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.