History of Economics

5th Scientific socialism





1st Introduction

2nd The different socialist directions

3rd The deterministic approach

4th The labour theory of value

5th Application of the labour theory of value to the labour power itself

6th The creation of added value

7th Compulsion for accumulation

8th Tendency to concentration

9th The impoverishment thesis

10th The collapse of the capitalist society



1st Introduction


In this chapter we will address the scientific socialism. The founders of this teaching were Karl Marx and Friedrich Engels. Marx called this direction of socialism 'scientific' because he thought he could prove scientifically that out of the present capitalist economy a socialist society would necessarily grow.


Marx differed in this approach from e.g. Adam Smith or other advocates of a liberal national economy. Adam Smith, the founder of modern economics, was also of the opinion that he could prove liberalism with scientific methods. Nevertheless, the two authors have different scientific aims. Adam Smith was concerned with proving scientifically that liberalism was able to increase the welfare of the population in a much better way than interventionist and mercantilist economic policies. His main scientific interest was just not to prove, in a similar way as Karl Marx, that the historical process by itself necessarily brings about the desired economic order (socialist order for Karl Marx, liberal order for Adam Smith).


Karl Marx indeed thought also about why the future order: the socialist society was so much better than the previous order: the capitalist economic form. However, Karl Marx's reflections on the effectiveness and superiority of a socialist order are only marginal. For example, he was convinced that in a socialist society, in which the ownership of the means of production is socialised, it succeeds to increase productivity in such a way that the needs of all working people can be met optimally. But how a socialist society works in fact, by which mechanisms the wishes of consumers are communicated to the producers and become satisfied, about this Karl Marx reflected only very little.


With the characterisation of his teaching as 'scientific' socialism, he intentionally wanted to distinguish himself and his followers from other directions of socialism. For example, he considered the early socialists, who mainly became active in France at the time of of the French Revolution, to be unscientific and utopian. In particular, he opposed Proudhon, who advocated an anarchism without any state and who had developed his ideas in 1846 in his writing on 'Systèmes des contradictions économiques, ou philosphie de la misère'. The contempt that Karl Marx held against Proudhon is clearly expressed in the title of the 1847 published treatise: 'Misère de la philosophie'.


However, Karl Marx had also contrasted his 'scientific' socialism with the quite scientifically founded ideas of the representatives of the younger historical school such as Gustav Schmoller and Adolf Wagner, who actively advocated socio-political reforms with the founding of the ‘Verein für Socialpolitik’ in 1873. Karl Marx contemptuously described their efforts as 'catheter socialists', who, averted from reality, presented their ideas in a scientific manner but without any feeling for reality.



2nd The different socialist directions


Before we begin with the presentation of the scientific socialism, let us briefly introduce the main directions of socialism and their main representatives.


In the context of the French Revolution of 1789 and the subsequent period, there emerged early socialism, which was mainly limited to France and was founded in particular by Henri de Saint Simon and Charles Fourier.


Henri de Saint Simon lived from 1772 to 1837 and was the founder of the religiously based socialism. In his work on 'Nouveau Christianisme', published in 1825, he saw it as the task of the classe industrielle to create work and prosperity and to make it benefit everyone, especially the poorest. He considered it inevitable both to curtail the ancestral privileges of the nobility and to limit private property, in which he saw a reason for exploitation.


Charles Fourier lived from 1772 to 1837 and in his work on 'Nouveau Monde industriel et sociétaire' published in 1829 he developed the idea of dividing the state into cooperatives; social regulations were to replace marriage and family. Although private property was allowed, rich and poor were supposed to live together.


A certain special role was played by Joseph Pierre Proudhon, who lived from 1809 to 1856 and was called the father of anarchism. In his already mentioned work published in 1846: 'Systèmes des contradictions économiques, ou philosophie de la misère', he was of the opinion that the sense of moral responsibility of the individuals was developed to such an extent that any form of government was redundant. He rejected the use of violence to impose any system on people.

Among the representatives of scientific socialism were, as already indicated, Karl Marx and Friedrich Engels as its founders, but also Karl Kautsky.


Karl Marx lived from 1818 to 1883, was a German philosopher and publicist, co-founder of scientific socialism and co-author of the Communist Manifesto. He developed his ideas particularly in his major works in 1847, 'Misère de la philosophie', in which he opposed Proudhon's ideas, as already mentioned, and in his work 'Zur Kritik der politischen Ökonomie' published in 1859, as well as in his major work (1867) 'Das Kapital', although its third and fourth volumes were published posthumously by his comrade Friedrich Engels. In this four-volume work, his basic economic principles were developed.


Friedrich Engels lived from 1820 to 1895, was a German social reformer and, as already mentioned, co-founder of the scientific socialism. He developed his ideas particularly in his 1845 published work on ‚Die Lage der arbeitenden Klasse in England‘ as well as in the 1882 published work on ‚Die Entwicklung des Sozialismus von der Utopie zur Wissenschaft‘.


Karl Kautsky lived from 1854 to 1938 and was the German representative of Marxism in succession to Friedrich Engel and leader of the Social Democracy. In his paper published in 1899 entitled 'Bernstein and the Social Democratic Program' he opposed Bernstein's revisionism. In 1908 he published his work: 'The Social Revolution and on the Morrow of the Social Revolution', in which he tried to mediate within the Marxist crisis theory and imperialism debate.


The Socialist Workers' Party of Germany (SAP) was founded in Germany in 1875, which gave itself the Gotha Programme and which arose from the merger of the General German Workers' Association founded by Friedrich Lasalle and the Social Democratic Workers' Party led by A. Bebel and W. Liebknecht. Under the pressure of Bismarck's socialist laws, Marxist ideas prevailed in this party. Already in 1899, however, E. Bernstein campaigned for a turn away from the revolutionary ideas of Marxism.


In the further ideological development of socialism, the socialist parties were then split very quickly after the First World War. This was due to the fact that the moderate groups within socialism founded a social-democratic party which differed from the revolutionary communist party mainly in its recognition of the democratic constitution of the Weimar Republic and in its attempt to realise socialist ideas only within the framework of the liberal constitutional state.


At the beginning, the Social Democratic Party also assumed that the social wrongs were caused by the capitalist system and that therefore the social and economic problems could be solved by nationalising the working capital.


In the following period, however, the Social Democratic Party underwent a decisive change towards liberal socialism. Already during the Weimar Republic, the Social Democrats tried to achieve this socialisation of capital in that only the so-called key industries (coal, steel and banks) shoulf be nationalised. On the one hand, it was sufficient to nationalise only these economic sectors, since almost every economic sector needed the raw materials energy and steel as well as loans and could therefore be sufficiently directed via the nationalised key industries. On the other hand, it was feared that if the entire economy was nationalised, the state bureaucracy would become so powerful that it could subjugate the parliament and thereby also the population finally.


In the Godesberg Programme (1959), the SPD took a further step towards market economy concepts by abandoning general nationalisation aims and recognising that the market economy was the more efficient method of production and could therefore be accepted provided that only the market was corrected in terms of distribution policy and social security.


Simultaneously, the recognition of private property was affirmed as defined in the Basic Law, albeit with social obligation. This marked the beginning of the development of socialism into a liberal socialism. Alongside the realisation of a fair distribution, the freedom of the individual, including that of the entrepreneur, which is embedded in the social obligation of the Basic Law, was to be affirmed entirely.



3rd The deterministic approach


Karl Marx was the founder of the so-called 'scientific' socialism. He thought he could prove that capitalist societies necessarily developed into socialism (communism). In historico-philosophical respect, he was a student of Hegel, who was convinced that history progressed in a three-step process of thesis, antithesis and finally synthesis.


According to Hegel an idea is developed in a first step, the 't,

hesis'. However, this was not accepted uncontradicted, but rather in a second step it provoced a counter-thesis, the so-called antithesis. Finally, in a third step, by discussing the thesis and the antithesis, a synthesis is reached which finally contained elements of both the thesis and the antithesis.


In one crucial point, however, Karl Marx contradicted Georg Friedrich Hegel. While Hegel was convinced that history ultimately progressed through ideas, Karl Marx said that Hegel had turned the conditions upside down, that the ideas reflected only the development in the material conditions, and that it was therefore the development in these material conditions that drove history forward. The ideas are only the ideological superstructure which the respective powerful people use to defend their position.


The conception that people develop ideas, that these ideas experience disagreement, and that from the confrontation of these opinions, finally, conceptions are formed which contain elements of all the ideas involved in the discussion, now certainly corresponds to the truth. What is wrong here, however, is the view that this process occurs deterministic, in the sense that there was always only one antithesis for a particular thesis and that out of the confrontation of these two theses a synthesis was finally formed that was determined from the outset.


The experience shows rather that, on the one hand, a certain thesis can certainly give rise to several antitheses and that it is by no means predetermined which elements of the most diverse theses will prevail finally. On the other hand, it is a kind of creative process that gives rise to ideas and antitheses, so that already for these reasons alone it is not determined from the outset which antitheses are developed.


Furthermore, it is certainly also true that material interests have a decisive influence on ideas and by means of them on historical development. Again, it is wrong, however, to assume that these material interests are the only determinants of historical development. Also in the question of the relationship between material interests and the progression of development it is true that certain material data by no means produce always one and the same idea, but rather that the ideal answer to certain material circumstances is mostly one among several possible answers.


Also here, a creative process is present, it depends on the intellectual achievements of individual historical personalities which answers to given questions are finally found and it depends to the same extent on the assertiveness of these personalities which idea prevails in the end.


What can be scientifically ascertained of the historical process lies in a completely different context. This question was discussed in detail in the debate between neoclassical economics and historical school at the end of the 19th century. While the representatives of the neoclassical school - above all Karl Menger - were of the opinion that economic circumstances could also be analysed with the same scientific methods as the questions of natural science, the representatives of the historical school - here above all Gustav von Schmoller - promoted the idea that historical processes would escape from the scientific analysis, that they could only be understood by methods of historical science, but could not be explained causally.


Walter Eucken tried to mediate in this dispute. He was also of the opinion that in the field of social, but especially the economic processes, there were no generally valid laws in the sense that each individual event was predetermined by the historical processes. Every economic situation was of unique nature and precisely for these reasons Walter Eucken rejected the justification of a business cycle theory, since the concrete course of an economic cycle was always of unique nature.


This finding does not mean, however, that there are no generally valid connections in the sector of economy and society. Walter Eucken rather started from the idea that there is a limited number of economic regulatory elements and that these regulatory elements have very specific effects on the solution of economic problems. Therefore, every concrete situation was unique in the sense that there exist very different, and in this sense unique, mixtures of the individual elements of order. Nevertheless, general laws can be examined by economic theory, e.g. it can be stated that competitive markets are better able to orientate production towards consumer wishes than monopolistic or oligopolistic markets.


Back to the theses of Karl Marx. Applied to the historical course of economic systems, the threefold step of thesis, antithesis and synthesis states that in a first step, as a thesis in the Middle Ages, had emerged the feudal society with the supremacy of the nobility and the clergy. This form of society led to contradictions, to an antithesis, which finally led to capitalist society, in which the decisions would lie now with the owners of capital, the capitalists. In the further course of the historical process, however, capitalist society would necessarily lead to a social revolution, which would bring about a socialist society in which the ownership of the means of production would lie in the hands of the national community.


Karl Marx was thus convinced that the socialist society would automatically and necessarily emerge from the collapse of the capitalist societies. Historical experience has shown, however, that the general historical development has just not followed this scheme and is therefore not deterministically predetermined. The leading communist country in the past was the Soviet Union. However, the Soviet Union did not emerge just from an industrialised capitalist economy; Russia was still in a preindustrial phase in the time of the communist revolution. Similar considerations apply to China, also a leading communist system.


Only for the former GDR it can be said that an already industrialised and predominantly capitalist economic system was replaced by a socialistically regulated system. But it was precisely here that the transition to communist society did not correspond to the path of development sketched out by Karl Marx. The former GDR did precisely not become a socialist society because of the capitalist contradictions, but only because the Soviet occupying power compelled the socialist revolution by force of arms. The three western zones, just like the eastern zone, had emerged from an industrialised and capitalistically regulated economic system - the share of the industrial sector was even higher in the western zones than in the eastern zone - and yet a communist economy was not established here.



4th The labour theory of value


Just as Karl Marx was a student of Georg Friedrich Hegel regarding his philosophical views, Karl Marx followed - as Joseph Alois Schumpeter has shown in particular - the teachings of David Ricardo in his economic considerations. Most of all, Karl Marx based his economic-analytical trains of thought on the classical labour theory of values, which had been developed mainly by David Ricardo. According to this theory, the value of a good can be determined according to how many working hours are required socially for the production of one unit of goods.


According to the common sense of the time, one should have expected actually that in line with the objective value theory prevailing at the time, the value of a good (and this is the long-term valid price of goods) would be determined by the level of all cost factors. And the factors of production included not only labour, but also the scarce land and the capital. An objective theory of value can therefore only be convincing if it is successfully proven that neither land nor capital co-determine the value.


This was precisely the task David Ricardo had set himself. In the previous chapter we showed that David Ricardo tried to prove that a soil rent is only paid because more and more soil that is less productive has to be used as production increases and because the free market ensured that an equal price is paid for the end products, regardless of how productive the individual soils were. The consequence is that the owners of more productive soils would receive a differential rent. Thus, the rent was a consequence of the increased scarcity and the associated price increases for agricultural products and thus - for logical reasons - cannot simultaneously be the cause of the increased prices. In David Ricardo's view, the soil had thus been eliminated as determining factor in the value of a good.


In the previous chapter, we were also able to observe how David Ricardo now succeeded in eliminating capital as the determinant of the accumulation of value of goods. Herefore, it is important to remember that the primary task of any classical value theory was not to determine the absolute price level, but the relation between the individual prices of goods. According to David Ricardo, however, the price structure is not determined by the capital employed in production. A uniform interest rate was valid for economically invested capital, and that the interest costs co-determined the absolute level of goods prices, but not the value - the relative price level. An equal percentage for the cost of capital, depending on the interest rate, was respectively added to the labour costs; the relation between the individual long-term valid prices of goods was thus not affected by changes in interest rates. In this way, capital was also excluded as the second possible determinant of the value of goods.


Finally, we have seen in the previous chapter that David Ricardo attempted to reduce even the multitude of different qualities of work to finally one single normal quality of work. Ricardo did this by starting from the assumption that the wage structure was determined technically in the long term and not by economic factors such as scarcity or productivity.


Karl Marx adopted this labour theory of values developed by Ricardo. But just as he thought he had to put Hegel's doctrine on its feet, Karl Marx also modified Ricardo's labour theory of value in at least two points and thus developed it further. On the one hand, he tried to apply the labour theory of value also for the explanation of the value of labour. In the next section we will examine this attempt in more detail. On the other hand, he saw the labour value not only as a measure and a control parameter and thus as a relative variable, but the labour value served him as a measure for the absolute value of a good.


The points of criticism against the labour theory of value developed by David Ricardo that where mentioned in the last chapter naturally also apply to Karl Marx. Just as David Ricardo did not succeed in developing a convincing concept for a logically faultless objective theory of value, it must be stated also for Karl Marx that his economic theory, just because it is based on the classical and disproved labour theory of value, is subject to criticism just as much as David Ricardo's theory of value.


In the following, we want to put these concerns aside and follow the train of thought of Karl Marx.



5th Application of the labour theory of value to the labour power itself


An essential continuation of Ricardo's labour theory of value is that, according to Karl Marx, not only goods are valued according to the number of hours worked, but also labour itself is valued since for thereproduction and maintenance of the labour force itself again labour must be used. The worker remains able to work only by feeding himself and regenerating his labour power in the leisure time remaining to him. Since the value of a good, according to classical ideas, does not primarily depend on how many working hours were actually spent on the production of a good, but only on how many working hours are necessary to produce a good, for Marx the minimum subsistence level (of goods and leisure time) is valid as a measure of the value of labour.


This transmission of the labour theory of value to the production factor labour is found in Ricardo's work just as little as in the other classics. The labour theory of value of the classicists was solely an attempt to understand the value of goods, whereby the interest in the value of goods was justified by the fact that the control of production, i.e. the allocation of scarce resources to the individual possible types of use, was decisively controlled by the value relations. This approach is limited to the goods that are to be produced; the question of how labour or other resources are formed is not the subject of discussion among the classicists. The resources always represent a stock, which for science is regarded as a date, i.e. as a quantity, which is not necessary to be explained at least in terms of economic sciences.


However, it is true that even parts of the classicists, primarily David Ricardo and Robert Malthus, were convinced that the wage rate actually would have the tendency to decline to the subsistence level. We have also seen in the previous chapter how Ricardo and mainly Malthus came to these conclusions within the framework of their dynamic model. At the heart of this model there is the law of the diminishing marginal revenue of the soil. Based on the population theory developed by Malthus, we can expect a strong - in the sense of a geometric series - unfolding population growth.


The food demand of the growing population can only be met the way that more and more soil of inferior quality must be cultivated. However, the necessary food will only be produced and offered on the markets if also those landowners who cultivate the poorest soil still cover their expenses in the price of goods. But as now on free markets for the same products an equally high price is achieved regardless of the costs incurred, the owners of the qualitatively better soils receive a rent.


The more soil of inferior quality has to be cultivated, the ever larger is the part of the proceeds from the sale of the soil products that will go to the landowners with the consequence that less and less is left for interest and profits as well as for wages. Thus, it seems to be clarified that with increasing development the wages have the tendency to fall to the subsistence level or to remain there and the profit rate decreases steadily. The teachings of Ricardo and Malthus are therefore with reason declared as pessimistic late classicism.


Just in this question Karl Marx did not follow Ricardo. He rejected that the tendency of wages to correspond to the subsistence minimum is derived from the law of diminishing marginal return of the soil. This is also correct in a certain sense, since Marx developed his theories at a time when industrial production was increasingly displacing agriculture. Thus, one can hardly trace back the laws of wage formation to a law that refers to agriculture (to soil production). To justify the Ricardian theses we have pointed out, however, that even in industrial production it was possible to prove a law of decreasing marginal return of arbitrary production factors.


Concerning the attempt to apply the labour theory of value to the labour power itself, it must of course be pointed out that, at least in a free society, which does not know slavery any more, the procreation of human beings follows other laws than the production of goods. So, there is not much sense in saying that the wage rate is formed in the same way as the price of a good. While the producer of a good will only produce this if the return is at least equal to the value of the costs incurred, quite different considerations and actions might be at the forefront in the procreation of human beings.



6th The creation of added value


Now let us follow the further thought steps of the Marxist theory. The employed workers will now receive a wage at the level of the subsistence minimum. As shown in the previous section, the value of the labour power corresponds just to the subsistence level, that is, the goods needed to regenerate the labour.


Now since the workers can produce more goods during their entire working time than it is needed to regenerate the labour power, the entrepreneurs make a profit, which Karl Marx calls added value. The word added value expresses that the value of the goods produced by the employees is greater than the value of the labour.


Let us illustrate this connection with an example. The workers would be employed for 8 hours a day. However, only 5 hours are needed to produce the goods necessary for the reproduction of the labour power. Consequently, the value of 3 working hours is allocated to the entrepreneurs as added value.


For Karl Marx, the fact that an added value is created is certainly not the result of an exploitation, as this term is used by communist agitators on the street. This group of communists understands exploitation to mean that the capitalists predatorily extort the workers and cheat them out of their fair wages due to their supremacy. Karl Marx has always rejected such an interpretation of the term exploitation. According to his interpretation, the entrepreneur pays his workers with the full value of the labour power.


According to Karl Marx, it is neither the entrepreneur who exploits. He only follows the laws of the capitalist society. Exploitative, in Karl Marx's opinion, is the system of the capitalist society itself. It is thanks to the system that the value of the labour power and the value of the products produced with labour power diverge, meaning that the workers, although they are the only ones who produce a value, do not receive the entire value of the goods produced by workers.


Here is where the criticism must start. Of course, values do not only arise from the activities of employees; those who provide entrepreneurial services or advance capital do contribute to the creation of value, too. Just as it is wrong that goods can be produced without the help of workers, it is just as wrong that goods can be produced with the help of workers alone.


For the workers to be paid out before the products are sold, a lender is needed who advances a loan and thus, as a rule, takes the risk that parts of his assets cannot be repaid any more. Either the goods are not bought by consumers at all, or a competitor is able to produce these goods more cheaply, or high costs are incurred during production due to accidents, which are not covered by the sales revenues.


Any successful production requires that the entrepreneurs identify the most favourable conditions of supply for the raw materials and semi-finished products used in production, that they coordinate the individual production steps in such a way that the unit costs are not too high and that also sales markets are explored on which the products can be sold at prices at least equal to the incurred unit costs. Of course, these contributions are efforts that are essential for a successful production and therefore contribute to value creation just as much as the commitment of the employees.




7th Compulsion for accumulation


Now what do the capitalists do with the added value they receive? According to Karl Marx, the capitalists cannot consume this added value, the relentless competition struggle forces them to immediately invest this added value again in their own enterprises, or - as Karl Marx calls it - to accumulate it.


Here it is not only important that the added value is accumulated, but that the competition also forces the enterprises to spend more and more parts of this added value on machines and thus to provide a smaller and smaller share for the wage fund, which serves to pay the workers. Karl Marx says that in this way the organic composition of capital deteriorates. And the reduction of the wage fund then also means that fewer workers can be employed, thus unemployment increases, and a reserve army of labour is created. We will come back to the importance of this reserve army later.


Karl Marx speaks of a deterioration in the composition of the capital appropriation because, according to his theory, only the labour power would create value. As a result, only that part of the invested capital (added value) can be expected to cause an increase in value, which is used to pay workers. But as the share of the wage fund in the total invested capital decreases, also the value of the total production decreases.


This reasoning does not seem valid to me. The part of the added value that is used for the purchase of machines is also used - even if only indirectly - to pay employees, namely those workers who produced the machines.


In a thought experiment, one could imagine an enterprise in which a machine is produced in the first two periods and in which the same workers produce the end products in the third period by use of the machine produced in the previous periods. Instead of one part of the added value being used for the purchase of machines, in this example the entire added value (the entire capital) would be used for the payment of the employees, because we have to assume that the production will only yield sales revenues for the entrepreneur after the end of the third period, but the employees have to be paid from the first period on.


Now Joseph Alois Schumpeter has drawn attention to the fact that individual parts of Marx's reasoning are quite contradictory and also wrong, but that the results are nevertheless correct, since other determinants, which were not considered by Marx, come to the desired result.


In this sense, it can be pointed out that also David Ricardo has already addressed the question of whether the introduction of machines would not also lead to unemployment. In the first two editions of his major work: 'On the Principles of Political Economy and taxation', Ricardo was optimistic that mechanisation would not lead to a significant increase in unemployment. It was true that one had to expect that in the factories where machines were introduced, workers would be made redundant (redundancy effect). At the same time, however, new workers would be recruited in the sectors of the economy in which these machines were produced (compensation effect). Thus, on balance, no significant reduction in employment needed to be feared.


In his third edition, Ricardo corrected this position by admitting, in the famous chapter on machinery annexed to this edition, that in certain cases unemployment can increase also on balance, and he tries to show this with an example.


In today's economic theory it is assumed that it depends on the kind of technical progress whether unemployment occurs or not. Modern growth theory distinguishes between neutral, capital-saving and labour-saving progress. Only if a labour-saving progress is present, it is possible that the redundancy effect will be greater than the compensation effect. Roy F. Harrod and other growth theorists assumed that technical progress is neutral in total, that there were no compelling reasons why technical progress in total would unilaterally save labour or capital. Nicholas Kaldor even tried to prove that market processes worked towards a neutral progress.


Indeed, if a labour-saving progress would take place and therefore workers were made redundant, then the excess supply on the labour markets would lead to a reduction in wages and thus also to a lowering of the wage-interest ratio, which in turn would induce entrepreneurs to invest more in capital-saving progress.


Furthermore, Erich Streißler has shown that technical progress was indeed capital-saving and not labour-saving in the long run, labour-saving was only the relatively small part of investments in machines; in the long run, however, the capital-saving effects had an impact on inventory investments, which in turn were themselves made possible by technical progress in transportation. Thus, actually we have had mainly technical progress that has saved capital and just not labour.


Thirdly and finally, is the question, as to which technical progress will ultimately prevail on average, by no means unchangeably predetermined, but itself depends on how the wage-interest ratio develops. If the wage rate rises more than the interest rate, capital-intensive production processes will become more advantageous for enterprises and they will indeed cut jobs by means of mechanisation. If macroeconomic unemployment rises in this way, then this is only an indication that a technical progress has been triggered, which is not desirable at all from a social point of view. It could have been avoided if the wage-interest ratio had developed in line with the scarcity conditions.


From a social point of view, labour-saving technical progress is only desirable if there is a shortage of labour force, if due to this shortage technically possible increases in production and thus increases in welfare would have to remain undone. In this case, it means a welfare gain if production can be increased by means of mechanisation without creating unemployment. It is crucial that precisely Keynesian theory - contrary to its political intentions - has contributed to the fact that the recommendations which originate from the same do not always increase employment, but sometimes even destroy jobs.


According to the ideas of some Keynesians, in times of economic downturn wages on the one hand should just be raised more strongly than labour productivity increases (demand for expansive wage policy). On the other hand, interest rates should decline in order to increase the investment volume. Both measures together, however, lead to an increase in the wage-interest ratio, with the consequence that more capital-intensive production processes are chosen. Although the investment volume is rising, it is mainly not expansion investments but rationalisation investments that are carried out, which tend to destroy jobs (in the case of job-saving technical progress) rather than to create new ones.


In conclusion, I consider the Marxist idea, that only labour generates value and that therefore, with labour-saving technical progress, the total value of production decreases, to be unconvincing. As a result of mechanisation, the per capita income of the population increases, the total population can afford an ever higher standard of consumption, yet Karl Marx speaks of a decline in the total value of production, instead of recognising that households derive an increase in utility not primarily from the fact that the amount of labour required to produce consumer goods has increased, but from the fact that they can consume more and qualitatively better goods.



8th Tendency to concentration


We like to continue in the Marxist chain of evidence. The mutual, merciless competitive struggle between entrepreneurs does not only lead to the fact that the entrepreneurs are forced to reinvest all their profits into the enterprise and that the organic composition of the capital deteriorates which accrues unemployment. The competitive struggle also entails that smaller enterprises are going bankrupt or are absorbed by larger enterprises. As a result of this concentration process, the number of enterprises is becoming smaller and smaller and the size of the remaining enterprises is increasing.


It can hardly be doubted that an unprecedented process of concentration has taken place and is taking place throughout the world in the last hundred years. Schumpeter speaks in his 'Capitalism, Socialism and Democracy' of a great and correct vision.


However, we must also get clear about the role that this concentration process plays in Marx's argumentation and the extent to which this building block effectively contributes to the confirmation of his theses. Karl Marx's sole concern is to prove that the course of capitalist society necessarily leads to its collapse and to the transition to a socialist society.


But it remains questionable whether the concentration process effectively advances or perhaps even delays the collapse of capitalist enterprises. At least it is said that it is precisely due to concentration that the enterprises have gained in stability. And this also makes sense in cases where the concentration process has led to so-called conglomerates. The distinguishing feature of conglomerates is that they offer quite different product ranges. One intentionally does not concentrate on a few products and hopes in this way to reduce the risk of failure through diversification. If the production of a certain good was a total failure, then the conglomerate can still hope that the other products will keep it afloat. It is also known that different products boom or decline also at very different times. By including products with peaks and drops at very different times in the range of a conglomerate, one contributes to ensuring that at least with one product at each phase it is possible to score.


But these advantages certainly do not apply to all groups. We must also consider that, for several reasons, it is precisely the economies with mayor corporations that have been brought to the brink of ruin.


First of all, there is probably also something like an optimal enterprise size for the executive board as well as for the supervisory board. If this is exceeded, the overview is lost, there are more and more wrong decisions, and the corporation becomes immovable, since a large part of the decisions must initially be coordinated between the individual departments in a time-consuming manner.


Secondly, the risk of a wrong decision increases with the size of an enterprise. Let us take the example of two economic sectors, where sector A consists of merely one mega-corporation, while sector B still consists of 100 concurrent smaller enterprises. It must always be expected that at the top of the mayor corporation, a fundamentally wrong decision will also be made once in a while. This affects the whole sector. Of course, one must expect that also in area B fundamentally wrong decisions will be taken in some enterprises. But it is highly unlikely that wrong decisions of this kind will be made in almost all enterprises. In other words: if a mega-corporation is given incompetent management, the entire sector is affected, whereas in the case of a large number of enterprises weak managers are certainly not present in all smaller enterprises.


If mega-corporations are threatened with bankruptcy, the effects on the entire economy are usually of such a magnitude that a crisis can only be averted by the state by means of saving the enterprise with subsidies. It is precisely the fact that a mega-corporation brings these dangers with it and will therefore be supported by the state in any case, this in turn means that the top management is no longer under pressure to implement every possible cost reduction. The enterprises become unprofitable here and yet remain intact.



9th The impoverishment thesis


We had seen above that the deterioration in the organic composition of capital leads to the dismissal of workers. This reserve army of labour which has been created in this way is now leading in two ways to the impoverishment of the employees. On the one hand, the unemployed worker is without work and therefore without aim, and on the other hand, just because he is desperately in need of a new job, he is also willing to work for a wage that is even lower than the wage that has been valid until now.


Now, growing unemployment does not seem to be necessary at all for the validity of the impoverishment thesis. Since according to the labour theory of value - applied to the labour power - the worker receives in any case only a wage which corresponds to the subsistence minimum, and this would also apply if all workers were employed. However, it seems to me that this conclusion would only be valid if one could prove that in the procreation of children (of labour force) as well as in the regeneration of labour power a profit calculation would be as decisive as it is in the production of goods. But exactly this cannot be assumed.


The thesis that the value of labour corresponds to the subsistence level would perhaps be correct if the entrepreneurs were to base the payment of the workers on moral principles and proceeded on the idea that the worker would be fairly paid if he was granted a wage income in the amount of the subsistence level. However, the entrepreneur's actions are based on a profit calculation in reality, and according to this calculation, it is appropriate for the entrepreneur to align the wage rate with the scarcity of labour force.


But this prophesied impoverishment of the entire labour force did not occur in real life. It is true that the transition to industrialisation in the late 18th and early 19th century led to a severe impoverishment of industrial workers.


However, this impoverishment did not continue at all, as the economic and social situation of the workers improved decisively during the further development of the industrialised society. In the subsequent course of industrialisation, however, there was an enormous increase in the production on one side, but at the same time the growth rate of the population declined again with the consequence that the per capita income of the population increased. This, however, also created the conditions for an increase in the average income of the employees finally.


This development should have resulted actually in the abandonment of the Marxist theory of impoverishment. But since this theory was an important building block of the Marxist theory of the necessary collapse of the capitalist society, and since with this thesis also the theory of the automatic transition to socialist society had to collapse, the Marxism held on to the theory of impoverishment. But since one could finally not deny the facts, Marxist theorists tried to reinterpret the thesis of impoverishment.


Thus, it came about initially that Marxism no longer assumed that the workers were impoverished in the absolute sense - i.e. their real per capita income was declining more and more in absolute terms - but rather that only a 'relative' impoverishment would be expected, meaning that the growth of production would be directed primarily to the capitalists (the self-employed) with the necessary consequence that the share of the employees in the domestic product (the so-called wage ratio) would be declining permanently.


But even this reinterpretation of the theory of impoverishment is not satisfactory for two reasons. Firstly, a theory of the relative impoverishment of employees can hardly explain the necessary collapse of the capitalist society. The willingness of the workers to overthrow the capitalist system in a revolution could only be justified by the fact that masses of employees are impoverished in an absolute sense. A decline in the wage share cannot sufficiently explain such revolutionary behaviour, especially when - as shown - the absolute average income of the employees has risen strongly.


Secondly, however, this thesis also does not correspond to reality. It is indeed true that there has been a temporary decline in the wage share in the past - as has been the case, for example, especially in recent years - and that the wage share takes primarily an anti-cyclical course, i.e. the wage share declines in times of economic upswing. But the wage ratio rises again in times of economic downturn. This countercyclical behaviour of the wage share is explained, among other things, by the fact that the trade unions show much greater success in the aim of preventing wages from declining during the downturn than in the aim of increasing the wage share during the upswing.


In the longer term, however, no decline in the wage ratio has been observed so far. On the contrary, it has been repeatedly argued that the wage ratio has a remarkable tendency to remain remarkably constant over a longer period of time. There are several theories in the literature that try to explain this constancy of the wage ratio.


However, if we look at an even longer period of time and ask ourselves how the wage share has behaved over a century or more, it is clear that the wage share has risen significantly in comparison to the beginnings of industrial society at the beginning of the 19th century. This does not mean that there is no serious poverty at all in our society; there have always been certain sub-groups in the past that have fallen into poverty. But the thesis that the entire labour force was not involved in economic growth and that the average level of the income of the labour force increased less than the per capita income of the entire population and that therefore the wage ratio declined in the very long term is not consistent with the facts.


This last statement, too, had to be accepted finally by Marxism. A second attempt was now made to reinterpret the thesis of the impoverishment of the labour force. It was no longer claimed that the labour force was impoverished in absolute or even relative terms, but only that it would actually have been impoverished if the highly developed states had not had the opportunity, in the course of the colonialism of the 19th and 20th centuries, to transfer the actually due exploitation of the employees in the highly developed states to the working population in the colonial countries.


According to this thesis, the exploitation of the former colonies was carried out by exporting raw materials at reduced prices on the one hand and on the other hand by importing industrial goods at excessive prices, which contained added value that flowed to the capitalists. In this way, employees from the countries of the colonial powers could share in the added value at the expense of the population in the colonies. Exploitation was therefore still taking place, but not of the local workers, but of the workers from the colonies.


This exploitation would have continued even after the former colonies had become independent states in the period after the Second World War. As especially Raul Prebish (not necessarily a socialist!) tried to prove, the terms of trade had developed to the disadvantage of the developing countries. In Prebish's opinion, free trade had led to a systematic discrimination of the developing countries. The starting point was the empirical finding that the terms of trade had deteriorated to the detriment of developing countries in the period from 1876 to 1938.


As especially Gottfried von Haberler and Jakob Viner have shown, do those statistics draw a false picture of the distribution of wealth between highly developed economies and developing countries, since in those statistics import prices were calculated in CIF (cost, insurance, freight). However, the CIF calculation also includes transport costs, but these were mainly at the expense of the highly developed economies and fell sharply during this period of time.


Furthermore, the welfare of an economy depends not only on the development of the terms of trade but also on the foreign trade volume. It should also be considered that the low per capita income in developing countries had to be partly explained by the fact that the growth rate of the population in these countries was very high and exceeded the growth rate of production.


The important thing to note in our context is, however, that a collapse of the capitalist system in the highly developed countries presupposes that domestic employees are exploited, so that if this exploitation is shifted to the employees in the developing countries, a revolution is not to be expected, at least not a revolution within the industrialised countries.


The actual observable impoverishment of industrial workers at the beginning of industrialisation had nothing to do with industrialisation and the capitalist economic order as such; it occurred because in the course of industrialisation the social system of the medieval order broke down and an internal migration to the cities took place on the largest scale, and thus, among other things, the control of the birth rate that existed in the medieval society was lost. An immense population growth took place, whereby the growth rate of the population initially exceeded that of the production of goods and thus necessarily had to lead to a decline in the per capita income of the population and thus also of the industrial workers, although industrialisation as such did indeed contribute in the long term to an increase in the growth rate of the domestic product.


The fact that the impoverishment of industrial workers did not increase- in contrast to what Karl Marx said - with increasing development, but even decreased, was precisely because capitalist methods allowed the growth rate of production to be increased so much that it rose above the growth rate of the population and thus also allowed an increase in the per capita income of employees.



10th The collapse of the capitalist society


In a final step, the results of both the impoverishment thesis and the concentration thesis are combined. The increasing impoverishment of the workers leads now to the fact that the workers tend more and more to radical ideas, which aim at an overthrow of the existing society and the proclamation of a socialist society.


Now we have seen already that the impoverishment of the entire labour force has not occurred in the sense of Karl Marx, so that the social revolution does neither have to be expected. It is true that the new Left has succeeded in gaining entry into the parliaments, but there is certainly no danger that this Left will manage to achieve an absolute majority in the near future. Such an absolute majority is, however, necessary for a social revolution, as none of the other parties would agree to initiate a revolution in a coalition with the Left.


Karl Marx's second thesis, which was to bring about the collapse of capitalist society, was also disproved by historical experience. Although it is true that free entrepreneurs consider competition as inconvenient and that they try to overcome competition by means of monopolistic mergers. And in fact, the history of industrialisation around the world is marked by processes of concentration.


But history has also shown that this monopolisation tendency is repeatedly broken by the emergence of new competition, at least where it is not impeded by state measures. Where monopoly situations have been able to establish themselves over a longer period of time, it was primarily due to the fact that the states have prevented otherwise possible competition by foreclosing their economies (mainly by means of import duties and other impediments to foreign trade). Furthermore, Walter Eucken and others pointed out that a functioning competition can only be maintained by an active competition policy and that the state has the task of counteracting monopolisation tendencies in the national economy either by means of a legislation which prohibits cartels or at least by abuse control.


It is precisely the globalisation process which has taken place during the last decades that has repeatedly led to renewed worldwide competition. Although the size of the enterprises increased steadily, this did not generally lead to an increase in concentration, since particularly the major corporations had to face increasing international competition.


For Karl Marx's thesis of the collapse of the capitalist society it is essential, however, that this process of concentration continues until finally only a small number of enterprises remains, which can then be socialised relatively easily and transferred into state ownership.