Karl Kautsky

The Labour Revolution

III. The Economic Revolution


THE question of private initiative is closely bound up with the question of bureaucracy.

The opponents of socialist production apprehend that it will deaden the incentive to labour and the incentive to effect improvements in production, the industry of the workers, and the initiative of the entrepreneur.

We need not discuss in any detail the first objection, the anticipated weakening of the incentive to labour. It would be worthy of consideration if Socialism were pledged to the division of the social product on the principle of “to each according to his needs,” or on the basis of equality. In our chapter upon the question of division, we have seen how little this is the case. Whatever methods of remuneration are adopted in the socialized undertakings-will depend entirely upon the requirements of production.

Socialism will have the option of applying all the methods of remuneration which capitalism has invented. Their effectiveness will be strengthened rather than weakened when the workers co-operate in the management and organization of their industry, and when the results of increased productivity benefit partly the workers engaged in the undertaking and- partly the community, but in no case capital.

But how is the initiative of the entrepreneur affected?

The initiative of the private capitalist will now have ceased. Will not this signify an irreplaceable loss for the community?

Let us see.

Here again we must distinguish between the process of production and the process of circulation.

In the process of production the initiative of the entrepreneur signifies his initiative in the employment of new inventions and discoveries, in the introduction of new machines, processes, raw materials, and the like.

Each of such innovations under certain circumstances involves a risk which is often very considerable. In theory or in detail they may possess an attractive appearance, and yet they may prove a disappointment when applied on a large scale. Even the most brilliant invention is seldom perfect at its first practical application. With its introduction there sets in a continuous process of improvement, and the persons who first installed a new machine are often compelled to watch while it rapidly becomes obsolete and superseded, and those persons who were at first hostile to the innovation derive the benefit from it later, the pioneer having only the expense of it without the profit.

Nevertheless, each innovation offers the prospect of increased gains, and therefore attracts bold entrepreneurs to take the risk. This kind of initiative has become extremely important from the historical standpoint. By virtue of it capitalist production has developed that colossal productivity and created that infinite abundance of wealth which has first made possible a new epoch of general prosperity, the epoch of Socialism.

Are we to renounce this source of fecundity? Will it not dry up if the entrepreneur is deprived of the prospect of securing increased profits from successful innovations? The official in the socialized undertaking will, it is true, have to bear the responsibility for every innovation, without, however, any prospect of profit for himself. He will, of course, shun all risk. Even if he were energetic enough to embark upon an expensive innovation, he would first have to obtain the sanction of his superior authorities. Now the larger a committee, the more numerous the hesitations which appear in its deliberations.

The socialized undertaking will therefore be devoid of initiative, and consequently the productivity of labour and general prosperity will increase more slowly after socialization than if capitalism had continued to exist undisturbed.

This objection is not to be dismissed off-hand. It is not weakened by a reference to the phenomenon of joint stock companies. In most of these, control is not exercised by the shareholders, but by one or another financial magnate.

Herein consists a disadvantage of the socialized undertaking as compared with a business owned and managed by a capitalist. But this disadvantage would only obtain so long as only a single business were socialized, and this would not be the rule with a policy of socialization. The most appropriate method of enforcing socialization is to ensure that each of its acts, instead of affecting one particular business, should affect an entire branch of industry, the whole of the businesses which it comprises. In this case, nothing would be simpler or easier than to set apart a particular business, which is specially suitable and equipped for the purpose, to serve as a place for investigations and experiments. All suggested improvements would be referred to it for testing purposes.

The entire organization of these works would operate as an incentive to seek out improvements; not merely to test, apply, and improve inventions, but to introduce them. The introduction of innovations would no longer involve risks for the other businesses of this type, and as the expense of testing them would not fall on one business alone, but would be distributed as an equal burden over all the undertakings, the cost would be reduced to a minimum so far as each business was concerned.

Private initiative would thus be abolished, and at the same time rendered unnecessary. Inventions and their application would cease to be an individual act, and consequently to a large extent a matter of chance. They would be a systematically controlled and effectively organized social activity.

What is the scope of private initiative in the circulation process, in buying and selling? This is the peculiar field of the capitalist. He is a merchant before he is an engineer, and remains a merchant under all circumstances, whereas he is an engineer only under certain conditions. There are many capitalists who are merely merchants. There is no industrial capitalist who is not also a merchant, and in this capacity he has to function before everything else. Once it has been properly organized, the business may be carried on in the factory for a long time without the intervention of any further capitalist initiative. The market, on the other hand, is subject to ceaseless, often immense, changes. It must be constantly observed and appraised, and new decisions must be taken at every moment in accordance with its fluctuating state. These may prove beneficial or disastrous.

Before the advent of industrial capital, the profit of the merchant could only be derived from buying the same commodity cheap and selling it dear, which is not possible without violating the law of value. He was obliged either to buy it below its value or sell it above its value. This alters as soon as the capitalist becomes an industrialist, and diverts his capital from the process of production to the process of circulation. He does not now buy commodities, like a mere merchant, in order to sell them, but he buys commodities – raw materials, machines, labour-power – in order to produce out of and through them a new commodity which conceals surplus value. He can now secure a profit, even when he purchases commodities at their full value and does not sell them above their value.

But buying and selling will always be an important affair for the capitalists, as market prices almost never coincide with values, that is with production prices. While values only change slowly with the conditions of production, prices often fluctuate from day to day.

If the capitalist fails to interpret the signs of the market, and pays high prices for his raw materials in times of scarcity, expecting that they will rise still higher, whereas he is eventually obliged to sell his products in a falling market, because he has made a bad speculation, he may lose the whole of the profit which he ought to have derived from the surplus value which his business would have yielded had the purchase and sale of commodities been effected at their production prices.

The market provides scope for the capitalist’s most exciting activity. It offers him the greatest prospects of large and quick profits, and at the same time the greatest dangers of utter ruin. Here the resolute, but also cool and expert, initiative of the entrepreneur is not only a condition of progress, but a condition of life itself.

It is true that the importance of mercantile initiative for the progress of mankind is now considerably less than it was in former times. For a thousand years, before the advent of industrial capitalism and before modern technical conditions had transformed production, the merchant was one of the strongest of the progressive factors. We have observed above that, prior to the production of surplus value by industrial capital, the merchant could only derive his profit by buying commodities below their value and selling them above their value. This was difficult of attainment when the buying and selling took place in the same market. The merchant was obliged to look for commodities in localities where their value was low and dispose of them where their value was high. This urged him to a constant search for new markets both for buying and selling, often at the risk of his life. At a time when the mass of the population, peasants as well as handicrafts-men, were attached to the soil, the merchant fulfilled the functions of an explorer, and continuously widened the horizons of mankind.

The development of industrial capitalism rendered this function of the merchant and his personal initiative superfluous.

On the one hand, it creates such an abundance of personal and technical energy that scientific investigation and the interests of sport are to-day able to grapple successfully with problems quite different from those of former centuries. We may leave them to discover what territory is still unknown.

On the other hand, the merchant’s interest in this territory dwindles as industrial capital develops. Successful trading will now be done, not with unknown districts, but districts which are completely opened up and highly industrialized.

Although the discovery of new territory is no longer of much economic importance, the opening up of remote countries to the world market still plays an important part. But now that railways have to be built, Government action is necessary. The initiative of adventurous merchants no longer suffices.

Yet for the development and maintenance of the individual business, the mercantile initiative of the capitalist still remains indispensable – indispensable for the business. Society, however, will be able to dispense with it in the degree that production is systematically regulated.

It is only the uncertainty of our economic conditions that renders the initiative, or in other words, the speculation, of the merchant indispensable. The greater the uncertainty, the greater the necessity to speculate, the more the other and more useful functions of capital are overshadowed by pure speculation upon the rise and fall of prices, which is unavoidable so long as these conditions exist.

In a society based on commodity production every business, even the most solid, depends upon a forecast of coming prices, and therefore upon speculation. Every attempt to restrict speculation injures genuine business more than it hits speculation.

Consequently all attempts to suppress speculation upon the basis of continued commodity production have failed. The more uncertain the social conditions, the more speculation flourishes. And thus we have the paradoxical phenomenon that it flourishes not only in war-time, but in times of revolution, at the precise moment when the opponents of capitalism had acquired the greatest power and were attacking it with the greatest energy, alike under the terrorism of the French Revolution and that of the present Russian Revolution. While it has ruined industrial capital, the Russian Revolution has not been able to prevent the continuance of small private undertakings, especially in agriculture, and consequently a large measure of commodity production and commodity circulation.

In the case of both revolutions, terrorism was chiefly aimed at the speculators, and sought to abolish speculation by the ruthless execution of all agioteurs, as they were called in 1793, and all profiteers. But in the France of 1793, as in Russia recently, terrorism has not effected the restriction of speculation; it has merely made it more expensive for the State and for the speculators themselves. The State is obliged to bear the expense of an ever-growing police apparatus, while the speculators have to bear the expense of bribing and corrupting the authorities.

On the other hand, even the death penalty does not deter speculators, because in times of general unrest and stagnation profiteering becomes the only source of livelihood for many declassed persons. It becomes almost the sole means of employing capital, for the greater the insecurity of conditions the more those forms of capital outlay are avoided which involve slow returns, as the remote future is utterly incalculable.

The chief constituent part of massive industrial capital, such as buildings and machines, requires a long time in order to be turned over. The most rapid turnover is effected by capital employed in short-term speculations and contracts.

Thus the proletarian phases of the Middle Class Revolution have only availed to decimate the most useful forms of capital – those that assist the development of the productive forces, while the parasitic forms of capital are enormously developed.

As long as commodity circulation and capital exist, there will be speculation. The greater the insecurity of the conditions the more speculation there will be. While capitalism continues to exist, it will not be possible to reduce the magnitude of speculation by force; this can only be effected by the stabilization of political and economic conditions, soonest of all through an era of prosperity, accompanied by the rule of democracy and its methods, not by civil war, starvation, and dictatorship.

But speculation will not vanish completely until capitalism itself disappears. As long as production for the market obtains, every business, whether it be socialized or still conducted on capitalist lines, will be obliged to take account of and to utilize the changing conditions of the market, and therefore to speculate to this extent. In this province, the initiative of a personal owner is superior to that of a bureaucratically managed business.

This does not imply that socialization would be disadvantageous or impossible; it only means that this circumstance must be taken into account in determining the forms and kinds of socialization.

There are branches of industry in which market fluctuations play a very small part, branches whose products or services present little variation, while there is no greater variation as regards the consumption of these products or services. Such branches of industry are always sure of their market, as they have to satisfy vital necessities, while their undertakings are few in number, easy to supervise and bring under a uniform control, either because they form natural monopolies or because they have become artificial monopolies in consequence of the concentration of capital or legal compulsion.

Branches of business of this type are largely independent of the market. So far as they still offer a wide scope for speculation, this is not due to the fact that they are dominated by the market, but because they have become powerful enough to dominate the market. This kind of speculation is the least uncertain and the most lucrative; it does not, however, correspond to any economic necessity, but springs from definite conditions of power. It is not a result, but a cause of economic uncertainty.

To deprive the masters of these branches of business, the great magnates of capital, of private initiative, connotes an act of liberation not merely for the workers, but for the whole of society.

It is therefore with these branches of industry that socialization activity will have to begin. Their socialization is not only urgently necessary, but presents the smallest number of difficulties.

On the other hand, the difficulties of socialization will be multiplied in the case of branches of industry which cater for the demands of luxury, which comprise numerous and varied undertakings, and which serve the needs of consumers with personal and fluctuating requirements.

Many of these branches of industry will have to undergo fundamental changes before their socialization can become a practical question.

Yet it may be anticipated that socialization will become easier with every step that is taken in this direction: The progress of socialization will involve an extension of our experiences in this sphere, and deepen the influence of the socialized, systematically regulated portion of social economy upon the whole.

We have pointed out that socialization will have to begin with branches of industry which have become private monopolies to such an extent that they are enabled to dominate the market, instead of being dominated by it.

The more such branches of industry as coal, iron, and railways are socialized and combined to form an economic unity, the greater will be their influence upon the market, the more they will tend to fix the production of other branches of industry; the more they will adjust the fluctuations of market conditions; and the greater the degree of steadiness they will impart to the pace of the economic life. In the same degree the initiative of the private capitalist in the circulation process will become more and more unnecessary. Where it does not continue to play a decisive part in the process of production, as in some artistic trades, socialization will be applied with ever greater facility even to the more diversified branches of production, and will eventually become possible in spheres that now appear to be quite inaccessible. But in such provinces it will only become possible after the requisite conditions have been created by a long process of development. To commence the application of socialization at the right end is the most important task of the Socialist parties in the domain of economics as soon as they achieve political power. It would be disastrous if they commenced to socialize everywhere at once, and not less disastrous if they began at the wrong end, as, for instance, in agriculture.

If socialization be restricted to the proper dimensions and pace, and introduced at the proper starting-point, it will only be a question of power and a question of the near future in highly developed capitalist States such as Germany or England.

There are Socialists who believe that the psychical conditions of Socialism are not yet in existence, inasmuch as they presuppose a high communal sense to which the workers have not yet attained.

Assuredly a stronger communal sense would be very useful to-day. But if the commencement of socialization depended upon it, socialization would be in a bad way. For we know full well that the economic development not only concentrates capital more and more, but also more and more deepens the antagonism between Capital and Labour, and makes the workers ever more intelligent and powerful. But we have no indications regarding the growth of their communal sense. The class struggle certainly creates a strong feeling of solidarity amongst the workers themselves. But it is exposed to the constant danger of degenerating into a vocational consciousness, and assuming the form of guild solidarity. We must not forget that the idealism of the workers has hitherto been kindled less by the economic struggle against capital than by the political struggle for the great object of renewing the life of the State. The absence of political struggles under democratic institutions is detrimental to the growth of a communal sense in a middle class society. The greatest idealism during the last few decades has been exhibited by the Russian, the least by the American, workers.

We should not forget that the workers to-day are unable to escape entirely from the influence of capitalist modes of thought, which penetrate the whole of society, and through which the effects of the class struggle are to a large extent neutralized.

This need not, however, discourage us. It is only an incentive to organize socialization in such a way that it will be able to function without a proper communal sense, while encouraging the growth of the latter. We must give socialization forms that will appeal to personal interest, not merely financial interest, but interest in greater power and freedom. Socialization must be organized in such a way that all who are engaged in the socialized undertakings will have an interest in their prosperity, so that they will gladly and zealously perform their duties. In this respect we shall have to test the wage methods in the socialized undertakings, as well as the position to be accorded the managers of such undertakings. Although initiative on the part of the management will become increasingly superfluous with the progress of socialization, there must always be an interest in the successful continuance of production, if socialist production is to achieve more than capitalist production, and to be adequate to its great tasks.

Consequently, there must be the greatest possible freedom of management, no hesitation about paying extraordinary remuneration if this is the only way to secure the services of capable organizers.

The workers and the management of each undertaking should share in any surplus product which arises from their special efforts, and not from natural or social factors.


Last updated on 27.1.2004