(1848-1988)[57]
Religion is what keeps the poor from murdering the rich.[58]
Napoleon Bonaparte
The condition of the downtrodden in Western Europe temporarily improved following major upheavals. In the middle of the 14th century, the Black Death decimated half the labor force, making labor scarce relative to land and improving the terms of trade in labor’s favor; real wages became higher for about a century.[59] The circumstances of the French working class also became better following the French Revolution in 1789. The condition of the working class and its political rights also improved following the European revolutions of 1848. Alas, from the perspective of the vast majority of people, good times were few and transitory.
In 1819, Jean Charles Léonard de Sismondi published his Nouveaux principes d’économie politique (New Principles of Political Economy), criticizing economics for making wealth gathering an end in itself (to the detriment of the poor) instead of a means to happiness. The major religions have called for a kinder world in which the wealthy sustain the deprived, but many of the rich disregard those teachings because they presume it detracts from their wealth gathering.
Nineteenth Century Poverty and Plutocracy in Europe
In 19th-century Europe, the economic hardship and unrestrained exploitation of the working class during the Industrial Revolution left workers in graver misery than ever before. By 1829, the life expectancy of industrial workers in Liverpool, England, had shrunk to twenty-eight years.[60] The infamous British Corn Laws were the worst form of feudalism; in 1815, the British Parliament levied a tariff on cereal imports to raise their domestic prices and augment the income of the rentier class of landed aristocracy.[61] The British Parliament was the conduit for income redistribution from the underprivileged to ultra-privileged.[62] The tax on cereal imports continued for three decades, until exceptionally poor harvests in the British Isles precipitated the starvation and death of a million people.
Curiously, the British parliament that passed the Corn Laws prided itself on seven centuries of democratic traditions stretching back to the Magna Carta, although its seats were bought and sold for a price. Moreover, members of parliament had to have independent means because they received no salary at all until 1911 and then only a meager one until 1946.[63] The laws it passed mostly served the plutocracy and not the people, therefore, it was a democratic charade, irrespective of its paraphernalia.
The British Parliament repealed its parasitic tax on cereals in 1846 in response to industrialists’ demands, because starvation was making labor scarce and pricy and because cheaper food imports would lower wages and increase industrial profits. Hunger was also fanning unrest—a precursor to revolution.
Friedrich Engels, in his book The Condition of the Working Class in England in 1844, described the state of workers there as the most unconcealed pinnacle of social misery in that day. Those conditions did not resemble a democracy. However, the British aristocracy was not the only one presiding over miserable poverty in the midst of plenty.
The sorry state of workers across most of Europe was almost as bad. Vilfredo Pareto (1848-1923), the father of Pareto optimality, documented some disturbing findings. He uncovered that for centuries in several European countries, including Italy, 80 percent of all wealth belonged to just 20 percent of the population, with the destitute either on the brink of starvation or starving. He demolished the much-touted concept of an income pyramid because he found that real income distribution was more like a dart atop a vast flat surface.[64] Perpetual poverty had been the faithful companion of the masses for millennia, but 19th-century industrialization shed the last vestiges of humanity; it was the age of savage economic barbarism.
Poverty in 19th-century Europe brewed revolutions; the working classes were becoming aware that they were victims of ruthless plutocratic exploitation. Karl Marx (1818-1883), Fredrick Engels (1820-1895), and others contributed to this class-consciousness. They offered a radically different interpretation of history and a correspondingly radical alternative to classical economic theory.
Marx spent years observing and analyzing the workings of the capitalist system in Western Europe, in which the wealthy classes basked in extreme luxury while squeezing the working class to subsistence levels and occasionally starvation.[65] He saw widespread poverty, a reserve army of the unemployed and underemployed, and underconsumption. He attributed the ruthless income distribution to the nature of capitalism. Ironically, underconsumption was detrimental to economic growth and capitalist profits, but classical economists did not grasp that.
Marx presented materialism as the foundation of his theories, while preaching social moralism and anti-egotism. Oddly, he saw religion as contributing to the exploitation of the masses, hence his statement that religion is the opium of the masses. His conclusion was wrong, although wicked rulers did use religious institutions to deliver social sedatives. The original calls of religions tended to be revolutionary, supporting the masses against the status quo and often calling for a kinder, non-exploitive social order. Why religious institutions deviated subsequently and how the plutocracy hijacked them and subverted their purpose is another matter.
Plutocracies preserved the status quo through laws and brute force. When faced with overpowering rebellions as in 1848, they offered the working class concessions to cool their revolutionary fervor, only to rescind it later once the crises abated. Observing this, Marx and Engels concluded that securing enduring fair wages and reasonable working conditions for the working class was impossible in a market economy because agreements with the double-crossing capitalists were worthless. Hence, in 1848, Marx and Engels published The Communist Manifesto, calling for class struggle and revolution to bring down the capitalist system as the only means of ending mass misery. That book became the capitalists’ nightmare.
Marx also observed the periodic crises of capitalism and concluded that capitalism was not just unfair, exploitative, and irredeemable, but also inherently unstable and unsustainable. Inspired by Marx, Vladimir Lenin (1870-1924), the balding communist leader of the Russian Revolution in 1917, famously compared production and income distribution under capitalism to his hair: “… abundant production and bad distribution.”
An Unforeseen Revolutionary Springboard
Karl Marx had predicted that the socialist revolutions would begin in the most industrialized European countries, where labor was class-conscious and highly organized. The only truly socialist prototypes that had existed previously were certain faraway indigenous communities, before European settlers disturbed their lifestyles. North America, in particular, was a fortunate continent: vast, fertile, with favorable weather, plentiful game, wild fruits and crops, and sparsely populated. The natives were mostly hunter-gatherers and corn farmers. In the absence of scarcity, everyone was a de facto collective owner of nature. Fencing land to register a title deed made little sense because of the sheer abundance of land relative to the population. Reinforcing this was the natives’ natural inclination toward nonmaterial contentment. They were in harmony with nature and satisfied with a few essential personal possessions, like simple clothes, a tent, hunting and fishing tools, and a horse or two. With meager personal possessions and de facto communal ownership of nature, they were almost living the communist dream of peaceful contentment, if only they had not occasionally engaged in tribal raids, which sometimes escalated into wars.
It is perhaps more than a coincidence that the first proletarian revolution took place in Russia—the most agrarian country in Europe—instead of England or Germany, the most industrialized, as Marx had predicted. Russia’s expansive spaces, abundant natural resources, and sparse population made it Europe’s closest approximation of the environment that had sustained a Native American socialist existence. Conceivably, Russia’s abundant resources per capita made an economically inefficient communist model more sustainable. However, Vladimir Lenin attributed the first revolution to Russia because the Western imperialists were diffusing the class hatred within their societies by bribing their proletariat with a small share of their imperialist loot.
Like the French Revolution before it, the Russian Bolshevik (communist) Revolution in 1917 frightened Western plutocrats enough to dispatch their armies to Russia to nip its ideas in the bud. As with the French Revolution, the invading armies were eventually defeated. The plutocratic assault solidified the communist home front and made the imperialists the scapegoat for all failings.
The Bolshevik Revolution raised numerous questions. Could communism work? Why did it not materialize before? How would it operate?
Karl Marx’s major contribution was as a political philosopher, not as an economist. He was better at spotting the flaws of capitalism than at articulating an economically viable alternative to it. Marx’s idyllic dream of from each according to his ability and to each according to his need was only partially fulfilled. The economic implementation of various versions of his utopian dream by communist countries became their Achilles heel.
Marx saw no possibility of the capitalist class making an enduring compromise with labor to arrive at a fairer society; his solution was to abolish classes and make the state the sole owner of the means of production, which would also deprive the capitalists of the resources for staging a counter-revolution. Nevertheless, he underestimated the need for maintaining self-interest in an economy, with fatal long-term economic consequences. He made several assumptions about the capitalist model, such as a progressively declining rate of return on capital, which proved invalid. More important is why his economic model failed in practice.
The Soviet (Russian) communist party tried indoctrinating the masses with communist ideology to expunge self-interest and replace it with idealism. Instead of market prices, they adopted centrally determined shadow prices based on perceived social needs as determined by a central planning committee, causing widespread economic havoc.
Absent monopolies, monopsonies, and other externalities, market price is an unrivaled decentralized economic planning tool that fosters optimal resource allocation and economic efficiency. It is spontaneous and automatic, simultaneously and seamlessly pricing all final goods (services) in an economy, as well as all their inputs. Thus, it conducts a dynamic and ever-evolving balancing act between supply and demand for all goods. An increase in the price of a good, relative to the prices of other goods, signals a shortage caused by an increase in demand or a reduction in supply, or both.[66] If the price rise persists, it triggers a chain of market reactions and adjustments. A relative price rise of a good, without a corresponding increase in its cost, increases the profitability of supplying it. This induces the employment of more resources in its production, transportation, and distribution. At the same time, if such an increase in demand is sufficiently significant, it could potentially raise the prices of some, or all, of the relevant inputs. That would affect the input prices of a host of other goods and services, potentially reducing their profitability and supply with further supply/demand reverberations and adjustments.
The relative price decline of a good without a corresponding decline in its input costs sends the opposite signal. The price fall reduces the profitability of a good, curtailing its production, transportation, and distribution. If the fall in demand is significant enough, it could potentially lower the prices of some or all of its inputs. That would affect the input costs and prices of a host of other goods and services, potentially increasing their profitability and their supply with further supply/demand reverberations and adjustments.
These multiple synchronized adjustments occur automatically with minimal delay, without the formal coordination between thousands of market participants, and without bureaucratic red tape. The magic of the price mechanism even drives the pace of the introduction of a new technology, based on the price premium of new tech to old, sometimes referred to in marketing circles as skimming-the-cream pricing. What could be simpler? [67] No central planning committee, however talented and well-informed, could match that. Genius is simple, indeed.
The main communist states, the Soviet Union and the People’s Republic of China, succeeded in rapidly developing heavy industries and undertaking gigantic infrastructure projects. However, in the absence of a market price mechanism, it was difficult to spot shortages and surpluses on a timely basis across these vast countries, especially in consumer goods and agricultural products. Bureaucracy, resource misallocations, and chronic consumer shortages became the norm, with detrimental effects on the long-term growth of most sectors.
Market prices and the profit motive (self-interest) were the critically missing components in the communist economic model, leading to its eventual collapse. Starting in the 1980s, the progressive transition of the Chinese economy to a market economy resulted in three decades of double-digit economic growth. About 1990, the Russian economy, the former bastion of communism, began a slower transition to a market economy. Under communism, despite abundant agricultural lands and water Russia was the world’s largest wheat importer for decades; today, it is the world’s leading wheat exporter. Its hydrocarbon production, after years of decline, has increased dramatically too. Other countries, like India and Brazil, that had mixed economies but constrained their private sectors, also realized significant economic improvements following economic liberalization.
The error of Marxist economics flowed from its exclusive reliance on societal-interest and the marginalization of self-interest. The case for self-interest, as a necessary condition for the efficient operation of an economy, is manifest; however, it is not a sufficient condition. It is worth noting here that the neoclassical macroeconomists, walking in the footsteps of classical economists, make the opposite mistake of putting their full faith in self-interest and markets and downplaying the role of societal-interest.
The Demise of Parasitic Capitalism
Marx predicted the collapse of capitalism. His detractors see in capitalism’s survival to this day proof of the error of his judgment. That conclusion seems correct on the surface but, in fact, it is too simplistic because what Marx meant and what they are referring to are two different things. Marx predicted that the increasing concentration of wealth, the worsening poverty and the increasing severity of the seven-year capitalist crisis-cycle made capitalism unsustainable and revolutions inevitable. Indeed, communism succeeded in bringing down many capitalist countries around the world, but then it stopped.
Marx assumed that the extremely harsh conditions of 19th-century patristic capitalism would persist; he did not foresee that plutocracies, to survive, would accept a gentler, more moral, capitalism. This is always a complicating factor in making economic predictions: observations, analysis, and feedback influence the future behavior of economic actors, potentially undermining the validity of a forecast. Hence, the very spread of communism seeded the survival of capitalism, albeit a transformed one. More precisely, Marx predicted the demise of extreme parasitic capitalism, which he had observed, and (thankfully) it became almost extinct, although, in recent decades it has been making a comeback.
Communism’s fatal weakness was economics, but it was also politically repressive, abrogating individual freedoms to the point of banning religious practices. Its demise has granted all those who once dreaded it, including this author, an opportunity to reconsider it from a neutral perspective. Today, we can afford to admit things we never dared confess before. We have this luxury because we no longer worry that it might tip the political scales in favor of communism or that the terrified right might unleash a McCarthy-style inquisition against us. We no longer need to whisper yesterday’s taboos. Communism has left enduring marks on numerous countries, but especially on its archenemy: the capitalist West. Of particular interest are two landmark communist legacies.
Following World War II, communism absorbed the whole of Eastern Europe, at a time when the economic suffering in some West European countries was shocking. The “Red Peril” was at the West’s doorstep; its highly effective party cadre, already inside the gate, was gaining converts at an alarming rate. In France, Germany, Italy, and Greece, communist parties were winning mass support. These disturbing developments and the memory of the comprehensive losses of the Russian plutocracy following the communist revolution there in 1917 petrified Western plutocracies into adopting countermeasures. Instead of exacting war reparations, as the victors had done at the end of World War I, America rushed economic aid to Germany and Italy under the Marshall Plan, hoping to stem the communist tide. The speed of communist triumphs in Southeast Asia only exacerbated Western fears, prompting America to extend aid to Japan, South Korea, and others.
The scent of upper-class extinction compelled Western plutocracies to take the only insurance policy available to them: improving the conditions of their workers.[68] Overnight, they raised workers’ standard of living and adopted welfare programs and economic democratization. Welfare states became a reality and economic morality fashionable, at last.[69] After centuries of ruthless exploitation and neglect, Western plutocracies were treating their workers with dignity, humanity, humility, and morality. Fear of communism radically improved workers’ lives in capitalist countries and improved Western economic as well as political democracy—a profound communist economic legacy. Aside from putting an end to hostilities, the end of World War II marked the end of the age of economic barbarism, the greatest moment in history of mass liberation from the yoke of plutocracy and its parasitic capitalism. Actually, communism had set out to end that era and it did, albeit in a manner it had not visualized nor intended.
In the aftermath of World War II came the other enduring communist legacy: ending the yoke of conventional Western imperialism and its associated economics. Aside from its injustice, racism, and all its other foulness, at its core imperialism was the apex of parasitic capitalism. The lure of imperialism to Western plutocracies was its easy loot and parasitic profits, which we could refer to as the economics of imperialism. By simultaneously supporting multiple wars of liberation, communism dramatically raised the cost of imperialism to the point that it far exceeded its financial reward, rendering the economics of imperialism uneconomical to Western plutocracies.[70] Moreover, if all the potential wars of liberation were to run their full course, there was a real risk that Western plutocracies would end up isolated, confined to Western Europe and North America.
The British Labor governments of 1945-1951 led the decolonization process, but subsequent conservative British governments interrupted it. However, escalating costs, the difficulty of maintaining the colonies, and growing communist support for liberation movements all over the world prompted Conservative Prime Minister Harrold Macmillan to resume decolonization in 1960, despite strong objections from extremist right-wing conservative circles who desperately wanted to hold onto the British Empire.[71] That year, whilst on a visit to Africa, Macmillan delivered a landmark speech in which he declared, “The wind of change is blowing through this continent. Whether we like it or not, this growth of national consciousness is a political fact.” The United States supported decolonization as a means of opening new markets for its companies and stemming the spread of communism in Third World countries.[72]
As the largest colonizing power and the epicenter of imperialism, the British position was important in signaling the winds of change for the rest of the imperialist powers. The sustained attrition of liberation wars during the 1960s and 1970s compelled the imperialist West to abandon many of its colonies and protectorates. Moreover, to avoid an impending route and to preempt more wars of liberation and communist victories, Western imperialists declared that their colonies no longer needed imperialist administration because the natives have matured and could assume responsibility for running their own affairs. The dissolution of the British Empire in particular and the rest of the Western empires in general, represented the most rapid in history up to that point, ending centuries of imperialist barbarism. Doubtless, from the victims’ perspective, ending imperialism was communism’s finest hour.
A Hegelian Interpretation of History
Marx used the Hegelian dialectic to interpret history’s twists, forecasting the demise of capitalism and the rise of Marxism to replace it.[73] It deserves revisiting. Using that framework, 19th-century parasitic capitalism’s impoverishment of the masses was a thesis. Hence, the Russian Bolshevik Revolution in 1917 and the other communist revolutions it inspired were an antithesis. Following the end of World War II, almost half of Europe was in communist hands, as was China. As stated in the previous section, the response of the West to the communist threat was to improve its standards of economic and political democracy, marking a Hegelian synthesis that completed a full Hegelian cycle.
The faltering Soviet economy in the 1970s marked the start of a new cycle, this time with communism as the thesis. About 1980, the West began leaning to the right. It discarded Keynesianism and replaced it with neoclassical macroeconomics, lowered the tax burden of the rich and increased it on the underprivileged, increased military spending and decreased social services, and deregulated markets.[74] The fall of the Soviet Union in 1988 eased residual plutocratic restraints due to fears of communism threatening Western capitalism, accelerating the West’s swing to the right. Even left-of-center parties, such as Labor in Britain and Democrat in the US, became right-wing, compared to their traditional positions. The previously communist states in Eastern Europe replaced their single-party systems with multi-parties while, paradoxically, the Anglo-American democracies further curtailed the limited political choice of their citizenry from two parties to a single party in everything but name. This rightward transformation constituted a Hegelian antithesis.
Finally, the 2008 Great Recession and its aftermath hint at a brewing Hegelian synthesis. In less than a century, the political wheel has completed one full circle and two thirds of the second. Given the nature of these political cycles, perhaps the rapid decline in economic and political moral standards in the West offers a clue about tomorrow: a moral revival could be the synthesis of the ongoing Hegelian cycle.
***
Marxism was a romantic dream that flourished under parasitic capitalism and perished under moral capitalism. Plutocracies’ ongoing dismantling of the welfare state and tolerance of a spreading poverty are grave political errors because the masses that had propelled Marxism to power could undoubtedly adopt another doctrine to shake the system again, if from a different direction.