 Welcome to George H. Smith's Excursions into Libertarian Thought, a production of Libertarianism.org and the Cato Institute, narrated by James Foster. Thomas Hodgkin, Libertarian Extraordinaire, Part 2 In Part 1 of this series, I discussed Thomas Hodgkin's advocacy of radical individualism and laissez-faire. Hodgkin's libertarian views were so extreme that he has frequently and understandably been called an anarchist, though he expressly repudiated the label. If you consult standard histories of economic thought, you will find a more curious label attached to Hodgkin, namely, Ricardian Socialist. This label has been used because Hodgkin supposedly took the labor theory of value defended by the free-market economist David Ricardo, 1772-1823, and developed it into a full-scale critique of capital and capitalists, most notably in labor defended against the claims of capital, 1825. This tract is far from the best of Hodgkin's writings, but it is the most famous. Why? Primarily because it was repeatedly cited and praised by Karl Marx, who was influenced by some of its key arguments. Indeed, in the first volume of Kapital, Marx praised Hodgkin as one of the most important modern English economists. We are thus presented with the anomaly of a radical advocate of private property and laissez-faire being called by some historians an English forerunner of Karl Marx. But we should not be misled by how the ideas of one intellectual were used by another intellectual. The fact that Marx cherry-picked a few arguments and concepts from Hodgkin and adapted them to his own socialistic agenda does not transform Hodgkin into a socialist or into a forerunner of Marx. As Murray Rothbard pointed out in Classical Economics and Austrian Perspective on the History of Economic Thought, page 401, there is no doubt that Hodgkin's ultra-laborism influenced Karl Marx, but his extreme labor theory of value does not make him a Ricardian, much less a socialist. In fact, Hodgkin was highly critical of Ricardo and the Ricardian system, denounced Ricardo's abstract methodology and his theory of rent, and considered himself a Smithian rather than a Ricardian. Adam Smith's natural law and harmony of interest free market doctrine was also far more congenial to Hodgkin. Consider these comments that Hodgkin made in a letter to Francis Place in 1820, just three years after Ricardo published Principles of Political Economy, and five years before Hodgkin published Labor Defended against the Claims of Capital. I think I never saw a book more destitute of facts than Mr. R's Principles, which at the same time has had so much weight. To me it appears to rest on arbitrary definitions and strange assumptions. The first two sentences of the book are radically false. His definition of value is wrong, his explanation of the manner in which fixed capital tends to lower the prices of all commodities into which it enters. I hold to be the best and only good part of his book. It does appear to be built on no sort of facts to contradict many and to have little more merit than a bewildering subtlety. In early 1823 Hodgkin moved from Edinburgh to London, where he became the Parliamentary Reporter for the Morning Chronicle, whose editor was a friend of the Benthamite James Mill. Within months of arriving in London, Hodgkin started The Mechanics Magazine, an educational journal aimed at factory workers and other labourers. At a time when many workers were demanding minimum wage laws, Hodgkin argued that all economic regulations including minimum wage laws should be repudiated in favour of a free, unregulated market. Workers, Hodgkin warned, are not the friends of workers. Indeed, legislators have always belonged to the non-labouring classes of society, and it seems bad, therefore, for the poor man to have any law of this kind emanating from them. Members of the ruling class already have too much power, and to grant them the right to regulate wages would enhance their power even more. Even if such regulations might prevent wages from falling in the short run, labourers would be better served in the long run by looking after their own interests in a free market rather than depending on legislators whose principal concern is preserving their own power. In 1824 while working as a Parliamentary Reporter, Hodgkin observed debates in the House of Commons that led to the repeal of the Combination Laws, which had outlawed trade unions by prohibiting combinations of workers who wished to pressure employers for shorter hours or more pay. These Combination Laws were a chief target of the Benthamites and other free market advocates who argued that workers should be permitted to negotiate freely with their employers so long as no coercion was used. Although some free market types such as Francis Place predicted that the wholesale repeal of the laws prohibiting trade unions would diminish the frequency of strikes, this is not what happened. Repeal was immediately followed by an outbreak of strikes, some of which were violent. Thus no sooner had the old laws been repealed than alarmed legislators passed the 1825 Combination Act. This new legislation, while permitting collective bargaining in matters pertaining to wages and conditions of employment, stated that union members could not molest, obstruct or intimidate. It was unclear, however, how terms like obstruct would be interpreted by English courts. This historical background is essential to understanding Hodgkin's political purpose in writing Labour Defended Against the Claims of Capital, which carries the subtitle, or the unproductiveness of capital proved with reference to the present combinations amongst journeymen. Thomas Hodgkin used the new law against trade unions as an opportunity to criticize the theory of capital that had been defended by David Ricardo and his followers. The Ricardians, such as economist J. R. McCulloch, whom Hodgkin specifically mentioned, were peculiar targets in a way since they had spearheaded the movement to repeal the prohibition against trade unions and collective bargaining. Nevertheless, Hodgkin believed that these free-market economists had fostered, if unwittingly, the widespread prejudice against trade unions by investing capital with productive powers that it did not, in fact, possess. Hodgkin's critique of capitalists was severe and unremitting. He denied that capital has any just claim to the large share of the national produce now bestowed on it. One is almost tempted to believe that capital is a sort of Kabbalistic word, like church or state or any other of those general terms which are invented by those who fleece the rest of mankind to conceal the hand that shears them. The evil effects of capital are seen in the fact that the labourer must give a large quantity of the produce of his labour to the capitalist which keeps the labourer in poverty and misery. Capitalists can grow rich only where there is an oppressed body of labourers, and they have long since reduced the ancient tyrant of the soil to comparative insignificance while they have inherited his power over all the labouring classes. It is therefore now time that the reproaches so long cast on the feudal aristocracy should be heaped on capital and capitalists. Readers familiar with the Austrian theory of capital can easily identify the serious flaws in Hodgkin's theoretical attack on capital and capitalists, see Rothbard's discussion cited above for a brief but incisive critique, but in fairness to Hodgkin three points should be kept in mind. One, labour defended should be read in part as a criticism of crony capitalism to use a modern expression. Hodgkin believed that laws against trade unions and collective bargaining had created an unfair advantage against workers in favour of capitalists. Hence the large profits reaped by capitalists were not the result of natural economic forces but were generated by the coercive laws of government. Two, Hodgkin distinguished between different economic functions that are sometimes included within the label capitalist. Although he stressed that whatever labour produces ought to belong to it, he also emphasised that labour does not refer to physical exertions alone but also to mental activities and skills. I therefore would caution my fellow labourers not to limit the term labour to the operations of the hands. The production of a commodity requires the joint labour and cooperative efforts of many different people with many different skills, including the knowledge and skill of the master manufacturer and of the man who plans and arranges a productive operation who must know the state of the markets and the qualities of different materials and who has some tact in buying and selling. These masters, employers and contrivers and enterprising undertakers of new works are authentic labourers so they have a just claim to their share of profits. The labour and skill of the contriver or of the man who arranges and adapts a whole are as necessary as the labour and skill of him who executes only a part and they must be paid accordingly. Three, another point is even more significant for it clearly separates Hodgkin's critique of capitalists from socialistic proposals. If it is true that the labourer should receive the full product of his labour, it is also true that commodities in an advanced society are the product of a complex division of labour wherein many people contribute to the manufacture of a single economic good. So how can a particular labourer receive just compensation when it is impossible to separate his contributions from those of many others? There is only one way according to Hodgkin, namely to allow labourers including employers, manufacturers, entrepreneurs and others to compete freely in a competitive market. As Hodgkin put it, there is no principle or rule as far as I know for dividing the produce of joint labour among the different individuals who concur in production but the judgment of the individuals themselves. That judgment depending on the value men may set on different species of labour can never be known nor can any rule be given for its application by any single person. As well my demands say what others shall hate or what they shall like. At each stage of production a person must decide how much he is willing to pay for the materials and services needed to produce his share and many such subjective evaluations are reflected in the value of the final product. Hence when something is finally produced under an advanced division of labour there is no longer anything which we can call the natural reward of individual labour. Each labourer produces only some part of the whole and each part having no value or utility of itself. There is nothing on which the labourer can seize and say this is my product, this will I keep to myself. Given the many different people and skills that are required to produce even a simple commodity under a complex division of labour, how should we determine the reward that should go to a particular labourer? Hodgkin answers this question as follows. I know of no way of deciding this but by leaving it to be settled by the unfettered judgements of the labourers themselves. If all kinds of labour were perfectly free if no one founded prejudice invested some parts and perhaps the least useful of the social task with great honour while other parts are very improperly branded with disgrace there would be no difficulty on this point and the wages of individual labour would be justly settled by what Dr. Smith calls the higgling of the market. We thus see that Thomas Hodgkin was not a Ricardian socialist or a socialist of any kind, quite the reverse is true. Rather than draw socialistic conclusions from the labour theory of value Hodgkin employed it as an underpinning for laissez-faire. Only in a free market he maintained can labourers of every kind receive just compensation for their work. It would be impossible to explore the many problems in Hodgkin's critique of capital and capitalists without simultaneously discussing the labour theory of value on which it depends but it should be noted that leading proponents of the labour theory of value most notably Smith and Ricardo were unable to provide an altogether satisfactory account of the profit generated by capital. Although it was generally understood that the capitalist advances wages to workers and thereby forgoes present for future consumption most classical economists failed to understand the crucial relationship between time preference and the interest that accrues to capital. Although Hodgkin appreciated and praised the risk taking role of the entrepreneur he also separated this role from that of the pure capitalist in an artificial manner. All capital investment in a free market is attended with some degree of profit generating risk. Thank you for listening to Excursions. To learn more about libertarian philosophy and history visit www.libertarianism.org