What is the Case against Marxism in a Nutshell?

That is, what is the case against the actual theory presented by Karl Marx in volume 1 of Capital? This was the only volume of Capital that Marx published in his lifetime, and volume 3 contradicts volume 1 in important respects.

First, we need to know what Marx actually argued in volume 1 of Capital.

The essence of Marx’s theory and his conception of the historical tendency of capitalism is as follows:

(1) Marx had an elaborate labour theory of value on which he founded volume 1 of Capital (see here). Marx understood “value” in the following terms:

(1) the substance of value is abstract socially necessary labour time, which must be defined as a homogeneous unit capable of aggregating and measuring all heterogeneous types of human labour-power (Marx 1906: 45–46);

(2) so therefore value is abstract, socially necessary labour time embodied, crystallised, or materialised in commodities, and

(3) the magnitude of value or quantitative measure of value is the amount of abstract socially necessary labour time, counted in homogeneous units (Marx 1906: 45–46).

Marx also thought that market prices move around and are determined by labour values, since the latter are the equilibrium price anchors for a capitalist system.

(2) capitalism tends to increase the (1) accumulation, (2) concentration (accumulation over time) and (3) centralisation of capital. Capitalism will therefore have a tremendous tendency towards monopoly.

(3) capitalism will tend to destroy more and more capitalists and result in huge centralisation of capital (or monopoly) and reduce even capitalists to the proletarian class;

(4) capitalism will tend to use more and more machines and automation in production resulting in a huge body of unemployed people.

(5) the industrial reserve army of labour (the unemployed) grows and grows, and helps to hold real wages in check (see Chapter 25 of Capital). Even more, Marx thought that a large and growing industrial reserve army is a necessary condition of capitalism: it was a “condition of existence of the capitalist mode of production” (Marx 1906: 646).

(6) the tendency of capitalism is to keep the real wage at a subsistence level, which is the value of the maintenance and reproduction of labour-power (on this, see Chapter 25 of Capital and here). Wages rise and fall around this subsistence level as an equilibrium process;

(7) machines will only increase the intensity, speed and arduousness of work for the proletarians and their misery (see Chapter 15 of volume 1), and also increase the employment of women and children who are paid a lower wage than adult men (although government laws might counter this latter trend to some extent). The adult men are then increasing thrown out of work by machines and women and children replace them with lower wages;

(8) volume 3 of Capital adds to this the tendency of the profit rate to fall, but this mechanism is not invoked in volume 1 as one of the causes of the collapse, and some modern Marxists now dispute just how important the tendency of the falling rate of profit was for the final collapse of capitalism in Marx’s theory, as the emphasis given to this may be more the result of Engels’ tendentious editing of volume 3 of Capital.

(9) eventually almost the whole of society is reduced to the proletarian class with only a tiny handful of monopoly capitalists, who according to Marx “usurp and monopolise all advantages of this process of transformation” (Marx 1906: 836).

(10) the huge and constantly growing class of proletarians, who are kept in poverty with a subsistence wage, are subject to an increasing “mass of misery, oppression, slavery, degradation, [and] exploitation” (Marx 1906: 836). As in the passage of Engels quoted by Marx, the “other classes perish and disappear in the face of Modern Industry” (Marx 1906: 837, n. 1).

(11) finally, the proletarians eventually organise and rebel against capitalism, overthrowing the system.

Now these theories and predictions judged in their totality were not the long-run tendency of capitalism.

Even if a few elements are true (e.g., the increasing use of machines), nevertheless Marx’s vision is a Marxist caricature of capitalism which has been falsified by history.

We can run through the problems and failed predictions of Marxism as follows:

(1) Marx’s labour theory of value is false. The a priori argument for the labour theory of value in volume 1 of Marx’s Capital is a non sequitur and later contradicts itself, as detailed here and here. There are devastating problems with the very concept of a homogeneous unit of abstract, socially necessary labour time and serious empirical problems with the theory, as I show here. The very concept, as Marx defines it, cannot be accepted or defended as coherent or meaningful, and is contrary to the empirical evidence. The labour theory does not explain price determination (for how most prices are actually determined, see here), and the theory of price determination in volume 3 of Capital is inconsistent with that in volume 1. See here.

(2) the tendency to monopoly has its limits even in capitalism, and the extreme and increasing degree of monopoly as predicted by Marx goes well beyond anything observed in real world capitalism;

(3) the size of the working class eventually stabilised and society was swelled by a growing and prosperous middle class and social mobility. Unemployment rates in capitalism are simply a cyclical result of the business cycle: even in the 19th century, unemployment rates did not grow and grow in the long run, as Marx’s theory predicts, but normally simply moved around a point somewhat above full employment, as John Maynard Keynes pointed out:

“our actual experience … [sc. is] that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life.”
Keynes, J. M. 1936. General Theory of Employment, Interest, and Money , Chapter 18.
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch18.htm

(4) Marx thought that the large industrial reserve army is a necessary consequence and necessary condition of capitalism, but this is incorrect. In the Keynesian era of full employment, there was very low unemployment and indeed labour scarcity in the advanced capitalist world, but capitalism continued and thrived – indeed we now call it the “Golden Age” of capitalism.

(5) the long-run tendency of capitalism, even in the 19th century, was to massively increase the real wage, which has soared above subsistence level, even for workers (see here and here).

(6) the growing real wage and rising disposable income even of workers in capitalism also allowed a massive capacity for production of new commodities and new opportunities for employment (e.g., especially in services and middle class employment), which in turn has helped to overcome technological unemployment.

(7) Marx’s claim that machines, generally speaking, are an unmitigated evil in capitalism whose primary effect is to increase the intensity and speed of work by labourers is an outrageous falsehood – a perversion of history and reality. In reality, machines have, generally speaking, tended to decrease the intensity, difficulty and monotony of human labour and often reduced to human labour to lighter work of visual inspection and overseeing of machine work, not physical labour. On this, see here and here. Advanced capitalist nations have also virtually eliminated child labour as well, and in our time have tended to pay women the same hourly wage for the same type of work as men.

(8) highly developed and advanced Western capitalist states like Britain and the US proved the most resistant to communism and Marxism (contrary to Marx’s theory), and when communist revolutions broke out it was in backward Russia and China. Even the communist outbreaks in Germany and Italy at the end of the First World War were more the result of the collapse of those nations under the strain of war, and not in line with the vision Marx had predicted (as I noted here).

In the Keynesian era of full employment from 1946 to 1973, mixed economy capitalism produced a golden age.

Of course, since the 1970s we have entered a a disastrous and regressive era of Neoliberal economics, but, even so, the consequences of that Neoliberalism are not in line with all of the predictions of Marxism as listed above.

The end of the Keynesian period and the return to revived neoclassical theories from the 1970s brought with it a return to lower growth, higher unemployment, stagnating real wages, and higher income inequality, but, above all, a transnational globalised neoliberal capitalism which has shipped a great deal of Western manufacturing and jobs to the Third World, and allowed legal and illegal Third World mass immigration into the West to lower wage costs, displace native workers and even replace populations.

To the extent that early Marxists dealt with issues of immigration and open borders, many welcomed it.

Engels in The Principles of Communism (written in 1847) welcomed the destruction and erasure of ethnic and national groups:

“What will be the attitude of communism to existing nationalities?

The nationalities of the peoples associating themselves in accordance with the principle of community will be compelled to mingle with each other as a result of this association and thereby to dissolve themselves, just as the various estate and class distinctions must disappear through the abolition of their basis, private property.”
https://www.marxists.org/archive/marx/works/1847/11/prin-com.htm

Lenin saw open borders as “progressive”:

“There can be no doubt that dire poverty alone compels people to abandon their native land, and that the capitalists exploit the immigrant workers in the most shameless manner. But only reactionaries can shut their eyes to the progressive significance of this modern migration of nations. Emancipation from the yoke of capital is impossible without the further development of capitalism, and without the class struggle that is based on it. And it is into this struggle that capitalism is drawing the masses of the working people of the whole world, breaking down the musty, fusty habits of local life, breaking down national barriers and prejudices, uniting workers from all countries in huge factories and mines in America, Germany, and so forth.

America heads the list of countries which import workers. …. The bourgeoisie incites the workers of one nation against those of another in the endeavour to keep them disunited. Class-conscious workers, realising that the break-down of all the national barriers by capitalism is inevitable and progressive, are trying to help to enlighten and organise their fellow-workers from the backward countries.”
V. I. Lenin, “Capitalism and Workers’ Immigration,” Za Pravdu No. 22, October 29, 1913.
https://www.marxists.org/archive/lenin/works/1913/oct/29.htm

So early Marxists saw mass immigration and the destruction of national differences as “progressive,” and thought that once people had been mixed up into multicultural or multi-ethnic states, this would create a huge class-conscious proletarian movement, which would then overthrow capitalism. This was yet another Marxist delusion.

Instead, unending Third World mass immigration means the dispossession of the people of the Western world, the Islamisation of our societies, the transformation of our nations into dysfunctional, Balkanised areas with rent-seeking nepotistic and mutually hostile ethnic and religious groups fighting for control of the state.

The deteriorating plight of Western workers and even segments of the middle class by Neoliberalism, the Islamisation of our societies, and Third World immigration has not produced any renewed Marxist or Communist movements of any political importance in the First World.

Rather, more and more people have reacted with increased support for nationalist and protectionist conservatives, and Marxists and Communists – where they still exist – militantly support the disastrous mass immigration policies that more and more people hate and reject.

In particular, modern Marxists are mired in irrational regressive left and Cultural Leftist delusions, such as Third Wave feminism, the idea that all cultures are equal and the nonsense that mass immigration is always a positive force.

That is why Marxism is destined for the dustbin of history.

BIBLIOGRAPHY
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. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Debunking Marxism 101 (Updated)

In the links below I update my series of posts debunking Marxist economics and ideology, to complement my series on Debunking Austrian economics 101.

As in the series on Austrian economics, not all posts actually debunk Marxism, but sometimes provide outlines or summaries of Marxist theory or interesting points on Marxism or Karl Marx’s life and thought. There are also some posts where constructive things can be said: on endogenous money, the falsity of Say’s law and the monetary theory of production, how some of Marx’s economic thought anticipated Keynes, but even here the discussions in Marx’s Capital are simply obsolete and have long been superseded by modern Post Keynesian theory, and are mainly of historical interest.

In what follows, sometimes Marxist economic theory will be debunked by means of Post Keynesian economics (which is what this blog advocates), though frequently I have my own original criticisms or follow the arguments of other critics of Marxism.

It is important to remember that Post Keynesian economics – although it has severe criticisms of laissez faire capitalism and neoclassical or Austrian economics – is still strongly distinct from Marxist economics. Post Keynesian economics is not Marxism, and leading Post Keynesians and economists whose work has been foundational for Post Keynesian economics have rejected the labour theory of value, the basis of Marxist economics.

John Maynard Keynes, for example, said that Marx’s theories were founded “on a silly mistake of old Mr Ricardo’s” (Skidelsky 1992: 517) – namely, the labour theory of value. For Michał Kalecki and Joan Robinson the labour theory of value was “metaphysical” (Brus 1977: 59; Robinson 1964: 39), and for Piero Sraffa it was “a purely mystical conception” (Kurz and Salvadori 2010: 199). If the labour theory of value is unsound, then the whole Marxist edifice constructed on it cannot but fall and collapse. Moreover, the classical Marxist idea of historical determinism is also incompatible with the Post Keynesian idea of the fundamental uncertainty of the future.

For Marx’s theory of the “law of value” in volume 1 of Capital, see here:

“Marx’s ‘Law of Value’ in Volume 1 of Capital,” February 4, 2016.

For an overview of why the labour theory of value is wrong, see this post:

“Why Marx’s Labour Theory of Value is Wrong in a Nutshell,” June 28, 2015.

For a detailed discussion of how Marx and Engels continued to think of the theory of value in volume 1 of Capital as an empirical theory of pre-modern commodity exchange before modern capitalism (where prices of production are anchors for the price system), see here:

“Engels’ View of the Theory of Value in Volume 1 of Capital in the 1890s,” August 12, 2015.

The posts below are divided into the following groups:

(i) Bibliographical Posts.
(ii) Marx and Engels’ Works Online
(iii) Karl Marx’s Life 1818–1883
(iv) Documentaries about and discussions of Karl Marx and Marxism.
(v) Against the labour theory of value.
(vi) On the alleged tendency of the rate of profit to fall.
(vii) On Marx’s “Critique of the Gotha Program.”
(viii) Discussions of David Harvey’s lectures on Reading Marx’s Capital Volume 1.
(ix) Steve Keen on Marxism.
(x) On Marx’s views on phrenology and race.
(xi) On Marx’s views on slavery.
(xii) Marxism, authoritarianism and imperialism.
(xiii) Against Marx’s Communist Manifesto.
(xiv) Against Sraffian and Marxist long-run equilibrium.
(xv) Chomsky and Marxism.
(xvi) Against Temporal Single System Marxism (TSSI)
(xvii) Marx’s Monetary Theory
(xviii) Marx versus Keynes
(xix) Critical Summaries of Volume 1 of Capital
(xx) Marx’s Theory of Wage Determination in Capitalism
(xxi) Useful Insights in Capital
(xxii) Marx’s Views on Capitalism and Imperialism and Colonialism
(xxiii) Historical Development of Marxism
(xxiv) Responses to Marxists
(xxv) Failed Predictions of Marx and Engels
(xxvi) Marxism and Poststructuralism
(xxvii) Marx and Immigration
(xxviii) Engels’ Pause and Marx’s Hasty Generalisations about Capitalism
(xxix) Marx and Increasing Intensity of Labour in Capitalism
(xxx) Marx and Technological Unemployment.

I also recommend my series of posts that are critical chapter by chapter summaries of volume 1 of Capital in section xix below (or listed in a separate post here).

The posts are as follows:

Debunking Marxism 101
(i) Bibliographical Posts:

(1) “Study Guides to and Overviews of Marx’s Capital,” June 10, 2015.

(2) “Bibliography on Marx’s Monetary Theory,” June 16, 2015.

(3)“Early Reviews and Critiques of Marx: A List,” March 16, 2016.

(ii) Marx and Engels’ Works Online:

(1) “Some Early Editions of Marx’s Capital Online,” May 10, 2015.

(2) “Engels’ Later Works Online,” May 13, 2015.

(iii) Karl Marx’s Life 1818–1883:

(1) “Karl Marx’s Life 1818–1841,” April 20, 2015.

(2) “Karl Marx’s Life 1842–1844,” April 21, 2015.

(3) “Karl Marx’s Life 1845–1849,” April 24, 2015.

(4) “Karl Marx’s Life 1850–1860,” April 25, 2015.

(5) “Karl Marx’s Life 1861–1870,” April 28, 2015.

(6) “Karl Marx’s Life 1871–1883,” May 1, 2015.

(7) “Karl Marx’s Night Out on London Town,” September 5, 2015.

(8) “Karl Marx the Conspiracy Theorist,” December 11, 2015.

(iv) Documentaries about and discussions of Karl Marx and Marxism:

(1) “A BBC Discussion of Karl Marx,” April 4, 2015.

(2) “Karl Marx in London,” April 26, 2015.

(3) “BBC Radio 4 Discussion on the 1848 Revolutions,” April 22, 2015.

(4) “Jonathan Sperber on Karl Marx,” April 23, 2015.

(5) “Bryan Magee interviews Peter Singer on Hegel and Marx,” April 8, 2015.

(v) Against the labour theory of value

(1) “Mysticism and the Labour Theory of Value,” May 7, 2014.

(2) “Did Kalecki Accept the Labour Theory of Value?,” April 18, 2014.

(3) “Adam Smith on the Labour Theory of Value,” April 20, 2014.

(4) “Progress in Marxism on the Labour Theory of Value?,” March 18, 2015.

(5) “Marx’s ‘Socially Necessary Labour Time’: A Quick Overview and Critique,” March 26, 2015.

(6) “Marx on the Labour Theory of Value in Volume 1 of Capital,” March 27, 2015.

(7) “Marx’s Labour Theory of Value and Rothbard’s Homesteading Property-Rights Theory: Peas in a Pod,” March 28, 2015.

(8) “The Foundation of Marx’s Labour Theory of Value in Ricardo,” March 29, 2015.

(9) “More Mystical Labour Theory of Value Nonsense,” March 29, 2015.

(10) “The Two Epistemological Ways to Interpret the Labour Theory of Value,” March 30, 2015.

(11) “Piero Sraffa’s Damning Verdict on the Labour Theory of Value,” March 30, 2015.

(12) “Kliman’s Explanation of Marx’s Labour Theory of Value,” March 31, 2015.

(13) “Philip Pilkington on the Labour Theory of Value,” April 1, 2015.

(14) “The Labour Theory of Value and Animal Labour,” April 1, 2015.

(15) “Achille Loria and Alexander Gray on Marx’s Labour Theory of Value,” April 2, 2015.

(16) “Matias Vernengo on Marx’s Labour Theory of Value,” April 3, 2015.

(17) “My ‘Sun Theory of Value’: Why it’s better than the Marxist Labour Theory of Value,” April 5, 2015.

(18) “Achille Loria on the Contradiction in Marx’s Labour Theory of Value,” April 7, 2015.

(19) “Marx’s Wage-Labour and Capital,” April 9, 2015.

(20) “Dühring’s Review of Capital and Marx’s Letter to Engels of 8 January, 1868 on the Labour Theory of Value,” May 12, 2015.

(21) “Marx’s Abstract Socially-Necessary Labour Time in A Contribution to the Critique of Political Economy and Capital,”

(22) “Marx on Labour Value and Cost Price in the Grundrisse,” May 7, 2015.

(23) “Engels’ Letter to Werner Sombart on the Labour Theory of Value in 1895,” May 14, 2015.

(24) “What the Labour Theory of Value does not Explain,” May 15, 2015.

(25) “What Conditions are Necessary for Commodity Prices to Equal Marx’s Labour Value?,” May 17, 2015.

(26) “A Devastating Contradiction in Marx’s Argument for the Labour Theory of Value,” May 19, 2015.

(27) “Wicksteed on the Contradiction in Chapter 1 of Volume 1 of Capital on the Labour Theory of Value,” May 21, 2015.

(28) “Karl Popper on the Labour Theory of Value,” May 30, 2015.

(29) “Fiat Money Destroys the Labour Theory of Value,” June 6, 2015.

(30) “Why Marx’s Labour Theory of Value is Wrong in a Nutshell,” June 28, 2015.

(31) “Eugen von Böhm-Bawerk’s Critique of Marx: A Quick Summary,” August 6, 2015.

(32) “Two Important Instances in Volume 1 of Marx’s Capital where Labour Values determine individual Commodity Prices,” August 7, 2015.

(33) “Two Instances where Marx’s Theory of Value in Volume 3 Intrudes into Volume 1 of Capital,” August 8, 2015.

(34) “Joan Robinson on Marx’s Labour Theory of Value: A Few Points,” August 11, 2015.

(35) “Engels’ View of the Theory of Value in Volume 1 of Capital in the 1890s,” August 12, 2015.

(36) “Marx’s Letter to Engels of 2 August, 1862 on Prices of Production,” January 19, 2016.

(37) “Engels’ Understanding of the ‘Law of Value’ in the Anti-Dühring” January 29, 2016.

(38) “Robert Wilbrandt’s Interpretation of Marx’s Law of Value in Volume 1 of Capital,” January 30, 2016.

(39) “The Historical Development of Marxist Interpretations of the Law of Value,” January 31, 2016.

(40) “Rudolf Hilferding on the Law of Value in Volume 1 of Capital,” February 1, 2016.

(41) “‘Socially Necessary Labour Time is the only Source of Value’: What Does this even Mean?,” February 2, 2016.

(42) “Marx’s ‘Law of Value’ in Volume 1 of Capital,” February 4, 2016.

(43) “Alexander Gray on the Two Contradictions in Marx’s Theory of Surplus Value in Volume 1 of Capital,” February 8, 2016.

(44) “Louis Boudin on the Contradiction between Volumes 1 and 3 of Marx’s Capital,” February 10, 2016.

(45) “A Marxist agrees with me on the Labour Theory of Value and Fiat Money!,” February 12, 2016.

(46) “Debunking Marx’s Concept of Exploitation based on Surplus Labour Value,” February 13, 2016.

(47) “Would Capitalism necessarily be destroyed if Human Labour fell towards Zero?,” February 12, 2016.

(48) “The Long-Run Tendency of Capitalism is to Decrease the Rate of Exploitation,” February 14, 2016.

(49) “Eduard Bernstein on Engels’ Historical Defence of the Law of Value in Volume 1 of Capital,” April 12, 2016.

(50) “Marx and Engels’ Attempt to Salvage the Law of Value in Volume 1 of Capital,” November 29, 2015.

(51) “The Important Points about Marx’s Labour Theory of Value,” December 1, 2015.

(52) “The Absurdity of the Transformation Problem,” December 6, 2015.

(53) “More on Engels’ Supplement to Volume 3 of Capital,” December 8, 2015.

(54) “‘Imaginary’ Prices and Marx’s Labour Theory of Value,” December 11, 2015.

(55) “Engels’ Famous Challenge in the Preface to Volume 2 of Capital on the Transformation Problem,” December 22, 2015.

(56) “Empirical Studies showing that Prices are Correlated with Labour Costs do not Prove the Classical Marxist Labour Theory of Value,” December 23, 2015.

(57)“Böhm-Bawerk on Marx’s Problem of Aggregating Heterogeneous Human Labour,” March 7, 2016.

(vi) On the alleged tendency of the rate of profit to fall:

(1) “Michael Heinrich on the Tendency of the Profit Rate to Fall and Engels’ Dubious Editing of Marx,” April 4, 2015.

(2) “Marx’s Tendency of the Rate of Profit to Fall: Analytically and Empirically Unproven,” February 22, 2016.

(3) “The US Profit Rate was Abnormally High in WWII and Immediately Afterwards,” March 4, 2016.

(vii) On Marx’s “Critique of the Gotha Program”:

(1) “Marx’s ‘Critique of the Gotha Program’: Four Points,” April 29, 2015

(viii) Discussions of David Harvey’s lectures on Reading Marx’s Capital Volume 1:

(1) “David Harvey on Reading Marx’s Capital Volume 1, Class 01,” April 8, 2015.

(2) “David Harvey on Reading Marx’s Capital, Volume 1, Class 02 (Updated),” June 30, 2015.

(3) “David Harvey on Reading Marx’s Capital Volume 1, Class 03,” July 3, 2015.

(4) “David Harvey on Reading Marx’s Capital, Volume 1, Class 04,” July 19, 2015.

(5) “David Harvey on Reading Marx’s Capital, Volume 1, Class 05,” September 25, 2015.

(ix) Steve Keen on Marxism:

(1) “Steve Keen’s ‘A Marx for Post Keynesians,’” April 6, 2015.

(x) On Marx’s views on phrenology and race:

(1) “Marx’s Phrenology and Racial Views,” April 26, 2015.

(xi) On Marx’s views on slavery:

(1) “Marx on Slavery in his 1846 Letter to Annenkov,” April 27, 2015.

(2) “Marx on Slaves as Fixed Capital,” July 16, 2015.

(3) “Marx on Slave-based Plantation Systems,” July 18, 2015.

(xii) Marxism and authoritarianism:

(1) “Engels on Authoritarianism and Revolution,” April 30, 2015.

(2) “Communist Imperialism,” February 14, 2016.

(3) “‘Marx was not responsible for the Horrors of Communism’ is Nonsense,” November 5, 2015.

(xiii) Against Marx’s Communist Manifesto:

(1) “What Economic System did Marx and Engels Advocate?,” July 24, 2012.

(xiv) Against Sraffian and Marxist long-run equilibrium:

(1) “Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

(2) “Matias Vernengo on Marx’s Labour Theory of Value,” April 3, 2015.

(3) “Sraffian Long-Run Equilibrium Prices of Production and Post Keynesianism,” April 11, 2015.

(xv) Chomsky on Marxism:

(1) “Chomsky on Marxism,” July 12, 2015.

(xvi) Against Temporal Single System Marxism (TSSI):

(1) “Mongiovi on Temporal Single System Marxism,” May 16, 2015.

(2) “Nitzan and Bichler on the Temporal Single System Interpretation (TSSI),” June 3, 2015.

(xvii) Marx’s Monetary Theory:

(1) “Marx on the Necessity of Money being a Commodity,” June 8, 2015.

(2) “Marx rejected Fiat Money,” February 16, 2016.

(3) “Marx on the Origin of Money in the Critique of Political Economy (1859),” April 5, 2016.

(xviii) Marx versus Keynes:

(1) “Keynes versus Engels on ‘Socialism,’” May 5, 2015.

(xix) Critical Summaries of Volume 1 of Capital:

(1) “Prolegomena to the Study of Marx’s Capital (Updated),” June 2, 2015.

(2) “Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated),” June 21, 2015.

(3) “Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2,” June 26, 2015.

(4) “Marx’s Capital, Volume 1, Chapter 2: A Critical Summary,” June 4, 2015.

(5) “Marx’s Capital, Volume 1, Chapter 3: A Critical Summary,” June 12, 2015.

(6) “Marx’s Capital, Volume 1, Chapter 4: A Critical Summary,” July 4, 2015.

(7) “Marx’s Capital, Volume 1, Chapter 5: A Critical Summary,” July 6, 2015.

(8) “Marx’s Capital, Volume 1, Chapter 6: A Critical Summary,” July 13, 2015.

(9) “Marx’s Capital, Volume 1, Chapter 7: A Critical Summary,” July 31, 2015.

(10) “Marx’s Capital, Volume 1, Chapter 8: A Critical Summary,” August 2, 2015.

(11) “Marx’s Capital, Volume 1, Chapter 9: A Critical Summary,” December 19, 2015.

(12) “Marx’s Capital, Volume 1, Chapter 10: A Critical Summary,” February 3, 2016.

(13) “Marx’s Capital, Volume 1, Chapter 11: A Critical Summary,” February 7, 2016.

(14) “Marx’s Capital, Volume 1, Chapter 12: A Critical Summary,” February 11, 2016.

(15) “Marx’s Capital, Volume 1, Chapter 13: A Critical Summary,” February 12, 2016.

(16) “Marx’s Capital, Volume 1, Chapter 14: A Critical Summary,” March 9, 2016.

(17) “Marx’s Capital, Volume 1, Chapter 15: A Critical Summary, Part 1,” March 17, 2016.

(18) “Marx’s Capital, Volume 1, Chapter 15: A Critical Summary, Part 2,” March 18, 2016.

(19) “Marx’s Capital, Volume 1, Chapter 16: A Critical Summary,” March 20, 2016.

(20) “Marx’s Capital, Volume 1, Chapter 17: A Critical Summary,” March 21, 2016.

(21) “Marx’s Capital, Volume 1, Chapter 18: A Critical Summary,” March 23, 2016.

(22) “Marx’s Capital, Volume 1, Chapter 19: A Critical Summary,” March 24, 2016.

(23) “Marx’s Capital, Volume 1, Chapter 20: A Critical Summary,” March 26, 2016.

(24) “Marx’s Capital, Volume 1, Chapter 21: A Critical Summary,” March 28, 2016.

(25) “Marx’s Capital, Volume 1, Chapter 22: A Critical Summary,” April 4, 2016.

(26) “Marx’s Capital, Volume 1, Chapter 23: A Critical Summary,” April 10, 2016.

(27) “Marx’s Capital, Volume 1, Chapter 24: A Critical Summary,” April 14, 2016.

(28) “Marx’s Capital, Volume 1, Chapter 25: A Critical Summary,” April 16, 2016.

(29) “Marx’s Capital, Volume 1, Chapter 26: A Critical Summary,” April 17, 2016.

(30) “Marx’s Capital, Volume 1, Chapter 27: A Critical Summary,” April 18, 2016.

(31) “Marx’s Capital, Volume 1, Chapter 28: A Critical Summary,” April 19, 2016.

(32) “Marx’s Capital, Volume 1, Chapter 29: A Critical Summary,” April 20, 2016.

(33) “Marx’s Capital, Volume 1, Chapter 30: A Critical Summary,” April 20, 2016.

(34) “Marx’s Capital, Volume 1, Chapter 31: A Critical Summary,” April 20, 2016.

(35) “Marx’s Capital, Volume 1, Chapter 32: A Critical Summary,” April 21, 2016.

(36) “Marx’s Capital, Volume 1, Chapter 33: A Critical Summary,” April 22, 2016.

(xx) Marx’s Theory of Wage Determination in Capitalism

(1) “The Debate on Marx’s View of Wages in Capitalism,” January 12, 2016.

(2) “A Simple Challenge to Marxists on the Theory of Wage Determination in Volume 1 of Capital,” March 7, 2016.

(3) “Marx on Wage Determination and the Classical Economists,” March 27, 2016.

(4) “Marx and the ‘Iron Law of Wages,’” December 29, 2015.

(5) “Marx on Wages in Value, Price and Profit (1865),” December 30, 2015.

(6) “Engels on Subsistence Wages,” December 21, 2015.

(7) “Marx’s Views on the Effectiveness of Trade Unions,” March 15, 2016.

(xxi) Useful Insights in Capital

(1) “What are the Useful Insights in Marx’s Capital?,” January 27, 2016.

(xxii) Marx’s Views on Capitalism and Imperialism and Colonialism

(1) “Capitalists and Imperialism,” January 3, 2016.

(2) “Paul Bairoch on the Industrial Revolution, Imperialism and Capitalism,” February 19, 2016.

(3) “Paul Bairoch on the Industrial Revolution, the Third World and Imperialism in World History,” February 20, 2016.

(4) “Who said this about British Rule in India?,” December 28, 2015.

(xxiii) Historical Development of Marxism

(1) “The Critical Responses to Volume 3 of Marx’s Capital and the Early Development of Marxism,” February 9, 2016.

(2) “Some Early Critical Reviews of Volume 3 of Marx’s Capital,” December 18, 2015.

(3) “The Historical Development of Marxist Interpretations of the Law of Value,” January 31, 2016.

(xxiv) Responses to Marxists

(1) “Response to Jehu on ‘Four Questions for LK on Money,’” April 8, 2016.

(xxv) Failed Predictions of Marx and Engels

(1) “Marx and Predictions of Capitalist Crisis,” September 17, 2015.

(2) “Engels’ Failed Prediction of Revolution in the UK,” December 20, 2015.

(3) “The Failed End of Capitalism Prediction by Marx,” December 4, 2015.

(xxvi) Marxism and Poststructuralism

(1) “The Poststructuralists as Frustrated Marxists-Communists,” October 20, 2015.

(xxvii) Marx and Immigration

(1) “Marx on Mass Immigration and Capitalism,” November 13, 2015.

(2) “The Hypocrisy of Marxists and Left Libertarians on Mass Immigration,” March 13, 2016.

(xxviii) Engels’ Pause and Marx’s Hasty Generalisations about Capitalism

(1) “Engels’ Pause: A Cause of Marx and Engels’ Hasty and False Generalisations about Capitalism,” February 6, 2016..

(xxix) Marx and Increasing Intensity of Labour in Capitalism

(1) “Marx on the Increasing Intensity of Labour in Industrial Capitalism: I Refute Him Thus,” March 18, 2016.

(xxx) Marx and Technological Unemployment

(1) “Marx on Technological Unemployment in the Grundrisse,” April 9, 2016.

BIBLIOGRAPHY
Brus, Włodzimierz. 1977. “Kalecki’s Economics of Socialism,” Oxford Bulletin of Economics and Statistics 39.1 (February): 57–67.

Kurz, Heinz D. and Neri Salvadori. 2010. “Sraffa and the Labour Theory of Value: A Few Observations,” in John Vint et al. (eds.), Economic Theory and Economic Thought: Essays in Honour of Ian Steedman. Routledge, London and New York. 189–215.

Robinson, Joan. 1964. Economic Philosophy. Penguin, Harmondsworth.

Skidelsky, R. J. A. 1992. John Maynard Keynes: The Economist as Saviour, 1920–1937 (vol. 2), Macmillan, London.

Eduard Bernstein on Engels’ Historical Defence of the Law of Value in Volume 1 of Capital

Eduard Bernstein in Evolutionary Socialism: A Criticism and Affirmation (1909) describes Friedrich Engels’ attempt to defend the idea that the law of value in volume 1 of Capital was both empirical and historical:

“According to the Marxist theory surplus value is, as we have seen, the pivot of the economy of a capitalist society. But in order to understand surplus value one must first know what value is. The Marxist representation of history and of the course of development of capitalist society begins therefore with the analysis of value.

In modern society, according to Marx, the value of commodities consists in the socially necessary labour spent on them measured according to time. But with the analysis of this measure of value quite a series of abstractions and reductions is necessary. First, the pure exchange value must be found; that is, we must leave aside the special use values of the particular commodities. Then—in forming the concept of general or abstract human labour—we must allow for the peculiarities of particular kinds of labour (reducing higher or complex labour to simple or abstract labour). Then, in order to attain to the socially necessary time of work as a measure of the value of labour, we must allow for the differences in diligence, activity, equipment of the individual workers; and, further (as soon as we are concerned with the transformation of value into market value, or price), for the socially necessary labour time required for the particular commodities separately. But the value of labour thus gained demands a new reduction. In a capitalistic developed society commodities, as has already been mentioned, are sold not according to their individual value but according to their price of production—that is, the actual cost price plus an average proportional rate of profit whose degree is determined by the ratio of the total value of the whole social production to the total wage of human labour power expended in producing, exchanging, etc. At the same time the ground rent must be deducted from the total value, and the division of the capital into industrial, commercial, and bank capital must be taken into the calculation.

In this way, as far as single commodities or a category of commodities comes into consideration, value loses every concrete quality and becomes a pure abstract concept. But what becomes of the surplus value under these circumstances? This consists, according to the Marxist theory, of the difference between the labour value of the products and the payment for the labour force spent in their production by the workers. It is therefore evident that at the moment when labour value can claim acceptance only as a speculative formula or scientific hypothesis, surplus value would all the more become a pure formula—a formula which rests on an hypothesis.

As is known, Friedrich Engels in an essay left behind him which was published in the Neue Zeit of the year 1895–96, pointed out a solution of the problem through the historical consideration of the process. Accordingly the law of value was of a directly determining power, it directly governed the exchange of commodities in the period of exchange and barter of commodities preceding the capitalist order of society.

Engels seeks to prove this in connection with a passage in the third volume of Capital by a short description of the historic evolution of economics. But although he presents the rise and development of the rate of profit so brilliantly, the essay fails in convincing strength of proof just where it deals with the question of value. According to Engels’ representation the Marxist law of value ruled generally as an economic law from five to seven thousand years, from the beginning of exchanging products as commodities (in Babylon, Egypt, etc.) up to the beginning of the era of capitalist production. Parvus, in a number of Neue Zeit of the same year, made good some conclusive objections to this view by pointing to a series of facts (feudal relations, undifferentiated agriculture, monopolies of guilds, etc.) which hindered the conception of a general exchange value founded on the labour time of the producers. It is quite clear that exchange on the basis of labour value cannot be a general rule so long as production for exchange is only an auxiliary branch of the industrial units, viz., the utilisation of surplus labour, etc., and as long as the conditions under which the exchanging producers take part in the act of exchange are fundamentally different. The problem of Labour forming exchange value and the connected problems of value and surplus value is no clearer at that stage of industry than it is to-day.” (Bernstein 1909: 29–31).

As we can see, Bernstein rejected Engels’ apologetics in the “Supplement and Addendum to Volume 3 of Capital” (Engels 1895).

For Bernstein the law of value in volume 1 of Capital – that commodities tend to exchange at true labour values – was a “pure abstract concept.”

This apologetic Marxist tactic – in contrast to Engels’ defence of the law of value as a real empirical and historical phenomenon confined to the pre-capitalist world of commodity exchange – was adopted early on after the publication of volume 3 of Capital by Werner Sombart, Conrad Schmidt, and Wilhelm Lexis.

Let’s review their views:

(1) Werner Sombart argued in 1894 that the law of value was not empirical fact but an “ideal” or “logical” one (Sombart 1894).

(2) Conrad Schmidt argued in 1895 that the law of value is just a “necessary theoretical point of departure” but not something empirically present in the “phenomena of prices under competition” (Schmidt 1895: 258).

(3) Wilhelm Lexis in 1895 argued the following:

“Value, as conceived by Marx, is thus a purely theoretical conception. The thing is never to be found in reality, neither in the normal exchanges of commodities nor in the consciousness of the individuals who take part in these exchanges.” (Lexis 1895: 11–12).

Benedetto Croce later argued something similar, that labour value was a mere ideal concept from which reality departs (Croce 1915: 52–57).

But Engels vehemently rejected the view that the law of value was totally abstract or non-empirical.

For Engels, the law of value in volume 1 was a real empirical and historical phenomenon, to be applied to the pre-modern world of commodity exchange (Engels 1991 [1895).

But, as we see, many Marxists rejected even this, and went for the apologetics of Conrad Schmidt and Werner Sombart.

BIBLIOGRAPHY
Bernstein, Eduard. 1909. Evolutionary Socialism: A Criticism and Affirmation (trans. Edith C. Harvey). B. W. Huebsch, New York.

Croce, Benedetto. 1915. Historical Materialism and the Economics of Karl Marx (trans. C. M. Meredith). Allen & Unwin, London.

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. 1027–1047.

Lexis, W. 1895. “The Concluding Volume of Marx’s Capital,” Quarterly Journal of Economics 10 (October): 1–33.

Schmidt, Conrad. 1895. “Der dritte Band des Kapital,” Sozialpolitisches Zentralblatt 22 (25th February): 254–258

Sombart, Werner. 1894. “Zur Kritik des ökonomischen Systems von Karl Marx” [Toward a Critique of the Economic System of Karl Marx], Archiv für soziale Gesetzgebung und Statistik 7: 555–594.

Engels’ Pause: A Cause of Marx and Engels’ Hasty and False Generalisations about Capitalism

The expression “Engels’ Pause” was coined by Robert C. Allen and refers to the period of real wage stagnation or low real wage growth in Britain in the early 19th century from about 1800 to 1840, even when real per capita GDP was rising in an historically unprecedented manner. You can see the “pause” in the graph of historical British real wages and per capita GDP per worker here.

First, it is important to note that some economic historians have challenged the data on GDP and real wages in this period. For example, Gregory Clark (Clark 2001; 2005 and 2007) argues that GDP has been overestimated and real wage growth in the early 19th century underestimated, so real wages did in fact grow more than per capita output growth (Allen, “Engels’ Pause,” p. 2).

However, for the sake for argument and to make it easy for Marxists, let me assume that the data used by Allen is correct: that Engels’ Pause was real.

However, we now know that this was very much a short-term trend in the history of capitalism and that, after the 1840s, capitalism – even in its inefficient 19th century form – caused real wages, even of workers, to soar above the levels of the early years of the 1800s.

Allen (2007) examines this issue and has some interesting insights.

Essentially, not only Marx and Engels but also the earlier Classical Political economists like Ricardo and Malthus were misled by this short-run trend, and they all concluded that capitalism would lead to wage stagnation for workers (Allen, “Engels’ Pause,” p. 1).

However, the early Marxists and the early Classical economists differed on why this was the case – and this is a crucial point. Allen argues as follows:

“Among economists, Ricardo, Malthus, and Marx all believed that real wages would remain constant during capitalist development. They differed, however, in their explanations: Ricardo and Malthus believed that population growth would accelerate in response to any rise in income and ultimately force wages back to subsistence; Marx, on the other hand, believed that technological progress had a labour saving bias that would eliminate any upward demand pressure on wages even as output per worker surged.” (Allen, “Engels’ Pause,” p. 1).

“While the classical economists all expected the real wage to remain constant, they disagreed about the reason: Malthus and Ricardo emphasized the growth of population, while Marx emphasized the labour saving bias of technical change.” (Allen, “Engels’ Pause,” p. 5).

This is an important point: Marx and Engels also thought that wages would stagnate, but they rejected Malthusian population theory (on this, see here; see also Marx 1922 [1891]: 40).

However, Marx still held that wages would tend towards the value of labour-power: that is, the value of the maintenance and reproduction of labour, with only two additional qualifications as explained in Chapter 6 of volume 1 of Capital.

Marx only adds two minor additions to the value of the maintenance and reproduction of labour:

(1) the cost of education and training of the skilled forms of labour (Brewer 1984: 37), but this only applies to skilled labour and is just a part of the cost of reproduction of skilled workers, and

(2) sometimes a “historical and moral element” which as Marx explains in Value, Price and Profit (1865) was mainly a legacy of the pre-capitalist national differences in standards of living.

However, for Marx, the “historical and moral element” is clearly not greatly above the level needed for subsistence and reproduction of workers, and in Value, Price and Profit Marx seems to imply that capitalism will reduce even the “historical and moral element” and, generally speaking, will tend to keep wages to a minimum.

Moreover, in the rest of volume 1 of Capital, we hear nothing further about the “historical and moral element”: for example, this is clear in Chapter 10 where Marx explicitly assumes his theory that

“labour-power is bought and sold at its value. Its value, like that of all other commodities, is determined by the working time necessary to its production. If the production of the average daily means of subsistence of the labourer takes up 6 hours, he must work, on the average, 6 hours every day, to produce his daily labour-power, or to reproduce the value received as the result of its sale.” (Marx 1906: 255).

It is the same in Chapter 11 where wages are “the value of labour-power” which is “therefore the part of the working-day necessary for the reproduction or maintenance of that labour-power” (Marx 1906: 331). We can also see this view more starkly in Marx’s Critique of the Gotha Program where Marx says that in capitalism wages are set so that the worker “is only permitted to work for his living, i.e., to live” (Marx 1922 [1891]: 40; see appendix).

In Friedrich Engels’ Herr Eugen Dühring’s Revolution in Science (1894; first published in 1878), he defended this view of Marx, and Engels even argued that industrial capitalism, partly by means of automation and use of machines, drove workers’ wages down to a subsistence level and tended to keep them there:

“Thus it comes about that the excessive labour of some becomes the necessary condition for the lack of employment of others, and that large-scale industry, which hunts all over the world for new consumers, restricts the consumption of the masses at home to a famine minimum and thereby undermines its own internal market.” (Engels [1894]: 308).

So the crucial point is: even Marx and Engels, like Ricardo, thought that capitalism would tend to keep real wages to a minimum, even if for different reasons.

Allen points out that from 1780 to 1840 British real wages increased by only 12%, even when real GDP per worker rose by 46% (Allen, “Engels’ Pause,” p. 1). Again, a graph of the data on real wages and per capita GDP per worker can be seen here. After 1840, however, real wages began an upward trend and living standards soared.

Now Lewis (1954) argued that the greater share of income to capital in the 1800–1840 period allowed capital accumulation and that the flow of migration from the country-side contributed to holding down real wages (Allen, “Engels’ Pause,” p. 4).

However, Allen rejects this and argues as follows:

“Although Lewis’ model was inspired by the classical economists analysing the British industrial revolution, the emphasis he placed on surplus labour is hard to reconcile with British history. As a general matter, surplus labour in the countryside is difficult to reconcile with a positive wage. In addition, there are particular problems to applying it to the British industrial revolution. British agriculture did not function as source of surplus labour that kept wages down. For one thing it was too small. In 1801 only 36% of the work force was in agriculture (Deane and Cole 1969, p. 142) compared to the 75–80% that characterized the less developed countries Lewis was describing. Moreover, contrary to Marx, the parliament enclosures did not drive workers from the land; indeed, the poor law (through the Speenhamland system) paid men to stay in the countryside and reduced rural-urban migration. … This does not square with Lewis’ scenario.” (Allen, “Engels’ Pause,” p. 4).

Instead, Allen explains the two stages of capitalist development in Britain with the view that accumulation of capital and productivity growth in the early 1800s were out of balance, and that technical progress was labour-augmenting (Allen, “Engels’ Pause,” p. 11–12).

Allen analyses Marx’s views on capitalism as follows:

“The transition from the first stage to the second, which occurred around the time of the publication of the Communist Manifesto (1848), provides a wry commentary on Marx’s expectations. The acceleration of productivity growth did, indeed, shift income from workers to capitalists, as he expected. The result, however, was not continually increasing immiseration, for the capitalists invested a portion of their extra income and the increase in the capital stock eventually allowed rising productivity to be manifest as rising real wages. History did, indeed, exhibit a stage pattern of evolution, but the stage of flat real wages was followed by the most sustained rise in real wages ever seen–not by socialist revolution.” (Allen, “Engels’ Pause,” p. 12).

Allen suggests that the rising demand for capital investment pushed up the rate of return and capitalist profits, which suppressed wage growth. This changed after 1840.

Whatever the merits of this explanation an important point still emerges.

It still follows that Marx and Engels generalised from limited data on wages and made a hasty and inaccurate inference about the trajectory of capitalism. Marx was guilty of a type of fallacy of hasty generalisation on the basis of Engels’ Pause.

We can see this clearly in the graph below using Wood’s data (Wood 1909: 102–103, Appendix) on UK real wages from 1850 to 1902, constructed from the wage data for working people in a whole range of industries.

As we can see, after 1848 living standards soared. Even if we assume wages were at subsistence levels in 1850, it is clear that by 1900 they had risen well above that level. It seems that already in the 1870s Marx’s socialist critic Eugen Dühring accused Marx of falling to take account of the rising standard of living (see Fabian 2011: 463, citing Dühring 1875).

It is now perfectly clear that Marx’s theory of wages – that wages would tend to “the value of labour-power” which is “part of the working-day necessary for the reproduction or maintenance of that labour-power” (Marx 1906: 331) – was proven false even in the 19th century and even by gold standard capitalism, which was certainly more unstable and inefficient than the far more dynamic, efficient and stable forms of mixed economy capitalism developed in the 20th century.

Appendix: Marx on Wages in the Critique of the Gotha Program
Marx’s Critique of the Gotha Program was based on a letter he wrote in 1875 and was published in 1891.

We have the following discussion of wages here:

“Since Lassalle’s death the scientific knowledge has made way in our party that wages are not what they seem, namely, the value or price of labor, but only a disguised form for the value of price of labor-power.

Thereby the whole capitalist theory of wages, hitherto prevailing, together with all the criticism hitherto directed against it, was once and for all overthrown, and the fact clearly established that the laborer is only permitted to work for his living, i.e., to live, so long as he works a certain time gratis for the capitalist (hence also for those who share the surplus-value with the latter); that the pivot around which the entire capitalist system of production turns, is to increase this unpaid labor either by lengthening the working day, or by developing the productive powers of labor, or by straining the laborer to more intense exertion, etc., etc.; that, therefore, the system of wage-labor is a system of slavery, and indeed slavery, which, moreover, grows harder in proportion as the productive powers of labor are developed in society, no matter whether the laborer’s pay is better or worse.” (Marx 1922 [1891]: 40–41).

So here Marx can even refer to his theory of wages as the view that “the laborer is only permitted to work for his living, i.e., to live.”

Further Reading
“Marx’s Capital, Volume 1, Chapter 6: A Critical Summary,” July 13, 2015.

“The Debate on Marx’s View of Wages in Capitalism,” January 12, 2016.

“Marx on Wages in Value, Price and Profit (1865),” December 30, 2015

“Marx and the ‘Iron Law of Wages,’” December 29, 2015.

“Engels on Subsistence Wages,” December 21, 2015.

BIBLIOGRAPHY
Allen, Robert C. 2007. “Engels’ Pause: A Pessimist’s Guide to the British Industrial Revolution” Oxford University, Department of Economics Working Paper No. 315
https://ideas.repec.org/p/oxf/wpaper/315.html

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Clark, Gregory. 2001. “The Secret History of the Industrial Revolution,”
http://faculty.econ.ucdavis.edu/faculty/gclark/papers/secret2001.pdf

Clark, Gregory. 2005. “The Condition of the Working Class in England, 1209–2004,” Journal of Political Economy 113: 1307–1340.

Clark, Gregory. 2007. “What made Britannia great? How much of the rise of Britain to World Dominance by 1850 does the Industrial Revolution explain” in Tim Hatton, Kevin O’Rourke, and Alan Taylor (eds.), Comparative Economic History: Essays in Honor of Jeffrey Williamson. MIT Press, Cambridge. 33–57.

Dühring, Eugen. 1875. Kritische Geschichte der Nationalökonomie und des Sozialismus (2nd edn.). Theobald Grieben, Berlin.

Fabian, George. 2011. Karl Marx: Prince of Darkness. Xlibris Corporation, US.

Lewis, William Arthur. 1954. “Economic Development with Unlimited Supplies of Labour,” Manchester School of Economics and Social Studies 22: 139–191.

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. 1922. “Critique of the Gotha Programme,” in Marx and Daniel de Leon, Critique of the Gotha Programme and Did Marx Err?. National Executive Committee, Socialist Labor Party, New York.

Wood, George H. 1909. “Real Wages and the Standard of Comfort since 1850,” Journal of the Royal Statistical Society 72: 91–103.

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.

Marx’s Letter to Engels of 2 August, 1862 on Prices of Production

A key passage in that letter is here:

“The price so regulated = the expenses of capital, + the average profit (F.I. 10 p.c.), is what Smith called the natural price, cost price, etc. It is the average price to which competition between different trades (by transfer of capital or withdrawal of capital) reduces the prices in different trades. Hence, competition reduces commodities not to their value, but to the cost price, which, depending on the organic composition of the respective capitals, is either above, below or = to their values.”
Marx to Engels, 2 August, 1862
https://marxists.anu.edu.au/archive/marx/works/1862/letters/62_08_02.htm

Look carefully at the passage in yellow highlighting. If this was really always Marx’s private, consistent and honest opinion from 1862 onwards, it only proves how volume 1 of Capital was a deeply dishonest work of propaganda by a deceptive communist ideologue.

Why? Because volume 1 leaves readers with the impression that commodities tend to exchange at their true labour value and that was a real “law” of 19th century capitalism and a serious empirical theory of price determination for that same period of capitalism. The few cryptic statements about prices of production in volume 1 in footnotes do not change this fact, and, if anything, deeply underline Marx’s sleight of hand.

One might defend Marx by arguing that he was a sloppy, inconsistent and confused thinker who either (1) changed his opinions on this subject in the course of his life, swinging back and forwards between two mutually contradictory views or (2) he was guilty of holding inconsistent, contradictory views simultaneously when he wrote volume 1 of Capital, privately holding an opinion he did not uphold in that volume.

But either way Marx is damned.

Engels’ Famous Challenge in the Preface to Volume 2 of Capital on the Transformation Problem

In the introduction to volume 2 of Capital written on May 5, 1885, Engels made this famous challenge:

“The Ricardian school failed about the year 1830, being unable to solve the riddle of surplus-value. And what was impossible for this school, remained still more insoluble for its successor, vulgar economy. The two points which caused its failure were these:

1. Labor: is the measure of value. However, actual labor in its exchange with capital has a lower value than labor embodied in the commodities for which actual labor is exchanged. Wages, the value of a definite quantity of actual labor, are always lower than the value of the commodity produced by this same quantity of labor and in which it is embodied. The question is indeed insoluble, if put in this form. It has been correctly formulated by Marx and then answered. It is not labor which has any value. As an activity which creates values it can no more have any special value in itself than gravity can have any special weight, heat any special temperature, electricity any special strength of current. It is not labor which is bought and sold as a commodity, but labor-power. As soon as labor-power becomes a commodity, its value is determined by the labor embodied in this commodity as a social product. This value is equal to the social labor required for the production and reproduction of this commodity. Hence the purchase and sale of labor-power on the basis of this value does not contradict the economic law of value.

2. According to the Ricardian law of value, two capitals employing the same and equally paid labor, all other conditions being equal, produce the same value and surplus value, or profit, in the same time. But if they employ unequal quantities of actual labor, they cannot produce equal surplus-values, or, as the Ricardians say, equal profits. Now in reality, the exact opposite takes place. As a matter of fact, equal capitals, regardless of the quantity of actual labor employed by them, produce equal average profits in equal times. Here we have, therefore, a clash with the law of value, which had been noticed by Ricardo himself, but which his school was unable to reconcile. Rodbertus likewise could not but note this contradiction. But instead of solving it, he made it a starting point of his Utopia (Zur Erkenntniss, etc.). Marx had solved this contradiction even in his manuscript for his ‘CRITIQUE OF POLITICAL ECOMONY.’ According to the plan of ‘CAPITAL,’ this solution will be made public in Volume III. Several months will pass before this can be published. Hence those economists, who claim to have discovered that Rodbertus is the secret source and the superior predecessor of Marx, have now an opportunity to demonstrate what the economics of Rodbertus can accomplish. If they can show in which way an equal average rate of profit can and must come about, not only without a violation of the law of value, but by means of it, I am willing to discuss the matter further with them. In the meantime, they had better make haste. The brilliant analyses of this Volume II and its entirely new conclusions on an almost untilled ground are but the initial statements preparing the way for the contents of Volume III, which develops the final conclusions of Marx's analysis of the social process of reproduction on a capitalist basis.” (Engels 1907 [1885]: 27–29).

By the phrase the “law of value” Engels means the assumption underlying this problem: that commodities tend to exchange at their true labour values.

The problem can be sketched as follows:

(1) in volume 1 of Capital it is assumed that commodities tend to have prices at their true labour values, so that these prices also reflect the surplus value embodied in the commodities.

(2) in turn surplus value determines profits, and it should follow that in such a system different profit rates prevail reflecting the different surplus values, e.g., an industry with much more constant capital and very little variable capital should have a lower profit rate than a labour-intensive industry with a great proportion of variable capital.

(3) yet, under capitalism, competition supposedly tends to create a uniform average rate of profit and so neither (1) or (2) can be true.

Assumption (1) is crucial.

It was later phrased by Marx in volume 3 in this way:

“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).

By volume 3, Marx tried to argue that this assumption was only an empirical reality in the pre-modern world of commodity exchange, and not in 19th century capitalism where prices of production were the anchors for the price system.

But if it were really the case that Marx in volume 1 of Capital thought that the assumption quoted above only applied to the pre-modern world of commodity exchange, then the whole challenge Engels made to the world in the preface to volume 2 of Capital becomes utterly stupid and makes no sense. For then there simply was no transformation problem. No great problem to solve.

In reality – and this is the crux – Marx left everyone with the impression that volume 1 of Capital was asserting that commodities tended to exchange at their true labour values, and that this was a “law of value” in 19th century capitalism. That is why the transformation problem was raised as a challenge for Marxist theory in the first place.

Engels edited and published volume 2 of Capital in July 1885 (Wheen 2001: 385), but volume 3 of Capital did not appear until November 1894 (Wheen 2001: 385) – nearly ten years later. One wonders whether Engels – as he read the catastrophe that was Marx’s draft of volume 3 – delayed publication when he realised that when it was published it would cause derision and prove that Marx’s law of value in volume 1 was bankrupt. Engels also vehemently refused to relate Marx’s solution to the transformation problem to any private correspondents (even Marxists) or to have it printed separately before the publication of volume 3 (Howard and King 1989: 24–25).

At any rate, when volume 3 was published that is essentially what happened, as reviewers like Achille Loria, Werner Sombart, Conrad Schmidt and Eugen von Böhm-Bawerk pointed to the terrible contradictions.

In his Supplement to volume 3, Engels’ last ditch defence of the “law of value” in volume 1 was to retreat into the idea that commodities only ever tended to exchange for their true labour values in the pre-modern world of commodity exchange and that this had ended between about the 15th and early 19th centuries. But, then, why, if that had been his and Marx’s view all along, had there been any need to make such a big deal of the transformation problem in the first place?

Why did Marx never give a clear and explicit statement in volume 1 of Capital to the effect that the law of value there was not meant to apply to 19th century capitalism? Why did he give example after example implying that 19th century capitalism was subject to the law of value?

BIBLIOGRAPHY
Engels, Friedrich. 1907 [1885]. “Preface,” in Karl Marx, Capital. A Critique of Political Economy. The Process of the Circulation of Capital (vol. 2; trans. by Ernst Untermann from 2nd German edn.). Charles H. Kerr & Co., Chicago, and Swan Sonnenschein & Co., London. 7–29.

Howard, Michael Charles and John E. King. 1989. A History of Marxian Economics. Volume I, 1883–1929. Princeton University Press, Princeton, NJ.

Wheen, Francis. 2001. Karl Marx: A Life. W. W. Norton & Company, New York and London.