In the preface to the second volume of Capital I had to square accounts with the gentlemen who raised a hue and cry at the time because they fancied to have discovered "in Rodbertus the secret source and superior predecessor of Marx". I offered them an opportunity to show "what the economics of a Rodbertus can accomplish"; I defied them to 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 on the very basis of it". These same gentlemen who for either subjective or objective, but as a rule anything but scientific reasons were then lionising the brave Rodbertus as an economic star of the first magnitude, have without exception failed to furnish an answer. However, other people have thought it worth their while to occupy themselves with the problem.
In his critique of the second volume (Conrads jahrbücher, XI, 1885, S. 452-65), Professor Lexis took up the question, although he did not care to offer a direct solution. He says: "The solution of the contradiction" (between the Ricardo-Marxian law of value and an equal average rate of profit) "is impossible if the various classes of commodities are considered individually and if their value is to be equal to their exchange-value, and the latter equal or proportional to their price." According to him, the solution is only possible if "we cease measuring the value of individual commodities according to labour, and consider only the production of commodities as a whole and their distribution among the aggregate classes of capitalists and workers.... The working class receives but a certain portion of the total product,... the other portion, which falls to the share of the capitalist class, represents the surplus-product in the Marxian sense, and accordingly ... the surplus-value! . Then the members of the capitalist class divide this total surplus-value among themselves not in accordance with the number of workers employed by them, but in proportion to the capital invested by each, the land also being accounted for as capital-value." The Marxian ideal values determined by units of labour incorporated in the commodities do not correspond to prices but may be "regarded as points of departure of a shift which leads to the actual prices. The latter depend on the fact that equal sums of capital demand equal profits." For this reason some capitalists will secure prices higher than the ideal values for their commodities, and others will secure lower prices. "But since the losses and gains of surplus-value balance one another within the capitalist class, the total amount of the surplus-value is the same as it would be if all prices were proportional to the ideal values."
It is evident that the problem has not in any way been solved here, but has, though somewhat loosely and shallowly, been on the whole correctly formulated. And this is, indeed, more than we could have expected from a man who, like the above author, takes a certain pride in being a "vulgar economist". It is really surprising when compared with the handiwork of other vulgar economists, which we shall later discuss. Lexis's vulgar economy is, anyhow, in a class of its own. He says that capital gains might, at any rate, be derived in the way indicated by Marx, but that nothing compels one to accept this view. On the contrary. Vulgar economy, he says, has at least a more plausible explanation, namely: "The capitalist sellers, such as the producer of raw materials, the manufacturer, the wholesale dealer, and the retail dealer, all make a gain on their transactions by selling at a price higher than the purchase price, thus adding a certain percentage to the price they themselves pay ! for the commodity. The worker alone is unable to obtain a similar additional value for his commodity; he is compelled by reason of his unfavourable condition vis-à-vis the capitalist to sell his labour at the price it costs him, that is to say, for the essential means of his subsistence.... Thus, these additions to prices retain their full impact with regard to the buying worker, and cause the transfer of a part of the value of the total product to the capitalist class."
One need not strain his thinking powers to see that this explanation for the profits of capital, as advanced by "vulgar economy," amounts in practice to the same thing as the Marxian theory of surplus-value; that the workers are in just the same "unfavourable condition" according to Lexis as according to Marx; that they are just as much the victims of swindle because every non-worker can sell commodities above price, while the worker cannot do so; and that it is just as easy to build up an at least equally plausible vulgar socialism on the basis of this theory, as that built in England on the foundation of Jevons's and Menger's theory of use-value and marginal utility. I even suspect that if Mr. George Bernard Shaw had been familiar with this theory of profit, he would have likely fallen to with both hands, discarding Jevons and Karl Menger, to build anew the Fabian church of the future upon this rock.
In reality, however, this theory is merely a paraphrase of the Marxian. What defrays all the price additions? It is the workers' "total product". And this is due to the fact that the commodity "labour", or, as Marx has it, labour-power, has to be sold below its price. For if it is a common property of all commodities to be sold at a price higher than their cost of production, with labour being the sole exception since it is always sold at the cost of production, then labour is simply sold below the price that rules in this world of vulgar economy. Hence the resultant extra profit accruing to the capitalist, or capitalist class, arises, and can only arise, in the last analysis, from the fact that the worker, after reproducing the equivalent for the price of his labour-power, must produce an additional product for which he is not paid -- i.e., a surplus-product, a product of unpaid labour, or surplus-value. Lexis is an extremely cautious man in the choice of his terms. He does n! ot say anywhere outright that the above is his own conception. But if it is, it is plain as day that we are not dealing with one of those ordinary vulgar economists, of whom he says himself that every one of them is "at best only a hopeless idiot" in Marx's eyes, but with a Marxist disguised as a vulgar economist. Whether this disguise has occurred consciously or unconsciously is a psychological question which does not interest us at this point. Whoever would care to investigate this, might also probe how a man as shrewd as Lexis undoubtedly is, could at one time defend such nonsense as bimetallism.
The first to really attempt an answer to the question was Dr. Conrad Schmidt in his pamphlet entitled Die Durchsdinittsprofitrate auf Grundlage des Marx'schen Werthgesetzes, Stuttgart, Dietz, 1889. Schmidt seeks to reconcile the details of the formation of market-prices with both the law of value and with the average rate of profit. The industrial capitalist receives in his product, first, an equivalent of the capital he has advanced, and, second, a surplus-product for which he has paid nothing. But to obtain a surplus-product he must advance capital to production. That is, he must apply a certain quantity of materialised labour to be able to appropriate this surplus-product. For the capitalist, therefore, the capital he advances represents the quantity of materialised labour socially necessary for him to obtain this surplus-product. This applies to every industrial capitalist. Now, since commodities are mutually exchanged, according to the law of value, in proportion to the l! abour socially necessary for their production and since, as far as the capitalist is concerned, the labour necessary for the manufacture of the surplus-product happens to be past labour accumulated in his capital, it follows that surplus-products are exchanged in proportion to the sums of capital required for their production, and not in proportion to the labour actually incorporated in them. Hence the share of each unit of capital is equal to the sum of all produced surplus-values divided by the sum of the capitals expended in production. Accordingly, equal sums of capital yield equal profits in equal time spans, and this is accomplished by adding the cost-price of the surplus-product so calculated, i.e., the average profit, to the cost-price of the paid product and by selling both the paid and unpaid product at this increased price. The average rate of profit takes shape in spite of average commodity-prices being determined, as Schmidt holds, by the law of value.
The construction is extremely ingenious. It is completely patterned after the Hegelian model, but like the majority of Hegelian constructions it is not correct. Surplus-product or paid product, makes no difference. If the law of value is also to be directly valid for the average prices, both of them must be sold at prices proportionate to the socially necessary labour required and expended in producing them. The law of value is aimed from the first against the idea derived from the capitalist mode of thought that accumulated labour of the past, which comprises capital, is not merely a certain sum of finished value, but that, because a factor in production and the formation of profit, it also produces value and is hence a source of more value than it has itself; it establishes that living labour alone possesses this faculty. It is well known that capitalists expect equal profits proportionate to their capitals and regard their advances of capital as a sort of cost-price of thei! r profits. But if Schmidt utilises this conception as a means of reconciling prices based on the average rate of profit with the law of value, he repudiates the law of value itself by attributing to it as one of its co-determinative factors a conception with which the law is wholly at variance.
Either accumulated labour creates value the same as living labour In that case the law of value does not apply.
Or, it does not create value. In that case Schmidt's demonstration is incompatible with the law of value.
Schmidt strayed into this bypath when quite close to the solution, because he believed that he needed nothing short of a mathematical formula to demonstrate the conformance of the average price of every individual commodity with the law of value. But while on the wrong track in this instance, in the immediate proximity of the goal, the rest of his booklet is evidence of the understanding with which he drew further conclusions from the first two volumes of Capital. His is the honour of independently finding the correct explanation developed by Marx in the third part of the third volume for the hitherto inexplicable sinking tendency of the rate of profit, and, similarly, of explaining the derivation of commercial profit out of industrial surplus-value, and of making a great number of observations concerning interest and ground-rent, in which he anticipates ideas developed by Marx in the fourth and fifth parts of the third volume.
(continued)