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 : 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, ….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.
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,”
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 ), 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 ) (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 : 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 : 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 xve siècle de notre ère » (p. 723). Mais que vaut-elle pour maintenant? ....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 ), as well as other problems.
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 xve 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?”
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.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).
(2) Croce, B. 1900. Materialismo storico ed economia marxistica [Historical Materialism and Marxist Economics]. Remo Sandron Editore. Milan and Palermo.
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 ) 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.Further Reading
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.
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.
“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.
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 Ce, 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 . “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.
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 . “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 . “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.
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,”
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.