Karl Marx and the Close of His System

Summary

Karl Marx and the Close of His System is the Austrian economist Eugen von Böhm-Bawerk's critique of the theory of value at the heart of Marx's Capital. It first appeared in German in 1896 as Zum Abschluss des Marxschen Systems, a contribution to a volume of essays honouring the economist Karl Knies, two years after Friedrich Engels published the third volume of Capital from Marx's manuscripts. The English translation by Alice M. Macdonald, with a preface by the British economist James Bonar, was published in London in 1898; the library text is that translation, without Bonar's preface. The problem Böhm-Bawerk examines had been debated for nearly thirty years. In the first volume of Capital (1867) Marx held that commodities exchange in proportion to the labour time socially necessary to produce them, and that profit is surplus-value created by labour alone. Yet in real economies capitals of equal size earn roughly equal rates of profit whether they employ many workers or few. Marx had promised to reconcile the two in a later volume. In the third volume he explained that competition turns values into prices of production, which include an average rate of profit, while the totals of prices and of values remain equal. Böhm-Bawerk argues that this solution concedes the point. If individual goods regularly sell at prices that differ from their labour values, the law of value no longer explains actual exchange, and saying that the totals agree is, in his view, a statement that tells nothing. He then traces the error to the first volume, where, he argues, Marx reached labour as the common substance of value by excluding without proof every other common property of goods, such as their usefulness and scarcity, and by setting aside natural resources that have value without labour. A final chapter answers Werner Sombart, who had defended Marx's value as a fact of thought rather than of experience. The essay became the best-known economic critique of Marx and drew a reply from the Marxist Rudolf Hilferding in 1904. It remains a standard reading in debates over the labour theory of value, alongside the subjective theory of value developed by Carl Menger, Böhm-Bawerk's teacher in the Austrian School.

Plot or Argument

• Introduction

  Böhm-Bawerk describes the unusual fortune of Capital: a difficult book that won a mass following on the strength of one volume, while its readers waited thirty years for the promised solution to the problem of the average rate of profit.

• Chapter I: Value and surplus value

  A summary of Marx's theory in the first volume: exchange value is determined by socially necessary labour time, labour-power is bought at its cost of subsistence, and surplus value is the unpaid labour that becomes profit.

• Chapter II: The average rate of profit

  Marx's own solution in the third volume, illustrated with his tables: competition equalizes profit rates, so goods sell at prices of production rather than values, though total prices equal total values.

• Chapter III: The question of the contradiction

  Böhm-Bawerk examines Marx's arguments that the law of value still governs prices in the last resort and concludes that each one either restates the deviation or relies on factors foreign to labour, such as wages and the time capital is invested.

• Chapter IV: The error in the system

  The root of the error lies in the first volume, where labour is selected as the common substance of exchange value by excluding other common properties, such as usefulness and scarcity, and by ignoring valuable gifts of nature; the chapter then examines how competition enters Marx's system.

• Chapter V: Werner Sombart's apology

  A reply to Sombart's defence that Marx's value is a fact of thought rather than of experience. Böhm-Bawerk accepts any method that gives good results but holds that Marx's theory is wrong, and predicts that it will lose its influence slowly.

Lessons

• Testing a theory against its own conclusions

  Böhm-Bawerk's method is to take Marx's premises seriously and ask whether the third volume of Capital is consistent with the first. Students can learn from this how a fair critic states an opponent's view accurately before attacking it.

  • How does Böhm-Bawerk summarize Marx's theory before criticizing it?
  • Why does he think the third volume contradicts the first?

• What makes things valuable?

  The essay sets the labour theory of value against the subjective theory of the Austrian School, which explains value by the importance people attach to goods. The difference matters for questions about wages, profits and prices that are still debated.

  • Can something have value if no labour went into producing it?
  • What examples from everyday life support or challenge each theory?

• Ideas and their consequences

  Böhm-Bawerk wrote before any state was governed in Marx's name, yet he predicted that the system would keep its hold because it appealed to its followers' hopes. Students can compare this forecast with the twentieth-century history of Marxist regimes.

  • Why does Böhm-Bawerk think Marx's influence would decline only slowly?
  • How should we judge a theory by its logic, its predictions and its practical results?

Context

In the 1890s socialist parties were growing across Europe, and Capital was their central text. Economists of the new marginalist and Austrian schools had already rejected the labour theory of value. When Engels published the third volume of Capital in 1894, after Marx's death, economists on all sides turned to it to see whether Marx had solved the problem of the average rate of profit.

Composition

Böhm-Bawerk, a senior Austrian official who had briefly served as finance minister in 1895 and was already the author of a history of interest theories that criticized Marx, wrote the essay for a Festschrift honouring Karl Knies in 1896. Alice M. Macdonald's English translation, revised in proof with help from the author and Friedrich von Wieser, appeared in London in 1898 with a preface by James Bonar.

Reception

The essay was widely read as the decisive economic critique of Marx. Rudolf Hilferding answered it from the Marxist side in 1904, and the two texts were reprinted together in 1949 with an introduction by Paul Sweezy. Debate over the so-called transformation problem has continued among economists ever since.

Comparisons

• Capital, Volume I

  The work under examination: Böhm-Bawerk's first and fourth chapters analyse the theory of value and surplus-value set out in the first volume of Capital.

• The Communist Manifesto

  The Manifesto announces the political programme that Marx's economic theory was meant to ground scientifically; Böhm-Bawerk tests that foundation.

• Principles of Economics

  Menger's subjective theory of value, which Böhm-Bawerk developed, is the alternative to the labour theory that underlies this critique.

• On the Principles of Political Economy and Taxation

  Ricardo's labour theory of value and his own difficulty with capitals of different durability anticipate the problem Böhm-Bawerk presses against Marx.

• Economic Calculation in the Socialist Commonwealth

  Böhm-Bawerk's student Mises carried the Austrian critique from theory to practice, arguing in 1920 that a socialist economy could not calculate rationally.

• Socialism: An Economic and Sociological Analysis

  Mises's comprehensive critique of socialism builds on the value theory of his teacher Böhm-Bawerk.

• The Road to Serfdom

  Hayek, a later member of the Austrian School, turns from the economics of Marx to the political dangers of central planning.

Quotes

For Students

A reading companion for classical Christian high school students. See the student guide.

Reading Guide

Watch for

• Böhm-Bawerk's summary of Marx's theory of value in Chapter I.
• The two tables of five capitals in Chapter II, taken from the third volume of Capital.
• The four arguments Marx offers for the law of value, examined one by one in Chapter III.
• The argument about the common property of exchangeable goods in Chapter IV.
• The closing prediction in Chapter V.

Key terms and names

Labour theory of value

The doctrine that the exchange value of goods is determined by the quantity of labour needed to produce them.

Surplus value

In Marx's theory, the value workers create beyond the cost of their own labour-power, which he identifies as the source of profit.

Organic composition of capital

Marx's term for the proportion of constant capital (machinery and materials) to variable capital (wages) in an industry.

Prices of production

In the third volume of Capital, the prices that include an average rate of profit and so differ from labour values.

Subjective theory of value

The Austrian School view that value depends on the importance people attach to goods for satisfying their wants.

Transformation problem

The long-running debate over whether labour values can be consistently converted into actual prices of production.

Seminar Questions

1. Comprehension What contradiction between the first and third volumes of Capital does Böhm-Bawerk identify?
2. Comprehension How did Marx propose to reconcile equal rates of profit with his law of value?
3. Comprehension Why does Böhm-Bawerk object to Marx's method of finding the common property of exchangeable goods?
4. Interpretation Is it a fair criticism to say that the equality of total prices and total values tells us nothing?
5. Interpretation Why does Böhm-Bawerk think a theory's appeal to its followers' hopes can keep it alive?
6. Interpretation How does Böhm-Bawerk answer Sombart's claim that Marx's value is a fact of thought rather than of experience?
7. Big Question Should an economic theory be judged by its internal logic, by its predictions or by the results of policies based on it?

Faith Connections

• Proverbs 18:17 (Scripture)

  The one who states his case first seems right, until the other comes and examines him; Böhm-Bawerk's careful cross-examination of Marx's argument illustrates the principle.

• 1 Thessalonians 5:21 (Scripture)

  Paul's counsel to test everything and hold fast what is good fits the essay's method of testing a powerful system against its own claims.

• Leo XIII, Rerum Novarum (1891) (Great Conversation)

  Written five years earlier, the encyclical rejects the socialist remedy of abolishing private property on moral grounds, as Böhm-Bawerk rejects its economic theory on logical ones.

Logic and Rhetoric

Central argument: Marx's first volume claims that goods exchange in proportion to the labour they embody; his third volume concedes that, because profit rates are equalized, goods actually sell at prices of production that differ from their values. Since the law of value no longer governs the exchange of particular goods, and the equality of totals is empty, the theory fails; the failure goes back to an unproven selection of labour as the sole substance of value.

Rhetorical device: immanent critique. Böhm-Bawerk quotes Marx at length and judges the third volume by the standards Marx set in the first, concluding that he sees not a reconciliation but the bare contradiction itself.

Debate: Resolved: that the third volume of Capital contradicts the first.

Memory Work

The Marxian system has a past and a present, but no abiding future

I cannot help myself; I see here no explanation and reconciliation of a contradiction, but the bare contradiction itself

Writing Prompts

Essay: Explain the contradiction Böhm-Bawerk finds between the first and third volumes of Capital and assess whether his criticism succeeds.

Comparison with Capital, Volume I: Read Marx's opening chapter on the commodity alongside Böhm-Bawerk's Chapter IV, and argue whether Marx proves that labour is the common substance of value.

Creative Prompts

• Dialogue

  Write a conversation in 1896 between Böhm-Bawerk and a young socialist who has just read the third volume of Capital, in which each must state the other's view fairly before answering it.

• Classroom

  Using Marx's table of five capitals reproduced in Chapter II, have students calculate values, prices of production and profit rates, and then discuss whether the law of value still explains prices.

• Essay

  Böhm-Bawerk predicted that the Marxian system had no abiding future but would lose its influence only slowly. Write an essay evaluating this prediction in light of twentieth-century history.

Further Reading

• Capital, Volume III, Karl Marx

  Edited by Engels and published in 1894; the volume Böhm-Bawerk examines.

• Böhm-Bawerk's Criticism of Marx, Rudolf Hilferding

  The Marxist reply (1904).

• Capital and Interest, Eugen von Böhm-Bawerk

  His major work, including an earlier critique of the exploitation theory.