Pages 21-26 from "The Internet's Unholy Marriage to Capitalism." Monthly Review 62.10 (March 2011): 1-30.
The Lauderdale Paradox
In order to explain at a deeper level the fate of the Internet, arising from its unholy marriage with capitalism, it is necessary to introduce a distinction that is nonexistent in today’s neoclassical economics, but that was central to economics in its classical beginnings: one between public wealth and private riches.
The contradictions of the prevailing conception of wealth are best explained in terms of what is known in the history of economics as the “Lauderdale Paradox.” James Maitland, the eighth Earl of Lauderdale (1759-1839), was the author of An Inquiry into the Nature and Origin of Public Wealth and into the Means and Causes of its Increase (1804). In the paradox with which his name came to be associated, Lauderdale argued that there was an inverse correlation between public wealth and private riches such that an increase in the latter often served to diminish the former. “Public wealth,” he wrote, “may be accurately defined,—to consist of all that man desires, as useful or delightful to him.” Such goods have use value and thus constitute wealth. But private riches, as opposed to wealth, require something additional (i.e., have an added limitation), consisting “of all that man desires as useful or delightful to him; which exists in a degree of scarcity.”
Scarcity, in other words, is a necessary requirement for something to have value in exchange, and to augment private riches. But this is not the case for public wealth, which encompasses all value in use, and thus includes not only what is scarce but also what is abundant. This paradox led Lauderdale to argue that increases in scarcity in such formerly abundant but necessary elements of life as air, water, and food would, if exchange values were then attached to them, enhance individual private riches, and indeed the riches of the country—conceived of as “the sum-total of individual riches”—but only at the expense of the common wealth. For example, if one could monopolize water that had previously been freely available by placing a fee on wells, the measured riches of the nation would be increased at the expense of the growing thirst of the population.
“The common sense of mankind,” Lauderdale contended, “would revolt” at any proposal to augment private riches “by creating a scarcity of any commodity generally useful and necessary to man.” Nevertheless, he was aware that the capitalist society in which he lived was already, in many ways, doing something of the very sort. He explained that in particularly fertile periods, Dutch colonialists burned “spiceries” or paid natives “for collecting the young blossoms or green leaves of the nutmeg trees” to kill them off; and that in plentiful years “the tobacco-planters in Virginia,” by legal enactment, burned “a certain proportion of tobacco” for every slave working their fields. Such practices were designed to increase scarcity, augmenting private riches (and the wealth of a few) by destroying or artificially limiting what constituted public wealth—in this case, the produce of the earth. “So truly is this principle understood by those whose interest leads them to take advantage of it,” Lauderdale wrote, “that nothing but the impossibility of general combination protects the public wealth against the rapacity of private avarice.”42
Lauderdale explicitly extended his paradox to the world of art and culture. “The High price of a painting or any other work of Art,” he wrote, “may make the fortune of the Artist,” and contribute to the private riches of whoever is fortunate enough to possess the work of art, but this can be seen as contributing at the same time to “the poverty of the community in the article of that species of painting,” which is valued based on its scarcity and inaccessibility.43 To be sure, scarcity in the realm of artistic production was partly the product of a “monopoly arising from skill, talent, and genius,” and to that extent constituted a justifiable tax on the public.44 Yet the community clearly did not gain in those cases where art was artificially restricted and monopolized so as to enhance its exchange value, putting it out of the reach of the majority of the population. A flowering of the arts in the culture, including a profusion of artistic talent, would ideally lead to prices falling, to the point that works of art could be diffused more generally and more easily shared, thereby enhancing public wealth. Basing his analysis on Adam Smith’s observations in The Wealth of Nations, Lauderdale was aware that the great estates of the wealthy demonstrated, as Smith had put it, “conveniences and ornaments of building, dress, equipage, and household furniture,” as well as artistic reproductions, that were monopolized for the exclusive enjoyment of the rich, and the desire for which on their part was “altogether endless.”45 For Lauderdale, such monopolization of art added to private opulence in direct proportion to the loss it represented to public wealth.
From the beginning, wealth, as opposed to mere riches, was associated in classical political economy with what John Locke called “intrinsic value,” and what later political economists were to call “use value.”46 Use values had, of course, always existed, and were the basis of human existence. But commodities produced for sale on the market under capitalism also embodied something else: exchange value (value). Every commodity was thus viewed as having “a twofold aspect,” consisting of use value and exchange value.47 The Lauderdale Paradox was an expression of this twofold aspect of wealth/value, which generated the contradiction between total public wealth (the sum of use values) and the aggregation of private riches (the sum of exchange values).
David Ricardo, the greatest of the classical-liberal political economists, responded to Lauderdale’s paradox by underscoring the importance of keeping wealth and value (use value and exchange value) conceptually distinct. In line with Lauderdale, Ricardo stressed that if water, or some other natural resource formerly freely available, acquired an exchange value due to the growth of scarcity, there would be “an actual loss of wealth” reflecting the loss of use values—even with an increase of private riches.48
In contrast, Adam Smith’s leading French follower, Jean Baptiste Say, who was to be one of the precursors of neoclassical economics, responded to the Lauderdale Paradox by simply defining it away. He argued that wealth (use value) should be subsumed under value (exchange value), effectively obliterating the former. In his Letters to Malthus on Political Economy and Stagnation of Commerce (1821), Say thus objected outright to “the definition of which Lord Lauderdale gives of wealth.” It was absolutely essential, in Say’s view, to abandon altogether the identification of wealth with use value. Say did not deny that there were “things indeed which are natural wealth, very precious to man, but which are not of that kind about which political economy can be employed.” But political economy was to encompass in its concept of value—which was to displace altogether the concept of wealth as such—nothing but exchangeable value.49
Nowhere in classical liberal political economy were the contradictions posed by the Lauderdale Paradox more apparent, generating more convolutions in logic, than in John Stuart Mill’s Principles of Political Economy. In the “Preliminary Remarks” to his book, Mill declared (after Say) that, “wealth, then, may be defined, [as] all useful or agreeable things which posses exchangeable value”—thereby essentially reducing wealth to exchange value. But Mill’s characteristic eclecticism and his classical roots led him also to expose the larger irrationality of this, undermining his own argument. Thus, we find in the same section a penetrating treatment of the Lauderdale Paradox, pointing to the conflict between capital accumulation and the wealth of the commons/public wealth. According to Mill:
Things for which nothing could be obtained in exchange, however useful or necessary they may be, are not wealth in the sense in which the term is used in Political Economy. Air, for example, though the most absolute of necessaries, bears no price in the market, because it can be obtained gratuitously: to accumulate a stock of it would yield no profit or advantage to any one; and the laws of its production and distribution are the subject of a very different study from Political Economy. But though air is not wealth, mankind are much richer by obtaining it gratis, since the time and labour which would otherwise be required for supplying the most pressing of all wants, can be devoted to other purposes. It is possible to imagine circumstances in which air would be a part of wealth. If it became customary to sojourn long in places where the air does not naturally penetrate, as in diving-bells sunk in the sea, a supply of air artificially furnished would, like water conveyed into houses, bear a price: and if from any revolution in nature the atmosphere became too scanty for the consumption, or could be monopolized, air might acquire a very high marketable value. In such a case, the possession of it, beyond his own wants, would be, to its owner, wealth; and the general wealth of mankind might at first sight appear to be increased, by what would be so great a calamity to them. The error would lie in not considering, that however rich the possessor of air might become at the expense of the rest of the community, all persons else would be poorer by all that they were compelled to pay for what they had before obtained without payment.50
Mill signaled here, in line with Lauderdale, the possibility of a vast rift in capitalist economies between the narrow pursuit of private riches on an increasingly monopolistic basis, and the public wealth of society and the commons. Yet, despite these deep insights, he closed off the discussion with these “Preliminary Remarks,” rejecting the Lauderdale Paradox in the end, by defining wealth simply as exchangeable value.
In contrast, Marx, like Ricardo, not only held fast to the Lauderdale Paradox but also made it his own, insisting that the contradictions between use value and exchange value, wealth and value, were intrinsic to capitalist production. In The Poverty of Philosophy, he responded to Proudhon’s confused treatment (in The Philosophy of Poverty) of the opposition between use value and exchange value by pointing out that this contradiction had been explained most dramatically by Lauderdale, who had “founded his system on the inverse ratio of the two kinds of value.” Indeed, Marx built his entire critique of political economy in large part around the contradiction between use value and exchange value, indicating that this was one of the key components of his argument in Capital.51
In analyzing the political economic conditions in the United States, Marx drew critically on Edward Gibbon Wakefield’s argument on the political economy of colonization. Wakefield claimed that the main problem facing capitalism in the new colonial lands, such as the United States, Canada, and Australia, was the very abundance of public land, which was an obstacle to the development of wage labor. With free, abundant land available, workers quickly fled the conditions of exploited labor and the commodity sphere altogether, becoming subsistence farmers and small proprietors. The priority in such conditions, Wakefield insisted, was to find ways to make land scarce, through the artificial inflation of land prices and the promotion of absentee ownership, thereby effectively closing off what had been public land to the majority of the population. “In the interest of the so-called wealth of the nation,” Marx observed, Wakefield sought the “artificial means to ensure the poverty of the people.”52
As with Lauderdale, only with greater force and consistency, Marx contended that capitalism was a system predicated on the accumulation of exchange value, even at the expense of real wealth/use values, including the social character (and welfare) of human labor itself. “Après moi le deluge! is the watchword of every capitalist and of every capitalist nation.”53 In a similar vein, Thorstein Veblen, in the 1920s, was to describe “the American plan” of resource exploitation, as “a settled practice of converting all public wealth to private gain on a plan of legalized seizure,” destroying much of the real wealth of society in the process.54
The whole classical conception of wealth in this respect was to be turned upside down with the rise of neoclassical economics. This can be seen in the work of Carl Menger, one of the founders of neoclassical economics. In his Principles of Economics (1871) Menger attacked the Lauderdale Paradox directly, arguing that it was “exceedingly impressive at first glance,” but was based on false distinctions. For Menger, it was important to reject both the use value/exchange value and wealth/value distinctions. Wealth was based on exchange, which was now seen as rooted in subjective utilities. Standing Lauderdale on his head, he suggested that it would make sense from a purely economic standpoint to encourage “a long continued diminution of abundantly available (non-economic) goods [(e.g., air, water, natural landscapes) since this] must finally make them scarce in some degree—and thus components of wealth, which is thereby increased.” In the same vein, Menger claimed that mineral water could be conceived as an economic good, due to its scarcity, i.e., as long as it did not flow in abundance and could thus be distinguished quantitatively as well as qualitatively from freshwater in general. What Lauderdale (and Ricardo and Marx) presented as a paradox or even a curse—the promotion of private riches through the artificial generation of scarcity—Menger, one of the precursors of neoliberalism in economics, saw as a means of expanding wealth, and thus a desirable end in itself.55