led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Smith 1994, 485)
Quite interestingly, the words “invisible hand” are found precisely once in the entirety of the work. Smith obviously wrote a great deal more about capital, the Wealth of Nations spans over 1,000 pages, but here lies the heart of it: division of labor and the “invisible hand.” The idea was simple: a worker produces best when the worker produces for their own self-interest, and furthermore, the natural division of labor created from such self-interest would create a more productive society. The metaphysical idea of the invisible hand is the idea of Smith that, beyond all others, would become the standard bearer of capitalism. Not to tangent, but to give example, the full extent of Smith’s humanism should be put into perspective.
Servants, labourers, and workmen of different kinds, make up the far greater part of every political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, cloathed and lodged. (Smith 1994, 90)
It is in this way that Marx and Smith share a striking similarity – both have a tendency to have their ideas taken out of context; both authors have been used in ways that can only be described as either skirting their original intentions or outright changing the context so that the definitions lose meaning. For Smith his original idea was the division of labor and the invisible hand, acting in concert, would create a society of such plenty that there would not be such poor and miserable masses – Smith was afraid of the dangers of so called “jealousy of trade” where “merchants and manufacturers [would] lur[e] governments into believing that the protection of their profits was a precondition of both national security and national welfare” (Hont 2005, 62). This is why Smith encouraged free trade as this would “facilitate the specialization of labor because greater numbers of people consuming greater quantities give rise to the organization of more and more production in longer production runs in a factory system” (Canterbery 2001, 50). Quintessentially, Smith never foresaw capitalism to be an oppressive system, and the use of it to in fact protect certain commercial interests goes so far against the grain Smith laid as to arguably be an entirely different system, more akin to the mercantilist one Smith sought to replace, than the capitalism he envisioned. Yet the definitions have changed over time, but someone else foresaw how this would occur.
Karl Marx saw something in capitalism that was flawed. Marx saw a process in capitalism that, for the purposes of this work’s thesis regarding the U.S. income gap, has incredible explanatory power. The problem with using a Marxian analysis is not what Marx said per se, but rather how it has been carried forward. Much like Smith, Marx wrote exhaustively on his methods for his conclusions, but Marx had a flaw that was damaging: he “was correct in identifying the key sociological processes [but] he was historically wrong in predicting their outcome” (Gilbert 2008, 182). Unfortunately for the general dialog, Marx is remembered not for his analysis, but the way his ideas were used. When most people think of Marx, what they are really thinking of is Lenin and his Marxist-Leninist ideology whereby if the communist revolution will not come organically, then a vanguard must make it, and in the process form the communism Marx believed inevitable in a capital-based economy (Huckabee 2005). For the purposes of this blog this schism cannot be given the diligence it is due, but suffice to say, it is an important topic.
What matters for a Marxian analysis is his sociological analysis via his material dialectics all of which coalesces into an understanding where capital comes into play. Whereas Smith spoke of labor theory as unnecessary once society moved into a certain level of development, Marx’s entire dialectical process works on the idea of a labor theory of value, and it stands largely undefended in Marx’s writings. This is because when Marx penned the words he had no reason to defend them “given that the labor theory of value was widely accepted by his Ricardian contemporaries” (Harvey 2010, 60). Marx exemplifies this by what he calls “socially necessary” labor time, labor time necessary to manage to continue living, which is all a capitalist will pay for; however, the capitalist will have the worker labor for many hours beyond this, which is the genesis of surplus value – and thus “capital, therefore, is not only the command over labour, as Adam Smith thought. It is essentially the command over unpaid labour. All surplus-value, whatever particular form…is in substance the materialization of unpaid labour-time” (Marx 1976, 671-672). This is the heart of the Marxist analysis – in Canterbury’s (2001, 111) words the worker will be paid “a subsistence wage just sufficient to keep the worker alive, at work, and able to reproduce the commodity.” Anything beyond that will be accumulated by the capitalist not to be paid in wages. This is an incredibly simplistic summarization of Marx – his ideas of surplus value generation span all three volumes of Capital plus the Theories of Surplus Value
; however, it contains the heart of the matter.
Marx first raised the issue of class consciousness because he believed that subjective awareness of one’s objective position in the property and occupational system would lead to a sense of belonging with others of similar position and promote conflict with those above or below. Marx’s conception assumes [a] causal sequence…objective class position leads to class consciousness, which in turn shapes political behavior (Gilbert 2008, 200).
Marx’s analysis works over long historical periods because the method works well to show what occurs in the sense of eventuality to the replacement of capitalism by socialism, and then communism. The danger lies in the impatience, which Lenin evidences. Marx’s theory works somewhat like quantum physics where an object has both a position and a velocity, but if you try to measure one you lose accuracy in the other. In other words, the harder you try to determine how quickly you’re moving toward socialism the more difficult it is to determine just how far from socialism you are, and vice versa. The method is an analytical one, disposed to examining the nature of capital relations, which is what Marx wrote thousands of pages on. That analytical method is the idea this work takes forward. The theories of Keynes, Galbraith, and Friedman will be discussed in a much shorter way with the intended purpose to place them in context in-between Smith and Marx in the conclusion.
“Keynesianism is premised on the argument that government could be an agent for increasing aggregate demand, either directly through increased federal spending or indirectly through reduced taxes to stimulate private consumption and investment” (Dolan, Frendreis, and Tatalovich 2008, 15) Keynes also implemented the investment multiplier effect where such government investment would generate increased consumption and even a bit of increased savings (Canterbery 2001, 219-220; Davidson 2007, 68-74). Within those tools Keynes was largely attacking (according to Canterbery (2001, 229) “with what some would say savagery”) the idea of the invisible hand leading to full employment. Keynes believed that there were “social and psychological justification[s] for significant inequalities of income and wealth, but not for such large disparities as [existed then]” – Keynes believed that “full employment policies were likely to reduce income inequality” (Davidson 2007, 6). Keynes’s ideas represent the anti-thesis to inflation-targeting policies – as these depend on a large unemployed labor force with no real safety nets so as to create “a ubiquitous and overwhelming fear [within] all members of society,” which has the effect of making workers “less truculent” (Davidson 2007, 166). Keynes’s approach to the economy was to generate sufficient demand so as to create a need for supply, and when the marginal propensity to consume was threatened by liquidity traps, refusal to expand even when interest rates were low, and a general stagnation of the economy became present – the need arose for the government to be the actor of last resort. Keynes justified this within the investment multiplier where the money would in fact create the necessary revenues in the long run to pay the government back, which with the economy restarted, could be recouped via taxes upon the now healthy economy.
The economy Keynes is associated with is the economy of the Great Depression, and some years later John Kenneth Galbraith set off to remind Americans that “perhaps a fourth of the population remained poor in the midst of general prosperity” (Gilbert 2008, 206). Davidson (2007, 66) called Galbraith’s The Affluent Society an attempt to spark a “national discussion…weigh[ing] the relative merits or demerits of creating jobs through additional government spending” in various broad sectors such as “education…health…infrastructure…and additional consumption.” This is evidenced by Galbraith’s “Social Balance Theory” best described by the fact that “even public services that prevent disorder must [now] be defended. By contrast, the man who devises a nostrum for a nonexistent need and then successfully promotes both remains one of nature’s noblemen” (Galbraith 1998, 199). Galbraith was describing, in 1958, what he saw as a quarter of the country living in poverty amidst, in one famous poetic description, the blight of decaying cities amidst the stench of rotting garbage – but Galbraith’s answer was not adopted. “The object of Galbraith’s economic writings is nothing less than the replacement of the neoclassical system” (Canterbery 2001, 339). What happened was the precise opposite with the theories of Milton Friedman, whom Galbraith called “the most influential economist of the twentieth century” (Canterbery 2001, 280).
Friedman personifies the idea of neoliberalism, which is enshrined within his theory of monetarism where “growth in the money supply is the primary determinant of economic performance” (Dolan, Frendreis, and Tatalovich 2008, 139). To put this into a literary perspective Canterbery (2001, 278-279) shows “there is more than a marginal connection between the objectivist philosophy of Ayn Rand…and Milton Friedman’s monetarist philosophy.” Simply put, Friedman’s analysis boiled down to one simple premise: “government is the problem” (Friedman 1991). Only on “indivisible matters” like national defense did Friedman agree to government provision (Friedman 2002, 23) . Friedman discusses the idea of a negative income tax, but only as alleviation to poverty reduction programs with the goal of reducing government bureaucracy if government absolutely must have anti-poverty programs (Friedman 2002, 190-195).
So where does the income gap lie within these theories? Smith lays the groundwork for the economic system – but he does so with the express purpose of creating a wealthier society for all. Marx analyzes Smith’s capitalism via historical materialist dialectics and concludes that no such wealthier society for all can exist – the workers will always be squeezed in the process of capital accumulation. Then we move into Keynes whose theories are numerous, but focused around the idea that government deficits should create market demand to spur employment if unemployment became problematic. Galbraith moved further – painting his own literary anti-thesis of Norman Rockwell with regard to America’s economy – and wanted to reinvent the economic system; Galbraith was a powerful theorist with many ideas, but he was, on the whole, ignored. Friedman reinvigorated the neoclassical school, and adopted a mantra whereby government was virtually never the answer.
The income comes from the theory of Smith, Marx defines the structure whereby disparity is generated – and the remaining three theorists show how Marx’s historical materialist dialectical process is powerful. Keynes’s ideas were morphed “until the theory bore more resemblance to neoclassical economics than Keynes, the neoclassical heretic, could ever have intended” (Canterbery 2001, 418). Military Keynesianism doesn’t just turn Keynes’s theories into a sort of war economics, but it destroys Keynes’s overarching logic. Simultaneously the neoliberals flatly ignored Smith’s insistence on paying for wars with taxes to bring them to an end (Smith 1994, 996). Galbraith sought to create a new order, but was without a general audience. Friedman’s ideas proved that Marx’s historical conclusion had not “anticipated[d] the aspirations of the working class for a capitalistic lifestyle” (Canterbery 2001, 118).
Traditional moralists point to any hedonistic doctrine as the creed of the children of darkness, because it has no real escape from egotism. But since it thinks it has, it illustrated the stupidity of the children of light, rather than the malice of the children of darkness. It must be observed of course that the children of darkness are well able to make use of such a creed. Utilitarianism’s conception of the wise egotist, who in his prudence manages to serve interests wider than his own, supported exactly the same kind of political philosophy as Adam Smith’s conception of the harmless egotist, who did not even have to be wise, since the providential laws of nature held his egotism in check. So Jeremy Bentham’s influence was added to that of Adam Smith in support of a laissez-faire political philosophy; and this philosophy encouraged an unrestrained expression of human greed at the precise moment in history when an advancing industrialism required more, rather than less, moral and political restraint upon economic forces. (Niebuhr 1944, 29-30)
It is the opinion of this author that every theorist presented is a child of light in the Niebuhr sense – they sought to do good for the world. Smith sought to create a world of plenty, Keynes sought to breakdown inequality by providing more employment where Smith’s framework was falling short, Galbraith sought to do away entirely with neoclassical economics so as to reinvent the capital system, Friedman sought to vindicate the neoclassical school with a monetary theory to provide for a new roadmap to growth, and Marx provided the dialectical process that stems all the way to this sentence. It is the conclusion of this blog that, in determining a conceptual model to explain the widening income gap in the U.S. that Karl Marx provides the best analytical tools. The present system of increasing low-wage job growth accompanied by high-wage job loss provides but one example of the shift in surplus value generation (National Employment Law Project 2011). It is not that one theorist was wrong or that another was right, but simply that Marx’s analytical tools provide the best method for seeing how the road came to this moment. Put another way: Smith begat the system which led to neoclassical progeny moving to perpetuate capital by adopting ideas from other schools, such as Keynesianism, in order to perpetuate itself in a manner resulting most recently in the unabashed monetarist-objectivist theories of Friedman – and all of this would have been seen by Marx. “Every limit [to capital] appears as a barrier to be overcome” (Marx 1973, 404). Thus, within the Marxian historical materialist dialectic, the process began as soon as Smith penned the idea – and as soon as capital was begat it would find any way to continue its metaphysical process of accumulation. The past 30 years increase in income disparity is but a part of this process.
