DOCUMENT 12 Back to Adam Smith! (1900)

Rosa Luxemburg

Source: Rosa Luxemburg, ‘Zuruckauf Adam Smith!', DieNeueZeit, 8.1899-1900, 2. Bd. (1900), H. 33, s. 180-6. [A review of Richard Schuller, Die Wirthschajt- spolitik der historischen Schule, Berlin: Carl Heymann Verlag, 1899].

Introduction by the Editors

Rosa Luxemburg deals in this essay with an issue that will be familiar to every reader with an interest in economic theory and method. The question is whether economics should be regarded as a ‘science' of universal validity, as suggested by the classics, especially by the deductive method of Ricardo; whether it is better conceived as the study of one aspect of a culturally delim­ited sphere of interaction, as Hegel's treatment of ‘civil society' would suggest; or whether, as Marx believed, theoretical economics has universality validity but only with respect to the specific stage of capitalist commodity exchange (the argument made by Hilferding in the previous article).

While Adam Smith was certainly conscious of history, he also regarded capitalism as the natural order of mature societies. The Wealth of Nations abounds with references to ‘natural liberty'. In one of the more famous such passages, Smith comments: ‘All systems, either of preference or of restraint... being... completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men'.¹ Remove the visible hand of the state (privileged mercantilist monopolies), and the ‘invisible hand' of the market will naturally replace it. In our own day it remains a common assumption of neo­liberalism that ‘rational' economic decisions can be abstracted from the ethics, social norms and historical circumstances of particular societies.^{[723] [724]}

The reaction to this type of thinking has always been that culture trumps markets.

The nineteenth-century German historical school likewise regarded eco­nomic activity as bounded by culture and tradition, with the implication that there could be no such thing as a universal economic ‘science’. If economic behaviour is dependent upon cultural expectations, which are specific to time and place, then the very concept of ‘economy’ becomes inseparable from a dis­crete community conceived as an organic whole. The founders of the school, Wilhelm Roscher, Bruno Hildebrand, and Karl Knies, repudiated the deductive method in favour of an historical-inductive approach that would treat eco­nomic phenomena merely as a single element of an integral social order. Sub­sequent proponents of the historical approach also often linked history and culture to protectionist economic policies for the purpose of nation-building. In both theory and policy they circumscribed economic thought within culture and institutions.

Rosa Luxemburg’s essay was sparked by Richard Schuller’s call for repu­diation of this approach and a return to the deductive methodology of the classics. She argues that the issue was not one of inductive versus deductive method, but rather of the state of capitalist development. The historical school was essentially reactionary. Just as its romantic predecessors articulated the fears of Prussian feudalists and the members of threatened craft-guilds in face of early capitalist development, so the historical school expressed the fears of the newly emerging German bourgeoisie, opposing liberalism in recognition of the fact that the classical doctrines ultimately gave birth to Ricardian-inspired socialism and eventually Marxism.

Luxemburg concluded that the only real accomplishment of the historical school, in its resistance first to capitalism and later to socialism, was ‘the spontaneous decomposition and abdication of economics as a science'. The only true science of economics was Marxism, which paid due respect both to history and to capitalism's universalising tendencies. Richard Schuller thought the recovery of economic theory from romantic illusions required a reversion to the deductive method. Luxemburg replied that method was indeed the issue, but the correct response came from Marx, who converted ‘the metaphysical deduction of the classics into its opposite, into dialectical deduction’. The choice before political economy was not between an inductive or deductive approach, or between classical liberalism and reaction, but between moving forward along the path opened up by Marx and declaring the final bankruptcy of theoretical economics ‘as a science'.

Rosa Luxemburg on the German Historical School

In the pages of this journal [Die Neue Zeit] Eduard Bernstein has already reviewed an earlier work by Dr. Schuller called Classical Political Economy and its Opponents.^[726] What currently lies before us is a continuation of these studies under the title The Economic Policy of the Historical School.^[727]

The subject is intrinsically one of the most interesting ones, for several reasons. In the first place, because the historical school basically represents the only real national product of the German bourgeoisie in the field of economic theory. The classical-liberal period in Germany, as elsewhere, was only an offshoot of English classicism; and the romantic tendency of Haller-Muller,^[728] influential as it was in practice, hardly deserves the name of a school of political economy. It never made any attempt to postulate a positive economic theory, and pretty much its only literary follower was, as far as we know, the famous Jarcke, who, according to Borne, was sent off from the Austrian to the Prussian council for the purpose of advocating Metternich's policy.^[729] In the same way, Friedrich List's ‘national system' of political economy must be viewed more as an amateurish essay than as a theoretical doctrine.

There is also the fact that in its internal history the historical school is a true reflection of the history of the German bourgeoisie. An investigation of the doctrines, methods, and developmental phases of this school would at the same time provide a sketch of the modern development of the German bourgeoisie itself - that is to say, if it is dealt with in connection with the facts of economic and social life.

It cannot be said that Dr. Schuller has conceived his task as we have for­mulated it here. What he offers instead is a very sketchily worked out series of economic-political portraits of significant classical-liberal, reactionary-roman­tic and historical theorists, to which he attaches a bunch of general observa­tions, just as easily jotted down, about the different methods of the above­mentioned tendencies.

Dr. Schuller justly calls the deductive method of research the most outstand­ing characteristic of classical-liberal political economy and the basis of its pro­gressive effect in practice. Equally correct is the observation that abandonment of the deductive method of research has resulted in the lack of any fixed prin­ciples, and consequently in the theoretical barrenness and backwardness of the historical school in terms of economic policy. With Schuller, the whole issue is a vehement case for the method of classical economics and a warning for contemporary economists to return to that method. But why did the histor­ical school abandon the method of research of the classics, and how can one explain, given its shallowness and backwardness, its extensive and long-lasting influence on German political economy? That is a question for which we find no answer in Dr. Schuller's work. And yet only a clear explanation of this ques­tion can turn Schuller's warning to contemporary economists, with which his whole analysis ends, into something meaningful.

anonymous political brochure, DiefranzosischeRevolutionvon 1830, which met the approval of the anti-revolutionary circle of friends of then Crown Prince (later King Frederick William ιv of Prussia), who were influenced by Romanticism and by Karl Ludwig von Haller. Jarcke assumed the editorship of the periodical Politische Wochenblatt, founded by these men in 1831 to promote their ideas. In 1832 Metternich called him to the State Chancery in Vienna to succeed the late Friedrich von Gentz. In 1838 he founded, with George Phillips, the Historisch- politische Blatter to support Catholic interests in Germany. When Metternich was overthrown in 1848, Jarcke left Vienna but returned after the triumph of the counterrevolution and died shortly thereafter].

The undivided rule of classical economic doctrine at the beginning of the nineteenth century in Germany is well known. It was not such a great exaggera­tion for [Alexander von der] Marwitz to write in 1810 to Rahel [Levin] that, next to Napoleon, Adam Smith was the most powerful monarch in Europe. In Prus­sia, all the statesmen of the Stein-Hardenberg period were students of Adam Smith.^[730] Most official declarations of the government at that time bear the clear stamp of the classical doctrine. Indeed, even the high military - [Count Neidhardt von] Gneisenau, [Gerhard von] Scharnhorst, Job von Witzleben - were enthusiastic supporters of classical liberalism. The theories of Smith were the Bible of the whole renovation period in Germany, which for a short period after the defeat at Jena [on 14 October 1806] threatened the position of the con­sequent reaction.

But that was precisely the reason why these theories soon had to lead to an opposition. The progressive reforms of Stein-Hardenberg did not arise from a strong bourgeois movement or from society itself. They were rather elicited from the ruling circles by the French military blows and were simply imposed by these circles on society. They soon brought forth an opposition from two camps: on the one hand, from the feudal Junker class, who wanted the preservation of serfdom, and on the other hand from those elements of the middle classes who first saw their interests threatened by the new reforms - mainly the artisan class, then still strong, which was severely damaged both

by the abolition of guild laws and by English imports favoured by the liberal commercial policy.

In the first case, the opposition expressed itself in the reactionary-romantic tendency of Haller-Muller,^[731] in the second, in the older historical school of [Friedrich Julius von] Soden, [Heinrich] Luden, [Friedrich von] Colln, etc. If we take into consideration the nature of the social foundations from which those two economic tendencies rebelling against the classical school emerged, their dissimilar theoretical character is easily explained.

The rebellious Junkers, whose protest against the inauguration of bourgeois development was expressed in the romantic school of Haller, set against the reforms criticised by them a definite, consistent opposite ‘ideal’: medieval feudalism. Just as clear, consistent and strong as the Metternichean reaction and the era of the Holy Alliance was the theoretical expression of that policy: the economic theory of the romantic school. It proceeded from certain fixed ‘principles’; namely, the principles of feudal natural economy, which it applied consistently to all questions of economic policy.

It was different with the second opposition camp. If the social layer of the traditional (zunftig: belonging to a guild) middle class - the master artisans and shopkeepers - was threatened in its very existence by the reforms, on the other hand they could not long to return to the era of the undivided rule of feudalism, whose iron pressure had also left bloody scars on them. Those elements were unable to put forward a definite, positive economic program because they did not constitute a united social whole. Wavering between contemporary bour­geois development and feudal traditions, fearing harm from one and the other, they merely managed to fight at one time against liberal political economy from the feudal point of view, then against the romantic theories from the liberal point of view, always rejecting the consequences following from the starting point and stopping halfway.

Entirely different is the character of the later historical school, founded by Hildebrand and Roscher.^{[732] [733] While [in the older historical school] we see a protest of the guild-belonging petty bourgeoisie in the name of the medieval mode of production against the advancing bourgeois order, here it is the mod­ern bourgeoisie itself which raises objections against the consequences of its own class rule.}

Classical political economy had everywhere, with invincible logic, turned into self-criticism, into criticism of the bourgeois order. In England, Ricardo constituted the immediate starting point of an entire school of English Social­ists (Thompson, Gray, Bray, and others); in France, the first trivialisation of classical economics by Say follows hard on the heels of Sismondi; in Germany, we find socialist echoes already in Rau, who was followed by Thunen and Rod- bertus;ⁿ in Marx, the transformation of classical economics into its opposite, into the socialist analysis of capitalism, is completed.

The socialist critique, i.e. the consequence, could only be denied if the starting point, classical economics, was overcome. The results of the invest­igation of bourgeois commodity economy, as offered by classical economics in a coherent system, could not simply be negated or corrected. There was no other way but to fight the investigation itself, the method [of classical polit­ical economy]. If the purpose of classical economics was to understand the principles and basic laws of bourgeois economy, the historical school, by con­trast, set itself the task of mystifying the inner workings of this economy. In the old historical school, the aversion to the ‘levelling’ tendencies and ‘cat­egorical’ assertions of classical liberalism was merely a protest [on behalf] of medieval diversity and specialisation of conditions, in accordance with the social nature of the pre-capitalist mode of production. Here, in Roscher, Knies and Hildebrand [i.e. in the new historical school], the ‘historical’ criti­cism of the ‘absolute’ theories of classicism is a protest of bourgeois society against the knowledge of its own internal laws. But since concealment of these laws was the purpose, the ‘historical’ occupation and reason for existence of the new historical school, the failure to recognise (Verkennung) the laws of social economy was raised to the level of a scientific dogma, of an economic method.

Suum cuique [to each according to his own merits]: the rise of the English bourgeoisie resulted in construction of the magnificent doctrinal edifice of the classical school, in the creation of political economy, while the emergence of the German bourgeoisie found its spiritual expression in the spontaneous decomposition and abdication of economics as a science.

The lack of principle of the historical school - of which Schuller rightly accuses it but without giving any plausible explanation - thus finds sufficient reason in the actual historical conditions of Germany, in the history of the bour­geoisie, in the ever more sharply emerging class antagonisms. And similarly, the fact that Roscher's school, for all its scientific wretchedness and practical barrenness, could gain such an influence, can be explained much better by the same actual conditions than by the circumstance that [through it] ‘the main tendencies corresponding to the economic and social questions of the present are first grasped in their development'.

Just the opposite! The historical school did not arise because the socialist doctrine of political economy - obviously the main tendency corresponding to the economic and social questions of the present - had not yet emerged, but because it had already reached a high level of development, i.e. [it arose] as a reaction against this doctrine.

Because he treats the question without relating it to the social foundation, Dr. Schuller commits the double error of conflating the old historical tendency of the first decades of the nineteenth century with Roscher's doctrine, which is essentially different from it, as if they were one and the same school, and also of regarding the new historical school as a result of the absence of a socialist tendency - rather than seeing it, on the contrary, as a reaction against the socialist critique.

Dr. Schuller's study wants to be more than a scientific monograph. It ends, as we have mentioned, with an exhortation to the current generation of German economists to go back to the methods of classical economics if they want to face the problems of contemporary social life with the same understanding as the classics brought to the problems of their time.

This well-intentioned appeal: Back to classical method! - which is evidently the leading thought of Schuller's two economic works - is undoubtedly very attractive as a wish to breathe fresh air into the stifling atmosphere of con­temporary German economics. But through his advice Dr. Schuller once again shows that, by regarding academic economic questions as if they were uncon­nected with the social foundations of each particular period, he is unable to understand both the nature of the classical school he admires and the contem­porary tasks of political economy.

Dr. Schuller traces the greatness of classical economy back to its deductive method, to its principled handling of economic problems. But the deductive method, taken abstractly, is a purely formal academic concept that tells us nothing about the nature of the research method practiced by Adam Smith's school. If it were just a question of ‘applying commonly accepted principles to research', then, in addition to those of the classical economists, many other principles should be brought in. If the deductive principles of Smith and Ricardo, as Dr. Schuller formulated them, were called freedom of economic activity, freedom of movement, and freedom of trade, those of Adam Muller and Haller were called patrimonial jurisdiction, servitude, patriarchal state, etc. As deductions, they are methodologically of equal value. In its day, nobody had dealt such heavy blows against the lack of principles of the historical school, nobody had preached with such pathos the necessity of ‘eternal laws' as the starting point of economic analysis, as precisely the romantic school.

If, therefore, the deductive method of classical economics led to a deep knowledge of bourgeois economy, while the romantic deductions of Haller and Muller merely led to a greater reputation of their supporters among the Crown Prince Friedrich Wilhelm ιv and Metternich, this was obviously due to the fact that only the classical-liberal deductions corresponded to [the needs of] social development at that time and corresponded to the essence of the bourgeois economy.

But the fact that the general principles of bourgeois economy became, in Adam Smith and Ricardo, the absolute ‘principles' of their research expresses yet another fact - namely, that the classics considered modern commodity economy to be the absolute, the normal human economy. And this was the real principle from which they proceeded; this was the real secret of their wonder­working deductive method.

It was this unlimited and completely untroubled faith in the normal human economy - that is to say, in the natural right of the capitalist commodity economy - that gave the classics of political economy that impartiality of research, that lack of consideration for the consequences, that ability to rise above their immediate surroundings and to grasp the inner workings of the bourgeois mode of production with piercing eyes.

Later, the growing doubts about the bourgeois order gave rise, on the one hand, to the apologetics of vulgar economy, which turned attention away from the investigation of general laws and towards the justification of individual phenomena, and, on the other hand, to the resignation of the historical school, which renounced in advance any research into the foundations of the economy and declared the task of science to be mere description of the past and of that which exists. The bourgeois mode of production constitutes the basis and the starting point of all these economic schools. But the belief in the absolute and normal character of the bourgeois order was peculiar only of the classical school, and that is precisely what made it classical.

This circumstance explains not only the general scientific achievements of Adam Smith's school but also the specific characteristics of its research method. Cosmopolitanism, the levelling treatment of man, individualism, the view of economic self-interest as the sole basis of all actions, etc. - all the elements for which the historical critics reproach them - flow from the same concept of the universal human normality of capitalist commodity economy, of the commodity producer as the normal human type in general.

But this same view also set in advance certain objective limits to the sub­jectively dauntless, completely unbiased research of Adam Smith's school. The innermost essence of the bourgeois mode of production, its true secret, can be deciphered only if it is regarded in movement, in its historical conditional­ity. And precisely this is precluded from the outset by the view of commodity economy as the normal, absolute form of social production.

Let us take an example. Unconcerned about the social consequences of its teachings, classical economy recognised human labour as the only value­creating factor, and it elaborated that theory until it reached the crystalline clarity we find in the Ricardian system.

But the fundamental difference between Ricardo's and Marx's labour theory of value - a difference that is not only overlooked by bourgeois economists but also often unnoticed in the popularisation of Marx's theory - is that Ricardo, in accordance with his general natural-law conception of bourgeois economy, considered value creation as a natural property of human labour, of the indi­vidual, concrete labour of single men.^[734]

Marx, on the other hand, recognised in value an abstraction made by soci­ety under certain conditions, which enabled him to distinguish the two sides of commodity-producing labour: the concrete individual labour and the undif­ferentiated social labour. This distinction first made possible the solution of the mystery of money, which suddenly revealed itself as if under the glow of a spotlight.

But in order to distinguish in this way, within the womb of bourgeois eco­nomy, statically, the double-sided character of labour - the working people and the value-creating commodity producers - Marx initially had to distin­guish dynamically, in historical sequence, the commodity producers from the working people in general; that is, he had to recognise commodity production merely as a specific historical form of social production. In a word, Marx had to decipher the hieroglyph of capitalist economy and approach the investigation [of capitalist society] with a deduction that was the opposite of the deduction of the classics. Rather than proceeding from the belief in the normal human character of the bourgeois mode of production, he had to do so with insight into its historical transience - he had to turn the metaphysical deduction of the classics into its opposite, into dialectical deduction.

The progress of political economy beyond Smith and Ricardo, its further development, was therefore determined precisely by the overcoming of the deductive method of that school to which Schuller today wants us to return; not only because that method, as already stated, sets fixed limits to knowledge, but also because those limits had already been reached by the classics themselves. In Ricardo's teaching the classical method of economics had yielded the max­imum of which it was capable, and it had been thrown into the junk room, not only as a dangerous tool that turned against the society that was undertaking that research, but also as one that had scientifically had its day. A return to the method of the classical school would not lead to a revival in economics, as Dr. Schuller argues, but would, on the contrary, bring about a huge regression. That this return is scientifically impossible is proven precisely by Marx's work, which represents a direct continuation of the classical theory on new foundations.

But this return is also socially impossible. And that is proven, on the other hand, by the fact that classical economics was followed by the decay of that science into vulgar economics and the historical school. Since the emergence of these tendencies, the social conditions, which had to undermine that clas­sically serene faith in the absolute character of capitalist commodity economy, have only developed further in the same direction. Not only do class antagon­isms manifest themselves incomparably more harshly, but the self-negation of the capitalist mode of production has become manifest. It is impossible to take the starting point of bourgeois economic policy, as before, to be the freedom of trade, while a general reversion to protective tariffs is taking place; and it is equally impossible to proceed from the dogma of free competition while pro­duction is monopolised more and more by cartels. The ‘principles' of Adam Smith and Ricardo now belong both scientifically and socially to the past.

Schuller's admonition to return to the method of classical economics, which is not being made for the first time, is by the way interesting as a fragment of that general [movement] ‘Back’, which today seems to be the slogan of bourgeois social science. Back to Kant in philosophy,^{[735] [736] back to Adam Smith in economics! A convulsive falling back to standpoints already overcome is a sure sign of the hopelessness that afflicts the bourgeoisie both spiritually and socially. But a return is just as little possible in science as it is in the actual development of society.}

There is a way forward only along the path of the dialectical method already followed by Marx. This should become clear to all those young economists who, like Dr. Schuller, are sincere enough not to find any satisfaction in the confusion, lack of system, banality and stupidity of contemporary bourgeois economics, and brave enough to sacrifice class prejudice for scientific know­ledge. Even nowadays, bourgeois theorists have unavoidably been living off Marx’s theory for decades, and any halfway clever idea that occurs to them is directly or indirectly borrowed from that doctrine?⁴

Just as bourgeois society has only two alternatives - to evolve and become socialist or to perish - so also political economy has only one choice: to move forward along the path opened up by Marx or to declare its bankruptcy as a science.