Grand Pursuit: A Story of Economic Genius. Sylvia Nasar
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to condemn capitalism on moral (that is to say Christian) grounds, as utopian Socialists such as Pierre-Joseph Proudhon, who claimed that “private property is theft,” had done. Marx had no intention of converting capitalists as his favorite novelist, Dickens, dreamed of doing with his Christmas Carol. In any case, he had long repudiated the notion of any God-given morality and insisted that man could make up his own rules.
The point of his great work was to prove “with mathematical certainty” that the system of private property and free competition couldn’t work and hence that “the revolution must come.” He wished to reveal “the law of motion of modern society.” In doing so, he would expose the doctrines of Smith, Malthus, Ricardo, and Mill as a false religion, just as radical German religion scholars had exposed biblical texts as forgeries and fakes. His subtitle, he decided, would be A Critique of Political Economy.100
Marx’s law of motion did not spring Athena-like from his powerful, brooding mind, as his doctor friend Louis Kugelmann supposed when he sent Marx a marble bust of Zeus as a Christmas present. It was Engels, the journalist, who supplied Marx with the rough draft of his economic theory. Marx’s real challenge was to show that the theory was logically consistent as well as empirically plausible.
In the Manifesto, Marx and Engels had offered two reasons for capitalism’s dysfunction. First, the more wealth that was created, the more miserable the masses would become: “In proportion as capital accumulates, the lot of the laborer must grow worse.” Second, the more wealth that was created, “the more extensive and more destructive” the financial and commercial crises that broke out periodically would become.101
While the Manifesto referred to “ever-decreasing wages” and “ever-increasing burden of toil” as matters of historical fact, in Das Kapital, Marx argued that the “law of capitalist accumulation” requires wages to fall, the length and intensity of the working day to rise, working conditions to deteriorate, the quality of goods consumed by workers to decline, and the average life span of workers to fall. He did not, however, fall back on the second of his arguments about ever-worsening depressions.102
In Das Kapital, Marx specifically rejected Malthus’s law of population, which, as it happens, is also a theory of how the level of wages is determined. In formulating his law, Malthus had assumed that pay was strictly a function of the size of the labor force. More workers meant more competition among them, hence lower wages. Fewer workers meant the opposite. Engels had already identified the primary objection to Malthus in his 1844 “Outlines of a Critique of Political Economy,” namely that poverty could afflict any society, including a Socialist one.
Marx’s edifice rests on the assumption that all value, including surplus value, is created by the hours worked by labor. “There is not a single atom of its value that does not owe its existence to unpaid labor.” In Das Kapital, he cites Mill to support his claim:
Tools and materials, like other things, have originally cost nothing but labour . . . The labour employed in making the tools and materials being added to the labour afterwards employed in working up the materials by aid of the tools, the sum total gives the whole of the labour employed in the production of the completed commodity . . . To replace capital, is to replace nothing but the wages of the labour employed.103
Mark Blaug, a historian of economic thought, points out that if only labor hours create value, then installing more efficient machinery, reorganizing the sales force, hiring a more effective CEO, or adopting a better marketing strategy—rather than hiring more production workers—necessarily causes profits to fall. In Marx’s scheme, therefore, the only way to keep profits from shrinking is to exploit labor by forcing workers to work more hours without compensating them. As Henry Mayhew detailed in his Morning Chronicle series, there are many ways of cutting the real wage. It is crucial for Marx’s argument, writes Blaug, that trade unions and governments—“organizations of the exploiting class”—can’t reverse the process.104
A surprising number of scholars deny that Marx ever claimed that wages would decline over time or that they were tethered to some biological minimum. But they are overlooking what Marx said in so many words on numerous occasions. The inability of workers to earn more when they produce more—or more-valuable products—is precisely what made capitalism unfit to survive.
By asserting that labor was the source of all value, Marx claimed that the owner’s income—profit, interest, or managerial salary—was unearned. He did not argue that workers did not need capital—factories, machines, tools, proprietary technology, and the like—to produce the product. Rather he argued that the capital the owner made available was nothing more than the product of past labor. But the owner of any resource—whether a horse, a house, or cash—could use it herself. Arguing, as Marx does, that waiting until tomorrow to consume what could be consumed today, risking one’s resources, or managing and organizing a business have no value and therefore deserve no compensation is the same as saying that output can be produced without saving, waiting, or taking risks. This is a secular version of the old Christian argument against interest.
The trouble is, as Blaug points out, that this is just another way of saying that only labor adds value to output—the very statement that Marx set out to prove in the first place—and not an independent proof.
Marx compiled an impressive array of evidence, from Blue Books, newspapers, the Economist, and elsewhere, to show that the living standards of workers were wretched and working conditions horrendous during the second half of the eighteenth and first half of the nineteenth centuries. But he did not succeed in showing either that average wages or living standards were declining in the 1850s and 1860s, when he was writing Das Kapital, or, more to the point, that there was some reason for thinking that they would necessarily decline.
Had Marx stepped outside and taken a good look around like Henry Mayhew, or engaged brilliant contemporaries such as John Stuart Mill who were grappling with the same questions, he might have seen that the world wasn’t working the way he and Engels had predicted. The middle class was growing, not disappearing. Financial panics and industrial slumps weren’t getting worse.
When the Great Exhibition of 1862 closed, the “great festival” refused to disband. A businessman bought the Crystal Palace, had it disassembled and carted to Sydenham in South London, and rebuilt it on an even more monstrous scale. Much to Marx’s disgust, the new Crystal Palace opened as a kind of Victorian Disney World. Worse, the economy boomed. As Marx had to admit, “It is as if this period had found Fortunatas’ purse.” There had been a “titanic advance of production” even faster in the second ten years than in the first:
No period of modern society is so favorable for the study of capitalist accumulation as the period of the last 20 years . . . But of all countries England again furnishes the classical example, because it holds the foremost place in the world-market, because capitalist production is here alone completely developed, and lastly, because the introduction of the Free-trade millennium since 1846 has cut off the last retreat of vulgar economy.105
More fatal to Marx’s theory, real wages weren’t falling as capital accumulated in the form of factories, buildings, railroads, and bridges. In contrast to the decades before the 1840s, when increases in real wages were largely limited to skilled workers, and the effect on living standards was offset by more unemployment, longer hours, and bigger families, the gains in the 1850s and 1860s were dramatic, unambiguous, and widely discussed at the time. The Victorian statistician Robert Giffen referred to the “undoubted” nature of the “increase of material prosperity” from the mid-1840s through the mid-1870s.106 Robert Dudley Baxter, a solicitor and statistician, depicted the distribution of income in 1867 with an extinct volcano that rose twelve thousand feet above sea level, “with its long low base of laboring population, with its uplands of the middle classes, and with the towering peaks and summits of those with princely incomes.”107 The Peak of Tenerife struck Baxter as a perfect metaphor for describing who got what. Still, his data show that by 1867, labor’s share of national income was rising.
Scholars have since corroborated these contemporary observations. As early as 1963, Eric Hobsbawm, the Marxist economic historian, admitted that “the debate is entirely about what