*Ernest Mandel, Marxist Economic Theory, 1962, extract*
*The marginalist theory of value and neo-classical political economy*
Eclectic political economy failed to give complete satisfaction, either
to scholars who continued to try to answer the question which previous
generations had bequeathed to them, or to the bourgeoisie itself, which
found itself constantly exposed to the risk that, starting from the
/popularisation /of Ricardo's ideas, economists might pursue some point
in the direction of socialism (as happened with John Stuart Mill). In
order to neutralise the "socialist danger", which was felt with especial
keenness after the revolution of 1848, and above all after the Paris
Commune (1871)*, the entire structure based on the labour theory of
value had to be demolished. This was the great turning-point of
bourgeois political economy, towards the/marginal/ /theory of value,
/which was prepared so early as 1855, independently of each other," by
Hermann Gossen and Richard Jennings, and which culminated in the British
(Jevons, 1871), Viennese (Menger, 1871) and Swiss (Walras, 1874)
neo-classical schools.
As compared with the eclectic and vulgar conceptions, the
neo-classicists were distinguished by a greater methodological rigour.
Like the classical economists they strove not to leave any economic
phenomena unelucidated, not to gloss over any question, to provide the
material for the building of a coherent structure. The apologetic nature
of this structure is shown not so much in the conclusions as in the
methodology and the initial hypotheses. The system is coherent, but it
is divorced from reality, which it fails either to grasp statistically
or /a fortiori/, to explain in its laws of development.
From Petty to Ricardo and Marx, every theory of value was /objective.
/That is, its ultimate starting-point was /production; /value was
identified with cost of production, or revolved around it. There
influence of demand upon value, as an independent variable, was denied;
and even when it was indirectly taken into consideration, it appeared
only as an indirect function of production itself, since all incomes
were regarded as having been created in production. Indeed, the entire
classical theory was /oriented /for this reason towards a synthesis
between micro-economic and macro-economic conceptions, a synthesis which
Marx alone proved capable of achieving successfully.
The neo-classical school, however, approached the problem in an
altogether different way. It was a school of pure micro-economics.
Considering that value can and should be determined for each commodity
taken separately, it regarded this value no longer as a function of cost
of production but as a function of the independent influence of demand
upon cost of production. The separation of exchange-value from
use-value, the starting-point of the classical school, was questioned.
It was declared, on the contrary, that exchange value is essentially a
function of use value, of the utility of the given commodity.
But how is this utility to be measured? The neo-classicists here came up
against a difficulty which all their predecessors had encountered, from
Aristotle to Jean-Baptiste Say, and including both the French monk
Buridan and the encyclopaedist Condillac. If I ask somebody: "What is
the utility of this knife to you?" he will reply: "A very great
utility", or "I use it a lot", or else "I have no need of it at all".
Nobody answers a question like this by stating a /quantity, any/ sort of
measure of "use-value". Resigning themselves to not being able to
express use-value quantitatively, the marginalists fell back on a
quantitative expression of the /needs /which use-value has to meet. They
laid down individual scales of needs; this is why this school has been
correctly described as being /subjectivism, /since its starting-point is
purely arbitrary, subjective. As Rudolf Hilferding put it, whereas Marx
and the classical economists start from the /social /character of the
act of exchange, and regard exchange value as an /objective /link
between owners (producers) of different commodities, the marginalists
start from the /individual /character of needs, and regard
exchange-value as a /subjective /link between the individual and the thing.
Nevertheless, the quantitative expression of needs is not enough to
overcome the difficulty. A man obviously has more need of bread and
water than of a diamond. Yet a diamond has a higher exchange-value than
that of bread. A man has even more need of air, which normally possesses
no exchange value. This is why the neo-classical theory states: it is
not the intensity of the need in itself, but the intensity of /the last
fragment of need not satisfied /(of the /marginal/ utility) that
determines value.
Starting from this general idea, the neoclassical school worked out a
series of curves the intersection points of which are supposed to show
conditions of equilibrium: curves of supply and demand, determining
equilibrium prices; curves of indifference and of prices determining the
quantities of commodities demanded at particular levels of income;
curves of marginal costs, determining for entrepreneurs the levels of
production which will guarantee them the highest profits; a curve of
wages offered and of "disutility of labour", determining the demand for
employment, a curve of interest rates offered and profit expected,
determining the volume of investment; a curve of the accumulated amount
of capital and of the mass of money-capital available, determining the
rate of interest; and so on. In the end, the whole system is in perfect
static equilibrium, "profit" itself having disappeared, at least in
Walras's work, since under conditions of total competition the value of
the marginal product--which determines the value of all production-is
dissolved into depreciated capital, wages, interest and ground-rent .
/"Under conditions of competition, we are told, the entrepreneur
increases the employment of each factor of production to the point
at which the marginal productivity of this factor (net product
obtained thanks to the last unit employed) is equal to the price of
this factor on the market, and he increases his production to the
point at which the marginal cost of the product (cost of the last
unit) is equal to the price of the product./
/"In a situation like this, the satisfactions obtained by the
consumers are at their highest because any transfer of a factor of
production would result in a reduction of the 'value' created by
this factor. In the case of a worker, for instance, he is producing
in an hour, where he is working at this moment, a 'value' equal to
his wages. If he were to be transferred elsewhere, he would produce
a little less, in fact, he would be 'added' to a group of 'workers
whose marginal productivity is already equal to their wages, so that
his own productivity would necessarily be a little less."/
Eric Roll is right to criticise the mechanistic thesis of Bukharin,
according to which the marginalist school reflected the special
interests of a new stratum of /rentiers /which had made its appearance
among the bourgeoisie. But Bukharin was right when he stressed that the
marginalist school /adopts /the point of view of the /rentier, /or, more
precisely, of the capitalist who has withdrawn from the sphere of
enterprise, for this school does start from /individual consumption
rather/ than /social production, /which had been the starting point of
the classical economists and of Marx. It is not accidental that the
examples used by the founders of the neo-classical school are nearly all
drawn from luxury production.
The special nature of the neoclassical school is further emphasised by
the fact that it was for a long time unable to determine the marginal
value of capital goods. In the end it managed to do this only by
introducing, with Böhm-Bawerk, the notion of a "roundaboutness" of
production which becomes more and more intensified as capital goods
increasingly enter into the process, a "roundaboutness" which has to be
"paid for". It is, moreover, unable to explain how, from the clash of
millions of different individual "needs" there emerge not only uniform
prices, but prices which remain /stable over long periods, /even under
perfect conditions of free competition. Rather than an explanation of
/constants, /and of the basic evolution of economic life, the "marginal"
technique provides at best an explanation of ephemeral, short-term
variations. It is significant that in Walras's fundamental work he
starts from the example of sellers and buyers "inclined to go in for
bidding", that is, to stock-exchange speculators.
Today, most economists readily admit that the equilibrium system of the
neo-classicists is totally divorced from reality. It does not take into
account the particular institutional framework of capitalism, which
makes quite absurd the notion that wages are determined by "the product
of the last unit of his time that the worker wishes [!] to give up
rather than devote it to leisure". It does not take into account the
dynamic character of competition and the continual disturbances of
equilibrium which it causes. It is essentially /static /and brings
dynamics as at most an element disturbing equilibrium, whereas in
reality equilibrium is only a transient moment in a spasmodic economic
movement which is in ceaseless oscillation. It has no explanation to
offer either for periodical crises or for structural crises. Carried to
its logical conclusion, it even denies the phenomenon of imperialism,
or, more precisely, denies that there is any connection between
imperialism and the laws of development of capitalism.
The neo-classical theory is not only divorced from social reality as
whole. It is also divorced from the practical reality of everyday life.
The labour theory of value can be demonstrated empirically, even if only
in the sense that, in the last analysis, all the elements of the cost of
production of a commodity tend to be reduced to labour, and to labour
alone, if one goes far enough back in the analysis. Despite all the
teachings of the neo-classical school, capitalist businessmen continue
to calculate their costs of production on this basis. And when they seek
to make comparative productivity calculations, they do this using the
yardstick of "amount of labour expended", and using this yardstick only.
The marginalist theory of value and the neo-classical school based upon
it dominated bourgeois economic thought for three-quarters of a century.
Their objective function was, no doubt, purely apologetic --- to justify
the capitalist order as more-or-less inevitable; to justify wages,
prices and profits as the result of exchanges carried out on an equal
footing. In so far as the capitalist expansion which marked the second
half of the nineteenth century and the first decade of the twentieth
itself constitutes a much more powerful "argument" in favour of
capitalism than any theoretical construction, the bourgeoisie felt no
need for a trend of economic thought other than this purely apologetic
school.
*From:
http://www.marxists.org/archive/mandel/works/marxist-economic-theory/marginalists.htm*
*N.B.: Karl Marx's "*Capital, Volume 1*
<https://sites.google.com/site/cu2012courses/58-marx-s-capital-volumes-1-2-and-3-half-day>"
was published in 1867.
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