Alexander Gray on the Two Contradictions in Marx’s Theory of Surplus Value in Volume 1 of Capital

From Alexander Gray’s book The Development of Economic Doctrine: An Introductory Survey (1956):

“… the Marxian explanation suffers from two inner inherent contradictions (or two aspects of the same contradiction) from which it never escaped, and on which it finally made shipwreck in the third volume. In the first place, if all profit springs from variable capital and none from machinery, then it is the height of folly ever to introduce machinery, and it is a poor explanation to suggest that the capitalist does not know what he is doing. Marx realizes the difficulties of this ‘contradiction which is immanent’ in the application of machinery, but his observations leave it barking for solution in the minds of all readers. On the Marxian theory, with every progress of capital to a higher proportion of constant capital, there will be a diminution of profits, since profits come solely from labour, which admittedly represents a continually smaller proportion of total capital. With every step forward which the capitalist makes, he thus more deeply cuts his own throat. Surplus value calls for, and can only arise from, the existence of vast masses of workers; the Marxian analysis shows an increasing army of unemployed, displaced by machinery which can yield no profit.

The other flaw is a variant of this, and is in a sense even more fatal. If profit springs only from the labour employed, and in no wise from the constant capital, then the rate of profit in different industries will vary according as the proportion of variable capital is high or low. When there is much variable capital (i.e., in more primitive and undeveloped industries) the rate of profit will be high; in industries which have had extensive resort to machinery, the rate of profit will be low. Marx admitted with praiseworthy frankness that the observed facts were in glaring contradiction with the law so ascertained:

‘This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital. For the solution of this apparent contradiction, many intermediate terms are as yet wanted, as from the standpoint of elementary algebra many intermediate terms are wanted to understand that 0/0 may represent an actual magnitude.’ [Marx 1906: 335].

The subsequent history of this conundrum furnishes one of the few comedies of economic literature. The promised solution did not appear in Volume II, but references to it figure largely in the preface written by Engels, above all in the form of a challenge addressed to the followers of Rodbertus. For if, as was claimed, Marx had plagiarized Rodbertus, now (and that right early, before the publication of Volume III) was the time for those who had championed Rodbertus to vindicate his claims by producing the correct solution of the riddle. The odd thing is that many socialists and economists did in fact respond, and took part in the competition to the extent of speculating as to what the Marxian solution was to be. But indeed it ought to have been clear a priori that there could be no solution, since irreconcilables cannot be reconciled, nor can harmony be established between two contradictory propositions—unless by the simple expedient of dropping one of them overboard. Contemplating the ‘Russian campaign of disaster’ organized by Engels, Loria, an enthusiastic admirer of Marx, even suggests that the procrastinations of Marx in getting on with Volumes II and III were due to a realization of the impending ruination of his life's work: ‘Is there any reason for surprise at Marx's hesitation to publish this so-called defence; need we wonder that his hand trembled, that his spirit quailed, before the inexorable act of destruction?’

The solution offered to the undiscerning in the third volume in explanation of the existence of a uniform rate of profit is embedded in a good deal of arithmetical illustration. Briefly, it amounts to this. Employers are not to be viewed in isolation. A group of enterprises, with different proportions of variable and constant capital, should be replaced by an imaginary enterprise, comprising the total of all the capitals of the members of the group. As this process of averaging cannot be limited, it means that all employers are to be regarded as one group, in which the surplus value gained by all is distributed among all. The possibility of a uniform rate of profit thus emerges; but it is on condition that some things sell above and some below their value. This uniform rate of profit is arrived at by competition, and capital everywhere looks for the average profit. Thus, there emerges a difference between value and price; and henceforth it will only be on rare occasions, indeed only by accident, that the surplus value really produced in any given branch of industry will correspond to the profit contained in the selling price of the commodity—the accidental case arising where the composition of the capital (as between constant and variable) is exactly the average of the sum total of all capitals. Elsewhere the products of industries, with a proportion of constant capital above the average, will sell at a price above their value, while in the contrary case they will sell below their value. Thus the desired uniform rate of profit is established, but at the cost of sacrificing the whole of the first volume of Capital; for the inspired doctrine of the first volume, that things exchange in accordance with the congealed labour they contain, is ignominiously tossed overboard. This is the ‘solemn mystification’ of which Loria speaks. In fact, Marx has replaced Volume I by a mere cost-of-production theory such as a vulgar economist like Adam Smith might have evolved in his most vulgar and least enlightened moments. Things exchange according to their cost of production (which includes a normal rate of profit). It is true that they still have a ‘value’ which differs in general from the price; but in a ‘value’ which is an abstract metaphysical conception, and which is uniformly ignored in the market-place, few of us have any lively interest.” (Gray 1956: 318–322).

And that is spot on.

BIBLIOGRAPHY
Gray, Alexander. 1956. The Development of Economic Doctrine: An Introductory Survey. Longmans, Green and Co., London.

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.

Achille Loria and Alexander Gray on Marx’s Labour Theory of Value

Critics of Marx have long contended that volume 1 of Capital (1867) and volume 3 of Capital (1894) contain a catastrophic contradiction on the labour theory of value. By volume 3 of Capital, Marx has retreated into a position on the relation between labour value and price where that equality only holds in a kind of aggregate situation.

When volume 3 of Capital was published by Engels, Achille Loria was a major critic of the contradiction between volume 3 and volume 1 (see Loria 1895 = Loria 1902: 71–150).

In the supplement to volume 3 of Capital, Frederick Engels quoted some of Achille Loria’s criticisms:

“No economist with any trace of sense has ever concerned himself or will ever want to concern himself with a value which commodities do not sell for and never can sell for (ne possono vendersi mai) .... In asserting that the value for which commodities never sell is proportional to the labor they contain, what does Marx do except repeat in an inverted form the thesis of the orthodox economists, that the value for which commodities sell is not proportional to the labor expended on them? ... Matters are not helped by Marx’s saying that despite the divergency of individual prices from individual values, the total price of all commodities always coincides with their total value, or the amount of labor contained in the totality of the commodities. For inasmuch as value is nothing more than the exchange ratio between one commodity and another, the very concept of a total value is an absurdity, nonsense ... a contradiction in abjecto....”

“Was there ever such an utter reductio ad absurdum, such complete theoretical bankruptcy? Was ever scientific suicide committed with greater pomp and more solemnity! (Nouva Antologia, Feb. 1, 1895, pp. 478–79.)”
https://www.marxists.org/archive/marx/works/1894-c3/supp.htm

Alexander Gray, in analysing the extraordinarily absurd attempts by Marxists to harmonise Marx’s views, states:

“… we are still left very much in the dark as to the nature of that peculiarly Marxian value, which flits back from the third Volume to illumine the dark places in the first Volume of Capital—that value described by Loria as a ‘fantastical or transcendental value’ which neither possessed nor could possess any relationship to facts. Dr. Lindsay at least realises that some definition of the elusive ‘value’ is required, and he suggests that ‘intrinsic exchange value is for Marx the value which a commodity would have in a properly organised society where labour was performing its proper function.’ Apart from legitimate doubts as to where such a view could be founded in Marx, it will be observed that we are very properly left to guess for ourselves what is a properly organised society, and when labour is performing its proper function—two very sizable hares to start in one sentence.

It is to Mr. Cole that we owe the alluring and confident title: What Marx Really Meant. On the immediate question, he argues—and rightly, if regard is to be had to the third Volume—that the Marxian theory of value is somewhat unique in not being a theory of prices; indeed, as he adds, it is doubtful whether in the end it has any point of contact at all with prices. As to the elusive Marxian ‘value,’ we are told that in Marx’s writings, ‘value’ came to mean what commodities were really worth in consequence of the amounts of labour incorporated in them, as something quite distinct from the prices which they actually fetched, or tended to fetch, in the market. But the identity of value and embodied labour was surely something that Marx thought he had proved (and which therefore required proof) in the opening pages of Capital. It is true that Croce also says that Marx assumed the equivalence of value and labour. If the identity of value and labour is a matter of definition and assumption, then at least we know the meaning Marx attaches to ‘value’; but in that case the pretended proof in the opening chapter is mere eye-wash; since one states, but does not prove, definitions. Also in that case it is to be feared that the whole of Capital, resting on an arbitrary definition which implies the conclusion to be reached, is an example of wandering vainly in a circle, even more glaring than the most critical critics had thought possible. If, on the other hand, the identity of value and labour is a matter of proof and not of definition, we are still left to grope for the meaning Marx attaches to ‘value.’” (Gray 1946: 318–319).

“If throughout Volume I Marx speaks quite generally as if commodities tended to sell at their values, the plain man would suggest that it was probably because this idea was most frequently in Marx's mind. Marx was almost criminally careless in neglecting to define his terms, and the natural result of such carelessness is that words jostle about in the mind, each trailing half a dozen potential meanings, with consequent confusion of thought. With just a touch of scorn, Croce speaks of Marx as having ‘despised and neglected all such preliminary and exact explanations as might have made his task plain.’ It is significant, in connection with Mr. Cole’s question, that Engels, playing the part of official interpreter, also speaks as if the opening chapters of Capital provided a guide to the price-tickets in Bond Street. Anti-Dühring is for the most part a most dreadful book—fit only to be one of six books given to Hitler on a desert island—yet it has its uses as an official summary of Marxism as then understood. It is instructive to ponder what Engels implies when he speaks of ‘the law of value of modern bourgeois economics, according to which the value of a commodity is measured by the socially necessary labour embodied in it.’” (Gray 1946: 320).

That is most insightful, and a tactic I see myself: Marxists are forced to reduce that LTV to an analytic statement, a mere tautology or equality true by definition. But in that case, why did Marx go to so much trouble in Chapter 1 of Capital to try and prove empirically that exchange values really are, ultimately, an equality determined by abstract socially-necessary labour time? Why does he actually try to explain real, individual exchange values in terms of socially-necessary labour time?

Just to take one example from volume 1 of Capital, Marx refers to the labour value and price of cotton:

“Suppose that the price of cotton is one day sixpence a pound, and the next day, as a result of a failure of the cotton crop, a shilling a pound. Each pound of the cotton bought at sixpence, and worked up after the rise in value, transfers to the product a value of one shilling; and the cotton already spun before the rise, and perhaps circulating in the market as yarn, similarly transfers to the product twice its original value. It is plain, however, that these changes of value are independent of the valorization of the cotton in the spinning process itself. If the old cotton had never been spun, it could be resold at a shilling a pound after the rise, instead of at sixpence. Further, the fewer the processes the cotton has gone through, the more certain is this result. We therefore find that speculators make it a rule, when such sudden changes in value occur, to speculate in the raw material in its least worked-up form: to speculate, therefore, in yarn rather than in cloth, and indeed in cotton itself rather than in yarn. The change of value in the case we have been considering originates not in the process in which the cotton plays the part of a means of production, and in which it therefore functions as constant capital, but in the process in which the cotton itself is produced. The value of a commodity is certainly determined by the quantity of labour contained in it, but this quantity is itself socially determined. If the amount of labour-time socially necessary for the production of any commodity alters –and a given weight of cotton represents more labour after a bad harvest than after a good one – this reacts back on all the old commodities of the same type, because they are only individuals of the same species, and their value at any given time is measured by the labour socially necessary to produce them, i.e. by the labour necessary under the social conditions existing at the time.” (Marx 1982: 317–318).

It quite clear that Marx is trying to explain movements in the real prices of cotton here in terms of unit socially necessary labour used to produce them. But, by the time of volume 3 of Capital, this analysis in volume 1 would make no sense, since by that time Marx will say that abstract labour time does not determine individual commodity prices.

BIBLIOGRAPHY
Gray, Alexander. 1946. The Socialist Tradition: Moses to Lenin. Longmans, Green and Co., London and New York.

Loria, Achille. 1895. “L’opera postuma di Carlo Marx,” Nuova Antologia di Scienze 55.3 (February): 460–496.

Loria, Achille. 1902. [1895]. “L’opera postuma di Carlo Marx,” in Achille Loria, Marx e la sua Dottrina. Sandron, Milan. 71–150.