Recent Literature on Interest

CHAPTER VII

THE EXPLOITATION THEORY

DURING this entire period the exploitation theory has occupied much space in literary discussions. These have been especially excited and animated on account of a peculiar personal turn which they have taken and sometimes also on account of a kind of dramatic tension. Of all socialistic writers Karl Marx—not perhaps without an unjust depreciation of others, and especially of Rodbertus, whose scientific rank was high—had gained the greatest influence over his partisans. His work represented, so to speak, the official doctrine of contemporary socialism. It therefore occupied the centre of attack and defence. The polemical literature of the time became a literature on Marx. The circumstances also were of unusual interest. Marx had died before he had brought his work on capital to an end. The unfinished parts were found in manuscript among his belongings in an almost complete form. These were expected to furnish the explanation of a problem which had been the chief cause of the attack against the exploitation theory and which, according to the expectations of both the contending parties, would furnish the deciding test of the tenableness or untenableness of the Marxian system, the problem, namely, of harmonizing and connecting the rate of profits, which experience shows tends toward equality in all forms of investment, with the law of value and the theory of exploitation which Marx had developed in his first volume.1 The publication of the third volume, in which this theme was treated, was delayed until 1894, eleven years after the death of Marx. The interest in the question regarding what Marx himself might have had-to say on this most delicate point of his theory showed itself in a sort of prophetic literature which had for its object the development of Marx’s probable opinion on the subject of the average rate of profit from the premises given in his first volume. This prophetic literature fills the decade from 1885–1894, and presents a stately array of more or less extensive publications.2 The second act and at the same time the climax of the dramatic development was reached in 1894 by Engels’s publication of the posthumous third volume. And then follows as a third act an exceedingly animated literary discussion on the critical estimate of this third volume, its relation to the point of departure taken by Marx in the systematic development of his theories, and the future prospects of Marxism, a discussion which is not likely soon to reach a conclusion.3

I can content myself here with a mere registration of these events, because in an earlier part of this work I have described their scientific content and subjected them to a critical analysis. Nor have I withheld my opinion that the great test has been decidedly against Marx and his theories of value and surplus value, and that for these the beginning of the end seems to be at hand.

But the period under discussion presents us with another very peculiar theoretical development which must be mentioned in this connection, and which I have called in another place the “vulgär-ökonomischen” branch of the socialistic theory of exploitation.4 This peculiar phenomenon may be described as follows: Various eminent theorists of a non-socialistic tendency, who do not even recognize the theoretical value-premises of the socialistic exploitation theory, have yet adopted a general view of interest which in its essence is identical with the exploitation theory and differs from it only in its more moderate, more reserved, or less consistent form.

The most characteristic expressions of this kind come from Dietzel and Lexis. Dietzel confesses, it to be his opinion that in its essence the exploitation theory is undeniable, and maintains that he is obliged to accept the view that the interest phenomenon is a historical product which is rooted in the commercial law of the present time, and that it is one of those kinds of income which in a form of society like the present are justly blamed as necessarily opposed to the maxim suum cuique.5 Lexis expresses the opinion that the normal profit on capital is connected with the relations of power brought about by the possession or non-possession of capital. The source of the slave-holder’s profits is unmistakable, and the same may be said of the profits of the “sweater.” In the normal relation of the employer to the workman there exists no exploitation of this kind, but an economic dependence of the workman which undoubtedly influences the division of the product of labour. The share of the workman in the yield of production is conditioned by the circumstance, unfavourable to him, that he cannot utilize his working power independently, but is compelled to sell it, resigning his claim to the product for a more or less adequate means of subsistence.6 On another occasion Lexis still more clearly explains this opinion of his on the origin of interest by saying that the capitalistic seller, the producer of raw material, the manufacturer, the wholesale dealer, the retailer, make profits in their business by selling at a higher price than they buy, thereby raising the cost price of their goods by a certain per cent. The labourer alone is unable to get a similar advance of price. On account of his unfavourable situation with reference to the capitalist he is compelled’ to sell his labour at the price which it costs himself, namely, the necessary means of subsistence. Thus, even if capitalists by buying goods at a higher price lose again a part of what they win as sellers, these advanced prices retain their full significance for the wage-earner who buys, and effects the transfer of part of the value of the total product to the capitalist class.7

In all these statements the idea is unmistakably expressed that profits—and not merely some excessive portion acquired under especially burdensome circumstances, but ordinary, normal profits as such—arise from the pressure which the possessing classes exert on the non-possessing by availing themselves of the stronger position which they hold in the struggle for price, an idea which is essentially the same as that which forms the essence of the socialistic theory of exploitation.

In order to characterize these statements, attention should be called to two circumstances which may bear some relation to each other. The first is that up to the present time they have been presented as occasional statements only, and have been made on occasions which prompted the authors to a confession of their own opinions on the interest problem, but did not force them to a systematic defence and explanation of their views, namely, on the occasion of a critical review of other people’s theories (Marx’s and my own). The second circumstance is that these statements have presented themselves hitherto only as simple expressions of opinion, as confessions of faith of the authors, for which a connected, theoretically tenable foundation has neither been given nor attempted. Dietzel does not add a word in support of his statements, and the brief remarks8 with which Lexis accompanies the expression of his opinion are so vague and leave the problem so plainly unexplained that the author himself will hardly claim that they contain, even in general outlines, a really adequate explanation.

In view of the fact that the theoretical grounds upon which the views of the exploitation theorists are usually based, namely, the socialistic theories of value and surplus value, are not laid down by these authors as a basis for their allied theory of interest, and in view of the fact that till now no other tenable foundation has been laid for it, as a historian of doctrines I have merely to register the fact that these opinions exist, and that for the present, at least, they exist merely as unproved non-theoretical statements. We must wait to see whether an earnest attempt will be made to elevate these confessions of faith to real theories based upon some kind of a foundation, or whether they will die out as mere expressions of feeling to which the tendency of the time inclines without any attempt to bring them into connection with tenable scientific premises.9

10 See “Geschichte und Kritik der Capital zins-Theorien,” 2d ed., Section XII, p. 530 sq.

11 I have given a compilation of these on another occasion (in an essay “Zum Abschluss des Marx’schen Systems,” in the “Festgaben für Carl Knies,” 1896, p. 6). It comprises: Lexis, Jahrbücher für Nationalökonomie, 1885, ν.F., Vol. XI, pp. 452–465; Schmidt, “Die Durchschnittsprofitrate auf Grund des Marx’schen Wertgesetzes,” Stuttgart, 1889; an examination of this latter paper by myself in the Tübinger Zeitschrift f d. ges. Staatstv., 1890, p. 590 sq., and by Loria in the Jahrbücher für Nationalökonomie, N.F., Vol. XX (1890), p. 272 sq.; Stiebeling, “Das Wertgesetz und die Profitrate,” New York, 1890; Wolf, “Das Räthsel der Durchschnittsprofitrate bei Marx,” Jahrbücher für Nationalökonomie, III F., Vol. 2 (1891), p. 352 sq.; again Schmidt, Nene Zeit, 1892–1893, Nos. 4 and 5; Lande, ibid., Nos. 19 and 20; Firenjan, “Kritik der Marx’schen Werttheorie,” Jahrbücher für Nationalökonomie, III F., Vol. 3 (1892), p. 793 sq.; finally, Lafargue, Soldi, Coletti, and Graziadei, in the Critica Sociale, from July to November, 1894. Of the other literature of this period on Marx, we may refer to Georg Adler, “Die Grundlagen der Karl Marx’schen Kritik der bestehenden Volkswirtschaft,” Tübingen, 1887.

12 Of the writings on this subject which have hitherto appeared may be mentioned: numerous essays in the Neue Zeit, especially by Engels (XIV Jahrgang, .Vol. ι, Nos. ι and 2), Bernstein, and Kautsky; then Loria, “L’opera posthuma di Carlo Marx” (Nuova Antologia, February, 1895); Sombart, “Zur Kritik des Ökonomischen Systems, von K. Marx” (Archivfür soc. Gesetzgebung und Statistik, Vol. VII, Pt. 4); the above-mentioned essay by myself, “Zum Abschluss des Marx’schen Systems,” 1896; Komorzynsky, “Der dritte Band von Carl Marx, ‘das Kapital,’” in the Zeitschr. für Volkswirtschaft, Socialpoli-tik und Verwaltung, Bd. VI, p. 242 sq.; Wenkstern, “Marx,” Leipzig, 1896; Diehl, “Ueber das Verhältnis von Wert und Preis im Ökonomischen System von Carl Marx” (in the “Festschrift zur Feier des 25 jährigen Bestehens des staatsw. Seminars in Halle,” Jena, 1898); Labriola, “La teoria del valore di Carl Marx,” Milan, 1899; Graziadei, “La produzione capitalistica,” Turin, 1899; Bernstein, “Die Voraussetzungen des Socialismus und die Aufgaben der Socialdemokratie,” Stuttgart, 1899; Masaryk, “Die philosophischen und sociologischen Grundlagen des Marxismus,” Vienna, 1899; Weisengrün, “Das Ende des Marxismus,” Leipzig, 1899.

13 “Einige strittige Fragen der Capitalstheorie,” Vienna, 1900, p. III. (Also printed in Vol. VIII of the Zeitschrift für Volkswirtschaft, Socialpolitik und Verwaltung.)

14 Göttinger Gelehrte Anzeigen, No. 23, 1891, pp. 935, 943.

15 Schmoller’s Jahrbuch, Vol. XIX, p. 335 sq.

16 Conrad’s Jahrbòticher, N.F., Vol. XI (1885), P-453

17 Namely, that, even under the full pressure of competition,—which is the condition necessary to the levelling of profits to the normal rate,—capitalistic sellers are yet able permanently to maintain a surplus of value above prime costs, and that this is the peculiar fact which requires an explanation such as will be compatible with the laws of value and price, or such as may be plausibly deduced from them. Yet there is nothing in what Lexis says to suggest the existence of these facts. Consult the exhaustive treatment of this subject in my above-mentioned essay, “Einige strittige Fragen der Capitalstheorie,” Vienna, 1900, p. 110 sq.

18 I have expressed myself more completely upon this peculiar branch of the exploitation theory in my oft-mentioned essay, “Einige strittige Fragen der Capitalstheorie.” A somewhat older attempt to bring the exploitation theory into connection with a value theory differing from the socialistic one may be found in Wittelshöfer’s “Untersuchungen über das Capital,” Tübingen, 1890. This attempt is interesting, but in my opinion not profound.

• 1“Karl Marx and the Close of his System.” A Criticism by Eugene v. Böhm-Bawerk. Translated by Alice M. Macdonald, with a preface by James Bonar, M.A., LL.D. London. T. Fisher Unwin, Paternoster Square, 1898.
• 2“Principles of Economics,” 3d ed., pp. 142–664.
• 3Smart’s translation, p. 185.
• 4The italics are mine.
• 5Cf. the exposition of Senior’s theory to be found in my “Capital and Interest,” Smart’s translation, p. 271 sq.
• 6Smart’s translation, Bk. IV.
• 7Conrad’s Jahrbòticher, N.F., Vol. XI (1885), P-453
• 8See Smart’s translation, p. 403 sq.
• 9That is, with the omission of compound interest. Marshall himself develops for this an accurate algebraic formula in note 5 of the appendix to his “Principles.”
• 10In 1900 the second edition of the “Geschichte und Kritik der Capitalzins-Theorien” appeared, and the present volume contains in its nine main chapters a translation of the Appendix, in which Böhm-Bawerk reviews the literature on interest which had appeared since 1884, the date to which the first edition translated by Smart brought the subject. In this preface we propose to give a summary of the most important of the other additions contained in the second edition. These are the author’s Preface, chapter XI on John Rae, and a supplement to the chapter on Karl Marx. To the author and the translators it has not seemed necessary or desirable to present a complete translation of these less important additions. A brief summary is sufficient to indicate their general character and scope, and the English-speaking reader who is unfamiliar with German and who desires more may avail himself of Miss Alice M. Macdonald’s translation of Böhm-Bawerk’s criticism of the posthumous volumes of Karl Marx’s “Das Kapital,” of the author’s reply to Walker’s strictures in the Quarterly Journal of Economics, and of Rae’s book itself.
• 11Professor Marshall finds the explanation of interest in the coöperation of what he calls the “productiveness” and the “prospectiveness” of capital, the former determining the demand for that factor of production, and the latter limiting the supply. He believes that most of the writers on interest have had both these elements of the problem in mind, and have differed from each other chiefly in the fact that some have laid more emphasis upon the one element, and others upon the other. He has expressed the opinion that many of the authors criticised by Böhm-Bawerk would not have accepted his statements as fair and complete presentations of their views.
• 12The injustice of Marshall’s charges and his evident misunderstanding of Böhm-Bawerk’s real attitude toward the authors he criticises is further shown by reference to certain passages in the first edition in which our author pointed out the affinity between the use and the productivity theories. In one place he called the former an offshoot of the latter, and in another he said: “This theory [the use theory] assumes capital to be productive.” Again, on page 187, he said: “The relation of use theories to the productive power of capital will not, however, be found stated so clearly in the writings of their representatives as I have thought necessary to state it. On the contrary, indeed, appeals to the productive power of capital long accompany the development of the use theory proper, and we are very often left in doubt whether the author relies, for his explanations of surplus value, more on the productive power of capital or on the arguments peculiar to the use theory.”
• 13The discussion of the division of labour and of exchange leads to a consideration of value which he explains in accordance with the cost of reproduction theory, to which, however, he makes one important and very significant addition. “When two persons in the same society exchange commodities,” he says (p. 300), “... the exchanges they make are for equal quantities of labour, reckoned according to the time when applied, and the actual order of instruments.” The time element, to which attention is called in this last clause, is considered by Rae of equal importance with labour. Materials, tools, etc., as well as labour, are consumed in production, and they must be represented in the price of the goods. In this connection he shows that not only the labour which produced these instruments must be taken into consideration, but also the length of time that must elapse before that labour is remunerated. The rate of compensation for this element of time will depend upon the effective desire for accumulation. By way of illustration, he assumes the case of a weaver who can weave a certain amount of thread into linen in thirty days with the aid of a loom which cost one hundred days’ labour and which will last seven years. He then proceeds as follows: “Suppose that the effective desire of accumulation of the individual is of strength sufficient to carry him to the order G, doubling in seven years, that the loom cost one hundred days’ labour, and that it will be exhausted in seven years; it would then require to return two hundred days’ labour, or an equivalent, at the end of that period. The return, however, is not delayed so long, but begins to come in daily, immediately after its construction. Calculating then what yearly return is equal to two hundred days at the end of seven years, in the estimation of a man who reckons one day now equal to two then, it will turn out to be nearly twenty days. We may allow that the loom is in employment three hundred days a year; it would, therefore, on these principles, have to return two days’ labour for every thirty days during which it was in operation, and the weaver would consequently have to receive an equivalent to thirty-two days’ labour; at least, had he not a moral certainty of receiving this, he would not have formed the instrument, and were such return to cease, he would not reconstruct it” (pp.169, 170).
• 14I do not think I am wrong in designating the view held by Marshall as in essentials a cautiously formulated abstinence theory with an improved terminology. In its fundamentals his doctrine is in complete agreement with that of Senior. The formation of capital demands on the part of capitalists a real sacrifice which consists in the postponement of enjoyment and forms an independent element in the cost of production side by side with labour. For this an independent payment must be found in the price of goods after the manner and according to the laws (to be sure, more carefully formulated by Marshall) by which in general costs influence the price of goods. Under these circumstances it is evident that my view of Professor Marshall’s interest theory cannot differ much from that which I expressed regarding the abstinence theory in general in my book on “Capital and Interest.” Though I am in full agreement with him on the point that the “prospectiveness” as well as the “productiveness” of capital have something to do with the explanation of interest, I think that the explanation by which he and other abstinence theorists connect these phenomena with interest, is presented in a form which is not in harmony with the facts and which is in unavoidable conflict with the laws of thought.
• 15In the first place, I regard as incorrect the contention that in the act of postponement which is involved in the employment of labour for the acquisition of a pleasure to be experienced at a remote period of time, we must recognize a separate sacrifice to be reckoned independent of and in addition to that of labour. The grounds for this opinion I have already presented in an exhaustive manner. However, if Professor Marshall, well acquainted with them as he is, still holds fast to his doctrine, which is in essentials identical with the abstinence theory, they do not appear to have been sufficiently convincing. I will, therefore, endeavour to support them by some further explanations, and for this a welcome opportunity is presented to me by some remarks which may be found in Professor Marshall’s exposition of his theory.
• 16The most characteristic expressions of this kind come from Dietzel and Lexis. Dietzel confesses, it to be his opinion that in its essence the exploitation theory is undeniable, and maintains that he is obliged to accept the view that the interest phenomenon is a historical product which is rooted in the commercial law of the present time, and that it is one of those kinds of income which in a form of society like the present are justly blamed as necessarily opposed to the maxim suum cuique. Lexis expresses the opinion that the normal profit on capital is connected with the relations of power brought about by the possession or non-possession of capital. The source of the slave-holder’s profits is unmistakable, and the same may be said of the profits of the “sweater.” In the normal relation of the employer to the workman there exists no exploitation of this kind, but an economic dependence of the workman which undoubtedly influences the division of the product of labour. The share of the workman in the yield of production is conditioned by the circumstance, unfavourable to him, that he cannot utilize his working power independently, but is compelled to sell it, resigning his claim to the product for a more or less adequate means of subsistence. On another occasion Lexis still more clearly explains this opinion of his on the origin of interest by saying that the capitalistic seller, the producer of raw material, the manufacturer, the wholesale dealer, the retailer, make profits in their business by selling at a higher price than they buy, thereby raising the cost price of their goods by a certain per cent. The labourer alone is unable to get a similar advance of price. On account of his unfavourable situation with reference to the capitalist he is compelled’ to sell his labour at the price which it costs himself, namely, the necessary means of subsistence. Thus, even if capitalists by buying goods at a higher price lose again a part of what they win as sellers, these advanced prices retain their full significance for the wage-earner who buys, and effects the transfer of part of the value of the total product to the capitalist class.
• 17Like Jevons, Marshall has included in his theory some psychological elements regarding the estimation of future pains and pleasures. Human nature is actually so formed that most men do not esteem a future pleasure, even though its acquisition is absolutely certain, so highly as a present pleasure of the same sort, but they discount it or make a deduction from it, the magnitude of which varies with different people according to the varying degrees of their patience and self-control. The present value of future pleasures, and, therefore, also the present marginal utility of a distant source of pleasure, are, therefore, smaller than the value of a like present pleasure or even than the value of the same future pleasure at the time when it actually appears. If, for example, according to his temperament, some one is accustomed to discount future pleasures at the rate of ten per cent, he will to-day esteem at ten the present worth of a pleasure which is still one year distant, and which will then have, roughly estimated, an actual value of eleven. From numerous remarks of Marshall, it appears that the psychological fact that the great mass of mankind gives to present satisfactions the preference over future is precisely the one upon which he founds his claim that waiting involves a sacrifice. That in general we give present pleasures the preference over equally great future ones, and that in general we feel that waiting for a future enjoyment is a sacrifice which increases the expense of acquisition, are in Marshall’s doctrine only two different methods of expression for one and the same psychological fact. As a matter of fact, however, they are not only different modes of expression, but different modes of conception, and, indeed,—a fact which is of interest for our purpose,—two discordant and incompatible modes of conception, of which the one is right and the other wrong, and which it is impossible to hold at the same time, and side by side with each other. The fact of the matter is as follows:—
• 18Like Jevons, Marshall has included in his theory some psychological elements regarding the estimation of future pains and pleasures. Human nature is actually so formed that most men do not esteem a future pleasure, even though its acquisition is absolutely certain, so highly as a present pleasure of the same sort, but they discount it or make a deduction from it, the magnitude of which varies with different people according to the varying degrees of their patience and self-control. The present value of future pleasures, and, therefore, also the present marginal utility of a distant source of pleasure, are, therefore, smaller than the value of a like present pleasure or even than the value of the same future pleasure at the time when it actually appears. If, for example, according to his temperament, some one is accustomed to discount future pleasures at the rate of ten per cent, he will to-day esteem at ten the present worth of a pleasure which is still one year distant, and which will then have, roughly estimated, an actual value of eleven. From numerous remarks of Marshall, it appears that the psychological fact that the great mass of mankind gives to present satisfactions the preference over future is precisely the one upon which he founds his claim that waiting involves a sacrifice. That in general we give present pleasures the preference over equally great future ones, and that in general we feel that waiting for a future enjoyment is a sacrifice which increases the expense of acquisition, are in Marshall’s doctrine only two different methods of expression for one and the same psychological fact. As a matter of fact, however, they are not only different modes of expression, but different modes of conception, and, indeed,—a fact which is of interest for our purpose,—two discordant and incompatible modes of conception, of which the one is right and the other wrong, and which it is impossible to hold at the same time, and side by side with each other. The fact of the matter is as follows:—