Who Is Saving Up for the Future?

In the neoliberal picture of economics, it is a common assumption that workers are indirect beneficiaries from the saving and reinvestment of capitalists in their privately owned businesses. Capitalism thereby provides these laborers with jobs, income, and indeed their very lives. This notion can be found from Bernard de Mandeville (The Fable of The Bees: or, Private Vices, Publick Benefits) to Friedrich Hayek (The Fatal Conceit), and popularized in the war cry of Gordon Gekko, “Greed is… good. Greed is right, greed works.” Of course, we are not really talking about “greed” here but “savings and investment”. Put simply, the idea is that by following their own self-interests the capitalists, inadvertently and out of necessity, provide for an army of workers who would otherwise be unable to survive. This all sounds straightforward enough, but there is a problem. This argument is curved three hundred and sixty degrees.

The neoliberalism assumes that the act of saving for new capital expenditures must be the product of the lone action of the enterprises’ owners. Part of the reason for believing this is cultural. The law and most people have–without good reason, mind you–assumed that the product of an enterprise’s efforts belongs exclusively to the owners of its capital. This is the fundamental assumption of capitalism. It is from this assumption that it seems to follow that the reinvestment in an enterprise’s capital is an act of its “owners”. Another reason, more classist and derogatory, comes from a long history of intellectual’s belief that lowly wage-workers were incapable of managing money. The stereotype of the drunken field hand or dock worker embodies the sentiment. Given them more money, according to this classist logic, and they would thoughtlessly spend it on gambling games, booze, and prostitution. This prejudice lingers on centuries later the wreck of capitalist poverty created such desperate people for whom a minutes entertainment was the best they could hope for, and despite overwhelming evidence to the contrary. This is nevertheless the source but not the problem with the neoliberal argument. To see why we’ll need to examine the process of profit from sales.


The neoliberal’s capitalist model looks something like this: the owner of the capital (material components) of an enterprise is assumed to be “owner” of the enterprise itself, and this is true whether or not they work for the company or have ever even laid eyes upon it. As the “owner” of the enterprise, they have rights that extend to the products of the enterprise’s industry. The owners of capital then, own the fruits of labor’s efforts based squarely on the strength of the assumption. As “owners”, they are at liberty to sell these items, (including service labor) for any price they can get and keep all of the profits thereof for themselves. The labor of workers has been assumed to have been contracted out, paid in advance, through fair and just negotiations, before the manufacture and sale of the “product”. The risk of a failure at the market is assumed also to belong entirely to the capitalist and is often invoked as the justification for their keeping the “surplus-value” or profit from sales, over and above the costs of production. If you accept this model, then it does follow that capitalists are saving for the future good of all of society and therefore what is good for the capitalists is the best anyone, capitalist or otherwise, can hope for.

I, obviously, do not accept a neoliberal capitalist model. Against it, I offer the following alternative: when a “product” is sold at the market the price is fixed by the consumers, that is the proceeds of the sale are ultimately set by demand for the product and have nothing whatsoever to do with the way the product was brought about. Consumers lack knowledge of production methods and set price based on relative utility over the cost of a product or service to themselves (this is the Austrian theory). But from the manufacturers’ point of view, the profit of sale comes back somewhat mysteriously, set entirely by the market, with little (including advertising) they can do to change it. It is impossible to tell from this perspective whose productive contributions made the product profitable. The labor of one person and the materials of another are so combined that both were equally necessary for there to be realized any profit at all. If we don’t just assume the capitalist tradition of arbitrarily favoring the material owners of the things in an enterprise as the legal owners of the enterprise itself (and hence its products), we would have to ask ourselves how the profits, set by the market, ought to be divided among the respective contributors to production.

L0000880 Opium den, East end

If we make the uncontroversial assumption that the rewards of group efforts ought to be shared evenly with respect to individual effort then there seems to be no reason to accept the fundamental assumption of capitalism. What gives capitalists the priority claim except for mere arbitrary tradition? And if we reject their claim, then the notion that workers owe their lives and livelihoods to capitalist’s self-interest goes right out the window; for if the profit is evenly shared then so too would be any saving and reinvestment in the capital of the enterprise. Worker’s can be seen to have been forced to save, so that money could be invested into the capital of an enterprise which they will benefit from only in the sense that the grist mill benefits from laboring because then its owners’ oil its parts. In short, if the profits are evenly shared, the savings are also.

But the stereotype persists, so that were the workers not “forced” to save, they would be very unlikely to reinvest, choosing instead to drink away their profits. I find this notion laughable, as I think of all the sodden millionaires, slurping Moet & Chandon, at some gala or another; no one accuses them of monetary impropriety. The fact is that laborers have more reason to invest in a company they own and work at than either an investor or an employee. The point here is that seen my way, the saving-act is really just as or even more legitimately an effort of laborers. We could view and should view laborers as the legitimate owners of the product, and so they either should have been paid more for their labor or they forwent the enjoyment of that income to invest it in the enterprises’ capital. It’s the assumption that capitalists should be considered the rightful owners of the products of industry and not all the members of that company that makes the neoliberal argument circular. The neoliberal cannot both assume the ownership of the products and use that assumption to justify the ownership of the means of production. This argument fails to prove that it is the capitalist who is really providing for the livelihood of the workers. It may just turn out that it is the workers who are really saving the money thus providing not only for themselves but all of the capitalist’s excessive wealth in addition.

jerrold william blanchard london c13856 05.jpg

It would surprise few on the left to learn that a similar kind of argument was used in defense of slavery in antebellum America. The idea was that slaves, being nearly as dumb as animals, couldn’t be expected to provide for themselves outside their native habitats. Being now caught up in an “extended order” (to use Hayek’s term for a society where almost none provide everything for themselves a bit anachronistically) they would not be able to survive without the slave-masters to provide for them. They owe their livelihoods and their very lives to the master’s efforts. So, the well-intended sympathies of intellectual elites and moralists who would abolish slavery can’t see that they would destroy the very material foundations that made the slave’s lives possible in the first place. But we know better today! It was not the slaves who depended on the masters’ benevolence for their livelihood, it was the masters who depended on the slave’s labors for theirs. It was mere contrivance that–like a funhouse mirror–makes it appear upside-down. Sadly, the “funhouse” is the “courthouse” and the “mirror of distortion” is the “law”.

The neoliberal argument pits an ideological morality against a supposed material economic necessity but is itself a reversal of the truth. The ideological morality is an empty vision that all too conveniently enables the mechanisms of economic oppression. The material economic necessity is built with the sweat of labor. The laborers provide the material necessity and the capitalists appropriate the excess with ideological morality.

To save money is exactly the same thing as to earn money, profit is savings and savings is profit, from an individual point of view. It is only when we consider society as a whole that we can see that the two are not the same. This Keynesian insight has largely been forgotten, but it plays a role both in the need to establish a guaranteed income and in arguing against the neoliberal conception of capitalism.

Marx wrote: “Political economy, the science of wealth, is, therefore, at the same time, the science of renunciation, of privation and of saving, which actually succeeds in depriving man of fresh air and of physical activity. This science of a marvelous industry is at the same time the science of asceticism. Its true ideal is the ascetic but usurious miser and the ascetic but productive slave… The less you eat, drink, buy books, go to the theatre or to balls, or to the public house, and the less you think, love, theorize, sing, paint, fence, etc. the more you will be able to save and the greater will become your treasure which neither moth nor rust will corrupt–your capital. The less you are, the less you express your life, the more you have, the greater is your alienated life and the greater is the savings of your alienated being. Everything which the economist takes from you in the way of life and humanity, he restores to you in the form of money and wealth.” (Marx’s Concept of Man, 144)

If the saving that enables both the reinvestment and the profits of the wealthy is, in fact, a forced saving on labor, then they are the “ascetic but productive slave” Marx mentions. And as I said above, the strength of the neoliberal argument for savings is carried entirely by assumption. We need only ask ourselves, by what right can capitalist’s claim ownership if we do not accept the neoliberal argument from tradition? Here I think is where the argument for private property ownership laid out in Locke, based on both a need for exclusive use and expenditure of labor to acquire comes into play. It is from this justification that we can see the neoliberal assumption to be false. And what is more, it not only reveals the assumption to be false but proves that it is laborers that are or could be the true owners of the means of production. They alone could meet both of the necessary conditions for private property ownership.


The Wealth of Nations, Revisited

A Contradiction of Interests

I’m not sure if this is a real contradiction or not. But it seems to me that Adam Smith has a perspective problem. Smith famously argues that what is best for the individual is best for the society, and yet at the same time he argues that slavery is not best for the society because slaves lack individual incentive to work hard. This may be true, but it certainly seems to serve as a counter-example to the notion that what is best for the individual is what is best for the society. For when he suggests this, we must sincerely ask, which individual? The slave or the slaveholder?

What is true in Smith’s slave argument is that it is not best for the slave to be a slave, and correspondingly it would not be best for a society that the slave be so either. The slave’s disincentive to work would lead to less work performed in general, and correspondingly to a less productive society. However, is that which is best for the slaves or the best for the slaveholders? As a slaveholder, owning many slaves is what is best individually. If the rule holds, we must conclude that owning slaves is what is best for society. Is this not a contradiction? It cannot be both best and not best for a society to have slaves. Perhaps we could claim that being a slaveholder requires the existence of slaves, which we just said were not beneficial to society. But then the question becomes, why should we take the slave as “the individual” and not the slaveholder, as Smith clearly does? 

Smith’s problem seems to be one of perspective. The value of the rule that societies do best when people are free to pursue their own interests is debatable. It may depend entirely on which individuals’ perspectives we adopt. Is it better that a landlord is allowed to collect rent or that every person own the property they live in? Is it better than an employer negotiate wages before the sale of the product or that laborers are paid in accordance with their efforts? These perspective questions shoot holes all through the idea that liberty is the best policy and its more general precept that individual interests can be used as the best guide for social action.

The Utopia of Competition

It seems to me that competition itself becomes romanticized under most libertarian writers. The reason for this is if they use it as a cure-all for many economic injustices. The assumption works like this: as long as the rules are fair, then competition will lead to the best possible use of resources. And so it would, as long as we had some way to ensure the fairness of the rules. What does it mean to be fair? Who decides what is fair? On what basis is that decision to be made?

One can always succeed in competitions through two different methods. The first method is exactly what the libertarian writers imagine, a system where everybody follows the rules, the rules are fair, and then the winner deserves what they get, and this would work out best for society, just as Adam Smith suggested. The reason is that if everyone competed this way, we would all benefit from the maximized effort competition elicits. But unfortunately, there are no umpires or referees in economics, no one to turn to and say, “Hey, that’s not fair!”.

The second method for success in competition is free and unrestricted. Players follow their own best self-interest, and when the “rules” of fair play get in the way, they abandon them. In this method, one might succeed by making their competition under-perform or advance themselves through some form of subterfuge. This method focuses on distinguishing oneself by making all of the others look worse. This, of course, is a natural tendency of free competition that ultimately degrades society.

So we have a choice. Either competition is regulated to enforce an external set of rules that foster fair-play or economic competition is not good for society. If we were to have the former, a sport-like instead of war-like competition, then we would have to insist that the players do not get to dominate the body that makes up the rules. In real terms, this means that businesses would have to have minimal effect on political determinations of economics.

The Fable of the Bees?

It is perhaps ironic that Mandeville’s “The Fable of the Bees” features so heavily in Smith’s thought. The poem presents the idea that it is private vice (greed) that drive humanity to the public good (prosperity). The irony is not what climate change and over-use of pesticide have done to the bees, but the fact that Mandeville chose bee’s as his perfect society turned waywardly toward virtue to the ruin of all.

Bees are hive-minded totalitarians. The structure of bee society is based on homogeneity. The hive is comprised of nearly identical genetically speaking. The small individuality comes in the form of castes: the Queen, the product of royal jelly is tasked exclusively with all the breeding for the entire colony; the drones, a small subset of males, whose only function is impregnating the Queen; and the workers who do everything else to make the colony run. There is some break down among the work performed by the workers but this too is regulated exclusively by age. The high organization by nature is related to the Orwellian suppression of individuality inherent in bee society.  

There is no private vice in bee society because there is no individuality. Private vice requires individuals whose interests, even if entirely dependent on the efforts of others for their survival, can still conceive of themselves outside of the society. If private vices are public virtues then it perhaps proves that what is best for the individual is not what is best for society and vice versa. For it seems that public vices can just as well be private virtues.