Economics and Capitalism
Prabhat Patnaik
IT is a well-known fact that contemporary “mainstream” economics, the only kind which is taught to students over much of the world, does not capture the reality of capitalism. What is less recognized is that this “mainstream” economics, not just in its existing incarnations, but no matter what new incarnations it assumes, is incapable of capturing the reality of capitalism. Let us see why.
Any production requires the coordinated action of a number of individuals. Whether it is members of a tribal community hunting down a wild boar, or a modern capitalist factory manufacturing automobiles, it is important for those engaged in such activity to work according to a certain plan, which must necessarily demand coordinated action for its realization. Coordinated action in turn requires discipline. This discipline in most earlier modes of production was imposed through explicit coercion. If the actions of the slaves working together were not coordinated because some slackened in their work, then those who slackened would be physically punished by the agents of the slave-owner. Likewise, in the feudal system, if the serfs working on the lord’s land did not act in a coordinated manner, say in harvesting the crop, because of which a part of the crop got destroyed, then the allegedly laggard serfs would be beaten.
Production in short requires coordination, and in any society where the means of production are not owned in common, where in other words there is a distinction between the owners and the workers, so that the workers are not voluntarily interested in conforming to a coordinated action plan, there must exist some coercive means of making them conform.
Capitalism however despite being a class-divided society, does not resort to any explicit coercion. Not that capitalists do not occasionally use physical coercion, but that is not the rule under this system, which then raises the question: how is work-discipline maintained under capitalism so that workers are made to conform to the plan of coordinated action? The answer is that this is achieved under capitalism through what the Polish Marxist economist Michal Kalecki had called the “threat of the sack”. Anyone who is deemed to be slacking, and hence upsetting the coordinated action plan is simply thrown out of employment. That person in short loses his place within the system and is thrown outside of it.
It follows therefore that capitalism as a system must have both an “inside” and an “outside”, to enforce work discipline that is so essential for production. While there is no explicit physical coercion, like starving a slave or beating a serf, there is implicit coercion imposed on the workers, without which of course production under this system would not be possible. For this implicit coercion to exist, a space “outside” of the system must exist where conditions of life are so difficult that those employed within the capitalist region dread being pushed into this “outside” region.
The totality of capitalism therefore consists of two regions: the “inside” and the “outside” regions. The Marxist tradition alone takes cognizance of this fact and notes the existence of a “reserve army of labour” as a necessary feature of capitalism constituting this “outside” sphere.
Even many Marxists or persons sympathetic to Marxism do not see this point. They see the reserve army of labour only as explaining why real wages under capitalism remain tied to a (historical) subsistence level, that is, only as playing the same role as the Malthusian theory of population played in the Ricardian system. In Ricardo’s view the Malthusian theory explained the fact of real wages of workers remaining more or less tied to a subsistence level, for according to Malthus if wages rose above subsistence then workers procreated rapidly, causing labour supply to increase which pushed wages down again to subsistence level. Marx had rejected Malthus’s theory, calling it a “libel on the human race”, and it is generally believed that Marx substituted his concept of the reserve army of labour, which served to keep real wages down to subsistence level, for Malthus’s libelous explanation.
This however is an incomplete reading of Marx. It is certainly true that the reserve army keeps down real wages to a historically-given subsistence level, but this is not its sole role. Without the reserve army there would be no work discipline under capitalism and hence capitalist production will become impossible.
All of contemporary “mainstream” economics however sees capitalism as a self-contained system where all “factors of production” are fully employed if markets are allowed to work freely; and those existing deviant traditions, such as the Keynesian tradition which does not accept this proposition, believe nonetheless that capitalism as a self-contained system can achieve full employment of all “factors of production” through the efforts of the state supplementing the working of the market. In other words, both the orthodox and the heterodox traditions in non-Marxist economic theory that currently exist, see only the “inside” of capitalism, not its “outside”. In fact they do not even see the necessity of an “outside”, that is, of a region containing a mass of unemployed, underemployed, and disguised-unemployed workers, such that being thrown into these ranks fills employed workers with dread and serves to instil in them an obedience to discipline that is absolutely essential for capitalist production.
The reason why contemporary “mainstream” economics and not even its heterodox critics do not see the necessity of this “outside” region, is because they do not analyse production sui generis but see it only as an extension of exchange. Their focus in short is on the process of exchange which markets are supposed to effect; and that is where their analysis stops. What happens after the capitalist has purchased raw materials and labour-power on the market and retreated into the premises of the factory, is not something that occupies their attention. Their analysis therefore can at best cover production only in an imaginary world where all production is artisan production, with each artisan employing only his own labour, so that there is no separate need for having an arrangement for imposing work-discipline. But outside of this imaginary universe, and certainly for a capitalist economy, both “mainstream” economics and even its valid and insightful critical theories such as the Keynesian theory, clearly fall short.
This has important implications. The existence of a reserve army is necessary not only for production, not only for keeping real wages down as already noted, but also for ensuring that workers act as a class of price-takers who are too weak to demand and obtain higher money wages even when their real wages are being eroded. This is not to say that if the reserve army disappears or dwindles, the system will immediately collapse; but its functioning will become impossible over time, which basically means that the maintenance of full employment under capitalism is an impossibility. The Keynesian idea that through state intervention in “demand management” capitalist economies can maintain full employment, is a chimera, arising from the fact that Keynes saw the deficiency of aggregate demand as the only cause for involuntary unemployment.
This is not just an idle claim. The Keynesian idea put into practice in the post-war period came to grief with an explosion of money wages all over the advanced capitalist world in 1968, which in turn gave rise to an inflationary explosion, since the low unemployment rates that had been sustained had ended the workers’ role as “price-takers”. This inflationary explosion which was carried forward by primary commodity prices, was finally ended with Reagan and Thatcher. They ended Keynesian “demand management” and re-created massive unemployment.
If the maintenance of full employment is impossible under capitalism, then so is the maintenance of a welfare state. Welfare state measures make the position of the reserve army less intolerable, and hence the punishment for an employed worker who is “given the sack”, for allegedly violating work-discipline, less severe. Such measures therefore undermine work-discipline within the capitalist system; what is more, they also enhance the bargaining power of the workers, thereby undermining their “price-taker” role. Such measures of course can be in force for some time, but the effort of the capitalists will always be to erode them.
In the fifties and the early sixties there was much discussion about whether “capitalism had changed”, whether it had altered its nature from predatory to welfare capitalism; and many believed that it had. The imposition of neo-liberalism however altered the fortunes of the workers even in the advanced capitalist countries and this imposition was immanent within the system. All attempts at “reforming” capitalism, making it more “humane”, it follows, are bound to come a cropper. A more “humane” society can be built only by transcending capitalism, by ushering in a system where the means of production are socially owned.
