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BOOK III

THE POSTULATES OF GERMAN SOCIALISM

CHAPTER I

“True” Socialism

Contempt for French Socialists—Apology for German Socialism—Communism, Collectivism, and Socialism synonymous—Programmes of Saint Mandé and of the Havre Congress.

Socialists who range themselves under Karl Marx say: Plato, Campanella, More, Morelly, Owen, Saint Simon, Fourier, Cabet, Considérant, and Louis Blanc forsooth! Why tell us of all these Socialists, Utopians, dreamers, and more or less enlightened makers of literature, all so far removed from all reality? Neither Owen, nor Pierre Leroux were worthy to invent the word “socialism.” As for Proudhon, who said “Every man is a socialist who concerns himself with social reform,” he proved that despite his pretension, he belonged to those socialists of the clubs, the salons, and the vestries who indulged in elegiac, declamatory, and sentimental socialism in and about 1848.

Proudhon was nothing but a “petit bourgeois” as Karl Marx said. There is but one true socialism, the socialism of Germany, whose formula was propounded by Karl Marx and Engels in the “Communistic Manifesto” of 1848.

They chose “communism” because the word “socialism” had been too much discredited at the time, but they subsequently resumed it, for the logical conclusion of all socialism is communism. The word “collectivism,” says Paul Lafargue, was only invented in order to spare the susceptibilities of some of the more timorous. It is synonymous with the word “communism.” Every socialistic programme, be it the programme of St. Mandé, published in 1896 by M. Millerand, which lays down that “collectivism is the secretion of the capitalist régime,” or that of the Havre Congress, drawn up by Karl Marx, and carried on the motion of Jules Guesde, concludes with “the political and economic expropriation of the capitalist class and the return to collective ownership of all the means of production.”

But is this conclusion really so very different from that of their predecessors whom they treat with such scorn? What claim have Karl Marx, Engels, and their followers to prefix the word “scientific” to the word “socialism?”

CHAPTER II

The Claims of Marx and Engels

For Germany—Against Rodbertus—Against Lassalle.

Karl Marx and Engels, while declaring themselves to be internationalists and communists, begin by themselves failing in their pretensions. Far from admitting that the French communists and socialists were their precursors, they never cease to load them with scorn and contempt. They refuse to be under any obligation to those Frenchmen whose powers of persuasion they detest and who expect clearness in others although they lack it themselves, and they are unable to submit to a “discipline of pedants.” Karl Marx and Engels want to convert socialism into a German monopoly, and when Marx says “Proletariat of all nations, unite,” what he means is “Pan-Germanise.”

At the same time they bitterly contend with their own compatriots for the private proprietorship of their formulæ, refusing to share them with anyone. Rodbertus claimed that Karl Marx had borrowed his ideas. Engels asserts that Marx had never beheld any of Rodbertus' publications before 1858 and 1859. Inasmuch as Rodbertus' first publication was issued in 1837, he in his turn expresses astonishment that Marx, who claimed to know everything, should pretend to such profound and long-continued ignorance with respect to him. In revenge, Engels freely admits that Proudhon owes his conception of value to Rodbertus—another instance of Pan-Germanism. But Engels is constrained to admit that Rodbertus and Marx both drew from the same English source, Ricardo, and says, “It does not occur to Rodbertus' mind that Karl Marx may have been able to draw his conclusions unaided from Ricardo as well as Rodbertus did himself.” At all events Rodbertus has the advantage of priority in date, and despite their violent denials, Marx and Engels are the disciples of that great Pomeranian landed proprietor, the representative of the great landowners in the provincial assemblies and in the Prussian Parliament, and, therefore, actually a champion of class distinctions. In his dislike of the French Revolution, Karl Marx, himself the son-in-law of a Prussian “Junker,” transfers to it the hatred entertained for it by his wife's family, and Paul Lafargue inherited it from him.

As for Lassalle, Karl Marx treated him with contempt. In his preface to “Capital,” written in 1867, he says of him (he died in 1864), “While abstaining from indicating their origin, he has borrowed from my writings, almost word for word, all the theoretical propositions of his economic writings.”

CHAPTER III

The Sources of German Socialism

Formulæ of Saint Simon and Ricardo.

German Socialism is derived from two sources:—

(1). The French doctrine of Saint Simon, “The way to grow rich is to make others work for one,” which became in Proudhon's works, “The exploitation of man by man.”
(2). Three formulæ of Ricardo, viz.: (a) Labour is the measure of value; (b) the price of labour is that which provides the labourer in general with the means of subsistence and of perpetuating his species without either increase or diminution; (c) profits decrease in proportion as wages increase.

Formula (b), became the “iron law of wages” of Lassalle. The French doctrines and Ricardo's three formulas became Rodbertus' theory of the “normal time of labour,” and of Karl Marx' and Engels' “surplus labour.”

CHAPTER IV

Formula B and the “Iron Law of Wages“

Turgot and wages—The actual price of labour and the price of the means of subsistence—Ricardo—Lassalle and the “iron law of wages”—Graduation of wages in the city of Paris—Rise of wages and diminution of the price of the means of subsistence—Share of capital and of labour in production in the United States—Bastiat and Rodbertus.

Turgot said: “The price at which the poor workman sells his labour does not depend upon himself.” But does the price at which the merchant vends his goods depend upon himself? If no one wants them, no one will take them.

Ricardo having based his theory of value entirely upon labour, attempted to find a mean or standard for it. He says, somewhat vaguely, “The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution… The natural price of labour, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the labourer and his family.1 Nevertheless, he recognised that “the natural price of labour, estimated even in food and necessaries, is not absolutely fixed and constant.” He added that, “an English workman would consider his wages under their natural rate and too scanty to support a family if they enabled him to purchase no other food than potatoes, and to live in no better habitation than a mud cabin.”

Lassalle's sonorous metaphor of “the iron law of wages” is derived from Ricardo's formula. It implies the equality of wages, and in 1848 the workmen were so fully aware that it was fallacious that Louis Blanc was obliged at the Luxembourg to refuse his support to the principle of equality of wages which he had preached. The graduated scale of wages in the city of Paris was set up by the workmen themselves in 1880. The scale of wages of the several classes of workmen in the building trade is as follows, according to the “Bordereaux des Salaires” published by the Labour Bureau in 1902:

	1880.	1900.
Bricklayer .....	0.75	0.80
Stone-mason .....	0.75	0.85
Rough-caster .....	1.00	1.20
Carpenter .....	0.80	0.90
Navvy .....	0.50	0.50

The navvy does not buy his bread cheaper than the rough-caster. If the “iron law” applies to the former, it does not apply to the latter.

Mr. Bowley in his “Progress of the Nation” compares wages with M. Sauerbeck's “Index Numbers,” in which the means of subsistence play an important part.

Wages have doubled between 1840 and 1900, rising from 50 to 100, or rather from 100 to 200, while prices have fallen from 100 to 61. Therefore, in 1840, £100 in wages would pay for £100 in commodities. In 1900, £200 in wages would pay for more than three times (3.2) £61 in commodities. Consequently the value of wages has risen in the proportion of 1 to 3.2, or, say, 220 per cent.

Rodbertus enunciated a formula which Socialists who claim to be scientific attempt to substitute for the “iron law of wages.” This is “that the increase in the productivity of labour involves the reduction in the wages of the working classes to a constantly decreasing fraction of the social product.”

I take the figures contained in the census of the whole of the industries of the United States:—

Improvements in plant have not taken away work from the workmen, seeing that their numbers increased by 44 per cent. between 1890 and 1905. The rate of return on capital has decreased by 24 per cent., while wages have risen 11 per cent. This is a condemnation of Rodbertus' formula and a confirmation of Bastiat's, which he expresses as follows:—“In proportion as capital increases, the absolute share of capitalists in the total amount of production increases, and their relative share decreases. The workmen, on the other hand, see their share increasing in both respects.”1

CHAPTER V

Formula A. Work the Measure of Value

Rodbertus—The working hour—“The social will”—Work tickets or vouchers—The equalisation of values—Rodbertus alarmed—Inconsistencies of Karl Marx and Engels.

Rodbertus, about 1842, sought to determine the “standard of work” as the measure of value, under the name of the “normal period of work” (Arbeitszeit).

“Inasmuch as a working day has a different productive value in different kinds of production, different kinds of work should be assessed relatively to one another and uniformly expressed in terms of a standard unit of work-time. In a particular class of work a working day contains so many hours by the clock, or a working hour so many minutes by the clock; in another class of work it contains so many hours and so many minutes respectively. This presents no obstacle to a division of the standard day or the standard hour, in the different kinds of production, into a uniform number of standard hours or minutes of work. This will give in and for every kind of production a species of scale by which to measure the productive value of a given period of work.

“The difficulty arising from the differences among various workmen can be removed by the standard daily task (Normales Tagewerk).”

This settles the whole question. The “social will” of the State decrees the standard period of work. This “social will decides and fixes where individual wills had debated and compromised.” This “social will” implies “a separate organ of society to administer its land and its capital, and to preside over social production and distribution.” This central organ, “of monarchical or democratic origin”—it matters little from the economic point of view—is to embrace in itself all economic functions. Public needs are determined by the “social will,” as represented by the Prince of the Assemblies. Individual needs are fixed by the standard period of work. “The time which everyone who takes part in production consents to devote to productive work determines the limits of the means which are sufficient to cover the range of everyone's needs.” The limits being ascertained, one knows “what is the nature of the needs which are to be satisfied, and therefore the nature and quantity of the articles which are to be produced.” From the time when “the duration of work is a common measure of productive power, as well as of needs, nothing can be clearer than the manner in which to proceed.”

The administration may, (1) fix the value of all products “by fixing the value of the produce of the labour of each individual in terms of every other kind of product, and consequently in terms also of articles for consumption or finished products” (p. 117); and (2) create a currency which answers fully to the requirements of a currency.

The economic administration would remit to each producer a receipt for so much standard work, represented by the actual produce created by him in accordance with the rules herein set forth. This document would bear an exact statement of the value created by its holder, and would therefore serve in his hands as a voucher for an equal value. He could then use it to obtain payment for his labour in the social magazines in the form of articles of consumption in exchange for the voucher.

This currency would form a perfect measure of value, since each voucher would state the precise quantity of value which had been worked out; in the second place it would afford an absolute security, inasmuch as it would only be issued if the value expressed upon it in fact existed; in the third place it would cost nothing, as it would be merely a piece of paper with no intrinsic worth, yet capable of forming a perfect substitute for money. (pp. 126-127.)

“By properly following the rule,” said Rodbertus, “the sum total of value to be disposed of must be exactly equal to the total value certified; and inasmuch as the total value certified corresponds exactly to the total value allotted, the latter must necessarily resolve itself into available value, all requirements are satisfied and the values balance accurately.”

Although Rodbertus was an agriculturist, he forgets that a fortnight of drought or of rain might disturb this beautiful equilibrium. Still, he worked it out and had it verified by one of the overseers of the public debt in Pomerania, and therefore asserts that it supplies every guarantee of soundness. He admits, however, that “in the absence of special legislation, it is impossible for work to be the measure of value.”

Karl Marx, in order to prove that he was not a disciple of Rodbertus, made fun of this childish system, which pre-supposes that an administration can set up an exact relation between the value of gems and of manure, as determined by a standard of working time, regardless of demand and supply, which can only be indicated by competition.

When Karl Marx's “Capital” appeared in 1867, Rodbertus, the conservative and landowner, was alarmed, like a hen which has hatched ducklings. In order to reassure himself and his fellow landed proprietors, he proposed “to consider the function of the capitalist employer as a public function entrusted to him by the medium of capitalist property, and his profit as a form of salary. But salaries can be regulated or reduced if they become unduly large.”

All systems of collectivist organisation end, through the force of circumstances, in vouchers for work, and the witticisms of Marx and Engels only go to prove the incoherence of their own theories.

CHAPTER VI

Karl Marx and FormulÆ A, B, and C

i Ricardo's formula and Marx' amendment—A third mysterious quantity—“Labour power”—Definition of value—Surplus value.
ii Variable capital and surplus-value — Example—1,307.69 per cent.—Total surplus value proceeding from 2.50 per cent. of capital—The vampire.
iii Disinterestedness of the “vampires”—Destruction of surplus value by establishment.
iv The elements of profit—Marx' assertion that establishment is not a factor in profit.
v Raw material—Definition of profits.
vi Variation in surplus-value — Marx' and Engels' qualifications—The theory abandoned—Profit is derived, not from the quantity of unpaid labour, but from the management of the enterprise.

I

Ricardo said: “The value of a commodity depends upon the amount of the labour necessary to produce it.” This definition has the advantage of simplicity, and therefore did not suit Karl Marx, who adopted Ricardo's definition, with the substitution of the expression “labour-power” for “labour,” and this constitutes his great discovery to the admiring eyes of Engels.1 But he does not always make use of this complementary expression.

In order to establish his proposition, Karl Marx starts with the elementary arithmetical truism that two quantities which are equal to a third are equal to one another. Let us see how this truism becomes distorted by Karl Marx's dialectical method.

A given quantity of corn is equated to some quantity of iron. What does this equation tell us? It tells us that in two different things there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them must be reducible to the third, independently of the other.1

In exchange, these two commodities are equal to the reciprocal desire of their two owners to exchange them, and in proportion to such desire. As money serves as the common denominator in exchange, these two quantities are equal to a certain quantity of money. Karl Marx does not care to take the facts leading to this conclusion into account. He supposes that this third quantity is the mysterious quantity of labour which is incorporated in the corn and the iron. His great discovery is then complete:—

“The value of each commodity is determined by the quantity of labour expended on and materialised in it, by the working-time necessary, under given social conditions, for its production.”2

In Karl Marx' view, value cannot be the relation between the desire and the need of two individuals. He declares that “value only consists in articles of utility, in an object.” Still labour-power is not an object; it is the expression of an effort which may even possibly remain without any result. In order to meet this objection, Karl Marx declares that “man himself, viewed as the impersonation of labour-power, is a natural object,”3 and further that “the real value of a commodity is not its individual value, but its social value.”4 Value is defined as “a definite social manner of expressing the amount of labour bestowed upon an object.”5 Karl Marx takes care to call attention to the importance of this conception of value, “the discovery of value marks an epoch in the history of the development of the human race.”1 Nevertheless Engels subsequently said that even if Marx' law of value ought not to be considered as inaccurate, it is too vague, and is capable of being laid down with greater precision, and he recognises that it fails to correspond with actual facts. Werner Sombart declares that “the law of value is not an empiric fact, but a fact founded upon ideas, a stimulus to our minds.” Another disciple, Bernstein, looks upon it as a “subjective conception,” and Karl Marx in his third volume recognises that it is entirely removed from reality by saying that “the cost of production includes not only labour-power and work-time, but also the intermediate profit of the capitalist.”

Karl Marx then invokes the aid of formula “B,” called by Lassalle “the iron law of wages,” and transforms it into his theory of “surplus labour.” The value of the working day is determined by the working time necessary for the production of the means of subsistence that are daily required for the production of labour power. If this costs six hours, the labourer must work on an average for six hours. During these six hours he is working for himself, but by working for twelve hours he gives six hours of extra labour or surplus labour or unpaid labour, which constitute the profit of the capitalist, and this is what Karl Marx calls “surplus-value.” Reducing all this to a ratio we have

This proportion determines the rate of surplus-value. The total amount of necessary labour and of surplus-labour forms the grand total of labour-time or in other words a working day.

II

Karl Marx places capital employed in production in three categories. Fixed capital, representing establishment or plant; constant capital, representing rent, raw material, heating and lighting; and variable capital, representing wages.

The variable capital of a capitalist is the expression in money of the total value of all the labour-powers that he employs simultaneously. Its value is, therefore, equal to the average value of one labour-power, multiplied by the number of labour - powers employed.1

Why should capital be constant when it is a question of raw material and variable when it is one of wages? The price of the former is subject to more rapid and more frequent fluctuations than that of the latter. Karl Marx recognises that the price of cotton may rise in the market from sixpence at the time when it enters a factory to a shilling during the process of manufacture, and that this rise in price may become incorporated in the product, but “this charge is independent of the increment or surplus value added to the value of the cotton by the spinning itself.”

That part of capital which is represented by the means of production, by the raw material, auxiliary material, and the instruments of labour, does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital.

On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is constantly being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital.2

Profit is derived from the fact that the capitalist is able to sell a thing for which he has not paid, namely surplus labour. Consequently a ratio can be established between variable capital representing labour and the excess of that value obtained by the finished goods.

Let us examine the consequence of these notions in the light of an example1 given by Marx. He takes the case of a spinning mill containing 10,000 mule spindles for a week in April, 1871, and applies this to a year's working, without regard to any question of credit.

Proportion per cent:

Constant capital	87.3
Variable capital	12.6

Calculating these elements upon the total circulating capital of £2,500, we have £2,182 constant capital and £318 variable capital. The total amount expended annually in wages is 52 × £52 = £2,704, so that the variable capital of £318 has turned itself over almost exactly 8½ times in the year. The profit for the whole year is 80 × 52 = £4,160, which, in relation to the total capital of £12,500, yields 33.28 per cent. This is the rate of profit. Profit is arrived at by comparing the surplus-value of labour or of variable capital with the total capital, but this is not the profit which is apparent. The surplus-value of the variable capital is only to be compared with the variable capital, that is with the amounts paid to the workmen. We now have £80 of surplus-value, divided by £52 = 153 1113 per cent. But inasmuch as the variable capital (£318) is turned over 8½ times in the year we have:—

This figure of surplus-value is the figure of surplus-labour, the rate of remuneration of this vampire, capital. When the employer pays £100 in wages, he makes a profit of £1,307, when he pays £1, his profit is £13.

Karl Marx and his followers have every advantage in denouncing such an exploitation of labour by capital; a declamatory socialist does not analyse the method by which this proportion was arrived at. He challenges mathematicians to demonstrate that Marx's authentic calculations are incorrect, and because no one takes up the challenge, he concludes from their silence, that Marx has proved, not in accordance with an hypothesis in the air, but by the example of an English spinning mill, that an employer made a profit of more than £13 for each pound spent in wages, during a week in 1871; that those £13 are derived from the £1 spent on labour; that they represent the surplus-value of human labour which is absorbed by capital, and that they stand for labour which has not been remunerated. Marx continues:—

The total capital is divided into £12,182 of constant and £318 of variable capital, a total of £12,500, or 97½ per cent. of constant and 2½ per cent. of variable capital. Only a fortieth part of the total capital is employed in paying wages, but it serves this purpose more than eight times a year.

The whole surplus-value, therefore, according to Marx's theory, is derived from these 2½ per cent. And he concludes by saying that:—

Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more the more labour it sucks.1

III

Instead of denouncing the rapacity of the vampires who grow fat on labour for which they do not pay, Karl Marx ought to have made fun of their absurd disinterestedness. According to the above computation, the portion of capital set apart for wages is only 2½ per cent. of the total capital; if then the profit be derived entirely from this fraction, why do employers continually seek to keep it down, instead of increasing it? Why improve their plant instead of increasing the number of their wage-earners? If unpaid human labour be the sole element of profit, why substitute mechanical labour for it? How can they have failed to realise their mistake, when Karl Marx has pointed out to them the means of obtaining unlimited profits by making unlimited additions to their staff of labour?

Logically, in order to make a fortune the capitalist has only to take the greatest possible number of workmen and to make them work, not as usefully as possible, but for the greatest possible number of hours. An employer should never buy a machine, and should destroy all those that he possesses. If navvies had neither picks, spades nor wheelbarrows, the number of them necessary for a particular job would have to be largely increased, and by virtue of the law of surplus-value they would earn far larger profits for the contractor if they were to scrape the ground up with their nails and carry it in their hands.

Karl Marx found the following answer. There are three methods by which the capitalist can increase surplus-labour: by reducing wages, that is to say the hours of necessary labour, a reduction which is limited by the means of subsistence, or by increasing the hours of labour, but in this he is encountered by obstacles of a physiological, moral, and legal nature. There remains, therefore, but one method, that of perfecting the means of production.

The capitalist who applies the improved method of production, appropriates to surplus-labour a greater portion of the working-day than the other capitalists in the same trade….

There is immanent in capital an inclination and constant tendency to heighten the productiveness of labour, in order to cheapen commodities, and by such cheapening to cheapen the labourer himself.1

This is how Karl Marx explains the capitalist's passion for machinery. But this explanation is insufficient for the following reason. If machinery increases the labour of the individual, it diminishes the number of individuals necessary for a like amount of production; it therefore destroys that human surplus-labour which is the sole source of surplus-value, and which alone produces a profit for capital; the capitalist, therefore, by substituting machinery for manual labour, condemns himself to famine and commits himself to suicide, and all progress in industrial production is actually the destruction of surplus-value.

A capitalist owns a machine of ten horse-power, worked by two mechanics, each of whom is paid 6 francs a day. The result is as follows:—

Multiplying this by 2, you find that the capitalist vampire has appropriated surplus-value to the value of 6 francs. If, however, he had employed the 210 men who are the equivalent of 10 horse-power, he would even, if the surplus-value was reduced from 3 francs to 1.50, to 0.50, or to 0.25, have 210 francs, 105 francs, or 52 francs respectively, instead of the 6 francs obtained from the two mechanics.

These vampires are madmen: they destroy with their own hands the surplus-value which is their only profit.

IV

Karl Marx' fallacies rest upon this proposition that that which is greater than a particular magnitude cannot constitute a portion of such magnitude. Profit cannot therefore form a fraction of the capitalist's outlay. From this he draws the conclusion that profit is merely the result of unpaid human labour, and in fact falls into the old error of all protectionists, he has eyes only for production. Now production is valueless without consumption. The profit of a business is derived from its customers. The demand for a commodity or for services, the net cost at which a commodity is produced, the ease with which it is placed at the service of a purchaser, such are the constituent elements of profit. Capital is one of the coefficients of net cost. Karl Marx asserts that in the eyes of the capitalist the price of the commodity is exclusively deter mined by the labour for which he pays. The capitalist knows perfectly well that return on capital is one of the elements in the net cost of a commodity and in the example cited by him this return is an item which he takes into consideration. He waxes indignant because the owner of the capital obtains some return on it, but if the capitalist derived no profit from its employment, he would refrain from employing it. But, says Karl Marx, profit cannot form a fraction of the capitalist's. If he had taken the trouble to observe actual facts, he would have arrived at the following conclusions.

A manufacturer purchases a spinning mill, worth a particular sum of money. It is obvious that, if he were to empty it of its contents or to leave it standing idle, he would reap no profit from it. Of course, standing by itself this mill would confirm the truism that “that which is greater than a particular magnitude cannot constitute a portion of such magnitude.” But the manufacturer supplies this mill with cotton of which a quantity is spun, representing a particular sum of money, and it is for the facilities which he affords for converting raw cotton into thread that the capitalist is able to obtain a sum sufficient to pay off the cost of the mill; when this cost has been paid, the profit obtained by the manufacturer out of the work produced by this mill is increased by the paying off and recovery of the purchase price. Here we have an element of profit. As between two undertakings, the one which succeeds the more rapidly in paying off the purchase price of its mills will obtain the greater profit, and its profit will be greater during the time subsequent to the paying off than it was during the time which preceded it. Fixed capital has drawn no profit from itself. A mill does not produce a mill and a quarter or a mill and a half. But the use of the mill produces utility, and utility produced in the shape of the manufactured product enables the manufacturer to pay off its prime cost and to renew his plant. To say that the mill does not contribute to the profit is equivalent to saying that it does not contribute to production.

V

Karl Marx' fallacies leave out of account the existence of raw material. Undoubtedly the truism to which he appeals, that that which is greater than a particular magnitude cannot constitute a portion of such magnitude, is applicable to all raw material, which is incapable by itself of producing any profit. If it is not used it even runs the danger of deteriorating, and the capital employed in acquiring it would lose its utility.

But raw material, when brought into contact with other raw material and worked up by means of plant, is transformed into a product, and what is the value which such product acquires? Surely that which is given to it by the consumer who requires it and whom Karl Marx suppresses in order to establish his fallacious argument.

And now what is the part allotted to human labour? The capitalist takes charge of it and provides it with the raw material and the plant necessary to bring it into play, and receives from it either services or products for which he pays, and this payment we call wages. Plant, raw materials and wages result in the production of a commodity, and it is the difference between the net cost and the price at which this commodity is sold which constitutes the profit.

VI

Karl Marx pronounces the doom of his own system in the following passage1 :—

A part from modifications introduced by the system of credit, by the chicaneries in which capitalists indulge with regard to one another, and by the advantages derived by them by the selection of the most favourable markets, while the degree in which labour is exploited by them may be the same, the rate of profit may be very different according as (a) their raw material is purchased more or less cheaply, or with more or less skill and judgment; (b) their plant is more or less productive, effective, and costly; (c) the general organisation of the various stages in the process of production is more or less complete; and (d) the waste of raw material is avoided; and (e) the management and superintendence are more or less simple and effective. In short, given the surplus-value for a particular amount of variable capital, it depends to a great extent upon the individual competence either of the capitalist himself or of his overseers and clerks, whether this surplus-value is to be expressed in a greater or a smaller rate of profit, and consequently whether his actual profit will be greater or less. The same surplus-value of £1,000, the produce of £1,000 spent in wages, may have required a constant capital of £9,000 in undertaking A and of £11,000 in undertaking B. In the case of A the profit is 100010000 10 per cent. In the case of B it is 100012000 8 13 per cent.

Such a difference in the representative value of the same quantity of surplus-value may be entirely due to differences in the capacity of those who direct the two undertakings.

Engels qualifies the illustration in which the rate of profit is given as 1,307 9-13 per cent.1 with the observation that this rate of profit is abnormal and is only to be explained by a temporal and exceptional combination of circumstances (exceptionally low prices of raw and exceptionally high prices of manufactured cotton) which undoubtedly cannot have obtained throughout a whole year. A few lines lower down, he confuses the expressions “profit” and “surplus-value,” and remarks that such a rate of profit is not uncommon in periods of great prosperity, such as have not, however, been experienced for a considerable time.

These two qualifications, it would seem, upset the whole calculation. If the prices of raw cotton as a raw material, and of manufactured cotton as a product play a part in the increase or decrease of profits, it follows that profit is not simply the product of surplus-labour, and the rate of 1,307 per cent. disappears with the appearance of elements in the value of the product other than the element of surplus-labour.

Marx recognises over and over again that the difference in the profits of various industries depend upon the rapidity with which the capital employed in them is turned over. Accordingly the profit of an undertaking does not depend exclusively upon unpaid labour. It is, therefore, not enough for a capitalist to bring a large number of workmen together, to pay them small wages, and to impose severe and protracted labour upon them in order to obtain surplus-value in proportion to the number employed at a minimum rate of wages and a maximum of industry and duration of labour. Marx himself recognises this by saying that a difference in the same quantity of surplus-value may be entirely due to differences in the capacity of those who direct different undertakings.

Hence follows the involuntary conclusion to his theory to which he is forced and which he admits in his own words: “The profits of an undertaking are independent of the quantity of capital employed in it and are not in proportion to the quantity of unpaid labour.”

Profit is derived from the management of the undertaking.

CHAPTER VII

The Discoveries of Karl Marx and the Facts

i The definition of value—Werner Sombart—Engels' admission—Elements of value—Definition of value.
ii Surplus-labour and facts.
iii The rise and fall of wages—Karl Marx versus free exchange—The German Socialists versus Karl Marx—The rise of wages and the markets.

I

Karl Marx' system is so inconsistent that M. Werner Sombart, who has tried to explain it, declares that “the law of value is not an empirical fact, but a mental fact.” It is a “stimulus to our minds,” and consequently far removed from all reality. M. Werner Sombart says that he has tried to reconcile the obviously contradictory parts of Marx' theory of value, and adds, “at this time Engels can still certify that I was very nearly in the right, but that he is unable to subscribe without some qualification to everything that I have imported into Marx' doctrines. Other critics were of opinion that this was not Marx' theory of value at all.” And M. Werner Sombart adds modestly, “perhaps they are right.” Nevertheless, Engels recognises that “even if Marx' law of value cannot be considered incorrect, it was too vague and was capable of being set out with greater precision,” but he has not himself undertaken the task of doing so.

If the foundation of scientific socialism, with which the disciples of Marx claim to revolutionise the world, is merely a “subjective conception,” deprived of all reality, they lay themselves open to the same criticisms which they level at the French Utopians and socialists of 1848.

It is untrue that labour is the measure of value; value is measured by exchange and is based upon two objective elements, the net cost of the commodity, of which labour constitutes merely a variable element, and the purchasing power of him who desires to possess it, and upon one subjective element, the demand for such commodity. The market rate is fixed, not by the net cost, but by the purchase price.

Value is the ratio between the utility possessed by an individual or group of individuals and the demand as well as the purchasing power of one or of several other individuals. Price is the expression in money of this ratio. The vendor in offering a commodity for sale looks upon labour as an element representing 20, 30, 40, or 60 per cent. of the net cost, but he adds to this the cost of raw materials, interest, and the redemption of his capital, all of them objective elements which are no less indispensable than the element of labour. He fixes his price according to the strength of the demand for which he has to provide, and to the purchasing power exhibited by those who furnish that demand. If the price he asks be greater than this purchasing power, the contemplated purchasers abstain from buying, and if the vendor be obliged to sell, he first makes a reduction in that portion of the profit which he had proposed to reserve for himself, and subsequently draws upon his total net cost, in which case he sells at a loss. But this loss falls upon the other elements in the net cost of production as well as upon the element of labour, indeed labour is only affected in the last resort.

II

There remains Marx' other great discovery, that of “surplus-value” or “surplus-labour,” which Engels calls “the key of capitalist production.” It is not less completely belied by facts than the “iron law of wages.” If all the profits of the employer were derived from surplus-labour, he would have to devote himself to two operations: (1) to increase the hours of labour and lower wages; (2) to increase the number of his workmen and repress all improvements in plant. According to these propositions, if the hours of labour decrease and wages rise, the individual employer must lose his profits and fall into difficulties. Now in England, to take an example, wages have risen and the hours of labour decreased, and yet English industry has made enormous progress and earned enormous profits during the last half century. The same thing has happened in all countries, from which the conclusion follows that Karl Marx' theory of surplus-value is belied by facts.

If the employer's profit be derived from the surplus labour of the workmen, the employer should increase their number, and should decline to employ machinery, the effect of which is to decrease it. How comes it then that employers attempt, on the contrary, to decrease the number of their workmen and to supplant them by machinery? They do not seek to increase their profits by adding to the number of their employees, but by perfecting their plant.

What remains, then, of Marx' theory of surplus-value? What becomes of the sonorous word “surplus-labour” and the denunciations of the exploitation of man by man? Are the socialists who continue to proclaim it entitled to protest against science when the most cursory observation so clearly gives them the lie?

III

Karl Marx is so complete an adept in the “iron law” as to believe that the rate of wages is regulated by the rate of the means of subsistence, and that, therefore, the dearer the means of subsistence, the smaller the amount of surplus labour of which the capitalist has to dispose. A fall in prices can, therefore, only provide surplus labour for the capitalist.1 This was written by Karl Marx twenty years after the abolition of the Corn Laws in England, and this example alone will suffice to show his contempt for facts. Although he lived in England, he remained an opponent of free trade at a time when he was able to perceive its consequences at first hand. But when the agrarian party in Germany proposed to increase the duties on meat and on cereals, Bebel and other German followers of Marx, who laid claims to orthodoxy and repudiated Bernstein, did not hesitate to abandon their master's doctrine and to oppose it, thereby showing that, if they still professed a belief in surplus value, their faith had become sufficiently attenuated to permit of the heresy of demanding to live cheaply instead of dearly.

As for the assertion of formula C, that “profits decrease in proportion as wages increase,” the facts establish that an employer can raise the rate of wages almost indefinitely if he can increase his market. A committee of the Manchester Chamber of Commerce has compared the net cost of cotton spun in India and in Lancashire; in spite of the high wages and the short hours of labour, the English “hand” is cheaper than the Hindoo.1

CHAPTER VIII

The Two Classes

All the followers of Marx, including MM. Werner Sombart and Georges Sorel, consider the “Communist Manifesto” of 1847, which was drawn up by Marx and Engels, as “the starting point of a new era.” The “Manifesto” begins by asserting that “the whole history of human society to the present day is the history of the struggle of classes.” Karl Marx, Engels, and their disciple Paul Lafargue make the history of human decadence begin with the introduction of private property. Historians have, generally speaking, overlooked the claims of the Terra del Fuegans, Australian aborigines and other people who still enjoy the benefits of communistic anarchy. If Marx, Engels, and Paul Lafargue have written that they considered themselves as in a state of decadence by comparison with them, they have failed to accommodate their conduct to their theories.

Thirty-six years after the “Communist Manifesto,” Engels still asserts that, “Since the abolition of the ancient common ownership of the soil, the whole of history has been a struggle of classes.” M. Werner Sombart recognises that all these struggles, far from being struggles of classes, have most frequently been conflicts between ethnic groups or between populations who inhabited different countries, but if he condemns Karl Marx' definition of history as false as applied to the past, he adjudges it to be true as regards the future. The “Communist Manifesto” said:—

Our age, the age of the bourgeoisie, has simplified class antagonisms. Society more and more divides itself into two great hostile camps, into two great classes in direct opposition to one another, the bourgeoisie and the proletariat (§3).

The mass of labour to provide for increases in proportion to the development of machinery and of division of labour; the number of hours of labour is increased, as well as the labour required to be performed in a particular time (§15).

The middle classes of former times, the small tradesmen, the merchants, and the people of independent means, the artisans and peasants are all in their turn being absorbed in the proletariat. Thus the proletariat recruits from among all classes of the population (§18).

In 1847 Karl Marx used the present indicative tense, but he was prophesying, basing the future upon the abolition of ethnic struggles and of all national and religious wars. He set up two classes in our increasingly complex society. I call this simplex system social dichotomy. “But,” says M. Werner Sombart, “modern society presents itself to us as a complex concatenation of numerous social classes, country squires, middle class, lower middle class, proletariat, officials, men of learning, artists, etc.” So that there must be more than two of them, in which case the process which Marx foresaw, in virtue of which actual society must forcibly end in communism, has no real existence.

Karl Marx' theory is summarised in Victor Modeste's formula, “the rich grow richer and the poor poorer.” Karl Marx substitutes “the few” for “the rich” and “the many” for “the poor.” He sets up an antithesis between two groups, the bourgeois group, consisting of an increasingly restricted number of individuals, each of whom is increasingly inflated by capitalism, and the proletariat group who are increasingly numerous and indigent. All the rich are not equally rich, all the bourgeois are not capitalists on the same level. Consequently they are not all inflated to the same degree with what Karl Marx calls “surplus value”: they are not all magnitudes of the same order. To bring the rest of mankind into alignment with the same symmetry, as though they too are magnitudes of the same order, prepared to march with auto matic step against a bourgeoisie which they are to annihilate by sheer weight of numbers—for victory belongs to the big battalions—to imagine two armies in perfect alignment and perfect order, one of which, continually adding to its recruits, crushes the other with its weight, all this is merely the conception of a Prussian corporal. But contrary to Karl Marx' proposition, the recruits do not go to swell the proletariat army, the army they join is that of the capitalists. The proletariat army invented by Karl Marx, merely consists of candidates for the other army. The most active and sterling elements in the ranks of the proletariat are intending deserters many of whom have already acquired interests in the opposing camp. The skeleton units in that camp are formed entirely out of deserters, at whose head are the majority of the actual leaders of socialism, the most unassuming of whom become members of the lower middle class, while others become rich, substantial bourgeois like Bebel.

Karl Marx and Engels based their theory upon two postulates—that the number of those interested in individual property would quickly and constantly diminish, and that the proletariat of the greater industrial system would be in a progressively miserable condition. It is necessary to the realisation of socialist evolution that industry and capital be concentrated in a small number of hands, and that the masses of wage earners become more and more miserable and be deprived of all personal property. This is the process set forth in Karl Marx' and Engels' “Communistic Manifesto” and confirmed by the Erfurt Congress of 1891.

[1]Ricardo, “Principles of Political Economy,” ch. v.

[2]Discussions a la Société statistique de Paris; séance du 20 janvier et du 17 avril, 1909; Journal de la Société de Statistique, févrièr et avril, 1909.

[1]“Das Kapital” (German edition), Introduction to vol. iii.

[2]“Das Kapital,” vol. i., chap. i.

[3]Ibid, vol. i., chap. vii., §2.

[4]Ibid, vol. i., chap. viii.

[5]Ibid, vol. i., chap. vii.

[6]Ibid, vol. i., chap. i.

[7]“Das Kapital,” vol. i., chap. i.

[8]“Das Kapital,” vol. i., chap. xi.

[9]Ibid, vol. i., chap. viii.

[8]“Das Kapital,” vol. i., chap. ix.—vol. iii., chap iv.

[0]“Das Kapital,” vol. i., chap. x.

[0]“Das Kapital,” vol. i., chap. xii.

[0]Das Kapital,” vol. iii., chap. vii. (Appendix).

[0]Supra, p. 119. “Das Kapital,” vol. iii., chap. iv.

[1]“Das Kapital,” vol. i., chap. xii.

[2]Chapman. Report on the Cotton Trade, submitted to the Manchester Chamber of Commerce.

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