Socialism: An Economic and Sociological Analysis

Nowhere and at no time has the large scale ownership of land come into being through the working of economic forces in the market. It is the result of military and political effort. Founded by violence, it has been upheld by violence and by that alone. As soon as the latifundia are drawn into the sphere of market transactions they begin to crumble, until at last they disappear completely. Neither at their formation nor in their maintenance have economic causes operated. The great landed fortunes did not arise through the economic superiority of large scale ownership, but through violent annexation outside the area of trade. “And they covet fields” complains the prophet Micah,
*10 “and take them by violence; and houses, and take them away.” Thus comes into existence the property of those who, in the words of Isaiah, “join house to house … lay field to field, till there be no place, that they may be placed alone in the midst of the earth.”
*11

The non-economic origin of landed fortunes is clearly revealed by the fact that, as a rule, the expropriation by which they have been created in no way alters the manner of production. The old owner remains on the soil under a different legal title and continues to carry on production.

Land ownership may be founded also on gifts. It was in this way that the Church acquired its great possessions in the Frankish kingdom. Not later than the eighth century, these latifundia fell into the hands of the nobility; according to the older theory this was the result of secularizations by Charles Martel and his successors, but recent research is inclined to make “an offensive of the lay aristocrats” responsible.
*12

That in a market economy it is difficult even now to uphold the latifundia, is shown by the endeavours to create legislation institutions like the
“Fideikommiss” (feoffment in trust) and related legal institutions such as the English “entail.” The purpose of the
“Fideikommiss” was to maintain large-scale landed proprietorship, because it could not be kept together otherwise. The Law of Inheritance is changed, mortgaging and alienation are made impossible, and the State is appointed guardian of the indivisibility and inalienability of the property, so that the prestige of family tradition shall not be impaired. If economic circumstances had tended towards the continuous concentration of land ownership such laws would have been superfluous. Legislation would have been enacted against the formation of estates rather than for their protection. But of such laws legal history knows nothing. The regulations against
“Bauernlegen,” against enclosing arable land, etc., are directed against movements outside the area of trade, that is, against force. The legal restrictions of mortmain are similar. The lands of the mortmain, which, incidentally, are legally protected in much the same way as the “Fideikommiss,” do not increase by force of economic development but through pious donations.

Now the highest concentration of fortunes is to be found just in agriculture, where concentration of establishments is impossible and the concentration of enterprises economically purposeless, where the large property appears to be economically inferior to the small and unable to withstand it in free competition. Never was the ownership of the means of production more closely concentrated than at the time of Pliny, when half the province of Africa was owned by six people, or in the days of the Merovingians, when the Church possessed the greater part of all French soil. And in no part of the world is there less large-scale land ownership than in capitalist North America.

3 The Formation of Fortunes Within the Market Economy

The assertion that wealth on the one hand and poverty on the other are ever increasing was maintained at first without any conscious connection with an economic theory. Its supporters think they have derived it from an observation of social relations. But the observer’s judgment is influenced by the idea that the sum of wealth in any society is a given quantity, so that if some possess more others must possess less.
*13 As, however, in every society the growth of new riches and the coming into existence of new poverty are always to be found in a conspicuous manner whilst the slow decline of ancient fortunes and the slow enrichment of less propertied classes easily escape the eye of the inattentive student, it is easy to arrive at the premature conclusion summed up in the socialist catchword “the rich richer, the poor poorer.”

No protracted argument is required to prove that the evidence completely fails to substantiate this assertion. It is quite an unfounded hypothesis that in a society based on the division of labour the wealth of some implies the poverty of others. Under certain assumptions it is true of militarist societies, where there is no division of labour. But of a capitalist society it is untrue. Moreover an opinion formed on the basis of casual observations of that narrow section with which the individual is personally acquainted is quite insufficient proof of the theory of concentration.

The foreigner who visits England equipped with good recommendations has opportunities for learning something of the noble and wealthy families, and their manner of living. If he wants to know more or feels it his duty to make his visit more than a mere pleasure trip, he is allowed to make a flying tour of the works of great enterprises. For the layman, there is nothing particularly attractive about this. At first the noise, the bustle, the activity astonish the visitor, but after inspecting two or three factories the spectacle grows monotonous. Such a study of social relations, on the other hand, as can be undertaken during a short visit to England, is more stimulating. A walk through the slums of London or any other large city produces more vivid impressions, and the effect on the traveller who, when not occupied in this study, will be hurrying from one entertainment to another, is twice as powerful. Thus visits to the slums have become a popular item in the itinerary of the Continental’s obligatory tour of England. In this way the future statesman and economist gathered an impression of the effects of industry on the masses, which became a basis for the social views of a lifetime. He went home firm in the opinion that industry makes few rich and many poor. When later he wrote or spoke about industrial conditions he never forgot to describe the misery he had found in the slums, elaborating the most painful details, often with more or less conscious exaggeration. All the same his picture tells us nothing more than that some people are rich and some poor. But to know this, we do not need the report of people who have seen the suffering with their own eyes. Before they wrote we knew that Capitalism has not yet abolished all misery in the world. What they have to set about proving is that the number of wealthy people is decreasing, while the wealthy individual grows richer, and that the number and the poverty of the poor is steadily on the increase. It would, however, take a theory of economic evolution to prove this.

Attempts to demonstrate by statistical research the progressive increase of the misery of the masses and the growth of wealth among a numerically diminishing rich class are no better than these mere appeals to emotion. The estimates of money incomes at the disposal of statistical inquiry are unusable because the purchasing power of money alters. This fact alone is enough to show that we lack any basis for comparing arithmetically the distribution of income over a number of years. For where it is not possible to reduce to a common denominator the various goods and services of which incomes are composed, one cannot form any series for historical comparison from known statistics of income and capital.

The attention of sociologists is often drawn to the fact that mercantile and industrial wealth, that is, wealth not invested in land and mining property, seldom maintains itself in one family for a long period. The bourgeois families rise steadily from poverty to wealth, sometimes so quickly that a man who has been in want a few years previously becomes one of the richest of his time. The history of modern fortunes is full of stories of beggar boys who have made themselves millionaires. Little is said of the decay of fortunes among the well-to-do. This does not usually take place so quickly as to strike the casual observer; closer examination, however, will reveal how unceasing the process is. Seldom does mercantile and industrial wealth maintain itself in one family for more than two or three generations, unless, by investment in land, it has ceased to be wealth of this nature.
*14 It becomes property in land, no longer used in the business of active acquisition.

Fortunes invested in capital do not, as the naive economic philosophy of the common man imagines, represent eternal sources of income. That capital yields a profit, that it even maintains itself at all, is by no means a self-evident fact following
a priori from the fact of its existence. The capital goods, of which capital is concretely composed, appear and disappear in production; in their place come other goods, ultimately consumption goods, out of the value of which the value of the capital mass must be reconstituted. This is possible only when the production has been successful, that is when it has produced more value than it absorbed. Not only profits of capital, but the reproduction of capital presupposes a successful process of production. The profits of capital and maintenance of capital are always the result of successful enterprise. If this enterprise falls, the investor loses not only the yield on the capital, but his original capital fund as well. One ought carefully to distinguish between produced means of production and the primary factors of production. In agriculture and forestry the original and indestructible forces of the soil are maintained even though production fails, for faulty management cannot dissipate them. They may become valueless through changes in demand, but they cannot lose their inherent capacity to yield produce. This is not so in manufacturing production. There everything can be lost, root and branch. Production must continually replenish capital. The individual capital goods which compose it have a limited life; the existence of capital is prolonged only by the manner in which the owner deliberately reinvests it in production. To own capital one must earn it afresh day by day. In the long run a capital fortune is not a source of income which can be enjoyed in idleness.

To combat these arguments by pointing to the steady yield from “good” capital investments would be wrong. The point is that the investments must be
“good,” and to be that, they must be the result of successful speculation. Arithmetical jugglers have calculated the amount to which a penny, invested at compound interest at the time of Christ, would have grown by now. The result is so striking that one might very well ask why nobody was clever enough to reap a fortune this way. But quite apart from all the other obstacles to such a course of action, there is the crowning disability that to every capital investment is attached the risk of a total or partial loss of the original capital sum. This is true not only of the entrepreneur’s investment, but also of the investment the capitalist makes in lending to the entrepreneur, for his investment naturally depends completely on the entrepreneur’s. His risk is smaller, because the entrepreneur offers him as security that part of his own wealth which is outside the immediate undertaking, but qualitatively the two risks are the same. The moneylender too can, and often does, lose his wealth.
*15

An eternal capital investment is as non-existent as a secure one. Every capital investment is speculative; its success cannot be foreseen with absolute assurance. Not even the idea of an “eternal and secure” capital yield could have arisen if the concepts of capital investment had been taken from the sphere of business and capital enterprise. The ideas of eternity and security come from rents secured on landed property and from the related government securities. It corresponds to actual conditions when the law recognizes as trustee investments only those which are in land or in incomes secured on land or afforded by the State or by other public corporations. In capitalist enterprise there is no secure income and no security of wealth. It is obvious that an entail invested in enterprises outside agriculture, forestry, and mining would be senseless.

If, then, capital sums do not grow of themselves, if for their maintenance alone, quite apart from their fructification and increase, successful speculation is constantly required, there can be no question whatever of a tendency for fortunes to grow bigger and bigger. Fortunes cannot grow; someone has to increase them.
*16 For this the successful activity of an entrepreneur is needed. The capital reproduces itself, bears fruit and increases only so long as a successful and lucky investment endures. The more rapid the change in economic environment the shorter the time in which an investment is to be considered as good. For the making of new investments, for reorganization of production, for innovations in technique, abilities are needed which only a few possess. If under exceptional circumstances these are inherited from generation to generation, the successors are able to maintain the wealth left by their ancestors, even perhaps to increase it, despite the fact that it may have been split up on inheritance. But if, as is generally the case, the heirs are not equal to the demands which life makes on an entrepreneur, the inherited wealth rapidly vanishes.

When rich entrepreneurs wish to perpetuate their wealth in the family they take refuge in land. The descendants of the Fuggers and the Welsers
*17 live even today in considerable affluence, if not luxury, but they have long since ceased to be merchants and have transformed their wealth into landed property. They became members of the German nobility, differing in no way from other South German noble families. Numerous merchant families in other countries have undergone the same development; having become rich in trade and industry they have ceased to be merchants and entrepreneurs and have become landowners, not to increase their fortunes but to maintain them and transmit them to their children and their children’s children. The families which did otherwise soon disappeared in obscure poverty. There are few banking families whose business has existed for a hundred years or more, and a closer glance at the affairs of these few will show that they are generally commercially active only in administering fortunes really invested in land and mines. There are no ancient fortunes which thrive in the sense that they continually increase.

4 The Theory of Increasing Poverty

The theory of increasing poverty among the masses stands at the centre of Marxist thought as well as of older socialist doctrines. The accumulation of poverty parallels the accumulation of capital. It is the “antagonistic character of capitalist production” that “the accumulation of wealth at one pole” is simultaneously “accumulation of misery, work torture, slavery, ignorance, brutalization, and moral degeneracy at the other.”
*18 This is the theory of the progressive increase in the absolute poverty of the masses. Based on nothing but the tortuous processes of an abstruse system of thought, it need occupy us all the less in that it is gradually receding into the background, even in the writings of orthodox Marxian disciples and the official programmes of the Social-Democratic parties. Even Kautsky, during the revisionism quarrel, was reduced to conceding that, according to all the facts, it was precisely in the most advanced capitalist countries that physical misery was on the decline, and that the working classes had a higher standard of life than fifty years ago.
*19 The Marxians still cling to the theory of increasing poverty purely on account of its propaganda value, and exploit it today just as much as during the youth of the now aged Party.

But intellectually the theory of the relative growth of poverty, developed by Rodbertus, has replaced the theory of absolute growth. “Poverty,” says Rodbertus, “is a social, that is, a relative, concept. Now, I maintain that the justifiable needs of the working classes, since these have attained a higher social position, have become considerably more numerous. It would be as wrong, now that they have attained this position, not to speak, even with unchanged wages, of a deterioration in their material condition as it would have been at an earlier stage when their wages fell, and they had not yet attained this position.”
*20 This thought is derived entirely from the point of view of the State Socialist, which considers a raising of the workers’ claims to be “justified” and assigns them a “higher position” in the social order. Against arbitrary judgments of this kind, no argument is possible.

The Marxians have taken over the doctrine of the relative growth of poverty. “If in the course of evolution the grandson of a small master weaver, who had lived with his own journeymen, comes to inhabit a palatial, magnificently furnished villa, while the journeyman’s grandson lives in lodgings, which though more comfortable, no doubt, than his grandfather’s garret in the master weaver’s house, yet serves to widen the social gulf between the two, then the journeyman’s grandson will feel his poverty all the more for seeing the comforts that are within his employer’s reach. His own position is better than his ancestor’s, his standard of living has risen, but relatively his situation has become worse. Social misery becomes greater … the workers relatively more wretched.”
*21 Assuming that this were true, it would be no indictment against the capitalist system. If Capitalism improves the economic position all round, it is of secondary importance that it does not raise all to the same level. A social order is not bad simply because it helps one more than another. If I am doing better, what can it harm me that others are doing better still? Must one destroy Capitalism which better satisfies from day to day the wants of all people, merely because some individuals become rich and a few of them very rich? How, then, can it be asserted as “logically unassailable” that “a growth in the relative poverty of the masses … must finally end in catastrophe.”
*22

Kautsky tries to make his conception of the Marxian theory of increasing poverty different from that which emerges from an unprejudiced reading of
Das Kapital. “The word poverty,” he says, “may mean physical poverty, but it may also mean social poverty. In the first sense it is measured by man’s physiological needs. These are indeed not everywhere and at all times the same, still they do not show differences nearly so great as the social needs, non-satisfaction of which produces social poverty.”
*23 It is social poverty, says Kautsky, that Marx had in mind. Considering the clarity and precision of Marx’s style this interpretation is a masterpiece of sophistry, and it was accordingly rejected by the revisionists. To the person who does not take Marx’s words as revelation it may, indeed, be a matter of indifference whether the theory of increasing social poverty is contained in the first volume of
Das Kapital or is taken from Engels or was first put forward by the neo-Marxists. The important questions are whether it is tenable and what conclusions follow from it.

Kautsky holds that the growth of poverty in the social sense is “attested by the bourgeoisie themselves, only they have given the matter a different name; they call it
covetousness … The decisive fact is that the contrast between the wage-earners’ needs and the possibility of satisfying them out of wages, the contrast therefore between wage-earning and capital, is becoming greater and greater.”
*24 Covetousness has always existed, however; it is no new phenomenon. We may even admit that it is more prevalent now than formerly; the general striving after improvement of economic position is a peculiarly characteristic mark of capitalist society. But how one can conclude from this that the capitalist order of society must necessarily change into the socialist, is inexplicable.

The fact is, that the doctrine of increasing relative social poverty is nothing more than an attempt to give an economic justification to policies based on the resentment of the masses. Growing social poverty means merely growing envy.
*25 Mandeville and Hume, two of the greatest observers of human nature, have remarked that the intensity of envy depends on the distance between the envier and the envied. If the distance is great one does not compare oneself with the envied, and, in fact, no envy is felt. The smaller the distance, however, the greater the envy.
*26 Thus one can deduce from the growth of resentment in the masses that inequalities of income are diminishing. The increasing “covetousness” is not, as Kautsky thinks, a proof of the relative growth of poverty; on the contrary, it shows that the economic distance between the classes is becoming less and less.