Rudolf Hilferding: Bhm-Bawerk's Criticism of Marx Chapter One !"#$ !% !& $CO&OM'C C!

($)OR* THE analysis of the commodity constitutes the starting point of the Marxist system. BhmBawerk's criticism is primarily le eled against this analysis. Bhm-Bawerk contends that Marx fails to adduce either an empirical or a psychological proof of his thesis that the principle of alue is to !e sought in la!or. He "prefers another# and for such a su!$ect somewhat singular line of e idence%the method of a purely logical proof# a dialectic deduction from the ery nature of exchange." &'( Marx had found in )ristotle the idea that exchange cannot exist without e*uality# and e*uality cannot exist without commensura!ility. +tarting with this idea# he concei es the exchange of two commodities under the form of an e*uation# and from this infers that a common factor of the same amount must exist in the things exchanged and there!y e*uated# and then proceeds to search for this common factor to which the two e*uated things must# as exchange alues# !e reduci!le. ,ow according to Bhm-Bawerk the most ulnera!le point in the Marxist theory is to !e found in the logical and systematic processes of distillation !y means of which Marx o!tains the sought-for "common factor" in la!or. They exhi!it# he declares# almost as many cardinal errors as there are points in the argument. -rom the !eginning Marx only puts into the sie e those exchangea!le &should read# "interchangea!le#" .. H.( things which he desires finally to winnow out as "the common factor#" and he lea es all the others outside. That is to say# he limits from the outset the field of his search to "commodities#" considering these solely as the products of la!or contrasted with the gifts of nature. ,ow it stands to reason# continues Bhm-Bawerk# that if exchange really means an e*uali/ation# which assumes the existence of "a common factor of the same amount#" this common factor must !e sought and found in e ery species of goods which is !rought into exchange# not only in products of la!or# !ut also in gifts of nature# such as the soil# wood in trees# water power# etc. To exclude these exchangea!le goods is a gross error of method# and the exclusion of the gifts of nature is the less to !e $ustified !ecause many natural gifts# such as the soil# are among the most important o!$ects of property and commerce# and also !ecause it is impossi!le to affirm that in nature's gifts exchange alues &this of course should !e "prices"0 .. H.( are always esta!lished ar!itrarily and !y accident. Marx is likewise careful to a oid mentioning that he excludes from in estigation a part of exchangea!le goods. 1n this case# as in so many others# he manages to glide with eel-like dialectic skill o er the difficult points of his argument. He omits to call his readers' attention to the fact that his idea of "commodities" is narrower than that of exchangea!le goods as a whole. ,ay# more# he continually endea ors to o!literate the distinction. He is compelled to take this course# for unless Marx had confined his research# at the decisi e point# to products of la!or# if he had sought for the common factor in the "exchangea!le" gifts of nature as well# it would ha e !ecome o! ious that la!or cannot !e the common factor. Had he carried out this limitation *uite clearly and openly# the gross fallacy of method would ine ita!ly ha e struck !oth himself and his readers. The trick could only ha e !een performed# as Marx performed it# with the aid of the mar elous dialectic skill wherewith he glides swiftly and lightly o er the knotty point.

But !y means of the artifice $ust descri!ed# proceeds our critic# Marx has merely succeeded in con incing us that la!or can in fact enter into the competition. The exclusion of other competitors is effected !y two arguments# each of a few words only# !ut each containing a ery serious logical fallacy. 1n the first of these Marx excludes all "geometrical# physical# chemical# or other natural *ualities of the commodities#" for "their physical *ualities claim our attention only in so far as they affect the utility of the commodities%make them use alues. 2n the other hand# the exchange relation of commodities is e idently characteri/ed !y the a!straction of their use alues#" !ecause "within this relation 3the exchange relation4 one use alue is as good as another pro ided only it !e present in the proper proportion." Here# says Bhm-Bawerk# Marx falls into a gra e error. He confuses the disregarding of a genus with the disregarding of the specific forms in which this genus manifests itself. The special forms under which use alue may appear may !e disregarded# !ut the use alue of the commodity in general must ne er !e disregarded. Marx might ha e seen that we do not a!solutely disregard use alue# from the fact that there can !e no exchange alue where there is not a use alue%a fact which Marx himself is repeatedly forced to admit. 5et us for a moment interrupt our recapitulation of Bhm-Bawerk's criticism !y a !rief interpolation calculated to throw light upon the psychology no less than upon the logic of the leader of the psychological school. 6hen 1 disregard the "specific forms in which use alue may manifest itself#" disregarding# therefore# use alue in its concreteness# 1 ha e# as far as 1 am concerned# disregarded use alue in general# since# as far as 1 am concerned# use alue exists in its concreteness solely as a thus or thus constituted use alue. Ha ing ceased for me to !e a use alue# it matters nothing to me that it has a use alue for others# possesses utility for this or that other person. 1 do not exchange it until the moment arri es when it has ceased to possess a use alue for me. This applies literally to the production of commodities in its de eloped form. Here the indi idual produces commodities of !ut one kind# commodities of which one specimen at most can possess a use alue for him# whereas in the mass the commodities ha e for him no such use alue. 1t is a precondition to the exchangea!ility of the commodities that they should possess utility for others# !ut since for me they are de oid of utility# the use alue of my commodities is in no sense a measure e en for my indi idual estimate of alue# and still less is it a measure of an o!$ecti e estimate of alue. 1t a ails nothing to say that the use alue consists of the capacity of these commodities to !e exchanged for other commodities# for this would imply that the extent of the "use alue" is now determined !y the extent of the exchange alue# not the extent of the exchange alue !y the extent of the use alue. )s long as goods are not produced for the purpose of exchange# are not produced as commodities# as long# that is to say# as exchange is no more than an occasional incident wherein superfluities only are exchanged# goods confront one another solely as use alues. "The proportions in which they are exchangea!le are at first *uite a matter of chance. 6hat makes them exchangea!le is the mutual desire of their owners to alienate them. Meantime the need for foreign o!$ects of utility gradually esta!lishes itself. The constant repetition of exchange makes it a normal social act. 1n the course of time# therefore# some portion at least of the products of la!or must !e produced with a special iew to exchange. -rom that moment the distinction !ecomes firmly esta!lished !etween the utility of an o!$ect for the purposes of consumption# and its utility for the purposes of exchange. 1ts use alue !ecomes distinguished from its exchange alue. 2n the other hand# the *uantitati e proportion in

which the articles are exchangea!le !ecomes dependent on their production itself. 7ustom stamps them as alues with definite magnitudes." &8( 6e ha e in fact nothing more than a disregard !y Marx of the specific forms in which the use alue manifests itself. -or the use alue remains the "!earer of alue." This is indeed selfe ident# for " alue" is nothing more than an economic modification of use alue. 1t is solely the anarchy of the contemporary method of production# owing to which under certain conditions 3a glut4 a use alue !ecomes a non-use- alue and conse*uently alueless# which makes the recognition of this self-e ident truth a matter of considera!le importance. 5et us return to Bhm-Bawerk. The second step in the argument# he tells us# is still worse. Marx contends that if the use alue of commodities !e disregarded# there remains in them !ut one other *uality# that of !eing products of la!or. But do there not remain a num!er of other *ualities9 +uch is Bhm-Bawerk's indignant in*uiry. Ha e they not the common *uality of !eing scarce in proportion to demand9 1s it not common to them to !e the o!$ects of demand and supply# or that they are appropriated# or that they are natural products9 1s it not common to them that they cause expense to their producers%a *uality to which Marx draws attention in the third olume of Capital? 6hy should not the principle of alue reside in any one of these *ualities as well as in the *uality of !eing products of la!or9 -or in support of this latter proposition Marx has not adduced a shred of positi e e idence. His sole argument is the negati e one# that the use alue# thus happily disregarded and out of the way# is not the principle of exchange alue. But does not this negati e argument apply with e*ual force to all the other common *ualities o erlooked &0( !y Marx9 This is not all. Marx writes as follows: ")long with the useful *ualities of the products &of la!or( we put out of sight !oth the useful character of the arious kinds of la!or em!odied in them# and the concrete forms of that la!or; there is nothing left !ut what is common to them all; they are reduced to one and the same sort of la!or# human la!or in the a!stract." &<( But in saying this he admits that for an exchange relationship# not only one use alue !ut also any one kind of la!or "is $ust as good as another# pro ided only it !e present in the proper proportion." 1t follows that the identical e idence on which Marx formulated his erdict of exclusion in the case of use alue will hold good as regards la!or. 5a!or and use alue# says Bhm-Bawerk# ha e a *ualitati e side and a *uantitati e side. =ust as the use alue differs according as it is manifested in a ta!le or in yarn# so also does la!or differ as carpentry or spinning. )nd $ust as we may compare different kinds of la!or according to their *uantity# so we may compare use alues of different kinds according to the arying amount of use alue. 1t is *uite impossi!le to understand why the ery same e idence should result in the exclusion of one competitor and in the assigning of the pri/e to the other. Marx might $ust as well ha e re ersed his reasoning process and ha e disregarded la!or. +uch is Marx's logic# such his method of procedure# as reflected in the mind of Bhm-Bawerk. His procedure# according to the latter# was perfectly ar!itrary. )lthough in an utterly un$ustified !ut extremely artful manner he has managed to secure that nothing !ut the products of la!or shall !e left to !e exchanged# it was impossi!le for him to adduce e en the slightest ground for the contention that the common *uality which must presuma!ly !e present in the commodities to !e exchanged is to !e sought and found in la!or. 2nly !y willfully ignoring a num!er of other *ualities# only !y his utterly unwarranted disregard of use alue# did Marx attain the desired result. =ust as little as the classical economists was Marx in a position to furnish an atom of proof on !ehalf of the proposition that la!or is the principle of alue.

Bhm-Bawerk's critical *uestion to which Marx is alleged to ha e gi en so fallacious an answer is the *uestion: what right had Marx to proclaim la!or to !e the sole creator of alue9 2ur counter-criticism must in the first instance consist of a demonstration that the analysis of the commodity furnishes the desired answer. To Bhm-Bawerk# the Marxist analysis esta!lishes a contrast !etween utility and the product of la!or. ,ow we fully agree with Bhm-Bawerk that no such contrast exists. 5a!or must !e done on most things in order to render them useful. 2n the other hand# when we estimate the utility of a thing# it is a matter of indifference to us how much la!or has !een expended on it. ) good does not !ecome a commodity merely in irtue of !eing the product of la!or. But only in so far as it is a commodity does a good exhi!it the contrasted *ualities of use alue and alue. ,ow a good !ecomes a commodity solely through entering into a relationship with other goods# a relationship which !ecomes manifest in the act of exchange# and which# *uantitati ely regarded# appears as the exchange alue of the good. The *uality of functioning as an exchange alue thus determines the commodity character of the good. But a commodity cannot of its own initiati e enter into relationships with other commodities; the material relationship !etween commodities is of necessity the expression of a personal relationship !etween their respecti e owners. )s owners of commodities# these reciprocally occupy definite relationships of production. They are independent and e*ual producers of pri ate "la!ors." But these pri ate "la!ors" are of a peculiar kind# inasmuch as they are effected# not for personal use !ut for exchange# inasmuch as they are intended for the satisfaction# not of indi idual need# !ut of social need. Thus whereas pri ate ownership and the di ision of la!or reduces society into its atoms# the exchange of products restores to society its social interconnections. The term commodity# therefore# is an economic term; it is the expression of social relationships !etween mutually independent producers in so far as these relationships are effected through the instrumentality of goods. The contrasted *ualities of the commodity as use alue and as alue# the contrast !etween its manifestation as a natural form or as a alue form# now appears to us to !e a contrast !etween the commodity manifesting itself on the one hand as a natural thing and on the other hand as a social thing. 6e ha e# in fact# to do with a dichotomy# wherein the gi ing of the place of honor to one !ranch excludes the other# and con ersely. But the difference is merely one of point of iew. The commodity is a unity of use alue and of alue# !ut we can regard that unity from two different aspects. )s a natural thing# it is the o!$ect of a natural science; as a social thing# it is the o!$ect of a social science# the o!$ect of political economy. The o!$ect of political economy is the social aspect of the commodity# of the good# in so far as it is a sym!ol of social interconnection. 2n the other hand# the natural aspect of the commodity# its use alue# lies outside the domain of political economy. &>( ) commodity# howe er# can !e the expression of social relationships only in so far as it is itself contemplated as a product of society# as a thing on which society has stamped its imprint. But for society# which exchanges nothing# the commodity is nothing more than a product of la!or. Moreo er# the mem!ers of society can only enter into economic relationships one with another according as they work one for another. This material relationship appears in its historic form as the exchange of commodities. The total product of la!or presents itself as a total alue# which in indi idual commodities manifests itself *uantitati ely as exchange alue.

The commodity !eing# as far as society is concerned# the product of la!or# this la!or there!y secures its specific character as socially necessary la!or; the commodity no longer exhi!its itself to us as the product of the la!or of different su!$ects# for these must now rather !e looked upon as simple "instruments of la!or." Economically regarded# therefore# the pri ate "la!ors" manifest themsel es as their opposites# as social "la!ors." The condition which gi es its alue-creating *uality to la!or is# therefore# the social determination of the la!or%it is a *uality of social la!or. Thus the process of a!straction where!y Marx passes from the concept of concrete pri ate la!or to the concept of a!stractly human social la!or# far from !eing# as Bhm-Bawerk imagines# identical with the process of a!straction where!y Marx excludes use alue from consideration# is in fact the ery opposite of that process. ) use alue is an indi idual relationship !etween a thing and a human !eing. 1f 1 disregard its concreteness 3and 1 am compelled to do so as soon as 1 alienate the thing so that it ceases to !e a use alue for me4 1 there!y destroy this indi idual relationship. But solely in its indi iduality can a use alue !e the measure of my personal estimate of alue. 1f# on the other hand# 1 disregard the concrete manner in which 1 ha e expended my la!or# it ne ertheless remains a fact that la!or in general has !een expended in its uni ersal human form# and this is an o!$ecti e magnitude the measure of which is furnished !y the duration of the effort. 1t is precisely this o!$ecti e magnitude with which Marx is concerned. He is endea oring to disco er the social nexus !etween the apparently isolated agents of production. +ocial production# and therewith the actual material !asis of society# is# according to its nature# *ualitati ely determined !y the nature of the organi/ation of social la!or. This organi/ation# causally determined !y economic need# soon ac*uires a legal# a $uristic fixation. )n "external regulation" of this character constitutes a logical premise of the economic system# and furnishes the framework within which the separate elements of the society# the elements which la!or and the elements which control la!or# mutually influence one another. 1n a society characteri/ed !y the di ision of property and !y the di ision of la!or# this relationship appears in the form of exchange# expresses itself as exchange alue. The social nexus manifests itself as the outcome of pri ate relationships# the relationships not of pri ate indi iduals !ut of pri ate things. 1t is precisely this which in ol es the whole pro!lem in mystery. 1nasmuch# howe er# as the things enter into mutual relations# the pri ate la!or which has produced them ac*uires alidity solely in so far as it is an expenditure of its own antithesis# socially necessary la!or. The outcome of the social process of production thus *ualitati ely determined is *uantitati ely determined !y the sum total of the expended social la!or. )s an ali*uot part of the social product of la!or 3and as such only does the commodity function in exchange4# the indi idual commodity is *uantitati ely determined !y the *uota of social la!or time em!odied in it. )s a alue# therefore# the commodity is socially determined# is a social thing. )s such alone can it !e su!$ected to economic consideration. But when our task is to effect the economic analysis of any social institution that we may disco er the intimate law of motion of the society# and when we call upon the law of alue to render us this ser ice# the principle of alue cannot !e any other than that to whose ariations the changes in the social institution must in the last instance !e referred.

E ery theory of alue which starts from use alue# that is to say from the natural *ualities of the thing# whether from its finished form as a useful thing or from its function# the satisfaction of a want# starts from the indi idual relationship !etween a thing and a human !eing instead of starting from the social relationships of human !eings one with another. This in ol es the error of attempting from the su!$ecti e indi idual relationship# therefrom su!$ecti e estimates of alue are properly deduci!le# to deduce an o!$ecti e social measure. 1nasmuch as this indi idual relationship is e*ually present in all social conditions# inasmuch as it does not contain within itself any principle of change 3for the de elopment of the wants and the possi!ility of their satisfaction are themsel es likewise determined4# we must# if we adopt such a procedure# renounce the hope of disco ering the laws of motion and the e olutionary tendencies of society. +uch an outlook is unhistorical and unsocial. 1ts categories are natural and eternal categories. Marx# con ersely# starts from la!or in its significance as the constituti e element in human society# as the element whose de elopment determines in the final analysis the de elopment of society. 1n his principle of alue he thus grasps the factor !y whose *uality and *uantity# !y whose organi/ation and producti e energy# social life is causally controlled. The fundamental economic idea is conse*uently identical with the fundamental idea of the materialist conception of history. ,ecessarily so# seeing that economic life is !ut a part of historic life# so that conformity to law in economics must !e the same as conformity to law in history. To the extent that la!or in its social form !ecomes the measure of alue# economics is esta!lished as a social and historical science. Therewith the pur iew of economic science is restricted to the definite epoch of social e olution wherein the good !ecomes a commodity. 1n other words# it is restricted to the epoch wherein la!or and the power which controls la!or ha e not !een consciously ele ated to the rank of a regulati e principle of social meta!olism and social predominance# !ut wherein this principle unconsciously and automatically esta!lishes itself as a material *uality of things%inasmuch as# as the outcome of the peculiar form which social meta!olism has assumed in exchange# it results that pri ate la!ors ac*uire alidity only in so far as they are social la!ors. Society has, as it were, assigned to each of its members the quota of labor necessary to society; has specified to each individual how much labor he must expend. )nd these indi iduals ha e forgotten what their *uota was# and redisco er it only in the process of social life. 1t is therefore !ecause la!or is the social !ond uniting an atomi/ed society# and not !ecause la!or is the matter most technically rele ant# that la!or is the principle of alue and that the law of alue is endowed with reality. 1t is precisely !ecause Marx takes socially necessary la!or as his starting point that he is so well a!le to disco er the inner working of a society !ased on pri ate property and the di ision of la!or. -or him the indi idual relation !etween human !eing and good is a premise. 6hat he sees in exchange is not a difference of indi idual estimates# !ut the e*uation of a historically determined relationship of production. 2nly in this relationship of production# as the sym!ol# as the material expression# of personal relationships# as the !earer of social la!or# does the good !ecome a commodity; and only as the expression of derivative relationships of production can things which are not the products of la!or assume the character of commodities. 6e thus reach Bhm-Bawerk's o!$ection as expressed in his in*uiry# How can the products of nature ha e "exchange alue"9 The natural conditions under which la!or is performed are unaltera!ly gi en to society# and from these conditions therefore changes in social relationships cannot !e deri ed. The only thing that changes is the manner in which la!or is applied to these natural conditions. The degree to which such application is successful

determines the producti ity of la!or. The change in producti ity is effected solely !y the concrete la!or which creates use alue; !ut according as the mass of products wherein the alue-creating la!or is em!odied increases or diminishes# it results that more or less la!or than !efore is em!odied in the indi idual specimen. To the extent that natural energy is at an indi idual's disposal# so that he is there!y ena!led to la!or with a producti ity exceeding the social a erage# that indi idual is in a position to reali/e an extra surplus alue. This extra surplus alue# capitali/ed# then manifests itself as the price of this natural energy 3it may !e of the soil4 whose appurtenance it is. The soil is not a commodity# !ut in a lengthy historical process it ac*uires the characteristics of a commodity as a condition re*uisite to the production of commodities. The expressions " alue of land" or "price of land" are therefore nothing more than irrational formulas !eneath which is concealed a real relationship of production# that is to say a relationship of alue. The ownership of land does not create the portion of alue which is transformed into surplus profit; it merely ena!les the landowner to transfer this surplus profit from the manufacturer's pocket to his own. But Bhm-Bawerk# who ascri!es to the gifts of nature a alue peculiar to themsel es# is a prey to the physiocrats' illusion that rent is deri ed from nature and not from society. Thus Bhm-Bawerk continually confuses the natural and the social. This is plainly shown in his enunciation of the additional *ualities common to commodities. 1t is a strange medley: the fact of appropriation is the legal expression of the historical relationships which must !e presupposed in order that goods may !e exchanged at all 3it is "pre-economic" fact4%though how this should !e a *uantitati e measure remains inexplica!le. 1t is a natural *uality of commodities to !e natural products# !ut in no way does this render them *uantitati ely compara!le. 1nasmuch# further# as they are the o!$ects of demand and ha e a relationship to demand# they ac*uire a use alue; for relati e scarcity renders them su!$ecti ely the o!$ects of esteem# whereas o!$ecti ely 3from the standpoint of society4 their scarcity is a function of the cost of la!or# securing therein its o!$ecti e measure in the magnitude or its cost. =ust as in the foregoing Bhm-Bawerk fails to distinguish the natural *ualities of commodities from their social *ualities# so in the further course of his criticism he confuses the outlook on la!or in so far as it creates use alue with the outlook on la!or in so far as it creates alue; and he proceeds to disco er a new contradiction in the law of alue%though Marx "with a masterly dialectic ... seeks to suggest" that the facts "do not contain a contradiction of his fundamental principle# !ut are only a slightly different reading of it." Marx declares that skilled la!or is e*ui alent to a definite *uantity of unskilled la!or. He has howe er taught us# says Bhm-Bawerk# that things e*uated with one another !y exchange "contain e*ual amounts of some common factor# and this common factor must !e la!or and working time." But the facts !efore us# he says# do not comply at all with this demand. -or in skilled la!or# for example in the product of a sculptor# there is no unskilled la!or at all# and still less can we say that the unskilled la!or e*ual to the fi e days' la!or of the stone!reaker is em!odied in the sculptor's product. "The plain truth is & ery plain indeed0%.. H.( that the two products em!ody different ?inds of la!or in different amounts# and e ery unpre$udiced person will admit that this means a state of things exactly contrary to the conditions which Marx demands and must affirm# namely# that they em!ody la!or of the same kind and of the same amount. 5et me parenthetically remark that there is no *uestion here of the "same amount#" no *uestion of quantitative equality. 6e are solely concerned with the compara!ility of

different kinds of la!or# that is to say with the possi!ility of expressing them in terms of some common measure# with the possi!ility of their qualitative e*uali/ation. 1t is true# continues Bhm-Bawerk# that Marx says: "Experience shows that this reduction &from skilled to unskilled la!or( is constantly !eing made. ) commodity may !e the product of the most skilled la!or# !ut its alue# !y e*uating it to the product of simple unskilled la!or# represents a definite *uantity of the latter la!or alone. The different proportions in which different sorts of la!or are reduced to unskilled la!or as their standard are esta!lished !y a social process that goes on !ehind the !acks of the producers# and# conse*uently# appear to !e fixed !y custom." &@( Bhm-Bawerk# howe er# in*uires# what is the meaning of the appeal to " alue" and the "social process" as the determining factors of the standard of reduction9 ")part from e erything else# it simply means that Marx is arguing in a circle. The real su!$ect of in*uiry is the exchange relations of commodities#" why# for instance# the sculptor's work is worth fi e times as much as the unskilled la!or of the stone-!reaker. "Marx... says that the exchange relation is this# and no other%!ecause one day of sculptor's work is reduci!le exactly to fi e days' unskilled work. )nd why is it reduci!le to exactly fi e days9 Because experience shows that it is so reduced !y a social process." But it is this ery process which re*uires explanation. 6ere the exchange relationship ':< instead of ':@# "Marx would e*ually !id us accept the rate of reduction of ':< as the one deri ed from experience; ... in short# it is clear that we shall ne er learn in this way the actual reasons why products of different kinds of work should !e exchanged in this or that proportion." 1n this decisi e point# says the critic# the law of alue !reaks down. 6e ha e here a statement of the familiar difficulty# the difficulty to which others !esides Bhm-Bawerk ha e drawn attention. 1n the preface to the first olume of Capital, Marx# with his well-known "social optimism#" presupposes "a reader who is willing to learn something new# and therefore to think for himself"% this !eing 1 !elie e the only unwarranted presupposition Marx e er made. But e ery thoughtful reader will at the outset feel that there is a gap in the argument# and the oid has !een indicated !y "more or less Marxist" writers# as !y Bernstein# 7. +chmidt# and ?autsky. 5et us regard the matter more closely. -irst of all# Bhm-Bawerk himself tells us that the difference consists only in this# that in the one case we ha e to do with skilled and in the other with unskilled la!or. 1t is o! ious# therefore# that the difference in alue of the respecti e products must depend upon a difference in the la!or. The same natural product is in one case the o!$ect upon which skilled la!or has !een expended# and in the other case the o!$ect upon which unskilled la!or has !een expended# and it ac*uires a different alue in the respecti e cases. Thus there is no logical o!$ection to the law of alue. The only *uestion that arises is whether it is necessary to determine the ratio of alue !etween the two kinds of la!or# and whether the difficulty of effecting this determination may not pro e insupera!le. -or# if we assume a knowledge of the ratio to !e indispensa!le# in the a!sence of such knowledge the concept of alue will !e incapa!le of furnishing the explanation of economic processes. 5et us reconsider Marx's argument. 1n the passage pre iously *uoted we read: "1ts alue &that is to say the alue of the product of skilled la!or(# !y e*uating it to the product of simple unskilled la!or# represents a definite *uantity of the latter la!or alone." -or this process to !e comprehensi!le# howe er# alue theory must regard the la!or a aila!le for society at any

gi en moment as composed of homogeneous parts%indi idual la!or# in so far as it creates alue# !eing merely an ali*uot part of this *uantitati e whole. But only if 1 am a!le to express this whole in terms of some common unit of measurement can 1 regard it as *ualitati ely homogeneous. The re*uired unit of measurement is furnished !y "simple a erage la!or#" and this "is the expenditure of simple la!or power# that is# of the la!or power which on the a erage# apart from any special de elopment# exists in the organism of e ery ordinary indi idual." &A( +killed la!or counts as a multiple of this unit of simple a erage la!or. But what multiple9 This# says Marx# is esta!lished !y a social process that goes on !ehind the !acks of the producers. ,ow Bhm-Bawerk will not admit that this appeal to experience is alid# and declares that here the theory of alue !reaks down utterly. -or "in what proportions skilled is to !e translated into terms of unskilled la!or in the aluation of their respecti e products is not determined# nor can it !e determined# a priori# !y any property inherent in the skilled la!or itself# !ut it is the actual result alone which decides the actual exchange relations." &B( Thus Bhm-Bawerk demands that the ratio should ena!le him to determine in ad ance the a!solute height of prices# for in his iew# as he elsewhere tells us# the essential task of economics is to explain the phenomenon of price. 1s it really true# howe er# that in default of a knowledge of the ratio# the law of alue !ecomes unworka!le9 1n striking contrast with Bhm-Bawerk# Marx looks upon the theory of alue# not as the means for ascertaining prices# !ut as the means for disco ering the laws of motion of capitalist society. Experience teaches us that the absolute height of prices is the starting point of this mo ement# !ut# for the rest# the a!solute height of prices remains a matter of secondary importance# and we are concerned merely with studying the law of their ariation. 1t is a matter of indifference whether any specific kind of skilled la!or is to !e reckoned the fourfold multiple or the sixfold multiple of unskilled la!or. The important point is that a dou!ling or tre!ling of producti e power in the sphere of skilled la!or would lower the product of skilled la!or twofold or threefold is-a- is the product of unskilled la!or 3!y hypothesis unchanged4. The absolute height of prices is gi en us !y experience; what interests us is the law!abiding variation that these prices undergo. 5ike all ariations# this ariation is !rought a!out !y a force; and since we ha e to do with changes in social phenomena# these changes must !e effected !y ariations in the magnitude of a social force# the social power of production. +ince# howe er# the law of alue discloses to us that in the final analysis this de elopment of producti e power controls ariations in prices# it !ecomes possi!le for us to grasp the laws of these changes; and since all economic phenomena manifest themsel es !y changes in prices# it is further possi!le to attain to an understanding of economic phenomena in general. .icardo# aware of the incompleteness of his analysis of the law of alue# therefore declares in so many words that the in estigation to which he wishes to direct the reader's attention concerns ariations in the relati e alue of commodities and not ariations in their a!solute alue. 1t follows that the lack of a knowledge of the ratio in *uestion !y no means restricts the importance of the law of alue as a means !y which we are ena!led to recogni/e the conformity to law displayed !y the economic mechanism. 1n another respect# howe er# this lack would !e serious. 1f in practice the a!solute height of price had in the first instance to !e esta!lished !y the social process# the concept of alue would ha e to contain all the elements which theoretically allow us to apprehend the process where!y society effectuates the reduction of skilled la!or to unskilled. 2therwise this process# which exercises a decisi e

influence upon the magnitude of alue# though it would indeed positi ely exist and would not in ol e any contradiction to the law of alue# would ne ertheless afford an explanation of a part only 3and that the most important4 of economic phenomena# !ut would lea e unexplained another part# namely the starting point of these ariations. 6hen# howe er# Bhm-Bawerk in*uires# what is the *uality inherent in skilled la!or which gi es that la!or its peculiar power to create alue# the *uestion is wrongly stated. The aluecreating *uality is not per se inherent in any la!or. +olely in con$unction with a definite mode of social organi/ation of the process of production does la!or create alue. Hence# we cannot attain to the concept of alue-creating la!or merely !y contemplating isolated la!or in its concreteness. +killed la!or# therefore# if 1 am to regard it as alue-creating# must not !e contemplated in isolation# !ut as part of social la!or. The *uestion conse*uently arises# what is skilled la!or from the social standpoint9 2nly when we can answer this can we expect to attain to a position from which we shall !e a!le to recogni/e the principles according to which the aforesaid social reduction can !e effected. Manifestly these principles can !e none other than those which are contained in the law of alue. But here we encounter a difficulty. The law of alue applies to commodities# whereas la!or is not a commodity e en though it appears as such when we speak of the wage of la!or. 2nly la!or power is a commodity and possesses alue; la!or creates alue !ut does not itself possess alue. 1t is not difficult to calculate the alue of a la!or power engaged on skilled work; like e ery other commodity it is e*ual to the la!or re*uisite for its production and reproduction# and this is composed of the cost of maintenance and the cost of training. But here we are not concerned with the alue of a skilled la!or power# !ut with the *uestion how and in what ratio skilled la!or creates more alue than unskilled. 6e must not deduce the higher alue which skilled la!or creates from the higher wage of skilled la!or power# for this would !e to deduce the alue of the product from the " alue of la!or." 1t is true that Bernstein &C( proposes to do this# and !elie es that he can $ustify himself !y a *uotation from Marx. But if we read the sentence in the context from which Bernstein has torn it# we see that it con eys the precise opposite of that which Bernstein wishes to deduce from it. Marx writes: "1t has pre iously !een pointed out that# as far as the process of producing surplus alue is concerned# it is a matter of a!solutely no moment whether the la!or appropriated !y the capitalist !e a erage unskilled social la!or or comparati ely skilled la!or# la!or of a higher specific gra ity. The la!or which# when contrasted with a erage social la!or# counts as higher# comparati ely skilled la!or# is the manifestation of a la!or power to the making of which higher formati e costs ha e gone# whose production has cost more la!or time# and which conse*uently has a higher alue than that possessed !y unskilled la!or power. ,ow whereas the alue of this power is higher# it must also !e remem!ered that it manifests itself in higher work# and conse*uently materiali/es# in e*ual spaces of time# in comparati ely higher alues. 6hate er difference in skill there may !e !etween the la!or of a spinner and that of a $eweler# the portion of his la!or !y which the $eweler merely replaces the alue of his own la!or power does not in any way differ in *uality from the additional portion !y which he creates surplus alue. 1n the making of $ewelry# $ust as in spinning# the surplus alue results only from a *uantitati e excess of la!or# from a lengthening out of one and theD same la!or process# in the one case of the process of making $ewels# in the other of the process of making yarn." 6e see that the *uestion Marx here discusses is how skilled la!or can create surplus alue despite the high wage# despite# that is to say# the magnitude of the necessary la!or. Expressed in fuller detail# the thoughts in the sentence *uoted !y Bernstein

would read somewhat as follows: "E en though the alue of this power !e higher# it can none the less produce more surplus alue# !ecause it manifests itself in higher work"%and so on. Marx lea es out the intermediate clause and introduces what follows with the word aber &"!ut"(#whereas# if Bernstein had !een right# he would ha e had to use the word daher &"conse*uently#" or "therefore"(. To deduce the alue of the product of la!or from the wage of la!or conflicts grossly with the Marxist theory. The alue of la!or power !eing gi en# 1 should only !e in a position to deduce the alue which this la!or power newly creates if 1 knew what had !een the rate of exploitation. But e en if the rate of exploitation of unskilled la!or were known to me# 1 should ha e no right to assume that the identical rate of exploitation pre ailed for skilled la!or. -or the latter# the rate of exploitation might !e much lower. Thus neither directly nor indirectly does the wage of a skilled la!or power gi e me any information regarding the alue which this la!or power newly creates. The isage which the Marxist theory would assume if Bernstein's interpretation were to !e accepted 3and Bernstein himself tells us that in his iew the theory would assume an utterly different isage4 would possess ironical lineaments which could hardly !e concealed. 6e must# therefore# endea or to approach the solution of the pro!lem in a different manner. &E( ) erage unskilled la!or is the expenditure of unskilled la!or power# !ut *ualified or skilled la!or is the expenditure of *ualified la!or power. -or the production of this skilled la!or power# howe er# a num!er of unskilled la!ors were re*uisite. These are stored up in the person of the *ualified la!orer# and not until he !egins to work are these formati e la!ors made fluid on behalf of society. The la!or of the technical educator thus transmits# not only value 3which manifests itself in the form of the higher wage4# !ut in addition its own value! creating power. The formati e la!ors are therefore latent as far as society is concerned, and do not manifest themsel es until the skilled la!or power !egins to work. 1ts expenditure conse*uently signifies the expenditure of all the different unskilled la!ors which are simultaneously condensed therein. Fnskilled la!or# if applied to the production of a *ualified or skilled la!or power# creates on the one hand the alue of this la!or power# which reappears in the wage of the *ualified' la!or power; !ut on the other hand !y the concrete method of its application it creates a new use alue# which consists in this# that there is now a aila!le a la!or power which can create alue with all those potentialities possessed !y the unskilled la!ors utili/ed in its formation. 1nasmuch as unskilled la!or is used in the formation of skilled la!or# it thus creates on the one hand new alue and transmits on the other to its product its use alue%to !e the source of new alue. .egarded from the standpoint of society# unskilled la!or is latent as long as it is utili/ed for the formation of skilled la!or power. 1ts working for society does not !egin until the skilled la!or power it has helped to produce !ecomes acti e. Thus in this single act of the expenditure of skilled la!or a sum of unskilled la!ors is expended# and in this way there is created a sum of alue and surplus alue corresponding to the total alue which would ha e !een created !y the expenditure of all the unskilled la!ors which were re*uisite to produce the skilled la!or power and its function# the skilled la!or. -rom the standpoint of society# therefore# and economically regarded# skilled la!or appears as a multiple of unskilled la!or# howe er di erse skilled and unskilled la!or may appear from some other outlook# physiological# technical# or aesthetic. 1n what it has to gi e for the product of skilled la!or# society conse*uently pays an e*ui alent for the alue which the unskilled la!ors would ha e created had they !een directly consumed !y society.

The more unskilled la!or that skilled la!or em!odies# the more does the latter create higher alue# for in effect we ha e numerous unskilled la!ors simultaneously employed upon the formation of the same product. 1n reality# therefore# skilled la!or is unskilled la!or multiplied. )n example may make the matter clearer. ) man owns ten storage !atteries wherewith he can dri e ten different machines. -or the manufacture of a new product he re*uires another machine for which a far greater moti e power is re*uisite. He now employs the ten !atteries to charge a single accumulator# which is capa!le of dri ing the new machine. The powers of the indi idual !atteries thereupon manifest themsel es as a unified force in the new !attery# a unified force which is the tenfold multiple of the simple a erage force. ) skilled la!or may contain# not unskilled la!ors alone# !ut in addition skilled la!ors of a different kind# and these in their turn are reduci!le to unskilled la!or. The greater the extent to which other skilled la!ors are incorporated in a skilled la!or# the !riefer will !e its formati e process. Thus the Marxist theory of alue ena!les us to recogni/e the principles in accordance with which the social process of reducing skilled la!or to unskilled la!or is effected. 1t therefore renders the magnitude of alue theoretically measurable. But when Bhm-Bawerk insists that Marx ought to ha e furnished the empirical proof of his theory# and when he contends that the re*uisite proof would ha e consisted in demonstrating the relationship !etween exchange alues or prices and *uantities of la!or# he is confusing theoretical with practical measura!ility. 6hat 1 am a!le to determine !y experience is the concrete expenditure of la!or re*uisite for the production of a specified good. How far this concrete la!or is socially necessary la!or# how far# that is to say# it has a !earing on the formation of alue# 1 am only a!le to determine if 1 know the actual a erage degree of producti ity and intensity which the producti e power has re*uired# and if 1 also know what *uantum of this good is demanded !y society. This means that we are asking from the indi idual that which society performs. -or society is the only accountant competent to calculate the height of prices# and the method which society employs to this end is the method of competition. 1nasmuch as# in free competition on the market# society treats as a unity the concrete la!or expended !y all producers for the production of a good# and inasmuch as society only pays for la!or in so far as its expenditure was socially necessary# it is society which first shows to what degree this concrete la!or has actually colla!orated in the formation of alue and fixes the price accordingly. The utopia of "la!or notes" and "constituted alue" was !ased upon this ery illusion that the theoretical standard of measurement is at the same time an immediately practical standard of measurement. This is the conception in accordance with which the theory of alue is regarded# not as a means "for detecting the law of motion of contemporary society#" !ut as a means of securing a price list that shall !e as sta!le and as $ust as possi!le. The search for such a price list led on Buch &'G( to a theory which# in order to determine price# needs nothing more than this%a knowledge of the price. But the psychological theory of " alue" is in no !etter case. That theory indicates the arious degrees of satisfaction of needs with definite !ut ar!itrarily selected figures# and arranges that these figures shall signify the prices which people are willing to pay for the means wherewith needs are satisfied. This more effectually conceals the process where!y a num!er of ar!itrary prices are assumed instead of a single ar!itrary price.

The empirical proof of the accuracy of the theory of alue lies in a ery different direction from that towards which Bhm-Bawerk directs his in*uiries. 1f the theory of alue is to !e the key for the understanding of the capitalist mode of production# it must !e a!le to explain the phenomena of that mode of production in a manner free from contradictions. The actual processes of the capitalist world must not conflict with the theory !ut must confirm it. )ccording to Bhm-Bawerk the theory fails in this respect. The third olume of Capital, in which Marx has no longer !een a!le to ignore the actual processes# shows that these actual processes could not !e harmoni/ed with the presuppositions of the theory of alue. The data of the third olume are in crass contradiction with those of the first olume. The theory is shipwrecked on the rocks of reality. -or reality# says Bhm-Bawerk# shows that the law of alue has no alidity for the process of exchange# seeing that commodities are exchanged at prices which permanently di erge from the alue of the commodities. 1n the discussion of the pro!lem of the a erage rate of profit the contradiction !ecomes o! ious. Marx can sol e this pro!lem only !y the simple a!andonment of his theory of alue. This reproach of selfcontradiction has !ecome a commonplace of !ourgeois economics since it was made !y BhmBawerk. 6hen we are critici/ing Bhm-Bawerk we are critici/ing the representati es of !ourgeois criticism of the third olume of Capital.

+ootnotes '. "eschichte und #ritik der #apital$ins!%heorien, 8nd ed.# pp. @'' ff. )!o e# pp. AC ff. 8. Hol. 1# p. 'GG. <. Hol. 1# p. >@. >. "That is the reason why Ierman compilers are so fond of dwelling on use alue# calling it a 'good.'... -or intelligent information on 'goods' one must turn to treatises on commodities." Marx# & Contribution to the Critique of 'olitical (conomy, ?err ed.# p. 8'n. @. Hol. 1# pp. @'-@8. A. Hol. 1# p. @'. B. )!o e# p. C<. C. Eduard Bernstein# "Jur Theorie des )r!eitswerts#" )ie *eue +eit, Hol. KH111 3'CEE-'EGG4# Lart 1# p. <@E. E. The translators had hoped to a oid !urdening Hilferding's text with any extended notes of their own# !ut they find it necessary to draw attention to a strange discrepancy !etween the text of the fourth 3Ierman4 edition of Capital, finally re ised !y Engels in 'CEG# and the third edition# that of 'CC<# the one *uoted a!o e !y Hilferding. 1n the third edition# the sentence a!out which the trou!le arises runs as follows 3p. 'BC4: ,st der -ert dieser #raft h.her, so aussert sie sich aber auch in h.herer &rbeit und vergegenstandlicht sich daher, in denselben +eitraumen, in verhaltnissmassig h.heren -ert. 2ur translation of this# which we prefer to that found on page 'BE of Moore M ) eling's ersion# runs as follows: ",ow whereas the alue of this power is higher# it must also !e remem!ered that it manifests itself in higher work#

and conse*uently materiali/es# in e*ual spaces of time# in comparati ely higher alues." The phrase "it must !e remem!ered that" seems rather a lengthy rendering of the Ierman "a!er#" !ut in this particular context that phrase effecti ely presents the precise shade of meaning. ,ext let us turn to Bernstein. This writer *uotes from the second 3Ierman4 edition of Capital, in which 3p. 'CA4 the passage cited is identical with that *uoted from the third edition !y Hilferding. But Bernstein interpolates an exclamation mark expressi e almost of derision# the passage thus reading: ",ow whereas the alue of this power is higher# it must also !e remem!ered that it manifests itself in higher work# and conse*uently &0( materiali/es in e*ual spaces of time# in comparati ely higher alues." Thereafter 3writing in )ie *eue +eit of Necem!er 8<# 'CEE4 Bernstein continues: "Here the alue of the la!or power which materiali/es in the wage of la!or appears to !e decisi e for the alue of the product. 6ere we to accept this as uni ersally alid# the Marxist theory of alue would in my opinion assume a isage utterly different from that which# as presented !y all its expositors# it has hitherto assumed. 1t would differ from the theory as expounded !y Marx himself# for Marx# in his essay /alue, 'rice, and 'rofit expressly declares: 'To determine the alues of commodities !y the relati e *uantities of la!or fixed in them# is# therefore# a thing *uite different from the tautological method of determining the alues of commodities !y the alue of la!or# or !y wages' &1nternational Lu!lishers' ed.# p. <8(. Howe er this may !e# here is a point which still remains to !e cleared up# unless it !e imagined that the elucidation is to !e found in the dis*uisitions of the third olume concerning cost price and price of production which# $ust like the fact of surplus alue# do not re*uire for their esta!lishment the la!or theory of alue in its original form." 6hat Hilferding has to say of Bernstein we ha e seen in the text. The reader will note more particularly Hilferding's contention that were Bernstein right# Marx would ha e written "daher" in place of "a!er." ,ow comes the point $ustifying the introduction of the present note. 1n the fourth 3Ierman4 edition of Capital 3p. 'AG4 the word "a!er" has !een changed to "daher#" not in conse*uence of what Bernstein wrote in )ie *eue +eit in 'CEE# for Engels' preface to the fourth edition is dated =une 8@# 'CEG. -urther# in this preface# Engels gi es a detailed specification of the important alterations in the text of the fourth edition# making no direct allusion to the change on page 'AG# !ut adding: "2ther trifling modifications are of a purely technical nature." 6e take it this means trifling impro ements in literary style. 1n any case it would seem clear that Engels did not regard this particular alteration as important. The re ised sentence may !est !e rendered as follows: ",ow if the alue of this power !e higher# the result is that it manifests itself in higher work# and conse*uently it materiali/es in e*ual spaces of time# in comparati ely higher alues." Marx and Engels are !eyond our reach. -or the moment we are una!le to communicate with Bernstein in Berlin or with Hilferding in Hienna. 6e must lea e the pro!lems raised anent this disputed text to the ingenuity of the English-speaking Marxists. They must sharpen their weapons# and make ready to deal with !oth the Ierman and the )ustrian commentators when the foolish capitalist !ickering which at present hampers communications shall at length ha e drawn to a dose. )mong other things# they will want to know why Hilferding# writing in 'EG<# did not consult the definiti e fourth edition of 7apital# pu!lished thirteen years earlier0%E. M 7. L. 'G. )ie ,ntensitat der &rbeit, 5eip/ig# ' Chapter (wo

!"#$ !&, ! $R!)$ -RO+'( THE pro!lem with which we are now concerned is familiar. 1n the arious spheres of production the organic composition of capital# the ratio !etween c 3constant capital# expended on the means of production4 and v 3 aria!le capital# expended in paying the wage of la!or4# aries. +ince# howe er# only aria!le capital produces new alue# and since# therefore# it alone produces surplus alue# the amount of surplus alue produced !y two capitals of e*ual si/e aries in accordance with the organic composition of these respecti e capitals# aries# that is to say# in accordance with ariations in the ratio !etween the constant capital and the aria!le capital in the respecti e enterprises. But# therewith# also# the rate of profit# the ratio !etween the surplus alue and the total capital# aries. Thus according to the law of alue e*ual capitals yield different profits proportionate to the magnitudes of the li ing la!or which they set in motion. This conflicts with reality# for in the real world e*ual capitals !ring identical profits# whate er their composition. How can the "contradiction" !e explained9 5et us first hear what Marx has to say. "The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, !ut as products of capital which claim e*ual shares of the total amount of surplus alue# if they are of e*ual magnitude# or shares proportional to their different magnitudes." &'( The capital ad anced for the production of a commodity constitutes the cost price of this commodity. "The cost price &O c P H( does not show the distinction !etween aria!le and constant capital to the capitalist. ) commodity# for which he must ad ance Q'GG in production# costs him the same amount whether he in ests EGc P 'G # or 'Gc P EG . He always spends Q'GG for it# no more no less. The cost prices are the same for in estment of the same amounts of capital in different spheres# no matter how much the produced alues and surplus alues may differ. The e*uality of cost prices is the !asis for the competition of the in ested capitals# !y which an a erage rate of profit is !rought a!out." &8( To elucidate the working of capitalist competition Marx presents the following ta!le# wherein the rates of surplus alue sR are assumed to !e identical# while as regards the constant capital arying proportions are incorporated into the product according as the wear and tear aries.

Capitals ' CGc P 8Gc '' BGc P <G ''' AGc P >G E@c P @

Rate of Rate of -rofit. #sed-up alue of %urplus alue. %urplus alue -ercent C Commodities -ercent 'GG 'GG 'GG 'GG 8G <G >G '@ @ 8G <G >G '@ @ @G @' @' >G 'G EG ''' '<' BG 8G

' C@c P '@ 'GG

1n this ta!le we see fi e instances in which the total capital is identical# and in which the degree of exploitation of la!or is the same in e ery case# !ut the rates of profit ary widely# according to the differing organic composition. 5et us now look upon these capitals# in ested in arious fields# as a single capital# of which num!ers 1 to H merely constitute component parts 3more or less analogous to the different departments of a cotton mill which has different proportions of constant and of aria!le capital in its carding# preparatory spinning# spinning# and wea ing rooms# on the !asis of which the a erage proportion for the whole factory is calculated4# then we should ha e a total capital of @GG# a surplus alue of ''G# and a total alue of commodities of A'G. The a erage composition of the capital would !e @GG# made up of <EGc and ''G # or in percentages# BCc and 88 . 1f each of the capitals of 'GG were to !e regarded simply as one fifth of the total capital# the a erage composition of each portion would !e BCc and 88 # and in like manner to each 'GG of capital would !e allotted a mean surplus alue of 88# so that the mean rate of profit would !e 88 percent. The commodities must# then# !e sold as follows:

Capitals ' CGc P 8Gc '' BGc P <G ''' AGc P >G ' C@c P '@ E@c P @

%urplus alue 8G <G >G '@ @

#sedalue of Cost -rice of -rice of up C Commodities Commodities Commodities @G @' @' >G 'G EG ''' '<' BG 8G BG C' E' @@ '@ E8 'G< ''< BB <B

Rate of ,e/iation of -rofit. -rice from -ercent alue 88 88 88 88 88 P8 -C - 'C PB P 'B

The commodities are thus sold at 8 P B P 'B O 8A a!o e# and C P 'C O 8A !elow# their alue# so that the de iations of prices from alues mutually !alance one another !y the uniform distri!ution of the surplus alue# or !y the addition of the a erage profit of 88 percent of ad anced capital to the respecti e cost prices of the commodities of 1 to H. 2ne portion of the commodities is sold in the same proportion a!o e in which the other is sold !elow alue. 2nly the sale of the commodities at such prices renders it possi!le that the rate of profit for all fi e capitals shall uniformly !e 88 percent# without regard to the organic composition of these capitals. "+ince the capitals in ested in the arious lines of production are of a different organic composition# and since the different percentages of the aria!le portions of these total capitals set in motion ery different *uantities of la!or# it follows that these capitals appropriate ery different *uantities of surplus la!or# or produce ery different *uantities of surplus alue. 7onse*uently the rates of profit pre ailing in the arious lines of production are originally ery different. These different rates of profit are e*uali/ed !y means of competition into a general rate of profit# which is the a erage of all these special rates of

profit. The profit allotted according to this a erage rate of profit to any capital# whate er may !e its organic composition# is called the a erage profit. That price of any commodity which is e*ual to its cost price plus that share of a erage profit on the total capital in ested 3not merely consumed4 in its production which is allotted to it in proportion to its conditions of turno er# is called its price of production. ... 6hile the capitalists in the arious spheres of production reco er the alue of the capital consumed in the production of their commodities through the sale of these# they do not secure the surplus alue# and conse*uently the profit# created in their own sphere !y the production of these commodities# !ut only as much surplus alue# and profit# as falls to the share of e ery ali*uot part of the total social capital out of the total social surplus alue# or social profit produced !y the total capital of society in all spheres of production. E ery 'GG of any in ested capital# whate er may !e its organic composition# draws as much profit during one year# or any other period of time# as falls to the share of e ery 'GG of the total social capital during the same period. The arious capitalists# so far as profits are concerned# are so many stockholders in a stock company in which the shares of profit are uniformly di ided for e ery 'GG shares of capital# so that profits differ in the case of the indi idual capitalists only according to the amount of capital in ested !y each one of them in the social enterprise# according to his in estment in social production as a whole# according to his shares" 3111# 'CA-'CB4. The a erage profit is nothing other than the profit on the a erage social capital; its total# like the total of the surplus alues# and like the prices determined !y the addition of this a erage profit to the cost prices# are nothing other than the alues transformed into prices of production. 1n the simple production of commodities# alues are the center of gra ity round which prices fluctuate. But "under capitalist production it is not a *uestion of merely throwing a certain mass of alues into circulation and exchanging that mass for e*ual alues in some other form# whether of money or other commodities# !ut it is also a *uestion of ad ancing capital in production and reali/ing on it as much surplus alue# or profit# in proportion to its magnitude# as any other capital of the same or of other magnitudes in whate er line of production. 1t is a *uestion# then# of selling the commodities at least at prices which will yield the a erage profit# in other words# at prices of production. 7apital comes in this form to a reali/ation of the social nature of its power, in which e ery capitalist participates in proportion to his share in the total social capital....1f the commodities are sold at their alues...considera!ly different rates of profit arise in the arious spheres of production...But capital withdraws from spheres with low rates of profit and in ades others which yield a higher rate. By means of this incessant emigration and immigration# in a word !y its distri!ution among the arious spheres in response to a rise in the rate of profit here and its fall there# it !rings a!out such a proportion of supply to demand that the a erage profit in the arious spheres of production !ecomes the same# so that alues are con erted into prices of production" 3111# 88E-8<G4. 1n what relationship does this doctrine of the third olume stand to the cele!rated law of alue of the first olume9 1n Bhm-Bawerk's opinion the third olume of Capital manifestly contains the statement of an actual and irreconcila!le contradiction to the law of alue# and furnishes proof that the e*ual a erage rate of profit can only !ecome esta!lished if and !ecause the alleged law of alue does not hold good. 1n the first olume# declares Bhm-Bawerk# &<( it was maintained with the greatest emphasis that all alue is !ased on la!or and la!or alone; the alue was declared to !e the common factor which appears in the exchange relation of commodities. 6e were told# in the form and with the emphasis of a stringent syllogistic conclusion# allowing of no exception# that to set down two commodities as e*ui alents in exchange implies that a common factor of the same magnitude exists in !oth# to which each of the two must !e

reduci!le. )part# therefore# from temporary and occasional de iations# which are merely apparent !reaches of the law of exchange of commodities# commodities which em!ody the same amount of la!or must on principle# in the long run# exchange for each other. )nd now# in the third olume# we are told that what according to the teaching of the first olume must !e# is not and ne er can !e; that indi idual commodities do and must exchange with each other in a proportion different from that of the la!or incorporated in them# and this not accidentally and temporarily# !ut of necessity and permanently. But this# says Bhm-Bawerk# is no explanation and reconciliation of a contradiction# it is the naked contradiction itself. The theory of the a erage rate of profit and of the prices of production cannot !e reconciled with the theory of alue. Marx must himself ha e foreseen that this reproach would !e made# and to this pre ision is e idently due an anticipatory selfdefense which# if not in form# yet in point of fact# is found in the Marxist system. He tries !y a num!er of o!ser ations to render plausi!le the iew that in spite of exchange relations !eing directly go erned !y prices of production# which differ from the alues# all is ne ertheless mo ing within the framework of the law of alue# and that this law# in the last resort at least# go erns prices. 2n this su!$ect# howe er# Marx does not make use of his customary method# a formal# circumscri!ed demonstration# !ut gi es only a num!er of $uxtaposed casual remarks# containing di ers arguments which are summed up !y BhmBawerk under four heads. Before we consider these "arguments" and the counter-arguments of Bhm-Bawerk# it is necessary to say a word or two concerning the "contradiction" or the "withdrawal" which Marx is supposed to ha e perpetrated in the third olume. )s regards the alleged withdrawal# those who use this term ha e forgotten that the first olume was not pu!lished until the tenth chapter of the third olume# which forms the !one of contention# had already !een composed. -or the draft of the last two !ooks of Capital was composed !y Marx during the years 'CA< to 'CAB# and from a note !y Engels 3111# 8GEn4 we learn that the tenth chapter of the third olume# the one containing the solution of the riddle# was written in 'CA@. To speak of a withdrawal in this connection is tantamount to saying that Marx# in order to remain at a definite point# first mo ed a mile forward and then a mile !ackward. +uch is# ne ertheless# the iew which the ulgar economists ha e formed of the essence of the dialectic method# !ecause they ne er see the process !ut only the completed result# so that the method always seems to them a mystical "hocus-pocus." ,or is there any !etter $ustification for the accusation of contradiction than for the accusation of withdrawal. 1n Bhm-Bawerk's iew# the contradiction is found in this# that# according to the first olume# only commodities em!odying e*ui alent amounts of la!or are exchanged each for the other# whereas in the third olume we are told that the indi idual commodities are exchanged one for another in ratios which do not correspond to the ratios !etween the amounts of la!or respecti ely incorporated in them. 6ho denies it9 1f Marx had really maintained that# apart from irregular oscillations# commodities could only !e exchanged one for another !ecause e*ui alent *uantities of la!or are incorporated in them# or only in the ratios corresponding to the amounts of la!or incorporated in them# Bhm-Bawerk would !e perfectly right. But in the first olume Marx is only discussing exchange relationships as they manifest themsel es when commodities are exchanged for their values; and solely on this supposition do the commodities em!ody e*ui alent *uantities of la!or. But exchange for their alues is not a condition of exchange in general# e en though# under certain specific historical conditions# exchange for corresponding alues is indispensa!le# if these historical conditions are to !e perpetually reproduced !y the mechanism of social life. Fnder changed historical conditions#

modifications of exchange ensue# and the only *uestion is whether these modifications are to !e regarded as taking place according to law# and whether they can !e represented as modifications of the law of alue. 1f this !e so# the law of alue# though in modified form# continues to control exchange and the course of prices. )ll that is necessary is that we should understand the course of prices to !e a modification of the pre-existing course of prices# which was under direct control of the law of alue. Bhm-Bawerk's mistake is that he confuses alue with price# !eing led into this confusion !y his own theory. 2nly if alue 3disregarding chance de iations# which may !e neglected !ecause they are mutually compensatory4 were identical with price# would a permanent de iation of the prices of indi idual commodities from their alues !e a contradiction to the law of alue. 1n the first olume# Marx already refers to the di ergence of alues from prices. Thus# he asks: "How can we account for the origin of capital on the supposition that prices are regulated !y the a erage price# that is# ultimately !y the alue of the commodities9" )nd he adds: "1 say 'ultimately#' !ecause a erage prices do not directly coincide with the alues of commodities# as )dam +mith# .icardo# and others !elie e" 31# 'C@n4. )gain: "6e ha e assumed that prices O alues. 6e shall# howe er# see in Holume 111# that e en in the case of a erage prices the assumption cannot !e made in this ery simple manner" 31# 8>>n4. 6e thus see that the Marxist law of alue is not canceled !y the data of the third olume# !ut is merely modified in a definite way. 6e shall make closer ac*uaintance with these modifications and grasp their significance !etter after we ha e further considered the course of Bhm-Bawerk's exposition. The first "argument" adduced !y Marx in fa or of his iew is summari/ed !y Bhm-Bawerk as follows:&>( E en if the separate commodities are !eing sold either a!o e or !elow their alues# these reciprocal fluctuations cancel each other# and in the community itself%taking into account all the !ranches of production%the total of the prices of production of the commodities produced still remains e*ual to the sum of their alues. The first thing that strikes us here 3and the o!ser ation may !e repeated with regard to all that follows4 is that Bhm-Bawerk denotes as an "argument" that which for Marx was no more than a logical deduction from his premises. 1t is then# of course# easy to demonstrate that what Marx says does not amount to an argument. Bhm-Bawerk tells us that it is admitted !y Marx that individual commodities do not exchange for one another at their alues. +tress is laid on the fact that these indi idual de iations compensate or cancel each other. How much of the law of alue is left9 asks BhmBawerk. The o!$ect of the law of alue is to elucidate the actual exchange relations of commodities. 6e wish to know# for instance# why a coat should !e worth as much in exchange as twenty yards of linen. There can clearly !e a *uestion of an exchange relationship only !etween individual commodities among each other. )s soon# howe er# as we look at all commodities as a whole and sum up their prices# we must studiously and perforce a oid looking at the relations existing within this whole. The relati e differences of price compensate each other in the sum total. 1t is# therefore# no answer to our *uestion concerning the exchange relationships of the commodities to !e told the total price which they !ring when taken together. The state of the case is this: to the *uestion of the pro!lem of alue# the Marxists first reply with their law of alue# telling us that commodities exchange in proportion to the la!or time em!odied in them. They then re oke this answer as far as it concerns the domain of the exchange of indi idual commodities# the one domain in which the

pro!lem has any meaning# while they maintain it in full force only for the aggregate national product# for a domain therefore in which the pro!lem# !eing without o!$ect# cannot properly !e put at all. )s an answer to the strict *uestion of the pro!lem of alue# the law of alue is a owedly contradicted !y the facts; and in the only application in which it is not contradicted !y them# it is no longer an answer to the *uestion which demanded a solution. 1t is no answer at all# it is mere tautology. 6hen one penetrates the disguises due to the use of money# commodities do e entually exchange for commodities. The aggregate of commodities is thus identical with the aggregate of the prices paid for them; or the price of the entire national product is nothing else than the national product itself. 1n these circumstances# therefore# it is *uite true that the total price paid for the entire national product coincides precisely with the total amount of alue or la!or crystalli/ed therein. But this tautological utterance denotes no increase of true knowledge# neither does it pro e the correctness of the law that commodities exchange in proportion to the la!or em!odied in them. Thus Bhm-Bawerk. The entire train of reasoning is utterly !eside the point. Marx is in*uiring a!out the total alue# and his critic complains !ecause he is not in*uiring a!out the alue of the indi idual commodity. Bhm-Bawerk fails to see what Marx is aiming at in this demonstration. 1t is important to show that the sum total of the prices of production is identical with the sum total of the alues# !ecause there!y# first of all# it is shown that the total price of production cannot !e greater than the total alue; !ut# inasmuch as the process of the production of alue is effected solely within the sphere of production# this signifies that all profit originates from production and not from circulation# not from any addition to the finished product su!se*uently effected !y the capitalist. +econdly# we learn that# since the total price is e*ual to the total alue# the total profit cannot !e anything else than the total surplus alue. The total profit is there!y *uantitati ely determined# and solely on the !asis of this determination does it !ecome possi!le to calculate the magnitude of the rate of profit. But can we# without lapsing into a!surdity# enture to speak of a total alue at all9 BhmBawerk confounds the exchange alue with the alue. Halue manifests itself as exchange alue# as a *uantitati ely determined relationship# in irtue of the fact that one commodity can !e exchanged for another. But whether# for example# a coat can !e exchanged for twenty yards of linen cloth or for forty yards is not a matter of chance# !ut depends upon o!$ecti e conditions# upon the amount of socially necessary la!or time contained in the coat and in the linen respecti ely. These conditions must make themsel es felt in the process of exchange# they must su!stantially control that process# and they must ha e an independent existence *uite apart from exchange# if we are to !e entitled to speak of the total alue of commodities. &@( Bhm-Bawerk o erlooks the fact that alue in the Marxist sense is an o!$ecti e# *uantitati ely determined magnitude. He o erlooks it !ecause in reality the concept of alue as determined !y the marginal utility theory lacks this *uantitati e definiteness. E en supposing that the alue as e*ui alent to the marginal utility of each unit in an aggregate of goods is known to me# this alue !eing determined !y the utility of the last unit in this store of goods# this does not ena!le me to calculate the magnitude of the alue of the total store. But if the alue# in the Marxist sense# of a single unit !e known to me# the alue of the aggregate of these units is likewise known. 1n the transition from the simple to the capitalist production of commodities# the distri!ution of the social product is what undergoes change. The distri!ution of the surplus alue is now no longer effected in accordance with the measure of the la!or power which the indi idual

producer has in his particular sphere expended for the production of surplus alue# !ut is regulated !y the magnitude of the capital it has !een necessary to ad ance in order to set in motion the la!or that creates the surplus alue. 1t is o! ious that the change in the distri!ution makes no difference in the total amount of surplus alue undergoing distri!ution# that the social relationship is unaltered# and that the change in the distri!ution comes to pass solely through a modification in the price of the indi idual commodities. 1t is further o! ious that if we are to determine the amount of di ergence# we must know# not only the magnitude of the surplus alue# !ut also the magnitude and indeed the value magnitude of the ad anced capital. The law of alue ena!les us to determine this magnitude. 1 can thus readily ascertain the de iations as soon as the alue magnitudes are known to me. Halue is conse*uently the necessary theoretical starting point whence we can elucidate the peculiar phenomenon of prices resulting from capitalist competition. Bhm-Bawerk's entire polemic is therefore all the more fallacious inasmuch as Marx# when he in*uires a!out the total alue# does this solely in order to distinguish# within the total alue# the indi idual parts which are important to the capitalist process of distri!ution. Marx's concern is with the alue newly created within a period of production# and with the ratio in which this newly created alue is distri!uted !etween the working class and the capitalist class# thus furnishing the re enues of the two great classes. 1t is therefore utterly false to say that Marx re okes the law of alue as far as indi idual commodities are concerned# and maintains it in force solely for the aggregate of these commodities. Bhm-Bawerk is led to make this contention only !ecause he fails to distinguish !etween alue and price. The truth is# rather# that the law of alue# directly alid for the social product and its parts# enforces itself only inasmuch as certain definite modifications# conforma!le to law# occur in the prices of the indi idual capitalistically-produced commodities%!ut these modifications can only !e made comprehensi!le !y the disco ery of the social nexus# and the law of alue renders us this ser ice. -inally# it is pure gi!!erish for Bhm-Bawerk to say# as he does# that the aggregate of commodities is identical with the aggregate of the prices paid for them. )ggregate of commodities and aggregate of prices are incommensura!le magnitudes. Marx says that the sum total of the alues 3not of the commodities4 is e*ual to the sum total of the prices of production.1n this case we ha e commensura!ility# inasmuch as prices and alues are !oth expressions for different *uantities of la!or. -or the total price of production can !e compared with the total alue only if# though *uantitati ely different# they are *ualitati ely homogeneous# !oth !eing the expression of materiali/ed la!or. 1t is true that Bhm-Bawerk considers that in the ultimate analysis commodities exchange for commodities# and that this is why the aggregate of prices is identical with the aggregate of commodities. But here he disregards not only the price !ut also the alue of the commodities. The *uestion is# gi en an aggregate of commodities# !y the piece# !y weight# etc.# how great is their alue# or what is their price# since for the social product these are coincident. This alue or price is the magnitude of a definite *uantity of money#and is something completely different from the aggregate of commodities# Marx's in*uiry relates to this magnitude# which must according to his theory incorporate an e*ual expenditure of la!or with the aggregate of commodities. The first "argument#" like those that follow# is merely designed to indicate how far the law of alue holds good directly# without modifications. ,aturally# it is easy for Bhm-Bawerk to show that the modification of the law of alue which Marx had pre iously indicated as a necessary outcome of the nature of capitalist competition# and which he here in aria!ly presupposes# is not pro ed.

1n his criticism of the second argument# Bhm-Bawerk proceeds as follows. Marx# he says# claims for the law of alue that it go erns the ariation of prices# inasmuch as# if the la!or time re*uired for the production of commodities !e reduced# prices fall; if it !e increased# prices rise 3111# 8GC# 8''4. But Bhm-Bawerk has omitted the condition which Marx attaches to this proposition# for Marx !egins !y saying: "6hate er may !e the way in which the prices of the arious commodities are first fixed or mutually regulated# the law of alue always dominates their mo ements." Bhm-Bawerk o erlooks this# and reproaches Marx with ignoring the fact that la!or# while it is one of the determinants of price# is not the sole determinant# as Marx's theory demands. This conclusion# says Bhm-Bawerk# rests on an o ersight so o! ious that it is ama/ing Marx failed to percei e it. But what Marx said# and the only thing he wanted to say# was that changes in the expenditure of la!or entail changes in prices# that is to say that# the prices !eing gi en# the ariation in prices is determined !y the ariation in the producti ity of la!or. The o ersight is here committed !y Bhm-Bawerk# who could not ha e raised the o!$ection he does had he *uoted the passage in full. More important# howe er# are Bhm-Bawerk's su!se*uent o!$ections to the Marxist exposition. Marx concei es the transformation of alue into price of production as an historical process# which is summari/ed !y Bhm-Bawerk as the "third argument" in the following terms: "The law of alue# Marx affirms# go erns with undiminished authority the exchange of commodities in certain primary stages in which the change of alues into prices of production has not yet !een accomplished." The argument# we are told# has not !een de eloped !y Marx with precision and clearness# !ut the su!stance of it has !een interwo en into his other dis*uisitions. The conditions which are re*uisite in order that commodities shall !e exchanged for their alues are de eloped !y Marx as follows: He assumes that the workers themsel es own their respecti e means of production# that they la!or on the a erage for an e*ual time with e*ual intensity# and that they exchange their commodities directly. Then two workmen in any one day will !y their la!or ha e added to their product e*ual amounts of new alue# !ut the respecti e products will ary in alue in accordance with ariations in the amount of la!or pre iously incorporated in the means of production. This latter portion of alue will correspond to the constant capital of the capitalist economy; the portion of the new alue expended upon the workers' means of su!sistence will correspond to the aria!le capital; while the portion of the new alue which remains will correspond to the surplus alue# which will accrue to the la!orer. Thus !oth the la!orers recei e e*ual alues after the alue of the in ested "constant" capital has !een deducted; !ut the relationship !etween the portion of alue representing surplus alue and the alue of the means of production%that which corresponds to the capitalist rate of profit%will differ in the respecti e cases. +ince# howe er# each of them has the alue of the means of production made good to him in exchange# the circumstance is completely immaterial. "The exchange of commodities at their alues# or approximately at their alues# re*uires# therefore# a much lower stage than their exchange at their prices of production# which re*uires a relati ely high de elopment of capitalist production....)side from the fact that prices and their mo ements are dominated !y the law of alue# it is *uite appropriate# under these circumstances# to regard the alue of commodities# not only theoretically# !ut also historically# as existing prior to the prices of production. This applies to conditions in which the la!orer owns his means of production# and this is the condition of the land-owning farmer and of the craftsman in the old world as well as the modern world. This agrees also with the iew formerly expressed !y me that the de elopment of product into commodities arises through the exchange !etween different

communes# not through that !etween the mem!ers of the same commune. 1t applies not only to this primiti e condition# !ut also to su!se*uent conditions !ased on sla ery or serfdom# and to the guild organi/ation of handicrafts# so long as the means of production installed in one line of production cannot !e transferred to another line except under difficulties# so that the arious lines of production maintain# to a certain degree# the same mutual relations as foreign countries or communistic groups" 3111# 8GA-8GE4. )gainst this reasoning# Bhm-Bawerk tells us# "the gra est dou!ts arise# whether we regard it from within or without." 1t is inherently impro!a!le# and experience also is against it. To demonstrate the impro!a!ility# Bhm-Bawerk illustrates Marx's example arithmetically. 5a!orer 1# he says# represents a !ranch of production which re*uires technically a relati ely large and costly preparatory means of production# for the installation of which he has re*uired fi e years' la!or# while the formation of the finished product needs an additional year. 5et us assume that the la!orer furnishes the means of production. 1n that case it will !e six years !efore he secures a return for the alue of his la!or. 5a!orer 11# on the other hand# can pro ide the necessary means of production and complete the finished product in a single month# and will therefore secure his yield after one month. But in the Marxist hypothesis a!solutely no attention is paid to this difference in point of time as regards the receipt of payment# whereas a year's postponement of the remuneration of la!or is assuredly a circumstance demanding compensation. Fn*uestiona!ly# says Bhm-Bawerk# the different !ranches of production are not e*ually accessi!le to all producers. Those !ranches which demand an extensi e outlay of capital are accessi!le only to a dwindling minority. Hence# in these latter !ranches# there ensues a certain restriction in supply# and this ultimately forces the price of their products a!o e the le el of those !ranches which can !e carried on without exatious delays. Marx himself recogni/es that in such cases exchange for alues would lead to a disproportion. He records the admission !y saying that the e*ui alent surplus alues represent une*ual rates of profit. But the *uestion naturally arises# why this ine*uality should not !e neutrali/ed !y competition $ust as it is in capitalist society. Marx answers the *uestion !y saying that the only thing which matters to the two la!orers is that for e*ual la!or time they shall# when the alues of the in ested constant elements ha e !een deducted# recei e e*ual alues# whereas the difference in the rates of profit is a matter of no moment to them# $ust as the modern wage earner is indifferent as to what rate of profit the *uantum of surplus alue extorted out of him may represent. But the comparison is fallacious. -or# says Bhm-Bawerk# the la!orers of our day do not recei e the surplus alue# whereas in the supposed case the two la!orers do recei e it. 1t is therefore not an indifferent matter whether it !e allotted to them !y one measure or !y another# !y the measure of the work done or !y the measure of the in ested means of production. 7onse*uently the ine*uality in the rates of profit cannot depend on the fact that the magnitude of the rate of profit is of no moment to the persons concerned. These last sentences are a salient example of Bhm-Bawerk's polemic method. He completely ignores his opponent's actual line of argument# and *uotes an illustrati e example 3which he proceeds to interpret falsely4 as if it had !een alleged to !e a proof; he then triumphantly announces that an example is not a proof. The difference with which we ha e to do is the difference !etween pre-capitalist and capitalist competition. 1n the local market which it dominates# pre-capitalist competition effectuates the e*uali/ation of the different indi idual alues to produce a single market alue; capitalist competition effectuates the transformation of alue into price of production. This# howe er# is only possi!le !ecause capital and la!or can remo e at will from one sphere of production to another; this remo al

cannot take place freely until all legal and material o!stacles to the transfer ha e ceased to exist# cannot take place until 3disregarding minor considerations4 there exists a!solute li!erty of mo ement for capital and for la!or. But in pre-capitalist conditions this competition for spheres of investment is impossi!le# and conse*uently the e*uali/ation of the different rates of profit is impossi!le. +ince this is so# since the la!orer who produces on his own account cannot change his sphere of production at will# the difference in the profit rates con$oined with e*ual masses of profit 3O surplus alue4# is indifferent to him# $ust as to the wage la!orer it is of no moment what rate of profit is represented !y the amount of surplus alue extorted from him. The tertium comparationis &the third term in the comparison( is in !oth cases that the la!orers' chief concern is with the amount of surplus alue. -or whether they get the surplus alue or not# in !oth cases they ha e to do the work which produces it. 1t depends strictly upon the duration of their la!or. The matter may !e expressed in arithmetical terms as follows. 5et us suppose that there are two producers each of whom works on his own account# that one of them makes use of means of production amounting to 'G shillings daily# and that the other makes use of means of production amounting to 8G shillings daily. 5et us further suppose that each of them daily produces new alue to the amount of 8G shillings. The first la!orer will recei e >G shillings for his product# the second will recei e <G shillings; of the >G shillings 8G# and of the <G shillings 'G# will !e recon erted into means of production# so that there will remain for each la!orer 8G shillings. +ince they are not free to change the sphere of production at will# the ine*uality of the rates of profit is of no conse*uence to them. 2f the 8G shillings which remain at the disposal of each# let 'G shillings represent the portion used to pro ide the la!orer's means of su!sistence# or 3in capitalist phraseology4 let 'G shillings represent their aria!le capital# then for each of them the remaining 'G shillings will constitute surplus alue. -or a modern capitalist the affair would assume a ery different complexion. 1n the first sphere he would ha e to dis!urse capital amounting to <G shillings in the form of 8Gc O 'G in order to gain 'G shillings surplus alue; in the second sphere# if he in ested an e*ual amount of capital# it would !e in the form of '@c P '@ and he would gain '@ shillings surplus alue in return for his outlay. +ince capital is transfera!le at will there will !e competition !etween the in estments until the profits are e*uali/ed# which will ensue when the prices are no longer >G shillings and <G shillings respecti ely# !ut <@ shillings in each case. But Bhm-Bawerk's polemic secures its triumph in the "arithmetical exposition" of the example gi en !y Marx. 1n this exposition the simple production of commodities presupposed !y Marx is in the twinkling of an eye transformed into capitalist production. -or with what else than capitalist production ha e we to do when Bhm-Bawerk e*uips one of the la!orers with means of production re*uiring fi e years to furnish# while the means of production re*uired !y the other la!orer can !e furnished in a time measured in days9 Noes not this imply differences in the organic composition of capital# differences which# when so extensi e# can arise only as the outcome of capitalist de elopment9 1n the case of the la!orer who works on his own account# such a la!orer as Marx had in iew# the means of production are tools of a comparati ely simple kind# and there is no ery nota!le difference in alue !etween the tools used in the different spheres of production. 6here tools of considera!le alue are employed 3a fulling mill# for instance4 these are usually the property of the guild or of the city# and each guildsman's share therein is insignificant. +peaking generally# in pre-capitalist conditions dead la!or plays a modest part as compared with li ing la!or. )lthough# howe er# the differences in *uestion are inconsidera!le# they do in fact suffice to determine certain differences in the rates of profit# differences whose e*uali/ation is hindered !y the artificial !arriers surrounding e ery sphere of production. But where er the means of production !ulked largely in comparison with la!or# co-operati e industry made its appearance at an

early date# was speedily transformed into capitalist industry# and as a rule culminated in legali/ed or irtual monopoly 3as in the mining industry4. Marx further assumes that the la!orers in his illustration mutually exchange their respecti e products. Bhm-Bawerk complains of the in$ustice in ol ed# in that one of the la!orers# after working for six years# should recei e merely an e*ui alent for his la!or time# and not !e allotted in addition some compensation for the time he has had to wait. But if one of them has had to wait six years for the return# the other has had to wait six years for the product# has had to store up his own products for six years that he may !e a!le at last to exchange them for the former's product# now at length completed. Hence there is no occasion for allotting a special compensation to one of the two. But in reality there is no more historical warrant for the assumption of so great a di ergence !etween the times when returns can !e expected# than there is for the similar assumption of an extensi e ariation in the organic composition of the "capital." Bhm-Bawerk# howe er# is not content with the Middle )ges. 1n the "modern world#" too# relationships exist which correspond to those of the Marxist hypothesis. They are found# says our critic# as Marx himself indicates# in the case of the land-owning peasant farmer and of the handicraftsman. These ought to secure e*ual incomes whether the capital they ha e in ested in means of production amounts to 1o shillings or to 'G#GGG shillings# a supposition which manifestly conflicts with the facts. 7ertainly it conflicts with the facts. But Marx ne er maintained that in the "modern" world two distinct prices o!tain for an article according as it has !een produced !y capitalists or !y handicraftsmen. )s far as the "modern" world is concerned# Marx is referring# not to capitalist conditions# !ut to the medie al system as contrasted with the classical. This is manifest from the context# and it seems almost incredi!le that Bhm-Bawerk should ha e misunderstood the passage as he has done. Howe er# Bhm-Bawerk assures us that Marx's iews as to the e*uali/ation of the rates of profit are historically untena!le# and refers in this connection to an o!$ection raised !y 6erner +om!art in the latter's criticism of Marx's third olume. But in actual fact +om!art makes no reference to the *uestion of the alidity of the law of alue in pre-capitalist conditions. )ll he does is to oppose the contention that during the transition from the medie al to the capitalist economy# the e*uali/ation of the rates of profit has !een !rought a!out !y the le eling of the originally une*ual rates of surplus alue. He holds# rather# that the starting point of capitalist competition is from the ery outset to !e found in the preexisting commercial rate of profit. Had surplus alue !een the starting point# capitalism would first ha e sei/ed upon the spheres in which li ing la!or predominated# and only gradually would it ha e proceeded to exploit other spheres of production# in proportion as in those spheres prices had fallen owing to a great increase in production. 1n truth production de elops with especial igor in spheres wherein there is much constant capital# as for example in the mining industry. 7apital would ha e had no reason to transfer itself from one sphere of production to another without a prospect of a "customary profit" such as existed in commercial profit. But# continues +om!art# the error can !e shown in yet another way. 1f# at the outset of capitalist production# exor!itant profits had !een o!taina!le in spheres where aria!le capital preponderated# this would imply that all at once capital had made use as wage earners of those who had hitherto !een independent producers# had employed them at half the amount which they had pre iously earned for themsel es# and had pocketed all the difference reali/a!le !y the sale of the commodities at prices corresponding to their alues. 1n actual fact# says +om!art# capitalist production !egan with the exploitation of declassed indi iduals# and in spheres of production some of which were completely new creations;

un*uestiona!ly# therefore# capitalist production started from the fixing of prices directly in relation to the amount of capital in ested. &A( 1n opposition to +om!art# my own opinion is that e*uali/ation of the different rates of surplus alue to form a single rate of profit was the outcome of a process long drawn out. 1n +om!art's opinion it would !e incomprehensi!le that the capitalist should ha e trou!led to gain control of production unless he had a prospect of securing as industrial capitalist the same profit which he had !een in the ha!it of securing as a merchant. 1t seems to me# howe er# that +om!art o erlooks the consideration that the merchant did not in the first instance cease to !e a merchant when he !ecame a manufacturer. The capital he employed in export was still his main concern. But !y employing his extra capital 3and in iew of the comparati ely small amount of constant capital then re*uisite# no considera!le sum would !e needed4 for the production of commodities on his own account# he was ena!led to pro ide the necessary articles more regularly and in larger *uantities%important considerations in a rapidly expanding market. 1n the second place# inasmuch as he appropriated part of the surplus alue produced !y the handicraftsmen he transferred to the new industry# he reali/ed an extra profit. E en if the profit rate he could secure on the capital in ested in industry was lower than that o!taina!le on his commercial capital# ne ertheless the total rate of profit was henceforth greater. Howe er# a rapid increase in his industrial profit rate occurred when# through the utili/ation of new technical methods 3the association of la!or# and factory production4# he was ena!led to produce articles more cheaply than his competitors# who were still satisfying their demand with commodities produced !y independent handicraftsmen. 7ompetition then forced his ri als to adopt the new method of production and to disregard the products of the handicraftsmen's la!or. 6ith the further progress of capitalism# when production no longer took place mainly for the purposes of the mercantile exporter# and when the capitalist !egan to effect a con*uest of the whole market# his profit was chiefly dependent upon the following factors: His technical methods of production were superior# so that he could produce more cheaply than the handicraftsmen. +ince for the time !eing the market alue of the handicraftsman's products determined prices# the capitalist was a!le to reali/e extra surplus alue or extra profit# which was greater in proportion as his technical superiority was more marked. -or the most part# through special legal pri ileges# the exploitation of superior technical methods was a monopoly of indi idual capitalists. ,ot until the days of monopoly were o er# not until the restrictions upon the transfera!ility of capital had !een a!olished# not until the shackles of the la!orer had !een remo ed# was the e*uali/ation of the arying rates of profit# originally so di ergent# rendered possi!le. -irst of all# !y the supplanting of handicraftsmanship and !y the increase of competition within the sphere of capitalist production# the extra profit reali/a!le !y capital was reduced; and su!se*uently freedom of transference from one sphere of production to another effectuated the e*uali/ation of profit to !ecome a erage profit. The expansion of the market creates a need for enhanced and more regular supply# and this in turn impels commercial capital to ac*uire control of production as well. The profit which capital thus reali/es may !e less than commercial profit. -or to capital it assumes the form of extra profit# which is made !ecause the commodities which capital produces are o!taina!le !y it more cheaply than those purchasa!le from independent handicraftsmen. 1n the further course of economic e olution# the extra profit made with the aid of superior technical e*uipment !y the capitalist who is competing with the handicraftsman for the home market !ecomes the moti e force for the exclusi e sei/ure of a sphere of production !y capital. The organic composition of capital plays here a minor part; and in any case# as far as precapitalist

conditions are concerned# Bhm-Bawerk and +om!art o erestimate the extent of differences in the organic composition of capital. 2nly where# as a matter of actual fact# the means of production !ulk large in importance# as is the case in the mining industry# does the great preponderance of constant capital !ecome a reason for capitali/ation# for which co-operation constitutes a preliminary stage. -or the most part such industries are likewise monopolies# the yield of which has to !e dealt with !y special laws. )s soon# howe er# as capitalist competition has definiti ely esta!lished the e*ual rate of profit# that rate !ecomes the starting point for the calculations of the capitalists in the in estment of capital in newly-created !ranches of production. The prices here fluctuate on either side of that price of production whose attainment makes the particular !ranch of production appear profita!le. )t the same time# the capitalist goes halfway to meet competition# for he himself accepts a erage profit as a regulati e principle# and the sole effect of competition is to pre ent his de iating from the norm and from securing an a!o ea erage profit for any considera!le period. 1t is o! ious# moreo er# that the formation of price in capitalist society must differ from the formation of price in social conditions !ased upon the simple production of commodities. 6e shall now pursue our examination of the change in the character of the formation of price !y considering the "fourth argument." Bhm-Bawerk tells us that# according to Marx# in a complex economic system the law of alue regulates the prices of production# at least indirectly and in the last resort# since the total alue of the commodities determined !y the law of alue determines the total surplus alue# while this last regulates the amount of the a erage profit and therefore the general rate of profit 3111# 8''-8'84. The a erage profit determines the price of production. 1n the sense of the Marxist doctrine# says Bhm-Bawerk# this is correct# !ut the statement is incomplete# and our critic attempts to "complete" it as follows: The price of production is e*ual to cost price plus a erage profit. The cost price of the means of production consists# again# of two components: first the outlay on wages; and secondly the outlay upon means of production whose alues ha e already !een transformed into prices of production. 1f we continue this analysis we come at last%as does )dam +mith in his "natural price#" with which# indeed# Marx expressly identifies his price of production%to resol e the price of production into two components or determinants &0(: 314 the sum total of the wages paid during the different stages of production# which taken together represent the actual cost price of the commodities; 384 the sum total of the profits calculated on all these dis!ursements upon wages. 7onse*uently one determinant of the price of a commodity is the a erage profit incidental to its production. 2f the other determinant# the wages paid# Marx speaks no further in this passage. But it is e ident# says Bhm-Bawerk# that the total expended outlay upon wages is a product of the *uantity of la!or employed# multiplied !y the a erage rate of wages. +ince# howe er# according to the law of alue the exchange relations must !e determined solely !y the quantity of la!or expended# and since Marx denies that the rate of wages has any influence upon the alue of the commodities# it is also e ident that# of the two components of the factor "outlay upon wages#" only the amount of la!or expended is in harmony with the law of alue# while in the second component# rate of wages# a determinant alien to the law of alue enters among the determinants of the prices of production.

1t is almost incredi!le# the way in which Bhm-Bawerk deduces as a self-e ident inference from Marx's train of thought the ery conclusion which Marx has in so many words stigmati/ed as a gross fallacy. 5et Marx speak for himself. "The alue of the annual product in commodities# $ust like the alue of the commodities produced !y some particular in estment of capital# and like the alue of any indi idual commodity# resol es itself into two parts: Lart )# which replaces the alue of the ad anced constant capital# and Lart B# which presents itself in the form of re enue as wages# profit# and rent. This last part of alue# B# stands in opposition to Lart ) to the extent that this Lart )# under otherwise e*ual circumstances# in the first place ne er assumes the form of re enue# and in the second place always flows !ack in the form of capital# and of constant capital at that. The other portion# B# howe er# carries within itself an antagonism. Lrofit and rent ha e this in common with wages that all three of them are forms of re enue. ,e ertheless# they differ essentially from each other in that profit and rent are surplus alue# unpaid la!or# whereas wages are paid la!or." &B( 1n that he reproduces as Marx's opinion "the incredi!le error in analysis which permeates the whole of political economy since )dam +mith#" Bhm-Bawerk makes a dou!le mistake. -irst of all he ignores constant capital. )part from all else# this is least permissi!le in a place in which we ha e to do with the transformation of alue into price of production. -or what is decisi e for this transformation is the organic composition of the capital# that is to say# the ratio !etween the constant and the aria!le capital. To disregard the constant capital in this case is to disregard the most essential point# is to render it *uite impossi!le to understand the formation of the price of production. But gra er# perhaps# is the second mistake. 1nasmuch as Bhm-Bawerk# in common with )dam +mith# makes aria!le capital and surplus alue "component parts#" or as he puts it more stringently# "determinants#" of alue# he per erts Marx's doctrine into its precise opposite. -or Marx# alue is the prius, the thing gi en# while and s are no more than parts whose magnitude is limited !y the new alue added to the dead la!or 3c4 and determined in accordance with the *uantity of la!or. How much of this new alue 3which can !e resol ed into P s# !ut does not originate from them4 can !e assigned to and how much to s# is determined !y the alue of the la!or power# which is e*ual to the alue of the means of su!sistence necessary for its maintenance# the !alance remaining a aila!le for surplus alue. Bhm-Bawerk is still entangled in the capitalist illusion in accordance with which the cost price is regarded as a constituti e factor of the alue or of the price. Lrecisely !ecause he ignores c# he makes it utterly impossi!le for himself to gain insight into the process of the formation of alue. He does not see that in the product the portion of the cost price which represents the constant capital appears reproduced with its alue unchanged. 1t is otherwise with the portion represented !y . The alue of the aria!le capital presents itself in the form of the means of su!sistence consumed !y the la!orer. The alue of these means of su!sistence is annihilated in the process of consumption. But the new alue produced !y the la!orers !elongs to the capitalist; a portion of this new alue is rein ested !y him in aria!le capital# and seems to him to replace this again and again# $ust as another portion of the alue which flows !ack to him replaces the constant capital whose alue is actually transferred to the product. The distinction !etween c and is there!y o!literated# and the process of the formation of alue is en eloped in mystery. 5a!or no longer manifests itself as the source of alue# for alue appears to !e constituted out of the cost price plus an excess o er cost price coming no matter whence. Thus the "price of la!or" seems to !e the cause of the price of the product# so that ultimately the whole analysis resol es itself into the circular explanation of price !y price. 1nstead of concei ing of alue as a magnitude which# in accordance with definite laws# undergoes su!di ison into two portions# one of which replaces the constant capital# while the other !ecomes re enue 3 P s4# re enue itself is made a constituent of price# and the constant capital is forgotten. Thus# Marx

expressly insists that "it would !e a mistake to say that the alue of wages# the rate of profit# and the rate of rent form independent constituent elements of alue# whose composition gi es rise to the alue of commodities# lea ing aside the constant part; in other words# it mould !e a mistake to say that they are constituent elements of the alue of commodities# or of the price of production" 3111# EE>4. 1f# howe er# the wage of la!or !e not a constituent of alue# it naturally has no influence upon the magnitude of alue. How# then# is it possi!le for Bhm-Bawerk to continue to proclaim that it has an influence upon alue9 To demonstrate this influence# he gi es us two ta!les. Three commodities# )# B# and 7# ha e at the outset the same price of production# namely 'GG# while the organic composition of the capital differs in each case. The daily wage is @; the rate of surplus alue 3s'4 is 'GG percent; the total capital !eing '#@GG# the a erage rate of profit 3p4 is 'G percent.

Commodit0 1orking ,a0s 1ages ! B C (otals 'G A '> <G @G <G BG '@G

Capital !/erage -rice of $mplo0ed -rofit -roduction @GG BGG <GG '#@GG @G BG <G '@G 'GG 'GG 'GG <GG

,ow let us assume that wages rise from @ to A; of the <GG# 'CG will now accrue to wages and '8G to profit; p' is now C percent; the ta!le# therefore# must !e modified as follows:

Commodit0 1orking ,a0s 1ages ! B C (otals 'G A '> <G AG <A C> 'CG

Capital !/erage -rice of $mplo0ed -rofit -roduction @GG BGG <GG '#@GG >G @A 8> '8G 'GG E8 'GC <GG

The ta!les exhi!it certain peculiarities. ,amely# we are not told the magnitude of the constant capital employed in the arious !ranches# nor do we learn how much of the constant capital is transferred to the product; thus only is Bhm-Bawerk ena!led to draw the conclusion that although a nota!le constant capital is employed# it nowhere reappears in the product# and the prices of production are identical. +till less are we a!le to understand how it happens that higher wages can !e paid with the same capital. 1t is true that these errors make little difference to the final results# for Bhm-Bawerk does in a sense allow for the organic composition# inasmuch as he calculates the profit upon arying outlays of capital; and his second sur ey alters only the a!solute figures# not the relati e ones# for the rate of profit undergoes a greater fall than Bhm-Bawerk declares# seeing that the total capital is

increased. But the failure to take the constant capital into account renders it impossi!le to secure an insight into the actual process. 1f we correct Bhm-Bawerk's ta!les# they read as follows:

Commodit0 ! B C (otals

(otal Capital c2/ @GG BGG <GG '#@GG

c >@G ABG 8<G

alue 334 564 654

-rice of -roduction 334 554 664 7.834 9 7.344 2 734

@G @G @G <G <G BG BG BG <G

'#<@G '@G '@G '@G 7.834

To a oid complicating the calculation needlessly# we ha e assumed that c is entirely used up. 1f the wage now rises from @ to A# the total capital is increased from '#@GG to '#@<G# !ecause increases from '@G to 'CG; the surplus alue is reduced to '8G# the rate of surplus alue to AA.A percent# and the rate of profit to approximately B.C percent. The new alue created !y the la!orers remains unchanged# and is <GG. But the organic composition of the capital has !een modified# and therewith has !een modified the factor that is decisi e in the transformation of alue into price of production.

Commodit0 ! B C (otals

(otal Capital c2/ @'G BGA <'> '#@<G

c >@G ABG 8<G

alue 334 564 654

-rice of -roduction 334 587 66: 7.834

AG >G >G <A 8> @@ C> @A 8@

'#<@G 'CG '8G '8G 7.834

The ta!le shows the "effects of general fluctuations of wages on prices of production" 3111# 7hap. K14. 6e o!tain the following laws &C( : 314 as far as a capital of a erage composition is concerned# the price of production of the commodities undergoes no change; 384 as far as a capital of lower composition is concerned# the price of production of the commodities rises# !ut not proportionally to the fall in the profits; 3<4 as far as a capital of higher composition is concerned# the price of production falls# !ut not as much as the profit 3111# 8<A4. 6hat are we to deduce from this9 1f we are to !elie e Bhm-Bawerk# it appears that a rise in wages 3the *uantity of la!or remaining unchanged4 !rings a!out a material alteration in the originally e*ual prices of production. This alteration can !e ascri!ed in part only to the change in the rate of profit. ,ot wholly# of course# seeing that# for example# the price of production of commodity 7 has risen notwithstanding the fall in the rate of profit. This puts it !eyond dou!t that in the magnitude of wages we ha e to do with a price-determinant whose efficacy is not exhausted in the influencing of the magnitude of the profit# !ut which rather exercises a direct influence of its own. Bhm-Bawerk therefore !elie es that he has good reason for

undertaking an independent examination of this link in the chain of determinants of price which Marx has passed o er. 3Marx has a special chapter on the su!$ect04 6e ha e already seen that this "independence" is pushed so far as to represent Marx as saying the opposite of what he really thought. 6e now see how far Bhm-Bawerk's independence transcends the rules of logic. The same change in wages effects in the first case no change in the price# in the second case it causes a rise# and in the third case it causes a fall in the price. )nd this is what he calls ha ing "a direct influence of its own" on price0 1n fact# howe er# the ta!les show clearly that wages can neither constitute components nor determinants of price; for# were it otherwise# an increase in these components must raise price and a decrease in these components must lower price. ,or can a erage profit constitute a magnitude independently influencing price# for if such an influence existed# whene er the profit falls the price must also fall. But !y ignoring the constant portion of capital# and !y thus lea ing out of consideration the organic composition of capital# Bhm-Bawerk depri es himself of the possi!ility of explaining the process. +peaking generally# we cannot gain an insight into the entire process from the standpoint of the indi idual capital# !ut this is the outlook to which we are restricted when we concei e the wage of la!or to !e an independent component of price. -rom this outlook it is impossi!le to understand how the capitalist can fail to !e indemnified in the price for an increase in wages# for a greater outlay of capital. ,othing !ut the social relationships whose essence is disclosed !y the law of alue suffices to explain how the same cause# an increase in wages# can exercise so di ergent an effect upon the indi idual capitals# the effect arying as the ratio aries in which they respecti ely participate in the surplus!value!creating process of the social capital. Their participation in the social surplus- alue-creating process is# howe er# indicated !y their organic composition. But the changed relationship !etween the capitals consists in this# that their share in the production of the total surplus alue has !een altered; the surplus alue has diminished; !ut the respecti e capitals ha e contri!uted in arying manners to this diminution# according to ariations in the magnitude of the la!or they ha e respecti ely set in motion. +ince# howe er# the reduced surplus alue is to !e distri!uted among them in like manner# the modification of their respecti e parts in the production of surplus alue must find expression in a modification of the prices. The capitals# therefore# must not !e regarded indi idually# as Bhm-Bawerk regards them# !ut must !e apprehended in their social interconnections# as parts# that is to say# of social capital. But the part they respecti ely play in the creation of the total alue of the social product is only to !e recogni/ed !y a knowledge of their organic composition# !y a knowledge of the relationship in which the dead la!or# whose alue is merely transferred# stands to the li ing la!or which creates new alue and of which the aria!le capital is the index. To disregard this organic composition is tantamount to disregarding the social relationships of the indi idual capital. This renders it e*ually impossi!le to understand the process where!y alue is transformed into price of production# and to understand the laws which regulate ariations in the price of production%laws different from those which regulate ariations in alue# !ut always tracea!le in the ultimate analysis to ariations in the relationships of alue. "+eeing that the price of production in the second illustration rises# while it falls in the third# it is e ident from these opposite effects !rought a!out !y a fall in the rate of surplus alue or !y a general rise of wages that there is no prospect of any compensation in the price for the rise in wages# since the fall of the price of production in 111 cannot ery well compensate the

capitalist for the fall in the profit# and since the rise of the price in 11 does not pre ent a fall in profit. 2n the contrary# in either case# whether the price rises or falls# the profit remains the same as that of the a erage capital whose price remains unchanged.....1t follows from this# that if the price did not rise in 11 and fall in 111# 11 would ha e to sell !elow and 111 a!o e the new# recently reduced# a erage profit. 1t is *uite e ident that a rise of wages must affect a capitalist who has in ested one tenth of his capital in wages differently from one who has in ested one fourth or one half# according to whether @G# 8@# or 'G percent of capital are ad anced for wages. )n increase in the price of production on one side# and a fall on the other# according to whether a capital is !elow or a!o e the a erage social composition# is effected only !y le eling to the new reduced a erage profit. 1t is clear that when# in conse*uence of the esta!lishment of a general rate of profit for the capitals of lower composition 3those wherein is a!o e the a erage4# the alues are lowered on the occasion of their transformation into prices of production# for the capitals of higher composition the alues will !e increased." &E( The ariation in the price of production conse*uent upon a change in wages manifests itself as a direct effect of the new a erage rate of profit. )s we ha e pre iously seen# the esta!lishment of this rate is an outcome of capitalist competition. Bhm-Bawerk's polemic is therefore primarily unfortunate in this# that it is not directed against the decisi e point# !ut against a phenomenon which only makes its appearance as a necessary conse*uence# as a se*uel# of the primary condition# which is the formation of the price of production upon the !asis of the e*ual rate of profit. 1t makes no difference to the regulation of the price of production !y the law of alue# that in the wage of la!or itself# that is to say in the magnitude of the aria!le portion of capital which has to !e ad anced# the transformation of the alues of the la!orer's necessary means of su!sistence into prices of production has already !een completed. 6e must not attempt to pro e the contention that the price of production of a commodity is not regulated !y the law of alue# !y maintaining the same thing of another commodity# to wit# la!or power. -or the de iation of the aria!le portion of capital takes place according to exactly the same laws as are o!ser ed in the case of any other commodity; in this respect there is no difference !etween the aria!le and the constant portion of capital. 2nly !ecause Bhm-Bawerk makes the " alue of the la!or power" a determinant of the alue of the product# does he fall into the error of looking upon the de iation in the price of la!or power from its alue as a distur!ance of the law of alue. )gain# the magnitude of the total surplus alue is unaffected !y this de iation. -or the total surplus alue# which is e*ual to the total profit and regulates the rate of profit# is calculated for the social capital# where the de iations of the prices of production from alue !alance each other. 2ne more only of Bhm-Bawerk's o!$ections remains to !e considered. E en if# as Marx declares# the total surplus alue regulates the a erage rate of profit# this ne ertheless constitutes !ut one determinant# while as a second determinant# completely independent of the first# and likewise completely independent of the law of value, there operates the magnitude of the capital existing in society. ,ow# apart from the fact that the magnitude of the social capital is here assumed !y Bhm-Bawerk to !e known 3which presupposes the law of alue# since we ha e to do with the determination of the magnitude of a alue4# the o!$ection has !een expressly refuted !y Marx# who writes: "The proportion of the sum of appropriated surplus alues to the ad anced total capital of society aries. +ince the ariation in this case is not due to the rate of surplus alue# it must !e due to the total capital# or rather to its constant part. The mass of this part# technically speaking# increases or decreases in proportion to the *uantity of la!or power !ought !y the aria!le capital# and the mass of its alue increases or decreases with the increase or decrease of its own mass. 1ts mass of

alue# then# increases or decreases likewise in proportion to the mass of the alue of the aria!le capital. 1f the same la!or sets more constant capital in motion# la!or has !ecome more producti e. 1f less# less producti e. There has then !een a change in the producti ity of la!or# and a change must ha e taken place in the alue of certain commodities. The following rule then applies. 1f the price of production of a certain commodity changes in conse*uence of a change in the a erage rate of profit# its own alue may ha e remained unchanged# !ut a change must ha e taken place in the alue of other commodities" 3111# 8>G4.

+ootnotes '. Hol 111# p. 8GA 8. Hol 111# p. 'C8 <. )!o e# pp. 8E ff. >. )!o e# pp. <8 ff. @. +ee -riedrich Engels# "Ergan/ung und ,achtrag /um dritten Buch des '?apital#'" )ie *eue +eit, Hol. 1# p. B. &.eprinted in (ngels on Capital 3'E<B4# p. EB.( A. +om!art# op. cit.# p. @C@. B. Hol. 111# p. EBB. C. .ise in wages is alone considered. ,aturally a fall in wages would ha e the contrary effect. E. Hol. 111# p. 8<B.

Rudolf Hilferding: Bhm-Bawerk's Criticism of Marx Chapter (hree (H$ %#B;$C(' '%( O#("OO< THE phenomenon of ariations in the price of production has shown us that the phenomena of capitalist society can ne er !e understood if the commodity or capital !e considered in isolation. 1t is the social relationship which these occupy# and changes in that relationship# which control and elucidate the mo ements of indi idual capitals# themsel es no more than portions of the total social capital. But the representati e of the psychological school of political economy fails to see this social nexus# and he therefore necessarily misunderstands a theory which definitely aims at disclosing the social determinism of economic phenomena# a theory whose starting point therefore is society and not the indi idual. 1n apprehending and expounding this theory he is e er influenced !y his own indi idualistic mentality# and he thus arri es at contradictions which he ascri!es to the theory# while they are in truth ascri!a!le solely to his interpretations of the theory. This confusion may !e traced in all the stages of Bhm-Bawerk's polemic. E en the fundamental concept of the Marxist system# the concept of alue-creating la!or# is apprehended in a purely su!$ecti e manner. To him "la!or" is identical with "trou!le" or "effort" &"MShe"(.To make this indi idual feeling of distaste the cause of alue naturally leads us to see in alue a purely psychological fact# and to deduce the alue of commodities from our evaluation of the labor they ha e cost. )s is well known# this is the foundation which )dam +mith adopts for his theory of alue# for he is e er inclined to a!andon the o!$ecti e standpoint for a su!$ecti e. +mith writes: "E*ual *uantities of la!or must at all times and places !e of e*ual alue to the la!orer. 1n his ordinary state of health# strength# and spirits; in the ordinary degree of his skill and dexterity# he must always lay down the same portion of his ease# his li!erty# and his happiness." &'( 1f la!or regarded as "trou!le" !e the !asis of our personal estimate of alue# then the " alue of the la!or" is a constituent# or a "determinant" as Bhm-Bawerk puts it# of the alue of commodities. But it need not !e the only one# for a num!er of other factors which influence the su!$ecti e estimates made !y indi iduals take their places !eside la!or and ha e an e*ual right to !e regarded as determinants of alue. 1f# therefore# we identify the alue of commodities with the personal estimate of the alue of these commodities made !y this or that indi idual# it seems *uite ar!itrary to select la!or as the sole !asis for such an estimate. -rom the su!$ecti ist standpoint# therefore# the standpoint from which Bhm-Bawerk le els his criticism# the la!or theory of alue appears untena!le from the ery outset. )nd it is !ecause he adopts this standpoint that Bhm-Bawerk is una!le to percei e that Marx's concept of la!or is totally opposed to his own. )lready in & Contribution to the Critique of 'olitical (conomy Marx had emphasi/ed his opposition to )dam +mith's su!$ecti ist outlook !y writing "&+mith( fails to see the o!$ecti e e*uali/ation of different kinds of la!or which the social process forci!ly carries out# mistaking it for the su!$ecti e e*uality of the la!ors of indi iduals." &8( 1n truth# Marx is entirely unconcerned with the indi idual moti ation of the estimate of alue. 1n capitalist society it would !e a!surd to make "trou!le" the measure of alue# for speaking generally the owners of the products ha e taken no trou!le at all# whereas the trou!le has !een taken !y those who ha e produced !ut do not own them. 6ith Marx# in fact# e ery indi idual relationship is excluded from the conception of alue-creating

la!or; la!or is regarded# not as something which arouses feelings of pleasure or its opposite# !ut as an o!$ecti e magnitude# inherent in the commodities# and determined !y the degree of de elopment of social producti ity. 6hereas for Bhm-Bawerk# la!or seems merely one of the determinants in personal estimates of alue# in Marx's iew la!or is the !asis and connecti e tissue of human society# and in Marx's iew the degree of producti ity of la!or and the method of organi/ation of la!or determine the character of social life. +ince la!or# iewed in its social function as the total la!or of society of which each indi idual la!or forms merely an ali*uot part# is made the principle of alue# economic phenomena are su!ordinated to o!$ecti e laws independent of the indi idual will and controlled !y social relationships. Beneath the husk of economic categories we disco er social relationships# relationships of production# wherein commodities play the part of intermediaries# the social relationships !eing reproduced !y these intermediate processes# or undergoing a gradual transformation until they demand a new type of inter-mediation. Thus the law of alue !ecomes a law of motion for a definite type of social organi/ation !ased upon the production of commodities# for in the last resort all change in social structure can !e referred to changes in the relationships of production# that is to say to changes in the e olution of producti e power and in the organi/ation of &producti e( la!or. 6e are there!y led# in the most striking contrast to the outlook of the psychological school# to regard political economy as a part of sociology# and sociology itself as a historical science. BhmBawerk has ne er !ecome aware of this contrast of outlooks. The *uestion whether the "su!$ecti ist method" or the "o!$ecti ist method" is the sound method in economics he decides in a contro ersy with +om!art !y saying that each method must supplement the other%whereas in truth we are not concerned at all with two different methods# !ut with contrasted and mutually exclusi e outlooks upon the whole of social life. Thus it happens that Bhm-Bawerk# unfailingly carrying on the contro ersy from his su!$ecti ist and psychological standpoint# disco ers contradictions in the Marxist theory which seem to him to !e contradictions solely !ecause of his own su!$ecti ist interpretation of the theory. But if la!or !e the only measure for the estimate of alue and therewith the only measure of alue# it is as regards this su!$ecti ist outlook only logical that in that case commodities should exchange solely !y the measure of e*ual *uantities of la!or em!odied in them# for otherwise it would !e impossi!le to see what should induce the indi iduals to de iate from their personal estimates of alue. 1f# howe er# the facts do not conform to these premises# then the law of alue loses all significance# e en if la!or !e no more than one determinant among se eral. This is why Bhm-Bawerk lays so much stress upon the contention that commodities are not exchanged one for another !y the measure of e*ual *uantities of la!or. This necessarily appears to !e a contradiction when alue is concei ed# not as an o!$ecti e *uantity# !ut as the outcome of indi idual moti ation. -or if la!or !e the measure for my personal estimate of alue# then 1 shall not !e inclined to exchange my good for another unless in that other 1 o!tain something which# if 1 had to produce it for myself# would cost me at least as much la!or as my own good has cost me. ) permanent de iation of the exchange relationship is in fact# if the su!$ecti ist conception of the law of alue !e once assumed# a contradiction per se# a suspension of the meaning 3that is to say# of the su!$ecti ist meaning4 of the law of alue# which here supplies the indi idual's moti e for economic action. Hery different is Marx's outlook. 1n his iew# that goods contain la!or is one of their intrinsic *ualities; that they are exchangea!le is a distinct *uality# one solely dependent on the will of the possessor# and one which presupposes that they are owned and aliena!le. The relationship of the *uantity of la!or to the process of exchange does not come into

consideration until they are regularly produced as commodities# produced that is to say as goods specifically destined for exchange; thus this relationship makes its appearance only in a definite phase of historic e olution. The *uantitati e ratio wherein they are now exchanged !ecomes there!y dependent upon the time of production# which is in its turn determined !y the degree of social producti ity. The exchange relationship thus loses its chance character# thus ceases to !e dependent upon the caprice of the owner. The social conditions imposed upon la!or !ecome o!$ecti e limitations for the indi idual# and the social complex controls the indi idual's acti ities. ,ow the mode of the social process of production determines the social process of distri!ution# for this latter is no longer consciously regulated# as if in a communist community. Fnder capitalism the process of distri!ution manifests itself as the outcome of the exchanges effected !y independent indi idual producers# exchanges controlled !y the laws of competition. The Marxist law of alue starts from this# that commodities exchange at their alues# this meaning that commodities exchange one for another when they em!ody e*ual *uantities of la!or. The e*uality of the *uantities of la!or is solely a condition for the exchange of commodities at their alues. Bhm-Bawerk# entangled in his su!$ecti ist interpretation# mistakes this condition for a condition of exchange in general. But it is o! ious that the exchange of commodities at their alues# while on the one hand it merely constitutes the theoretical starting point for a su!se*uent analysis# on the other hand directly controls a historic phase of the production of commodities# a phase to which a specific kind of competition corresponds. But the exchange relationship of commodities is no more than the material expression of the social relationships of persons# and what in fact secures reali/ation in the exchange relationship is the equality of the agents of production. Because# in the simple production of commodities# e*ual and independent la!orers se erally possessed of their means of production confront one another# exchange takes place at prices which tend to correspond to the alues. Thus only can the mechanism of the simple production of commodities !e maintained; thus only can the conditions re*uisite for the reproduction of the relationships of production !e fulfilled. 1n such a society the product of la!or !elongs to the la!orer. 1f !y permanent de iation from this rule 3chance de iations are mutually compensatory4 a portion of the product of la!or !e taken away from the la!orer and assigned to another person# the foundations of the society will !e modified; the former will !ecome a wage la!orer 3engaged in home industry4# and the latter will !ecome a capitalist. This is actually one of the ways in which the simple production of commodities comes to an end. But it cannot come to an end unless there has occurred a modification in social relationships# carrying with it a modification in exchange# the expression of social relationships. 1n the capitalist process of exchange# whose purpose is the reali/ation of surplus alue# the e*uality of the economic units is once more reflected. These# howe er# are no longer independently working producers# !ut owners of capital. Their e*uality secures expression in that the exchange is only normal when the profits are e*ual# when !oth are a erage profit. The exchange which gi es expression to the e*uality of the owners of capital is of course differently determined from the exchange that is !ased upon an e*uality in the expenditure of the la!or. But $ust as !oth societies ha e the same foundations# the di ision of property

and the di ision of la!or; $ust as capitalist society can !e concei ed as merely a higher modification of the earlier type of society; so also is the law of alue unchanged in its foundation# for it has merely undergone certain modifications in its reali/ation. These are caused !y the specific mode of capitalist competition# which effectuates the proportional e*uality of capital. The share in the total product# whose alue remains directly determined !y the law of alue# was formerly proportional to the indi idual's expenditure of la!or# !ut now !ecomes proportional to the expenditure of capital re*uisite to set la!or in motion. Thus the su!ordination of la!or to capital finds expression. 1t appears as social su!ordination# the whole society !eing su!di ided into capitalists and la!orers# the former !eing owners of the product of the latter# the total product# determined !y the law of alue# !eing di ided among the capitalists. The capitalists are free and e*ual; their e*uality is displayed in the price of production O k P p# where p is proportional to k. The dependent position of the la!orer is shown !y his appearance as one of the constituents of k# side !y side with machinery# lu!ricating oil# and dum! !easts; this is all he is worth to the capitalist as soon as he has left the market and has taken his place in the factory to create surplus alue. -or a moment only did he play his part in the market# as a free man selling his la!or power. The !rief glory in the market and the prolonged de!asement in the factory%here we see the difference !etween legal e*uality and economic e*uality# !etween the e*uality demanded !y the !ourgeoisie and the e*uality demanded !y the proletariat. The capitalist mode of production 3this is its historic significance# and this is why we can regard it as a preliminary stage on the way to socialist society4 sociali/es mankind to a greater extent than did any pre ious mode of production# that is to say# capitalism makes the existence of the indi idual man dependent upon the social relationships amid which he is placed. 1t does so in an antagonistic form# !y the esta!lishment of the two great classes# making the performance of social la!or the function of one of these classes# and en$oyment of the products of la!or the function of the other. The indi idual is not yet an "immediate" of society# that is# he does not yet possess a direct relationship to society# for his economic position is determined !y his position as mem!er of a class. The indi idual can only exist as a capitalist !ecause his class appropriates the product of the other class# and his own share is solely determined !y the total surplus alue# not !y the surplus alue indi idually appropriated !y him. This significance of class gi es expression to the law of alue as a social law. To confute the theory of alue it must !e shown to lack confirmation in the social domain. 1n capitalist society the indi idual appears as ruler or sla e according as he is enrolled in one or other of the two great classes. +ocialist society makes him free# inasmuch as it a!olishes the antagonistic form of society# inasmuch as it consciously and directly installs sociali/ation. ,o longer# then# are the interrelationships of society concealed !ehind enigmatic economic categories which seem to !e the natural *ualities of things; these interrelationships now manifest themsel es as the freely willed outcome of human co-operation. Lolitical economy then ceases to exist in the form we ha e hitherto known# and is replaced !y a science of the "wealth of nations." 7ompetition is the power that effects the transformation of alues into prices of production. But the competition with which we ha e to do here is capitalist competition. 7ompetition is further necessary to secure a sale at prices which shall fluctuate round the alue. 1n the simple production of commodities# on the other hand# we are concerned with the reciprocal

competition of the finished commodities; it is this which e*uates the indi idual alues to constitute a market alue# thus o!$ecti ely correcting the su!$ecti e errors of indi iduals. But here 3in capitalist society4 we ha e to do with the competition of capitals for different spheres of in estment# a competition which esta!lishes e*ual rates of profit# a competition which cannot !ecome effecti e until after the a!olition of the legal and material shackles which had pre iously !een imposed upon the freedom of mo ement of capital and la!or. 6hereas the continually increasing di ersity in the organic composition of capital# and the conse*uent greater and greater ariations in the masses of surplus alue directly created in the indi idual spheres of production# are in the first instance the outcome of capitalist e olution%this e olution in turn creates the possi!ility and the need for extinguishing these differences as far as capital is concerned# and for thus reali/ing the e*uality of human !eings qua owners of capital. 6e ha e pre iously seen what are the laws in accordance with which this e*uali/ation is effected. 6e ha e also seen that only upon the !asis of the law of alue was it possi!le to determine the magnitude of the total profit undergoing distri!ution as !eing e*ual to the total surplus alue# and thus to determine the extent of the de iation of the price of production from its alue. 6e ha e further seen how changes in the prices of production must always !e referred to changes in alue# and can only !e explained with reference to such changes. )ll that we are interested in here is to note how# in this respect also# the su!$ecti ist outlook hinders insight into Marx's train of thought. -or Bhm-Bawerk# competition is merely a collecti e name for all the psychical impulses and moti es !y which the parties in the market are influenced# and which thus affect the formation of prices. 1n relation to this iew he has therefore no occasion to speak in a !ad sense of the e*uili!rium !etween supply and demand# seeing that a num!er of wants always remain unsatisfied; for what this theory is concerned a!out is not the effecti e demand# !ut demand in general# so that certainly it remains enigmatical how the opinions and wishes of those who cannot !uy are to influence the purchasing prices. Noes not Marx destroy the alidity of his o!$ecti e law of alue when he appeals to competition# appeals# that is to say# to these psychical impulses9 The relationship !etween supply and demand determines the price# !ut the height of the price determines the relationship !etween supply and demand. 1f the demand increases# the price rises# !ut if the price rises# the demand lessens# while if the price falls the demand increases. -urther# if the demand increases and conse*uently the price rises# supply increases !ecause production has !ecome more lucrati e. Thus price determines supply and demand# and supply and demand determine price; moreo er# supply determines demand# and demand supply. 1n addition# all these fluctuations ha e a tendency to neutrali/e one another. 1f demand increases# so that price rises a!o e its normal le el# supply increases; this increase readily !ecomes greater than needful# and price then falls !elow the normal. 7an we find no fixed point in all this confusion9 1n Bhm-Bawerk's opinion# demand and supply in aria!ly !alance one another# whether exchange !e effected at a normal price or at an irregular one. But what is this normal price9 2n the !asis of capitalist production the surplus- alue-creating process of capital is a precondition of production. 1n order that the capitalist may continue to produce# he must !e a!le to sell the commodity at a price which is e*ual to its cost price plus a erage profit. 1f he is una!le to reali/e this price 3the normal price of the commodity produced under capitalism4# the process of reproduction is arrested# and the supply is reduced to a point at which the

relationship !etween supply and demand renders it possi!le to reali/e this price. Thus the relationship !etween supply and demand ceases to !e a mere matter of chance; we percei e that it is regulated !y the price of production# which constitutes the center around which market prices fluctuate in directions which are perpetually opposed# so that the fluctuations compensate one another in the long run. Thus the price of production is a condition of the supply# of the reproduction# of commodities. )nd not of this alone. 1t is necessary to secure such a relationship !etween supply and demand that the normal price# the price of production# can !e reali/ed# for then only can the course of the capitalist mode of production continue undistur!ed# then only can occur the perpetual reproduction# through the ery course of the process of circulation# of the social preconditions of a mode of production whose moti e force is the need of capital for the creation of surplus alue. 1n the long run# therefore# the relationship !etween supply and demand must !e of such a kind that price of production 3!rought a!out independently of this relationship4 may !e attained which shall yield the capitalist the cost price plus the profit for the sake of which he has undertaken the production. Then we speak of the e*uili!rium of supply and demand. 1f# on the other hand# we consider demand# we find that it is "essentially conditioned on the mutual relations of the different economic classes and their relati e economic positions# that is to say# first# on the proportion of the total surplus alue to the wages# and secondly# on the proportion of the arious parts into which surplus alue is di ided 3profit# interest# ground rent# taxes# etc.4. )nd this shows once more that a!solutely nothing can !e explained !y the relation of supply and demand# unless the !asis has first !een ascertained on which this relation rests" 3111# 8'>4. Thus Marx supplies the o!$ecti e laws which are reali/ed !y and control the "psychical impulses" of indi iduals. The psychological school can attempt to elucidate !ut one side of the *uestion# demand. The mem!ers of that school !elie e that they ha e explained the matter when they ha e classified the indi idual needs which manifest themsel es as demand. They fail to recogni/e that the fact that a need exists does not con ey any implication of the possi!ility for satisfying this need. The possi!ility of satisfaction does not depend upon the good will of the person feeling the need; it depends upon his economic power# upon the share of the social product of which he is a!le to dispose# upon the magnitude of the e*ui alent he is a!le to gi e for products owned !y other persons. 1nasmuch as the producti e power of human society in the specific form of organi/ation which society confers upon that producti e power is for Marx the fundamental idea of political economy# Marx demonstrates economic phenomena and their modifications as they manifest themsel es in conformity to law# and causally dominated !y the modifications in producti e power. 1n this demonstration# in accordance with the dialectic method# conceptual e olution runs parallel throughout with historical e olution# inasmuch as the de elopment of the social power of production appears in the Marxist system# on the one side as a historical reality# and on the other side as a conceptual reflex. Moreo er# this parallelism furnishes the strictest empirical proof of the accuracy of the theory. The commodity form is necessarily the starting point; the commodity form is the simplest form# and !ecomes the o!$ect of economic contemplation# as the o!$ect of a specific scientific contemplation. -or in the commodity form there already comes into !eing that delusi e appearance which results from the fact that the social relationships of indi iduals assume the aspect of material *ualities of things. 1t is this delusi ely material appearance which so greatly confuses the issues of economics. The social functions of indi iduals mas*uerade as material *ualities of things# $ust as time and space# the su!$ecti e forms of perception# mas*uerade as o!$ecti e *ualities of things. 1nasmuch as Marx dispels this illusion# inasmuch as he discloses personal relationships where

!efore him material relationships had !een seen# and discloses social relationships where !efore him indi idual relationships had !een seen# he succeeds in furnishing a unified and consistent explanation of the phenomena which the classical economists had !een una!le to elucidate. The failure of the classical economists was ine ita!le# for they regarded !ourgeois relationships of production as natural and unaltera!le. Marx# ha ing demonstrated the historic conditioning of these relationships of production# was a!le to take up the analysis at the point where the in estigations of the classical economists had !een arrested. But the demonstration of the historic transitoriness of !ourgeois relationships of production signifies the close of political economy as a bourgeois science and its foundation as a proletarian science. ,o more than two ways now remained open to the !ourgeois champions# if they desired to !e anything more than mere apologists for whom an uncritical eclecticism would pro ide the crum!ling pillars of their systems of harmony. They might# like the historical school in Iermany# ignore theory# and endea or to fill its place with a history of economic science# !ut would then !e restricted# as the Ierman historical school has !een restricted e en within its own chosen field# !y the lack of any unified apprehension of economic happenings. The psychological school of economics has chosen the other path. The mem!ers of this school ha e endea ored to construct a theory of economic happenings !y excluding economics itself from their pur iew. 1nstead of taking economic or social relationships as the starting point of their system# they ha e chosen for that starting point the individual relationship !etween men and things. They regard this relationship from the psychological outlook as one which is su!$ect to natural and unaltera!le laws. They ignore the relationships of production in their social determinateness# and the idea of a law-a!iding e olution of economic happenings is alien to their minds. This economic theory signifies the repudiation of economics. The last word in the re$oinder of !ourgeois economics to scientific socialism is the suicide of political economy.

+ootnotes '. -ealth of *ations, Book 1# 7hap. @. 8. ?err ed.# p. AC.