Adrian Rogers, a previously major figure in the Southern Baptist Convention, once said that ‘you cannot multiply wealth by dividing it’ as a way of critiquing socialism. However, such a statement is misguided for two reasons, one which concerns to process of wealth creation within capitalism, and another which concerns the utility of a monetary system within socialism. I’ll start with the second one first (since it is a more direct response to the statement).
The nature of socialism can be defined as the very absence of wealth rather than simply the redistribution of wealth. Since everyone is equal across the board, there is no wealth to be distributed or divided. In fact, the more idealised version of socialism rejects the usage of a monetary system. Everyone is entitled to a basic level of living: health care, education, a job, food, housing, etc. Within a developed practise of socialism, the necessity and commonality of these things would see the usage of money as a central mediating factor (i.e. income from a job and payment of services and goods) disappears. There is no need for money in these basic transactions. Instead, money is reduced to a less meaningful mediator (perhaps used for transactions with parties external to the socialist system and/or for purchasing unnecessary products). To speak of ‘wealth’ within socialism requires an inequality or the capitalist belief that wealth can be possessed. This is exactly how many reactions to the Occupy Wall Street movement fail to recognise their arguments: the respondent often speaks of giving money away to people instead of providing an avenue for the people to become gainfully employed. At its heart, then, Western capitalism misconstrues an integral part of socialism by viewing it as a variation of capitalism rather than as an alternative system. It cannot fathom the possibility of a way of life without a monetary intermediary despite the existence of such communities before the rise of capitalism (e.g. prior to the enclosure of the commons in the sixteenth century).
Since the ascendancy of capitalism and its monetary intermediary, its greatest proponents have a romanticised notion of the creation of wealth. In fact, one could argue that wealth did not exist prior to capitalism because wealth requires an inequality in the cost of production and the product’s selling price*. Prior to industrialisation (and modern capitalism), the person selling the product was often its producer. The sale ‘price’ was equivalent to the cost of production, which means that a person was ‘breaking even’ rather than gaining extra wealth. However, after the advent of industrialisation — which began a process of alienating the workers who produced products and the product itself — the capitalist owner could sell a product for more than what he paid to have the workers produce the product. This can be done either by charging the buyer more than the cost of the product, by paying less to have the product produced, or both. The first is often considered an integral part of the process of supply and demand. However, it does not last often because the second option viciously undercuts that process. As a result, the second is often the primary way of gaining wealth.
The way in which production costs are minimised can be by technological advancements, but competition always catches up. Instead, costs are reduced more permanently by simply paying less. In particular, the workers are paid less than ‘actual market value’ for their labour. In other words, the creation of wealth comes first and foremost by the exploitation of labour. The process of industrialisation increases this effect because a worker is no longer producing a shoe but rather a small part of a shoe. The worker is alienated (again) from her product. (Don’t believe me? Notice the brief mention in this article about Mike Daisey showing a Foxconn worker who helped build the iPad the finished product for the first time.) The result is that the worker no longer knows how to build a complete product and is unable to compete (ignoring intellectual property and copyright laws) with the owner. The only options a worker has is (1) to continue working and be underpaid, (2) quit and find another job which will do the same thing ultimately, or (3) protest.
When individual workers protest, the owner has the ability to terminate the employment and hire a replacement (which is easy to find when there is an army of unemployed workers desperate for any income and willing to sell themselves for even less). This is where unions enter in: by forming unions, workers have greater strength. When a unionised workforce strikes, the owner is unable to get more products to sell because the entire industrialised process is halted. The owner, like the workers, does not know how to produce the product; the owner may have the knowledge and schematics but is often unable to operate the machinery and tools needed to assemble the product. As a result, the owner is faced with two major options: (1) remove the entire union workforce and re-hire and re-train a new workforce (something that would cost a lot of money for training as well as a loss of income while the factory re-build) or (2) deal with the union and appease the workers. In a country or state which protects workers, the first option is often illegal (at least for a period of time which allows negotiation). By forcing owners to attempt to resolve labour disputes, these states and countries provide a basic employment security which allows workers to bargain effectively for their labour. In other words, the power of collective bargaining is a way for workers to demand a more equal distribution of profits to those who actually produce the products. However, many countries and states are moving away from these protections and are implementing at-will employment laws and (as Indiana is preparing to do) ‘right-to-work’ laws. The result is the resurgence of the exploitation of workers for the accumulation of profits which is often coded in terms of creatio ex nihilo whereby the capitalist owner (magically) adds value to a product which allows it to be sold for more than its worth. The reality, however, is less than magical because the wealth does not come from nothing despite the imagination that the whole of the product is worth more than the sum of its parts.
* NB: I am using ‘price’ loosely here for a product may have been exchanged for something other than currency (e.g. other products).