Marx The Economist

4. The doctrine of surplus value does not make it any easier to solve the problems above.

Those problems are created by the discrepancy between the labor theory of value and the facts of economic reality.

On the contrary it accentuates them because, according to it, constant capital—that is, non-wage capital—does not transmit to the product any more value than it loses in its production; only wage capital does that and the profits earned should in consequence vary, as between firms, according to the organic composition of their capitals.

Marx relies on the competition between capitalists for bringing about a redistribution of the total “mass” of surplus value such that each firm should earn profits proportional to its total capital, or that individual rates of profits should be equalized. We readily see that the difficulty belongs to the class of spurious problems that always result from attempts to work an unsound theory, 8 and the solution to the class of counsels of despair.

Marx, however, believed not only that the latter availed to establish the emergence of uniform rates of profits and to explain how, because of it, relative prices of commodities will deviate from their values in terms of labor, 9 but also that his theory offered an explanation of another “law” that held a great place in classical doctrine, namely, the statement that the rate of profit has an inherent tendency to fall.

This follows in fact fairly plausibly from the increase in relative importance of the constant part of the total capital in the wage-good industries: if the relative importance of plant and equipment increases in those industries, as it does in the course of capitalist evolution, and if the rate of surplus value or the degree of exploitation remains the 8 There is, however, one element in it which is not unsound and the perception of which, however dim, should be recorded to Marx’s credit.

It is not, as almost all economists believe even today, an unquestionable fact that produced means of production would yield a net return in a perfectly stationary economy. It they in practice normally do seem to yield net returns, that may well be due to the fact that the economy never is stationary. Marx’s argument about the net return to capital might be interpreted as a devious way of recognizing this. 9 His solution of that problem he embodied in manuscripts from which his friend Engels compiled the posthumous third volume of Das Kapital. Therefore we have not before us what Marx himself might ultimately have wished to say. As it was, most critics felt no hesitation in convicting him of having by the third volume flatly contradicted the doctrine of the first. On the face of it that verdict is not justified. If we place ourselves on Marx’s standpoint, as it is our duty in a question of this kind, it is not absurd to look upon surplus value as a “mass” produced by the social process of production considered as a unit and to make the rest a matter of the distribution of that mass. And if that is not absurd, it is still possible to hold that the relative prices of commodities, as deduced in the third volume, follow from the labor-quantity theory in the first volume. Hence it is not correct to assert, as some writers from Lexis to Cole have done, that Marx’s theory of value is completely divorced from, and contributes nothing to, his theory of prices. But Marx stands to gain little by being cleared of contradiction. The remaining indictment is quite strong enough. The best contribution to the whole question of how values and prices are related to each other in the Marxian system, that also refers to some of the better performances in a controversy that was not exactly fascinating, is L.von Bortkiewicz, “Wertrechnung und Preisrechnung im Marxschen System,” Archiv für Sozialwissenschaft und Sozialpolitik, 1907. The Marxian Doctrine30 same, then the rate of return to total capital will in general decrease. This argument has elicited much admiration, and was presumably looked upon by Marx himself with all the satisfaction we are in the habit of feeling if a theory of ours explains an observation that did not enter into its construction. It would be interesting to discuss it on its own merits and independently of the mistakes Marx committed in deriving it. We need not stay to do so, for it is sufficiently condemned by its premises. But a cognate though not identical proposition provides both one of the most important “forces” of Marxian dynamics and the link between the theory of exploitation and the next story of Marx’s analytic structure, usually referred to as the Theory of Accumulation. The main part of the loot wrung from exploited labor (according to some of the disciples, practically all of it) capitalists turn into capital— means of production. In itself and barring the connotations called up by Marx’s phraseology, this is of course no more than a statement of a very familiar fact ordinarily described in terms of saving and investment. For Marx however this mere fact was not enough: if the capitalist process was to unfold in inexorable logic, that fact had to be part of this logic which means, practically, that it had to be necessary. Nor would it have been satisfactory to allow this necessity to grow out of the social psychology of the capitalist class, for instance in a way similar to Max Weber’s who made Puritan attitudes—and abstaining from hedonist enjoyment of one’s profits obviously fits well into their pattern—a causal determinant of capitalist behavior. Marx did not despise any support he felt able to derive from this method. 10 But there had to be something more substantial than this for a system designed as his was, something which compels capitalists to accumulate irrespective of what they feel about it, and which is powerful enough to account for that psychological pattern itself. And fortunately there is. In setting forth the nature of that compulsion to save, I shall for the sake of convenience accept Marx’s teaching on one point: that is to say, I shall assume as he does that saving by the capitalist class ipso facto implies a corresponding increase in real capital. 11 This movement will in the first 10 For instance, in one place (Das Kapital, vol. i, p. 654, of the Everyman edition) he surpasses himself in picturesque rhetoric on the subject—going, I think, further than is proper for the author of the economic interpretation of history. Accumulating may or may not be “Moses and all the prophets”(!) for the capitalist c l a s s a n d s u c h f l i g h t s m a y o r m a y n o t s t r i ke u s a s r i d i c u l o u s — w i t h M a r x , arguments of that type and in that style are always suggestive of some weakness that must be screened. 11 For Marx, saving or accumulating is identical with conversion of “surplus value into capital.” With that I do not propose to take issue, though individual attempts at saving do not Marx the Economist 31 instance always occur in the variable part of total capital, the wage capital, even if the intention is to increase the constant part and in particular that part which Ricardo called fixed capital—mainly machinery. When discussing Marx’s theory of exploitation, I have pointed out that in a perfectly competitive economy exploitation gains would induce capitalists to expand production, or to attempt to expand it, because from the standpoint of every one of them that would mean more profit. In order to do so they would have to accumulate. Moreover the mass effect of this would tend to reduce surplus values through the ensuing rise in wage rates, if not also through an ensuing fall in the prices of products—a very nice instance of the contradictions inherent in capitalism that were so dear to Marx’s heart. And that tendency itself would, also for the individual capitalist, constitute another reason why he should feel compelled to accumulate, 12 though again that would in the end make matters worse for the capitalist class as a whole. There would hence be a sort of compulsion to accumulate even in an otherwise stationary process which, as I mentioned before, could not reach stable equilibrium until accumulation had reduced surplus value to zero and thus destroyed capitalism itself. 13 Much more important and much more drastically compelling is something else, however. As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment. Any existing structures and all the conditions of doing business are always in a process of change. Every situation is being upset before it has had time to work itself out. Economic progress, in capitalist necessarily and automatically increase real capital. Marx’s view seems to me to be so much nearer the truth than the opposite view sponsored by many of my contemporaries that I do not think it worth while to challenge it here. 12 Less would of course in general be saved out of a smaller than out of a bigger income. But more will be saved out of any given income if it is not expected to last or if it is expected to decrease than would be saved out of the same income if it were known to be at least stable at its current figure. 13 To some extent Marx recognizes this. But he thinks that if wages rise and thereby interfere with accumulation, the rate of the latter will decrease “because the stimulus of gain is blunted” so that “the mechanism of the process of capitalist production removes the very obstacles it temporarily creates.” (Das Kapital, vol. i, ch. xxv, section 1.) Now this tendency of the capitalist mechanism to equilibrate itself is surely not above question and any assertion of it would require, to say the least, careful qualification. But the interesting point is that we should call that statement most un-Marxian if we happened to come across it in the work of another economist and that, as far as it is tenable, it greatly weakens the main drift of Marx’s argument. In this point as in many others, Marx displays to an astonishing degree the shackles of the bourgeois economics of his time which he believed himself to have broken. The Marxian Doctrine32 society, means turmoil. And, as we shall see in the next part, in this turmoil competition works in a manner completely different from the way it would work in a stationary process, however perfectly competitive. Possibilities of gains to be reaped by producing new things or by producing old things more cheaply are constantly materializing and calling for new investments. These new products and new methods compete with the old products and old methods not on equal terms but at a decisive advantage that may mean death to the latter. This is how “progress” comes about in capitalist society. In order to escape being undersold, every firm is in the end compelled to follow suit, to invest in its turn and, in order to be able to do so, to plow back part of its profits, i.e., to accumulate. 14 Thus, everyone else accumulates. Now Marx saw this process of industrial change more clearly and he realized its pivotal importance more fully than any other economist of his time. This does not mean that he correctly understood its nature or correctly analyzed its mechanism. With him, that mechanism resolves itself into mere mechanics of masses of capital. He had no adequate theory of enterprise and his failure to distinguish the entrepreneur from the capitalist, together with a faulty theoretical technique, accounts for many cases of non sequitur and for many mistakes. But the mere vision of the process was in itself sufficient for many of the purposes that Marx had in mind. The non sequitur ceases to be a fatal objection if what does not follow from Marx’s argument can be made to follow from another one; and even downright mistakes and misinterpretations are often redeemed by the substantial correctness of the general drift of the argument in the course of which they occur—in particular they may be rendered innocuous for the further steps of the analysis which, to the critic who fails to appreciate this paradoxical situation, seem condemned beyond appeal. We had an example of this before. Taken as it stands, Marx’s theory of surplus value is untenable. But since the capitalist process does produce recurrent waves of temporary surplus gains over cost which, though in a very un-Marxian way, other theories can account for all right, Marx’s next step, inscribed to accumulation, is not completely vitiated by his previous slips. Similarly, Marx himself did not satisfactorily establish that compulsion to accumulate, which is so essential to his argument. But no 14 That is of course not the only method of financing technological improvement. But it is practically the only method that Marx considered. Since it actually is a very important one, we may here follow him in this, though other methods, particularly that of borrowing from banks, i.e., of creating deposits, produce conse quences of their own, insertion of which would really be necessary in order to draw a correct picture of the capitalist process. Marx the Economist 33 great harm results from the shortcomings of his explanation because, in the way alluded to, we can readily supply a more satisfactory one ourselves, in which among other things the fall of profits drops into the right place by itself. The aggregate rate of profit on total industrial capital need not fall in the long run, either for the Marxian reason that the constant capital increases relatively to the variable capital 15 or for any other. It is sufficient that, as we have seen, the profit of every individual plant is incessantly being threatened by actual or potential competition from new commodities or methods of production which sooner or later will turn it into a loss. So we get the driving force required and even an analogon to Marx’s proposition that constant capital does not produce surplus value—for no individual assemblage of capital goods remains a source of surplus gains forever—without having to rely on those parts of his argument which are of doubtful validity. Another example is afforded by the next link in Marx’s chain, his Theory of Concentration, that is, his treatment of the tendency of the capitalist process to increase the size both of industrial plants and of units of control. All he has to offer in explanation, 16 when stripped of his imagery, boils down to the unexciting statements that “the battle of competition is fought by cheapening commodities” which “depends, caeteris paribus, on the productiveness of labor”; that this again depends on the scale of production; and that “the larger capitals beat the smaller.” 17 This is much like what the current textbook says on the matter, and not very deep or admirable in itself. In particular it is inadequate because of the exclusive emphasis placed on the size of the individual “capitals” while in his description of effects Marx is much hampered by his technique which is unable to deal effectively with either monopoly or oligopoly. 15 According to Marx, profits can of course also fall for another reason, i.e., because of a fall in the rate of surplus value. That may be due either to increases in wage rates or to reductions, by legislation for instance, of the daily hours of work. It is possible to argue, even from the standpoint of Marxian theory, that this will induce “capitalists” to substitute labor- saving capital goods for labor, and hence also increase investment temporarily irrespective of the impact of new commodities and of technological progress. Into these questions we cannot enter however. But we may note a curious incident. In 1837, Nassau W. Senior published a pamphlet entitled Letters on the Factory Act, in which he tried to show that the proposed reduction of the duration of the working day would result in the annihilation of profits in the cotton industry. In Das Kapital, vol. i, ch. vii, section 3. Marx surpasses himself in fierce indictments against that performance. Senior’s argument is in fact little short of foolish. But Marx should have been the last person to say so for it is quite in keeping with his own theory of exploitation. 16 See Das Kapital, vol. i, ch. xxv, section 2. 17 This conclusion, often referred to as the theory of expropriation, is with Marx the only purely economic basis of that struggle by which capitalists destroy one another. The Marxian Doctrine34 Yet the admiration so many economists outside the fold profess to feel for this theory is not unjustified. For one thing, to predict the advent of big business was, considering the conditions of Marx’s day, an achievement in itself. But he did more than that. He neatly hitched concentration to the process of accumulation or rather he visualized the former as part of the latter, and not only as part of its factual pattern but also of its logic. He perceived some of the consequences correctly—for instance that “the increasing bulk of individual masses of capital becomes the material basis of an uninterrupted revolution in the mode of production itself”—and others at least in a one-sided or distorted manner. He electrified the atmosphere surrounding the phenomenon by all the dynamos of class war and politics—that alone would have been enough to raise his exposition of it high above the dry economic theorems involved, particularly for people without any imagination of their own. And, most important of all, he was able to go on, almost entirely unhampered by the inadequate motivation of individual traits of his picture and by what to the professional appears to be lack of stringency in his argument, for after all the industrial giants actually were in the offing and so was the social situation which they were bound to create. 5. Two more items will complete this sketch: Marx’s theory of Verelendung or, to use the English equivalent I have ventured to adopt, of immiserization, and his (and Engels’) theory of the trade cycle. In the former, both analysis and vision fail beyond remedy; both show up to advantage in the latter. Marx undoubtedly held that in the course of capitalist evolution real wage rates and the standard of life of the masses would fall in the better- paid, and fail to improve in the worst-paid, strata and that this would come about not through any accidental or environmental circumstances but by virtue of the very logic of the capitalist process. 18 As a prediction, this was of course singularly infelicitous and Marxists of all types have been hard put to it to make the best of the clearly adverse evidence that confronted them. At first, and in some isolated instances even to our day, they displayed a remarkable tenacity in trying to save that “law” as a statement of an actual tendency borne out by wage statistics. Then attempts were 18 There is a first-line defense which Marxists, like most apologists, are wont to set against the critical intention lurking behind any such clear-cut statement. It is that Marx did not entirely fail to see the other side of the medal and that he very often “recognized” cases of rising wages and so on—as indeed nobody could possibly fail to do—the implication being that he fully anticipated whatever a critic might have to say. So prolix a writer who interlards his argument with such rich layers of historical analysis naturally gives more scope for such defense than any of the fathers of the church did. But what is the good of “recognizing” recalcitrant fact if it is not allowed to influence conclusions? Marx the Economist 35 made to read into it a different meaning, that is to say, to make it refer not to rates of real wages or to the absolute share that goes to the working class but to the relative share of labor incomes in total national income. Though some passages in Marx will in fact bear interpretation in this sense, this clearly violates the meaning of most. Moreover, little would be gained by accepting this interpretation, because Marx’s main conclusions presuppose that the absolute per capita share of labor should fall or, at the very least, not increase: if he really had been thinking of the relative share that would only add to Marxian troubles. Finally the proposition itself would still be wrong. For the relative share of wages and salaries in total income varies but little from year to year and is remarkably constant over time—it certainly does not reveal any tendency to fall. There seems, however, to be another way out of the difficulty. A tendency may fail to show in our statistical time series—which may even show the opposite one as they do in this case—and yet it might be inherent in the system under investigation, for it might be suppressed by exceptional conditions. This is in fact the line that most modern Marxists take. The exceptional conditions are found in colonial expansion or, more generally, in the opening up of new countries during the nineteenth century, which is held to have brought about a “closed season” for the victims of exploitation. 19 In the next part we shall have occasion to touch upon this matter. Meanwhile, let us note that facts lend some prima facie support to this argument which is also unexceptionable in logic and therefore might resolve the difficulty if that tendency were otherwise well established. But the real trouble is that Marx’s theoretical structure is anything but trustworthy in that sector: along with the vision, the analytic groundwork is there at fault. The basis of the theory of immiserization is the theory of the “industrial reserve army,” i.e., of the unemployment created by the mechanization of the process of production. 20 And the theory of the reserve army is in turn based upon the doctrine expounded in Ricardo’s chapter on machinery. Nowhere else—excepting of course the theory of value— 19 This idea was suggested by Marx himself, though it has been developed by the Neo-Marxists. 20 This kind of unemployment must of course be distinguished from others. In particular, Marx notices the kind which owes its existence to the cyclical variations in business activity. Since the two are not independent and since in his argument he often relies on the latter type rather than on the former, difficulties of interpretation arise of which not all critics seem to be fully aware. 21 To any theorist this must be obvious, from a study not only of the sedes materiae, Das Kapital, vol. i, ch. xv, sections 3, 4, 5, and especially 6 (where Marx deals with the theory of compensation, to be noted above), but also of chs. xxiv and xxv where, in a partially different garb, the same things are repeated and elaborated. The Marxian Doctrine36 does Marx’s argument so completely depend on that of Ricardo without adding anything essential. 21 I am speaking of course of the pure theory of the phenomenon only. Marx did add, as always, many minor touches such as the felicitous generalization by which the replacement of skilled by unskilled workers is made to enter into the concept of unemployment; also he added an infinite wealth of illustration and phraseology; and, most important of all, he added the impressive setting, the wide backgrounds of his social process. Ricardo had at first been inclined to share the view, very common at all times, that the introduction of machines into the productive process could hardly fail to benefit the masses. When he came to doubt that opinion or, at all events, its general validity, he with characteristic frankness revised his position. No less characteristically, he leaned backwards in doing so and, using his customary method of “imagining strong cases,” produced a numerical example, well known to all economists, to show that things could also turn out the other way. He did not mean to deny, on the one hand, that he was proving no more than a possibility—a not unlikely one though—or, on the other hand, that in the end net benefit to labor would result from mechanization through its ulterior effects on total output, prices and so on. The example is correct as far as it goes. 22 The somewhat more refined methods of today support its result to the extent that they admit the possibility it aimed at establishing as well as the opposite one; they go beyond it by stating the formal conditions which determine whether the one or the other consequence will ensue. That is of course all that pure theory can do. Further data are necessary in order to predict the actual effect. But for our purpose, Ricardo’s example presents another interesting feature. He considers a firm owning a given amount of capital and employing a given number of workmen that decides to take a step in mechanization. Accordingly, it assigns a group of those workmen to the task of constructing a machine which when installed will enable the firm to dispense with part of that group. Profits may eventually remain the same (after the competitive adjustments which will do away with any temporary gain) but gross revenue will be destroyed to the exact amount of the wages previously paid to the workmen that have now been “set free.” Marx’s idea of the replacement of variable (wage) capital by constant capital is almost the exact replica of this way of putting it. Ricardo’s emphasis upon the ensuing redundancy of population is likewise exactly paralleled by Marx’s 22 Or it can be made correct without losing its significance. There are a few doubtful points about the argument that are probably due to its lamentable technique—which so many economists would love to perpetuate. Marx the Economist 37 emphasis upon surplus population which term he uses as an alternative to the term “industrial reserve army.” Ricardo’s teaching is indeed being swallowed hook, line and sinker. But what may pass muster as long as we move within the restricted purpose Ricardo had in view becomes utterly inadequate—in fact the source of another non sequitur, not redeemed this time by a correct vision of ultimate results—as soon as we consider the superstructure Marx erected on that slender foundation. Some such feeling he seems to have had himself. For with an energy that has something desperate about it he clutched the conditionally pessimistic result of his teacher as if the latter’s strong case were the only possible one, and with energy even more desperate he fought those authors who had developed the implications of Ricardo’s hint at compensations that the machine age might hold out to labor even where the immediate effect of the introduction of machinery spelled injury (theory of compensation, the pet aversion of all Marxists). He had every reason for taking this course. For he badly needed a firm foundation for his theory of the reserve army which was to serve two fundamentally important purposes, besides some minor ones. First, we have seen that he deprived his doctrine of exploitation of what I have called an essential prop by his aversion, quite understandable in itself, to making use of the Malthusian theory of population. That prop was replaced by the ever-present, because ever-recreated 23 reserve army. Second, the particularly narrow view of the process of mechanization he adopted was essential in order to motivate the resounding phrases in Chapter XXXII of the first volume of Das Kapital which in a sense are the crowning finale not only of that volume but of Marx’s whole work. I will quote them in full—more fully than the point under discussion requires—in order to give my readers a glimpse of Marx in the attitude which accounts equally well for the enthusiasm of some and for the contempt of others. Whether a compound of things that are not so or the very heart of prophetic truth, here they are: “Hand in hand with this centralization, or this expropriation of many capitalists by few, develops…the entanglement of all nations in the net of the world market, and with this, the international character of the capitalist régime. Along with the constantly diminishing number of the magnates of 23 It is of course necessary to stress the incessant creation. It would be quite unfair to Marx’s words as well as meaning to imagine, as some critics have done, that he assumed that the introduction of machinery threw people out of work who then would remain individually unemployed ever after. He did not deny absorption, and criticism that is based on the proof that any unemployment created with each time be absorbed entirely misses the target. The Marxian Doctrine38 capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with it, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. This integument bursts. The knell of capitalist private property sounds. The expropriators are expropriated.” 6. Marx’s performance in the field of business cycles is exceedingly difficult to appraise. The really valuable part of it consists of dozens of observations and comments, most of them of a casual nature, which are scattered over almost all his writings, many of his letters included. Attempts at reconstruction from such membra disjecta of a body that nowhere appears in the flesh and perhaps did not even exist in Marx’s own mind except in an embryonic form, may easily yield different results in different hands and be vitiated by the understandable tendency of the admirer to credit Marx, by means of suitable interpretation, with practically all those results of later research of which the admirer himself approves. The common run of friends and foes never realized and does not realize now the kind of task which confronts the commentator because of the nature of Marx’s kaleidoscopic contribution to that subject. Seeing that Marx so frequently pronounced upon it and that it was obviously very relevant to his fundamental theme, they took it for granted that there must be some simple and clear-cut Marxian cycle theory which it should be possible to make grow out of the rest of his logic of the capitalist process much as, for instance, the theory of exploitation grows out of the labor theory. Accordingly they set about finding such a theory, and it is easy to guess what it was that occurred to them. On the one hand, Marx no doubt extols—though he does not quite adequately motivate—the tremendous power of capitalism to develop society’s capacity to produce. On the other hand, he incessantly places emphasis on the growing misery of the masses. Is it not the most natural thing in the world to conclude that crises or depressions are due to the fact that the exploited masses cannot buy what that ever-expanding apparatus of production turns out or stands ready to turn out, and that for this and also other reasons which we need not repeat the rate of profits drops to bankruptcy level? Thus we seem indeed to land, according to which element we want to stress, at the shores of either an Marx the Economist 39 under-consumption or an over-production theory of the most contemptible type. The Marxian explanation has in fact been classed with the under- consumption theories of crises. 24 There are two circumstances that may be invoked in support. First, in the theory of surplus value and also in other matters, the affinity of Marx’s teachings with that of Sismondi and Rodbertus is obvious. And these men did espouse the under-consumption view. It was not unnatural to infer that Marx might have done the same. Second, some passages in Marx’s works particularly the brief statement about crises contained in the Communist Manifesto undoubtedly lend themselves to this interpretation, though Engels’ utterances do so much more. 25 But this is of no account since Marx, showing excellent sense, expressly repudiated it. 26 The fact is that he had no simple theory of business cycles. And none can be made to follow logically from his “laws” of the capitalist process. Even if we accept his explanation of the emergence of surplus value and agree to allow that accumulation, mechanization (relative increase of constant capital) and surplus population, the latter inexorably deepening mass misery, do link up into a logical chain that ends in the catastrophe of the capitalist system— even then we are left without a factor that would necessarily impart of cyclical fluctuation to the process and account for an immanent alternation of prosperities and depressions. 27 No doubt plenty of accidents and incidents 24 Though this interpretation has become a fashion, I will mention two authors only, one of whom is responsible for a modified version of it, while the other may testify to its persistence: Tugan-Baranowsky, Theoretische Grundlagen des Marxismus, 1905, who condemned Marx’s theory of crises on that ground; and M.Dobb, Political Economy and Capitalism, 1937, who is more sympathetic toward it. 25 Engels’ somewhat commonplace view of the matter is best expressed in his polemical book entitled Herrn Eugen Dührings Umwälzung der Wissenschaft, 1878, in what has become one of the most frequently quoted passages in socialist literature. He presents there a very graphic account of the morphology of crises that is good enough no doubt for the purposes of popular lectures, but also the opinion, standing in the place in which one would look for an explanation, that “the expansion of the market cannot keep pace with the expansion of production.” Also he approvingly refers to Fourier’s opinion, conveyed by the self-explanatory phrase, crises pléthoriques. It cannot be denied however that Marx wrote part of ch. x and shares responsibility for the whole book. I observe that the few comments on Engels that are contained in this sketch are of a derogatory nature. This is unfortunate and not due to any intention to belittle the merits of that eminent man. I do think however that it should be frankly admitted that intellectually and especially as a theorist he stood far below Marx. We cannot even be sure that he always got the latter’s meaning. His interpretations must therefore be used with care. 26 Das Kapital, vol. ii, p. 476, of the English translation of 1907. See, however, also Theorien über den Mehrwert, vol. ii, ch. iii. 27 To the layman, the opposite seems so obvious that it would not be easy to establish this statement, even if we had all the space in the world. The best way for the reader to convince himself of its truth is to study Ricardo’s argument on machinery. The process there described might cause any amount of unemployment and yet go on indefinitely without causing a breakdown other than the final one of the system itself. Marx would have agreed with this. The Marxian Doctrine40 are always at hand for us to draw upon in order to make up for the missing fundamental explanation. There are miscalculations, mistaken expectations and other errors, waves of optimism and pessimism, speculative excesses and reactions to speculative excesses, and there is the inexhaustible source of “external factors.” All the same, Marx’s mechanical process of accumulation going on at an even rate—and there is nothing to show why, on principle, it should not—the process he describes might also go on at even rates; as far as its logic is concerned, it is essentially prosperityless and depressionless. Of course this is not necessarily a misfortune. Many other theorists have held and do hold simply that crises happen whenever something of sufficient importance goes wrong. Nor was it altogether a handicap because it released Marx, for once, from the thralldom of his system and set him free to look at facts without having to do violence to them. Accordingly, he considers a wide variety of more or less relevant elements. For instance, he uses somewhat superficially the intervention of money in commodity transactions—and nothing else—in order to invalidate Say’s proposition about the impossibility of a general glut; or easy money markets in order to explain disproportionate developments in the lines characterized by heavy investment in durable capital goods; or special stimuli such as the opening of markets or the emergence of new social wants in order to motivate sudden spurts in “accumulation.” He tries, not very successfully, to turn the growth of population into a factor making for fluctuations. 28 He observes, though he does not really explain, that the scale of production expands “by fits and starts” that are “the preliminary to its equally sudden contraction.” He aptly says that “the superficiality of Political Economy shows itself in the fact that it looks upon expansion and contraction of credit, which is a mere symptom of the periodic changes of the industrial cycle, as their cause.” 29 And the chapter of incidents and accidents he of course lays under heavy contribution. All that is common sense and substantially sound. We find practically all the elements that ever entered into any serious analysis of business cycles, and on the whole very little error. Moreover, it must not be forgotten that the mere perception of the existence of cyclical movements 28 In this also he does not stand alone. However it is but fair to him to expect that he would eventually have seen the weaknesses of this approach, and it is relevant to note that his remarks on the subject occur in the third volume and cannot be trusted to render what might have been his final view. 29 Das Kapital, vol. i, ch. xxv, section 3. Immediately after this passage he takes a step in a direction that is also very familiar to the student of modern business cycle theories: “Effects, in their turn become causes, and the varying accidents of the whole process, which always reproduces its own conditions [my italics], take on the form of periodicity.” Marx the Economist 41 was a great achievement at the time. Many economists who went before him had an inkling of it. In the main, however, they focused their attention on the spectacular breakdowns that came to be referred to as “crises.” And those crises they failed to see in their true light, that is to say, in the light of the cyclical process of which they are mere incidents. They considered them, without looking beyond or below, as isolated misfortunes that will happen in consequence of errors, excesses, misconduct or of the faulty working of the credit mechanism. Marx was, I believe, the first economist to rise above that tradition and to anticipate—barring the statistical complement—the work of Clément Juglar. Though, as we have seen, he did not offer an adequate explanation of the business cycle, the phenomenon stood clearly before his eyes and he understood much of its mechanism. Also like Juglar, he unhesitatingly spoke of a decennial cycle “interrupted by minor fluctuations.” 30 He was intrigued by the question of what the cause of that period might be and considered the idea that it might have something to do with the life of machinery in the cotton industry. And there are many other signs of preoccupation with the problem of business cycles as distinguished from that of crises. This is enough to assure him high rank among the fathers of modern cycle research. Another aspect must be mentioned. In most cases Marx used the term crisis in its ordinary sense, speaking of the crisis of 1825 or that of 1847 as other people do. But he also used it in a different sense. Believing that capitalist evolution would some day disrupt the institutional framework of capitalist society, he thought that before the actual breakdown occurred, capitalism would begin to work with increasing friction and display the symptoms of fatal illness. To this stage, to be visualized of course as a more or less prolonged historical period, he applied the same term. And he displays a tendency to link those recurrent crises with this unique crisis of the capitalist order. He even suggests that the former may in a sense be looked upon as previews of the ultimate breakdown. Since to many readers this might look like a clue to Marx’s theory of crises in the ordinary sense, it is necessary to point out that the factors which according to Marx will be 30 Engels went further than this. Some of his notes to Marx’s third volume reveal that he suspected also the existence of a longer swing. Though he was inclined to interpret the comparative weakness of prosperities and the comparative intensity of depressions in the seventies and eighties as a structural change rather than as the effect of the depression phase of a wave of longer span (exactly as many modern economists do with respect to the post-war developments and especially to those of the last decade) some anticipation of Kondratieff’s work on Long Cycles might he seen in this. 31 In order to convince himself of this, the reader need only glance again at the quotation on p. 37. In fact, though Marx so often plays with the idea, he avoids committing himself to it, which is significant because it was not his way to miss the opportunity for a generalization. The Marxian Doctrine42 responsible for the ultimate breakdown cannot, without a good dose of additional hypotheses, be made responsible for the recurrent depressions, 31 and that the clue does not get us beyond the trivial proposition that the “expropriation of the expropriators” may be an easier matter in a depression than it would be in a boom. 7. Finally, the idea that capitalist evolution will burst—or outgrow—the institutions of capitalist society (Zusammenbruchstheorie, the theory of the inevitable catastrophe) affords a last example of the combination of a non sequitur with profound vision which helps to rescue the result. Based as Marx’s “dialectic deduction” is on the growth of misery and oppression that will goad the masses into revolt, it is invalidated by the non sequitur that vitiates the argument which was to establish that inevitable growth of misery. Moreover, otherwise orthodox Marxists have long ago begun to doubt the validity of the proposition that concentration of industrial control is necessarily incompatible with the “capitalist integument.” The first of them to voice this doubt by means of a well-organized argument was Rudolf Hilferding, 32 one of the leaders of the important group of Neo- Marxists, who actually inclined toward the opposite inference, viz., that through concentration capitalism might gain in stability. 33 Deferring to the next part what I have to say upon the matter, I will state that Hilferding seems to me to go too far although there is, as we shall see, no foundation for the belief, at present current in this country, that big business “becomes a fetter upon the mode of production,” and although Marx’s conclusion does in fact not follow from his premises. However, even though Marx’s facts and reasoning were still more at fault than they are, his result might nevertheless be true so far as it simply avers that capitalist evolution will destroy the foundations of capitalist society. I believe it is. And I do not think I am exaggerating if I call profound a vision in which that truth stood revealed beyond doubt in 1847. It is a commonplace now. The first to make it that was Gustav Schmoller. His Excellency, Professor Von Schmoller, Prussian Privy Councellor and Member of the 32 Das Finanzkapital, 1910. Doubts based on a number of secondary circumstances that were held to show that Marx made too much of the tendencies he thought he had established and that social evolution was a much more complex and a much less consistent process than he made out, had of course often arisen before. It is sufficient to mention E.Bernstein; see ch. xxvi. But Hilferding’s analysis does not plead extenuating circumstances, but fights that conclusion on principle and on Marx’s own ground. 33 This proposition has often (even by its author) been confused with the proposition that business fluctuations tend to become milder as time goes on. That may or may not be so (1929–32 would not disprove it) but greater stability of the capitalist system, i.e., a somewhat less temperamental behavior of our time series of prices and quantities, does not necessarily imply, nor is it necessarily implied by, greater stability, i.e., a greater ability of the capitalist order to withstand attack. Both things are related, of course, but they are not the same. Marx the Economist 43 Prussian House of Lords, was not much of a revolutionary or much given to agitatorial gesticulations. But he quietly stated the same truth. The Why and How of it he likewise left unsaid. It is hardly necessary to sum up elaborately. However imperfect, our sketch should suffice to establish: first, that nobody who cares at all for purely economic analysis can speak of unqualified success; second, that nobody who cares at all for bold construction can speak of unqualified failure. In the court that sits on theoretical technique, the verdict must be adverse. Adherence to an analytic apparatus that always had been inadequate and was in Marx’s own day rapidly becoming obsolete; a long list of conclusions that do not follow or are downright wrong; mistakes which if corrected change essential inferences, sometimes into their opposites—all this can be rightfully charged against Marx, the theoretical technician. Even in that court, however, qualification of the verdict will be necessary on two grounds. First, though Marx was often—sometimes hopelessly—wrong, his critics were far from being always right. Since there were excellent economists among them, the fact should be recorded to his credit, particularly because most of them he was not able to meet himself.

Second, so should Marx’s contributions, both critical and positive, to a great many individual problems. In a sketch like this, it is not possible to enumerate them, let alone to do them justice. But we have had a view of some of them in our discussion of his treatment of the business cycle. I have also mentioned some that improved our theory of the structure of physical capital. The schemata which he devised in that field, though not irreproachable, have again proved serviceable in recent work that looks quite Marxian in places.

But a court of appeal—even though still confined to theoretical matters— might feel inclined to reverse this verdict altogether. For there is one truly great achievement to be set against Marx’s theoretical misdemeanors. Through all that is faulty or even unscientific in his analysis runs a fundamental idea that is neither—the idea of a theory, not merely of an indefinite number of disjointed individual patterns or of the logic of economic quantities in general, but of the actual sequence of those patterns or of the economic process as it goes on, under its own steam, in historic time, producing at every instant that state which will of itself determine the next one. Thus, the author of so many misconceptions was also the first to visualize what even at the present time is still the economic theory of the future for which we are slowly and laboriously accumulating stone and mortar, statistical facts and functional equations.

And he not only conceived that idea, but he tried to carry it out All the shortcomings that disfigure his work must, because of the great purpose his argument attempted to serve, be judged differently even where they are not, as they are in some cases, fully redeemed thereby. There is however one thing of fundamental importance for the methodology of economics which he actually achieved. Economists always have either themselves done work in economic history or else used the historical work of others. But the facts of economic history were assigned to a separate compartment. They entered theory, if at all, merely in the role of illustrations, or possibly of verifications of results. They mixed with it only mechanically. Now Marx’s mixture is a chemical one; that is to say, he introduced them into the very argument that produces the results. He was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis and how the historical narrative may be turned into histoire raisonnée. 34 the analogous problem with respect to statistics he did not attempt to solve. But in a sense it is im plied in the other. This also answers the question how far, in the way explained at the end of the preceding chapter, Marx’s economic theory succeeds in implementing his sociological setup. It does not succeed; but in failing, it establishes both a goal and a method.