DOCUMENT 8 Theories of Surplus Value (1910)

Otto Bauer

Source: Otto Bauer, ‘Theorien uber den Mehrwert’, DerKampf, Band 3 (1910), s. 344ff., reprinted in Werkausgabe, Band 8, pp. 365-76.

Introduction by the Editors

Readers who have worked their way through the previous seven documents in this collection will find that this article by Otto Bauer provides a conveni­ent summary of what has gone before.

Otto Bauer’s Review of Marx’s Contribution to Political Economy

The appearance of the last volume of Theories of Surplus-Value is an important event in the realm of science. Marx’s economic work now stands complete before us. Only now do we get to know the final part of the work - the part that Friedrich Engels intended to publish as a fourth volume of Capital - whose first part Karl Marx published in 1859.

Science owes heartfelt thanks to Kautsky, who edited the four-volume work. Kautsky has carried out his task admirably. He has retained the character of Marx's work: the character of notes for self-understanding, which makes it an invaluable contribution to knowledge of the master's personality and enables us to see Marx's working method much more clearly than in Capital.

In this part of his work, Marx has given us a history of political economy. The characteristics of his historical narrative, trained in Hegel's [method], stand out vividly. Just as Hegel arranges all the older philosophical systems as integral parts of his own, as phases of its development, identifying this development with the self-development of Spirit in general, so Marx looks not only for the basic ideas of his theory, but also for each one of its component parts in the economists of the two preceding centuries, and he shows the internal development of those elements until their systematic organisation in his own doctrine reflects the development of bourgeois society. Marx traces his value and surplus value theory back to Petty; his price and profit theory back to Turgot; his theory of accumulation, of the reserve army and the rate of profit back to Adam Smith. The teachings of these men thus appear in a context that had to remain hidden to the authors themselves, and this link raises the collection of literary-historical notes to the level of historical science. This method separates Marx from bourgeois historiography and establishes his superiority. The bourgeois historiography of half a century has produced no work on the history of political economy that could measure up to it.

Theories of Surplus-Value is a difficult work that requires wide knowledge. It must find its readers in the circle of scholars, not in the mass of the people. However, the completion of its publication is an important event for us, be­cause it contains a wealth of most fruitful suggestions for the popularisation of those parts of Marx's theory that are the foundations of modern socialism. For that reason, an overview of the contents of the work will probably be welcome by many readers of Der Kampf. We cannot go here into the many valuable details it includes, but we will attempt to outline in a few broad strokes the layout of the work.

The oldest view of surplus value is that of the capitalist entrepreneur; sur­plus value seems to him a mere addition to the acquisition or cost price. This is the capital gain, the profit upon alienation of Steuart,^[663] the profit d’expropriation [profit on alienation] of the French mercantilists. The buyer loses what the seller wins. Therefore, surplus value remains unexplained within a single eco­nomic area and in the world economy as a whole. However the nation, the state will be enriched by them [the merchants] making such profit in foreign trade; this view thus led to the demand for an economic policy that guaranteed an active [positive] balance of trade [i.e. to mercantilism].

The surplus value that is realised in the circulation of goods within an eco­nomic region can only be explained if, as a result of the social production of commodities, the fund is discovered from which all the revenues mediated by circulation are defrayed. This fund can be represented most clearly as the surplus product of agricultural production. The soil produces so much rev­enue that, after setting apart the seed and those amounts [of grain] required to feed the workers, a surplus will still be left. The attempt to trace all forms of surplus value back to the agricultural net income led the Physiocrats to the first systematic presentation of the social reproduction process. Thus the Physiocrats already formulated the most important problems of political eco­nomy. If we place the presentation of this system in Theories of Surplus-Value alongside that of Capital and Anti-Duhring, we now have a deeply penetrating analysis of the Physiocratic doctrines, surpassing everything that bourgeois his­toriography has been able to say down to the present date on this first attempt at a systematic presentation of the production and distribution of values.

While surplus value was first regarded in France, then still largely agrarian, as the net product of agriculture, the English economists, living in the era between the English and the French Revolution, then recognised as value-creating not only agricultural labour but labour per se, and surplus labour not only as the agricultural net product, but as the net product of social labour in general.

Like his English predecessors, Adam Smith determined the value of com­modities by the labour necessary for their production. He not only traced rent (like the Physiocrats) and the rate of interest (like Petty, Locke and Hume), but also entrepreneurial profit back to the difference between the values of the goods and the wages of the workers who produced them. Now it was necessary to explain from this basic insight all the phenomena of capitalist economy. In trying to do this, Smith became entangled in contradictions. But that is pre­cisely the significant thing. By contradicting himself, by abruptly juxtaposing incompatible propositions, he set the tasks of his successors.

Here Ricardo stepped in and removed the contradictions in Smith's theory. Smith still confused the labour necessary for the production of goods with the labour that these goods commanded, that they could buy, while Ricardo sharply distinguished between those two concepts and determined the value of the goods consistently by the former criterion. Smith thought that the law, according to which the values of goods are determined by labour, applies only to simple commodity production and is modified by the development of property in land and capital ownership.

Malthus appeared as the spokesman of landlords, bureaucrats and priests. If Ricardo only had in mind the positive side of capitalism, the development of the productive forces, Malthus, following Sismondi, portrayed the negative side, the contradictions of the capitalist mode of production and the antagon­isms it developed. But he portrays them as a representative of the classes of the past. The misery of the workers is a natural law for him. Since the workers' wages are less than the value of the commodities, the working class cannot buy [all] the goods it has produced. But the capitalist class must sell those goods in order to realise the profits. Since the working class cannot buy them, the cap­italist class could not realise its profits if there were no classes that consume without producing, buying without selling: landlords, officials and priests.

The socialists spoke as representatives of the workers. Marx mentions the author of an anonymous pamphlet of 1821 [Charles Wentworth Dilke, author of The Source and Remedy of the National Difficulties, deduced from Principles of Political Economy], Ravenstone and Hodgskin. Leaning on Ricardo’s theory, they said: labour is the source of value, capital is unproductive, and all income of the propertied classes flows from the exploitation of the working class. We do not need capital; we want to abolish surplus labour. The author of the pamphlet declared: ‘A nation is really rich only if no interest is paid for the use of capital; when only six hours instead of twelve hours are worked. “Wealth [...] is disposable time, and nothing more”’.^[664]

Pressed on the one hand by the Malthusians and on the other by the social­ists, Ricardo’s disciples strove to develop the doctrines of their master, but they ran into contradictions. With the development of the productive forces grows the misery of the workers made redundant by the machines, but the rate of profit also sinks; how is that possible, since, according to Ricardo’s doc­trine, the profit rate is higher, the lower the wages? The same capital yields the same profit whether it employs much or little labour; how is that possible if, according to Ricardo, only labour creates value? Unable to resolve these con­tradictions, Ricardo’s disciples abandoned the foundations of their master’s doctrines. Capital and land were turned into sources of value next to labour. The dissolution of the Ricardian school gave birth to vulgar economics. Now capital had the mysterious property of breeding interest, just as the soil itself produced ground rent and labour wages. Economic life no longer appeared as the totality of the relations among people; lifeless things now dominated people and assigned to them their income. [According to the new apologet­ics,] the rule of capital is necessary because we cannot produce without means of production and without accumulated stocks of raw materials, and landed property is necessary because the soil is the basis of all labour. Exploitation is a natural law; profits are the wages of supervision by the managers of pro­duction; and capitalist production is production in general, the only possible production. The louder the criticism of capitalism, the more economics turned into capitalist apologetics, bent on the defence and glorification of capital­ism.

Political economy was substantiated with the deduction of ground rent, interest and profit of enterprise from production [i.e. from labour]. By tra­cing surplus profit back from circulation to production, economists no longer explained it as a surcharge, as profit upon alienation, but instead looked for its origin in the net product. Yet they still envisaged the production of goods only as capitalist commodity production. Capitalism seemed to them the absolute [mode of] production. The technical and natural conditions of production in general were mixed up with the special social conditions under which a partic­ular, historically determined and historically transient mode of production, the capitalist mode of production, takes place. Capital was for them nothing but the totality of the means of production and hoards. The wages of the workers are determined by the amount of means of consumption that can be produced and are low because no more can be produced. The accumulation of capital was equated with expansion of the undertakings and the means of produc­tion required by society, and is therefore just as necessary as the latter. But the more acutely class antagonisms developed, the more rapidly matured the recognition that capitalism is not the law of production in general, but only a transient form of production determined by certain social relations between men. Ricardo had already resolved profit, interest and ground rent into labour; Hodgskin went beyond him by tracing circulating capital, which the older eco­nomists regarded as a stock of goods, back to the juxtaposition of labours of different kinds.^[665] By showing that the effects that had been attributed to a stock of goods were in fact attributable to the coexistence of different labours, a rela­tion between working people took the place of a thing. Here is a root of Marx's resolution of the fetish character of the commodity and capital. Ramsay went even further: he said that capital is not necessary but is due only to the poverty of the masses, thus already indicating that capital is an historical category. Cap­ital is not a condition of all production but only a relation of the producers to each other, given certain historical conditions. Comparing it with the many pre-capitalist modes of production, Jones finally regarded the capitalist mode of production as a transient phase in the development of humankind, a stage of development that can be followed by another in which the workers themselves will be the owners of the means of production and of the stocks necessary for labour. As he surveyed the changes in the productive forces and in the relations of production, he also recognised that the Ideological superstructure changed with them. Thus Jones already enunciated the fundamental ideas of the mater­ialist conception of history:

‘As communities change their powers of production, they necessarily change their habits too’ (Richard Jones, Text-book of Lectures on the Polit­ical Economy of Nations, Hertford, 1852, p. 48). ‘During their progress in advance, all the different classes of the community find that they are con­nected with other classes by new relations, are assuming new positions, and are surrounded by new moral and social dangers, and new conditions of social and political excellence' (loc. cit.). ‘Great political, social, moral and intellectual changes, accompany changes in the economical organiza­tion of communities, and the agencies and the means, affluent or scanty, by which the tasks of industry are carried on. These changes necessarily exercise a commanding influence over the different political and social elements to be found in the populations where they take place; that influ­ence extends to the intellectual character, to the habits, manners, morals, and happiness of nations'.^[666]

Kautsky says, quite rightly, that Karl Marx starts where Richard Jones stopped. Marx took the foundations of his theory of surplus value from the classics. His first task was to unfold what was already contained as a germ in his prede­cessors. Value was already determined by labour. Ricardo had already occasion­ally further defined labour as socially determined, saying that social labour is the common measure of goods, because all goods are products of social labour. Marx elaborated this idea by tracing concrete individual labours back to aver­age social labour as the value-creating substance. The classics regarded wages as the monetary expression of the value of labour. But if stored up labour is exchanged against actual labour, how can it happen that unequal amounts of labour are exchanged? How then is surplus value possible? Ricardo's disciples were incapable of solving this problem. James Mill relinquished the theory of value, for he knew how to determine the value of labour only by supply and demand; Bailey pointed out the problem, and McCulloch helped himself out of the difficulty with mere phrases. Marx solved the problem by substituting the value of labour power for the value of labour.

Thus the theory of surplus value has been completed. The classics had already traced profit and ground rent back to labour. The author of the pamph­let of 1821 had already grouped them together under the concept of interest. Marx regarded them as forms of surplus value. But now the most important and difficult task had to be accomplished: Marx had to show how the concrete empirical forms of profit and ground rent can be deduced from surplus value.

The tendency to the equalisation of the rates of profit was already known to Turgot. Adam Smith abruptly juxtaposed it with the law of value. Ricardo first raised the question of how the equality of profit rates of capitals, which set in motion different amounts of labour, was compatible with the law that only value-creating labour generates surplus value. But Ricardo did not for­mulate the problem in general terms; he examined only two special cases, in which he had already pointed to the deviation of prices from values. He argued that changes in wages and differences in turnover periods brought about exceptions to the law of value. James Mill then added other exceptions. The exceptions soon appeared to be the rule. Malthus pitted that difficulty against Ricardo's theory of value. Bailey was misled by it into relinquishing the concept of absolute value. Torrens tried to find a way out of it by assuming that not only direct [i.e. living] labour but also accumulated labour had value­creating power. McCulloch equated the actions of the means of production with those of human labour. By doing so, however, he completely relinquished the theory of value, which regards value as a relation between the product­ive activities of people expressed through things. The problem on which the classics foundered first found its solution in Marx. He solved it by distinguish­ing prices of production from values, and by conceiving social surplus value, determined by the difference between the value product of social labour and the value of the total labour power, as the fund that is distributed among indi­vidual capitals according to the law of the average rate of profit, which con­trols price formation. Marx considered his new independent achievement to be not the discovery of surplus value, but the proof that the phenomena of profit, which apparently contradict the law of value, can only be understood as quotas of the surplus value; and with this the problem, already formulated by the Physiocrats, was really solved for the first time: the problem of tracing all the incomes mediated by circulation back to the net product of social labour. This historical background has to be remembered in order to recognise the absurdity of the ordinary criticism of Marx. Where Marx's real contribution lies - in the distinction between prices of production and values, between profit and surplus value - his critics saw a way out of an awkward situation. And because they are unable to find the solution to the problem of surplus value in production, with marginal utility theory they went back to circulation, proclaiming the old profit upon alienation, under a new name, to be a new dis­covery.

With the deviation of production prices from values, however, new paths were also opened up for the theory of ground rent. The Physiocrats had con­ceived rent as the surplus of the crop yields beyond the food requirements of the tillers of the soil. But already Petty and Locke no longer derived rent from the land, but from labour. Ground rent now appeared as a surplus of the prices of agricultural products over their values. Developed by Anderson, the theory of ground rent was taken over by West and Malthus, who turned it into a population theory. Ricardo, in turn, related it systematically to the labour the­ory of value. Ricardo's theoretical interest in the theory of rent lay in proving that ground rent does not contradict the law of value. Since in Ricardo price and value coincide, he could only introduce ground rent as differential rent, as the surplus of the market value over the individual value. By distinguish­ing between prices of production and values, Marx could factor in the absolute rent, as the difference between value and price of production, which appears wherever agricultural products are sold at their value. The differential rents are only different magnitudes of the absolute rent.^[667] Marx's theoretical interest in absolute rent must be understood in this historical context. Nevertheless, I have the impression that this is the ephemeral part in Marx's theory. The cum­bersome presentation in Theories of Surplus-Value of the question whether the price of corn can rise over its value or fall below it - a question raised by Marx himself^[668] - no more offers a completely satisfactory answer than the shorter presentation in Capital. It seems to me that Marx relapses here into the error he had himself overcome; namely, directly linking price and value rather than pos­tulating a mediated relationship between them. If the criticism of Marx were about theoretical ideas rather than about politics, then it would be directed here, at the weakest point of the Marxian system.

Marx's theory of prices of production is based on recognition of the diversit­ies in the organic composition of capital. Marx confronts the distinction be­tween fixed and circulating capital, originating in the sphere of circulation, which the Physiocrats bequeathed to the classics, with the distinction between constant and variable capital, originating in the value-forming process itself. The development of the productive forces finds its specific economic expres­sion in the progress to a higher organic composition of capital. Thus theory passes over from the old static problem of value distribution to the problem of exploring the laws of motion of the capitalist economy. The problems of accu­mulation and the rate of profit, already posed by the older economists, now took on new shape.

Smith believed that value resolves itself completely into the revenues of workers, capitalists and landowners. He therefore equated the accumulation of capital with the employment of a growing number of productive workers, assuming that the demand for labour power grows in the same proportion as capital. But despite the rapid accumulation, development of the factory system now produced the industrial reserve army. Malthus believed he could explain this by the fact that the accumulation of capital does not proceed as quickly as the growth of population. Barton first pointed out that the demand for labour power grows not with the accumulation of capital in general, but only with the growth of circulating capital. In this way the importance of the composition of capital was already discovered, and Smith's theories (and with them Malthus's) theories were overcome. Ricardo adopted Barton's the­ory. Finally, Ramsay restricted the concept of circulating capital to wage capital, thus already discovering the correct determination of the organic composition of capital. But a misunderstanding still remained with Barton-Ricardo-Ramsay. They believed that circulating capital constitutes an ever smaller part of total capital, because the labour employed in the production of necessary food­stuffs constitutes an ever smaller proportion of total labour - as if foodstuffs, provided only that they were produced in sufficient quantities, must find their way to the workers made redundant by the machines. They saw the actual effect of changes in the organic composition of capital as the cause. This was a ret­rogression to the crudely material conception of the Physiocrats, a confusion of the special laws of capitalist production with the laws of production in gen­eral, a remnant of Malthus's view that the misery of the working class is due to the fact that production is unable to provide the growing population with foodstuffs. The same error appeared in Cherbuliez.^[669] On the other hand, the pamphlet of 1821 already pointed out that foreign trade always allows conver­sion of necessary food into luxury goods and elements of constant capital. The income of the working class does not depend on the mass of food that can be turned into variable capital, but on that mass which is actually transformed into variable capital. The error was systematically overcome by Marx's presentation of the social reproduction process. He began by rebutting Smith's mistake that value can be resolved into revenues. In that way, the equation of accumulation with growth in the employment of productive workers was repealed. Capital can be exchanged not only against revenues, but also against capital. The rev­enue of the workers does not grow with the accumulation of capital in general, but only with the accumulation of variable capital. The distribution of labour among the different productive sectors adjusts to the ratio of constant to vari­able capital and of the latter to the surplus value; the adjustment is completed when the constant capital and the accumulated part of the surplus value of the consumption goods industries are exchanged against the variable capital and the consumed part of the surplus value of the means of production industries. This adaptation can, however, only take place as a result of disruptions and crises. The problem thus finds its solution in a new Tableau Economique.^[670]

The theory of the profit rate is closely linked to this analysis. Smith had already observed that the rate of profit falls; he was glad about it and considered it a driving force of economic progress. To his followers, however, the fall in the rate of profit looked like a disaster that threatens capitalist society. Since Ricardo equated profit with surplus value, he could only explain the fall in the rate of profit as a result of the fall in the rate of surplus value; he argued that the rate of surplus value must fall because the growing difficulty in supplying food increases the value of labour power. In that way his doctrine again touches on the theory of population. John Stuart Mill laboriously tried to prove Ricardo's views. The more clearly it appeared that the rate of profit falls precisely with the development of the productive forces, the closer subsequent economists came to the correct solution. The pamphlet of 1821 and Hodgskin already derived the fall in the rate of profit from changes in the organic composition of capital, though still not universally but only in one specific case: when capital grows more quickly than the working population, so that equal amounts of living labour are confronted with growing masses of capital. For the rate of profit to remain unchanged, surplus labour had to be expanded more and more at the expense of necessary labour; as soon as that was no longer possible, the rate began to decline. Ramsay came even closer to a general solution by determining the rate of profit not only by the rate of surplus value but also by the extent of constant capital, and by deriving its fall from the growth of that part of the value of the product ‘which must be put aside to replace the fixed capital'. Marx concluded the series. The realisation, contrary to Adam Smith's opinion, that capital is exchanged not only against revenue but also against capital, explains why revenues can grow more slowly than capital, so that, with the same rate of surplus value and with the same distribution of revenues, the profit rate decreases when the constant capital grows more quickly than the variable.

Thus, the problems raised by classical economics found their solution in the system developed by Marx. The tool that Marx used in this accomplish­ment was recognition of the dichotomy between constant and variable capital, whose mathematically expressed ratio reflects the development of the pro­ductive forces in economic terms. Thus economics discovered, as contradic­tions and antagonisms developed together with the productive forces under the rule of the capitalist relations of production, that the capitalist relations abolish themselves [sich aufheben: sublate, negate and transcend themselves] and must be replaced by other relations of production. The analysis of the cap­italist mode of production turned into its criticism. By finding the solution to its problems in Marx's system, bourgeois economics ceased to be bourgeois eco­nomics and became socialist economics.