Sismondi: from yesterday for tomorrow

Umberto Mazzei

10/07/2013

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National Income consists of only two parts: the first is the profit that springs from wealth; the second is labor power which springs from life.

Sismondi, New Principles of Political Economy, Second Book, Chapter II.

There is a world-wide wave of protests, in Brazil, Turkey, Greece, Spain, Italy, England, USA. Protesters may be called "occupiers" or “indignados”, but the root reason is the same: the awesome concentration of wealth in the infamous 1%, which is not even that.

Capitalism and its often condemned mechanics towards wealth concentration is not a new phenomenon. Sismondi already said, in the XIX century, that when it happens on a large scale, it is a sign of decadence; that is how he explains the collapse of the Roman Empire. Land property concentrated in huge estates thanks to slave work which displaced those small owners that were the nerve of Rome’s economic and military efficiency. A fate for those “opulent nations where public misery grows along with national wealth and where the class that produces everything is everyday closer to enjoying nothing. Such is the situation of nations in decadence”[1]

Current capitalism – liberal or neo liberal, as you please – evolved since the Industrial Revolution, through the nineteenth and twentieth centuries, but results are quite clear now: the government of the rich, for the rich. That bias is attributed to the Scottish philosopher Adam Smith, but it is false. Smith knew it and rejected it: “Wherever there is great property, there is great inequality”. Or “Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains.”[2] The real father of that iniquitous policy was the customs agent and stockbroker David Ricardo, who in his time called for abolishing the Corn Laws[3] and opening cereal imports, in order to make bread cheaper so that wages could be lowered and profits of factory owners increased.[4]

Modernity of Sismondi

The first to denounce Ricardo’s deviation was Jean Charles Sismondi, a Swiss cosmopolitan historian and economist whose writings have a very modern sound. He contradicted Ricardo’s and Jean-Baptiste Say’s ideas that limited economic policies to create profit for the rich and industrial policy to overproduction; what is now called Supply Economics. He said: “Political Economy is not a calculus science; it is a moral science”[5], a most necessary remainder today.

He added to the economic discoveries of Adam Smith a social vision that included wealth distribution among the population, as the real measure of national wealth: “Wealth is not an advantage until it spreads prosperity into all classes; population is an advantage only when every person is sure to find, through work, an honest life."[6] He went further: he asked for state intervention in order to limit the exploitation and abuses of power born of enormous wealth. A genuine Genevan, he supported private land ownership, but as a usurpation allowed because of its social utility.

The essence of his economic ideas is that capitalism can only be prosperous and stable if good wages are paid, because workers salaries constitute the indispensable marketplace to sell the products. He says that if the rich capture all the English national wealth (at the time of the Industrial Revolution) it will be necessary to conquer markets abroad (imperialism) and that if there is not a balance between production and demand, the system is destined to live from crisis to crisis.

Sismondi’s influence on Marx is well known and Marx uses Sismondi’s definitions and quotes him frequently. Later on, in the Communist Manifesto, in the first thirteen lines he praises him and in the last six calls him "utopian" and "petty bourgeois socialist”; something that can be attributed to the typical Nineteenth Century taste for theatricals. Any how, Sismondi’s ideas are more practical today, considering present capacities for espionage and repression; but Marx was right about Sismondi not wanting barricades, but to turn proletarians into petty bourgeois.

Sismondi wants to build a sustainable social economic order with a sense of equity in wealth distribution. We should retrieve Sismondi’s contributions for a modern socialism, or we could call it an equitable modern capitalism. In a time of terminal systemic crisis, it is urgent to build a new proposal. One that learns from the past and adopts political solutions from those socialist or capitalist examples which had economic and social success, but without forgetting to learn from those that have barely survived and from those that collapsed.

In such a study area we should include the versions of social democracy that thrived in capitalist Europe by a confluence of Sismondian/Keynesian ideas, labour union power and fear of the Soviet Union. In Latin America those ideas were only for political posturing and in the United States they reluctantly worked with the New Deal. Their legacy is a valid social protection system, which is now being dismantled because there is no money to keep it up, since politicians gave away public funds to save reckless bankers in trouble.

A range of contributions for the future

Sismondi was a prolific writer and left us two types of contributions for this century, which are complementary. One concerns the political system and the other the economic system. In this paper we will just do a nod to his institutional political concerns; the emphasis will be given to highlights in his writings for a social economy that would be more realistic, more stable ... and less tragic.

a) Contributions on the Political System

He wrote many books and essays on politico-institutional subjects. His best known books are “Studies in Social Sciences”, “Studies on the Constitutions of free peoples” , History of the Italian Republics in the Middle Ages”, “History of the French”. The most famous one is his analysis of the prosperous Italian municipal republics that ended up under royal and papal absolutism. There he tells how they flourished and innovated under a representative system that included the “live” producing forces in a municipal government based on principles of participation, independence and reciprocity.[7] That communal system brought Europe out of the Middle Ages and spawned the cultural and economic revolution we know now as the Renaissance. One vestige of such communal model is the Swiss cantonal system.

It was a representative republican model, which adheres better to organic social realities than the much vaunted Athenian model, which was not even egalitarian or inclusive.[8] The study of this History and the analysis of the free peoples' constitutions give us ideas for a better republican system, one more representative of real public needs. It has been noted that the current republics do not represent the population, but shepherd anonymous masses through expensive electoral campaigns and mass media control in order to elect marionettes moved by other concerns.[9] Present systems cover hidden tyrannies which recall Sismondi’s words: “When most of the men were born under its yoke, [Tyranny] finds itself supported by all the inert part of the nation, from all those who, unable to form and think themselves alone, are content with borrowed ideas and blindly accept all notions that are convenient for the government to inculcate."[10]

b) Contributions on the Economic System

The main economic work of Sismondi is "New Principles of Political Economy or wealth in relation to the population”, first published in 1819. There he says that crises are implicit in Ricardo’s version of the capitalist system. Marx said about that:"Ricardo’s analysis is often absurd. Sismondi instead points out the limits [need to adapt production to demand] that are intrinsic to capital, which clashes with its contradictions"[11] and adds "For him crises are not accidents, as Ricardo says, but essential explosions"[12]. Marx's opinion is clear: "The history of modern political economy (...) is complete with Ricardo and Sismondi, two antipodes"[13]. In the first book of The Capital, Marx praises and quotes Sismondi[14] and also in the second book[15], even if he says in another paper that Sismondi’s study on the relationship between capital and income "has not one single scientific word."[16]

It was Sismondi who replaced Francois Quesnay’s [17] three classes division (productive, owners and sterile) with one that reflects the industrial revolution: capitalists and workers. It is a functional and schematic concept, which puts on one side capital income (rents, profits, interest) and on the other, its necessary counterpart, consumption, which he divides into two types: a) essential consumption (survival) and b) luxury consumption.

Sismondi's ideas had affinities with other known thinkers. He coincides with Thomas Malthus in defending small owners threatened by the industrial revolution, because their income is part of the "effective demand" necessary to balance production and consumption. His words sound very modern: "There are no more peasants in the fields, no more artisans in the cities or independent chiefs of small industries, there are big factories only" but does not join Malthus on the idea of slowing industrialization nor in his fears of food scarcity.

There is a paragraph that I want to quote, because it paints a familiar picture: "With a few years apart, two terrible crises ruined part of the bankers and spread desolation in all English factories, while another crisis ruined farmers and lowered the retail trade. To make matters worse, that trade, despite its large size, ceased to employ young people who wanted a career; all places are taken and in both, the upper ranks of society and in the lower, many offer in vain their work without being able to get a salary."[18]

We recommend the study of Sismondi, also because he opposed overproduction, as the cause of losing the sense of usefulness in exchange value and of a struggle for markets that caused bankruptcies and unemployment. Nikolai Boukharin and Rosa Luxemburg said that Sismondi was right and that it was under-consumption which gave a logical base to Marxist theory on capitalism's periodical crisis. It can be perfectly applied to the overproduction of financial means, such as “sub-prime” mortgages, which caused our present systemic crisis. The Bank of International Settlements (BIS) from Basel says that there is a floating circulation of some 360 trillion in financial debt, but the Gross World Product (GWP) is only 60 trillion (2012). There is no place to land them.

On that issue, a century later, Keynes wrote: “The enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteen century economist or to a contemporary American financer to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety”.[19] The whole Keynesian thought is full of coincidences with Sismondi, including the need to match production or investment with consumption.

A hint of tomorrow

A few years ago, Deng Chao Ping initiated in China a policy that made room for individual initiative, but within a framework aimed at balancing production with demand. China is now the second largest economy in the world and the healthiest one, but its greatest feat is that it took out of poverty over 500 million Chinese and continues to do so. Sismondi would have been delighted, but Marx could have felt uneasy with so many newpetit bourgeois socialists.

Geneva, 07/09/2013

[1] Nouveaux Principes d’Economie Politique ou de la Richesse dans ses rapports avec la population

[2] TheWealth of Nations

[3] The Corn Law protected English cereals production. Its repudiation caused unemployment and poverty in rural areas and emigration towards urban centres that made labor cheaper. Read Charles Dickens

[4] The Principles of Political Economy and Taxation

[5] L’Economie Politique n’est une science de calculs; elle est une science morale. Nouveaux Principes de Economie Politique. Vol. I

[6] "La richesse n’est un bien que lorsqu’elle répand l’aisance dans toutes les classes ; la population n’est un avantage que lorsque chaque homme est sûr de trouver par le travail une honnête existence". Ibid.

[7] Francesca Dal Degan, L’economia e gli interessi vivants negli scritti di Sismondi, Il Pensiero Economico Italiano, N.2, 2001, pp. 53-66

[8] Aristotle, when he reports on the Constitution of Athens says that only those that did not work in manual activities were considered citizens. That provision excluded a very large part of the population; of half a million inhabitants only 20 thousand were citizens.

[9] Read such different authors as Jose Ortega y Gasset in The rebelion of the masses; Jack London in The iron heel; Maurice Duverger in Les partis politiques; Giuseppe Maranini in La Constituzione di Venezia.

[10] Quoted by Luca Micheleti in Modernity of Sismonde de Sismondi. Inequality and crisis, Florence, 2013.

[11] Karl Marx, Principes d’une critique de l’Economie Politique, Oeuvres I, Pléiade, pag 261 y 262.

[12] Karl Marx, Ibid, Oeuvres II, pag. 1682.

[13] Karl Marx, Ibid, Oeuvres I, pag 175

[14] In order to define Capital, Price of labor, relative surplus-value, simple reproduction, the capitalist production process, the accumulation of capital, the primitive conversion of money into capital, the antagonistic character of capitalist production and the notion of wage earner.

[15] To define constant and variable capital, the circular movements of income, the theory of crisis and in the role of credit in the production process.

[16] Karl Marx, Oeuvres I, pag. 751.

[17] French Economist who founded the first systemic school of political economy and was Louis XV's physician.

[18] Nouveaux Principes d’Economie Politique.

[19] The General Theory of Employment, Interest and Money. Chapter 24.

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