Socialism: An Economic and Sociological Analysis

At any given moment the position of the individual in the social economy determines his relation to all other members of society. He is related to them in respect of exchange, as giver and receiver, as seller and buyer. His position in the society need not necessarily tie him down to one and the same activity. One man may be simultaneously landlord, wage-earner, and capitalist; another simultaneously entrepreneur, employee, and landlord; a third entrepreneur, capitalist, and landlord, etc. One may produce cheese and baskets and hire himself out occasionally as a day labourer. But even the situation of those who find themselves in approximately equal positions differs according to the special circumstances in which they appear on the market. Even as a buyer for his own consumption every man is situated differently from others according to his special needs. On the market there are always only single individuals. In a free economy the market permits the emergence of individual differences: it ‘atomizes’ as is sometimes said — usually somewhat regretfully. Even Marx had to make a point of explaining that ‘As purchases and sales are made only between single individuals, it is not admissible to look to them for relations between whole social classes.’1

If we use the term class to denote all those in approximately equal social positions, it is important to remember that the problem whether classes have any special importance in social life is not thereby solved. Schematization and classification per se have no cognitive value. The scientific significance of a concept arises out of its function in the theories to which it belongs; outside the context of these theories it is no more than an intellectual plaything. The usefulness of the class theory is not proved when it is pointed out that since men find themselves in different social positions, the existence of social classes is undeniable. What matters is not the social position of the individual but the significance of this position in the life of society. It has long been recognized that the contrast between rich and poor, like all economic contrasts, plays a great part in politics. Equally well known is the historical importance of differences in rank and caste, that is, differences in legal position, or inequality before the Law. Classical Political Economy did not contest this. But it undertook to show that all these contrasts derived from wrong political institutions. According to Classical Political Economy, correctly understood, the interests of individuals are never incompatible. Belief in conflicts of interest, which formerly was very important, really sprang from ignorance of the natural laws of social life. Once men recognized that, rightly understood, all interests were identical, these issues would cease to influence political discussion.

But Classical Political Economy, which taught the solidarity of interests, itself laid the foundation stone for a new theory of class conflict. The mercantilists had placed goods in the centre of economics, which in their eyes was a theory of objective wealth. It was the great achievement of the Classics in this respect that beside the goods they set up economic man. They thus prepared the way for modern Economics which puts man and his subjective valuations into the centre of its system. A system in which man and goods are placed, so to speak, on an equal footing falls inevitably into two parts, the one treating of the production of wealth, the other of its distribution. The more Economics becomes a strict science, a system of catallactics, the more this conception tends to recede. But the idea of distribution remains for a time. And this gives rise in turn to the idea of a division between the process of production and that of distribution. The goods are first produced, then distributed. However clear it is that, in the capitalist economy. Production and ‘distribution’ are indissolubly interconnected, this unhappy conception tends to confuse the issue.2

Such misunderstandings are indeed inevitable as soon as this term ‘distribution’ is adopted and the problem of imputation is considered as a problem of distribution. For such a theory of imputation or, to use a term corresponding more closely to the classic setting of the problem, a theory of income, must distinguish between the various categories of factors of production, though in fact the same fundamental principle of value formation are to be applied to all of them. ‘Labour’ is separated from ‘Capital’ and from ‘Land’. Nothing is easier in such a context, than to regard labourers, capitalists, and landowners as separate classes, as Ricardo first did in the preface to his Principles. The fact that the classic economists do not split up ‘profit’ into its components parts, only increased this tendency and gave us the picture of society divided into three great classes.

But Ricardo goes still further. By showing how ‘in different stages of society’3  the proportions of the total produce which will be allotted to each of the three classes are different, he extends the class conflict to dynamics. His successors follow him here. And it is here that Marx steps in with the economic theory that he puts forward in Das Kapital. In his earlier writings, especially in the introductory words of the Communist Manifesto, Marx still conceives class and class conflict in the old sense of a contrast in legal position and the size of fortune. The link between the two notions is provided by a view of modern industrial relations as the domination of capitalists over workers. But even in Das Kapital Marx does not delimit precisely the concept of class, although it is of fundamental importance for his theory. He does not define what class is, but limits himself to enumerating the ‘great classes’ into which modern capitalist society is divided.4  Here he follows Ricardo’s division, neglecting the fact that for Ricardo the division of classes is only of importance for the theory of catallactics.

The success of the Marxist theory of class and class conflicts has been tremendous. To-day the marxian distinction of classes within society and the theory of the irreconcilable conflict between these classes is almost universally accepted. Even those who desire, and work for, peace between classes do not as a rule contest the view that there are class contrasts and class struggles. But the concept of class remains as uncertain as before. For the followers of Marx, as for Marx himself, the concept corruscates in all the colours of the rainbow.

If, following the system of Das Kapital, this concept is based on the classical division of the factors of production, then a classification that was invented only for purposes of the theory of exchange and is only justifiable there, is transformed into the basis of general sociological knowledge. The fact is overlooked that the assembling of the factors of production into two, three or four large groups is merely a problem of the arrangement of economic theory, and that it can be valid within this context only. The classification of the factors of production is not a classification of men or groups of men, but of functions; the rationale of the division lies solely in the purpose of the theory of catallactics it is intended to serve. The separation of ‘Land’ for example, owes its special position to the Classical theory of ground-rent. According to this theory, land is that requisite of production which, under certain assumptions, can yield a rent. Similarly, the position of capital as the source of profit, and of labour as the source of wages, is due to the peculiarities of the classical system. In subsequent solutions of the problem of distribution which divided the ‘profit’ of the classical School into entrepreneur’s profit and interest on capital, the grouping of the factors of production was entirely different. In the modern imputation theory on the contrary, the grouping of the factors of production according to the scheme of the classical theory is no longer of any importance. What was formerly called the problem of distribution is now the problem of the formation of prices of goods of higher orders. Only conservatism of scientific classification has tended to retain the old terminology. A grouping more in accordance with the spirit of imputation theory would have to proceed on an entirely different basis — for example, the separation of static and dynamic branches of income.

But — and this is the essential point — in no system is the basis for the grouping of factors determined by their natural characteristics. It is the failure to perceive this that constitutes the gravest error of the theory of economic classes. This theory began by naively assuming an inner relation (created by natural economic conditions) between those factors of production which have been grouped together for analytical reasons. It constructs a uniform land, which can be used for at least all kinds of agriculture, and a uniform labour, which can work at anything. It makes a concession, an attempt to conform to reality, when it distinguishes between land to be used agriculturally, land to be used for mining, and urban land, and when it differentiates between skilled and unskilled labour. But this concession does not improve matters. Skilled labour is just as much an abstraction as ‘labour’ pure and simple, and agricultural land is just as much an abstraction as ‘land’ pure and simple. And — what is important here — they are abstractions which leave out just those characteristics essential to sociological study. When dealing with the peculiarities of price formation we may, in certain circumstances, be permitted to make the contrast between the three groups: land, capital, and labour. But this does not prove at all that such grouping is permissible when we are dealing with a quite different problem.

• 1Marx, Das Kapital, Vol. I, p. 550. The passage from which the above quotation is taken was not in the first edition, published 1867. Marx first inserted it in the French version, published 1873, whence Engels took it over into the fourth German edition. Masaryk (Die philosopischen und soziologischen Grundlagen des Marxismus, Vienna 1899, p. 299) justly remarks that the alteration is presumably connected with the change Marx made in his theory in Vol. III of Das Kapital. It can be regarded as a recantation of the Marxist class theory. Significantly the third volume breaks off after a few sentences in the chapter headed ‘The Classes’. In treating the problem of class Marx got only as far as setting up a dogma without proof, and no further.
• 2On the history of the concept of distribution, see Cannan, A History of the Theories of Production and Distribution, p. 183 et seq.
• 3Ricardo, Principles of Political Economy and Taxation, p. 5.
• 4Marx, Das Kapital, Vol. III, Part 2, 3rd Edition, p. 421.