Why socialize finance?

I was somewhat taken aback by the negative reactions to Seth Ackerman’s recent piece about socializing finance in the Jacobin. I reviewed his idea positively, but folks on twitter had a different take. The detractors asked, among other things, what problem does this solve? Socializing financial gains does not change working conditions or compensation and does not eliminate the competitive market. For many on the left, the alienation of labor and the existence of competition are the chief horrors of capitalism. And viewed through that lens, the socialization of finance achieves very little.

For whatever reason, the dominant left-intellectual gripe with capitalism these days finds its origins in Marx’s theory of alienation. That is not to say all the criticisms come with cites to the Economic and Philosophical Manuscripts of 1844, but that is the intellectual tradition those criticisms are working within. In that tradition, the terribleness of capitalism is manifested in the way that wage labor causes various sorts of alienation and commodification. Among other things, workers have little control over their productive energies or the resulting product (bosses and owners control both). Workers also find themselves estranged from their co-workers and everyone else for that matter as competition puts their interests at odds with everyone else. This capitalist reality generates terrible psychic harm and pain because it undermines humanity’s natural tendency towards community and creativity.

Although this is an important tradition in the history of anti-capitalism, it is not the only one. Marx himself seemed far more interested in another critique of capitalism that focused on the unearned incomes of capitalists. In very simple terms, capitalism enables owners of enterprises to capture income that they do not work for.

The modern stockholder is a fantastic example of such capturing. The stockholder buys some equity in a company, has absolutely no role in the company, and then sells the equity down the line at a gain (and in the meantime receives dividends). That stockholder did no work at all to generate that gain or the dividends. Workers in the firm did all of the work, but they did not receive all of the gain. So not only does the stockholder capture income that she did not earn, but the workers in the company are deprived of income that they did earn. That is classic exploitation.

Outrage at unearned income is the classic domain of theories of desert. Under desert theory, individuals are owed compensation equal to their economic contribution, nothing more and nothing less. This theory has its problems, but it has a massive intellectual pedigree, even on the left. For a modern take on it, Gar Alperovitz and Lew Daly cannot be beaten.

Capitalist systems are riddled with payouts that have nothing to do with economic contribution. Early theorists focused on land rents as a troubling type of unearned income. In Wealth of Nations, Adam Smith noted that “[a]s soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed and demand a rent even for its natural produce.” John Stuart Mill, noted market socialist, said it best:

Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class.

It is under this desert theory tradition — which Marx’s theory of exploitation makes him a part of — that socialization of finance finds its strongest justification. Financial wealth delivers passive incomes to owners through no exertion of their own. Capturing those financial gains and distributing them socially corrects that injustice. It eliminates the technical exploitation that Marx fixated on in Capital. All else equal, that seems like a very commendable achievement to me at least.

Although socialization of finance is most supported by the desert tradition, it can do things which should appeal to other traditions as well. Among other things, it provides a revenue stream that can be used to pursue egalitarian goals (through cash transfers for instance), and even worker empowerment goals (through basic incomes for instance). Additionally, and perhaps more importantly, socialization of finance is completely compatible and can exist alongside other sorts of left programs. It may not fully solve alienation and commodification problems (if indeed you think they exist), but it certainly does not preclude them from being solved.