“Economic Theory of the Leisure Class” by Nicolai Bukharin

A socialist on Twitter wrote that Economic Theory of the Leisure Class (ETLC) by Nicolai Bukharin is a criticism of Austrian economics that he is willing to defend.

I read the first chapter of ETLC and it is bad enough that I’m not going to read any more of it. Bukharin attacks methodological individualism but his criticism is wrong. In Section 1.1 he writes:

The starting point of the analysis is evidently not the individual member of a given society, in his social relations with his fellow men, but the isolated “atom”, the economic Robinson Crusoe. 

Later he continues with a quote from Bastiat:

We here find the standpoint once so neatly formulated by Bastiat, the “sweetest” of all economists. In his Economic Harmonies, Bastiat says: “The economic laws operate in a uniform manner, whether we are dealing with a totality of lonely persons or with only two persons, or with a single individual, obliged by circumstances to live in isolation. If the individual could live for a period in isolation, this individual would simultaneously be a capitalist, an entrepreneur, a worker, a producer, and a consumer. The entire economic evolution would be realized in him. By reason of his opportunity to observe every step in this evolution, namely: the need, the effort, the satisfaction of the need, enjoying the free use of profit of labor, he would be able to form an idea of the entire mechanism, even though it might be in its simplest form”. (Frederic Bastiat,Harmonies ́economiques, Bruxelles, 1850, p.213.) 

Later in the same section the author writes:

However venerable this point of view may have become by reason of its age, it is nevertheless entirely fallacious. Society (as is consciously or unconsciously assumed) is not an arithmetical aggregate of isolated individuals; on the contrary, the economic activity of each specific individual pre-supposes a definite social environment in which the social relation of the individual economies finds its expression. The motives of the individual living in isolation are entirely different from those of the “social animal” (zoon politikon). The former lives in an environment consisting of nature, of things in their pristine simplicity; the latter is surrounded not only by “matter” but also by a peculiar social milieu. The transition from the isolated human to society is possible only by way of the social milieu. And indeed, if we were dealing only with an aggregate of individual economies, without any points of contact between them, if the specific milieu which Rodbertus has so appropriately termed the “economic community” should be absent, there would be no society. Of course, it is theoretically quite possible to embrace a number of isolated and remote economies in a single conception, to force them into a “totality” as it were. But this totality or aggregate would not be a society, a system of economies closely connected with each other with constant interaction between them. While the former aggregate would be one we had artificially constructed, the second is one that is truly present. Therefore the individual economic subject may be regarded only as a member of a social economic system, not as an isolated atom. The economic subject, in its actions, adapts itself to the given condition of the social phenomena; the latter impose barriers upon his individual motives, or, to use Sombart’s words, “limit them”. This holds true not only of the “economic structure of society”, i.e., of the production conditions, but also of the social-economic phenomena arising on the basis of a given structure. Thus, for example, the individual estimates of price always start with prices that have already been fixed; the desire to invest capital in a bank depends on the interest rate at the time; the investment of capital in this industry or that is determined by the profit yielded by the industry; the estimate of the value of a plot of land depends on its rent and on the rate of interest, etc. No doubt, individual motives have their “opposite effects”; but it must be emphasized that these motives from the start are permeated with a social content, and therefore no “social laws” can be derived from the motives of the isolated subject. But if we do not begin with the isolated individual in our investigation, but consider the social factor in his motives as given, we shall find ourselves involved in a vicious circle: in our attempt to derive the “social”, i.e., the “objective”, from the “individual”, i.e., the “subjective”, we are actually deriving it from the “social”, or doing somewhat worse than robbing Peter to pay Paul. 

I looked up the quote from Bastiat in The Bastiat Collection, which I recommend. In the same chapter (Chapter 7 of “Economic Harmonies”) as the quote provided by Bukharin, Bastiat writes (pp. 632-634):

Let us now vary the hypothesis, and place ourselves in the midst of the social order. Capital is still composed of instruments of labor, materials, and provisions, without which no enterprise of any magnitude can be undertaken, either in a state of isolation or in the social state. Those who are possessed of capital have been put in possession of it only by their labor, or by their privations; and they would not have undergone that labor (which has no connection with present wants), they would not have imposed on themselves those privations, but with the view of obtaining ulterior advantages—with the view, for example, of procuring in larger measure the future co-operation of natural agents. On their part, to give away this capital would be to deprive themselves of the special advantage they have in view; it would be to transfer this advantage to others; it would be to render others a service. We cannot, then, without abandoning the most simple principles of reason and justice, fail to see that the owners of capital have a perfect right to refuse to make this transfer unless in exchange for another service, freely bargained for and voluntarily agreed to. No man in the world, I believe, will dispute the equity of the mutuality of services, for mutuality of services is, in other words, equity. Will it be said that the transaction cannot be free and voluntary, because the man who is in possession of capital is in a position to lay down the law to the man who has none? But how is a bargain to be made? In what way are we to discover the equivalence of services if it be not in the case of an exchange voluntarily effected on both sides? Do you not perceive, moreover, that the man who borrows capital, being free either to borrow it or not, will refuse to do so unless he sees it to be for his advantage, and that the loan cannot make his situation worse? The question he asks himself is evidently this: Will the employment of this capital afford me advantages that are more than sufficient to make up for the conditions that are demanded of me? Or this: Is the effort I am now obliged to make, in order to obtain a given satisfaction greater or less than the sum of the efforts the loan will entail upon me—first of all in rendering the services that are demanded of me by the lender, and afterwards in procuring the special satisfaction I have in view with the aid of the capital borrowed? If, taking all things into account, there be no advantage to be got, he will not borrow, he will remain as he is, and what injury is done him? He may be mistaken, you will say. Undoubtedly he may. One may be mistaken in all imaginable transactions. Are we then to abandon our liberty? If you go that length, tell us what we are to substitute for free will and free consent. Constraint? for if we give up liberty, what remains but constraint? No, you say—the judgment of a third party. Granted, on these conditions: First, that the decision of this third party, whatever name you give him, shall not be put in force by constraint. Second, that he be infallible, for to substitute one fallible man for another would be to no purpose; and the parties whose judgment I should least distrust in such a matter are the parties who are interested in the result. The third and last condition is that this arbitrator shall not be paid for his services; for it would be a singular way of manifesting his sympathy for the borrower, first of all to take away from him his liberty, and then to lay on his shoulders an additional burden as the recompense of this philanthropical service. But let us leave the question of right, and return to Political Economy.

A Capital which is composed of materials, provisions, and instruments presents two aspects—Utility and Value. I must have failed in my exposition of the theory of value if the reader does not understand that the man who transfers capital is paid only for its value, that is to say, for the service rendered in creating that capital; in other words, for the pains taken by the cedant combined with the pains saved to the recipient. Capital consists of commodities or products. It assumes the name of capital only by reason of its ulterior destination. It is a great mistake to suppose that capital, as such, is a thing having an independent existence. A sack of wheat is still a sack of wheat, although one man sells it for revenue, and another buys it for capital. Exchange takes place on the invariable principle of value for value, service for service; and the portion of gratuitous utility that enters into the commodity is so much into the bargain. At the same time, the portion that is gratuitous has no value, and value is the only thing regarded in bargains. In this respect, transactions that have reference to capital are in no respect different from others. 

This consideration opens up some admirable views with reference to the social order, but which I cannot do more than indicate here. Man, in a state of isolation, is possessed of capital only when he has brought together materials, provisions, and tools. The same thing does not hold true of man in the social state. It is enough for the latter to have rendered services, and to have thus the power of drawing upon society, by means of the mechanism of exchange for equivalent services. I mean by the mechanism of exchange money, bills, bank notes, and even bankers themselves. Whoever has rendered a service, and has not yet received the corresponding satisfaction is the bearer of a warrant, either possessed of value, as money, or fiduciary, like bank notes, which warrant gives him the power of receiving back from society, when he will, where he will, and in what form he will, an equivalent service. This impairs neither in principle nor in effect, nor in an equitable point of view, the great law I seek to elucidate, that services are exchanged for services. It is still the embryo barter, which has been developed, enlarged, and rendered more complex, but without losing its identity.

Bastiat has considered the effect of living in a society with other people and even has a discussion of whether freedom of trade should be restricted by politicians to help those without much capital. Since this discussion is in the very chapter as the quote Bukharin used he cherry picked a particular quote without mentioning the context, which means he is either dishonest or incompetent and I don’t see any reason to consider his criticisms further.

About conjecturesandrefutations
My name is Alan Forrester. I am interested in science and philosophy: especially David Deutsch, Ayn Rand, Karl Popper and William Godwin.

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