Ricardo, Marx, and interpersonal inequality

It is a question often asked: what do Ricardo and Marx have to say about interpersonal inequality of income? The answer is, strictly speaking, very little. In writings of neither Ricardo nor Marx does inequality in personal incomes feature at all, and I even think that the concept of what we call “interpersonal inequality” or “size distribution of incomes” does not appear.  

The reason why this is the case is both simple and revealing. Ricardo and Marx were concerned with functional (between factors of production) distribution of income, that is with the distribution of net product between workers, capitalists and landlords (the three big classes introduced by Adam Smith). In Ricardo, this concern was such that he wrote on page 1 of The Principles, the famous sentence that the principal problem of political economy is to study the distribution between “proprietors of land, the owners…of capital and the labourers”. Actually, the entire book is organized around that idea. Marx likewise (with a few exceptions) dealt with functional distribution only.

The omission of interpersonal distribution is revealing of the type of society that Ricardo and Marx had in mind. To see this consider the decomposition of a standard inequality measure like Gini coefficient. It is decomposed into three components: the gap between mean incomes of different groups into which we break a society, inequality within each of these groups, and the “overlap” term which is non-zero when some members of a mean-poorer group have higher incomes than some members of a mean-richer group.

Now, consider a society which is strictly segregated into classes such that (say) capitalists are rich and workers are poor. Interpersonal inequality looked at through the lenses of a Gini coefficient will not include the overlap term because of a tacit assumption shared by both Ricardo and Marx that all capitalists are richer than all workers (and if landlords are included that they are richer than the other two groups). If in addition, all workers are paid subsistence, the within-group inequality for them will be zero. Capitalists and landlords may be differentiated depending on how much capital or land each possesses but because of their small population size, they will not add much to inequality (Gini within each group is weighed by the group income and population shares).

The bottom line is that most of interpersonal inequality will boil down to the gaps in mean incomes between the two (or if landlords are included, three) classes. Studying only that is not different from being concerned with income shares of the three groups, that is, with functional income distribution. Thus the question of income inequality between individuals dissolves into the question of income shares of landlords, capitalists and workers. In such a society, it is  indeed of little practical import to go beyond functional distribution.

This picture which is, I think, basically accurate is a bit simplified, especially as far as Marx is concerned. In Ricardo workers are seen as a homogeneous mass facing capitalists such that every increase in the wage rate implies a direct reduction in profit: “a rise of wages, from the circumstance of laborer being more liberally rewarded, or from the difficulty of procuring necessities on which wages are expended, does not…produce a rise in prices but has a great effect in lowering profits” (Principles, Chapter I, Section VII, p. 31). Or even more clearly: “There is no adequate reason for a fall in profit but a rise in wages, and…it may be added the only adequate and permanent cause for the rise of wages is the increasing difficulty of providing food and necessities” (Chapter XXI, p. 197). 

Note that the increase in the wage comes either from an improvement in (what we now call) real wage or from greater cost of providing subsistence which, while keeping real wage unchanged, raises the share that belongs to labor, and reduces that of capital. Throughout are not only the interests of workers and capitalists directly opposed but workers are supposed to be paid subsistence, and when, in very unusual circumstances, they are not, the Malthusian checks kick in to drive them  back to subsistence (Chapter V).

In Marx, the opposition between workers and capitalists is similar but the distinction between simple and complex labor introduces some variability among workers’ wages even if Marx seldom speaks of it. In fact, workers with greater skills will earn more. The rationale is very similar to “human capital” approach. In principle, workers are paid the amount necessary for the reproduction of their class. That could be subsistence only for unskilled workers who are plentiful; for skilled workers the costs of reproduction may be above subsistence because it costs more to produce a skilled than an unskilled worker: “[the difference in wages] can be reduced to the different values of labour-power itself, that is, its varying production costs” (Theories of Surplus Value; also Rosdolsky, pp. 515ff); or “all labor of a higher or more complicated character than average labor is…labor power whose production has cost more labor and time and which therefore has a higher value than unskiled or simple labor” (Capital, vol. I, Chapter III. Section 7). In contemporary terms we could say that the skilled wage must compensate for the foregone earnings during the period of training and for the cost of additional education.

Income inequality among workers thus moves us a bit further from a narrow functional distribution of income. If in addition, we allow for the differentiation of capital stock among capitalists which is implicitly present in both Ricardo and Marx, within-capitalist income Gini will be positive too.

The situation present in today’s capitalism but not common in classical capitalism, namely that (i) a worker may be richer than a capitalist, or (ii) that people could have both labor and property incomes (even if the rich still depend mostly on property incomes), is not envisaged by either Ricardo or Marx. They must have thought both of these possibilities remote and thus not worth complicating the analysis. Possibility (i) existed as some (few?) members of liberal or scientific professions, say doctors or engineers, probably commanded higher incomes than petty capitalists. Possibility (ii) existed only among the self-employed but they could rightly be considered remnants of a past social order and not representative of capitalism. The British social tables, whether in their original form or as they had been reworked by Peter Lindert and Jeffrey Williamson, or more recently by Bob Allen, can be read as the rankings of different non-overlapping classes where the lion’s share of inequality is explained by income gaps between these classes. In other words, we do not lose much in our estimate of total inequality if we ignore both the overlap component, and assume all members of a given class to have same incomes.

It was thus left to people like Pareto, who were, at the end of the 19^th century, witnessing less segregated and less hierarchical societies and were lucky to have access to tax data, to move the study of inequality from functional to interpersonal.    

David Ricardo, The Principles of Political Economy and Taxation, Dover Publication, 2004.

Roman Rosdolsky, The Making of Marx’s ‘Capital’, Pluto Press, 1977.  

Communist party in a turbulent time and difficult country

In 1964, Ivan Avakumovic, then the Professor of History at the University of British Columbia, published the first volume of the History of the Communist Party of Yugoslavia (KPJ) that took the reader from the Party’s foundation in 1919 to the Nazi German (and Italian, Hungarian and Bulgarian) invasions of Yugoslavia in 1941. There was presumably to be the second volume. But I have never seen it, nor does it seem to exist anywhere on the Internet. Avakumovic, according to Internet searches, went on to pen the history the Communist Party of Canada but he seems to have never returned to his earlier topic.

I read the book in the 1980s. And now under the conditions of a lockdown I reread it. I found it better than in the 1980s perhaps because many of the issues raised in the book have by now played out: Communism does not exist, the Party does not exist, and the country does not exist. But the reasons that have led to such an outcome can be now better seen to lie in the Party’s origins. By knowing the epilogue we are in effect better able to see the seeds of destruction—much better at least than I was able to do in the 1980s.

I would like to mention the high quality of the book. Avakumovic has read a multitude of party newspapers, obscure bulletins, even leaflets produced during more than twenty years of the Party’s intra-war existence. He has studied numerous publications issued by Party’s factions, and discusses with gusto the factional struggles that dogged KPJ. He has what I would call the “English” approach to historiography. It combines very clear writing with somewhat ironic detachment from the subject matter, often “damning with faint praise”, an attitude which to non-English readers, if the book were to be translated, might often appear incomprehensible. It is only towards the end of the book that I detected a slight loss of steam as if the author was somewhat in a rush to complete the manuscript. Perhaps that Avakumovic was: I do not know at exactly what time of his career he wrote it.

The main theme, of more general than merely local importance, is the difficulty of establishing a workers’ party in an ethnically, culturally and economically diverse environment, where additionally the working class is not numerous and is unevenly distributed across the country. This was a standard problem of Central European left-wing parties including the Russian Social Democrats before 1914:  should the party focus on dissatisfied minorities, or should it focus on workers’ rights? These two parts always sat uneasily in social-democratic (later communist) politics, and Austro-Marxists and Bolsheviks tried, without huge success, to reconcile them. Yugoslav communists tried too, but, as we know, failed.

This issue, in the Yugoslav  context, brings to the fore the centrality of Croatia. Why? Because Croatia has exactly the two features that made it both very susceptible to Communist agitation and rendered such agitation problematic. It had significant (by Yugoslav standards) agglomerations of the working class in large industrial cities (Zagreb, Rijeka/Sušak, Sisak, Split). And it also had an unsettled, and broadly secessionist, popular sentiment with regard to the Yugoslav state that was hurriedly proclaimed at the end of 1918 on the wreckage of the Habsburg monarchy.  

KPJ history began with a string of successes in the 1920 elections. It garnered 12% of the vote in the general election, becoming the fourth largest party in the Parliament and the only one with sizeable representation throughout the country. In addition, it won mayoral races in two largest cities (Belgrade and Zagreb). The threat to the ruling dynasty that its successes presaged led the authorities to ban it. At that point, KPJ, by now in semi-legality, had to choose whether to appeal mostly to the hurt national feelings of the minorities that resented Serbian heavy-handedness, or to work on fostering class consciousness and trade unionism. The Party tried to have its cake and eat it. In the 1920s, it went into a virulent anti-Yugoslav propaganda, supporting the break-up of the country. That policy might have been popular in Croatia (and in a few other parts of the country, especially Macedonia), but it pitted KPJ in Croatia in the contest for popular support against the Mussolini-financed Ustaša movement. The problem was that, when it came to pure nationalism, Fascists could always outbid Communists. Yet the book shows the remarkable degree to which Communists and Fascists collaborated, especially in trying to proselytize among the student youth in Croatia. From the mid-1930s however as the Comintern began to impose a stronger anti-Fascist line and to support the creation of “popular fronts” in Europe the collaboration waned.

Despite the fact that Avakumovic shows no sympathy toward Tito, he recognizes Tito’s crucial contribution (Tito became the General Secretary in 1937) to the turn away from the “tactical collaboration” with Fascists, and increasing focus on trade unions and workers’ rights. Tito also purged both the “Left” and the “Right” factions. He was helped in that project, whether with his own tacit acquiescence or rather fortuitously, by the simultaneous Stalinist purges that led to the deaths of hundreds of Yugoslav communists living in the USSR. They were summarily accused of all kinds of deviations and sent to the Gulag or shot. By 1941, when the Nazis attacked Yugoslavia, KPJ was a much more cohesive party than in the early 1930s even if its membership was small (8000 plus 18,000 members of the Communist Youth) . But as the latter number indicates, it was strong among the young  (especially at the University of Belgrade) and its “new cadres”, mostly of workers’ origin, brought in by Tito were of a different caliber and  tougher “cloth” than those who populated the party before. It was by then a true Stalinist party.

But Yugoslavs were often tough customers for the Comintern. One of the contributions of Avakumovic's book is to bring out the fissiparous, quarrelsome nature of the party—harassed by the government, hard-pressed to organize as it was infiltrated by spies and agents provocateurs, yet always ready to fight within itself. The internal fights spilled over to the Comintern, with various factions in a bewildering succession vying for Comintern’s support, and then in about-faces refusing to do what Moscow told them to. KPJ’s General Secretary, Sima Markovic, managed in the 1920s to get first, into a nasty quarrel with Zinoviev (then the head of the Comintern), accusing Zinoviev, inter alia, of not knowing Comintern’s official positions, and then to top it off got embroiled in a debate with Stalin. (It was “the unfortunate tendency of Yugoslav communists to contradict and oppose Soviet personalities” as Avakumovic delicately puts it.) Stalin criticized Markovic’s “federalist” pro-Yugoslav attitude accusing him of “greater Serbian nationalism”. Moreover, Stalin took him to task for not understanding his (Stalin’s) championing of the rights of oppressed nations, including their right to secession. Such fights continued until Moscow eliminated all quarrelsome factionalists and got too busy in the late 1930s with bigger issues to pay much attention to the Balkans.  

In the end (not discussed in this book of course) the Party fell victim to the same demons that it tried to quell in the1920s: factionalism and nationalism. It disappeared and took to the grave with it both the communist ideology and the country. Not an outcome that many people at the founding congress in 1919 could have forecast.