The Theory of the Leisure Class by Thorstein Veblen

I was unaware of Veblen’s ideas until a recent edition of In Our Time on BBC Radio 4 devoted an hour of discussion to his life and work. So stimulating did I find the discussion that I immediately found a copy of The Theory of the Leisure Class and read it. 

Thorstein Veblen’s ideas crystallised in the last quarter of the nineteenth century when the infamous “robber barons” of emergent American capitalism were at the height of their power and ownership. Not only did they form a social class, but these multi-millionaires also created social norms that many desired to emulate. A measure of success in the popular mind became how closely an individual might aspire to emulate their lives of great riches and, at least when viewed from the outside, great leisure. Conspicuous consumption, following their example, became an economic goal and a measure of success. Veblen related this tendency of upper social classes to remnants of “barbarianism”, stemming from “tribal” societies. Everything was related to ownership resulting from conquest and warfare, in which the defeated were enslaved so that the victors could benefit from the fruits of their labour. On page two, Veblen identifies broad occupations and activities in contemporary society that derive from this ancient tendency. “These non-industrial upper-class occupations may be roughly comprised under government, warfare, religious observances and sports.” The label “non-industrial” differentiated these people from the vast majority of the population, who laboured cooperatively for the common good by producing things that increased human capabilities and well-being.

There thus develops in Veblen’s work a theory of economic production and distribution that is derived from psychological traits and has sociological implications. He extends his ideas about non-cooperative barbarism and “predatory” tendencies to illustrate how making oneself useless can become a sign of ultimate power and success. Though the social class that is guilty of this flagrant over-consumption of goods and services is demonstrated as being anti-social, as far as the interests of the industrial classes are concerned, Veblen never alludes to any possible conflict that might arise. This is what differentiates his ideas from those of Marx.

The psychological and behavioural aspects are explored, alongside and their consequences for economic and social class differences. He develops a theory of “manners” that allow members of the upper classes to identify themselves to one another. “There are few things that so touch us with instinctive revulsion as a breach of decorum; and so far have we progressed in the direction of imputing intrinsic utility to the ceremonial observances of etiquette that few of us, if any, can dissociate an offence against etiquette from a sense of the substantial unworthiness of the offender. A breach of faith may be condoned, but a breach of decorum can not. “Manners maketh the man”.” Again, he is not doing any of this in order to poke fun or satirise individuals. He does, however, make it clear that the existence of the upper classes does work against the interests of the industrial classes, who are labouring to make everyone’s life better.

The industrial classes, though privately desiring to emulate their social betters, however, at least try to maintain their own values. “The popular reprobation of waste goes to say that in order to be at peace with himself the common man must be able to see in any and all human effort and human enjoyment an enhancement of life and well-being on the whole … Relative or competitive advantage of one individual or comparison with another does not satisfy the economic conscience and the form of competitive expenditure has not the approval of his conscience.” 

Conspicuous consumption amongst the ownership classes drives them to value political ideas, laws and social practices that allow them to maintain their lifestyle. This inevitably results in political and social conservatism. “This conservatism of the wealthy class is so obvious a feature that it has even become recognised as a mark of respectability.” Privately, the industrial classes still aspire to the conspicuous consumption and leisure of the wealthy and so have a tendency to espouse their conservatism in the hope that one day they might achieve similar status.

All forms of religious establishment, military rank, political and even sporting success are manifestations of this over-consumption to the detriment of the industrial class, throwbacks to the barbarism and predatory nature of a society based on conflict. But here I find a weakness in Veblen’s argument. He does not see capitalist consumerism’s pursuit of individualism as necessarily fostering the creation of the leisure class. Furthermore, he assumes that pre-industrial, pre-scientific, societies are all based upon predation, but offers scant evidence to illustrate this.  

As a fan of “classical” music, I was intrigued by a passage that defined the term. ““Classic” always carries this connotation of wasteful and archaic, whether it is used to denote the dead languages or the obsolete or obsolescent forms of thought and diction in the living language, or to denote other items of scholarly activity or apparatus to which it is applied with aptness.” Capitalism cannot sell “classical” music. Calling it thus, even when the label only applies to about sixty years in the thousand-year history of European-style music is thus clearly a way of marginalising it.

Veblen’s ideas are now in sharp focus because of environmental degradation. The role of “consumption as status” needs to be uppermost in everyone’s mind. The less consumption, the less pressure is placed on the environment. The consequence of lower consumption would probably be the collapse of capitalism and it is this aspect, this consequence of his theories that is sadly rather lacking from Veblen’s work.

Capital and Ideology by Thomas Piketty

 

Thomas Piketty’s Capital and Ideology is a monumental achievement. Its scope is vast, its size is daunting, its scholarship and vision both quite breath-taking on every one of its 1000-plus pages. Ostensibly, it claims to be an analysis of the origins, politics and economics of inequality, but it goes considerably deeper and further than its brief. This work is nothing less than a snapshot of global economic history and politics taken at the time of writing. Though the historical element might be seen in different forms via the lenses of centuries and assumed perspectives, the book’s analysis of current political issues was always going to be subject to faster change.  I doubt whether Thomas Piketty himself would have predicted that, just a few months after his work’s publication, the global economic and political landscape would be redrawn by a new, microscopic virus. But that is exactly what has happened. And, given the effects on wealth and asset distribution the author attributes to the capital-destroying wars that dictated the history of the twentieth century, one wonders what a post-Covid analysis of the mechanisms that create and maintain inequality might look like. One suspects that the political prescriptions in the book’s last chapter may just, out of sheer necessity, have been rendered more likely.

Capital in the Twenty-First Century charted the origins and extent of inequality in human societies. Capital and Ideology follows on by examining current and historical circumstances and mechanisms that determine its extent and influence its propagation. The book charts comparisons of inequality across countries, continents, cultures and eras. In doing so, its author uses much more than statistical comparisons. Historical and cultural perspectives are offered. Economic analyses are suggested. Crucially, societal structures are analysed, especially those of triumvirate societies, where the ownership of religious, scientific and military power provide the justification and the means of establishing and maintaining skewed ownership of assets. Though the book covers much ground, many different civilizations, locations and eras, the overall analytical focus is never lost.

A criticism of such an achievement may seem petty, but the book could have profitably dealt with one of its weaknesses much earlier. A constantly aired opinion of Thomas Piketty’s work is that, like all socialists, he wants everyone to be the same, to compress all to the same lowest common denominator. This, the criticism continues, would stifle creativity and drive in any society that tried to implement his recommended policies or even tried to address the obvious and growing inequality caused by market capitalism. Readers of Capital and Ideology, however, will have to wait until the book’s last chapter before reading this passage.

“A just society is one that allows all of its members access to the widest possible range of fundamental goods. Fundamental goods include education, health, the right to vote, and more generally to participate as fully as possible in the various forms of social, cultural, economic, civic, and political life. A just society organizes socioeconomic relations, property rights, and the distribution of income and wealth in such a way as to allow its least advantaged members to enjoy the highest possible life conditions. A just society in no way requires absolute uniformity or equality. To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices or permit improvement of the standard of living and expansion of the opportunities available to the disadvantaged, they may be considered just. But this must be demonstrated, not assumed, and this argument cannot be invoked to justify any degree of inequality whatsoever, as it too often is.”

Let’s juxtapose this quote from page 967 of Thomas Piketty’s book with the following: “Above all, we will listen to the people who have felt left behind by the last few decades of economic growth and want to have control of their future. (We) will give the public services the resources they need, supporting our hospitals, our schools and our police. We will help people and families throughout their lives…” This latter passage is quoted verbatim from the webpage of the British Conservative Party, from the manifesto upon which they fought their successful campaign for the 2019 election, an election where an unprecedented number of voters from disadvantaged communities (largely as a result of previous Conservative governments’ priorities) opted to vote for the party in the hope they would honour a promise to “level up” the country. There seems to be electoral kudos in levelling, despite the opinion of right-wing politicians who extol the need for libertarian individualism married to economically deregulated separatism. Thomas Piketty analyses such tendencies and offers a paradigm to explain these shifting political alliances.

Capital and Ideology is the perfect text for anyone needing an update on the world. It has so many succinct and pertinent analyses that even a list of its insights would be a tome in itself. Some examples will suffice.

For instance, if anyone finds it hard to understand why certain elite groups from Western democracies might now be sympathetic towards Putin’s Russia, Thomas Piketty can enlighten.

“It is important to note that it is very difficult to measure and analyse income and wealth in postcommunist Russia because the society is so opaque. This is due in large part to decisions taken first by the government headed by Boris Yeltsin and later by Vladimir Putin to permit unprecedented evasion of Russian law through the use of offshore entities and tax havens. In addition, the postcommunist regime abandoned not only any ambition to redistribute property but also any effort to record income or wealth. For example, there is no inheritance tax in postcommunist Russia, so there are no data on the size of inheritances. There is an income tax, but it is strictly proportional, and its rate since 2001 has been just 13 percent, whether the income being taxed is 1000 rubles or 100 billion rubles.”

When this is placed alongside the fact that Europe in general and the European Union in particular is a global outlier in the extent of its greater equality of wealth and income and we can see immediately why the libertarian, individualists of the political right, who for example favour Brexit for the United Kingdom, might also cast an envious glance towards Russia’s largely unregulated treatment of wealth, no matter how it was amassed.

Thomas Piketty offers numerous such insights. He analyses India’s castes, charts the French Revolution, analyses politics in the USA and takes long hard looks at colonialism and empires. And what is more, all of this is accomplished with transparency and fluidity, so that at no stage does a reader feel presented with a mere list. The analysis of current political strands is particularly enlightening.

Piketty rejects the term “populism” as meaningless. He prefers to use “identitarian” to describe the tendency for many voters in democracies to retreat behind promised protectionism and fortified borders to exclude foreigners. In doing so, he sums up both cause and effect in a single idea, a summary that is both more accurate and more enlightening than “populism” in terms of understanding the political direction being followed. But he goes beyond description and offers analysis of motives. He cites, for example, evidence relating to Poland and Hungary, both of whom currently have governments that have displayed tendencies to restrict freedom or roll back liberalism, even to the extent that they are at odds with a European Union they were once eager to join. Many observers are perplexed by this phenomenon, noting that both countries have benefitted hugely from European development aid and inward investment. Piketty’s analysis, however, examines net transfers and finds that for both countries, capital flow has consistently been out of the country and towards Europe’s epicentres of wealth. And electorates are aware of this bloodletting. The only solution, he maintains, is greater political integration, not less.

He analyses politics in the USA, though obviously not in great depth. He does, however, make enlightening points about race to illustrate how the Democrats became transformed from the party of southern slavery to the natural home of the “ethnic” vote. It is a process that happened over a century, from the Civil War, when the Republicans were the champions of opposition to slavery through the New Deal and into the late 1960s, when it was the Democrats who espoused civil rights.

The author spends much of the early part of the book identifying the structure of triumvirate societies, where a peasant majority is ruled by an alliance between warrior and priestly classes who, combined, rarely accounted for more than ten percent of the population. He then shows how this structure developed into proprietarianism, which preserved the right of the ruling classes to own property. This later evolved into capitalism when the owners of property increased the scale of operations and created industrialization. He makes a convincing case in relation to the political control claimed by an alliance of religion and sword that was used to justify and then preserve property ownership of the ruling minority. Piketty offers the following, again late in the book:

“I have defined proprietarianism as a political ideology based on the absolute defense of private property; capitalism as the extension of proprietarianism into the age of large-scale industry, international finance, and more recently to the digital economy. At bottom capitalism rests on the concentration of economic power in the hands of the owners of capital. In principle, the owners of real estate capital can decide to whom they wish to rent and at what price while the owners of financial and professional capital govern corporations according to the principle of “one share one vote”, which entitles them, among other things, to decide by themselves whom to hire and at what wage.”

And then there arose democracy and later war. It was not that wars had been unknown in the pre-modern era, but he suggests that the industrialization of war after the dawn of the modern era rendered it more thoroughly and extensively destructive than it had previously been. Because of its destruction of property and the creation of debt via interruption of economic life, war threatened proprietarian societies in a way they had never before experienced. Democracy also threatened ownership directly unless it could be manipulated, of course, and both of these threats to the classes born to own had to be managed. Ownership had previously coped with war losses, the twice national income debt in Britain after the Napoleonic Wars, for instance, having been turned to the owners’ advantage by the issuing of bonds their capital bought and a century of poor people’s contributions rendered lucrative to their owners via interest and redemptions.

Democracy posed a new type of challenge to the owners of assets, and still does. So, to explain how systems of inequality can be maintained after everyone, at least in theory, has an equal say, Thomas Piketty needs to examine in detail how politics have changed over the last century. He now finds there exist four almost equally popular political ideologies. He writes:

“In 2017, 21 percent of voters could be classified as “egalitarian internationalists” (pro-immigrant, pro-poor); 26 percent are “inegalitarian nativists” (anti-immigrant, pro-rich); 23 percent are “inegalitarian internationalists” (pro-immigrant, pro-rich), and 30 percent are “egalitarian nativists” (anti-immigrant, pro-poor).”

Furthermore, he finds that there is now a tendency for there to develop an alliance between the two factions of nativism, an alliance that does not challenge property rights.

And, crucially, he finds that the social democrat model that made significant inroads into inequality in the middle of the twentieth century has now been transformed into an ideology of a Brahmin-like educated elite, leaving the votes of the losers in the distribution of wealth to be hoovered into an identitarian trap by the owners of an increasing share of property. This, in essence, is not dissimilar in character to the concept of false consciousness that Marxists find they have to apply in order to explain why masses of people regularly vote or act against their own interests. Here, Thomas Piketty offers a rational mechanism and a convincing argument by which false consciousness can be cultivated and exploited, an approach which does not fall into the distasteful trap of branding poorer people merely stupid.

There is so much in Capital and Ideology that it is almost impossible to review. Reading it comes close to a life-changing experience. Please do read it. Do persevere with its length. Take it at a steady pace and read something else, something contrasting, alongside. Readers will immediately and repeatedly find themselves amazed at the scholarship, the revelations and the rationality of the book’s argument. Anyone interested in our own times should regard it as essential reading. The presence of a virus, however, probably demands a companion volume, since the political and economic landscape is now surely transformed, just like war ripped up its design a century ago.

Eventually, Thomas Piketty champions the politics of social democracy as the solution to growing inequality and, eventually, environmental degradation. He cites the example of Sweden, in that:

“it shows that inequality is not the product of some essential cultural predisposition: in the space of a few years Sweden moved from the most extreme hyper-inegalitarian proprietarian system, which survived until 1909-11, to a quintessential egalitarian social-democratic society once SAP came to power in the 1920s and then ruled almost continuously from 1932 to 2006.”

With the right policies and crucially an end to the retreat into identitarian separatism, the author sees a future where, during an individual lifetime, people can be as entrepreneurial and as successful as they like, but where tax systems and inheritance management ensure the recirculation of wealth and capital to ensure it does not become the permanent property of an ever-smaller elite. A still far from perfect Europe is the example, while the libertarian, identitarian deregulators pose the threat.

The Anarchy by William Dalrymple

 

Occasionally, quite rarely, in fact, one reads a book so powerful that it is impossible to review, at least until the dust its disturbance has scattered starts to settle. It can happen when something causes anger, revulsion, jaw-dropping admiration or raw emotion. And it is not often that such a book is from the non-fiction section, even rarer that it might be pulled from the shelves labeled Economic History.

But William Dalrymple’s The Anarchy is such a book. The Anarchy should be more literally entitled The Company, since it presents the history of a single commercial entity, couched in the form of a biography of a being that had a life of its own. The title does convey the author’s ultimate judgment on this entity but, given the detail of his history, it is probably an understatement, even generous in its recognition.

The book tells the story of the East India Company, the British one, not the Dutch one, not the French one. Surely there are similar corporate biographies elsewhere. They may even exist, but we can be sure that the impact, though possibly qualitatively similar, would be quantitatively less significant.

The bare and unadorned facts of this company’s history begin with its founding in the City of London in the late 16th century as a joint stock venture by a group of investors. It grew courtesy of its participation in the spice trade and slavery in the 17th century, before achieving almost imperial status in the 18th century, when it effectively ruled India. It continued to expand in the 19th century until its implosion in the middle of the century, when its sheer size took it down, after it had failed to cope with the consequences of the Indian Mutiny, which its own practices and policies had arguably caused. The book’s title, The Anarchy, indicates clearly the author’s position that this group was morally and economically a different kind of entity from a company, but the work is far from polemical. The term ‘company’ suggests at least some level of organization, cooperation or community. But, as Adam Smith noted in his Wealth of Nations, this company’s defining characteristics were personal profit, corruption, war, violence and political intrigue, always directed towards furthering its own, already monopolistic position. I understate.

In fact, William Dalrymple makes a little use of Smith’s judgment of the company’s activity, despite the fact that it fits perfectly with the characterization he offers. It is nothing less than a strength of his analysis that secondary sources of criticism, such as Smith’s, are largely ignored. Throughout, William Dalrymple relies on primary sources that relates directly to the company’s dealings in British politics, Indian politics and international trade. Listing such areas of activity might suggest that an air of legitimacy surrounds this corporate presence, but rest assured, this company was involved in mass murder, assassination, exploitation, profiteering, deception, and the list could go on to become a rogues’ gallery of transgression. People who doubt this analysis are free to remind themselves of Smith’s published opinion in 1770 that this, the only extant multinational corporation at the time, represented the anathema of free trade, competition or economic health, and the epitome of corruption, deception and graft, and this from the person who extolled the concept of free trade.

Two particular points lodge in the memory after reading this book. The first is a simple number, one half. There was a time in the early nineteenth century when half of Britain’s wealth - there were no GDP figures then of course - was derived from this company’s activity. They were selling drugs into China at the time and it was lucrative, despite their having to fight wars against the Chinese state to retain the right to do so. The second is the role the company played in the creation, for that can be the only word, of the Bengal famine, which was the greatest famine recorded in India’s history. Let’s ignore the firing of people out of cannon, double dealing and deception, alongside the expected naked exploitation and personal profiteering, all of which had their impact on the politics and economy of the United Kingdom, as well.

Anyone thinking that this might be a dry, over detailed, desiccated analysis of history should ignore their fears and be enlightened by this book. The Anarchy is a complete eye-opener to colonial history, the origins of wealth in our colonial societies and the consequences for the colonies. It should be read by everyone, especially those people who might admit even a residual pride in Britain’s Imperial past.

Capital and Ideology by Thomas Piketty

 

Thomas Piketty’s Capital and Ideology is a monumental achievement. Its scope is vast, its size is daunting, its scholarship and vision both quite breath-taking on every one of its 1000-plus pages. Ostensibly, it claims to be an analysis of the origins, politics and economics of inequality, but it goes considerably deeper and further than its brief. This work is nothing less than a snapshot of global economic history and politics taken at the time of writing. Though the historical element might be seen in different forms via the lenses of centuries and assumed perspectives, the book’s analysis of current political issues was always going to be subject to faster change.  I doubt whether Thomas Piketty himself would have predicted that, just a few months after his work’s publication, the global economic and political landscape would be redrawn by a new, microscopic virus. But that is exactly what has happened. And, given the effects on wealth and asset distribution the author attributes to the capital-destroying wars that dictated the history of the twentieth century, one wonders what a post-Covid analysis of the mechanisms that create and maintain inequality might look like. One suspects that the political prescriptions in the book’s last chapter may just, out of sheer necessity, have been rendered more likely.

Capital in the Twenty-First Century charted the origins and extent of inequality in human societies. Capital and Ideology follows on by examining current and historical circumstances and mechanisms that determine its extent and influence its propagation. The book charts comparisons of inequality across countries, continents, cultures and eras. In doing so, its author uses much more than statistical comparisons. Historical and cultural perspectives are offered. Economic analyses are suggested. Crucially, societal structures are analysed, especially those of triumvirate societies, where the ownership of religious, scientific and military power provide the justification and the means of establishing and maintaining skewed ownership of assets. Though the book covers much ground, many different civilizations, locations and eras, the overall analytical focus is never lost.

A criticism of such an achievement may seem petty, but the book could have profitably dealt with one of its weaknesses much earlier. A constantly aired opinion of Thomas Piketty’s work is that, like all socialists, he wants everyone to be the same, to compress all to the same lowest common denominator. This, the criticism continues, would stifle creativity and drive in any society that tried to implement his recommended policies or even tried to address the obvious and growing inequality caused by market capitalism. Readers of Capital and Ideology, however, will have to wait until the book’s last chapter before reading this passage.

“A just society is one that allows all of its members access to the widest possible range of fundamental goods. Fundamental goods include education, health, the right to vote, and more generally to participate as fully as possible in the various forms of social, cultural, economic, civic, and political life. A just society organizes socioeconomic relations, property rights, and the distribution of income and wealth in such a way as to allow its least advantaged members to enjoy the highest possible life conditions. A just society in no way requires absolute uniformity or equality. To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices or permit improvement of the standard of living and expansion of the opportunities available to the disadvantaged, they may be considered just. But this must be demonstrated, not assumed, and this argument cannot be invoked to justify any degree of inequality whatsoever, as it too often is.”

Let’s juxtapose this quote from page 967 of Thomas Piketty’s book with the following: “Above all, we will listen to the people who have felt left behind by the last few decades of economic growth and want to have control of their future. (We) will give the public services the resources they need, supporting our hospitals, our schools and our police. We will help people and families throughout their lives…” This latter passage is quoted verbatim from the webpage of the British Conservative Party, from the manifesto upon which they fought their successful campaign for the 2019 election, an election where an unprecedented number of voters from disadvantaged communities (largely as a result of previous Conservative governments’ priorities) opted to vote for the party in the hope they would honour a promise to “level up” the country. There seems to be electoral kudos in levelling, despite the opinion of right-wing politicians who extol the need for libertarian individualism married to economically deregulated separatism. Thomas Piketty analyses such tendencies and offers a paradigm to explain these shifting political alliances.

Capital and Ideology is the perfect text for anyone needing an update on the world. It has so many succinct and pertinent analyses that even a list of its insights would be a tome in itself. Some examples will suffice.

For instance, if anyone finds it hard to understand why certain elite groups from Western democracies might now be sympathetic towards Putin’s Russia, Thomas Piketty can enlighten.

“It is important to note that it is very difficult to measure and analyse income and wealth in postcommunist Russia because the society is so opaque. This is due in large part to decisions taken first by the government headed by Boris Yeltsin and later by Vladimir Putin to permit unprecedented evasion of Russian law through the use of offshore entities and tax havens. In addition, the postcommunist regime abandoned not only any ambition to redistribute property but also any effort to record income or wealth. For example, there is no inheritance tax in postcommunist Russia, so there are no data on the size of inheritances. There is an income tax, but it is strictly proportional, and its rate since 2001 has been just 13 percent, whether the income being taxed is 1000 rubles or 100 billion rubles.”

When this is placed alongside the fact that Europe in general and the European Union in particular is a global outlier in the extent of its greater equality of wealth and income and we can see immediately why the libertarian, individualists of the political right, who for example favour Brexit for the United Kingdom, might also cast an envious glance towards Russia’s largely unregulated treatment of wealth, no matter how it was amassed.

Thomas Piketty offers numerous such insights. He analyses India’s castes, charts the French Revolution, analyses politics in the USA and takes long hard looks at colonialism and empires. And what is more, all of this is accomplished with transparency and fluidity, so that at no stage does a reader feel presented with a mere list. The analysis of current political strands is particularly enlightening.

Piketty rejects the term “populism” as meaningless. He prefers to use “identitarian” to describe the tendency for many voters in democracies to retreat behind promised protectionism and fortified borders to exclude foreigners. In doing so, he sums up both cause and effect in a single idea, a summary that is both more accurate and more enlightening than “populism” in terms of understanding the political direction being followed. But he goes beyond description and offers analysis of motives. He cites, for example, evidence relating to Poland and Hungary, both of whom currently have governments that have displayed tendencies to restrict freedom or roll back liberalism, even to the extent that they are at odds with a European Union they were once eager to join. Many observers are perplexed by this phenomenon, noting that both countries have benefitted hugely from European development aid and inward investment. Piketty’s analysis, however, examines net transfers and finds that for both countries, capital flow has consistently been out of the country and towards Europe’s epicentres of wealth. And electorates are aware of this bloodletting. The only solution, he maintains, is greater political integration, not less.

He analyses politics in the USA, though obviously not in great depth. He does, however, make enlightening points about race to illustrate how the Democrats became transformed from the party of southern slavery to the natural home of the “ethnic” vote. It is a process that happened over a century, from the Civil War, when the Republicans were the champions of opposition to slavery through the New Deal and into the late 1960s, when it was the Democrats who espoused civil rights.

The author spends much of the early part of the book identifying the structure of triumvirate societies, where a peasant majority is ruled by an alliance between warrior and priestly classes who, combined, rarely accounted for more than ten percent of the population. He then shows how this structure developed into proprietarianism, which preserved the right of the ruling classes to own property. This later evolved into capitalism when the owners of property increased the scale of operations and created industrialization. He makes a convincing case in relation to the political control claimed by an alliance of religion and sword that was used to justify and then preserve property ownership of the ruling minority. Piketty offers the following, again late in the book:

“I have defined proprietarianism as a political ideology based on the absolute defense of private property; capitalism as the extension of proprietarianism into the age of large-scale industry, international finance, and more recently to the digital economy. At bottom capitalism rests on the concentration of economic power in the hands of the owners of capital. In principle, the owners of real estate capital can decide to whom they wish to rent and at what price while the owners of financial and professional capital govern corporations according to the principle of “one share one vote”, which entitles them, among other things, to decide by themselves whom to hire and at what wage.”

And then there arose democracy and later war. It was not that wars had been unknown in the pre-modern era, but he suggests that the industrialization of war after the dawn of the modern era rendered it more thoroughly and extensively destructive than it had previously been. Because of its destruction of property and the creation of debt via interruption of economic life, war threatened proprietarian societies in a way they had never before experienced. Democracy also threatened ownership directly unless it could be manipulated, of course, and both of these threats to the classes born to own had to be managed. Ownership had previously coped with war losses, the twice national income debt in Britain after the Napoleonic Wars, for instance, having been turned to the owners’ advantage by the issuing of bonds their capital bought and a century of poor people’s contributions rendered lucrative to their owners via interest and redemptions.

Democracy posed a new type of challenge to the owners of assets, and still does. So, to explain how systems of inequality can be maintained after everyone, at least in theory, has an equal say, Thomas Piketty needs to examine in detail how politics have changed over the last century. He now finds there exist four almost equally popular political ideologies. He writes:

“In 2017, 21 percent of voters could be classified as “egalitarian internationalists” (pro-immigrant, pro-poor); 26 percent are “inegalitarian nativists” (anti-immigrant, pro-rich); 23 percent are “inegalitarian internationalists” (pro-immigrant, pro-rich), and 30 percent are “egalitarian nativists” (anti-immigrant, pro-poor).”

Furthermore, he finds that there is now a tendency for there to develop an alliance between the two factions of nativism, an alliance that does not challenge property rights.

And, crucially, he finds that the social democrat model that made significant inroads into inequality in the middle of the twentieth century has now been transformed into an ideology of a Brahmin-like educated elite, leaving the votes of the losers in the distribution of wealth to be hoovered into an identitarian trap by the owners of an increasing share of property. This, in essence, is not dissimilar in character to the concept of false consciousness that Marxists find they have to apply in order to explain why masses of people regularly vote or act against their own interests. Here, Thomas Picketty offers a rational mechanism and a convincing argument by which false consciousness can be cultivated and exploited, an approach which does not fall into the distasteful trap of branding poorer people merely stupid.

There is so much in Capital and Ideology that it is almost impossible to review. Reading it comes close to a life-changing experience. Please do read it. Do persevere with its length. Take it at a steady pace and read something else, something contrasting, alongside. Readers will immediately and repeatedly find themselves amazed at the scholarship, the revelations and the rationality of the book’s argument. Anyone interested in our own times should regard it as essential reading. The presence of a virus, however, probably demands a companion volume, since the political and economic landscape is now surely transformed, just like war ripped up its design a century ago.

Eventually, Thomas Piketty champions the politics of social democracy as the solution to growing inequality and, eventually, environmental degradation. He cites the example of Sweden, in that:

“it shows that inequality is not the product of some essential cultural predisposition: in the space of a few years Sweden moved from the most extreme hyper-inegalitarian proprietarian system, which survived until 1909-11, to a quintessential egalitarian social-democratic society once SAP came to power in the 1920s and then ruled almost continuously from 1932 to 2006.”

With the right policies and crucially an end to the retreat into identitarian separatism, the author sees a future where, during an individual lifetime, people can be as entrepreneurial and as successful as they like, but where tax systems and inheritance management ensure the recirculation of wealth and capital to ensure it does not become the permanent property of an ever-smaller elite. A still far from perfect Europe is the example, while the libertarian, identitarian deregulators pose the threat.

Capital and Ideology by Thomas Piketty

Thomas Piketty’s Capital and Ideology is a monumental achievement. Its scope is vast, its size is daunting, its scholarship and vision both quite breath-taking on every one of its 1000-plus pages. Ostensibly, it claims to be an analysis of the origins, politics and economics of inequality, but it goes considerably deeper and further than its brief. This work is nothing less than a snapshot of global economic history and politics taken at the time of writing. Though the historical element might be seen in different forms via the lenses of centuries and assumed perspectives, the book’s analysis of current political issues was always going to be subject to faster change.  I doubt whether Thomas Piketty himself would have predicted that, just a few months after his work’s publication, the global economic and political landscape would be redrawn by a new, microscopic virus. But that is exactly what has happened. And, given the effects on wealth and asset distribution the author attributes to the capital-destroying wars that dictated the history of the twentieth century, one wonders what a post-Covid analysis of the mechanisms that create and maintain inequality might look like. One suspects that the political prescriptions in the book’s last chapter may just, out of sheer necessity, have been rendered more likely.

Capital in the Twenty-First Century charted the origins and extent of inequality in human societies. Capital and Ideology follows on by examining current and historical circumstances and mechanisms that determine its extent and influence its propagation. The book charts comparisons of inequality across countries, continents, cultures and eras. In doing so, its author uses much more than statistical comparisons. Historical and cultural perspectives are offered. Economic analyses are suggested. Crucially, societal structures are analysed, especially those of triumvirate societies, where the ownership of religious, scientific and military power provide the justification and the means of establishing and maintaining skewed ownership of assets. Though the book covers much ground, many different civilizations, locations and eras, the overall analytical focus is never lost.

A criticism of such an achievement may seem petty, but the book could have profitably dealt with one of its weaknesses much earlier. A constantly aired opinion of Thomas Piketty’s work is that, like all socialists, he wants everyone to be the same, to compress all to the same lowest common denominator. This, the criticism continues, would stifle creativity and drive in any society that tried to implement his recommended policies or even tried to address the obvious and growing inequality caused by market capitalism. Readers of Capital and Ideology, however, will have to wait until the book’s last chapter before reading this passage.

“A just society is one that allows all of its members access to the widest possible range of fundamental goods. Fundamental goods include education, health, the right to vote, and more generally to participate as fully as possible in the various forms of social, cultural, economic, civic, and political life. A just society organizes socioeconomic relations, property rights, and the distribution of income and wealth in such a way as to allow its least advantaged members to enjoy the highest possible life conditions. A just society in no way requires absolute uniformity or equality. To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices or permit improvement of the standard of living and expansion of the opportunities available to the disadvantaged, they may be considered just. But this must be demonstrated, not assumed, and this argument cannot be invoked to justify any degree of inequality whatsoever, as it too often is.”

Let’s juxtapose this quote from page 967 of Thomas Piketty’s book with the following: “Above all, we will listen to the people who have felt left behind by the last few decades of economic growth and want to have control of their future. (We) will give the public services the resources they need, supporting our hospitals, our schools and our police. We will help people and families throughout their lives…” This latter passage is quoted verbatim from the webpage of the British Conservative Party, from the manifesto upon which they fought their successful campaign for the 2019 election, an election where an unprecedented number of voters from disadvantaged communities (largely as a result of previous Conservative governments’ priorities) opted to vote for the party in the hope they would honour a promise to “level up” the country. There seems to be electoral kudos in levelling, despite the opinion of right-wing politicians who extol the need for libertarian individualism married to economically deregulated separatism. Thomas Piketty analyses such tendencies and offers a paradigm to explain these shifting political alliances.

Capital and Ideology is the perfect text for anyone needing an update on the world. It has so many succinct and pertinent analyses that even a list of its insights would be a tome in itself. Some examples will suffice.

For instance, if anyone finds it hard to understand why certain elite groups from Western democracies might now be sympathetic towards Putin’s Russia, Thomas Piketty can enlighten.

“It is important to note that it is very difficult to measure and analyse income and wealth in postcommunist Russia because the society is so opaque. This is due in large part to decisions taken first by the government headed by Boris Yeltsin and later by Vladimir Putin to permit unprecedented evasion of Russian law through the use of offshore entities and tax havens. In addition, the postcommunist regime abandoned not only any ambition to redistribute property but also any effort to record income or wealth. For example, there is no inheritance tax in postcommunist Russia, so there are no data on the size of inheritances. There is an income tax, but it is strictly proportional, and its rate since 2001 has been just 13 percent, whether the income being taxed is 1000 rubles or 100 billion rubles.”

When this is placed alongside the fact that Europe in general and the European Union in particular is a global outlier in the extent of its greater equality of wealth and income and we can see immediately why the libertarian, individualists of the political right, who for example favour Brexit for the United Kingdom, might also cast an envious glance towards Russia’s largely unregulated treatment of wealth, no matter how it was amassed.

Thomas Piketty offer numerous such insights. He analyses India’s castes, charts the French Revolution, analyses politics in the USA and takes long hard looks at colonialism and empires. And what is more, all of this is accomplished with transparency and fluidity, so that at no stage does a reader feel presented with a mere list. The analysis of current political strands is particularly enlightening.

Piketty rejects the term “populism” as meaningless. He prefers to use “identitarian” to describe the tendency for many voters in democracies to retreat behind promised protectionism and fortified borders to exclude foreigners. In doing so, he sums up both cause and effect in a single idea, a summary that is both more accurate and more enlightening than “populism” in terms of understanding the political direction being followed. But he goes beyond description and offers analysis of motives. He cites, for example, evidence relating to Poland and Hungary, both of whom currently have governments that have displayed tendencies to restrict freedom or roll back liberalism, even to the extent that they are at odds with a European Union they were once eager to join. Many observers are perplexed by this phenomenon, noting that both countries have benefitted hugely from European development aid and inward investment. Piketty’s analysis, however, examines net transfers and finds that for both countries, capital flow has consistently been out of the country and towards Europe’s epicentres of wealth. And electorates are aware of this bloodletting. The only solution, he maintains, is greater political integration, not less.

He analyses politics in the USA, though obviously not in great depth. He does, however, make enlightening points about race to illustrate how the Democrats became transformed from the party of southern slavery to the natural home of the “ethnic” vote. It is a process that happened over a century, from the Civil War, when the Republicans were the champions of opposition to slavery through the New Deal and into the late 1960s, when it was the Democrats who espoused civil rights.

The author spends much of the early part of the book identifying the structure of triumvirate societies, where a peasant majority is ruled by an alliance between warrior and priestly classes who, combined, rarely accounted for more than ten percent of the population. He then shows how this structure developed into proprietarianism, which preserved the right of the ruling classes to own property. This later evolved into capitalism when the owners of property increased the scale of operations and created industrialization. He makes a convincing case in relation to the political control claimed by an alliance of religion and sword that was used to justify and then preserve property ownership of the ruling minority. Piketty offers the following, again late in the book:

“I have defined proprietarianism as a political ideology based on the absolute defense of private property; capitalism as the extension of proprietarianism into the age of large-scale industry, international finance, and more recently to the digital economy. At bottom capitalism rests on the concentration of economic power in the hands of the owners of capital. In principle, the owners of real estate capital can decide to whom they wish to rent and at what price while the owners of financial and professional capital govern corporations according to the principle of “one share one vote”, which entitles them, among other things, to decide by themselves whom to hire and at what wage.”

And then there arose democracy and later war. It was not that wars had been unknown in the pre-modern era, but he suggests that the industrialization of war after the dawn of the modern era rendered it more thoroughly and extensively destructive than it had previously been. Because of its destruction of property and the creation of debt via interruption of economic life, war threatened proprietarian societies in a way they had never before experienced. Democracy also threatened ownership directly unless it could be manipulated, of course, and both of these threats to the classes born to own had to be managed. Ownership had previously coped with war losses, the twice national income debt in Britain after the Napoleonic Wars, for instance, having been turned to the owners’ advantage by the issuing of bonds their capital bought and a century of poor people’s contributions rendered lucrative to their owners via interest and redemptions.

Democracy posed a new type of challenge to the owners of assets, and still does. So, to explain how systems of inequality can be maintained after everyone, at least in theory, has an equal say, Thomas Piketty needs to examine in detail how politics have changed over the last century. He now finds there exist four almost equally popular political ideologies. He writes:

“In 2017, 21 percent of voters could be classified as “egalitarian internationalists” (pro-immigrant, pro-poor); 26 percent are “inegalitarian nativists” (anti-immigrant, pro-rich); 23 percent are “inegalitarian internationalists” (pro-immigrant, pro-rich), and 30 percent are “egalitarian nativists” (anti-immigrant, pro-poor).”

Furthermore, he finds that there is now a tendency for there to develop an alliance between the two factions of nativism, an alliance that does not challenge property rights.

 

And, crucially, he finds that the social democrat model that made significant inroads into inequality in the middle of the twentieth century has now been transformed into an ideology of a Brahmin-like educated elite, leaving the votes of the losers in the distribution of wealth to be hoovered into an identitarian trap by the owners of an increasing share of property. This, in essence, is not dissimilar in character to the concept of false consciousness that Marxists find they have to apply in order to explain why masses of people regularly vote or act against their own interests. Here, Thomas Piketty offers a rational mechanism and a convincing argument by which false consciousness can be cultivated and exploited, an approach which does not fall into the distasteful trap of branding poorer people merely stupid.

There is so much in Capital and Ideology that it is almost impossible to review. Reading it comes close to a life-changing experience. Please do read it. Do persevere with its length. Take it at a steady pace and read something else, something contrasting, alongside. Readers will immediately and repeatedly find themselves amazed at the scholarship, the revelations and the rationality of the book’s argument. Anyone interested in our own times should regard it as essential reading. The presence of a virus, however, probably demands a companion volume, since the political and economic landscape is now surely transformed, just like war ripped up its design a century ago.

Eventually, Thomas Piketty champions the politics of social democracy as the solution to growing inequality and, eventually, environmental degradation. He cites the example of Sweden, in that:

“it shows that inequality is not the product of some essential cultural predisposition: in the space of a few years Sweden moved from the most extreme hyper-inegalitarian proprietarian system, which survived until 1909-11, to a quintessential egalitarian social-democratic society once SAP came to power in the 1920s and then ruled almost continuously from 1932 to 2006.”

With the right policies and crucially an end to the retreat into identitarian separatism, the author sees a future where, during an individual lifetime, people can be as entrepreneurial and as successful as they like, but where tax systems and inheritance management ensure the recirculation of wealth and capital to ensure it does not become the permanent property of an ever-smaller elite. A still far from perfect Europe is the example, while the libertarian, identitarian deregulators pose the threat.

 

An Inquiry into the Permanent Causes of Decline and Fall of Powerful and Wealthy Nations by William Playfair.

Perhaps the less said the better… It’s long, at least we can all agree there. He seems to have a problem with selling things on credit… He also seems to be incapable of imagining a circumstance whereby a growing United States might just outgrow UK not only in size but also economic capability. He sees the growth of the US as a means of assuming the continued dominance of UK manufactures for decades to come. Maybe he was right. On the whole, however, neither an edifying read, nor a memorable one.

It may be a big work, but it richly deserves its thin reputation.

Capital In The Twenty First Century by Thomas Picketty

A review of Capital In The Twenty First Century would itself have to be a book, so let this be a mere reflection on some of Thomas Picketty’s wealth of material. And there is no better place to start than his startling demonstration of how little changes in the structure of the ownership of wealth, unless war intervenes. Furthermore, his demonstration that things are getting back to ‘normal’ after the twin conflict shocks of the twentieth century’s World Wars could, unless tempered by resigned realism, easily provoke depression in the reader. Thomas Picketty’s book ought to be required reading for anyone – certainly anyone who happens tp be British – who benefitted from the social mobility available in the 1950s to 1970s. We have tended to blame the 1944 Education Act for providing the abnormal conditions that led to a measurable, albeit temporary, decrease in inequality. But Thomas Picketty sets the record straight by clarifying that it was merely a result of the aberrations of war, which for a few decades weakened the power of capital. Normal service has since been resumed.

Picketty desribes how unevenly capital is distributed, especially in the developed societies. Typically, half of the population owns nothing, while the top ten per cent has about half of the wealth. For Picketty, capital means fixed assets that could potentially be traded, whose ownership can be bought and sold. It includes fixed assets, property, equity or cash, and excludes all forms of human capital, which may be an asset and may have value, but, he argues, its ownership can only be traded in slave societies, which now do not exist. He considers capital distribution and income distributions separately, however, so at least an element of human capital is represented in the latter. He observes that income is always more evenly distributed than fixed capital, with the top ten per cent receiving just 25 to 30 per cent of total incomes. As a consequence, if there has been any shift in the identity of the capital-owning elite in recent decades, then this has come about at least in large part as a result of the very highly remuneration available to certain professions at the very top of the income ladder. The phenomenon has also resulted in an increase in inequality observed in developed societies during recent decades, especially in the USA and United Kingdom. Inequality continues to increase.

One of Picketty’s fundamental laws is that capital always grows faster than the wider economy. Thus success via earning power inevitably leads to a graduation into the rentier class, a transformation that is needed if newly acquired status is to be consolidated. Furthermore, if the inequality stating that capital growth is greater than economic growth holds true, it implies that even the advantages of growth in the general economy will also eventually accrue to the owners of capital.

Historically, economic growth has been strongly associated with increasing population. Without the demographic element, economies have consistently attained no more than around two per cent growth. Two per cent is still a significant rate if maintained. But spurts in growth come with spurts in population. The opposite is also likely to be true, which in itself allows some facets of the current world economy to be seen in more informative light. Population surges produce economic surges, however, and this comes as no surprise. What does surprise a little is Picketty’s assertion, perhaps assumption, that since France experienced population growth before other developed societies, then we must all look to France as the setter of the international economic agenda, the historic standard, if you like, that others followed.

Another historical reality that shows up very clearly in his data is the effect of foreign earnings throughout the nineteenth century and through World War One. These “invisibles”, as they have sometimes been labelled, were simply the profits from colonialism and slavery. They financed deficits, borrowing and consumption at the heart of the empires from which they were drawn. In the modern world, he points out, there is perhaps a greater degree of foreign ownership of capital than ever before, but the benefits and capital transfers are two-way, as are the benefits, and thus net transfers are small.

This history is illustrated in economic data. He cites a number of cases where an imperial power, having amassed large debts after periods of conflict or downturn, managed to earn five per cent or more of its national income from invisibles, thus allowing the country in question to service debts that otherwise would have been crippling. In the modern world, crucially, this get-out-of-jail card is perhaps no longer available.

One aspect of Picketty’s analysis does surprise us. Throughout the book he uses fiction as a source of illustration, a source that will cause many an academic reader of the text to pause and wonder. Picketty often cites examples from Balzac, Austen and others to illustrate general points about the behaviour of capital. The process, though highly selective and, it must be said, apocryphal, does eventually convince, but it is the novelists that eventually shine through, not the economic model. His argument, which he claims is illustrated so clearly in nineteenth century fiction, is that it is always more likely that capital will be inherited or indeed married rather than earned. The endless machinations associated with finding a suitable marriage partner for eligible females in nineteenth century fiction are mere recognition that it is easier to marry money than earn it, capital growth being always lower than economic growth.

If Capital In The Twenty First Century can be criticised, then it is in its rather scant, even dismissive coverage of human capital. Yes, this becomes absorbed into income data. But the author does maintain that  “democratic modernity is founded on the belief that inequalities based on individual talent and effort are more justified than other inequalities – or at least we hope to be moving in that direction.” He contrasts this belief with a Balzac character who foregoes the chance of studying law in order to seek marriage to a fortune, and then asks who would do such a thing today?

Now if credentials as well as skills obtained by participants in education do develop human capital, even if this is only reflected in increased earnings, then access to high quality education is needed before these skills and credentials are attainable. It might even be argued that now the educational experience is not only sufficient for capital advancement but also necessary, since even the opportunity to wed capital may hinge on the attainment or not of educational levels that are preconditions for entering that particular market.

And so if education has become just another commodity offered via a market, then the cost of accessing the most highly developed and effective delivery systems will rise, since these are the most effective means of securing access to capital, whether via earnings or marriage. Such costs will also rise since, having become a market, educational demand will be highest from those with a need to protect their existing ownership of capital, and they have the resources to pay for what they need. Education thus becomes a means of confirming and re-asserting wealth, rather than a potential avenue for social mobility. Perhaps today it is still easier to marry wealth than earn it. Except that today the option of marriage may be determined by an educational credential that can most effectively be secured by existing access to wealth.

This argument, it seems, closes the loop and illustrates how, even in a materialistic society, capital will always grow faster than the economy as a whole and why inequality will not only persist, but increase.

No book review should concentrate on what a book is not. So as a final note let me describe Thomas Picketty’s book as essential reading for anyone with a brain. If you can disprove its analysis empirically, rather than merely deny its significance on ideological grounds, then please present your data. If you can’t, then join the call for policies that will attempt to address the destructive imbalances that result in growing inequality. It must be remembered that, underpinning Capital In The Twenty First Century is a need to examine whether a certain text called Capital in the nineteenth century contained a grain of truth in asserting that eventually the capitalist system would collapse under pressure of its own inevitable imbalances. The conclusion appears to have been demonstrated, and the case for re-reading that other book is thus made.

Adam Smith: An Inquiry Into The Nature And Causes Of The Wealth Of Nations

Proverbially, the horse’s mouth is always the best source. Academically, primary material is usually the most reliable. So now what is to be found by revisiting a major work of the past, a work whose current iconic status has provided a multiplicity of quotes and endless justification of current positions? In the case of Adam Smith’s An Inquiry Into The Nature And Causes Of The Wealth Of Nations, what can be gained now from revisiting the text is enlightenment, a great deal of surprise and yet another realisation that when sophistication is reduced to mere icon, it is often not only the detail that is lost.

Written in 1776, less than 70 years after the Act of Union that created Great Britain out of England and Scotland, and during the American Revolution, Smith’s book analysed the history of economic and commercial relations at the very start of Britain’s industrial transformation. Britain’s colonial expansion was under way, while the empires of Portugal and Spain were already long established. Wars with the Dutch had been fought and won to establish trading supremacy, the East India Company had monopolised the Asia trade and had as a result become the de facto ruler of India. The British had already become a nation of tea drinkers.

In the economics and politics of the twenty-first century, Adam Smith’s Wealth Of Nations is more usually associated with the politics of the right, associated with calls for free trade and demands that governments withdraw as far as possible from commercial interchange, an activity that is regarded as capable of regulating itself. And this position is asserted despite the fact that much of today’s trade is in the hands of corporations that are often larger than some of the governments that are criticised by corporate apologists for their meddling. So dominant is this thumbnail sketch of The Wealth Of Nations that a general reader may assume there is no profit in revisiting the text to seek new experience. Such a general reader would be wholly wrong, since this much quoted work is full of surprises.

The oft-quoted and more often assumed summary of Smith’s analysis – for that is precisely what this book represents – arises from the author’s repeated insistence on the albeit presumed existence of a “natural” order of things. Smith assumed that if left alone to find its own level, free of interference from interests capable of influencing the supply or price, then a traded good or service would inevitably gravitate towards natural levels of both consumption and price, the one obviously influencing the other via the familiar concept of demand. This natural level, however, could become distorted. For Smith, government influence via regulation, quota, taxation or, more commonly, monopoly, usually results in disrupted, artificial trade, its dysfunction as often a consequence of incompetence as it is because of inappropriate control. But what is not usually quoted from Smith’s work is that he often blames producer or merchant cartels for this counter-productive meddling as much as he does governments. Indeed, some of the most vehement and serious criticism in the Wealth Of Nations is reserved for commercial corporations, especially  The East India Company, a giant of contemporary international trade. Their corporate interest receives Smith’s blame for a whole host of ills, such as profiteering, distorting trade, creating surpluses and shortages and even causing famine. In addition, Smith was clearly no friend of those who populated chambers of trade or monopoly holdings of any kind, since all such interests could distort his “natural” markets.

Adam Smith was clearly in favour of both education and training. He saw education as being capable of developing skill, knowledge and sometimes wisdom. He recognised that different kinds of human labour would necessarily attract different rates of reward, since different skills and capabilities required different amounts of commitment to secure them. Effectively, he was recognising in his own language the existence of what we now call human capital.

The acquisition of such talents (the acquired and useful abilities of all the inhabitants and members of the society), by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. … The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.

Here then is human capital, but also recognition of education as an investment, both personal and societal. He also thus stated the labour theory of value.

The real value of all the different component parts of price … is measured by the quantity of labour which they can … purchase or command . Labour measures the value, not only of that part of price which resolves itself into labour, but of that which resolves itself into rent, and of that which resolves itself into profit. … In the price of corn, for example, one part pays the rent of the landlord, another pays the wages or maintenance of the labourers and labouring cattle employed in producing it, and the third pays the profit of the farmer.

Smith also differentiated clearly between the use value and the exchange value of a good . A hundred years later, Marx would begin Das Kapital with a similar analysis. Smith’s assertion that the tradable price of a good covered three areas of cost – labour, rent and profit – also opened up two important issues. A century later Marx would cite greed as a reason why those who controlled capital – the life-blood of trade – could seek to maximise the profit element of the cost of a good, a practice that would inevitably lead to the increased exploitation of the labour involved, since their contribution to the cost could be controlled, even depressed. And in Smith’s own analysis the likely effects of price rises in a good would be to put up rents, thus eventually benefiting landlords and landowners. Thus even in Smith’s work, those who represented the more powerful interests would be the ones to reap the lion’s share of the benefits of trade, even the lion’s share of growth in the economy or expansion of trade.

Smith saw business owners as a group as nothing less than likely conspirators in raising prices. He stated this quite explicitly.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

He also warns against charitable intentions, especially ones where those with commercial interest participate or organise, since these often offer justification for the gatherings where interested parties could meet and conspire.

A regulation which enables those of the same trade to tax themselves, in order to provide for their poor, their sick, their widows and orphans, by giving them a common interest to manage, renders such assemblies necessary

So that is why, despite their laudable aims and significant achievements, we eventually do not trust movements such as freemasons, lions, rotaries or charitable endeavours funded by corporate riches.

Smith does recognise that workers might organise to drive up the cost of labour, just as owners certainly do conspire to raise profits.  He repeatedly, however, cites the existence of an imbalance of power in this apparently competitive relationship between owners and workers. Governments often legislate against trade unions, but rarely act to curb profiteering. We hear, he says, of every attempt to organise labour, but usually nothing of corporate conspiracy.

We have no acts of parliament against combining to lower the price of work, but many against combining to raise it.

Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this (natural) rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people. Such combinations , however, are frequently resisted by a contrary defensive combination of the workmen, who sometimes , too, without any provocation of this kind, combine, of their own accord, to raise the price of their labour. Their usual pretences are, sometimes the high price of provisions, sometimes the great profit which their masters make by their work. But whether their combinations be offensive or defensive, they are always abundantly heard of.

Smith seems to link the concept of “natural” to transactions between individuals and organisations of only moderate size, ones that are capable of influencing only a minuscule fraction of the overall trade in a good. Perhaps the largest trading group of his time was the East India Company, but this organisation he usually associates with incompetence or conspiracy or both. The problem with this contemporary corporate giant was twofold: its monopolistic advantage and its proximity to political power. The company, indeed, was the de facto ruler of India and, over two hundred years before Amartya Sen suggested via the concept of entitlement, that famines can operate selectively and often in times of plenty, Smith suggested that famines in India were largely a result of maladministration driven primarily by greed.

The drought in Bengal, a few years ago, might probably have occasioned a very great dearth. Some improper regulations, some injudicious restraints, imposed by the servants of the East India Company upon the rice trade, contributed, perhaps, to turn that dearth into a famine. …

….famine has never arisen from any other cause but the violence of government attempting, by improper means, to remedy the inconveniencies of a dearth. …

In an extensive corn country, between all the different parts of which there is a free commerce and communication, the scarcity occasioned by the most unfavourable seasons can never be so great as to produce a famine; and the scantiest crop, if managed with frugality and economy, will maintain, through the year, the same number of people that are commonly fed in a more affluent manner by one of moderate plenty. …

Such exclusive companies, therefore, are nuisances in every respect; always more or less inconvenient to the countries in which they are established, and destructive to those which have the misfortune to fall under their government.

Smith’s analysis of empire, or the colonies, as contemporary language would have labelled it, suggested that the home country, at the centre of the empire, should offer administration for and representation of all of its constituent parts. He suggests this not to assert power, but to ensure even treatment of subjects.

Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies. …

But there was no doubt that those involved in the colonies should be represented in the political system at home. …

The assembly which deliberates and decides concerning the affairs of every part of the empire, in order to be properly informed, ought certainly to have representatives from every part of it. …

It must be remembered that the American colonies were already in revolt, so this was a politically difficult stance to take at the time, especially since one of the fundamental differences between the home country and the colonies concerned representation. Smith did, however, distinguish between the civilised and the savage inhabitants of the empire, so let us not be too carried away with the apparent modernity of much of the ideas. One must assume that his franchise would only have extended to the settlers.

He was in no doubt that technology could innovate.

There is scarce a common trade, which does not afford some opportunities of applying to it the principles of geometry and mechanics, and which would not, therefore, gradually exercise and improve the common people in those principles, the necessary introduction to the most sublime, as well as to the most useful sciences.

And the concept of modernisation, at least as applied to the reduction of the power of existing structures, notably regent and church, was something he supported.

In the state in which things were, (previously), the constitution of the church of Rome may be considered as the most formidable combination that ever was formed against the authority and security of civil government, as well as against the liberty, reason, and happiness of mankind, which can flourish only where civil government is able to protect them. In that constitution, the grossest delusions of superstition were supported in such a manner by the private interests of so great a number of people, as put them out of all danger from any assault of human reason; because, though human reason might, perhaps, have been able to unveil, even to the eyes of the common people, some of the delusions of superstition, it could never have dissolved the ties of private interest. Had this constitution been attacked by no other enemies but the feeble efforts of human reason, it must have endured for ever. But that immense and well-built fabric, which all the wisdom and virtue of man could never have shaken, much less have overturned, was, by the natural course of things, first weakened, and afterwards in part destroyed; and is now likely, in the course of a few centuries more, perhaps, to crumble into ruins altogether.

Read with care, this passage is found to suggest that dominant economic and political interest may only be challenged by some form of insurrection, though Smith clearly does not use the word “revolution”.

But overall, what will strike the twenty-first century reader of Smith’s Wealth Of Nations is its complete lack of polemic. This is not a political tract, and neither does it ever descend into propaganda. What will impress throughout is the author’s stated desire to research and present the facts, as they were able to be researched by him at the time. Yes, Smith makes assumptions about what is civilised and what is savage. He also assumes some state he calls “natural”, without ever really addressing a definition. Effectively he leaves us to conclude that this state is achieved by letting things happen without deliberate meddling. How there might be a trade in anything without human beings meddling in something is one of the great weaknesses in his analysis. Like Marx a century later, he seems unable to conceive of any sectional interest larger than the state. But he also believed that, when organisations achieve a size capable of challenging the state’s assumed supremacy, then they would use that power to serve their own sectional interests to the detriment of all others. We seem to have arrived at Marx again.

But, again like Marx in Das Kapital, Smith analyses the data available to him, conducts research, constructs argument and supplies copious illustrative detail. Much of his theory is based on historical records on the price of corn. This he sees as the singular subsistence that everyone must obtain and which, therefore, must contains within its price movements reflections of contemporary prosperity. Thus the pricing of a single commodity over the ages mirrors the fortunes of entire nations and economies. He even extends this to introduce a concept of inflation generated via increased money supply. When precious metals are repatriated from the colonies, especially to Spain and Portugal, he argues, then the availability of capital increases, and so the price of corn inflates. On even more up-to-date scenarios, Smith even analyses the operation of a traded secondary debt market. In the eighteenth century, this was manifest in the trading of credit notes from one bank to another, obtaining new short-term loans to pay off existing debts, when their due dates approached. 

Overall Adam Smith’s Wealth Of Nations, when taken in the original, surprises more often than it confirms. It is certainly not the polemic that it becomes when quoted in iconic form to justify contemporary neo-liberal or neo-conservative politics that it, itself, neither describes nor advocates. It does champion non-intervention, but it lists large corporate interests, those often championed by today’s political promoters of the work, as part of the problem, not the solution. As ever, the horse’s mouth is the best place to look and the nature of what we find there gives the lie to what issues from many professedly interested parties, who mouth the title as apparent justification for their own ideas, ideas that the book itself does not express.