On Economic Theory & Socialism

Collected Papers

Maurice Dobb

• Publisher: Routledge
• Year: 2012
• Print ISBN: 9781138007628
• eBook ISBN: 9781136324055
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This volume collects published papers and essays from widely scattered and inaccessible sources, some of which appeared for the first time when this book was originally published. In the first part of the book the subjects range from the theory of wages and recent trends in economic theory to economists' criticism of capitalism and socialism, investment-policy in under-developed countries, and economic growth under the Soviet Five Year Plans. The second part includes papers on Lenin and Marx, a study of the economic ideas of Bernard Shaw, and an essay on historical materialism.

Part one

I The Entrepreneur Myth¹ [1924]

DOI: 10.4324/9780203120873-1

¹ Based on a paper read to the Economics Section of The Heretics, at Cambridge on May 23rd,1923.

This rather jejune essay in criticism of some traditional notions has been included heresince it contains the germ of certain ideas about the origins and growth of capitalism thatwere developed more fully by the writer twenty years later. Based on a paper read to aCambridge society the year before, it was published in Economica, No. 10,February 1924. Acknowledgement is due to the Editorial Board of Economicafor permission to reprint it.

IT IS PERHAPS no exaggeration to say that one of the chief reasons why thepolemics of socialists and individualists are as a rule so inconclusive is that both tend toregard the period around 1800 as the starting point of everything characteristically modern.The arguments of the two seldom meet. Each emphasises a different point and tends to ignorethe particular issue on which his opponent is laying emphasis. When Dr. Marshallpatronisingly disposes of the socialist in a footnote, he usually leaves the socialist quiteunconvinced; and when Mr. Webb attempts to criticise the social philosophy of the orthodoxeconomists, his criticism often has a peculiar way of missing the mark. One of the reasonsfor this inconclusiveness is that in general the socialist and the individualist each hasonly a partial theory of the development of modern capitalism.

To the individualist the Industrial Revolution is important because it introduced the freeeconomic order. The pre-existing ‘errors’ of the mercantilists were abandonedand the great ‘truths’ of Adam Smith won the day. Mobility of resources andfreedom of enterprise, resulting in a progressive widening of the market, were the two greatprinciples of the new era. The keystone wasthe union of control with risk. These were inventions as important as the more tangiblediscoveries of Arkwright and Crompton and Cartwright and Watt. Although progress in thefuture may perfect and develop and perhaps modify those grand principles, it would not beprogress by the implicit definition of the word if those principles were abolished. A neweconomic order must include those principles; it must not supersede them.

To the socialist the Industrial Revolution is important for an opposite reason. It was atthis period that society ran upon the wrong lines. The technical changes of this periodplaced immense power in the hands of the capitalist undertaker. The concentration of workersinto factories made of the relation between employer and employed a relation between tyrantand subject—wage-slavery. The principle of laissez-faire, which thisperiod introduced, is the charter of the rich and strong to exploit the poor and weak. Thesocialist condemns the grand principles of the individualist as the conditions of thissubjection and exploitation. When the individualist replies, he points out that theindustrial autocracy and the inequality of which complaint is made are in part necessaryconditions of a system of free enterprise. The union of control with risk may involve evils,but the evils are surely a small price to pay for the blessings it entails? Mitigate thoseevils by all means, but not at the expense of the good ! And when the Fabian endeavours, ason rare occasions he does, to banish the inconclusiveness of the argument and to tackle hisopponent on his own ground, he is forced into the position of criticising the efficiency ofindividualism in particular cases, and of advocating, not its complete super-session, but itsmodification by a little collectivism in a few named cases. The Fabian, ifhe does this, has accepted the assumptions of the individualist and his difference from theliberal has become merely one of degrees.¹

² Sidgwick supported Socialism as ‘a supplementary and subordinate element in asystem mainly individualistic’ (Elements of Politics, 4th edn., p.146). Von Wieser mentioned that the free economic order ‘requires supplementing bysuitable interference on the part of governments’, but does not require‘complete overturn’ (Natural Value, p. 56).

The more modern and competent presentation of the individualist case derives most of itsforce from an examination of those origins of modern capitalism which are prior to theIndustrial Revolution. This case offers, perhaps for the first time, a scientific refutationof socialist criticism by showing the principles on which individualism is based to be thenecessary conditions of modern industrial progress. It thus tries to givean historical basis to individualism in place of the metaphysic of ‘naturallaw’. This has found, perhaps, itsbest expression in a post-war work by Professor A. P. Usher.¹

³ 1 An Introduction to the Industrial History of England.

In the first place Professor Usher criticises what he calls the German SocialistSchool² for ascribing too much importancein social evolution to industrial forms. Industrial forms are merely thesurface expression of economic development, not its essence. The process of development liesin something more fundamental. In the second place he asserts that this more fundamentalfactor in social evolution is the division of labour. This forms the groundwork of history. Agiven degree of intricacy in this economic differentiation will produce the need for acertain kind of integration. Hence, whenever in history there have occurred similarindustrial forms, this was because there existed similar degrees of economic differentiationin the two periods. When industrial forms change it is because economic differentiation hasbecome more complex, and a new method of integration is consequently required. The attitudeof Professor Usher to modern capitalism is to regard it as the culminating stage in a longseries of changes in the economic groundwork—the division of labour. The importantdeparture towards modern industrialism would appear to have been made not in the eighteenthcentury, but in the fourteenth and fifteenth centuries. At this period the dissolution ofFeudalism was well advanced, and the subdivision of the crafts had begun to develop on anextensive scale. Each craft tended to split up into numerous specialised divisions. Toprevent this differentiation from dissolving into chaos some new method of integration wasneeded, which was found in the ‘commission’ or ‘putting out’system. Under this system a large number of small master craftsmen, employing journeymen andapprentices, were dependent on a commercial capitalist undertaker, who marketed the produceand often advanced the raw material. When the division of labour extended further to asplitting up of various parts of a homogeneous process, as in Adam Smith’s pinfactory, there arose the need for a co-ordinated plan of production and for organised teamwork. The capitalist undertaker was needed, no longer only as a merchant, but as adisciplinarian, and the factory system was the result.

⁴ Under this head he appears to include Sorcbart, Bücher, Wagner, Rodbertus, andMarx.

This interpretation provides an apology for the system of capitalist undertaking by showingit as the necessary condition of the intricate system of specialisation which constitutesmodern industrialism. Capital-ist undertaking cannot be dispensed with unless the conditionswhich are its foundatiän aredispensed with also. ‘A capitalist employer was necessary to prevent specialisationfrom degenerating into disorder ... (Besides a study of industrial forms) there is need alsoof a study of conditions that produce. this progression from the simpler to the more complexforms. It is peculiarly unfortunate to assume that the main task is completed when certainforms have been arranged in a sequence.’¹

⁵ Usher, op. cit., pp. 3 and 13.

To this view, just as the limitations of nature always impose on mankind a certain elementof determinism and necessity, so a certain stage in the division of labour imposes uponsociety the ‘necessity’ of the capitalist undertaker. The early economistswere, therefore, right in saying that the evils of which the socialists complained wereattributable to natural and not to institutional factors.

The economic aspect of individualism as reclad in modern garb is consummately representedin the social philosophy of the Cambridge school of economists, or (as a writer inThe New Republic recently termed it) of the Cambridge‘Neo-Classicists’. The term Neo-Classicist is not entirely inappropriate; forwhat the Cambridge school has done is to divest classical political economy of its moreobvious crudities, to sever its connection with the philosophy of natural law, and to restateit in terms of the differential calculus. The line of descent is fairly direct from Smith,Malthus, and Ricardo; and Cambridge has remained relatively untouched by the anti-classicaldoctrines of the German semi-socialists and the Austrian school.

This economic theory regards the telos of all economic activity as themaximisation of utilities. This is the economic maxim. Cost represents a deprivation ofcertain utilities. The economic justification for incurring any cost is that, not only agreater utility is obtained, but the greatest possible utility under the circumstances.Hence, two conditions are necessary to the fulfilment of the economic maxim. First, marginalutility must be greater than marginal cost. Second, economic resources must be so distributedbetween various uses, that there could be no gain from shifting resources from one use to theother. These conditions imply the existence of aneconomic measureas theregulator of production; and this measure is afforded by the mechanism of price.

From the viewpoint of the economist, therefore, the economic world is a complex ofprice-relations—of persons striving to satisfy certain wants and coming constantlyinto conflict with obstacles to that satisfaction. In the centre of this chaos stands thecapitalist undertaker. The to-be or not-to-be of a productive enterprise is in his hands; thedistribution of resources between numerouscompeting uses is under his control; and he regulates his actions by movements of price,indicative of movements of market demand. The undertaker, therefore, is the nerve-centre ofthe organism, infinitely delicate. On his state of mind depends the efficiency of the whole.All the technical inventions in the world would avail little if this co-ordinating mechanismceased to function, Hence, the need for the undertaker is conditioned by the highly complexdifferentiation of modern society. The payment to evoke this activity is a‘necessary’ cost in the sense that it is imposed, not by a particular system ofpolitico-legal relations, but by the division of labour and ultimately by nature. The moreclearly the price-index finds expression and the more imperatively the profit principleexacts obedience, the more efficiently is the undertaker likely to fulfil the economicmaxim.

It is now generally admitted that the classical economists were too sanguine of theefficient operation of the price and profit principle in the actual world: they were tooneglectful of certain divergencies between the ideal economy of their pure theory and thereal economy of concrete things. The neo-classicists have repaired this breach in theclassical doctrine by the use of the conception of economic friction. It isnow customary for economists to forestall criticism by indicating that the condition‘other things being equal’ must always be carefully remembered in the statementof an economic law. In many cases there is incomplete mobility of resources; in some casesthe test of profitability is not completely synonymous with social utility; the price offeredby consumers is not always a completely adequate index of need. Nevertheless, the principleof the undertaker’s function is paramount. Criticism is wrongly placed when levelledagainst him. Reforms are ill-advised which hazard his efficient operation.

This all sounds logical enough; moreover, it has great importance, and one must recognisethat the Cambridge school has made an invaluable contribution to knowledge. But the Cambridgeschool is not only a school of pure economic theory. It is a school, too, ofapplied theory, and consequently involves a certain socialphilosophy. The emphasis on this side seems likely to be greater in the future inview of the statement of Mr. Keynes that the future for the economist lies in the obtainingof a ‘knowledge of relevant facts’ and in ‘applyingeconomic principles to them’.¹ It isthis social philosophy which the writer ventures to criticise—a philosophy which,although not a logical deduction from the pure theory, is nevertheless a reasonable inferencefrom the manner in which that pure theory ispresented, and is clearly the psychological product of that manner of presentation.

⁶ Preface to the first four of the Cambridge Economic Handbooks.

What the writer has ventured to call the Entrepreneur Myth forms the pivotal point of thissocial philosophy. In the historical view it lies in the assumption that, because thecapitalist undertaker arose historically as the co-ordinating force in a complex world,therefore in some absolute sense this was the ‘necessary’ and only possiblemethod by which that integration could have taken place and the complexity of the division oflabour was the cause of the capitalist undertaker (with the implication thatthe two are inseparable). True, it may be as futile to ask whether the past could have beenother than it was as to ask whether the future will be other than it will be; but speakingtheoretically one is justified in maintaining that, if other factors besides the division oflabour had not been present, the capitalist undertaker would not have happened: Other socialfacts, such as class differentiation and private property in land, have equal right to becalled ‘causes’ of the capitalist undertaker; and there is no primafacie reason to suppose that the needs of a differentiated society for anintegrating force could not have been in the past (and could not be in the future) satisfiedin other ways, had social conditions in general been different. Nevertheless this assumptionis implicit in a surprisingly large number of works on social philosophy. Maybe, if facedwith the issue, Professor Usher would deny that he had made any such assumption. His denial,however, would destroy the historical basis for that individualist philosophy which his workseems to imply. The contrary view, in brief, which the present writer attempts to advance, isthat the progression of economic forms is a function not only of the division oflabour, but also of class differentiation.

The economic aspect of the myth is not involved in the pure theory. It is intoapplied economics that it obtrudes itself. It takes the form of too great aneglect of the exceptions swept aside under ‘economic friction’, when economiclaws are applied to concrete phenomena. We find the too-ready assumption continually beingmade that the functions performed by the ideal entrepreneur of the pure theory, hedged andguarded with ceteris paribus, are the same as those performed by thecapitalist undertaker in the actual world. The extent of the divergence of the real from theideal has not been sufficiently examined; nor has sufficient attention been given to theconditions which may tend to make this divergence so great that any identification of the twobecomes, not only unprofitable, but absurd. The conditions arising out of the war, forinstance, may be conditions of this kind.

The entrepreneur of the puretheory—the regulator of production according to the economic maxim—is merely analgebraic symbol. It is the formulation of a necessary economic function, for which the factof economic differentiation creates the need. It is quite wrong to assume, because the sameword is used for the function and the person fulfilling it, for the ideal entrepreneur in theworld free of economic friction and for the undertaker in the world of very much frictionindeed, that therefore the two are identical.¹ This, when stated...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Preface
• Contents
• Part I
• I The Entrepreneur Myth1 [1924]
• II A Sceptical View of the Theory of Wages [1929]
• III Three Articles on the Problem of Economic Calculation in a Socialist Economy
• IV The Economic Basis of Class Conflict [1937]
• V On Some Tendencies in Modern Economic Theory [1949]
• VI Rates of Growth under the Five-Year Plans [1953]
• VII A Note on the So-Called Degree of Capital-Intensity of Investment in Under-Developed Countries1 [1954]
• Part Two
• VIII A Lecture on Lenin [1939]
• IX A Lecture on Marx [1942]
• X Bernard Shaw and Economics [1946]
• XI Full Employment and Capitalism [1950]
• XII Historical Materialism and the Role of the Economic Factor [1951]
• Part Three
• XIII Economists and the Economics of Socialism
• XIV Comment on Soviet Economic Statistics
• XV A Note on the Discussion of the Problem of Choice between Alternative Investment Projects
• XVI The Accumulation of Capital
• XVII A Note on the Transformation Problem
• Index