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Yes, Socialism is Collectivism and Capitalism is "Wage System"!

June 25, 2009

The concepts of socialism and capitalism have definite meanings. Socialism is defined as state ownership of the means of production. The definition has been accepted by the most consistent practitioners of collectivist creed in failed socialist countries. But certain left-libertarian theoreticians (“mutualist” Kevin Carson is prominent among them) deny that state ownership captures the essence of socialism or that it has anything to do with the state or central planning of the Soviet style. To them socialism has a cosmopolitan and innocuous meaning which is really just about voluntary cooperation. Proudhon said so, Benjamin Tucker said so, even Friedrich Engels did say so. Did they not all preach and hoped so sincerely for the withering away of the state? Were they not among the most uncompromising foes of the oppressive state – that great anathema of voluntary association and classless society?

What is going on here? In a sense, left-libertarians have a legitimate point. Upon closer examination, the definition by state ownership is indeed definition by non-essentials. It is too narrow because its focus is merely on the final stage, the practical consummation of the collectivist creed. Initially, state ownership was conceived as a mere mechanism to abolish the hated “wage system”, the “undemocratic” and “oppressive” concentration of economic power in the hands of a few industrialists, bankers, landowners. Socialism has always defined itself by the hatred of the “wage system”, not by any meaningless bromides about “true” freedom and “true” voluntary cooperation. This is the real meaning of socialism. And this is what really unites Proudhon, Marx, Engels, Lenin, Stalin, Trotsky, Mao, Carson, and probably the majority of so-called left-libertarians. Make no mistake about it, Carson and other left-libertarians are open about their desire to abolish the “wage system” and replace it somehow with something but which would be genuinely voluntary and really and finally just (of course, in the sense of labor being paid the “full product” – Carson).

The problem is that like the old crop of collectivists, the recent one does not understand that the hated “wage system” is precisely the essence and beauty of capitalism and an indispensable element of civilization and human progress. Economically, the “wage system” is an indispensable precondition for and thus a necessary manifestation of a modern division of labor society, for it is responsible for every increase in productivity of labor and standard living of all members of society, especially the wage earners.

Prior to industrial revolution, division of labor did not go very far beyond a small number of simple tasks. Self-sufficient farming was the predominant mode of economic organisation. In such economies virtually all goods and services, the quantity and quality of which were barely sufficient to provide for mere physical survival, were produced either by families or within narrow confines of a tribe or village. The wealth both in form of directly consumable goods and primitive means of production was typically jointly owned by family or tribe members and exists directly and exclusively for their own benefit; in other words, producer and consumer are almost always one and the same person.

In contrast, as Mises has shown, and which was one of his greatest contributions to economic science, because of the very nature of economic organisation in a market economy, the physical beneficiaries of the means of production owned by capitalists are those who buy consumers’ goods produced with the help of these means of production. As a matter of fact, and contrary to Marxists and other collectivists, the greatest beneficiary of capitalistic ownership and mode of production is the average wage earner in his capacity as buyer of consumers’ goods. Indeed, the actual motivation of producers, who are the owners of the means of production, is to produce commodities not for the satisfaction of their own needs but of the needs of consumers; in short, in a market economy producers and consumers are almost always different persons.

In a self-sufficient economy the extent to which one owns means of production determine directly the amount of consumption one will have. The life and well-being of a family possessing a large fertile plot of land, cultivation tools, large herds of cows and sheep etc. is directly dependent on how much of this wealth it owns. In order to benefit from the wheat, the milk or meat, one, or one’s family or tribe, has to own things that help to produce wheat, milk or meat.

Quite different is the situation in a market economy ruled by the “wage system.” Here in order to benefit from products made with the help of the means of production, one does not have to own these means of production themselves or to own stocks or bonds of the companies employing these capital goods. In order to benefit, say, from Toyota automobiles or Sony TV sets or any other product available for purchase, one does not need to be an owner of stocks or bonds of Toyota Corporation or Sony Corporation or any other company; all one needs is merely to be able to buy these goods. The buyers of these products are overwhelmingly wage and salary earners, not businessmen and capitalists. Capitalism is distinguished by the mass market for the masses of wage earners.

Wage and salary earners benefit not only in their capacity as buyers of products while the means or production used in their production are owned by capitalists, they also benefit when it comes to the monetary demand for labor which is the source of almost all wage payments in the economic system. The necessity to employ labor and to pay wages is dictated by both the unlimited need for human labor as the ultimate source of value and the competitive pressures in the market process. Continuous survival under conditions of economic competition positively requires that businessmen and capitalists plow back into the production process the far greater part of their sales revenues in order to maintain, and if economically feasible under given circumstances, to expand the scale of production. Since labor and capital goods represent the actual, physical means with which the quantity and quality improvements of products can be expanded, each and every capitalist is forced to restrict his consumption down to an absolute minimum and reinvest the far greater portion of his earnings into the maintenance and, if possible, into the enlargement of his business operations.

It is precisely in this way that with the rise of capitalism the demand for labor and capital goods has come into existence and has remained in existence and can be practiced on the presently existing large scale only under institutional arrangements of a market economy with its all pervading elements of economic competition, the profit motive and economic inequality.

As a matter of fact, by far the greatest fraction of aggregate wage payments in a modern market economy originate in business enterprises and are paid out of that portion of sales revenues which are not spent for personal consumption of businessmen and capitalists but saved and productively expended. The average wage earner in developed countries, as far as his economic status is concerned represents the overwhelming majority of population, benefits indirectly from the wealth invested into the means of production. He benefits from this particular category of wealth to a far greater degree as long it remains invested than if it were simply sold and the selling proceeds equally distributed among his fellow workers, as hoped by such “mutualist” theoreticians as Kevin Carson.

It would do no good to the economic condition of the average wage earner if accumulated savings invested in factory buildings, machinery, equipment, inventories and other capital goods were expropriated and distributed to him and his fellow workers. Rather, it would be tantamount to the case of a farmer consuming all his seeds in the present only to discover that he has nothing to plant and consequently to eat in the future.

To conclude. Semantics aside, the ultimate problem that Carson and other left-libertarians have is the hated „wage system.” In this respect, they are no different from Proudhon, Marx and all other collectivists. They have the same mindset when it comes to the analysis of capital, the capitalist “wages system”, the source of profits, the inequalities in wealth and income. Anyone who advances such views and on that basis opposes the “wage system” is a socialist. Anyone who understands the essence of the “wage system” as one of civilization’s most essential and benevolent institutions and upholds it on the basis of that understanding is a defender of capitalism.

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