2018-06-17

The Fairy Tale of Capitalism: The Old Ones and the 50 Percent

Each person judges for themselves the truth and meaning of FTC.


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David Ricardo
by Thomas Phillips (1821)
The grandest characters of FTC, the Fairy Tale of Capitalism, are the four Old Ones Adam Smith, David Ricardo, Karl Marx, and Friedrich Engels, Marx’s collaborator. The Old Ones wrote the most significant early Tales, in immense volumes of unintelligible prose.

The capitalists of political view often call Smith the originator of capitalism, but they exaggerate. Smith sketched out profound economic components and dynamics. Ricardo, Marx and Engels cited Smith’s works, disputed some minor points, refined and elaborated others, and used Smith’s terms, and all four agreed on the nature of the economic system, which Marx and Engels named "capitalism" in their book “Capital” in 1867. Marx and Engels articulated the political ideology of “Communism” in their book “Manifesto of the Communist Party” in 1858.

Smith describes how the wages of Labor merely suffice for the Worker to subsist. Under stable conditions, he writes, a man and his wife, both employed, have just enough income to maintain themselves and four children, two of whom die before adulthood. Employers choose among Workers bidding against one another for employment, and competition among Workers keeps their wages to a “scanty subsistence”, he wrote.

Friedrich Engels
by William Hall (1879)
Adam Smith
by John Kay (1790)

When employers expand production rapidly, their need for Workers increases, writes Smith. Wages may rise a little, a comfort encouraging some Workers to marry and have children. If Labor becomes abundant, due to expanded population, introduction of improved machines or a decline in production, then employers dismiss Workers, and wages decline. Smith describes prevalent beggary, crime, starvation, and death among the unemployed until the population declines sufficiently that revenue from production can maintain it.

Smith writes “The liberal reward of labour, therefore, as it is the necessary effect, ... is the natural symptom of increasing national wealth. The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition, that they are going fast backwards.” 

Ricardo echoes Smith. “The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.” The prices of food and necessities determine the natural wage level. And “When the market price of labour is below its natural price, the condition of the labourers is most wretched: then poverty deprives them of those comforts which custom renders absolute necessaries.”


Marx and Engels echo Smith. “The value of labour-power is determined by the value of the necessaries of life habitually required by the average labourer.”

The Tales of Marx and Engels are consistent with the concepts articulated by Smith and Ricardo. The capitalist advances Capital (which Smith calls “stock”) for equipment, for materials and for employment of Labor, they write. Labor transforms the means of production into product sold in the market. The product fetches a price sufficient to reimburse expenditures on Labor and equipment and materials, plus a little more, because otherwise production stops. For Marx and Engels the “plus a little more” is “surplus value”, the residuum, after replacing production expenditures. The capitalist claims the surplus value, increasing the Capital. Smith and Ricardo would have agreed fully and called surplus value the capitalist’s profit. Marx and Engels say the capitalist should share surplus value, which is Capital and Labor transformed, with the Worker. Marx and Engels write that capitalism requires many Workers to live in conditions so desperate that some of them die, while the capitalist lives in comfort.

Karl Marx
by John Jabez Edwin Mayall (1870)
Marx and Engels fully agreed with Ricardo and Smith on the functioning of the existing general economic system, which they described in great detail and named "capitalism" in their book "Capital". In their book "Manifesto", they called for abolition of private property. That call immediately aroused a political movement opposing communism, Engels, Marx, and everything associated with them, including, alas, people who wrote about them. Engels and Marx became the high villains of FTC. The political movement opposed to communism adopted the name "capitalism", instantly conflating the movement with the economic system, and the members called themselves "capitalists", whether they personally owned significant capital or not.

In their Tale of the Yeoman, Marx and Engels write that the Crown granted nobles authority to clear their domains of families that had cultivated small inherited plots since antiquity. The Land clearing coincided with invention of new machines, such as automated looms, centralized in urban factories where the displaced country people sought employment. Marx and Engels suggest there was no poverty in England before capitalism introduced modern employment in the factories.

Marx and Engels romanticize the good old days. Poverty long predated capitalism. In Seville, at the time Christopher Columbus landed in America, the predawn of capitalism, about 50 Percent of the people weren’t wealthy enough to tax. In our enlightened era, the 50 Percent are the least wealthy half of Society. In 2012, Mitt Romney, the unsuccessful Republican candidate for U.S. President, said 47 percent of the people don’t pay income taxes. Most of the 50 Percent don’t have enough income to tax, because taxing the 50 Percent could raise political problems by starving many constituents and their children. Indeed, some are starving without taxation. In the United States, 1/8th (12%) of households were food-insecure in 2016. 1/20th (5%) had “very low food security”, meaning they didn’t have enough food at times during the year for lack of money or other resources.

A fair trade, as between a buyer and a seller, produces benefits for both parties. Smith and Ricardo saw the deaths of some Workers as the natural, necessary and useful result of a complex system of production and distribution which benefits the entire Society by increasing the wealth of the nation. Marx and Engels wrote, with outrage, that the customary trade of Labor for wages was unfair to the Worker; systematically unfair, because no trade could be fair when the death of one of the parties so frequently results.



Note: In 2016, the U.S. Census Bureau poverty level for a household of 4 people was about $24k, which is, coincidentally, approximately the highest household income in the 20th percentile of incomes, and also, $24K is about the 2018 level of the U.S. Department of Health & Human Services poverty guideline (determining eligibility for various government programs) for a 4-person household. The U.S. Department of Agriculture estimates, based on census data, state proportions of people in poverty, ranging from 8% in New Hampshire to 21% in Mississippi, and of children in poverty, from 9% in New Hampshire to 30% in Mississippi, as of 2016.



My gratitude goes to my friends who encouraged me and helped me clarify the text to better convey the meaning.



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Images

William Hall, “Friedrich Engels” (1879, Brighton, Public Domain, Wikimedia, https://commons.wikimedia.org/wiki/File:Friedrich_Engels_portrait_(cropped).jpg)

John Kay, “Adam Smith” (1790, Library of Congress, Public Domain, Wikimedia, https://commons.wikimedia.org/wiki/File:AdamSmith1790b.jpg)

John Jabez Edwin Mayall, “Karl Marx” (circa 1870, UK National Portrait Gallery, http://www.npg.org.uk/collections/search/portrait/mw75680/Karl-Marx, Public Domain in USA, https://commons.wikimedia.org/wiki/File:Karl_Marx_by_Mayall_c1870.jpg)

Thomas Phillips, “David Ricardo” (1821, National Portrait Gallery, Public Domain, Wikipedia, https://en.wikipedia.org/wiki/David_Ricardo#/media/File:Portrait_of_David_Ricardo_by_Thomas_Phillips.jpg)

United States Census Bureau, Current Population Survey (2016 and 2017 Annual Social and Economic Supplements, https://www2.census.gov/programs-surveys/demo/tables/p60/259/table2.xls

U.S. Department of Agriculture, “U.S. households by food security status, 2016” (https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx)



Sources

Gerald Auten & Geoffrey Gee, “Income Mobility in the United States: New Evidence from Income Tax Data” (June 2009, National Tax Journal, https://www.ntanet.org/NTJ/62/2/ntj-v62n02p301-28-income-mobility-united-states.pdf)

Gerald Auten & David Splinter, “Income Inequality in the United States: Using Tax Data to Measure Long-term Trends” (2018, New York University, http://www.law.nyu.edu/sites/default/files/upload_documents/Income%20Inequality%20in%20the%20United%20States%20-%20Auten_1.pdf)

Daniel Brockman, “Demonstrating Disparity” (April 2018, https://daniel-brockman.blogspot.com/2018/04/demonstrating-disparity.html)

Daniel Brockman, “The Fairy Tale of Capitalism: The 90 Percent" (November 2016, https://daniel-brockman.blogspot.com/2016/11/the-fairy-tale-of-capitalism-90-percent.html)

Daniel Brockman, “The Fairy Tale of Capitalism: The Buyer of Labor and the Nine Percent” (March 2017, https://daniel-brockman.blogspot.com/2017/03/the-fairy-tale-of-capitalism-buyer-of.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Land and Ricardo” (April 2017, https://daniel-brockman.blogspot.com/2017/04/FTC-Land-and-Ricardo.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Managers, Professors and Engels” (June 2017, https://daniel-brockman.blogspot.com/2017/06/ftc-managers-professors-engels.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Rand, Marx and the Downward Trickle” (November 2017, https://daniel-brockman.blogspot.com/2017/11/FTC-rand-marx-downward-trickle.html)

Friedrich Engels, “The Condition of the Working Class in England” (1845, Penguin, http://a.co/6DAD9JW)

Robert Farley, “Dependency and Romney’s 47 Percenters” (September 2012, FactCheck.org, https://www.factcheck.org/2012/09/dependency-and-romneys-47-percenters/)

Felipe Fernandez-Armesto, “Amerigo: The Man Who Gave His Name to America” (2007, Random House, http://a.co/cI3Q6mw

Jacob Goldstein & Lam Thuy Vo, “The 47 Percent, In One Graphic” (September 2012, National Public Radio, https://www.npr.org/sections/money/2012/09/18/161337343/the-47-percent-in-one-graphic)

Thomas Piketty, Emmanuel Saez, Gabriel Zucman, "Distributional National Accounts: Methods and Estimates for the United States" (May 2018, Quarterly Journal of Economics, https://eml.berkeley.edu/~saez/PSZ2018QJE.pdf)

Karl Marx & Friedrich Engels, “Capital” (1867, http://a.co/fdu68Kb)

Karl Marx and Friedrich Engels, "Manifesto of the Communist Party" (1858, 1908 New York Labor News Edition, http://amzn.to/2hl0LCS)

Molly Moorhead, “Mitt Romney says 47 percent of Americans pay no income tax” (September 2012, Politifact, http://www.politifact.com/truth-o-meter/statements/2012/sep/18/mitt-romney/romney-says-47-percent-americans-pay-no-income-tax/)

David Ricardo, “On the Principles of Political Economy and Taxation” (1823, http://a.co/9BOWay8)

Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776, http://a.co/e3KmVXG

Adam Smith, “The Theory of Moral Sentiments” (1759, 2010 republication by Digireads, http://amzn.to/2ADCAYL)



U.S. Census Bureau, “Number in Poverty and Poverty Rate: 1959 to 2016” (1960 to 2017, Current Population Survey, https://census.gov/content/dam/Census/library/visualizations/2017/demo/p60-259/figure4.pdf)


United States Department of Agriculture, Economic Research Service, “Key Statistics & Graphics, Food Security Status of U.S. Households in 2016” (https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx)

United States Department of Agriculture, Economic Research Service, “Poverty, Percent of total population in poverty, 2016” (retrieved Jun 11, 2018,

United States Department of Health & Human Services, “U.S. FEDERAL POVERTY GUIDELINES USED TO DETERMINE FINANCIAL ELIGIBILITY FOR CERTAIN FEDERAL PROGRAMS” (retrieved Jun 11, 2018, https://aspe.hhs.gov/poverty-guidelines)


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