My Interpretation of the Thought of Karl Marx
Part Three: Classical Political Economy
Marx and Engels had a little private joke that they would use in their lengthy correspondence to one another. They would say: we got our philosophy from the Germans, our politics from the French, and our economics from the English. Marx began his revolutionary investigation of the nature of capitalism by studying everything he could lay his hands on in the new field of Political Economy. Before we can open to page one of Capital, therefore, we must remind ourselves of the elements of Marx’s predecessors, so that we understand how he understood the discipline as he began his great book.
There are three seminal works of Political Economy that contributed the key concepts on which Marx drew in his own work: the Tableau Économique of François Quesnay, published in 1758, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, published in 1776, and The Principles of Political Economy and Taxation by David Ricardo, published in 1817. In these three works, and especially works of Smith and Ricardo, can be found seven key concepts or theses that together form the backbone of classical Political Economy and provided the framework for Marx’s own thought.
The first concept, central to the work of Quesnay, is that an economy – in this case the primarily agricultural economy of France in the 18th century – can be understood as a cyclical process in which the output of one year, such as seed and fertilizer and tools, becomes the input into the next year’s productive activity. It is with this fundamental idea that the modern study of the economy begins. It is memorialized in the title of an extremely important monograph published by Piero Sraffa 202 years later: Production of Commodities by Means of Commodities.
The second thesis was articulated by Adam Smith eighteen years later. English society, Smith said, must be understood as composed of three great classes whose interests are mutually antagonistic – the landed aristocracy, the entrepreneurs (or, as they will later called, capitalists) and the workers. It is important to keep in mind that the assertion of an ineluctable conflict between the interests of capitalists and workers was not original with Marx. It was central to classical political economy.
The third concept, also introduced by Smith, was what he called the natural price of goods in the marketplace. Smith observed that although prices for goods brought to market might fluctuate from day to day as a result of variations in supply and demand, there was a standard predictable price that experienced producers and consumers came to understand and expect, which he called their “natural price.” Drawing on the physical theories of Isaac Newton who was at that time the gold standard for intellectual excellence in England, Smith compared these natural prices to centers of gravity that drew market prices to them.
Fourth, what was it that determined the natural prices of goods in the marketplace? At this point Smith made his most important contribution to the discipline of Political Economy by arguing that goods exchanged in proportion to the amount of labor required to produce them. Following a tradition going all the way back to the book of Genesis, Smith viewed labor as a burden, as something to be shunned when possible or at least minimized. Having spent their labor in producing goods for the market, farmers or craftsmen would demand in exchange goods requiring at least as much labor for their production. This fact did not determine fluctuating market prices that one saw day by day, but rather what Smith had called their natural prices. Smith had thus articulated what came to be called a Labor Theory of Natural Price, and since in the 18th century a synonym for “natural price” was “value,” what Adam Smith had offered in The Wealth of Nations was a Labor Theory of Value.
But fifth, Smith recognized that there was a problem with his theory. It failed to take account of two factors which clearly influenced the prices of goods in the market: first, the fact that all of the arable land in England had long since been appropriated by aristocrats who, without making any productive contribution to the growing of food nevertheless required that entrepreneurs pay them rent for the use of the land they controlled, and second, the fact that in the production of food and other goods something other than just labor was required, namely tools and equipment and other produced goods, what Smith referred to as stock. The appropriation of land and the accumulation of stock, Smith recognized, would inevitably alter the ratios in which goods would exchange in the market and hence seemed to undermine his newly announced Labor Theory of Value. Smith had no solution to these problems, but Ricardo did.
Forty-one years after the appearance of The Wealth of Nations, Ricardo published his Principles in which he solved the problem of the accumulation of stock and in a great theoretical tour de force dissolved the problem of the appropriation of land. These were the sixth and seventh key ideas that Marx inherited. Ricardo’s major contribution was the idea of “embodied labor.” The tools and raw materials used in any cycle of production, Ricardo argued, were the product of labor expended in previous cycles of production and so we could think of that prior labor as having become embodied in those products and carried along with them into the present cycle. When a farmer used a shovel that had been produced in some previous year, a portion of the labor expended in making the shovel and “embodied” in the shovel was yielded up and transferred to the crops being grown with its use. When those crops were brought to market, the farmer would require in exchange for them other commodities embodying an amount of labor equal to the direct labor expended in that cycle of production plus the labor expended in prior cycles of production, embodied in the tools, and yielded up in the production of the goods being brought to market. Thus, Ricardo for the first time stated a fully developed Labor Theory of Value: goods exchange in the market in proportion to the labor embodied in them, whether that labor has been directly or indirectly applied in their production.
The seventh key idea, which need not detain us, was Ricardo’s demonstration that the rent paid by the entrepreneur to the landowner was not a cost of production, for all that the entrepreneur imagined it to be so, but was in fact a diversion of a portion of the entrepreneur’s profits into the pockets of the landowner and hence played no role in the determination of price.
This was the theoretical state of play in 1817 and it remained pretty much at that stage of development until Marx took this theory up in 1867, half a century later. But there was a fundamental problem with Ricardo’s theory and Ricardo himself knew it. The problem was, to put it as simply and quickly as I can, that the theory was not correct when goods requiring relatively more direct labor and relatively less indirect labor – what later economists would call labor intensive goods – traded with goods that required relatively less direct labor and relatively more indirect labor – what later economists would call capital-intensive goods. Ricardo knew this was a problem and spent the last six years of his life trying to figure out how to deal with it but he went to his grave without having succeeded.
And there in a nutshell is the theoretical situation in Political Economy as Marx found it when he went to the British Museum and spent those endless hours and years reading everything he could lay his hands on in every European language on the subject of economics. If I may put the matter somewhat dramatically, this is what a reader in 1867 would have known as he or she opened the book and began to read page one of Capital (or more properly, of Das Kapital, since the work was not translated into English until after Marx’s death.)
Tomorrow we shall open that book.