Now gentlemen, I am really a political economist. I have studied the thing.
I understand Ricardo’s law of rent and Jevons’ law of value.
G. B. Shaw, 1913 The year 1883 saw the founding of the Fellowship of the New Life by Thomas Davison, a philosopher, and Percival Chubb, a civil service clerk; its object being, through study and discussion, to cultivate ‘a perfect character in each and all’.
However, the Fellowship soon split between those who favoured the path of moral self-improvement and those who saw institutional and social change as vital to the business of perfecting character. It was the latter group that in 1884 founded the Fabian Society.
The first publications of the Society, while socialist in character, lacked both analytical and prescriptive precision. The situation was transformed by the advent of two men – the Irish wit and playwright G. B. Shaw and a civil servant at the Colonial Office, Sidney Webb. The literary flair of the former and the inves- tigative energies of the latter made them a formidable combination and, together with figures such as Sydney Olivier, William Clarke, Beatrice Webb, Annie Besant and, for a time, H. G. Wells, they equipped the Society with a political economy that exerted a profound influence within the Labour Party well into the post-1945 period.
The Fabians indicted capitalism on two grounds. First, it was characterized, and increasingly so, by the exercise of monopoly power and, secondly, its anarchic nature meant that it was productive of enormous waste. As regards the former, the predatory competition that characterized capitalism had led to a marked con- centration of ownership in important sectors of industry and while this did not usually result in monopoly strictly defined, it led to the emergence of syndicates, trusts, cartels and the collusive agreements that these spawned. This, in turn, resulted both in an underutilization of productive capacity, as capitalist entrepre- neurs curtailed supply in order to maximize profit, and the consequent exploitation of the consumer, who could no longer rely on market forces ‘to secure the utmost possible cheapness’ of commodities.1
It should be said, of course, that such a view of things did not set the Fabian socialists apart from many other strains of socialist thought or, for that matter, from
some radical liberal thinkers. Marx had pointed to the growth of monopoly as a characteristic feature of the later stages of capitalism when, as a mode of pro- duction, it assumed forms that increasingly obstructed the further development of productive forces. As regards the radical or ‘new’ liberals, J. A. Hobson saw in the rapid growth of monopoly the essential cause of a fundamental maldistribution of the nation’s economic surplus: a maldistribution that he believed lay at the root of over-saving, underconsumption, mass unemployment and the growth of economic pressures making for imperial expansion.2
There was, however, a dimension to the Fabian understanding of monopoly that did distinguish them from other socialists. For the Fabians argued not only that capitalism tended to monopoly in its later stages, as a diminishing number of large enterprises emerged, but also that even in circumstances that might conventionally be regarded as competitive, with industries characterized by numerous rival firms, monopoly power existed and was exploited. Here the Fabians made use of an essentially Ricardian theory of rent.
David Ricardo in his Essay on profits(1815) had argued that as a population expanded and as recourse was had to land of diminishing fertility to feed it, so owners of more fertile land, where costs of production were lower, would be able to exact rent from their capitalist tenant farmers up to the point where the rate of profit earned was no more than that prevailing on marginal land, namely that land last taken into cultivation. The more fertile the intra-marginal land, the greater would be the rent the landowner would be able to exact. Rental income derived, therefore, not from any productive effort on the part of the landowner but from his fortuitous monopoly of a finite resource, that is intra-marginal or better-quality land.
What the Fabian socialists did was to generalize this analysis by applying it to other factors of production. So ‘interest’ (as they termed supranormal profits) was explained in terms of variations in the productivity of capital investment in the same way as rent was explained in terms of the varying fertility of the soil.
Interest represented the difference between the returns on the least productive or marginal capital investment and capital investment that, perhaps because of the quality of the industrial plant that it furnished or because of the advantageous site of the factory whose construction it financed, was more productive. It was, in short, a payment to those who owned (monopolized) non-marginal capital inputs.
Further, the Fabians stressed that the productivity of capital investment was often determined by factors unrelated to any sacrifice, forethought or organizational ability on the part of the owner or entrepreneur. Specifically, the productivity of invest- ment might be influenced by the fortuitous location of other enterprises and the siting and construction of roads, docks, railways, housing, gasworks and waterworks, by municipalities, the state or private entrepreneurs. As the Fabians saw it, therefore, owners of capital, like owners of land, were often the undeserving beneficiaries of
‘rental’ payments that accrued to them as a result of their monopoly of a finite resource, e.g. a particularly advantageous location. No more than land rent could
‘interest’ be considered a necessary cost of production.
Fabian political economy 23
Similarly those possessed of particular skills in short supply would be able to exact what the Fabians termed a ‘rent of ability’. To take just one example, the rewards of those in tasks involving ‘superintendence and direction’ were high because, as Sydney Olivier put it, such occupations were ‘a virtual class monopoly’
and would remain so until the superior educational provision enjoyed by that middle class was removed or extended to embrace the entire population. Only then would ‘the remuneration of such activity reach the normal level or competitive value’.3
In summary, therefore, as Sidney Webb phrased it in 1892, ‘an additional product determined by the relative differences in the productive efficiency of the different sites, soil, capitals and forms of skill above the margin has gone to those exercising control over those valuable but scarce productive factors’.4 The exploitation of monopoly power and its deleterious distributive consequences was therefore endemic to capitalism.
Their use of the concept of the margin led the Fabians to link themselves with developments in mainstream economics in the last quarter of the nineteenth century. In Britain these developments were associated with the name of W. S.
Jevons, whose marginal utility theory of exchange value, formulated in The theory of political economy(1871), set in motion theoretical developments in the field of microeconomics that were to dominate the next four decades. The Fabians were quick to insist upon their understanding and use of these, not least because this allowed them to reject Marxian political economy as based on a defunct (labour) theory of value and to claim that their own socialist political economy was consistent with the theoretical advances that were being made in the contemporary science of economics.5
But while it was the case that Philip Wicksteed, one of the major figures in the so-called marginal revolution in economics, played a vital role in converting G. B.
Shaw from a labour to a marginal utility theory of value, Fabian political economy embodied little of what is to be found in the work of Jevons, Wicksteed or other neoclassical political economists of the period. The theoretical roots of Fabian political economy were essentially Ricardian, though the economic thinking of the American Henry George may also, for a time, have proved influential. Certainly the latter’s ideas, which had at their core an attack on the iniquities of rental income derived from landownership, circulated widely in Britain in the 1880s, as a result of both George’s lecturing tours and the considerable sales of his Progress and poverty, first published in 1881. This was a work that also made a major contribution to the revivial of socialism that occurred in England in this decade. Yet, whatever their sources of theoretical inspiration, the crucial point is that the Fabian view of things led them to condemn ‘competitive capitalism’ as irremediably monopolistic and as producing, in consequence, a distribution of income and wealth that could be defended neither on grounds of equity nor on the basis that it was necessary to call forth the existing level of output.
If, however, the Fabians saw contemporary capitalism as corrupted by the increasing growth of monopoly power, they also saw it as economically anarchic.
Capitalist production was ‘anarchic and unsound’, ‘anarchical and reckless’ and characterized by ‘competitive confusion’.6Lack of knowledge and uncoordinated
decision-making meant that supply rarely matched demand, productive resources were wasted through misallocation, underutilization or duplication, and labour often found itself redundant. ‘Who can estimate’, the Webbs wrote, ‘among how many different boards and committees, partnerships and combinations, in how many entirely uncoordinated centres of management, unaware of each other’s proceedings and constantly in conflict or confusion the direction of . . . British . . . industry is dispersed.’7In effect the fragmented, competitive, self-interested pursuit of gain precluded the exercise of any informed and organizing intelligence and colossal economic waste was the inevitable consequence. Producers were ignorant of the intentions of their rivals, the extent of the market and the needs of society.
And, as regards those needs, they were often ignorant for reasons other than the absence of information due to market anarchy. For, as a consequence of the maldistribution of wealth that followed from the pervasive nature of monopoly power, the market failed to indicate accurately the nature of social requirements;
transmitting information only about the needs of those with the requisite power to purchase.
Economic waste resulted, therefore, from the ignorance contingent upon anarchy and also from the misinformation as to society’s real needs which, in such circumstances, the market supplied. Further, waste was also a consequence of what the Fabians considered to be the complex and roundabout system of distributing and exchanging commodities which, among other things, produced a needless proliferation of retail outlets. In addition, as regards that system of exchange, there was the ‘elaborate deception of consumers by enormously expensive advertisements’ which made for irrational and ill-informed choices on the part of consumers, with a consequently wasteful misallocation of resources.8 This latter was subjected to a particularly scathing attack in H. G. Wells’s Tono- Bungaywhich was, and remains, one of the most trenchant satirical indictments of mass advertising ever penned. Such advertising was one reason, though not the only one, for what one Fabian writer termed the ‘anarchic irresponsibility’ of the private consumer.9
This irresponsibility might be mitigated by consumer co-operatives. Collective rationality could be substituted for the irrationality of individual self-indulgence.
This could be done in part in the context of capitalism but more fully in that of the socialist commonwealth they envisaged. Indeed the Webbs were clear that the great beneficiary of socialist efficiency would be the consumer of low-price, quality products that a socialist economic system would make available; defining the state as an association of consumers.10In this regard theirs was more a consumer than a productivist socialism; though it was a consumerist socialism which, like many aspects of their political economy, was technocratic and elitist, as it was consumer co-operatives and those who managed them which would ensure that rationality in consumption of which the individual consumer seemed incapable.
However, to obviate or remedy the iniquities, inequities and structural deficiencies inherent in a capitalist economy Fabian socialists suggested a range of expedients in addition to consumer co-operatives. First, having distinguished, as they believed, the source and nature of unearned income, they considered that Fabian political economy 25
taxation should be used to secure it for social purposes. As G. B. Shaw saw it, rent and interest could and should be transferred to the state ‘by instalments’ and, in general, Fabian socialists favoured a radically redistributive fiscal policy.11Yet, that would eliminate only some of the evils of an increasingly monopolistic capitalism.
In particular such a policy would do little to mitigate the inherent economic anarchy of the system. Most Fabians believed, therefore, that only by a substantial extension of public ownership, to a point where the greater part of the nation’s productive capacity was under social control, could capitalism’s major evils be expunged.
To begin with, such an extension would mean that ‘rental income’ could be directly appropriated for social use without the intermediation of the tax system.
In effect it would no longer be necessary to rectify the adverse distributive consequences of the growth of monopoly power afterthey had occurred. For that reason alone Fabian socialists advocated social ownership on a substantial scale.
But there was more to it than that. For socialism was not just about rectifying distributive injustice; not just about securing the economic surplus for social use, even if, for Fabian socialists, that was undoubtedly important. Socialism was also, fundamentally, about the elimination of waste and inefficiency through the social organization and control of the nation’s productive capacity. Only in this way could socialism provide an effective antidote to the competitive anarchy of the market economy. Fabians therefore advocated the ‘taking over of the great centralised industries’ by the state or municipalities in order to lay the basis for a ‘consciously regulated co-ordination’ of economic activity.12The extension of public ownership was to be the primary means of organizing and controlling such activity in the interests of society as a whole. Only this would make possible the elimination of the ‘competitive confusion’ that characterized contemporary economic life; only this, and the consequent attenuation of the influence of anarchic market forces, would permit the ordering of productive activity in a manner that eliminated waste, maximized efficiency and accelerated the growth of output. These things could not be effected through the medium of private firms, whether operating in a putatively competitive or overtly monopolistic economic environment, but only by means of publicly owned enterprises operating under state or municipal control.
On such a basis rationality, not blind instinct, could be made to govern economic decision-making; intelligence would replace the haphazard interaction of market forces and the laws of chance would give way to the certainty that resulted from the scientific management of economic affairs. In short, the extension of public ownership, and the consequent attenuation of the influence of market forces, would allow ‘organised co-operation’ to be ‘substituted . . . for the anarchy of the competitive struggle’.13
Once the nation’s productive capacity, by one expedient or another, had passed into public control, the socialized enterprises that emerged would be administered by a new breed of manager pursuing objectives of a radically different kind and motivated by considerations distinct from those of the people who ran privately owned undertakings. Specifically, their primary concern would be the efficient satisfaction of society’s needs, while as regards motivation, the managers of public
concerns would be fired not by the pursuit of profit but by the ideal of social service.
Stress on this ideal as a motive to enterprise was not, of course, a monopoly of Fabianism, but Fabian socialists did see in it the essence of the new spirit that would govern the administration of socialist enterprises and the management of a socialist economy in general.
The Fabians believed that the replacement of the capitalist entrepreneur by the professional manager was a process already well advanced under capitalist auspices.
The growth of large-scale units of production, often wielding monopolistic powers and participating in collusive agreements, had already rendered obsolete the entrepreneur’s traditional function of taking the initiatives and risks necessary to hone a firm’s competitive edge. The consumer co-operative movement had also expanded rapidly in the late nineteenth century. The expert administrator was therefore already taking the place of the capitalist swashbuckler. All that remained was for this bureaucratic expertise to be utilized for social purposes rather than private profit. And as to the role of the working class in the transition to socialism, as one commentator has perceptively put it, ‘within the Fabian “perspective”, the working class was a social problem not even distinctly an agent of political change’.
In this and other respects Fabian political economy was nothing if not technocratic, bourgeois and elitist.14
So Fabian socialists advocated the extension of public ownership both on grounds of equity – it permitted the social use of an economic surplus that would otherwise accrue to the unproductive – and on grounds of efficiency, in that it allowed for the rational, scientific organization and control of economic life.
However this extension was to be effected gradually. To this end a number of methods were suggested. G. B. Shaw, for example, believed that the ‘socialisation of rent’ by way of taxation would convince existing property owners of the point- lessness of insisting upon their titles to the means of production.15An apposite fiscal policy would persuade them that the game was up and help secure a peaceful transition from private to public ownership. Further, once municipal or state-owned enterprises were established their superior efficiency would ensure the eventual bankruptcy of their rivals. As Annie Besant put it, ‘the economic forces which replaced the workshop by the factory will replace the private shop by the municipal store and the private factory by the municipal one’.16Competitive pressures could therefore be used to secure transference of productive capacity to social ownership.
It was also suggested that public authorities, through the administrative power that they wielded, could act to disadvantage private concerns or advantage their publicly owned rivals. As Shaw wrote, tongue only partially in cheek, ‘a skilfully timed series of experiments in paving, a new bridge, a tramway service, a barracks or a smallpox hospital’ could ‘significantly alter the economic prospects of any enterprise’. They could be used, in effect, to blunt the competitive edge of private enterprise and to sharpen that of public concerns and so accelerate the extension of social ownership.
Finally, the extension of public ownership could be effected also by means of compulsory purchase with a measure of compensation for existing owners.17
Whatever the preferred form of transference, Fabian writers emphasized its gradual, piecemeal and inexorable nature. The whole was summed up in Sidney Fabian political economy 27
Webb’s famous phrase, ‘the inevitability of gradualness’, which highlighted the essential reformism of the socialist path that the Fabians proposed. In addition, the allusion to inevitability gave their proposals a pseudo-scientific authority linked, as they frequently were, to a social evolutionism derived from a bastardized Darwinism. Indeed, the word ‘evolution’, with all its scientific resonance, flowed frequently from their pens and, while it was often used as a synonym for reformism and to distinguish their evolutionaryfrom Marxian revolutionarysocialism, they also used it to convey the idea that what they proposed represented the next stage in the ineluctable progression of ‘mankind’ to ever more organized and sophisticated forms of social existence. In the words of one writer, what they proposed repre- sented ‘the lesson of evolution in social development . . . the substitution of consciously regulated co-ordination among the units of each organism for their intermittent competition’.18So the Fabians, like the Marxists, were able to claim that they swam with the tide of history; though of course it was a history more Darwinian than Hegelian in character.19
As with their critical economics, so with their view of the shape of things to come, the Fabians stressed the scientific nature of what they had to offer. In so doing they could and did claim the authority and the kudos which, in this period, attached to those who practised ‘science’ and who were, in the natural sciences in particular, so obviously advancing humanity’s understanding and mastery of the physical world. The view prevailed in Fabian ranks that it was they and not the Marxists, shackled as the latter were to an obsolescent theory of value, who purveyed a truly scientific socialism, and they certainly exuded all the intellectual self-confidence that one might expect to attach to such a faith. They prided themselves not only on drawing theoretical inspiration from modern, scientific economics but also on their adherence to a scientific, empirically grounded methodology. Their theories, as they believed, were supported by, and inductively rooted in, a painstaking accumulation and assimilation of the facts, while their policy prescriptions were derived from actual, piecemeal experimentation with public (largely municipal) ownership.20
Of course, this belief in the inevitabilityof gradualness, in the necessary evolution of society in a direction that could be scientifically predicted, carried with it the danger of political passivity and there are certainly passages in the writings of the Fabian socialists which suggest that, on a theoretical level, this was a danger to which they sometimes succumbed. Sidney Webb, for example, wrote in 1892 that it needed ‘nothing but a general recognition of development’ of ‘English social evolution in the direction of collectivism and social ownership’ and ‘a clear determination not to hamper it, for Socialism to secure universal assent. All other changes will easily flow from this acquiescent state of mind.’ He also wrote of ‘blind social forces . . . inexorably working out our social salvation’. Similarly Annie Besant wrote that
‘all we can do is to consciously co-operate with the forces at work, and thus render the transition to socialism more rapid than it would otherwise be’.21Yet while the Fabians sometimes came close to suggesting that the best thing socialists could do was to get out of the way of the juggernaut of history, it must also be said that they were among the most active of those who sought to realize their vision of socialism