Kapital Vol. 3 - Engels' Preface 1894

Kapital 3-

Engels Preface, 1894

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

The first part of Engels’ introduction describes the laborious process Engels confronted as he attempted to put together a draft of Volume 3 from Marx’s incomplete manuscripts and notes. It sounds like a nightmare of a task. There were fully completed drafts for some sections, others were only unorganized notebooks. Chapter 4 contained only a title and thus Engels was forced to write the entire chapter himself. Rather than repeating Engels’ description of the process here I will try to make note of these things as I write on each chapter.

We now know that Engels made more revisions to the text than is immediately apparent. For a brief article on this try reading “Engels’ Edition of the Third Volume of Capital and Marx’s Original Manuscript” by Michael Heinrich (http://www.marxists.org/archive/marx/works/1894-c3/editorial/heinrich.htm). He rearranged a lot of text, rephrased sentences, added a lot of subheadings, etc. There is debate as to how much this changed the meaning of the text. Some argue that a look at Marx’s original manuscripts (not made available until in 1993) shows that the Marx’s ideas are not nearly as neatly worked out as they are in Engels’ edition especially in regard to crisis theory. Another critique is that the idea of simple commodity production as an historical concept and not just a theoretical abstraction is mostly an imposition of Engels’ and not supported by much of Marx’s original text at all.

This all being said, Engels faced a nearly impossible task in trying to piece together Volume 3. There was a lot of pressure to produce a cohesive volume that could answer all of the unfinished questions left hanging by volume 1. Volume 1 makes necessary abstractions and assumptions that Marx claimed he would drop in later volumes. The completion of the theoretical project started in volume 1 required that these assumptions at some point be dropped.

Even with Engels’ revisions we cannot expect the theoretical tightness, the masterful attention to the form and structure of argumentation that we get in Volume 1 of Capital. On the other hand we know that Marx was working on Volume 3 at the same time that he was working on Volume 1. So the over-arching structure of the argument, the basic contours of the relations of the key concepts are there. But the smaller details of the argument aren’t always presented in the clearest way, and we are missing a lot of the stylistic flair of Marx’s finished works.

I am curious to see how standard the terminology, equations and ideas are throughout the book… to see to what degree Marx changed his thinking about things in the course of writing. I have often read that Marx changed his labeling of the theory of the falling rate of profit from a “law” to a “law of a tendency”. People sometimes claim this reflects an ambiguity in Marx about just how strong this tendency is. I would like to finally form my own opinion on this matter.

The rest of Engels’ Preface deals with the problem of Average Profits that I briefly mentioned in my previous post (“Opening Thoughts”). In his preface to Volume 2 of Capital (also edited by Engels after Marx’s death) Engels offered a challenge to the public to see if they could solve the problem of Average Profits within the labor theory of value. It was a theoretical problem that had daunted economists for some time. Even Ricardo hadn’t been able to solve it. In that preface Engels bragged that Marx had solved the problem in the soon-to-be-published volume 3. But it took Engels another 9 years to publish that volume.

In this introduction to volume 3 Engels recounts attempts to solve the problem by those who replied to his challenge, ridiculing all of them. Of course Engels doesn’t solve the problem for us either. He is trying to pique your curiosity before you read Marx’ s solution. This is his “teaser/trailer” for Volume 3.

I want to briefly describe each of these theories and Engels criticism of them here as I think there are things to be learned from them. First, to state the problem: The labor theory of value holds that socially necessary labor time is the only thing that creates value. Machines and raw materials may contain value, but they don’t create new  value. They merely pass their values on to the product to the extent that they are used up in production. This means that an industry with a high ratio of machines to people would produce less value than and industry with more people and less machines. Marx calls this ratio the “organic composition of capital”. He measures it as c/v (c being constant capital-machines and raw materials- and v being variable capital- human labor.) So a firm with lots of machines and less people has a high organic composition. A firm with more people and less machines has a low organic composition. Firms with a high organic composition create less value per dollar invested than firms with a low organic composition.

The problem though is that in a capitalist society with no barriers to investments the profit rates of different industries with different organic compositions tend toward an average. In other words, a service industry with a low organic composition and a highly automated industry (like a laundromat) with a high organic composition all make the same rate of profit. For each dollar they invest in production they receive the same rate of profit, wether this dollar is spent on workers or machines. So how do we square this with the idea that only human labor creates value? The answer Marx gives us is a fascinating one and it clears up a lot of other issues about the labor theory of value as well. But we shouldn’t get ahead of ourselves….

The first person whom Engels picks on is Lexis. Actually Lexis gets a rather sympathetic treatment from Engels who at one point wonders if he might be a “Marxist disguised as a vulgar economist”. It seems that Lexis’ arguments about the issue of average profits don’t stray too far from Marx’s at times. Lexis says that we can’t solve this problem on the level of the individual commodity’s value. We have to look at the total values of all commodities and the fact that this total value in society is distributed unequally between capitalists, laborers, landlords, etc. The capitalist when he invests gets a profit based on his investment in capital, regardless of the labor content of this investment. But Engels replies that this isn’t a solution to the problem at all, just a restatement of the problem. I suppose that what Engels means by this is that the mechanism by which this happens needs to be explained. At first glance Engels’ description of Lexi’s argument seems pretty close to what I understand as Marx’s take on the issue: that aggregate equalities between  total value produced by labor and total prices, total profits and total surplus value hold true but that competition between capitalists redistributes this surplus value evenly between capitalists. Is Lexis’ take incomplete because he doesn’t discuss the mechanism, competition, by which this surplus value is redistributed? This seems unlikely because in the next pages Engels says that it is common knowledge that competition is the mechanism of the equalization of the profit rate.

Lexis also critiques Marx’s theory of profits in the first place. He says vulgar economy offers just as probable an explanation: Capitalists charge more for their product than it costs. All sellers of commodities in the market place charge more for their commodity than the cost of production (what Marx will call “cost price”). The one exception, for Lexi, is labor which is forced to sell its commodity, labor power (the ability to work), at its production cost: the means of subsistence. In other words, wages go to pay for the reproduction of labor power, the buying of commodities like housing, food, and clothing that allow workers to come back to work the next day, but workers don’t charge an additional amount for their labor above this cost of means of subsistence. So, Lexi argues, this is the source of profit.

Lexis’ take on profits is not that far removed from the concept of profit that pervades a lot of our common thinking today. And, I think Marx would argue, this conception of profits grows out of the nature of capitalist exchange in the first place. This is what the fetishism argument is all about: the subjective experience of exchanging commodities in the market both creates and masks real social relations, class relations. When capitalists set prices for commodities they aren’t calculating the surplus value created by the workforce and adding that to the cost price. They aren’t calculating the socially necessary labor time. But the prices they are able to realize in the marketplace are dictated by the network of exchanges that comprises the market. And this network of exchanges contains several dimensions of class relations which all act upon the form of value to create price. So just saying, “profit comes from charging more for commodities than it costs to make them” doesn’t actually explain anything. Again, it just restates the problem.

Engels’ response to the argument is to point out that after workers first create enough value in production to pay for their means of subsistence they then create additional value above the cost of the their wages. This is the source of profit. On the side he takes a passing shot at George Bernard Shaw’s utopian socialism and the new ideas of Jevons and Menger (marginal utility) that had inspired Shaw. I wish he had elaborated more on this point.

Engels’ next victim is Dr. Conrad Schmidt. Schmidt’s attempt to reconcile the law of value and average profits leads him to propose that since constant capital (raw materials, machines, etc.) represents past labor this labor has the same command on the distribution of surplus value that variable capital (living labor) has. In other words, the fact that capitalists make average profits regardless of their investment in constant or variable capital is because both inputs are labor inputs of a kind. The constant capital advanced is the “socially necessary materialized labor” in order to obtain a surplus. (I hope I have summarized this correctly.)

Engels begins by saying that this is an ingenious Hegelian construction but “like the majority of Hegelian constructions it is not correct.” I would love to know what he means by this. The rest of his critique of Schmidt is very useful to us. He first points out that the whole point of value theory is to distinguish between materialized and living labor (constant and variable capital.) Marx worked hard to demystify the bourgeois notion that factors of production like land and constant capital produce value by themselves. Marx argues that these factors of production while being necessary for the creation of value do not produce value. Only living labor can do this. Engels points out that it is well known that capitalists expect an equal return on their investments regardless of whether they invest in labor or machines. If Schmidt’s theory were correct it would actually invalidate the labor theory of value.

In a later paper by Schmidt he argues that competition is the mechanism which equalizes profit rates. Engels’ reply is, “duh.” We already know that this is what happens. If an industry is making higher than average profits additional capital will flow into that industry eventually eating away at those excess profits until the profit level is whittled down to the average. But Engels’ criticism is of Schmidt’s claim that this process is the same as the process by which an excess production of commodities causes their prices to fall until demand and supply average out at natural prices in accordance with the law of value. Engels doesn’t actually take the time to offer his own critique of this, just saying that Marx himself addresses this in Vol. 3. I will have to keep this in mind as I read because it is not clear to me why Schmidt is wrong in making this claim.

Engels begins his critique of Fireman by making some important reminders about Marx’s method. One must avoid looking for short, easy, sound-bite definitions in Marx. The definition of a term changes as we see a concept in relation to different things. For instance the definition of labor changes if we are talking about the labor-capital relation, or labor-labor relation, or labor-landlord relation, etc. The dialectical method is a relational one. Different levels of abstraction yield different insights into reality. It is a mistake to take one perspective, one relation, as the only determining factor in defining the nature of something. This is a common source of misunderstanding about what Marx really said about many things. People often take quotes out of context without explaining the level of abstraction Marx was working with. Engels’ example here is very useful. Marx begins his analysis of commodities by abstracting away from the labor-capital relation and just dealing with exchange of commodities by independent producers. People often wonder if this is a logical abstraction or a historical one. Engels tells us it is both: commodity exchange proceeds the labor-capital relation. My actual understanding is that the argument is a little more dialectical though… that the elimination of barriers to exchange which allows the free operation of the law of value doesn’t really come about until capital appears on the historical stage. Marx later points out (p.177 Moscow edition) that exchange starts between communities before it penetrates into communities. This could be primitive communities, guilds, or slave societies… even trade between communist communities Marx suggests. More on this when we get to Chapter 10.

Fireman argues that firms with higher organic compositions sell their products above their values and that firms with low organic compositions sell above their values. The sum total of these sales equals the total amount of value produced. The sum total of profits equals the sum total of surplus value. Engels agrees with Fireman and says that this is the basic crux of the argument. But he thinks that Fireman’s explanation is missing a lot of important details and linkages and that this is due to his misunderstandings of Marx’s methods of abstraction.

Engels hates Julius Wolf. Wolf’s theory revolves around the theory of relative surplus value that Marx lays out in Volume 1 of capital. To review, relative surplus value is a way of increasing the surplus value extracted from workers without increasing the total number of hours worked (without hiring more workers or making lengthening the work day.) Capitalists do this by increasing the productivity of labor. This increases surplus value in two ways: in the long run it cheapens the means of subsistence lowering wages; in the short run it temporarily lets a capitalist produce more commodities for the same amount of money thus allowing him to make more profits.

Here is how Wolf thinks this helps us solve the problem of average profits. He says that since an increase in machines (increased spending of constant capital) increases the productivity of labor thus increasing relative surplus value, that this increase in surplus value will compensate for the decrease in value created by firms with high value compositions. Wolfe identifies high organic composition with high surplus value. It is clear from this that Wolfe, like a lot of people who have written about Marx over the years, doesn’t understand some of the most basic elements of Marx’s model. There is no direct, proportional relation between an increase in constant capital and an increase in surplus value. It’s not that for every dollar you spend on machines you get to pay one less dollar in wages. Also, a decrease in the means of subsistence, made possible through an increase in productivity, lowers wages for all workers and raises surplus value for all capitalists. This would raise the organic composition of all firms!

Engels has a good time trashing Wolfe. It is clear that he particularly hates the man. But since he seems to have been forgotten by history, let’s move on…

Loria gets a brief ribbing by Engels. Loria notices that merchant capital filches some of the profits away from industrial capital. Obviously merchant capital is unproductive labor (for the most part. More on this when we get to Marx on merchant capital.) So it makes a profit by dividing the surplus value of society between itself and industrial capital. Loria thinks that this filching takes surplus value away from low organic capitals and redistributes it to higher ones. But he doesn’t explain how merchant capital knows how much to take from whom and how it redistributes surplus back to some firms. Later we will see that Marx abstracts away from non-productive capitalists that filch money away from industrial capital when he explains prices of production. That is, he examines the capital-capital relation that creates average profit before he examines the divisions in the capitalist class.

Our last victim is George C. Stiebeling of New York. Stiebeling points out that a change in the rate of surplus value will equalize profits. Stiebleing gives us a neat little mathematical example in which the profit rates in two firms are equalized because they have different rates of surplus value. The problem is that Stiebeling just assumes that by spending less on variable capital more surplus of the same amount will be created. He has assumed away the problem. The only way for his equations to work is if you assume that the amount of surplus value over total expenditures (c+v) stays the same. Ridiculous!

Thus we are left with Engels standing smugly over a pile of defeated arguments. But we shouldn’t assume that this is just an unimportant settling of scores with opponents forgotten by history. Engels is also challenging us, the readers, to be vigilant about how well we understand Marx’s argument and method. It is easy to make mistakes when reading Marx. So let’s summarize the warnings Engels gives us.

From Lexi we learn that profit doesn’t come from just setting prices above costs- that price is socially regulated by labor. This is the basic concept of the law of value. Marx’s goal is to prove that labor still regulates prices even with average profits. This means that total profit and total value are the same but that surplus value is redistributed via competition so as to equalize profits among capitals of different organic composition. But Engels says this is not enough of a solution… He says that everyone knows this. I am curious to see what more there is to know.

From Schmidt’s mistake we are reminded that constant capital doesn’t create value. This is the source of the puzzle of average profits in the first place. Labor and dead labor (labor embodied in commodities) are functionally different things. The goal of Marx’s value theory is to explain the social relations between people as they are expressed in things. To say that constant capital creates value is to be guilty of fetishism, of thinking a thing has social power by itself, outside of its social relations.

From Fireman and Loria we learn the importance of being constantly aware of the level of abstraction we are working with. In capital Vol. 1 we are dealing with the relation of independent commodity producers and of labor to capital. In Vol. 2 we are dealing with the relation of capital to the various stages of its circuit. In Vol. 3 we deal with all of these relations plus the relation between individual capitals and between different factions of the capitalist class. At various times in Volume 3 Marx moves in and out of different levels of abstraction. We must be constantly vigilant about where we are at all times so as not to misunderstand his argument. Understanding these levels of abstraction will help us better address critics who base their critiques of Marx on misunderstandings of these levels of abstraction. At the same time we should always ask why a certain level of abstraction is necessary. Does Marx merely move from one level to another in order to abstract away from exceptions to his argument? How does he decide which relation to bring in at which point?

I.I Rubin (Essays In Marx’s Theory of Value) has a good response to this question that might be useful to keep in mind. He says that the order of abstractions in Marx deals with what relation presupposes what. The capital-capital relation presupposes  capital-labor and commodity producer- commodity producer. The capital-labor relation presupposes relations between commodity producers. The relations between commodity producers does not necessarily presuppose any other relation. So this fundamental relation gives us the idea that price is directly proportional to socially necessary labor time. This value relation is then altered when we bring in the capital-capital relation, but this doesn’t mean that price ceases to be regulated by value.

As we are dealing with the basic equation for the rate of profit we must be clear about how variables relate to each other. Wolfe’s and Stiebeling’s foibles tell us that the is no necessary relation between c and s. We also must be clear about whether we are talking about an individual firm or all firms. Wolfe and Stiebeling may present equations that work in specific cases, if we hold certain variables constant or make them vary in a consistent way, but Marx is looking for an explanation of average profits that works for all cases. Hence we should be ready for him to present to us every single possible variation of the basic equation for the rate of profit. It will take about a hundred pages and it won’t always be that exciting.

So pour the coffee, pop the Adderol and get ready for a long explanation…