Economics for Democratic
Socialism
Drexel University
Spring Quarter 2009
Why This Course?
• The economic crisis of 2008 seems to be the most
serious reversal for capitalism since 1929-33.
• It is possible that capitalism will not survive.
• Even it it does, the recurrence of crises of this magnitude
calls for a consideration of the costs and benefits of
capitalism visavis alternative systems.
• Both of these possibilities urge a reconsideration of
democratic socialism as an alternative.
Fair Warning
• This course is an experiment.
• There are no social conventions to define the content of
the course.
• Unavoidably, in many cases, you are going to get my
ideas, for whatever they are worth. I’m not sure how
much confidence I have in some of them!
• I am not qualified as a philosopher, political theorist or
historian, but will have to digress on all these fields.
• In any experiment, things can go wrong.
Economic and Political Systems
• The use of the term “democratic socialism”
suggests that economic and political systems
can be taken under separate headings, so that
we have, in effect, four alternatives rather than
two: socialism with or without democracy, and
capitalism with or without democracy.
• Orthodox Marxist-Leninists would deny that
(with some basis in Marx’ ideas) and so will I,
for different reasons -- but this interpretation
will do, for now, as an organizing principle.
Democracy 1
• As a minimum Democratic Socialist
would demand a political system that
incorporates the democratic liberties:
– Freedom of speech, advocacy, assembly and
petition
– Openly contested elections
– Freedom of organization, including the
freedom to organize political parties to
contest elections.
Democracy 2
• In Capitalism, Socialism and Democracy, Schumpeter
considers two interpretations of democracy:
– Popular sovereignty, that is, that the government should
enact the will of the people
– Competitive leadership, that is, the leader is determined
by competition for the free vote of the population.
– Schumpeter rejects the first of these. He makes several
criticisms. The one that bites is: the “general will,” if it
exists at all, might be best enacted by an autocrat.
– The formation of government by political competition
does at least explain the importance and function of
democratic liberty.
Democracy 3
• Under the influence of anarchism (specifically Wolff, R.
P, 1970, In Defense of Anarchism, New York: Harper) I
would prefer a higher standard and would define
democracy as follows:
– In a democratic system, any person who holds a
position of authority is responsible to those over
whom the authority is exercised.
– (Wolff goes much further).
– By this standard capitalism can never be democratic.
– Neither could centralized state-socialism.
– But I won’t insist on doing things my way.
Democracy 4
• Marx-Leninists reject “democratic liberty” as
“bourgeois liberty” on the following reasoning:
– Marx says that all political organization serves class
interest.
– If the capitalist class has been done away with, the
government is the instrument of working-class
interest, regardless of “liberties.”
– If some vestiges of the bourgeoisie remain, then the
government needs all the power it can obtain to
advance working-class interests and repress the
bourgeoisie.
Socialist Roots
• W. A Lewis was a Nobel laureate
economist (1979) and a Fabian
socialist.
• In 1949 he wrote that British
socialism had two aims: democracy
and a classless society.
• He added that government
ownership is a means to those ends,
and not in itself socialist.
• He traced these ideas to Robert
Owen, among others.
Class Societies
• In ancient societies, the major classes are the payers and
recipients of tribute.
– The early Islamic Caliphate provides a very refined
instance of this.
– The Arab conquerors built new cities (Basra, Kufa,
e.g.) where Arab soldiers lived on salaries derived
from tribute.
– Other classes -- merchants and rural landowners -existed but were minor.
• In Feudalism, the main classes were landlords and
peasants.
Classes in the 19th Century
• The Classical Political Economists (about 1776-1880)
observed that their society was divided into three
classes: landlords, the (wealthy capitalist) middle class,
and the laborers. This was still true in Marx’ time.
• Nevertheless, it is specific to a period of transition from
feudalism to capitalism.
• Essentially, a worker didn’t own anything he (or she)
couldn’t wear or eat. There were no old age pensions.
• The “condition of the working class” has changed over
the last century, though.
• Are we “all capitalists now?”
Classes over the Life Cycle
• To define a social class in 2009, we
need to think in terms of the life
cycle.
• Franco Modigliani, antifascist resistor
and Nobel Laureate macroeconomist, brought the life cycle
perspective into economics.
• If you have to work for a wage or
salary for most of your life to survive
and get a pension, you are a member
of the working class.
Franco Modigliani
• (Modigliani was a free-market
1918-2003
liberal.)
Other Classes
1. Those who own wealth enough to operate a business,
so that they have to work but not for wages or a
salary, are not part of the working class. They are
what a Marxist would call petit bourgeois. Some may
be no better off than workers, and there can be a lot
of mobility from this class in both directions.
2. Those who inherit wealth enough to live without
working, the trust fund class, approximate Veblen’s
leisure class.
3. Those with wealth enough to control corporations
(and buy congressmen) are the grand bourgeoisie -what I call the billionaire class.
Strata
• The three groups have interests that are somewhat
aligned, and may be thought of as different strata of the
same capitalist class.
• However, differences among them can be important, and
their interests are not wholly aligned.
• Interests of the grand bourgeoisie tend to be national and
international, while those of the petit bourgeoisie tend to
be local.
• These conflicts are the major differences between the
two parties in the USA.
• In that sense, the capitalist class as a whole can be
thought of as the ruling class.
Classless Societies
• Can we even conceive of a classless society?
• “Jeffersonian democracy” -- a society of freehold
farmers -- would be classless.
• But that is inconsistent with modern production.
• In state socialism, everybody would (in principle) be a
public employee. Thus, no class divisions.
• In a system of worker cooperatives, as envisioned by
Mill, everybody earns their income as a member of a
worker cooperative. Thus, again, no classes.
State Socialism
• While state socialism is in principle classless, it
is unstable because it is hierarchical.
• The technostructure of planners and managers
becomes a group distinct from the workers,
living off their surplus.
• Whether or not this is a “new class,” it sets the
stage (as in the Soviet Union) for the return to
capitalism, since they can extract the surplus
more effectively as capitalist “oligarchs.”
Nationalization
• Many mid-twentieth century democratic
socialists saw selective nationalization as a path
to state-socialism.
• As Busky points out, this, too, proved unstable - and was reversed by privatization, decisions
taken by democratic governments with labor
parties in the parliament.
• Have the workers any stake in nationalization or
state-socialism? No direct stake, anyway -although perhaps the technostructure do.
Cooperative Socialism
• In a cooperative socialist system, some of the
cooperatives will be very large indeed -unavoidably -- and managers will be specialists.
• However, as they are responsible to the people
they manage, it is at least possible that the
hierarchy will be much more limited.
• Thus cooperative socialism remains a hope for a
classless society.
Back to Lewis
• Writing in the 1940’s, Lewis criticized selective
nationalization of industries as essentially a new form
of exploitation of labor.
• He agreed with many economists at that time that
corporations don’t maximize profits anyway.
• His program was for the government to run an annual
surplus, retire the national debt, and begin to buy up
shares in the corporations.
• Thus, eventually, the corporations would become public
property, although they would continue to be under
decentralized and (more or less) interested
management.
From Lewis to Greenspan
• Greenspan, too, conceived government
surpluses as a path to “socialism.”
– That was the reason he gave for supporting the Bush
tax cuts.
• But few socialists of 2007, if any, would regard
corporations as progressive organizations.
• Indeed, the crisis of 2009 was, to a considerable
extent, a crisis of corporations.
On the Other Hand
• Anticorporate leftists (such as Magnusson)
could favor cooperatives as an alternative to
for-profit corporations.
• However, historic cooperatives are workerowned, not public property.
• Can we conceive of a system that combines
public ownership with decentralized, interested
management (as worker cooperatives?) That is
the “socialism” I personally would favor.
Robert Owen
• 1771-1858
• Born in Newtown, North
Wales, the son of a saddler.
• An entrepreneur at 19 and one
of the all-time great business
managers!
• Known as a “utopian
socialist.”
New Lanark
• Owen managed innovative spinning mills for Peter
Drinkwater and David Dale, whose daughter he
married.
• In 1813, he purchased the Dale mill at New Lanark, and
reorganized it as a utopian community.
• He was an environmentalist, and hoped to provide an
ideal environment to form good character among the
workers of New Lanark, and their children.
• Among his first steps were to eliminate child labor and
start a school.
New Lanark, Scotland
New View of Society
• “He published his ideas on educational reform and the
influence of social environment on character, in a
series of essays which were collected and published
as a New View of Society. In this major work he
outlined his vision of the ideal community - a system
run on a co-operative basis involving both factories
and agriculture.” -- Robert Owen Museum
• In 1825, purchased New Harmony, Indiana, to
establish a colony there. (This was less successful
than New Lanark).
The Grand National
Consolidated Trades Union
• “At this time, in the early 1830's, the trade union
movement was growing and a number of co-operative
societies had opened shops and workshops. In 1832 he
proposed that the unions should unite and in 1834 the
Grand National Consolidated Trade Union was formed.
Within a week it had over half a million members and the
government were alarmed by this new mass labour
movement.” It was suppressed, however.
• “However, the idea of the co-operative movement did not
die completely, for in 1844 the Rochdale Pioneers started
a co-operative venture in Lancashire which eventually
grew into the modern Co-operative Movement.”
After Robert Owen Museum
Owen’s Evolution
• Owen had evolved from a paternalistic utopian to a
labor leader and reformer, if not quite revolutionary.
• He did, however, support one later attempt to form a
colony in Britain.
• Owen’s freethinking religious views were often
violently opposed, and some of his “socialist” followers
were prosecuted for blasphemy.
• Last year, the 150th anniversary of his death was
celebrated at his birthplace in North Wales. For more
information, contact the cooperative there.
Other “Utopian” Socialists
Marx wrote about three Utopian socialists. Owen was one.
• Francis-Marie-Charles
Fourier, 1772-1837
• Advocated planned
communities with
common ownership and
production.
• Claude Henri de Rouvroy,
Comte de Saint-Simon,
1760-1825
• Really more technocratic
than socialist.
A Utopian Communist
• Etienne Cabet, 1788-1856
• Political activist, 1830-39 (exiled in
Britain)
• Wrote “Voyage en Icarie,” 1840
• An environmentalist, he thought that a
communist dictatorship would be
necessary to establish a noncompetitive
society and transform human nature.
• Influenced the insurrectionist August
Blanqui, and through him, Lenin.
Colonies
• Followers of Fourier and Cabet formed colonies after
their principles, mostly (only?) in the United States.
• Fourierist “Phalangeries” were founded in New Jersey,
Texas, and several middle western states.
• An Icarian colony, planned for Texas, took root in Iowa.
– Cabet was the first president, but defeated for reelection.
– Founded 1848-1852, it lasted in Iowa until August,
1886. (New York Times Archives).
Cooperative Movement 1
• A cooperative is an enterprise operated by a
membership organization. Control is based on
membership, and profits are distributed among
members. Membership is open to those who are
part of the enterprise, not as owners, but
– Employees, in a worker cooperative
– Customers, in a consumer cooperative or mutual
financial organization
– Raw material supplier, in e.g. a farmer cooperative.
Cooperative Movement 2
• Under the influence of Owen among others,
cooperatives (especially worker cooperatives) were
widely advocated in the 1820’s.
• Among very influential figures was Dr. William King,
1786-1865, who was also active in education of
working class children and adults.
• “In 1844 28 working men gathered together to set up
the Rochdale Equitable Pioneers Society and opened a
co-op shop on Toad Lane in Rochdale.” (Coop online).
• This consumers’ coop is considered the beginning of the
international cooperative movement.
France
• In France, cooperatives were
organized and advocated as
“The Republic in the
Workshop.
• Important figures were
Philippe Buchez and Louis
Blanc, who advocated
government aid to the
formation of (more or less)
cooperative workshops.
Louis Blanc
Cooperative Movement 3
• Over the subsequent 170 years, thousands of
cooperatives, including worker cooperatives,
have been formed, and the record of success is
excellent.
• The international cooperative movement is
affiliated with the United Nations and
headquartered in Geneva.
• http://www.ica.coop/al-ica/
• The slogan of the 150th anniversary
celebration in 1990 was “tried and proven.”
John Stuart Mill
• 1806-1873
• Son of James Mill, a
Ricardian political
economist
• Mill was raised as a
sociological experiment -to create a genius by
education.
• For whatever reason, he
was one of the greatest
minds of the 1800’s.
Mill’s ‘Socialism’ 1
“The form of association, however, which if mankind
continue to improve, must be expected in the end to
predominate, is not that which can exist between a
capitalist as chief, and work-people without a voice in the
management, but the association of the labourers
themselves on terms of equality, collectively owning the
capital with which they carry on their operations, and
working under managers elected and removable by
themselves.”
Mill’s ‘Socialism’ 2
“[C]ooperation tends ... to increase the productiveness of
labour, consists in the vast stimulus given to productive
energies, by placing the labourers, as a mass, in a relation
to their work which would make it their principle and
their interest -- at present it is neither -- to do the utmost,
instead of the least possible, in exchange for their
remuneration.
“I agree, then with the Socialist writers in their conception
of the form which industrial operations tend to assume in
the advance of improvement; and I entirely share their
opinion that the time is ripe for commencing this
transformation, …”
Mill’s ‘Socialism’ 3
“But while I agree and sympathize with Socialists in this
practical portion of their aims, I utterly dissent from the
most conspicuous and vehement part of their teaching, their
declamations against competition. … they have in general
very confused and erroneous notions of [the] actual
working [of society]; and one of their greatest errors, as I
conceive, is to charge upon competition all the economical
evils which at present exist. They forget that wherever
competition is not, monopoly is; and that monopoly, in all
its forms, is the taxation of the industrious for the support
of indolence, if not of plunder.”
Karl Marx
• 1818-1883
• Born Trier, German Rhineland
• His father, originally Jewish,
converted to Christianity
• PhD, 1841, Jena, on Greek
materialist philosophy
• Not being able to find an
academic job, he turned to
journalism for a living.
Marx’ Curriculum Vitae I
• 1842: Editor of the Rhenish Gazette, Köln
• 1843: Escaped Prussian police to France, married.
• Editor, Franco-German Annals. Friedrich Engels, a
wealthy industrialist and political radical, was a
contributor.
• 1845: Expelled from France to Belgium, supported by
Engels as a one-man communist think-tank.
• 1847-8: Wrote The Communist Manifesto, based on a draft
by Engels.
• 1848: Expelled from Belgium; participates in revolutionary
agitation in Köln, again.
Marx’ Curriculum Vitae 2
• From 1849, in exile in England.
• From 1852-early 1860’s, writes for the New York Daily
Tribune, somewhat alleviating his extreme poverty.
• 1859: Contribution to the Critique of Political Economy
states economic materialist position.
• 1867: Capital, v. 1
• Died 1883
• 1885: Capital, v. 2 published posthumously.
• 1894: Capital, v. 3 published posthumously.
The latter volumes were finished by Friedrich Engels.
Revolution
• In Western Europe, from 1789 to 1871, there was no
continuous, peaceful politics. The only political events
that mattered were revolutions and coups d’etat.
• The French Revolution of 1789 was followed by a
series of coups d’etat, culminating in Napoleon’s.
• 1830 was a year of revolution throughout western
Europe.
• So was 1848. In France, this was followed by a coup
d’etat by yet another Napoleon.
• This was the political milieu Marx had experienced and
that seemed inevitable to him.
• The Communist Manifesto was written in the context
of the 1848 revolutions.
Ideology
• In the mid 1840’s, Marx and Engels wrote “The
German Ideology,” a critique of the “young Hegelians.”
• “The Young-Hegelian ideologists, in spite of their
allegedly ‘world-shattering’ statements, are the
staunchest conservatives.”
• Point being that their critical philosophy, though very
“radical” in its attack on older ideas, is in the interest of
the dominant class -- that’s what ideology does.
• That doesn’t mean ideology is simply wrong. If it is to
do its job, an ideology needs to have enough truth to be
persuasive.
• This book is an early statement of Marx’ theory of
history and argues that ideas arise from material
conditions of production.
From The Communist Manifesto
• “The history of all hitherto existing society is the history
of class struggles. … The modern bourgeois society that
has sprouted from the ruins of feudal society has not
done away with class antagonisms. It has but established
new classes, new conditions of oppression, new forms of
struggle in place of the old ones.
• “ …the first step in the revolution by the working class
is to raise the proletariat to the position of ruling class to
win the battle of democracy.
• “The proletariat will use its political supremacy to wrest,
by degree, all capital from the bourgeoisie …”
Manifesto Summary
“When, in the course of development, class distinctions
have disappeared, and all production has been
concentrated in the hands of a vast association of the
whole nation, the public power will lose its political
character. Political power, properly so called, is merely
the organized power of one class for oppressing another.
If the proletariat … makes itself the ruling class, and, as
such, sweeps away by force the old conditions of
production, then it will, along with these conditions, have
swept away the conditions for the existence of class
antagonisms and of classes generally, and will thereby
have abolished its own supremacy as a class.”
Socialism and Communism
• The anticapitalist “left” by Marx’ time already had
factions of socialists, communists, and anarchists.
– Socialism called for the abolition of social classes, in
particular the division between owning and working
classes. (Authority: W. A. Lewis)
– Communism usually demands common ownership of
the means of production (sometimes at the local level)
but sometimes just means the more extreme or
“advanced” socialism. (Authority: Paul Sweezy)
– By 1848, Marx categorized himself as a communist.
Marx as Economist and Politician
• Marx undertook the study of economics and produced
the book Capital.
• In the 1860’s, he joined the International Workingmens’
Association (“First International”) and became a leader
of its more moderate faction.
• This moderate faction advocated participation in
parliamentary politics by workers’ (socialist) parties
where this was permitted, as -- increasingly -- in
Germany.
• The other major faction, led by anarchists, called for
struggle through strikes and violence.
Second International
• The IWA, always divided,
disbanded 1876.
• A new International was
founded 1889, an association
of (largely Marxist) workers’
socialist parties.
• There was a tendency away
from revolutionary politics and
toward “evolutionary
socialism” (Eduard Bernstein)
Eduard Berstein
Bolsheviks
• An exception was Russia, where
any opposition continued to be
repressed by a police state that
presaged 20th century
totalitarianism.
• Nicolai Lenin (Vladimir Ilych
Ulyanov) advocated a small party
of professional revolutionaries
and led his followers out of the
Second International.
• The Second International broke
up during World War I.
Lenin
Russian Revolution 1
• The success of the Bolsheviks in seizing
power and establishing a “dictatorship of
the proletariate” led to a permanent
division among socialists.
• From this time, it is necessary to
distinguish “Democratic Socialists” as
socialists who reject the “Dictatorship of
the Proletariate.”
Russian Revolution 2
• Following the Russian Revolution, Communist Parties
were formed in many countries, generally by former
socialists. (Two were formed in the US, but soon
merged.)
• Democratic Socialists were further divided as some (e.g.
SPUSA) refused to work with Communists while others
-- under pressure from Fascism, or seeking unity for
working-class movements -- entered into “popular front”
organizations.
• As Fascism advanced -- and “democratic” western
governments would not assist those who opposed it in
Europe -- these popular fronts were more and more
dominated by the Soviet Union.
Intellectual Controversy
• With “socialism” understood as centralized
state control of the economy, “Austrian”
economists argued that a rational “socialist”
system would be impossible.
• Socialist economists responded by proposing
that a socialist society could use markets in the
allocation of resources-- combining public
ownership with decentralized management
instructed to maximize profits.
• This is the origin of “market socialism.”
Twentieth Century
• During the twentieth century, especially after the defeat of
fascism, social-democratic and labor parties often played
parts in parliamentary governments, often as the leading
party.
• Socialist measures -- such as selective nationalization of
important industries and the creation of a “social safety
net” -- were adopted.
• As Lewis notes, these did not transform capitalism to a
classless society, and many were reversed by later
conservative governments.
• Some -- including universal health care, social security,
and codetermination in Germany and elsewhere -- do not
seem likely to be reversed.
Arthur Lewis, Again
• Lewis’ program was that -- instead of nationalization of
steel-making and coal mining and such -- the
government should run a surplus, on the average.
• After paying off the national debt, they would buy
shares in corporations.
• Increasingly, the system would combine public
ownership with decentralized, interested management.
• This is a kind of market socialism.
• But: can corporations really be part of the solution?
Twenty-First Century
• Democratic Socialists have learned a
great deal from the twentieth century,
and done some good, but have not
created a classless society. The way to
this objective seems, if anything, less
clear rather than more.