That Bullet in Germany Nearly Altered the Economy
A foundational economic book hinged on the path a bullet took
I stumbled across a book that picks ten influential economists and teases out elements from each that contribute to ideas circling the circular economy. It turns out bits and pieces of what many consider a ‘new’ idea have existed among notable economists, left and right, for centuries.
The first is a name known to most worldwide, even if they only get their history from Fox News. But had a gun been aimed more accurately, his name nor his global influence would have been a part of history at all.
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THE DUEL AT SCHOOL
Class boundaries come into focus in college towns as diverse clusters of first-year students descend, mingle, and sort. Such was the case for one young man in Germany. It’s not that he was poor, but to the über he was. Having been born to Jewish parents, he was used to being bullied. Though he thought violence was an absurd remedy for injustice – after all, he went to college to study philosophy and belonged to a poetry club – but he also believed that sometimes one must stand their ground by whatever means.
And so there he stood, 18 years old, with his back to his adversary, about to engage in a duel. As he breathed in, I imagine he could feel the cold pull from the barrel of the pistol pointed to the sky inches from his chin. With each step his pulse must have quickened. He must have felt the gun handle twist in his sweaty palms as he gingerly rested his tremoring finger on the trigger. He knew at any second, he must turn quickly. He must not flinch. And he must not die.
In his final steps I imagine his world must have slowed down. And then, in a blur, he whirled around and fired at his challenger. The blast must have lit his face, punctuated by the sound of a whirring bullet. He felt the skin just above his eyebrow burn. I can see him lifting his shaking hand to his forehead expecting blood. But it was just an abrasion. The bullet had grazed his skull. That bullet was millimeters from ending Marxism before it even started. Had it landed, Karl Marx would have been dead at 18.
My sense is that when most people read the word Marxism, they think Communism. He’s best known for two massive publications, The Communist Manifesto, and Das Kapital – or often simplified and anglified to just Capital. But he eventually distanced himself from the direction Communism and even Marxism had taken. As we shall see, he was a professional journalist for most of his adult life and thus a staunch free press and free speech advocate – two freedoms communist authoritarianism eradicated.
The word, ‘Marxism’, today is often used by some to discredit progressive pro-social political and economic ideas given its connotations to communism. A holdover from American Cold War McCarthyism. It turns the disparaging came long before the 1940s and 50s. It was used the same way in France and other parts of Europe in the late 1800s. So much so that Marx’s collaborator on The Communist Manifesto, Fredrich Engels, once wrote,
“What is called ‘Marxism’ in France is certainly a very special article, to the point that Marx once said to Lafargue [Marx’s son-in-law]: "What is certain is that I am not a Marxist."
Marx’s economic work is less well-known and Das Kapital remains the most accurate and lucid critique of the negative effects of capitalism. Marx was first and foremost a philosopher and his arguments take aim at the moral and ethical implications of capitalistic systems. Which is why circular economic advocates often turn to Marx for their own philosophical underpinnings.
Coincidently, the man credited with capitalism, and whom Marx often took aim, Adam Smith, was also a philosopher. In fact, he mostly wrote about liberal philosophy and relatively little about economics. I wonder if today these two philosophers, who many see representing the left and the right of political economics, would be unsuspecting allies or dueling advisories?
Karl Marx’s first year at university in Bonn, Germany was like many freshmen. He partied a lot. But Bonn was also home to radical politics at the time. Students were heavily surveilled by the police due to semi-organized radical attempts by student organizations to overthrow the local government. It turns out the poetry club he had joined was not about poetry, it was a front for a resurgent radical political movement. Though, having already spent a night in jail for drunken disorderly behavior, Marx may have mostly been interested in the social side of the club.
Paralleling political turmoil was class conflict between the so-called ‘true Prussians and aristocrats’ and ‘plebeians’ like Marx. The near fatal event came about when an aristocrat challenged Marx to a duel. Marx indeed thought dueling was absurd, but evidently, he, like many men in those days, thought it a worthy way to ‘man up’. His dad certainly didn’t think so and accelerated the plan to transfer his son to the University of Berlin to study law.
While in Berlin, Marx also continued to study philosophy and wrote both fiction and nonfiction on the side. One of his most influential professors was Eduard Gans. Gans had been brought to the university by none other than the influential German philosopher, Georg Wilhelm Friedrich Hegel. Hegel had died just four years before Marx arrived in Berlin, and Marx, like many, was fascinated by his work.
After Hegel’s death, Hegelians (as his disciples were called) became divided between Right Hegelians and Left Hegelians. The right interpreted Christian elements in his philosophy seeking to associate his ideas and popularity with the Christian-led Prussian political establishment. The left embraced aspects of reason and freedom of thought they believed Christianity and the Prussian government limited. Gans’ lectures tended more toward the left and so did Marx who joined a radical group of Young Hegelians seeking revolution.
After graduating, Marx left for Cologne, Germany in 1842 to become a journalist for the Rhineland News. He expanded on Hegel’s ideas around the role of government in providing social benefits for all and not just the privileged class. He openly criticized right leaning European governments and his radical socialist views garnered the attention of government sensors. Marx said,
“Our newspaper has to be presented to the police to be sniffed at, and if the police nose smells anything un-Christian or un-Prussian, the newspaper is not allowed to appear."
He also became interested in political economics and became frustrated with other Young Hegelians who continued to focus the movement on religion.
His critical writing eventually got him kicked out of Germany, so he fled to Paris. There too his writing got him in trouble. The Prussian King warned the French interior minister of Marx’s intentions and was expelled from France. On to Belgium he went where he, again, was kicked out. Marx eventually took exile in London in 1850 where he familiarized himself with the writing of Europe’s leading economists, including Britain’s most famous, Adam Smith.
His research passion project brought in no money. Risking extreme poverty for him and his family, he took a job as European correspondent writing for the New-York Daily Tribune in 1850. After ten years, he quit when the paper refused to publicly denounce slavery at the start of the civil war. During that decade, he continued to research in the reading room of the British Museum amassing 800 pages of notes which became the source material for his first successful 1859 book, A Contribution to the Critique of Political Economy. At the time, he was also witnessing firsthand the deplorable conditions London factory laborers endured at the dawn of the industrial age and the destruction of nature with it.
Marx’s primary critique was summed up in a single German word: Produktionsweise which can be translated as "the distinctive way of producing" or what is commonly called the capitalist mode of production. Marx believed the system of capitalism distinctly exists for the production and accumulation of private capital through private wealth, hinging on two mutual dependent components:
Wealth accumulation by private parties to build or buy capital, like land, buildings, natural resources, or machines, to produce and sell goods and services
A wealth asymmetry between those who accumulate the wealth and capital (employers) and the those needed to produce the good or service (laborers) in a way that yields the profits needed to accumulate the wealth (i.e. cheap or free labor)
Capital accumulation existed in markets long before Karl Marx and Adam Smith, but the accumulation was limited, including by nature. For example, let’s say I start a garden next year growing zucchini. Zucchini grown in the Northwest United States can become overwhelmingly productive. I would likely yield more zucchini than my family could consume. I could decide to exchange the remaining zucchini for money at a local farmer’s market. In economic terms, I grew a commodity (C) and would be exchanging them for money (M) thereby turning C into M.
Let’s imagine while at the market I am drawn to another commodity that I’m not willing to make myself, honey. I can now use my money (M) to buy a commodity (C1) grown by someone else. The beekeeper could easily take the money I gave them (M1) and exchange it for a good they’re unwilling to grow or make themselves (C2). This chain of exchange could continue throughout the entire market.
This linear exchange of money through markets was common leading up to the industrial age. Money was the value exchanged but the generation of money only happened at the rate of natural production or extraction of natural commodities or by industrious human hands. Wealth accumulation could indeed occur by saving it or exchanging it for something that may rise in value faster than, say, zucchini, like property or gold.
THOSE DUTCH DO MUCH
With the dawn of the industrial age, Marx observed capitalists showed up to the market with large sums of accumulated wealth at the outset. Wealth often came through inheritance, but also rent of property (sometimes stolen, as occurred during colonization) or profits from an existing or past enterprise. This money (M) is then used to invest in the means necessary to produce, or trade, a good or service (C). The capitalist themselves need not want or need their good or service, they may not be interested in it at all. Their primary concern, according to Marx, is to covert their initial investment (M) into more money (M+) through profit made on the sale of the good. They then take their accumulated money (M+) and use it to invest in the production of, or trade with, another good or service (C+).
Due to the efficiencies gained through the advent, invention, and innovation of energy and machines the rate of production greatly increased in the industrial age. And with it profits. This inspired entrepreneurs to take risks into new ventures thereby diversifying the market while creating additional engines of wealth and capital accumulation. Herein lies the Marxist claim on the primary motivation of capitalism – turn capital into more capital through one or many forms of profiteering.
Again, this concept predates Marx or Smith. In the 1600s the Dutch created a market expressly for the exchange of money for a piece, (also known as a stock or share) in a company. It was another way to accumulate wealth for the purpose of building capital. The first to utilize this market in 1602 was the Dutch India Company leading Marx to comment, “Holland was the head capitalistic nation of the seventeenth century.”
Marx predicted the eventual outcome of unbridled wealth accumulation would be monopolistic behavior. Those who accumulate wealth also generate the power to buy out competitors leading to not only consolidation of wealth, but power. And not just economic power, political power too. We all know too well how wealth and power can sway election results and lobbying strength.
Those sucked into capitalism need not necessarily be greedy. It’s the nature of the pursuit of business in a capitalist system to compete on price. This was particularly apparent in what Marx observed. One way capitalists lowered the price of a good was to flood the market with it. The only way to do that is to increase production. But to earn necessary profits to accumulate necessary capital on a lower priced good meant lowering the amount of money spent on capital (i.e. real estate, raw goods, or machines) and/or labor (i.e. employee wages). This led to increasing wealth disparities and further strengthened the asymmetry Marx claimed was necessary in the capitalist mode of production. It’s not necessary to be greedy to win, but you can’t win without competing on price. And too often it’s the workers who pay the price. This was Marx’s biggest beef with capitalism.
Wealth disparities are now the greatest in history and the number of natural resources needed to create low-cost goods in the competitive global race to bottom barrel prices are nearing earthly limits. Meanwhile, as more people are pulled out of poverty and urban areas grow exponentially, more natural resources are demanded. Including for the necessary energy to make, move, and manage the mess we consumers create. We seem compelled to continually capitulate to creeping capitalism.
It leads many to wonder, do we need capitalism? Marx concludes in Das Kapital that capitalism cannot exist forever within earth’s natural resource limitations. But he may be surprised to find that it has lasted as long as it has. To reject capitalism, or assume, as Marx did, that capitalism is a natural evolution on a path toward some form of communal economically balanced society, does not necessitate rejecting markets. Nor does it necessarily imply going ‘back’ to pre-capitalist times, like 16th century Holland.
But it doesn’t mean we shouldn’t look to the Dutch. They may be onto something yet again. A Dutch company called Bundles has partnered with the German appliance manufacturer Miele to create an in-home laundry service. Instead of, or in addition to, Miele racing to making more and more washing machines, selling to more and more people, at lower and lower prices, they lease the washer and dryer to Bundles who then installs and maintains the appliances in homes for a monthly fee. The consumer pays for a quality machine serviced by a reputable agent, Bundles and Miele get to split the revenue, and Miele is incented to make high quality and long-lasting appliances to earn higher profits. They’ve since expanded this idea to coffee and espresso machines. It’s an attempt at a more circular economy by reducing consumption, energy, and resource extraction, all while utilizing existing markets in a form of capitalism. It’s a start.
But perhaps not enough of a change for Marx. Or maybe so. In 1872, eleven years before his death and twenty-two years before Miele was founded, he gave a speech in Amsterdam. He acknowledged, “there are countries -- such as America, England, and if I were more familiar with your institutions, I would perhaps also add Holland -- where the workers can attain their goal by peaceful means.” As in his youth, it appears he found violence to be an unworthy course of action for injustice. But also consistent with that eventful day in Bonn, 1836, as he was challenged to a duel, he also has his limits. His speech continued, “This being the case, we must also recognize the fact that in most countries on the Continent the lever of our revolution must be force; it is force to which we must some day appeal in order to erect the rule of labor.”
Alternative Ideas from 10 (Almost) Forgotten Economists. Irene van Staveren. 2021.
Letter to E. Bernstein. Friedrich Engels. 1882. [“Ce qu’il y a de certain, c’est que moi je ne suis pas marxist” (Friedrich Engels, “Lettre à E. Bernstein,” 2 novembre 1882. MIA: F. Engels - Letter to E. Bernstein (marxists.org).]
La Liberte speech. Karl Marx. The International Working Men's Association.1872.