In The Communist Manifesto (1848) Karl Marx (1818–83) and Friedrich Engels (1820–95) predicted that capitalism would lead to the impoverishment of the laboring class. Why? Well, to raise profit on capital invested, Marx and Engels argued, entrepreneurs (the capitalists) would exploit the workers. They would reduce wages and worsen working conditions by, say, increasing working hours. From that viewpoint, Marx and Engels put forward an immiseration theory of capitalism. Worker “Exploitation” Marxists would not argue that workers’ wages would decline in absolute terms, but certainly in relative terms: the wage incomes of the many would rise less than the incomes of the capitalists, thereby making the former poorer compared to the
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In The Communist Manifesto (1848) Karl Marx (1818–83) and Friedrich Engels (1820–95) predicted that capitalism would lead to the impoverishment of the laboring class. Why? Well, to raise profit on capital invested, Marx and Engels argued, entrepreneurs (the capitalists) would exploit the workers. They would reduce wages and worsen working conditions by, say, increasing working hours. From that viewpoint, Marx and Engels put forward an immiseration theory of capitalism.
Marxists would not argue that workers’ wages would decline in absolute terms, but certainly in relative terms: the wage incomes of the many would rise less than the incomes of the capitalists, thereby making the former poorer compared to the latter over time. Especially in times of crisis, which are inevitable and recurrent in a capitalist economy, workers would be hit particularly hard, causing their economic and financial conditions to fall further behind of those of the capitalists.
To make things worse, Marxists argue that capitalism would bring about violent colonialism and imperialism. As capitalists pay less for labor than what is appropriate, the workers cannot buy all available products. Profit-seeking capital is, therefore, seeking to open up new markets in other parts of the world. Conflicts over who controls what arise among nations, paving the way toward war. This is, in fact, the message Vladimir Lenin (1870–1924) hammered home to his readers in his 1917 book Imperialism: The Highest Stage of Capitalism.
If capitalism is bad—if it brings exploitation, misery, and even war to a great many people, and all this comes to the benefit of the capitalists—isn’t it rightful and consequential to do everything to overcome capitalism and replace it with socialism-communism, the alternatives said to bring peace, equality and happier life for the people in this world? Sound economics reveals that the Marxist critique of capitalism, as well as the high-flying enthusiasm for socialism-communism, is tantamount to outright intellectual confusion.
What Capitalism Really Is: Peaceful Cooperation
Many people do not know what capitalism really means. Capitalism is the social and economic order in which the means of production are privately owned. In its “pure” form, capitalism means unconditional respect of people’s private property, free markets, and, most importantly, a form of state that is confined to protecting people and their property against aggression from inside and outside the country’s borders. “Pure” capitalism is no doubt conducive to peaceful and productive cooperation nationally as well as internationally.
It is capitalism that makes mass production possible—the production of goods and services for the consumption of the greatest number of people. The productivity gains that it creates result in a tendency toward a continuous increase in people’s average living standard. Producers are subject to the profit and loss principle: they are economically rewarded only if and when their products meet consumers’ preferences. If they don’t, entrepreneurs will suffer losses, forcing them to improve their output to the benefit of their customers.
Pure capitalism not has only a built-in mechanism to improve the masses’ material well-being. What is particularly wonderful is that under pure capitalism, people’s wages do not depend on individual workers’ productivity, but the marginal productivity of labor in general. Assume a firm makes a productive innovation. To hire new labor, it has to pay higher wages compared to those paid by other employers. The latter, to retain their staff, will also have to offer a higher wage—to the benefit of less productive workers.
It should also be noted here that pure capitalism encourages the division of labor among people, nationally and internationally. This, in turn, entices people to seek peaceful cooperation rather than conflict: everyone realizes that it pays off to cooperate, that this is mutually beneficial to all parties involved. In other words: pure capitalism is a recipe for peace. In a world of pure capitalism, there would simply be no reason for large-scale violent conflicts, let alone state wars.
Interventionism vs. Capitalism
Why do so many people harbor resentment or even hate against the concept of capitalism? One answer is that they presumably look around and see the many evils in this world, such as the recurrence of financial and economic crises; mass unemployment; bailout programs that make big corporations richer, disregarding the fate of small and medium-sized firms; chronically rising costs of living; growing income and wealth inequality; and growing geopolitical tensions and conflicts.
Unfortunately, all these evils are attributed to capitalism. A fatal conclusion, though, because there is no pure capitalism, neither in the US nor in Europe, Asia, Latin America, or Africa. What we find are interventionist-collectivist and sometimes even socialist economic and societal systems. Especially in the Western world, basically all states, and the special interest groups that exert great influence over them, have succeeded in increasingly replacing what little is left of the capitalist system in recent decades.
States have interfered in all areas of people’s lives. Be it education (kindergarten, schools, universities), health, pensions, transport, law and order, money and credit, or the environment, the states and their governments have become major players in markets for goods and services, turning free markets into hampered markets, raising taxes ever higher, and increasingly undermining and even destroying the institution of private property.
Intervention Cripples the Wealth Creation Offered by Capitalism
Sound economics tells us that interventionist-collectivist, let alone socialist, systems do not work to the greatest benefit of all. All these systems are much less efficient than pure capitalism in terms of material wealth creation—and even prove to be outright failures in the case of socialism. The particular problem with interventionist-collectivist systems is that to the uninformed observer they may well appear to be capitalism, resulting in all the evils of interventionism-collectivism being ascribed to capitalism.
The truth, however, couldn’t be more different. Interventionism-collectivism works toward the elimination of capitalist remnants. The crises that these systems inevitably cause, the dissatisfaction they create among a great many people, are interpreted as a result of capitalism, and so, as a consequence, people call for ending capitalism, for replacing it with a better, more just and reliable economic and societal order. However, it would be naïve to assume that the problem is confined to a lack of insight into sound economics.
Blaming Capitalism for the Evils Caused by States
By no means less important are the ideologues on the political left. Knowing that the chances for establishing outright socialism-communism in the Western world through a violent upheaval have been fairly small in recent years, those in the Marxist tradition have adapted their strategy: they seek a gradual transformation of what is left of the free economic and societal system by discrediting capitalism, blaming all evil, all societal problems on capitalism, fictionalizing it as the nemesis of mankind.
This, however, is an intentional misinterpretation of what is really going on. It is to give a wrong tint to reality—with tragic consequences. People heed the message—being propagandized over and over—that capitalism will seal their fate: that it makes the rich richer at the expense of the poor; causes ever greater financial and economic turbulence; doesn’t create enough and secure jobs; destroys the environment; and so forth. All this amounts to nothing more than giving a new face to Marx’s immiseration theory.
Neo-Marxists: Not Waiting for the Revolution
This plays into the hands of the Neo-Marxists who seek control over economic and societal affairs, striving to establish a “new world order.” The spread of interventionism is certainly a milestone in this direction. Because interventionism, if it is not halted and reversed, leads to socialism. And the logical culmination of socialism is a struggle for world dominance, as socialism cannot exist within limited areas of the earth’s surface, especially not if there are still more or less capitalist systems around.
Marxists in the traditional sense may expect capitalism to make the world ripe for socialism. Neo-Marxists, in contrast, wouldn’t want to wait for things to turn their way; they seek action. Instilling fear among the people that capitalism cannot overcome the world’s pressing economic, social, and environmental problems, that capitalism is the root cause of all these plights, characterizes the strategy of the Neo-Marxists. That said, “climate change” and the coronavirus pandemic are lucky coincidences for them.
Under the promise of preventing climate change, governments are meant to run truly radical market interventions: imposing taxes and manipulating prices of goods and services, thereby politically determining the size and structure of consumer and investment demand. In fact, under the well-sounding “climate change policy” label, far-left policies can push economies effectively into central planning: the ruling elite determines who produces what and when and at what costs, and who is to consume when and what.
The Virus Panic
The coronavirus epidemic offers to all the enemies of pure capitalism an even bigger opportunity to strike down what little is left of the free market system. With the help of coercive lockdowns—allegedly a measure to “fight the virus”—governments can directly destroy corporate capital, boycott global trade, and cause mass unemployment, thereby leaving a great many people despondent and receptive to even more interventionist-collectivist or even outright socialist policies.
Fear is known to be the foundation of any government’s power. Neo-Marxists, and those in favor of establishing central global control, have increasingly incorporated this unfortunate truth into their political agitation to destroy what is left of the free market and free societal order, and all the more as their immiseration theory—the impoverishment of the masses under capitalism—has lamentably failed. Whether the Neo-Marxist onslaught can be successful or defeated is of paramount importance for the vast majority of people.
Only Capitalism Can Deliver Needed Goods and Services
Pure capitalism is the only viable economic and societal form of organization. In his Socialism: An Economic and Sociological Analysis from 1951 (first published in 1922 as Gemeinwirtschaft: Untersuchungen über den Sozialismus), Ludwig von Mises (1881–1973) noted: “Capitalism is that form of social economy in which all the deficiencies of the socialist system…are made good. Capitalism is the only conceivable form of social economy which is appropriate to the fulfilment of the demands which society makes of any economic organisation” (p. 220).
Disregarding the sound economics’ teachings about capitalism and socialism and giving in to the ideas propagated by Neo-Marxism would ultimately lead to the destruction of the very foundations upon which the material well-being of billions of people on this globe rests. It would result in great misery, even starvation and violent conflicts. It is therefore high time to boldly expose the errors and confusions of interventionist-collectivist and socialist-Marxist ideology and courageously call for reestablishing pure capitalism.
Note: Mises.org are not necessarily those of the Mises Institute.