The Rise of Social Democracy

0:00It was very interesting listening to Michael Levin on the skim milk fallacy. I suppose one could summarize that skim milk view as you can never trust appearances, so therefore you have to be extremely careful whenever you look. What I want to talk about today is a problem that confronted socialists beginning in the in the Late Nineteenth Century, as everyone knows, the socialist system is one in which the government, we don't have a capitalist economy, the government is in total control of production. And the question comes up, why should we have such a system?

0:45Now, according to Marx, it isn't a matter, as one might think, of saying socialism is is better than capitalism for such and such reasons, therefore people ought to replace socialism, capitalism by socialism, just as say, we might say minimum wage laws aren't a good idea, fairly simple argument will show, therefore we ought not to have minimum wage laws. The Marxist view is not saying socialism is better than capitalism for such and such Although Marx did of course believe that, that it was better, but he wasn't saying socialism is better than capitalism, therefore people ought as rational human beings to decide to replace capitalism by socialism.

1:34Quite the contrary, he thought that we have no choice about this matter. The coming of socialism was an inevitable phenomenon, as he says in Das Kapital, it comes with the inexorability of a law of nature, just as, say, whether we like this fact or not socialism was coming, just as, say, many people don't like the fact that human beings die, this doesn't affect whether it's true or not. We're stuck with it whether we want it or not. Generally, Marx thought there's an inevitable process that gives rise to socialism.

2:19One later writer, who was actually an acquaintance of Mises, although they had very different views, the German historical school economist Werner Zumbart, in a very elaborate book called Proletarian Socialism, said that Marx didn't really make any evaluative claims at all. He was purely making a descriptive claim as a scientist that socialism was coming. Now, whether that's perhaps an exaggerated view since Marx did have very, make very strong value judgments, nevertheless, he, Sohn-Marc, put his finger on an important fact in Marxism. So this precisely is the problem that gives rise to the problem I spoke about that confronted socialism in that the main argument that Marx made to claim that socialism was inevitably going to arise, seen by the late 19th century to be completely false, in fact just the reverse of the Truth. What Marx thought was that as capitalism develops, there's a pressure on capitalists to exploit workers more and more. Workers will gradually get poorer and poorer.

3:42He called this the immiseration of the proletariat. He evidently believed that sort of in, if You could have a seemingly scientific sounding phrase for something that was at least halfway towards showing it was correct. But all right, so he said that workers are constantly getting poorer and poorer because they're exploited more and more by capitalists who are under pressure to produce. Further, not only are workers getting poorer and poorer, but more and more of the population is becoming workers of proletarian. As the capitalism develops, there's a tendency toward the better capitalists drive out of existence the capitalists who aren't so good, pushing them into the proletariat. There'll be fewer and fewer capitalists, more and more proletarians.

4:42So the result of this two-fold process is that more and more people will become dissatisfied There's a firefighter with capitalism as conditions get worse and worse for them, there's a constant tendency toward immiseration. Now, when things get bad enough, say you have an overwhelming part of the population in an economic system, are in a very bad state of affairs, conditions are getting worse and worse for them. Eventually, they'll reach a point at which they can no longer stand this and they'll revolt. They'll overthrow the capitalist system and replace it with socialism.

5:31Now, further, very important to understand in Marx is that Marx thought that this process would not take place by peaceful means. It wasn't, say, again, that the socialist or communist party would give various arguments showing that capitalism wasn't a good system and that socialism was better, and people would become convinced of this and therefore vote the socialists into power. On the contrary, it was that conditions would become so bad that people would overthrow the capitalist system violently, replacing it with a new system. Marx, in his 1874 comment on the program of the Social Democratic Party, which is called Critique of the Go-To Program, explicitly criticizes these social democrats, whom I'll be coming to momentarily, for not recognizing the imperative need of violent revolution.

6:35He says when the system, it isn't a matter of modifying or replacing the system, it's a matter of totally overthrowing it. He calls for what he terms the dictatorship of the proletariat. What does he mean by dictatorship? Well, this doesn't have precisely the meaning we would most commonly think of today, where a dictator, say, is someone like Idi Amin, who is sort of a despot, who does whatever he wants, who operates quite entirely apart from the law. On the contrary, in the 19th century usage of dictatorship, and Leadership, Marx, which Marx was employing here, he took the terms taken from Roman history and law where it means a temporary delegation of emergency powers to someone and during this period of emergency the dictator can suspend all the normal laws in order to cope with the exigency of the situation.

7:40So what Marx is saying is that the whole proletarian class will assume these temporary powers dictatorship and then violently suppress the capitalists and anyone who resists. In Marx was not at all squeamish about the use of violence, for example in his comments on the Paris Commune in 1870. He refers to the fact that the Communards in Paris had murdered the Archbishop of Paris and he dismisses this. He says, well, this is just of no more significance than the fact that if you have a large crowd watching the parade, certain And people will probably be crushed in the in the crowd and he said we just we don't think very much of that. So we shouldn't take these atrocities very seriously. So that is sort of the preliminary prelude is the Marxism that involves the belief in its classical form that capitalism is in will inevitably be replaced by socialism because people will get the majority of the population, the great majority will get more and more dissatisfied till they reach

8:56the point of desperation, and that this overthrow will take place in violent terms. Now, the problem posed for socialists by Marx's view, a problem that faced them toward the end of the 19th century, was that it wasn't at all the case that workers in the advanced capitalist countries like Britain and France, Germany, the United States, were getting poorer and poorer. On the contrary, they were doing much better than ever before, that things, although there were some exceptions in various years, and there were depressions at various times, such as 1873 and other years, in general conditions were getting better for the workers.

9:42There was one writer I want to recommend who was a late 19th, early 20th century writer, W.H. Malock, who wrote a number of books on conditions of the workers, and he was perhaps the best In fact, Zombart, in his book I mentioned earlier on proletarian socialism, for him it was not the case that things were getting worse and worse, they were getting better and better for the workers, further, it wasn't at all the case that more and more of the population was becoming, joining the proletariat, not in absolute terms, relative terms. In fact, Zombart, in his book I mentioned earlier on proletarian socialism, For him, this was one of the main facts leading to his abandonment of his formerly Marxist beliefs.

10:31He said that in Germany, the proletariat was only about one-third of the population, let alone the majority, as Marx thought it would. So the problem then for the Marxists was that workers are supposed to be getting poorer and poorer, And they're supposed to be more of them, but in fact workers are getting better and better and they don't constitute more of a population. So this, at least prima facie, seems to overthrow the Marxist claim that capitalism is inevitably doomed. Now, what were people who were socialists going to do about this or how would they react to this?

11:21In that time, in the late 19th century, the socialist parties were, the main socialist parties were called social democratic parties. The German party was the social democratic party. It was an alliance between, mainly between Marxist socialists and followers of Ferdinand LaSalle, who had been a younger contemporary of Marx, who had somewhat different views, who had been killed in a duel, His followers merged with those of the Marxists and formed the Social Democratic Party. Similarly, in England, there was a Social Democratic Federation founded by H.M. Hindman. Then in Russia, there was also the party that later became the Communist Party, came out of what was called the Russian Social Democratic Labor Party.

12:13This split in 1903 in a conference in London into two wings, the Bolsheviks and Mensheviks. So all the parties, social democrat at that time didn't mean some sort of moderate or variety of socialist or some kind of liberal as it does today. Social democrat was simply the term for socialist at that time. One perhaps trivia question comes up at this point. At the 1903 conference in London, Joseph Stalin was a delegate. You can very often trick people by asking, did Stalin ever visit England? And they'll say, they'll think of, they'll say, oh no, he couldn't, he didn't leave Russia except for going to the Crimea, except in World War II, and they won't think I don't think of this, but he was in London in 1903, but as I say, that's just an irrelevant digression of which I'm characteristic of me.

13:21We then have the social democrats are then faced with this problem that things aren't working the way Marx said they were. Now some of the social democrats turned a blind eye to this problem. They said, well, Marx, the people think workers work. were in fact getting worse and worse off even though the facts didn't seem to bear that up. They would come up with various unusual ways of measuring immiseration that showed that workers were getting worse or they would come up with claims that Marx didn't really say that. He didn't really say that workers are getting worse and worse off. But if, of course, if he didn't say that, then they didn't realize that that would pose a severe problem for the Theory and that you wouldn't have an explanation of why capitalism was inevitably doomed.

14:26But there was one very influential writer, Edward Bernstein, who wrote a book I think in 1881 called Evolutionary Socialism, and what he said, he was a member of the Social Democratic Party, but what he said was that Marxists should respond to this crisis, that and the way that the workers are getting better and better by abandoning the immiseration thesis and with it the view that capitalism was inevitably doomed. What he said is instead of saying that capitalism is inevitably doomed, we should say that socialism is ethically better than capitalism Capitalism, or for various reforms in the socialist kind, are intrinsically desirable, and that people could come to recognize this and vote socialist members into parliament and thus bring about socialism by peaceful means, rather than depending on the proletariat becoming poor and poor and then overthrowing the capitalist system. His views met with a great deal of opposition among the Marxists. Marx had died in 1883 and wasn't really aware of this, Bernstein's views, but Friedrich Engels, who was Marx's great collaborator

16:02and lived until I think 1894, was very much aware of this and condemned Bernstein. And the leader of the German Social Democrats, Karl Koutsky, was also very opposed to this new view. Although he tended to fudge a little on whether violent revolution was necessary, as the German Social Democrats tended to do better in the votes for the German parliament, He was inclined to think that perhaps socialism could come about, at least in part, through peaceful means, but nevertheless, he rejected these new views, these evolutionary socialist views, and Bernstein founded his own party, which was called the Independent Social Democrats.

16:49Although that party had far fewer members than the other one, their views have come in the 20th century to be increasingly influential and they're very much akin to those, if not identical with those of contemporary liberalism. The view would be not that most left-wing people today have, is not that capitalism Socialism is going to collapse of its own way, you're going to be violently overthrown by the proletariat, but that socialism is better in some ethical way than capitalism. Now, one, perhaps, main argument that Bernstein used for, and this is why, perhaps why these is that capitalism is an undemocratic system, according to them, under capitalism, decisions on production are made by a small group of people who determine what's going to be produced in the economy, it's just a small group of capitalists who decide what's going to be produced in the economy.

18:07of Capitalists, who decide this according to what they think will make the most money for them. Whereas, say, in the political system, we vote each person having one vote for what political party we want or what, say, people prefer to have a more left-wing government, they'll vote in one party. If they want a more conservative government, In the market, according to the Social Democrats, this isn't the case. People just have to take whatever the plutocrats or wealthy capitalists decide that they're going to take. They have no choice about this.

18:52So, this is, as I say, the main argument, perhaps the main argument that the social Democrats have used. They say even if capitalism isn't, as Marx thought, inevitably going to collapse, it still should be replaced by socialism because this will give people more control over their own lives. Lives. This also seems to be a very big theme in contemporary political theory. You have, say, the most influential political philosopher today, John Rawls, suggests modifying the capitalist system in certain ways in order to give people sort of what he thinks are more of certain kinds of standard are goods, including personal autonomy, that he thinks unfettered capitalism doesn't give them.

19:44So again, as all the social democrats say, we can't rely on the market to give people control over their own lives, since under the market people are at the mercy of just a few capitalists. Now, I think in responding to this argument, a number of economists have developed this idea, but one of the most important responses to this argument was given by Ludwig von Mises, and in a number of his works, particularly in his book, Great Work in 1920 on socialism, He claims that, on the contrary, the capitalist system is more democratic than any other economic system.

20:34What he says is that, well, it's true that capitalists are aiming at profit for themselves, but what determines what's going to be profitable for them, and that's what the consumers prefer. Supposing, say, I decided I would like to get together a book of my talks, well, I don't think that I might want to do this, but it probably wouldn't sell very much, so I wouldn't make any money if people didn't want to buy this. So what determines, according to Mises, what's produced is what consumers want, then what this of course applies at the first stage for consumers' goods, and then goods of production, goods of what in the Austrian tradition is called goods of a higher order, are produced by what the manufacturers of those goods think will, or what they think will best help, will best produce the consumer goods.

21:35So, given the consumer preferences, we can get, by what's called imputation, the prices of all the other goods. So it's basically, according to Mises, consumer preferences in the market that determine everything, is he says, I think, that the market is, in the market, every dollar gives the right to vote. So in the market, in his response to this argument that the market is undemocratic, he says no, on the contrary, the market is a very democratic system because what's determining the vote, the production is the dollar votes of consumers and he claimed not only that it's democratic but it's more democratic than the competing system which would be under socialism, which is the determination by the political system In a political system, the people who are in the minority don't get what they want.

22:39Say, those who didn't vote for Clinton for president are just out of luck. The ones who voted for him presumably get what they want, but not the ones who didn't. There is a further problem that politicians are running on general platforms. If, say, you have particular issues you're interested in, you can't just say you're going to vote for one person because you have a position on a certain issue, and then you'll be guaranteed that if you're in the majority, you'll get what you want. For example, there are all sorts of polls that have shown that the great majority of the American population strongly disapproves of affirmative action. Nevertheless, we have affirmative action programs even though this country is allegedly democratic and one reason for this is that even if people get the candidate they most want, it is no guarantee, since they're voting for him on a whole lot of issues, it is no guarantee that if those who to the majority on each issue will get its preference. Now, Mises point out in the market

23:55that this isn't the case, that anything that's profitable will be produced, so people with very unusual tastes or things that aren't liked by many people will still be able to get what they want as long as it's profitable to produce these things, at least for some One thing that I think is very valuable about this argument, and I was in first when I inclined to think perhaps this argument wasn't that good an argument in that although it assumes that democracy is a good thing and it's measuring the market by how democratic it is, and as we remember from Hans Hoppe's lecture yesterday, there are at least some doubts about democracy that could be raised. I mean, isn't it a matter, one might say, of individuals and their rights rather than what the majority want. But I think on second thought, this is an extremely important argument because what it's doing, and this is characteristic of Mises, is that it's taking the premise of the opponent and then arguing that even granting the opponent's

25:08premise the conclusion still doesn't follow. It's saying even if you don't particularly This argument is still valuable because it's saying the socialist, the social democrat is saying the market is not a democratic system and it should be replaced by socialist system which is democratic and Mises said, no, no, this isn't right, in fact, the market is much more democratic than the socialist system, so he's saying this argument isn't at all to be true. This argument isn't at all dependent on thinking democracy the greatest system or some sort of imperative, it's just directly replying to the socialist claim. This is often the best type of argument to use because the socialist there can't refuse to grant the premise since he himself has advanced it.

26:02So, now I think this argument I should mention was also pioneered by another outstanding free market economist, W. H. Hutt, who coined, I think coined the term consumer sovereignty in an article in the South Africa Journal of Economics around 1934. and he thought that Mises, he pushed the argument rather to an extreme and he thought that in a capitalist system, you shouldn't really say that the capitalists own property, it's in fact the consumers who are the owners of everything since they're directing the course of production. I think that's pushing the argument a bit too far, because it isn't that capitalists in the capitalism don't own the resources, it's just that a certain way of using them will lead to profit for them, and that people who are motivated by that incentive will tend to replace those who aren't.

27:02I mean, it isn't a matter, one can't really say that the capitalists don't own that, the resources in the capitalism, but nevertheless, I think even though it is an exaggeration, it's a useful way of looking at things just so we can see what's wrong with the fallacy of the Marxist view. So, in conclusion, I think what the social democrats really failed to meet the challenge posed by the collapse of Marxism, Marx had said that the decline of capitalism was inevitable and that it would be replaced by socialism, the socialists said no, no, this is a matter, it isn't, they admitted that, the social democrats admitted that the collapse of capitalism wasn't inevitable, they said that this is are both ethically desirable. They completely failed to show this since, in fact, they didn't show that the capitalist system was undemocratic, but in fact, even by their own criteria, the capitalist system comes out much better, and I think if one were to look at matters in a more objective way, one would say Marx was not only wrong, his views were the opposite of the truth, which the social democrats failed to recognize,

28:22recognizes that the collapse of socialism is inevitable as Mises showed throughout his outstanding work. Thank you.