On Usury and Other Dishonest Profit, Part XXVIII

Before the advent of the Great Defunct Economist (Lord Keynes), the necessity for widespread ownership of the means of production was an idea almost universally accepted. The problem was how to bring it about. To take only one example, the 19th century political economist Charles Morrison explained the situation this way.

Referring to worker ownership as an application of the "principle of cooperation," he stated, "There is nothing in the principle inconsistent with the fundamental laws of industry. The expediency of applying it more extensively than is at present done, must be judged of by striking a balance between the advantages and the disadvantages which are likely to result from it in practice, as compared with the plan of remuneration rating the laborer by fixed wages." ("On Cooperation," An Essay on the Relations Between Labour and Capital, 1854) Morrison goes on to say,

The co-operative principle presents this advantage, that the participation of the workmen in profits tends to give them a motive for working with industry, and using their intelligence as well as their manual labor in promoting the improvement of the business. Each working man will have an interest in doing his own duty, and in seeing that every other workman does the same. In this way the men will have a motive for exercising a superintendence over one another; and a public opinion is likely to be created among the whole body in favour of diligence and good conduct. Another advantage which may be expected, is, that the community of interest which will exist to a certain degree in a co-operative association between capitalists and men, and in a more complete manner in an association of workmen alone, will tend to prevent or soften collisions and obstructions to the progress of the business, arising from the pretensions or passions of any of the parties concerned. (Ibid.)

There are, however, two problems associated with Morrison's analysis. One, he accepted the assertions in Thomas Malthus' 1797 Essay on Population as a given, even unquestioned dogma, although by 1854 they had been disproved not once, but many times over. As one economic historian described the situation, in words that apply equally well to the Keynesian paradigm and its insistence on the necessity of existing accumulations to finance capital formation,

The teaching of Malthus' Essay became firmly entrenched in the system of the economic orthodoxy of the time in spite of the fact that it should have been, and in a sense was, recognized as fundamentally untenable or worthless by 1803 and that further reasons for so considering it were speedily forthcoming. It became the "right" view on population, just as free trade had become the "right" policy, which only ignorance or obliquity could possibly fail to accept — part and parcel of the set of eternal truth that had been observed once for all. Objectors might be lectured, if they were worthy of the effort, but they could not be taken seriously. No wonder that some people, utterly disgusted at this intolerable presumption which had so little to back it began to loathe this "science of economics" quite independently of class or party considerations — a feeling that has been an important factor in that science's fate ever after. (Joseph Schumpeter, History of Economic Analysis, 1954, 581-582)

Two, Morrison accepted without question the necessity of existing accumulations of savings in financing capital formation. This is ironic, for it was Keynes' acceptance of the same disproved premise that led the Great Defunct Economist to exactly the opposite conclusion, that small ownership must be eliminated from the economy in the interests of greater efficiency and a more equitable distribution of effective demand. Note that Keynes defined "functionless investor" as someone who spends the income from capital on consumption rather than reinvestment. A "rentier" is a small investor who gains the bulk or entirety of his or her consumption income from capital. To do him justice, Keynes did not really advocate actual "mercy killing" of small investors. He was trying to be clever.

I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution. (General Theory, 1936, VI.24.ii)

Further, several refutations of the need for existing accumulations of savings to finance capital formation were widely available by 1854. The debates over Sir Robert Peel's Bank Charter Act of 1844 and especially the "Battle of the Bank" that resulted from Andrew Jackson's quarrel with Nathaniel Biddle and the Second Bank of the United States and the Specie Circular of 1836 had generated a vast body of literature on the subject. This was particularly so in that some economic historians credit the Specie Circular with causing "Hard Times," the depression of the late 1830s. Notable in this respect was the treatise by George Tucker, an American Congressman and political economist (who is also credited with being America's first science fiction writer under the pseudonym "Joseph Atterly), The Theory of Money and Banks Investigated (1839), a careful analysis of the validity of the "Real Bills" doctrine and a refutation of Andrew Jackson's theories on money and credit.

Morrison therefore saw only four ways in which ordinary workers could become owners of even a sub-economic ownership stake of capital:

One plan is, that the employer should find all the capital, paying to every workman a fixed rate of wages, as at present, and that any surplus which may remain after paying wages and expenses, and a certain rate of interest on capital, should be divided between the workmen and the employer.

Another course, which might be adopted where the workmen had some funds of their own, would be, that they should put these funds into the business, and thus become partners in respect of these funds, while they would receive wages for their labor as at present.

A third plan is, that the working men should associate themselves with a capitalist, who might be willing to become a sleeping partner in the business, leaving to them both the labor and the management, and dividing the proceeds with them.

A fourth is, that the working men should keep the entire business in their own hands, supplying the requisite capital either from their own funds, or by borrowing, or by a combination of both means. (Morrison, op. cit.)

Morrison's reliance on existing accumulations of savings as the only source of financing for capital formation, however, led him to the gloomy conclusion that, as a widespread thing (regardless of the great benefits that would accrue to capitalists, workers, and society as a whole), worker ownership would be very slow to implement, and would apply only to certain favored classes of workers:

The principle of part payment for labor by a share in profits is impracticable, when the average remuneration of labor is so low that it will only furnish necessaries, and therefore cannot admit of reduction; and it is only consistent with the welfare of the working man, when his average remuneration is so high that he can in a bad year bear some considerable reduction below that average without much privation. It is more applicable where the number of workmen in a business is small, and the share of each in the result considerable. It is most applicable where the profitableness of the result depends chiefly on the skill and zeal of the workmen; and it is least so where the results are mainly determined by mechanical arrangement, magnitude of capital, or the business talents of the heads of the establishment. It can hardly be adopted excepting in cases where the workmen are select in character, and are usually employed for a long time in the same establishment. It cannot work well in any case, unless much mutual confidence and good feeling prevails between the employers and the employed These considerations show the great difficulties which stand in the way of any extensive application of this principle to the productive industry of this country. To give it a fair chance of success it should be tried in the first instance in particular cases, which present the conditions most favorable to success, and with workmen select in character and intelligence. If in these cases its results should be satisfactory both to the employers and employed, its application will be gradually extended. (Ibid.)

Is there, however, another way to achieve the desired result of widespread ownership of the means of production? We will examine that question in the next posting in this series.