in that his philosophical background is not based on empiricism, utilitarianism or natural-law. As far as political economy's ontological foundations are concerned, Marx's thought cannot be simplified as neo-classical and classical individualism, or as institutionalist and historicist holism. It was, in fact, argued by Marx with regards to the defining of individual drives that -- whether individuals seem to be egoist or selfless, the question was actually quite subordinate, and related to definite periods of history regarding specific individuals.

Marx developed an ontology of the social individual as a substitute for the ontology that was the foundation of the political economy during his Age. This ontology (the metaphysics of the nature of being) exalted the roles of culture, institutions and the material conditions of production in the development of 'human nature'. Marx vehemently refused to view individuals as social atoms or wheel cogs; he deemed human nature to be simultaneously autopoietic and malleable. For Marx, the malleability of human nature was due to the needs, interests, tastes, ideas and endowments of individuals as formed by their social contexts and history, and not through 'nature'. Thus, these factors cannot be used as 'exogenous data' by economists. Rather, human nature must be determined endogenously by the political economy, in connection with the economic structure being studied. Marx felt that human nature had autopoiesis due to the situations in which individuals act, governed by their own actions and desired ends. Economic action, in Marx's viewpoint, is always deliberate. This is true even when ideologies cause a distortion of the individual assessment of the participating interests, as ideologies by themselves serve to catalyze social action. Theory aids practice; science aids social revolution. According to Marxian thought, the dream of Communists to build a society of equal and free citizens could only be realized through the collective action and conscious intention of those involved in creating it (Screpanti and Zamagi).

What is the significance of Ricardo's "curious effect" and how does it relate to his critique of Smith?

In order to explain the significance of Ricardo's "curious effect" and its relation to his criticism of Smith, we must first begin with a brief narration of Ricardo's theory of value. We then go on to explain Ricardo's "curious effect." Finally, we discuss his criticism of Smith's commanded labor theory of value.

Beginning with a theory of profit stated in terms of output (corn, for instance) and moving on to a broader, more universal structure, Ricardo was faced with the theoretical obligation to construct a theory of value that was internally consistent. Ricardo discovered in 1815, while penning his Essay on Profit, that the "curious effect" of increasing wages on industrial products required large fixed capital amounts. This position was reached after considering Adam Smith's theories in his book, 'The Wealth of Nations'. It was, specifically, a result of the above-mentioned impact of price rise of corn on prices of goods (which are manufactured under different capital intensities), which incited the superseding, and also marked the key features of Ricardo's system, in contrast to Smith's system. This was the issue on which the second reason for alterations in value was based, and it brought about the reformulation of Ricardo's theory of value (Medema and Samuels).

It was subsequently pointed out by Sraffa that, when the classical political economy was faced with a complicated social reality, it formed an easier theoretical apparatus for filtering its significant features within a controllable analytical structure. This theoretical construction's key features were comprised of an annual production cycle, capital made up of advanced wages, and no set capital. This kind of structure was not entirely a theoretical exercise; rather it was designed to highlight the more tangible aspects of real-world economic problems, for instance, distributive results of the Corn Law (Medema and Samuels).

Before the introduction of Ricardo's system, the political economy did not have any consistent and coherent theoretical system. Ricardo's essay in 1815 contained the concept of rent in the form of a surplus; likewise, this line became the foundation of Ricardo's theory of profit. The precedence given to Ricardo's theory of profit, with the theory of value assuming a more subordinate role, is significant in comprehending the theoretical unity achieved by Ricardo. In many ways, the theory of value articulated the insinuations of the theory of profit, being an application of the surplus political economy approach. One of the characteristics of the early stages of the theory of profit of Ricardo was that it was expressed purely in terms of product measurement units. This approach offers many theoretical benefits -- rates of profit may unambiguously be stated in the form of ratios of two physical measures of corn (Medema and Samuels).

Critique of the commanded labor theory of value of Smith

During the initial stages of development of Ricardo's theory of value, he quoted Smith's text. Therefore, Ricardo's theory is built upon a criticism of Smith's approach, and, simultaneously, rests on it, as well. After delimiting the field in which the theory of value can be applied to reproducible goods under situations offering unlimited competition (going along with Smith's example), Ricardo determined the value of goods by formulating it as stated below.

In the society's early stages, the exchangeable worth of goods, or the law that determines the quantity of one good granted in exchange with another, almost exclusively depends upon the comparative amount of labor used on making each of them. If the amount of labor required for making commodities controls their exchangeable worth, each escalation in the amount of labor utilized must increase the respective commodity's value, and every reduction must decrease it (Takenaga).

What is asserted here by Ricardo is the personified labor theory of value, which is, determining the value (law of exchange ratio) with the aid of the labor amount 'bestowed' and/or 'realized' with regards to the commodity. This principle of determining value is not attributed by Ricardo as being a personal innovation; it is, instead, formulated by him as approval of that which the expert, Smith, had stated already. Smith's text is concerned with factors that control the relationships of the exchange of commodities in an abstract framework, where workers carry out production using only their hands. This considers neither capitalist relationships nor production means. It also assumes that workers, after having produced these goods with only their labor, take and offer these goods for exchange (implicit assumption of the simple goods production model). This societal condition is likened to the 'early phases of society' that would historically precede 'capital accumulation and land appropriation'. It is impossible to be certain about whether this theoretical structure for determining value (by Smith) was consciously adopted by Ricardo while framing the above-mentioned theory of value. It can, however, be stated that the restrictive term mentioned was inserted under Smith's influence (Takenaga).