Karl Marx

by Jonathan Sperber

  Marx first articulated his solution to the transformation problem in a letter to Engels in 1862, and he reiterated it in Volume Three of Capital. The solution began by imagining the sum of all production in an entire capitalist economy, its constant and variable capital, and its rate of surplus value. This would produce an overall rate of profit, which, Marx argued, would, via competition between capitalists and the movement of capital from one business to another, eventually become general. Because the rate of profit was set by the organic composition of capital and the rate of surplus value in the entire economy, in some specific economic branches, whose organic composition differed from the overall average (Marx assumed here a constant rate of surplus value across the economy), goods might sell at a market price above or below their value. This price, the cost of capital, plus the average rate of profit, Marx called the “price of production,” and he identified it with Adam Smith’s “natural price” of a commodity, David Ricardo’s “price of production,” and the eighteenth-century French economists, the Physiocrats’, prix nécessaire. All these concepts referred to the respective economists’ reconciliation of the difference between value determined by labor and price determined by the market. As was the case with the tendency of the rate of profit to fall, Marx placed himself squarely in the tradition of political economy, arguing that his work provided the correct explanation for observations made and conclusions long reached but not properly understood.39

  As the followers of Sraffa have pointed out, Marx’s solution to the transformation problem is formally incorrect.40 But besides their criticism, which involved mathematical techniques not existing in Marx’s day and well beyond his own knowledge of mathematics, Marx’s solution seems to be very strongly at odds with his observations about the central features of an industrial and capitalist economy. Marx explained that the rate of profit was equalized across different economic sectors by capital flowing from less profitable to more profitable ones. One would expect capitalists to seek out the greatest profit, but what made one sector more profitable than another? In his analysis, Marx assumed that the rate of surplus value was the same across all economic sectors. In other words, a given quantity of labor produced a certain amount of profit. If that were the case, then the rate of profit, which was the ratio of the surplus value to the sum of the constant and the variable capital, was highest where the constant capital was smallest. In his letter to Engels outlining his solution to the transformation problem, Marx compared a textile mill—by the standards of the 1860s, a highly mechanized enterprise—with a large tailoring workshop, a craft operation without machinery or steam power, and asserted that the latter was the more profitable business. “Were the value of c = 0,” Marx wrote in Volume Three, “the rate of profit would stand at its maximum.”41

  The explicit statement that the least mechanized firms were the most profitable sounds empirically rather dubious, whether considering capitalism in the nineteenth century or capitalism today. Marx’s solution to the transformation problem required capitalists to equalize the rate of profit by transferring funds from less profitable to more profitable sectors of the economy, but that would mean from more mechanized to less mechanized ones. It is difficult to see how such a movement of capital could be reconciled with Marx’s repeated, analytically crucial observations about the growing social productivity of labor and the increasing organic composition of capital. A possible solution would have been to relax the assumption that the rate of surplus value was the same in all branches of the economy. If the more mechanized sectors had a higher rate of surplus value, then they could have been more profitable than the less mechanized ones, and capital would flow their way. But such an assumption would have undermined Marx’s central assertion of a falling rate of profit caused by an increasing organic composition of capital. Marx’s analysis of the relationship between value and price, an investigation of a central problem of the political economy of his day, ended up raising still more questions about his entire vision of the future of capitalism.

  KARL MARX AND AGRICULTURE together in the same sentence sounds rather odd. Marx’s capitalism was of an urban and industrial nature, filled with steam engines, railroads, and textile mills. His cities were dense and burgeoning, teeming with working-class slums. His vision of a capitalist future was more of the same, only more extreme. Sarcastic comments about the “idiocy of rural life” in the Communist Manifesto, or about French peasants being like a bunch of potatoes in a sack in The Eighteenth Brumaire, do not suggest any sentimental feelings about the countryside or regrets about the dissolution of rural folkways under the impact of a capitalist market economy. If Marx cared little for rural life, the policies of twentieth-century communist governments, claiming to follow his doctrines, have magnified this impression. These governments displayed strong, at times downright genocidal hostility toward farmers, and their agricultural policies generally ended in disaster.

  Such a view of Marx as hostile or at best indifferent to the countryside and its denizens ignores the development of his thought. Even though he lived in the world’s largest city after 1849, he became steadily more convinced of the significance of agriculture in a capitalist economy and of the importance of social conflict in the countryside for his revolutionary plans. In part, he gained these views through an intensive study of the works of eighteenth- and early nineteenth-century political economists—the French Physiocrats plus Ricardo and Malthus, in particular—for whom the economics of agriculture were crucial to their understanding of the functioning and the patterns of development of the entire economy. Marx’s journalism and political engagement also influenced his views. He reported frequently for the New York Tribune on agricultural prospects in England and the state of the grain trade. His obsession with Lord Palmerston led to a study of the power of the great Whig landowners. Both through his association with the IWMA and the campaigns of its English affiliates for a more democratic franchise in Great Britain, and via his personal connections to Irish nationalism, Marx became aware of the nature of landlord rule in Ireland, and its ramifications for political and social structures in Britain, the center of global capitalism.

  As a result of all these interests, a considerable portion of Capital was devoted to disputed agricultural questions in the political economy of Marx’s day, especially the nature of ground rent, as well as the extent of crop yields and the prospects for increasing them. Marx’s investigations into these topics and his conclusions about them never made it into the portions of Capital published in his lifetime, in part because he became convinced of the importance of agriculture-related topics and continued his studies of these until the very end of his life. But a consideration of the material on agriculture, which was published as part of Volume Three, illuminates the importance of Marx’s predecessors in shaping his own views, and demonstrates, in an unexpected context, the problems emerging from Marx’s ideas about the falling rate of profit.

  Marx relied on conditions in Great Britain not only for his analysis of industrial capitalism but of agricultural capitalism as well. He pointed to a small number of aristocratic or gentry landowners, renting out their land to capitalist tenant farmers, who employed large numbers of propertyless agricultural laborers to cultivate it. This three-class model—landlord, capitalist farmer, agricultural laborer—made a considerable impression on Marx. In the concluding section of Capital, he talked of the “wage laborers, capitalists and landowners, [who] make up the three great classes of modern society based on the capitalist mode of production.”42 This was quite different from the passage in the Communist Manifesto, written some fifteen years earlier, when Marx and Engels had explained that capitalist society was being divided into two great classes, the bourgeoisie and the proletariat. The addition of a class of landowners is compelling evidence of the growing importance of agriculture and rural society on Marx’s thought.

  Marx was certainly aware that there were many other forms of agricultural production, beyond the British model. A brief sect
ion of Capital dealt with the small peasant agriculture of France and Marx’s native Rhineland. Another variant existed in east-central and Eastern Europe, especially the Russian Empire following the emancipation of the serfs in 1861: a mix of noble landlords, some directing the cultivation of their own estates, others renting them out to tenants, small peasants, and landless laborers. In European settler societies in Canada, Australia, and the United States, the landowner and the capitalist farmer were the same person. For much of the 1870s, Marx studied these two forms of agricultural production intensively, but never reached the point of writing up an analysis of them.43

  When political economists investigated farm production in early nineteenth-century Great Britain, they assumed that the good-quality land was already being used at its maximum productivity for agriculture. They then focused on the economic effects of a growing population. The best-known prognosis, one cited ever since, came from Thomas Malthus. Since the best land was already used at its maximum productivity, the only way to increase agricultural output was to cultivate inferior land, whose crop yield would be less than that from the land currently in production, so that food supply would increase less than population did. If that process continued unchecked, the ultimate result would be large-scale starvation.

  David Ricardo, Malthus’s chief opponent, nonetheless shared a good deal of his enemy’s analysis. In Ricardo’s economic model, the combination of population growth and the cultivation of inferior land would not lead to starvation, but to rising food prices. Capitalist manufacturers would have to pay their workers more, so the latter had enough to eat, which would tend to reduce the capitalists’ profits. (Like Marx’s capitalists, who were unable to raise the rate of surplus value, Ricardo’s capitalists were unable to introduce more efficient forms of production so that they could pay higher wages and still make larger profits.) Ultimately, this situation would reduce the rate of profit to zero, and lead to the “stationary state,” where capitalists did not invest and the economy ceased to grow. The increase in food prices would, in Ricardo’s analysis, at first accrue to farmers. Since farmers were tenants, they would bid more for the chance to produce food on the landlords’ properties, so that their growing profits would flow into the hands of the landlords as higher rents. The only way out of this gloomy situation, at least temporarily, was to import food from other countries, which is why Ricardo strongly favored the repeal of the Corn Laws that imposed a tariff on imported grain. After his death, his ideas made him the hero of the liberals, radicals, and capitalists of the Anti–Corn Law League, who fought successfully for this repeal.44

  Marx greatly admired Ricardo, calling him “the greatest economist of the nineteenth century” and the “economist of the modern age.” He was rather less positive about Ricardo’s rival. Malthus’s profound pessimism about the possibility of human progress in any kind of society, his extreme political conservatism, his endorsement of the aristocracy, and his religious vocation (Malthus was, by profession, an Anglican parson) pushed almost every single one of Marx’s many buttons. In a lengthy and particularly venomous footnote to Volume One of Capital, Marx denounced Malthus’s famous essay on population as a “schoolboy’s superficial plagiarism, declaimed in the style of a damned, rotten priest, copied from De Foe, Sir James Steuart, Townsend, Franklin, Wallace, etc. containing not a single sentence thought up by him.” Malthus’s mediocre and mendacious work, Marx went on, “was joyfully greeted by the English oligarchy,” seeking a counterrevolutionary response to the progressive doctrines of Condorcet in the age of the French Revolution. Marx then denounced the many Anglican parsons who had taken up the pastime of writing on political economy and compared their work unfavorably to the economic writings of anti-clerical, Enlightened philosophers such as Adam Smith.45

  Even if Malthus had stolen all his ideas, they still needed refutation, and Marx was quick to provide it. Overpopulation, he asserted, was not caused by the lower classes breeding faster than the food supply could be increased; rather, it was a result of the growing mechanization of production, which offered fewer employment opportunities for the workers. It was useless to improve the working-class condition by the “Malthusian” practice of birth control. (Malthus, like most conservative Christians, then and now, regarded contraception as deeply sinful, but freethinking political economists, such as John Stuart Mill, advocated it.) Capitalists would simply respond to a decline in the number of workers by expanding mechanization rather than increasing wages. All such “Malthusian” ideas involved, according to Marx, falsely interpreting the social and economic consequences of the accumulation of capital as though they were laws of nature.46

  For all his personal attacks on Malthus and forthright rejection of his views, Marx remained haunted by the problem of providing adequate food for a growing population. Without a fundamental reform of agriculture, as he observed to Engels in 1851, “Father Malthus will prove to be right.” The solution lay in the application of science and technology to agriculture. Just a few months before he shared his doubts about Malthus with Engels, Marx read an article in The Economist about putting wires into the ground in a rectangular pattern around a field, to pick up electricity from the atmosphere and improve the soil’s fertility. Intrigued by this possibility, he wrote to Engels and to Roland Daniels, his unofficial science adviser, about it. In 1878–79 Marx was already suffering from the tuberculosis that would kill him; yet he spent a substantial proportion of his fast-declining energies taking extensive notes on agricultural chemistry, a long-term interest of his. For anybody steeped in the political economy of early nineteenth-century England it was not so simple to exorcise the Malthusian specter.47

  Intimately connected to the question of the adequacy of the food supply was the nature of ground rent. In this area of agricultural economics, it was Ricardo rather than Malthus who had Marx’s attention. Ricardo had devised the theory of differential rent: the idea that rent on land was equal to the difference in yield between the most fertile and the least fertile piece of land. Farmers received the same price for the crops produced on any piece of land, so the most fertile land would be the most desirable, and farmers would bid up the rent they were willing to pay landlords for the right to work that land, until the prospective rent equaled the difference between the yield on that land and that on the worst land that could produce a crop. Opposing Ricardo’s theories were the adherents of absolute rent: the proposition that the rent on a piece of land was equal to the return on the capital invested in it.

  Marx’s antipathy toward private ownership of land was strong, more pronounced than his dislike of other aspects of capitalist private property. In Volume Three of Capital, he noted:

  From the standpoint of a higher economic and social formation the private property of particular individuals in part of the globe will appear as ridiculous as the private property of one person in another person. An entire society, a nation, even all simultaneously existing societies together, are not owners of the earth. They are just its possessors, its usufructors and, as good family fathers, have to pass it on to following generations in an improved condition.48

  Other capitalists, if taking surplus value from the proletariat, were at least directing an increase in society’s production, while landlords were simply extracting surplus value from capitalists without doing anything for it at all: “The capitalist is still an independent functionary in the development of surplus value and surplus product. The landowner, without any activity of his own, only has to divert into his own pocket a growing proportion of surplus value and surplus product.”49

  Landlords, in Marx’s view, were monopolists and parasites; compared to them, capitalists were relatively admirable creatures. In his discussion of the relationship between English landlords and their capitalist tenant farmers, Marx described how tenants paid their landlords “tribute,” how landlords “blackmailed” the rent out of the tenants and “swindled” them—one of the very few passages in Capital showing much sympathy for capitalists
. (Admittedly, Marx went on to write that the tenant farmers made up their losses in rent by depressing the wages of agricultural laborers below the subsistence minimum.) What made the situation worse was that the landlords’ position was steadily improving. A falling rate of profit, and with it falling rates of interest, consistently raised the price of land.50

  In these respects, Marx’s attitude toward landlords was similar to Ricardo’s, definitely no friend of aristocratic and gentry landowners. Some of Ricardo’s more radical but still quite pro-capitalist followers even advocated the nationalization of land. Marx accepted Ricardo’s ideas about differential rent, and discussed them in some detail. He argued that Ricardo’s version was not sweeping enough, depending as it did on bringing into cultivation marginal land; instead, he argued, any difference in the fertility of land would be enough to create a differential rent.51

  If he endorsed a version of Ricardo’s theory of differential rent, Marx also accepted the ideas of Ricardo’s opponents about the existence of absolute rent. Yet Ricardo’s influence extended to the endorsement of his antagonists’ theories, because Marx’s theory of absolute rent emerged from his solution of the transformation problem, which involved the differential rate of profit in different branches of the capitalist economy. An average rate of profit, according to Marx, developed because capital flowed from the less profitable to the more profitable branches of the economy, and Marx generally identified the more profitable branches with a lower organic composition of capital.