Karl Marx

by Jonathan Sperber

  Besides not taking change over time into account, Marx’s portrayal of working-class misery was also selective. He buttressed his position with accounts of the poorest and most defenseless of the lower classes in the United Kingdom. In the International Working Men’s Association, Marx had met British trade unionists, representatives of better-off workers, and had seen those workers in the rallies he had attended in Hyde Park and on the platform of meetings called by David Urquhart or the IWMA; but such workers were not included in his descriptions of the conditions of the English working class in the 1860s.

  In the concluding chapters of Volume One, Marx set his picture of working-class impoverishment into a broader panorama of the history of capitalism. It began with “primal” or “original accumulation” (both those phrases are better renderings of the German usprüngliche Akkumulation than the standard English translation, “primitive accumulation”), the appropriation of surplus value by the pre-industrial capitalists of the sixteenth through the eighteenth centuries. Before machinery increased the productive power of labor, capitalists extracted surplus value by scarcely legitimated theft: seizing the farmers’ common lands and forcing sturdy yeoman into misery as landless laborers, exploiting slaves, looting colonial subjects. With these observations, Marx integrated into his communist economic theories the criticism of British rule in India as a system of organized theft and corruption he had taken from pre-socialist British radicals and published in the New York Tribune. Following the onset of the industrial revolution, this open theft was replaced with the extraction of surplus value from the workers by means of industrial employment.

  Peering into the future, Marx reiterated the predictions he and Engels had first made twenty years earlier in the Communist Manifesto. Capital would accumulate in fewer and fewer hands, as the financial demands of the increasing organic composition of capital drove smaller firms out of business. Production would be increasingly centralized and mechanized, designed for maximum efficiency. Productivity would grow, as would the global connections of the capitalist market economy. All these developments would be features of a future socialist economic system, already developing under the aegis of capitalism. At the same time, the general law of capitalist accumulation dictated that alongside the increase in capital, there would arise

  the mass of misery, oppression, servitude, degeneration, exploitation, but also the outrage of the steadily growing united and organized working class, schooled by the mechanism of the capitalist process of production itself. The monopoly of capital becomes a fetter on the means of production that have previously blossomed with capitalism and under it. The centralization of the means of production and the societal character of labor reach a point where they become irreconcilable with their capitalist shell. It is exploded. The hour of capitalist private property strikes. The expropriators are expropriated.25

  This powerful and oft-cited passage was not the end of Volume One of Capital. The book continued for a few more pages with another aspect of the capitalist future: an account of how the growing population of England’s settler colonies was gradually transforming them from islands of cheap land and working-class prosperity into centers of capitalist misery and exploitation like their mother country. While adding on this very final segment was rather an anticlimax after the powerful evocation of the end of capitalism, the discussion of colonization was both part of Marx’s understanding of capitalism as a global system and also of his consistent use of the development of capitalism in Great Britain as a global model. Following the stages theory of history he had outlined in On the Critique of Political Economy, he perceived the British experience as the initial example of a universal process of capitalist development that other countries would have to emulate. At the very start of the book, in the preface to the first edition of Volume One, Marx cautioned his German readers about his use of English examples: “Should the German reader, shrug his shoulders, like a Pharisee, at the conditions of the English industrial and agricultural workers, or optimistically calm himself by thinking, that in Germany things are by far not yet so bad, then I must call out to him: De te fabula narratur!”26 Breaking into Latin to emphasize, “It is your story being told!” Marx was asserting that the English examples employed in his narrative of capitalist expansion, exploitation, oppression, and ultimate self-destruction were no peculiarity of the island kingdom but universal directions of human history.

  THE DEVIL, AS THE saying goes, is in the details, and the broad picture of the origins, nature, and destiny of a global capitalist economy in Volume One of Capital left a number of crucial issues for future publications. In a letter to Engels in April 1868, outlining his plans for the development of his work, Marx emphasized the “tendency of the rate of profit to fall in the progress of society,” the appearance of surplus value to capitalists as profit, and the “transformation of surplus profit into ground rent.”27 Of these three points, the falling rate of profit was the key, helping to explain the other two, and also demonstrating Marx’s relationship with the classical political economists of the early nineteenth century.

  Elucidating the long-term direction of the rate of profit was a constant theoretical and empirical concern for Marx, from the first draft of his economics treatise until the eve of his death. In the Grundrisse, he described the law of the tendency of the rate of profit to fall as “in every respect the most important law of modern political economy . . . in spite of its simplicity, it has, up to now, never been intellectually grasped. . . .” The point was made in a different way in Volume Three of Capital, where Marx described the tendency of the rate of profit to fall as “an expression specific to the capitalist mode for production for the increasing development of the societal productive power of labor.”28 Since increasing labor productivity was central to his explanation of the extraction of relative surplus value in Volume One, and that extraction to his theory of the ultimate self-destruction of capitalism, his analysis of the falling rate of profit stood at the very heart of Marx’s understanding of the life and death of the capitalist mode of production.

  In both the Grundrisse and Capital, Marx did not claim to have invented the law of the tendency of the rate of profit to fall. Quite the opposite: he felt that his analysis explained correctly, for the first time, a characteristic observation of the political economy of his day. It was Adam Smith who had first asserted this tendency. David Ricardo had reformulated it in a different and more rigorous form, and it was once again endorsed in John Stuart Mill’s standard work. For the latter two, the tendency had ended in a “stationary state,” where the economy stopped growing, because the rate of profit had fallen so low that new investments were no longer profitable—a final ending that was Ricardo’s nightmare, but an almost utopian prospect to Mill.29 Both men perceived the falling rate of profit as culminating in some form of the end of capitalism. Marx thoroughly concurred, although his version of capitalism’s end, a workers’ uprising leading to a communist regime, was hardly one that the pro-capitalist political economists would have endorsed.

  In his letter to Engels laying out the plans for work on the economics treatise after Volume One, Marx explained that the falling rate of profit “results from the idea already developed in Book One of the change in the composition of capital with the development of the social force of production. This is one of the greatest triumphs over . . . all previous economics.” Marx’s basic analysis, developed in Volume Three, was that competition among capitalists led them to become more productive by introducing ever more machinery, so that the value of the means of production—machinery, structures, fuel, raw materials—steadily rose compared to the value of labor; or, as Marx said, the ratio of constant to variable capital, the organic composition of capital, increased. Since according to the labor theory of value only labor could increase value or create surplus value, the price of the means of production just being passed on in the cost of the goods produced, then with the growing organic composition of capital, the rate of profit, the ratio of
surplus value to capital invested, had to fall.30

  Marx developed this initial insight in a wealth of elaborations, qualifications, and formulations. Quite a few of these formulations were explicitly algebraic, some even reflecting his study of calculus. There is one formula, not actually used by Marx—it did appear in his unpublished manuscripts, although incorrectly, due to a mistake in calculations—but much simpler than his, which shows the point of Marx’s assertions and also reveals the problems with his assumption. First proposed by Samuel Moore, the English translator of Volume One of Capital, whom Engels consulted in editing the more mathematical sections of Marx’s manuscripts, the formula has since been used frequently by commentators on Marx’s economics.31 The rate of profit is the return on investment, or, in Marx’s language, the ratio of the surplus value (s) to the sum of the constant capital, the machines, structures, raw materials, etc. (c), and wages, or variable capital (v). This makes the rate of profit . Moore proposed to divide numerator and denominator by v, giving . The numerator of this new fraction is the rate of surplus value, and the denominator 1 plus the organic composition of capital.

  What Marx was saying is that if the organic composition of capital, increased as more and more expensive machinery was used in production, costing steadily more than the workers’ wages, the denominator increased, so that the entire fraction, the rate of profit, would tend toward zero. This is true, but only on the assumption that the numerator, the rate of surplus value, stays the same, or increases at a slower rate than does. If the increase in the organic composition of capital meant that capitalists were simply using more machinery, more raw materials, more fuel, and building more factory buildings, this assumption would be correct; but not if this new machinery were more productive than the machines or the unpowered artisanal labor it replaced. Increased productivity would mean that the workers could produce the goods whose sale was needed to pay their wages in a shorter part of the working day, leaving a greater proportion of the working day for the production of surplus value for the capitalists, thus increasing the rate of surplus value. This increasing productivity of labor across the entire capitalist economy was a central feature of Marx’s analysis.

  Even through his clumsier and more complicated formulations, Marx was aware of this problem, and he sought to resolve it: in the manuscripts making up Volume Three of Capital; in other, mostly algebraic manuscript studies of the falling rate of profit; in his correspondence with Engels; and, implicitly, in his discussion of the relative rate of surplus value in Volume One of Capital. He returned to the problem over and over again, writing down equations for the last time in 1882, a year before his death, and offering many explanations and solutions, none of which appeared to him entirely satisfactory.

  One possibility was to assume that the rate of surplus value remained constant over time and across different economic sectors with varying ratios of constant to variable capital. Marx sometimes made that assumption, but he knew it was not accurate, for when he compared economically more advanced countries, such as the United Kingdom, with economically less advanced ones, like Austria, he took it for granted that the rate of surplus value would be higher in the former. A related possibility was that, considering the entire economy, the rate of surplus value might increase over time, but more slowly than the organic composition of capital. This, too, was an assumption made without any supporting reasoning or evidence.32

  Marx found such solutions ultimately unsatisfying, as can be seen from his systematic consideration, in Volume Three, and in unpublished manuscripts, of the differing consequences for the rate of profit from different tendencies in the development of the rate of surplus value and the organic composition of capital. He posited other explanations. One was that the initial introduction of more productive machinery would temporarily raise the rate of surplus value, at least for the capitalist who was the first to employ these methods. As these productive innovations became standard, competition would drive down the prices of the goods produced, so that no additional profit would remain and the rate of surplus value would revert to its previous level. Another argument, seemingly taken from David Ricardo, was that more efficient and productive methods only increased the rate of surplus value if they were employed in the production of goods necessary for working-class consumption. It is clear how this argument works: if mass consumer goods were cheaper, then workers could be paid less, yet still maintain the same standard of living. They could then devote a smaller proportion of the working day to producing goods whose sale would pay their wages, and a larger proportion to goods whose sale provided capitalists with surplus value. One does have to wonder about the limitation to the production of consumer goods. To take an example of a major technological change underway as Marx was writing his economics treatise, a Bessemer converter could transform 3–5 tons of pig iron into steel in fifteen or twenty minutes, a process that took twenty-four hours in a puddling furnace. Would not such an enormous increase in the labor productivity of the producers’ goods sector of the economy drive up the rate of surplus value?33

  In Volume Three, Marx discussed countervailing tendencies, noting that, empirically, the rate of profit had not fallen over the previous three decades. He observed that the period had seen the introduction of high-profit luxury goods industries, and that there had been economies in the use of capital: more efficient steam engines, using less fuel, for instance. Trade with colonies and underdeveloped countries was another way to keep the rate of profit high; but Marx, unlike his successors, did not see such commerce as the life jacket of capitalism. Competition, he asserted, following a line of argument developed by Ricardo, would bring down initially high rates of profit. More generally, Marx saw colonialism as belonging to an earlier phase of capitalism, the pre-1800 era of primal accumulation, when capitalists extracted surplus value by force and violence; it was less relevant to an industrial age, when surplus value could be extracted in more peaceful fashion.34

  The sheer variety of explanations demonstrated Marx’s difficulty with the concept of the falling rate of profit. Most of his final views on the topic are contained in Volume One of Capital, written after Volumes Two and Three, even though Volume One did not explicitly address the issue. One explanation Marx gave in Volume One—especially the French and second German editions of the 1870s—was to treat improvements in productivity as the result of scientific and technological discoveries, having no necessary connection to investments. This analysis cut the link between the rising rates of labor productivity and the growing organic composition of capital. Another was to consider whether increases in productivity could raise the rate of surplus value, the rate of profit, and workers’ wages simultaneously. Such a development, Marx concluded, would only be possible in a communist economy, never in a capitalist one—a conclusion that could only be reached if one assumed that under capitalism the rate of profit had to fall in the long term.35

  There was one final and quite different consideration of the matter in a late manuscript fragment, written after 1875. In this very brief consideration, Marx suggested that capitalists would be reluctant to introduce more productive machinery and more efficient forms of production, because these would make their existing facilities obsolete and reduce their rate of profit. It would then fall to socialism to take up the former capitalist task of increasing the productivity of labor. This is an interesting idea—and one could certainly induce many examples of capitalists reluctant to innovate for precisely the reason Marx gave—but it ran contrary to all of Marx’s previous thoughts on the topic.36

  In the end, there was no proof of the tendency of the rate of profit to fall, a noticeable gap in Marx’s analysis of the future of a capitalist economy. Although his vision of a capitalist world where wealth grew at one pole and misery at another did not require a falling rate of profit, the dynamics unleashed by that trend were needed in his system to make the bipolar result, with its revolutionary implications, an ineluctable possibility, with no room for mitigation. I
n postulating a falling rate of profit, Marx was not developing a new idea, but repeating what had been a truism of political economy since the publication of Smith’s Wealth of Nations, nine decades before the appearance of Volume One of Capital. This idea had emerged and gained widespread assent in the late eighteenth- and early nineteenth-century British scene of rapid population growth pressing on limited resources, of halting and limited increases in labor productivity, and of a disruptive introduction of early industrial technology—a gloomy environment, very different from the more prosperous decades following the mid-nineteenth century. Marx’s vision of capitalism’s future was this transcribed version of capitalism’s past, a backward look shared by many political economists of his day.

  CLASSICAL POLITICAL ECONOMY FACED the problem of reconciling the labor theory of value with market prices. Marx did not believe that all economically relevant variables were determined by socially necessary labor time; he thought interest rates, for instance, arose from the intersection of supply and demand. He did assert that the price of commodities, and the wages of labor (the price of the commodity labor power), resulted from the socially necessary labor time required for their production and reproduction; the setting of prices by the intersection of supply and demand in the market was a semblance, behind which stood the real determinations of value.37 Marx had to expose this semblance, explain how the inner logic of value led to its articulation as price.

  This “transformation problem,” the transformation of value into price, is one faced by all economists—in the twentieth and twenty-first centuries very much a minority—who reject the idea that price and value are identical. The primary representative of this viewpoint in recent decades has been the neo-Ricardian school of the Italian economist Piero Sraffa, whose followers have devised elaborate mathematical formulations of this transformation problem.38 Marx’s own ideas were much simpler; he found them considerably easier to explain than he did the tendency of the rate of profit to fall.