Tuesday, December 22, 2015

Engels’ Famous Challenge in the Preface to Volume 2 of Capital on the Transformation Problem

In the introduction to volume 2 of Capital written on May 5, 1885, Engels made this famous challenge:
“The Ricardian school failed about the year 1830, being unable to solve the riddle of surplus-value. And what was impossible for this school, remained still more insoluble for its successor, vulgar economy. The two points which caused its failure were these:

1. Labor: is the measure of value. However, actual labor in its exchange with capital has a lower value than labor embodied in the commodities for which actual labor is exchanged. Wages, the value of a definite quantity of actual labor, are always lower than the value of the commodity produced by this same quantity of labor and in which it is embodied. The question is indeed insoluble, if put in this form. It has been correctly formulated by Marx and then answered. It is not labor which has any value. As an activity which creates values it can no more have any special value in itself than gravity can have any special weight, heat any special temperature, electricity any special strength of current. It is not labor which is bought and sold as a commodity, but labor-power. As soon as labor-power becomes a commodity, its value is determined by the labor embodied in this commodity as a social product. This value is equal to the social labor required for the production and reproduction of this commodity. Hence the purchase and sale of labor-power on the basis of this value does not contradict the economic law of value.

2. According to the Ricardian law of value, two capitals employing the same and equally paid labor, all other conditions being equal, produce the same value and surplus value, or profit, in the same time. But if they employ unequal quantities of actual labor, they cannot produce equal surplus-values, or, as the Ricardians say, equal profits. Now in reality, the exact opposite takes place. As a matter of fact, equal capitals, regardless of the quantity of actual labor employed by them, produce equal average profits in equal times. Here we have, therefore, a clash with the law of value, which had been noticed by Ricardo himself, but which his school was unable to reconcile. Rodbertus likewise could not but note this contradiction. But instead of solving it, he made it a starting point of his Utopia (Zur Erkenntniss, etc.). Marx had solved this contradiction even in his manuscript for his ‘CRITIQUE OF POLITICAL ECOMONY.’ According to the plan of ‘CAPITAL,’ this solution will be made public in Volume III. Several months will pass before this can be published. Hence those economists, who claim to have discovered that Rodbertus is the secret source and the superior predecessor of Marx, have now an opportunity to demonstrate what the economics of Rodbertus can accomplish. If they can show in which way an equal average rate of profit can and must come about, not only without a violation of the law of value, but by means of it, I am willing to discuss the matter further with them. In the meantime, they had better make haste. The brilliant analyses of this Volume II and its entirely new conclusions on an almost untilled ground are but the initial statements preparing the way for the contents of Volume III, which develops the final conclusions of Marx's analysis of the social process of reproduction on a capitalist basis.” (Engels 1907 [1885]: 27–29).
By the phrase the “law of value” Engels means the assumption underlying this problem: that commodities tend to exchange at their true labour values.

The problem can be sketched as follows:
(1) in volume 1 of Capital it is assumed that commodities tend to have prices at their true labour values, so that these prices also reflect the surplus value embodied in the commodities.

(2) in turn surplus value determines profits, and it should follow that in such a system different profit rates prevail reflecting the different surplus values, e.g., an industry with much more constant capital and very little variable capital should have a lower profit rate than a labour-intensive industry with a great proportion of variable capital.

(3) yet, under capitalism, competition supposedly tends to create a uniform average rate of profit and so neither (1) or (2) can be true.
Assumption (1) is crucial.

It was later phrased by Marx in volume 3 in this way:
“The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).
By volume 3, Marx tried to argue that this assumption was only an empirical reality in the pre-modern world of commodity exchange, and not in 19th century capitalism where prices of production were the anchors for the price system.

But if it were really the case that Marx in volume 1 of Capital thought that the assumption quoted above only applied to the pre-modern world of commodity exchange, then the whole challenge Engels made to the world in the preface to volume 2 of Capital becomes utterly stupid and makes no sense. For then there simply was no transformation problem. No great problem to solve.

In reality – and this is the crux – Marx left everyone with the impression that volume 1 of Capital was asserting that commodities tended to exchange at their true labour values, and that this was a “law of value” in 19th century capitalism. That is why the transformation problem was raised as a challenge for Marxist theory in the first place.

Engels edited and published volume 2 of Capital in July 1885 (Wheen 2001: 385), but volume 3 of Capital did not appear until November 1894 (Wheen 2001: 385) – nearly ten years later. One wonders whether Engels – as he read the catastrophe that was Marx’s draft of volume 3 – delayed publication when he realised that when it was published it would cause derision and prove that Marx’s law of value in volume 1 was bankrupt. Engels also vehemently refused to relate Marx’s solution to the transformation problem to any private correspondents (even Marxists) or to have it printed separately before the publication of volume 3 (Howard and King 1989: 24–25).

At any rate, when volume 3 was published that is essentially what happened, as reviewers like Achille Loria, Werner Sombart, Conrad Schmidt and Eugen von Böhm-Bawerk pointed to the terrible contradictions.

In his Supplement to volume 3, Engels’ last ditch defence of the “law of value” in volume 1 was to retreat into the idea that commodities only ever tended to exchange for their true labour values in the pre-modern world of commodity exchange and that this had ended between about the 15th and early 19th centuries. But, then, why, if that had been his and Marx’s view all along, had there been any need to make such a big deal of the transformation problem in the first place?

Why did Marx never give a clear and explicit statement in volume 1 of Capital to the effect that the law of value there was not meant to apply to 19th century capitalism? Why did he give example after example implying that 19th century capitalism was subject to the law of value?

BIBLIOGRAPHY
Engels, Friedrich. 1907 [1885]. “Preface,” in Karl Marx, Capital. A Critique of Political Economy. The Process of the Circulation of Capital (vol. 2; trans. by Ernst Untermann from 2nd German edn.). Charles H. Kerr & Co., Chicago, and Swan Sonnenschein & Co., London. 7–29.

Howard, Michael Charles and John E. King. 1989. A History of Marxian Economics. Volume I, 1883–1929. Princeton University Press, Princeton, NJ.

Wheen, Francis. 2001. Karl Marx: A Life. W. W. Norton & Company, New York and London.

11 comments:

  1. For then there simply was no transformation problem. No great problem to solve.

    There was indeed still one: The economy had moved from one state to another, but the conditions of the transition had been left unexplained. Thus the challenge.

    In reality – and this is the crux – Marx left everyone with the impression that volume 1 of Capital was asserting that commodities tended to exchange at their true labour values, and that this was a “law of value” in 19th century capitalism.

    "Everyone" is a touch misleading; some were indeed puzzled, but others took note of those various passages that state plainly, e.g., that average price is the "hidden regulator" and yet average prices and values "do not directly coincide," etc.

    As a result, a number of participants were even able to correctly solve the problem. In particular:

    At any rate, when volume 3 was published that is essentially what happened, as reviewers like Achille Loria, Werner Sombart, Conrad Schmidt and Eugen von Böhm-Bawerk pointed to the terrible contradictions.

    This is also misleading; of those, only Loria and Böhm-Bawerk continued to read contradiction into it.

    For example, Engels on Sombart:

    "Werner Sombart gives an outline of the Marxian system which, taken all in all, is excellent. It is the first time that a German university professor succeeds on the whole in seeing in Marx's writings what Marx really says, stating that the criticism of the Marxian system cannot consist of a refutation ... but merely in a further development."

    "In the main you [Sombart] are quite right. ... And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence."


    Engels on Schmidt:

    "There is a likewise excellent article [on Capital] by Conrad Schmidt. ... Especially to be emphasized here is [Schmidt's] proof of how the Marxian derivation of average profit from surplus-value for the first time gives an answer to the question not even posed by economics up to now: how the magnitude of this average rate of profit is determined, and how it comes about that it is, say, 10 or 15 per cent and not 50 or 100 per cent. ... This passage of Schmidt's article might be directly written for economists a la Loria, if it were not labor in vain to open the eyes of those who do not want to see."

    (And, just to throw another name into the hat, Lexis provided an ample solution as well, prompting Engels to refer to him as "a Marxist, disguised as a vulgar economist.")

    Though Engels made known his disagreements with Sombart and Schmitt, these were confined to matters of wording or scope, rather than the technical details of their solutions.

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    Replies
    1. (1) "The economy had moved from one state to another, but the conditions of the transition had been left unexplained."

      That assumes people widely understood that the law of value in vol. 1 only applied to pre-modern commodity exchange.

      This is B.S. and you know it. If people widely interpreted vol. 1 in this manner, the transformation problem would have been totally different, and merely a historical question about the transition from pre-modern commodity exchange to 19th century capitalism.

      (2) "some were indeed puzzled, but others took note of those various passages that state plainly, e.g., that average price is the "hidden regulator" and yet average prices and values "do not directly coincide," etc.

      As a result, a number of participants were even able to correctly solve the problem."


      Again. B.S. Only a handful of people did and this only underlines how incompetent Marx was in vol. 1.

      You simply evade the issue:

      "Why did Marx never give a clear and explicit statement in volume 1 of Capital to the effect that the law of value there was not meant to apply to 19th century capitalism? Why did he give example after example implying that 19th century capitalism was subject to the law of value?"

      As for Lexis, his solution was nothing but the admission that commodities prices can't be determined by SNLT: a repudiation of "law of value" in vol. 1.

      And even though Lexis correctly understood that Marx would throw overboard the "law of value" in vol.1, the cultist and hack Engels **denied** Lexis had solved it, if you bothered to read Engels' remarks on Lexis in the preface to vol. 3:

      "It is evident that the problem has not been solved by any
      means through these statements,
      [sc. of Lexis] but it has been at least correctly
      formulated, although in a somewhat loose and shallow manner. And this is, indeed, more than we had a right to expect from a man who prides himself somewhat on being a
      "vulgar economist."

      Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago. p. 19.

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    2. Also I see that you are not even disputing that the idea that commodities tend to have prices at their true labour values is the fundamental assumption on which the whole transformation problem is based, which again utterly undermines all your nonsense about how Marx never meant to apply the "law of value" in vol. 1 to 19th century capitalism at the time he published that volume.

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    3. Your last comment shows nothing but deep dishonesty and incoherence. There is no point in allowing more pointless dishonesty of this kind -- at least if you are going to post rubbish like this constantly.

      I repeat:

      "Why did Marx never give a clear and explicit statement in volume 1 of Capital to the effect that the law of value there -- the assumption that the commodities of the various spheres of production are sold at their value implies ... their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210) -- was not meant to apply to 19th century capitalism?"

      If you can't give an honest and coherent answer, there is no rational discussion to be had here. You are simply like a religious fundamentalist fanatic.

      Go and look at the embarrassing and utterly wrong predictions of Engels and Marx here and here. At what point are you going to admit they were wrong and that this has something to do with a deeply flawed Marxist economic theory?

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    4. My latest comment gave an answer to that question, and furthermore apologized for forgetting to include it in my original one. I don't know what part of it was "dishonest" or incoherent. I even took pains to make it exceedingly deferential and polite.

      It would be much easier to figure out what you're criticizing if you would do me the basic courtesy of at least publishing it. You have no problem publishing other people you disagree vehemently with, even when they're not entirely polite.

      How is it you've come to hate me so?

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    5. lol...

      You've had literally hundreds of comments posted on this blog and in the first few months of your discussion, almost the run of the comments section. However, you have got to the point where your comments add nothing anymore. Just the same tired fallacy of equivocation by interpreting "law of value" contrary to the way I use it in my questions to you.

      I repeat:

      "Why did Marx never give a clear and explicit statement in volume 1 of Capital (say, in the introduction or chapter 1) to the effect that the law of value there -- the assumption that the commodities of the various spheres of production are sold at their value implies ... their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210) -- was not meant to apply to 19th century capitalism?"

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    6. I'm not equivocating. I'm being absolutely clear that your approach to ontology and philosophy of science is different from Marx's, and then answering both. That's as far from equivocation as it's possible to go: deliberately dismantling possible equivocation.

      I will try this again.

      "Why did Marx never give a clear and explicit statement in volume 1 of Capital (say, in the introduction or chapter 1) to the effect that the law of value there ... was not meant to apply to 19th century capitalism?"

      In the sense of Marx's philosophy, the most technically correct answer is to say it WAS meant to apply to 19th century capitalism, albeit in a way not apparent to surface-level observations. Much as we cannot judge the true size of an iceberg by glancing at what breaches the surface, we cannot merely look at this or that price and understand how it relates to value under capitalism. Further analysis is needed.

      In the sense of the philosophy you've been utilizing, which regards laws not actualized as therefore not existent (essentially Hume's conception of laws as "constant conjunction" of events), obviously it makes sense to say "the law of value does not apply to 19th century capitalism." But I must stress again that this is not Marx's position. You're arguing against something different, as such, than what he held. Still, if we humor it fully, we find the following: Instead of explaining one set of emergent laws on the basis of another, we are instead tasked to explain how we moved from one set of laws to another. Though this is not a mere semantic difference, it still leaves a very real question to be answered, ala Engels's challenge. However, whereas you profess to be a realist, this does not really rate further consideration.

      Beyond these points, it's also important to note, as I have, that a discussion of the historical development of the law of value is outside the scope of volume 1, which was only intended to give a general, highly abstract treatment of the matter. He states this, *unequivocally*, in the preface to the first edition; the laws are meant to be expressed with the highest level of generality, a capitalist represents his entire class, etc. Rather, the historical transformation of value was left aside for what would later become volume 3.

      That is the most complete, unequivocal answer that I can muster without turning this into an essay. It is fully consistent with the full text of capital volume 1, including both the passages where he clarifies that reality is much more complicated than the picture given, as well as those where he leaves the abstraction to operate unmolested.

      (Also, re: Engels on Lexis, I would once again draw attention to the continuation of the passage you quote, where he states that the problem as formulated by Lexis in fact correctly restates Marx's surplus-value theory. Hence the "Marxist disguised as a vulgar economist" bit. I would argue that Engels was a touch ungenerous in his summary, since the key components were all there: invariants, value transfers between industries, etc. But I can understand his insistence on being persnickety, at least.)

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    7. (1) "In the sense of Marx's philosophy, the most technically correct answer is to say it WAS meant to apply to 19th century capitalism, albeit in a way not apparent to surface-level observations.

      lol... "He didn't say it wasn't meant to apply because it was -- even though it wasn't!!"

      (2) "Beyond these points, it's also important to note, as I have, that a discussion of the historical development of the law of value is outside the scope of volume 1, which was only intended to give a general, highly abstract treatment of the matter. "

      Again. B.S. It cannot have been a "highly abstract" treatment if it was meant to apply to pre-modern world of commodity exchange: this requires it was empirical. This is the same B.S. over and over again.

      In short, on two counts above, we have a perfect example of the psychology of a religious cult.

      (1) Things are true when they are not true.
      (2) And facts don't matter.

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    8. LK,

      http://seaofnakedemperors.blogspot.it/2012/01/some-empirical-research-on-labor-theory.html

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    9. You cite empirical studies that show a correlation between hours worked/wage-bill data of workers and prices of commodities. Well, duh.

      Nobody disputes this. Not even Böhm-Bawerk did. Prices are correlated with labour costs because labour costs are often a very important component of prices.

      But so are energy costs for many industries. And so are non-labour factor input costs. You'd find a correlation there too, especially in capital/energy-intensive industries. If workers demand wage rises WITHOUT their hours changing we would find a correlation too with price.

      But Marx's law of value in vol. 1 is much more than this. Much, much more. As described by Marx himself it is this:

      “The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).

      NONE of your studies proves this. NONE of your studies shows how to properly calculate socially necessary labour time as a homogenous unit that can measure all types of heterogeneous labour. NONE shows how one unit of SNLT corresponds to and determines price.

      You are just another Marxist ideologue wasting your life away on a cult.

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    10. People like you were refuted by Böhm-Bawerk over 100 years ago. He knew that a correlation between hours worked/wage-bill data of workers and prices of commodities does not vindicate Marx and explained why:

      "That in the case of ‘other circumstances remaining equal’ prices rise and fall according to the amount of labor expended proves clearly neither more nor less than that labor is one factor in determining prices. It proves, therefore, a fact upon which all the world is agreed, an opinion not peculiar to Marx, but one acknowledged and taught by the classical and ‘vulgar economists.’ But by his law of value Marx had asserted much more.” (Böhm-Bawerk 1949: 39).

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