Marx's mistake has been that he has inadvertently attributed a greater value to the fixed capital, which after the technical improvement is worked by the same labourers as before. Certainly anyone who looks at a society in two successive stages of technical development, will find in the second stage a greater number of machines and of tools of every kind. This is a question of statistics, not of economics. Capital (and Marx appears to have neglected this point for the moment) is not estimated by its physical extension, but by its economic value. And economically that capital (supposing all the other conditions remain constant) must be worth less; otherwise no technical improvement would have taken place.
An external circumstance which might serve to explain Marx's error is the fact that the third book of Das Kapital is a posthumous work, some parts of which are hardly sketched out, and amongst these that of the law of the rate of profits, which, moreover, does not relate to the establishment of principles, but, being a consequence and an application or these, was perhaps not worked out to the same extent as the fundamental or central part of the theory.[91] It is probable that the author, if he could have gone over his rough draft again, would have materially modified it or entirely discarded it. But perhaps some internal reason could also be found for this strange mistake, in that Marx always misused the comparative method without disclosing any distinct knowledge of his procedure. And it might be that, as already in his earlier investigations, he perpetually transferred labour-value from a hypothetical society to the actual capitalist society, so in this new problem he has been led to estimate the worth of the technical capital in a more advanced society at the rate of value of that in a less advanced society. In this impossible attempt his method has here broken in his hands.
As we have disputed the actual basis of the Marxian law, it seems indeed superfluous to follow out its further developments, which are advanced in a form worked out with but little care. It is enough to remark that in these developments, as in general, throughout Das Kapital, there is a continuous medley of theoretical deductions and historical descriptions, of logical and of material connections. The defect, however, becomes in this instance an advantage, because many of the observations made by Marx, understood as historical descriptions of what usually happens in modern society, will be found to be true and can be saved from the shipwreck, as regards the theory of the law, with which by chance they are feebly connected. And it would even be possible to make such an investigation in respect to that very portion which we have disputed, i.e. to enquire what facts, actually observed by him, could have impelled Marx to construct his law, i.e. to give of these facts an explanation which is theoretically unjustifiable.
Marx attributed the greatest importance to the discovery of the law of the fall in the rate of profits. Herein lay for him 'the mystery over which all economists from Adam Smith onwards have toiled'; and in the different attempts to solve the problem he saw the explanation of the divergence between the various schools of economists. Ricardo's bewilderment in face of the phenomenon of the progressive decrease in the rate of profits seemed to him fresh evidence of the earnestness of mind of that writer, who discerned the vital importance of the problem for capitalist society. That the solution had not been found before his, Marx's, time, appeared to him easily explicable, when it was remembered that until then political economy had sought gropingly for the distinction between fixed and floating capital without succeeding in formulating it, and had not been able to explain surplus-value in distinction from profits, nor profit itself in its purity, independently of the separate fractions of it in competition amongst themselves; and that, in the end, it had been unable to analyse completely the difference in the organic composition of capital, and much less, the formation of the general rate of profits.
His explanation being now rejected, a double problem presents itself. The first question relates to fact. It is needful to ask: does the fact spoken of actually exist, and how does it exist? Has a gradual decline in the rate of profits been ascertained? And in which countries, and in what circumstances? The second question relates to the cause: since, whilst we have seen that there could only be one economic reason for the phenomenon, (the law of demand and supply), there may be several historical causes, and these may vary in different cases. The decline in the rate of profits may happen owing to a nominal increase in wages due to an increase in the rent of land, or it may happen owing to a real increase in wages due to stronger organisation among the workpeople, or it may happen owing to an increase, also real, in wages resulting from saving and from growing accumulations, which increase the capital in search of employment. This investigation must be made without prejudices, whether optimistic or pessimistic, apologetic or controversial; and economists have sinned but too often in all these ways. The listeners have seized upon the result of limited and qualified investigations, now in order to sing a hymn to the spontaneous force of progress, which will gradually cause the disappearance of capitalists or reduce interest to 1/2 per cent.; now in order to terrify their audience by a spectacle no less fantastic, of landed proprietors as the sole owners of all the goods of society![92]
May 1899.
FOOTNOTES:
[89] See chaps. III. and IV.
[90] We here suppose a series of productive periods already rapidly passed through, which may suffice to replace the whole of the total capital by the new technical processes. It is evident however, that as fixed capital is replaced in successive portions, in a first stage, goods are used as capital, whose cost of reproduction no longer corresponds to their original cost of production, i.e. whose actual social value no longer corresponds to the original one. But to consider the separate stages would here cause a useless complication.