DOCUMENT 11 Karl Marx's Formulation of the Problem of Theoretical Economics (1905)

Rudolf Hilferding

Source: Rudolf Hilferding, ‘Zur Problemstellung der theoretischen Okonomie bei Karl Marx’, Die Neue Zeit, 23.1904-5,1. Bd. (1905), H. 4, s. 101-12. [A review of Isaiah Rosenberg, Ricardo und Marx als Werttheoretiker.

Introduction by the Editors

In his review of Isaiah Rosenberg’s book comparing Ricardo and Marx, Rudolf Hilferding provides a concise account of Marx’s view of the subject matter of theoretical economics, an issue that will later reappear in much greater detail in the works of Isaak Rubin.^[699] The focus of Marx’s concern, Hilferding points out, was not economic history, and still less the technical development of forces of production, but rather the social form of commodity production and its consequences for capitalist society.

For Marx’s predecessors, particularly Ricardo, the commodity was a pre­given fact and not subject to further inquiry. Since he presupposed the capital­ist form of production and exchange as ‘natural and unchanging’, Ricardo con­centrated on the content of economic goods and thereby arrived at his labour theory of value. But Ricardo assumed what Marx took to be problematic; that is, how a society of self-interested and mutually indifferent individuals exists and reproduces itself. Prior to capitalism, no social organisation had ever existed in which production of use-values occurred mainly for sale into an unknown market. All previous communities were connected, to one degree or another, by ‘a common will to joint action’. Marx’s concern, Hilferding explains, was to dis­cover what motivates self-seeking individuals ‘who work for each other without knowing each other'. ‘What constitutes this circle of people as a society; and what is the law of motion for this society that makes it intrinsically different from previous ones?'

The ‘epistemological peculiarity' of capitalist society involved spontaneous economic regulation that was independent of any conscious will.

Whereas Ricardo assumed economic categories to be empirical, quantitat­ive and immutable, Marx's awareness of capitalism's historical character led him to see individual labours as parts of the total labour of a society object­ively regulated by unconscious forces. The ‘good', Hilferding writes, became a ‘commodity' because of relations of production that preclude any other form of social-economic mediation. Only by resolving the mystery of commodity pro­duction ‘could Marx arrive at the basic distinction between concrete labour, creating use-value, and abstract, social, value-creating labour' - that is, labour in the form of exchange-value - and thus show ‘the starting-point of political economy'. With the labour theory of value, Ricardo ‘had found the key, but not the doorthatthe keyunlocked... Karl Marx first openeditup forus. He was the discoverer of socialist society because... he was “the discoverer of the capitalist mode of production”'.

Rudolf Hilferding on Karl Marx's Formulation of the Problem of Theoretical Economics

Marx's standing in political economy and his relation to his predecessors, the classics, has not so far been satisfactorily investigated. That is hardly surprising, given the lack of interest on the part of official economics in theoretical prob­lems. But socialist literature also lacks an exhaustive presentation. Here people usually follow the sketch of Marx's relation to Smith and Ricardo and their socialist interpreters, given by Friedrich Engels in his preface to the second volume of Capital, which was classic in its brevity and rigour. This sketch was written before publication of the third volume and is incomplete if only for that reason.

And yet that is the path taken most often; for instance, in the recently pub­lished study on Ricardo and Marx as value theorists, written by Dr. Rosenberg (Rosenberg 1904).^[700] For that reason, it is more of a preliminary work than a solu­tion of the problem, which, indeed, is not even posed in its entirety, for it does not examine the entire systems of Marx and Ricardo but only their value the­ories. We think that is an undue restriction of the subject, because the theory of value is the foundation of the entire economic doctrine. How much it is so, determines the unity of the latter. The extent to which the theory of value is the foundation of an economic doctrine determines precisely the internal cohesion of that system. The understanding of the theory of value can only be gained and its significance assessed from the whole [economic] system. It is therefore a merit and not a drawback of the book that Rosenberg does not adhere too closely to his restriction of the subject matter, but rather always goes into the overall system. This should have made it even more imperative, there­fore, to point out the fundamental divergence between the two systems; yet this task, as a brief overview of the contents of the book will show, was never undertaken.

Rosenberg begins with an account of Ricardo's doctrines, which is all the more necessary because those doctrines are now often presented in a very strange way. The more official economics turns away from the labour theory of value, the greater is the effort to prove that the theory's most important representative suffered from inconsistencies in his starting points, and thus to deny his significance as a theorist of labour value.

After a criticism of the Ricardian theory of value, whose main faults, accord­ing to Rosenberg, are the modest attention paid to ‘absolute value' and the lack of a solution to the problem of equalisation of the rate of profit on the basis of the labour theory of value, we get a description of Marx's system that is, on the whole, successful. In a final section, Rosenberg then compares the doctrines of the two economists, reaching the conclusion that ‘Marx is a direct successor to Ricardo in the elaboration and development of the labour theory of value' even if his system was ‘a completely independent and original creation of a great, independent, brilliant mind'.^[702]

It would be very interesting to follow the details of Rosenberg's analysis, especially since we by no means always agree with his remarks on what Ricardo and Marx had in common and what separated them. To mention a minor point, for instance, we think that Rosenberg is wrong when he ascribes to Marx the theory that labour in transportation does not create value and surplus value but rather belongs to circulation costs.^[703] A look at the second volume of Capital shows that Marx taught the exact opposite:

The quantity of products is not increased by their transport. The change in their natural properties that may be effected by transport is also, certain exceptions apart, not an intended useful effect, but rather an unavoidable evil. But the use-value of things is realized only in their consumption, and their consumption may make a change of location necessary, and thus also the additional production process of the transport industry.

Rosenberg seems to be in the dark about the criteria [determining] value­creating labour. Labour creates value only in a commodity-producing society. In that kind of society, any productive labour is value-creating; and any labour that is necessary for society, for the purpose of social production, is productive even apart from the specific historical form that production assumes in a given society. It is only under certain circumstances that this [social] form makes goods appear as values, and therefore makes productive labour appear as value-creating labour. But the distinguishing mark of productivity, which in a commodity-producing society is at the same time the distinguishing mark of value creation, is the same in all social formations. However, the production process only ends with the creation of goods that are ready for use - which may include, under certain circumstances, their transportation to the consumers’ location. Conversely, labour spent only for the purpose of capitalist circulation, which arises only from a definite historical organisation of the production process, is not value-creating.^[705]

But to continue following all the details would not carry us very far, nor would it be very fruitful. These are errors that knowledgeable people will correct easily by themselves.

More important, it seems to us, is to attempt to indicate the differences between Marx and Ricardo insofar as they deal with matters of principle. Rosenberg thinks that ‘These differences lie only to a very small extent within the sphere of value theory. On the whole, they are only consequences of the dif­ferences in the historical, sociological and philosophical views of both men’.^[706] But this in no way relieves us of the need to offer an analysis, for these differ­ences, if they are to have any meaning, must also manifest themselves in the economic field and especially in the foundation of the economic system, in the theory of value - all the more so since Marx applied himself to the study of economics precisely in consequence of his overall historical and sociological views.

The history of political economy is a piece of self-knowledge of bourgeois society. But knowledge stands in the service of the will. And the content of the will of the new society was profit. Wealth and the acquisition of wealth was the goal that drove its collective action, its policy. How does the nation get rich? That was the issue raised by the politicians and taken over by the theorists, who posed the question: What is the wealth of nations? One remembers the response that the monetary and mercantile system tried to give. Adam Smith posed the same problem, but he expanded it by including the question of the distribution of wealth in his field of investigation - or ‘the order according to which its [labour’s] produce is naturally distributed among the different ranks of the people’.^[707] For Ricardo, however, the problem of ‘What is wealth' is solved; for him, the main issue of economics is discovery of the laws governing distribution. And he was followed in that respect not only by his bourgeois supporters and opponents but also by socialists, who likewise pushed to the foreground the distribution problem as the major problem of economics, and who, since they remained caught up in Ricardo’s economic solution, fled from economics into ethics in order to condemn economics as unjust and to develop, with [William] Thompson, the principles best leading to the happiness of humankind.

It is different with Marx. For him, the question concerning the nature of wealth is not at all a question of political economy. Wealth is a sum of use­values, and these are a product of the activities of man and nature; their increase is the natural consequence of growth in labour’s productivity, as depic­ted by the history of technology. For Marx, the question is: What is the form of wealth? This question had not been posed at all by classical economics. Indeed - and this constitutes the peculiarity of classical economics’ historical position vis-a-vis its predecessors - it had shifted the production process to the centre of its investigation in order to fight against the doctrine of the creation of wealth by circulation, as developed in the monetary and mercantile sys­tem. But in its search after wealth, which for it was indiscriminately both use- and exchange-value, it held fast to the content. The form adopted by wealth was self-evident for classical economics, which held on to bourgeois society as the unconscious precondition of its thinking. That is why it was so difficult for it to distinguish between the technical and economic aspects [of wealth] - economically speaking, between use-value and value - and why this distinc­tion remained so incomplete not only in the Physiocrats but also in Adam Smith. Ricardo was the first who consistently maintained this separation, but without substantiating it clearly enough - which from his point of view was also impossible, as we shall see.

What is wealth, how is it produced, how is it distributed? Those had also been the problems of bourgeois economics. What then is the advance in Marx? Precisely the fact that for him there is a problem, where for others there had been a self-evident precondition. Marx asked: what form does wealth adopt according to the historically changing circumstances under which people pro­duce? How does wealth appear? And he gave his famous answer: ‘The wealth of societies in which the capitalist mode of production prevails appears as an “immense collection of commodities”; the individual commodity appears as its elementary form. Our investigation therefore begins with the analysis of the commodity’.^[708] In that way, the problem of theoretical economics was for the first time completely and exhaustively formulated. This, however, requires a more detailed explanation.

[Marx’s definition] excluded in advance any mixing up technical and eco­nomic analysis, because the question of the production process, which is the subject matter of technology, does not interest us here at all, and neither does the finished product itself, with its various natural properties. What interests us now is only a single, but particularly important, property adopted by the object; namely, that of being a commodity - an object which has no use for its owner but only for others, for someone else in society. The object was in that way recognised as a mere symbol, as a mediator of a social relation, a rela­tion that could only arise in a specific form of society and, of course, could not be a relationship between objects but only between people, the members of this society. If we therefore succeed in finding the law that regulates the rela­tions of these objects to each other, would this not also mean finding the ‘law of motion of society’ itself, the law that connects its individual members, shows the mutual dependence of their economic activities, and thus solves the prob­lem of theoretical economics?

Further consideration will give us the answer to this question and, at the same time, will show us more clearly where the problem of theoretical eco­nomics lies and what answer that problem requires.

We have seen how Marx did not look at the production process, how his ana­lysis rather focused on the social form assumed by the products resulting from production. But the product, in its social-formal determination [gesellschaft- lichen Formbestimmtheit], is no longer a product of the production process that simply owes its natural properties to the changes made to it for the purpose of its intended use; instead, it is an expression of the production relations in which its producers stand. Now the question is no longer the natural side of produc­tion, the influence of humans on nature, but the mutual relations of people in production. However, the question concerning the relations of production can be answered in two ways, and the kind of answer separates economic history from theoretical economics. The former investigates the formation of the pro­duction relations; it may show us how, under certain natural conditions and at a given stage of development of the productive forces, certain relations of production emerge, and how the production relations in turn react upon the productive forces, further developing and transforming them.

Can this historic-genetic approach [of economic history] lead us to a full understanding of these production relations?

We would be satisfied with knowledge of the origin of the production rela­tions if these relations were transparent; a scientific approach would require going no further. But when is that the case? The complexity, enormity and difficulty of the production process do not concern us here. The production relations themselves must contain the criterion for deciding whether, besides their genetic explanation, a theoretical understanding is also necessary. But this criterion must be contained in the nature of the production relations them­selves, i.e. in the way in which they are constituted, and this constitution can evidently be only twofold.

People can relate to each other consciously in their production as parts of a production community; [in that case,] their behaviour in production and their mutual relations are uniformly regulated. Their labour organisation and the distribution of their products are placed under central control. The relations of production appear directly as social relations; the relations between indi­viduals, to the extent that they are related to the economy, appear determined by the social order, and their private desires appear embedded in social rela­tions. The production relations themselves are immediately understood to be consciously organised and desired by the community. With the explanation of the origin of this organisation and its description, the task is exhausted. Eco­nomic analysis here dissolves itself into economic history. In this kind of society there is no room for theoretical economics.^[709]

The case is quite different, however, when the regulation of production rela­tions is not a conscious one. The social relations now appear unintended or, more accurately, not consciously wanted, and therefore as the blind and ran­dom result of countless individual actions independent of each other. The social context itself, and its regulation, now become problematic, and the ques­tion arises: What motivates this group of people who work for each other without knowing each other, who share [the products of their labour] between each other without knowing each other? What is the labour organisation that determines the distribution of their products, which must be distributed in order for them to be useful at all? What constitutes this circle of people as a society; and what is the law of motion for this society that makes it intrinsically different from previous ones? Earlier they were connected by a common will to joint action. Now they are isolated from each other as private individuals, acting according to one's own free will at one's own risk.^{[710] [711] Only necessity forces them to relate to each other; not, however, as people united by a common goal, but by [the fact that they] exchange things with each other, because only as property owners do they have any interest in other property owners. Their social rela­tionship appears reduced to the private relationship of exchange. But exchange, as such, is first of all only a private relationship. For two people to exchange, nothing more is needed than for each of them to have an object and to be will­ing to give it up for another. As such, exchange is a phenomenon belonging to all social formations, because all social formations know property?3}

In fact, the exchange of pen-holders and stamps in school, or the exchange of riding horses and automobiles between two members of a socialist society is a private event of no concern to theoretical economics. The fundamental illusion of marginal utility theory is that it wants to understand the laws of capitalist society through the analysis of exchange as a purely private act.

For us, the first question that arises is this: What turns exchange into a social phenomenon? Obviously, that the social relation is first expressed, and can only be expressed through the act of exchange. [In capitalist society] people enter into economic relations (we are not talking about political, literary or religious relations) in no other way than through the act of exchange. The law that shows how the exchange [Tauschverkehr] is regulated is therefore, at the same time, the law of motion of society. Finding that law of motion was the task that Marx posited as the problem of theoretical economics. And with that task the field of theoretical economics was at the same time clearly formulated and its method determined.^{[712] [713] Theoretical economics was separated from economic history. While the field of economic history includes all social formations, the problem for theoretical economics only arises at all in a specific historical- social organisation; societies whose relations of production are consciously regulated - i.e. communist societies, wherein society has the right to dispose of all the means of production - are not the subjects of theoretical economics. All members of such society are immediately conscious of its regulation; it is as much understood as, for instance, legal propositions, which people describe and arrange according to their origin, because their economic organisation is only a part of the conscious organisation of their social life in general. They are entitled to grasp the content of the economy, not just its form. Their ‘external regulation' [auβere Regelung], to use Stammler's expression, is at the same time an internal regulation, because the ‘matter of social life', the economy, is also consciously regulated.}

This is quite different from that other kind of social formation, which mani­fests itself only in the act of exchange, which, in turn, presupposes the indi­vidual's right to dispose of his objects, i.e. private property. Here the question under consideration is the law that dominates the economy of this society. What is it here that determines the organisation of labour that secures the production and reproduction of needs [Bedarf: demand, requirements] in the necessary quantity and the required proportion? And finally, how are the pro­duction relations themselves reproduced, automatically remaining constant, without the intervention of a purposeful consciousness? Who created the rela­tions of dominance and subordination between the members of that society and their interaction, which, for all that, must secure the social purpose, the self-preservation of society, in an unplanned way?

In short, it is necessary to find the inner lawfulness of a society that has only become conscious of external regulation [auβere Regelung], which amounts to nothing more than the principle of private property.^[714]

All the standards [gesetzten Normen] that come into consideration for eco­nomics are therefore nothing but consequences of this uppermost, purely formal principle [of private property], which purposefully ignores the content of economic events because it answers only to the wills of individuals. Marx is concerned with internal regulation, in other words, with the law that turns this society of commodity-producers, dissolved into its constituent elements formally by private property and materially by development of the division of labour, into a community of production, transforming the individual actions [of its members] into actions necessarily determined by society.

This is, therefore, the ‘epistemological peculiarity' of these production rela­tions, to which Marx did justice with the peculiarity of his formulation of the problem [of theoretical economics]. However, this peculiarity does not consist, as Dietzel believes, in the great number of theoretical mysteries offered by the competitive system and in the difficulty of solving them.^{[715] [716] [717]}

Rather, there is only one riddle that we must solve: namely, to discover in the exchange act, as the basic process in which the social relations manifest themselves, the law that prevails in this society and must assert itself in order to make possible in the long run the social production process, that is the satisfaction of social needs by the total labour of society.

It is a ‘mystery’ that is not at all posited by other social formations, so that, for instance, commodity-producing society simply presents an additional problem for theoretical solution. Rather, these production relations, due to the uncon­scious way in which individual members are related to each other within them, are the only ones positing a problem for theoretical economics. It is neces­sary to investigate the social order. But this social order, as Sombart already noted, is for this society by no means identical with the external regulation [auβereRegelung].1⁷ It is first recognised when, next to the external regulation, economic theory, for which this social order is the logical precondition, has dis­covered the internal conformity to law [Gesetzlichkeit], the law of the economy.

The production relations are thus a unity of internal conformity to law and external regulation, and both are only an expression of ‘definite, necessary relations, independent of their will’, which people enter into ‘in the social production of their existence’ and which are ‘appropriate to a given stage in the development of their material forces of production’?⁸

External regulation appears only in commodity-producing society, because it is the only consciously determined, independent [regulation], separated from the internal conformity to law, while this separation [between regulation andinternal conformity to law] does not exist in communal production, where both are included in an undifferentiated way in the consciously regulated social order.

However, the character of this law - that is, the claim of its validity - is likewise clear from the preceding [remarks]. It is a law that determines the behaviour of production agents within the relations of production with natural necessity, because the character of the necessity can be none other if it has to act through the wills of individuals, themselves determined by the nature of the production relations. In this law, the social relationship - which here is not directly intended and produced by conscious, collective action but is only identified after the event by theoreticians [of political economy] - asserts itself with natural necessity vis-a-vis the individuals. It differs from natural law only by the fact that it operates within a historically specific form of organisation of human society. To denote this fact, it has very well been said that it operates with social-natural necessity.^[718]

The method, however, with which this law could be found, was the analysis of this social relationship as it appears in the simplest social act, exchange, and its material substrate, the commodity (not the ‘good’). By identifying the ‘social substance' of the commodity,^{[719] [720] by demonstrating that the question under consideration, behind the seemingly material relations of the commodities, is actually human relationships, moreover, human relationships within very specific relations of production in commodity-producing society - i.e. through the discovery of the fetish character of the commodity - the ‘mystery’ of society was then resolved.}

It is, however, a different way of positing the problem [of theoretical eco­nomics], which must not be overlooked if we want to analyse the relationship of Marx to Ricardo, because it is only from here that one can clearly distinguish the very different meaning of both systems. Ricardo presupposes the produc­tion relations as something given, natural and unchanging.21

What interests Ricardo is distribution, which he also conceives only in the narrow sense of distribution of products, whereas it also means, at the same time, the distribution of people among the various spheres of production and the determination of their relative positions as workers, capitalists, etc. in production. His categories, therefore, remain natural categories; for him, value is still a property of the goods, namely, that of being a product of labour, just as with another category of goods their property is that of being scarce. Thus capital [for Ricardo] is nothing but ‘accumulated labour', a mere ‘economic name', as Marx once said, for the means of production. Ricardo, therefore, offers no sufficient justification for the law of value, which to him appears to be more of a happily discovered, empirically intrusive fact than the result of a rigorous analysis.

And since, for him, value is primarily the criterion for distribution, and it is a requirement for any criterion that it be as accurate as possible, Ricardo also always has the tendency to determine economic categories - which with him are immutable natural categories anyway - quantitatively as far as possible. Thus he arrives, to highlight just one point, at the equation of wages with the sum of the natural subsistence minimum of the worker, and at his doctrine of the iron law of wages, which blocked his insight into the mechanism of accumulation and into capitalism's historical law of population. Thus, he takes the ‘law of diminishing returns' in agriculture in a narrow sense, turning the rise of ground rent into the actual law of motion of capitalist society and thus overlooking the dominant role of capital, whose historical barrier appears in the fall of the rate of profit, which he explained in a totally incorrect way.

By contrast, for Marx the question is first of all to analyse the [social] form that turns each good into a commodity. The good is a commodity because its producers stand in a particular social relationship, in which they have to confront each other as independent commodity producers. In this way the good, instead of being a natural, entirely unproblematic thing, is the expression of a social relationship, thus also acquiring a social dimension.^[721] The fact that the good is a labour product ceases to be its natural property and now becomes a social fact. Now it is necessary to find the law of that society as a community of production and therefore of labour. The individual labour thus appears, from a completely new perspective, as part of the total labour at the disposal of that production community, and only from this point of view is it value-creating. Only then could Marx arrive at the basic distinction between concrete labour, creating use-value, and abstract, social, value-creating labour, and thus show the starting point of political economy.

Through analysis of the commodity form - in other words, through discov­ery that the question under consideration was the historically transitory way in which the members of a community of labour [Arbeitsgemeinschaft], lacking conscious regulation, relate to each other by means of their power of disposi­tion [Verfugungsgewalt] over the things necessary for the social metabolism - Marx also came to realise the content of the value notion. Ricardo, by contrast, headed directly to the content, remained stuck at the very beginning of the ana­lysis of value, and had to do without a more accurate insight into the character of value. Finally, he had only exchange-value in mind, the reason for the mutual changes in the exchange of goods, which may have appeared sufficient to him given his narrow formulation of the problem [of theoretical economics]. But realisation that the question under consideration here is nothing but histor­ically specific relations between the producers is also a prerequisite for recog­nising the laws of distribution in capitalist society, which cannot be understood without recognising the capital nature of the relation of exploitation under­lying them. That capital gains power, and that this power in turn alters the social distribution in a modification of the law of value, could not be seen by Ricardo. For him, the problem of the equal rate of profit remained a mystery upon which his theory foundered, while Marx's theory celebrated its greatest triumph precisely there. But the shortcoming in the formulation of the problem [of theoretical economics], which Ricardo limited to distribution, also made him overlook completely the actual task, which to him appeared self-evident, because for him the production relation was unalterably given: namely, to find the law of the conservation and development of these relations of production.

Ricardo had found the key, but not the door that the key unlocked. And like him, his successors also did not find that door that led out of bourgeois society - even if, like the Socialists, they searched for it. Karl Marx first opened it up for us. He was the discoverer of socialist society because, according to Tonnies's expression, he was ‘the discoverer of the capitalist mode of production'.^[722]