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Does Capitalism Need to Be More Marxist to Survive?

To a man with a hammer, everything apparently looks like a nail.

Karl Marx. Around 1880.
Imagno
Karl Marx. Around 1880.

Karl Marx' hammer was economic input in all its forms (primarily capital — i.e. money, surplus capital — i.e. profit, and above all labor).

As a result of this obsession Marx' economic theories tended to start and finish with inputs of some form, invariably labor.

This tendency so irritated Eugen Bohm-Bawerk that once the bearded German socialist philosopher had been laid to rest in Highgate Cemetery, Bohm-Bawerk got this off his chest in a very tetchy pamphlet (Karl Marx and the Close of His System).

If it had been intended as a cathartic piece it failed miserably. Herr Bohm-Bawerk's rather emotive conclusion was that despite Bohm-Bawerk having demonstrated all the shortcomings of Marx' theories, Karl Marx would still secure permanent fame just like Hegel (who also annoyed Herr Bohm-Bawerk intensely):

"The theoretical work of each was a most ingeniously conceived structure, built up by a magical power of combination, of numerous storeys of thought, held together by a marvelous mental grasp, but — a house of cards."

At this point, perhaps Herr Bohm-Bawerk should have spent sometime in the company of Dr. Freud.

The pamphlet acknowledged that Marx and his economic theories owed a great deal to the earlier pioneering work of Adam Smith. Smith's fate has subsequently become inexorably intertwined with that of Marx: their seminal works are read nowhere near as widely as they should be. Marx has a political schema named after him by left wing extremists Smith has a right wing politicized think-tank. Neither of these reflect remotely accurately the beliefs of their eponymous heroes.

This is especially ironic as the system identified by Smith (capitalism) has generally come to be seen as diametrically (and dialectically) opposed to Marxism. The truth, as ever, is rather more complex.

Capitalism's adherents believe that an inherent form of socio-economic Darwinism will always enable the system to evolve to something stronger and better by making the most logical choices about deployment of capital, which drives all other decisions. Not so much an 'invisible hand' as a whole invisible Mexican Wave (if any reader has a better suggestion for a plural collection of hands, please send answers on a postcard.).

Despite the credit crunch, the GFC, Lehman's collapse and the 'Lie-bore' allegations, capitalism's advocates see it as such an inherently efficient system that, by its own processes, it makes itself stronger and more efficient everyday. An example of this blind faith can be found in Professor Victor Lippit's book Capitalism:

"Capitalism continually renews and reinvents itself. This helps us to understand the fact that despite its severe internal contradictions, contradictions that Marx anticipated would bring about the ultimate collapse of capitalism, the capitalist system has managed to remain vibrant over the centuries."

Both Smith and Marx warned that too great an imbalance between the suppliers of capital and the suppliers of labor could destroy the foundations of democratic capitalism (the difference being that smith wanted to avert this while Marx agitated to bring it about). OWS in its rare moments of coherence came close to linking these imbalances with the venality of politicians, bankers and by extension the so-called 1%.

Both income and wealth have, much to the chagrin of OWS, become ever more concentrated: American salaries have stagnated for 40 years, Corporate profits climbed to dizzying, barely sustainable heights.

Record amounts of income have been transferred from employees to business shareholders.

In developed markets small and medium sized enterprises (SMEs) are increasingly deprived of access to capital while Multi-national Corporations (MNCs) and public companies hold record levels of cash and have unprecedented access to debt and equity capital. The biggest transfer mechanism of all remains the euro - the single currency that in its relatively short lifespan has facilitated enormous transfer of wealth to the core nations, primarily Germany and the transfer of debt to the peripheral nations, the GIPSIs of Greece, Ireland, Portugal, Spain and Italy.

The most widely recognized measurement of income distribution (the Gini co-efficient) is at extreme levels in developed and developing markets.

A Socio-Economic Structure At Breaking Point

These are all symptoms of a socio-economic structure at breaking point — where social tensions could quickly spiral out of control so dramatically that the imbalance between the suppliers of capital and the suppliers of labor could destroy the whole system.

These symptoms are visible everyday from the protest movements of Jasmine Riots, impoverished GIPSIs (Greeks, Irish Portuguese, Spanish and Italians) and Arab Springs (now into its second year), to violently enforced regime changes to the widespread resentment of 'highly-paid privileged bankers' (or anyone whose scapegoating or culpability can be offered to the masses as a way of exonerating our political leaders despite their hands looking equally dirty from where I'm sitting).

That's not to say that these symptoms will inevitably erupt into full-blown contagion. Maybe OWS' inability to formulate a cogent message and strategy will simply see the resumption of widespread complacency among 'we the global people'. But the very existence of protest movements should be a warning. We wouldn't be the first generation to totally stuff things up and then have to look back ruefully on what we'd destroyed:

"We did not realize how fragile our civilization was" — Friedrich Von Hayek in the years following WW I.

We don't seem to realize how fragile our civilization is in 2012 either.

Perception in this instance is much more important than objective reality. A recent study by the Joseph Rowntree Foundation showed that 25 percent of the UK population is living below the standard that they see as acceptable. This may be riddled with methodological flaws and questionable assumptions but I don't fancy the chances of debating that with 15 million people if they take to the streets armed with pitchforks, as unlikely as that might seem today.

I have no political axes to grind whatsoever. I equally distrust politicians of every stripe. But I do worry that unless we do something to ensure greater perceived inclusion of the rapidly growing body of those who see themselves as economically disenfranchised then we might look back, like Von Hayek, too late and lament what we have lost.

More balance might be needed if the warnings of the student, Karl Marx, are not to destroy the democratic capitalist system of his mentor, Adam Smith.