The mechanism of a market economy had important bearings on the political struggle of the working class in the nineteenth century. Its deep influence on the forms and the chances of that struggle has been often overlooked. In our days that mechanism is undergoing a vital change. Accordingly, it will appear that the socialist movement has reached a new and significant stage.
A market economy, as approximated by liberal capitalism, is in principle self-regulating. Essentially, it is a market system comprising markets for labor, land, and money. Three points must be firmly established in relation to its mechanism. First, that its working involves grave dangers to the fabric of human society, especially to man and his natural environment, thus inevitably calling forth protective reactions. Secondly, that, insofar as these reactions involve haphazard intervention into the working of the market mechanism, they may be harmful from a strictly economic viewpoint. Thirdly, that any suggestion of planned intervention, which would be economically advantageous, is met by a panic of the financial markets. As long as such a threat is present, all socialist solutions must appear as most risky measures and naturally call forth desperate political resistance.
The dangers emanating from a market economy are the direct result of the conditions necessary for the establishment of such an economy. These conditions include the abolishment of all traditional safeguards of social security. In precapitalist systems of society, custom and the law provide such guarantees both in the sphere of industry and in that of agriculture, by making a man secure in his job and in the tenure of land, respectively.
Under liberal capitalism, the traditional organization of labor and land is replaced by the device of free competitive markets. Familiarity with this peculiar arrangement should not blind us to the obvious mishandling of the elements of social existence – man and his natural environment – involved in such a departure. A competitive labor market or a similar estate market, if allowed to function unchecked, is bound to destroy the human beings and their surroundings, which are being dealt with here, by virtue of a peculiar fiction, as if they were commodities, in other words objects produced for sale.
The threat of utter destruction that springs from the mechanism of a labour market if permitted to work itself out is too obvious to need elaboration. To organize human labor as a commodity means to deal with it as if it were something produced for sale. In reality, labor is a human activity that bears no resemblance to a commodity proper. It is part of man's functions as a physiological, psychological and moral being; its “supply” is not a matter of “production” for sale, just as – incidentally – the human beings themselves whose labor is in question are not “produced for sale,” but for an entirely different set of motives. In order to be able to speak of the “sale of labor,” a number of fictions must be employed. First, matters must be assumed to be organized in such a manner as to make all useful human activity take place by arrangement of pairs of individuals, the one directing and paying, the other working; this situation must be then interpreted as the passing of the commodity “labor” from the worker to the buyer; and so on.
The point at issue here is, of course, not the fictitious nature of these assumptions. Neither the legal fiction that defines labor as the subject of a specific contract nor the economic fiction that defines the scarce and useful thing sold as the commodity “labor” affects the actual world. What matters to us here is the human situation postulated in the organization described as labor market. It makes the child of five act as a trader, using his free will to arrange, for a contract the object of which is his “labor,” as much of it as he deems profitable to sell – say, 12 or 14 or 16 hours. It is inessential to him, as a trader, when and where and under what conditions the commodity is to be delivered. In actual fact, the trader has become a mere accessory to his own goods, the fate of which he must follow through, even though he may perish in the process. To a lesser extent, this applies to any man or woman. No wonder that within a generation or so the populations of the cities afflicted with this system were losing all resemblance to any human form.
The same is true of land. Once it is parceled out to individuals to dispose of at their discretion, for profit – including the right of indiscriminate use, nonuse, and abuse as well as that of unrestricted renting, letting, and sale – the land is doomed, with all that this implies: the ruin of the owner, the occupier, and the laborer and the destruction of the amenities and resources of the surroundings, including the “indestructible” forces of the soil itself, together with the climate, health, and security of the country. Land is produced for sale as little as man: it is a part of nature. The legal and economic fictions with the help of which the fate of land can be brought under the sway of an estate market are, on the whole, analogous to those we met in the case of labor. Actually land is the man's habitation, the site of all his activities, the source of his life, the place of safety, the seasons, and the grave. Not even the soil itself can withstand commercial treatment. Eroded, denuded, pulverized, all regions may revert to the primeval forest, swamp, or desert. Wastage of assets undermines the future of the people. Alienation of resources threatens national safety. Forms of tenure that do not allow stable settlements and sound family conditions or wholesome shapes of living sap the strength of the race, which dwindles away. The degradation of a free peasantry to the status of scrap holders or a shiftless proletariat may mean the end of the stock. And man lives his life so close to nature that, unless the economic fate of the produce of the soil is organized in such a manner as to create a normal life for those who work on the land, agriculture will be destroyed.
Here lie the roots of interventionism. Outside interference with the working of the market is a reaction of society as a whole, essential to the protection of the social fabric against the nefarious effects of the action of the market. Some of these interventions come from governmental or legislative bodies; others originate with voluntary associations like trade unions or cooperatives; still others spring from organs of moral life or public opinion such as churches, scientific organizations, or the press. With respect to labor, interventions were responsible for factory laws, social insurance, educational and cultural minima, municipal trading and the various forms of trade union activities, and so on. With regard to land, protectionist intervention took the form of land laws, agrarian laws, tenancy and homestead laws, including some forms of agrarian protectionism. Clearly the social usefulness of the rules, regulations, restrictions, and nonmarket activities involved in these interventions lay in the protecting of labor and land, man and nature, from irreparable harm.
The advantages of protective interventions are primarily social; the disadvantages are mostly economic. The former accrue to the fabric of society itself, preventing the destruction of human beings and their natural environment; the latter may detract from the social dividend. For, as a rule, isolated haphazard interventions in the mechanism of the market make the system work even less successfully than would have otherwise been the case. The opposite is, of course, true of comprehensive planned interventions, which combine social protection with economic advantages. However, the mere hint of such measures of a “socialist” character would cause a crisis of confidence and would bring the whole system down.
Such a situation unavoidably had a deep effect on the forms and chances of working-class politics. The market system served as a defense mechanism, protecting the ruling class against the growth of popular democracy and, even more effectively, against any use that democracy might make of its power to press for socialist solutions.
The ambiguous position in which popular democracy found itself under liberal capitalism was mainly the result of this situation. While the action of the market called forth widespread reactions and helped to create a strong popular demand for political influence of the masses, the use of the power so gained was greatly restricted by the nature of the market mechanism: isolated interventions, however urgent on social grounds, could often be shown to be economically harmful, while economically useful interventions of a planned type could not even be considered. In political terms, while piecemeal reform could be discredited as a damaging interference with the working of the market, outright socialist solutions, which would have been economically advantageous, had to be excluded altogether. Under conditions such as these, the striking power of the forces of popular democracy was necessarily limited.