Marx produced a critique of political economy not a theory of economics. He said that after the 1830’s classical political economy disintegrated into a “vulgar economics”; an economics that was apologetic towards the interests of the capitalist class and concerned only with the appearance of things.
Marx, in the three volumes of Capital, explained the economic categories of the commodity, money, wages and capital. He also highlighted the underlying process in the formation of prices under capitalism through the operation of socially necessary labour time, abstract labour and the production of value. He did so using his labour theory of value as a scientific tool to explain “capital in motion” –the self-expansion of value.
He also criticised capitalist commodity production for generating a fetish view of “things” rather than transparent social relationships between production and people.
Marx showed that the sum of rent, interest and profit equalled the sum of surplus value exploited from the working class. And he went on to show total prices equalled total value and that the aggregate “price” rate of profit equals the aggregate “value” rate of profit. He finished his analysis of capitalism by concluding that the profit system causes class conflict and struggle, as well as contradictions and crises at the heart of commodity production and exchange for profit.
At Marx’s death academic economists attempted to block the questions Marx was asking about capitalism by inventing a highly superficial economics known as marginal utility. Within a few decades marginal utility became the dominant economic teaching in the universities. Its adherent claimed the “new” economics was “revolutionary” but it was in fact a reactionary doctrine, drawing on many ideas first used by political economists of the 1830’s against the “Ricardian” Socialists.
Many of the leading economists of the marginal utility school worked in Austria before leaving the country to the United States before the outbreak of the Second World War – Ludwig von Mises, F. A. Hayek and Joseph Schumpeter to name but three. They were supporters of a utopian capitalism which was to be totally free from State interference. They opposed the New Deal as “Socialist” and were implacable opponents of the economic ideas of Keynes and his supporters.
After 1945 as the Cold War developed between the US and Russia, the Austrian economists and their doctrine of “the free market” was seen as useful propaganda by the US government and its agencies in the battle of ideas against proponents of Russian State capitalism. The free market institutes also misleadingly attacked the ideas of Keynes and high levels of taxation as “socialist policies”.
Misrepresenting Marx
The Austrian School of economics, from Carl Mengers onwards, saw their brief as a defence of the capitalist class and the private ownership of the means of production and distribution for profit. Their marginal theory of value, a peculiar understanding of capital and an obsession with prices as signals to allow “efficient production” to be possible, made this school a particular representative of what Marx called “vulgar economics”. And, following Marx’s death in 1883, it did not take the Austrian economists long to begin a sustained attack on Marx.
In 1896, the Austrian economist, Eugene Bohm Bawerk published his Karl Marx and the Close of his System, claiming that Marx had made a contradiction between the first and third volume of Capital. According to Bohn-Bawerk, Marx had shown in the first Volume of Capital that commodities sold at their values but in the third volume of Capital he had changed his mind and now stated commodities sold at their “prices of production”. This became to be known as the “transformation problem” and is still considered by current proponents of the Austrian School of Economics as a knock down reply to Marx’s critique of capitalism.
Of course, this was not the case at all. Bohm-Bawerk’s criticism was first answered by R. Hilferding in his Bohm-Bawerk’s Criticism of Marx (1904), Boudin in his Theoretical System of Karl Marx (1907) and then by G. Kay in Why Labour is the starting point of Capital (Value, ed. D. Elson CSE Books 1975 p.p. 46-66). More recently, Andrew Kliman, in his book Reclaiming Marx: A Refutation of the Myth of Inconsistency (2007) showed the method used by Bohm-Bawerk – the same method adopted later by von Mises (a student of Bohm-Bawerk’s) to attack the claim made by Socialists for the rational efficiency of Socialism over capitalism – to be defective, concluding:
Bohm-Bawerk’s critique of Marx’s account of the value-price transformation is unsupportable. His key claim – namely that Marx denied that it was self-contradictory to hold that prices do and do not tend to equal values – is implausible and unsubstantiated. Also, Bohm-Bawerk’s conclusion that Marx’s account (of the equality of total price and total value) is tautological rests on a very controversial premise … [which Marx did not accept] (p. 146 and p.207).
Bohm-Bawerk asserts that Marx made a contradiction between Capital vol. 1 and Capital vol. 3. He states that Marx in volume 1 said “commodities tend to sell at their values” but in volume 3 changed his mind and said that “commodities do not tend to sell at their values”. But is this interpretation of Marx correct? The Austrian School of economics will not budge from their anti-Marxian position and admit that Bohm-Bawerk’s interpretation of Marx was wrong and that a valid and sound counter-interpretation within Marx’s own method and presentation can be put forward instead.
After all, Bohm-Bawerk’s criticism of Marx was the best defenders of capitalism could come up with. So, what can Marx’s current critics they put in its place? Nothing at all.
The Mises web site still publishes Bohm Bawerk’s erroneous attack on Marx as though Hilferding and others have written no valid counter-criticism. After all it suits Marx’s critics to make him look stupid by supposedly committing an elementary logical error, perhaps understandable in a first year philosophy student but not from someone who holds a doctorate in the subject. But Marx wrote the draft to volume 3 of Capital long before he published Volume 1 of Capital in 1868 and set down several footnotes in Capital Volume 1 warning the reader that he was only assuming that commodities were being sold at their values. These important footnotes were conveniently ignored by Bohm-Bawerk in his criticism of Marx
(see the article Marx, Capital and Consistency http://www.socialiststudies.org.uk/edu%20transformation).
Bohm-Bawerk totally ignored Marx’s method of abstraction and step-by-step movement from one economic category to the next in order to “to reveal the economic law of motion of modern society” (Preface Capital Volume 1 Penguin 1996 p.92). He misunderstood why Marx was justified is using labour rather than value in use as the starting point of his analysis of the commodity. He even selectively lifts quotations from Capital without understanding the context in which they were written. Marx suffers from Bohm-Bawerk and his supporters the same type of misrepresentation as Darwin is subjected to at the hands of religious fundamentalists.
Of course, there is nothing that ever could be said to Bohm-Bawerk’s modern day supporters to make them accept that there was no contradiction between the first and third volumes of Capital any more than they could ever accept that the so-called “Economic Calculation Argument” of another Austrian economist, Ludwig von Mises, has no application to the rational efficiency of production and distribution of a future Socialist Society.
The Austrian School of economics is perhaps one of the most vulgar and superficial schools of economic thought doing the rounds in US and British universities today. However, unlike the Keynesians who dismiss Marx out of hand, the attention paid to Marx by Bohm-Bawerk and another economist, J. M. Schumpeter forces the Austrians have to take Marx’s critique of capitalism seriously. Nevertheless, their criticisms against Marx and Socialism do not hold water and not too much time should be wasted in persuading these particular defenders of capitalism the error of their ways; the case for Socialism is directed at the working class not capitalism’s apologists.
