Marx and the Classical Canon: The Theory of Value

B. Marx and the Classical Canon: The Theory of Value

I have throughout this work indicated points of contact between Marx and the canonical classicists, Ricardo in particular. 11 The study largely confirms Marx’s recognition of the efficiency benefits deriving from competition – subject to quali- fications relating to cyclical wastages – the population mechanism, the significance

10 On this matter of “duality,” see Lavoie 1983; Rosenberg 1994: 49–50. 11 The term “classical” was formally applied by Marx to cover a body of political economy, orig- inating with Sir William Petty, concerned with investigating “the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances

Conclusion – A Recapitulation and Overview

of surplus for growth and the convergence of prices on costs, features compris- ing Eltis’s valid conception of classical, including Marxian, economics (Eltis 2000, 2001). 12

In this section I will look more closely at the issues considered in Chapter 8.H regarding matters of timing and indebtedness with respect to the surplus-value doctrine and various derivations. I then turn in Section C to the trend paths of the factor returns, which so much preoccupied the classical writers.

As we know, one of Marx’s primary objectives was to counter the view that wages, profit, and rent represent “the constituent elements which . . . are the sources of the regulating price (natural price, prix n´ecessaire) of the commodities themselves,” in other words, that “wages, profit and rent are three independent magnitudes of value, whose total magnitude produces, limits and determines the magnitude of the commodity-value” (MECW 37: 849; see Chapter 1, p. 51). But this criti- cism of orthodoxy applies only to Adam Smith’s “adding-up” approach to price determination and the implications of this approach for the relation between dis- tribution and pricing. Ricardo had abandoned Smith’s approach. For Ricardo, the necessary or long-run equilibrium price of a particular commodity is made up of the sum of wage and profit costs, and disturbances affecting a specific industry could be treated on the assumption of given average rates of return to the factors; but this procedure had to be abandoned when a disturbance – such as a change in the general wage rate – affected all industries, for what is then involved is an inverse movement of the profit rate, profits treated as a residual. The level of prices would not change with a change of general wages as Smith implied; at most, the price structure would be influenced. This corpus of theory became a standard part of the classical canon, McCulloch’s formulation of the consequences of a general wage change providing an early statement:

Though fluctuations in the rate of wages occasion some variation in the exchangeable value of particular commodities, they neither add to nor take from the total value of the entire mass of commodities. If they increase the value of those produced by the least durable capitals, they equally diminish the value of those produced by the more durable capitals. Their aggregate value continues, therefore, always the same. And though it may not be strictly true of a particular commodity, that its exchangeable value is directly as its real value, or as the quantity of labour required to produce it and bring it to market, it is most true to affirm this of the mass of commodities taken together (McCulloch 1825: 312–13).

12 See also Sowell’s chapter on “The Mysteries of Marxian Economics” (Sowell 2006: 104–28).

As in O’Brien’s 1975 version, Marx is not discussed in that of 2004, on the same grounds that “[a]lthough his analytical apparatus was borrowed entirely from Classical economics and cannot be understood without a knowledge of Classical economics, it . . . is doubtful whether Marx was himself a Classical economist” (O’Brien 2004: xvi; 1975: xvi). We are not told from which part or parts of Classical economics, or from which Classical economist, Marx borrowed. In any event, O’Brien repeats his contention that “the full Ricardian apparatus attracted hardly any disciples” (50; 43), the apparatus in question identified as always with the Corn Model (48; 41).

B. Marx and the Classical Canon: The Theory of Value 473 We may then easily appreciate the sense of McCulloch’s formal insistence that

commodities exchange according to the labor theory; the rise in price of some commodities, following a change in the wage rate, is balanced by the fall in price of others, so that – in Marxian terms – the “deviations of prices from values” cancel out, and it is this result which counted for the derivation of the inverse profit- wage relation. McCulloch did not, as Ricardo had done, make it explicit in his first edition that to assure the foregoing result, the medium of exchange or num´eraire must be produced by a process requiring the mean capital-labor ratio of the system, though he clarified this requirement in the fifth edition of the Principles (1864: 290–1).

J. S. Mill reproduces the fundamental Ricardian theorem on distribution and its derivation in terms of the standard measure. And he emphasizes that the category of wage increase which reduces profits is one involving a greater labor embodiment in wage goods and thus a rise in labor’s proportionate share: “There is no mode in which capitalists can compensate themselves for a higher cost of labour, through any action on values or prices. If the labourers really get more, that is, the produce of more labour, a smaller percentage must remain for profit. From this Law of Distribution, resting as it does on a law of arithmetic, there is no escape” (1963–91 [1848]: 479–80). 13

Now all of this is part and parcel of Marx’s economics. On the other hand there is his insistence on a sharp distinction between s/v and s/(c+v) which, he rightly pointed out, Ricardo had failed fully to appreciate. 14 This may be perceived to

be a correction and so too may Marx’s proper allowance for the effect on the profit rate of changes in materials’ prices (Chapter 1.G, 10.E). But two substantive points of difference remain, namely the treatment of luxury goods in profit-rate determination (Chapters 1.H, 10.E), and that of Absolute Rent whereby the general profit rate is determined in the industrial sector and taken as a datum in agriculture to account for the breakdown of surplus value between profit and rent (Chap- ter 1.E, 10.C).

13 In his chapter “Of Distribution, as Affected by Exchange” Mill – following Ricardo – further clarifies that a measure of proportionate wages is furnished by money wages, provided money

satisfies the conditions required of a stable absolute measure (Mill 1963–91 [1848]: 695f).

14 The capital stock of £ 3000 tacked on to Ricardo’s substantive argument in his chapters “On Wages” and “On Profits” relating to profit-rate determination (1951–73 1: 117) adds nothing

essential. As Marx read Ricardo, quite understandably,

(L ) · P c −w m

r=

where F ′ (L) is the marginal physical or corn product, P c the money or “gold” price of corn and w m the money wage rate. If we define F ′ (L) · P c as the value of the product due to a

workday, taken as the minimum unit of labor (instead of the value of the product of 10 men as in Ricardo’s arithmetical example), the modified formula for r expresses precisely the fraction of the workday devoted to producing goods for the capitalist-employer, Marx’s s, relative to the fraction devoted to producing wage goods, Marx’s v.

Conclusion – A Recapitulation and Overview

Marx’s representation of his relation with the orthodox classicists is characteris- tically ambivalent. Thus we find recognition of progress on the part of the classics with respect to their undermining of the “Trinity Formula”:

It is the great merit of classical economy to have destroyed this false appearance and illusion, this mutual independence and ossification of the various social elements of wealth, this personification of things and conversion of production relations into enti- ties, this religion of everyday life. It did so by reducing interest to a portion of profit, and rent to the surplus above average profit, so that both of them converge in surplus value; and by representing the process of circulation as a mere metamorphosis of forms, and finally reducing value and surplus value of commodities to labour in the direct production process (MECW 37: 817).

Yet Marx immediately proceeds to the charge – it reflects his ideological perspective on the history of economics – that “even the best spokesmen of classical economy remain more or less in the grip of the world of illusion which their criticism had dissolved, as cannot be otherwise from a bourgeois standpoint, and thus they all fall more or less into inconsistencies, half-truths and unsolved contradictions.” Elsewhere there is an unjustified assertion that Ricardo “did not understand the levelling of values to prices of production” (201n); and an irrelevant criticism that Ricardo and his “servile herd of imitators” deal only with the consequences for prices of a rise of wages, neglecting to consider a fall.

Particularly important is the complaint in Capital 1 that Ricardo “never concerns himself about the origin of surplus value. He treats it as a thing inherent in the capitalist mode of production, which mode, in his eyes, is the natural form of social production. Whenever he discusses the productiveness of labour, he seeks in it, not the cause of surplus value, but the cause that determines the magnitude of that value” (MECW 35: 516–17). (We have recorded a version of this complaint appearing in the Grundrisse in Chapter 8.I.) Now it is true that Ricardo did not formally address the issue of the source of profits in terms of unpaid labor hours – though it is implied by his formulations. But J. S. Mill certainly did. In his discussion of the Law of Distribution he adds that “[t]he mechanism of Exchange and Price may hide it from us, but is quite powerless to alter it” (1963–91 [1848]: 480), and represents (in the fourth edition of 1857) the “popular apprehension [that] the profits of business depended upon prices,” as an error arising from a failure to look below “the outside surface of the economical machinery of society” (410). Profits, in fact, derived from surplus labor time: “the reason why capital yields a profit, is because food, clothing, materials, and tools, last longer than the time which was required to produce them; so that if a capitalist supplies a party of labourers with these things, on condition of receiving all they produce, they will, in addition to reproducing their own necessaries and instruments, have a portion of their time remaining, to work for the capitalist . . . ” (411; see Chapter 8, p. 259).

Despite Mill’s rejection of misleading surface impressions and his isolation of the source of profit in surplus labor time Marx reacted harshly. 15 As in Capital 3

B. Marx and the Classical Canon: The Theory of Value 475

he recognized some progress, and allowed that “[Ricardo’s] school has openly pro- claimed the productiveness of labour to be the originating cause of profit (read: surplus value). This at all events is a progress as against the mercantilists who, on their side, derived the excess of the price over the cost of production of the product, from the act of exchange, from the product being sold above its value” (MECW

35: 517). But once again he immediately dilutes the concession: “Nevertheless, Ricardo’s school simply shirked the problem, they did not solve it. In fact these bourgeois economists instinctively saw, and rightly so, that it is very dangerous to stir too deeply the burning question of the origin of surplus value. But what are we to think of John Stuart Mill, who, half a century after Ricardo, solemnly claims superiority over the mercantilists, by clumsily repeating the wretched eva- sions of Ricardo’s earliest vulgarisers?” For Mill (in the passage of 1857) “confounds the duration of labour time with the duration of its products,” and represents “exchange, buying and selling, those general conditions of capitalist production, [as] an incident,” while insisting that “there would always be profits even without the purchase and sale of labour power!” It should, however, be noted that in later correspondence Marx greatly toned down his objection, referring to Mill’s formu- lation as “a striking example of how bourgeois economists, even with the best of intentions, instinctively go off the rails at the very moment when they seem about to light on the truth” (11 February 1875, MECW 45: 58; emphasis added).

The published reaction was the subject of a famous commentary by Bortkiewicz according to which Mill “deduces profit from surplus value, just as Marx does. . . . One will not go wrong if one connects the ill will which Marx displays towards Mill, with the circumstance that Mill had, basically, anticipated Marx’s the- ory of surplus value” (1952 [1907]: 52–3n). Now while an element of ill will cannot positively be excluded, it would at most relate only to Mill’s prior appearance in print; it is not a matter of plagiarism, as we have argued in Chapter 8 (p. 259). Moreover, Mill has it in 1857 and thereafter that “the general profit of the country is always what the productive power of labour makes it, whether any exchange takes place or not. If there were no division of employments there would be no buying or selling, but there would still be profit” (1963–91 [1848]: 411). Now Bortkiewicz claimed against Marx that Mill “did not mean the buying and selling of labour power, but merely the buying and selling of products” (1952 [1907]: 53n). He is probably right, but what sort of institutional arrangement Mill could possibly have intended is quite unclear. 16

There is a further matter, relating to Marx’s view that the “scientific” era in economics closed with Ricardo and Sismondi (though his positive representa- tion of various authors – for example, Jones, Ramsay, and Cherbuliez – raises difficulties, as King 1979 has pointed out). This reading of the literature appears first in correspondence of 1851 with Engels: “Au fond, this science has made no progress since A. Smith and D. Ricardo, however much has been done in the

16 On this and other aspects of the Marx-Mill connection, see Evans 1989. Evans documents

Conclusion – A Recapitulation and Overview

way of individual research, often extremely discerning” (2 April 1851; MECW 38: 325). And again in the Grundrisse: “The history of modern political economy ends with Ricardo and Sismondi. . . . The later literature of political economy ends up either in eclectic, syncretic compendia, like e.g., the work of J.St. Mill, or in rather detailed elaboration of particular branches like e.g. Tooke’s History of Prices and in general the more recent English writers on circulation – the only branch in which really new discoveries have been made. . . . There are some reproductions of old economic controversies for a larger public and some practical solutions for day-to-day problems. . . . Finally, there are tendentious exaggerations of the classi- cal theories . . . ” (MECW 28: 5). A version appears in the Economic Manuscripts: “ . . . the determination of exchange value by labour time has been formulated and expounded in the clearest manner by Ricardo, who gave to classical political economy its final shape . . . ” (MECW 29: 301); the problem was that “the bour- geois form of labour is regarded by Ricardo as the eternal natural form of social labor” (300), though here Marx attributes to Sismondi 1838 greater insight into the proper perspective. This general view is cited in the Afterword (1873) to the second German edition of Capital 1, with 1830 taken to be the “decisive” year:

In France and in England the bourgeoisie had conquered political power. Thenceforth, the class struggle, practically as well as theoretically, took on more and more outspoken and threatening forms. It sounded the knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested inquirers, there were hired prize-fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic (MECW 35: 15).

In this context J.S. Mill is designated, as in the Grundrisse, “the best representative” of a “shallow syncretism.” 17

17 In the same Afterword, Marx identifies his method in Capital with that of the “English school,” responding to a Comtist reviewer who had charged him inter alia with treating economics

“metaphysically”: As early as 1871, N. Sieber, Professor of political economy in the University of Kiev, in his work David

Ricardo’s Theory of Value and of Capital, referred to my theory of value, of money and of capital, as in its fundamentals a necessary sequel to the teaching of Smith and Ricardo. That which astonishes the Western European in the reading of this excellent work, is the author’s consistent and firm grasp of the purely theoretical position. . . . In answer to the reproach in re metaphysics, Professor Sieber has it: “In so far as it deals with actual theory, the method of Marx is the deductive method of the whole English school, a school whose failings and virtues are common to the best theoretic economists” (MECW 35: 17).

If by “the whole English school” Marx himself understood primarily the founders, Smith and Ricardo, his satisfaction with Sieber would be consistent with the significance accorded 1830. The passage was composed specifically to counter the charge against him of “metaphysics.” Accordingly, the fact that in 1867 Marx had represented his method as “Darwinian” or “histori- cal” (Chapter 13, p. 406) creates no problem. All depended on context whether the “deductive” or “historical” approach was appropriate.

C. Marx and the Classical Canon: The Trend Path of the Factor Returns 477 Now an illustration of Mill’s alleged “syncretism” is that he “accepts on the one

hand Ricardo’s theory of profit, and annexes on the other hand Senior’s ‘remuner- ation of abstinence.’ He is as much at home in absurd contradictions, as he feels at sea in the Hegelian contradiction, the source of all dialect” (592n). The presump- tion that the theory of surplus value rules out abstinence is also apparent in the Economic Manuscripts: “It is incomprehensible how economists like John Stuart Mill, who are Ricardians and even express the principle that profit merely = surplus value, surplus labour, in the form that the rate of profit and wages stand in inverse ratio to one another and that the rate of wages determines the rate of profit (which is incorrect when put in this form)” – here at least is a clear enough if qualified concession to Mill regarding surplus value – “suddenly convert industrial profit into the individual labour of the capitalist instead of into the surplus labour of the worker . . . ” (MECW 32: 505–6).

Marx’s objection is unconvincing. There is no good reason to avoid the simul- taneous adoption of the abstinence theory and of the notion of profit envisaged as a residual reflecting surplus labor time, for the former relates to capital-supply conditions and contributes to the actual determination of surplus labor time. That Marx did not make out a valid case against Mill is scarcely surprising. Ricardo did not reject the notion of abstinence as a “necessary” cost; and, as Schumpeter has emphasized (1954: 661–2) – and as we have shown – there are present in Marx’s own analysis elements of abstinence and waiting (see Chapter 2.C).