Compared to industry, agriculture was less mechanized, and more profitable, so that capital would flow into it. Ricardo’s landlords, in his theory of differential rent, siphoned off the difference in productivity between the most and least productive land. In a very similar way, Marx’s landlords, in his theory of absolute rent, siphoned off the extra profits, the difference between the rate of profit in agriculture and the average rate of profit in all capitalist enterprises. Such a state of affairs would continue until the organic composition of capital in agriculture was the same as the organic composition of capital averaged across all economic sectors. At that point, capital would no longer flow to agriculture, since it was no more profitable than any other economic sector. Absolute rent would cease to exist, although differential rent, reflecting the difference between lands of different fertility, would continue.52
This eventual end to absolute rent contradicted an assertion Marx made, following Ricardo, that rents would increase over time and landlords would soak up an ever-increasing proportion of total surplus value. How could this contradiction be resolved? Marx’s answer was the role of the natural fertility of the soil: “the increase of social productive power in agriculture only compensates the decline in the power of nature, or does not even compensate it . . . so that in spite of technological development the product does not become cheaper; instead it is prevented from becoming ever more expensive.”53 This was a fundamentally Malthusian argument, that the best land was already being cultivated, and additional cultivation or improved methods could not increase agricultural output enough to make for the increasing demand of a growing population. Marx combined his analysis of agriculture in a capitalist economy with two of his key assertions about the development of capitalism: the equalization of the rate of profit across an entire economy, needed to resolve the transformation problem, and the increasing organic composition of capital. The upshot was a contradictory picture that could only be resolved by borrowing ideas from an economist whose person and theories Marx despised.
THE EXTENDED DISCUSSION OF the economics of farming in Capital and the increasing significance Marx gave to agriculture and rural society point to a backward-looking economics, a treatise written in the 1860s, whose central interests and approaches stemmed from circumstances in the first decades of the nineteenth century. Did Marx, the secular prophet, have nothing to say about future developments of capitalism? There were brief passages in Capital, primarily in Volume Three, where he took up features of economic life that would rise to considerable importance in the twentieth century and beyond. As is almost always the case with Marx’s economic writings, his observations about these features were perceptive and sharply written, but not entirely prophetic.
One such area was corporations, a form of economic organization during the 1860s found primarily among railroads and public utilities. (Engels, in editing Marx’s writing on corporations for Volume Three, added a note on the enormous expansion of this form of business in the 1880s and 1890s.) Already critical in his 1850s journalism on the Crédit Mobilier, Marx continued this assessment in Capital, asserting that such a bank could only exist in France, a country where “neither the credit system nor big industry has developed to its modern height.” In more modern countries, such as Great Britain or the United States, it would have been impossible. Far from seeing financial corporations as the capitalist avant-garde, Marx perceived them as marks of economic backwardness.54
Marx understood that corporations implied scattered stock ownership, payment of dividends (which he regarded as further evidence of the declining rate of profit), and possibilities for stock speculation and stock swindling. He was also aware of what would later be called the separation of ownership from control, where salaried corporate managers directed firms whose owners were individual stockholders with little influence on business decisions. In his discussion of this separation, Marx considered corporations alongside workers’ production cooperatives, both of which he perceived as evidence of the imminence of socialism. In corporations, capital was no longer the possession of individuals, but “social capital, capital of directly associated individuals. . . .” Corporations were the “abolition of capital as private property within the limits of the capitalist mode of production itself.” Far from being a new stage of capitalism, corporations in Marx’s view were evidence of capitalism’s end—an idea first devised by French socialists of the early nineteenth century, once again a sign of the backward-looking nature of Marx’s economic views.55
Another feature of twentieth- and twenty-first-century capitalism has been the rise of the service sector in the economy. Marx was certainly aware of the sale of services, and he included them in the German expression Ware—yet another reason why “commodities” is a poor translation. If hardly at contemporary levels, services were still a significant part of the nineteenth-century economy. Marx’s comment about workers in the service sector was: “From the whore to the Pope, there is a mass of such scum.” In a more positive vein, he also included doctors and teachers in that group. Such labor, he asserted, was useful (sometimes, anyway), and those engaged in it were producing, but they were not productive in terms of his analysis of capitalism, for their labor did not generate surplus value. In other words, Marx regarded service workers as mostly self-employed, and transactions with them as examples of the simple exchange of commodities for money. He also considered commercial employees, such as clerks or traveling salesmen. He saw their work as part of the division of labor among capitalists, including manufacturers, wholesalers, retailers, and financiers: all shared in the surplus value workers produced. The common twentieth- and twenty-first-century situation in which capitalists employ workers to produce services rather than goods was outside Marx’s intellectual universe.56
BASIC CONCEPTS OF MARX’S economics were as linked to early nineteenth-century economists as they were to early nineteenth-century economic circumstances. Marx himself felt that post-Ricardo economic theories were, with very few exceptions, a production of mediocre epigones. But the land of Smith, Malthus, Ricardo, James and John Stuart Mill had nothing to say about Marx’s continuation of and challenge to their economic theories. The language barrier was impenetrable: the only English-language notice of Capital to appear in Marx’s lifetime was one paragraph as part of a review on twenty-two different German-language publications. The anonymous reviewer knew little about political economy and seemed a good deal more interested in a scholarly tome on Romanian poetry.57 Marx’s economic treatises had a greater intellectual impact in central Europe, where readers spoke the language in which he wrote, but most of them rejected the intellectual world of classical political economy that formed the basis of Marx’s ideas.
Marx himself was deeply frustrated by the lack of response to his first work, On the Critique of Political Economy. He veered between accusing pro-capitalist economists of engaging in a conspiracy of silence to suppress his ideas and condemning his publisher for inept marketing—or, perhaps, for being in on the conspiracy. Marx did succeed in offending his Berlin publisher with his accusations, so that he needed to seek out a new publisher in Hamburg when Capital was ready for the press. Although biographers have followed Marx’s belief in the lack of interest in his initial work of political economy, that opinion is not entirely correct. The pamphlet sold out its entire printing within a year of publication. It did receive a number of short reviews, by some well-known German economists of the time, generally in specialized business and literary journals, to which Marx in London had no access.
One of these reviews, in Bremen, by the prominent pro–free trade economist and journalist Viktor Böhmert, praised the pamphlet’s investigation of monetary theories, but criticized its Hegelian “handling of economic occurrences as moments of a dialectical process . . . a form of expression which . . . exceeds the boundaries of that which one has, by God, alas, allowed authors operating with Hegelian phraseology to make of our good German language.” Böhmert wondered why Marx could not
use the “opposing genuinely empirical [method] of all the natural sciences.” It was an evaluation that emphasized the growing position of positivism in post-1850 German and European thought.58
There were no reviews of Marx’s book in the German daily newspapers, the major reason he became convinced of a conspiracy of silence against him. Determined not to allow this to happen again, Marx and Engels arranged to have Engels publish anonymous reviews of Capital in a wide variety of German dailies. Since those dailies would not tolerate an openly pro-communist review, they discussed what sort of political personas Engels should adopt for the reviews. The whole point of the exercise was to spur a public debate in central Europe about Marx’s work.
For all his efforts to get such a debate going, Marx was once again frustrated by the silence of the leading newspapers. By 1867, a German labor movement had come into existence, which greeted the work of a pro-labor and socialist economist with enormous enthusiasm. Johann Baptist von Schweitzer, for all his personal and political differences with Marx, ran a nine-part article series in the Social Democrat, providing a detailed account of Capital’s contents, and heavily praising its point of view. One of the leading social democrats, Johann Most—later to become an anarchist and flee for the United States—wrote a popular summary of Marx’s work under the title Capital and Labor, in 1874. Marx, although he inevitably had criticisms, was impressed with the book; he and Engels edited and revised it for a second edition, published in the Saxon city of Chemnitz in 1876.59
German economists did review Capital, often offering impassioned defenses of private property against Marx’s subversive doctrines. But, gradually, another view emerged, at first just via word of mouth, that economists and others with related occupations, such as senior civil servants and statisticians, were sympathetic to Marx’s ideas. Ludwig Kugelmann reported that a Berlin academic had been so impressed by Capital that he wanted to nominate Marx for a professorship of political economy at a German university.
With the passage of time, more favorable comments began to appear in print. This attitude was connected with the rise in central Europe of a group of academics critical of the doctrines of classical political economy. Known as the “Historical School,” these economists denounced the abstract theorizing of Smith, Ricardo, and the Mills; they wanted an empirical examination of labor and business conditions, a discussion of the economic effects of institutions, and an analysis of the historically specific circumstances of the development of capitalism in different countries and regions. Instead of leaving the economy to the workings of the market, they advocated government intervention, via wages and hours legislation, health and safety inspections, and, more controversially, the creation of a social insurance system, the revival of the guilds, and the imposition of protective tariffs. From the advocacy of these measures, they came to be known in the 1870s as Kathedersozialisten, or “chaired professor socialists”—a distinct exaggeration, since a large majority of them were adherents of the liberal and conservative parties. A few, mostly younger men, above all the economist and sociologist Werner Sombart (later to become famous for posing the question, “Why is there no socialism in the United States?”), were willing to flirt, briefly, with supporting the socialist labor movement.60
This reconciliation between Marx’s ideas and those of German economists was, essentially, a misunderstanding. Far from rejecting the abstract economic reasoning of Ricardo, Marx strongly endorsed it and devised his own, Hegelianized version of it. More insightful members of the Historical School recognized this feature early on. One of the first scholarly reviews of Capital, written in 1869 by Hermann Roesler, a professor at the University of Rostock, praised Marx’s historical investigations of the development of capitalism. It also denounced his economic abstractions, noting that Marx’s description of labor power was “exactly as Smithianism is accustomed to representing it,” and that his labor theory of value was devised “with Ricardo,” as “Smith, J. St. Mill,” and others of that school had propounded it.61
Marx had nothing good to say about Historical School’s arsenal of state-sponsored economic remedies, in view of his intense suspicion of any measures taken by an authoritarian Prussian and German government. Even before he became a communist, Marx had been pro–free trade, and he continued to hold this position as a critic of capitalism. If there were to be any interference in the workings of the market, which was leading to the collapse of capitalism, then it would have to come from trade unions and the politically organized labor movement, not from economics professors and German state officials.62
Members of the Historical School were not the only later nineteenth-century economists to reject the ideas of classical political economy. More widespread, and more successful in establishing a European and worldwide following, were the marginal utility theorists, who found the problem with classical political economy not in its theoretical abstractions, but in the wrong theoretical abstractions. These economists, whose ideas form the basis of contemporary mainstream economics, rejected the labor theory of value and asserted that the value of a good or service was determined by consumers’ subjective appraisal of the usefulness of purchasing an additional one of these goods or services as against the purchase of any other good or service. This viewpoint brought together use value and exchange value, which Marx had so carefully separated. It identified value completely with market price, and perceived the intersection of supply and demand as the determinant of value, rather than labor time as Marx, following the classical political economists, asserted.
Marginal utility theory was just developing in the 1870s. According to the Russian academic Maxim Kovalevsky, then a frequent visitor in the Marx household, Marx was resuming his study of calculus to respond to the ideas of an English economist, William Stanley Jevons, one of the first marginal utility theorists, who deployed this advanced mathematics. Marx never seems to have put his considerations of this new version of economics on paper, but by the time all three volumes of Capital had appeared, it had increasingly become the dominant form of economic analysis. In Germany itself, marginal utility theory could make little headway against the Historical School; instead, it was Austria that became a center of marginal utility analysis in the German-speaking world and on the Continent more generally. Eugen von Böhm-Bawerk, one of the leading Austrian economists, wrote a celebrated critique of Marx’s ideas in 1895, following the publication of Volume Three of Capital. The point at which Böhm-Bawerk struck at Marx was his analysis of the transformation problem, the way that commodities, whose value was derived from the socially necessary labor time needed for their production and reproduction, came to be sold at market prices. Böhm-Bawerk pointed out that in Marx’s work this transformation occurred via the establishment of an average rate of profit across different industries, by means of “competition.” What, asked the Austrian economist, was this competition, if not the intersection of supply and demand in the market? If this was the case, then prices and values were not determined by labor time, but by market interaction of consumer preferences, as the marginal utility school asserted.63
Böhm-Bawerk was not contending, as other contemporaries did, that Marx had gotten the transformation problem wrong, but that a transformation from value to prices was conceptually impossible. His criticism was a declaration that most economists were living in a completely different intellectual world from the one Marx had inhabited. Of course, this applied to Adam Smith, David Ricardo, and James and John Stuart Mill as well, since they too had based their economic analysis on a labor theory of value. Böhm-Bawerk was honest enough to admit this, but most “neoclassical” economists, as partisans of the marginal utility approach came to be known, were not so open about the fundamental differences in their understanding of economics from that of the iconic pioneers of their discipline. They hid these differences by quoting phrases, such as Smith’s “invisible hand,” generally wrenched completely out of their original context.64
By the beginning of the twentieth c
entury, Marx’s economics had become unorthodox, fundamentally different from the mainstream, neoclassical version of economics, and also at odds with the chief established alternative to the mainstream, the ideas of the Historical School. Marx’s economic conceptions, however, had found a home in the burgeoning early twentieth-century socialist labor movement, as part of that movement’s more general rejection of the ideas of the bourgeois society it criticized and rejected. This was not at all what Marx himself had intended. Far from opposing the mainstream political economy of his day, the ideas of Smith, Ricardo, and their followers, Marx had embraced it and promoted his own work as the most advanced and correct version of their approach. His criticisms generally centered on the extent to which political economists were unwilling to develop the ultimate consequences of their ideas. Marx was an orthodox political economist, who rejected most socialist criticisms of Ricardo. He did not want to see his economic writings limited to a ghettoized existence in a labor movement promoting a counterculture to the established bourgeois capitalist world; he had yearned for a public confrontation in the established newspapers, magazines, and scholarly journals of his day, and was frustrated when it failed to materialize.
Marx’s basic economic principles, his views about the main lines of economic development, and his conception of the place of his particular economic vision in the public sphere, had all been shaped by the intellectual trends and economic and political circumstances of the first half of the nineteenth century. When his ideas finally percolated into a broader public domain, a good decade after his death, in part as the result of the tireless and painstaking editorial labors of Friedrich Engels, all these circumstances had changed. What was once economic orthodoxy had become outdated and unscientific to the economic mainstream; or, if one prefers, dissenting and unorthodox. What was once the future of economic developments had become their past, and what were once common assumptions of bourgeois society had become the prized possession of a labor movement distant from and hostile to that society.
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