William J. Blake: An American Looks at Karl Marx
Every proposition of Marx has been subject to severe and widespread criticism. The foundations, such as the theory of value and of surplus-value, have been attacked most often, but other sections have been reviewed, mostly unfavorably. The law of accumulation, the centralization of capital, the diminution of small enterprise, the theory of agricultural capital, of the increasing misery of the workers, the concept of rent, of interest, profits, wages, have all been assailed. Some of the attacks have been theoretical but many have utilized statistics.
Deepest of all are the criticisms of Marx’s very foundations. His method has been assailed as metaphysical, as deductive, as wishful thinking, as sterile. He has been accused of vulgar Messianism, of teleology,1 of nominalism2 in philosophy.
His dialectical materialism and historical materialism have been challenged not only as to truth and scope, but above all as to whether they were needed for his doctrine. Many socialists have held that a critique of capitalism does not demand the elaborate theoretical structure of Marx.
On ethical grounds, too, he has been rebuked. Class hatred, hedonism3 have been singled out by idealists. It is denied that the notions of capitalism and of class, his two historic counters, are definable. Those who believe that there is a capitalism, in his sense, accuse him of seeing it out of perspective; they assert that its present difficulties are those of youth, not, as they say he thought, of senile decay. In Germany and Austria and Russia the criticism has filled library shelves, and generally on the European continent it has been extensive. In the vortex of Marxian discussion, for example, practically every intellectual in Italy at some time became involved.
No other economist has been the target of so many shafts. The man has not escaped, either. Anarchists remember him for his humiliation of their precursors, Proudhon and Bakunin. Utopians have declined to accept his system as transcending their three masters, Saint-Simon, Fourier, Owen. Marx has been denounced for querulousness, hair-splitting, tyranny, brutality to intellectual opponents. Some of his own followers baffled by the rejection of almost all his ideas by the learned world, have ended by asking for a revision of some aspects of his system.
Böhm-Bawerk
The most elaborate criticism has come, of course, from the academic chair. The lion of anti-Marxists, among professional economists, is E. V. Böhm-Bawerk, head of the “Austrian school” of economics. His first examination of Marx was a section of his masterpiece Capital and Interest, a historical and critical summary of all theories of interest. Marx and Rodbertus are considered to be the protagonists of the exploitation theory of interest.
For Böhm-Bawerk the theory of surplus-value is practically coincident with a theory of interest. He reviews the various explanations that have been given since the ancient world as to how money begets more money. He states categorically that among the dozens of theories advanced, about the lowest place must be assigned to that of Marx. There is an animus in this statement that is beneath the academic dignity and scholastic excellence of the man.4
Later Böhm-Bawerk returned to a more fundamental examination of Marx in his Positive Theory of Capital, in which he opposed an elaborate system of his own as the comprehensive explanation of all economic fundamentals. In 1896, in an aggressive study, he became the most articulate of those who saw the bankruptcy of Marxian thought in the theory of the average rate of profit as against the notion of surplus-value. His essay is summary; its title, Karl Marx and the Close of His System.
Böhm-Bawerk anticipated nearly all the attacks on Marxism from the viewpoint of those who hold political economy to center on a subjective theory of value. On the whole, little has been added to his case by other critics; their important contributions are outside of the theories he chose to contest.
The Methods of the Austrian School
A serious difficulty arises at this point. Böhm-Bawerk is a critic of Marx and the following sketch first marshals all his objections without comment. But a critical examination is not merely negative. Böhm-Bawerk has an alternative system of thought on which he bases his reasoning. If this book were to give his system in detail it would bulk far too large, for it would have to give every system other than the Marxian to explain the case of every school against Marx. A compromise has to be worked out. As much will be given of the positive views of these critics, only, as is necessary to give fullness and life to their rejoinder to Marx.
The so-called Austrian school is rather misnamed. The ideas which it carried to a high level were originated by many thinkers, such as Walras in Geneva, Jevons in England, Karl Menger in Austria, all about 1871 (and these in turn are derived from an obscure but profound German thinker, Gossen), and many of its ideas were adumbrated in France by Cournot and Dupuit, from 1838 on.5
This school was identified with a mathematical approach. It was impatient with the pure deductions of the classical school, whose abstract qualities it exaggerated. It regarded the historical school as deficient in guidance, since it formulated no certain conclusions. It rejected the pale and apologetic eclecticism and theory of “harmonies” which Marx so scornfully termed “vulgar economy.”
Rejecting socialism, this school, impressed by the methods of the physical sciences, transferred their methods of measurement to economic phenomena. But it took its departure not from production or its relations but from demand.
For Marx the modes of production are decisive. Their working-out is expressed by way of social classes. The relations of these classes are the settings without which economic descriptions become false.
The Austrian school not only began with the demand for goods as the efficient cause of production, value, and price, but it centered on individual psychology. It took the atomic individual, studied his modes of preference for goods, his scale of valuations, the relations of a valuer to the scarcity or abundance of goods, and then proceeded to build up an economic society from the numerous individuals of which it is composed. This is analogous to the social method of Herbert Spencer, the dominant figure in the English sociology of his time.
Fundamental Disagreement with Marxians
For the Marxians, the method is fundamentally wrong. For them there are individuals in every society, but what individuals? Abstracted? No, they are the individuals of a society in which they are born. True, they are persons and differ from each other, but their modes of demand, their types of labor, their social manifestations, in short, are the products of the society whose life they must lead. They cannot, say the Marxians, even be identified or in any way understood, apart from this society.
The Austrian school not only reject this but retain the deductive method as an absolute besides. For them the question of value is not historical but categorical; that is, they seek to define in the same way that a dictionary does. They seek the least common denominator for every object, and when they have got that they call that the definition of the mass of objects to which it applies.
For the Marxians the question cannot be put that way. If a social situation shows that 99 per cent of goods in any given time can be understood in only one way, and that from this way of understanding there follows the most fruitful consequences, then this is the correct method to follow.
For them, commodities, products of social labor, are over 99 per cent of all economic units today. Millions of acts of exchange, conducted on a social basis, are affected with them. If 1 per cent of goods are not commodities, that is, cannot be defined by the 99 per cent, it does not follow that the 99 per cent and the 1 per cent must be referred to some common constituent in order to understand them.
The 1 per cent represents a different social result: it may be a survival of individual or familial economy; it may be a mode of valuation of unique or monopolistic goods, that can itself be understood only by understanding the class origin of those who value the 1 per cent and that class origin must be found in their relations to the 99 per cent.
The Marxians reject the absolute, the Austrians embrace it. The Marxians say that “capitalism” is not a pure concept, but an overwhelmingly important picture of nearly all phenomena at a given point. It is no more perfect than “feudalism” ever was absolutely a reproduction of its theoretic model, without any vestigial or superseding factors, in any given decade.6 Hence there are contradictions in the working out of any concepts, such as “value.” These contradictions do not annul, but confirm the theory, when it is seen that the theory explains the general working, and by way of this identification accounts for the deviations.
The Austrians maintain that no concept must have an exception. For an exception points to a need for revision of the concept in favor of the more comprehensive concept that will embrace both. To the Marxians, the Austrians are mere scholastics, to the Austrians the Marxians evade the logical issue by a historic fire-escape. This is the background, then, subjective vs. objective, social vs. individual, consumption vs. production, historical evolution of mass vs. logical rigor.
Labor Theory of Value Denied
Böhm-Bawerk begins his examination by contesting the “labor theory of value.” He points out that Marx has differed from his predecessors in seeking to prove rather than to take for granted, the notion that value is labor. That Marx does not really assume this (because of his distinction between labor and labor-power) is passed over by Böhm-Bawerk, because of his method. He is classifying Marx as one of the labor school of value and for his purposes the Marxian distinction is not significant.
It is for Marx, however, because by way of it he escapes the vicious circle of the labor-theory of value. But for Böhm-Bawerk, if any labor theory whatever is false it does not matter how it escapes inner contradictions.
He then rebukes Marx for his method. He might have chosen two correct approaches. He might have asked to which motives in the exchangers the act of exchange is due, or he might have said, I will assemble a great collection of facts concerning every type of exchange and so I shall see how their diversities arose. But instead of these two correct paths, Marx took a third, the sterile method of dialectic logic.
Marx Underrated Utility
Marx, owing to the restrictions of this method, wrongfully neglected usefulness, or utility, in determining the exchange-value of goods. He pointed out that commodities have varying uses and so said they cannot have these uses in common, therefore we must seek what they have in common and that is labor. True, you cannot exchange a particular use for a particular use and equate these two differing qualities. But their general usefulness is there. One can speak of their utility in the abstract and it is just as legitimate as to say that you can speak only of the labor embodied in them in the abstract.
Is not general utility, the capacity for being of use to somebody, apart from any given use, as much a universal constituent of commodities as labor? But Marx has said that utilities are incommensurable. Why? Cannot these utilities all be commonly referred to their abstract quality of satisfying human needs, and cannot these be measured by studying the point at which the satisfaction with one is complete and another substituted, for example? Marx has willfully or capriciously chosen labor because he has refused to exhaust the other possibilities of a common denominator. The reason for this is not in his economic reasoning but in his desire that economics serve a preconceived political bias, that of socialism.
General Utility Comparable
Labor can be measured though, says Marx, by its quantity, and that quantity is the amount of labor-time socially necessary to reproduce a commodity. Can utilities also be given a quantity, or embody a quantity? For Böhm-Bawerk does not contest that if particular use-values are merely qualities of specific objects, that any common property they have in exchange must be measurable as a quantity, otherwise there is no basis for an exchange.
Böhm-Bawerk certainly believed that utility is as measurable as is labor-time. You can have quantities of demand embodied in any goods, and these quantities of demand are based on a margin, that is, a point from which calculations of needs, their satisfactions and their substitutions, can proceed. Certainly if there is an equal rarity of ice-cream soda and ginger ale, they will have the common denominator of being equally present to satisfy demand, and if that demand exists for both of them they are in balance because they are equally rare.
Why can not this psychological relation of the buyer to goods be a common, measurable quantity like labor-time? A great deal turns on this question. If Böhm-Bawerk is right in this matter he can go forward, although that of itself would not prove his case. But if he is wrong on this matter then his criticism is over, he is stopped. This will be reviewed when the present exposition is completed.
Marx Limited His Scope Artificially
Böhm-Bawerk now objects that Marx limited his investigation of value to such goods as met the needs of his definition, and no others. He did not include all goods but only commodities, that is, objects made by labor. But by doing so he shirked the very question to be decided. For if there is something that goods and commodities have in common, why should not a conscientious thinker begin with this common attribute, and from that point on explore differences?
Of course Marx finds labor-time the only common quantity of commodities. It is like saying that by an army, I mean the Union Army, and as all their uniforms have the property of being blue, the idea uniform is referable to the idea blue. But why do you exclude the Confederate Army? For once you include their gray uniforms then you must admit that the common quality of uniforms is not in their being blue but in all having one color and brass buttons attached.
Now other things exist than commodities. You admit this by excluding objects having a price such as land, honor, chastity. In order to refer common exchangeability back to labor and to that only you calmly tell us that these prices are not reflections of value, but, so to speak, take on the price aspect of value, in the way that an actor takes over a king’s robes. They seem to be values because they have a price, but they have no value. But why not begin with all things that have a price? That is the stamp of exchange. Your labor theory would not survive that test.
Natural Goods
Look too at the immense prices paid for goods that are not produced by labor. First there are the natural things, land, waterpower, all these foundations of all wealth, including forests and mines. If a meteor falls from the heavens and has gold in it, there is not a tithe of labor there, but it commands a price. If a silver mine or oil well is found on a property, the lucky owner never lifted a finger, but he is rich.
Catalogue of Exceptions to Marxian Value
Apart from nature, look at man. Never before or since has there been such a combination of lungs, larynx, and palate as Enrico Caruso possessed. Was the $5,000 a night paid him by the Metropolitan Opera measured by the social labor-time required to reproduce it? Or the genius of Rembrandt?
How about rare books that gain in value as their copies become fewer? Or immense gains in value of stamps as their collecting becomes fashionable? Do you deny that if a million people collect them they are not worth more than if ten do? Yet no labor in them has altered.
Some attempt might be made to explain away these common events, but there are deeper objections. Take first and second balcony seats. One is $1.65, the other $1.10. Was there a 55-cent difference in the labor required to produce them, where they are of the same quality?
But, even within your labor-production, here is a steer. Its loins weigh 100 pounds and sell for 40 cents a pound. Here is its sweetbread, that weighs 5 pounds and sells for $1.25 a pound. The cowboy put equal labor into every part of that steer, but look at the values!
Böhm-Bawerk points out that Marx himself is aware of the participation of nature and labor in the making of commodities. Marx cites with approval the epigram of Sir William Petty that for goods the earth is the mother and labor the father. Why, then, admitting that labor is not the sole author of wealth, that labor-power itself is but a natural force that goes along with natural raw materials, does Marx then cling to the notion that only labor-time is the stuff of value?
Scarcity Is the Common Attribute
After this query he resumes the question of what quantities goods have in common, so as to amplify it. Goods have one common property: they are scarce. By scarce, Böhm-Bawerk means they are limited in supply. For example, air has no exchange-value because it is unlimited in supply. We always find, then, that wherever there is exchange-value objects have to have the common attribute of scarcity. This scarcity can be measured because we can count the number of objects that constitutes a supply. Here is a really universal characteristic of all goods, a positive characteristic apart from all negative questions addressed by Marxians. Do not all goods have this in common—that they are objects of demand and supply? Were they not, how could exchange exist? Now, to more basic qualities.
List of Other Common Attributes
All goods have a certain amount of natural products in them. That is a universal attribute. All goods belong to somebody. If they did not we would have no exchange or value even to consider; we would consume in common. There are, therefore, at least a half-dozen attributes that goods have in common, all positive. To have picked only on labor-time was really remarkably restricted thinking when all these possibilities were present.
Marxist Theory Is Not Verifiable
But, in addition to mere identification, political economy has the right to ask of any concept that it be verifiable, that it come through legitimate tests. Marx’s theory of value does not even enable anyone to predict the approximate price at which a commodity will sell! If the value of a commodity is not basically the index of its price, its economic importance, in the analysis of the real movements of goods, is near to zero.
Böhm-Bawerk proceeds from shortcomings and fallacies to attack Marx’s idea now as being absolutely contrary to economic fact.
Labor and Exchange Value Are Wholly Unrelated
Experience shows that the exchange-value of goods and the labor embodied in them are related to each other only in some instances, and even when so related this correspondence is incidental and is not due to that quantity of labor determining that exchange value.
If labor is the element determining exchange-value, take the instance of a bushel of wheat exchanging for a cord of wood. What difference does it make to the exchange relation whether that wood came from a cultivated forest which required the labor of a forester to extract, or from a wild tree-preserve? In one case the wood represents a labor-quantity that it has not in the other. But the exchange is effected on the same basis.
Skilled Labor a Marxian Evasion
Another thing, says Böhm-Bawerk: Marx himself has really abandoned labor-time as his explanation of value. He says that skilled labor counts as a multiple of simple labor. This is a trick of words, a mental acrobatics to avoid the collapse of his theory that labor-time by itself is the social content of value. If the day’s labor of one skilled man equates a week’s work of another, then, despite all devices, there is no truth in the idea that the value of a commodity is determined by labor-time alone. It does take the skilled worker a seventh of the time, and yet it is as valuable. You can “equate” anything by Marx’s method.
Centripetal Motion of Prices from Value Is Basic
Böhm-Bawerk’s next objection is by way of a caution. Marxians assert that prices oscillate about a level of value but are almost never exactly at that value. But if prices constantly oscillate then there is a force apart from value (Marxian value, that is) that puts them above and below that level. That force is primary, for it is always exhibited in the variations of price, whereas the labor-time of Marx is practically never revealed. Prices are determined by something fundamental apart from labor.
Surplus-Value Contested
From value Böhm-Bawerk goes on to surplus-value. In Paris there is a pearl dealer, one whose clients are millionaires. He buys pearls for a million francs, buys them wisely, for he is a connoisseur. He hires five girls to string them, and pays them 500 francs a week. He sells these pearls in a month for 1,200,000 francs. The labor of the girls took 8 hours each a day, or, say, 1,000 hours together in a month their wages being 12,500 francs, or a sixteenth of the profits. Can it be seriously maintained that the work of these girls was the cause of the difference in values and that they worked only thirty minutes a day for themselves and seven hours and thirty minutes for the employer? Is it not rather true that his profits bear no proportion to the unskilled work they do but are entirely dependent on his deep knowledge of value, his merchant’s understanding? Now why, if exploitation is not true here, should it be true generally? The employer risks capital, has ability, has an unusual gift for anticipating demand and for satisfying it. Is the equation of labor-time the only one? And if not, what becomes of the Marxian structure of surplus-value?
In the foregoing sketch we have mingled some of Böhm-Bawerk’s objections with those of his school that in effect repeated his view. In the next series of objections they all repeat each other almost verbatim except for Lexis and Sombart.7
The Great Contradiction Insuperable
These objections concern the “great contradiction.” At the end of the Marxian sleight-of-hand, they say, what does Marx produce? The same old cost-of-production theory, the one that all bourgeois economists have held for two centuries. Profit is the surplus above cost. Where does this fit the theory that profit reflects surplus-value, and that, in turn, is determined by labor-time? If the upshot of Marx was this absolutely ordinary theory of profit, the baggage of value and surplus-value is, at the least, superfuous and, at best, is really annihilated.
If profits are not the same as surplus-value, then the exploitation theory does not account for the rate of interest either, or for interest itself, for that matter. That was why Böhm-Bawerk called his book, in German, The Wind-Up of Marxism. He sums up, “the equal average rate of profit can only manifest itself because the alleged law of value does not hold good.”
Slonimski,8 a disciple, further says: “Marx . . . admits . . . that surplus-value in the form of profits is yielded by every productive capital even though no wage-laborers are employed thereby. The average rate of profits is conditioned neither by the number of workmen, nor upon the degree of their exploitation, nor is it influenced by either.” That is, surplus-value is completely exploded as a theory.
Agio Theory of Böhm-Bawerk
Böhm-Bawerk has a positive theory of profit which he opposes to Marx. That theory is that present goods, as a general rule, are worth more than future goods of the same type and number. It is the exchange of present goods for future goods that results in profits. There is no exploitation of labor involved.
Present goods are overestimated by most buyers, and future goods underestimated. Present goods have a technical superiority over future goods. Present productive goods yield a higher mass of products than future productive goods. The difference of longer and shorter duration of production is the basic economic differential.
His theory is elaborated by a study of the roundabout process of production, which takes time. The longer the processes before a commodity is ultimately produced, the more time is taken and the greater is the superiority of present goods.
To maintain the workers while he is awaiting his future receipts the capitalist advances them a subsistence fund. This is the celebrated agio theory of Böhm-Bawerk. It incorporates memories of the older abstinence theory and the wages-fund theory as well as his own.
Marxian Value Theory Conceptual
Apart from Böhm-Bawerk and his school, an interesting conceit is that of Sombart, that the theory of value of Marx is not in contradiction with the concept of an average rate of profit because the Marxian theory of value is not to be thought of except as a mental framework, unrelated to reality, whereas the theory of profits is a description of reality. This criticism has already been noted in the original explanation of value.
Concordance of Marx and Böhm-Bawerk by Tugan-Baranowski
The most interesting attempt to harmonize marginal utility and the labor theory of value is that of the Russian economist Tugan-Baranowski. He states that according to the marginal utility school the value of goods is determined by the amount of units of the commodity in question already possessed by the buyer. The more his demand has been saturated the less the marginal value to him. Good. Then what determines the quantity of goods?
Tugan-Baranowski says these depend on the economic scheme as an entirety and in that the factor of labor-value is the most important. Since marginal utility depends on the ratio of objects to the subjective valuer and since labor-value is outside of our will, labor-value is the determining element, while marginal utility is the element to be determined. “. . . Marginal utility is a function of labor-value.” Since the utility of goods is relative to the utility of their last units, freely reproducible, this must be in inverse ratio to goods reproducible in a unit of time—that is, in direct proportion to the labor-value of these goods.
Tugan-Baranowski thus unites Marx and Böhm-Bawerk. But if labor-value is the determining factor it is the economic factor, while demand, etc., are merely its psychological expressions. Tugan-Baranowski gets out of this decision by saying no, Marx’s theory of labor costs was confused by him with the labor theory of value; now value is marginal utility but is determined in quantity by the cost of labor in each unit.
In this way Tugan-Baranowski believes he has got over the difficulties of relating labor-value to price, and at the same time has avoided the inevitable question that Marxians must ask Böhm-Bawerk: Is the labor embodied in the great mass of products, that takes hours a day in fabrication, really altogether unrelated to value? His is the only synthetic, or rather eclectic, attempt that has been made.
Relative-Value Critics
On the theory of value little more has been done. But on the vexed question of the relation of value to profits the controversy has been more lively and varied. Prior to the appearance of the third volume of Capital, Engels proposed the following question on which the political economists were to try their skill:
“In what way can an equal average rate of profit come about not only without a violation of the law of value but by means of it?”
Several leading scholars attempted the reply. Three of them, although not arriving at the solution given by Marx, came reasonably close to it. But one critic, Loria, impeached the Marxian method when it was published. He stated that “value is . . . the exchange relation between one commodity and another. A total value of commodities is . . . nonsense.”
Value is thus made identical with price, and every commodity’s values are as multiple as the prices it has from day to day. This criticism of Marx is that of the whole school of relative-value theorists, who hold that value cannot be a quantity either of labor or of demand, but a mere proportion between goods.
Marxian Surrejoinder
The Marxist surrejoinder to critics is found mainly in the work of the American, L. B. Boudin, The Theoretical System of Karl Marx.9 Although written in 1905 it stands up surprisingly under the wear of three decades as have few books whose subject matter, apart from theory, must involve topical reviews as well. Its limpidity and clarity of style alone would make it noteworthy. His treatment is followed here, except for such subsequent modifications as are imposed by the changed situation since the War and the critical work of the Marxist groups, especially on the continent of Europe.10
Use-Value Substratum of Value
Boudin agrees that use-value is subjective with reference to each purchaser. This meets the objection of Liefmann that so far as purchasers are concerned, in their psyche, the quantity of labor is never considered. Naturally each commodity is acquired for its specific use, or rather those qualities that are thought to be uses. But this does not concern political economy (though it is an attractive field for social psychology). These natural attributes of commodities were there before capitalism. They relate to goods but not to commodities.
Use-value is the substratum of value. It preceded value, which is a historic category. But value is an objective attribute brought about by the social relation of individuals, which individuals themselves are socially determined.
“Capital, which is an aggregation of exchange-values, is nothing more than a social relation of individuals.” The proof: Wealth of any individual rises and falls without reference to whether his material goods are more or less. This is unique to capitalism. If uses were the only subject of economics, what would explain this mystery? The more useful articles are produced the less value in each; that is, the greater the quantity of uses, the smaller its relative increase in value. Value must therefore be independent of use-value.
Use implies production for us. But even the most conservative must acknowledge that there are many people who are rich and yet produce nothing. They do not take wealth by force and nobody loves them so much as to give it to them. They get it because the social relations are not conditioned on use but on something else. Their resources would be unthinkable otherwise.
This does not come about by exchanging uses. Honest men sell goods for what they are worth. As a class they make more money than those that merely produce. Why? As a class they cancel out each other in trades but they get rich notwithstanding. Then use, or utility, such as Böhm-Bawerk cherishes, can afford no reply. Since a change of hands creates no new uses (we are speaking of a mere exchange, not of transport or stockingup), money profits must be explained in the sphere of production relations, by a definite social-legal mechanism.
Natural Limitations Theory Not Economic
More than that, the limits of capitalist production are not those of nature, in the old agricultural sense. Its limits are given by the “market.” The poverty or wealth of mankind is no longer a natural condition, it is a result of the ebb and flow of social relationships. Here too the objective social situation is everything; use is merely a basis for all production but explains nothing of its limits, its growth or decline.
Value Basic to Price
A great many of the Austrian objections play on the discrepancy between value and price. The meaning of “cheap” and “dear” is that of purchases above or below value. Value is a social relation. Price is an individual act of exchange, centering about the social relation. That is to say, the social value of a commodity must be in it or there is nothing on which to base the variation of price. But the totality of prices paid and the totality of values must bear a closer relationship than in any given trade.
Meaning of Necessary Labor
Another Austrian defect in analysis is their misapprehension of the word “necessary” labor. They confuse “socially necessary” labor with “average” labor. Labor can be wasted, that is, proved socially unnecessary. Here too the wasted quantity of value is expressed socially. And socially average labor-time expended in a commodity may be excessive compared to the time in which it can be produced by the time it enters the market. Both these aspects can be summarized:
The value of any commodity is determined by the quantity of labor that society will of necessity expend for its production when that society requires that expenditure, that is to say, the social quantity of labor needful for its reproduction.
The notion of reproduction takes care of all changes in the time of production of commodities. By transferring the definition of value from production to reproduction, the Marxist definition is made clearer, since that takes care of its social use when its production is done. Social use, here, is not “Austrian” use; it implies that it is because of social relations that articles may have been produced and yet wasted. They may be useful as ever but, for example, unemployment may close their market.
Marx Does Not Have an Exploitation Theory
So much as a foundation. Now to the specific objections. In the first place Marx does not hold an exploitation theory of profit in the sense in which Böhm-Bawerk uses it. The capitalist pays the laborer his full value. He exploits him, in the true sense of the word, not in the sense of robbery. The laborer works so many hours for his value, the value of his laboring-power. But he has sold it for so many more hours. There is a surplus-value, which is the only reason the capitalist bought the value to begin with. Böhm-Bawerk’s phraseology is wrong.
Constants and Variables in Valuation
As to his assertion that Marx ignored the psychology of exchangers: granted. Psychological valuation is unchanged by history. It is a constant. Man has valued goods subjectively in any society. The phenomenon of value in our society has to be explained by its own special properties. And that shows that use will does play a part in the story of value but not in value itself as an economic quantity, as an object of analysis, or as the motor of all economic activity.
The Purpose of Marxian Selection
It is asserted that Marx selected only those objects for valuation that suit his purpose. But Marx does not exclude any “goods” from his study. He includes them all, but he analyzes them as having separate social properties. Land, for example, has no value even though it has a price. How is this proved?
Marx does not say that labor is the only source of wealth. Nature is an equal source. So that natural and labor objects are all provided for in Marx’s ideas. Why then their separation for value?
Because Marx asks, Which objects attain an exchange-value by reason of the capitalist system of production? They cannot be natural objects antecedent to that system. They must be objects socially produced in that system.
The others existed before man was on the earth. Nor, until you had a commodity society, did any object have any exchange-value, even under a fairly high productivity. Now it is the objects fashioned by social labor for a profit that are the specific goods of the capitalist system. Their laws are the basis of all exchanges, since it is obvious that all objects, apart from the natural substances in them, are products of labor, and their differential in value is that of the social labor-time required to produce them.
Only land is outside of this, and its price is known only by its annual command of objects fashioned by labor. But the whole system begins and ends with objects that require necessary social labor-time to reproduce.
Böhm-Bawerk’s Common Properties Irrelevant
Now as to Böhm-Bawerk’s statement that goods have other common properties than labor, say appropriation (but that is not in goods, that is a relation of men with respect to them), or supply and demand or scarcity: scarcity and supply and demand are obviously the same thing, one is the other.
Supply and demand assumes a certain scarcity of supply for the demand to be relevant. No commodity contains within itself the amount of its supply on the market. Suppose supply and demand balance? Is there no value to anything? There is a price, where is the value?
Certainly value is ascertained relatively, that is, by exchanging one commodity against another. That is what Marx means when he says that value is manifested only by exchange, one element of which is the relative form of value.
Suppose, though, that two goods are produced twice as fast as formerly. They are in the same relationship to each other. They balance at zero. But their values are obviously less. Why? Because they will command less of any other article on the market. There must be something in them that makes their relative value—that is, of these two commodities—the same, no matter how much their supply is increased or decreased, provided they go together. That must be what they have in common outside supply and demand. It is the confusion of the alterations of price about a value and value itself. Value is the regulative principle at the basis of prices.
Böhm-Bawerk’s Exceptions Ridiculed
Labor rarely resembles the exchange value of goods in which it is embodied, says Böhm-Bawerk. Most of his exceptions are drawn from nature or from golden meteors, etc. His talent for escaping from the billions of commodities exchanged daily and the making of which employs the small percentage of 99.99 per cent of producers, is simply astonishing. He thinks only in operas, pearls, golden meteors, sweetbreads, fine wines.
In the first place, let us take the golden meteor. It has value because it equates the social labor required for its reproduction as earth-mined gold. If golden meteors were showered all day long no one would mine gold, any more than they manufacture air (although in New York landlords charge for it, as the difference between flats at the bottom and top of an airshaft shows). But so long as it has any exchange value it is because it is measured against gold produced socially, that is, a commodity that has value.
Now as to forests, mines, etc., and also fine wines. These are monopolies. True they are in demand in certain societies and highly prized. When the Spaniards arrived in Peru the natives were astonished that the object of all the sufferings these lunatics had gone through was to obtain gold. They showered these trinkets on those who, to them, were maniacs. Does this prove Böhm-Bawerk’s thesis?
Monopoly and Land
But it is the labor utilized on the least esteemed wine that sets the value on the good wine. The differential above that is expressed as differential rent, that is, a part of surplus-value. But to have surplus-value one must have basic value, and that value is the labor-time bestowed on the least esteemed wine.
As to land, that has no value, for you can get millions of acres of it without paying a cent. Of the area of this earth, some 52 million square miles, over 30 millions are worth nothing and another 10 millions practically nothing. Land has a price (the capitalized rental) only after labor has worked it or surrounded it by the objects produced by labor.
But a plainer question than all these refinements is this: Where can you get a single article produced by labor without giving an equivalent? They make up the universe of exchange, and only fantastic folks even think of follies like meteors stuffed with gold, although even these are referable to labor. Serious men concentrate on the historic form of production from which we all derive a living.
Works of Art
Now come the works of art, like exceptional paintings, etc. Here we deal with articles not created by social labor-time. These are products of a human faculty higher than ordinary or even than skilled labor. They command a price but they have no value. There is no common basis of any kind for comparing the vision of Goya with that of Daumier, the fantasies of Van Gogh with the draughtsmanship of Ingres. The symphonies of Beethoven have no common economic measure with the lieder of Hugo Wolf.
To have value you must have some criterion of comparability and the only criterion here is the temporary whims of millionaires. Today they exalt Raphael, tomorrow Greco. Durand-Ruel,11 who popularized the market for Grecos, made thousands per cent when they became fads.
The sponsor of Cézannes, Ambroise Vollard, nursed them, as almost valueless, until the rich people were told that Cézanne was the supreme genius of our time.
These fluctuations of price have nothing to do with value in the way in which thousands of chromo pictures are compared in the market at Woolworth’s daily for five cents. So soon as prints12 can be multiplied by the million, so soon as thousands of commercial artists, lithographers, etc., are hired by the week, their products are comparable and are valued in the same way as any others.
Whatever is socially produced has value. Whatever is not may have a price but has no value. Whatever is produced socially and not appropriated individually has no value. That is the sum and substance of Marxist identifications.
Is Skilled Labor Theory a Juggle?
But, it may be objected, how about ordinary skilled labor? This is a jugglery if you say it is compounded labor-time. But the business world never acts on any other assumption. This criticism is based on a misreading of Marx. Marx says that skilled labor is equated to so much simple labor, that is, a commodity made by a skilled watchmaker is equated to a commodity made by a simple mechanic on the basis of the latter and as a multiple thereof.
Skilled labor appears traditional, as the dignity of arts and crafts, etc., but actually reduction to labor-time is the valuing process that goes on in commerce.
Now skilled labor results either from a long and intensive training, the time of which is entered into calculating production time, or it may be outside of that personal training, that is, a use of better instruments.
The value of the products of this skilled labor is computed by the quantity of average labor required to produce it, for society is sure to have at its command the whole average of labor, whereas skilled labor is not so certain a supply.
When skilled labor becomes the average, through better machinery and training, then this distinction ceases.
Thus it is not the individual time required for the production of commodities that Marx implies, it is the social time necessary for reproduction, and that social time includes all labor, skilled and unskilled. Skilled labor can count only as the multiple of that average. Böhm-Bawerk confounds specific production with total production.
True, one commodity sells for more than another, but their value is still referable to the average time, not to the specific product manufactured. Things are worth so many times average or so much less. A basis is different from its consequences, still it is the basis.
The Alleged Great Contradiction
The ground is prepared for the Marxist reply to the bitter criticism of the contradiction between the law of the average rate of profit (and its offspring, the tendency of that to fall though the mass of profits may rise), and the law of value. Marx’s critics grant that the products of industries with a high organic composition of capital (excess of constant capital) command higher prices than those with a lower organic composition. Now Marx says that the additional values produced by the first group are really created in the second and transferred to the first by competition, and so the average is attained. Here is the scheme of the alleged contradiction:
| MARX’S VALUE THESIS | MARX’S PROFT THESIS |
|
Value = labor-time necessary for reproduction of a commodity, prices oscillate about this value. Profits come from surplus-value created by the workers hired by any given capitalist.13 Costs of Production are irrele- vant to value, price and profit. |
Prices center about a level dif- ferent from value, as given by labor required for reproduction. Profits do not depend upon the surplus-value realized in any given factory. Costs of production are related to price and profit. |
Marx Not Related to Cost Theories
Marx’s theory was based on the price of production. What has that to do with the cost of production? The cost theory holds that the value of a commodity is the cost of its production plus the average rate of profit on the capital invested to assure that production. The price of production adds up the values that enter into production plus the average rate of profit on the capital invested.
The Marxian costs are determined by values made up of labor, whereas the bourgeois theories are not so grounded. The cost theorists say the value of a commodity is determined by cost of production and cost of production in turn is determined by the value of commodities that enter into that cost, and so on to infinity in a circle. Now Marx never said that the profit of each capitalist is based on the surplus-value turned out only by his own workmen as the first table shows.
The Object of Marx
Marx is answering the question, How does profit arise? Out of surplus-value. But how is that surplus-value realized as a profit? That is a further question, for it deals with the social emergence of profit out of the social process of surplus-value. The profits have been traced to the sphere of production. Each capitalist seeks the maximum of that surplus-value. That is the meaning of “competition.” But we know that although profits are made in production they are realized in circulation.
Surplus-value is divided in the process of circulation into interest and merchant’s profit and in a different manner into rent, and even pace, into the premium paid for orchestra seats over second-balcony seats and for sweetbreads over loins.
But this division of surplus-values is not construed even by Marx’s critics as a contradiction. Thus goods can be sold at their value, although the capitalists who realize the surplus-value in production part with some of it in circulation. If capitalists can make a profit, though they do not realize the full surplus-value, and still they do not contradict the law of value, then why do they do so with an equalization of the rate of profit in the sphere of circulation?
In the first parts of his theory Marx confined himself to studying the formation of prices at about value, whereas in the third volume he explained the mechanism, foreshadowed in his theory, whereby prices emerge as above or below value. Such a price may always be above value for a commodity that requires it so as to equalize profit.
The price of production, thus, is governed by the law of value even if that price is never the same as its value. But its excess above or deficit below is regulated strictly by the averaging of the rates of profit about that value. And that value is social labor-time. The formation of these prices and their movement must be governed by the law of value. To deviate is not to annul, to deviate is to be governed in an orbit.
It is no answer to the theory that all planets are governed by the gravitational attraction of the sun and that that is what holds them throughout their orbits around it, that only at the rarest times are they at the nearest distance brought about by that gravitation. The law of value forms prices not by arithmetical equality but by determining their economic motion all the time, whatever their fluctuations.
Böhm-Bawerk’s More Critical Assaults14
We are not done with Böhm-Bawerk. For the more one probes into his objections to Marx the more one sees a foreshadowing of nearly every detail of future individualistic criticism. In his last attack in 1896, he summed up the logical fallacies of Marx himself as against his objections to the “exploitation” theory in which he obtusely had linked Rodbertus to Marx.
Marx’s Social Theory Evades the Problem of Exchange
If surplus-value is to be conceived of as the total dividend of the capitalist class, those may share it, of course, who have little or no unpaid labor. The total obliterates individual cases, but it does not explain their persistent differences and, furthermore, this total has been reached, not by way of these individually different capitalists, nor through them, but only by a logical superimposition that makes them parts of a total to begin with by ignoring their diversities that would have revealed to Marx that you cannot add permanently differing quantities and reach a significant total.
The Misuse of Averages
For Marx labor value is the average to which fluctuations tend. But they cannot do this, for in that case there would be a tendency to inequality and not to equality. This is, of course, due to a false use of the word average.
Marx Contradicted on Labor-time by Other Factors
With Marx, as time of production falls so prices fall, other things being equal. That is just the catch. But if labor-time is the only cause of value then the other things do not count, and if they do (and how often can other things be equal?), then labor is not the sole cause and these other things are themselves factors in the constitution of value.
Marxian History of Value Contested
As to the hypothesis that goods exchanged at value before large capitalism (by reason of constant capital) changed values into prices of production, there seems to be no evidence that there ever was a time when capitalism fastened first on industries that required very much variable capital (wages) and so little constant capital (machines). Rather capital, as opposed to the artisans, would first have entered such activities as mining, precisely where much machinery was required.
No Social Total Is a Guide to Its Own Division
Marx’s law of value determines prices indirectly by determining the total amount of value, including wages and surplus-value. Let us grant this method. But how can such a total, more than any other total, then, determine its own partition? If you say, let us take wages as fixed and surplus-value as the variable, you are making a mere assumption.
The Four Supreme Refutations of Marx
Böhm-Bawerk sums up Marx. In Capital (III, 153) Marx makes the crucial statement that surplus-value can originate from laborers a capitalist does not employ. Why did he begin otherwise? Because in Volume I he assumed that goods exchanged at their values. But in Volume III (155-8 and 175-6) he now assumes that commodities sell above or below values, and that to reconcile prices and values (which one must in the long run or the equivalent manifestation of exchange is nonsignificant), he now assumes that prices of production equal the sum of values. The law of value governs the movement of prices through changes of the requisite working time, and this is what makes the prices of production, as a whole, to rise and fall with sum values (III, 156-8). The law of values then is a hypothesis that governs only in such stages in which prices of production have not superseded them. Value, from being a picture of exchange, is changed in function to a regulator of exchanges, in the last instance only.
This is a good recapitulation and is the precise theory which Böhm-Bawerk, in his more mature criticism, sets out to demolish.
First objection: Exchange relations between differing commodities cannot be summed up without making their internal relations disappear. Suppose you say that one is more than the other and compensates it. Well, of course they do. That is a tautology. If two things are added they are two things.
But note: one pound of gold sells for forty thousand pounds of iron. You can add both, and say we have 40,001 pounds of commodities, and by the same reasoning we ignore their total weights which compensate each other when added, one being more and the other less.
Their sum total of weight is 40,001 pounds and their internal differences do not concern me socially. Therefore weight, or rather total weight is the cause of exchange. That is just as good as value that ignores permanently differing quantities of value.
Second objection: Marx says the general law is the average of fluctuations. Marx confuses an average of fluctuations (which is legitimate) with an average between permanently differing quantities. In the prices of production in his theory, what do you have? Not fluctuations about a certain level but everlastingly different levels themselves, depending on varying organic proportions of the capitals that produced the commodities that have these prices of production.
Here are two commodities, A and B. They are produced by differing organic composition capitals. The one with little constant capital costs $10 and the one with high organic composition $20, allowing for fluctuations about each level.
Marx can say, if he wishes to, that the average of the two is $15, but by so doing he has conjured away all economic meaning. Certainly a fly that lives 12 hours and an elephant that lives 200 years have an average life of 100 years and 6 hours, and you can say that the life of beings thus averages 100 years and 6 hours. But for the naturalist concerned with factors of longevity what earthly use would this sterile mystification serve?
And to say that the deviations of these two permanently differing spans of life cancel each other out in a total—well, yes, that is true. But what could a naturalist do with it? No more than a Marxian can do with the $10 commodity and the $20 commodity that will not leave those levels within the economic experience we are considering.
Third objection: Marx says that his original value theory governed in the more primitive stages of exchange but now is converted into prices of production. What a transformation! First we are told that the value theory of Marx is significant only for capitalism, for the accumulation of an immense number of commodities produced socially, and now we are told that this “esteemed” and “localized” historical concept does not govern at all in the only society for which it is defined.
But if the extremely high profits of early capitalism came from living labor (for then only would value approximate labor-time, due to comparative absence of constant capital), then the rate of profits has been falling from this great level, with the fall in the tendential rate due to the substitution of constant capital in the race for relative surplus-value.
Why did the rich ever leave exploiting this great mass of workers if the rate of profit was thereby reduced?
Another thing: if there was surplus-value at the beginning, this means that capitalists got independent workers, with their own tools (before there was large constant capital), and yet managed to get them to work for them and give up most of their working time to the employers. Is this economically conceivable?
A man works for himself, he has the tools of production, the class relations of capitalism have no foundation, and yet he gives away part of his working day! No, Marx’s last hypothesis is contrary to history.
More than that, the inequality of profits does not arise from variations in organic composition but from some as yet not wholly explored reason, connected with the mere act of competition.
Fourth objection: Let us examine the regulation “in the last instance” of prices of production by value. If exchange relations are determined by the quantity of labor, then rates of wages, of course, have no influence on the rise or fall of values. Then only the amount of labor must be in harmony with the total law of value. But note: In the second constituent of Marx (of the prices of production, that is), of average profits, a determinant alien to the law of value becomes a determinant of the prices of production!
The law of value determines aggregate surplus-value. The average rate of profit is the total profit divided by the capitals employed in the production of any commodity. This gives us the concrete average profit, and this in turn is a factor in price of production.
But Marx has said of value that it does not determine the value of separate commodities but the aggregate value of all commodities. But aggregates do not exchange, so that there is no law of value for commodities at all! But this is far from the worst contradiction.
Further mistakes: Surplus-value is stated as a difference between aggregate wages and aggregate value. But necessary means of subsistence of labor are themselves sold at prices of production, and that differs from necessary working time.
Here is a worker; he takes so many hours to reproduce his labor-power. And at what prices does he sell it? For the cost in labor-time of those means of subsistence. That is what Marx told us in Volume I. And now we learn that these means of subsistence embody not working time but the average rate of profit as well. Variable capital thus also deviates from its value. Therefore one factor alien to the law of value determines surplus-value itself!
Thus, aggregate surplus-value was said to regulate aggregate profits and average rate of profit. But aggregate surplus-value is now only one constituent; the other, the amount of capital, acts as a social determinant entirely independent of the law of value.
Let us say a capital is $150,000 and surplus-value is $15,000. Since the fluctuations of the mass of capital to surplus-value would vary the rate of profit, the law of value is not the “regulator” in the last instance of that rate of profit.
To summarize: The total amount of average profit is a resultant of invested capital divided by the average rate of profit and the invested capital is determined by quantity of labor and rate of wages, and in these rates of wages a factor alien to the law of value is embodied.
So long as prices of production enter into means of subsistence, and wages vary without reference to labor-time in means of subsistence, the surplus-value theory is imperiled. Of course, Marx is right as a social mass of data. That is, the quantity of labor embodied in goods that are freely and steadily reproduced is an enormous factor in costs. But it is not unique, and we are here speaking of pure theory.
OTHER NOTATIONS: Böhm-Bawerk maintains that Marx contradicts himself constantly in the third volume of Capital. He even says that rates of wages influence prices, contrary to his whole theory, in III, 179 et seq. His account of the amount of social capital determining average rates of profit is said to be inconsistent in III, 146, 184, 197, 203, and the account of the effects of organic composition on prices of production is thought not to be tenable as given in III, 142 ff. (Note: I have examined these citations and reworked the arguments but do not see the inconsistencies Böhm-Bawerk claims, nor do other critics, such as Hilferding. I note them for the record, for Böhm-Bawerk here is merely dogmatic.—Author.)
Exchange Points to Inequality
Böhm-Bawerk then re-examines the foundations of Marxism, elaborating the former study given earlier in this chapter. He again maintains that exchange points not to some equality but to some inequality or preponderance. Either exchange means equalization and then Marx can exclude nothing, but must include land, say, or it means nothing and then Marx has no theory.
Böhm-Bawerk denies that the wealth of society is an immense accumulation of commodities. That definition leaves out Nature, and this still is the fundamental wealth of society. He again asks why he disregards specific use, specific labor, but grants abstract labor but not abstract use. As to skilled labor, to count as so many hours of unskilled is not to be so many hours of unskilled.
To count is to count how? Skilled labor is a constituent of exchange. And it is determined as a constituent of exchange by way of exchange! Marx argues that the time of training is to be reckoned into skilled labor. Well, then, a laborer works fifty years. A skilled laborer has been apprenticed for ten. Are his wages only 20 per cent higher?
Marx’s Value Theory Reduced to an Absurdity
Böhm-Bawerk amplifies his theory that Marx could equally say that commodities exchange according to weight. Say gold is so much iron. If, on the analogy of skilled to unskilled labor, you say, no, it is not so much iron, but experience shows that it is counted as so much and this reduction is constantly being made, because one gold cup of Benvenuto Cellini is worth forty thousand pounds of iron, and that this is not a violation but a confirmation of the laws of exchange that commodities exchange only according to their weight, according to the average material they contain. This would be just as legitimate as Marx’s reduction of skilled to unskilled labor according to the average labor-time, counted as so much of each other.
Marx Made Only Two Fatal Errors
Böhm-Bawerk sums up by saying that Marx was wrong at only two points, but these were fatal. One is in the value theory in the very first few pages of Volume I. The other is its contradiction in the prices-of-production theory in Volume III. Everything else is logically sound and brilliant and his great construction is the most important monument of his age. But economic science must concentrate on these two basic errors.
Supply and Demand Do Not Cancel Each Other
Now Böhm-Bawerk goes to a positive attack. Supply and demand do not cancel each other out as Marx says; only their successful part does. Those forces that are excluded from the consummation of the deal have played their part. It is wrong to argue their exclusion because of the equilibrium of the parts that become effective on the market.
Take a person weighing one hundred pounds. The weight is on one side, the man on the other. Can you say we cannot account for the relation of weights because they cancel each other out at 100 but that we require a third factor?
If supply and demand, according to Marx, change into prices of production, how can supply and demand shift the level of permanent value if it is inefficient by itself as an explanation of value, as Marx contends? There must be a determining social element, then, in supply and demand, independent of working time.
First Marx says commodities approximate more to their value as a brisk competition appears (Volume I) and now he tells us that competition pushes commodities away from their values into prices of production. Which end of the dilemma does he want?
He might say, In the first instance I refer to primitive conditions. What, Marx, the great enemy of Robinson Crusoe hypotheses, getting down to this level? From a philosophic genius, the spirit of his age, the builder of the most complete structure in political economy, we must ask a more thoroughgoing reply.
Further Exclusions of Böhm-Bawerk
He again pursues Marx’s errors of composition and definition. If in an opera company there are three stars, a baritone, tenor, and bass, and each receives ten thousand dollars a season, how can you say that since in computing salary one voice is as good as another, and paid for as much as another, that thus this constituent is ruled out and a good voice cannot therefore be the cause of a good salary? Marx, in this type of reasoning, in the law of value, confuses the disregarding of a genus (a class of attributes) with the disregarding of the specific forms in which the genus manifests itself.
In order to extend this criticism to the reduction of skilled to unskilled labor, Böhm-Bawerk admits that sixty hours unskilled may be equivalent to twelve (and this is what Marx contended), but he still denies their identity (which Marx never affirmed).
Workers Not Exploited
Furthermore, Marx’s whole theory of exploitation disregards time. The worker, we are told, gives four hours to himself and four hours to the capitalist and so he has made a gift of four hours a day. But that assumes that the value of the labor emerges every day.
What really happens? A worker is turning out steel girders. He does a part job. It takes months before they reach the market. The capitalist awaits his reward, the worker does not. The capitalist may have to wait five years for his money, say, if he builds a bridge. The laborer on that bridge has produced not a fifth of its value in that first year, but a fifth of the value as it will be in five years. The discounted payment for that “lag” is the source of the capitalist profit. Marx wants future value paid for in the present.
Value Growing with Time
Wine is a better instance still. Wine is worth one thousand francs at Bordeaux at the end of a crop. It has little quality, it has not matured. Let the capitalist pay the worker one thousand francs, the full working time. There is no surplus-value at all. Yet in twenty years that beautiful flavor is worth ten thousand francs. The profit cannot be explained by surplus-value for there never was any.
The Marxist Reply to the Later Objections of Böhm-Bawerk
Marxist criticism noted at once that Böhm-Bawerk’s objections were on a highly different basis from the usual objections. Up to his time the opponents of Marx were really no better than the usual street-corner interrupter of socialist meetings. “Shouldn’t a man be paid for his brains?” “If you divided up there would be rich and poor the next day anyhow,” etc. Böhm-Bawerk advanced the debate to the dignity of science.
Reply on Totality of Value
The Marxians begin with their reply to the first observation that the general law of value is useless unless it tells us the specific relation of each commodity to any other given commodity: Kuczynski draws what he conceives to be a perfect illustration, by way of analogy. Take the theory of water motion. We pipe water, we regulate its flow differently in ordinary wells, in artesians, springs, etc. Is the theory of the flow of water explained by listing the specific bores, drills, pumps, and pipes? No. There is an abstract physical theory of the flow of all water, the science of hydraulics, and this abstract theory ignores the individual forms of the motion of water, describes no particular form of water whatever, and describes no actual phenomenon exactly as it takes place. But its theory describes them and its laws govern them and unless we have this abstract theory we have no means of understanding anything. And this despite the fact that water is abstractly described and yet, in practice, it is always concretely availed of.
We ask how and where does profit come from? From surplus-value. And that? From labor-time. And how does it flow? Through pipings composed of constant and variable capital. And how is it sprinkled or flushed throughout the economic system? As an average rate of profit. But the law of the composition and flow of value, like that of the composition and flow of water, is the same throughout. If you cannot correlate all the forms of conducting and utilizing water exactly in conformity with the governing theory of hydraulics, that unfortunately is the nature of the world we live in and no one can transcend it, not even Böhm-Bawerk.
That no science is capable of application to every permutation and combination of circumstance, under the exact application of theory, is the weakness of man’s mind, of his perception of the world. Is that a reason for repudiating science? Then all political economy (and all knowledge) is equally threatened. We abstract from a hundred appearances to get one common explicatory factor. If you argue, with Bergson, that any such procedure distorts reality, then Marx and Böhm-Bawerk march hand in hand to the same cemetery.
Reply to Assimilation of Value to Weight
Now, as to Böhm-Bawerk’s theory that by the summing-up method you can use weight just as well as value. If actual weights were a foundation of exchange, if so much weight actually commanded more than lighter articles, then his analogy would hold, nor would it be illogical.
But his illustration is spurious. Weight has no effect on exchanges, except that a higher weight of the same goods is worth more than less weight, but not as between different goods.
But labor is certainly a seller of its labor-power for a certain number of hours, and even Böhm-Bawerk admits its enormous pragmatic value in the theory of exchanges.
Labor-power is the stuff of production; even a Böhm-Bawerk grants this, for production if not for value.
Good, then weight is no analogy but labor-time is. The correctness of Marx’s totalizing method is not settled by witty and irrelevant imagery but on the question of fact: Has he described the manifestations of abstract value, of the factor common to repeated acts of exchange wherever consummated? Now if Marx said, value is one thing and prices of production are another, then Böhm-Bawerk’s criticism would hold. But he says no, the prices of production are always corrected by ultimate value, by adjusting themselves to the governing level of values. The price of production is a medium of expressing value, not a departure from the law of value.
If labor-time is the constituent spoken of, then its differing quantities are differing permanent quantities of the same thing: they can be referred to a common quantitative measurement, as men of five feet and men of six feet can be added in a census, if they are men to begin with, even though they permanently differ in height. This also disposes of his collateral objection that a total obliterates individual cases with persistent differences.
Reply to the Second Criticism
As to the confusion of an average of fluctuations with an average of permanently differing quantities, Böhm-Bawerk really is saying that social value is an elephant and individual acts of exchange are flies, or that goods representing a constant capital as large as the United States Steel Company are elephants and goods sold by a shoemaker are flies.
Did Marx say that? Does he say that the totality of values is the average of all individual prices of production, that is, a total fixed as a quantity of labor-time, compared with an average of all departures from that total labor-time, expressed in each case as individual prices of production? If that were what he said, certainly Böhm-Bawerk’s objections would be worth while.
But what Marx says is that the law of value finds its concrete manifestation only in the total capitalist production. It plays a governing part with reference to any given commodity, as expressed in its price of production. These prices of production move according to the attraction of the law of value, exactly as objects of dissimilar weights, in their motions to and from the earth, all conform and are governed by the total equation of gravitational force. Certainly the law of gravity and the weights and motions, at any given point, of any specific bodies, are not comparable arithmetically, but what of it? Without this law of gravitation we should be in the dark as to stellar and terrestrial motion.
Suppose Böhm-Bawerk then says: granted. How do you coordinate the labor in any commodity with other ingredients such as the organic composition of capital, that affect the price of production? Marx would probably have replied that the labor-time is in the commodity and in the constant capital as well, since all goods were created by social labor in so many hours.
But when we think of realizing that value we must think in a class society, as does the capitalist who realizes the value, and whose purchase of means of production is motivated by that form of realization. The capitalist is governed by the laws of value, but he realizes profits, not according to that law, specifically, but according to his own needs.
But there is no other ingredient in the prices of production than the value they contain; whether deferred value of constant capital, or deferred value channeled through prices of production into the means of subsistence for variable capital, or by the prices equalizing the flow of value into prices of production; they can never deal with anything else than value.
Reply to the Third Criticism
The historic objection maintains that capital had no incentive to go into constant capital unless there were a marked collapse of prices in primitive industries using large variable capital.
But it did. In order to sustain Böhm-Bawerk’s thesis, a timid theory has been advanced that the first large investments of capital, on the contrary, were in industries requiring large constant capital, since capital had no means of getting artisans to part with a section of their labors except by price competition commencing with constant capital.
The history of industry, much better known since Böhm-Bawerk wrote, has annulled this idea. Capital did go into mining in Europe in the sixteenth century, but in nearly every case the capital, pumps, ovens, etc., to work the mines was provided on a share basis by artisans. The great mass of capital flowed into manufactures, or the assembling of workers under one shed, etc.
How did the capitalists get the workers? Simple. First, by driving them off the land into the towns, so that they owned nothing, not even primitive means of accumulation; secondly, by breaking the guilds by cheaper prices, so that the social monopoly of tools by artisans was defeated; thirdly, by lower prices due to the economies of workers acting in co-operation over those working individually.
As machines that were cheaper than the labor displaced came into use in some industries they resulted in slow gains in constant capital.
This feature has persisted to our day. In 1890, in the three capitalist lands, Germany, Britain and the United States, the ratio of constant to variable capital was 1 to 3, in 1913 about 1 to 1, and now constant capital is most of the capital employed. In a country such as the Austria of fifty years ago, Böhm-Bawerk’s notions looked better than now. On the historic side, Marx is completely victorious, and no one disputes it any more.
As to the idea that capital took a hundred per cent profit in the early stages of capitalism, when surplus-value and profit were nearly identical, because of variable capital preponderance: first, capital employed persons in new industries and had to offer pay nearly equal to that of the older artisan industries; and secondly, it gained its way by price-cutting. Either theory is against the notion of an insanely high profit at the beginning of capital, (by the use of living labor) as having been so great that it did not pay to substitute machinery for it, on the Marxian hypothesis.
As to the objection of Böhm-Bawerk that Marx’s law of value, once valid for capitalism, is now valid only for pre-capitalism, the Marxians reply: Marx’s law of exchanges, the accidental form of value, etc., begins with barter. All commodity societies have laws of exchange and, therefore, of value, in common.
The capitalist law of value is not born out of a thundercloud; it arises out of long antecedent evolution. Only that in a society with immense social labor, the tremendous accumulation of commodities and co-operation and the infinite daily repetition of acts of exchange enable us to substitute for accidental or extended forms of value the general form and the money equivalent, as a normalizing process that is more and more in conformity with the law of value.
That the further development of the organic composition of capital results in the social expression of value by prices of production merely means that value governs more than ever, but in a form distorted by the increasing contradiction between social production (value) and private ownership of the means of production (prices of production).
Marxian value would govern even more brutally when competition is negated, say, by monopoly.
That does not prove the historic rebuke of Böhm-Bawerk, for this comes from his persistent blindness (the cause of all of his objections) to the distinction between appearance and science behind all appearances. As Veblen says, Böhm-Bawerk has no concept of science, but only an isolated system of schoolboy debating, anxious to win “points.”
Reply to the Fourth Objection
This is the crux of the business. All the objections to Marx’s price-of-production theory boil down to this one question: How can the law of value govern when profits contain an element alien to the law of value, the prices of production?
But this is already refuted. Marx in the first volume of Capital says, “Were goods exchanged at value” (not that they are; he repeatedly says they never are, and as Veblen says, his indictment of capitalism is in just this, that prices always deviate from value, that is contradict labor), then such and such would be the law of surplus-value.
Then Marx says, let us look at their specific historic action when they do not exchange at value. Value governs and controls, but how? In a distortion due to the social organization.
The very means of subsistence of the worker itself includes a “price of production,” that is, the ratio of average profit as the proportion that the capital engaged in its manufacture bears to total capital. This is the case for certain means of subsistence, specifically, but the total means of subsistence, along with the total means of production are between them the mass of commodities expressed as labor-time only. The totality of the compensation of labor is still the labor-time incorporated into its means of subsistence as a proportion of that labor-time to total labor-time for all production. Its distribution is one matter; its economic existence another.15
Replies to the Incidental Criticisms of Böhm-Bawerk
Alleged competition contradiction. (Böhm-Bawerk’s contention that first Marx says that commodities approximate more to their values as competition is brisk, and then that he assigns competition as the reason why prices of production are further away than ever from value.) This is based on a really petty trick of substitution.
Marx does not say that competition drives commodities further away from their price of production; what he says is that where commodities exchange for an equivalent then competition is the factor that ascertains their correspondence to labor-time, and that where commodities exchange on the basis of organic composition it is competition that equalizes the prices (as governed by the law of value), and conforms the ratio of a given capital to total capital, on the basis of the average rate of profit. By ignoring the difference of definition Böhm-Bawerk creates an anomaly.
Fluctuations tend to inequality. This objection of Böhm-Bawerk depends on his proof that the use of an average of fluctuations is not legitimate in Marx, and this has been answered as to his second objection.
A total does not determine its own partition. No one says it does. This argument looks strong because it appears that the total law of value has not been reached by way of an addition of thousands of instances but by Marx’s dialectic exploration of phenomena.
But in simpler speech it gets down to this. Marx discovers a total: labor-time. He discovers another total: prices of production. He can analyze their interpenetrations, the moment he has two totals, and value their contributions. True a total does not determine its partition, but a comparison of totals does. This is real quibbling.
Böhm-Bawerk is aware of this, for he agrees that if one constituent, say wages, is fixed, his problem is solved. But he says this is a mere assumption. But the determination of wages by the hours devoted to means of subsistence is capable of being counted. Where is the assumption? It is an addition, and a real one.
The total theory ignores persistent differences. This is Böhm-Bawerk’s everlasting refrain. But the answer is that the Marxian theory is the only one that does explain them. Why does any capitalist always tend to make more money than another, unless he is stopped by a threat of a flow of investment to his industry by another capital?
The Marxist answer is in the ratio of his constant capital to variable as a mechanism for the extraction of a definite quantity of surplus-value. All other theories explain it by “costs” but never explain the variations in the costs themselves.
On the contrary, the total hypotheses of Marx, by their interpenetrations, alone permit us to disengage the causes of persistent differences. The one greatest persistent difference, between monopolies and smaller competitors, is explained only in this way, as “supply and demand” ought otherwise to lower their level to a common basis.
“Other things” being equal means they are factors in value. Not values, prices. Marx says, other things being equal, prices will reflect values. They never are equal, in effect, and that is why prices and values so rarely correspond. Labor is not the sole cause of price, but of value. This is an elementary error and must have been due to overanxiety to score “points,” the greatest psychological weakness of Böhm-Bawerk.
OTHER NOTATIONS: These repetitions of Böhm-Bawerk’s earlier ideas, although the answers were given before, are reprinted, because they integrate his system. On one of them, though, a commentary takes place. He says, a common laborer works fifty years, a skilled one is apprenticed for ten years. Are skilled wages only 20 per cent higher than unskilled to compensate time of training?
The figures given show that Böhm-Bawerk came of a noble family with little acquaintance with workers. The average working life of laborers in Great Britain and the United States is about thirty-five years. The average training of skilled laborers, until they are full journeymen, enjoying higher craft wages, mostly takes fifteen years; certainly it is rarely as low as ten. The wages of skilled labor are scarcely more above unskilled labor than a third to a half. The time put into tools must also be counted.
A still better analysis of time, because it relates to the middle and professional classes, is that of doctors of medicine, not the great specialists but the great mass of physicians who establish the average earnings of the profession.
A physician requires pre-medical and medical training, internship, etc. An ordinary worker gets his working papers at thirteen or fourteen. For seventeen years this doctor has to work either at preparing himself or investing full time in his equipment.
Assume that at thirty-one he begins to recoup his elaborate expenses of training. He has lost seventeen years’ earnings that the common laborer has got. If he earns 60 per cent more than labor (that seems to be the nationwide figure, including rural doctors), then he recovers his investment and catches up with the worker at fifty.
Actually what sustains the middle classes here is the inheritance of class income from former nonmanual or nonprofessional pursuits, that is, from petty bourgeois profits.
Here the time analysis of Marx is peculiarly graphic, for it relates to men who do not think of themselves as socially comparable with workers.
As to whole masses of intellectuals—writers, poets, artists, musicians (on a full-time basis), etc.—their pay nowadays closely conforms to that of skilled labor; that is, their hours of training plus average labor-time. (A Fascist book, Ferdinand Fried’s Ende des Kapitalismus, is devoted to this very thesis for the European educated class.)
Supply and demand. Böhm-Bawerk admits that supply and demand cancel each other but demands significance for the excluded supply of the unsatisfied demand as the real basis for the demand and supply consummated in an exchange.
This depends on the theory that these offerings and demands are themselves based on nothing else, for otherwise the factor back of them would be the economic cause of value.
As to his illustration of the weights, that is most unfortunate. There is a third factor that explains why a body on one side and a weight on the other balance, and that is the law of gravity that explains both. They balance just because they are equally functions of a third factor.
His second paradox is that if supply and demand are the price factors that convert value into prices of production, then the supply and demand must have some efficiency, otherwise they could not effect this change.
The answer is not that they have no efficiency, for the same question would apply to any variation of price from value. It is that supply and demand are modes of action determined by basic economic factors. They convert values into prices of production not because “they” exist but because capital seeks surplus-value and it is necessary for the capital with a price above value to bring it down so as not to imperil the foundations of its surplus-value by attracting competition. Supply and demand are not factors: they are a medium through which factors emerge.
The exploitation question in time. Böhm-Bawerk here assumes that capitalists wait all the time for their value to be realized. But they do not. The worker does not want the value of commodities in the future to be paid right now. He creates so much value in a given week, his labor-time being through, say, on a Saturday.
The difference between that value (upon which any banker will lend) and his means of subsistence is a surplus-value irrespective of waiting “time.”
The laborer advances his pay to the capitalist, for pay is merely a ratification of time already spent. That the capitalist appears to pay him is the fetichism of wages.
If the worker advances his time to the capitalist, and he is paid off after the hours are given, the wages fund advanced against time by the capitalist is a myth. More than that, every capitalist is forever working on bank overdrafts based on the salability of unfinished merchandise.
There are deeper objections, far more decisive, against Böhm-Bawerk’s time hypothesis (it has been annihilated by von Bortkievicz in his Kardinalfehler d. Böhm-Bawerkschen Zinstheorie), but we are here concerned only with his criticism of Marx.
The wine is another variant of the time theory; it assumes that a gain in value can occur without labor. Here the differential rent theory of Marx is decisive, as is the merchant-capital analysis with reference to the Paris pearl stringers.
As to the three opera singers, by which he seeks to invalidate the method of Marx, as an economic thinker, he is right in his illustration but wrongfully attributes a distinction to Marx, who abstracts the difference of quality between baritone, bass, and tenor, where all three voices are economic competitors, but on the relation of good voices to bad voices, Marx has the same reasoning as that separate uses cannot cause levels of exchange, but that differing quantities of labor-time do.
NOTE ON BÖHM-BAWERK: A frequently met Marxian question on Böhm-Bawerk’s conception of time is that any valuation of time is a function of subjective valuation.
Valuation of “time,” however, depends on reserves. Obviously a rich man can wait longer for proceeds than a poor man and so values time less; is willing to sell his anticipated income for a smaller discount.
What fixes the “margins”? What limits the supply of goods in time? Antecedent income and antecedent resources.
Thus time, as an explanation of profit, assumes profit to begin with. That applies to the whole business of the Austrian value theory. For the moment that they admit costs—real costs, that is—they have lost the psychological explanation. Hence, in order to escape reality, they posit “pure” demand and “pure” discount in time, which results from an “abstract preference” for the present. Clearly they require this to escape the social implications of man’s economic relations.
1. That is, the predetermined ends shape the means by which they are come by.
2. The denial of independent general ideas.
3. Belief only in pleasure, as the content of ethics.
4. He later revised his estimate of Marx’s capacity and granted him stupendous, though flawed, genius.
5. Hildebrand, Knies, and before them J. B. Say and Torrens held similar views.
6. As Engels says, if there ever were a pure idea of “capitalism” it would mean that evolution had ceased.
7. See Bibliography.
8. See Bibliography.
9. Charles H. Kerr & Co. (Chicago, 1907).
10. And my own glosses. [Author.]
11. Famous Paris art dealer. He was to “society” what Ambroise Vollard was to those seeking to “anticipate.”
12. The mass-production collotypes and even the more individual reproductions like those of Jacques Villon sell on a labor-time basis. That is how Cézanne and Gauguin entered into daily civilized life. Recent social groupings of artists in W.P.A., paid by time, is significant as well.
13. This is assumed by the critics.
14. This section on Böhm-Bawerk is intended for advanced scholars.
15. The chapter on Social Accumulation gives the appropriate equations.