Historical materialism and the economics of Karl Marx

by Benedetto Croce

This simplest case does not then give us Marx's law, but this other law; 'Technical improvement, supposing all the other conditions remain unchanged, causes a decrease in the amount (not the rate) of surplus-value and of profits.' This law assumes that the 1/10 of the labourers left unemployed become entirely superfluous. These ten labourers are henceforth to be a dead weight supported by the charity of others, or to die of starvation, or to emigrate—to a new world. Let them be left to their fate. Social production will remain at its former level, thanks to the technical improvement, but accomplished without their help. This is the hypothesis; but given this hypothesis, of what importance is the law? To see this clearly it will suffice to push the hypothesis yet further, as we are entitled to do, and suppose that the technical improvements continuing, the employment gradually becomes superfluous, not only of 1/10, but of 1/4, 1/3, 1/2 of the labourers, i.e. that the employment of labourers tends to become = 0. In this case capitalist society as such would come entirely to an end, since the utility of labour, on which it is based, would come to an end. Where there is nothing the King loses his rights; and where labour has no utility the capitalist loses his. The ex-capitalists would have no more workmen to impoverish, but would be changed into the owners of automatic fountains of wealth; like those fortunate mortals in the fable enriched by charmed knives, by wonderful lamps, by gardens producing with instantaneous and spontaneous energy all God's gifts. In other words the law here resolves itself into a truism.

But Marx did not think of this truism. He wished to determine exactly the organic law of the variations in the rate of profits. In fact—as is seen in the illustration given—he does not at all suppose that the energy of labour may become superfluous; but rather that the labourers will find fresh employment with an increase in the original fixed capital. Given technical improvement and production also will be increased; this is the second stage which he considers. The 100 labourers are still all working, the fixed capital with which they work must be increased from 500 to 700, and the total has hence become 1200. The law which he deduces, of the fall in the rate of profits (in the illustration, from 50 per cent. to 41 per cent.) is not a truism; on the contrary it presents itself with all the importance and originality of a scientific discovery. All den ends on seeing whether in the scientific discovery we have indeed—the truth.

The crux of Marx's proof lies in the statement; that the labourers who would have had to remain unemployed, find on the contrary employment, but with a capital increased by so much (= 200) over the original. Is this statement correct? On what does Marx base it?

To this fundamental proposition my criticism refers, itself equally fundamental. If it is admitted it amounts to a most complete denial of the truth of the Marxian law. Nevertheless I state my idea in the form of a criticism and doubtfully, because, in dealing with a thinker of Marx's rank, it is necessary to proceed cautiously, and to remember (which I do not forget) that several times errors ascribed to him have been explained as mistakes of his opponents.

For what reason, I ask myself, do the ten un-occupied labourers, in order to be employed afresh, require a constant capital larger than the original?

The technical improvement has not diminished the natural utility of the production (also in our hypothesis it has not increased it either, but has left it unchanged); but it has only diminished its value. There will be then, with the improved technical organisation, raw materials, tools, clothing, foodstuffs, etc., of the same total natural utility as at first. The economic value of all these products is diminished, because in them (to employ the metaphor chosen by Marx), is congealed a smaller quantity of labour, i.e. less by the work of ten labourers. But from the point of view of power to satisfy wants, the raw materials, the tools, the clothing, the means of sustenance, etc., remain, in virtue of the technical improvement, of the same rank as at first. If then capitalists and workpeople have remained as temperate as before, and their standard of life has not risen (and this is in the hypothesis), the production will offer as at first means of employment and means of sustenance for the ten labourers left unoccupied. By re-employing them, i.e. maintaining them with the original means of subsistence, and setting them to work on the original raw materials or their new products, the capitalists will increase their production, or—what is the same thing—will improve its quality. But since we know that, economically, the value of that capital has diminished, it will come about that a capital economically smaller will absorb the same energy of labour as formerly, i.e. the same amount of profits; and an equal amount of profits with a smaller total capital means an increased rate of profits. Exactly the opposite to what Marx thought it possible to prove.

Turning to our illustration, the ten labourers will find employment with a capital which, like the utility, has remained the same, but economically has decreased to 900. This means that the rate of profits has increased from 500/1000 to 500/900, i.e. from 50 per cent. to about 55 per cent. As to the rate of surplus-value, since the entire value of the total capital is reduced, it must no longer be calculated, as before the technical improvement, as 500/500, nor as in the first stage we considered (in which the technical improvement had made a portion of the labour entirely superfluous) as 450/450, but as 500/450, i.e. it will no longer be 100 per cent., but will have risen to about 111 per cent.

To this criticism of mine I have found no answer, either explicit or implicit, in Marx's work. Only in one passage, where he speaks of the counteracting causes, and in particular of surplus population (Chap, XIV., § iv.), he hints at the case where labour power may be re-employed with a minimum capital. It may be said that here Marx passed close to the difficulty, without striking upon it, i.e. without becoming aware of its importance. And, if he had struck on it, I doubt whether he would have overcome it and passed on; I think rather that his theory would have gone to pieces.

I foresee that it may be said: you have assumed that, owing to the technical improvement, not only would a number of labourers remain unemployed, but also a fraction of the original total capital, i.e. of means of production and means of subsistence; and when the labourers are re-employed, it is true that during the new cycle of production, other fractions of unoccupied capital will not unite with the original fractions, but precisely for this reason the quantity of production which will result will be increased, and in the next cycle of production a still greater fraction of unoccupied capital will add itself, unless the ten labourers do not continue to be re-employed, in which case the un-occupied fraction will be smaller, but the increase will become constant. Now all these means of production and of sustenance will not be consumed (or will be partially consumed and partially saved), by the capitalist class, and hence there will be an increasing accumulation. The quantities of goods saved, owing to the impulsion of economic interest will not remain un-used in warehouses or strong boxes, but will be thrown on the market as capital seeking employment. This will increase the rate of wages, and hence will have a depressing effect on the rate of profits. Very good, but in such a case we are outside the Marxian law. The factor here considered, is no longer technical improvement taken by itself, but saving, which may be, as stated, encouraged by technical progress, but cannot be inferred from it. For it is true that, if we suppose the case of extravagant capitalists, saving, in spite of technical improvement will not take place. And as technical improvement encourages saving, so the latter, in its turn, by increasing wages, encourages the increase of population, and hence the reduction of wages, and once again a rise in the rate of profits. But, when saving and the increase of population come upon the scene we are already within the sphere of the law of demand and supply, i.e. of ordinary, accredited economics, which Marx despised as vulgar, and out of dislike of which he devised his law of the fall in the rate of profits yielded by the above combination of capital owing to the effect of technical improvement. I, indeed, believe that only the ordinary law of demand and supply can explain the variations in the rate of profit: but to return to it is not indeed to defend Marx's thesis, but rather to ratify its condemnation.

However it is regarded, this thesis seems to me indefensible; and even more indefensible if, leaving aside for a moment logical trains of reasoning and arithmetical calculations, we look at it with the clear intuition of common sense. See here—to follow the strict hypothesis set forth by Marx—on one side a capitalist class, and on the other a proletarian class. What effect does technical improvement have? It increases the wealth in the hands of the capitalist class. Is it not intuitively evident that, as a result of technical improvement, the capitalists can, by anticipating commodities whose value is continually decreasing, obtain the same services which they obtained at first from the proletariat? And that hence the relation between value of services and value of capital will change in favour of the former, i.e. that the rate of profits will increase? When commodities (capital) are anticipated, which formerly were reproduced by five hours of labour and now are reproduced by four, the workman will continue to work ten hours. Formerly with five there were ten; now with four there is similarly ten. The sponge costs less, but the quantity of water with which it is saturated is the same. How could Marx suppose that after technical improvement, the expenses of the capitalists would always increase, so that proportionally profits would be in a state of perpetual decline, and would end by making, in face of the total costs, a most wretched figure?