Political Econ of Growth. Paul A. Baran

to consider what the effect of a reduction in investment in a socialist system would be. The workers released from the production of investment goods would be employed in consumption goods industries. The increased supply of these goods would be absorbed by means of a reduction in their prices. Since profits of the socialist industries would be equal to investment, prices would have to be reduced to the point where the decline in profits would be equal to the fall in the value of investment. In other words, full employment would be maintained through the reduction of prices in relation to costs. In the capitalist system, however, the price-cost relationship … is maintained and profits fall by the same amount as investment plus capitalists’ consumption through the reduction in output and employment. It is indeed paradoxical that, while the apologists of capitalism usually consider the ‘price mechanism’ to be the great advantage of the capitalist system, price flexibility proves to be a characteristic feature of the socialist economy.” Theory of Economic Dynamics (London, 1954), pp. 62 ff.

       THREE

       Standstill and Movement Under Monopoly Capitalism, I

      THE rate and direction of economic development in a country at a given time, as suggested earlier, depend on both the size and the mode of utilization of the economic surplus. These in turn are determined by (and themselves determine) the degree of development of productive forces, the corresponding structure of socioeconomic relations, and the system of appropriation of the economic surplus that those relations entail. Indeed, as Marx has pointed out:

      … the specific economic form, in which unpaid surplus labor is pumped out of the direct producers, determines the relation of rulers and ruled, as it grows immediately out of production itself and in turn reacts upon it as a determining element.… It is always the direct relation of the owners of the means of production to the direct producers which reveals the innermost secret, the hidden foundation of the entire social structure.… The form of this relation between rulers and ruled naturally corresponds always to a definite stage in the development of labor and of its social productivity. This does not prevent the same economic basis from showing infinite variations and gradations in its appearance even though its principal conditions are everywhere the same.¹

      It would be a fascinating task to follow up the evolution of the volume and the employment of the economic surplus in the course of pre-capitalist development. The necessary material could be pieced together from available anthropological and historical writing, and its systematic survey would go far toward providing the urgently needed organizational principle for a meaningful analysis of economic and social history. It goes without saying that such an undertaking cannot even be attempted within the limits of the present essay. Suffice it to stress that the transition from feudalism to capitalism represented a radical change in the method of extraction, the mode of utilization, and consequently the size of the economic surplus.² The classical economists were fully aware of this crucially important implication of the rising capitalist order; in fact they saw its principal raison d’être in the ability to provide for rapid economic progress not merely by the maximization of the economic surplus on the basis of a given level of productivity and output—after all, this problem was being solved also under feudalism—but primarily by its rational, productive utilization.

      For in the economic order emerging from the decay of feudalism and already visible in its most essential contours to the great classical writers, there appeared tremendous possibilities for large-scale investment in productive facilities. The striving of individual entrepreneurs—now operating in a different socioeconomic environment, freed of earlier restraints and enabled to give full play to their relentless drive for profits—to “get ahead,” to accumulate and to enlarge their enterprises, would necessarily serve as a powerful engine of expansion of aggregate output. Competition among businessmen would continuously force them to improve their methods of production, to promote technological progress and to make full use of its results, as well as to increase and to diversify their output. As all available productive resources would tend to be drawn into useful employment, and as cost reduction would become the dominant concern of profit-maximizing capitalists, waste and irrationality would be eliminated from the productive process. The operation of Say’s Law would see to it that aggregate output would normally encounter adequate demand, while such “frictional disproportionalities” as might result from technological change or shifts in tastes would be merely “diseases of growth,” inconsiderable in scope and not very dangerous in repercussions. In fact, by adjusting the productive apparatus to society’s changing requirements, and by purging it from time to time of backward and inefficient units, such short crises would indeed be beneficent in their effects: promoting general progress and facilitating the survival of the fittest.

      Of this maximum output a maximal share would constitute economic surplus. Competition among workers would prevent wages from rising above the subsistence minimum and from eating into profits—the characteristic form in which the economic surplus would appear in capitalist society.³ Nor would there be any danger of the demand for labor—capital accumulation—outstripping the supply of labor, The increase of the population could be relied upon to keep the labor market under pressure and to prevent any expansion of the share of output absorbed by the “wage fund.”

      Nor should there be in a competitive capitalist order any room for “unproductive” workers not contributing to capital accumulation. The large retinue and extravagant style of life at the feudal courts should no more be allowed to encroach upon the economic surplus than the luxuries and comforts indulged in by medieval town patricians.⁴ And worship of God should be made less expensive: simple and modest rites performed by humble clergy frugally maintained by their congregations would be substituted for the pomp and circumstance organized by the elaborate and richly appointed hierarchy of the Roman Catholic or the Established Church.