Integrated Economics: An Essay

A main point in Adam Smith’s Wealth of Nations is:

It is important for work to be divided into small parcels and for workers to be focused on doing small parcels of work in order for society to maximize its production and as a result become wealthy.

A main point in Karl Marx’s Capital is:

The capitalist makes his money by having raw materials (or in this day and age, ideas as well) turned into consumable commodities. His sole purpose for undertaking this role is profit. A simple case: the capitalist forwards $10 of capital to buy raw materials, he employs workers for $5 and sells the finished product on the market for $20 – making a $5 profit.

This sounds all well and good (and so it would, considering this is what we’ve been used to for 200 years or more). Marx points out the problem with this, and it instantly resonates with every worker’s feeling of being robbed, cheated and somewhat enslaved by the capitalist system. Smith helps one to reason this out by making clear the role labor plays in creating a wealthy society, but it is the combination Marx’s and Smith’s ideas that leads to a truly auspicious and refreshing solution.

Here is a simple example of how the robbery takes place: $10 of cotton is purchased, with the idea of making T-shirts, and $5 of labor is purchased to make these T-shirts (disregarding the cost of machinery for the sake of simplicity), the element that transforms this $10 of cotton into $20 T-shirts is labor. However, if this labor is purchased for only $5, a discount of $5 has been obtained for the labor power by the capitalist, which goes to increasing his individual capital. Taking a look at the broader picture for a second, every commodity sold and purchased is done at the market price (e.g. $10 of cotton), so if this is the case, no real profit-making can exist, because everything sold can only be sold for what it’s worth. If this is the case, how do so many companies declare billion dollar profits every year? The simple explanation: by robbing their workers of the true value they add to the commodities they produce. How is this possible? Well, without any real property and mode of subsistence, people will continually sell their labor power (i.e. the only commodity in their possession) for less than what it’s worth in order to be fed, clothed and sheltered.

It is this insight of Marx that led to the socialist revolutions of the 20^th century. Unfortunately, as so often is the case, with these revolutions they threw out the wheat with the chaff. The socialism of communist nations threw out private ownership in attempt to curb capitalism, but this failed. The reason it failed is because it is a natural human instinct to want to do well and to want to profit, even if it be at the expense of others. By getting rid of private ownership, socialist systems may have done away with the ‘exploitation of the working class’, but they also did away with the main motivator that propels human beings to strive – the longing to be free by becoming individually wealthy. This for me in a large part explains why capitalism is still thriving and why socialism is practically deceased.

What are we to do then if capitalism is a system built on the exploitation and underpayment of workers, and socialism is incongruent with the human mentality? The solution is made simple when the key factors of Marx and Smith are integrated into a workable whole. Smith points out that it is not possible for society to be advanced and in turn wealthy if labor is not divided. However, it is this same division of labor that impels individuals from being owner-producers to being wage-workers. In order to resolve this problem, we must make use of the structure of corporations more effectively as workers, and take control from the ground up using the impetus of Marx. The way to do this is by making use of the corporate shareholder system, which at this point in our society’s evolution is a well-established feature of business.

The proposition is that employees take more care in selecting the company they choose to work for (i.e. sell their labor to), and take an active interest in the company itself. Let’s track the steps of a college graduate as an example: After graduating from college, Kim researches the companies she finds most lucrative and applies for jobs with them. She is offered a position with one of them and starts to work. Instead of consuming all of the wages she is paid, she takes care to purchase her employing company stocks year after year. The more company stocks she purchases, the more she is motivated to work for the company, as she is now not just an ordinary wage-earner but a part-owner of the company, who is paid dividends from the profits the company makes (in other words, the amount that was discounted from the real value of her labor power is returned to her).

Taking this example further, imagine that such an attitude is present in all the staff of a particular company (i.e. staff continually invest some of the wages they are paid in company stocks and reap the benefits as dividends). This company would in turn be entirely employee-run, because the directors would be appointed at annual general meetings by the employees, and these directors would have to take great care to act in favor of both the employees and the shareholders, because these two groups would essentially be the same. The continual purchase of shares by employees would ensure that there would be a constant demand for shares on the stock market or exchange, resulting in share prices appreciating from year to year. This would benefit older employees about to exit the workforce, because the shares they would have purchased throughout their working lives would have appreciated in value, making them very valuable whether they were to be sold for a lump sum or held for the dividends paid year to year. Dividends would also grow as a ratio of profits, because staff morale would be high, resulting in high levels of production and in turn high levels of profit.

If such a mentality became ubiquitous in the workforce, privately owned companies would have to write their obituaries unless they were prepared to make their shares available to employees, and holders of large portions of shares in private and public companies would be led into selling their shares (albeit at a profit) as more and more employees looked to investing in the companies in which their interests were vested. In the long run, this would lead to a fairly egalitarian system, where producers would also be owners, and where the underlying truths and nobler principles of economics would be realized:

- True value cannot be created without labor;

- People who provide the labor should be rewarded accordingly, and not merely at the minimum price for which their labor can be obtained;

- People who have provided labor to society for a countable number of years should be rewarded by owning more than people just entering the workforce;

- All people (provided they are fit to do so) should contribute to the development and prosperity of society and be rewarded for doing so, as opposed to being rewarded for the work provided for by others.

The adherence of these principles would lead us into an era where the great wealth that is contained within our society would be distributed much more equally than now, and the majority of people would experience a moderate level of affluence. The gap between rich and poor would be bridged, and people would be duly rewarded for their efforts. In respects to human nature, such an implementation might still have its problems: It would be necessary for us to cease to want to escape the yoke of work, but rather come to see work as the key ingredient of our wealth-creation; labor is directly proportional to the value or lack of value inherent in the things we create. Also, it would be necessary for us to stop striving for greater comparative wealth in relation to other individuals for this would not be possible. If any individual were to become rich in the midst of such a system of economics, it would mean that every other individual would also be richer. Instead we might transform our ambition for greater comparative wealth into a motivation for greater wealth in general. This is how the quest for large profits might be integrated with the valuing of human capital to ensure a brighter future for all.

© JAlain 2004

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