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Last Knight Live Blog 15 Kraus

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11/14/2007

The principal criticism of “scientific” socialists of capitalism is that it, in addition to being allegedly the most oppressive and exploitative system in the history of mankind, is an inherently irrational, “anarchic” system of economic organization invariably susceptible to recurring outbursts of overproduction leading to economic crisis, unemployment, and misery amidst obviously unprecedented development of productive powers and plenty in modern societies.Rosa Luxemburg, a major Marxist economist, in her classic The Accumulation of Capital offers this description of the “anarchy” of economic organization under capitalism:

We observe that in certain periods all the ingredients of reproduction may be available, both labour and means of production, and yet some vital needs of society for consumer goods may be left unfulfilled. We find that in spite of these resources reproduction may in part be completely suspended and in part curtailed. Here it is no despotic interference with the economic plan [as a result of arbitrary expropriation or destruction of the physical productive base through wars or natural disasters, -- W. Kraus] that is responsible for the difficulties in the process of production. Quite apart from all technical conditions, reproduction here depends on purely social considerations: only those goods are produced which can with certainty be expected to sell, and not merely to sell, but to sell at the customary profit. Thus profit becomes an end in itself, the decisive factor which determines not only production but also reproduction. Not only does it decide in each case what work is to be undertaken, how it is to be carried out, and how the products are to be distributed; what is more, profit decides, also, at the end of every working period, whether the labour process is to be resumed, and, if so, to what extent and in what direction it should be made to operate.

Capitalist production is not the production of consumer goods, nor is it merely the production of commodities: it is pre-eminently the production of surplus value [i.e. profit, -- W. Kraus]. Expanding reproduction, from a capitalist point of view, is expanding production of surplus value, though it takes place in the forms of commodity production and is thus in the last instance the production of consumer goods. (emphasis added)

As a mere positive description of the economic motivation of producers, Luxemburg’s account is quite correct. In a capitalist, division-of-labor economic system, producers are exclusively concerned with earning of the money surplus, i.e. profit, over money cost of production. Unlike Robinson Crusoe or, generally, producers in primitive societies, producers in a division of labor society attach absolutely no subjective value to their products. In other words, there is indeed no direct link between needs of consumers and actions of producers. In contrast, a Robinson Crusoe produces only insofar and to the extent he expects his efforts to yield him consumable goods. Precisely because he is alone in facing the nature, his economic calculation must necessarily be in terms of the relationship between the extent of his efforts and the expected yield of satisfaction from the goods he chooses to produce for himself. In other words, there is continuity between his ends and the means at his command, and this continuity is directly perceived and planned by Robinson Crusoe himself.

The content and character of underlying economic motivations does not change markedly if we move from an isolated individual to a small group of individuals such as a tribe of primitive farmers. Here a member of the group may exchange his horse against another man’s cow but still the horse he gives up does possess a definite subjective value to him. A tribesman will give up his horse for cow only if cow possess a higher subjective value to him.

The situation changes dramatically once we consider the exact nature of economic motivations consumers and producers who live and produce under the constraints of the division-of-labor economic system. A large manufacturer, say, of automotive transmission belts does not produce those belts in order to secure an adequate supply for his use. The manufacturer is even less motivated by the needs of other people for transmission belts. He is concerned with their needs only as far as producing and selling belts to them helps him to earn money. Under capitalism, his motive force to produce is almost always exclusively driven and informed by the profit motive, not by the subjectively felt desire to produce a valuable good for the direct satisfaction of his needs.

Obviously, the profit motive is not an end in itself; it does serve and is reducible to a more fundamental goal. The manufacturer hopes to exchange his goods for money with which then to acquire consumers’ goods and services that would satisfy his subjective needs. Yet even as a consumer, he is able to obtain consumers’ goods to the extent he succeeds to earn the money necessary and to the extent producers of these consumers’ goods succeed in producing and bringing them to him. In all of his actions, he is a part of the social whole; his actions are constrained by the objective data supplied by the myriad of other individual producers and consumers participating in the division of labor.

Armed with the knowledge about the true motivations of market participants, there is a clear temptation to declare that under capitalism the whole of economic activity is outright chaotic. Nikolai Bukharin, another major Marxian economist, has this to say on the character of economic organization under capitalism:

Commodity production [under capitalism] in general has an extremely important peculiarity, unknown in any form of natural economy. This peculiarity lies in the fact that the social connection between the different commodity producers is formed through exchange… Here we have a spontaneous character in development, its “blind” course… So here we have a special connection between the causal and teleological range of phenomena. Commodity and commodity-capitalist society is not the aim-proposing subject, it is not a “teleological unity”, as, for example, under the socialist mode of production. It is split up, though relatively united. It is not a mechanical sum of parts, the various commodity producers and enterprises are not membra disjecta: society nevertheless exists as such. But the type of inter-economic connection by means of exchange is an absolutely special type. The character of social unity is here extremely original. This is not the unity of a purposive organisation, but the spontaneous, anarchic, exceedingly contradictory and relative unity of formally independent agents of commodity production nevertheless objectively connected with one another.

Society, as a whole, cannot here, by its very nature, give itself any kind of aims, for it is not a unified subject, but only the artificially functioning and anarchical combination (not sum !) of “members” connected with one another. They, the separate commodity-producers, set themselves aims, for each of them is a “purposive subject” subordinating his actions to the principle of economic rationalism sub-specie profit. But the social product of their intersecting wills and corresponding actions is far from coinciding with these aims, but partially directly contradicts them (ruin in the competitive struggle, bankruptcy in time of crisis, lowering of the average rate of profit, etc.). This is the so-called law of heterogeneity of aims, which is extremely typical for capitalist society. Therefore the causal laws of development have no directly teleological expression, which might conceal them and be their teleological hypostasis. There is here no such state of things as would allow us to examine one and the same phenomenon both theoretically (scientifically, causally) and according to a standard (teleologically, practically). We can talk of the causes of crises, but it is impossible to talk of their expediency from the point of view of the active agents of capitalist production and the conscious rationality of action (crises are not brought about, nor made, crises make themselves, i.e. arise spontaneously).

Here there is no freedom for society as a whole, as a recognised necessity, but there is necessity and nothing else, confronting the agents of this society, as external in relation to them, independent of their will, an objective law, “blind”, “iron”, against which there is no remedy within the framework of the given society, for it is immanent in it. (emphasis added)

It is true that a capitalist society is not a “teleological unit”. Bukharin is equally correct in his observation that economic decision making in a capitalist society does consist of separate, and often contradictory, aims but this observation alone does not prove that the underlying process of production and distribution must be necessarily chaotic. As we shall see in the posts to come, the historically distinct form of economic organization based on private and separate ownership of the means of production, the profit motive, and the freedom of competition is in fact the only rational form of economic organization consistent with extensive division of labor.

Mises’s greatest contribution to economic science consists in showing precisely why this is the case. The exploration of further exciting details in connection with some quite technical arguments in the socialist calculation debate is ahead of us. Stay tuned!

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