Monday, February 1, 2016

Rudolf Hilferding on the Law of Value in Volume 1 of Capital

In 1904, Rudolf Hilferding wrote a response to Böhm-Bawerk (1896) called “Böhm-Bawerk’s Criticism of Marx” (Hilferding 1949 [1904]).

In this essay of Hilferding, we have a fascinating confirmation of the way in which the early Marxists were concerned to still vindicate the law of value in volume 1 of Capital – the idea that commodities tend to exchange at pure labour values – as an empirical theory.

Like Engels, they seized on Marx’s statement in Chapter 10 of volume 3 of Capital as follows:
“The exchange of commodities at their values, or approximately at their values, requires, therefore, a much lower stage than their exchange at their prices of production, which requires a relatively high development of capitalist production. ….

The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).
From this it was deduced, as Engels did, that the law of value in volume 1 – that commodities tend to exchange at their labour values which are the anchors of the price system – applied only to the pre-modern world of commodity exchange.

When we examine Hilferding’s essay “Böhm-Bawerk’s Criticism of Marx,” we discover that he – like Engels (1991 [1895]), Robert Wilbrandt (1920) and Ronald Meek (1973: 198–200) – also endorsed this view:
“Marx conceives the transformation of value into price of production as an historical process, which is summarized by Böhm-Bawerk as the ‘third argument’ in the following terms: ‘The law of value, Marx affirms, governs with undiminished authority the exchange of commodities in certain primary stages in which the change of values into prices of production has not yet been accomplished.’ … The conditions which are requisite in order that commodities shall be exchanged for their values are developed by Marx as follows: He assumes that the workers themselves own their respective means of production, that they labor on the average for an equal time and with equal intensity, and that they exchange their commodities directly. Then two workmen in any one day will by their labor have added to their product equal amounts of new value, but the respective products will vary in value in accordance with variations in the amount of labor previously incorporated in the means of production. This latter portion of value will correspond to the constant capital of the capitalist economy; the portion of the new value expended upon the workers' means of subsistence will correspond to the variable capital; while the portion of the new value which remains will correspond to the surplus value, which will accrue to the laborer. Thus both the laborers receive equal values after the value of the invested ‘constant’ capital has been deducted; but the relationship between the portion of value representing surplus value and the value of the means of production—that which corresponds to the capitalist rate of profit—will differ in the respective cases.” (Hilferding 1949 [1904]: 162–163).

“With the further progress of capitalism, when production no longer took place mainly for the purposes of the mercantile exporter, and when the capitalist began to effect a conquest of the whole market, his profit was chiefly dependent upon the following factors: His technical methods of production were superior, so that he could produce more cheaply than the handicraftsmen. Since for the time being the market value of the handicraftsman’s products determined prices, the capitalist was able to realize extra surplus value or extra profit, which was greater in proportion as his technical superiority was more marked. For the most part, through special legal privileges, the exploitation of superior technical methods was a monopoly of individual capitalists. Not until the days of monopoly were over, not until the restrictions upon the transferability of capital had been abolished, not until the shackles of the laborer had been removed, was the equalization of the varying rates of profit, originally so divergent, rendered possible.

First of all, by the supplanting of handicraftsmanship and by the increase of competition within the sphere of capitalist production, the extra profit realizable by capital was reduced; and subsequently freedom of transference from one sphere of production to another effectuated the equalization of profit to become average profit.” (Hilferding 1949 [1904]: 171).

“As soon, however, as capitalist competition has definitively established the equal rate of profit, that rate becomes the starting point for the calculations of the capitalists in the investment of capital in newly-created branches of production. The prices here fluctuate on either side of that price of production whose attainment makes the particular branch of production appear profitable. At the same time, the capitalist goes halfway to meet competition, for he himself accepts average profit as a regulative principle, and the sole effect of competition is to prevent his deviating from the norm and from securing an above-average profit for any considerable period.

“It is obvious, moreover, that the formation of price in capitalist society must differ from the formation of price in social conditions based upon the simple production of commodities.” (Hilferding 1949 [1904]: 172).
So a considerable section of Hilferding’s essay (1949 [1904]: 162–172) was devoted to defending the idea that commodities did once tend to exchange at their true labour values in the pre-modern world, and so to vindicate the law of value in volume 1 of Capital.

Why was this the case? Because hostile critics like Böhm-Bawerk and Achille Loria rightly pointed out that Marx – apart from two obscure footnotes that blatantly and severely contradicted the main text – had said in volume 1 of Capital that commodities tend to exchange at labour values, and to any plain reader of the text stated and again and again that this was true for 19th century capitalism. For example, Marx stated explicitly his “laws of the exchange of commodities” in Chapter 5 of volume 1 of Capital:
“It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).
At least as late as 1878 in his work Herr Eugen Dühring’s Revolution in Science Engels also upheld Marx’s “laws of the exchange of commodities” in the sense above as applying to 19th century capitalism as we can see here.

But, when Engels edited and published the draft of volume 3 of Capital (a first draft of which had been written before 1867), the world was surprised to discover that Marx had used a different theory of price determination there by prices of production which totally contradicted the theory of price determination in volume 1. No wonder Marx never wanted to publish volumes 2 or 3 of Capital in his lifetime!

The essence of the problem had already been noted in Engels’ introduction to volume 2 of Capital in the transformation problem (see here).

Volume 1 of Capital seems to have been written by Marx as a tendentious work of Communist propaganda, to bolster the communist cause and with the emphasis on labour value. The theory of price determination there was very much a part of this dogmatism and propaganda, for in private Marx had sketched a price theory based on Classical prices of production in a letter to Engels of 2 August, 1862 (see here), although it is unclear how far he committed himself to it at this stage. Most probably Marx had different theories in his mind and seized on the most dogmatic for polemical purposes in volume 1.

Later, after the publication of volume 1 of Capital Marx seems to have tried very subtly to admit to Engels in a letter of 8 January, 1868 that the “law of value” in volume 1 was irrelevant to real world capitalism (see here), though perhaps Engels did not fully understand the import of this.

But, once Engels published volume 3, the inevitable happened: hostile critics of Marxism and even some sympathetic supporters of Marx pointed to this devastating contradiction between volumes 1 and 3.

Engels scrambled to re-write history and defend Marx: finally, in his “Supplement and Addendum” to Volume 3 of Capital published in 1895 Engels defended volume 1 by saying that the law of value there only applied to the pre-modern world of commodity exchange before prices of production came to dominate modern capitalism.

But that will not do: this was a dishonest and contemptible Marxist intellectual fraud by Engels; the two volumes of Capital were and are contradictory. It speaks volumes that at least a few Marxists continued to defend Engels’ legerdemain long after his death.

Even worse, what is really embarrassing is that many modern Marxists have totally forgotten this important episode in the history of their dogmatic theory. Instead, when confronted with the contradictions between volumes 1 and 3 of Capital, the laughable modern Marxist apologetic nonsense is that volume 1 of Capital is a purely abstract theory with simplifying assumptions not meant to be taken as an empirical theory (Baumol 1974: 53–54; Robinson 1950: 359). But even Joan Robinson noted that this is rubbish and will not do (Robinson 1950: 359). Marx had said specifically in volume 1 of Capital that, as he later put it, labour “value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium” (Marx 1909: 208–210).

Joan Robinson also noted the absurdity of Engels’ later “historical” defence of Marx also used by Hilferding, Wilbrandt and Meek:
“The argument about how prices were determined in the pre-capitalist world is conducted in much the same style as the ‘bourgeois’ economists’ argument about how Robinson Crusoe equalised his marginal utilities, and is no more convincing. But even if it were true, it would not serve to rescue Marx from Böhm-Bawerk’s attack, for his [sc. Marx’s] so-called equation, ‘1 quarter of corn = x cwts of iron,’ was supposed to apply, not in an idyllic past, but in the contemporary capitalist market.” (Robinson 1950: 361; see also Robinson 1966: 15, n. 2).
This truth is still denied by many modern Marxists with their internecine and esoteric cults, all trying to interpret the Holy Writings of Marx and harmonise them in a manner so obviously evocative of religious fundamentalists attempting to harmonise the Bible.

BIBLIOGRAPHY
Baumol, William J. 1974. “The Transformation of Values: What Marx ‘Really’ Meant (An Interpretation),” Journal of Economic Literature 12.1: 51–62.

Böhm-Bawerk, Eugen von. 1949 [1896]. “Karl Marx and the Close of His System,” in Paul. M. Sweezy (ed.), Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx. August M. Kelley, New York. 3–120.

Engels, F. 1991 [1895]. “Supplement and Addendum” to Volume 3 of Capital,” in Karl Marx, Capital. A Critique of Political Economy. Volume Three (trans. David Fernbach). Penguin Books, London.

Hilferding, Rudolf. 1949 [1904]. “Böhm-Bawerk’s Criticism of Marx,” in Paul. M. Sweezy (ed.), Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx. August M. Kelley, New York. 121–196.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1991. Capital. A Critique of Political Economy. Volume Three (trans. David Fernbach). Penguin Books, London.

Meek, Ronald L. 1973. Studies in the Labour Theory of Value (2nd edn.). Lawrence and Wishart, London.

Robinson, Joan. 1950. Review of Karl Marx and the Close of his System by Eugen von Böhm-Bawerk (ed. Paul Sweezy), The Economic Journal 60.238: 358–363.

Robinson, Joan. 1966. An Essay on Marxian Economics (2nd edn.; 1st edn. 1942). Macmillan, London.

Wilbrandt, Robert. 1920. Karl Marx: versuch einer Würdigung. B.G. Teubner, Leipzig.

8 comments:

  1. Please stop publishing this lie that volume 1 presents a different theory. Still more evidence:

    Marx to Engels in Manchester, [London,] 27 June 1867

    Answering this question [of how is the value of the commodity transformed into its price of production] presupposes ... that the transformation of surplus-value into profit, and of profit into average profit, etc., has been explained. This presupposes that the process of the circulation of capital has been previously explained, since the turnover of capital, etc., plays a part here. This matter cannot therefore be treated prior to the 3rd book. ...

    Now if I wished to refute all such objections in advance, I should spoil the whole dialectical method of exposition. On the contrary, the good thing about this method is that it is constantly setting traps for those fellows which will provoke them into an untimely display of their idiocy.


    Marx to Engels in Manchester London, 30 April 1868

    In Book III ... the price thus equalised [by the general rate of profit], which divides up the social surplus value equally among the various masses of capital in proportion to their sizes, is the price of production of commodities, the centre around which the oscillation of the market prices moves. ...

    Also to be developed: the changed form of manifestation that the previously developed and still valid laws of value and surplus value assume now, after the transformation of values into prices of production.


    Marx to Ludwig Kugelmann in Hanover, London, 11 July 1868

    The unfortunate fellow does not see that, even if there were no chapter on ‘value’ at all in my book, the analysis I give of the real relations would contain the proof and demonstration of the real value relation. The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science. ... The distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.

    Where science comes in is to show how the law of value asserts itself. So, if one wanted to ‘explain’ from the outset all phenomena that apparently contradict the law, one would have to provide the science before the science. It is precisely Ricardo’s mistake that in his first chapter, on value, all sorts of categories that still have to be arrived at are assumed as given, in order to prove their harmony with the law of value. ...

    The vulgar economist has not the slightest idea that the actual, everyday exchange relations and the value magnitudes cannot be directly identical. ... The vulgar economist thinks he has made a great discovery when, faced with the disclosure of the intrinsic interconnection, he insists that things look different in appearance. In fact, he prides himself in his clinging to appearances and believing them to be the ultimate. Why then have science at all? ...

    Once interconnection has been revealed, all theoretical belief in the perpetual necessity of the existing conditions collapses, even before the collapse takes place in practice. Here, therefore, it is completely in the interests of the ruling classes to perpetuate the unthinking confusion. And for what other reason are the sycophantic babblers paid who have no other scientific trump to play except that, in political economy, one may not think at all!


    All as I've been saying.

    If you simply *must* attack Marx, then pick a different angle.

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    Replies
    1. All those letters brilliantly illustrate Marx's outrageous dishonesty in vol. 1 and add more evidence to my case, showing vol. 1 is a work of communist propaganda.

      If we was saying to Engels in private that prices of production were the price theory in vol. 3, this utterly damns vol. 1.

      In fact, the first letter says it all: he speaks of "setting traps". Translation: giving people the impression that commodities tend to exchange at labour values. This is outright deception.

      The letter of 11 July 1868 shows him not even caring about an empirical proof of the labour value concept itself in vol. 1, demonstrating what dogmatic nonsense he held.

      He says:

      "The vulgar economist has not the slightest idea that the actual, everyday exchange relations and the value magnitudes cannot be directly identical. "

      WTF? This is what his critics were pointing out to him.

      Your cult leader Marx was a fraud and liar in vol. 1. These letters show him desperately trying to justify the fraud to Engels.

      Delete
    2. "Please stop publishing this lie that volume 1 presents a different theory. "

      It is not a lie, and no doubt you're angry this Marxist apologetic fiction has fallen apart.

      Marx in Chapter 5 of volume 1 of Capital:

      “It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).

      Any sane person would take Marx to be saying what he means. Either that or he was lying or dishonest or utterly incompetent. The very first letter you cite speaks "setting traps". That sounds like deliberate fraud for propaganda purposes, especially as he was privately admitting to Engels that vol. 3 -- the draft of which was written before 1867 -- contained a different theory.

      So what are Marx's actual statements in vol. 1?

      Marx states in Chapter 1 that it is possible to accurately measure the value of skilled labour by looking at the exchange values of products of skilled labour as against products of unskilled labour (Marx 1906: 51–52), but that **makes no sense** unless Marx really believes that commodities tend to exchange at pure labour values.

      Marx also says that gold or silver, when initially brought to market, is exchanged with other commodities with an equal socially necessary labour time value as a barter transaction (Marx 1906: 122). That requires exchange at pure labour values.

      Marx also thought that prices are determined by (1) the long-run labour value of gold as determined by the abstract socially necessary labour time required for gold’s production and (2) labour value of other commodities as this labour value relates to the labour value of gold in exchanges (Marx 1906: 108).

      Again, any sane person would take Marx to be saying what he means.

      Only a person deeply delusional and irrational committed to his cult-like views would ignore these facts and plain statements.

      They all blatantly contradict the price determination theory of vol. 3 and certainly the two obscure footnotes hidden in vol. 1.

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    3. All those letters brilliantly illustrate Marx's outrageous dishonesty in vol. 1 and add more evidence to my case, showing vol. 1 is a work of communist propaganda.

      So you're abandoning the "different theory" angle for the "dishonest" angle? Not much of an improvement when there's a much simpler explanation right in front of your face...

      In fact, the first letter says it all: he speaks of "setting traps". Translation: giving people the impression that commodities tend to exchange at labour values. This is outright deception.

      Ha. That's one thing that could be taken away from it, for sure. Especially if you ignore parts of the text (as you are so proud of having done), and make sure never to look at any actually existing prices. Perhaps you're just bitter to realize your eagerness to refute him led you to believe something so foolish, you've become ensnared in just such a trap.

      The letter of 11 July 1868 shows him not even caring about an empirical proof

      Just the opposite, actually. What letter are you reading?

      WTF? This is what his critics were pointing out to him.

      Hm, yes, it's almost as if "the vulgar economist thinks he has made a great discovery when, faced with the disclosure of the intrinsic interconnection, he insists that things look different in appearance."

      Please read more carefully.

      Any sane person would take Marx to be saying what he means.

      Considering the lengths you're going to deny reality, your only accomplices a glue enthusiast best known for having taken a royal beatdown from Engels and an Austrian (an actual cult school) whose entire methodological apparatus you'd no doubt consider bankrupt, I don't think you're in any position to judge sanity.

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    4. "So you're abandoning the "different theory" angle for the "dishonest" angle? "

      There is no contradiction. Vol.1's law of value -- that commodities tend to exchange at pure labour values -- is destroyed by vol.'s price of production theory.

      Actually what the motivation of Marx or the explanation for this is a different question, though it looks more and more like Marx was in fact a deliberately dishonest propagandist, especially given his private admission to Engels in the letters you cite.

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    5. "Perhaps you're just bitter to realize your eagerness to refute him led you to believe something so foolish, you've become ensnared in just such a trap."

      My view has more and more evidence in favour of it day by day.

      In contrast, your positions are collapsing. For months last year here you tried to maintain that the idea of commodities exchange at true labour values in vol. 1 was totally abstract and a non-empirical theory:

      “In volume 1 he holds value and exchange value equal as a simplifying assumption that does not reflect reality, as I have demonstrated. If you dispute this, you are persisting in an obvious error that has been explained to you in detail.”
      http://socialdemocracy21stcentury.blogspot.com/2015/04/ricardo-on-utility-and-non-reproducible.html?showComment=1427993604960#c1399545658175421920

      That was totally refuted when you had to acknowledge the fact that Marx and Engels *did* defend "law of value" in vol. 1 empirically as belonging to the premodern world of commodity exchange.

      But you're such a dishonest bastard even now you won't admit your error.

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    6. There is no contradiction. Vol.1's law of value -- that commodities tend to exchange at pure labour values -- is destroyed by vol.'s price of production theory.

      Keep telling your Big Lie, maybe it'll become true. Maybe you really do know a thing or two about propaganda.

      Delete
    7. lol.. incapable of any actual rational response now, huh?

      I repeat: you have the specific quote from vol. 1 right in front of you:

      “It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).

      Marx even explains general price movements by (1) the long-run labour value of gold as determined by the abstract socially necessary labour time required for gold’s production and (2) labour value of other commodities as this labour value relates to the labour value of gold in exchanges (Marx 1906: 108).

      Delete