Links:
Topics/bookmarks (alphabetical order):
The "hidden hand” of
the market
John Locke John Locke: Extracts
Market: see ‘hidden hand’
Adam Smith Adam Smith:
Extracts
Aims and Summary
Aims and Learning outcomes: To assist students to understand the historical periods which
preceded industrial capitalism, so to raise the question as to whether and
to what extent capitalism might be changed in the future. (In this chapter
therefore we embark on some history, and some social and political
philosophy!)
To enable students to:
- describe the key features of (European)
societies before the advent of industrial capitalism, with particular reference
to their commercial activities and the values attached to these;
- discuss some of the arguments used by
significant thinkers of the times, to explain and justify the social order in
which they lived;
- discuss the role of individuals, ideas,
technology etc in promoting change (with particular reference to changing
commercial and economic practices);
- identify key aspects of early twentieth
century business that set the background to discussion of social
responsibilities of business.
Summary:
1. A Brief Note concerning Key Issues in
understanding “history”:
1.
Progress? Difference and “Moral Relativism”.
2.
Agents/agencies of change? Individuals (i.e. politicians, moral leaders,
entrepreneurs)? Ideas/beliefs/values? Technology (beware of technological determinism!)?
Groups, social classes/movements?
2. Historical Eras:
(Sources:
Luthans and Hodgetts: Social Issues in Business,.ch. 2, also Kempner: Business
and Society ch 2)
(a)
Pre-Business era (BC)
Prehistoric
peoples - 'primitive communism'? Some archaeological evidence that people with
disabilities were cared for..
Greeks
- 'culture' more important than business
– economics = housekeeping and
left to slaves.
(b)
Feudalism (1,000 - 1300 AD)
Production
for use or direct exchange
Shopkeepers
and merchants buying and selling locally in markets
Workers'
guilds…
The
church and the 'just price': also usury condemned
Duties
and responsibilities under feudalism…
(c)
Early (or petty = small) Capitalism (1300 - 1800)
Transition
to modern world: growth of nation-state, which protected traders (mercantilism)
and individual freedom (of movement) and property rights
Protestantism
- the 'work ethic' & “saving”.
International
trade and early colonialism.
(d)
Industrial revolution began (ca. 1750)
Some
defenders and critics of industrial society and of capitalism.
John
Locke (1632 – 1704)
Adam
Smith (1723 – 1790)
Jeremy
Bentham (1748 –1832)
(e)
Socialism: Karl Marx (1818 – 1883)
(f)
Victorian Values:
Self-help
(Samuel Smiles)
The
Salvation Army (William Booth)
Philanthropy:
the responsibilities that go with wealth and success
Non-conformism
- Quakers etc
Robert
Owen and co-operation
(g)
The
"Robber
barons" - Rockefeller, Carnegie
"The power to make money is the gift of god"
"Theory
x" - strike-breaking
Philanthropy?
(h)
The Twentieth Century - first half:
'20s
and '30s: slump and depression
J.M. Keynes,
(demand management)
F.D.
Roosevelt's "New Deal"
War
and planning - industrialisation in
3. Conclusions.
4. Extracts from
political thinkers mentioned, with commentaries:
(a) John Locke
(b) Adam Smith
(c) Karl Marx and
Frederick Engels.
*******************************************************************
Notes: Chapter 2: Historical background Part 1
1. A Brief Note concerning Key Issues in
understanding “history”:
1 (a) Lessons
from history?
To understand history helps us to understand
the present, I believe. However, some argue that we now live in such a
different society to any before that there are no “lessons” to be learned from
history. One response to this might be that we should try to understand our
society so that we can direct or control the process of change, and that
understanding the past as a process of change, whilst identifying the factors
causing change, can only help us. Another response might be that we will
not be able to imagine ways of creating a society different to our own unless
we can imagine what it was like to live in very different times. (See my
notes: Thus, for example, I would
argue that it is important to understand that our use of money and exchange
through markets, even our concept of private property, not to
mention the corporation, are all relatively modern ideas/institutions.
Other societies have lived for long periods of time, and been apparently happy,
without them – so maybe we could do without them too!
Another,
and related, question is often raised as to whether societies over time are
simply different, or whether we have made “progress”.
Since the “enlightenment”, - which coincided with the origins of science,
technology and consequently industry and business – the dominant (“modern”
or modernist) view has been that we have progressed. Proposals to fundamentally
change the structure of modern society, especially those involving a critique
of technology, are often met with the objection that this means to “go backwards”.
“Post-modernists” reject the idea of
progress, since they note that the consequences of believing in progress
include passing over the evils of colonialism, and blind faith in whatever is
new, regardless of the consequences. However, it seems to me that most
post-modernists have nothing constructive to say about the future, and they
even fall into the trap of “moral relativism” by rejecting any judgements as to
the superiority or otherwise of a given social order.
Update:
this was a very brief and over-simple comment... Further notes on postmodernism
are at: Political Philosophy part 23.
1 (b) Factors promoting historical change:
If
we are to “make use” of a study of history, we need to try to answer questions
such as: what are the most important agents/agencies of change? There has been
a tendency to see history as “made” by great individuals (i.e.
politicians, moral leaders, entrepreneurs), but more recently historians have
stressed the importance of other factors such as ideas, beliefs, and values.
For example Max Weber argued that the origins of
commerce (see also (b) 3, below) could be found in Protestantism,
with its belief that there was no way of knowing whether or not you were chosen
to go to heaven after this life, except that if you worked hard and were
successful this might be a sign that God was looking favourably on you. Coupled
with a belief that it was wrong to live a materialistic ostentatious life – it
was better to “save”… - we can see how capital came to be accumulated, and
economic growth took place. (See also below: Protestant
Reformation).
Others,
of course, stress the importance of technology, such as the steam engine,
in bringing about the industrial revolution. Marx in fact put great emphasis on
this, but it is possible to argue that this is “technological determinism” i.e.
the fatalistic view that once a technology has been invented there is nothing
that we can do to control the effects it has.
Finally,
(and, in fact, more in the spirit of what Marx’s theory is about) we could
argue that we should put some weight on social groupings, especially social
classes and popular movements, in accounting for historical change. Thus it
was surely the merchants and their need for free movement of goods and money –
sometimes protected by the state - which largely created the structure of the
modern world.
If
you do accept that social groups and social structures are key, there is still
the question of conflict or co-operation: which is most useful in
promoting change? Social Darwinists argue that conflict, or competition, is not
only natural but most desirable, in order to ensure the survival of the
fittest. This is a distortion the ideas of early defenders of capitalism, such
as Adam Smith, whose ideas we will examine below.
2. Historical Eras, and the theories of society
and economy that were current at each period:
(Sources:
Luthans and Hodgetts: Social Issues in Business,.ch. 2, also Kempner: Business
and Society ch 2, together with notes on political thinkers – see forthcoming
notes on political philosophy)
Prehistoric
peoples: we know very little about the daily lives of these peoples, and
archaeological evidence is continually changing the picture (for example the
dispute as to whether there was one common original human forebear or more than
one). Marx thought that early people lived what he called 'primitive communism' – that is, goods and
land were held in common, simply available for everyone to use. And perhaps
there was no such thing as the family (where wives are seen as the property of
men). This was an important part of his overall theory, as he argued that the
advent of private property had changed society fundamentally, with negative
consequences as well as some positive ones, i.e. material progress! Since the
private ownership of capital led to insoluble contradictions in the
economy – individuals owning capital privately and pursuing their own private
goals and yet claiming to benefit society collectively - Marx argued that we
should be moving towards the abolition of private property and the restoration
of communism, though at a higher level. These ideas explore the issue of
co-operation versus conflict, since it is clear that Marx believed that
co-operation was a better way of managing society. Similarly the anarchist
Kropotkin set out how he believed that co-operation, even among animals, had
always been as important a factor of evolution as conflict. For Kropotkin,
being able consciously to co-operate was the sign of being a higher species.
See: Notes on Kropotkin and Anarchism.
There
are other disputes over whether early humans were selfish or sociable - some
archaeological evidence seems to show that people with disabilities were cared
for, which would make these societies in some ways almost better than our own!
On the other hand, there is also evidence of human sacrifice – so it is very
difficult to be sure about the nature of these societies! Another debate
amongst archaeologists and historians concerns the question: at what stage in
our evolution did we begin to use our imagination? The ability of humans to use
symbols – to see in an object (such as a drawing, talisman, statue etc)
something other than what it actually is – is fundamental to our ability to
communicate (words are symbols) and think and create a culture. One definition
of philosophy is that it is the study of the different meanings that people
attach to given words and ideas. Whenever we try to understand how other people
think – why they think differently to ourselves – we are “doing philosophy”.
It
is also important to be aware that the classical Greeks had a civilisation
that produced great works of knowledge and art, whilst having nothing we would
recognise as “commerce” The Greek word from which our term “economics”
is derived in fact meant “housekeeping”. Moreover, this was an inferior
activity, to be left to slaves and to women (who were regarded as inferior).
What was most important to the Greeks was the cultivation of the mind: for
Aristotle, meditation, for Plato the study of philosophy (and those who were
fittest at this would be the rulers). We might note in passing that Margaret
Thatcher used to argue as if economics were the same as housekeeping – and that
we all should be freed from the state (which should stay out of commerce and
industry) in order to pursue our own interests. Some called this “philistine” since
it suggested that self-interested material pursuits were all that mattered!
Luthans
and Hodgetts note that one of the earliest indications that rulers felt the
need to lay down clear guidelines for social behaviour (to check the freedoms
of individuals who might cause others to suffer) was in Babylon, where
the ruler Hammurabi (18th century
2 (b) Feudalism (1,000 - 1300 AD):
During
this period, (also known as the Middle Ages) in
Given
the interest in Islam today, it is worth noting that (as in Islam now) the
authorities in the feudal period forbad the charging of interest, or “usury”.
Money itself was regarded as “barren”, having no value in itself, and
not being able to create value. It was not money (a human invention) that
produced wealth but labour, a creation of God; so it would be wrong to
charge for the “use” of money. You may be aware that Shakespeare touched on all
this in the Merchant of Venice: Shylock is a Jew, and a money-lender, because
the Christians (at first!) refused to be money-lenders, since they would be
condemned by God. Since Jews didn’t believe in the Christian notions of Heaven,
sin and redemption, they were willing to take on the role of bankers and
money-lenders – and the Christians didn’t care that the Jews would go to Hell!
2 (c) Early (or
petty = small) Capitalism (1300 - 1800):
Gradually,
from the 16th century especially, (the time of the Renaissance and
Reformation) the Christian church changed and lost its influence.
The
Renaissance was a “rebirth” of interest in classical (Greek and Roman) learning
– and consequently in pre-Christian philosophy. But if there were other ways of
explaining how the world came to be, and what life is all about, then the
Christian explanations were likely to lose their hold. Moreover, whilst during
the Middle Ages there had been a taboo over the human body (the church would
not allow dissection…) the return to earlier ways of thinking meant that
“things human” were studied again in more depth. The “humanist”
movement exemplified this, especially with the saying: “I am human; nothing
human is alien to me” (actually a quote from the Roman author Terence, 185 –
159 BC). Michelangelo’s statues, such as his David, and Leonardo’s drawings of the
muscles and inner structures of the body were products of this new humanist
outlook.
The
church’s power was affected still more by the Protestant
Reformation. What originated as a movement within the church to protest
against corruption became a new division (Protestants against Catholics).
Luther and Calvin, the prime movers of the Reformation, believed that man was
so sinful that God would condemn most people to hell. Only if you had a pure
conscience, abstained from luxuries and other excesses, and if you demonstrated
(especially by following a “calling”) that you were willing to work hard
for the good of society, then you might be “saved”. As Max Weber argued, these
ideas were of great importance in launching capitalism: ever since then,
capitalism has been characterised by the “work ethic”
and the importance of investing (by “saving”).
In
politics, the nation-state came to be the typical form of organisation,
rather than the wider and looser
With
the influx of raw materials and luxury goods (gold, diamonds, spices) through
the conquest of distant lands (the process of colonialism) European countries
became much more wealthy.
Further,
with the invention of steam-powered machinery, and labour organised (through
the division of labour) in factories, the industrial revolution began (first half
of 18th century). As we shall
see below, not everyone was happy with these developments, especially early
socialists who watched the impoverishment of the workers with horror. Liberal
and humanist minded critics saw the de-humanising effects of the emphasis on
material wealth – what Marx later (in the Communist Manifesto) called the 'cash
nexus.'
2 (d) The
Industrial Revolution:
The
social and political order that came about at this time we now call “liberalism”. Individuals had freedom, especially to
own property, and the state existed to protect the individual and his (not ever
“her”!) property and rights.
It
is worth getting familiar with the arguments of such thinkers as John Locke (1632 – 1704), who spelled out the philosophy of liberalism, since they were to have
an influence on many subsequent proponents of capitalism. (See the first set
of extracts below: Locke Extracts). Locke’s starting-point was that the
individual was made by God. In the “Letter on Toleration” he said that
therefore each has a God-given right to his/her beliefs, conscience and
religious practices, and no-one has the right to dictate beliefs to others. The
state, he went on, should have no further involvement in society than to protect
individuals and their property and their freedom to trade.
In
his “Treatises on Government” he defined what is known as the “liberal”
political view, that has dominated European thought (alongside socialism) ever
since.
A
further point that Locke makes is that since everything comes from God it would
be morally wrong to waste resources (e.g. crops), or allow them to spoil.
Like
Adam Smith, (below), Locke believed that what we have laboured to produce is our
property. In explaining how the landowner then produces more than he can use,
and sells the “surplus” of his produce, Locke makes the case for inequality (as
does Smith). Unlike socialism, liberalism recognises the inevitability, and
perhaps desirability, of inequality.
Conservatism is another important ideology in modern times: briefly, conservatives
believe that sudden change is undesirable, and whatever we have built up over a
long period of time must be good – that is, they believe in tradition. Some
modern Conservatives, notably the “New Right” and Mrs Thatcher, brought into
Conservatism a number of ideas that belong to classical liberalism, notably the
view that the state should not intervene in the economy, and that individuals
should have rights that are prior to those of the community.
Adam
Smith (See extracts below: Smith Extracts) is
regarded as the first writer to have “explained”, in “The Wealth of Nations”
(1776), the workings of capitalism. Note that he used the expression “the
system of natural liberty” – the word capitalism was not used until Marx’s
time. Here he argued that individual acts (buying and selling), whilst
motivated by self-interest, nevertheless promoted the common good, through the
“hidden hand” of the market; that is,
roughly, by the workings of the laws of supply and demand. For a producer will
only sell at a price that will bring a profit, although of course it has to be a
price that consumers will accept. Likewise, consumers only make purchases when
the price is right for them – they will of course contribute to the wealth of
the producers, but their main motive is self-interest. In the end, everyone
benefits.
Smith
is often cited in defence of the “free market”, but I believe that this is to
misrepresent him somewhat, since:
(a)
his portrayal of capitalism recognised that it had severe failings (such as
alienation of the worker by excessive division of labour)
(b)
he saw the need for the state to provide for services (education, health) that
were not such as could be run by the market
(c)
he did not trust businessmen (when they got together, he said, they would plot
against the consumer!)
(d)
he actually opposed both monopolies and the then new-fangled joint-stock
companies with limited liability (he opposed them on the basis that businesses
ran best when controlled by the owner, whose self-interest would ensure
they were successful – limited liability, and in fact the widespread
distribution of shareholders, so that they did not control the business, would
militate against commercial success) and
(e)
he had an ethical theory – set out in the Theory of Moral Sentiments (TMS)
based on a natural sympathy he believed we all have; his preferred
virtues were: “prudence, parsimony and productivity”; and all this suggests to
me that he would have been horrified to hear people use his name to defend
unbridled competition in the market. See, also, my notes on the extracts below.
I note that the Adam
Smith Institute (www.adamsmith.org/smith/tms-intro)
now recognises the importance of TMS, but I suspect that they have not thought
through the problem of reconciling it with The Wealth of Nations. If we take
some extracts from his “Theory of Moral Sentiments” - first published in 1759 -
and compare them with extracts from his better-known work “The Wealth of
Nations”, it seems to me that we have to argue that the market will only work fairly
if Smith is right that we are motivated primarily by sympathy. But what a
different market it would be! (See the
second set of extracts below).
Needless
to say, this debate over the comparative importance of the individual and of
society – and how to maximise the good of society (by state management, or by
individual freedom) is still going on today!
2013 update: The tobacco industry has been funding
right-wing thinktanks such as the Adam Smith Institute: see Observer
http://www.guardian.co.uk/society/2013/jun/01/thinktanks-big-tobacco-funds-smoking
Update: 2009: in the midst of the ‘credit crunch’ there is naturally much discussion
on ‘rational’ markets. For example (New York Times 140609) Jeremy
Grantham, a ‘respected market strategist with GMO, an institutional asset
management company’ wrote in his quarterly letter to clients: “In their desire
for mathematical order and elegant models, the economic establishment played
down the role of bad behaviour” not to mention “flat-out bursts of
irrationality”. The author of the article (Joe Nocera) notes that for a
long time people have been questioning the idea of perfect rationality and the
efficient market. The original idea came out of the
See
also Justin Fox: The Myth of the Rational Market – where he attributes much of
the growth of the last 30 years to efficient markets, but says that theorists
get cocooned from reality. And
A
group of thinkers who tried to balance individual freedom and the good of the
whole community were the Utilitarians – for
example Jeremy Bentham (1748 –1832). He
argued that the aim of government was to maximise the happiness of the greatest
number of people, by appropriate legislation. However, like Mrs Thatcher in our
own time, he argued that “there is no such thing as society”: “The community is
a fictitious body, composed of the individual persons who are considered as
constituting as it were its members. The interest of the community then is,
what? – The sum of the interests of its members”. Bentham’s utilitarian
successor, John Stuart Mill, argued that we need to beware of the tyranny of
the majority. Both believed that “happiness” was the main goal of individuals
and society, and that individuals should be free to decide what made them
happy.
A
more extreme form of individualism was promoted by such as Herbert Spencer, and
others who put forward what has come to be called Social
Darwinism. Under the influence of a particular interpretation of
There
have been critics of capitalism ever since it originated. The inhuman working
conditions, child labour, slum housing and poverty were attacked by such as the
poet William Blake (who spoke of the “dark satanic mills”). Early socialists
such as Robert Owen, who was actually the owner of a cotton mill, at New
Lanark, believed that he had a duty of care towards his employees, and provided
housing and schools for their children. His ideas are seen by some as
“utopian”.
The
word “socialism” was adopted early in the nineteenth century (1832) by the
followers of Saint-Simon, in order to demonstrate their belief that man is a
social being, whilst the supporters of capitalism saw man as “economic” in
motivation. Saint-Simon believed that society needed to be planned, by experts,
and hence the mainstream of socialism still has this as its fundamental belief.
However,
there are now many different strands in socialism, and libertarian socialists
(and some Marxists) argue that the most important point about socialism is that
the workers should own and control the production for which after all they are
responsible. This does not need state control. Social democrats try to combine
state management of the economy with democracy.
The
best-known socialist thinker was Karl Marx (1818 –
1883) – see extracts below: Marx Extracts. He
argued that the right of individuals to own capital, i.e. the means of
production, separated the owners from the workers – in two conflicting classes.
The non-owners, or proletariat, were obliged to sell their labour to the
owners, or capitalists. Since the value of labour, as of goods, is set by the
market, (it has “exchange value” not “use value”) and since the owners must
make an ever-increasing profit in order to survive the competition from rival
owners, workers will always be “exploited” – i.e. paid less value than they
create.
Since
capital is at the root of all our problems, it would have to be abolished;
there would be no capitalists any more, and no classes in the sense Marx used
the term… Only then could control of production be put into the hands of the
producers, and only then would workers obtain what they deserve. All the evils
of capitalism: alienation, exploitation, inequality, colonialism, and war,
would then disappear. (War is really simply a conflict between capitalists –
using the workers as cannon fodder!).
Note
that he believed this theory was scientific: he had identified laws that meant
that the rate of profit would fall over time, and a crisis which could
lead to the destruction of capitalism was inevitable. (See the extracts from
Marx)
Whilst
the workers’ movement grew, and would eventually cause a revolution in
As
pointed out already, some wealthy industrialists and capitalists practised
philanthropy, and the Quakers conducted their business with a more ethical
approach. Joseph Rowntree provided libraries for his employees,
supported schools, and conducted some of the first surveys on the effects of
poverty. Robert Owen (1771 – 1858) was a ‘paternalistic’ mill-owner: In
1799 he bought the New Lanark cotton mill from his father-in-law David Dale
(having married his daughter the same year). The mill had been built by Richard
Arkwright and David Dale, and ran on water-power. He treated his workforce
fairly, ending child labour, and providing the workers with work-clothing and
places to live – a village with street lighting - free medical care, high
quality schooling, a workers’ sickness fund. He believed that there was a
positive relationship between a healthy happy workforce and a successful
business, and the company grew in value enormously. During a trade dispute with
America, when production was halted for months, he continued to pay his
workers. He believed that education was the key to a fair and crime-free
society, and set up the New Institution for the Formation of Character in New
Lanark in 1816. (Observer 31.03.13 –
this article, by Kevin McKenna, describes an ongoing conflict around New Lanark
as the council have agreed to let Cemex, a quarrying company, site new
operations not far from the mill. New Lanark was granted world heritage status
by UNESCO in 2001).
Owen’s
example inspired the co-operative movement, and especially the Rochdale
Pioneers who established the first workers’ co-operative.
(See Chapter 1 on co-operatives).
On
the other hand, some Victorians took the conservative position that it was down
to individuals to help themselves. In particular Samuel
Smiles, (who in early life had supported the work of Robert Owen, and
attempted to get reform through parliament) later published a book “Self-Help”
(1859) which was highly influential. One consequence of this attitude, however,
is to blame the poor for failing to improve themselves.
2 (g) The USA in the late 19th century:
The
early part of last century, especially in the USA where industry was growing
fastest, saw a mix of attitudes to business and its role in society: on the one
hand management’s view was that “What was good for industry (i.e. for those who
controlled it) was good for the country”. The question of “social
responsibility” did not arise! The
attitude of management to the workers corresponded to what MacGregor called “theory X”: workers are only motivated by money, and
should not be encouraged to have any say in the management of their work; union
activity is therefore to be discouraged (See Chapter
4: the workers). .
On
the other hand some wealthy industrialists, who were generally referred to as “robber barons”, were philanthropists [e.g. Carnegie and Rockefeller]
(See
Chapter 1: philanthropy).
2 (h) The Twentieth Century - first half:
It
is not until the second half of the twentieth century that we see demands on
business for “social responsibility”.
There were several features of the first half of the century that make
up the background to this change:
The
1920s and '30s were marked by a devastating slump and depression. Tens of thousands were out of work, even
though there were jobs available: employers were not able to pay attractive
enough wages, and the situation got worse with more unemployment, since there
was insufficient demand for goods to provide funds for production. The accepted
belief of mainstream economists, that, through the laws of supply and demand,
which apply in theory to labour as to all goods, capitalism was self-regulating
- so that in a period of unemployment employers would eventually take on more
workers as the price of labour went down - just was not working out. A good
many people were radicalised by this experience, and turned to the growing
communist parties in America and the UK, but even the less radically-inclined
felt that business and the unrestrained capitalist system were to blame.
The
most significant result of this shift in attitude was the work of the economist
J.M. Keynes, who argued that government should stimulate demand – by creating jobs
if necessary, in order to get the economy going again. This philosophy of “demand management” was
implemented especially during the American President F.D. Roosevelt's
"New Deal", and some would say that it was largely responsible for
the successful growth of America and Europe after the Second World War. The war
itself also contributed to this new outlook, since governments realised that it
had required large-scale planning. We planned the war, we now need to
“plan the peace” it was said.
3. Summary:
1. It is important to
try to imagine what other societies were like – and to understand the nature of
historical change. If we reject any notion of determinism, as I believe we
should, then we have the freedom to decide what kind of society we want.
2. As societies
change, philosophers and historians try to explain what is happening, (to describe
the world as they see it) and they also make judgements either to defend the
change or to criticise it (to say how they think the world ought to be –
which is to make a normative statement, or to prescribe). We need
to be careful in reading the accounts of historians and others, to notice when
they are making descriptive statements and when they are making normative
or prescriptive ones.
3. The main
contending theories of society since the industrial revolution – both of which
as I see it contain a mixture of description and prescription – were liberalism
and socialism. Liberalism favours the market, and a minimal role for the state;
it is based on the belief that the individual should be free; it defends the
right to individual property.
4. Socialism, on the
other hand, believes that the market produces unfair results – it argues for a
more fair distribution of goods (usually, but not always, through the
intervention of the state). Socialism stresses the “social” – that is, our
collective identity and responsibility to each other. Some socialists were
“idealists”, but Marx claimed that his theory was scientific – i.e. that he had
avoided simply stating what he wanted to happen, and that he was
predicting what would happen.
5. The failures, or at
least weaknesses, of capitalism in the early twentieth century led to a concern
to regulate it. Around the 1970s a call
for “social responsibility of business” arose. Some would see this as a natural
follow-on from the criticisms of capitalism described in this chapter – others
argue that it was a reaction by business people who felt threatened by the
criticisms, and who wanted to retain control over business. This is the theme
of the next chapter.
4. Some
extracts from the writings of political thinkers mentioned:
1.
“For men being all the Workmanship of one Omnipotent, and infinitely wise
Maker; All the Servants of one Sovereign Master, sent into the world by his
order and about his business, they are his Property, whose Workmanship they
are, made to last during his, not another’s Pleasure.”
2.
“All Men are naturally (i.e. by nature, or born into) in a State of Equality,
there being nothing more evident than that Creatures of the same Species and
Rank should also be equal one amongst another without Subordination or
Subjection… The State of nature has a Law of Nature to govern it, which obliges
everyone; and Reason, which is that Law, teaches all mankind, who will but
consult it, that being all equal and independent, no one ought to harm another
in his Life, Health, Liberty, or Possessions”.
3.
“The great and chief end of mens’ uniting into commonwealths and putting
themselves under government, is the preservation of their property”…. “The only
way whereby any one puts on the bonds of civil society, is by agreeing with
other men to join and unite into a community, for their comfortable, safe and
peaceable living one amongst another, in secure enjoyment of their properties.”
4.
“It is plain that Men having agreed to disproportionate and unequal Possession
of the Earth, they have by a tacit and voluntary consent found out a way, how a
man may fairly possess more land than he himself can use the product of, by
receiving in exchange for the overplus [i.e. surplus], Gold and Silver, which
may be hoarded up without injury to any one, these metals not spoiling or
decaying.”
5.
“he who appropriate land to himself by his labour, does not lessen but increase
the common stock of mankind. For the provisions serving to the support of human
life, produced by one acre of enclosed and cultivated land, are ten times more,
than those, which are yielded by an acre of Land, of an equal richness, lying
waste in common.”
Commentary on the extracts:
1. “For men being all the
Workmanship of one Omnipotent, and infinitely wise Maker; All the Servants of
one Sovereign Master, sent into the world by his order and about his business,
they are his Property, whose Workmanship they are, made to last during his, not
another’s Pleasure.”
Note: this can be, and was, developed into an
argument against suicide.
2. “All Men are naturally
(i.e. by nature, or born into) in a State of Equality, there being nothing more
evident than that Creatures of the same Species and Rank should also be equal one
amongst another without Subordination or Subjection… The State of nature has a
Law of Nature to govern it, which obliges everyone; and Reason, which is that
Law, teaches all mankind, who will but consult it, that being all equal and
independent, no one ought to harm another in his Life, Health, Liberty, or
Possessions”.
Note: many liberal political philosophers use the
argument that once upon a time we had no society and no government; this
totally natural condition they called the “state of nature” (don’t confuse the
two different uses of the word “state” in politics!). The problem then was to
explain how government came about:
3. “The great and chief end of mens’ uniting into commonwealths and
putting themselves under government, is the preservation of their property”….
“The only way whereby any one puts on the bonds of civil society, is by
agreeing with other men to join and unite into a community, for their
comfortable, safe and peaceable living one amongst another, in secure enjoyment
of their properties.”
Note: since forming a society with a government was
a voluntary arrangement, then all political power should be answerable to the
people – this democratic principle is also a main plank of liberalism.
4. “It is plain that Men
having agreed to disproportionate and unequal Possession of the Earth, they
have by a tacit and voluntary consent found out a way, how a man may fairly
possess more land than he himself can use the product of, by receiving in
exchange for the overplus [i.e. surplus], Gold and Silver, which may be hoarded
up without injury to any one, these metals not spoiling or decaying.”
Note: it is not clear to me how this agreement came
about! Other thinkers such as Rousseau in the 18th century would
argue that the very decision that some men had the right to own land was
a trick used by those who wanted to get rich against the poor. For Rousseau
this was the origin of all crime and wars!
5. “he who appropriate land
to himself by his labour, does not lessen but increase the common stock of
mankind. For the provisions serving to the support of human life, produced by
one acre of enclosed and cultivated land, are ten times more, than those, which
are yielded by an acre of Land, of an equal richness, lying waste in common.”
Note:
I personally find it fascinating that Locke is making an argument against
socialism (before the word was invented..) perhaps he was attacking the
Levellers and Diggers who were active in the mid-17th century.
4 (b) Adam Smith: Extracts 1 – 4 are from the Theory of Moral Sentiments:
1.
“How selfish soever man may be supposed, there are evidently some principles in
his nature, which interest him in the fortune of others and render their
happiness necessary unto him, though he derives nothing from it except the
pleasure of seeing it”
2.
“Mere justice is, upon most occasions, but a negative virtue, and only hinders
us from harming our neighbour. The man who barely abstains from violating
either the person or the estate, or the reputation, of his neighbours, has surely
little positive merit.”
3.
“This disposition to admire, and almost to worship, the rich and powerful, and
to despise or, at least, to neglect persons of poor and mean condition, though
necessary both to establish and to maintain the distinction of ranks in the
order of society, is, at the same time, the great and most universal cause of
the corruption or our moral sentiments.”
4.
“In what constitutes the real happiness of life, [the poor and obscure] are in
no respect inferior to those who would seem so much above them. In ease of body
and peace of mind, all the different ranks of life are nearly upon a level, and
the beggar, who suns himself by the side of the highway, possesses that
security which kings are fighting for.”
From
the Wealth of Nations:
5.
It is to no purpose that the proud and unfeeling landlord views his extensive
fields, and without a thought for the wants of his brethren, in imagination
consumes himself the whole harvest that grows upon them. The homely and vulgar proverb,
that the eye is larger than the belly, was never more fully verified than with
regard to him. The capacity of his
stomach bears no proportion to the immensity of his desires, and will receive
no more than that of the meanest peasant.
The rest he is obliged to distribute. They are necessarily led by an
invisible hand to make nearly the same distribution of the necessaries of life
which would have been made, had the earth been divided into equal portions
among all its inhabitants, and thus without intending it, without knowing it,
advance the interests of society.
6.
As every individual, therefore, endeavours as much as he can both to employ his
capital in the support of domestic industry, and so to direct that industry
that its produce may be of greatest value; every individual necessarily labours
to render the annual revenue of society as great as he can. He generally,
indeed, neither intends to promote the public interest, nor knows how much he
is promoting it. By preferring the support of domestic to foreign industry, he
intends only his own security; and by directing that industry in such a manner
as its produce may be of the greatest value, he intends only his own gain, and
he is in this, as in many other cases, led by an invisible hand to promote an
end which was no part of his intention.
Nor is it always the worse for society that it was no part of it. By
pursuing his own interest he frequently promotes that of society more
effectually than when he really intends to promote it. I have never known much
good done by those who affected to trade for the public good. It is an
affectation, indeed, not very common among merchants, and very few words need
be employed in dissuading them from it.
Commentary on the extracts:
1. “How selfish soever man
may be supposed, there are evidently some principles in his nature, which
interest him in the fortune of others and render their happiness necessary unto
him, though he derives nothing from it except the pleasure of seeing it”
Note that this “sympathy” is both natural and not
self-interested. Does this fit in with the pro-market view that
self-interest creates the common good?
2. “Mere justice is, upon
most occasions, but a negative virtue, and only hinders us from harming our neighbour.
The man who barely abstains from violating either the person or the estate, or
the reputation, of his neighbours, has surely little positive merit.”
Note: A “good” person, then, is someone who helps his neighbour.
3. “This disposition to
admire, and almost to worship, the rich and powerful, and to despise or, at
least, to neglect persons of poor and mean condition, though necessary both to
establish and to maintain the distinction of ranks in the order of society, is,
at the same time, the great and most universal cause of the corruption or our
moral sentiments.”
Note: Despite our feelings of sympathy, and despite our knowing that goodness
consists in helping others, we tend to admire the rich (and want to be like
them) and despise the poor (fearing that we might become like them!). Smith
seems to accept that social differentiation of ranks etc is necessary – he
doesn’t say why here, but he implies that without this no production would take
place: it is our envy of the rich and our fear of being poor that drives us to
work hard. However, this process corrupts our natural moral sense.
4. “In what constitutes the
real happiness of life, [the poor and obscure] are in no respect inferior to
those who would seem so much above them. In ease of body and peace of mind, all
the different ranks of life are nearly upon a level, and the beggar, who suns
himself by the side of the highway, possesses that security which kings are
fighting for.”
Note: This is an argument that is often used to counter objections to extreme
differences of wealth, or simply to reassure people that it is OK to have
(great) wealth: real happiness does not come from wealth… Do you agree? Is such
an argument always reactionary? How about what we might call a green socialist
argument: it is true that wealth does not bring about happiness, but the
pursuit of wealth, together with inequality, in fact bring about unhappiness
and environmental destruction.
5. (From the Wealth of Nations:) “It is to no purpose that the
proud and unfeeling landlord views his extensive fields, and without a thought
for the wants of his brethren, in imagination consumes himself the whole
harvest that grows upon the. The homely and vulgar proverb, that the eye is
larger than the belly, was never more fully verified than with regard to
him. The capacity of his stomach bears
no proportion to the immensity of his desires, and will receive no more than
that of the meanest peasant. The rest he
is obliged to distribute. They are necessarily led by an invisible hand to make
nearly the same distribution of the necessaries of life which would have been
made, had the earth been divided into equal portions among all its inhabitants,
and thus without intending it, without knowing it, advance the interests of
society”.
6. “As every individual,
therefore, endeavours as much as he can both to employ his capital in the
support of domestic industry, and so to direct that industry that its produce
may be of greatest value; every individual necessarily labours to render the annual
revenue of society as great as he can. He generally, indeed, neither intends to
promote the public interest, nor knows how much he is promoting it. By
preferring the support of domestic to foreign industry, he intends only his own
security; and by directing that industry in such a manner as its produce may be
of the greatest value, he intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no part
of his intention. Nor is it always the worse
for society that it was no part of it. By pursuing his own interest he
frequently promotes that of society more effectually than when he really
intends to promote it. I have never known much good done by those who affected
to trade for the public good. It is an affectation, indeed, not very common
among merchants, and very few words need be employed in dissuading them from
it”.
Note: These extracts contain perhaps the most famous “quote” from Smith’s writings – the “hidden hand” idea -
and I think you can see that, taken in isolation from the passages from TMS, it
is a simple defence of the market as leading to the common good. The market, he
claims, is nearly as fair as equal distribution ( = socialism)! In fact, no-one is quite sure what the famous phrase “an
invisible hand” means: could it be God? Or is it the workings of some natural
law, i.e. supply and demand? The last sentences suggest that Adam Smith might not have favoured “CSR” (the deliberate
consideration of social good rather than the production of goods or services to
make a profit). At least, he clearly would not want it to become the main aim
of a business to promote social good. This is of course a logical conclusion to
his argument about self-interest. However, taking into account his moral
theories, could we not argue that these passages (from Wealth of Nations) are descriptive,
and not prescriptive? Some have said that Smith was a perceptive critic
of the limitations of unbridled capitalism.
4 (c) Extracts
from the Communist Manifesto (1848) of K. Marx and F. Engels:
1. “Society as a whole is more and more splitting up into two great
hostile camps, into two great classes directly facing each other: Bourgeoisie
and proletariat.
2.… the colonisation of America, trade with the colonies, the increase in
the means of exchange and commodities generally, gave to commerce, to
navigation, to industry, an impulse never before known, and thereby, to the
revolutionary element in the tottering feudal society (i.e. the Bourgeoisie), a
rapid development. The feudal system of industry… now no longer sufficed for
the growing wants of the new markets. The manufacturing system took its place.
3. The bourgeoisie, historically, has played a most revolutionary part…
wherever it has got the upper hand, [it] has put an end to all feudal,
patriarchal, idyllic relations. It has
pitilessly torn asunder the motley feudal ties that bound man to his “natural
superiors”, and has left remaining no other nexus between man and man than
naked self-interest, than callous “cash payment”…. It has resolved personal
worth into exchange value… In one word, for exploitation, veiled by religious
and political illusions, it has substituted naked, shameless, direct, brutal
exploitation.
4. The bourgeoisie cannot exist without constantly revolutionising the
instruments of production, and with them the whole relations of society…
Constant revolutionising of production, uninterrupted disturbance of all social
conditions, everlasting uncertainty and agitation distinguish the bourgeois
epoch from all earlier ones. All fixed,
fast-frozen relations, with their train of ancient and venerable prejudices and
opinions are swept away… All that is solid melts into air, all that is holy is
profaned… The bourgeoisie has through its exploitation of the world market
given a cosmopolitan character to production and consumption in every country…
It compels all nations, on pain of extinction, to adopt the bourgeois mode of
production.. it creates a world after its own image.
5. … The work of the proletariat has lost all individual character, and…
all charm for the workman. He becomes an
appendage to the machine… Masses of labourers, crowded into the factory, are
organised like soldiers…All are instruments of labour. The growing competition .. among the
bourgeois, and the resulting commercial crises, make the wages of the workers
ever more fluctuating. The unceasing
improvement of machinery, ever more rapidly developing, makes their livelihood more
and more precarious… [a] more or less veiled civil war, raging within existing
society [will break out] into open revolution, where the violent overthrow of
the bourgeoisie lays the foundation for the sway of the proletariat”.
Commentary:
1. “Society as a
whole is more and more splitting up into two great hostile camps, into two
great classes directly facing each other: Bourgeoisie and proletariat.”
Marxism is a “theory of class conflict”: it is important to understand
that for Marx a class is defined by its relation to the means of production.
That is, in capitalism there is one class (the bourgeoisie = capitalists) that
owns the means of production, and another (the proletariat = workers) that only
owns its ability to work, which it sells to the bourgeoisie for wages. The
interests and goals of these two classes are in conflict: the worker wants to
do as little as possible for as high a wage as possible, whilst the capitalist
wants to produce as much as possible as cheaply as possible (so must keep wages
down). All this, for Marx, is regardless of the intentions of the individuals:
an employer may want to keep his workers on the maximum wage – but he is in
competition with other producers, so cannot afford to be beaten in the market.
This is one sense in which Marxism claims to be scientific: the laws of the
economy it describes are objective not subjective.
2. “… the
colonisation of America, trade with the colonies, the increase in the means of
exchange and commodities generally, gave to commerce, to navigation, to
industry, an impulse never before known, and thereby, to the revolutionary
element in the tottering feudal society (i.e. the Bourgeoisie), a rapid
development. The feudal system of industry… now no longer sufficed for the
growing wants of the new markets. The manufacturing system took its place.”
History, for Marx, is characterised by the emergence of new productive
forces, and new classes: the pre-industrial system of feudal landlords,
peasants, craft production etc, had to change when trade and colonisation
stimulated the demand for new goods – and this was accompanied by the
development of new technologies of production.
3. “The bourgeoisie,
historically, has played a most revolutionary part… wherever it has got the
upper hand, [it] has put an end to all feudal, patriarchal, idyllic
relations. It has pitilessly torn
asunder the motley feudal ties that bound man to his “natural superiors”, and
has left remaining no other nexus between man and man than naked self-interest,
than callous “cash payment”…. It has resolved personal worth into exchange
value… In one word, for exploitation, veiled by religious and political
illusions, it has substituted naked, shameless, direct, brutal exploitation.”
When a new class emerges and the power-structure, and the mode of
production, change, this is what Marx defined as a revolution. The distinctive
feature of the new capitalist society that grew out of the old feudal one, was
the central role now played by money, and exchange. Goods are no longer
produced for use – their value is no longer determined by their usefulness in
themselves, (or, as it frequently was in the Middle Ages, by what it was
believed that God would have regarded as their value) but by what they can be
exchanged for. Note also that Marx’s vision was a broad one: even personal
relationships have changed and are now judged by their “money” worth.
Since there is still one group (class) of people with more power, and
getting more benefit from the system than the other major group (class), this is
still a system of exploitation. Another aspect of the “scientific” character of
Marxism is its theory of exploitation: in a nutshell, workers create a certain
amount of value, but they are not paid the full value they create, since the
owners have to make a profit. The difference between the value created and the
value returned to the workers is the “surplus value”. Marx also believed that
we can calculate the precise amount of value created, and the surplus value,
and thereby the “rate of exploitation”. These all can be expressed in
quantifiable terms, so that this is not a moral position – Marx is not simply
saying that workers are not fairly treated – but a scientific one.
4. “The bourgeoisie
cannot exist without constantly revolutionising the instruments of production,
and with them the whole relations of society… Constant revolutionising of
production, uninterrupted disturbance of all social conditions, everlasting
uncertainty and agitation distinguish the bourgeois epoch from all earlier
ones. All fixed, fast-frozen relations,
with their train of ancient and venerable prejudices and opinions are swept
away… All that is solid melts into air, all that is holy is profaned… The
bourgeoisie has through its exploitation of the world market given a cosmopolitan
character to production and consumption in every country… It compels all
nations, on pain of extinction, to adopt the bourgeois mode of production.. it
creates a world after its own image.”
For Marx, as I have stated, production and the way that people are
arranged in society to organise it, is the key to understanding a social
structure and its dynamics. He saw the bourgeoisie as a revolutionary class:
the changes they were bringing about were radical. However, since the only
thing that matters in this society is the money-value of goods, and whether I
can exchange them for a profit, there are no fixed values any more. (Religion,
he noted, would not survive in this atmosphere). Notice the prediction of what
we now call “globalisation” here!
5. “… The work of the
proletariat has lost all individual character, and… all charm for the
workman. He becomes an appendage to the
machine… Masses of labourers, crowded into the factory, are organised like
soldiers…All are instruments of labour.
The growing competition .. among the bourgeois, and the resulting
commercial crises, make the wages of the workers ever more fluctuating. The unceasing improvement of machinery, ever
more rapidly developing, makes their livelihood more and more precarious… [a]
more or less veiled civil war, raging within existing society [will break out]
into open revolution, where the violent overthrow of the bourgeoisie lays the
foundation for the sway of the proletariat”.
Note first that Marx is saying something similar to other (later)
observers (such as Blauner) about the “meaninglessness” of work in a capitalist
factory. However, Marx’s definition of alienation – which we will not go into
here – is distinctive, and to do with the fact that the worker does not own or
control the work he is doing.
What gave Marxism its appeal, however, was the prediction that capitalism
could not survive: the conflict between the classes is based on fundamental
contradictions in the system. Production is a social process – but it is driven
by private ownership and private profit. Workers are made to act as teams or
collectives, but are divided against each other by competition in the job
market. Above all, Capitalists are driven to replace workers by machines in
order to keep making more profit – and yet that creates unemployment and a
slump in demand for goods. (More technically, machines cannot produce a profit,
since labour is the source of value – so the rate of profit will decline
inevitably as men are replaced by machines).
The
ultimate, and ironical, contradiction is that workers are being pushed together
in factories where they will be more and more exploited – thus their
self-awareness as a class will grow along with their worsening conditions. In
the end, they will be bound to rise up and overthrow their bosses, taking the
means of production into their own common ownership. Class society – that is,
capitalism - will be abolished, to be replaced by a system of production for
need, controlled by the workers.
End
References:
Texts on history
of business and society:
Kempner, T. (1974): Business and Society, Beekman Books
Luthans, F, Hodgetts, R.M., and Thompson, K.R. (1972): Social Issues in
Business, Macmillan.
McGregor, D. (1985): The Human Side of Enterprise, McGraw-Hill.
On Adam Smith:
Raphael, D.D.
(1985): Adam Smith, OUP (Past Masters)
Heilbroner, R. (1986): The Worldly Philosophers, Pelican
On other political thinkers:
McClelland, S. (1996): A History of Western Political Thought,
Routledge.
Scruton, R. (2nd edition 1996): A Dictionary of Political
Thought, Macmillan
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