Thursday, January 2, 2020

The Spiritual Science of Economics. Lecture 4: Thinking Our Way into the Economic Process

The Moving Finger of Price in the Holy Grail of Economics

Lecture 4 of 14.

Rudolf Steiner, Dornach, Switzerland, July 27, 1922:

Yesterday I chose from the economic life a somewhat crude example as an illustration. It appears that this drastic illustration has caused some of you a good deal of “brain-racking.” I refer to the example of the tailor, who, I said, works less cheaply if he makes his own suit of clothes for himself than he would be doing if, while making clothes for other people, he bought his own from a tradesman in the ordinary way, like the rest of us. Now it is only too easy to miss the point of such a crude example. For it is quite natural to work it out in this way: “The tradesman, since he must make some profit, will buy the suit of clothes from the tailor more cheaply than he will sell it. Hence it goes without saying that if the tailor buys his suit of clothes, he will pay more for it than he would if he made it for himself. He will, in fact, have to pay the tradesman's profit in addition.” This objection is so obvious that it is bound to occur; nevertheless I purposely chose the above rather crude example because I wished to illustrate how necessary it is, for present-day economic life, to think not in terms of domestic economy, but in terms of community or national economy. We must, in fact, reckon with all that arises from the division of labor.
You see, the important thing is not to consider how the tailor will stand directly after he has finished making the suit of clothes. It is true enough that if he proceeds to sell the suit to a tradesman, and then buys another suit back again for himself, he will have made a loss. But that is not the point; the point is, how will he stand when he makes up his accounts after a certain lapse of time? Will he be in a better position if he made his own suit for himself, or will he be in a better position if he refrained from doing so?
In effect, when the division of labor works, it makes products cheaper in the right way; they become cheaper, through the division of labor, precisely in the whole system of economic relationships. Whereas, if we work against the division of labor, we force down the price of one particular class of products; but this forcing down of prices will itself go against the main stream of the economic process. In other words, though the tailor may save something on that particular suit, he will — by a very small figure to begin with — force down the price of clothes; if many tailors do the same, the effect will be multiplied; clothes will become cheaper and the result will be that the tailor will have to supply other suits also at a lower price. It will only be a question of time. After a certain time, he will observe in his balance-sheet how much less income he has derived from the other suits than he would have derived if he had not thus forced the prices down.
We must not confuse the issue by thinking in the narrow spirit of domestic economy. I did not mean that the tailor has not a perfect right to make his own clothes for himself, or that he might not quite properly have a taste for doing so. Only he must not imagine that it will save him anything in the long run; on the contrary, it will be more expensive. Taking his total balance after a certain lapse of time, he will find that it is more expensive. I admit that in this crude example the effect will be comparatively slight, for the amount by which the price is forced down will only become evident after a considerable lapse of time. The tailor will have to make a large number of other suits before the very small fraction by which they are cheapened becomes effective. Nevertheless, sooner or later it will appear in his total balance. (* See Appendix.)
The economic process does indeed consist in an infinite number of interdependent factors. The single phenomenon is the outcome of an untold number of factors, all of which work into one another. To understand it, it simply will not do to think — if I may put it so — so very near at hand. All your thinking on Economics will lead to disaster if you let your thoughts be guided only by what lies in the immediate neighborhood of the single persons who are engaged in it. You will never get to grips with the economic process in this way. You must learn to envisage the social organism in its totality. If you do so, you will also feel impelled to illustrate the facts by such extreme examples, where the effect, though it does not become apparent in a day, may make itself felt very strongly, say, in the course of a decade.
We must indeed take our start from such — if I may say so — half-absurd examples, so as to detach our thinking from the familiar habits and lead it into a mode that comprehends wide issues and, losing its hard and fast outlines in the process, gains power to grasp what is forever fluctuating. What lies close to us we can grasp in sharp outline, but our task is to achieve a real insight, an insight that gives us always mobile ideas, which never correspond to those we can gather in our immediate neighborhood.
I want to mention this especially today, for, while we take our start from comparatively simple matters, we shall have to realize nevertheless how the economic process is built up little by little of the most manifold factors. We must come nearer and nearer to the possibility of grasping the problem of Price. With this end in view, we shall today once more consider the economic process as such from a particular aspect.
Let us begin today with Nature. In the first place, human Labor must set to work on Nature, transforming Nature's products. The product of Nature thus receives the stamp of human Labor; as transformed by human Labor, it receives an economic value. In Economics we are not dealing with the substance; the substance, as such, has no economic value. The coal, the substantial coal, lying in mines under the earth, has no economic value; nor would it gain an economic value if it walked of its own accord from the mine into the house of the man who uses it to stoke his fires. What is it that turns the substance into a value? It is the Labor that has been impressed upon it, that is to say, all that had to be done to bring it to the light of day, to prepare the mines themselves, to transport the coal, and so forth. It is only the human Labor impressed upon the substance of the coal which gives it economic value; and this is all we have to do with in Economic Science.
You cannot grasp any phenomenon of economic life if you do not start from such ideas as these. But now, in the application of human Labor to Nature, we come with the further evolution of the economic life to the division of Labor. The division of Labor arises whenever men work together in any task that has significance for economic life.
Let us take a perfectly simple example. In a certain district, a number of men have been doing a certain piece of work. From the various places where they live, they have walked to the common scene of their Labor — to a place where some particular Nature-product is exploited. Suppose we are still in a very primitive period. The workers have no other means of arriving at the place where they do this work upon Nature; they must walk there. But now someone conceives the idea of making a cart and using horses to draw it. Henceforth what formerly had to be done by each one alone will be done by each individual in conjunction with the man who provides the cart. A certain piece of work is now divided; that which is done, which is Labor in the economic sense, is now divided. It will, of course, happen in this way, that everyone who makes use of the cart will have to pay a certain quota to the enterprising individual who provided it.
The inventor of the cart, however, thereby enters the category of the capitalist. For him, the cart is now genuine Capital. Wherever you look, you will always see that this is so: The point of origin of Capital always lies in the division, the qualitative division, of Labor. But now, how was the cart invented? It was invented by Mind or Spirit. And indeed, every such process consists in the application of Spirit to Labor. In one respect or another human Labor is permeated by the Spirit. It is Labor permeated by the Spirit which arises in the process of the division of Labor. Where we see Capital arise in the course of division of Labor, we have, in the first place, nothing else than this: it is Labor penetrated by the Spirit. The first phase of Capital always consists in this: Where human Labor hitherto was determined only by Nature, it is now organized, divided, and so forth by the Spirit.
It is indeed necessary to see Capital and its formation very clearly from this point of view. Only from this point of view can we understand the function of Capital in the economic process. The forming of Capital is always a concomitant of the division — that is to say, the qualitative, organic division — of Labor.
But in this process something of the direct, immediate intercourse which man has with Nature when he works upon her is always loosened. You see, so long as the economic life merely consists in the elaboration of Nature, all that we have to do with is the Nature-products which, being transformed by human Labor, acquire an economic value. But the moment the human Spirit organizes Labour — organizes, that is to say, Labor as such (for, after all, to the man who creates Capital in the shape of his cart, it will matter nothing to what end or for what purpose he transports the workers from one place to another) — an emancipation from Nature begins to take place.

Here (* The lecturer referred to diagram 2, left-hand side.) if I may put it so, we still see Nature shining through human Labor at all points. Although the value is constituted not by the coal as a substance but by that human Labor which is stamped upon it, nevertheless the Nature-product still shines through the human Labor. This is one side from which economic values originate.
The other side is this. Whatever in human Labor is organized by the Spirit emancipates itself from Nature, is lifted away from Nature, until at length we have the capitalist, to whom the relation of the Labor which he organizes to Nature may be a matter of complete indifference. This, after all, may happen in a very simple way. Suppose the man has hitherto been driving people from many places, say, to some piece of agricultural work in the fields. He may suddenly prefer to take his cart away and drive people to quite a different place and quite another kind of work. Wherever the Spirit is applied, you will inevitably find the organized division of human Labor becoming emancipated from the Nature-foundation. Here, then, you have the emancipation of Capital from the Nature-foundation of economic life.
From various points of view the idea has been expressed in Economics that Capital is stored-up Labor-power. But this is no more than a definition, which will only fit the facts at a certain stage, because things are always fluctuating. So long as the organization due to the Spirit is narrowly bound to a certain kind of Labor, Nature will still shine through. But the moment we emancipate ourselves, thinking only of how to make fruitful what we gain by application of the Spirit — the moment we do this, the more we shall observe Labor becoming indistinct within the total mass of Capital. In its peculiar and specific character, it vanishes.
Suppose you have been amassing Capital for a considerable time and this Capital continues to work in the economic process. The man who, to begin with, had only a single cart can extend his economic activity by acquiring a second cart, and so on. His Capital is working in the economic process; but there is really nothing left in it of the nature of the Labor. Look at a miner, for example; in him you still see very much of the nature of Labor. But in Capital you see less and less of it. And we may go still farther. Suppose the man hands the whole business over to another man. The transfer will very likely mean that the newcomer will only be concerned in fructifying what has thus been brought about by the Spirit. The nature of the Labor which is thus organized will be a matter of indifference to him. He is only concerned in organizing, no matter what kind of Labor.
In other words, we have here a real process of abstraction. Precisely the same thing that we do inwardly in our logical thinking, in the process of abstraction, is here accomplished outwardly. The specific quality disappears. The specific qualities, both of the substance of Nature and of the different kinds of Labor, gradually disappear in the masses of Capital. And as you will presently see, if we follow the economic process still farther, nothing whatever is left of the human Labor which was originally organized. The further development of the economic process will be somewhat as follows: The man who built the cart did at least stamp his own Spirit upon the whole invention; but now he earns more values than he can cope with by himself. Are these values to remain unused in the whole economic life? Of course not. Another man must come along, able to cope with them by means of a different kind of Spirit. He will then turn the values to good account — he will make them valuable — in quite a different way.
After a time, for instance, the values created by the inventor of the cart — the fructification which has thus resulted — may pass over to a skilled smith. The smith has the Spirit, the intelligence, to erect a workshop; but with his Spirit alone he can do nothing. The other man has already created certain economic values; these he must now transfer to his fellow-man, the smith. Here you have indeed, in the outer world of reality, the completest imaginable process of abstraction. Moreover, it is essential if the thing is to go on at all (for how else could the cartwright transmit his values to the smith?) — it is essential for something to be there which is related as an abstract element to all the specific elements that are contained in the economic process. What is this something? It is, of course, in the first place, Money. Money is nothing but the externally expressed value which is gained in the economic process through the division of Labor and transmitted from one man to another.
Thus we see arise, in the process of division of Labor, Capitalism, and in the process of Capitalism (at a pretty early stage) Finance [die Geldwirtschaft]. In relation to all the particular economic processes, Money is the thing completely abstract. If you have five francs in your pocket, you can buy a midday meal and a supper for it just as well as an article of clothing. To the Money itself it is irrelevant what you acquire for it, or what it is exchanged for in the economic process. Money is the thing absolutely indifferent to the single factors in the economic life, in so far as they are still influenced by Nature. For this very reason Money becomes the means of expression, the instrument, the medium for the Spirit to enter into the economic organism in the division of Labor. Without Money being created, it is absolutely impossible for the Spirit to enter in and play its part in the economic organism which depends on the division of Labor. We may say then: “What in a primitive economic condition is originally all together — what every single human being in his egoism does for himself — is now divided up among the whole community.” Such is the division of Labor, and in Capital the single parts are gathered up again into a total process. The forming of Capital is essentially a synthesis. And now the man who first emerges as a creator of Capital, being able to change it into Money Capital (since Money must necessarily appear at this stage) becomes a lender to another man, who possesses nothing but his Spirit. The latter now receives the Money, which is the true and proper representative of economic values created by the Spirit.
We must really consider this from the point of view of pure Economics. However evil money may be from a religious or ethical point of view, in the economic sense Money is the Spirit at work in the economic organism. It is so indeed. Once more then: Money must be created in the economic process, if the Spirit is to progress at all from the initial point where it applies itself merely to Nature. Spirit would remain in an altogether primitive condition if it could do no more than this. To pour back again into the economic process what has been gained by spiritual application, it must be realized as Money. Money is the Spirit realized. But the concrete quality comes back into it again. In the first place, Money is an abstract thing, for, as we said before, to Money it is a matter of indifference whether, for the 5 francs in my pocket, I buy an article of clothing or get my hair cut (several times, if you like). But the moment Money returns to the individual human being, i.e., to the individual human Spirit, it becomes economically active once more as a concrete and specific fact. For the Spirit is economically active in the Money.
Now at this point a very special relationship arises. He who acquired the Money to begin with becomes the lender, the creditor. The other, who receives the Money — the man, we will suppose, who only has the Spirit, becomes the debtor. You have here a relationship between two human beings. The same relationship will also come about if the lenders are a whole number of people who hand over their superfluous Capital to the individual, so that a higher synthesis is brought about by his intelligence, his Spirit. He is then the debtor, and works on a foundation entirely emancipated from the Nature basis. For what he actually receives from the original capitalists themselves is in his hands a nonentity. He will have to give it back again after a time — it does not really belong to him. In effect, it is only from one side that he works economically as a debtor. From the other side he is economically responsible as a spiritual creator. Truth to tell, this is perhaps one of the healthiest relationships (this point is especially important in relation to the social question) for a spiritual worker to work for the community, being enabled to do so by the community giving him the necessary money. (So far as he is concerned, it is the community.) How property, possession, and the like enter into the matter is a question we shall have to consider another time; our present object is only to trace the economic process as such. Here it is a matter of indifference whether or not you conceive the lender as the real owner and whether or not you conceive the debtor as jurisprudence does. For the moment we are only concerned with this question: How does the economic process take its course?
Here then we have a part of the economic process where the work is founded purely on what has already been spiritually achieved and acquired. That is to say, the very foundation of the work is already emancipated from the Nature-basis. True, it originated in the organization of Labor; but we are now at a second stage, and if at this second stage — where a spiritual worker works as a debtor — you were still to describe the borrowed Capital which he receives as “crystallized Labor” or the like, you would be talking — economically — sheer nonsense. It is immaterial to the economic process how the Capital which he owes originated. The important thing now is: What is the Spirit, what is the intelligence, of the man who receives the Money? Will he be able to lead it over into fruitful economic processes? The original Labor through which the Capital arose no longer has an economic value. The Spirit which the man applies in turning the Money to good account (giving it value) — this alone will have economic value at this stage. For, however much Labor you conceive as being stored up in the Capital, if a fool gets hold of it and “scatters it all to the winds,” it is an altogether different thing than if a clever man gets hold of it and starts a fruitful economic process with it. At this second stage, therefore, where we have to do with lender and debtor, we are dealing with Capital from which the Labor has already disappeared. What then is the economic significance of this “Capital from which the Labor has disappeared ”? It is twofold: In the first place it has been possible to raise and collect the Capital for lending purposes, and in the second place the Capital thus raised can be given value by spiritual means. Therein lies its true economic significance.
The reality which emerges from the process is the relation between the debtor and his creditors. In the economic process to which he now gives rise, the debtor stands in the middle. On the one hand we have him as a debtor; on the other hand we have that which proceeds from him as a spiritually productive man. What on the one hand is “lent” or “invested” Capital — through the very fact that it becomes “owed” or “borrowed” Capital — passes over into the second stage of the economic process.
This is simply the circulation of Capital — nothing else. But this circulation is part and parcel of a social organic activity, just as you have the blood in a human or animal organic activity, when it flows through the head and is used for what the head produces. I may put it in this way: What is it that is brought about through this relationship of lenders and debtors? It is, ladies and gentlemen, very similar to the “difference of level” we meet with in Physics. If you have water up here, it will flow down there, simply through the difference of level. In like manner there is a social difference of level between the first position of the Capital and the second — the position of the lender who does not know what to do with it, and the position of the debtor who can make good use of it. This difference works as a difference of level.
But you must pause a moment to consider: What is the active driving force in this difference of level? The active principle is not simply the Spirit which is at work in the whole process. It is the diversity of human talents and dispositions. That is the determining factor in the difference of level. If a dullard possesses Capital, then, in a healthy economic organization, he will be up here, while the clever man will be down there. The result is a “drop” or difference of level, and the Capital flows downward to the clever man. It is through the difference of level between the talents of individuals that Capital is brought into flow. It is not even the positive activity of men; it is simply the human qualities of those who are united together in the social organism which produce this “difference of level” and, in doing so, carry forward the economic process.
Look at this economic process quite concretely, and you will say: We start from Nature, which has as yet no value. Clearly it has no value, for the sparrow, satisfying its needs from Nature, pays nothing for it. This is evident from the contrast of sparrow economy and human, or political, economy. Economic value begins where human Labor unites itself with Nature. Next, the economic process is continued through the division, the differentiation, of Labor. Let us take it to begin with in an absolutely general way: We have human Labor applied to Nature. I will put it down as follows (though the full economic meaning of this will only emerge in the further course of these lectures). Let us designate what arises at this stage by Nl — “Nature taken hold of by human Labor.” What is it, economically speaking? It is, as we have already seen, a value. I will call it: “Nature taken hold of by human Labor, and thus made into a value” — Nlv. That is one side.
Now comes the division of Labor. What does it signify? It signifies a dividing up of those processes which were performed in the first place as single completed Labor-processes applied to Nature and which now live a separate life. If I make a whole stove, I shall be performing many varied Labor-processes; if I now introduce division of Labor, I peel and part the Labor-processes one from another. I divide. If Nlv is “Nature-product transformed by Labor and made into a value,” then what arises by the division of Labor (of course, we might denote it in many different ways) will be Nlv1, Nlv2, and so on.
Now if all this is a real process, how shall we express what happens when the division of Labor makes its appearance? Clearly, by a division, by a fraction. When the value which I have here written down passes over into the division of Labor, the thing that is there in the reality must in some way be divided. The only question is: By what is it divided? What is the dividing principle? What is it that divides up the process? Well, we must now look to the other side. In pure mathematics we only have to take what is given as number; but when we are to seek such arithmetical processes in the world of Reality itself, we must look for the real divisor, the real dividing principle. Now, as you will remember, we found, on the other side of the picture, “Labor taken hold of by the Spirit.” Over against this (Nlv) we may, therefore, place Labor taken hold of by the Spirit. This becomes a value on the other side: Lsv. But we have today reached a certain conclusion concerning this “Labor taken hold of by the Spirit.” We have seen what must arise if it is to work on beyond a certain point in the economic process, and if this (Nlv) is divided and is to work on in the economic process — we have seen what enters the process for this Lsv (Labor organised by the Spirit and made into a value): It is Money.
But the Money appears at this point not in its fully abstract nature; it is abstract, to begin with, if I may put it so — abstract as the substance to which the Spirit first applies itself — but it grows highly individualized, highly specific, when the Spirit takes hold of it and uses it for this or that purpose. In doing so, it is the Spirit as such which determines the value of the Money. Here, you see, Money begins to gain a concrete and specific value. For whether the man is a fool and throws the Money away on a thing that turns out unfruitful, or whether he applies it in a useful way, this now emerges as a very real value in the economic process. For your denominator, therefore, you will here get something that has to do with Money; while your numerator, I need hardly say, will have to do with the fact that you have before you that into which the substance of Nature has been transformed. What is a substance of Nature, transformed by Labor and present in the economic process? It is a Commodity. This, then, is the numerator; and for the denominator, corresponding to “Labor organised by the Spirit,” you will have Money — thus:
  Nlv          Commodity
  Lsv            Money
New values come to light: — the “Commodity-value” and the “Money-value.” In the economic process founded on the division of Labor, we must recognize this truth: The quotient of the total commodities present in the economic organism and the Money present in the economic organism (taking as “Money” not what is reckoned up in the cashbooks, but what is actually taken hold of by the Spirit of the human beings) will represent a real interaction. The Money is the divisor. This interaction, which cannot be represented by a subtraction but only by a division, represents the real health of the economic process. To understand wherein this health consists, we must learn to understand what is at work in the numerator here and in the denominator. We must understand more and more wherein the essential nature of a Commodity on the one hand, and of the medium of circulation, the Money, on the other hand, consists. The most essential economic question cannot be solved at all unless we proceed in this exact way. But we must not forget that whatever appears in the economic life will always be fluctuating. Thus the moment the Commodity is taken from one place to another, the numerator here will change. Indeed, I can do no other than point out at every turn, how fluctuating all things are in the economic process.
There is a great difference between the purse I have in my pocket which contains 5 francs, and the purse another man has, also containing 5 francs. It is not a matter of indifference whether the 5 francs are in the one pocket or the other. This too must be taken as a thing that belongs to the real economic process. Otherwise you will only get a few rigid, abstract, arbitrary concepts of Price, Value, Commodity, Production, Consumption and so on; you will get nothing to lead you to a true understanding of the economic process.
This is the infinitely sad thing in the present day. For many centuries mankind has grown accustomed to sharply outlined concepts, such as are inapplicable to a living process. Today we are called upon by the facts of life to get movement into our concepts, so as to penetrate the economic processes with conscious understanding; and we cannot do so. This is what we must attain: mobility of thinking, so as to be able to think a process through to its end quite inwardly. True, in ordinary science we also contemplate processes, we “think them through,” if you will; but we always see them from outside, and that is of no avail in Economics. To contemplate the economic process as the chemist contemplates his processes, from outside, you would have to go far up above the Earth in a balloon. The economic processes are distinguished by the fact that we ourselves are in them; therefore we must see them from within. We must feel ourselves within the economic processes, just as a being would do who was inside the chemist's retort where, with a great generation of heat, something is being concocted. The being in the retort, whom I am now comparing with ourselves, cannot of course be the chemist. It would have to he a creature taking part in the heat, boiling with it, as it were. The chemist cannot do this; to him the whole thing is external. In Natural Science, we stand outside the process. The chemist could not take part in it, with the temperature in the retort far above boiling-point. But the economic process is different; we ourselves partake in it inwardly at every point. Hence too we must inwardly understand it. A mathematician may well object: You have written something like a formula, but we are not used to building up our mathematical formulas in this way. True enough; for as a rule we only build up a mathematical formula as a result of contemplating natural processes from without. We must evolve a faculty of insight to get a numerator and denominator in this way, or to understand that it must be something like a division — that it cannot be a subtraction in this case. We must try to think our way into the economic process. For this very reason I chose that crude example yesterday. I did not introduce to you a tailor and a tradesman from outside, as a scientist would. The essential could not have been found in that way. But with our thinking accustomed to seeing things only as the natural scientist does from outside, we feel it uncanny to get inside a thing. Nevertheless, we must conceive inwardly the countless processes that intervene between the tailor and the effects which follow in the economic process.
I should not be true to the task you have set me if I described these things in any different manner. I am well aware that it makes it somewhat difficult at the outset.

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