Monday, June 14, 2021

Engels to Sombart in 1895

This transcription is taken from here.

Dear Sir:

Replying to your note of the 14th of last month, may I thank you for your kindness in sending me your work on Marx; I had already read it with great interest in the issue of the Archiv which Dr. H. Braun was good enough to send me, and was pleased for once to find such understanding of Capital at a German University. Naturally I can't altogether agree with the wording in which you render Marx’s exposition. Especially the definitions of the concept of value which you give on pages 576 and 577 seem to me to be rather all-embracing: I would first limit them historically by explicitly restricting them to the economic phase in which alone value has up to now been known, and could only have been known, namely, the forms of society in which commodity exchange, or commodity production, exists; in primitive communism value was unknown. And secondly it seems to me that the concept could also be defined in a narrower sense. But this would lead too far, in the main you are quite right.

Then, however, on page 586, you appeal directly to me, and the jovial manner with which you hold a pistol to my head made me laugh. But you need not worry, I shall "not assure you of the contrary." The logical sequence by which Marx deduces the general and equal rate of profit from the different values of s/C = s/(c + v) produced in various capitalist enterprises is completely foreign to the mind of the individual capitalist. Inasmuch as it has a historical parallel, that is to say, as far as it exists in reality outside our heads, it manifests itself for instance in the fact that certain parts of the surplus value produced by capitalist A over and above the rate of profit, or above his share of the total surplus value, are transferred to the pocket of capitalist B whose output of surplus value remains as a rule below the customary dividend. But this process takes place objectively, in the things, unconsciously, and we can only now estimate how much work was required in order to achieve a proper understanding of these matters. If the conscious co-operation of the individual capitalists had been necessary to establish the average rate of profit, if the individual capitalist had known that he produces surplus value and how much of it, and that frequently he has to hand over part of his surplus value, then the relationship between surplus value and profit would have been fairly obvious from the outset and would presumably have already been described by Adam Smith, if not Petty.

According to Marx's views all history up to now, in the case of big events, has come about unconsciously, that is, the events and their further consequences have not been intended; the ordinary actors in history have either wanted to achieve something different, or else what they achieved has led to quite different unforeseeable consequences. Applied to the economic sphere: the individual capitalists, each on his own, chase after the biggest profit. Bourgeois economy discovers that this race in which every one chases after the bigger profit results in the general and equal rate of profit, the approximately equal ratio of profit for each one. Neither the capitalists nor the bourgeois economists, however, realise that the goal of this race is the uniform proportional distribution of the total surplus value calculated on the total capital.

But how has the equalisation been brought about in reality? This is a very interesting point, about which Marx himself does not say much. But his way of viewing things is not a doctrine but a method. It does not provide ready-made dogmas, but criteria for further research and the method for this research. Here therefore a certain amount of work has to be carried out, since Marx did not elaborate it himself in his first draft. First of all we have here the statements on pages 153-156, III, I, which are also important for your rendering of the concept of value and which prove that the concept has or had more reality than you ascribe to it. When commodity exchange began, when products gradually turned into commodities, they were exchanged approximately according to their value. It was the amount of labour expended on two objects which provided the only standard for their quantitative comparison. Thus value had a direct and real existence at that time. We know that this direct realisation of value in exchange ceased and that now it no longer happens. And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence. A genuinely historical exposition of these processes, which does indeed require thorough research but in return promises amply rewarding results, would be a very valuable supplement to Capital.

Finally, I must also thank you for the high opinion which you have formed of me if you consider that I could have made something better of volume III. I cannot share your opinion, and believe I have done my duty by presenting Marx in Marx's words, even at the risk of requiring the reader to do a bit more thinking for himself. ...

If I knew more, I think I might not agree with Sombart's take on Marx.

If somebody started going on about a theory of value, without context, you might expect them to talk about what people do or should want, about what things are or should be worth in some moral sense. Maybe such a discussion should draw on the philosophical branches of aesthtics or ethics. Or one might expect to see an exposition of some substantial sociological theory explaining the tastes of people, perhaps drawing on history and where they are in society. Or maybe you might expect a formal characterization of utility functions and revealed preferences.

None of the above, though, have anything to do with Marx's law of value. I think he is clear that he does not expect people in a capitalist economy to be conscious of the labor value embodied in commodities. He says such in the section on commodity fetishism:

A commodity is therefore a mysterious thing, simply because in it the social character of men's labour appears to them as an objective character stamped upon the product of that labour; because the relation of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour... the value relation between the products of labour which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. There it is a definite social relation between men, that assumes, in their eyes, the fantastic form of a relation between things...

...Hence, when we bring the products of our labour into relation with each other as values, it is not because we see in these articles the material receptacles of homogeneous human labour. Quite the contrary: whenever, by an exchange, we equate as values our different products, by that very act, we also equate, as human labour, the different kinds of labour expended upon them. We are not aware of this, nevertheless we do it. -- K. Marx, Capital, vol. 1.

The law of value is about a process in a capitalist economy that takes place behind people's backs. You might find somebody telling you that when they go shopping, they do not make decisions on the basis of the relative time it takes to make the commodities which they are choosing between. Nor do businessmen make investment decisions on the basis of the labor embodied in produced commodities, including the labor embodied in the means of production needed to manufacture these commodities. If somebody points out these facts to you, they are agreeing with Marx, not refuting him.

I read Engels as re-iterating these points when he says that the law of value, more or less, is "completely foreign to the mind of the individual capitalist". I also see Engels here echoing what has become known as the historical transformation problem.


Anonymous said...

A different historical transformation problem

Blissex said...

«If somebody started going on about a theory of value, without context, [...] what things are or should be worth in some moral sense.»

That word "worth" is fairly critical here. In the history of political economy thinking there have been some core problems, and one of those has been the problem of what determines the *prices* of commodities, and the intuition of early political economists was that it was related to "intrinsic worth" of those commodities, so the two question arose: what is the "intrinsic worth" of commodities, and by what mechanisms "prices" settle around the "intrinsic worth" of commodities. At that time commodities were mainly made by farms, and by servants, so the obvious guesses were that "worth" was determined by the fertility of land ("physiocrats"), because more land means more commodities, or that it was determined by the labor of servants ("classicals"), because more servants more commodities.

But while it appears that Marx follows the latter line, from the point of view of Marx "value" is simply *defined* as the labor of free people, because he is interested in the cost accounting of that labor, because he wants to investigate the distribution of that labor between employees and employers.

One could similarly define "value" as "beauty" if one believes "beauty" is what matters as to "worth", or one was interested in cost accounting of "beauty" to investigate the distribution of "beauty" in society, and similarly for "fertility", "goodness" or "luck" or "taste" or "fame" or whatever.

Put another way, the political economy and "worth" are a multidimensional phenomenons, and Marx was interested in their section/projection on the "labor of free men" axis because his purpose required that.

The wider question of political economy is that if we must have models that are "stylized facts" as that guy said, of of the many dimensions in which it exists which ones are the most insightful to keep in the model, dropping all others, and in particular for example which are needed to account for prices. But I guess that is not what Marx mainly was about.

Blissex said...

Also many thanks for quoting that letter, which is quite interesting, because it shows that Marx had a clear notion of the concept of "emergent behcviour" in systems, which did not reduce to Adam Smith's earlier example of the "invisible hand".

There are many lovely point, for example "believe I have done my duty by presenting Marx in Marx's words, even at the risk of requiring the reader to do a bit more thinking for himself", but in particular "his way of viewing things is not a doctrine but a method. It does not provide ready-made dogmas, but criteria for further research and the method for this research." because it looks like a point I like to make, that betweeen "sciences" that study immutable (as far as we know...) natural laws, and "arts" that are about subjective expressions of taste, there are what I call "disciplines", like in different degrees medicine, political science, history, which are about systematic approaches to fuzzy and context dependent subjects, that change but slowly enough that systematic approaches are fruitful.

As to that there is an interesting quote from JM Keynes about "disciplines":
“Put broadly, the most important condition is that the environment in all relevant respects, other than the fluctuations in those factors of which we take particular account, should be uniform and homogeneous over a period of time. We cannot be sure that such conditions will persist in the future, even if we find them in the past.”

Robert Vienneau said...

Just so you can click. This is, I guess, a history of how the transformation problem has been interpreted in China.

I think that Marx was not focused on relative prices and cannot figure out if I am or am not a supporter of Marx's law of value.

Blissex said...

«Marx was not focused on relative prices»

My guess is that he was rather more focused on the quantification of plusvalue, by using cost accounting in terms of labor, and its distribution into wages for sellers of labor-power and surplus value for their employers.

«and cannot figure out if I am or am not a supporter of Marx's law of value.»

The point of using the "Labor Definition of Value" (rather than "Law" or "Theory") is the same as that of any other concept in insight: whether focusing on it to the exclusion of something else is fruitful of useful insights. As to that my guess is that cost accounting on the basis of the "Labor Definition of Value" does indeed lead to useful insights, as "Labor" is a much more relevant basis for that cost accounting than "beauty" or "fame" etc.

However I find it less useful to investigate distributional issues, the purpose of marxian analysis, because his "exploitation" argument is a trivial consequence of the "Labor Definition of Value": if it is assumed by definition that the "value" of commodities is the "labor of free person", then it is immediately obvious that under that definition any "free person" who is consuming commodities without contributing "labor" is an exploiter. There is no need to write several hundred chapters, books, articles, to "prove" it with clever arguments and models; the conclusion is implicit in the definition.

Also the argument can be easily reversed: if we define "value" as "capital contribution" it is immediately obvious that all workers that are paid more than subsistence wages are exploiting their employers. The argument that capital cannot exist without labor can be also exactly reversed, by pointing out that for example given capital in the form of a corn field, labor providers could not be alive without the produce of that capital.

Of course the questions of "what comes first, labor, capital, land?" is not that interesting, and "joint production" also known as in some remote corners of the world as "production of commodities by means of commodities" is a very interesting topic.

Blissex said...

«and cannot figure out if I am or am not a supporter of Marx's law of value.»
«and "joint production" also known as in some remote corners of the world as "production of commodities by means of commodities" is a very interesting topic.»

As to this, I am feeling as usual wistful, and wasteful, so I will wastefully and wistfully recommend to our blogger to take accounting and cost accounting much more seriously:

* Accounting is the very basis of civilization, to the point that mathematics and writing were invented for that purpose.

* An accounting focused is indispensable for understanding properly (if it is possible) the issues of "joint production", in particular cost accounting.

* There are deep intellectual issues in accounting, in particular as to multi-project accounting and multi-period accounting (that is accounting beyond a single "venture" as it used to be called), in particular as to cost accounting (and even more specifically as to amortization aka depreciation), a truly intellectually challenging topic.

A lot of Marx and Sraffa and much else besides are based on "reinventing" accounting and cost accounting, and a lot of "neoclassical" Economics is based on a determination to hand-wave away accounting issues, and in particular cost accounting issues. The legendary "Cambridges Capital Controversy" is perhaps best understood as a cost accounting controversy... I would say that, wouldn't I? :-).

NB: I am not accountant, my academic background is both political economy and engineering, so I am naturally predisposed to have a multidimensional view of the political economy, including viewing it as a giant "factory", as well as than as a "market", and a "factory" that engages in multi-project, multi-period production, thus requiring accounting (and cost accounting) insights. Maybe I learned to take accounting vary seriously because my father was a certified accountant after studying political economy (a long, long time ago) and talking with him and reading the many books he had collected gave me valuable (or so I think) information. I am sad that I no longer have the ability to tell him how much I appreciated that.

Blissex said...

«recommend to our blogger to take accounting and cost accounting much more seriously»

There aren't that many "history of accounting" books, and one of the most recent is pretty good, Jacob Soll's "The Reckoning: Financial Accountability and the Rise and Fall of Nations”:

It however has some limitations to be kept in mind:

* As the title says, focuses a bit too much on national accounts.

* It focuses too much on the early history of accounting.

* Therefore it makes a really big deal of double-entry accounting, and is light on the really big issues, which are multi-project and multi-period (cost) accounting.

NB: My background includes living in countries where accounting is a creative, adventurous, swashbuckling activity, and has been for most of history, this perhaps has influenced me. When I read company accounts, which I do sometimes for entertainment, I can be riveted by their narrative creativity and the dazzling techniques displayed (even if almost always the "whodunit" bits are related to depreciation, that is to multi-project, multi-period cost accounting).