It is by no means absurd to turn Marx on his head and develop a theory of capital value, arguing that labor by itself produces nothing, just as raw materials in the ground produce nothing. It is the process of organization through which labor is hired, employed and directed, through which raw materials are gathered, through which machinery and buildings are assembled, and through which production processes are organized, that in fact creates the product. Labor itself is an inert mass, barely capable of eking out a poor existence from the forests. The organizer who actually creates the product must be little less than an owner or controller of property.
In both socialist and capitalist countries, we have the spectacle of the famous “separation of ownership and control,” which seems necessary if production processes are to be organized, if only because those who own property are seldom good at controlling it, and those who are good at controlling it seldom own the property.
In capitalist societies, this organization is achieved through operations in financial markets, by means of instruments such as debt, bonds and shares. A good manager, or a good organization of managers, can control a far greater quantity of assets than they themselves own by borrowing money, issuing bonds or issuing shares.
Shareholders have certain rights over the ultimate control of the firm, but it is well known that these rights are rarely exercised, and that most firms are run by a self-perpetuating group of managers.
Things are not very different in socialist countries. The people in general are supposed to own the physical social capital of society, but they generally do not even have the formal rights of shareholders. There is often broad discussion of the economic plan, but the ultimate decisions reside in a very small group of managers, and the theoretical ownership by the people turns out to involve surprisingly little control.
The component organizations of the two types of society also show many similarities. In its organizational structure, and even in many of its decision-making processes, the Soviet steel monopoly is not very different from the United States Steel Corporation, and it differs hardly at all from corporations such as Lockheed or Martin Aircraft, which obtain almost all their income and a large part of their capital from the United States government.
The essential difference between the two types of society — and this will be significant even in distinguishing between, for example, Sweden as one of the most socialist capitalist countries, and Yugoslavia as one of the most capitalist countries of the “socialist camp” — lies in the existence or nonexistence of a private capital market, which again brings us back to the question of the legitimacy in society of this type of exchange and organization.
The capitalist corporation can grow if it succeeds in making profits; that is, if it can successfully revalue its products at the moment of sale, so that revenues exceed costs. And it can grow by not distributing its profits or by turning to the capital market, where it sells shares, bonds or promissory notes. Through any of these instruments, it can increase the total volume of assets it controls.
Similarly, a socialist monopoly, if it wishes to expand, must participate in the socialist equivalent of the capital market: the state agency that disburses investment funds.
What is urgently needed in this controversy is some kind of cost-benefit analysis of the alternative systems. Although it may not be possible to do this in a way that settles the controversy, at least certain steps in this direction would be fruitful. There are many elements in each system that are difficult to evaluate, and there may be disagreement about the elements of the systems themselves.
But if the issues can be removed from the field of ideological controversy and brought into that of careful analysis, we would at least obtain a deeper understanding of the subject. An analysis of the systems would also indicate those points at which improved data would increase our capacity to evaluate the two systems.
A provisional analysis could be expressed in tabular form as follows:
This chapter should not be concluded without taking a brief look at the arguments used by classical and neoclassical economists to incorporate capital income — that is, profit and interest — into the general framework of the exchange economy.
The critical question is whether interest and profits are paid “for something”; that is, whether they are part of an exchange relationship or whether they are a grant or one-way transfer, as the Marxists suggest.
The first prominent economist to devote much attention to this problem was Nassau Senior, who argued that capital income is paid for something called “abstinence.” Capital was acquired, in the individual case, through saving; that is, by consuming less than income allows.
