In Service to Scarcity: The Pursuit of Value as the Production of Poverty


While the left has had little success in developing a critique of capitalist value capable of informing either radical organizing strategies or an anti-capitalist narrative which reaches a popular audience, the conventional assumption that manifestations of economic value are reflections of social utility has escaped critical examination.This essay argues that exploring the roots and subsequent development of capitalist value theory over the course of the nineteenth century reveals a Janus-faced project:on the one hand, the development of a popular narrative which insists upon the “natural” inevitability of the scarcity which both backs value and precludes socialism, and on the other, an esoteric discussion of the need to channel the labor-power of society in directions that maintain the scarcity of the goods for which the majority exchange their time.Both the popular and the esoteric discussion had as their common enemy the nineteenth century socialists who argued that both the folly of capitalism and the potential of socialism could be readily seen, and explained, by way of a critical examination of the uses to which the collective labor-power of society were being put.What follows is intended to suggest the contemporary relevance of such an approach as radicals seek to develop narratives about imagined possibilities—which the discourses of value, both popular and esoteric, are deliberately designed to foreclose.


The anti-capitalist left is in need of a coherent, popularly accessible critique of capitalist value.We live in a time in which well-researched exposés of capitalist crimes are common—think Monsanto, or the numerous studies that trace everyday objects to the labor and environmental horror stories at the production end of their supply chains—but do little, if anything, to explain the systemic logic that produces the conditions under discussion, much less spark subversive dialogue about possible alternatives to capitalism.Indeed, both elites and the public seem to be held in thrall by a “market populism” that suggests that freedom is found in the marketplace, and “radical” critiques of the systems that produce our food, clothing or electronics frequently conclude by urging us to “revolutionize” the market via a redirection of our purchasing power.

What’s missing, of course, is any critique of the institution of capitalist value, an understanding of which is obviously necessary for any attempt to analyze and explain what drives the allocation of time and resources in our society, or to provide a clear and comprehensible answer to the question, what are we chasing, or being compelled to chase, in this rat race?Being able to answer this question seems crucial to any effort to make a convincing case that the race be scrapped, or to projects animated by a desire to scrap it, or at leastprovide exits and resting points from it along the way.

Value theory is implicit in any attempt to explain the rat race.We’re familiar with the conventional wisdom.Money is the measure of value, and we express our own desires when we part with it, while fulfillingor attempting to fulfill, those of others as we chase it.In aggregate, this is the market, a map of our collective desires, and everyone knows, or is supposed to know, that it would be impossible to imagine a more efficient mechanism for channeling resources in what amounts to a non-stop process of voting on the market to inform the collectivity of our individual wants and needs.Calling it a rat race betrays a bad attitude, though if the characterization happens to be on target, it’s only because, at the end of the day, we are, by our very nature, all rats.

Marxist value theory, of course, is supposed to make short work of this nonsense.Marx tells us that value is the necessary labor-time embodied in the products and services that produce profit for capitalists, and thus serves capital in its inexorable drive for expansion.Workers are exploited in the capitalist production process because the time they spend producing the value equivalent of their subsistence, which they receive in wages, is exceeded by the time they spend working for the capitalist.This is the source of capitalist profit, which is the same thing as the exploitation of labor, and Marx’s value theory makes it possible to read capitalism as the insanity of a society that devotes its time to the pursuit of representations of that very time.

It’s all very heady, seemingly quite powerful stuff.Why, then, is there an apparent disconnect between Marxist value theory and a popular critique of the rat race capable of not just doing battle with, but destroying the banalities of someone like Thomas Friedman?Why is it so hard to draw direct connections between Marx’s account of capitalist value and political projects that inspire us with their potential for transformative change?

Perhaps it’s because by the time we get finished explaining (or attempting to explain) the discrepancy between the value embodied in an iPhone, measured in units of necessary labor time, and its price, the audience has left the room, and they’ve done so not simply because of the obscurity of the discussion, but because it has seemingly taken them so far afield from the concerns that brought them to the discussion in the first place.There is, undoubtedly, a solution to this problem, to be had if only we arrive at the correct reading and presentation of Capital, but I’d like to suggest an alternative route to a subversive critique of capitalist value, one that just might be capable of reaching and engaging a broad popular audience, and serve as a complement to, rather than replacement for, what we’ve learned about capitalism from Marx.

If we can think about political economy as a discourse of governance, not as a contest to see who can come up with the manual which most accurately describes “how the economy works,” it should be obvious enough that as radicals we should take a vital interest in the conception, or conceptions, of value which inform the projects of governance which are inscribed in our landscapes and do so much to structure our lives.In Capital, Marx did just that by taking the economic categories of David Ricardo, the then-reigning champion of bourgeois economics, and demonstrating that they exploded on their own assumptions.The principles of Ricardian economics have long since been decisively rejected by elites, however, specifically on the grounds of their uselessness for the development of tools of governance, with Keynes declaring that the teaching of Ricardo and his followers “is misleading and disastrous if we try to apply it to the facts of experience” (Keynes 1936).In what follows I’ll explore the history and implications of the value theory which triumphed over Ricardo’s precisely for its perceived superiority as a tool of governance, and argue that a plain-spoken indictment of capitalism as a colossal misapplication of time and resources, which has as its intention and effect the exchange of lifetimes of obedience for goods which require comparatively infinitesimal quantities of human labor for their production, can be derived directly from bourgeois value theory itself.

In rejecting the Ricardian conception that capitalist value is embodied labor time, Keynes embraced an alternative definition, that of Thomas Malthus, which defined capitalist value not as the quantity of labor embodied in a particular good, but rather the quantity of labor a good is capable of commanding.The implications of viewing the underlying logic of capitalism in this way are significant, but the historical context out of which the theory came is equally so.We’re familiar with Malthus, of course, not for his theory of value but for his theory of population.Entirely forgotten is that the Essay on Population was both written and used to stifle a radical critique of the channeling of human effort in British society, and it’s necessary to briefly examine it, because it represents the antithesis of the value theory of Malthus and Keynes.

Coming from the pen of William Godwin, the argument went that the scarcity which compelled lifetimes of obedience in exchange for mere subsistence was entirely artificial, the product of a system of private property which had as its essence the restriction of access to the land and tools with which the wants and needs of the community could be produced in abundance.The resulting compulsion to toil away at tasks and projects which contributed nothing to the fulfillment of one’s own desires was the essence of injustice, they argued.Their innovation, however, was to consider the macro-implications of such a system of exploitation.Dividing the population into those engaged in producing the subsistence needs of the nation, and those whose efforts produced nothing for which the majority exchanged their time, the radicals argued that the staggering quantity of human effort consumed by activity in the latter category made clear that the mass poverty surrounding them was no more than a society-wide demonstration of the truth of the age-old adage, “you reap what you sow.”The scarcity that compelled obedience, they argued, was in fact a product of that obedience itself.Given the productivity of human labor, a conscious redirection of social effort was all that was needed to usher in a society of comfort, cooperation, and leisure.

The story of capitalist value reveals it as the antithesis of this vision, at levels both popular and esoteric. The ideological response to the radicals came in the form of Thomas Malthus’s Essay on Population (1798), which provided a popularly broadcast assurance that the scarcity of the means of subsistence was natural and permanent, and would only be exacerbated by any attempt to cheat Nature by increasing the quantity of social effort devoted to their production. Malthus’s insistence that the roots of poverty could be traced to the soils, rather than the institutions of society, was then incorporated at the foundations of the economic system of David Ricardo, which was to dominate the “science” of political economy, in the English-speaking world, for the better part of the nineteenth century.Ricardo made Nature the sole source of the scarcity which conferred value on goods (Ricardo 1973).Goods were scarce, and hence valuable, he argued, to the extent that they were difficult to produce, or pry from Nature’s hands.This difficulty could be measured by the quantity of labor time required for production, and Ricardo made this his definition and measurement of value.

By this definition, as the quantity of labor-time engaged in the production of goods for the market increased, the value of those goods should only go up—Ricardo’s theory denied the possibility of a value-destroying general glut of overproduction.Such a state of affairs, however, was precisely what political economy would be asked to explain, and Ricardian value theory, based on a set of assumptions that did its best work in the service of anti-socialist propaganda, was ultimately rejected as having little correspondence with reality.Ironically, it was Malthus himself who pioneered the attempt to place value theory on a more realistic footing.Value, he argued, was not determined by the quantity of labor required to produce a good, but rather the quantity of labor a good could command in exchange.Profit was the difference between the two categories, i.e., profit is maximized to the extent that the quantity of work required to produce goods is exceeded by the quantity of work required to obtain them.

The macro-implications of Malthus’s “value vision” mirrored what the radicals portrayed as a colossal misapplication of human effort:a dynamic capitalism required a large, and growing, class of “unproductive consumers” to maintain a profitable ratio between the quantity of labor expended in production and that which it commanded in exchange. Malthus’s “value,” or “commanded labor,” was nothing other than the radicals’ “servile dependence,” and when he wasn’t battling socialism, it turns out that he wasn’t even Malthusian:the value of goods, reflected in prices, was not determined by the state of the soils, or difficulty of production, but rather by a proper “proportioning” of effort in society, such that the quantity of labor engaged in the production of goods for the market always set a much larger quantity of labor in motion in exchange for it.This was a “political and moral” project, said Malthus (Malthus 1968, 1), and not a matter of mathematics.

Unlike Ricardo, Malthus was capable of explaining and offering a remedy for capitalist crisis.If we consider Malthus’s definition of profit as a fraction, with the quantity of labor-power offered in exchange for goods on the market as the numerator,[1] and that engaged in the production of goods as the denominator, it’s clear that the rate of profit declines if capitalists continue to increase investment in the production of goods for the market absent any simultaneous increase in the quantity of labor to be exchanged for them.This is how Malthus explained the crisis which followed the end of the Napoleonic Wars:the sudden shift of soldiers and others from the numerator of war-related consumption to the denominator of production for the market increased the quantity of goods on the market at the same time that the quantity of labor exchanging for those goods declined.Contrary to the conventional wisdom, which held that economic growth resulted from capitalist saving, i.e., adding to the denominator, Malthus argued that opportunities for profitable saving resulted from additions to the numerator, in the form of workers whose efforts produced nothing for which anyone exchanged their time.This was why war always resulted in a boom.Despite the nearly religious reverence with which “saving” was held in the field of economic thought, Malthus argued that excessive saving, i.e., increasing the quantity of labor devoted to producing goods for the market, absent any increase in the quantity of labor that would exchange for them, not only led to disaster, but was the essence of capitalist crisis.

The value story is the story of Malthus’s triumph.For while Ricardo’s contentions, that scarcity is rooted in Nature, and that omniscient “market forces” optimize the aggregate channeling of effort in society, were ideally suited as intellectual antidotes to the radical challenge, the three decades of economic depression that marked the end of the nineteenth century resulted in an elite consensus that ongoing revolutions in the productivity of labor threatened to destroy value, if not subjected to regulatory controls.Ricardo’s contention, which Malthus had disputed, that capitalists brought goods to market for the sole purpose of exchanging them with other goods they desired to consume, was no longer given serious consideration, and it was recognized that the “grand prize” of the capitalist game was what Malthus called “leisure with dignity” (Malthus 1968, 216), i.e., an ongoing claim on a portion of the aggregate labor-power of society.Value, then, was not yesterday’s labor congealed in today’s goods, but the obedience today’s production would compel tomorrow.

This conception of value found expression in the “marginalist revolution” within the realm of economic theory, which found value not in the world of production, but rather at the intersections of scarcity and desire, measured in terms of the intensity of effort required to meet one’s perceived needs.In Principles of Economics, marginalist pioneer Carl Menger brilliantly fused the popular Malthus of An Essay on the Principle of Population with the esoteric Malthus of Principles of Political Economy, making Malthus’s “scarcity ratio” safe for college textbooks by assuming up front that the scarcity which compels human effort is natural and eternal before arguing that the poverty of unmet needs, and “fear” of losing access to the means of subsistence were crucial spurs to the human effort that is, in fact, the essence of value (Menger 1950).

Late nineteenth century industrial capitalists required little assistance from economic theory to come to the conclusion that, contrary to Ricardo, the demand for goods was not unlimited, and value was not determined by the quantity of labor expended in production.As they successfully pursued strategies of merger and collusion, designed to restrict output and restore the scarcity, and hence value, of their goods, they discovered that a privileged market position—the ability to restrict output and control prices through the elimination of competition—had more value than their tangible assets of land and machinery.These strategies, pursued out of necessity by crisis-driven capitalists, would be justified in the realm of economic theory by a group of influential economists advising the McKinley and Roosevelt Administrations at the turn of the twentieth century.Marrying a marginalist theory of value to an “overproduction” account of the ongoing crisis, they would offer an inverted echo of the early nineteenth century socialists inspired by Godwin, arguing that the scarcity which backed value was impossible to maintain outside of a regulatory framework explicitly designed to place artificial limits on production (Sklar 1987).

This value story is crucial because the value revolution which took place at the turn of the twentieth century, providing the solution to the late nineteenth century crisis by making value the reward for the maintenance of relative scarcities, rather than a compulsion to engage in self-defeating attempts to increase production by competing with rivals on the basis of price, would form the backdrop for contemporaneous efforts to regulate markets in labor and land, also driven by the pursuit of value.The central regulatory lesson of the late nineteenth century crisis was not only that the maintenance of value required the deliberate creation of artificial scarcities, but that these scarcities were to be effected by the exclusion of competitors from markets.When transferred to attempts to regulate early twentieth century land and labor markets, the pursuit of value would be racialized, as those targeted for exclusion would be identified on the basis of skin color and nationality.

The discussion is also crucial because what quickly becomes apparent is that far from being a neutral measuring stick, external to ourselves, value is a reflection of our own obedience, offered up in exchange for tickets which grant access to the goods which meet our wants and needs.While the pursuit of these tickets is often equated with materialism, the irony is that their value, in fact, depends upon limiting the quantity of goods for which they will be exchanged. If we about the overall social impact of the social institution of value, our immediate attention might be drawn to the explicit tension between value and material abundance so central to the story of value, not just in the realm of theory, but in terms of the institutional strategies pursued for the purpose of maintaining the scarcity of goods—i.e., their ability to compel our time and effort – regardless of the facility of their production.This, indeed, is a crucial part of the value story, and deliberate restriction of material output in the face of a world characterized by such crushing material need would certainly require a place in any attempted reckoning of value’s impact on human well-being.But just as the rejection of Ricardo entailed a recognition that the “prize” of capitalism was not goods, but rather the obedience they compelled, perhaps we should consider the possibility that the true cost of value lies not in the restriction of material output required for its protection, but rather in all the things we give up doing—and becoming—by consenting to lives of obedience in exchange for goods which in fact require very little human effort for their production.The true costs of value, in fact, are opportunity costs, and perhaps what makes value so dangerous to us is our apparent inability to even ask whether the institution of value represents a fundamental barrier to individual and social development.Modern capitalist value theory took shape, in fact, out of an attempt to foreclose that very question.

The Radical Challenge

In 1793, with the publication of Enquiry Concerning Political Justice, anarchist William Godwin helped launch a profoundly subversive social conversation in England regarding the proper allocation of the labor power in the society as a whole.[2] Godwin argued that the mass poverty which characterized British society was the result of an egregious misapplication of human effort, and part of what made his critique so dangerous was the ease with which it could be understood:there was a shortage of food, clothing, and shelter for the masses for the simple reason that such a small portion of the total effort of society was channeled in the direction of producing them.The earth was bountiful, said Godwin, and labor was productive—he estimated that the typical peasant produced enough food for twenty (Godwin 1996).Should all the efforts currently channeled in the direction of “unnecessary employments,” such as church, state, and the “manufacture of trinkets and luxuries” for the rich be directed toward the production of necessities, “the necessity for the greater part of the manual industry of mankind would be superseded” (Godwin 1992, 806) and it was possible to imagine a society of universally shared comfort, cooperation, and leisure.

Godwin thus “zoned” the population into two sections—those engaged in the “necessary” labor of producing the subsistence needs of society, and all “unnecessary laborers” supported by the fruit of those efforts, for the purpose of creating a visualization of social labor in aggregate, examining its consequences, and imagining the possibilities associated with channeling it in alternate directions.[3]For Godwin, however, the misdirected social effort of which he spoke was not a matter of poor organization, but rather one of injustice.The essential feature of the system of private property, Godwin argued, is that it blocks the poor from directly accessing the means of subsistence.[4] The first injustice which results is the state of servile dependence in which the poor find themselves in relation to those offering employment, and the second is that they are compelled to labor for the benefit of others. It is, in fact, the command over labor-power itself which is, for Godwin, the true prize offered by this class-bound economic system:“What is misnamed wealth, is merely a power vested in certain individuals by the institutions of society, to compel others to labour for their benefit Godwin 1996, 38).”[5] As more commanded labor means more of this “misnamed wealth,” Godwin concludes that “the object in the present state of society is to multiply labor; in another state it will be to simplify it” (Godwin 1992, 823).

Godwin’s formulation that the “wealth” of the rich was in fact not represented by their possession of tangible goods, but rather their command over society’s labor-power, meant that the poverty of the many, which compelled them to exchange a lifetime of obedience in exchange for subsistence, was the obverse of the “wealth” of the few.He thus sets up a tension between “what has been misnamed wealth,” i.e., the power to compel labor, and the channeling of labor in directions that will produce comfort and leisure for all.The distinction between a society of class exploitation and one of justice could be visualized by imagining the “zones” into which its aggregate labor-power was channeled:in the first case a zone of hyper-exploited workers engaged in producing the subsistence needs of the entire society is dwarfed by one in which workers exchange their time for those subsistence goods, while producing little or nothing for their own benefit, and in the second, all members of society share in the production of its necessities, with the result that everyone’s “share of labour would be light, and [their] portion of leisure would be ample”(Godwin 1996, 132).

Godwin’s framework became that of the nascentnineteenth century socialist movement in England,[6] though his standpoint of speculative, egalitarian ethics gave way to attempts to empirically ground the assertion that only a fraction of society’s effort was of any benefit to the majority.The central message, however, was that as only human labor could produce the necessaries and conveniences to be consumed by society, “wealth is power over the labour of the poor,” and as “the rich can direct their labour in any line they please,” the result is not only the stockpiling of luxuries on one side, but the maintenance of scarcity on the other, on which the continued command over labor depends (Hall 1965, 346–7, emphasis added).Were the poor able to place land and tools in the service of directly fulfilling their material needs, as opposed to obtaining them indirectly, through service on projects that typically produced nothing intended for their own consumption, the means of subsistence would be so plentiful that no one could compel obedience in exchange for them.[7]Indeed, far from portraying capitalism as an orgy of materialist excess, they argued that the maintenance of class relations required artificial limits to production.The productivity of the labor at the disposal of the rich went far beyond the requirements of even the most lavish consumption of luxury, such that “ingenuity has been on the stretch to find out ways in which it may be expended (Godwin 1992, 823),” with the result that vast quantities of labor were endlessly being channeled into “wild projects of calamity, oppression, war and conquest” (Godwin 1992, 33).

The vast quantities of squandered, “unnecessary” labor in the exploitative present represented the potential wealth of the society of cooperation, and thus creating visualizations of the use of society’s labor-power, in aggregate, was a crucial tool of propaganda, simultaneously acting as both indictment and inspiration.When conservative merchant Patrick Colquhoun undertook an economic census of the British Empire which divided its workers, according to the categories of Adam Smith, into “a productive class whose labor increased the national income and a ‘diminishing class’ which produced ‘no new property’ ” (Briggs, 1985:7), he provided the socialists with “the weapon par excellence for an attack on classical political economy” (Coontz 1966, 60).The socialists used the tables to create what they called a “map of civil society” (Foxwell, in Introduction to Menger 1962), a portrait of social effort in aggregate, for the purpose of awakening subversive imaginations as to the extraordinary potential of their collective labor-power, if channeled in alternate directions.The table provides a numeric breakdown, by class (e.g., royalty, nobility, etc.) or trade, of all those with a claim on the national income, as well as the amount of income accruing to each (see Fig. 1).Using the Smithian logic on which the table was based, i.e., the distinction between “productive” and “unproductive” labor, the socialists were able to argue that not only could it be conservatively estimated that one-third of those drawing an income were “useless members of society,” in terms of making a contribution to the material well-being of the community (Gray 1971, 18), but that these “useless” classes, and the institutions they served, absorbed the lion’s share of the national income.While many of the “productive laborers” listed in the table were undoubtedly engaged in the production of luxuries, they numbered less than half of all income recipients, and received but a fifth of the national income, the remainder being siphoned off in support of “unproductive activity.”The table was “constantly referred to” in the socialist literature of the day (Foxwell in Introduction to Menger 1962, xliii), and became “the statistical foundation of the socialist movement” (Coontz 1965, 62).For the socialists, given the productivity of labor, there was but one conclusion to be drawn from such a “mapping” of the usage of society’s labor-power:

And we think it must be plain to all, that they, who are now supporting themselves in poverty; the middling classes in decency; and the higher classes in luxury; may, by much less labour applied exclusively to their own advantage, surround themselves with every comfort, and forever bid adieu, even to the most distant apprehension of want or poverty; as it is certain that by thus acting, they will not only be gainers of all that is now appropriated to the use of those who do nothing towards the production of that which they consume, but that they will be enabled to removed the greatest of all human errors, the limit of production. (Gray 1971, 58, emphasis in original).

Godwin and his socialist progeny didn’t speak of “economic value,” but their impact on the subsequent nineteenth century value discussion was enormous.The “command over labor” which they referred to as “wealth,” or “misnamed wealth,” would reappear as “value” in later discussions among capitalist economists, along with the same tension posited between this “command over labor” and the “real wealth” of “necessaries and conveniences” so emphasized by these early radicals.Implicit in their analysis was the argument that prices depended on scarcity, but that scarcity, particularly for the crucial items of food, clothes and shelter, had no natural foundation, but rather reflected a distribution of effort in society which, they argued, was the product of class exploitation.[8]This argument would loom large in subsequent attempts to theorize capitalist value.Perhaps most crucially, the socialist practice of “zoning” the population into the categories of those who produce the goods which command labor, and those who work in exchange for those goods, anticipates the subsequent value discussion amongst capitalist economists, who also utilized these categories, though in the service of a social project antithetical to that of the socialists.Most directly, however, these socialists influenced the value discussion by way of the response they elicited, in the form of Malthus’s Essay on Population, as the scarcity assumptions at the heart of his argument would be incorporated at the foundations of Ricardo’s value theory, which would dominate the “science” of economics in the English-speaking world for the better part of the nineteenth century.

Table 1. The socialist “map of civil society.”


Scarcity to the Rescue

British conservatives had a persuasive reply to the Godwin-inspired notion that poverty, and the obedience it compelled, was both cause and consequence of the directions down which the efforts of society were being channeled, and it came in the form of Thomas Malthus’s Essay on Population (1798). Malthus announced Godwin as his target in the opening sentence of the preface, and proceeded to argue that the scarcity thatGodwin traced to the human institution of private property, and the resulting claims it gave on the right to direct the efforts of the entire society, in fact had its roots in “Nature” itself. Malthus’s argument is familiar, of course, though it’s rarely remembered that it was written as a broadside against socialism.His argument is ruthless in its simplistic efficiency, and he requires only a handful of sentences in order to fashion a club with which to beat back the radical challenge:

I think I may fairly make two postulata.First, that food is necessary to the existence of man.Secondly, that the passion between the sexes is necessary and will remain nearly in its present state…Assuming, then, my postulata as granted, I say, that the power of population is indefinitely greater than the power in the earth to produce subsistence for man.Population, when unchecked, increases in a geometrical ratio.Subsistence increases only in an arithmetical ratio.A slight acquaintance with numbers will shew the immensity of the first power in comparison of the second…This implies a strong and constantly operating check on population from the difficulty of subsistence.This difficulty must fall some where [sic] and must necessarily be severely felt by a large portion of mankind…No fancied equality…could remove the pressure of it for even a single century.And it appears, therefore, to be decisive against the possible existence of a society, all the members of which should live in ease, happiness, and comparative leisure; and feel no anxiety about providing the means of subsistence for themselves and their families (Malthus 1996, 4–5).

Scarcity, then, was natural and permanent, and the “close habitations and insufficient food of many of the poor,” along with “war,” and “periodical pestilence or famines” (ibid, 44–45) in fact, were all part of an “imperious all pervading law of nature” designed to restrain population “within the prescribed bounds” (ibid, 5).Not only was it impervious to any radical attempt at a redirection of social effort in the interest of the vast majority, but efforts in such direction, to the extent that they removed the “difficulty of subsistence” which acted as the chief “positive check” to population, would precipitate disaster.Malthus readily acknowledged that channeling social effort in the directions envisioned by Godwin “would tend greatly to augment the produce of the country” (ibid, 65).But therein lay the problem:Were Godwin’s vision actually realized, such that “every house is clean, airy, sufficiently roomy, and in a healthy situation,” “all men are equal,” “and the necessary labours of agriculture are shared amicably among all,” these “extraordinary encouragements to population” would result in a rate of population growth “faster than in any society that has ever yet been known” (ibid, 64–65).Though Malthus begins his essay with the apology that “a long and almost total interruption from very particular business…prevented the Author from giving to the subject an undivided attention” (ibid, 1), he feels confident in estimating that a century-long Godwinian attempt at universal comfort and leisure would result in the population of England mushrooming from 7 to 112 million, with food sufficient for less than a fourth of these.[9] Long before such a state of affairs had ever been reached, Malthus argues, it was almost certain that “an administration of property, not very different from that which prevails in civilized States at present, would be established as the best, though inadequate, remedy, for the evils which were pressing on the society” (ibid, 69).

Not just the poverty of the poor, then, but the property of the rich, were mere manifestations of an “impervious all pervading law of nature.”In less celebrated passages, however, Malthus indicated that comfort for the majority was undesirable regardless of its presumed effects upon population.In considering the effects of an increase in the purchasing power of the poor, Malthus restates, in his own words, the linkage thatGodwin had sought to establish between “the power to compel others to labour” and the poverty of the majority:

The receipt of five shillings a day, instead of eighteen pence, would make every man fancy himself comparatively rich and able to indulge himself in many hours or days of leisure.This would give a strong and immediate check to productive industry, and in a short time, not only the nation would be poorer, but the lower classes themselves would be much more distressed than when they received only eighteen pence a day (ibid, 27).[10]

Malthus was against lessening the compulsion to work, regardless of its impact on population.The intent of the Essay On Population, however, was to naturalize this compulsion, and the class relations which accompanied them, thus rendering moot any subversive speculations as to the human potential that might be achieved were the poor to channel their efforts in directions of their own choosing, and sever the tethers that bound them to people and projects inimical to the fulfillment of their wants and needs.[11]In this, he was enormously successful.Godwin admitted that Malthus’s essay converted many of his own supporters, and the new theory of population, which “scientifically proved” the impossibility of socialism, became the weapon of choice in a “torrent of scurrilous abuse spat [at Godwin] from the pulpit and in the lecture theatre, and smeared across pamphlets, novels and verse” (Marshall, in Godwin, 1985:20).Crucially for the nineteenth century value discussion, Malthusian assumptions regarding the natural permanence of scarcity, and the ineluctable relationship posited between population and resources, were incorporated at the foundation of the new “science” of political economy, and the categories it erected in its attempts to theorize “economic value.” These attempts similarly required an ideological project of “zoning” the population into groups defined by the activities of their members, and the perceived relationship between these activities and the theorized conception of “value.”

Don’t Get High on Your Own Supply

What had proven so effective as an ideological battering ram against Godwin and the socialists, however, proved to be of less obvious merit to the nascent “science” of political economy, which would ultimately be asked to explain glutted markets, rather than predict exhausted soils.David Ricardo, whose economic system would stand supreme in the English-speaking world until the second half of the nineteenth century, placed Malthus’s scarcity assumptions at the heart of his theory of value, and made society out to be a sort of Malthusian wind-up doll, with his key categories of wages, profit and rent all varying in accordance with the extent to which population growth had pushed the pursuit of means of subsistence onto increasingly less fertile ground.

If the Malthusian world was one of human struggle against a stingy earth for the fulfillment of wants and needs, Ricardo’s standard of value was its unit of measurement, as it measured, in quantities of human labor-time, the difficulty with which humanity procured the articles it sought to consume.Ricardo’s was an “embodied labor” theory of value (McCracken 1933, 17), as he argued that the value of a good was determined by the amount of labor required to produce it – literally, by the quantity of human labor-time congealed, or “embodied” within the good itself.As the efficiency of producing a good increased, i.e., as it required less labor-time to produce, its value declined commensurately.Ricardo thus naturalized value, as for him it traced back, not to human institutions and class relations, but to an eternal condition of human struggle against nature, as operative in an “early state” of society featuring exchange of deer and beavers as it was in his own day.Actual market prices did not always reflect values, but they were always headed in their direction, and it was reasonable to assume that the price of a product with ten hours of labor “embodied” in it would be double that of a product produced in half the time (Ricardo 1973).

Ricardo’s value theory, and the theoretical system which it supported, ironically erected an ideological fortress against the socialist challenge while simultaneously presenting an account of the channeling of human effort in capitalism thatmirrored that of his radical contemporaries, down to the most minute details.For while the socialists were busy with their Colquhoun tables, attempting to lift the veil on the forces directing the labor-power of society and expose them as products of exploitative human institutions, the upshot of Ricardo’s theory was that omniscient, omnipotent forces beyond human control had the beneficent effect of putting everyone in their proper place, even if that place was a large and growing “zone” of Godwin’s “unnecessary labor,” producing “trinkets and luxuries” for the rich.

The promise that there was a secular tendency for the productivity of agricultural labor to decline as it was pushed onto less fertile soil foreclosed socialist visions of the “productive powers” that might be unleashed were the artificial “limits to production” required by the system of private property removed, but Ricardo’s theory also precluded the possibility that a fundamental misdirection of effort, manifesting itself in a glut of oversupply, could result from positive revolutions in the productivity of labor.His “embodied labor” theory of value meant that the purchasing power required to purchase the goods on the market was congealed, as value, in those goods themselves, i.e., if all the goods on the market represented 1 million hours of labor, this was also the quantity of labor, or value, required for all the goods on the market to be purchased and the market to clear.To this he added the assumption that there was no other reason to take the trouble to engage in production other than a “view to consume or sell,” and that the producer “never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to further production” (Ricardo 1973, 192).[12] Thus, not only did all the purchasing power required to purchase the goods on the market exactly match the value of those goods (for it was the same thing), but it was also, and always, an exact measurement of the desire to consume, for the shoe manufacturer only brings $1000 worth of shoes to market with the intent of exchanging them for $1000 worth of other goods.It was certainly possible that particular producers would misjudge the market, resulting in a temporary over-or under-supply of certain goods, but this was what the price system was for, and short-term prices which exceeded or fell short of a good’s “natural value” were all that was needed to nudge the efforts of society back in the direction of their optimal deployment.Markets, then, had a built-in tendency to clear, and general gluts of overproduction were impossible (ibid).

As if to render the fortress he’d erected in defense of these “omniscient” forces directing the labor-power of society truly impenetrable, Ricardo added to all this the further assumption that the demand for goods knows no limit, i.e., that there was no need to worry that revolutions in productivity might result in capital without an outlet for profitable production, much less the possibility of workers receiving their means of subsistence in exchange for less working time.The latter concern was dispensed with by the class relations of capitalism.Labor itself was a commodity, with its value determined by the quantity of labor required to produce the goods for which it exchanged its time, i.e., by the proportion of the total number of workers in society laboring in Godwin’s zone of “necessary labor,” producing their means of subsistence.If the quantity of labor required to produce the food, clothes, and shelter consumed by workers declined, the “value” of labor also declined, precisely to that extent, thus reducing the size of labor’s share of the total social product, even as the quantity of goods they consumed remained the same.Such a reduction in the “value” of labor redounded immediately to the benefit of the capitalists, who would always, according to Ricardo’s assumption, set the labor no longer necessary for the production of worker subsistence to work producing luxuries for themselves:

The poor, in order to obtain food, exert themselves to gratify those fancies of the rich; and to obtain it more certainly, they vie with one another in the cheapness and perfection of their work.The number of workmen increases with the increasing quantity of food, or with the growing improvement and cultivation of lands; and as the nature of their business admits of the utmost subdivisions of labours, the quantity of materials they can work up increases in a much greater proportion than their numbers.Hence arises a demand for every sort of material which human invention can employ, either usefully or ornamentally, in building, dress, equipage, or household furniture; for the fossils and minerals contained in the bowels of the earth, the precious metals, and the precious stones (Adam Smith, cited with approval by Ricardo in Ricardo 1973, 197).[13]

This endless appetite for luxury on the part of the rich meant that “no accumulation of capital will permanently lower profits unless there be some permanent cause for the rise of wages” (Ricardo 1973, 192), i.e., the only limit to the profitable deployment of capital for the purpose of the production and consumption of luxuries was “that which bounds our power to maintain the workmen who are to produce them” (ibid, 195).Tragically, however, “that which bounds our power” was none other than Malthus’s iron law of population, which manifested itself in rent.Godwin may have imagined that a single peasant could produce food for twenty people, but there was less fertile land on which he would not be so productive.As population grew, agriculture would be pushed onto this less fertile soil, and this was the source of the landlord’s rent.Since the market price of agricultural goods was determined by the cost of its production on the least fertile soil, a bonus, in the form of rent, accrued to every owner of land more fertile than the worst land that population growth had pushed into cultivation, and rent’s share of the total social product grew along with the difference in fertility between the best and worst lands producing food for the market.[14] Since the cost of food essentially determined the cost of labor, the value of the wage increased along with rent, as it would take an increasing number of workers to produce a given quantity of subsistence, thus reducing the size of the capitalist’s claim on the total social product:“The natural tendency of profits is thus to fall; for, in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labour” (Ricardo 1973, 71).

Perhaps worst of all is that capital brings this state of affairs onto itself.For Ricardo, capital was literally that which set “productive” workers in motion—the means of subsistence thatthey would consume, along with the tools, machinery and materials they would use in producing goods for the market.As capital increased, it required more labor, and when labor was in short supply vis a vis capital’s demand for it, wages would rise, temporarily, above labor’s “natural” subsistence-level price.Capital’s demand for labor would then be satisfied by the increased production of working-class children,[15] who would not only eventually restore the “natural price” of labor by ending the shortage of workers, but also raise rents and reduce profits by increasing population and pushing farmers onto less fertile soil.Thus, capital, population, and rent increased in lock-step together, as Godwin’s peasant, producing food for twenty, was relentlessly pushed in the direction of land on which his efforts would furnish food only for himself.Long before this state was reached, however, “the very low rate of profits will have arrested all accumulation, and almost the whole produce of the country, after paying the labourers, will be the property of the owners of land and the receivers of tithes and taxes” (Ricardo 1973, 71–72).

By incorporating at the heart of his economic theory a dogma that did its best work as the stuff of anti-socialist propaganda, Ricardo reduced the entire trajectory of human history, at least in the “civilized” states, to a twist of the Malthusian knob.Turn it in the direction of facility in the production of means of subsistence, and the efforts of labor were channeled in the direction of Godwin’s “unnecessary labor,” producing luxuries for the rich, while the inevitable turn in the opposite direction required increased effort in the production of subsistence, the decline of profits, and ultimately social stagnation.What would prove problematic for Ricardo’s theory, in terms of its persuasiveness, was not simply that Godwin’s peasant would soon be producing enough food for at least one-hundred, rather than twenty.[16] Even more, it was that precisely by rendering the forces channeling labor-power in capitalist society immune to attack that he also rendered economic theory powerless to explain value-destroying economic crises, which were increasingly associated with revolutions in the productivity of labor and gluts of overproduction.Indeed, even as he wrote in 1817, amidst the depression following the end of the Napoleonic Wars, the iron-clad logic which flowed from his dubious assumptions was at a loss to provide explanations for any scenario other than those in which markets happily cleared, though with a Malthusian clock ticking ominously in the background.Having explained the manner in which prices and profits gently prodded capital down the proper, market-clearing channels, Ricardo takes a short break from his totalizing theory with the comment that:

The present time appears to be one of the exceptions to the justness of this remark.The termination of the war has so deranged the division which before existed of employments in Europe, that every capitalist has not yet found his place in the new division which has now become necessary (Ricardo 1973, 50).

Ricardo’s theory, and the Malthusianism on which it was based, were ideal as an antidote to the socialist challenge, but the “abstract and unreal character of the assumptions on which [it was] founded” rendered it useless as a tool of governance, particularly in the face of economic crisis (Foxwell, Introduction to Menger 1962, xli).[17]His market-clearing assumptions, along with his theory of value, which naturalized the scarcity reflected in prices, would be challenged, and ultimately discarded, at least for practical purposes, in an attempt to place economics on a more realistic footing.

Ironically, it was Malthus himself who pioneered this attack on the Ricardian system, arguing that the scarcity which backed value, and the obedience it compelled, could not be left up to the “imperious all pervading law of nature” with which he had so successfully battled Godwin.Value, rather, was a project of governance, and was to be maintained, not by “Nature,” and the unyielding law of population, but by maintaining, interestingly enough, an adequate “proportion” of none other than “the unproductive laborers of Adam Smith” (Malthus 1968, 406).

When Nature Fails to Cooperate

While the lessons of the Essay on Population were popularized in sermons and story-books aimed at the working class (Marshall, in Godwin 1996, 20–21), Malthus’s Principles of Political Economy (Malthus 1968) reached a far more limited audience.In it, he attacked Ricardo’s mechanistic system arguing that: “the science of political economy bears a nearer resemblance to the science of morals and politics than to that of mathematics” (Malthus 1968, 1).Ricardo, Malthus claimed, had erred in his fundamental assumptions, with the result that his theory offered very little in the way of practical application.[18]Malthus rejected the Ricardian notion that value was determined by “embodied labor-time,” as well as his presumption that demand was infinite, a “doctrine” which, he told him by letter, “flies in the face of all experience” (Ricardo 1951, 326). Ricardo’s presumption of unlimited demand was based on the belief that the end of capitalist production was the consumption of goods, i.e., that capitalists brought goods to market for the purpose of essentially bartering them for goods of equal value.With this, Malthus, argued, Ricardo had misjudged the entire purpose of capitalist production.Capitalists were not producing in order to satisfy an unlimited desire to consume, but rather in order to “save a fortune” (Malthus 1968, 400), i.e., to secure for themselves an ongoing claim on a portion of the aggregate labor-power of society.[19]By severing the Ricardian connection between production and consumption, Malthus not only raised the possibility of a general glut, which Ricardo’s system was bound to deny, but suggested an alternate definition of value, consistent with what capitalists were actually pursuing:a good’s value, he argued, was determined not by the quantity of labor required to produce it, but rather by the quantity of labor which it could command in exchange. Malthus’s alternate conception of value caused him to ground it, not in “nature,” but rather in a proper “proportioning” of the labor engaged in production for the market with the labor that would be exchanged for those goods.With this, he ironically joined the socialists he’d so effectively battled with the Essay on Population by arguing that the scarcity which backs value, and commands human effort, has no natural foundation, but rather is a reflection of the directions in which the aggregate labor-power of society is channeled.

Malthus begins his critique of Ricardo by stating that the “embodied labor” theory of value simply has no basis in reality:

It is not merely what should be the definition and the measure of value in exchange, but a question of fact, whether the labour worked up in commodities either determines or measures the rate at which they exchange with each other; and in no stage of society with we are acquainted does it do this (Malthus 1968, 85).

Ricardo is correct in assuming that it is the difficulty of obtaining a desired good which confers value upon it, says Malthus, but the reason the quantity of labor “embodied” in a commodity never bears any meaningful relation to the rate at which it exchanges with other goods is that there are so many sources of this scarcity besides the labor-time required for production.The mere difficulty of acquiring capital often causes the products of the capital in existence to exchange at a rate far higher than would be expected by Ricardo’s standard of measurement, and “natural and artificial monopolies, and temporary deficiencies of supply” all have the same effect (ibid, 83).Value is increased by “every circumstance which contributes in any degree to enhance the difficulty of obtaining” desired goods (ibid), and as Ricardo’s standard reduces the source of value to one solitary factor, it will always be wide of the mark.

Having thus rejected Ricardo’s definition of value, Malthus argues that the standard of “commanded” labor-time brings the measurement of value into line with what capitalists are actually pursuing.He proposes the price of unskilled manual labor as the unit of measurement, and argues that the value of a good, as well as its rate of exchange with other goods, can be determined by dividing its market price by that of, say, a day’s worth of “common agricultural labour,” in order to determine the quantity of labor which it will command in exchange (ibid, 96).It’s not just that such a method of measurement will reflect a good’s value regardless of whether it stems from Ricardo’s difficulty of production, or any other factor.The unit of “common labour” is crucial because it actually indicates the quantity of human effort that will be given in exchange for a particular good at a given point in time, and this effort is the essence of value itself—a good that compels no effort has no value.The maintenance and enhancement of value depends upon limiting access to the things which people want and need, and anything which serves to do this, not simply difficulty of production, measured by Ricardo’s embodied labor-time, is a source of value.In discussing “the distinction between wealth and value,” Malthus makes this quite clear:

It has been justly stated by Adam Smith that a man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and luxuries of human life.And it follows from this definition that, if the bounty of nature furnished all the necessaries, conveniences, and luxuries of life to every inhabitant of a country in the fullest measure of proportion to his wishes, such a country would be in the highest degree wealthy, without possessing any thing which would have exchangeable value, or could command a single hour’s labour (ibid, 299).[20]

Malthus then considers the macro-implications of such a conception of value.He defines “demand” as “the sacrifice which the demanders must make” in order to obtain the desired quantity of a good, a “sacrifice” which, he goes on to argue, is best measured in units of “common labour,” i.e., “demand” is none other than “value” (ibid, 82).What is crucial for capitalists is the extent to which “demand,” reduced to units of “common labor,” exceeds the cost of production, expressed in the same unit of measurement.Put another way, the more labor will exchange for the product of the “productive labor” producing goods for the market, the greater the value of those goods.

For Malthus, this had two crucial implications.The first was that, contrary to Ricardo, a value-destroying excess of capital[21] was not only entirely possible, but in constant danger of actual occurrence.For according to his conception of value, if the quantity of labor engaged in bringing goods to market increases without a simultaneous increase in the quantity of labor that will exchange for it, the rate of profit, determined by “demand” minus “cost of production,” will by definition decline.This, for Malthus, was exactly what had occurred with the end of the Napoleonic Wars, and explained the glut of overproduction that so befuddled Ricardo:as the “demand” of soldiers and others whose efforts on behalf of the war produced nothing for the market became “costs” in the production of goods, the crucial gap between the quantity of labor exchanging for goods and that engaged in their production narrowed to the point of a crisis of profitability.Value was a matter of proportions, and could only be contemplated in terms of the efforts of the society as a whole.[22]“If you were at once to employ all our soldiers, sailors and menial servants in productive labor,” Malthus told Ricardo, “the price of produce would fall more than ten percent, and the encouragement to employ the same quantity of capital would cease” (Ricardo 1951, 168).

The second macro-implication is implicit in the first. Malthus’s conception of value meant that the demand for the product of those workers producing goods for the market could not come from these workers themselves, for their labor-time represented the denominator in the value fraction, the size of which he sought to maximize:

It is indeed most important to observe that no power of consumption on the part of the labouring classes [producing for the market] can ever…alone furnish an encouragement to the employment of capital.No one will ever employ capital merely for the sake of the demand occasioned by those who work for him.Unless they produce an excess of value above what they consume…it is quite obvious that his capital will not be employed in maintaining them…The very existence of a profit upon any commodity presupposes a demand exterior to that of the labour which has produced it (Malthus, 1968, 404–5; the final sentence was written by the editor).

Maximizing the size of this “exterior” demand meant that the number of workers employed in the zone of “productive labor,” producing goods for the market, had to be properly proportioned with those members of the population outside this zone, in order for the goods they produced to have any value.Echoing Godwin’s argument that the productive powers of human labor were so vast that they dwarfed the capacity of the rich to consume luxuries, Malthus similarly argued that an excessive channeling of labor-power into production for the market would “inevitably lead to a supply of commodities beyond what the structure and habits of such a society will permit to be profitably consumed” (ibid, 325).

While Malthus had battled the socialists with promises of famine, he now argued that given “the fertility of the soil,” and “the powers of man to apply machinery as a substitute for labour” (ibid, 398), “there must therefore be a considerable class of persons who have both the will and power to consume more material wealth than they produce, or the mercantile classes could not continue profitably to produce so much more than they consume” (ibid, 400).[23] With this, Malthus zones the non-rich into two distinct categories:the productive laborers producing goods for the market, and the “unproductive consumers” whose chief role, in terms of the value project, was to add to the quantity of labor exchanging for the product of those producing goods for the market, and thus increase “the exchangeable value of the whole produce” (ibid, 398).For Malthus, the two groups form utterly separate classes:

And it is to be further remarked, that all personal services paid voluntarily, whether of a menial or intellectual kind, are essentially distinct from the labour necessary to production.They are paid from revenue, not capital.They have no tendency to increase costs and lower profits.On the contrary, while they leave the cost of production, as far as regards the quantities of labour required to obtain any particular commodities the same as before, they increase profits by occasioning a more brisk demand for material products, as compared with the supply for them (ibid, 408–409).

“Unproductive consumers” could be comfortable, as their level of effort in exchange for a wage is immaterial, with respect to value, and profits aren’t dependent on their low wages.“Productive labourers,” of course, are not so fortunate, and Malthus is heartened by the fact that with ongoing revolutions in productivity, the proportion of the population living off “revenue” can increase relatively to that engaged in productive labor:

Another most desirable benefit belonging to a fertile soil is, that states so endowed are not obliged to pay so much attention to that most distressing and disheartening of all cries of all cries to every man of humanity—the cry of the master manufacturers and merchants for low wages, to enable them to find a market for their exports.If a country can only be rich by running a successful race for low wages, I should be disposed to say at once, perish such riches! (ibid, 214).

While steady increases in productivity can democratize comfort, as soldiers, clerks, and teachers increase in proportion to the workers producing the goods for which they exchange their time, Malthus takes care to emphasize that no wage should ever be so high as to permit withdrawal from the labor market:“And whatever may be the state of the effectual demand for labor, it is obvious that the money price of labor must, on an average, be so proportioned to the price of funds for its maintenance, as to effectuate the desired supply” (ibid, 218).Measured in terms of value, a society in which the masses of people were able to live in comfort by working only two days per week would be a very poor society indeed:“the man who can procure the necessary food for him family, by two days labour in the week, has the physical power of working much longer to procure conveniences and luxuries, than the man who must employ four days in procuring food; but if the facility of getting food creates habits of indolence, this indolence may make him prefer the luxury of doing little or nothing, to the luxury of possessing conveniences and comforts; and in this case, he may devote less time to the working for conveniences and comforts, and may be more scantily provided with them than if he had been obliged to employ more industry in procuring food” (ibid, 336).This state of poverty exists throughout Latin America, he asserts, where “the banana is cultivated with a trifling amount of labor,” while in “the town of Mexico,” the situation is so dire that “the very dregs of the people are, according to Humboldt, able to earn their maintenance by only one or two days labour in the week” (ibid, 339).These problems were institutional, Malthus argued, and while such societies certainly suffered from a dearth of capital, economists were wrong to assume that a mere influx of investment would result in a ready supply of willing laborers.In a society in which the typical commoner’s “wants are few, and these wants he is in the habit of supplying principally at home” (ibid, 349), it is not only necessary for the prices of necessities to be raised to the point that he is “obliged to employ industry in producing food,” but that a willingness to work is effected through the cultivation of a desire to consume “conveniences and luxuries” (ibid, 348). Towards this end, he suggested the cultivation in the poor of a desire for the consumption of “ribands, lace, and velvet” (ibid, 321).

It is ironic that while the Malthus who insisted upon the natural permanence of scarcity earned a word in the dictionary for his efforts, the Malthus of Principles of Political Economy, who argued that the maintenance of scarcity required the erection of a regulatory lightning rod for the productive powers of humanity, is almost entirely unknown.It is not as if the latter Malthus has been without influence.John Maynard Keynes, who took his own ideas for channeling human effort in scarcity-inducing directions directly from Malthus (McCracken 1961), called Malthus’s insistence that an inadequate amount of “unproductive consumption [on the part] of the landlords and the capitalists” was chiefly responsible for the crisis following the Napoleonic Wars “the best economic analysis ever written of the events of 1815–20,” and summarized Malthus’s futile attempts to persuade Ricardo by letter of the crucial role of “unproductive consumption” in the maintenance of value by stating that:

“Time after time in these letters Malthus is talking plain sense, the force of which Ricardo with his head in the clouds wholly fails to comprehend.Time after time a crushing refutation by Malthus is met by a mind so completely closed that Ricardo does not even see what Malthus is saying…If only Malthus, instead of Ricardo, had been the parent stem from which nineteenth-century economics proceeded, what a much wiser and richer place the world would be today!…I have long claimed Robert Malthus as the first of the Cambridge economists; and we can do so, after the publication of these letters [between Malthus and Ricardo] with increased sympathy and admiration. (Keynes 1951, 117–118; 120–121).

The turn toward Malthus, however, would not have to wait until the Depression decade of the 1930s.It would come with the global economic crisis which began in 1873, an economic slump which lasted, with occasional intermission, over a period of nearly 25 years.

If We Only Had a Crop Failure

Malthus would not defeat Ricardo in the realm of theoretical discussion.Rather, it was the “mild but chronic state of depression” which was the predominant state of business in the capitalist world for the last decades of the nineteenth century (Veblen 1932, 184) that would cause economic theory to increasingly abandon the happy, Ricardian postulates that there was no limit to profitable production, and that markets always cleared.Writing in 1889, before the panic and depression of the 1890s, American economist D.A. Wells characterized economic conditions this way:

The existence of a most curious and, in many respects, unprecedented disturbance and depression of trade, commerce, and industry, which, first manifesting itself in a marked degree in 1873, has prevailed with fluctuations up to the present time (1889), is an economic and social phenomenon that has been everywhere recognized.Its most noteworthy peculiarity has been its universality…the maximum of economic disturbance has been experienced in those countries in which the employment of machinery, the efficiency of labor, the cost and the standard of living, and the extent of popular education are the greatest…and the minimum…where the opposite conditions prevail (Wells 1889, 1;3).[24]

Given its dogmas, conventional economic theory was at a loss to explain the ongoing slump, which gave rise to “a greater number of conflicting economical theories than any other occurrence of ancient or modern time…The result, we need hardly say, has not been to raise the reputation of political economy as a science” (The Nation, May, 1879, cited by Wells 1889, 16).A Dutch committee of 1886 located an important cause of the crisis in “the low price of German vinegar,” while in Germany at the same time, partial blame was laid at the feet of the “immigration of Polish Jews” (ibid, 21).The winner of the “Oxford Prize Essay” of 1879 concluded that “the whole world is consuming more than it has produced, and is consequently in a state of impoverishment, and can not buy our wares” (ibid, 22).

As the slump persisted, however, its source was increasingly identified as “industrial overproduction.”[25]The excess was not in terms of the number “of useful or desirable commodities in excess of what is wanted” for human consumption, but rather, “an excess of demand at remunerative prices, or, what is substantially the same thing, an excess capacity for production” (ibid, 25–26).This, of course, was what Malthus had referred to as “a supply of commodities beyond what the structure and habits of such a society will permit to be profitably consumed” (Malthus 1968, 325), and what Ricardo had insisted was impossible.

In Recent Economic Changes, it was Wells’s task to trace the roots of the ongoing crisis, and in painstaking detail, he lays the blame at the feet of price-destroying revolutions in the productivity of labor which had the effect of glutting markets and eliminating profits.While Ricardo would have predicted a higher rate of profit to accompany rising productivity, assuming the gains included industries producing goods for worker consumption, in fact profits evaporated because the high cost of plant and equipment made it cheaper to continue running them with no profit, or even at a loss, than to shut down entirely and risk losing the entire investment.[26]

Wells begins by stating that:

When the historian of the future writes the history of the nineteenth century he will doubtless assign to the period embraced by the life of the generation terminating in 1885, a place of importance, considered in its relations to the interests of humanity, second to but very few, and perhaps to none, of the many similar epochs of time in any of the centuries that have preceded it; inasmuch as all economists who have specially studied this matter are substantially agreed that, within the period named, man in general has attained such a greater control over the forces of Nature, and has so compassed their use, that he has been able to do far more work in a given time, produce far more product, measured by quantity in ratio to a given amount of labor, and reduce the effort necessary to insure a comfortable subsistence in a far greater measure than it was possible for him to accomplish twenty or thirty years anterior to the time of the present writing (1889) (Wells 1889, 27).

Wells then takes the reader on a grand tour of the productivity revolution of the preceding twenty-five years, in which the major lines of industry featured productivity gains ranging from 200–500 percent (ibid, 28).Some of the highlights include a 250 percent increase in the productivity of steel manufacture over a ten-year period (ibid, 43), a 500 percent increase in the productivity of shoe-making (ibid, 28), and such a revolution in the technology in place in US cotton mills that “one operative, working one year, in the best mills of the United States, will now…supply the annual wants of 1600 fully-clothed Chinese, or 3000 partially-clothed East Indians” (ibid, 50).Ricardo might have been particularly interested in puzzling over the theoretical implications of the fact that the revolution in agriculture had been so great that after all the labor “embodied” in the bread of urban workers had been accounted for, including that required for fuel and transportation, “our final result is that ten men working one year serve bread to one thousand” (Atkinson, cited in ibid, 58).

The problem was that this was bad for business.It wasn’t the revolutions in labor productivity per se.Malthus had argued that the production of all commodities could be entirely automated, leaving no labor content whatsoever, and that prices would remain the same so long as the supply coming to market, and the quantity of labor given in exchange for it, remained unchanged (Malthus 1968, 72).Wells similarly argued that the problem was that production wasn’t being sufficiently “restricted or suspended” in the face of these quantum leaps in the human capacity to produce Adam Smith’s “necessaries and conveniences of life,” with the result being a rate of production which “far exceeds any concurrent market demand” (ibid, 73; Smith 1948, 315).Wells argued that capital had spent the greater part of the nineteenth century “fully equipping the civilized countries of the world” with the fundamental economic infrastructure of ports, railways, merchant fleets, and telegraph lines (Wells, 1889, 63–64).Now, with “the equipment having at last been made ready, the work of using it for production has in turn begun, and has been prosecuted so efficiently, that the world has within recent years, and for the first time, become saturated, as it were, under existing conditions for use and consumption, with the results of these modern improvements” (ibid, 63).

The aforementioned cost of shuttering plant and equipment provided the perverse incentive to continue production, and the financial means of the large capitalists producing goods for the market meant that bankruptcy no longer played its vital role in ensuring that capital remained in proper proportion to the means of profitably employing it (ibid, 73).Now commonly organized as joint-stock companies, and no longer dependent on the financial resources of a single individual or small group, it was not out of the ordinary for such firms to make “no profit” and pay “no dividends for years, and yet continue active operations” (ibid).The result was that “since 1873,” “the prices of nearly all the great staple commodities of commerce and consumption have declined…in manner altogether without precedent in all former commercial history” (ibid, 78).[27] Capitalists complained that they were tired of “working for the public” (Sklar 1987, 56), i.e., producing without a profit, and that the current conditions of “large output” and “keen competition” “threatens our property with virtual confiscation” (Wells 1889, 79).

The tension these capitalists felt between their interests and those of the “public” was none other than that between “wealth,” measured in terms of ease of access to the “necessaries and conveniences of life,” and “value,” which required relative scarcity for its maintenance and preservation.For despite the “unprecedented disturbance and depression of trade, commerce, and industry” of which Wells complained, if measured in terms of quantities of goods bought, sold, and consumed, particularly by the working class, business was booming.“In fact,” said Wells, “the volume of trade, or the quantities of commodities produced, moved and exchanged, has never been so great in the history of the world as during the past ten or fifteen years; and the so-called depression of trade during this time has been mainly due to a reduction of profits, to such an extent that, as the expression goes, ‘it has not paid to do business’ ” (ibid, 206).Prices and profits had fallen catastrophically, said Wells, but wages, in general, had not, with the result that in this period of “unprecedented” depression, “the purchasing power of wages has risen, and this has given to the wage-earning class a greater command over the necessaries and comforts of life” (ibid, 86).

Nowhere was this tension more in evidence than in the matter of the food supply of this apparently coddled “public.”An upturn in economic conditions beginning in 1878 had led many observers to pronounce an end to the crisis which had commenced five years earlier, but time would reveal that this was “only an ‘interruption,’ occasioned by extraordinary causes” (ibid, 6).The “extraordinary causes” Wells referred to were a series of failures “of the cereal crops of Europe and most other countries of the world, with the exception of the United States,” “a failure for which, in respect to duration and extent, there had been no parallel in four centuries,” resulting in “a remarkable demand on the latter country for all the food-products it could supply, at extraordinary prices” (ibid).The skyrocketing prices not only “went far to alleviate the distress of [even] the foreign agriculturalist,” but the receipts of American farmers were spent largely on the products of industry, domestic and foreign, which resulted in a “boom,” temporarily ending the slump (ibid, 7).

Predictably, the high prices stimulated “the occupation and utilization of new and immense areas of cheap and fertile wheat-growing land” in the United States and around the world (ibid, 89).These areas continued producing despite the recovery of areas hit by crop failure, with the result that wheat prices soon crashed to levels far below their previously depressed state (ibid, 90).Wells notes the tension between price and plenty this way:

In short, it would seem as if the world in general, for the first time in its history, has now good and sufficient reasons for feeling free from all apprehensions of a scarcity or dearness of bread.But, while from a strictly humanitarian point of view this is certainly a matter for congratulation, the results, viewed from the standpoint of the interests involved, which embraces a large part of the world’s population, appear widely different.The effect of the extensive fall in prices of agricultural products during the last decade has been most disastrous to the agricultural interests and population of Europe.It has reduced farming in England and in most of the states of the Continent to the lowest stage of vitality; and, by reason of the complaints of their agriculturalists, the customs duties of many countries have been largely increased, and the conditions of consumers modified.In France, the position has been taken…that the only possible means of salvation…will be for France, Germany, Austria and Italy to sink all political antipathies and jealousies and form an international customs union to exclude all food-products from Russia, Australia, and America (ibid, 177).

In 1888, when expectations of crop failure in the United States, Australia, Canada, and the Argentine Republic were realized, but the existence of such enormous reserve stocks of grain prevented prices from rising, Bradstreet’s Journal found the turn of events “disheartening” (ibid, 175).

The circumstances described by Wells, and their implications, put a practical end to many of the theoretical issues so vigorously debated by Ricardo and Malthus.Ricardo’s earnest contention that if capitalists had no desire to consume the products of other capitalists they wouldn’t be bringing their own goods to market (Ricardo 1951, 98) no longer seemed worthy of serious discussion.The “great prize” of the system, as Malthus had put it, was “leisure with dignity,”[28] or as Wells put it, the conversion of wealth “into the form of negotiable securities” which allow their owner “to live without personal exertion or risk of the principle” (Malthus 1968, 216; Wells 1889, 75).It was the endless striving for this, rather than the products of industry, which knew no limit, and caused capitalists to throw quantities of goods on the market which far exceeded their desire to consume (ibid, 75).Once this plank in Ricardo’s system was removed, i.e., once there no longer existed any Providential guarantee that the demand for goods always equaled their supply, there was equally no reason to suppose that the prices of goods, even in Ricardo’s all-forgiving “long-run,” would ever reflect their cost of production, measured in labor-time.Rather, any factor that served to push up price by limiting supply in the face of a given demand must be acknowledged as a source of value.As Malthus made clear, this was not just a matter of theory, but also crucial for purposes of “practical application,” for if the quantity of capital engaged in producing goods for the market was out of proportion to the means of profitably employing it (Ricardo 1951, 361), value-enhancing strategies should be actively pursued.The “artificial monopolies,” which Malthus had noted as an important source of value, had now become absolutely necessary, said Wells, in the form of “syndicates” and “trusts,” for while “they are regarded to some extent as evils,” “there is apparently no other way in which the work of production and distribution, in accordance with the requirements of the age, can be prosecuted” (Wells 1889, 92–93).

Wells’s account represented the new conventional wisdom, “a revulsion against the unregulated market” by capitalists and farmers desperate for measures which would restrict competition “to an extent sufficient to prevent its injurious excesses” (Sklar 1897, 53; Wells 1889, 75). The field of economic theory experienced a similar reaction against Ricardo.William Jevons, British pioneer of the “marginalist revolution,” reflected the mood with the statement that, “I am beginning to think very strongly that the true line of economic science descends from Smith through Malthus to Senior, while another branch through Ricardo to Mill has put as much error into the science as they have truth” (Jevons, cited in Keynes, 291).The marginalist revolution represented a savvy blend of popular and esoteric, as it took from the Malthus of Principles of Political Economy the notion that the value of desired goods derived from their scarcity, whatever the source, while assuming from “population Malthus” the mantle of legitimizing the belief that such scarcity was permanent.

Scarcity vs. Utopia

In 1871, Austrian Carl Menger, with the publication of Principles of Economics, helped launch the “marginalist revolution,” which was to bury Ricardo’s “embodied labor” theory of value “beyond recall” (McCracken 1933, 142–3).[29] Menger synthesized crucial aspects of both Malthuses, holding that scarcity, or the fact that there were always infinitely more human needs than the goods available to meet them, was in “the nature of things,” while also arguing that “value” was manifested in the intensity of human “struggle” for scarce goods (Menger 1950, 97).For Menger, the tension between value and abundance was made explicit, as only scarce goods could have value, and value increased as the needs which depended upon accessing an additional unit of the good in question increased in importance to the individual—Menger’s value discussion means placing Robinson Crusoe on an island, and imagining how the value of water will change for him as you gradually cut off his water supply.His innovation is his focus on individual psychology in the determination of value—Ricardo’s attempt to “objectify” value in labor-time, Menger argues, “contributed very greatly to confusion about the basic principles of our science” (ibid, 121).Value is subjective, says Menger, for perceived needs and their intensity are the only things which can attach value to goods.The intensity of perceived need for a good is subjective, but varies according to the quantity of the good actually available, as consideration of a thirsty Crusoe will suggest.Just as with Malthus, Menger’s argument is that absolutely irrespective of embodied labor-time or cost of production, when the number or intensity of human needs pressing up against a given supply of desired goods increases, value rises, while when the quantity of desired goods increases against a given number and intensity of needs, value falls.The human effort, or competitive struggle, in pursuit of scarce goods, waxes and wanes with the rise and fall of value, and is, in fact, its essence.

Menger’s value theory stands at the intersection of individual psychology and scarcity on a social scale.He defines a “good” as anything which has been subjectively determined by individuals to be capable of meeting a perceived need, and posits a distinction between “economic” and “non-economic goods,” with implications universally valid for all times and places (ibid, 295).“Economic goods” are scarce, i.e., they exist, in any given society, in a quantity exceeded by the total quantity desired for consumption, while “non-economic goods” exist in abundance, in quantities in excess of the maximum possible desired (ibid, 94–95).Menger’s examples are timeless abstractions from class relations:to illustrate a “non-economic good,” he asks the reader to imagine a village, with maximum water requirements of 300 pails each day, situated on a mountain stream with a minimum flow of 100,000 pails (ibid, 98).What happens when water becomes “economic,” i.e., when the total available quantity is reduced to fewer than 300 pails, is that a social “struggle” for water ensues, as individuals become aware that their ability to satisfy perceived needs for water depends upon laying sole claim on certain quantities of it “to the exclusion of all other economizing individuals” (ibid, 99–100).A good’s scarcity, i.e., its economic character, is a prerequisite for value, for “non-economic goods” fail to stimulate any “provident activity” for the purpose of achieving exclusive “command” of them, and “value” requires the realization that a perceived need will go unmet if we fail to lay exclusive claim to a desired quantity of a particular good.

While a good must be scarce to have value, scarcity alone is no predictor of value. Contrary to Ricardo’s formulation that value issues from the production process, distributing itself evenly across all goods produced in the same batch, Menger argues that value is conferred by the intensity of our desires, subjectively determined.Means of subsistence are assigned a special role in his value theory, for the threatened lack of them triggers a “fear” associated with no other type of commodity, inspiring the “effort” and “provident activity” without which value does not exist (ibid, 123).Thus, if water is available to us in exactly the quantity needed for survival, the value attached to it is equivalent to that placed upon life itself.As the quantity of water available to us increases, the level of importance assigned to the needs it is used to fulfill declines.For purposes of illustration, Menger suggests a scale of importance for subsistence goods ranging from 10 to 0, with 10 indicating the importance attached to the quantity of the good on which life depends, and 0 the point reached where additional units of the good yield no satisfaction, and quite likely become burdensome.To determine the value of, say, water to a particular individual, it is necessary to determine the level of importance attached to the need met by the last unit of water consumed.This “marginal unit” determines the value, to that individual, of all units of the good consumed.

The significance of the marginal unit is easier to see if considered in macro.To take Menger’s mountain village, water becomes an “economic good” when its total available supply is less than 300 pails per day, but if 290 pails are available, the foregone needs may be deemed trivial, perhaps valued at 1 on Menger’s scale.As the water supply is gradually cut off, however, the significance of the needs it is impossible to meet will increase, and the competition for water will become frenetic as its value rises.[30]As water becomes more scarce, the “marginal unit” of water consumed satisfies needs of increasing importance to the individual, until finally the need represented by the last unit of water consumed assumes the importance attributed to the maintenance of life itself.Despite the quaint examples, Menger tells us, they accurately describe the forces at work behind prices in a capitalist economy, which reflect the intersection between the scarcity of goods and the intensity of the perceived need for them, subjectively determined.

The fear-inspired “energetic economizing activity” induced by the scarcity of means of subsistence is, of course, none other than the command over labor denounced by the socialists and made the definition of value by Malthus.Menger goes further in mirroring the socialists, however, in stating that the line between economic and non-economic goods represents the line between “civilization” and “communism”:

…we can actually observe a picture of communism with respect to all goods standing in the relationship causing non-economic character; for men are communists whenever possible under existing natural conditions.In towns situated on rivers with more water than is wanted by the inhabitants for the satisfaction of their needs, everyone goes to the river to draw any desired quantity of water…This communism is as naturally founded upon a non-economic relationship as property is founded upon one that is economic (ibid, 100–1).

Both the institution of property itself, and the “present legal order” designed to protect it, are the necessary result of the fact that the vast majority of goods are economic, the result being that not only is it “impossible…for the respective needs of all individuals composing the society to be completely satisfied,” but “nothing is more certain than that the needs of some members of this society will be satisfied either not at all or….only in an incomplete fashion” (ibid, 96–97).Those whose needs go unmet will “have interests opposed to those of the present possessors,” and it thus “becomes necessary for society to protect the various individuals in the possession of goods subject to this relationship against all possible acts of force” (ibid, 97).Just as Malthus argued that a Godwinian experiment would trigger such unprecedented scarcity that the institution of property would by necessity be quickly reinstated, Menger argues that it is the economic nature of goods, i.e., it is their scarcity with regard to the quantity actually desired for consumption, that represents the “economic origin of our present legal order, and especially of the so-called protection of ownership, the basis of property” (ibid, 97, emphasis in original).The only way to abolish property, says Menger, is to establish a new “equilibrium between requirements and available amounts” (ibid).Otherwise the result will be merely to change the identities of the haves and have-nots.

Such an elimination of scarcity, and the abolition of property that would result, is, of course, impossible, as Menger argues that the “transition of mankind from lower to higher levels of civilization” is none other than the story of previously “non-economic” goods becoming economic, as population growth, the spiraling increase of perceived needs and the means of satisfying them, and the occasional “powerful individual”[31] who “excludes” others from free access to otherwise plentiful goods all contribute to changing the crucial equation relating “quantity desired” to “quantity available” in the direction of general scarcity (ibid, 102, 104).Indeed, “civilization” has made such progress that the vast majority of goods are now scarce with respect to the desire to consume them, not just “articles of luxury,” but “even the coarsest pieces of clothing, the most ordinary living accommodations and furnishings, the most common foods, etc.” (ibid, 95).

While Menger cites population growth and “growth of human needs” as explanation of the fact that “even the coarsest pieces of clothing” are scarce with respect to the existing desire to consume them, it might seem that even despite these factors, a society capable of outfitting “3000 partially-clothed East Indians” with the annual labor of one person might have within its reach the possibility of eliminating this scarcity, and establishing “communism,” at least with respect to articles of “the coarsest pieces of clothing,” if it really so desired.Menger is happy to explain the scarcity of even the crudest means of subsistence with vague references to “population” and the “nature of things,” but his theory of value, applied to the class relations of capitalism, makes clear that the social structure alone is enough to account for the scarcity of such items, and hence their value—their ability to compel human effort – without reference to these additional factors.

Both between and within societies, Menger draws a line separating those who spend all their time meeting their most immediate subsistence needs, and those with both the luxury and the foresight to direct their present efforts to the satisfaction of needs anticipated for “ever more distant time periods” (ibid, 153).This line is what distinguishes “primitives” from “civilized peoples,” and history chronicles the tale of traversing the continuum between them (ibid). “Capital” represents the tools of civilization, as Menger defines it as representing those “economic goods that are available to us in the present for future periods of time” (ibid, 303).Possessed of capital, “the quantities of consumption goods at human disposal are limited only by the extent of human knowledge of the causal connections between things, and the extent of human control over these things” (ibid, 74).The benefits of this extraordinary productive power, however—indeed, the benefits of civilization itself—accrue exclusively to those most civilized among us, those in the possession of capital (155).[32]Those who have been successfully excluded from possession of this scarce good will find that the satisfaction of their needs begins where those of their social superiors end, as the value of labor is determined like that of any other good, i.e., by the “magnitude of the satisfactions” represented by the last unit consumed (ibid, 171). The implication is that unless labor can find a way to make itself scarce, the value of the last unit of labor consumed by capitalists is likely to be “next to nothing” on Menger’s scale, which is why “each individual can participate in the economic gains connected with employment of goods of higher order [capital] in contrast to purely collecting activity…only if he possesses capital” (Menger, 155, emphasis in original).While marginalism, with its focus on individual psychology, is ideal for presenting economics in such a way that the macro-channeling of effort in society need not be envisioned, its theory of value implies a distribution of effort in capitalist society in which the majority of people spend their time in Godwin’s zone of “unnecessary labor,” engaged in activities which do little, if anything, to augment the quantity of goods available for them to consume.[33]

Questioning the “morality” of the benefits derived from property ownership, for Menger, represents “one of the strangest questions ever made the subject of scientific debate,” and is “beyond the sphere of our science” (ibid, 173).Value, and the prices which reflect it, are “the necessary products of the economic situation under which they arise,” though apparently not all questions of morality are beyond the sphere of economics, for these prices “will be more certainly obtained the more developed the legal system of a people and the more upright its public morals” (ibid, 173–4).Paying workers above their value for the purpose of “providing them with a more comfortable standard of living” is not tenable under the current economic situation, says Menger (ibid, 174).Any attempt to do so “would undoubtedly require a complete transformation of our social order” (ibid, 174).

The Value of Artificial Scarcity

Like Malthus’s Essay on Population, marginalism offered an economic doctrine suitable for popular consumption by insisting that existing social relations were rooted in scarcity, the source of which could be traced to “the nature of things.” It was the marginalist theory of value, however, which followed the esoteric Malthus in making value a “scarcity-ratio” between quantity available and quantity desired (Commons 2009, 363, 379), that would provide a group of influential American economists with the theoretical basis for grappling with the economic crisis of the late nineteenth century.While Menger and his British counterparts assumed that, absent distorting influences, marginal units of supply and demand would find one another in market-clearing equilibrium, a group of economists advising the McKinley and Roosevelt Administrations at the turn of the twentieth century combined an “overproduction” analysis of the crisis with marginalism’s emphasis on the inverse relationship between value and quantity supplied to provide theoretical justification for corporate strategies designed to restrict output and minimize what they called the “waste of competition” (Sklark 1987; quote is from Jenks 1903, 36).[34]

The problem was not simply that competition forced capitalists to endlessly adopt improvements in equipment and technique for the purpose of keeping up with rivals, regardless of any increase in the demand for goods, such that the story of the final three decades of the nineteenth century was one of vast redundancy of plant and equipment.It was that for industrial capitalists, the only route to value was in production for the market, and that growth meant only one thing—increased production and sales.The incentive structure was Ricardian while the results could have been predicted by Malthus.These economists—Jeremiah Jenks of Columbia, Arthur Hadley of Yale, and renowned financial journalist Charles Conant—used marginalist theory to justify what industrial capitalists, through non-competitive output and price agreements with rivals, and ultimately through mass merger, were actually trying to achieve:the replacement of competitive with “administered” markets (Sklar 1987, 70), characterized by firms with the market power necessary to chase value not through futile attempts to increase production and force the goods of rival capitalists from already glutted markets, but rather by regulating the denominator in the “scarcity ratio,” allowing them to adjust output to meet demand in the pursuit of optimal prices.[35]

In “Crises and Their Management” (1901), McKinley and Roosevelt advisor Charles Conant offers an analysis of the late nineteenth century crisis which in many respects echoes that of D.A. Wells, whose Recent Economic Changes had appeared twelve years earlier.Noting that, “in a practical sense, if not in theory, over-production in respect to effective demand is not only possible, but has been the actual history of many leading commodities during the last three decades” (Conant 1903, 31), Conant diagnoses the problem as one of “misdirection of productive power” (ibid):

Overproduction of consumable goods takes place because so large a part of the purchasing power of the community is saved for investment.A better equilibrium would be established between the production of finished goods and the demand for them if the community devoted a larger portion of its purchasing power to obtaining such goods…Too much of the product of labor has been devoted to the creation of new equipment of doubtful or at least postponed utility, and too little to the purchase of the products of existing equipment (ibid).

Translated, Conant is arguing that “a better equilibrium would be reached,” i.e., profitability might be restored, if capitalists devoted a greater share of their “purchasing power” to the acquisition of goods for their own consumption, and less adding to the capacity to produce goods they did not consume.Put another way, a greater portion of the labor-power of society should be channeled into Godwin’s zone of “unnecessary labor,” satisfying the wants of the rich, and effectively shifting labor-power from production to consumption, and restoring the profitability of the “scarcity-ratio.”Fellow American marginalist, John Bates Clark, whom Conant cites, was more blunt in stating that, “Production does not need to try to over-feed and over-clothe the poor for lack of other consumers to cater to…Let the mills turn out food and coarse goods for labourers, and luxuries and also more mills for the capitalists, and the problem is solved” (Clark, Introduction to Rodbertus 1969, 15–17).

Conant, however, did not share Clark’s hope that the rich could be cured of their habits of excessive frugality, the effects of which were to channel “excessive” quantities of human effort into the production of goods for the market.The problem was structural:competition made investment in “new labor-saving plant with greater efficiency” compulsory for capitalists, and “translated into the secular trend of declining prices and declining rates of profit characteristic of the last quarter of the nineteenth century” (Sklar, summarizing Conant in Sklar 1987, 64–65).Writing almost exactly 100 years after Malthus’s Essay on Population, Conant finds his own source of fear in a “geometric” rate of increase, only for him, what threatened society with its powers of multiplication was not people, but capital, the exponential growth of which “threatened to paralyze enterprise and result in a long period of depression” (Conant 1903, 26).[36]

The solution to the problem of over-production, which Conant traced to the structural flaws of competitive markets, was the “consolidation of industry and the restriction of production” (Conant 1903, 35).The former was required to effect the latter, the purpose of which was to match supply with demand at the optimal price-point in terms of profit (Sklar 1987, 70).Not only would the restriction of output raise prices, but rising prices themselves would reduce the quantity of labor-power being channeled into production for the market, by “absorb[ing] a portion of disposable income that might otherwise go into savings free of centralized [i.e., output-restricting] control” (ibid, 70).

In The Trust Problem (1903), fellow McKinley and Roosevelt advisor and Columbia University economist Jeremiah Jenks provides this illustration of the “waste” for which competition is responsible, as well as its possible remedy:

Before the formation of the old Whiskey Trust, the capacity of the existing distilleries was far more than necessary to supply the normal demand of the country at profitable prices.In consequence, agreements were made from time to time among nearly all the leading distillers to restrict the output.One year each distiller pledged himself to run his plant at only 40 percent of its full capacity.Another year the agreement limited the output to only 28 percent of the full capacity.After the formation of the Trust, out of more than 80 distilleries which joined, all were closed with the exception of 12 of the largest, best located, and best equipped, which ran at their full capacity; and the output of these was equal during the first one or two years to the entire output of all the distilleries which had been running before…no other source of saving was so great as that which came from running the best distilleries to their full capacity and all the time (Jenks 1903, 33).

The goal, however, was not merely to bring productive capacity into alignment with market demand.It was to “put prices higher than former competitive rates while still excluding nearly all competitors” (ibid, 64, emphasis added).According to Ricardo, and the classical theory of competitive markets, such a strategy should have been impossible:absent legal restrictions, price and profit levels higher than what would prevail under competitive conditions were precisely what invited competition.This was how supply, supposedly, met demand, and markets cleared.The problem, of course, was that in the words of Conant, “the intensity of competition in modern industry has so reduced profits that it requires the most careful calculation to guard against loss” (Conant 1893, 37).These economists found the solution in what D.A. Wells had located as the problem—the high cost of plant and equipment, and the deep pockets of capitalists, which combined to make it both rational and possible to continue production over long periods despite the absence of profits.If the field could be cleared of competitors, Jenks argued, it should be possible to deter future rivals with the threat that if “competition of that kind [i.e., on the basis of price] is tried, prices will be forced down not merely to the normal competitive rates among small manufacturers, but far below that, and those investing their capital for purposes of competition are certain to make, instead of the high profits of the existing combination, very low profits or none at all” (Jenks 1903, 65–66).The problem was that “so far most combinations have overreached and have paid the penalty of trying to secure exorbitant profits.More experience is needed to teach most of them the art of permanent monopoly[37]—an art that, when learned, will need to be kept under careful control by society” (ibid, 72–73).

Aside from his admonition against “overreach,” in stating the case for “combination” and “monopoly” as the solution to the evils which accompanied the “waste of competition,” Jenks was not offering a proposal, but rather a justification for strategies that were already well underway.The entire crisis period, beginning in the 1870s, was characterized by capitalists in “ ‘nearly every industry employing fixed capital on a large scale’ entering into “a pool or other noncompetitive arrangement” for the purpose of achieving a price-restoring restriction of output (Hadley, cited in Sklar 1987, 59).These pools and output-and price-agreements amongst firms, however, were notoriously difficult to maintain (Kolko 1970, 8), and it was not until the mass merger movement at the turn of the century that Jenks’ vision was largely realized.In the space of six short years, from 1897 to 1903, the “giant modern corporation” was born in the United States, coming into the world by way of the “consolidation of almost 5,300 individual plants” (Mitchell 2007, 9, 12) into industrial behemoths, and establishing, in the words of Jenks, “monopoly in nearly all the leading lines of industry” (Sklar 1987, 279).

The capitalists called before the Senate’s United States Industrial Commission (1900) to explain the “tidal wave” crashing over the American economy were blunt in locating the impetus for the mergers in the need to eliminate competition too vigorous to leave a margin for profit (ibid; quote is from Mitchell 2007, 12).The stock valuations of these new firms soared, in spite of the fact that the merger wave “did not even create new factories” (ibid)—indeed, as Jenks detailed, industrial combination typically entailed junking significant quantities of “excess” productive capacity.In wryly noting that mergers and incorporation offered the “benefit” of allowing a “community” to increase its “nominal wealth” absent any increase in production, Thorstein Veblen suggested that the merger movement had perhaps doubled the capitalized value of the nation’s industrial equipment (Veblen 1932, 150).[38]

As Veblen’s estimate suggests, the market power to exclude competitors, control output and raise prices had enormous economic value.It was an intangible value, “grounded on the principle of scarcity” (Commons 2009, 788), and it was reflected in the value structure of the firms themselves, which were capitalized on the basis of projected earnings. Merging capitalists referred to the value in excess of that of tangible assets as “intangible property” (ibid, 650).It was represented by common stock, while preferred stockholders would receive the proceeds of the sale of tangible assets in the event of liquidation (Veblen 1932, 143–4).It was typical for merging firms to issue equal amounts of both types of stock (Mitchell 2007, 71–72), and not uncommon for the value of the common stock to then soar far beyond that of the preferred (Veblen 1932, 145–6), becoming “the most important asset of modern business” (Commons 2009, 788).

What is significant about these seemingly trivial details of stock valuation is that the common stock represented the value of a privileged market position, protected from competition (Commons 1939, 194, 268–9). The late nineteenth century “crisis era” of competition was characterized by firms desperate to simply make their tangible assets pay for themselves, while in the “era of monopoly,” successful firms found themselves capable of paying attractive rates of return on capitalizations that exceeded by multiple times their investments in plant and equipment.Jenks readily acknowledged that under ordinary circumstances, such a state of affairs would be sure to invite competition, which was why he took such pains to detail how it could be deterred (Jenks 1903, 65–66).[39]The purpose of deterrence, of course, was to confer the power to restrict output – to maintain the scarcity on which value is based – such that it is possible to view the common stock of the newly merged firms as the capitalized value of artificial scarcity.[40]

The structural changes advocated by the McKinley-Roosevelt economists, and effected by the mass consolidation of industrial firms at the turn of the twentieth century, amounted to a value revolution, making value the reward for the effective maintenance of “relative scarcities” (Sklar 1987, 70) rather than the compulsion to engage in the all-to-often self-defeating attempt to increase production by competing with rivals on the basis of price.They also amounted, on the supply side at least, to the solution to the crisis of the late nineteenth century.[41]Once Menger’s assumption that markets clear is dispensed with, the value project explicitly becomes a matter of regulating the supply of water on Robinson Crusoe’s island, which was the essence of the calls to eliminate the “waste of competition” for the purpose of restricting output, and underneath any economic jargon, always amounts to a concern with the channeling of the aggregate labor-power of society.Both the late nineteenth century crisis, and its solution, would appear to vindicate Malthus’s contention against Ricardo that value is to be measured not by the quantity of human effort expended in production, but rather the activity elicited in exchange.Ricardo would have recognized the “intangible property” which represented the power of the newly merged firms to regulate output and set prices as the rewards of monopoly, enriching their owners while impoverishing the community,”[42] while Malthus would have argued that as the size of the gap between “demand” and “supply” is what determines the incentive to invest, deliberately widening it is actually what facilitates increased investment in the production of goods for the market.He was interested in “absolute scarcity” only for its usefulness as a weapon against socialism—it was the maintenance of “relative scarcities,” which provided the spur to the ongoing expenditure of human effort he called “value,” which was crucial, under capitalism, to effect the production of tangible “wealth.”

Godwin’s claim that given the productivity of labor, “ingenuity has been on the stretch to find out ways in which it may be expended (Godwin 1992, 823)” seems more relevant, 100 years later, in light of the calls for the deliberate restriction of output in order to augment value, than Malthus’s bleak formula regarding population and soils. The old socialists, mocked for failing to acknowledge “population Malthus’s “imperious all pervading law of nature” might have felt vindicated to find descendants of the esoteric Malthus fretting over the “geometric” rate of increase of “capital,” which represented instruments for the production of wealth.These socialists also realized that the “scarcity-ratio,” representing the relationship between quantities available and desired, derived not from Nature, but rather reflected the aggregate channeling of the labor-power of society.In arguing that the value project required artificial limits to production, they appear to have been ahead of their time:

“That whilst the inhabitants of this and other countries are wanting those necessaries and comforts of life, the liberal possession of which constitutes what we call wealth; whilst many obtain them very scantily, and with great difficulty, toil, and anxiety; and whilst others are in the constant fear by circumstances beyond their control; still it is undeniable, that those very inhabitants, aided by the great mechanic power of which they are possessed, are capable of creating, by their own labor, all those necessaries and comforts of life to an almost unlimited extent; certainly to an extent amply sufficient to supply the wants of every member of their respective communities!…The reason why so many are poor, must therefore be sought for in the institutions of society, and this leads us to the important truth of which we have spoken, which is, that there now exists, AN UNNATURAL LIMIT TO PRODUCTION… Take away the limits to production and every thing deserving the name wealth would instantly become accessible to all (Gray 1971, 49, 18, emphasis and capitals in original).

The turn-of-the-twentieth century value revolution, which replaced a Ricardian competition in the field of productive investment with a Malthusian project of managing relative scarcities, would shape early twentieth twentieth century efforts to regulate markets in land and labor, and the racialized discourses with which they were justified.The lesson learned from the late nineteenth century crisis, that the preservation of value required a regulatory project designed to effect and maintain artificial scarcities, to be achieved through the exclusion of competitors from markets, would be easily grafted onto racialized categories of privilege and exclusion in attempts to protect the value of labor and real estate in early twentieth century America.

That value narratives are easily racialized should come as no surprise, for as the foregoing discussion makes clear, any esoteric treatment of value requires a visualization of the population as a whole, and a subsequent “zoning” of its members into categories with respect to their perceived relation to value.For Ricardo, there was the “zone” of workers producing subsistence for other workers, on which all else rested; Malthus divided those exchanging time for subsistence into the categories of productive and unproductive labor, and made maintaining a proper balance between the two essential; and for Menger, there were those who would have their needs met under the value scheme, and those that would be excluded, with the need to protect the former from the latter both explaining the origin and representing the chief function of the state.

Popular explanations of value which seek to defend the institution have as essential features the presumptions that the scarcity which backs value is natural and permanent, and that an omniscient, omnipotent force, which we attempt to disturb at our peril, is constantly at work channeling human effort in optimal directions.Absent from these explanations is any discussion of the “zones” which are both created and required by the value project, and which distribute comfort and misery, and privilege and exclusion, on the basis of ones placement in them.The existence of social zones, however, and the starkly differing treatment and conditions of life meted out within each, is obvious enough.In popular accounts, emphasis is placed upon creating justifications, based upon the personal characteristics of those residing in them, of the existence of these zones, and the chasms of social treatment and experience which exist between them.Throughout most of capitalist history, of course, this project of justification was undertaken largely on the basis of nationality and skin pigmentation, though it seems plain that any construct which performs the service, whether legal status, measurements of performance, or any other device, can be made amenable to the task.Replacing a blunt discussion of the social requirements of the value project with the fiction that the zones reflect the characteristics of those placed within them would appear to be the essence of modern racism.

The question of whether or not the social institution of value stands as a fundamental barrier to our development, as individuals and as a society, is subversive on its face, because the foreclosure of that question, accomplished when the popular narratives of value and race achieve their aim, is an essential feature of the regulatory project of maintaining value.Questioning the opportunity costs of the activities performed in the social zones of privilege and exclusion is essential to puncturing the myth of natural scarcity which provides ideological justification for popular value narratives, and a first step in the direction of a social discussion which might conclude that it is the performance of these activities, and not the people within them, that both forms and maintains these zones.Indeed, it is our own obedience—our own identity-forming personal projects of fashioning our wills into shapes amenable to being channeled in the directions dictated by value—that sits at the foundation of value as a social institution, and is in fact its essence.A social conversation which forms around the question of what we want, rather than what value needs, might just be the first act of disobedience which charts a course leading beyond the institution of value, and the categories of race on which it depends.


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  1. [1] This is his “value.”
  2. [2] “The Political Justice appeared in 1793, at the height of the Reaction and the Terror, and no book even of that perturbed period was more profoundly subversive and revolutionary in its teaching” (Foxwell, in Introduction to Menger 1970, xxxi).
  3. [3] In asking his reader to divide the population of England into those working to produce subsistence, and those who contributed nothing to the subsistence needs of the nation, Godwin was actually working within the conventional economic wisdom of the day.In TheWealth of Nations (1776), Adam Smith had similarly divided the population into those laborers engaged in producing the “necessaries and conveniences of life” and those who would be “maintained” by this “fund” while contributing nothing to it.For Smith, both the material comfort of the society as a whole, as well as the weight of the burden on those engaged in the production of “necessaries and conveniences” for the entire society, depended on the number of “unproductive hands” to be supported by “productive labor”:“According, therefore, as a smaller or greater proportion of it [the annual produce] is in any one year employed in maintaining unproductive hands, the more in the one case and the less in the other will remain for the productive, and the next year’s produce will be greater or smaller accordingly; the whole annual produce, if we except the spontaneous productions of the earth, being the effect of productive labor” (Smith 1948, 315).For Smith, the upshot of all this was that “A man grows rich by employing a multitude of manufacturers:he grows poor, by maintaining a multitude of menial servants” (Smith 1948, 314).
  4. [4] For Godwin, “poor” described anyone who was forced to trade labor in exchange for subsistence:“Poverty is an enormous evil.By poverty I understand the state of a man possessing no permanent property, in a country where wealth and luxury have already gained a secure establishment” (Godwin 1996, 126).This was the standard definition of poverty of Godwin’s day, e.g.: “The characteristic of poverty seems to be, to live from hand to mouth” (Malthus 1968, 46).
  5. [5] Godwin’s “misnamed wealth” is Adam Smith’s “value”:“The real value of all the different component parts of price, it must be observed, is measured by the quantity of labor which they can, each of them, purchase or command” (Smith 1948, 276).
  6. [6] “Godwin may be regarded as the first scientific socialist of modern times, possessed of the seeds of all the ideas of recent Socialism and Anarchism.He exerted a very marked influence on Hall, Owen, and Thompson, and through them on the development of Socialism” (Menger 1962, 40).
  7. [7] This statement by William Thompson is typical: “The mass of real accumulated wealth, in point of multitude…is so utterly insignificant when compared with the powers of production of the same society in whatever state of civilization…that the great attention of legislators and political economists should be directed to “productive powers” and their future free development, and not, as hitherto, to the mere accumulated wealth that strikes the eye…By means of the possession of this fixed, permanent, or slowly consumed part of national wealth, of the land and materials to work upon, the tools to work with, the houses to shelter whilst working, the holders of these articles command for their own benefit the yearly productive powers of all the really efficient productive laborers of society, though these articles may bear ever so small a proportion to the recurring products of that labor”(cited in Marx 1990, 397).
  8. [8] This was occasionally made quite explicit:“Nothing occasions dearness but scarcity; and nothing occasions scarcity that is permanent, but there being too few hands employed in agriculture” (Hall 1965, 311).
  9. [9] He arrives at this estimate by assuming that England’s population of 7 million doubles every twenty-five years in “geometric” progression, while its agricultural productivity increases only “arithmetically,” such that with each quarter century it is only able to provide for an additional 7 million people.
  10. [10] Similarly, in spite of seeing hunger, war, plague, pestilence, and famine as direct results of the collision between the “geometric” increase of population and the “arithmetic” increase of the food supply, Malthus provided the same reason for his opposition to birth control:“I should always particularly reprobate any artificial and unnatural modes of checking population, both on account of their immorality and their tendency to remove the necessary stimulus to industry.If it were possible for each married couple to limit by a wish the number of their children, there is certainly reason to fear that the indolence of the human race would be greatly increased…” (Ely 1940, 3–4).
  11. [11] “The Malthusian argument…had a practical purpose.Its purpose was the disillusionment of the Age of Reason and a justification of existing institutions” (Commons 2009, 245).
  12. [12] This contrasts with the socialist critique, which argued that while the desire for goods ultimately was finite, the pursuit of claims on labor-power itself had no end:“They do not long continue to buy commodities, before they begin to buy men” (Godwin 1992, 811).
  13. [13] Godwin also cites Smith to make precisely the same point, from the other side of the class divide:“It has been found that ten persons can make two hundred forty times as many pins in a day as one person (Smith, Book I, Chapter I).This refinement is the growth of luxury—the object is to see how vast a surface the industry of the lower classes may be beaten, the more completely to gild over the indolent and the proud” (Godwin 1992, 859).
  14. [14] According to Ricardo, if the cost of wheat production on the least fertile ground dictated a market price of $6 a bushel, and wheat on the best land could be produced for just $2 a bushel, the rent of the best land would be $4 times the number of bushels produced (Ricardo 1973).
  15. [15] “The amended position of the labourer, in consequence of the increased value which is paid him, does not necessarily oblige him to marry and take upon himself the charge of a family…yet so great are the delights of domestic society, that, in practice, it is invariably found that an increase of population follows the amended condition of the labourer; and it is only because it does so, that, with the trifling exception already mentioned, a new and increased demand arises for food” (Ricardo 1973, 277–278).
  16. [16] American economist D.A. Wells, writing in 1889:“In respect to no other one article has change in the conditions of production and distribution been productive of such momentous consequence as the case of wheat.On the great wheat-fields of the State of Dakota, where machinery is applied to agriculture to such an extent that the requirement for manual labor has been reduced to a minimum, the annual product of one man’s labor, working to the best advantage, is understood to be now equivalent to the production of 5500 bushels of wheat…our final result is that ten men working one year serve bread to one thousand” (Wells 1889, 58–59).
  17. [17] “Ricardo, and still more those who popularized him, may stand as an example for all time of the extreme danger which may arise from the unscientific use of hypothesis in social speculations, from the failure to appreciate the limited application to actual affairs of a highly artificial and arbitrary analysis.His ingenious, though perhaps over-elaborated reasonings became positively mischievous and misleading when they were unhesitatingly applied to determine grave practical issues without the smallest sense of the thoroughly abstract and unreal character of the assumptions on which they were founded.Thus, as Jevons has observed, Ricardo gave the whole course of English economics a wrong twist.It became unhistorical and unrealistic; it lost its scientific independence and became the tool of a political party.At one time indeed it went very near to losing its rightful authority in legislation and affairs…”(Foxwell, Introduction to Menger 1962, xli).
  18. [18] “A writer may, to be sure, make any hypothesis he pleases,” he wrote to Ricardo in an 1817 letter, “but if he supposes what is not at all true practically, he precludes himself from drawing any practical inferences from his hypothesis” (Ricardo 1951, 239).
  19. [19] This was Godwin’s take on such “fortunes:”“It is a gross imposition that men are accustomed to put upon themselves when they talk of the property bequeathed to them by their ancestors.The property is produced by the daily labour of men who are now in existence.All that their ancestors bequeathed to them was a mouldy patent which they show as a title to extort from their neighbors what the labour of those neighbors has produced” (Godwin 1996, 134).
  20. [20] And: “It is the want of necessaries which mainly stimulates the labouring classes to produce luxuries; and were this stimulus removed or greatly weakened, so that the necessaries of life could be obtained with very little labour, instead of more time being devoted to the production of conveniences, there is every reason to think that less time would be so devoted” (ibid, 334, emphasis in original).
  21. [21] For both Ricardo and Malthus, “capital” was that which set in motion the “productive labor” engaged in production for the market.Malthus states that “the chief ingredients of capital, and frequently by far the largest, are food and clothing” (Malthus 1968, 319), i.e., the wages of these workers.Thus, an “excess of capital” occurs when the number of workers engaged in production for the market exceeds that which would result in maximum profit.Continue increasing the number of “productive workers” beyond this point, and profits will disappear, or production will result in a loss.
  22. [22] This was where Malthus, for all practical purposes, abandoned his Malthusianism.For while Ricardo saw the pressures of population on the soil, and its effect on the costs of labor, as the sole long-term regulator of the rate of profit, Malthus argued that the rate of profit was determined by the ratio between the demand for goods and the cost of producing them, estimated in labor-time (or, the quantity of labor exchanged for products minus the quantity required to produce them).Attempting to determine the rate of profit in light of his own “law of population,” he argued, would “lead to the greatest practical errors,” for while this law was “proceeding with scarcely perceptible steps to its final destination, the second cause [the ratio between the demand for goods and the cost of producing them, estimated in labor-time] is producing effects which entirely overcome it, and often for twenty or thirty, or even 100 years together, make the rate of profits take a course absolutely different from what it ought to be according to the first cause [the law of population]” (Malthus, 282).
  23. [23] And:“But if the master-producers [the capitalists], from the laudable desire they feel of bettering their condition, and providing for a family, do not consume their revenue sufficiently to give an adequate stimulus to the increase of wealth; if the working producers, by increasing their consumption, would impede the growth of wealth more by diminishing the power of production, than they could encourage it by increasing the demand for produce; and if the expenditure of the landlords, in addition to the expenditure of the two preceding classes, be found insufficient to keep up and increase the value of that which is produced, where are we to look for the consumption required but among the unproductive laborers of Adam Smith?” (ibid, 406, emphasis added).
  24. [24] The influence of Wells Recent Economic Changes (1889) was enormous, and is indicated by Richard T. Ely, founder of the American Economic Association, and author of the most widely used university economic textbooks in the United States for the first decades of the twentieth century (Dorfman 1946, 211), writing in the midst of the Great Depression of the 1930s that: “It is as instructive as it is interesting to see how in our present panic and Hard Times we are following along, step by step, what happened in 1873 and the following years of Hard Times as described by Mr. Wells” (Ely 1931, 18).
  25. [25] “By the mid-1890s, in the midst of the third long depression in three successive decades, a revulsion against the unregulated market spread amongst the bourgeoisie in all major sectors of the economy.Whatever their programmatic differences, farmers, manufacturers, bankers, and merchants, in addition to already disenchanted railway capitalists, found a common ground in the idea that unregulated competitive market activity resulted in production of goods and services in excess of effective demand at prices that returned reasonable earnings to producers of normal efficiency.The watchword was ‘overproduction.’ ”(Sklar 1987, 53–54.The reference is to conditions in the United States).
  26. [26] “Large fixed investment put a premium on economies of scale, and, as Andrew Carnegie explained in what came to be known as ‘Carnegie’s law of surplus,’ every manufacturer preferred to lose one dollar by running full and holding markets through selling at lower prices than to lose two dollars by running less than full or close down, and incur the risk of losing markets, defaulting on interest payments, and falling into bankruptcy” (Sklar 1987, 58).
  27. [27] Wells cites price surveys which estimate that the average prices of “thirty-eight leading articles of raw produce” were 18 percent lower for the period of 1878–1885 than for that of 1867–77.If just the price level of 1885 was compared with the average of the earlier period, the decline was 31 percent.(Wells 1898, 116).
  28. [28] He used the Latin phrase, “otium cum dignitate.”
  29. [29] “No sooner than we think of the Austrian School than immediately there comes to our minds the names of Jevons, Wieser, Walras, Menger, and Bohm-Bawerk, and the principle of marginal utility.The development of the marginal utility theory of value marks very definitely a return in economic theory to the Malthusian trail of Commanded Value, with its approach to value in exchange from the demand side.Embodied value theory seems to be finally exploded and buried beyond recall” (McCracken 1933, 142–3, emphasis added).
  30. [30] “…the more pressing one’s need for a good the more energetic will be one’s economizing activity whenever it is necessary to procure the good in question” (Menger 1950, 300–1).
  31. [31] Such individuals also figure prominently in Godwin’s conception of the history of “civilization”: “To consider merely the present order of human society, it is evident that the first offense must have been his who began a monopoly, and took advantage of the weakness of his neighbors to secure certain exclusive privileges to himself” (Godwin 1992, 808).
  32. [32] “Meanwhile, with the continuous development of civilization and with progress in the employment of further quantities of goods of higher order [i.e., capital, so long as they have become scarce, or “economic” goods] by economizing men, a large part of the other, previously non-economic goods of higher order (land, limestone, sand, timber, etc., for example) attains economic character.When this occurs, each individual can participate in the economic gains connected with employment of goods of higher order in contrast to purely collecting activity only if he already has command of quantities of economic goods of higher order in the present for future periods of time—in other words, only if he possesses capital.(Menger 1950, 155, emphasis in original; two parenthetical phrases have been eliminated)
  33. [33] Such augmentation would, by Menger’s theory, immediately undermine the value of the goods in question, and ultimately, if carried too far, threaten “civilization” with “communism.”
  34. [34] “A new theory of the capitalist market, one focusing upon disequilibrium, began to emerge in the 1880s, and took substantial form in the 1890s, among American economists…From 1896 to 1901, well before Veblen’s Theory of Business Enterprise (1904), Arthur Twining Hadley of Yale University, Jeremiah Whipple Jenks of Cornell University, and Charles Arthur Conant, the nonacademic scholar and financial journalist, took a leading role among those with senior policy-making influence in laying the theoretical foundations for the break with the classical model of the competitive market…[These economists] embraced the language and concepts of marginal utility, but not the equilibrium theory of the Austrian school and its British counterparts” (Sklar, 1987, 57, 68).
  35. [35] Superficially, of course, we refer to the integers in the “scarcity-ratio” as “supply and demand.” Taking the class relations which produced it for granted, Menger assumed the scarcity of supply, and made demand a matter of individual psychology, rendering the “scarcity-ratio” safe for college textbooks, while still useful to elites, who seemingly had no difficulty in dispensing with that part of marginalism which borrowed from the Essay on Population.Menger’s formula reduces to that of the esoteric Malthus, for assuming a given level of technique, quantity supplied essentially corresponds to the quantity of human effort engaged in production, while both Malthus and Menger measure demand in terms of the human effort a given supply elicits in the world of exchange.In Malthus’s conception, adding to the “denominator” of supply absent any increase in the “numerator” of demand results in a decline of profit, which can be determined by subtracting the denominator from the numerator.Uncontrolled expansion of the “denominator” absent corresponding increases in the “numerator” was apparently the problem of the late nineteenth century.
  36. [36] “…the increase of railway equipment and the employment of labor-saving machinery in farming and manufacturing has promoted saving almost in a geometrical ratio from year to year” (Conant 1903, 29, emphasis added).With regard to the threatened “capital explosion,” Conant goes on to say that it had been averted by finding “an outlet in the undeveloped countries, and this outlet has contributed to the increased sale of manufactured goods, larger earnings for invested capital, and the revival of industry which began all over the world about 1897” (Conant 1903, ibid).
  37. [37] For Jenks, it was a firm’s power to set prices, whether singly or part of a group, that defined monopoly.It did not mean exclusive control by one firm over an entire industry (Sklar, 61).
  38. [38] Veblen’s take on the desirability of “monopoly” and “combination” was slightly different than that of Conant and Jenks.In Engineers and the Price System, for example, he dared American engineers to explain to the public just how vast the country’s productive capacity actually was, and how the “price system” required its throttling (Veblen 1940).His take on the impetus for the merger movement, however, was the same.In The Theory of Business Enterprise (1904), he notes the “dogma” of “overproduction” that prevailed among the businessmen of his day, and states that“ ‘excessive competition’ is an alternative phrase” to describe the same state of affairs, which for Veblen amounts to “an excess of goods above what is expedient on pecuniary grounds” (Vebeln 1932, 217).He also notes the conventional wisdom regarding the solution to the difficulty:“Any proposed remedy…to offset the disastrous cheapening of products through mechanical improvements, has been found in business coalitions and working arrangements of one kind and another, looking to the ‘regulation’ of prices and output…[Their] tangible, direct, and unequivocal efficiency in correcting this main infirmity of modern business is well-recognized.So much so that its urgent advisability has been formulated in the maxim that ‘Where combination is possible competition is impossible.’What is required is a business coalition on such a scale as to regulate the output and eliminate competitive sales and competitive investment within a field large enough to make up a self-balanced, passably independent industrial system—such a coalition of business enterprises as is loosely called a ‘trust’ ”(Veblen 1932, 241–2).
  39. [39] “In effect, marginal utility provided the theoretical ground for the pro-capitalist break with the competitive mechanism as the regulator of the market.Its supply and demand curves offered a model with which the firm might plan as a price-maker—instead of merely as a price-taker—virtually inconceivable on the basis of the classical competitive model… It converted an economic reality productive of unmanageable abundances into an economic calculus suited to the restoration and management of relative scarcities” (Sklar 1987, 70).
  40. [40] Contemporary economist John Commons bluntly defined such intangible property as representing “the right to fix prices by withholding from others what they need but do not own” (Commons 2009, 3) and “the power to restrict abundance in order to maintain prices” (ibid, 5, emphasis in original).For Commons, this was not a criticism.In his view, the “cutthroat competition” and “periodic and general oversupplies of commodities” associated with the nineteenth century “period of abundance” required precisely the sort of “stabilization” strategies advocated by Conant and Jenks (ibid, 779–780).In The Theory of Business Enterprise, Veblen notes that the fact that an asset is intangible “signifies among other things that these assets are not serviceable to the community, but only to their owners” (Veblen 1932, 139).
  41. [41] The demand-side solution, according to Veblen, came in the form of “demand for supplies caused by the Spanish American War” (Veblen 1932, 194).Veblen refers to the “era of prosperity 1897–1902” (ibid, 97), and it is interesting to note that 1897 marks the start of both the corporate merger movement as well as the increase in military spending in preparation for war.
  42. [42] Ricardo bluntly criticized schemes to boost value through the creation of artificial scarcity: “Let water become scarce, says Lord Lauderdale, and be exclusively possessed by an individual, and you will increase his riches, because water will then have value; and if wealth be the aggregate of individual riches, you will by the same means also increase wealth.You undoubtedly will increase the riches of this individual, but inasmuch as the farmer must sell a part of his corn, the shoemaker a part of his shoes, and all men give up a portion of their possessions for the sole purpose of supplying themselves with water, which they before had for nothing, they are poorer by the whole quantity of commodities which they are obliged to devote to this purpose, and the proprietor of water is benefited by precisely the amount of their loss” (Ricardo 1973, 184). Malthus’s entire point against Ricardo was that in a system in which investment takes place only for profit, maintaining the scarcities that keep investment profitable will result in more productive investment for the entire society, and hence actually more tangible wealth, than a situation of minimal profit margins offering no incentive to invest in productive activity.John Commons refers to the apparent “paradox” that while an abundance of goods often leads to profit-destroying reductions in price, and high prices resulting from actual scarcity is poverty itself, economic prosperity is always associated with the combination of both high prices and abundant quantities of goods.He follows this with the simple explanation that “This is not a paradox if nature is bountiful and if scarcity is the artificial scarcity imposed by the government” (Commons 2009, 131–2).This is the essence of what Ricardo failed to understand in Malthus’s letters to him.

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