MARX BOOK DAY ELEVEN

Let us now return to where things had been left 50 years earlier by Ricardo in the formal development of the labor theory of value. Ricardo has dealt with Smith’s problem of the appropriation of land by adopting the theory put forward by Malthus and others that rent was actually a diversion of profits from the entrepreneurs to the land of aristocrats. He then made a dramatic advance on Smith’s problem of the accumulation of stock by arguing that commodities in a capitalist marketplace exchange in proportion to the quantities of labor directly and indirectly required for their production. But Ricardo knew that this proposition was true only in the special case in which every line of production exhibited the same capital intensity, or what Marx would call the same organic composition of capital, which is to say the same ratio of labor directly required to labor indirectly required.  As I have remarked, Ricardo could not solve the problem of explaining the relationship of labor embodied in the general case and spent the last few years of his life unsuccessfully searching for an answer.

 

Marx believed he had solved Ricardo’s problem, but he put off until volume 3 his statement of the solution because he believed there was a deeper and more important problem that neither Ricardo nor any of the political economists in the intervening 50 years had recognized and satisfactorily dealt with. Marx chose to write all of volume 1 as though Ricardo’s original labor theory of value was universally true because he believed that the deeper problem could be more clearly articulated in that special case.

 

The problem, to put the point is simply as possible, was that neither Ricardo nor anyone else was able to explain why capitalists got steadily richer year after year. That they did get richer was obviously true. Men who began as young relatively modestly endowed entrepreneurs were ending up, 30 or 40 years later as incredibly rich capitalists. But if a capitalist bought the inputs into his production process at prices proportional to the labor embodied in them and then, after having them combined in his factory, sold the output once again at a price proportional to the amount of labor embodied in them, how on earth did he get any richer?

 

In chapter 5, entitled “Contradictions I\in the General Formula of Capital,” Marx has some fun with the foolish explanations given by his predecessors.  Some writers, like Condillac for example, mixed up the notions of use value and exchange value, pointing out that since the tailor could only wear one coat at a time and the farmer could not eat all of the wheat he had grown, both benefited from exchange.  That was no doubt true, Marx agreed, but did not explain how they both grew richer, merely how they both were happier than before the exchange.

 

The following passage captures Marx’s mocking tone nicely:  “Suppose then, that by some inexplicable privilege, the seller is enabled to sell his commodities above their value, what is worth 100 for 110, in which case the price is nominally raised 10%. The seller therefore pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities comes to him now as seller, who in this capacity also enjoys the privilege of selling his commodities 10% too dear. Our friend gained 10 as a seller only to lose it again as a buyer.  The net result is, that all owners of commodities sell their goods to one another at 10% above their value, which comes precisely to the same as if they sold them at their true value. Such a general and nominal rise of prices has the same effect as if the values had been expressed in weight of silver instead of in weight of gold. The nominal prices of commodities would rise, but the real relation between their values would remain unchanged.

Let us make the opposite assumption, that the buyer has the privilege of purchasing commodities under their value. In this case it is no longer necessary to bear in mind that he in his turn will become a seller. He was so before he became buyer; he had already lost 10% in selling before he gained 10% as buyer.  Everything is just as it was.

The creation of surplus-value, and therefore the conversion of money into capital, can consequently be explained neither on the assumption that commodities are sold above their value, nor that they are bought below their value.”

Because in the early stages of capitalist development, the factory owner was frequently also its manager, it was easy for those searching for a rationale for the wealth of the owners to attribute it to their compensation for the extraordinarily valuable service they provided managing their own shops. Some years ago, when I was teaching a course at the University of North Carolina Chapel Hill on the thought of Karl Marx, I illustrated this confusion by a little story that I invented.  

In 1967, when I was a professor at Columbia University, my first wife and I bought a summer home in the Berkshire Hill town of Worthington, Massachusetts. To get there from New York City, one drove north to Northampton and then turned west on route 9. For a while, when going through the town of Haydenville, the road ran alongside the Mill River. The river, as the name suggests, was in the 18^th and 19^th centuries the location for a number of mills powered by waterwheels turned by the fast-moving waters of the river. One of the mills sat just across the road from two large impressive looking homes, each one with white pillars in a faux Greco-Roman style.  Here is a picture of the mill and the two homes, courtesy of Google Maps.

Somebody told me that the owner of the mill had built one of the homes for himself and then the other for his daughter. With that to go on, I constructed the following little fable.

 

The owner, I imagined, having every day of his life walked across the road to the mill to manage his business, married off his daughter to the wellborn but impecunious son of an upper-class Boston family, building a second impressive home for them next to his own. After he died, his son-in-law and daughter inherited the business.  The son-in-law was delighted with the wealth his wife had inherited but had absolutely no intention of actually running the business, so he hired a manager at the going rate for such persons and took off with his wife on a grand tour of Europe. When he returned a year later, he called inthe manager to ask how much profit the company had made. The manager looked at him in astonishment and said, “Profit? There is no profit. When the old man ran the firm, he paid himself the wages of management, which sufficed to support him in a very comfortable style of life, but since you chose not to run the factory yourself, you hired me and paid to me the money that would have come to you had you done that labor of management yourself.” The young man was very taken aback, and thought he had perhaps made a terrible mistake in agreeing to the marriage, until the manager broke into a broad smile and said to him, ‘I was just teasing, of course there is a substantial profit, just as there was for the old man in addition to his wages of management.’”

 

Marx concludes his discussion by saying, “It is therefore impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation.  We have, therefore, got a double result.  The conversion of money into capital has to be explained on the basis of the laws that regulate the exchange of commodities, in such a way that the starting-point is the exchange of equivalents. Our friend, Moneybags, who as yet is only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting. His development into a full-grown capitalist must take place, both within the sphere of circulation and without it. These are the conditions of the problem. Hic Rhodus, hic salta!”

A word about translation yet again. The term that Aveling and Moore translate as “Moneybags” is in German “Geldbesitzer,” which simply means “possessor of money.” But Moneybags is a simply wonderful translation of the term. As soon as I read it, I thought of two things: the little get out of jail free card in the old Monopoly game and the political cartoons of the great 19^th century cartoonist Thomas Nast.  The Latin tag at the end of the passage comes from an old Greek story of a braggart who never ceased to boast to his friends about a wonderful broad jump that he had made at some games in the city of Rhodes. His friends finally grew tired with his boasting and said to him, “Enough already. This is Rhodes. Let us see you jump here – Hic Rhodus, hic salta!”