DOCUMENT 6 Marx's Critique of Ricardo (1906)

Gustav Eckstein

Source: Gustav Eckstein, ‘Marx’ Kritik Ricardos’, DieNeueZeit, 24.1905-6,2. Bd. (1906), H. 34, H. 36, pp. 245-52,321-32.

A review of Karl Marx, Theorien uber den Mehrwert: Aus dem nachgelassenen Manuskript Zur Kritik der politischen Okonomie’ von Karl Marx, hrsg.

Introduction by the Editors

In the second volume of Theories of Surplus-Value, Marx turned to a detailed examination of theories of land rent. The Physiocrats had seen agriculture as the source of the social surplus, and Thomas Malthus had claimed that lux­urious consumption by landlords was essential to ensure an adequate market for industry. Adam Smith and David Ricardo cast landlords in a different role, seeing rent as a diversion of social revenue from productive purposes. Smith wrote that ‘As soon as the land of any country has all become private prop­erty, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce’.^[571]

David Ricardo’s treatment of rent had both economic and political signific­ance. In Ricardo’s system, rent derived from diminishing returns on successive parcels of land brought under cultivation. If the most fertile land was cultivated first, followed by a second parcel of less fertility, the owner of the first parcel acquired the power to extract rent. A tenant who resisted could go elsewhere and cultivate less fertile land. The owner of any subsequent parcel, so long as it was more productive than the least fertile land currently in use, would likewise collect differential rent. If the total social income consisted of wages, profits and rents, and if the rent share steadily grew while real wages remained con­stant at the subsistence level, the result must be to reduce the remaining share going to profits and capital accumulation.

The main problem with Ricardo’s discussion of rent, as Gustav Eckstein points out in this document, was that it omitted what Marx called absolute rent and its role in the determination of prices and the average rate of profit. Eckstein explains that the question of absolute rent necessarily arises when the equalisation of profit rates is examined. With free competition, capitals will typically move from branches with a higher organic composition of cap­ital than the average into those with a lower organic composition in the hope of capturing a larger return of surplus value. Eckstein observes that industries ‘with low organic composition cannot, as a rule, avoid the influx of new cap­ital and realise for themselves the surplus value exceeding the rate of profit’. However, since the owners of land control a non-renewable means of produc­tion, the movement of capital into agriculture, with its typically low organic composition, will not occur without a ‘special compensation’ being paid to landowners in the form of absolute rent; that is, an element of the total rent payment that can no longer be explained in terms of differing productivity of the land. In his book on The Agrarian Question (1899), Karl Kautsky briefly sum­marised this distinction between differential and absolute rent:

... the former is not an element in the determination of the prices of agri­cultural products, whilst the latter most certainly is. Differential rent is the product of prices of production, absolute ground-rent of the excess of market-prices over prices of production. The former is constituted out of the surplus, the extra-profit, obtained via the greater productivity of labour on better land, or in a more advantageous location.

Since land rent, either differential or absolute, results from landlords’ power to prevent agricultural surplus value from entering into the general process of profit equalisation, the appropriate capitalist response, as Ricardo saw, is to rempove barriers to imports. Ricardo helped to repeal Britain’s agricultural tariffs, and Marx anticipated ultimate formation of a world market regulated by a world law of value. In Volume iii of Capital, Marx devoted the whole of Part 6, including eleven chapters, to analysis of both differential and absolute rent.³ In an earlier chapter on factors that offset the tendential fall in the rate of profit, Marx also noted that foreign trade can reduce the costs of both constant and variable capital, tending to sustain the rate of profit. He added, however, that foreign trade, in the long-run, can also contribute to a falling rate of profit: by cheapening the cost of variable capital relative to constant, it raises the organic composition of capital and also tends to increase overproduction relative to the absorptive capacity of foreign markets, ‘so that it again has the opposite effect in the further course of development’.⁴

To explain commodity prices more generally, Ricardo adopted a labour the­ory of value. He divided capital into fixed and circulating components, includ­ing wage expenditures in the latter category and expenditures on machinery in the former, but he had no knowledge of unpaid labour or surplus value because his concept of circulating capital lacked the more exact concept of variable capital.

(1915a, pp. 67-8) and Lenin’s note in ‘The Agrarian Question and the “Critics of Marx”’, in Collected Works, Vol. 5 (Moscow: Foreign Languages Publishing House, 1961), pp. 126­7.

3 Marx actually distinguished between three types of rent: 1) differential, 2) absolute (which contains an element of monopoly but depends on the lower technological development of agriculture vis-a-vis industry), and 3) purely monopoly rents: ‘... this absolute rent, arising from the excess value over and above the price of production, is simply a part of the agri­cultural surplus-value, the transformation of this surplus-value into rent, its seizure by the landowner; just as differential rent arises from the transformation of surplus profit into rent, its seizure by landed property, at the general governing price of production. These two forms of rent are the only normal ones. Apart from this, rent can derive only from a genuine mono­poly price, which is determined neither by the price of production of the commodities nor by their value, but rather by the demand of the purchasers and their ability to pay, consider­ation of which therefore belongs to the theory of competition, where the actual movement of market prices is investigated’ (Marx 1992, p. 898).

4 Marx 1992, p. 346.

tion of the profit rate on competing capitals. As Eckstein notes, ‘he naively took it to be a given fact’ that required no further theoretical analysis.^[573]

Eckstein shows that Ricardo’s lapses in explaining both rent and price form­ation were essentially the result of methodological failure. Ricardo advanced beyond Adam Smith when ‘he conceived the law of value as the basic truth of his science’, but he was unable to develop the entire system of political economy out of this basic principle.

Especially as regards methodological clarity, the presentation of ground rent, and particularly of absolute rent, is superior in this work compared to the third volume of Capital. There Marx posed the question of whether the existence of absolute ground rent is compatible with the law of value, thus proceeding according to the method of Ricardo. But in Theories of Surplus-Value he develops absolute rent directly from the law of value, and whoever compares the two presentations will realise how much more fertile the method is in the latter work.

Gustav Eckstein’s Review of the Second Volume of Marx’s Theories of Surplus-Value

1 The Method

Ricardo says in the preface to On the Principles of Political Economy and Taxa­tion: ‘If the principles which he [the writer] deems correct, should be found to be so, it will be for others, more able than himself, to trace them to all their important consequences’. The person most able to cope with this task was Karl Marx, and what enabled him to do so was, first and foremost, his super­ior method.

Adam Smith first had to define the field of the new science and describe its phenomena. He grouped and systematised them and tried to trace them back to more basic principles. It was only natural that in this way he could not reach a strict convergence of views, that his principles had to contradict each other, [an outcome] only veiled by the fact that he offered no precise formulation [of those principles]. Ricardo made an important step beyond the method of his teacher when he conceived the law of value as the basic truth of his science and then proceeded to show that all its phenomena not only did not contradict that law, but could also be traced back to this explanatory principle.

Marx's method has often been misunderstood. It has been regarded as an arbitrary construction because people confused the nature of his presentation with his research. It was only after he traced the various phenomena of the economy back to their common root, in the law of value, that he set about to develop those phenomena out of that law, just as the reconstruction of the world in thought by Laplace was possible only when all celestial phenomena were shown to result from the activity of the law of gravity.

The essence of Marx's method had to reveal itself with particular precision as soon as Marx dealt comprehensively with the most important of his prede­cessors [Ricardo], with whom he has a common starting point but from whom he differs substantially in subsequent developments. For that reason alone, one had to be curious about the second volume of Theories of Surplus-Value, which includes the criticism of the Ricardian system, and the expectations placed upon it have not been disappointed.^[574]

2 Value Determined by Labour Time. Price of Production.

The foundation of the Ricardian system, as is generally known, is the law of value, which states that the value of a commodity is determined by the amount of labour required for its production. But in the very formulation of this law Ricardo did not quite clearly enunciate what he meant by value. He speaks of value and exchange-value, of relative and absolute or real value, without, however, consistently maintaining these distinctions. His original view - that the labour value contained in commodities only has to reveal itself in exchange-value - fades in the later course of his presentation behind the shal­lower view that the essence of value amounts to nothing more than exchange.

In general, Ricardo’s concepts still lack much in the way of precision even though he went far beyond Adam Smith in this respect. This [advance] is less evident in his method. But for the entire system of political economy to be developed organically from the law of value, a completely accurate terminology is necessary, such as the one provided Marx.

Now, it is immediately obvious that the value of a commodity is not determ­ined only by the amount of labour directly used in its production. Rather, the value of raw materials, auxiliary materials, tools, etc. will also be reproduced; in short, everything that Marx referred to collectively as constant capital. But Ricardo uncritically threw together this distinction between variable capital, invested in wages, and the remaining constant capital, which is really essen­tial for production, with the distinction between fixed and circulating capital taken from the sphere of circulation. As a result, he could not apprehend these two sets of categories in a precise manner. Marx has already shown elsewhere the errors that resulted from this confusion when analysing the processes of circulation.^[575] However, it naturally had to be even more disastrous for the ana­lysis of value formation. In particular, it led Ricardo to disregard completely raw and auxiliary materials, which he did not fit correctly into either of the two categories. But it also made it impossible for him to understand the nature of surplus value. Since he paid attention only to the differences in the cir­culation of capital, he missed the importance of the relationship between paid and unpaid labour, between variable capital and surplus value. He over­looked, therefore, the importance of the length of labour time for the rate and amount of surplus value and regarded the working day as a given and fixed magnitude.

In Ricardo, therefore, the nature of surplus value, as unpaid labour per­formed by the workers but appropriated by the capitalist, does not stand out clearly. This fountainhead of profit and rent was first developed by Ricardo's socialist disciples.

The fact that Ricardo did not have a precise definition of the organic com­position of capital, and that he threw together circulating and variable capital, explains why he did not notice that the surplus value generated by a single capital does indeed stand in a certain ratio to its variable element, but not to [capital's] total magnitude, and therefore that the formation of surplus value out of unpaid labour contradicts at first glance the equality of the rate of profit, which he also recognised. For him, this levelling of profits was not a problem; he never investigated the extent to which it is compatible with the law of value; he naively took it to be a given fact. Marx showed, for the first time, that an apparent contradiction exists here, a contradiction that cannot be overcome as long as individual capitals are considered in isolation. It is competition that drives capital into those applications yielding a higher [rate of] surplus value than the average and pulls it out of those where the opposite is the case, and which brings about a deviation of the individual profit from surplus value and thus creates a distinction in principle between the individual values of a class of goods and their market value.^[576]

Admittedly, Ricardo was aware that not all the phenomena of price forma­tion can automatically be traced back to the law of value that he formulated. Smith had claimed, on the basis of his second definition [of value]^[577] - according to which the value of a commodity is the sum of the wages, profits and rents required for its production - that a rise in wages always results in an increase in the price of the product. Ricardo refuted this proposition by showing that a rise in wages can, under certain circumstances, even bring about a reduction in the market value. On that occasion he came very close to the truth, but without being conscious of the importance and the fundamental significance of his dis­covery. He noted, for example:

Since goods which sell for £ 5,000 may be the produce of a capital equal in amount to that from which are produced other goods which sell for £10,000, the profits on their manufacture will be the same; but those profits would be unequal, if the prices of the goods did not vary with a rise or fall in the rate of profits.^{[578] [579]}

With this proposition Ricardo admits the dependence of commodity prices on the rise or fall of the profit rate, but he does so in an unclear and vague manner, so that he himself overlooks the fact that in this way he breaks with the view he always held; namely, that the market prices of products are only the expression of their labour values.

Failure to recognise the importance of such a limitation of the law of value was predetermined by the starting point of the analysis. As mentioned above, Ricardo did not proceed from the question of how the equality of the profit rate asserts itself on the basis of the law of value, or of how it is consistent with that law, as would actually have corresponded to his method of analysis; for him it was first and foremost a question of investigating the influence of an increase in wages on the market value of products. Thus, he made any solution of the question difficult for himself from the outset by dealing with it in a completely incorrect context.

We have seen that Ricardo was unaware of the distinction between constant and variable capital; he only knew that between fixed and circulating capital, and he often confused circulating with variable capital. He had to face the question of whether the [organic] composition of capital exerted any influence on the value of the product. Caught up, however, in his deficient terminology and conceptualisation, he lumped this issue together with the significance of different rates of the turnover of capital for value formation;¹¹ moreover, as he had anticipated the main point in the solution of the question, the transformation of surplus value into profit and the equalisation of the rate of profit, his attempt to solve the problem could only lead to confusion, which indeed prevails in the fourth section of the first chapter?²

Ricardo says there that the historically developed differentiation of capitals, between those in which the fixed element predominates and those in which wages play the dominant role, has brought about a modification of the law of value. The value of a product resolves itself, according to Ricardo (and in this respect he uncritically followed Adam Smith) into the three revenue forms: wages, profits and eventually ground rent. Constant capital, whose value reappears in the value of the product, is again totally forgotten here. Now, since according to Ricardo the working day is a fixed magnitude, a certain number of workers always supply the same mass of value. If the share of value falling to the workers grows - that is, if wages rise - this can only happen at the expense of profit (here again the part falling to rent is forgotten). A rise in wages thus always results in a decline in the rate of profit. Here, Ricardo again overlooks the fact that the rate of profit is not given by the ratio of surplus value to wages, but by its ratio to the total capital, i.e. that the rate of profit also decreases when this total capital grows more quickly than the surplus value produced by it. Given a general rise in wages, capitals of different [organic] composition thus yield very different profits. Those capitals that include less than the average wages would see their profits relatively little reduced, while those containing more than the average wages could see their profits disappear completely. Competition, however, would then cause an abundant inflow of capital, mainly in the form of credit, into the most profitable applications and an outflow from the profitless or loss-making ones. A new, lower rate of profit ^{[580] [581]}

would then be established; some values would have been increased, while the others would have fallen.

Ricardo did not deem it necessary to investigate whether this deviation of ‘relative values’ from labour values was a general phenomenon, and whether the equalisation of profits does not in principle presuppose such a deviation. He rather declared this striking phenomenon to be so insignificant that it could very well be ignored in the subsequent exposition.

Since Ricardo did not distinguish between surplus value and profit, he could not develop either of these two categories correctly; in particular, he had to form a completely false idea about the nature of the rate of profit. The extent of his confusion in this respect is apparent, among other things, in the fact that at one point he explicitly speaks of ‘trades where profits are in proportion to the capital, and not in proportion to the quantity of labour employed’.^[582] Thus, the validity of the general rate of profit, which is precisely the uniform relationship between profit and total capital, would be limited to some lines of business.

As we have seen, this deficient analysis of profit led Ricardo to regard the sum of wages and profits as constant, so that an increase in wages always resulted in a reduction of profit and thus of the rate of profit. He overlooked the fact that the rate of profit can rise or fall as a result of the rise or fall in ground rent; that the mass of profit depends not only upon the rate of surplus value but also upon the number of workers employed; that even at a given rate of surplus value the rate of profit depends upon the organic composition of capital and the value ratio of its different parts; and that, finally, the differences in circulation do not influence the rate of surplus value but rather the rate of profit.

3 Absolute Ground Rent. Rodbertus.

The equalisation of profit [rates], and thus the transformation of values into prices of production, presupposes a developed capitalist economic organisa­tion and the prevalence of free competition. From time to time this enables capital to leave those areas of application where the values of goods are below their prices of production - i.e. where the organic composition of capital is above the average - for those where the opposite is the case. These industries with low organic composition of capital cannot, as a rule, avoid the influx of new capital and realise for themselves the surplus value exceeding the rate of profit. They must share it with the other capitalists unless [their mono­poly control of] a means of production that is indispensable for this branch of industry enables them to avoid the impact of free competition. But this is the case throughout primary production as a result of private ownership of land. This land is only relinquished if capital pays a special compensation for its exploitation. But since the [organic] composition of invested capital is low in agriculture, as well as in mining - that is to say, relatively much liv­ing labour is used - here values always stand above the prices of production; and this difference, which is the source of absolute rent, can be offered to the landowner in return for him releasing it for exploitation. Because Ricardo did not recognise any basic difference between values and prices of production, absolute ground rent was absolutely incomprehensible for him. Thus, he con­tented himself with a theory of differential rent - that is, with trying to explain the differences in rent between soils with different fertility - while he neglected entirely to discuss the nature of rent itself. With him, the worst soil under cul­tivation bears no rent, although this conclusion does not follow even from his own assumptions. In the third volume of Capital, Marx has already proven that even the worst soil brought under cultivation can yield a differential rent as a result of successive applications of capital to this least fertile soil or to better ones.^[583]

Ricardo and his school, as we have seen, ignored absolute rent, and they had to ignore it. Rodbertus, on the other hand, attempted to explain absolute ground rent on the basis of the law of value and thus to establish a new theory of rent. Marx, therefore, before he proceeds to criticise the Ricardian theory of rent, interpolates a discussion of Rodbertus’s theory.

Analysing the law of value, Rodbertus noticed that the surplus value, which he calls ‘rent’, does not grow in proportion to all the invested capital but only to its variable part - by which, however, he understands not only wages, or the payment of living labour power, but also the wear and tear of fixed capital, the tools and machinery, etc. There remains, therefore, the value of the raw and auxiliary materials (called by him ‘material value’), which does not go into the valorisation process as an element creating surplus value. On the other hand, in calculating the rate of profit, Rodbertus did not take into consideration the [organic] composition of capital but only the ratio between the created ‘rent’ and the total capital. Thus, if the rate of profit is given, there will be, wherever only variable capital goes into production, a difference between the total ‘rent’ (surplus value) generated in that branch of production and the profit allotted to it according to the general rate [of profit]. This also applies to primary production, because, according to Rodbertus,

Agriculture does not require any material which is the product of a pre­vious production, in fact it actually begins the production, and in agri­culture, that part of the property which is analogous with the material [i.e. with raw and auxiliary materials], would be the land itself, which is however assumed to be without cost.^[584]

A part of the product, therefore, remains in agriculture and falls to the land­owner as rent.

The first thing that stands out in this development is the erroneous inclu­sion of the wear and tear of fixed capital in its variable element. But, even on that basis, if Rodbertus had been consistent, he should have concluded that the dependence of surplus value on a part of capital that is not at all uniformly represented in the various areas of application utterly contradicts the equality of the rate of profit, as long as we accept that commodities are exchanged at their values. However, this escaped Rodbertus because, just as Ricardo did, he regarded the profit rate as given and did not see in it a problem; for him, it was just a question of a particular issue, the elucidation of absolute rent.

But that part of the value allotted to the replacement of tools, etc., does not belong to variable but to constant capital; therefore, even according to Rod- bertus’s remaining argument, there would be only a quantitative difference between the constant parts of agricultural and industrial capital - but constant capital would still exist in both cases. Rodbertus’s assumptions, however, are also wrong because he assumes that agriculture has to purchase no raw mater­ials. The fact that he was locked into the views of Pomeranian aristocratic estate owners, who were then still strongly steeped in natural economy, explains why he could ignore the importance of raw and auxiliary materials in agriculture. In fact, this value element is missing in primary production only in extractive industry (mining); but it is also lacking in the transportation industry, which, despite that fact, yields no special rent. A semblance of authority was given to Rodbertus’s analysis only by the fact that he was setting agriculture as a whole against industry, which receives raw products from agriculture, while agricul­ture produces its own raw and auxiliary materials, whose value therefore does not have to be reimbursed to anyone. But, in order to be consistent, he should also have taken into account the fact that agriculture owes its means of pro­duction to industry.

Thus, with his discovery that the surplus value generated by individual capitals is not proportional to those capitals themselves but only to their variable part, Rodbertus came close to the truth; but he missed it because he did not proceed consistently [on the basis of this assumption] and because he was only interested in explaining one specific phenomenon, ground rent, instead of developing the law of value from its foundations.

Marx's theory of absolute ground rent not only elucidates ground rent on the basis of the law of value but also shows its historical relativity - the conditions under which it appears and the influences to which it is subjected.

Above all, absolute ground rent can only appear - apart from the exceptional case in which the land is concentrated in a few hands and available in insuffi­cient quantities, so that the agricultural products yield a monopoly price - if, and as long as, the organic composition of agricultural capital is lower than that of industrial capital, so that agriculture generates an excess value (Uberwert) beyond the [average] rate of profit. Before the introduction of machinery into industry, the role of living labour was even greater in industry than in primary production. Since then, however, this relation has changed completely: with the blossoming of agricultural chemistry and the penetration of machinery [into agriculture], a change of tendency has recently occurred also in this field; the difference between values and prices of production has been reduced in agriculture, and with it also absolute ground rent. This [form of rent] is also determined by the level of the general rate of profit; yet it enters as a contrib­uting factor into the prices of production of agricultural products.^[585] The rise of absolute rent, therefore, goes hand in hand with a decline in the rate of profit. All the factors working towards reduction of the rate of profit therefore increase the [absolute] ground rent, if they do not simultaneously reduce the overall surplus value created in primary production to an even greater extent.

But for absolute ground rent to materialise, fulfilment of a second condition is still necessary. Landed property must stand in opposition to the ownership of capital; it must constitute a barrier to its application. Where that is not the case, as in a peasant economy, where the owner cultivates his own plot of land, or in the colonies, where land is not yet appropriated, or is only minimally appropriated, or where capitalist plantations are managed as any other capitalist enterprise, an absolute rent in the capitalist sense is out of the question.

Nevertheless, this rent cannot be explained by a monopoly that actually does not exist in countries with a capitalist economy. It is only necessary that private ownership of land and its capitalist exploitation should be a barrier to the influx of capital. Whether that barrier comes into full effect and is fully utilised, i.e. whether the full difference [between agricultural values and prices] is appropriated by the landowners, depends upon the circumstances.

As we have seen, this disincentive to the application of capital in agriculture is not without influence on the formation of prices. It brings about a rise in the prices of raw materials and a reduction in the prices of industrial products, because the fact that the high [amounts of] surplus value produced in agricul­ture stay there and are not shared with the remaining total capital depresses the rate of profit, and with it the production prices.

4 Value Determined by the Average Labour Time. Differential Rent.

From the foregoing analysis it would follow that, just as the capitalists would be interested in increasing the rate of profit and therefore in an organic composi­tion of capital as low as possible, the landowners would be interested in a low rate of profit, but still more in the difference between the production prices and values of primary products being as large as possible. In other words, landown­ers would be interested in capitals in the sphere of primary production having as low an organic composition as possible; that is to say, in having living labour in that sphere play the largest possible role and constant capital play the least possible role.

However, that tendency is thwarted and cancelled by another, stronger one. Thus far, we have spoken only of the value or, more precisely, the price of pro­duction of a certain type of goods. But that price is itself only a product of competition, which distributes the total capital of society among the various branches of production in accordance with the social need for the good in ques­tion. The total value of a certain type of goods is, therefore, determined by the total labour time applied to their production, while the price of production is determined by the total capital invested in that branch of production. The indi­vidual value, or rather the production price, of a given commodity is therefore the aliquot part of that total sum and will be regulated by the average produc­tion conditions.

Therefore, those capitalists who work less efficiently than the average in their industry obtain only part of the normal profit, while those who work with the most productive capitals obtain an excess profit. Each individual capitalist thus tries to increase the productive power of his own capital, i.e. to use as many labour-saving methods as possible, and to replace as much variable capital as possible by constant capital. To the agents of production, entangled in the appearances of competition, wages therefore appear as fauxfrais (incidental expenses), as a useless burden on production; likewise, the phenomenon that more productive capitals supply a greater quantity of commodities - so that the price of individual commodities sinks - metamorphoses in their minds into the belief that by arbitrarily reducing prices they can increase sales and thereby their profits. But wherever competition reigns freely, it strives to level out profits by driving capitals away from branches of production with low levels of profits and into the more profitable ones, thus forcing the capitalists to ensure that variable capital is always pushed back by constant capital. Thus, the effort to increase individual profits leads to a reduction of the rate of profit as a whole. The capitals invested in primary production cannot escape this tendency. The landowners, however, at first gain in two ways from this tendency, even if it also brings about a reduction in absolute ground rent. First, they often pocket part of the surplus profit obtained by the tenants, and secondly, the capitals invested in agriculture increase the value of the land, which after the expiry of the lease devolves on the landowner free of charge.

However, where the impact of free competition is limited by the fact that certain elements of production cannot be procured at any desired quantity or quality, the equalisation of profits cannot take place; some profits will remain below the average, while others will exceed it. By far the most important area in which this occurs is primary production, and Ricardo analysed this whole phenomenon [of rent] from that starting point. He therefore regarded it one- sidedly, from the wrong angle, without recognising its general meaning. The surplus profits resulting from this restriction of free competition in agriculture are the only form of rent that Ricardo knows.

In his development of ground rent, he assumes the existence a fictitious country in which soils of different fertility are present and waiting for their first appropriation. He actually had American conditions in mind. Of course, Carey^[586] has already demonstrated that precisely there the actual development proceeded in a completely different way. Ricardo said that in such a country the most fertile lands would be appropriated first and that, as long as these lands abounded, there would be no ground rent (in fact, under those circumstances there would also have been no capitalist production). The growth of population would then, he argued, gradually have made necessary the cultivation of less fertile land, but that would only occur if the heightened demand increased the prices of agricultural products so much that they not only refunded the capital costs incurred, but also supplied the customary profit. [Agricultural] prices would therefore be determined by the individual value of those products produced under the most adverse conditions. Those produced under more favourable conditions would yield a surplus - ground rent. ‘For rent is always the difference between the produce obtained by the employment of two equal quantities of capital and labour’.^[587]

Ricardo arrived at this result because he was under the spell of the Malthu­sian theory, which says that population always presses on its means of sub­sistence; because his theory is based on the false assumption that cultivation always proceeds from more fertile to less fertile soils; because he did not deal with the problem of the equalisation of the prices of goods produced under different conditions in general terms but made a single question his starting point; and, finally, because he regarded commodities and values in isolation and not as products of the social production process.

Development can follow the path assumed by Ricardo, but this is by no means necessary, indeed it would be an exception. Agriculture, in its progress, turns now to more fertile, now to less fertile soils; those properties themselves change with the method of production and the mass of capital invested. Simil­arly, the amount of agricultural products produced can correspond to demand, exceed it or fall behind it. But, even under the conditions assumed by Ricardo, the effect expected by him would not happen. As we have seen, when the corn produced under the worst conditions regulates price, even the worst soil, or, more correctly, even the capital yielding the lowest return, still yields a rent. The laws developed by Ricardo apply only to the case, which he especially denies, in which prices are dictated by the costs of production under particu­larly favourable conditions - i.e. when a relative overproduction of agricultural products has taken place. In that case, a significant portion of those products will be sold below their individual values; prices may go down to their prices of production, so that all absolute rent on the worst soils disappears and is only partly realised on many of the better soils. In general, a complete disappearance of absolute rent can hardly occur under the capitalist conditions of produc­tion assumed by Ricardo, because the landlords do not allow their lands to be worked without compensation. But it is possible, indeed, for rent to be paid when a rent no longer exists; for example, by settling wage-labourers on small plots, where rent swallows up both the eventual profit and a portion of wages. Where the landowner himself cultivates the soil, particularly in a peasant eco­nomy, there can be no question of ground rent - or of capitalist production in general.

For differential rent, on the other hand, Ricardo's development is on the whole correct, though not completely. In particular, the assumption that pro­duction must always turn to poorer soils is not only historically false but also irrelevant for his own theory of rent, whose laws apply both with a rising and with a falling productivity of the land taken into cultivation.

But as Ricardo saw in differential rent the only possible form of rent, he had to come to false conclusions once he turned to consider the laws of ground rent in general. Thus Ricardo found, for example, that improvements in agriculture always reduce monetary rents, both if those improvements involve a better use of land through more rational crop rotation and the like, and if they are caused by a cheapening or improvement of constant capital. This is indeed true for differential rent. But the cheapening or improvement of constant capital also changes the organic composition of capital; the percentage allotted to variable capital grows, so that more living labour (more value) is added to the raw materials, while production costs remain the same. As a consequence, the difference between those two magnitudes [values and production prices (production costs + the average rate of profit)], i.e. absolute rent, grows. Thus, even under these assumptions, the overall rent can remain the same or even increase.

Ricardo only dealt with that case - in which only constant capital decreases in value - but not with the general question of how the various changes in the [organic] composition of capital, as a result of fluctuations in the price of its constituent parts, affect the level of ground rent. In this case, too, he failed to solve the problem because he was interested only in one special case rather than in addressing the question as a matter of principle.

This deficiency makes itself felt even in the analysis of that case, of particular importance to Ricardo, in which agriculture progresses towards ever poorer soils. He traces the otherwise inexplicable and steady decline in the rate of profit back to this process. Since Ricardo identified surplus value with profit, he concluded that the fall in the profit [rate] was only possible due to an increase in wages brought about by a rise in the price of food. But this is a natural consequence of the increasing inefficiency of agriculture. Thus, [according to Ricardo,] the rate of profit decreases with the progress of society, while money wages, and particularly ground rent, steadily rise. Ricardo overlooked the fact that here, under his assumptions, the growth of differential rent, given also a decreasing productivity of agriculture on the better soil types, is constantly accompanied by a decreasing mass of total product in proportion to advanced capital of a given magnitude. As a result of the increase in the cost of food, wages in particular rise. As a consequence, out of an invested capital of, say, 100, a larger portion will be allotted to the variable capital, with which at the same time only fewer workers will be employed and less raw material will be processed. If the value of the elements of constant capital now simultaneously grows - and this can be assumed both in agriculture and in mining, because in those cases the products often go back into production as raw or auxiliary materials or in the form of fixed capital - the number of labourers employed will decrease in two respects. On the one hand, wages have increased; on the other hand, the constant capital, thus reduced in percentage terms, replaces only a part of the previously applied raw material and auxiliary material or, more precisely, machinery. Not only the mass of products decreases in proportion to the capital applied, but also rent compared to the result in the first case, whereas Ricardo assumed that a price increase in the elements of constant capital would bring about, on the contrary, precisely a further increase in rent.

But even apart from this, Ricardo developed and explained the fall in the profit rate incorrectly - not only in historical terms, since this fall is not pre­vented by the cheapening of agricultural products, but also theoretically, as we have seen. The rate of profit is not the same as the rate of surplus value; profit is not calculated on the variable capital but on the total capital. Rather, this fall in the rate of profit is due to the fact that, under the pressure of competition, the share of constant capital continuously grows at the expense of variable capital, i.e. to the fact that industry, as well as agriculture, is continually more product­ive. The surplus value increases in proportion to the wages disbursed, but it falls in relation to the total capital employed.

5 Value Determined by Socially Necessary Labour. Crises.

Ricardo says at one point: ‘The labour of a million of men in manufactures, will always produce the same value, but will not always produce the same riches’.^[588] This claim is absolutely incorrect, as Ricardo again forgets here the constant capital, which creates no new value but whose value always reappears in the product. Therefore, the larger the constant capital entering into the labour process, the greater - even if the working day remains unchanged - will be not only the mass of use-values produced, which Ricardo referred to as riches, but also the value produced. Thus, even if the working population remains stationary and only the organic composition of capital changes, the mass of value annually produced by industry will constantly increase. In actual fact, however, there is also a continual growth of the capital employed. Ricardo understood this process totally incorrectly, assuming that the accumulation of capital takes place in such a way that revenue will be ‘consumed by productive instead of unproductive labourers’,^[589] or, in other words, that the surplus value will be converted into variable capital. Ricardo once again overlooks here the constant capital, which normally grows with accumulation even more quickly than the variable capital. Accumulation, therefore, presupposes not only a growth of the working population or the possibility of extending the working day, but also the presence of elements of the newly forming constant capital. Accumulation in some branches of industry thus presupposes the same phenomenon in many other branches. But even if there is no transformation of revenue into capital, which is certainly required by the nature of capitalist production, a fund would be available for accumulation - of which, however, Ricardo knows nothing. In particular, fixed capital (machinery, buildings, etc.) certainly goes wholly into the production process, but its value is not as a rule reproduced in a year; the replacement of its value is spread over a number of years, only at the end of which must the elements of the fixed capital in question be replaced in kind. In the meantime, a value accumulates from year to year that can be used to expand production and may be invested in circulating capital, whose value always returns to the capitalists.

Thus, the production of goods and values grows continuously, and now the question arises as to whether this process will also find its limit, [i.e.] whether an overproduction of goods and capitals can take place.

Ricardo denied the possibility of general overproduction, arguing that prod­ucts are always exchanged against other products, that each purchase simul­taneously requires a sale and vice versa, and that demand and supply always coincide. Overproduction can occur only in certain branches of production, such that the correct proportion in the supplies of goods would be disturbed. But this proportion will again be restored by the beneficial effects of free com­petition, which withdraws capitals from those applications and redirects them to those whose products are scarce. The needs of society are virtually unlim­ited: if, for example, ‘the demand for corn is limited by the mouths which are to eat it’,²¹ the demand for personal possessions and all sorts of luxury goods is in fact unlimited.

This whole view reveals an astonishing naivete. Ricardo poses the problem as if it were a question of the actual needs of people in general, as if the purpose of capitalist production were the satisfaction of needs, as if the means for sat­isfaction of those needs were simply exchanged between their producers. The capitalist world is transformed into a pastoral idyll. For Ricardo, this illusion was still possible because, in the youthful days of capitalism, not all its contra­dictions had yet emerged clearly and acutely. However, it is difficult to see how people can often adopt that standpoint even today.

The labour time invested in goods by the individual producers does not yet give them any value if it does not prove to be socially necessary, i.e. if it is not employed to satisfy a social need. But the magnitude of this need again depends on the amount of value; in the harsh reality of the capitalist world, for example, the demand for food is determined by not the size of the stomach, as Smith and Ricardo naively believed, but by that of the purse [i.e. of solvent demand]. Needs are not at all decisive, only the ability to pay. We thus have here a vicious circle: value depends on social needs, but these depend on the amount of value. People have often argued that this is an internal contradiction of Marx’s theory of value, whereas, on the contrary, here lies precisely Marx’s discovery of the fundamental contradiction of the capitalist economy. In fact, no capitalist knows whether the goods he produces will realise their price, whether production costs will be reimbursed and a profit generated. He can only guess with greater or lesser probability. He takes his goods to the market with a certain price dictated by the costs of production, i.e. indirectly by their value, and he must now wait and see if they will find buyers. If not, perhaps he will have to dispense with a portion of the profit, eventually with the whole of it; indeed, if he has to settle payments, for instance, he may have to write off his own costs, and the actual market value of the goods will amount to only a part of their individual value.

21

Ricardo 1821, p. 342.

But the different kinds of individual labour represented in these particu­lar use-values, in fact, become labour in general, and in this way social labour, only by actually being exchanged for one another in quantit­ies which are proportional to the labour-time contained in them. Social labour-time exists in these commodities in a latent state, so to speak, and becomes evident only in the course of their exchange. The point of departure is not the labour of individuals considered as social labour, but on the contrary the particular kinds of labour of private individuals, i.e., labour which proves that it is universal social labour only by the super­session of its original character in the exchange process. Universal social labour is consequently not a ready-made prerequisite but an emerging result.^{[590] [591]}

This glaring contradiction is overridden on the basis of the capitalist economy by the fact that a commodity appears as the embodiment of social labour in itself, as money, against which every individual commodity must be exchanged in order to prove its social character. Money therefore does not act, as Ricardo assumed, simply as a means of circulation, to make the exchange of goods more comfortable. It is the yardstick applied to each commodity to find out to what extent it contains socially necessary labour. Money thus first makes possible the exchange of goods on a capitalist basis, but it cannot eliminate the enormous contradiction represented by the fact that the individual labour of producers, initially independent of each other, is at the same time social labour?³

The case, therefore, is by no means as pleasant as Ricardo presented it; namely, that products are exchanged against each other and money plays only a mediating role. The difficulty for the commodity lies precisely in the conversion into money. Hic Rhodus, hic salta. Only by the ability to become money does the commodity prove to be a value; until then it is so only virtually. Its situation is not much better than that of the countless feature articles written every year, which remain for the most part virtual ones. Only a fraction of them become real by their actual inclusion in a newspaper.

If the anticipation of the capitalists proves to be wrong, and this gambling is always tricky, or if the conditions of demand have changed during production, a large number of commodities cannot manage to make that jump into the money form, and a devaluation of commodities and capital on a large scale takes place. The crisis breaks out.

To be sure, Ricardo did not deny that a partial overproduction can occur. But he failed to recognise the importance of this phenomenon. For with the extremely artificial and sensitive organism of the capitalist economic system, any major disturbance of the equilibrium entails a whole revolution. If, for example, the market is saturated in the textile industry, the spinner can no longer sell his product to the weaver. As a result, his consumption of wool, linen or silk, of coal and other auxiliary materials, of machinery and buildings, is hampered. In all those industries stagnation sets in, and with it dismissals of workers and reductions of wages. This restricts the consumption of capitalists and workers; the market also becomes overcrowded in the area of consumer goods production; the crisis becomes no longer partial, but general. The argu­ment that only a partial overproduction can take place is, therefore, a very poor consolation, since a partial crisis must necessarily transform itself into a gen­eral one.

Ricardo explained the impossibility of general overproduction by the fact that human needs are unlimited, and that anyone can create the means to satisfy them by increasing his own production.

Here, then, not only are buyers and sellers equated, but also producers and consumers. But besides the fact that a large number of consumers do not produce at all, the mere relation between wage-worker and capitalist already implies that the workers - that is, the largest part of the consumers - are not consumers of a very large part of their products, namely of the means of production and work materials, but also, in particular, that workers are only consumers, or buyers, as long as they are overproducers, i.e. as long as they generate surplus value. To speak of an identity of producer and consumer is therefore absurd. Ricardo believed it was enough to produce values in order for others to be able to acquire them. But in this way he abstracted from all the formal determinations [Formbestimmungen^^[592] of capitalism. He confuses product and value, overlooking the fact that the worker is simply not in posses­sion of the means of production and does not produce for himself but for the profit of his employer. This becomes obvious if we reduce his argument to its simplest form and ask ourselves: why do the workers themselves not produce the goods they need? In fact, the shoemaker usually suffers the worst lack of shoes if the shops are inundated with that product, etc. The limits of capital­ist production are determined only by capital itself, while on the other hand most producers remain restricted to the average level of needs, and the sys­tem of capitalist production must be limited accordingly - hence the tendency of capitalism to expand the market by all means and at any price. Ricardo con­sequently denies the logical necessity of this expansion, but today it is no longer necessary to discuss it?^[593]

All of these internal contradictions of the capitalist system first become visible in the field of circulation. Even on the basis of simple commodity cir­culation, the possibility of crises is given by the fact that sale and purchase do not at all necessarily coincide, and that money can therefore be withheld, for instance, to be stored up as treasure. If this phenomenon is here [under simple commodity production] still mostly accidental, on a capitalist basis it takes place regularly. All the contradictions of this system come to light in the form that the two phases of trade, purchase and sale, fall apart. If money is used just as medium of circulation, it may be withheld if the reproduction process encounters difficulties - because, for some reason, the market prices of goods have fallen far below their prices of production, so that the reproduction of capital is restricted as far as possible, or because, for instance, the elements of constant capital are not present in the necessary amounts. In this case, repro­duction encounters not only technical but also economic difficulties, since the value and price of those elements [of constant capital] have increased. This can occur as a result of poor harvests, or of an excessive investment of cap­ital in machinery, etc.; it can be due to an intended enlargement of the scale of reproduction that is too rapid and for which the necessary preconditions were lacking.

But money can also serve as means of payment, as credit money, when it acts in two different moments, as a measure of value and as a realisation of value. But from this function of money further potential reasons for crisis independently arise if, in the meantime, there have been changes in the values or prices of the relevant goods, or if there is a delay in their realisation. Then a stoppage in the return flow of money occurs; the whole series of previous transactions that retrogressively depend upon this one cannot be settled.

The whole process of accumulation in the first place resolves itself into production on an expanding scale, which on the one hand corresponds to the natural growth of the population, and on the other hand, forms an inherent basis for the phenomena which appear during crises. The criterion of this expansion of production is capital itself, the existing level of the conditions of production and the unlimited desire of the capitalists to enrich themselves and to enlarge their capital, but by no means consumption, which from the outset is inhibited, since the majority of the population, the working people, can only expand their consumption within very narrow limits, whereas the demand for labour, although it grows absolutely, decreases relatively, to the same extent as capitalism develops. Moreover, all equalisations are accidental, and although the proportion of capital employed in individual spheres is equalised by a continuous process, the continuity of this process itself equally presupposes the constant disproportion which it has continuously, often violently, to even out.^{[594] [595]}

What Marx offers in this context is not a fully developed theory of crises; the controversy with Ricardo offered no chance for it. He merely had the opportunity of showing the possibility and the form of crises. Their actuality can only be shown on the basis of the developed laws of competition and credit, and by taking into consideration the actual constitution of society, which does not at all consist merely of the classes of workers and industrial capitalists?⁷

6 Conclusion

In the present review I have tried to outline Marx's ideas in his critique of Ricardo. No more than a sketchy outline could be offered in the framework of an article, but it would give me the greatest satisfaction to know that I have succeeded in prompting my readers to acquaint themselves with this latest work from Marx's legacy [the second volume of Theories of Surplus-Value]. No one with any interest in theoretical study will go through this book without experiencing great pleasure. The peculiarity of Marx's research and method of presentation probably nowhere stands out so sharply and vividly as it does here, where he polemicises with the related but different views of Ricardo, and where he shows in so many examples how a precise conception of the law of value also leads to quantitative analyses of economic phenomena.^{[596] [597] Espe­cially as regards methodological clarity, the presentation of ground rent, and particularly of absolute rent, is superior in this work compared to the third volume of Capital. There Marx posed the question of whether the existence of absolute ground rent is compatible with the law of value, thus proceeding according to the method of Ricardo. But in Theories of Surplus-Value he devel­ops absolute rent directly from the law of value, and whoever compares the two presentations will realise how much more fertile the method is in the lat­ter work. Moreover, the presentation is particularly vivid here because of the controversy with Rodbertus. Similarly, the development of differential rent is here more detailed, more profound and in many cases even more significant than in Capital, not only because of the confrontation with Ricardo, but espe­cially because here this form of rent is treated in conjunction with and on the basis of absolute rent. However, missing here is the whole development of dif­ferential rent ii, which arises from the application of various more productive additional capitals to primary production?9 Ricardo dealt with this form only in passing, and therefore there was no reason for controversy here. On the other hand, this form of rent is not so [very] necessary for understanding the other forms, so that its treatment was not as imperative as that of absolute rent to establish the [causal] connection. Moreover, not only in the field of the the­ory of rent but also in various other matters, the new work is a most welcome addition to Marx’s main theoretical work, particularly in the treatment of the problem of crises. Of course, one can also notice in this work that the mas­ter was not destined to put the finishing touches to his work; we find some repetitions, while other matters are dealt with only relatively briefly and aph­oristically.}

Besides the critique of the foundations of the Ricardian system, the volume also includes a number of digressions concerning individual questions and the historical position of Ricardo’s theories. Thus, the positions of [James] Anderson and [Adam] Smith on the theory of rent are discussed in detail, as is the question of the influence of machines on the production and valorisation process in Ricardo and [ John] Barton, together with many other questions. However, as interesting as the discussion of all these questions is, the details essentially take second place vis-a-vis the major thrust running through the entire work - its methodological significance.

But it is not the method alone that explains Marx’s superiority over Ricardo, apart from the individual circumstances of the two researchers, which we pass over here. A second factor of the utmost importance is the altered point of view.

Every age presents its own problems, i.e. exhibits phenomena that do not fit into the framework of the generally accepted explanations and cannot be reconciled with the complex of related and already known facts in the tradi­tional manner. But natural mental inertia drives people for as long as possible to attempt to squeeze the new phenomena into the old categories, doing them more or less violence, until a researcher appears whose sight is sufficiently unprejudiced to see the inadequacy of the current explanations and to begin the development of science on a new basis. Until that happens, however, the mass and number of new phenomena is always already swollen, and the ques­tion arises as to what phenomena the researcher’s attention should be turned to in the first place. In doing that, he is not quite free. The formulation of the problem is already a task of science, but posing it antedates that science; here its laws and rules do not apply, and the researcher is greatly influenced by his personal perceptions, his individual fate, his upbringing and occupation, his class membership.

Ricardo was a banker and lived during the youth of capitalism, under the intoxicating influence of the enormous increase in the productivity of social labour. For him, just as for Adam Smith, the goal of the economy was to cre­ate the greatest possible wealth, and the goal of his investigation was therefore [to analyse] what conditions must be met in order to further this purpose of producing as much wealth as possible. He saw that capitalism offered means for the achievement of this goal like no other economic system before it, and he therefore considered it to be the consummation of humankind’s economic aspirations. And since, in his own time, the internal contradictions of this eco­nomic system had not emerged as sharply as they do today, he could overlook them, because his own [theoretical] presuppositions did not predispose him to look for those contradictions. He could always explain the crises that he witnessed as a result of accidents, which did not appear to be essential to capit­alism - the major world crises arose only later. Likewise, the class antagonisms of capitalism had not yet entered into the consciousness of society. It was for those reasons that Ricardo could deny the possibility of crises by simply over­looking the fact that the aim of capitalist production is not the satisfaction of needs, but surplus value; and he could blur the class character of capital by regarding it merely as accumulated labour as distinct from actual [living] labour, not as an independent power facing the worker.

Although Ricardo was still so caught up in the bourgeois point of view, he was by no means an apologist for the bourgeoisie. As a true man of science, he drew the conclusions from his theoretical analyses, unconcerned about what class or clique benefitted from them. In this respect, he was very different from his contemporary Malthus, a sycophant of the landlord class. Marx has the highest regard and admiration for the honesty and theoretical impartiality of Ricardo, as opposed to the meanness and vulgarity of Malthus’s deferential attitude towards the parasitic classes.

Before he approached the study of economic problems, Marx had been a philosopher and historian, educated in the Hegelian school, but also simultan­eously a radical democrat, whose eye was not blinded to the ever more promin­ent class antagonism between capital and labour. He did not pose the problem as if it were a question of the goal of the economy in general; he inquired into the developmental trends of the historically given economic system, of capitalism. In this way, he adopted an independent, disinterested position. He recognised, as no one before him, the historical justification, the necessity of capitalism, but also its contradictions and its inherent tendencies towards dis­solution.

Thus, he could fully appreciate, as no other researcher, the great merit of Ricardo’s scientific achievements and, at the same time, account for his historical conditioning and his mistakes.