The “Evangelli Gaudium” issued by Pope Francis last Nov. 24 is arguably the most important document to come out of the papal office this year. It lays down the social challenges that the Pope finds in today’s world. In a brief but powerful message, he reveals the need to apply ethical norms, not only in matters of private concern, but also to the great areas of politics and economics.
The Pope’s social criticism is primarily directed against an economic and financial system in which the masses are exposed to the twin evils of inequality and exclusion. The Pope refers to it, not by name, but by its basic features. It is a system moved by unbridled competition for increased business profits, where the earnings of a minority grow exponentially vis-à-vis the majority, and financial speculation is insensitive to the needs of the poor. We need not quibble about what is meant. The system, whose history confirms this outcome, is capitalism.
Modern capitalism began when merchants started to transfer their capital into production. Both the merchant and the capitalist had the same motive and end—to make money. But while the merchant got his profit by buying cheap and selling dear, the profit of the capitalist came from a radically different source. With an initial capital of raw materials, machinery and equipment, he engaged workers to manufacture a product. He paid the workers’ wages, and the final product they made was sold by him at a price that not only covered his costs but also left a tidy sum for himself, which was his profit.
It took one of the greatest thinkers of the 19th century, Karl Marx, to discover in this process the essence of capitalist exploitation. His analysis revolves around the labor theory of value which holds that the true value of a product is equal to the amount of labor incorporated into it. The product can either be consumed at once or used in the making of another product, in which case the value of the dead labor in the raw materials and the part of the plant and machinery that is used up in production pass unchanged into the value of the finished product. It is the third part of the value that represents newly added value. This is the value of the labor of the workers—the living labor—who transform the raw materials and use the equipment to make the finished product. Since labor is the only source of value, it follows in Marx thinking that the newly added value belongs entirely to the worker.
What the capitalist does is to pay workers for their labor, and in all cases, the value which the workers create far exceeds the wages received, which more or less correspond to their subsistence needs. The capitalist, therefore, deprives the worker of part of the value of his work. The value that the capitalist appropriates out of the labor of workers is referred to by Marx as surplus value. The capitalist draws his profit from this and accumulates it so that his capital becomes bigger and bigger. By its very nature, capital becomes a continuous theft of work and an instrument of domination by the capitalist over the workers.
In retrospect, Marx does not make a convincing case for his theory of surplus value. There appears nothing fundamentally wrong when the capitalist acquires a share from the newly added value of the product. The capitalist has, after all, a legitimate role to perform in the production of a commodity. He combines the factors of production in a harmonious way and faces the risk of loss of the business. Without him, it is hard to conceive how the workers could have the needed work environment. The capitalist should therefore have something also for the effort and risk. From this perspective, profit is his return in the venture.
Be that as it may, the birth of modern capitalism—in 19th-century England—was accompanied by a horrible exploitation of the workers. The capitalist’s thrust was still to increase the rate of surplus value of his business, and without any scruple, wages were kept a little above survival level and working conditions stretched to the limits of human endurance. The English factories were called dark satanic mills. Only by the efforts of a determined labor movement and after many decades were reforms legislated in the way of minimum wages, shorter working hours, and improved conditions in the workplace.
The adoption by states of policies to mitigate the capitalist exploitation of workers led many social reformers to reject the Marxist theory that the capitalist system was breaking down. But Marx was not altogether forgotten. The Fabians recognized the Marxist forecast that capitalist exploitation would inevitably pervert the economic system concentrating power in the hands of the wealthy, keeping the wage earners and peasants in a state of poverty and creating an army of unemployed persons. As Beatrice Webb wrote in 1938, the profit-making motive would lead capitalists not to lower prices and improve quality but to an imperialist capitalism.
These are the same warnings we now hear from the Pope 75 years later. It is in the nature of capital to grow or it will balk and perish. The various capitals engage in competition with one another until the fittest remains, and it grows and expands. Capitalism enters the stage of monopoly capitalism, when the accumulation of surplus value in the advanced countries has reached such a proportion that much of it needs to be exported to other countries, often colonies and dependencies of the home country. The imperialist policy of exporting capital gave the monopolies high returns and other advantages which worked to the detriment of the people they dealt with. In many of their overseas ventures, capitalists reap royalties and dividends over 20 times the wage cost. Inevitably, they urge their governments to annex colonial territories in the interest of complete economic domination.
In the end, people get shortchanged, marginalized, excluded from the mainstream. A system based exclusively on the profit motive cannot be ethical, as the Pope intimates.
Mario Guariña III is a former associate justice of the Court of Appeals.