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’ Letter to Werner Sombart on the Labour Theory of Value in 1895

On March 11, 1895, Friedrich Engels – only a few months before his death on August 5, 1895 – wrote a letter to the German Historical School economist Werner Sombart (1863–1941) concerning the labour theory of value. Sombart had written the following critical review of Marx’s economic theories:

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.

In this essay, Sombart had said that the labour theory of value as presented in volume 1 of Capital had no place in real life and was not an empirical concept but a purely “mental” one (Boudin 1920: 134).

Engels’ letter is an astonishing insight into what Engels thought in private about the labour value theory in 1895:

“Dear Sir,

Replying to your note of the 14th of last month, may I thank you for your kindness in sending me your work on Marx; I had already read it with great interest in the issue of the Archiv which Dr. H. Braun was good enough to send me, and was pleased for once to find such understanding of Capital at a German University. Naturally I can’t altogether agree with the wording in which you render Marx’s exposition. Especially the definitions of the concept of value which you give on pages 576 and 577 seem to me to be rather all-embracing: I would first limit them historically by explicitly restricting them to the economic phase in which alone value has up to now been known, and could only have been known, namely, the forms of society in which commodity exchange, or commodity production, exists; in primitive communism value was unknown. And secondly it seems to me that the concept could also be defined in a narrower sense. But this would lead too far, in the main you are quite right.

Then, however, on page 586, you appeal directly to me, and the jovial manner with which you hold a pistol to my head made me laugh. But you need not worry, I shall “not assure you of the contrary.” The logical sequence by which Marx deduces the general and equal rate of profit from the different values of s / C = s / (c + v) produced in various capitalist enterprises is completely foreign to the mind of the individual capitalist. Inasmuch as it has a historical parallel, that is to say, as far as it exists in reality outside our heads, it manifests itself for instance in the fact that certain parts of the surplus value produced by capitalist A over and above the rate of profit, or above his share of the total surplus value, are transferred to the pocket of capitalist B whose output of surplus value remains as a rule below the customary dividend. But this process takes place objectively, in the things, unconsciously, and we can only now estimate how much work was required in order to achieve a proper understanding of these matters. If the conscious co-operation of the individual capitalists had been necessary to establish the average rate of profit, if the individual capitalist had known that he produces surplus value and how much of it, and that frequently he has to hand over part of his surplus value, then the relationship between surplus value and profit would have been fairly obvious from the outset and would presumably have already been described by Adam Smith, if not Petty.

According to Marx’s views all history up to now, in the case of big events, has come about unconsciously, that is, the events and their further consequences have not been intended; the ordinary actors in history have either wanted to achieve something different, or else what they achieved has led to quite different unforeseeable consequences. Applied to the economic sphere: the individual capitalists, each on his own, chase after the biggest profit. Bourgeois economy discovers that this race in which every one chases after the bigger profit results in the general and equal rate of profit, the approximately equal ratio of profit for each one. Neither the capitalists nor the bourgeois economists, however, realise that the goal of this race is the uniform proportional distribution of the total surplus value calculated on the total capital.

But how has the equalisation been brought about in reality? This is a very interesting point, about which Marx himself does not say much. But his way of viewing things is not a doctrine but a method. It does not provide ready-made dogmas, but criteria for further research and the method for this research. Here therefore a certain amount of work has to be carried out, since Marx did not elaborate it himself in his first draft. First of all we have here the statements on pages 153-156, III, I, which are also important for your rendering of the concept of value and which prove that the concept has or had more reality than you ascribe to it. When commodity exchange began, when products gradually turned into commodities, they were exchanged approximately according to their value. It was the amount of labour expended on two objects which provided the only standard for their quantitative comparison. Thus value had a direct and real existence at that time. We know that this direct realisation of value in exchange ceased and that now it no longer happens. And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence. A genuinely historical exposition of these processes, which does indeed require thorough research but in return promises amply rewarding results, would be a very valuable supplement to Capital.

Finally, I must also thank you for the high opinion which you have formed of me if you consider that I could have made something better of volume III. I cannot share your opinion, and believe I have done my duty by presenting Marx in Marx’s words, even at the risk of requiring the reader to do a bit more thinking for himself. ...”
Letter, Engels to W. Sombart, from London, March 11, 1895
https://www.marxists.org/archive/marx/works/1895/letters/95_03_11.htm

Let us look at that crucial passage again below:

“When commodity exchange began, when products gradually turned into commodities, they were exchanged approximately according to their value. It was the amount of labour expended on two objects which provided the only standard for their quantitative comparison. Thus value had a direct and real existence at that time. We know that this direct realisation of value in exchange ceased and that now it no longer happens. And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence. A genuinely historical exposition of these processes, which does indeed require thorough research but in return promises amply rewarding results, would be a very valuable supplement to Capital.”

According to Engels, it was only in the distant past when commodity exchanges actually started to begin that labour time was used as a method by which to fix exchange values: it was only then that “value had a direct and real existence.” But then “direct realisation of value in exchange ceased and ... now it no longer happens.” It is remarkable that Engels doesn’t even attempt to defend the idea that abstract socially-necessary labour time determines exchange values in modern capitalism either.

Engels was giving the whole game away in this letter – and admitting that the exposition of the labour theory of value in volume 1 of Capital is a fiction.

Either that or Marx was one of the most incompetent economic writers of all time, for in Chapter 1 of volume 1 of Capital Marx should have carefully qualified his whole account with exactly the type of qualifications that Engels makes in this letter: that only in the ancient world when human beings first started to exchange goods did labour time supposedly determine exchange value. But in that case Marx’s exposition of the labour theory would have been essentially the same as that of Adam Smith:

“In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days’ or two hours’ labour, should be worth double of what is usually the produce of one day’s or one hour’s labour.

If the one species of labour should be more severe than the other, some allowance will naturally be made for this superior hardship; and the produce of one hour’s labour in the one way may frequently exchange for that of two hours’ labour in the other.

Or if the one species of labour requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents will naturally give a value to their produce, superior to what would be due to the time employed about it. Such talents can seldom be acquired but in consequence of long application, and the superior value of their produce may frequently be no more than a reasonable compensation for the time and labour which must be spent in acquiring them. In the advanced state of society, allowances of this kind, for superior hardship and superior skill, are commonly made in the wages of labour; and something of the same kind must probably have taken place in its earliest and rudest period.

In this state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity is the only circumstance which can regulate the quantity exchange for which it ought commonly to purchase, command, or exchange for.” (Smith 1845: 20).

So here we see that the view Engels communicated to Sombart was, more or less, one that could be found in Adam Smith.

How credible is it? Not very. As a matter of fact, Piero Sraffa examined this question in the late 1920s by studying the anthropological and historical literature of his day, such as F. R. Eldridge’s Oriental Trade Methods (1923), Karl Bücher’s Industrial Evolution, Raymond Firth’s Primitive Economics of the New Zealand Maori (1929), and E. E. Hoyt’s Primitive Trade. Its Psychology and Economics (1926) and other works (Kurz and Salvadori 2010: 200–202). Sraffa found no evidence that time and labour played the fundamental role in determining exchange value in non-Western and less economically-developed societies (Kurz and Salvadori 2010: 200–201).

Now the modern reader will no doubt complain that 1920s anthropology was tainted by a certain Western bigotry, prejudice and ignorance and I would not doubt this, but certain facts do still stand out. Bücher (1907: 19), for example, noted that in the absence of modern time-keeping methods, tribal societies seem to face severe difficulties even properly measuring time. How, then, can they have relied on labour time as the fundamental determinant of exchange value in the distant past?

Admittedly, I have not done a detailed survey of the most recent anthropological and historical literature on this question, but a quick look suggests that modern anthropology seems to confirm what Sraffa found, and that subjective utility, reciprocal satisfaction, ceremonial exchange, and fairness play the fundamental role in ancient and non-Western exchange of commodities, not labour time (e.g., Sahlins 1972; Firth 1965: 342; Gregory 2002). Indeed, the non-Western practice of “silent trade” in commodities where the parties do not even meet directly (Dale 2010: 91) appears to make a nonsense of the idea that ancient people determined exchange values in real commodity (and not ceremonial or social) exchange by labour time.

If the modern literature upholds what Sraffa found, then not even Engels’ weak version of the labour theory of value can be taken seriously.

BIBLIOGRAPHY
Boudin, Louis Boudianoff. 1920. The Theoretical System of Karl Marx in the Light of Recent Criticism. Charles H. Kerr, Chicago.

Bücher, Karl. 1907. Industrial Evolution (trans. S Morley Wickett from 3rd German edn.). Henry Holt and Company, New York.

Dale, Gareth. 2010. Karl Polanyi: The Limits of the Market. Polity, Cambridge.

Firth, Raymond. 1929. Primitive Economics of the New Zealand Maori. G. Routledge & Sons, London.

Firth, Raymond. 1965. Primitive Polynesian Economy (2nd edn.). Routledge & K. Paul, London.

Gregory, C. A. 2002. “Exchange and Reciprocity,” in Tim Ingold (ed.), Companion Encyclopedia of Anthropology. Routledge, London and New York. 911–930.

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.

Sahlins, Marshall David. 1972. Stone Age Economics. Aldine-Atherton, Chicago.

Smith, Adam. 1845. An Inquiry Into the Nature and Causes of the Wealth of Nations, Thomas Nelson, Edinburgh.

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.