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John Carruthers'
Common Wealth:

An 1870s' explanation for wealth concentration in the 1980s.

 

© 1995 Keith Rankin

Economics Department, University of Auckland

 

Paper Presented to the Eighth Conference of the History of Economic Thought Society of Australia
University of Queensland, Brisbane, Australia, 12-14 July 1995.

 


Abstract

In Peddling Prosperity, Paul Krugman tells of a sharp change in the pattern of income growth in the USA that took hold in the 1970s. In the 1950s and 1960s, the benefits of growth were evenly distributed, whereas in the 1980s seventy percent of the growth was accounted for by the richest one percent of families. Inequality has been growing according to a similar pattern in most other countries. The paradox is that, while the most plausible theories point to the effects of technological change, the period has been marked by productivity slowdown.

In New Zealand in 1877, John Carruthers began to write about these issues as a central theme of what was ostensibly a critique of John Stuart Mill's theorems on capital. His project culminated in the publication in London of his book Communal and Commercial Economy. He claimed that capitalists competing with each other for shares of the economic cake pay high wages, but that this unintended state of affairs would be interrupted whenever capitalists chose to cooperate.

Developments in labour-saving technology could help to precipitate such a situation in which wages could rapidly fall. Carruthers claimed that the resulting cheapness of labour would inhibit the further adoption of labour-saving technology, bringing about a productivity slowdown so long as the decisions about which technologies to adopt continued to be made by those who profit from low wages.

 

The Carrutherian Perspective

Introduction:

Even should I not succeed my labour will not be thrown away, as it is always useful to look at scientific problems from more than one point of view.
   Carruthers 1878, p.3
The whole physical, intellectual and moral well-being of mankind depends on our knowing and doing what nature insists shall be done.[1] No one, therefore, who has given any study to the subject, and has arrived at conclusions different from those currently accepted, need apologise for publishing the results of his work. If, indeed, he failed to do so, he would be guilty of treason to the commonwealth, however little effect he might anticipate from the publication, and it is as a duty that this treatise has been written and is now offered to the public.
   Carruthers 1883, preface

John Carruthers (1836-1914), Scottish-born engineer, "the man who built New Zealand's railways" (Roth 1959), developed a "communistic" (1878, p.16) critique of classical economics while living in New Zealand in the 1870s. He presented his early work to the Wellington Philosophical Society, and published it as two papers in the Transactions of the New Zealand Institute: "On Mill's Fourth Fundamental Theorem respecting Capital" and "On Some of the Terms used in Political Economy". His work culminated in a book called Communal and Commercial Economy which he published in London in 1883.

Carruthers demonstrates what I call a "public domain perspective" in that he emphasises the productive power of resources that are by their nature collectively owned: nature [environment], knowledge [science and technology], good laws [public institutions], and habits of labour [culture and the work ethic] (1878, p.14; 1883, pp.167,196). As part of that ethos, contributing to the public domain constitutes a motive to produce that is simultaneously altruistic and self-interested; an alternative to profit maximisation in which "in a commercial society, every man's hand is against his neighbour in all economical matters" (1883, p.5). The profit motive, while potentially more powerful in that it involves direct self-interest, inevitably involves a significant amount of rent seeking; of acting to maximise relative rather than absolute well-being.

Carruthers saw his own writings very much as a contribution to the public domain - indeed as his public duty. The communal economy he advocated is a form of organisation in which all personal benefits derive from contributions to the public domain. As such it is at the extreme end of a spectrum; [2] the opposite end being where all personal benefits derive from zero-sum success. It is a kind of null hypothesis:

Communal economy is the art or science, as we may call it - in accordance with custom and in the absence of any good reason to the contrary - of so disposing the labour of communities as to obtain for the labourers the greatest possible well-being. I shall have very little to say about it in the following pages, as all that may be learnt without a study of statistics is so obvious and simple as to require very little discussion. (1883, p.9)

Communal economy is not a true utopia - or at least was not originally conceived as one - because it is largely argued for in the negative; [3] ie as a simple concept of economy that derives from collective rather than individual profit rights.

Rather than promoting communism, Carruthers aims to uncover the methods by which post-Smithian classical economics ("plutology") justifies the wealth and privilege of a minority owner/rentier class; a social class who can be called "capitalists" in that the majority of their income is a result of legally valid claims to profit/interest/rent (profit rights). Carruthers seeks to show how plutology serves the ends of commercialism - ie the living standards of capitalists - while analysing the market economy from an alternative post-Smithian perspective.

Manchester University's Ian Steedman discovered Carruthers' book while following up a reference to Carruthers by Wicksteed. Steedman, who describes Carruthers as a "Victorian market socialist", has published a summary and brief analysis of the equalitarian market system that Carruthers calls "communal economy" or "communism". Communal and Commercial Economy appears to draw nothing from contemporary socialist thought (Steedman, pp.300-302), but is clearly aimed at the same alternative economics market as was much other dissident (predominantly socialist) writing of his time. Carruthers' rhetorical and at times sarcastic flourishes [4] have to be understood as relevant to both his perception of his audience and his own passion to communicate a new perspective; a vision that can promote optimal technological progress as something inherently egalitarian, rather than as a means by which successful capitalists can consume ever more surplus value.

To fully appreciate the economics of Communal and Commercial Economy without becoming drawn into the mechanics of communal economics, it is necessary to be familiar with Carruthers' New Zealand writings, which were presented to a conservative professional audience. The anti-capitalist rhetoric is certainly much less prominent, yet the underlying conviction - one of reason and passion - is no less strong. Economic justice is seen as a precondition for the realisation of higher living standards through productivity growth. Efficiency and equality are complements, not trade-offs.

 

Vertically-Integrated Production

True political economy is not the science of wealth, but the art of disposing wisely the concerted labour of societies.
   Carruthers, 1883, p.4

Carruthers emphasises the cooperative nature of the market mechanism. Directly consumable wealth ("direct wealth") is the product of workers of many occupations working independently yet in cooperation with the market as the coordinating institution. In an economic equivalent of Heisenberg's uncertainty principle in physics, we cannot measure the contribution of one labourer relative to that of another. [5]

The labour of all [ie many including capitalists] is equally necessary to the production of the common stock. The problem to assess the utility of each man's production would be quite insoluble. ... It would be easier to assess the relative value of two navvies' work, one of whom could dig ten and the other only five yards of earth in a day. Even in this latter case the labour of both men would be equally requisite to the production of the total stock, if it were necessary to dig fifteen yards of earth in a day. (1878, p.30)

Direct wealth becomes the property of capitalists who, through their choices, determine what will be produced.

Steedman (pp.312) notes that "Carruthers often reasons in vertically integrated terms". Indeed this construct of vertical integration is integral to Carruthers' abstract reasoning. In its extreme formulation, each capitalist manufacturer represents a vertically-integrated community within a global economy:

There is really no such thing in commercial economy as foreign trade, or rather all trade is foreign. Each manufacturer is a separate community, manufacturing only for export, and everyone who buys and sells in the markets of the world forms part of one great commercial society. (1883, p.287)

Exchange is of little consequence in Carruthers abstraction of commercial economy. What is called trade in common language is, in his model, merely the subdivision of the common wealth according to the various valid claims exercised by capitalists. [6] The producers of intermediate goods are seen as equal co-producers of the economic cake.

It is not necessary to place materials in a separate class as they may be classed with the final products of which they eventually form a part. (1878, p.5)

Banking - in giving producers of producer goods claims to consumable wealth while producers of consumption goods give up claims on direct wealth - facilitates this subdivision, ensuring that the common wealth is larger than it would otherwise be. Intermediate goods are components of consumable wealth that are to an extent the property of the banks, represented by bills of exchange. Banks facilitate the organisation of labour so that the producers of intermediate products (or, in commercial economy, owners of enterprises producing intermediate goods) have comparable claims to a share of the common wealth as do the producers of consumable goods and services: [7]

The aim of banking is to facilitate the subdivision of the profit-fund amongst the several co-producers. (1883, p.77)

The Carrutherian view doesn't need a more "adequate discussion of markets for ... the determination of primary input prices" as Steedman suggests (p.311). For Carruthers, all prices are a consequence of "higgling" in the marketplace and have no other significance. Inputs are acquired via short term bank credit; true banking (as distinct from money-lending) reduces the transactions costs of exchange.

Capitalists, in the simplified model of commercial economy which suffices for analysis, are captains of industry, producers and owners of fully vertically-integrated enterprises, who make decisions about what kinds of products they will draw from last year's common wealth, [8] and what balance of profit goods, wage goods and implements will be produced this year as a result of advancing those wage goods to labourers. How much each capitalist will produce this year is determined by the extent to which he demands wage goods from the common stock of wealth. Total production this year is limited by the existing stock of wage goods.

Carruthers is well aware that capitalists, in his full abstraction of commercial economy and to a large extent in reality, are passive rentiers who simply make the key choice about the extent to which they will consume (ie draw from the profit fund that is already fixed for the short term). [9] Choices about production techniques are made by managers (ie labourers) working on capitalists' behalf, but are considered to have been made by the capitalists who hire them. Carruthers is also clear that, in many instances, the manager and the capitalist are one and the same person (ie as in the simplified abstract model).

To a Wellington audience that must have included a number of capitalists, Carruthers argued that so long as capitalists' contributions are essentially parasitic - "we have a right to expect more from capitalists in return for the immense privileges we grant them, than a simple acquiescence in the course which events are taking" (1878, p.25) - their existence as capitalists constitutes a mistaken social contract which should not be continually renewed. By implication, communal economy - as the system of organisation which does without individual profit claims over the common wealth and freehold property rights over nature - would take over from commercialism. Private property rights would however continue to exist with respect to consumable wealth and implements allocated as wages. The market mechanism would remain intact.

 

Carruthers' Techniques of Criticism of Classical Economics

It would be well to keep distinct what is essential under all circumstances from what is due to the accidental conditions under which society may happen to regulate its labour.
   Carruthers 1878, p.30

Carruthers was initially motivated to write about economics because of what he saw were errors of reasoning inherent in the language of plutology, namely the propensity of words to shift in meaning.

Of the total wealth existing in a community a part is usually called capital. Unfortunately, this word has several different meanings in common language, and confusion and error have arisen from its being used in one of these instead of in its defined meaning. It sometimes denotes not actual wealth, but a right to a certain share of the wealth of the community. Mill frequently uses it where it can have no other meaning than this notwithstanding that he has defined it to be "a stock previously accumulated of the product of former labour" ... Mill does not use the word capital in any one fixed sense but glides almost imperceptibly from one meaning to another. (1878, pp.4-5,22)

This concern of Carruthers was shared by the marginalists who adopted the use of mathematics as a means of imposing formal logical discipline on economic discourse.

Carruthers defines wealth as all things of utility (1878, p.4) whether or not they are exchangeable or the products of former labour. He defines capital as the ownership of claims upon the communities' wealth. Thus it follows that all of the common wealth is owned on an individual basis by those with valid legal title.

Carruthers saw plutology as apriorism; a set of tautologies that were sold to the public as something akin to immutable laws of nature. For example, on rent, Carruthers says:

The ratio which represents so-called fertility in commercial economy is that which the profit, measured in money,[10] bears to the normal price of the farmer's stock; with any other meaning Ricardo's theory is glaringly wrong, while with this meaning it is a bald truism. The fertility of land is simply its "profit-producing virtue", and as all profit above that which gives the farmer a certain return is called rent, the higher the rent the greater will be the fertility, and we get into a circle when we also say the greater the fertility the higher will be the rent ... Rent, like profit, with which it is identical, depends on the whole physical and economical environment of the society. (1883, p.134)

Of course the concept of "capitalist" can only be defined in similarly circular terms; while only capitalists can dispose of the common wealth, anyone who has a valid claim to a share of the common wealth is a capitalist. Carruthers notes: "Everyone who can thus bargain for a share of the wealth produced by hired labour is a capitalist" (1883, p.29); so long as wages are above starvation level (as Carruthers notes they frequently are), [11] labourers who save become capitalists (1878, pp.26-27). A useful perspective is to regard all workers on salaries or wages above normal as being sub-contracting or self-employed small-time capitalists. New Zealand's Employment Contract's Act (1991) - which explicitly promotes this contractual form of labour market organisation - makes it easier to recognise that certain classes of workers are also very much capitalists. The corollary - yet to be followed up in New Zealand or anywhere else to my knowledge - is that salaries to a large extent belong in the operating surplus of the national accounts. Carruthers was always aware of this duality:

The working classes, that is, those who live on wages and not on profit, comprise men from the Prime Minister downwards who have very large incomes ... [and] spend a considerable proportion of their pay in luxuries not necessary to their subsistence. (1883, pp.224-225)

His own salary in New Zealand at the time of his resignation in 1878 was 1,150 (NZ$100,000 in 1994 prices); a very large amount for that time. (AJHR 1878 H-33, p.2)

The key to Carruthers' distinction between commercial and communal economy lies in the lack of definition in classical economics of the true community of interest. This results from our - indeed Mill's - "communistic instincts" (1883 p.9) which make it hard for us to think of labourers as agents of production no different (to capitalists) than natural forces, machines or livestock. Carruthers argues that commercialism is only interested in the well-being of capitalists, not of humanity as a whole, and that plutology - as the science of wealth - rationalises the one as if it were the other. [12]

Commercial economy has no special concern with labour or its efficiency ... the world in a commercial society belongs to the capitalists ... to [them] it is a matter of indifference what natural agents are instrumental in the production of his wealth, and the labour of men does not, in his estimation, differ generically from that of birds or horses ... (1883 p.10)

This problem indeed arises in modern national accounting systems. Was it meaningful, for example, to talk of GDP per capita in apartheid South Africa? Clearly, there was a two class society, and the privileged class was concerned about GDP per white person, not GDP per person. This issue is central to Carruthers' argument, because South African whites could choose to raise their living standards either by (i) employing more blacks to work for them (ii) by adopting labour-saving innovation as a means of forcing black wages down [13] or (iii) by innovating in ways that recognised that the sources of productivity growth are communal and therefore allowing blacks and whites proportionate gains through higher wages (black incomes), higher profits (white incomes) but not higher rates of profit. In the former case, we see that what is extensive growth for humanity is intensive growth for capitalists (Jones 1988). Apartheid South Africa constitutes a very good parody of Carruthers' model of commercial economy.

As Carruthers' default option, communal economy acts as a counterfactual against which various definitions can be evaluated. All key concepts of political economy should be meaningful in either system. Thus any definition that assumes the existence of two classes cannot be meaningful in a classless society:

The existing social arrangements under which this state of things almost necessarily exists, are not however, essential to the production of wealth. ... The first objection to [Mill's] definitions [of capital] which presents itself, is that they would be unmeaning if there were not two classes in the community, one to whom the whole of its wealth belongs, and who may or may not, as they like, give any of it to the other class, who own no wealth and can only procure any by labouring for the wealthy class ... It thus appears that in a communistic society there is no such thing as capital in the sense of a fund for carrying on fresh production. (1878, pp.17-18)

There is a difficulty with Carruthers' use of the comparative method, in that Carruthers' abstraction of communal economy - all of us being both capitalists and workers (whatever we choose to be called) - does suggest an alternative formulation; for definitions of a one-class society based despite economic duality. Under such a formulation of class, definitions that assume two classes cannot be proved to be meaningless. This difficulty, however, enables the Carrutherian perspective to be developed so as to give further insights based on the idea that economic progress might result from workers becoming capitalists rather than capitalists becoming workers.

As Steedman noted (p.301), towards the end of his life Carruthers claimed to repudiate his earlier works. Yet his posthumously published and incomplete Economic Studies (1915) essentially revisited the analysis if not the vision of his works up to and including Communal and Commercial Economy. We certainly know that he fell out with the socialist community after the death of his friend William Morris, and we know that he wished to develop his final work in the spirit of Adam Smith.. The idea that "we are all capitalists" was prominent in the introduction to his first published work on economics. I would wish to speculate that what I call in this paper "the alternative formulation of Carruthers' vision" - of a classless society of enlightened capitalists who collectively rather than individually owned the income stream flowing from the public domain (rather than a society in which labour was the essential factor of production and criterion for a meal ticket) - was in fact the essence of his life long vision, and that it was is attempts in the 1880s to flesh out his communal economy as a form of socialism that eventually dissatisfied him about his own work. This possibility reinforces the idea that what really matters about Carruthers work is his description of capitalism, or "commercialism" as he preferred to call it.

 

Workers are Capitalists and Capitalists are Workers

Every free man is a capitalist to the extent of owning his own personal powers of body and mind ... The sun's warmth and light, air, rain, land, and all other useful natural agents are wealth. Where they cannot be appropriated by any individual, the ownership is common to all [sovereign], and all are capitalists; where they have been appropriated, as in the case of land, the owner becomes the sole capitalist as regards them.
   Carruthers 1877, p.25
We [who are sovereign] leave in [capitalists'] hands the absolute disposal of the labour of the community, and the distribution of the wealth produced by that labour; we allow them, within wide limits, to fix their own wages, only requiring them in return to conduct their operations so as to give themselves the largest profit they can make. The only argument which can be used to justify such a trust is, that in striving for the interests of themselves, they, if they use thought and self-restraint, are likely to do better for us than we could without their help. [However] the failures they have made would fairly justify the community in trying to do without them ... the subjects of King Tawhiao or Sitting Bull are far better off than the poorest classes of Ireland, or even of England.
   Carruthers 1878, pp.25-26

Carruthers' analysis operates on an abstract level in which economic and social class only merge for simplicity of exposition. We are all capitalists in part, although we do not all possess the recognised individual claims that define private capital. In commercial economy, the entire common wealth is owned by capitalists, in proportion to the size of their recognised claims.

In the complete form of Carruthers' abstract model, capitalists and workers are mutually exclusive. Capitalists are consumers, labourers are producers who consume the wage fund. Nevertheless, while he mostly wrote of capitalists and labourers as members of mutually exclusive classes, Carruthers recognised that, in reality, all workers are capitalists and all capitalists are workers. He saw that, as sovereign owners of the public domain we employ competing capitalists to allocate resources because, by and large, we do subscribe to Smith's view that the "Invisible Hand" of the market is the most efficient available form of impersonal cooperation.

Nature - indeed the whole public domain - is, to Carruthers, the prime source of wealth. But as we all own equal shares of the natural universe (and our scientific, institutional and cultural constructs of it), we can therefore abstract from the public domain and attribute all production to labour: [14]

We shall say that the pipes are the result of the labour of those who made and laid them, or, if we wish to be more exact, we shall say that they are the result of the whole order of the universe, but that as human labour is the only element we have under discussion, we must attribute to it the entire result. (1883, p.167)

Of course the opposite could apply, in line with our alternative formulation above. As Carruthers also claims that the value of one person's labour contribution cannot be separated from that of others, then the labour contributions must be regarded as equivalent. We could therefore abstract from labour entirely, attributing the entire production function to fixed capital, which is exactly what Carruthers says capitalists (as distinct from confused plutologists) do. Commercial economy is essentially a problem for Carruthers only in that capital - ie claims on the common wealth - is held individually rather than collectively.

 

Requisites of Production: Implements and Labour Supply

The material requisites of production are labourers and implements only. ... There is one immaterial requisite ... a wish strong enough to overcome man's natural repugnance to work.
   Carruthers 1878, p.16
Man uses in his industry but one implement, and this comprises the whole world; he has, by his labour from the earliest days, modified the world and made it more suitable for his comfortable existence, but he has not increased its magnitude.
   Carruthers 1883, p.164

Carruthers' term for all productive capital is "implements". The concept is important because of its inclusiveness. His production function has just two factors - labour (fuelled by wage goods) and implements. There is no residual, or, to be precise, "implements" includes all residual factors of production. From capitalists' point of view, labour is just another implement, to be substituted much as a tractor can be substituted for a team of horses.

In Carruthers' model, implements - beyond the items which constitute a workplace which are wage goods - are simply a part of the natural universe:

The fund from which high wages are paid is not the profits of capitalists, but the inexhaustible store of nature, who freely gives to those who wisely ask of her. (1883, p.196)

Thus it is meaningless to ascribe private ownership to implements, be they railways or water-wheels. When water interacts with a water-wheel we cannot say that x percent of the product is due to the water and y percent to the wheel and 100-x-y percent to the millhand. Rather, the capitalist miller, his banker and his creditors have meaningful title to the produce of the water-mill, or, more precisely, to a share of the common wealth of which the produce of the mill is a part. Capital (ie ownership) is an entitlement to a stream of goods; it is not a collection of implements. Erecting and operating a mill procures such an entitlement.

Under conditions of communal economy, Carruthers believed that fixed capital formation would in most circumstances be higher than under conditions of commercial economy, because labour and implements would be regarded as complements only, not as substitutes. Under commercial economy capitalists replace machines with workers or workers with machines; under communal economy workers keep improving their machines and inventing new ones, their working conditions and their hours of work - because it is their welfare that the system seeks to maximise.

In the world of commercial economy, the rent-seeking impulse drives capitalists to try to raise the rate of profit (as distinct from raising the size of the profit fund) by driving down wages:

Capitalists ... will, if they can, reduce wages to a point at which the labourer can barely live and work. They forget that a real and active desire that wealth shall be produced is one of the requisites of production, and that this cannot be entertained by a spiritless, hopeless drudge ... (1878, p.25)

Wage goods are not simply the fuel that enables labour to function. Rather, wage goods engender a wish to work. Thus the "immaterial requisite" is really labour supply which - except under conditions of slavery or absolute subsistence - differs from the supply of horsefeed in that workers can choose whether or not to work. In a society with basic wages well above absolute subsistence, a rather large bundle of wage goods is needed to induce men to labour. [15] Furthermore, Carruthers considered labour productivity to be a direct function of the real value of that incentive:

By doubling wages [capitalists] would induce men to work so much better, that the produce would be increased in a still higher ratio. (1878, p.25)

It should be understood that "doubling wages" includes providing better implements; ie wages represent the total labour cost to the employer. [16] From an employer's point of view, the worker and the worker's workplace are one implement. Carruthers downplays the standard arguments which regard more implements as capital accumulation (1878, p.22). Because, more workplaces means more workers, extensive investment is no more than a demonstration of the bias within the commercial system for labour using rather than labour saving techniques. Merely increasing the numbers of implements in line with population growth is not true investment: "it is part of [the community's] current expenditure to provide the new members with facilities of producing wealth for their own support" (1878, p.18). Such implements are simply complementary wage goods.

The increased capitalisation of each workplace is the essential element of Carruthers' counter-Malthusian view of long-run labour supply. Capitalists' demanding more wage goods of a uniform type - including more implements of the same type as are in general use - constitutes a stimulus to population growth, according to Carruthers' argument. The argument is anti-Malthusian in that Carruthers saw wages as regulating population; not population regulating wages.

[Capitalists] should, even in their own interest, refuse to pay less than a certain liberal rate; the wages fund would then maintain only a comparatively small number of labourers, and an efficient check would be at once placed on undue increase of population (1878, p.25).

Carruthers' view implies a backward sloping long-run labour supply schedule. [17] Workers accustomed to high or rising living standards would limit their families to the extent that they expected there would be positions available to their children offering an equal or better standard of living than their own.

Whatever a man's lot in life may be, he becomes used to it, and as he thinks what is good enough for himself is good enough for his children he does not hesitate to rear as many children as he may reasonably hope will find employment and wages similar to his own (1883, p.253).

Thus low-wage families would have more children both because of high child mortality and because they perceive a future of numerous positions (ie jobs) at near-starvation wages rather than a limited pool of high quality jobs.

As Carruthers was well aware, his rationale for preventative birth control would not be as strong in a communal society in which the number of workplaces was not defined by capitalists' choices; and in which there would be greater incentive among those with a short time horizon to free ride (1878, p.16). Indeed, he asserts that excessive population growth could be the only cause of poverty in a communal society (1883, p.241). His answer is that variations within the prevailing working classes show that skilled workers who could choose to have more children do not (1883, p.238). In a commune, everyone would be educated at least to the level of skilled workers in his day, therefore longer time horizons would predominate.

Carruthers favoured high wages even to the extent of claiming that taxes on labour were the most efficient types of tax. A tax on labour would add to the cost of labour, therefore it would reduce the normal rate of profit and encourage labour-saving innovation. From his perspective, capitalists bore all taxation as they owned the entire common wealth:

Wages being nothing more [to capitalists] than an implement, a tax on them would be also a tax on capitalists. Labourers would be able to force up their wages to meet it. Such a tax would help to correct the unnatural cheapness of work ... and would induce capitalists to improve their machinery. (1883, p.279)

The State, which is largely incidental to Carruthers' model, is depicted as just another capitalist (1883, p.277), albeit one with statutory powers of taxation and regulation. As a capitalist, the government demands consumer goods in the form of military services. Carruthers is concerned to show that the services, such as military services, that the plutologists describe as "unproductive labour" are the equivalent of goods consumed by capitalists (1877, pp.28-32; 1878, pp.9-10,19-21)

It should be noted here that tariff protection in new countries like New Zealand - to which Carruthers was opposed (1878, p.8;1883, p.208) - was in fact advocated by many protectionists as a mechanism to maintain wages that were set high initially by "an abundance of new land" and "a public spirit amongst the workmen which prevents them from competing against each other" (1883, p.259). Carruthers saw protection more as a form of combination between capitalists.

 

Income Distribution, Innovation and Productivity

Income Distribution without Innovation

If an individual capitalist is content not to consume a larger proportion of his share of the common wealth than the average of his fellows, he will be able to enjoy that proportion every year, and still keep good his claim to the proportion of the whole year's produce to which he was originally entitled.
   Carruthers 1878, p.23
When a spendthrift squanders his wealth he ceases to be a capitalist, but the others acquire the share which he had lost. The whole class owns between them all the wealth produced. If one of their number falls out of the ranks it is so much the better for the rest; on the other hand, a capitalist who increases his share by saving and investing a larger proportion of his gross share than the average, acquires his right at the expense of the others. He benefits the working classes, not only directly by increasing their wages, but also indirectly, by compelling other capitalists to be more frugal so as to maintain their proportionate share of the future stock. ... the average rate of interest [ie profit] tends, even when the population is stationary, to become lower, to approximate more closely to what will satisfy the more frugal part of the class.
   Carruthers 1878, pp.24,27

Carruthers claimed that capitalists were in an unstable competition with workers - "a state of unstable equilibrium" (1883, p.258) - with surplus value going to one class or the other unless the classes acted through combination to find a middle position. [18] Thus, there is a Malthusian-like process that causes capitalists to compete with each other for shares of next year's common wealth by advancing bigger shares of their wealth to the workers they employ. Although, capitalists own the entire common wealth, under this scenario they choose to procure wage goods rather than the profit goods they really want. Workers "win" to the extent that capitalists are caught out in this way by the Prisoners Dilemma. Indeed, the extreme outcome would be all goods becoming wage goods; if it could be made permanent, that would constitute a capitalist route to Carruthers' communism (ref. van Parjis & van der Veen).

If two capitalists, A and B, are entitled to equal shares of the wealth of the community, and both invest their shares from year to year, the working classes will receive the whole product of their labour; A and B will receive none of it [except their share of wage goods]. (1878, p.19)

Plutological saving/investment is this process by which capitalists choose to produce wage goods rather than profit goods. Carruthers claims (1878, p.17) that this form of saving results in "higher wages", not "an increase of industry" as stated in Mill's first theorem on capital. [19] Savings is thus to capitalists what labour supply is to labourers; when unregulated, they are the means by which members of one class compete with others of the same class to the collective detriment of their own. Plutological saving is the mechanism by which wealth is transferred by capitalists to workers. "Saving by the capitalist ... enriches the workman, but [plutological] saving [ie abstaining from consumption] by the community would enrich no-one" (1878, p.18).

Carruthers notes however that capitalists would almost certainly combine to avoid this outcome. Even in the absence of collusion, the logical outcome of a struggle for larger shares is an oligopoly of capitalists:

In the struggle for a position the smaller capitalists are gradually pushed out of the ranks by the larger, who can, with less sacrifice, afford to invest a larger proportion of their capital. There is thus a tendency of wealth to fall into the hands of a few, and the extremes both of riches and poverty are generally found in the same community. In an extreme case, the number of capitalists may become so small that a practical combination may occur amongst them to reduce the wages fund, and something like this appears to have taken place in the later years of Rome. (1878, p.27)

This is a statement to the effect that, once a certain threshold of concentration or class consciousness is reached among capitalists, they react to a situation that is damaging for them collectively while beneficial to workers and cooperate with the express intention of advancing less of their common wealth as wages and keeping more as profit goods (ie luxuries). [20] This may be the kernel of an explanation of the sharp about-turn in the factor distribution of income in the USA and many other countries from the 1970s (ref. Krugman, chapter 5, Rowntree Foundation 1995).

 

Innovation and Labour Productivity in Commercial Economy

New and improved implements always increase the quantity of wealth which can be produced by the labour of the community, and the labourers share more or less in this advantage. Their interest is thus seldom opposed to the construction of new implements, although they bear the whole of the necessary preliminary sacrifice, and even in most cases a great deal more.
   Carruthers 1878, p.8
The accumulations we have received from our fathers, and owe to our sons, are knowledge of the laws of nature, good laws, and habits of labour. If these are increased ... with the same labour our sons will be able to live better than we ... If population is stationary, nothing more is required to increase the average wealth than to replace all worn-out implements with new ones of a more scientific kind ... the community does not require to save.
   Carruthers 1878, pp.14,18
At present, when wages are in many trades above the natural minimum, capitalists find it to their advantage to use, although only to a small extent, the knowledge they possess; but as wages fall this will no longer be the case ... It is the immediate interest of all [capitalists] to bring their country to the state of stable equilibrium towards which commercial societies tend, that is, where the labourer can barely live on his wages.
   Carruthers 1883, pp.259,260.

The process of conspicuous consumption, once begun, might be accentuated by the adoption of new technology, but capitalists rather than workers would eventually have to make the immediate sacrifice by paying for the new implements.

Labourers [receiving just the "bare necessities of life"] would be divided into two classes; one engaged in producing the necessaries of life for themselves and for the other class; the other engaged in producing luxuries for the rich, and new and improved implements, which would still further increase those luxuries. (1878, p.17)

However, under conditions of prevailing wages being well above bare subsistence, the impact of labour saving innovation could be very different, depending on whether capitalists were competing with each other, or acting in combination. In the former case, each capitalist would tend to use new machines to produce wage goods so as to further enlarge his share of the common wealth. In the latter case, capitalists in combination would see no reason to limit their access to consumables through paying higher wages than necessary to make workmen work, but they might well innovate as a means of further enlarging the already large profit fund. The third situation is that they may invest in labour saving machinery as a means of enforcing a switch of strategy; ie in order to break the power of trade unions by creating unemployment and deskilling jobs.

The whole tendency for scientific discovery is towards the substitution of mechanism for manual skill, and we may expect that in most trades inventions will be made which would enable men not belonging to the union to do the work hitherto done by those who belonged to it, when wages would fall to the rate current in the worst paid craft. We may also expect that great and sudden improvements of machinery will be made in many trades when the union would be defeated even without external competition, for the number of men required would be temporarily lessened and competition for employment would become inevitable. To these two causes the failure of the guilds was mainly due. (1883, p.265)

An alternative to innovation when pursuing this strategy was to invest abroad employing cheap foreign labour. [21] This is the more pessimistic prospect, that Carruthers believed could only be resolved via a global decentralised communism. Innovation at least had the potential to work in everyone's interest if the unstable power balance between capital and organised labour could somehow be maintained; ie a balance between the first and third of the above scenarios.

Carrutherian saving/investment is the sacrifice required (typically imposed on labourers by capitalists) in order to invest in new implements, thereby augmenting the power of nature. Saving equates to innovation rather than constructing more standard implements. Innovation, however, does not always require savings. The artificial improvements to the productive universe which are external economies deriving from normal activity - the durable but intangible qualities of learning, invention, lawmaking and cultural accumulation - bring about a degree of innovation without investment. [22]

Where the fund of tomorrow can be increased without lessening that of today, it ought of course to be done, but where increased profits can be obtained only by investment ... it is the work of the statesman to devise means to induce or to compel capitalists to invest more largely. (1883, p.169)

While Pareto optimal technological change occurs as a by-product of the accumulation of knowledge, forms of optimisation that require consumption sacrifice on the part of capitalists may require government intervention in commercial societies. Railway construction, on account of its scale, is an innovation which required considerable savings.

The general case of Carrutherian investment involves a change of production technique - in the case of railways it means replacing barges and carriages with trains. The most important specific case is that in which innovation itself incurs a significant labour cost as a trade-off for a labour saving mode of operation. Capitalists, of their own accord, will only innovate if wages rise and profit rates fall. [23] Even then, given that wage goods are an insignificant portion of capitalists' consumption, the existence of profit will mean that innovation will occur at less than the optimal rate - from the point of view of the whole of society rather than that of the capitalist community; the "Golden Rule" (Steedman, p.305) - which occurs according to Carruthers when profits are zero.

Carruthers' view that capital can be determined only as a function of the quantity of profit received and the normal rate of profit is important to understanding the message of Communal and Commercial Economy. Thus a fall in the rate of profit is really indicative of a capital gain to capitalists; ie of a rise in the exchange value of ownership claims. A fall in the profit rate is caused by a rise in labour costs; therefore it is a fall in the rate of profit caused by a rise in wage rates that creates the incentive to adopt labour-saving techniques of production.

Carruthers, like Schumpeter, made important the distinction between invention and innovation. He saw high wages as being critical to the innovative process, and saw both high wages and innovation as determining the rate of invention; invention being essentially a public domain activity, a positive externality that results from workmen having opportunities to learn through a sophisticated workplace and short working hours. Invention could not continue ad infinitum, however, if inventions were never made use of.

With every rise in wages and consequent improvement in machinery the inventiveness of mechanics would increase, and the capitalists would gain from the greater efficiency of labour. (1883, p.196)

Many writers on political economy have alluded to the important influence of high wages in stimulating invention, but their far more important influence in inducing capitalists to make use of existing knowledge has been almost entirely overlooked. (1883, p.259)

When inventions and discoveries are no longer utilised they will no longer be made, for men will not continue to devote their lives to studies which can have no practical results; thought that leads to nothing serviceable to mankind soon degenerates into trifling, and if science were a study necessarily barren of useful results it would have been already in its decline. (1883, p.260)

Chris Freeman and Luc Soete, in a review of the history of thought with respect to technological change, note the lack of emphasis given in mainstream economics to the question of technological improvement - "Schumpetarian growth" (Mokyr 1990a, p.6) - as distinct from the issue of fixed capital formation - "Solovian growth" (Mokyr 1990a, p.4).

In the General Theory [Keynes] did not look at the question of investment directed towards the more rapid and effective introduction of new technologies. ... This is all the more astonishing, in view of the fact that he had clearly made the link with Schumpetarian theory six years earlier in his Treatise on Money. (Freeman and Soete, p.29)

Even Keynes largely ignored this issue, which was however central to Carruthers who wanted a much greater contribution of fixed capital in the world's production function (ie a high rate of labour productivity), but certainly did not see utopia as a world of increasing numbers of dark satanic mills.

Another important aspect of Carruthers' view of technology was to note the equivalence if not superiority of inexpensive capital-saving machinery (characteristic of American industrialisation) which would come into operation quickly and wear out quickly, enabling a very high proportion of machines in current use to embody the latest designs and improvements. As such, he refuted the view that the stored labour content of the fixed capital stock was of any significance for production:

Too much importance is generally given to the durability of implements. If, in a community, a given number of machines is required to carry on its manufactures, say ten, each of which requires a year's labour of a hundred men to produce, and will just last ten years: at the end of every year one machine will be thrown aside as used up, and a new one brought into use; there will always be ten in use, each representing the labour of 100 men, so that the stored-up wealth of the community will be represented by the labour of 1,000 men for one year, and there will always be 100 men employed in making new machines. If, now, a new kind of machine be used, which is equally efficient, but will last only one year, and requires only ten men to construct: at the end of every year the whole ten machines are thrown aside and ten new ones put in their place. The total number of men employed in machine-making is, as before, a hundred. The community is no better off than before, and no worse off; the same number of its members are removed from the business of producing direct wealth. The amount of labour stored up is. however, represented by one year's labour of a hundred men instead of, as before, of a thousand. The "accumulated stock of the produce of former labour" [Mill's definition of capital] has been reduced to one-tenth of its former amount without lessening the well-being of the community. There are hundreds of steam engines now being thrown aside which would last for twenty or thirty years longer, but it is better to make new ones of better design. The old engines cost as much labour to produce as the new ones, so that if the wealth of a community is to be measured by the amount of stored-up labour it possesses, there is no advantage in replacing old-fashioned machinery by new. The exaggerated importance generally given to saving and accumulation in common estimation, and even by political economists, is due to the use of the word capital in a sense not covered by its definition [ie Carruthers definition of capital as a claim on the common stock]. (1878, p.13)

Throughout, Carruthers emphasises that material stocks must be continually consumed and reproduced in order to maximise the well-being of the community; "use it or lose it" could have been his motto. It is knowledge, institutions, and culture that endure.

Under a communal system, technology would be adopted in an optimal (but not a maximal) way. Because the same people who bear the costs also make the gains, there will be a desire to promote investments which confer external economies on the community. But the community as a whole has an implicit discount rate. High initial costs cannot justify limited future gains, especially given the high cost of durable implements that stand to become obsolete.

If a large expenditure would be incurred in making a new machine, and only a small increase obtained in the production of future wealth, the community would be richer by not making it at all. (1878, p.12)

In the absence of a communal economic system, any set of regulations or other political action that acted to raise wages would constitute wise statesmanship. Otherwise, any circumstances (such as a universal liberal education, or an improved understanding of political economy by capitalists and would-be capitalists) that served to erode class differentiation by allowing capitalists and labourers to perceive their long-run interests as being common and therefore promoting a voluntary cessation of rent-seeking within or between classes would be welcome.

This latter course of events is of course equivalent to capitalists abolishing themselves. Indeed, something like the self-abolition of capitalists was taking place in one part of the world in the 1870s; the abolition of the samurai in Japan. Certainly, Japan experienced a rapid rise in its rate of innovation since that time, and it does have a considerable amount of class unity in the sense that what is seen as good for all Japanese is seen as good for each Japanese. That unity of direction has not, however, shown itself in Japan's dealings with the global community (Pacific Basin Institute 1990).

 

Income Distribution and Productivity in the Post-War World Economic Order: a Carrutherian Perspective

Over the period [1947-73], incomes of all groups rose at roughly the same rapid clip, more than 2.5 percent annually ... [Since 1977] 70 percent of the rise in average family income went to the top 1 percent ... although productivity growth is slow, it is not negligible.
   Krugman 1994, pp.132,138,136.

There has been an increasing divergence in compensation between corporate executives and the workers labouring under them. In 1960 ... after taxes, the chief executive earned only 12 times the factory worker's wages. By the end of the 1980s ... the chief executive's compensation was about 70 times that of the average factory worker.
   Reich 1992, p.7.

Carruthers' key insight is that capitalists, acting selfishly, might act in two quite distinct ways: (i) to compete with each other for relative shares of the gross product, or (ii) cooperating to maximise to total consumption of capitalists relative to workers.

In pursuing the first strategy, they transfer excessive (from their collective viewpoint) shares of their incomes to workers, having already chosen to produce more of the goods that workers want rather than the goods that only they consume. Innovation, conducted as a means of furthering such a strategy, has the effect of raising the quantity of wage goods produced per worker while not reducing the level of capitalists' consumption. Capitalists tend to become relatively worse off (the rate of profit falls), and small-time capitalists get squeezed out. Under this scenario, rising wages generates innovation, which generates rising wages.

Innovation, however, can also be a means by which capitalists implement their alternative strategy. They innovate in order to generate unemployment and to make high-wage (eg skilled) labour redundant. They cooperate with each other through various forms of monopolisation and holding companies, by forming their own associations, or through influencing the actions of the state which is itself a capitalist. Capitalists - seeking increased relative and absolute well-being - tend to be concerned about the rate of profit (rather than the quantity of profit goods). A low rate of profit - ie indicating that their assets have a high exchangeble value - indicates to thenm that they are paying their workers too much. The teaching of plutology reinforces this view, in Carruthers' perspective.

The 1920s saw the introduction of Taylorism - an innovation designed to get the most product out of each worker. However, as "Fordism", Taylorism was adapted to the mass production of wage goods. The Great Depression can be seen, in Carrutherian terms, as a result of a contradiction whereby capitalists were producing ever increasing amounts of wage goods, but were reluctant to follow Henry Ford's lead by advancing them to workers in the form of higher wages. Private cars, which had been profit goods, were becoming wage goods.

The 1970s' reaction by capitalists to Fordism was precipitated by the growth of Government. Not only was the United States' government (as a successful competing capitalist) grabbing an ever large share of the profit fund in order to fight the Vietnam War, governments world-wide were acting as producers of new wage goods that, as wage goods, are best provided on a collective basis; ie public education, health care and insurance services. In the 1970s, inflation associated in capitalists' minds with rising wages, rising commodity prices and rising taxes precipitated a switch towards cooperation among capitalists.

Evidence of this strategy in the 1980s includes the rise of big holding companies, the policy emphasis on disinflation and increased competition between suppliers of raw materials and intermediate goods (global liberalisation), the introduction of institutional reforms (such as New Zealand's Employment Contracts Act) sought by capitalists in order to raise profit rates, and the simultaneous shift towards both lower taxes and regressive indirect taxation.

 

Conclusion

It is the interest of the capitalists to give as little as they can to the labourers, and to receive as much from them as possible, consistently with their attaining other objects they have in view. ... [But] in order to hold their own they must conform their personal expenditure to that of the average of their fellow capitalists.
   Carruthers 1878, p.24

Carruthers predicted that technological change could be used as one of the means through which capitalists switched their stance from competition to cooperation between themselves, and that as the era of capitalist solidarity took hold, the introduction of new technology would be both curtailed (as labour intensive production becomes more profitable) and reoriented into the production of goods not consumed by ordinary workers.

They key idea underlying Carruthers' model - that capitalists pursue two underlying but distinct investment strategies that may be switched suddenly according to underlying profit rates - is, I feel, a novel one. In drawing attention to these two strategies he also highlighted a third - one of class cooperation, making full use of the market mechanism which, like Adam Smith, he saw as essentially a cooperative invisible hand.

Carruthers' underlying vision is that of a decentralised market economy. It simply requires that all enterprises become (or come to be regarded as) joint stock companies in which all citizens have an equal non-transferrable shareholding. [24]

The finale of the process of capitalists combining to the detriment of labourers is that the conditions that encouraged innovation - the existence of high wages (equivalent to low rates of profit) and the collective desire of capitalists to break-out of high-wage equilibrium - were strictly temporary. Commercial society tends to revert to an equilibrium of very low wages and high rates of profit/rent. In such a society, there is no incentive to use techniques that raise labour productivity, and a lack of innovation discourages invention. By implication, however, this dystopia is not quite an economic black hole; presumably capitalists would cease to cooperate, setting the scene for a new round of investment in wage goods. History shows, however, that intensive growth is unusual, but not without precedent (Jones 1988). So long as, in a society in low-wage equilibrium - the historical norm since agriculture was established (see Carruthers 1878, p.16) - capitalists conform in their habits of personal expenditure, they will be cooperating and that negative stationary state that Carruthers foresaw would remain.

 

____________________

Notes:

  1. The motive here is the alternative to the profit motive; that of giving to the public domain so that the whole community will be better off by the value of that shared gift. This is of course the motive for all cultural pursuits. This motive of collective interest is not only implicit in Carruthers "communal economy", it is also implicit in every wage contract, where individual workers strive to make themselves better off indirectly - their employers being the direct beneficiaries of their work - by contributing to economic growth. [back]
  2. Enlightened "commercial economy" is at the same end of the spectrum. In such a case, only capitalists own the public domain (or, more correctly, the income streams - wealth to Carruthers - that derive from it) and capitalists always act in their collective interest rather than, as per the Prisoners Dilemma, in their perceived individual interest. I use the word "enlightened" advisedly, because, in Carruthers view, it is the lack of enlightenment (ie lack of combination) among capitalists that has allowed labourers to flourish in certain periods of history. "Fortunately, capitalists do not act together as a class ... all try to entice workmen from the others by giving higher rewards" (1878, p.17). [back]
  3. Even the final chapter of Communal and Commercial Economy which comes as close as Carruthers gets to spelling out the details of the communal system focuses to a large extent on addressing arguments against communism (Steedman, p.306). It is not until a subsequent article "The Industrial Mechanism of a Socialist Society" was published in 1884 (evidently at the urging of his new socialist friends - ref. Steedman, p.301) that the mechanics of Carruthers' communism (now called "socialism") were spelled out. [back]
  4. For example, "High wages would also gain another end dear to the English plutologist, namely that of enabling English manufacturers to undersell those of other countries, and thus to extend the area of their business, and perhaps eventually to attain that ideal state when England would be a mere workshop, in which neither tree nor flower were seen, where the brooks were all loathsome sewers, and the sky a black and stifling fog. That high wages would bring about this happy end ... follows irresistibly from Ricardo himself ... (1883, p.197). There were echoes of this strongly anti-mercantilist stance in Carruthers' comments on the industrialisation of New Zealand: "We in New Zealand, are in so happy a position that we need not undergo the privation necessary to procure expensive machinery. The English are ready to do that for us" (1878, p.8). [back]
  5. This "uncertainty problem" is applied to implements (fixed capital) as well as to labour. The only justification for one capitalist to get more than another is the market price of his claim. [back]
  6. Carruthers basic concept of "common wealth" (1878, pp.22,23) or "common stock" (1878, p.30) is close to that of gross product in modern national accounts. However, his use of the term "commonwealth" (infra, p.1) in the preface of Communal and Commercial Economy has a meaning akin to "sovereign public domain" [my expression] or "nature" [his expression]. [back]
  7. Services are as much wealth as are goods. They simply occupy one end of the spectrum of relative durability, and should be regarded just as any perishable good. "The community at large is not, however, enriched by the labour of the farmer more than that of the actor or public singer. Without the farmer's labour the community could not exist at all, but without the actor's labour it could not maintain that average state of enjoyment in which it lives and to which the labour of both is equally necessary. The product of the labour of both can only be enjoyed once, and when once used is gone forever." (1878, p.11) [back]
  8. The term "year" is an abstraction. Carruthers suggests that a manufacturing year is typically longer than a solar (ie agricultural) year. (1878, p.21) [back]
  9. Direct wealth equals the profit fund plus the wage fund. In today's national accounts, Carruthers' wage fund equates to "compensation of employees" plus "consumption of fixed capital" which is the cost of maintaining employees' workplaces plus the reinvested profits that are part of the "operating surplus".. Carruthers' profit fund equates to the balance of the "operating surplus". The profit fund is called the "interest fund" in Carruthers' NZ work (eg 1878, p.27). [back]
  10. While Carruthers recognises money as a means of exchange (eg in his discussion on banking) and as a source of value, money primarily appears as a unit of measurement: "The capitalist measures his wealth in money; it is the quantity of gold he has, or which at current rates he could get, for the particular thing on which on which his claim to a share of future wealth is founded" (1878, p.28). [back]
  11. "[Mill's first] theorem is correct only when the conditions are such as are here indicated, when the labourers get only the bare necessaries of life, and when capital means these necessaries. Industry is then limited by capital, but not otherwise." (1878, p.17) [back]
  12. To Carruthers, plutology justifies an economic order with an exclusive community of interest (capitalists) by pretending to be concerned with the interests of all. "We have here, as elsewhere, the mixing up of communal and commercial economy" (1883 p.287). His concerns about the scientific status of classical economics reflect the same concerns that have more recently been expressed about ecology: eg "The kinds of ideas and notions about ecology and environment that we see today I don't believe are any more scientific or rational than any previous notions of nature. ... In both cases there are particular kinds of social ideals being read back to us as if they were lessons of science itself." (Langdon Winner, Historian of Science; BBC 1992). Carruthers, a great admirer of Adam Smith, saw Smith's art of political economy as having become distorted into the pseudo-science at the hands of Ricardo and Mill (1883, p.4 passim). Whereas Carruthers saw The Wealth of Nations as a growth manual, he saw Mill's Principles of Political Economy as a pseudo-scientific tract that served to ratify existing socio-economic arrangements. [back]
  13. That is, intensified competition between blacks would enable reductions in the wages fund in addition to those made possible by reduced employment. [back]
  14. Because Carruthers consciously abstracts from the rest of the universe to attribute all production to labour as a means to simplify his analysis, he asserts that prices should be proportional to rather than equal to labour cost (ref Steedman, p.311). [back]
  15. Women less so. "The effect of free competition is very marked in the case of women's wages. They have not, except where they are the wives or daughters of workmen, acquired the most elementary knowledge of how to combine, and their wages are lower than those of men, even when they do the same work, and do it equally well, or even better. They compete more freely than men against each other." (1883, p.255) [back]
  16. That is, doubling total wages may involve paying workers twice as much per hour while at the same time reducing their hours of work and providing a more capitalised workplace. He cites New Zealand pay rates of one shilling per hour for an eight hour day, compared to threepence an hour in England for a twelve hour day. The price of the product in New Zealand is double that of England, meaning that real hourly wages are half in England, and real daily wages are three-quarters. [back]
  17. His comments on female workers (1883, p.255) also show that he accepts the added-worker effect; that short-run labour supply is backward bending when workmen are unemployed; ie when wages are low and falling. [back]
  18. Combination on the basis of economic class is inherently difficult when social classes do not coincide with economic classes, as in the alternative formulation of communal economy in which everyone is equally capitalist and worker. This has always been the source of difficulty in employee shareholding schemes. Of course, class-based combination only exists in commercial economy because of the coincidence of social and economic class. [back]
  19. That is, unless wages are at "near-starvation" level. "The theorem is correct only when the conditions are such as are here indicated, when the labourers get only the bare necessaries of life, and when capital means these necessaries. Industry is then limited by capital, but not otherwise." Carruthers point amounts to a statement that labour supply is normally price inelastic. Mill's version therefore also holds for the long run under Malthusian assumptions, and it holds if we assume a highly elastic forward sloping (ie Malthusian) labour supply schedule. Mill's version clearly holds under the conditions appropriate to Lewis's model of labour supply. [back]
  20. Capitalists with implements tied up in the production of wage goods may resist, of course. We can interpret in this way the problems faced in the 1980s by manufacturers in New Zealand, Britain and the USA. In the 1990s, we see a resurgence of manufacturing in New Zealand, but the new products are profit goods rather than wage goods. [back]
  21. "The rate of wages throughout the world would be equalised, and would be no higher than the Indian rate" (1883, p.268). [back]
  22. Such innovations are called microinventions by the economic historian Joel Mokyr. Carruthers seems to have caught the essential thrust of Mokyr's argument, which even in 1990 seems both novel and heretical. Mokyr emphasises that technological history is essentially about "free lunches", gain without pain arising from the tendency of the knowledge frontier to increase through discontinuities (macroinventions) and through gradual change. Carruthers (1878, p.12) notes the high opportunity cost of inappropriate investment: "In a community where education and knowledge of the laws of nature are stationary this latter limit [diminishing returns to existing knowledge] is soon reached, and no further increase of wealth is then possible. There would have been for instance no use, just before the invention of railways, in making more macadamised roads in England, as those already made were sufficient, and any increase in their number, however large, would have been followed by only a small increase in utility. Increased knowledge of the laws of nature, by suggesting that invention, opened out a new way of employing labour in making new implements which would repay their cost. The result was a large increase in the wealth of the world, measured, not by the cost of the railways, but by their efficiency as compared with the roads they superseded." Compare with Mokyr (1990b, p.278): "Without the macroinventions of the Industrial Revolution, we would have a world of almost perfectly designed stagecoaches and sailing ships." [back]
  23. Carruthers gives an example in which a firm initially produces cotton at a profit rate of 10%. The total cost of the cotton produced is 52% wages. A 20% rise of wages reduces the profit rate to "say" 7%, causing the amount of profit to rise so long as a new labour-saving technique is adopted. Wages paid once the new technique is in operation fall by 30%, leaving wages as 42% of the total cost. (1883, pp.198-199) [back]
  24. Something like this has happened in New Zealand with the reform of electricity retailing. The municipal utilities are now equally owned by all residents through an explicit shareholding. Thus dividends are paid on the basis of ownership rather than electricity use. The purpose of the reform however was to allow utility ownership to become transferable. Auckland's Mercury Energy has not as yet allowed its shares to be transferred, and, so far, it does operate in some respects according to Carruthers' model. To conform more closely with the model would require the managers of Mercury Energy to cut their salaries and maintain them in a fixed proportion to those of their lowest paid workers. [back]

 

References

BBC (1992) Prologue: When Chemists were Heroes; The Story of DDT, BBC-TV Production 1992; screened Pandora's Box series, BBC World; screened New Zealand TV1 22/6/95, 3:05 am.

Brown, P. ed (1992) Education for economic survival : from Fordism to post-Fordism?, & Lauder, H. London, Routledge.

Carruthers, J. (1877) "On Mill's Fourth Fundamental Theorem respecting Capital", Transactions of the New Zealand Institute, pp. 24-34. (Paper read before the Wellington Philosophical Society, 12 January, 1878.)

Carruthers, J. (1878) "On Some of the Terms used in Political Economy", Transactions of the New Zealand Institute, pp.3-31. (Paper read before the Wellington Philosophical Society, 13 July, 1878.)

Carruthers, J. (1883) Communal and Commercial Economy: Some Elementary Theorems of the Political Economy of Communal and Commercial Societies; Together with An Examination of the Correlated Theorems of the Pseudo-Science of Wealth as Taught by Ricardo and Mill, Edward Stanford, London.
chapters 1-4 | chapters 5-9 | chapters 10-14 | chapters 15-18

Carruthers, J. (1884) "The Industrial Mechanism of a Socialist Society", To-Day, n.s. 2:468-89.

Carruthers, J. (1915) Economic Studies, Chiswick Press, London.

Doray, B. (1988) From Taylorism to Fordism, London : Free Association.

Freeman, C. (1994) Work for All or Mass Unemployment? : Computerised Technical Change Soete, L. into the 21st Century, London, Pinter.

Jones, E.L. (1988) Growth Recurring: Economic Change in World History, Oxford: Clarendon.

Krugman, P. (1994) Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations, New York, Norton.

Lewis, W.A. (1954) "Economic Development with Unlimited Supplies of Labour", The Manchester School.

Mokyr, J. (1990a) The Lever of Riches, New York, Oxford University Press

Mokyr, J. (1990b) "Was There an Industrial Evolution?" in The Vital One, ed. Mokyr; Chur, Switzerland, Harwood Academic Publishers.

Pacific Basin Institute "The Meiji Revolution" in The Pacific Century (videorecording); (1990) Jigsaw Productions, USA.

Rankin, K. (1993) "Three Nineteenth Century New Zealand Contributions to Economic Thought" paper presented to the seventh HETSA Conference, Wollongong, NSW. {forthcoming as University of Auckland Econ. Dept. Working Paper}

Rankin, K. (1994) "For the Common Weal", New Zealand Political Review 3(1):12-15.

Reich, R. (1992) The Work of Nations, New York, Vintage Books.

Roth, H.O. (1959) "The Man who Built our Railways", Public Service Journal (April 1959, p.3)

Rowntree Foundation Inquiry into Income and Wealth (The Rowntree Report), (1995) chaired by Sir Peter Barclay, The Joseph Rowntree Foundation, London.

Steedman, I. (1993) "John Carruthers: a Victorian Market Socialist", The European Journal of the History of Economic Thought 1(2):297-322.

Van Parjis, P. (1986) "A Capitalist Road to Communism", Theory and Society 15. & R.J. van der Veen

 

© 1995


Rankin File