Joan Robinson


from Freedom and Necessity (1970) Pantheon Books, NY


The usual means of establishing dominance of one individual over others is the same as that used for the defence of territory. Thus amongst lemurs who mark out their territory by means of scent, one will challenge another to a stink fight, and the winner establishes dominance when the loser admits defeat. Lorenz has pointed out the importance of a ritual for surrender and a mechanism in the victor that inhibits further attack when the signal of surrender is given. (Doves who do not normally fight, lack this mechanism, so that when, through the accident of being caged together, they get into a fight, they fight to the death.) The fact that the response of recognizing the dominance of a superior is as much innate as the impulse to seek dominance over an inferior is established by a curious story. By accident., a lemur of one species was accepted into a troop of another species. He did not have their particular kind of stink glands or the capacity to recognize their stink. Thus he never knew when he was beaten and rose to a high position of dominance amongst them. (19)

Probably the mode of evolution of language can never be discovered, however many anthropoid skulls are dug up. The observation that apes lack the capacity (with which birds, and perhaps dolphins are endowed) to imitate new sounds suggests that there was a great leap along the path of evolution after the side-road that led to the apes had left the main line. Language and the social and technical innovations which it made possible obviously had survival value. There is no reason to doubt that language evolved under the pressure of natural selection like other capcities, such as the problem-solving intelligence of the monkeys which defeated the lemurs. But once conceptual thought had been arrived at, it proved to have enormous possibilities that were, so to say, surplus to the requirements of physical existence. The interplay of consciousness with environment, of freedom with necessity, which is the characteristic of human life, was the consequence of the acquisition of language over and above its technical advantage for survival. (23)

In so-called civilized societies it is the poor who spend their days in an anxious search for the means to live and the rich who can indulge in gratuitous activities; but when we compare rich and poor societies, the reverse often appears. The isolated communitites, when they were discovered and brought into the frame of reference to national income per- head, were placed very low on the scale, yet for many of them the proportion of energy, skill and mental activity devoted to non-economic aims was much greater than it is with us. (25)

A highly developed system which was devoted to continuous and energetic accumulation without stultifying itself by a progressive concentration of wealth grew up amongst the Indians of North-west Canada. A man could acquire a place in a fixed hierarchy of honourable titles by birth, by marriage, or by wiping out the former holder in battle. To validate the succession to a title required a potlatch ceremony - a lavish feast with a greatest possible distribution of wealth to the assembled tribes. Each potlatch was a challenge to the guests that had to be met by a greater distribution in turn. The culminating feat in the contest was the destruction of valuables. Certain copper discs embodied the acme of prestige (like the highest ranking coins in Rossel Island); one chief could defeat another by throwing the most esteemed disc into the fire. To back up their own chief and save him from shame, each tribe was engaged in accumulating stocks; and minor potlatches were carried out by commoners to celebrate events in their own families; thus great energy was called forth and productive activity kept at stretch. Contact with fur-traders brought easy riches to the tribes and factory-made blankets became the chief currency in the Potlatch. At the same time war was discouraged as an alternative means of establishing social prestige. The Potlatch system hypertrophied and the distribution and destruction of wealth became more and more extravagant. The Canadian administration outlawed the Potlatch in the name of proper economic principles, but it took a century to stamp out the practice and reduce the proud tribesmen to getting a mere living in the lower ranks of civilized society. (28., 29)


Now the concept of property in land came into consciousness. Even in the system of shifting cultivation, it was convenient for each family to have its own garden within the burned patch, but each could have as much as they had labour and seed to cultivate; the area to be burned could be chosen to acommodate everyone. There was no cause for conflict and the legal system -- that each family had a right to the crop that they had grown -- no doubt seemed too obvious to need remark. This economic base could accommodate a great variety of systems of kinship and networks of mutual obligations such as have been observed among the isolated societies. With the plough, the legal system had to be adjusted to new technical conditions. Some tribes in Africa maintain to this day a system of common ownership. The land theoretically belongs to the chief, who distributes it to be worked in proportion ot the labour available. Family inheritance, however, was a fairly obvious notion, and it proved to be a technical advantage since it brought the strong motive of family feeling into play as a stimulus to work and save. Matrilineal inheritance was the most straightfoward system (it is a wise man who knows his own father) but where it still exists, a man finds it annoying to have to contribute to the income of his sister's children, not his own. When animal husbaridry took over from hunting and the plough took over from the digging stick, the economic position of men became dominant and patrilineal inheritance came into fashion. (37, 38)

In medieval Europe, a system was developed of a fallow of one year in three; animals grazing the fallow land manured it. This system involved a whole village working on a common plan; each family had some land in each area so that they could claim a crop each year. (38)

In Asian conditions individual cultivation was the rule, though mutual aid in rush seasons was customary in some neighbourhoods. Tradition and prudent attachment to known methods imposed almost as much uniformity as the common programme required by the three field system. (38)

Even from neolithic times there were evidently specialists; mining and making flint tools and weapons requried knowledge and skill as well as access to special natural resources. (Whether particular individuals were whole-time specialists or not must have depended upon the size of the community. In a small group, the specialists would spend part of their time as ordinary cultivators.) Specialization entails exchange. Adam Smith argued that, between equals, goods would exchange at the ratio of the amounts of labour needed to produce them but an equal amount of labour had no meaning where, by the nature of the case, each sort of labour was different. From the earliest times various kinds of services were, no doubt, valued at different rates --the priest was more honoured than the barber--- and the payment in terms of grain for the skill of the blacksmith or the thatcher had to be set at a level that would allow them what the community considered a suitable standard of life. ... (40)

Under whatever systems of inheritance, the chances of family life would bring about changes in the relation of property in land to labour available to work it, so that some families would find themselves with more land than they could cultivate and some with less. Moreover differences of temperament come in. Some men are industrious and acquisitive, others feckless, idle or generous. There is a certain tendency to check accumulation. The richer family marries its children earlier, so that numbers increase faster and land per head is reduced in the third generation. But this tendency has generally proved too weak to offset the forces pressing against equality. In a society which allows inequality of possessions between families, it perpetuates itself. Those with excess land can make use of the labour of others, either by employing them at wages or letting land to them for a share of the produce. Either way, property becomes a source of income independently of its owner's work. (41)

Where crops are seasonal, another source of property income presents itself. Even where there is land available to be broken in to cultivation to take advantage of it a man needs supplies of seed, tools, perhaps draft animals, and certainly subsistence over the period from seed time to harvest. Those who have not enough to live upon till the next harvest can maintain themselves by taking a loan, promising repayment when the harvest comes in. From this the conception of interest -- repayment by more than what was received, naturally arises. Thus a family which enjoys a surplus over its needs can increase its income still further by lending at interest. The maximum interest that can be extracted is the difference between what a man can produce in a year's work on the land available and what he must consume to live. Within that limit, the rate may be settled by custom at some round figure. Among the Hausa, before they were drawn into the modern monetary economy, ‘two bundles of guinea corn had to be repaid at harvest for every one lent in the early farming season or, if the lender was generous, three bundles for every two lent.' Thus a man who had twice as much corn has he needed to consume could eat one portion and lend one. He would then recieve the whole back at the next harvest, lend half again, and so continue indefinitely without doing any more work or saving, living upon 'unearned income'. The generous lender who charged 50 per cent instead of 100 per cent was presumably a landowner who did not care to take full advantage of the poverty of his neighbours. The prohibition of interest and the jubilee year at which all debts were cancelled in Hebrew law, were designed to check accumulation from this source. From the system of loans developed the system of pledging land as security. This enabled the wealthy families to acquire the holdings of defaulting debtors. Families which lost their land had to become wage earners or tenants. Since family life was bound up with property, a class of landowners could become established within which marriages took place, and a class of labourers who had only poverty to leave to their children. Romantic tales of the tragic conflict between love and duty were told in many languages. (41 - 43)

An independent family owning sufficient land to support themselves could work as much as they felt to be worthwhile. (This freedom was limited where cultivation had to be in common, as in the threefield system, but even there some could take more trouble than others.) By putting in more work over a year the family would gain a greater product, either by cultivating a larger area of their holding or by more intensive work, for instance on weeding. They would aim to produce as much as they required to live without exerting themselves excessively. In economists' jargon, they would balance the utility of income against the disutility of work. A family which owned no land would have to work much harder. A sharecropper who has to give half the gross produce of a plot of land in order to be allowed to work on it must produce more than twice as much as a free family controlling the same area if he is to eat as well as they. (More than twice, for he is giving away half the gross produce and must find the seed from his own half). To gain twice the produce, he must work more than twice as hard. In economists' jargon, after a certain point there are dirriinishing returns to labour applied to a given area within a given agricultural technique so that, say, an extra 10 per-cent of man hours worked over- a year yields less than 10 per cent extra produce. Depending on the nature of the soil and the technique in use, it may be impossible for him to produce enough to support the same standard of ilfe as the independent family, so that he not only works harder but eats less. (43)

At any moment, the level of rents and interest are fixed by custom and the use of round numbers, but there is a crude element of supply and demand in the situation. When the population is increasing, the demand for land is growing. The landlord can get tenants for smaller plots, so that they must work harder to live. The total produce of a given area rises and the landlord's income with it. Even if land is available for new settlement, the poor can make no use of it with their bare hands. Landlords can settle new villages and advance them what they need until they begin to pay. In economists' jargon, increase in population reduces the marginal product of labour and raises the marginal product of land, so that average income falls while the wealth of the landowner rises. Malthus startled the humanitarian eightheenth century with the doctrine that the growth of population everywhere exceeds the growth of food supplies, and will be held in check by misery and starvation. From the foregoing analysis of the consequences of family property in land it seems clear that the Malthusian misery would set in when (with the available technique) the maximum amount of labour that a man could put forth in a year was not able to yield enough to support life. But then he would have no surplus to hand over to the landlord or the money-lender. He is reduced to misery long before that stage is reached by their exactions.

But if there were no landlords there would be no surplus, for free families would have no motive to produce more than they needed to consume. (44)

Property interlacing with family relationships might generate a class of landowners in peaceful conditions but its most frequent origin has been in warfare. We do not know whether war developed first as a sport or as a form of hunting - to prey upon men when other game was scarce; we do know that no part of the world (except perhaps the arctic circle) has been immune from it in one form or the other. (45)

Where neighbours are at the same technical level, with weapons which are not too powerful, like the stone-age peoples observed in New Guinea, warfare can go on indefinitely,. As the technical level rises, with the use of metals, the class system which may be loosely called feudalism emerges. The gentlemen fight and organize fighting, while the cultivators are obliged to support them by providing an agricultural surplus over and above their own consumption and to allow their sons to be recruited to fill the ranks of the armies. The cultivators in each area have a compelling motive to support their own gentlemen for if not the gentlemen of another area would raid and slaughter them.

When one group can overwhelm another, by larger numbers, superior organization, the emergence of a powerful leader or the development of a higher level of effectiveness in weaponry, and tactics, then war becomes conquest. (45)

More often the conquered people remained to work and hand over their surplus to new masters. When the conquerers were already organized in a social hierarchy, lands with cultivators to work them were allotted to gentlemen and lower ranks were stepped up above the new lowest order consisting of the old inhabitants of the land. Another economic use of warfare was the capture of slaves. ... A society, however, cannot consist only of gentlemen and slaves. there must be a sufficiently large free population of lower rnaks who identify themselves with the gentlemen and enable them to keep the slaves in order. ... continuous war was necessary to keep up the supplies of fresh captives. (46)


In another type of organization, a central government controlled both military and civil affairs; power and authority was embodied in the heir of a princely dynasty-- a Pharaoh or an Inca -- who claimed the right to tribute directly from the cultivators and redistributed the surplus to his administrative officials and military commanders. A centre of military power can augment its income in two furtherways. The first is to subdue the governments of neighbouring lands, and leaving them in charge, to exact tribute from them which they are obliged to extract from the surplus of their own people. The second is to set up colonies to dominate the natives in outlying regions, or to cultivate their lands (with slaves or with the colonists' own labour) and to require remittances to the homeland. These four ways-- feudalism, central administration, imperialism and colonization-- in which the agricultural surplus can be extracted for the benefit of a dominant class, have been repeated, in various permutations and combinations, throughout history from neolithic times to the present day. (46, 47)

Whether the land was worked by slaves, serfs or peasants, and the surplus was taken by independent gentlemen or by officers of a monarch, or of an imperialist power, the main lines of economic relations were the same. The surplus was consumed partly in maintaining a military establishment and partly in supporting the standard of life of the gentlemanly class. The expenditure of their households led to a great increase of handicraft production. Arms, dress, furniture, carriages, as well as works of art dedicated to the gods, required specialized skill. The few and simple craftsmen in the free villages were supported by contributions from the cultivators; now craftsmen were clients of the wealthy and earned a share of their rents by serving their requirements for martial power, comfort and display. (47)

When a hundred families are paying half their produce to one landlord, his family does not want to eat a hundred times as much grain as a cultivator's .... Part of his share in the grain goes to support producers of agricultural raw materials (silk, cotton or wool) and miners or foresters., and the rest to supporting his clients. Those amongst them who are builders and manufacturers partly supply each other's needs. Thus the grain that the cultivator parts with becomes, through skill and art, transmogrified into great wealth and splendour-. (47)

Cities grew up around forts where people and cattle could retire from attack, and around temples and palaces. Intermediate classes were established between the cultivators and the landowners, of craftsmen, traders, financiers and clerks to cater to the needs of the wealthy households and of priests and learned men who shared their benefits. (47, 48)

Herodotus remarked that there were no markets in Persian cities. The process of supplying food and raw materials to an urban community could be organized by the collection of dues, storage and distribution as salaries, fees and offerings carried out in the name of the head of state. Similarly exchanges of goods and services within the urban community, and the values at which they took place, could be regulated by custom and ranks attached to various occupations. The concept of trade for profit presumably arose from exchanges between peoples who appeared to each other as foreigners, outside the rules and obligations of the domestic society. ... Phoenicians and Arabs who specialized in sea transport were under no ritual obligations at either end of the voyage. Aristotle deplored the unnatural actlivity of making money, which had become established in his day, compared to the natural activity of meeting the needs of the household and the community. (49)

The concept of investment for the sake of profit also grew out of foreign trade. The merchant needed finance to provide the expenses of shipping, camel train or porters as well as the goods whose sale would replace the finance with an adequate excess to reward him for the risk and trouble and enable him to venture again on a larger scale. ... Whole cities flourished upon trade and a profession of financiers came into being. ... (50)

A hierarchical society required to justify itself. Most often the dominance of one group of families over the rest was rationalized in terms of 'race'. The notion of 'us' and 'the others', connected with rules about whom it is proper to marry, arose wherever peoples of different language and habits were in contact with each other-. ... Now superiority became asymmetrical. Better fed, taught to cultivate strength and courage, or devoted to subtle scholarship, the benefi ciaries of the system could feel themselves different beings from the slaves or peasants who supported them, and could expect to be acknowledged as such. (50)

Birth might establish power but talent was also necessary, for a state requires a bureaucracy and a legal system. For this, writing is a great convenience but it is not indispensable. In the highly elaborate organization of the Incas, intelligence was conveyed by knots in string. In the kingdom of Dahomey ... a census of every villge and a record of its taxable capacity was kept annually by a system of counting pebbles. (51)

The one great empire which has a continuous recorded history from the bronze age to the present century developed bureaucracy to its highest level. The challenge of a scholar to the first Han emperor-: 'You conquered this country in a chariot - can you rule it from a chariot?' was repeated in every age of Chinese history. (The Mongol conquest was a brutal interruption of continuity but Kubla Khan took over the Chinese system of administration and so did the Manchu dynasty which saw the end of the story.) (51, 52)

In China class was not based upon conceptions of 'race'. The Han people regarded themselves as all of one race; landlords recognized peasants in their villages as their fellow clansmen; in theory every one was free to become a mandarin. But to learn characters and study the classics required expensive tuition and years free from work. Coming from an illiterate home, even the most devoted could take only the first step in learning - it was said to take three generations to get through the national examination. Thus learning and soft hands not used to toil became the mark of superiority. ... (52)

In China each dynasty established the divinity of its line; but Chinese political philsophy contained the principle of 'the mandate of heaven', which gave the people a legitimate right to overthrow a dynasty whose government degenerated. Perhaps the failure of the western Roman empire to find a satisfactory principle of succession contributed to its decline and fall. (53)


In Western Europe the money economy gradually invaded feudal agriculture. In England, feudalism had been super-imposed upon Saxon village communities practicing cultivation in the open field system. Rent was extracted by the lord owning a demesne (and sometimes strips in the open fields) which had to be cultivated without payment. The cultivators were serfs attached to the land. But servile labour is inefficient and troublesome to manage. Landlords gradually found it more convenient to employ full-time workers on the best parts of the demesne (with the services of the villagers at the harvest) and let off the rest of their lands for rent, in the form of commutation of dues expressed in terms of labour. (54)

In the thirteenth century, it seems, a rise in population created a scarcity of land. Supply and demand favoured the landlords. By one means or another, the cultivators' share in production was squeezed down. Hungry, landless families were shaken out at the bottom of the social structure. ... (54, 55)


In England, the wool trade played a great part in finally digesting feudalism into the commercial system. The Black Death reduced the cultivated area needed for subsistence., leaving room for pastures, and at the same time the loss of rents inclined the landowners to look for another way of making their property field income. Moreover, the feudal style of consuming the surplus in fighting over the inheritance of titles was obsolescent. With the internal peace that the Tudor monarchy imposed upon the warring nobility, land began to be seen as a source of wealth calculated in money rather than of the command of a tenantry to arm and lead to battle. Sheep were more valuable than men. Numbers gradually recovered, but the landlords were no longer so keen to get tenants. (55, 56)

[see also Barrington Moore]

Tis bad enough in man or woman 
To steal a goose from off a common; 
But surely he's without excuse 
Who steals a common from the goose. (Oxford Book of Quotations)

The peasants supported the Paris mob who were the spear-head of the French Revolution in smashing the aristocracy, destroying fuedal privilege and breaking up the estates of the nobility and the church into small freeholds. Beyond that they had no use for radical ideas. Liberty, Equality and Fraternity ended up as the charter for private property. (58)

In Central Europe the Peasant revolts of the sixteenth century were defeated and bloddily repressed. In East Germany feudalism was modernized but not relaxed; serfdom was introduced into Russia. In the peninsula, feudalism freed the land from the Moors and went onto create overseas empries. its remnants survived to overthrow the shortlived Spanish republic of 1935, and to maintain the last African empries till today. In Sweden feudalism never took root so that no upheaval was needed to install democracy. In West Germany and Italy bourgeois societies grew up around the courts of princelings or on the proceeds of trade. (58)

There was a technical reason why the mathematics of the ancient world had little application to technology. Algebra and geometry were developed as speculative philosophy but the humble uses of arithmetic were impeded by the clumsy system of numerals. The Arabs learned from the notion of zero and positional notation. In the fourteenth century the Church fought hard against the introduction of this system into Europe but its practical advantages were too great. Without it engineering would never have got far. (61)

As now, misery did not prevent numbers from growing, but there was an enormous difference between the population explosion of the nineteenth century and that which is taking place today. Development of the New World, revolutionary improvements in transport and in manufactures to trade for agricultrual products, provided an ample supply of food. This is a piece of history that will not repeat itself. (62)

The development of the factory system brought into being a new set of economic and social relationships. The most important was the great expansion of employment at wages. In an economy of peasants and artisans the worker commands the material factors of production that he operates. Wage labour had swallowed up peasant agriculture in the English system of farming; it was now extended to swallow up artisan manufacture. (62, 63)

The spread of employment brought a corresponding expansion of investment to equip factories and furnish money capital to pay wages and purchase raw materials in advance of sales. (It was from this that the system took the name of capitalism.) The capitalist employer needed energy, ambition and business acumen. These very qualities led him to transcend pure exploitation. With a given method of production there is a limit to the profit that can be got per man employed. By raising output per head, profit could be increased. Capitalism quickly set technical progress on foot. (63)

The exaltation of making money for its own sake to respectability, indeed to dominance in society was the new feature of the capitalist system which distinguished it from all former civilizations. (67)

The racial concept of class - the inherent superiority of a land-owning family over the tenants and labourers - was undermined by the new wealth. In England it lingered on. The Victorian novels are concerned with the right of the professional classes to consider themselves gentlemen and gentlemen could not be concerned with trade. It was the last lingering remnant of feudal morality - the notion that status was something inborn that could not be bought. Deprived of divine right, the capitalists had to present themselves as benefactors to society. They 'gave employment', they built up the wealth of the nation and carried Christian civilization to barbarous lands. While prosperity lasted they could dismiss all who questioned their credentials as idealists and cranks. (67)

'The produce of the earth - all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated. 'But in different stages of societies, the proportions of the whole produce of the earth which will be allotted to each of these classes, under the names of rent, profit, and wages, will be essentially different; depending mainly on the actual fertility of the soil, on the acumulation of capital and population, and on the skill, ingenuity and instruments employed in agriculture. 'To determine the laws which regulate this distribution is the principle problem in political economy.' (David Ricardo, Principles of Political Economy, Preface)

'The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labour at last reach a point where they become incompatible with their capitalist integument. The integument is burst assunder. The knell of capitalist private property sounds. The expropriators are expropriated.' [Capital, Vol. I, Chapter XXXIII

These notions naturally did not appeal to the industrialists and financiers, nor to the thick layers of middle-class rentiers and professionals which wre growing up betwen them and the industrial wage-earners. A more congenial version of the doctrine of progress was put out by Marshall. Through the profit system, the love of money was being harnessed to the service of society. Market demand guided production so that the needs and tastes of the consumers were catered for. Economies of scale and technical progress were reducing costs of production, and competition ensured that prices fell with costs, so that real wages were rising. The spread of education was eroding class differences; any family with the strength of mind to forgo ‘present gratifications' by saving could claim a share of profit. (70)


'The problem of social aims takes on new forms in every age: but underlying all there is the one fundamental principle: viz. that progress mainly depends on the extent to which the strongest and not merely the highest, forces of human nature can be utilized for the increase of social good. There are some doubts as to what social good really is; but they do not reach far enough to impair the foundation of this fundamental principle. For there has always been a substratum of agreement that social good lies mainly in that healthful exercise and development of faculties which yields happiness without pall, because it sustains self-respect and is sustained by hope. No utilization of waste gasses in the blast furnace can compare with the triumph of making work for the public good pleasurable in itself, and of stimulating men of all classes to great endeavours by other means than that evidence of power which manifests itself by lavish expenditure. We need to foster fine work and fresh initiative by the warming breath of the sympathy and appreciation of those who truly understand it; we need to turn consumption into paths, that strengthen the consumer and call forth the best qualities of those who provide for consumption. Recognizing that some work must be done that is not ennobling, we must seek to apply the growing knowledge and material resources of the world to reduce such work within narrow limits, and to extirpate all conditions of life which are in themselves debasing. There cannot be a great sudden improvement in man's conditions of life; for he forms them as much as they form him, and he himself cannot change fast: but he must press on steadfastly towards the distant goal where the opportunities of a noble life may be accessible to all.' (Marshall, Industry and Trade, pp. 664-5)

It is strange that Marshall published these words in 1919. (Though they were written much earlier). He was too old to notice that his pleasing prediction had been falsified. In Germany capitalism developed before feudalism had been displaced from agriculture, and feudal notions of war as the natural path to honour had not succumed to the morality of a nation of shopkeepers. The industrialists looked to the military to win them a share in the wealth of the world and the military encouraged the application of industrial technique to the production of arms. The quick victory of 1870 seemed to vindicate this formula. The capitalist democracies were dragged into an arms race and war which radically changed the nature of the system. Capitalist imperialism of course, had depended upon military power, but it was turned only against peoples at a much lower technical level who were easily overcome. ... War between ndustrial powers was a very different matter. Ever since, the application of scientific technology to means of destruction, each war starting a little above the level at which the last ended, has changed Marshall's agreeable vision of industry at the service of mankind into a nightmare of terror. (71)


Investment requires that men are employed and incomes earned in producing goods which will contribute to making profits in the future. Meanwhile they are not bringing anything to market. Incomes currently paid out in connection with them represent demand for goods already available and provide profits for businesses which can supply them. There is a 'seller's market' when demand has increased ahead of capacity to meet it. An initial rise in expenditure in investment thus raises the level of profits and makes further investment attractive. A boom is thus a self-contradictory situation. Investment is stimulated by profits which are generated by the investment itself. When the new capacity which investment has been creating becomes into use it competes with the old, the sellers market comes to an end, future pros¬ pects of profit are dimmed, new schemes of investment are insufficient to take the place of those that have been completed and a fall in employment and incomes takes place. (72)

The war had speeded up a tendency that was in any case developing for a number of countries to set up industries to supply thier own needs and reduce their dependence upon exports from the already developed economies thus reduplicating productive capacity, and there had been a wave of technical improvements in the production of raw materials which increased supply ahead of demand. The capitalist world as a whole was sinking into the condition of a buyer's market. But in the United States, after a post-war boom and slump, a strong surge of investment set in. Investment, consumption and national income were rising more or less continuously from 1921 to 1929 an exceptionally long wave of preosperity which gave rise to the notion that America was different - that this was not a mere boom but a new age. There were some signs that the industrial expansion was beginning to flatten out in 1929, but the reaction would not have been so violent if it had not been for the financial boom. (73)

The prices of shares on the Stock Exchange depends, as we saw above, upon what the market expects them to be. There had been a sharp post-war boom in reconverting industry to civilian uses, followed by a sharp slump, which brought share prices down. Then investment picked up and the earning power of the real assets which shares represented was steadily rising. A revaluation of shares began which at first corresponded to a sober calculation of expected profits. But soon the Stock Exchange boom took off on its own and soared away far above the industrial boom. (73)

'The collapse in the stock market in the autumn of 1929 was implicit in the speculation that went before. The only question concerning that speculation was how long it would last. Sometime, sooner or later, confidence in the short-run reality of increasing common stock values would weaken. When this happened, some people would sell, and this would destroy the reality of increasing values. Holding for an increase would now become meaningless, the new reality would be falling prices. There would be a rush, pell-mell, to unload. This was the way past speculative orgies had ended. It was the way the end came in 1929. It is the way speculation will end in the f uture.' (J K Galbraith, The Great Crash, pp. 23-4)

The boom meanwhile had been under-mining its own base. In an earlier phase there had been a fashion in the USA for buying foreign bonds. This had supported investment in a number of countries, particularly Germany, where it made it possible to finance reparations payments without building up a corresponding surplus of exports and to carry on investment at home. The attraction of speculation on Wall Street dried up the source of foreign loans and brought several countries into financial difficulties. Great Britain had been in chronic trouble, exacerbated by returning to the gold standard at an over-valued exchange rate. ... Australia and Latin America were feeling the effects of the sagging prices of primary products, which, as soon as industrial activity slackened fell to ruinous levels. Thus there was no resilience anywhere, and the American slump plunged the whole capitalist world into a steep decline of profits, activity and employment. (74, 75)

It seemed as though Marx's diagnosis was coming true, that capitalism had had its day and was due to be superseded., but history still had more tricks up its sleeve. A new formula had been found in Italy. When a labourer movement was strong enough to be a serious threat to landlords and industrialists, the lower-middle class of shopkeepers, white collar workers and struggling professionals felt themselves to be between two fires. They found a champion who discovered that it was possible to recruit an army of malcontents and by indulging and cultivating the sadism that, it seems, is available in every population, to set up an appar¬ atus of terror to secure power. The respectable classes were partly intimidated and partly grateful for defence against a revolution from the left. Similarly, the respectable capitalist nations, through a mixture of fear and sympathy, allowed the new regime to have its head. Hitler set out to follow this formula in Germany. The present misery of massive unemployment and the nagging bitterness of past defeat provided support for him and he set about to deal with both at once by preparing for war. (75, 76)

1 Meanwhile, history had been playing a trick on Marx. The international labour movement that should have opposed international capitalism fell apart when the workers of each nation lined up behind their governments in 1914 with fervent patriotism. But the collapse of the ramshackle autocracy of the Tsar in the war gave the believers in Marxism their opportunity and they found themselves in command of an empire where Capitalism, far from being overripe and rotting from within, had scarcely begun to take root. It turned out that socialism was not a stage beyond capitalism but an alternative means of carrying out industrialization. (76)

'One element of these costs should be mentioned specifically. It consists in the absorption of ability in merely protective activities. A considerable part of the total work done by lawyers goes into the struggle of business with the state and its organs. It is immaterial whether we call this vicious obstruction of the common good or defence of the common good against vicious obstruction. In any case the fact remains that in socialist society there would be neither need nor room for this part of legal activity. The resulting saving is not satisfactorily measured by the fees of lawyers who are thus engaged. That is inconsiderable. But not inconsiderable is the social loss from such unproductive employment of many of the best brains. Considering how terribly rare good brains are, their shifting to other employments might be of more than infinitesimal importance'. (Joseph A Schumpeter, Capitalism, Socialism and Democracy, p 198)

When private property in the means of production has been abolished the whole national income belongs to the whole population. The earnings of a worker are not wages in the same sense as under capitalism; they are his share in the grand cooperative enterprise. However, as a means of enforcing discipline and providing a motive for work, a system of payments indistinguishable from wages proved indispensable; socialism made much less difference to the daily life of an industrial worker than the visionaries had promised. For the manager of an enterprise life was different. Instead of being called upon to use his judgment as to how to make profits for his firm, he was given instructions in the form of specifications of output, costs, etc. in terms of which he had to make the best showing that he could. (79)

There may have been some far-sighted government advisors who saw the arms race as a solution of the problem of maintaining economic stability, but it seems plausible to suppose that this formula came from a convergence of a variety of forces. The military and all the authorities who had risen to positions of power and honour in the war were reluctant to step down. A number of important industries would have suffered a severe decline if armaments production had fallen off; the scientists who had committed themselves to the atom bomb did not want to believe that it was unnecessary; politicians, fianciers and industrialists feared that sympathy with the Russian people might encourage communism at home; broad masses of white workers, small businessmen, members of the technostructure and intellectuals still held the failth propounded by Al Capone: 'This American system of ours seize it with both hands' and were ready to rally round at any suggestion that it was in danger. Whatever its causes, the consequence of the Cold War was to provide an outlet for government expenditure which did not compete with private enterprise and which did not saturate demand by producing anything that the public could consume. (85, 86)

An adequate rate of increase of total output together with a reduction in man-hours of work per man-year and a lengthening of the period of education enables the system to digest technical change which is gradual and widely diffused throughout industry, though there does not seem much logic in allowing the 'passive and functionless' shareholder to enjoy a large part of the benefit. But the profit motive contains no mechanism to ensure that technical progress will take digestible forms. (87)

The mechanization of agriculture in the ex-slave states of USA, combined with automation in industry and the atrophy of public transport, has made a large part of the unskilled labour force redundant to the requirements of profitable industry. The concentration of the consequent unemployment on black people is creating a horrifying problem. (87)


When it is the accepted aim of government policy to preserve near-full employment and 'economic growth' which satisfies national self-respect and keeps a democracy contented by permitting the majority of its citizen a rising level of consumption, then clearly the management of industrial firms and the trade unions are just as much a part of the administration of the national economy as the Civil Service; at the same time democracy has no direct means of controlling them; they have to be cajoled and offered inducements, or threatened with prohibitions, to get them to do what the aims of policy require. ness of raw capitalism and has played a large part in saving it, till now, from the doom that Marx foresaw a hundred years ago. (90, 91)

The welfare state, just as much as the needs of 'defence', promotes nationalism. Each government is concerned for its own people and policy cannot distinguish between benefits to them which are absolute and those which are at the expense of other peoples. As Myrdal points out, the democratic welfare state in the rich countries of the Western world is essentially, by its very nature, protectionist and nationalistic. (91, 92)

The problems which the Soviets are meeting in adapting their system to potential affluence are very unlike the problems which beset modern capitalist governments in trying to control private enterprise. Controlled trade may be clumsy and wasteful but a balance of payments problem cannot arise when imports are kept to the level that exports can pay for. The elimination of wage bargaining permits full employment to be maintained without the nuisance of continuously rising money-wage rates and prices. Sudden devastating changes in the demand for labour are avoided by introducing automation no faster than its consequences can be dealth with. The elimination of rentier property (though it has not created a classless society) prevents the drain upon the investable surplus and the distortions of the pattern of demand which are due to the consumption of what our tax collectors neatly describe as 'unearned income'. (98)

The most original and striking of Mao's conceptions concerns the relation of the administration and the professions to the simple workers. Mao observed in Russia that status becomes the basis of privilege when property has been abolished and that, through privileged education it can become hereditary, and form the basis for class. A Communist party organized in the Stalinist tradition creates a gulf between the rulers and the ruled. Moreover, in China millineall tradition exalted learning and despised manual work. The roots of class, in the administration and the professions, remained in the ground after property was cut down, and would soon sprout again. The drive for political education based on the thought of Mao Tse-tung is intended to dig out the roots of privilege, make work honourable, level inequalities and establish the right of rank and file to criticize the party and the administration in each line of activity. (103)

The role of the USA in the world today is summed up in an old Soviet joke: 'What is the greatest problem facing the president of the United States - Is it possible to have capitalism in one country?' Every new nationalist movement or reformist political party in the Third World is labelled 'communist' and kept out of power by force if necessary so that these regimes (with one or two precarious exceptions), willingly or reluctantly, keep their economies open to trade and investment for the convenience of capitalist business and, in many cases, put their territory and their forces at the disposal of US strategy. The Cuban revolution succeeded in escaping and was obliged to throw itself upon the support of the Soviets. The hypothesis that the leadership of any kind of revolt against oppression must be 'communist' at heart thus becomes self-fulfilling. The obligation to remain within the rules of the game of the world market puts a number of obstacles in the way of development. The first requirement of development is to mobilize an investable surplus. It is against the rules to expropriate landlords and make use of rent. The profits of native industry are largely consumed in supporting a middle-class standard of life. A great part of the profits generated by exploiting the natural resources of these countries accrues to foreign busiesses which carried out investment to open up supplies of raw materials for their home markets before native capitalists had arisen to undertake it; a great part, also, of the profits generated in industry, trade and finance accrues to foreign businesses. To supplement their inadequate savings from home sources, many of these countries are receiving grants and loans under the title of 'aid'. In some very special cases this has succeeded in fostering native capitalism sufficiently to begin to look after itself; in most, it leads to dependence which inhibits growth rather than promotes it; then loan charges mount from year to year; more and more of current aid is being eaten up in paying for aid already received. (106, 107)

'Agriculture is the foundation' The first step out of millenial poverty is to raise output per head of foodstuffs. The lack of an effective land reform is inimical to development not only because it allows the surplus represented by rent to be consumed in idleness, but because it checks the potential increase in output by leaving land under-utilized and with antiquated techniques, discourages the cultivator and often keeps him at such a low level that he cannot put much energy into work even if he had an incentive to do so, and prevents the mobilization of spare-time labour that has proved so effective in China. (107)