Various forms of an economic interpretation have been advanced by thinkers such as Adam Smith, Sismondi, Thorold Rogers, etc. Unlike Marx, however, they did not regard man’s economic activity as the outcome of certain indispensable social productive relationships into which men are born but as the result of the behaviour of an abstract economic man. Thus the economic factor assumed by some thinkers to be the self-regulating principle of social life, is itself nothing more than a mere manifestation of eternal human attributes. In this way the real concrete productive conditions of social life are dissolved and reconstituted into the mere appearance of an underlying mental process. History is thus treated on an ideological level and the economic interpretation of it is but a species of social idealism. This presumably is Schumpeter’s version of Historical Materialism.
Marx, rejecting ideas as the primary factor in social evolution (while showing the part they played in modifying the main trends of economic development), did not, as had his predecessors, the mechanical materialists, make man the victim of economic fatalism or the passive instrument of external Nature. For Marx, a dynamic relationship existed between them. Man by his social labour is integrated into Nature and in transforming it to meet his needs transforms himself. This progressive adaptation by man of the natural force to meet his needs under a given social and economic organisation, constitutes the primary role in social evolution. Man’s social labour since the passing of communal society has assumed different forms of class ownership resulting in inevitable class struggles.
Marx’s method is then a materialistic, scientific one, which views social origin and development as a material process in a world of material processes. For the Marxist there can be no a priori ideas or eternal concepts, only laws, theories, etc., which are approximated to a concrete historical situation.
Says Schumpeter (p.19) there are more plausible social classifications than Marx’s division of capitalism into two classes, i.e., capitalist class and working class. Schumpeter, however, fails to produce even one, plausible or otherwise. Now, for Marx history has shown the emergence of different class systems, each phase of the historical process being characterised by a transformation of the productive forces operated by a new productive class, whose interests were bound up in these economic changes. As a result an opposition grows up between these new expanding productive forces and the old social organisation based on and adapted to an earlier mode of production. A new set of social relations becomes necessary if these new economic needs are to be adequately fulfilled. Class antagonism is rooted then in the relationship in which different classes stand to each other and constitutes the basic motive-force for effecting the transformation of different stages of historical development.
Now Capitalism is a class system—the last in a stage of historical procession which divorces the labourer from his productive instruments and converts his working energies into a commodity, labour-power. Marx sought in these class relationships the key to the understanding of the laws of capitalist society. He was thus able to penetrate beyond the superficial analysis of exchange relations in a “free market” with its belief in profit as being something derived from a creative attribute of capital itself and was able to show the real source of this category of capitalist class income, an income derived from the class monopoly of the means of production which enabled the capitalist to appropriate the difference between the value of the workers’ labour-power (his wages) and the total value of the product he produces. This mutually antagonistic character of class incomes, i.e., profits and wages, reveals conflicting class.interests. The capitalist class thus has an interest in perpetuating the institutions of a class society which maintains the working class in a dependent position. Likewise the workers have a corresponding interest in abolishing a system based upon such property rights. This makes nonsense of Schumpeter’s assertion (p.19) that the normal relationship between the classes is one of co-operation and even harmony. One, of course, is at liberty to divide society into all kinds of social groups, but the principle of class division as enunciated by Marx is the only one which effectively lays bare the social mechanism whereby profits are extracted, wages regulated, the accumulation of capital extended and the conditions for a new social order determined.
Schumpeter seems no better informed on Marx’s Labour Theory of Value. On p.25 we are told that by eliminating natural agents from his Labour Theory Marx deprived them of their proper place in the process of production and distribution. This betrays utter confusion of thought in respect of Marx’s views. A theory of value which included natural agents as determinants of value would not be a labour theory of value, whatever else it might be. Now for Marx, labour was the crucial productive force of human society, be it slave-labour, serf-labour or wage-labour. As such it is man’s productive energy (as distinct from these natural agents) which is the prime cause for originating all increases and changes in forms of wealth production that have occurred at various historical stages. The form of wealth assumed by capitalism is not typical of all societies but the outcome of certain historical circumstances. Value then is a social relationship in contrast to natural processes and is therefore a quality of human activity. If the value of an article of wealth is to be expressed as a definite objective quantity and as such capable of entering into relationship with others of its kind, i.e., have exchange value, then clearly value must be directly related to the output of this human activity in terms of the expenditure of human brain, muscle and nerve under given socially organised conditions of production. Value, then, is the subject matter of economics, just as the properties of natural agents—in so far as they are useful and necessary for productive purposes—are a matter for investigation by the natural sciences, e.g., physics, chemistry, etc. The using up of human energies in a productively organised fashion and its division by Marx into units of socially necessary labour hours, i.e., an hour of average working intensity normal to the requirements and technique of industry, constitute the cause and unit of value to which varying price movements can be referred.
Marx was thus able to show that profit arises not from selling an article above its value—but at its value—the cost of the social labour contained in it. The value of the worker’s labour-power represents only part of the total labour expended by him in production. The other part, appropriated by the capitalist, is unpaid labour. In selling the article at its value the latter is able to pocket the difference in the shape of surplus value. As Marx says, in “Value Price and Profit,” if you cannot explain profits on the supposition that commodities are sold at their value, then you cannot explain profits at all.
Schumpeter dismisses the Theory of Surplus Value on the ground that you cannot produce workmanlike machines according to national cost calculations (p.27). He admits (p.29) that capitalism is in a state of constant technical revolution. He fails, however, to see the connection between this and the purpose it fulfils of securing a supply of labour-power adequate for the requirements of progressive capitalist accumulation. To achieve this the workers must produce more surplus value by becoming more productive; hence the introduction of new inventions, labour-saving machinery, etc. This means that a greater part of capital will be devoted to purchasing these means and henceforth a given unit of capital will offer less employment to wage workers. The workers who are displaced by this constant process of capitalist production thus form a surplus working population surplus that is, to the requirements of capitalism. Should, however, an acceleration in production be such as to warrant additional supplies of labour-power then this surplus population becomes a source of recruitment for the capitalist. With the decline in profit-anticipation a productive slackening takes place. Accumulation of capital is curtailed and the industrial reserve army consequently grows greater. Thus the expansion and contraction of employment is but a corollary and consequence of the expansion and contraction of the productive forces of capitalism. Schumpeter talks vaguely of surplus-value being produced in an un-Marxian way (p.24) but fails to show how this is done.
Schumpeter’s contention (p.21) is that expanding capitalist production in the Marxian sense would lead to such increases in the demand for labour-power, and hence the price of labour-power, that profits would be swallowed up. Actually any increase in the price of labour-power beyond a certain point in a particular industry would further increase the capitalist tendency towards labour-saving devices and at the same time the threat to profit-anticipation would lead to a decline in capital investment in that industry. This would lead to increased redundancy of workers and so restore a condition of the labour market favourable to the capitalist. By this double process capitalism regulates wages according to the requirements of a profit-making economy.
Schumpeter says Marx based his theory of value on the assumption of a capitalism in perfect equilibrium (p.24). What Marx actually did in volume I of “Capital” was to make a number of simplifying assumptions in order to present a clear picture of the essential relationship existing between capitalist and worker in a process of simple commodity production, in order to demonstrate that the law of value was the guiding principle underlying a class system based on production for profit. Apart from purely theoretical considerations, but as a matter of practical judgment upon which all theories, hypotheses, and first approximations must be finally judged, Marx’s theory alone provides an accurate and dynamic picture of the nature of capitalist development, viz., concentration and centralisation of capital, poverty, unemployment, crises and wars. Moreover, productive time-charts and speed-up processes for reducing the labour-time spent on commodities and thus reducing their value confirm in the real world of capitalist production the practical validity of Marx’s Labour Theory of Value.
Schumpeter’s own remedy for the evils of capitalism is more capitalism—he calls it Socialism. The workers not controlling the productive forces will, of course, be a dependent class and continue to produce surplus-value. Indeed he tells us that democracy is likely to turn out to be more of a sham under Socialism than it was under Capitalism (p.302). Pathetically he tries to assure us that wages and profits will not, under his scheme, be really wages and profits. The result Is ludicrous. In short, Schumpeter’s scheme is only a highly rationalised anti-democratic capitalism which he dubs “Socialism” but which is merely his own term for describing Fascism.