Economic History Case Studies: Smithian-Burkean Definitions of Kapital (1790s-Present)

What caused the accounting standard of the Soviet Union and Eastern Bloc countries to pursue Adam Smith’s conception of the Labor Theory of Value (LTV) instead of the one espoused by Karl Marx? It is true that Marx’s LTV is derived from Smith’s version, but the Marxist interpretation remains strictly grounded in Marxist Theory. Could it be that there was something within the history of LTV that remained virtually unknown to the Soviets and Eastern Bloc countries? If so, does it have something to do with a point of contention between Adam Smith and Edmund Burke over the roles of Kapital and Schuld inside the Market that drives a Market/Mixed Economy? Is this the ‘proverbial smoking gun’ that definitively demonstrates why Soviet applications of LTV end up resembling the Smithian version than the Marxist version in practice?  And is it possible that this might even explain why Fascism and Pan-Germanic Socialism were not as successful at creating their own equivalents?

Adam Smith
Edmund Burke

In the late 18th century, at the height of the Enlightenment, a point of contention did emerge in the writings of Smith and Burke. The most proper way to approach these questions from the standpoint of the Work-Standard is to evaluate them based on specific topics.

All conceivable forms of Kapital are created by Labor (or ‘Labour’) and understood in reference to either a laborer or else a group of laborers. Labor is beholden to Kapital and Kapital is beholden to Labor insofar as Labor represents people and Kapital representing items with Value.

Unlike the Work-Standard’s Arbeit and Geld, where the emphasis is placed on the actions taken to create something and their subsequent outcomes, Labor and Kapital are meant to be understood as “Subject” and “Object” respectively. Here, the “Subject/Object Duality” related to the “Mind-Body Problem” from Applications of Reciprocal Theory of Value and Work Theory of Money (Pt. I of II) becomes apparent.

Labor represents the “Subjects” of a Civil Society tasked with creating “Objects” for another “Object.” If the “First Object” is Kapital, then the “Second Object” is either the Market (Read: ‘Private Sector’), the Parliament (Read: ‘Public Sector’) or both like in the contexts of Public-Private Partnerships (P3s), Government Contracting and Subcontracting, Income Taxation, Collective Bargaining, and so forth.

Simply put, a “Subject” (Labor or Private Citizen) creates an “Object” (Kapital from Commodities or products and services) for another “Object.” In Production for Profit, that Second Object is the Market/Mixed Economy and the Fractional-Reserve Banking System; in Production for Utility, the Second Object will also include Parliament. It is fashionable among Liberal Capitalists to assume that Civil Society exists somewhere between the Market/Mixed Economy and Fractional-Reserve Banking System.

There are only three terms applicable to this discussion: the Subject, First Object, and Second Object.

All the key distinctions between Adam Smith and Edmund Burke begin and end with ascertaining the Value and Price of the First Object. Smith believed that the Value and Price of the First Object are distinguishable from each other, whereas Burke argued that the Value and Price of the First Object are equal to each other.

The contention over the Value and Price of the First Object is due to disagreements over who or what should determine the Value and Price. Smith claimed that the Subject decides the Value and the Price at which the Second Object is going to spend on the First Object. Burke insisted that the Second Object dictates the Value and Price of the First Object, the Second Object wielding enough power and authority to convince the Subject to follow along.   

Smith believed that the Subject has its own Value and Price–its own “Exchange-Value,” thereby necessitating the existence of a Theory of Value, hence the Labor Theory of Value (LTV). In essence, the Subject’s ability to create the First Object in any fixed set of Quantities should be readily factored into its Value and Price for the Second Object.

Burke questioned such notions, thinking that the Subject is not supposed to wield such authority over the Second Object when deciding on the “Exchange-Value” of the First Object. Put another way, the “Exchange-Value” of the Subject is merely an extension of the First Object’s dependence on the Subject, which is tasked with creating it for the Second Object.    

The relationship between the Subject and Second Object with regard to the First Object occurs at the Market, regardless of whether we are referring to the Private Sector or the Public Sector. Smith argued that the transactional sale does not always need to be ascertained on any conceivable moral plane in terms of an Absolute Good and an Absolute Evil (as opposed to Nietzschean notions of Good and Bad).  Burke believed that every transactional sale should always be ascertained on a moral plane of Absolute Good and Absolute Evil.

The very notion of ascribing a moral plane to the transactional sale between the Subject and Second Object over the First Object informs Smith and Burke’s understandings of how the First Object is encountered in the Market under the Incentives of Supply and Demand. In economic life, Smith argued that the First Object has primacy over the Second Object, whereas Burke insinuated that the Second Object should not infringe on the primacy of the First Object. Smith thought the First Object is beholden to the Subject, while Burke maintained that the Subject and Second Object are equally beholden to the First Object.

What I just described is the most fundamental point of contention within any discussion of Economics and Finance. The real difference is that I am describing it in a Liberal Capitalist context and then scrutinizing it with the Work-Standard. Smith postulated that the Private Citizen creating Kapital should dictate its Value and Price for Civil Society and Parliament. Burke articulated the direct opposite: the Value and Price Kapital are dictated by Civil Society (which we can assume to be the Market/Mixed Economy and Fractional-Reserve Banking System) and Parliament.

Smith was inclined to think that the Private Citizen, as a creator and owner of Kapital (and by extension, Schuld), should exercise their power to decide how they spend Kapital and how they in turn earn Schuld. Their ability to create Kapital and Schuld compel them to decide what happens in Civil Society as an employee of a privatized commercial firm and in Parliament as a taxpayer. Civil Society and Parliament are therefore beholden to the will of a Private Citizen with more Kapital than the next Private Citizen. Burke, on the other hand, insisted that Kapital is beholden to neither the Private Citizen nor Civil Society and Parliament inasmuch as all three are in reality beholden to Kapital.  

Furthermore, since the very concept of Kapital is inseparable from the concept of the Market, Burke believed that it was the prerogative of Civil Society (Read: the Market/Mixed Economy and the Fractional-Reserve Banking System), not Parliament, to decide the Values and Prices of Kapital for the Private Citizen. Smith questioned those assumptions, favoring the prerogative of the Private Citizen to decide the Values and Prices of Kapital for Civil Society because Kapital thoroughly dominates Parliament in its fiscal and monetary policies.   

In Burke’s understanding of the Value and Price of Kapital, we find a point of contention coexisting with the already established point of contention between himself and Smith. On the one hand, there is the belief that the Value and Price of Kapital should only be decided by those who own Kapital themselves. It is complimented by a concurring belief that the Market will recreate the social order not along the lines of Subjects and Monarchs, but of the “Wealthy” and the “Poor.” Of course, Burke regretted entertaining such ideas towards the end of his life for Intents that are beyond the focus of this Entry.      

Yet we find the seeds of discontent that would later become apparent in other forms of Economics after the late 18th century. Marxist Economics questioned why those with more Kapital should exercise greater political power over those with less.  Feminist Economics criticized why Kapital from certain economic activities done mostly by women do not carry the same authority as those done mostly by men. Ecological and Environmental Economics sparred over where exactly Kapital exists in the relationship between Nature and humanity. Other ideologies like Pan-Germanic Socialism (however flawed its own analyses are) scrutinized why humanity should even be beholden to the very logic which govern Kapital and Schuld.

The dynamics of Kapital and Schuld within a Market in Production for Dasein do not exist, replaced by the dynamics of Arbeit and Geld within a Tournament. Under the Work-Standard, the Self and the Totality do not arbitrarily dictate the Values and Prices of Arbeit and Geld and expect the other to blindly accept them. Incidentally, it is because of this particular fact that any conception of currency operating on “Full Faith and Credit,” a Fiat Currency (as exemplified by Modern Monetary Theory, MMT, or the Post-Bretton Woods Debt Standard), becomes inconceivable. That is why there is no such thing as a “Sociable Fiat Currency” or why the Arbeit and Geld should always be gauged in terms of their Quality as opposed to their mere Quantity.

The Self and the Totality have to come to a binding agreement on what the true Value and true Price for this Equipmentality or that product and service should be. To ensure that everyone acts in good faith and not double cross each other, the State implements that binding agreement at the State Commissariats of Wages and Prices, the binding agreement itself enforced by the Rule of Law at the Councils (for Actual Arbeit and Actual Geld), the Social Forums (for Digital Arbeit and Digital Geld), or the Tribunals (for Military Arbeit and Military Geld).

Meanwhile, the Tournament in Production for Dasein is focused on the best Quality of Arbeit for the least Quality of Geld. Even here, the Self and the Totality still need to decide on how they will be judging their Values and Prices under a functioning Council Democracy. Only with an agreed upon legal framework can the Self and Totality be able to make value judgments about which Enterprise performs better than the next Enterprise or vice versa.

Categories: Economic History

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