Class Analysis: Marxian and Austrian Perspectives
[This article was originally submitted to the Austrian Economics Newsletter but is previously unpublished.]
While socialism and communism have now been thoroughly discredited, many still maintain that Karl Marx's social theories, at least, remain relevant. While grudgingly acknowledging that Marxian economics, in particular the labor theory of value, is neither original nor correct, Marx's defenders claim that his social analysis — in particular, his theory of class conflict — remains a real scientific contribution.
The famous and dramatic opening lines of the Communist Manifesto boldly state that
the history of all hitherto existing society is the history of class struggles…. Freeman and slave, patrician and plebeian, lord and serf, guildmaster and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight.
The "distinctive feature" of capitalism, they say, is that in contrast to the "complicated arrangement of society into various orders," the "manifold gradation of social rank" that characterized all "earlier epochs of history," the
epoch of the bourgeoisie … has simplified the class antagonisms. Society as a whole is more and more splitting up into two great hostile camps, into two great classes directly facing each other: bourgeoisie and proletariat.
According to Engels's notes to the 1888 edition, "bourgeois" refers to "capitalists, owners of the means of social production, and employers of wage laborers." Proletarians are defined as those "in the class of modern wage laborers who, having no means of production of their own, are reduced to selling their labor power in order to live."
The process by which capitalism simplifies class antagonisms is presented in detail in volume one of Capital. The bourgeoisie are able to pit worker against worker, thereby keeping wage rates at subsistence levels. And
The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save from extinction their existence as fractions of the middle class.
Their fight, however, is in vain: They are unable to compete with the large factories established by the capitalists. They go bankrupt and "are turned into proletarians." Thus, says Marx, "the other classes perish and disappear in the face of modern industry." In time, only two classes remain: the bourgeoisie, who "usurp and monopolize all advantages," and the proletariat, for whom "the mass of misery, oppression, slavery, degradation, [and] exploitation" continues to grow. Eventually, this class will become so numerous, and their misery so severe, that they will rise up and "expropriate the expropriators."
On the surface, Marx's definition of class is simple and clear. Yet its implications, as Marx himself came to realize, are devastating to his analysis. Marx assumed that those who owned or controlled the means of production were the rich and powerful, while those who sold their labor did so because they were weak and poor. While he acknowledged that these were "pure" types, Marx believed that as the capitalist system ran its course and the small and middle-class independent operators were gradually eliminated, the class system would become more and more pure.
In fact, the distinction between bourgeoisie and proletariat is neither clear nor simple. First, the characterization of the proletariat as those who work for a living and the bourgeoisie as those who hire others to work for them has an obvious and insidious implication: only one group in society, the proletariat, actually does any productive work, while the bourgeoisie live off or "exploit" the workers. Marx thereby reduces work to physical labor, glossing over the fact that income is earned by providing services to others, and that physical labor is merely one way of doing this. Nevertheless, Marx's definitional distinction between worker and owner was a master stroke of political propaganda.
Furthermore, Marx's taxonomy leads to some rather interesting peculiarities. Since the bourgeoisie are those who own the means of production and employ wage laborers, this would place the owner of the corner bakery or an automobile repair garage that employs one or two helpers into the same class as Donald Trump, John D. Rockefeller, and Andrew Carnegie. According to Marx's definition, all are members of the bourgeoisie or ruling class. Of course, it is doubtful that the former would travel in quite the same circles as the latter. Similarly, a sports celebrity like Michael Jordan, who earns many millions of dollars a year, would be a member of the downtrodden proletariat, since he "has been reduced to selling his labor power."
According to the Marxist taxonomy, Michael Jordan would be in the same class as the night janitor who vacuums office carpets and empties wastebaskets for a living. It is also interesting that a physician who has his own private practice and who employs a receptionist or a nurse is a member of the bourgeoisie. But if he sells his practice to take a more lucrative position as head surgeon at a major hospital, he is reduced to the ranks of the proletariat.
And how would one classify a lowly government bureaucrat? Since Marx claims that "the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie," and since the bureaucrat neither owns the tools of production nor employs wage laborers, he would seem to be an employee of the bourgeoisie and hence a member of the proletariat. But since his income is derived from taxes extracted from the workers, one could just as logically make the case that he is a member of the exploiting bourgeoisie.
Finally, Marx often describes the bourgeoisie solely in terms of their ownership of the means of production. But this would make a carpenter who owns a hammer a member of the ruling class.
Marx would almost certainly recoil from this sort of criticism, but it is fully consistent with his distinction between proletariat and bourgeoisie. The very absurdity of the distinction only highlights the inadequacy of this characterization of classes under capitalism.
Moreover, Marx predicted that capitalism would simplify the class system by squeezing out the middle class, leaving only the "two great antagonistic classes." In fact, Marx himself acknowledged that not only had the class system under capitalism grown more complicated, but also that, far from being eliminated, the middle class was actually getting larger. In his Theories of Surplus Value, Marx even has the temerity to chide Ricardo for failing to observe this trend. "What [Ricardo] failed to mention is the continual increase in the numbers of the middle classes … situated midway between the workers on the one side and the capitalists on the other."
And in his commentary on Thomas Malthus in the same work, Marx comments that Malthus's
greatest hope — which he himself considers more or less utopian — is that the middle class will grow in size and that the working class will form a continually diminishing proportion of the total population (even if it grows in absolute numbers). That is, in fact, the trend of bourgeois society.
While this runs exactly counter to the conclusions Marx himself draws from his own analysis, it is precisely what one would expect on the free market. Under capitalism there is a natural tendency for businesses to invest in areas with low wages, driving up those rates to a level commensurate with those in other areas, and inducing workers in low-paying jobs to migrate there. Similarly, as entrepreneurs invest in areas where profits are high, output expands and prices and profits in those areas tend to fall. Thus, far from squeezing out the middle class, the free market tends to eliminate extremes of wealth and poverty, thereby increasing the size of the middle class.
Marx was aware of the inadequacy of his class analysis, and in the last chapter of the third and final volume of Capital he returns to the problem. The chapter entitled "The Classes" is no more than a fragment, but Marx's intentions are clear. "The first question to be answered," he writes, "is this: What constitutes a class? And this follows naturally from another question, namely: What constitutes wage laborers, capitalists and landlords into three great social classes." At first glance, he continues,
it might seem that the identity of their revenues and their sources of revenue does that. They are three great social groups, whose component elements, the individuals forming them, live on wages, profit and ground-rent, or by the utilization of their labor-power, their capital, and their private land.
But this would be a mistake, because there is an "infinite division of interests and positions created by the social division of labor among laborers, capitalists and landlords."
What, then, constitutes a class? Curiously, Marx provides no answer. Instead, at the end of the manuscript, Engels, who compiled volume three from Marx's notes, inserted the line "Here the manuscript ends."
Marx's followers are clearly embarrassed by the fact that, as George Lukacs has put it, "Marx's chief work breaks off just as he is about to embark on the definition of class." Tom Bottomore, while noting that "the theory of social classes is at the center of Marx's thought," acknowledges that "the theory of modern social classes was not expounded systematically by Marx."
Stanislav Ossowski has noted that since the role of "class" is so central to Marx's analysis, "it is astonishing not to find a definition of this concept … anywhere in the works of either Marx or Engels." What they provided, he argues, is not so much a definition but a necessary condition for a definition. Just as defining a horse as an animal with four legs is incomplete (since all horses have four legs but not all animals with four legs are horses), defining class in terms of shared economic interests or a particular relationship to the means of production is necessary, but not sufficient, for a complete definition. Ossowski seems to be arguing that while all members of the bourgeoisie own a tool of production, not everyone who owns a tool is a member; all proletarians sell their labor, but not everyone who sells his labor belongs to the proletariat.
Interestingly, Ossowski maintains that "Marx left the problem of producing a definition of the concept of social class until much later. The manuscript of the third volume of his magnum opus, Das Kapital, breaks off dramatically at the moment Marx was about to answer the question: 'What constitutes a class?"' Unfortunately, Ossowski concludes, "we do not know what answer he would have given if death had not interrupted his work."
In fact, however, it was not death that interrupted Marx's work: The fragment on classes was actually written prior to the initial publication of volume one of Capital in 1867. Marx died in 1883. That he never returned to the fragment strongly suggests that he had no satisfactory theory of class. The placement of the fragment at the very end of volume three did, nonetheless, accomplish an important strategic objective: it insinuated that Marx did have an answer but was unable to get it down on paper before he died. Engels's placement of the fragment can therefore be seen as a deliberate attempt to cover up the fact that Marx had no valid, defensible definition of class.
Class analysis itself did not originate with Marx, but can be traced back at least to Adam Smith. In contrast to the Marxian doctrine, which assumes that both market and government are coercive institutions, Smith and his followers maintained that while government, with its monopoly on the use of force, was coercive, the market was a voluntary institution. In the market, the only "power" is the power to offer an exchange, and since anyone may reject an offer, every exchange must be to the benefit of all parties involved.
The implications of this insight are profound. The only way to make money on the free market is to produce what others want. The better one serves others, the more profit he earns; thus the market is grounded in mutual benefit and harmony of interests. This harmony, however, is transformed into conflict whenever government intervenes. If a business can get the government to keep out competitors, customers no longer have the ability to take their dollars elsewhere. Then, and only then, are companies in a position to raise prices or turn out shoddy products.
In what we may call a libertarian class analysis, exploitation indeed exists, but it is the exploitation that results from the difference between free-market prices and regulated prices. Hence, exploitation is not restricted to capitalists, as is the case with Marxian analysis. Capitalists can exploit consumers through a protective tariff, and workers can exploit capitalists via minimum wages. In the latter case, some workers would also be exploiting others, as wealth is transferred from workers who lose their jobs as a result of the minimum wage to those who remain employed.
The key question is thus, who is likely to control government? The question is really an empirical one, and must be decided on a case-by-case basis. As a general rule, though, those most likely to control government are those with the easiest access, which usually means, as Adam Smith noted, the "rich and powerful."
Smith wrote The Wealth of Nations to refute the doctrine of mercantilism. Under mercantilism, monopolistic privileges are granted to a few favored firms, permitting them to sell at exorbitant prices while tariffs are enacted to exclude foreign competition. When a nation eliminates imports, it needs to establish its own exclusive colonies to obtain raw materials, so state power is naturally used to carve out and police the resulting colonial system.
Smith argues that the mercantilist system hurts not only those in the colonies but the workers in the mother country as well. Its sole beneficiaries, he adds, were the "rich and powerful." Colonists are required to buy from merchants in the mother country, at monopoly prices, and workers in the home country are taxed to defray the costs of administering the empire.
The effect of mercantilism, Smith maintained, was that "the interest of one little order of men in one country" was promoted at the expense of "the interests of all other orders of men in that country and of all other orders of men in all other countries." Smith proposed the replacement of mercantilism by a system of free trade. This logically entailed the abandonment of the entire colonial empire, and Smith did not shrink from drawing that conclusion.
Similar statements can be found in the writings of other early liberal thinkers like J.B. Say, Charles Comte, Charles Donoyer, and Frederic Bastiat in France; John Trenchard, Thomas Gordon (authors of Cato's Letters, so influential in the American colonies prior to the Revolution), Richard Cobden, and John Bright in England; and John Calhoun and William Leggett in America. Leggett, for example, wrote of New York City in the early 19th century, "Not a road can be opened, not a bridge can be built, not a canal can be dug, but a charter of exclusive privileges must be granted for the purpose.… The bargaining and trucking away [of] chartered privileges is the whole business of our lawmakers."
The distinction between market and government has remained at the core of libertarian thought. Ludwig von Mises, for example, wrote that "our age is full of serious conflicts of economic group interests. But these conflicts are not inherent in the operation of an unhampered capitalist economy. They are the necessary outcome of government policies interfering with the operation of the market.… They are brought about by the fact that mankind has gone back to group privileges and thereby to a new caste system." While this distinction between harmony and conflict, between mutual benefit and the benefit of one individual or group at the expense of another, between market and government, is systematically ignored in Marxian analysis, it is at the center of libertarian class analysis. It is unfortunate that class analysis is so closely associated with Marxism, for it has meant that libertarian class analysis has been largely ignored. This is unfortunate, since it is a sophisticated and powerful tool for analyzing society.