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thought anticipated Keynes, but even here the discussions in Marx’s Capital are simply obsolete and have long been superseded by modern Post Keynesian theory, and are mainly of historical interest.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.

A Marxist agrees with me on the Labour Theory of Value and Fiat Money!

Well, sort of agrees in the post that can be read here:

Jehu, “Reply to LK: How Labor Theory of Value destroys Fiat ‘Money’,” The Real Movement, June 12, 2015.

My original post is here.

We must remember that for Marx money is a special commodity that itself must have a labour value so it can function as a universal medium of exchange and numéraire. That is the basis by which money can exchange for other produced commodities under the law of value in volume 1 of Capital. But fiat money utterly destroys this basis of Marx’s labour theory of value and his theory of exchange value in volume 1.

It would follow that the trendy modern Marxist idea of the MELT is entirely intellectually bankrupt too, under Marx’s dogmatic metallist theory of money.

In the post above, the Marxist author agrees that modern fiat money has destroyed the ability of money to properly reflect Marx’s labour values. How, then, could Marx’s theory still be right? The answer: modern currency is not really money at all! In addition, prices and labour values diverge as in volume 3, but now fiat money has destroyed even any relation between values and prices of production even as postulated in volume 3 of Capital, since this is (apparently) the trajectory of capitalism as supposedly prophesied by Marx.

What is the worth of this argument? It is refreshingly honest at the very least. But there is a strange fallacy of equivocation in the argument. The words “money” and “currency” are given different meanings: money means a produced commodity with the labour value used as a unit of account and “currency” merely a token symbol for the money commodity.

But actually the basic concept of money does not at all require either the metallist or Marxist mythology that it must be a produced commodity.

The basic definition of money is something which fulfils these three functions:

(1) a medium of exchange;

(2) a unit of account, and

(3) store of purchasing power.

The very idea that money must of necessity be a produced commodity was a delusion and error of economic theory. If fiat money is impossible, then our modern economies would have collapsed decades ago when money was severed from gold in the 1930s for domestic economic transactions, and certainly since the end of Bretton Woods (a system in which gold only had a role in the international payments system anyway).

Marx was fundamentally wrong about money and modern fiat money certainly explodes the law of value in volume 1 of Capital.

Louis Boudin on the Contradiction between Volumes 1 and 3 of Marx’s Capital

From Louis Boudin’s book The Theoretical System of Karl Marx in the Light of Recent Criticism (1920):

“The appearance in 1894 of the third volume of Capital created a sensation in interested circles. While it does not stand in any direct relation to the Revisionist movement, it can hardly be denied that it made its formal argumentation more plausible. The solution of the Great Contradiction contained in the third volume, and the rest of the matter therein contained and intimately connected with this solution, opened the door to no end of discussion as to the relation between the first and third volumes of Capital. So that the problem to many has turned into the question how to reconcile the supposedly opposed doctrines taught in these two volumes of Marx’s life work. The Great Contradiction, in the opinion of many, was not solved, but extended so as to embrace the whole Marxian theory. This was confidently asserted by all the opponents of Marxism, who drew breath. It was heralded from one end of their camp to the other, and it took its classic form in Bohm-Bawerk’s, ‘Karl Marx and the Close of his System.’ The opponents of Marx were not, however, alone in this opinion. The discussion which has continued until the present day has shown that a good many Marxists, of different shades of orthodoxy, shared in this view. So much so, that a Russian Marxist of some prominence and of strict orthodox profession of faith, being unable to reconcile the doctrines laid down in the two volumes, respectively, denied, in his desperation, the genuineness of the ‘unfortunate’ third volume! He claimed that because the third volume was published long after his death, and was compiled from unfinished manuscripts and random notes, Marx appears therein as saying things which he really never intended to say and which are in crass contradiction to his real views, which are contained only in the first volume. Engels’ preface to the third volume is sufficient to show the absurdity of this last assertion. So that there was the great contradiction, which made plausible the assertion that Marx completely abandoned his own theory of value, laid down by him in the first volume, and returned to the theory of the cost of production, of the economists dubbed by him ‘vulgar.’ The half-and-half Marxists, a la Bernstein, would not go so far (timidity and eclecticism being their specialty), and they tried to minimize the discrepancies between the first and third volumes, claiming that Marx did not abandon his theory of value as laid down in the first volume, but merely modified it, on second thought, in the natural course of the evolution of his theory. Modification by evolution, or evolution in modification became their favorite theme.” (Boudin 1920: 131–132).

“Professor Werner Sombart, the noted German economist, best known to English readers through his graceful study ‘Socialism in the 19th Century,’ opened the discussion on the subject soon after the appearance of the third volume in an essay entitled, ‘Some Criticism of the Economic System of Karl Marx.’ ....

According to Sombart, the theory laid down in the third volume of Capital is not much different from the traditional theory of the cost of production. This does not conflict, however, with the theory of value expounded in the first volume, for the simple reason that the labor theory of value was never intended by Marx to represent the actual facts, or, as he puts it, ‘the (Marxian) value does not reveal itself in the exchange relation of the capitalistically-produced commodities.’ Nor does it play any part in the distribution of the yearly product of society. It has no place in real life. Its office is merely that of an aid to our thinking, by means of which we can understand the economic phenomena, and its place is in the mental operations of the economic theorist. In short, ‘it is not an empirical but a mental fact.’ Value, thus banished from economic life into the realms of pure thought, can no longer come into conflict with the gross facts of this life. Its existence is none the less real, at least to the mind of the German scholar who must have been educated on the writings of the great German idealist philosophers.” (Boudin 1920: 133–134).

“Slonimski says: ‘Contrary to all expectations the theory of surplus-value is repeatedly asserted (in the third volume); in reality, however, it is denied by its author and replaced by the old theory with all the familiar elaborations on the cost of production as the only regulators of value. The equality of profits is derived from the phantastic assumption that the capitalists amicably divide among themselves the incomes of the different undertakings, by equalizing the sums of surplus-value which they separately drew from wage-labor, and that this is accomplished either by way of brotherly arrangement or through competition. As to the special surplus-value for which the rival capitalists fight so mercilessly, why that is lost sight of and plays no part either in the income of the individual capitalist, or in the establishment of the rate of profits or in the formation of prices. ….” (Boudin 1920: 136–137).

So Boudin is quite clear that the contradiction between volume 1 and volume 3 of Capital in the law of value was admitted by “a good many Marxists” who “shared in this view.”

Boudin also makes it very clear that the contradiction was as follows:

“In what does this abandonment consist according to the Marx-critics? Stripped of their verbiage the statements of these critics amount to this: In the first volume Marx said (1) that the value of a commodity depends on the amount of labor necessary for its (re)production, and that such value was the point about which its price will oscillate; (2) that the profits of the capitalist, therefore, come from the amount of surplus-value created by his workingmen; and (3) that the cost of production has nothing to do with the value or price of a commodity or the profits of the capitalists. In the third volume, on the other hand, he admits that (i) the price of a commodity may be, and usually is, permanently fixed at, or oscillates about, a point which is different from its value as measured by the amount of labor necessary for its (re)production; (2) that the amount of profits which a capitalist obtains from his capital does not depend upon the amount of surplus-value produced by his own workingmen; and (3) that the old theory of cost of production as to value, price and profit holds good.” (Boudin 1920: 140).

This description of Marx’s “law of value” in volume 1 of Capital is correct, as I have shown here.

That the labour value of a commodity “was the point about which its price will oscillate” in volume 1 is shown by Marx’s statement as follows:

“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).

If Marx didn’t mean this, then why did he write it?

And as Boudin notes, since many Marxists themselves later found a straightforward contradiction between volume 1 and volume 3 of Capital in the law of value, it follows that they must have interpreted Marx to have meant what he wrote here in volume 1.

Moreover, we know that Engels strongly protested against Werner Sombart’s view that the law of value in volume 1 had no place in real life, was not an empirical concept and was a purely “mental” one (Boudin 1920: 134; see Engels’ letter here). Engels’ attempt in 1895 to argue that the law of value in volume 1 had still been an empirical reality in an “historical” sense is very telling (see Engels 1991 [1895]). It is difficult to see why Engels did this if the law of value in volume 1 – that commodities tend to be sold at their true labour values – had only ever been interpreted as a purely abstract theory, not referring to reality.

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

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.

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.

The Critical Responses to Volume 3 of Marx’s Capital and the Early Development of Marxism

Marx published volume 1 of Capital in 1867. He never published any further volumes of the work in his lifetime. Early reviews and critiques of volume 1 included Eugen Dühring (1867; 1871; 1875), Carl Knies (1873), Maurice Block (1872; 1884a; 1884b), Wilhelm Roscher (1874), Achille Loria (1884), Eugen von Böhm-Bawerk (1884); Philip H. Wicksteed (1884 = Wicksteed 1933), Richard Theodore Ely (1883), George Bernard Shaw (1885), Knut Wicksell (1893 = Wicksell 1954) and Vilfredo Pareto (1893).

In volume 1, Marx had set out a law of value based on the labour theory of value, in which socially necessary labour time was the anchor for the price system in modern capitalism (see here). There is no convincing evidence that (1) Marx regarded this law of value as a totally abstract “simplifying assumption” or that (2) he did not mean to apply it to the advanced industrial capitalism of the 19th century as an empirical explanation of price determination (despite two blatantly contradictory footnotes: footnote 24 in Chapter 5 and footnote 9 in Chapter 9 of Capital).

But when volume 3 of Capital was edited and published by Engels critics quickly pointed out that the theory of value in volume 3 was radically inconsistent with that of volume 1.

Hostile critics of Marx had declared that volume 3 of Capital utterly contradicted and overthrew the theory of value in volume 1. In fact, it seems that Conrad Schmidt was one of the first to point out the severe contradiction between commodities tending to exchange at their labour values and an average rate of profit in his 1889 work Die Durchschnittsprofitrate auf Grundlage des Marxschen Wertgesetzes [The Average Rate of Profit on the basis of Marx’s Law of Value] (Stuttgart, 1889) (see Böhm-Bawerk 1949 [1896]: 28, with n. 2).

The many critics who pointed to the contradictions between volume 1 and volume 3 were noted quite casually and matter-of-factly even by early Marxists.

For example, Georgi Plekhanov, in a review of Benedetto Croce’s Historical Materialism and the Economics of Karl Marx mentioned this:

“Indeed, the offspring of that remarkable specimen of human nature are most numerous. They include all those ‘critics’ of Marx who believe in the existence of a contradiction between Volumes One and Three of Capital. In a review of Mr. Frank’s book Marx’s Theory of Value and Its Significance …, we showed that, in reality, there is no contradiction between the two volumes, ….

For Rodbertus, the entire law of value consisted in the exchange relations of commodities being determined by the amount of labour spent on the production of each of them. In other words, Rodbertus confused the operation of the law with one of the modes (‘forms’) of its operation determined in each particular period by society’s economic structure. The same error is repeated by all who think that in Volume Three of Capital Marx discarded his theory of value.” .
Plekhanov, Georgi. 1901. “On Croce’s Book,”
https://libcom.org/library/groces-book-georgi-plekhanov

So here in 1901 Plekhanov referred to “all those” or “all those critics” who complained of the contradictions in the law of value in Capital, and it is clear that there were many, not few.

Plekhanov even refers to one: the Russian Simeon Frank whose Teoriya tsennosti Marksa i yeyo znachenie [Marx’s Theory of Value and its Significance] (1900) discussed the contradiction (and Frank abandoned Marxism in the later 1890s for a non-Marxist socialism).

The most famous discussion of the contradiction was by the Austrian economist Eugen von Böhm-Bawerk whose critique appeared in 1896 in the essay “Zum Abschluss des Marxschen Systems” (Böhm-Bawerk 1949 [1896]), though it was clearly noted by Werner Sombart (1894), Achille Loria (1895; English trans. Loria 1920), and Conrad Schmidt (1895).

So what did Marxists do in response to this criticism of contradiction?

The first apologetic response is one that has proven popular with modern Marxists: that the “law of value” in volume 1 – that commodities tend to exchange at their true labour values – was a purely abstract, theoretical or logical concept, and not meant to be applied to the real world at all. This modern Marxist apologetic nonsense – that volume 1 of Capital is a purely abstract theory with simplifying assumptions not meant to be taken as an empirical theory in any sense – is still maintained by many modern Marxists (e.g., Baumol 1974: 53–54).

This view was originally developed by Werner Sombart (1894), Conrad Schmidt (1895) and Wilhelm Lexis (1895), all of whom rejected the “historical” solution to the transformation problem as laid out by Engels in his May 1895 “Supplement and Addendum” to Volume 3 of Capital (Engels 1991 [1895]) (see Marchionatti 1998: 14–15).

Engels even wrote a letter to Werner Sombart of March 11, 1895 trying to convince him of the “historical” interpretation of the law of value, but Sombart was not convinced.

Conrad Schmidt in his 1895 review of volume 3 (Schmidt 1895) went so far as to declare that that the labour theory of value was a “necessary fiction” (Engels 1991 [1895]: 1032), a formulation which Engels strongly objected to (Marchionatti 1998: 16).

This purely abstract or imaginary later Marxist interpretation of value is summed up well by Wilhelm Lexis in his review of volume 3 of Capital:

“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. The quarter of wheat and a cwt. of iron do not therefore exchange for each other, because in both of them there is the same quantity of jellified labor. The empirical derivation of his definition which Marx gave in the first volume thus disappears. He has simply decreed a priori that the quantity of socially necessary labor embodied in a commodity shall be for him the measure of its value. He admits that the actual prices, or, as he calls them, the production prices, of individual commodities, do not conform to his law of value. Yet he wishes to preserve the validity of that law for the total of commodities produced, in which he cannot succeed, simply because there is no other quantum of commodities to be compared with this total mass.” (Lexis 1895: 11–12).

Engels protested against this, and tried to defend Marx and save the “law of value” in volume 1 as an empirical concept by confining it to the pre-modern world of commodity exchange (on Engels’ views, see here). But few were convinced. Some few Marxists have followed Engels, such as Rudolf Hilferding (Hilferding 1949 [1904]: 162–172), Robert Wilbrandt (1920) and Ronald Meek (1973: 198–200).

However, most Marxists and socialists sympathetic to Marxism shunned Engels’ own “historical” apologia (e.g., Bernstein 1909: 30).

G. Sorel complained in 1897:

“En 1894, F. Engels a publié le troisième volume du Capital; les professeurs allemands W. Sombart et C. Schmidt firent une critique approfondie de ce livre et dirent que la théorie de la valeur est d'ordre purement logique (Sombart), ou une hypothèse (Schmidt). Engels écrivit, durant les derniers mois de sa maladie, un article important destiné à éclaircir les difficultés soulevées: la traduction a paru dans le Devenir social (novembre 1895): on y lit que « la loi de la valeur a régné durant une période de cinq à sept milliers d'années, qui s’étend du commencement de l’échange transformant les produits en marchandises jusqu’au xv^e siècle de notre ère » (p. 723). Mais que vaut-elle pour maintenant? ....

On voit que la question est fort compliquée. Si on admet l’interprétation d’Engels, comment peut-on se servir, pour raisonner sur l’économie capitaliste, d’une loi ayant perdu sa valeur depuis le xv^e siècle? Que signifie la théorie de Marx?” (Sorel 1897: 222–223).

“In 1894, F. Engels published the third volume of Capital; the German professors W. Sombart and C. Schmidt made a thorough review of this book and they said that the theory of value is purely logical (Sombart), or a hypothesis (Schmidt). Engels wrote, during the last months of his illness, an important article to clarify these difficulties: the translation [sc. of the article] appeared in le Devenir social (November 1895): there we read that ‘the law of value prevailed during a period of five to seven thousand years, from the beginning of trade transforming products into commodities until the fifteenth century AD’ (p. 723). But what worth is this [law] today? ….

We see that the issue is very complicated. If we accept the interpretation of Engels, how can we use a law having lost its value since the 15th century to reason about the capitalist economy [today]? What does Marx’s theory mean?”

Many Marxists agreed, and therefore came to see the law of value as a pure abstraction and not even needing empirical verification (Marchionatti 1998: 17). This was also the major apologetic response to Eugen von Böhm-Bawerk, who pointed to the contradiction between volume 1 and volume 3 of Capital in his essay “Karl Marx and the Close of His System” (1949 [1896]), as well as other problems.

Despite these apologetic strategies, Marxism was hit by an intellectual crisis in the 1890s (Marchionatti 1998: 20).

As Marxism developed in the 20th century, a number of Marxists and socialists took a “revisionist” view of Marx, some even accepting some of Böhm-Bawerk’s criticism, and developing a hybrid marginalist–Marxist synthesis to reform Marxist economic theory (Marchionatti 1998: 20). From this emerged more and more socialists not committed to Marx’s dogmatic economic theories.

In particular, two books greatly influenced the subsequent development of Marxism:

(1) Bernstein, Eduard. 1899. Die voraussetzungen des sozialismus und die aufgaben der sozialdemokratie [The Preconditions of Socialism and the Tasks of the Social Democracy]. J.H.W. Dietz, Stuttgart.

(2) Croce, B. 1900. Materialismo storico ed economia marxistica [Historical Materialism and Marxist Economics]. Remo Sandron Editore. Milan and Palermo.

Bernstein, in particular, abandoned the view that capitalism would led to progressive misery and poverty for the working class, and instead accepted that capitalism was leading to economic and social progress. Socialist policies could be brought about by democratic politics, not by Marx’s authoritarian dictatorship of the proletariat (Marchionatti 1998: 20). Bernstein regarded labour value as “purely abstract concept” (Bernstein 1909: 29) that did not explain determination of prices, nor did surplus value explain exploitation (Marchionatti 1998: 20).

Croce downplayed historical materialism and thought of it more as a historical method, and also accepted marginalist ideas on prices (Marchionatti 1998: 20).

Meanwhile, in Russia Mikhail Ivanovich Tugan-Baranovsky (1865–1919), a Russian “Legal Marxist,” also abandoned dogmatic aspects of Marx’s theory and, like Peter Berngardovich Struve (1870–1944), favoured a moderate socialism.

In 1900, Tugan-Baranovsky wrote a paper called “Trudovaya Tsennost’ i Pribyl” [“Labour Value and Profit”] (Tugan-Baranovsky1900), parts of which are translated in Howard and King (1995).

Tugan-Baranovsky had a fascinating view on Marx and the labour theory:

“Labour value is the same sort of fiction in the whole capitalist economy as it is in the individual private economy. Marx, wishing to preserve real significance for labour value, transferred it to the class distribution of national economy and was led to a colossal mistake. It led to the sham law that the profit rate tends to fall, which contradicts the known facts and is, theoretically, completely illogical. It led to the astonishing conclusion that the higher labour productivity, the lower the capitalist’s profit, from which it could only be concluded that the capitalist has an interest not in increasing labour productivity, but in reducing it to the barest minimum.” (Tugan-Baranovsky 1900: 621, quoted in Howard and King 1995: 244).

If Marx had only lived to actually write his own mature views in volume 3 of Capital instead of dying and leaving Engels to prepare it, Tugan-Baranovsky suggested, Marx would probably have abandoned his law of value altogether (Howard and King 1995: 244).

Tugan-Baranovsky further argued that the concepts of constant and variable capital have no basis, and that machines create commodities and profits, and machines are the same as workers in this respect (Howard and King 1995: 245–246).

In Austria, Rudolf Hilferding in a 1904 response to Böhm-Bawerk (1896) called “Böhm-Bawerk’s Criticism of Marx” (Hilferding 1949 [1904]) tried to defend Engels’ “historical” interpretation of the law of value (Marchionatti 1998: 25), but this did not seem to get much support.

In America, the revisionist Louis Boudianoff Boudin in The Theoretical System of Karl Marx in the Light of Recent Criticism (1920) also appeared to concede the labour theory of value was a theoretical abstraction.

Another theoretical revolution in Marxist thought came with the work of Ladislaus von Bortkiewicz (1868–1931).

Ladislaus von Bortkiewicz argued that two of the three aggregate equalities defended by Marx in volume 3 of Capital fail, and that the sum of surplus value = sum of profits quality cannot be defended unless under very special assumptions (see Bortkiewicz 1906; 1907a; 1907b; 1907c; English translations in Bortkiewicz 1949 and 1952; see also here). Even worse, Bortkiewicz’s work suggested that the tendency to a falling rate of profit is wrong too (Kliman 2006: 47).

Bortkiewicz’s new model adopted a dual-system view that contended that labour values and prices of production are determined entirely separately, so that the transformation problem is avoided (Nitzan and Bichler 2009: 108).

When the work of von Bortkiewicz was translated and become known in the West, a number of Marxists adopted his view. Paul M. Sweezy (1910–2004), the author of The Theory of Capitalist Development. Principles of Marxian Political Economy (1946, London), was the most influential.

Appendix: Other Reviews and Critiques of Marx
A number of other late 19th and early 20th century reviews and critiques of Marx’s theories are as follows:

Butlin, F. 1895. Review of Das Kapital by Karl Marx, The Economic Journal 5.18 (June): 249–251.

Mühlpfort, Wolfgang. 1895. “Karl Marx und die Durchschnittsprofitrate,” Jahrbücher für
Nationalökonomie 65: 92–99.

Graziadei, A. 1894a. “La teoria del valore di Cario Marx (intenerito nella polemica Soldi-Colletti),” La Critica Sociale 4.19: 296–297 and 20: 317–320.

Graziadei, A. 1894b. “La teoria del valore di Carlo Marx e di Achille Loria,” La Critica Sociale 4.22: 347–349.

Graziadei, A. 1895a. “A proposito del III volume del Capitale (Risposta al Professor Schmidt),” Critica Sociale5.18: 72–74.

Graziadei, A. 1895b. “Sopralavoro e sopravalore – L’indipendenza della teoria del profitto dalla teoria del valore,” La Critica Sociale 5.19: 296–297.

Bulgakov, S. N. 1895. “Trety Tom ‘Kapitala’ K. Marksa” [The Third Volume of Marx’s ‘Capital’), Russkaya Mysl 3: 1–20.

Labriola, Arturo. 1895. “La teoria marxistica del valore e il saggio medio del profitto,” La Critica Sociale 5.3: 43–46.

Labriola, Arturo. 1897. “La teoria marxistica del valore (A proposito di alcune critiche recenti),” La Riforma Sociale 7.4: 213–256.

Labriola, Arturo. 1899. La teoria del valore di C. Marx. Studio sul III libro del “Capitale”. Remo Sandron, Milano-Palermo.

Lange, Ernst. 1897. “Karl Marx als volkswirtschaftlicher Theoretiker,” Jahrbücher für Nationalökonomie und Statistik 69.4: 540–578.

Komorzynsky, J. V. 1897, “Der dritte Band von Carl Marx ‘Das Kapital’: eine Kritische Abhandlung über die Arbeitswerttheorie und die Socialistische Lehre vom Capitalsertrage,” Zeitschrift für Volkswirtschaft, Socialpolitik und Verwaltung 6:2: 242–299.

Winiarski, L. 1897. “Etude critique sue le troisieme volume du Capital de Karl Marx,” Revue d’Economie Politique 11.5 (May): 423–465.

Diehl, K. 1898. Über das Verhältnis von Wert und Preis im ökonomischen System von Karl Marx. Fisher, Jena.

Dmitriev, V. K. 1898–1904. Economiceskie Ocerki. Moscow. (= Economic Essays on Value, Competition and Utility. Cambridge Univcrsity Press, Cambridge, 1974).

Veblen, Thorstein. 1906. “The Socialist Economics of Karl Marx and His Followers,” The Quarterly Journal of Economics 20.4: 575–595.

Veblen, Thorstein. 1907. “The Socialist Economics of Karl Marx and His Followers,” The Quarterly Journal of Economics 21.2: 299–322.

Simtkhovich, V. G. 1908–1912. “Marxism versus Socialism,” Political Science Quarterly 23.2: 193–219; 23.4: 652–689; 24.2: 236–268; 24.4: 641–666; 25.3: 393–419; 27.1: 73–91 and 27.4: 605–630.

Skelton, Oscar Douglas. 1911. Socialism: A Critical Analysis. Houghton Mifflin Co., Boston and New York.
https://archive.org/details/socialismacriti01skelgoog
https://archive.org/details/socialismcritica00skeluoft

Schumpeter, Joseph A. 1914. “Epochen der Dogmen- und Methodengeschichte,” in M. Weber et al. Grundriss der Sozialökonomik (vol. 1). J.C.B. Mohr-Siebeck, Tübingen. = Schumpeter, Joseph A. 1954. Economic Doctrine and Method: An Historical Sketch (trans. R. Aris). George Allen & Unwin, London.
https://mises.org/library/economic-doctrine-and-method-historical-sketch

Further Reading
“The Historical Development of Marxist Interpretations of the Law of Value,” January 31, 2016.

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

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

Bernstein, Eduard. 1899. Die Voraussetzungen des Sozialismus und die Aufgaben der Sozialdemokratie. J.H.W. Dietz, Stuttgart.

Bernstein, Eduard. 1909. Evolutionary Socialism: A Criticism and Affirmation (trans. Edith C. Harvey). Independent Labour Party, London.

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

Block, Maurice. 1872. Les théoriciens du socialisme en Allemagne. Librairie de Guillaumin et C^e, Paris.

Block, Maurice. 1872. “Les théoriciens du socialisme en Allemagne,” Journal des Economistes 27: 5–38.

Block, Maurice. 1884a “Le Capital de Karl Marx: Dernières observations,” Journal des Economistes 10: 130–136.

Block, Maurice. 1884b. “Le Capital de Karl Marx, à propos d’une anticritique,” Journal des Economistes 12: 466–474.

Böhm-Bawerk, E. von. 1884. Kapital und Kapitalzins. Erste Abteilung: Geschichte und Kritik der Kapitalzins-Theorien. Wagner’schen Universität-Buchhandlung, Innsbruck.

Böhm-Bawerk, Eugen von. 1890. Capital and Interest: A Critical History of Economical Theory (vol. 1; trans. William Smart). Macmillan, London.

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.

Bortkiewicz, L. von. 1906. “Wertrechnung und Preisrechnung im Marxschen System I,” Archiv für Sozialwissenschaft und Sozialpolitik 23: 1–50.

Bortkiewicz, L. von. 1907a. “Wertrechnung und Preisrechnung im Marxschen System II,” Archiv für Sozialwissenschaft und Sozialpolitik 25: 10–51.

Bortkiewicz, L. von. 1907b. “Wertrechnung und Preisrechnung im Marxschen System III,” Archiv für Sozialwissenschaft und Sozialpolitik 25: 445–488.

Bortkiewicz, L. von. 1907c. “Zur Berichtigung der grundlegenden theoretischen Konstruktion von Marx im 3. Band des ‘Kapital,’” Jahrbücher für Nationalökonomie und Statistik 34: 319–335.

Bortkiewicz, L. von. 1949. “On the Correction of Marx’s Fundamental Theoretical Construction in the Third Volume of Capital,” 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. 197–221.
https://mises.org/library/karl-marx-and-close-his-system

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

Croce, Benedetto. 1900. Materialismo storico ed economia marxistica. Remo Sandron Editore. Milan and Palermo.

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

Dühring, Eugen. 1867. “Marx, Das Kapital, Kritik der politischen Oekonomie, 1. Band, Hamburg, 1867,” Ergänzungsblätter zur Kenntniß der Gegenwart, pp.182–186.

Dühring, Eugen. 1871. Kritische Geschichte der Nationalökonomie und des Sozialismus. Grieben, Berlin.

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

Ely, Richard Theodore. 1883. French and German Socialism in Modern Times. Harper, New York.

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.

Howard, Michael and John King. 1995. “Value Theory and Russian Marxism before the Revolution,” in I. Steedman (ed.), Socialism and Marginalism in Economics 1870–1930. Routledge, London and New York. 224–257.

Kliman, Andrew. 2006. Reclaiming Marx’s ‘Capital’: A Refutation of the Myth of Inconsistency. Lexington Books, Lanham.

Knies, Carl Gustav Adolf. 1873. Geld und Credit. Weidmannsche Buchhandlung. Berlin.

Knies, Carl Gustav Adolf. 1885. Geld und Credit. Weidmannsche Buchhandlung. Berlin.
https://archive.org/details/geldundcredit01knieuoft

Loria, Achille. 1884. “Le Capital de Karl Marx et la Critique de M. Block,” Journal des Economistes 10: 137–139.

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

Loria, Achille. 1920. Karl Marx. (trans. Eden and Cedar Paul), George Allen and Unwin Ltd., London.

Marchionatti, Roberto. 1998. “Introduction,” in Roberto Marchionatti (ed.), Karl Marx: Critical Responses. Routledge, London. 1–42.

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.

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

Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study or Order and Creorder. Routledge, Abingdon, UK and New York.

Pareto, Vilfredo. 1893. “Introduction,” in K. Marx, Le Capital. Extraits fait par P. Lafargue. Guillaumin, Paris. pp. iii–lxxx.

Pareto, Vilfredo. 1902–1903. Les Systèmes Socialistes. M. Giard, Paris.

Plekhanov, Georgi. 1901. “On Croce’s Book,”
https://libcom.org/library/groces-book-georgi-plekhanov

Roscher, Wilhelm Georg Friedrich. 1874. Geschichte der Nationalökonomie in Deutschland. R. Oldenbourg, Munich.

Schmidt, Conrad. 1889. Die Durchschnittsprofitrate auf Grundlage des Marxschen Wertgesetzes [The Average Rate of Profit on the basis of Marx’s Law of Value]. Stuttgart.

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

Shaw, George Bernard. 1885. “The Jevonian Criticism of Marx,” To-day n.s. 3 (January): 22–26.

Shaw, G. Bernard (ed). 1889. Fabian Essays in Socialism. Fabian Society, London.

Shaw, George Bernard. 1933. “The Jevonian Criticism of Marx,” in Philip H. Wicksteed, The Common Sense of Political Economy and Selected Papers and Reviews on Economic Theory. Routledge & Kegan Paul Ltd, London. 724–730.

Steedman, Ian. 1995. Socialism and Marginalism in Economics 1870–1930. Routledge, London.

Sweezy, Paul M. 1946. The Theory of Capitalist Development. Principles of Marxian Political Economy.. Dennis Dobson, London.

Tugan-Baranovsky, M. I. 1900. “Trudovaya Tsennost’ i Pribyl” [“Labour Value and Profit”], Nauchnoe Obozrenie 3: 607–634.

Wicksell, Knut. 1893. Über Wert, Kapital und Rente: nach den neueren nationalokonomischen Theorien. Fischer, Jena.

Wicksell, Knut. 1954. Value, Capital and Rent (trans. S. H. Frowein). George Allen & Unwin, London.

Wicksteed, Philip H. 1884. “The Marxian Theory of Value. Das Kapital: A Criticism,” To-Day n.s. 2 (October): 388–409.

Wicksteed, Philip H. 1933. The Common Sense of Political Economy and Selected Papers and Reviews on Economic Theory. Routledge & Kegan Paul Ltd, London.

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

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

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

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

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

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

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

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

And that is spot on.

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

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

“Socially Necessary Labour Time is the only Source of Value”: What Does this even Mean?

The following proposition is asserted as true by Marxists (e.g., Foley 1986: 16):

Proposition 1: Socially necessary labour time is the only source of value.

Marx asserted this numerous times, though not necessarily in these words, and here are some examples:

“A use-value, or useful article, therefore, has value only because human labour in the abstract has been embodied or materialised in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labour, contained in the article.” (Marx 1906: 45).

“Since the magnitude of the value of a commodity represents only the quantity of labour embodied in it, it follows that all commodities, when taken in certain proportions, must be equal in value.” (Marx 1906: 53).

“We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour-time socially necessary for its production. Each individual commodity, in this connexion, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value.” (Marx 1906: 46).

Sometimes Marx refers to the value of a commodity solely as the congealed or embodied socially necessary labour in it (Marx 1906: 59). Unfortunately for Marx even this assertion is contradicted by his own statements elsewhere in volume 1 of Capital, where he argues that a commodity cannot even have a proper labour value unless being an object of utility:

“Lastly, nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.” (Marx 1906: 48).

But let us put aside this devastating contradiction (on which, see here), to focus on another issue.

What did Marx mean by the word “value,” and what meaning does the word “value” have in Proposition 1?

It might be understood in the following way:

Proposition 2: Socially necessary labour time is the only source of exchange value.

However, this is blatantly false. We know that prices and exchange ratios are not determined by Marx’s concept of socially necessary labour time.

In modern capitalism, we find (1) flexprice markets and (2) cost-based mark-up pricing. Flexprices tend to be strongly influenced by supply and demand, and can be seen in auction or auction-like markets. Demand is, then, a necessary source of the existence of an exchange value. Secondly, mark-up prices are based on average unit costs of a firm plus a profit mark-up and based on an estimated or target rate of output or sales volume. But once again demand is also a necessary source of the existence of an exchange value or price of this type.

Even Marx admitted that products with no labour value can fetch exchange value too, like uncultivated land or non-reproducible commodities (Marx 1906: 115; Marx 1906: 115; Marx 1991: 772), so that this in itself refutes Proposition 2.

So clearly Proposition 2 is false.

However, Proposition 1 might be interpreted or re-interpreted as follows:

Proposition 3: Socially necessary labour time is the only source of produced output commodities.

Proposition 4: Socially necessary labour time is the only source of money profits.

Again, these are false.

To produce an output commodity, we need more than labour. If a business wants to make bread, it needs wheat flour. It does not matter how much labour the business has, flour from wheat is a physically necessary condition to make bread, and is therefore a necessary condition for bread.

Machines are also very frequently indispensable capital goods in modern production, and without machines many output commodities would not be possible, no matter how much labour is available (e.g., an airline needs aeroplanes and a shipping service needs ships).

Marx himself in effect concedes this when he say that labour is not the only source of use values:

“The use-values, coat, linen, &c, i. e., the bodies of commodities, are combinations of two elements—matter and labour. If we take away the useful labour expended upon them, a material substratum is always left, which is furnished by Nature without the help of man. The latter can work only as Nature does, that is by changing the form of matter. Nay more, in this work of changing the form he is constantly helped by natural forces. We see, then, that labour is not the only source of material wealth, of use-values produced by labour. As William Petty puts it, labour is its father and the earth its mother.” (Marx 1906: 50).

That is, natural resources are a necessary source for the production of use values.

To turn to Proposition 4, it too is false. In order to get money profits, a business needs agents who will buy its output commodities with money and so there needs to be demand for the commodities and money to buy them at a price allowing the business to make a profit. Even worse, businesses can obtain money profits from the sale of products, which, as even Marx admits, have no labour value, such as uncultivated land or non-reproducible commodities. It cannot be that socially necessary labour time is the only source of profit.

So what, then, does Proposition 1 mean?

In reality, it ultimately reduces to this proposition:

Proposition 1a: Socially necessary labour time is the only source of embodied socially necessary labour time.

This is because Marx understands his concept of “value” merely as socially necessary labour time, embodied in commodities. While one might interpret this as an empirical proposition, it seems to be tautological or verge on tautology (and since, under Marx’s own theory, embodied socially necessary labour requires a physical commodity with a use value, it would seem that, even if defended as an empirical proposition, it is dubious, as argued here).

However, Proposition 1a can be further reduced to this statement as follows:

Proposition 1b: The concept of socially necessary labour time is contained in the concept of the embodied socially necessary labour time.

However, Proposition 1b is an empirically-empty tautology, an explicitly analytic a priori proposition which is tautologous, and Proposition 1a.

What use is that?

So we are left with the original proposition which can be reduced to this form:

Proposition 1b: The concept of socially necessary labour time is contained in the concept of the embodied socially necessary labour time.

As we have seen, this is an empirically-empty tautology.

It is of no use unless the Marxist can demonstrate that socially necessary labour time is an empirical concept in the sense Marx requires: that it can be properly defined as a homogeneous unit, and that all heterogeneous types of human labour can aggregated or compared using the unit.

This is clear from Marx’s statement as follows:

“The labour … that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power. The total labour-power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour-power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour-power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary. The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.” (Marx 1906: 45–46).

Marx states here that a unit of social necessary labour time is homogeneous and can be used to aggregate the labour values of all commodities.

But let us return to Proposition 1b (and by implication Proposition 1a). In reality, this proposition is as worthless as the following proposition:

Proposition 5: The concept of the Wicksellian natural rate of interest is contained in the concept of the equilibrium Wicksellian natural rate of interest.

A neoclassical might very well assert this proposition and defend it as a logical truth, that is, as an analytic a priori proposition. But what use is that? The neoclassical must prove that the Wicksellian natural rate of interest is not only a coherent and properly definable concept, but also a real and empirically proven phenomenon in capitalism that has causal power.

But both the Wicksellian natural rate of interest and Marx’s strict concept of labour value as socially necessary labour time are empirically irrelevant, and, even worse for Marx, socially necessary labour time cannot even be properly defined and measured, unless one can show exactly how to reduce all heterogeneous types of human labour to a common homogeneous unit.

Appendix: Marx in A Contribution to the Critique of Political Economy (1859) on Labour Value
In A Contribution to the Critique of Political Economy (1859), Marx made a statement even more extreme than in volume 1 of Capital:

“Since the exchange value of commodities is, in fact, nothing but a mutual relation of the labors of individuals – labors which are similar and universal – nothing but a material expression of a specific social form of labor, it is a tautology to say that labor is the only source of exchange value and consequently of wealth, in so far as the latter consists of exchange values.” (Marx 1904 [1859]: 31–32).

This is an extraordinary statement which, as far as I can see, is far beyond anything even in volume 1 of Capital, which at least acknowledged that exchange values are also affected by supply and demand.

Further Reading
“The Two Epistemological Ways to Interpret the Labour Theory of Value,” March 30, 2015.

BIBLIOGRAPHY
Foley, Duncan K. 1986. Understanding Capital: Marx’s Economic Theory. Harvard University Press, Cambridge, Mass. and London.

Marx, Karl. 1904 [1859]. A Contribution to the Critique of Political Economy. Charles H. Kerr & Company, Chicago.

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 Fembach). Penguin Books, London.