Twenty-First Century Capitalism

Robert Heilbroner

• Publisher: House of Anansi Press
• Year: 1993
• Print ISBN: 9780887845345
• eBook ISBN: 9780887848971
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

A New York Times Notable Book

What forms will capitalism take in the twenty-first century? To answer this question, noted economist and social philosopher Robert Heilbroner looks beyond economic theory to the social and political problems of modern economic society.

In this sweeping examination of the past, present, and possible future, Heilbroner considers capitalism both as an economic system and a political order. He argues persuasively that, even in an increasingly globalized economy, government remains crucial to a healthy private sector, due to the limited ability of markets to order themselves, let alone make contributions to the common good such as tackling environmental problems or providing sufficient educational programs. Heilbroner concludes this penetrating technique by speculating on whether some more participatory forms of capitalism might emerge this century.

V
SCENARIOS FOR THE FUTURE

I

I SAID AT THE OUTSET that I would not conclude with a grand prediction about the future. That does not mean, however, that I have nothing to say about the prospects for the society in which our children and grandchildren and great-grandchildren will live. It is rather that I do not think we can foresee these prospects with the clarity and scientific certitude that the word prediction conveys. I shall therefore speak of twenty-first century capitalism in terms of the scenarios by which we can imagine its development. Scenario is a term with dramatic overtones. It conveys the feeling of something more complex than a prediction — an attempt to describe processes partly driven by necessity and partly by volition, partly open to analytic understanding, partly grasped by intuition and conviction. The usefulness of scenarios therefore lies as much in their capacity to illumine the interplay of analysis and vision in thinking about the future as in the light they shed on what it will actually be.

Almost all of the great economists wrote scenarios for capitalism, but whereas most were gloomy with respect to its long-term future, their ideas about the path to that future could hardly have been more at variance. Adam Smith, as we know, envisaged a Society of Perfect Liberty whose most striking characteristic was a general increase in well-being for everyone. It is less well-known that his scenario also anticipated a time when such a society would accumulate “[the] full complement of riches” to which it was entitled by virtue of its resources and geographic placement, at which point accumulation would stop and growth with it.

In a society of small-scale enterprise such an outlook is not unrealistic, and in any event we can imagine Smith placing the fateful turning point as being as indeterminately far in the future as we generally locate the advent of a serious ecological barrier to growth. Smith’s long, upwards gradient thereupon turns downwards as a growing population must divide up an output that has ceased to grow. As we have already seen, his social vision leads him to expect the moral decay of the labouring class, to which it will passively submit. Thus, contrary to his popular reputation as the tutelary figure for capitalism, Smith is, of all economists, probably the least sanguine as to its eventual outcome. Analysis points to its eventual decline; vision to its earlier decay.³⁶

Marx, by way of contrast, is optimistic — not about capitalism, to be sure, but about the social order to which it will give birth. As we would imagine, the visionary aspect of his scenario is utterly different from Smith’s, but as we might not anticipate, the analytic portion closely resembles it. Like Smith, Marx’s analysis traces the consequences of an acquisitive drive in a competitive environment. Its conclusion differs from Smith because it replaces the pin factory with the much larger-scale textile mill so that the expansion process becomes turbulent and disruptive rather than smooth and regulative. As a consequence, Marx’s upwards trajectory, quite unlike Smith’s, is continually interrupted by periods of crisis and restructuring.

Yet this extremely important difference stems from their contrasting perceptions of technology, not from any deep division in social interpretation. What is ultimately more important in the full scenario is Marx’s vision of the working class as the agency of its own future liberation, not the passive victim of the existing order. Smith’s “stupid and ignorant” labouring class thereby gives way to a confused but slowly comprehending proletariat. Thus for Marx the scenario presents a different kind of outlook — not historic rise and fall, reminiscent of eighteenth century views of the glories that were Greece and Rome, but a directional process in which capitalism disappears before the advent of its successor, socialism.

Two other major scenarists also expect the end of capitalism, once again for different reasons and with different outcomes. John Maynard Keynes is today regarded as a scenarist of capitalist decline, but that also fails to do justice to the analytical and visionary elements in his scenario. In contrast to both Smith and Marx, Keynes was an analytical pessimist, but a visionary optimist. Analytically he was pessimistic because his understanding of the workings of the market, in which expectations played a key role, led to the disconcerting conclusion that a market-driven society could settle into a position of lasting underemployment. But very much like Smith, that pessimism reflected a static view of technological possibilities. It is doubtful if the General Theory would have manifested its rather discouraged tone had it been written in the postwar technological era that Keynes did not live to see.

Keynes’s pessimistic analytic conclusion was, moreover, balanced by a surprisingly sanguine assessment of capitalist political possibilities. His vision included neither Smith’s despairing assessment of the labouring class, nor Marx’s largely buoyant assessment of its revolutionary potential. Therefore it was possible for Keynes to envisage with equanimity not only the socialization of investment “[as] the only means of securing an approximation to full employment,” but also the gradual “euthanasia of the rentier,”³⁷ while at the same time scoffing at the idea of socialism, for which he entertained all his life a kind of benign scepticism. Keynes’s vision is therefore one of a balanced polity as well as a balanced economy, a view he described as “moderately conservative.”³⁸

The great scenarios would not be complete without the inclusion of Joseph Schumpeter’s. He is at once an analytical optimist and a visionary pessimist. “Can capitalism survive?” he asks early in his magisterial Capitalism, Socialism, and Democracy, published in 1942. His answer is unequivocal: “No. I do not think it can.”³⁹ The reason, however, is not that of Smith, Marx, or Keynes. Schumpeter introduces a new and much more dynamic element into the accumulation process: Marx’s ruthless destruction of old capitals by competition is replaced by a “perennial gale of creative destruction” as entrepreneurs create and exploit previously nonexisting fields for expansion. Schumpeter, therefore, scoffs at the idea that the investment frontier and its territory can ever be fully occupied. Technological possibilities, he writes, are “uncharted seas;” the airplane will be for the future what the conquest of India was for the past. Indeed, he concludes: “There are no purely economic reasons why capitalism should not have another successful run,” at least in the short run — which, he has previously informed us in passing, is a century.⁴⁰

Why, then, does Schumpeter nonetheless expect the demise of capitalism? The answer lies in sociology, not economics; in vision, not analysis. Schumpeter perceives the culture of capitalism as corrosive of values. The sustaining core of its beliefs, like all such foundational value systems, is ultimately beyond rational defence and it will wither under the unsentimental scrutiny of capital values. “Capitalism,” he writes, “creates a rational frame of mind which, having destroyed the moral authority of so many other institutions, in the end turns against its own: the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes, but goes on to attack private property and the whole scheme of bourgeois values.”⁴¹ The end thus comes as the entrepreneurs who embody the élan of the system lose their enthusiasm and settle down for a secure existence as socialist managers.

Vision rather than analysis sets the stage for this astonishing “prediction.” In Schumpeter’s view entrepreneurs are members of elite groups that rise to the top in all societies: socialist government will assuredly make use of their “supernormal quality.” On the other hand, workers, and the middle and the lower orders generally — all creatures of habit and routine — will not even notice the difference: “a family likeness” will make socialism much more like capitalism than different from it. Will this bourgeois, managerial socialism work? “Of course it will”: Schumpeter is as apodictic in declaring that socialism will work as in previously declaring that capitalism will not survive. Indeed, he goes on to say that there is every reason to believe that the morale and self-understanding of socialism may be higher than that of capitalism, and doubts about planning will come to look as nearsighted as those expressed by Smith about the future of joint-stock corporations.⁴²

II

THIS IS NOT THE PLACE to enter into a detailed critique of these remarkable attempts to foresee the immanent tendencies of a capitalist order.⁴³ But it is a very fitting place to ask how such mutually inconsistent, often historically disconfirmed expositions can be of use in thinking about the prospect ahead.

There are, I think, two answers to the question — or better, perhaps, two lessons to be drawn from these vistas. The first is that, however diverse their analyses, their visions, and their conclusions, all of them perceive capitalism as a social order whose historical direction is, in some general sense, foreseeable. That common perception is testimony to the remarkable properties of a society energized by a universal acquisitive drive mainly constrained by the contest of each against all.

Endless textbooks have described the outcome of such a unique social configuration. All present “the economy” as a complex mixture of order and disorder, equilibrating tendencies and disequilibrating tendencies, expansive thrusts and contractive retreats. From this point of view the fact that their “predictions” disagree becomes secondary to their agreement that there exists the possibility of undertaking such a mode of inquiry to a society — perhaps I should even say the impossibility of not doing so. No other social formation displays such systemic properties — not primitive communities, kingships, empires, or the societies that have called themselve socialist. Some kind of self-determined historic trajectory is the unique hallmark of capitalism in history.

Scenarios reveal and examine these trajectories in ways that combine analysis and vision, and this interaction is important enough to warrant restatement. Scenarios come to different conclusions in part because their analytic expositions start from different observed situations or take place in differently perceived terrains. The result, as we have seen, leads to the very different outcomes of Smith’s inertial sandpile economy and Marx’s vulnerable girdered structure; to Keynes’s unemployment equilibrium and Schumpeter’s unlimited creative destruction. Scenarios depart from one another for another reason, as well. However logical and systematic it may be, analysis must begin from a preanalytic base. The social dramas that are set into motion move along equally systemic but differing paths because the actions of the dramatis personae are differently conceived: compare Smith’s “masters,” many of them risen from the humble origins, with Schumpeter’s entrepreneural elite, or Keynes’s politically unremarkable labourers with Marx’s restive proletariat.

Such preconceptions inform all social judgements. They are what endows the predictive elements of scenarios with life. They are also the reason that every scenario contains autobiographical elements, with their freight of known and unknown biases. Scenarios are therefore inescapably conservative or liberal, reactionary or radical, because they are filled with hopes and fears, as well as with objective and internally coherent workings-out of interacting elements. Thus scenarios are more than predictions in another sense. They are the answers we give to a question that, unlike a predictive query, cannot go unanswered. The question is: what of the future? There are many answers that we can accept to this query, including tragic ones, but there is one response that would be unendurable. It is silence. Scenarios fill that void. Keynes once wrote about the future that “We simply do not know,” but his scenario implies that we can trust.⁴⁴

III

THE SECOND QUESTION to be asked, or lesson to be drawn from these scenarios, is why virtually all of them perceive capitalism as self-destructive. One cannot give a simple answer where one does not exist — we have seen how diverse are the reasons behind the outcomes of our four observers. Let me, however, turn the question around: why do none of our philosophers, not even Smith or Schumpeter, who are surely partisans of the order — foresee a long untroubled future for capitalism? Why can we not find any major figure in the history of economic thought who projects such a future? Alfred Marshall, the great Victorian economist, ends his troubled and compassionate study with the hope that “economic chivalry” will carry the day and warns against “ill-considered” changes that will do more harm than good. Friedrich Hayek, who believes that capitalism is necessary to prevent mass poverty and death, nevertheless sees the nose of the socialist camel under the capitalist tent.⁴⁵ There have been, and doubtless will be, many celebrants of a capitalist order, but I do not know of any serious celebrant who has expected it to carry the day by the sheer unchallengeable power of its own performance.

I think we can give one obvious and one somewhat suppositious reason for their shared general apprehension. The obvious answer is the sheer difficulty of successfully maintaining capitalist macro- and micro-order. The more suppositious one is nagging doubts regarding its political and moral validity.

As we have seen, there is anything but agreement with regard to the first of these problems. Looking over the full history of economic thought, including a good many scenarios we have not had time to examine, we see that the crucial difficulty for maintaining economic order takes on many forms — the indeterminacy of the outlook for investment and for technology; the unequal distribution of incomes; the volatility of credit; the tendency towards monopoly; overregulation; the technological displacement of labour and the technological impetus towards cartelization; the inflationary tendencies of a successful economy and the depressive tendencies of an unsuccessful one; the vacillation between optimism and pessimism.

The list could be easily extended, but nothing would be gained thereby. The common element consists in the inherent instability of an economic system whose energies are unevenly generated and whose self-regulatory mechanism is itself volatile. In the light of its possibilities for mismatches, overshoots and undershoots, self-feeding aberrations, sheer accident and, of course, political unrest, it would take the faith of a true believer to expect hitchless growth and changeless survival. In the end capitalism’s uniqueness in history lies in its continuously self-generated change, but it is this very dynamism that is the system’s chief enemy.

There is no point in arguing whether this perception is correct or not — that is, whether change will or will not give rise to self-corrective adaptations. What is indisputable is the perception that runs like Ariadne’s thread through the overwhelming preponderance of scenarios, with all their differences of emphasis and point of view. It is that the system will sooner or later give rise to unmanageable problems and will have to make way for a successor.

I shall come back to that central finding, but I must first put forward a more contentious explanation for this shared apprehension. It is a widespread sense of disquiet with regard to the moral basis of capitalism. Once again Adam Smith surprises us by having recognized the underlying problem. He is writing here about the determination of the wages of labour:

[T]he common wages of labour depend everywhere upon the contract usually made between two parties, whose interests are by no means the same. The workmen desire to get as much, the master to give as little as possible .. . It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute.... In all such disputes the masters can hold out much longer. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.⁴⁶

This is, needless to say, before the advent of unemployment compensation, industrial trade unions, and the welfare state, which have considerably redressed the inequality between labour and capital in the advanced industrial nations. Yet Smith has his finger on a crucial point. In a market society where employers and workers enjoyed full equality of bargaining power, there could be no systematic favouring of one side over the other. In such a society it is difficult to see why some should agree to work for others, insofar as an equality of bargaining power presumes that they would begin with equal amounts of resources. But even assuming that some would decide freely to become workers, why should their employers have left a surplus of revenues — profit — over what they paid out for wages? Why would not employers, too, be paid wages, perhaps somewhat higher than those who...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• Acknowledgements
• I Capitalism from a Distance
• II The Drive for Capital
• III The Politics of Capitalism
• IV The Market System
• V Scenarios for the Future
• Notes
• Footnote