Executive Summary: If Karl Marx returned to life today, and was brought up to date, what would he make of our world? Of Europe, of the failed communist experiments, the boom in Asia, the social turmoil and the underclass in the United States? We can still learn a great deal from Marx, if we appreciate him as the most creative political economist of the 19th century, a democrat, who insisted he was not himself a "Marxist." With the Cold War out of the way, we can now take a clear look at his lasting insights into the mysterious forces of production that shape history, the "flaw" of capitalism that he thought meant its inevitable end, and his ideal of a classless, "fluid" society. He would see the forces of reaction, which he correctly identified as the source of capitalism's periodic crises, threatening again. But he would also understand that during the last century there have been advances in democracy and economic theory that could solve the problems facing the world today.
Karl Marx Revisited
In the last several weeks, as I contemplated the new year, I found myself thinking about Karl Marx — easily the most influential political economist and among the most creative social philosophers of the 19th century. I've always been an admirer of Marx, since my grandfather presented me with a copy of Capital at my high school graduation in 1954. In the years since, even as I moved politically from left to right, I've retained a deep appreciation of his insights. I believe if he were alive today, he would look at the world much as I do, having adjusted his own model of the way the world works to take into account the experiences of the last century. In the same way, I can see myself transported back to the London of the 1850s and seeing the world as Marx did then. If you will bear with me through the lengthy essay that follows, you will see what I mean.
Marx was not the first philosopher to put forward a youthful, idealistic vision of a classless society,1 but he certainly was the first to develop the concept that the historic forces si production would lead inevitably to that ideal. How would he look at the world if he were alive today? Would Europe look much different to him than it did in his day? What would he say about the failure of the communist experiment in Russia and China? What would he make of the economic boom unfolding in Asia? Would he be hopeful or despairing? Most importantly, how would he analyze the social turmoil in the United States, the country he most admired and idealized? What of its underclass! As 1994 opens, by calling on Marx and bringing him up to date, we can learn a great deal about the historic forces at work by viewing the world from his perspective.
Because we naturally equated Marx with our mortal enemies throughout the Cold War, we found it easy enough to think of him as an evil genius, who would have nothing to teach us today. In many ways, though, his original insights are more valuable because we now no longer have our vision of him colored by adversarial tensions. Surprising as it may seem to those who equate the collapse of communism with the failed ideas of The Communist Manifesto and Das Kapital, there was actually little connection between the two. Marx would certainly have applauded the Soviet Union going into the dustbin of history, as it exemplified all that he stood against — a corrupt oligarchy blocking the forces of production in their historic trek toward a Utopian withering away of the state. Indeed, when I visited Moscow in 1989 at the invitation of the Gorbachev government, I told my hosts, with only a slight smile, that "Marx would have been ashamed of what you have done here in his name."
Marxism has certainly done a lot of damage in this century, but Marx himself insisted until his death in 1883 that he was "not a Marxist." I've never held him accountable for the great damage done in his name during this century, any more than I would hold Christ accountable for the Inquisition, In the same way, John Maynard Keynes would be mortified if he were alive today, seeing the global damage his "neo-Keynesian" followers have done in his name. Marx was a theoretical socialist, an intellectual giant of his time who found his ideas twisted by the militant revolutionaries of Europe into action schemes. All the while he objected that history could not be hurried: Capitalism first had to outlive its usefulness, he insisted. It was not until 1913 when Rosa Luxemburg, a militant communist theoretician in Germany, was candid enough to acknowledge that Marx left this giant loophole in his system of thought — which admitted the possibility that capitalism could develop indefinitely.2
Marx wasn't hedging. His precise, formal scholarship was, after all, keyed to the Hegelian dialectic, which would permit that outcome.
As we will later see, one of Marx's harshest modern critics, Ludwig von Mises, essentially agreed with Marx's economics as well as his political insights involving class struggle. His disagreement was with Marx's mystical forecast of capitalism's demise and the ascendance of socialism. In this manner, the modern opponents of socialist thought have found themselves forced to destroy Marx the icon, conceding nothing to him in the process. Thomas Sowell, who is one of the best political economists around today, has poked myriad holes in Marx's challenge to classical economics. But, he has been careful to note that a great many modern economists attribute to Marx positions he expressly did not advocate.3 What then was Marx all about?
First of all, he was not a republican, but a democrat, who would feel most comfortable today in Switzerland, which, while not perfect, is the most democratic of all countries.4 He lived at a time when democracy, as we now know it, still did not exist anywhere on earth. In 1847, at the time the Manifesto was written in London, the United States was the most democratic of nations, yet it still countenanced slavery, limited the franchise to a fraction of the male population, did not have direct election to the Senate or a one-man-one-vote rule for the House of Representatives, and, most importantly, did not have secret balloting. The "Australian," or secret ballot, was not used until the early years of this century. Voters could not hide their true feelings behind a curtain, a key to democratic control of the oligarchs. In London, class was dominant and democracy was, of course, a much iffier thing. The Reform Bill of 1867, which extended the franchise to the workingman, was enacted 20 years after the Manifesto was written. It is not hard to see Marx identifying class struggle as the central fact of social evolution, "dialectical materialism": "The history of all hitherto existing human society is the history of class struggles." If he were around today, as a political analyst, he would say that it still is. My own belief is that class struggle, as Marx used the term, has appeared frequently as a tactic of the forces of history, but that the driving force has been civilization's search for mechanisms that produce superior political leadership — leadership that finds harmony and avoids struggle. Would Marx buy that formulation? With my advantage of hindsight, I think so.
As an economist, Marx more or less accepted the classical economic theories of the day, including the basic insights of Adam Smith, even while pushing them in different directions. He was emphatically a gold-standard, free-trader who leaned on the works of David Ricardo, whose Principles of Political Economy of 1821 is a milestone in supply-side economics. Marx would have championed NAFTA, for example, as he fundamentally agreed with the classical economists that trade barriers were mercantilist impediments to the positive forces of change. 'The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood."5
It can even be seriously argued that Marx was not ultimately a materialist, in that his theories celebrated individual effort and creativity in giving form to matter.6 There is nothing in his writings to suggest he thought it a good idea that the state own the means of production, as to him the state itself was the problem. To Marx, "communism" merely meant community ownership of property, to prevent the landed gentry from accumulating capital amidst the pauperization of the workers and peasantry. As policy, he advocated confiscatory inheritance taxes to keep property and society fluid. Clearly he would have been more amazed by the widescale worker ownership of land and commercial equity that he would see today in the West. His theoretical advocacy of common property was built on an assumption that a small class of capitalists would eventually accumulate all property, that capitalism could not find a way to disperse property to the masses. Revolution would occur when disequilibrium became intolerable. It was V.I. Lenin who fostered the idea of a bureaucracy that would manage the community's property.
To Marx, the flaw of capitalism was political, in that successful entrepreneurs — the true economic revolutionaries who spring from the work force -would allow themselves to be co-opted by the ruling elite. This bourgeoisie would be a positive force up to a point, wresting political freedoms away from the entrenched oligarchical interests of feudal society, but would eventually become entrenched itself. In combination, they would choke off the upward paths from the lower classes and thwart those magical forces of production by which civilization reaches toward its Utopian destiny: "Capitalist production develops the technique and the combination of the process of social production only by exhausting at the same time the two sources from which all wealth springs: the earth and the worker."
Just as animals who devour their young become extinct, "The bourgeoisie produces its own grave-diggers. The fall of the bourgeoisie and the victory of the proletariat are equally inevitable," he wrote in the Manifesto. "In the place of the old bourgeois society with its classes and its class antagonisms, there will be an association in which the free development of each is the condition for the free development of all." What we surmise Marx is talking about is a fluid society, one in which anyone can rise or fall without encountering artificial social impediments created by government in either direction. If this is what he means, and I think he does, it represents what I believe to be the realistic ideal of political economy. The flavor is represented in the purely American expression, "Shirtsleeves to shirtsleeves in three generations," which was in usage in the early decades of this century — when the United States came close to being a fluid society at least for men. African Americans were, of course, the notable exception, a legacy that persists to this day — a point we will develop in discussing the underclass later in this essay.
In critiquing the writings of the 19th century American economist Henry Carey, Marx in 1857 clearly approves of the productive forces at work in America at the time, as the bourgeoisie was still unfettered by the state. Carey, in his Principles of Political Economy written in 1837, had set forth his observations of a harmonious capitalism, in which capitalist and worker shared willingly in the fruits of expanding productivity. This challenged the classical economists of Europe, including Ricardo, who presented a more adversarial capitalism, of the kind that Marx built into his central thesis of class struggle. Marx bridged the gap between the two in this manner:
Carey is the only original North American economist. He belongs to a country in which bourgeois society has not developed from a background of feudalism, but began of its own accord; a country where this society was not the surviving result of centuries of development, but the starting point of a new movement; where the state, unlike all other national structures, was from the start subordinated to the bourgeois society and to bourgeois production, and could never attend to a purpose of its own; where, finally, bourgeois society itself, linking the productive forces of the old world with the gigantic natural terrain of the new, has developed to hitherto unknown dimensions and freedom of movement, and has far exceeded previous efforts to overcome the forces of nature, and where the contradictions of bourgeois society themselves appear only as transitory phenomena. It is not surprising that the production relationships in which this immense new world has developed so surprisingly quickly and fortunately are considered by Carey as the normal, eternal conditions of social production and distribution, contrary to what has taken place in Europe, especially in England — which for Carey is the real Europe - where the production relationships have been hindered and disturbed by the inherited obstacles of the feudal period.7
Just wait, Marx seemed to be saying. In due time, the contradictions inherent in bourgeois society will appear in this new world, and as in Europe disharmony will appear, with bourgeois society in the U.S. becoming subordinate to the bourgeois state. Again contrary to popular belief, Marx was not an advocate of violent revolution, but argued that violent revolution would inevitably occur when the bourgeois state could no longer cope with the demands of the historic forces of production. Where the previous classical economists had assumed that consumption would naturally follow production, that "supply would create its own demand," Marx questions that hypothesis, even as he celebrates capitalism as a mighty engine of productive growth. Distribution of productive wealth is a problem each phase of history must solve for itself, a problem he believed capitalism in its mature stage would fail to solve - at that point giving way to revolution and a socialist, communist epoch. His collaborator, Frederick Engels, summarized the concept in a lengthy essay written after Marx's death:
Distribution...is not a merely passive result of production and exchange; it has an equally important reaction on both of these. Each new mode of production or form of exchange is at first retarded not only by the old forms and the political institutions which correspond to these, but also by the old mode of distribution; it can only secure the distribution which is essential to it in the course of a long struggle. But the more mobile a given mode of production and exchange, the more capable it is of expansion and development, the more rapidly does distribution also reach the stage in which it gets beyond its mother's control and comes into conflict with the prevailing mode of production and exchange.8
As I argued in The Way the World Works, the Wall Street Crash of 1929 was exactly what Marx was talking about. He would have easily understood that the forces of protectionism behind the Smoot-Hawley tariff were responsible for the Crash and the Great Depression. This was not the people of Main Street America, but the bourgeois captains of industry who were not satisfied with the colossal wealth accumulated during the 1920s. These were the new oligarchs, at the top of the world, now eager to close off competition, bringing to bear on Washington thek great political weight for the sole purpose of impeding the historic, global forces of production.9 If Marx were alive in 1929, he would have denounced the Smoot-Hawley tariff legislation and tried to prevent its occurrence. It is not correct to associate Marx with an historic inevitability disassociated from individual free will. In fact, he is the first of the philosophers to assert that it is the task of the philosopher to change history, not merely interpret it.10 Here is Marx anticipating the 1929 Crash:
It is enough to mention the commercial crises that by their periodic return put the existence of the entire bourgeois society on trial, each time more threateningly. In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce.11
Marx is absolutely not arguing that the problem would be an insufficiency of aggregate demand, which could be solved by having the state tax capitalists and hand out unemployment checks and food stamps. He posited a distribution crisis, with capitalists unable to find ways to distribute the productivity gains capitalism was producing. As America put up its tariff wall, our production and that of the world outside piled up on each side of it, unable to be exchanged in trade. In this sense, there was too much industry, too much com-merce. What has saved the United States thus far has been the resilience of our democracy, which Marx had no possible means of anticipating. The corporate forces of reaction that had overtaken the Republican Party in the late 1920s — the "malefactors of great wealth" — were pushed aside. Franklin Roosevelt, a member of the privileged class who had been stricken by polio, launched the Democratic Party's New Deal, preserving capitalism within the beginnings of a welfare state.
The Keynesian "underconsumption" theory appeared to explain the Depression. The Crash of '29 was widely explained as a breakdown in the efficiency of the market itself, a "bubble theory" that enabled a new intellectual aristocracy to emerge at the center of policymaking in Washington. If the market is perfectly efficient, there is little need for a "brain trust" of experts to manage competition and allocate resources via taxes, spending, and monetary manipulation. In connecting the Crash with the protectionism of the commercial aristocracy, as I did in 1977, the case for market efficiency was restored. This is the chief reason, I think, why the intellectual aristocracy of both left and right refuses to discuss the Smoot-Hawley Crash hypothesis.12
In the USSR of 1929, the Wall Street Crash appeared as conclusive proof of capitalism's demise, vindicating Marx. Josef Stalin abandoned Lenin's market-oriented New Economic Policy and liquidated what remained of the bourgeoisie. In the name of Marx, private property was expropriated, market pricing of goods and wages jettisoned, and the allocation of capital was assigned to Communist Party functionaries instead of to the market. It took another six decades before this brave new world experiment finally collapsed, unable to maintain itself in its race with a revived U.S. capitalism.
Why? Chiefly, I think, because of Moscow's reliance on that part of Marx's theory that defined profit. In this regard, Marx's economics does have the same gaping hole as that of Keynes: Throughout his writings, Marx systematically fails to take risk and innovation into account. His theory of profit, which is the economic foundation for "class struggle," is a total and unqualified rejection of profit as reward-for-risk. Profit for Marx is exclusively "surplus value" appropriated by the capitalist. In this analysis, "capital" is a legal property title which entitles its owner to appropriate whatever the wage-worker produced over and above the factor-costs of production. Marx can hardly be faulted, as it was not until 1907 that F.B. Hawley put forward the first satisfying and complete risk theory of profit in Enterprise and the Productive Process.13 The classical economists that preceded Marx gave little thought to the dynamics of production, concentrating on problems of distribution, such as those involving price. Monetarists and Keynesians simply assume the productive process, focusing entirely on demand.
It is more than a convenience for modern economists to ignore the role of risk-taking and innovation. The profession's determination to convert Keynesian demand theory into an exact science ran afoul of Princeton mathematician John von Neumann, who in 1936 demonstrated that risk and innovation could not be converted into mathematical equations. To this day, the computers that drive economic policymaking in most of the West cannot handle questions relating to this basic ingredient of entrepreneurial capitalism. Taxation of either business profit or an increase in the value of capital assets (a capital gain) are dealt with in static, linear fashion, as if the risk-taker is largely unaffected by variations in reward.14
In Human Action, Ludwig von Mises's 1949 magnum opus, we find the first connection between confiscatory taxation of risk-taking as an instrument of the bourgeois oligarchs, much as the oligarchs employed the Smoot-Hawley tariff to thwart external competition. We quote at length this fascinating passage:
Confiscatory taxation results in checking economic progress and improvement not only by its effect on capital accumulation. It brings about a general trend toward stagnation and the preservation of business practices which could not last under the competitive conditions of the unhampered market economy...
Every ingenious man is free to start new business projects. He may be poor, his funds may be modest and most of them may be borrowed. But if he fills the wants of consumers in the best and cheapest way, he will succeed by way of "excessive" profits. He ploughs back the greater part of his profits into business, thus making it grow rapidly. It is the activity of such enterprising parvenus that provides the market economy with its "dynamism." These nouveaux riches are the harbingers of economic improvement. Their threatening competition forces the old firms and big corporations either to adjust their conduct to the best possible service of the public or to go out of business.
But today taxes often absorb the greater part of the newcomer's "excessive" profits. He cannot accumulate capital; he cannot expand his own business; he will never become big business and a match for the vested interests. The old firms do not need to fear his competition; they are sheltered by the tax collector. It is true, the income tax prevents them, too, from accumulating any capital. But what is more important for them is that it prevents the dangerous newcomer from accumulating any capital. They are virtually privileged by the tax system...
The interventionists complain that big business is getting too rigid and bureaucratic and that it is no longer possible for competent newcomers to challenge the vested interests of the old rich families. However, as far as their complaints are justified, they complain about things which are merely the result of their own policies. Profits are the driving force of the economy...He who serves the public best, makes the highest profits. In fighting profits governments deliberately sabotage the operation of the market economy.15
While von Mises is viewed by America's intellectual aristocracy as an extreme conservative in his economic views, there is a definite flavor of Marx in this passage. In fact, even though the two are at polar extremes, they merge in their hostility to the politically entrenched vested interests of the Big Business bourgeoisie. If they were alive today, they no doubt would have similar perspectives on the state of the world economy, which is, after all, what this essay is all about.
For Marx, the dialectical forces of production would have seemed to have advanced in a very messy fashion in the 20th century - what with depressions, world wars, both hot and cold, and with dramatically improved standards of living in some parts of the world, and in others, the same grinding poverty he observed in the 19th century. In Europe, he would find roughly the same social stratification of his day. There are the oligarchs who run Europe on inherited property, wealth and social status, and the rest of the people, who, at best, can aspire to marrying into the ruling class. It is the same tired Old World, without social fluidity, with those on top buying off those beneath with various welfare privileges and income transfers. High taxes, myriad regulations, and restrictive laws are maintained throughout Europe in the name of "fairness," at the expense of entrepreneurial activity, technological creativity, dynamic full employment of human resources, and, of course, social mobility.
The European bureaucracy radiating out of Brussels, with no link to ordinary people, would seem discouragingly familiar to Marx, who considered bureaucracy the most essential part of the modern state apparatus. According to British historian David McLellan, a Marx biographer: In 1843, "Marx described how the bureaucracy had eventually become a caste which claimed to possess, through higher education, the monopoly of the interpretation of the state's interests. The bureaucracy, finding itself challenged by the very spirit of equality it had fostered, had turned itself into a medieval corporation, taking refuge in the trinity of mystery, hierarchy and authority.16 He would have been enormously pleased by the shock the people of Denmark administered to this bureaucracy with their rejection of the Maastricht Treaty in 1992, as its hocus pocus was designed to aggrandize and centralize the bureaucracy's control over all of Europe. On the other hand, Marx would have been moderately impressed with the 1979 ascendance of a British shopgirl, Margaret Thatcher, to Prime Minister, as well as her defying the vested, mercantilist interests of Britain by releasing the pent-up forces of production. Ms. Thatcher, of course, opposed the Maastricht Treaty for precisely the same views on bureaucracy attributed to Marx.
As noted earlier, Marx would have cheered the collapse of the Soviet Union, a grotesque inversion of his ideas, built for the convenience of the nomenklatura, the socialist bureaucracy. His insistence that only active democracy could produce a classless society was proven in the negative with the total absence of meaningful suffrage. The historic forces of production had been strangled in Moscow by this bureaucratic elite. Nor would Marx be surprised by the further destruction of Russia's productive forces by the "shock therapy" administered by the international oligarchs of the West -- the bureaucrats of the International Monetary Fund, the World Bank, and the U.S. Treasury.
Arthur Schlesinger, Jr., writing in The Wall Street Journal, had the same thought recently: "Russia today is reproducing the very conditions that led Marx and Engels a century and a half ago to write 'The Communist Manifesto.' If capitalism had remained stuck in those Victorian conditions, Marx's prediction of intensified class warfare and capitalism destroyed by its internal contradictions might very well have been fulfilled...The big-bang enthusiasts forget the lessons of history when they call on governments in the ex-Soviet Union and Eastern Europe to leap to an uncontrolled market without regard for the human debris left in the wake. By reproducing the evils of Victorian capitalism, they carelessly prepare the ground for neo-fascism."17 Schlesinger could have noted that every known political leader in the West, liberal and conservative, along with the Establishment press, stood by while the international bureaucrats who serve them counseled the Russian leaders toward the big-bang abyss. Moreover, when Boris Yeltsin tore up the Russian constitution and blew up the Parliament, on the grounds that they were interfering with his big-bang reforms, western political leaders and the Establishment press celebrated Yeltsin's victory for democracy.
What would Marx observe unfolding in China, which is, of course, still technically a communist state? First, it would please him enormously that China is now the fastest growing economy in the world. Just as he greatly admired the United States of the 19th century, with a government subservient to a fluid society and its own brand of untrammeled, klondike capitalism, he would see China at a similar stage of development. The western intellectual aristocracy remains befuddled, transfixed by China's explosive breakout. What is going on under their noses is a rampant, democratic capitalism developing from the bottom up, with Beijing's Communist Party standing aside to keep from being trampled by the unleashed energies of 1.2 billion ordinary people. Marx and Ludwig von Mises would both cheerfully observe that there is no Big Business in China! The remnants of the Chinese business class escaped to Taiwan years ago, just at the point it was congealing into a new oligarchy. The political oligarchy of the "Gang of Four" that fostered Mao's cultural revolution was itself humbled by the social collapse of manic egalitarianism. These are young Chinese who are starting fresh, advised to get rich by an 89-year-old admirer of Marx and the historic forces of production.
The Wall Street Journal and The New York Times, the principal Establishment voices in America, are horrified by all this. China is setting a bad example, its ordinary citizens actually getting rich by paying no attention whatever to the IMF, World Bank, the U.S. Treasury, or the British colonial interests in Hong Kong. When Deng Xiaoping looks for outside advice, he draws upon the Chinese diaspora in Singapore and Hong Kong, now patching things up with the Taiwanese. The Times frets and worries that every adult Chinese will soon own a car, spewing gases into the atmosphere and enlarging the ozone hole. The Journal huffs and puffs about a handful of "political prisoners" in China whose "human rights" have been violated, in that they were not permitted by the administrative authorities to break laws or overthrow the existing government. Marx would certainly predict that unless the Communist Party gives way to universal suffrage and active democracy, China will eventually produce a new commercial and intellectual aristocracy that will lead to another round of class struggle.
Indeed, the only argument left to an embarrassed American Establishment is in the suggestion that China is growing like hell because it is being run by an elite. Charles Horner of Washington's Madison Center spins this out in the January 1994 Commentary: "Indeed, it may be that the growing fascination of Western intellectuals with China reflects their recognition that, with the end of socialism, Confucianism in action is the last remaining thing around that demonstrates what rule by the 'best and the brightest' can achieve. No wonder, then, that intellectuals seem to suffer so much less from the uneasiness that has come to afflict others as 'Western liberalism' confronts the new power of the 'Confucian ethic' and begins to retreat from it."18
These western intellectuals had for years trumpeted the glories of modern Japan, where the "best and the brightest" ignored the interests of ordinary Japanese and planned out a kind of elite capitalism that would soon swallow up the world. Suddenly, Japan not only looks mortal, but also exudes a sense of panic, as the "best and the brightest" have lost control of their money-making mechanism. In looking at the Japanese, Marx would probably observe that their political mechanisms are deficient, that the ruling class is unable to understand that its problem is class congestion. He would sympathize with newly-elected Prime Minister Hosakawa's attempts to subdue the elite bureaucracy, which looks after the interests of the corporate oligarchs who for decades fed at the trough of the Liberal Democratic Party that Hosakawa defeated. Marx and von Mises would easily understand that the heart of Japan's current economic distress is a system of taxation designed to serve the top at the expense of the bottom.19 Marx and Engels were passionate advocates of a progressive income tax, but not one that would strike hardest at the masses while protecting the wealth of Japan's corporate nobility. They would be horrified to find shop clerks and teenage apprentices around the world facing steep income tax progressions that they intended for the plutocrats.
In Latin America, Marx would see the ranks of ordinary people everywhere stirring, via nascent democracy, against the privileged oligarchs of the region — the commercial and intellectual aristocracy that patterned its rule after that of Mussolini's Italy, Franco's Spain and Salazar's Portugal. In pondering the "Marxist" revolution in Cuba, Marx would probably view young Fidel Castro as a positive force, leading the exploited peasantry against the entrenched elite. He would, though, be as critical of Castro's economy-by-decree, authoritarian rule, and international adventurism as he would have been of the Soviet elite. Marx would not have rushed into Cuban socialism any more than he would have leaped from Russian feudalism to Soviet communism, skipping entirely the dynamism of capitalism. He would have instead advised young Castro to secure the revolution against the return of the oligarchs, now exiled in Florida, by designing a radical, grass-roots democracy and subjecting his own whims of governance to a vote of the people.
In contemplating the United States he so much admired 150 years ago, Marx would still see signs of the rough-and-tumble, fluid political economy in which the mighty can still fall when competing with people born of ordinary means. He would also see telltale signs of aging, though, of a state that now sees itself as pre-eminent, not the subservient instrument of the masses he observed during America's youthful heyday. He would be pleasantly astonished at how thoroughly the ownership of the means of production had been dispersed among the general population, through financial instruments and markets that scarcely existed in his day. He would not find the classless society of his ideal, though, but an underclass beneath an overclass. He would find a corporate and social establishment grown long in the tooth, using all its political weight to protect itself — with armies of lawyers and accountants, a paid-for intellectual aristocracy in the schools and the news media, and effective control of all the organs of government.
He would see the New World of America in the process of becoming the Old World, an extension of Europe, with an entrenched ruling class promising the crumbs of the welfare state to a demoralized, increasingly violent lumpenproletariat. Instead of standing aside to permit a new generation of Americans the opportunity to challenge the old, the corporate state offers security — cradle to grave benefits to those who behave themselves, prison to those who do not. Taxes are raised again and again to pay for this security, smothering incipient enterprise in the cradle as von Mises and Marx would predict. When taxes are resisted, the creative intellectual and bureaucratic aristocracy of the Washington Beltway devises mandates to business and to local governments to tax themselves into bankruptcy, aborting incipient enterprise in the womb. Marx lived through the U.S. Civil War and saw the end of slavery in America. Today, he would see almost an entire generation of young African Americans being returned to penal servitude, their spirits crushed by the welfare state, hundreds of thousands of quasi-political prisoners whose number dwarfs that of China's. How many new crime bills need be passed? How many new prisons built? Where does it all end? It can only end with a revolution against the forces of reaction that control both political parties in the United States today. The highest priority of the Republican Party cannot be a smaller government that punishes more criminals, while the highest priority of the Democratic Party is bigger government social experiments that always seem to produce more criminals.20
At the outset of this exercise, I had mentioned that Marx, a pure democrat, would have been happiest today in studying the experience of Switzerland. Here is a society as close to being classless as one can find on earth. Its people have the highest incomes, and lowest incidence of poverty and crime. Four separate ethnic groups speaking four separate languages live harmoniously within the same governmental structure. There are social problems, of course, but virtually no palpable hostility between social groups. They do so by living under the most democratic constitution on earth, one that guarantees the kind of active democracy Marx argued would be necessary to produce a classless society. All important decisions are made by national initiative and referendum. There is no republican intermediation, no Swiss Beltway. All the lawyers, accountants and lobbyists in the world are helpless in trying to complicate life for the Swiss, who have direct control over policy. There is no Swiss "head of state," except for a rotating figurehead whose name never gets into newspapers outside Switzerland. Marx would take one look at Switzerland today and say, "See, I told you. The state has withered away."
Would the Swiss system work elsewhere? Why wouldn't it? Why isn't it tried elsewhere? Because everywhere else in the world there are vested interests which do not wish to give up their control over policy to ordinary people. In early 1992, Ross Perot seemed to be promising that he would subject all important domestic decisions to a national referendum, via electronic town halls, and that he would reduce the federal tax code to a single sheet of paper. His popularity soared in a spontaneous combustion of ordinary people. At the time, I told him the Establishment would do anything it had to do to stop him from winning the presidency — first character assassination, then real bullets. After being driven from the race, he retooled, came back into the race with totally conventional ideas, adding new layers of complexity to the tax code, for example, and the character assassination stopped. His public support plunged and has not recovered since.
Will the world become more democratic in the years ahead? Because it is so obviously good when it is tried, it is bound to happen. It would require a constitutional amendment here, but that should not be an insurmountable problem. The Establishment would be horrified by the idea, but if given a say in the matter, the broad electorate would prefer the idea of having a more active democracy at the federal level. It would get around the problem of having political parties promise the voters sunshine before the elections, delivering moonshine afterward. Democracy cannot work if politicians do not keep most of their promises.
In the immediate future, the Republican Party is in a better position than the Democratic Party to offer an entirely new deal to the American people — a party realignment that casts the GOP as the party of opportunity, with the Democrats cast as the party of security. The GOP, after all, is out of power and has been as a national party for 40 years, which is the last time it controlled the White House and the Congress. To accomplish this the GOP has to be willing to put aside smaller government as its primary philosophical objective, aiming instead for the loftier goal of a fluid society (which Marx correctly saw would lead to the withering of the state). The GOP, which has not courted the black vote in national politics for 40 years or more, would have to do so if there is to be any meaning to making the United States a classless society — which because of the legacy of slavery, it has never been. The Republican Party has for generations conceded the black vote to the Democrats, who have thereby had 12% of the population on which to practice their social experiments. As Representative Charles Rangel of Harlem puts it: "In the banquet of the Democratic Party, the black folks get to sit next to the kitchen. In the banquet of the Republican Party, black folks sit in the kitchen."
These are the people who would benefit most by having tax rates and regulations which stand as barriers to new enterprise pushed aside.21 Professor Reuven Brenner of McGill University in Montreal made this point in a paper on taxation prepared early this month for the new government in Ottawa, 'Taxation in General, of Capital Gains In Particular." Brenner argues that a high capital gains tax produces "a static, frozen, stratified society," whereas a "lowered capital gains tax could facilitate increased movement within the distribution."
A tax that prevents or slows down such movement is a far more progressive tax than one which would impose, let us say, a 50 percent marginal tax rate on the rich, and a 10 percent marginal tax on the poor. For when the revenues from the 50 percent tax on the small number of richer people is redistributed among the large number of the poorer, that will not allow any of the poorer to become rich. They become somewhat less poor, but still stay at the bottom of the ladder. In contrast, when there are more chances of obtaining credit with a lowered capital gains tax, the talented poor have greater hopes of moving up, something that progressive taxation, no matter how generous can never give.22
A political effort aimed at producing a fluid society cannot be half-hearted, as it faces the entrenched power of the established order. It must be a Lincolnesque labor of love. The gravest problem facing American society today is not the federal budget deficit, health care, unemployment, education nor crime. It is the underclass, which exists because it has been left behind in the competition between the two great political parties. As long as its problems are not solved, its poison spreads throughout all of society, producing the secondary problems that confound the ruling establishment - budget deficits, health care, unemployment, education, crime. It has long ago ceased to be a "black problem," as the hopelessness of the black underclass has extended far into the developing white underclass. The moral authority of the ruling class has degenerated as well, submerged in a tide of cultural decadence. The people know what to do, of course. It is their political leaders who need guidance. For all his faults, Karl Marx figured this out a long time ago, seeing that the internal contradictions of capitalism could only be resolved, if at all, by greater applications of popular democracy. He wasn't a religious man, as we all know,23 but he wasn't simply driven by a desire for fame or fortune. Nor did he believe mankind in general was driven by acquisitiveness: "Man's nature," he wrote as a young man, "makes it possible for him to reach his fulfillment only by working for the perfection and welfare of his society."24
There is clearly room for improvement in ours. We should not be too quick to congratulate ourselves on the defeat of Marx, along with Marxism. Our world society is much more fluid than it was in his day, but the process of renewal is not guaranteed. The forces of reaction that he correctly identified have to be conquered by each succeeding generation, a monumental task that now faces ours.
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1To Marx, a classless society never meant the absolute equality of result, but merely the absence of artificial barriers between social groups. According to David McLellan, a Marx scholar, Marx "had a dynamic or subjective element in his definition of class; a class only existed when it was conscious of itself as such, and this always implied common hostility to another social group." In The Thought of Karl Marx, (New York: Harper & Row, 1971) p. 155.
2 In her 1913 book, The Accumulation of Capital, Luxemburg argues that Marx oversimplified the relationship between capital and labor, that productivity increases would make accommodation between the two sectors impossible: Capitalism would inevitably collapse as it would run out of markets to exploit, at home and abroad.
3 Thomas Sowell, Say's Law. (Princeton: Princeton University Press, 1972), pp. 168-190. Sowell argues that "Marx had no labor theory of value, for example. His business cycle theory is equally remote from popular beliefs about it. As in other areas of Marxian thought, prevailing interpretations and their origins must be analyzed along with Marx's own theories." Marx in fact scorned the idea that workers should receive the full "value" of their product, calling this a "Utopian interpretation of Ricardo's theory." Sowell also points out that Marx was not an "underconsumptionist," a demand-side forerunner of Keynes. "Interpreters who have viewed Marx as [such] have been driven to the farcical expedient of quoting each other and ignoring Marx."
4 In Writings of the Young Marx on Philosophy and Society (L. Easton and K. Guddat, eds., New York: 1967), p. 201, Marx explicitly argues that democracy is the only way the divisions of society could be overcome: "It is not a question whether civil society should exercise legislative power through deputies or through all as individuals. Rather it is a question of the extent and greatest possible universalisation of voting, of active as well as passive suffrage."
5 From Karl Marx and Friedrich Engels, The Communist Manifesto (1848; English translation of 1888, edited by Engels), reprinted in Modern Political Thought: The Great Issues, ed. by William Ebenstein, (New York: Holt, Rinehart & Winston, 1960), pp. 413-22. In another typical passage celebrating these bourgeois forces of production: "Modern industry has established the world market, for which the discovery of America paved the way. This market has given an immense development to commerce, to navigation, to communications by land. This development has, in its turn, reacted on the extension of industry; and in proportion as industry, commerce, navigation, railways extended, in the same proportion the bourgeoisie developed, increased its capital, and pushed into the background every class handed down from the Middle Ages. We see, therefore, how the modem bourgeoisie is itself the product of a long course of development, of a series of revolutions in the modes of production and exchange."
6 Karl Marx, The Grundrisse. Edited and translated by David McLellan. (New York: Harper Torchbook, 1972). In his introduction, McLellan argues that a clear understanding of Marx is not possible without a reading of his Paris Manuscripts, which were not published until the late 1950s: "This reappraisal may have been slow, but, in the minds of some, it was radical, and Marx was discovered to be a humanist, an existentialist, even a 'spiritual existentialist.'" p. 1. Historians who object to this reappraisal of Marx insist that the writings of the younger Marx be dismissed as irrelevant, although my tendency is to give greater weight to this period on the grounds that his intellect was fully formed by the time he was in his 30s while his last years are distorted by bitterness and grief. In The Grundrisse itself, written when Marx was 41, we find him disputing Adam Smith's concept of labor as an individual's sacrifice of his time and energy for purposes of exchange: "It seems far from A. Smith's thoughts that the individual, 'in his normal state of health, strength, activity, skill and efficiency,' might also require a normal portion of work, and of cessation of rest...The result [of overcoming obstacles] is the self-realisation and objectification of the subject, therefore real freedom, whose activity is precisely labor." p. 124.
7 Ibid. p. 48.
8 Frederich Engels, Anti-Duhring. (New York: International Publishers, 1966), p. 165. In this important exposition of Marxism, Engels makes it absolutely clear that a classless society has nothing to do with the kind of egalitarianism often attributed to Marx. Anything beyond the opportunity to move between social groups would be an "absurdity." p. 118.
9 Jude Wanniski, The Way the World Works. (New York: Basic Books, Inc., 1978), pp. 150-51. As I put it then: "Beneath the sarcasm and rage of Capital and the Communist Manifesto, there is an undeniable admiration for the efficiencies of the laissez-faire growth model. Indeed, it is super-efficiency that flaws capitalism in Marx's view. The system is so efficient that it 'over produces,' which means there must be periodic crashes, contractions, in order to restore equilibrium. The masses take the brunt of the contraction. They ultimately must react politically to defend themselves against this cycle of pleasure and pain. The proletariat takes matters into its own hands if only to smooth out the cycle and distribute both the pleasure and the pain more equally among the classes."
10 In Theses on Feuerbach, which Marx wrote in 1845, he argues: "The materialist doctrine that men are products of circumstances and upbringing and that, therefore, changed men are products of other circumstances and changed upbringing, forgets that circumstances are changed precisely by men and that the educator must himself be educated." Quoted in Modern Political Thought: The Great Issues, 2nd Ed. William Ebenstein, ed. (New York: Holt, Rinehart and Winston, Inc., 1960), p. 410.
11 Karl Marx and Friedrich Engels, "Class Struggles" in Anthology of World Prose (New York: Halcyon House, 1935), p. 821.
12 In Charles P. Kindleberger's 1985 collection of essays, Keynesianism vs. Monetarism (London: George Alien & Unwin), there is the only serious mention of my Crash hypothesis by a renowned academic that I've yet found. Kindleberger, an MIT professor emeritus, actually cites the theory in five separate essays, although in each he argues that it is probably not valid: "In the Way the World Works (1978), Jude Wanniski even tries to explain Black Thursday and Black Tuesday, 24 and 29 October 1929, respectively, by the defeat of some low-tariff adherents in a Senate subcommittee on a minor carbide item somehow foreshadowing the passage of Smoot-Hawley tariff some nine months later, its signing into law by widespread protest at home and abroad, retaliation by some forty countries, and the world depression that ensued." Kindleberger obviously did not read the book, though, as the critical measure involving 20,000 commodities was far beyond the subcommittee stage, had already passed the House, breaking through a wall of opposition on the Senate floor during that fateful week.
13 Hawley is quoted in Frank Knight's 1921 Risk, Uncertainty and Profit (New York: Augustus M. Kelley Reprints of Economic Classics, 1964), in itself one of the most important supply-side books of the century, its ideas thus far successfully drowned out by the demand-side: "...the profit of an undertaking, or the residue of the product after the claims of land, capital, and labor (furnished by others or by the undertaker himself) are satisfied, is not the reward of management or coordination, but of the risks and responsibilities that the undertaker...subjects himself to."
14 See Jude Wanniski, "Macroeconomics: The Enemy Within," The Wall Street Journal, June 27, 1991, op-ed page, and David P. Goldman, "Growth Economics and Macroeconomics," The Public Interest, Fall 1991, p. 78. According to Goldman, "Von Neumann showed that it was only possible to describe a growing economy by a system of capital equations under the condition that every part of the economy grew in precisely the same proportion. Any change whatever in these proportions - of capital to labor, or nuts to bolts ~ would make the system of equations insoluble. Since innovation alters the mix of production factors, by implication no system of equations can measure its effect on an economy."
15 Ludwig von Mises, Human Action: A Treatise on Economics, third revised edition (Chicago: Contemporary Books, Inc., 1963), pp. 808-09. Von Mises includes a harsh critique of Marxism in this compendium, although he does separate Marxists from other socialist schools with: "...the Marxists do not praise and kindle the class struggle for its own sake. In their eyes the class struggle is good only because it is the device by means of which the 'productive forces/ those mysterious forces directing the course of human evolution, are bound to bring about the 'classless' society in which there will be neither classes nor class conflicts." p. 675.
16 David McLellan, The Thought of KarI Marx: An Introduction, (New York: Harper& Row, 1971), pp. 183-84. McLellan quotes from Marx of 1872 that "What all socialists understand by anarchism is this: as soon as the goal of the proletarian movement, the abolition of classes, shall have been reached, the power of the state, whose function it is to keep the great majority of producers beneath the yoke of a small minority of exploiters, will disappear and governmental functions will be transformed into simple administrative functions." p. 184.
17 Arthur Schlesinger, Jr., "Fascism's Lengthening Shadow," The Wall Street Journal, December 27, 1993, p. 6.
18 Charles Horner, "China on Our Minds," Commentary, January 1994, p. 52. Horner obviously enjoys tweaking the Establishment, early on in his article giving us this: 'These days, of course, China is showing itself amenable to a softer kind of Westernism, one without hard political edges or doom-laden visions, and preoccupied with making money. Yet western relief over this seeming conversion of one-fourth of mankind to a faith in 'market forces' has been short-lived, and is now dampened by an anxiety which, in certain quarters, has already given way to dread."
19 In Anti-Duhring, op cit., Engels, in discussing the economic theories of David Hume, at one point notes: "Everyone knows the passionate fight that the masses of the English people were waging, just in Hume's period, against the system of indirect taxes which was being systematically exploited by the notorious Robert Walpole for the relief of the landlords and of the rich in general." p. 264.
20 The black "underclass" certainly fits Marx's definition of a class, one conscious of itself, with common hostility to another social group. While we tend to ascribe a certain dignity to "political prisoners" that we would never think of assigning to the criminal underclass, it remains the case that American society must realistically conclude that flaws in the political system are primarily responsible for the rage that is common to both "political prisoners" and the "underclass" — rage being the pain felt by a real or perceived injustice or slight. With 68% of blacks now being born out of wedlock, it would be foolish not to attribute much of the outrageous behavior of young black men and women to the experimental social engineering of the entrenched political class.
21 As it is, more than half of all African American college graduates in the United States today are employed by public or private concerns engaged in the redistribution of wealth to the black and white underclass.
22 Reuven Brenner, 'Taxation in General, of Capital Gains in Particular," Typescript, January 7, 1994, p. 14. Brenner adds: 'The reason that this argument is rarely mentioned in public debates is that it cannot be summarized in the simple sound bite or diagram, whereas how much the rich, the middle and the poor have, can be. The fact that many families move up and others go down within the distribution of wealth, and thus the fact that we are not talking about the same people staying permanently rich or poor, is never even mentioned, and is lost in the superficial public debates and presentations."
23 Marx was born of Jewish parents, from a long line of rabbis, who converted to Christianity after his birth. Marx himself was baptized at the age of six and was conscientious in his practice through his teenage years. While he remained an admirer of Christ throughout his life, in his college years he developed a hostility to organized religion. This grew out of his identification of the church as a conscious agent of the political oligarchs in suppressing the interests of the working class. In 1952, age 16, I literally left the Catholic Church during Sunday mass when the Irish pastor, in his sermon, praised Joe McCarthy and identified "Jewish communists" as the Senator's principal opponents. I returned to the church in 1966, the pull of Christianity overcoming the political drag of some of its practitioners.
24 Writings of the Young Marx, op cit., p. 39.