The new biography Deng Xiaoping: A Revolutionary Life, by Alexander V. Pantsov and Steven I. Levine, is for some reason now available for less than $4 on Amazon, so I bought it and started browsing around. The following passage caught my eye:

In 1978–79, the urban population grew by six and a half million people, and in the early 1980s by another twenty million. What could be done with this labor force if state enterprises were unable to provide jobs for all of them? Small-scale urban businesses had to be permitted—individual household enterprises operating on the market. So that no one in the party could object to such a zigzag, Deng’s supporters dug out of the fourth volume of Marx’s Capital the story of a capitalist who exploited eight workers. “If Marx spoke precisely of eight, it means that the hiring of seven would not make one a capitalist,” they logically concluded. “And if the boss himself will be working, then what sort of capitalism could this possibly be?” Deng liked this “scholarly” argument, so on his initiative the leadership of the CC and the State Council permitted individual household enterprises with no more than seven workers. There was an immediate explosion in the sphere of daily service enterprises: small private restaurants, shoe repair and tailor shops, barber shops, and others like it began to grow like wild mushrooms.

Here was the answer to one of those Weird China Things. These “individual household enterprises” or getihu, are the default legal form for small business in China. Getihu are not companies: they are considered an extension of the household. But they can do some things that companies do, like hire people–but no more than seven people. Why seven? Apparently because Marx said so–how great is that?

But of course I still wanted to know: where did Marx say that employing exactly eight people makes you a capitalist?  Pantsov and Levine’s footnote cites Ezra Vogel’s earlier biography, Deng Xiaoping and the Transformation of China, as the source for the anecdote. But I followed the reference and in Vogel there are not really any more details. Many other sources repeat the assertion that the limit of seven employees for getihu comes from Marx, but without actually citing the canonical text.

Searching around in Volume IV of Capital did not produce any obvious suspects. No one less than Wu Jinglian, in a footnote in his China’s Long March to a Market Economy, says that the source was a numerical example in Volume I, Chapter 9 of Capital. However this cannot be correct: the numerical examples in this chapter do not deal with the number of workers at all. I eventually found the correct source cited in X.L. Ding’s The Decline of Communism in China: Legitimacy Crisis 1977-1989. It is actually Marx by way of Engels; in his Anti-Dühring Engels summarizes Marx as follows:

On the basis of his previous examination of constant and variable capital and surplus-value, Marx draws the conclusion that “not every sum of money, or of value, is at pleasure transformable into capital. To effect this transformation, in fact, a certain minimum of money or of exchange-value must be presupposed in the hands of the individual possessor of money or commodities”. He then takes as an example the case of a worker in any branch of industry, who works eight hours daily for himself — that is, in producing the value of his wages — and the following four hours for the capitalist, in producing surplus-value, which immediately flows into the capitalist’s pocket. In this case, a person would have to have at his disposal a sum of value allowing him to provide two workers with raw materials, instruments of labour and wages, in order to pocket enough surplus-value every day to live as well as one of his workers. As the aim of capitalist production is not mere subsistence but the increase of wealth, our man with his two workers would still not be a capitalist. Now in order to live twice as well as an ordinary worker and turn half the surplus-value produced back into capital, he would have to be able to employ eight workers, that is, he would have to possess four times the sum of value assumed above.

So there you have it: to be a true capitalist, you have to have at least twice the standard of living as a worker, and to do that you must employ eight workers. Therefore, if you employ less than eight workers, you are not a capitalist. This is of course a simplification of the original Marx, though Marx does endorse that idea that beyond a certain threshold the nature of the employer-employee relationship changes fundamentally. The passage Engels cites is from Volume I, Chapter 11 of Capital:

If this labourer were in possession of his own means of production, and were satisfied to live as a labourer, he need not work beyond the time necessary for the reproduction of his means of subsistence, say 8 hours a day. He would, besides, only require the means of production sufficient for 8 working-hours. The capitalist, on the other hand, who makes him do, besides these 8 hours, say 4 hours’ surplus-labour, requires an additional sum of money for furnishing the additional means of production. On our supposition, however, he would have to employ two labourers in order to live, on the surplus-value appropriated daily, as well as, and no better than a labourer, i.e., to be able to satisfy his necessary wants. In this case the mere maintenance of life would be the end of his production, not the increase of wealth; but this latter is implied in capitalist production. That he may live only twice as well as an ordinary labourer, and besides turn half of the surplus-value produced into capital, he would have to raise, with the number of labourers, the minimum of the capital advanced 8 times. Of course he can, like his labourer, take to work himself, participate directly in the process of production, but he is then only a hybrid between capitalist and labourer, a “small master.” A certain stage of capitalist production necessitates that the capitalist be able to devote the whole of the time during which he functions as a capitalist, i.e., as personified capital, to the appropriation and therefore control of the labour of others, and to the selling of the products of this labour. The guilds of the middle ages therefore tried to prevent by force the transformation of the master of a trade into a capitalist, by limiting the number of labourers that could be employed by one master within a very small maximum. The possessor of money or commodities actually turns into a capitalist in such cases only where the minimum sum advanced for production greatly exceeds the maximum of the middle ages. Here, as in natural science, is shown the correctness of the law discovered by Hegel (in his “Logic”), that merely quantitative differences beyond a certain point pass into qualitative changes.

It is rather amazing to think that this rather abstract and obscure passage in Marx ended up having such a huge practical impact in China. I’m sure that in its absence Deng would certainly have found some other justification for allowing small private enterprises to hire people. But the limit might not have been set at seven employees.