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On the Concept of Social Value

By Joseph Schumpeter, 1908

Critique by Punkerslut

Revised Edition -- June, 2007

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Image: From "Work" Gallery from RadicalGraphics.org

Start Date: December 21, 2003
Finish Date: December 22, 2003


     The study of Political Economy, or Economics, seems to be one with works and books that are full of erroneous language. It's much like trudging through a thickly covered jungle, with overcomplicated sentences instead of simple and direct ones, awkward phrases used instead of common and simple words. Perhaps it is this, among other reasons, that the study of Economics is avoided by most students, and avoided more by scholars. This work, "On the Concept of Social Value," is not an exception -- in fact, I would call it an admirable example of obscurity and boredom. Perhaps the cause of economic works oftentimes finding themselves ladden with complicated language is that it is tradition; as new Economists develop their thoughts and place them on paper, they believe that it is this language which is proper and appropriate for tackling these problems and explaining their ideas. As the common people read these, they become alienated and almost resentful of the study of Economics. Very little do they understand that it is rather the language used, and not the subject, which has managed to waste their time. Other explanations exist as to the burdensome nature of Economist language. In A General Theory of Employment by John Maynard Keynes, the author argued that he was addressing his fellow economists, not the public -- I was still baffled by the awkward, utterly disgusting language he used. An example of this is in the work by Schumpeter...

Perhaps it is implied that, if society as such should value things, it would put the same values on them as are expressed by their prices under present circumstances, or that market prices express relative values of things which correspond to what they are worth from the standpoint of society as a whole. It may, in explicit terms, be held that what appears prima fade as the result of individual actions turns out, in the end, to be the very thing that would be brought about by the conscious action of society itself. [Section II]

     The primary argument that Schumpeter presents, of which I have trouble accepting, is the idea that Communism and Capitalism produce similar economies. It is this which I shall critique...

The Effects of Communism and Capitalism Compared

...the theory [of social value] is that even in a non-communistic society each factor of production ultimately gets what its services are worth to the community

The practical importance of this theory is obvious. It tends to show that economic forces are not only of the same nature, at all times and everywhere, but also that they lead, under a r?ime of free competition, to the same results as in a communistic society. Competition and private ownership of productive agents are held to bring about a distributive process quite similar to one regulated by a benevolent and intelligent ruler. This theory attributes, indeed, to the law of social value the functions of such a ruler. Society itself is called upon to sanction what is actually happening, and it is assumed. that, apart from minor grievances, there is little to complain of. [section III]


Let us, for the moment, consider land-owners, capitalists, and workmen as three distinct groups, each organized so as to exclude competition between its members and enable the group to act as a unit. Then rent, interest, and wages appear to be the result of a barter between these groups. The outcome, as we are taught by the theory of prices, is indeterminate; we cannot give an exact formula fixing it, but only limits between which it must fall. An equilibrium will be attained in each concrete case, but other equilibria would be, from the standpoint of pure theory, just as possible as the one which happens to result, - and just as unstable. [section IV]

     I find the idea, that a Communist and Capitalist economy, manage to create similar outcomes is absolutely absurd. The reasoning powers of Mr. Schumpeter can be found to be fatally flawed. For example, a Communist society excludes the three classes of workmen, land-owners, and capitalists. It gives each person one of those rules: as a collective owner of capital, as a decision-maker in capital decisions, and as one to operate the capital (by capital, I mean the means of production). The fact that the demand and supply of items would still exist in a Communist economy might very well be true; in fact, I imagine there would be increases and decreases in the demand and supply of different goods. However, the ultimate outcome of the vastly different economic policies would be remarkably different.

     There are several remarked traits that can be found in the result of a Capitalist economy. For instance, since people are left at perfect freedom to do as they please, when it comes to the right to buy and sell at any price, what we find is a desire in all Capitalists to reduce their cost while increase their income, and thus increase their profit. This is indeed one of the remarked differences of a Communist and Capitalist economy. In a Capitalist economy, each person thinks about their own interests, creating a system of oppression and brutality. In a Communist economy, each person thinks and works for the interests of the whole. No person is a master or a slave. Before I draw out some empirical examples of the mechanics of a Capitalist economy, I must make one thing clear. The exploitation and abuse of the Capitalist against the public are intrinsically tied towards the Capitalist system. Since a person looks after their own interest in the Capitalist society, as a matter of law, they may very well feel justified in causing misery and poverty to others for their own gain. Some may argue that the Communist system, even in place, would not change a person's desire to have their own self interest. This is what separates the shallow from deep thinkers of this matter. A Capitalist system is designed so that a person can become wealthy by exploiting others, as designed by law, such as Free Enterprise. A Communist system is designed so that a person can become wealthy by working for others, as designed by law; this is accomplished by setting fair and just prices and wages.

     In their desire to accomplish wealth, by lowering cost and increasing revenue, the Capitalist class has gone to horrid and cruel lengths. Electricity is cost, so food distributors avoid refrigeration if possible. "Professor Barry Commoner of Washington University in St. Louis reported in 1968 on the increasing incidence of nitrate poisoning among infants discovered by European public health officials and traced back to the consumption of unrefigerated American-processed baby food." -- "Consumers Union went out shopping for fresh pork sausage recently. CU subjected the sausage samples to laboratory tests. Thirty percent of the federally inspected sausage and 40 percent of the infrequently inspected Illinois samples failed CU's tests for absence of filth or acceptably low bacteria counts. (In March 1969 sixty persons came down with trichinosis in Missouri.) CU also found that one-eighth of the federally inspected sasuage and more than one-fifth of the other sausage contained insect fragments, insect larvae, rodent hairs and other kinds of filth. The sasuage samples tested included most major brand names." [The New Republic, "What Are We Made Of? -- A Time for a Deep Look and a Steady Resolve," by Ralph Nader, April 17, 1969.] "Squibb [a brand-name pharmaceutical company] has been involved in recalls for carton mix-ups, label mix-ups, foreign capsules , contamination, printing errors, excess potency, low potency, ingredient substitution." [The New Republic, "Drug on the Market," by David Sanford, 1967.] "The idea [of investing in mutual funds] has been made so atractive that there are now more than 3.5 million people who own mutual funds, with a total investment in excess of $36 billion.... Typically, when a buyer purchases a mutual fund, more than eight percent of his purchase price is paid as a sales commission. This means that the instant you 'invest' $100, your investment is worth $92.... Several faculty members of the University of Pennsylvania's Wharton School made a study of this for the Securities and Exchange Commission, and report in 1962 that: 'The average performance by the funds did not differ appreciably from what would have been achieved by an unmanaged portfolio with the same division among asset types.' Translated, that means that an investor who was blindfolded and picked his stocks with a pin and donkey's tail would do as well as the high-priced investment advisers." [The New Republic, "Investing in Mutual Funds," by Mordecai Rosenfeld, 1966.]

     Had I dedicated the entire critique to the crimes against humanity committed on the part of the Capitalists, I would exhaust the attention span of my readers, as well as exhaust the world of several trees worth of paper for a single printed copy. The fact that Capitalists have abused their workers and their consumers is deniable only by the most ignorant, and those with the greatest conviction that the Capitalist system produces desirable results. I was once asked by a friend why the people aren't raiding office buildings and bombing the Pentagon. I replied, "Because the people have been convinced by the government, the media, the pigs, and corporate America, that this system is freedom, that liberty means working ten hours a day just to survive, so you can be denied health care and be arrested by cops when you try to vote."

     Since the time "On the Concept of Social Value" by Joseph Schumpeter was written, though, a great deal has happened politically and economically. The Soviet Union would be formed in 1922, adopting a Communist or Socialist economy, only later to officially be dissolved in 1991. 1948 marked the founding of the Democratic People's Republic of Korea, a Communist nation. In 1949, China would become a Communist state, which still remains as such today. The year of 1959 would mark the first year of Fidel Castro's rule over Cuba, assuming a Communist economy and accepting aid by the USSR. In 1976, Pham Van Dong would head the Socialist Republic of Vietnam, after a war that lasted several decades, involving many European nations and the United States. All of these events would take place at least several decades, at most three quarters of a century, after the piece of "On the Concept of Social Value" by Schumpeter would be written.

     However, as many modern critics would argue, the history of how things played out in those Communist nations verifies a very different place than what statistics would show, had the workers been paid the whole of their wealth. If the Communist nations still produce poverty and misery, regardless of their economic policy, then it may very well be true that Schumpeter's evaluations of the results of Capitalist and Communist economies are correct: there is no difference. However, most of the complaints of Communist nations in our modern era seem to be based on their political, not economical, practices. For instance, the reputation of contemporary, Communist nations seems to be similar to that of Totalitarianism. One thinks of torture chambers, secret police, massacres, and genocides, when they think of Communism -- but then again, they are educated by nations which still have to come to grip with its own partaking in these activities. Regardless, when it comes to secret police and an inhuman brutality of the government, the cause of misery in these Communist nations can hardly be due to their economical policies. To make such an assertion would be ridiculous. For instance, if a person crashes in their car while drinking, a reasonable explanation would be that he crashed because he was drunk -- an unreasonable explanation would be that he crashed because his car was green in color. Similarly, one cannot blame political downfalls on an economic policy.

     What policy, then, would be suggested, when it came to administering the politics of a Communist nation? A healthy Democracy would be necessary. For this to truly happen, there must be an entire elimination of all government and elected officials. All power must rest within the hands of each citizen of a nation, and no one else. If a government is necessary and must exist, its obvious to any political theoritician, that for it to survive a just rule, it must be extremely liberal, granting as much liberty to the individual citizen as possible. One may claim that all government is the same, and in same ways, this statement is very true. But, as we have seen worse varieties of government than others, we must admit that there are lesser evils than absolute totalitarianism, those similar to what one would read about in 1984.


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