THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Wednesday, August 15, 2018

The Economic and Financial Revolution

The situation between John Henry Newman and Orestes Brownson described in the previous posting on this subject had not sprung from out of nowhere.  Nor were they the only ones confronted with what looked like an attack on the very fabric of the social order itself.

Charles Dickens
In the wake of the French Revolution, the solid underpinnings of European civilization seemed to have been swept away.  Matters were not improved as the Industrial Revolution spread and increasing numbers of people lost their livelihoods and were forced either into the factories or the workhouse, the horrors of both being familiar to readers of Charles Dickens.
A major part of the problem was that institutions were not keeping pace with changes in society.  Neither was Christian doctrine developing, whether Catholic or Protestant, or discipline being adapted and implemented.  The social earthquake of the French Revolution seemed to have stunned religious organizations and governments into a near-catatonic state.
That, of course, could not last very long.  Church and State as well as Nature abhor a vacuum.  People with new — or at least radical — theories and proposals rushed in to fill the void.  In response, reactionary “rear guard” champions attempted to return matters to their pre-revolutionary condition, or at least hold off what seemed to be an inevitable end as long as possible.
What no one seemed to be considering was a careful restructuring of the institutions of the common good in conformity with the precepts of the natural law.  Changes were being introduced willy-nilly with almost no thought of long-term effects or even immediate consequences.
Efforts to force the social order to accommodate to the changed conditions only revealed the inadequacy of both existing and new institutions.  Nowhere was this more evident than in the economic arena, which quickly had a deleterious effect on the political and religious world.
Adam Smith
As a result, people tended to blame traditional institutions of Church and State for their problems.  Many people began calling for the destruction of existing organized religions and governments and their replacement with new types of institutions, while others agitated for a return to the status quo.
Of those who tried to hold the middle ground, even the most astute seemed not to realize the effect of something as seemingly mundane and removed from both politics and religion as improvements in productive technology.  Take, for example, the analysis of Adam Smith in The Wealth of Nations (1776).
It is common especially in Catholic circles these days to excoriate Adam Smith (1723-1790) as the heartless philosopher-economist who created the paradigm that justifies monopoly capitalism.  His “invisible hand” argument is construed as an effort to replace the God of Abraham, Isaac, and Jacob with an atheistic, amoral, mechanistic, materialist “free market” that serves as a false idol for those who have forsaken Christianity for rationalist liberalism on the elitist English model.
Not exactly.  Smith’s personal religious convictions are irrelevant to this discussion, but it is clear from his writings, especially The Theory of Moral Sentiments (1759) that he believed in God, and it was likely some form of God as most Christians accept.  What throws Christians off is the fact that Smith attempted to do the same thing that both Aristotle and Aquinas did, at least in part.
Pope Pius XII
That is, Smith tried to base his philosophical arguments on “the God of nature,” the absolute source of all creation discerned by reason, and thus the basis of the natural law, which can therefore also be discerned by reason.  This is a concept with which the Catholic Church emphatically agrees, and a century later in the First Vatican Council would declare as an infallible doctrine.  Pope Saint Pius X put it in the Oath Against Modernism, and Pope Pius XII repeated it in the opening of his encyclical Humani Generis (1950).
Smith therefore tried very hard — and with a great deal of success — to keep any personal religious beliefs he might have out of his arguments.  He was attempting to demonstrate the universal nature and therefore the objective truth of the “moral sentiments” (i.e., virtues) he examined and prove them by reason, not persuade anyone of the truth of any religious revelation or doctrine, however true he himself might believe it to be.
That being said, Smith made a serious error, although one many other people have made down to the present day and with much less excuse.  When Smith wrote The Wealth of Nations, the Industrial Revolution was in its infancy.  It was in no way clear what the effect of the new machinery would be.  In the last quarter of the eighteenth century it was simply unimaginable that technology might permanently reduce or even eliminate the need for human labor.
The Division of Labor
Smith, in fact, in The Theory of Moral Sentiments had come close to ridiculing people who preferred technology to human labor and carried this attitude over into The Wealth of Nations.  At the same time, as in his example of the pin factory, even though his point was the potential inherent in the division of labor, he hinted at the incredible productiveness of technology over human labor.
Somehow, however, Smith failed to put two and two together and realize that machinery could easily replace human labor in the productive process.  He therefore assumed that human labor had a permanent place in production.
Thus, Smith concluded that since no rich man could satisfy even his most inordinate desires without employing the poor, the free market would function to distribute the wealth of the world equitably if allowed to do so.  Regardless of the greed, rapacity, or selfishness of the rich — even in spite of such anti-human tendencies — their money would perforce be used to purchase the labor of the poor, or their desires would necessarily remain unsatisfied.  In a free market, the rich would get what they wanted, and the poor would get what they needed just as if an “invisible hand” had made an equitable distribution of the goods of this world.
What happens when the rich satisfy their wants without the labor of the poor.
That is all well and good . . . assuming that the rich have no other way to satisfy their desires except by employing the poor.  Machinery, however, allows the rich to satisfy their desires without employing the poor.  Advancing technology and concentrated ownership of that technology amputate “the invisible hand” as it were, so that wealth is no longer distributed equitably throughout society by the functioning of the system itself.
To make matters worse, technology does not simply replace human labor one-for-one.  Technology is phenomenally more productive than even the most highly skilled craftsman.  Technology can do a better job at much lower cost per unit than a human worker, and the owner of the technology can charge the customer a lower price and make much more money.
For example, assume that there is someone who employs ten cobblers for five days a week.  Each cobbler makes five pairs of shoes each day, for which he receives one shilling (20¢) per pair.  This is a total of fifty pairs of shoes per day on which the employer makes sixpence (10¢) profit per pair.
Expensive handmade shoes. . . .
The employer is offered a machine costing £1,000 ($4,000) that produces 1,000 pairs of shoes per day of equal or better quality than the cobblers can make, and that has a useful life of twenty years.  He can also hire one machine operator for one shilling per day, reducing his compensation cost from £2 10 shillings to one shilling, or by 98%.  Assuming the employer can find financing (a story for another day), will he replace his human workers with a machine?
Unless the employer is running a charity operation, he will purchase the machine, lay off ten skilled cobblers, and hire one unskilled machine operator in their place.
This is because the human labor per pair of shoes costs one shilling (20¢), while the machine “labor” plus the wages of the machine operator per pair costs less than a quarter farthing (0.1¢), which is zero to all intents and purposes.  If the employer keeps the same profit margin and increases sales by reducing the price per pair by one shilling — the cost of human labor — he will net £25 ($100) per day instead of £1 5 shillings ($5).
. . . or inexpensive machine made shoes of equal or better quality?
Of course, the ten cobblers who lost their jobs no longer purchase shoes or anything else with their wages, but with luck the former cobblers might find work in another industry, even if for less money.  That means, however, the owner of the new machine must spend all of his disposable income on consumption to make up for the loss of consumption power on the part of his former employees in order to ensure that production and consumption remain in balance.  That, however, is unlikely.  He will probably reinvest his income in excess of his consumption needs by buying more machines and make even more income and then reinvest that, too, making the problem even worse.
Multiply that same scenario a few thousand times and you can begin to understand what was going on before, during, and after the French Revolution.  Capital was producing a virtual flood of goods and services for which there was insufficient domestic demand.  The only solution within the old political paradigm was that new markets had to be found overseas to purchase the increased production, or government had to print money to stimulate consumption.
Not surprisingly, it was at this time that the British Empire began its rapid expansion.  As Great Britain turned into an economic powerhouse and ordinary people lost production power and thus consumption power, the Empire had to expand in order to open up new markets to absorb all the goods and services being produced.
With a deteriorating tax base, the government began backing new money with debt.  This was an expedient that had first been used on a large scale in the late seventeenth century as soon as the invention of central banking made it possible to back new money with government bills of credit.  It had then been used to finance the war against Napoléon in the late eighteenth and early nineteenth centuries.
Of course, the government-induced inflation meant that prices started going up, which put upward pressure on wages, making it more profitable for manufacturers to replace more human labor with machinery.  This only made the problem worse, as more and more people were faced with inadequate or zero income at a time when inflation was destroying the value of the currency and driving prices ever higher in real terms.
The situation was ripe for the growth of something like socialism to replace existing political and religious institutions — and that is precisely what happened.