Karl Heinrich Marx (1818-1883)

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Karl Heinrich Marx (1818–1883)
Gilbert Faccarello, Christian Gehrke &Heinz D. Kurz∗
Life and Writings
The formative years
Karl Marx was born on 5 May 1818 the eldest son of Heinrich and
Henriette Marx in the provincial town of Trier in the Rhineland, where his
father practised as a lawyer. On his father’s side Karl was descended from a
Jewish family with a long-standing tradition of rabbis. But his father Herschel
(or, since 1814, Heinrich) Mordechai had converted to Protestantism in 1816
in order to escape the Prussian restrictions against the Jews, and he also had
Karl and his six brothers and sisters baptised as Protestants. Heinrich Marx
was a cultured man, who had great admiration for Leibniz, Lessing, and Kant,
and raised his children as liberal and law-abiding Protestants. His wife Henri-
ette, née Pressburg, was the daughter of a Jewish merchant from Nijmegen in
the Netherlands.
∗Published in Gilbert Faccarello and Heinz D. Kurz (eds), Handbook on the History of
Economic Analysis, vol. 1, Cheltenham: Edward Elgar, 2016. Some changes are purely
formal.
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Marx, Karl Heinrich (1818–1883) 2
The person who exerted the most important intellectual influence on the
young Karl, apart from his father, was Johann Ludwig von Westphalen, a
high-ranking civil servant, who treated the talented young neighbour’s boy
and schoolmate of his son Edgar as an equal partner in discussions on lit-
erary and philosophical themes. While his father acquainted him with the
German and French enlightenment philosophers, Karl would learn about Homer,
Shakespeare and the Romantics from his future father-in-law. Presumably, it
was also Baron von Westphalen who introduced him to the ideas of Henri de
Saint-Simon, in which he took a keen interest himself. Until his twelfth year,
Karl was educated privately by his father and the local bookseller. In the
gymnasium, which he attended from 1830 to 1835, he was conspicuous mainly
for his diligence and for his strong interest in literature and fine arts.
From 1835 to 1841 Marx studied at the universities of Bonn and Berlin.
Following his father’s advice, he enrolled at Bonn University as a student of
law, but attended courses also in history, medicine, and theology. In 1836
he changed over to the University of Berlin, where at first he continued his
studies in law, but then devoted his time and energy mainly to philosophy,
after he had come into contact with some of the so-called Young Hegelians,
who gathered around the radical theologian and religious critic Bruno Bauer
(1809–1882). In 1841 he earned a doctorate with a philosophical dissertation
on “The difference between the Democritean and the Epicurean philosophy of
nature” at the University of Jena. However, he quickly realised that there was
little chance of success for an academic career, in view of the strict actions
of the Prussian authorities against radical left-wing Hegelians: his mentor
Bruno Bauer, whom he had intended to follow to the University of Bonn, was
deprived of his lecture rights. Being thrown back on his own financially by
the unexpected death of his father, Marx turned to journalism and began to
write articles for the Rheinische Zeitung in Cologne, which had been founded
by enlightened citizens and industrialists in early 1842. In October, Marx took
over the editorship of the liberal and anti-clerical – and under Marx’s influence
increasingly more radical – newspaper. Being watched with mounting suspicion
by the censorship authorities, the Rheinische Zeitung was banned in March
1843.

Marx, Karl Heinrich (1818–1883) 3
Revolutionary turmoil in Europe
In June 1843 Karl Marx and Jenny von Westphalen, the daughter of J.L.
von Westphalen, got married. In October the young couple moved to Paris,
then the centre of radical thinking and political activism in Europe, where
Marx came in contact with men such as Heinrich Heine (1797–1856), Georg
Herwegh (1817–1875), Pierre-Joseph Proudhon (1809–1865), and Michail
Bakunin (1814–1876), and where he planned to edit, together with Arnold
Ruge (1802–1880), a literary-political magazine called the Deutsch-Französische
Jahrbücher. The first (and only) issue of these “yearbooks” was published in
1844. It contained inter alia Friedrich Engels’ contribution “Umrisse zu einer
Kritik der Nationalökonomie” (“Outlines of a critique of political economy”)
and two articles by Marx, “Zur Judenfrage” (“On the Jewish question”) and
“Zur Kritik der Hegelschen Rechtsphilosophie” (“A contribution to the critique
of Hegel’s philosophy of right”). Marx was very impressed by Engels’ contri-
bution and the first meeting of the two men marked the beginning of a lifelong
friendship. In Engels (1820–1895), the son of an industrialist from Barmen,
Marx found a most congenial intellectual ally, who would subsequently stand
by him in his scientific and political activities as a critical commentator, occa-
sional co-author, generous financial helper, and editor of his unfinished works.
Shortly after his meeting with Engels, in autumn 1844, Marx began to study
seriously political economy. He filled several notebooks with excerpts and com-
mentaries on the economic writings of Boisguilbert and the French physiocrats,
and of Smith, Malthus, and Ricardo (which he first read in French). He then
used his “Paris notebooks” for drafting out a long text that he himself had
not considered for publication, but which was published posthumously in 1932
as the so-called Ökonomisch-philosophische Manuskripte von 1844 (Economic
and Philosophic Manuscripts of 1844). In these manuscripts Marx formulated
a critique of Hegel’s philosophy and also discussed the specific forms that
“alienation” assumes under capitalistic production relations. (On Marx’s early
writings, see Colletti 1975.)
In early 1845 Marx was expelled from France on the instigation of the Prus-
sian embassy in Paris. With his wife and his newly born daughter “Jennychen”
he flew to Brussels, where he continued to pursue his studies in political econ-
omy. In Die deutsche Ideologie (The German Ideology), written jointly with
Engels in 1845–46, he again discussed critically Hegel’s philosophy and devel-
oped the main ideas of what was to be called the materialist conception of

Marx, Karl Heinrich (1818–1883) 4
history (on the so-called “dialectical materialism”, see Colletti 1969 [1973]),
which he later summarised as follows in his celebrated “Introduction” to the
critique of political economy:
In the social production of their existence, men inevitably enter into
definite relations, which are independent of their will, namely relations
of production appropriate to a given stage in the development of their
material forces of production. The totality of these relations of produc-
tion constitutes the economic structure of society, the real foundation, on
which arises a legal and political superstructure and to which correspond
definite forms of social consciousness. The mode of production of mate-
rial life conditions the general process of social, political and intellectual
life. It is not the consciousness of men that determines their existence,
but their social existence that determines their consciousness. At a cer-
tain stage of development, the material productive forces of society come
into conflict with the existing relations of production or – this merely ex-
presses the same thing in legal terms – with the property relations within
the framework of which they have operated hitherto. From forms of de-
velopment of the productive forces these relations turn into their fetters
. . . In broad outline, the Asiatic, ancient, feudal and modern bourgeois
modes of production may be designated as epochs marking progress in
the economic development of society. The bourgeois relations of produc-
tion are the last antagonistic form of the social process of production . . .
but the productive forces developing within bourgeois society create also
the material conditions for a solution of this antagonism. The prehistory
of human society accordingly closes with this social formation. (Marx
1859 [1987]: 263–4)
In 1846 Marx also published a scathing polemic against Proudhon, entitled
Misère de la Philosophie (The Poverty of Philosophy) (1847) – thus ridiculing
the title of Proudhon’s book Philosophie de la misère (Philosophy of Poverty )
(1846). In this text as well as in a short tract on “Wage labour and capital”,
which emanated from a set of lectures that he had delivered in 1847 at the
German Workers’ Association in Brussels, Marx first set out his theory of value
and surplus value. In Brussels, Marx and Engels also founded the “Communis-
tisches Korrespondenz-Kommittee” (Communist Correspondence Committee)
in early 1846, which aimed at the unification of the revolutionary German and
international workers. They established an international Communist party
by merging with Wilhelm Weitling’s “Bund der Gerechten” (League of the
Just). At the first joint congress in London in November 1847 Marx and En-
gels succeeded in establishing the “Bund der Kommunisten” (the Communist
League). From the mandate given to Marx and Engels at the second congress in

Marx, Karl Heinrich (1818–1883) 5
1848 to write a declaration of principle emanated the famous Manifesto of the
Communist Party – which in fact was written by Marx alone after both had
agreed that Engels’ preliminary drafts were unsuitable.
In spring 1848, when the revolutionary movements began to spread through-
out Europe after the February revolution in Paris, Marx was briefly imprisoned
and then expelled from Belgium. Upon an invitation from the newly installed
French government he first returned to Paris, but after the March revolution
in Germany he and Engels moved to Cologne in order to lead the revolutionary
movement in the Rhine provinces and edit the re-established Neue Rheinische
Zeitung. After the failure of the revolution, the popular daily paper was in-
creasingly subjected to censorship and finally banned in May 1849. Marx was
expelled from Prussia and deprived of his citizenship. After a brief interval
in Paris he moved into exile with his family to England and settled down in
London, where he was to stay until the end of his life.
Exile in London
Over the next 30 years Marx devoted much of his time and energy to polit-
ical economy. He used to work in the reading room of the British Museum,
studying the available literature on political economy as well as the so-called
Government Blue Books, the economic and financial sections of newspapers
and magazines, and various other sources that provided information on the
economic and social conditions in Britain and in the rest of the world, filling
several hundred notebooks and thousands of pages with excerpts, commen-
taries, and bibliographic references. In the evenings and at night he then used
his extensive notes in producing first drafts of sections and chapters of his
planned books.
The economic crisis of 1857 induced him to summarise the results of his
economic studies in a first manuscript on political economy of some 800 pages.
In the “Introduction” he grouped the topics to be dealt with into six “books”:
“(1) Of Capital (with some pre-chapters). (2) Of landed property. (3) Of
Wage-labour. (4) Of the State. (5) Foreign Trade. (6) World Market.” This
manuscript, which Marx composed from August 1857 to March 1858, was first
published in 1939–41 under the title Grundrisse der Kritik der Politischen
Ökonomie (Rohentwurf) 1857–1858. It is often referred to as a “rough draft”
of Das Kapital (Capital), but Marx’s original plan was in fact much wider in

Marx, Karl Heinrich (1818–1883) 6
scope. The three volumes of his later main work, Das Kapital, in fact cover
only the contents of the first “book” of the originally planned six “books”. In
the course of working out this part, Marx realised the impossibility of finishing
the huge task he had set himself and was forced to postpone work on “books”
4, 5 and 6, while those on “landed property” and on “wage-labour” were partly
integrated into his main work (in volumes I and III of Capital and in the
Theories of Surplus Value).
In 1859 Marx managed to prepare a revised version of the first part of the
1857–58 “Rough draft” for publication: Zur Kritik der Politischen Ökonomie
(Erstes Heft) (A Contribution to the Critique of Political Economy). However,
this book, in which Marx first presented his value theory in full, did not have
the desired impact, which prompted him to revise his publication plans again.
As preliminary drafts for his major work, which was now meant to consist of
four “books” (in three volumes), he wrote two extensive sets of manuscripts,
which have been published as Ökonomische Manuskripte von 1861–63 and
Ökonomische Manuskripte von 1863–67 in the new MEGA edition (for the
different editions of Marx’s works, see the note below). On the basis of these
manuscripts he then managed to complete and prepare for publication, in
1867, only the first volume of Capital, entitled Das Kapital. Kritik der Poli-
tischen Ökonomie. Erster Band. Buch I: Der Produktionsprozeß des Kapitals.
He did not succeed in bringing the remaining volumes to completion. These
were published only posthumously by Friedrich Engels from the extant sets
of manuscripts, with many changes and additions, in 1885 and 1894, and by
Karl Kautsky, in 1905–10. During the 1870s Marx repeatedly interrupted his
work on the planned volumes II and III of Capital and devoted his attention
to various other research fields (such as Russian society, the Asiatic mode of
production, linguistics, mathematics, and the latest developments in the nat-
ural sciences, in particular chemistry); in the early 1880s he ceased to work on
them altogether.
Engels’s edition of volumes II and III of Capital does not meet today’s edi-
torial standards. As the basis of the text Engels used the manuscripts written
by Marx between 1863 and 1867, which he merged with manuscript fragments
from later working periods and “supplemented” by insertions, changes, and
additions of his own, without properly indicating the latter. The full extent of
Engels’s editorial intrusions can be assessed only since the original manuscripts
have been published in the new MEGA edition.

Marx, Karl Heinrich (1818–1883) 7
According to Marx’s plan, the second volume was meant to comprise the
“Circulation process of Capital (Book II) and the Process as a whole (Book
III)”, but in Engels’s edition book II became volume II and book III became
volume III of Capital. According to Marx’s plan, the final and third volume
was to be the “History of the Theory” (“Book IV” in Marx’s outline); this
was published in three volumes from 1905–10 under the editorship of Karl
Kautsky as Theorien über den Mehrwert (Theories of Surplus Value) from a
set of manuscripts that Marx had written during 1861–63. (For a detailed
account of the gestation of Marx’s economic writings, culminating in the three
volumes of Capital and the Theories of Surplus Value, see Rosdolsky 1968
[1977]; Oakley 1983; and the volumes published in the new MEGA edition as
“Abteilung II. Vorarbeiten zum Kapital”.)
During the years in London, Marx and his family suffered from material
deprivation, in spite of continuous financial support from Engels. Bad hous-
ing conditions, malnutrition, and lack of medical care led to the worsening of
Marx’s health and that of his wife, as well as to the early death of four of his
seven children. He took on various journalistic jobs, but these did not earn
him a regular income. His work as European correspondent of the New York
Daily Tribune, for which he wrote hundreds of articles (see Ledbetter 2007),
forced him to keep himself well informed about British and European poli-
tics. From 1864 to 1872 Marx also often had to interrupt his scientific work
because of his multifarious commitments in the International Workingmen’s
Association, the so-called “First International”, in whose foundation he was
actively involved in 1864. From London he also tried to foster the foundation
of a revolutionary socialist party in the German states. At first he distanced
himself from Ferdinand Lassalle’s reform-oriented “Allgemeiner Deutscher Ar-
beiterverein”, which then however was merged with the “Sozialdemokratische
Arbeiterpartei” in 1875, which Wilhelm Liebknecht had founded six years ear-
lier in close collaboration with Marx, to form the “Sozialistische Arbeiterpartei
Deutschlands”, from which the German “Social Democratic Party”, the SPD,
was later to emerge.
In his last years Marx was plagued by serious health problems. He suffered
from chronic liver and lung problems, and also from carbuncles, which are
diagnosed today as psychically caused. In spite of several cure treatments at
the English seaside, in Karlsbad and in Algiers, his health further deteriorated.
His wife Jenny, who fell fatally ill in 1880, died the following year. Marx only
survived her by a little more than two years. He died, presumably from the

Marx, Karl Heinrich (1818–1883) 8
after-effects of lung tuberculosis that had never been properly treated, on 14
March 1883 in London.
Marx’s Approaches to Value – Socio-historical,
Dialectical, Classical
The theory of labour value: basic concepts
Marx begins his study of capitalistic production with an analysis of commodi-
ties, because “for bourgeois society, the commodity-form of the product of
labour, or the value-form of the commodity, is the economic cell-form” (1867
[1976]: 90). Commodities have a use-value and an exchange-value. According
to Marx, this “double character” of the products of labour is a source of “con-
tradictions”. While from a societal point of view economic activities aim at
the production of use-values to satisfy the needs and wants of the members of
society, the interest of the individual capitalist is directed at the production of
exchange-values and profit – he “wants to produce a commodity greater in value
than the sum of the values of the commodities used to produce it, namely the
means of production and the labour-power” (1867 [1976]: 293). What, then,
determines the exchange values of commodities? Since every commodity can
be exchanged against any other, the exchange relations between commodities,
Marx insists, must be based on a common “something”: “The exchange values
of commodities must be reduced to a common element, of which they represent
a greater or lesser quantity” (1867 [1976]: 127). He adds:
This common element cannot be a geometrical, physical, chemical or
other natural property of commodities. Such properties come into
consideration only to the extent that they make the commodity
useful, i.e. turn them into use-values . . . As use-values, commodities
differ above all in quality, while as exchange-values they can only differ
in quantity, and therefore do not contain an atom of use-value. If then
we disregard the use-value of commodities, only one property remains,
that of being products of labour. (Marx 1867 [1976]: 127–8)
The relative values of commodities are thus taken to be governed by the
relative amounts of embodied labour. Labour itself, however, also has a double
character. In the production process, with all its technical and intellectual

Marx, Karl Heinrich (1818–1883) 9
specificities due to education and formation, it is heterogeneous, “concrete
labour”, qualitatively different according to productive necessities. However,
as the “substance” and “magnitude” of value, Marx stresses, it is “abstract
labour”, “labour in general”, and as such directly comparable to any other
quantity of abstract labour embodied in some other commodity. For some
given prevailing technical conditions of production, the amount of abstract
labour spent in the production of a commodity is called “socially necessary
labour” (1867 [1976]: 129).
These are the first basic concepts on which Marx’s reasoning is built. Their
understanding, however, is not self-evident, and Marx himself published several
versions of his presentation of his theory of value, for example, first in the
1859 Contribution to the Critique of Political Economy, then in 1867 in the
first section of the first edition of Capital – to which he added an appendix,
“Die Werthform” (the value-form), placed as an afterthought at the end of the
book – a section modified for the 1872–75 French edition and again in the
fourth German edition (posthumously published in 1890). Marx was not only
facing misunderstandings from his readers, as he wrote, he was also struggling
with important analytical difficulties. One problem is the way in which he
“derived” the statement that the only thing that commodities have in common
is labour, leaving “out of consideration the use-value of commodities”. Eugen
von Böhm-Bawerk (1884 [1890]), Philip Henry Wicksteed (1884) and Vilfredo
Pareto (1902), for example, pointed out that this mode of reasoning is not
conclusive: eliminating some items in a list of qualities to retain the remaining
one cannot be a proof because the substance of value could well originate in an
item omitted from the list; moreover, Marx’s approach could also be turned in
favour of utility because, just as “abstract labour”, as distinct from “concrete
labour”, is alleged to be the substance of value, “abstract utility”, as distinct
from “concrete utility”, could well form the substance of value.
This aspect is only a symptom of deeper difficulties in Marx’s approach. In
particular, the meaning of the central concept of “abstract labour”, “labour in
general”, is not clear. Several definitions can be found, which are not compat-
ible with one another. These definitions express different strands of Marx’s
thought concerning value, money and capital – socio-historical, dialectical and
classical (see Faccarello 1983a, 1997, 2000a).

Marx, Karl Heinrich (1818–1883) 10
The socio-historical approach to value
A first definition of “abstract labour” is purely socio-historical – or “socio-
logical” – and is tightly connected to the phenomenon of fetishism (see, for
example, “The fetishism of the commodity and its secret”, Marx 1867 [1976]:
163–77 ). We encounter it in passages in which Marx stresses the “phantom-
like objectivity” (ibid.: 128) and the “mystical character” (ibid.: 164) of the
products of labour in a market society and speaks of “labour in general” as
the “common social substance” of these products, and of the commodity as
a “social hieroglyph”. “Not an atom of matter enters into the objectivity of
commodities as values”, Marx stresses, and adds:
Commodities possess an objective character as values only in so far as
they are expressions of an identical social substance, human labour,
. . . their objective character as values is therefore purely social. From
this it follows self-evidently that it can only appear in the social relation
between commodity and commodity. (1867 [1976]: 138–9)
Marx’s purpose here is to define the “specific difference” presented by the
capitalist mode of production as compared with other forms of society. This
is an important task, which he deduced from his youthful criticism of Hegel’s
philosophy along Feuerbachian lines. In this perspective, “value” is supposed
to express this differentia specifica. What matters is the qualitative side of
the analysis. However, the sociological or qualitative characterisation of value
inevitably involves a quantitative determination, which proves to be at variance
with the traditional “labour incorporated” analysis (below).
To single out the specificity of a market-based economy, Marx refers, in
Contribution and Capital, to four other forms of society: “Robinson on his
island”, the “dark European Middle-Ages”, the rural and patriarchal family,
and a “society of free and equal men”. In these non-capitalist societies, Marx
writes, (1) only “concrete labour” matters, (2) the products of labour are not
commodities and (3) social relations of production are transparent. In a mar-
ket society, on the contrary, (1) concrete labour does not matter as such,
(2) products are commodities and (3) the social relations of production are
hidden behind the apparent equality in exchange relations. Why do such dif-
ferences arise?
First, Marx argues, in a non-capitalist society there is an immediate corre-
spondence between (1) the different kinds of concrete labour, (2) the produced

Marx, Karl Heinrich (1818–1883) 11
use values and (3) the needs of the members of society. There is no place
for a break between a “private” and a “social” side of activities: it is “the dis-
tinct labour of the individual in its original form, the particular features of
his labour and not its universal aspect that formed the social tie” (Marx 1859
[1987]: 275). Second, the cause of this state of things lies in the existence of a
community that acts prior to production and coordinates it. All the societies
he mentions are, in some way, planned: “the individual labour powers, by their
very nature, act only as instruments of the joint labour-power” (Marx 1867
[1976]: 171).
The “specific difference” presented by the capitalist mode of production is
thus defined as the lack of any community prior to production. Producers
are independent and isolated; they work privately and their activities are not
coordinated ex ante. This is why the “natural” forms of labour are not imme-
diately social. The social link forces itself upon the system ex post through
the market. It is by transforming their products into commodities that inde-
pendent producers constitute a coherent set of relationships, that is, a society,
and that their private labour is – or is not – validated as a social commodity.
The market is the locus of social integration. In this socio-historical line of
argument, Marx called “abstract” or “general” labour the concrete labour that
is socially validated through the exchange of its products in the market, a
“concrete labour” that proves itself part of the “social division of labour”. It
is a result of exchange, defined simultaneously with the exchange rate. “Ab-
stract labour” is not a “substance” prior to exchange nor does it determine it.
“Universal social labour is consequently not a ready-made prerequisite but an
emerging result” (Marx 1859 [1987]: 286; translation modified).
If abstract or general labour is not a substance which exists prior to
exchange, value cannot be defined other than as the quantity of money for
which a commodity is exchanged: this quantity acts both as the determining
factor and the measure of value. We can now understand the meaning of such
sentences as “universal labour time itself is an abstraction, which, as such,
does not exist for commodities” (Marx 1859 [1987]: 286). Money acts as the
social link for labours expended independently of each other, without social
coordination. It regulates production. It is, in Marx’s own words, the commu-
nity (an indirect, abstract community) that seems to be lacking in a society
based on market exchange and the private ownership of means of production.
Producers meet as owners and

Marx, Karl Heinrich (1818–1883) 12
exist for each other only as things, something that is merely further
developed in the money relation, in which their community itself appears
as an external and hence a casual thing with respect to all . . . Since
. . . they are not subsumed under any naturally evolved community . . .
this community must . . . exist as an independent, external, casual thing
. . . with respect to them as independent subjects. That is precisely
the condition for their simultaneously being in some social connection as
independent private persons. (Marx 1858 [1987]: 468)
This “sociological” approach is thus at variance with the traditional, or
classical, interpretation of Capital (below). Its most striking feature is the
inversion of the deduction of value and money. If, in the classical approach,
money is deduced from the concepts of abstract labour and value – it is a
commodity which itself has a value and can consequently act as a measure
of value, a medium of exchange and a store of value – in the socio-historical
approach abstract labour and value are deduced from the concept of money.
The dialectical approach
The second definition of “abstract”, “general” labour is purely conceptual.
Abstract labour can be seen as an “indeterminate abstraction”, as the cate-
gory that, in thought, embraces all imaginable kinds of concrete labour: “the
mental product of a concrete totality of labours” (Marx 1857–58 [1973]: 104) –
just as the concept of “fruit” denotes concrete fruits like apples, pears, mangos,
and so on. The concept is here hypostatised, in an idealist way that it is a
priori surprising to find in Marx. However, it is in fact in line with Marx’s
second line of argument, which can be called the “dialectical approach” and
which stems from Marx’s plan to build his theoretical construction on a rig-
orous chain of deductions of concepts, from the commodity concept to that
of money, from money to capital and then to wage-labour and the different
kinds of capital – a plan which is visible in Grundrisse, in Contribution and
the manuscript of it, and of course in Capital.
In Marx’s eyes the theoretical introduction of money from the sociological
approach is no doubt insufficient because all the concepts are given simulta-
neously and are not deduced from one another. This creates a break in his
chain of reasoning: once money and value are given, there seems to be no place
left for a rigorous deduction of the concepts of capital and wage labour, and
a picture emerges eventually of a rather harmonious society of independent

Marx, Karl Heinrich (1818–1883) 13
producers, whereas in Marx’s opinion a monetary economy is necessarily a
capitalist one. This is why, of the preceding considerations, Marx retains only
the necessary transformation of products into commodities. He then stresses
that a commodity has a twofold character (exchangeable value and use value)
and that these two are “contradictory”. Then, from this basic “opposition”, he
dialectically deduces money, capital, wage labour and the different kinds of
capital.
To use Marx’s Hegelian language, what is this “opposition” stemming from
the analysis of the two sides of a commodity and why is there a “contradiction”
between them? How and with the help of which logical tools is the concept of
money generated as a result of the development of this alleged basic “contra-
diction”? Marx asserts that, on the one hand, a commodity is not immediately
a value, but “has to become so”. On the other hand, it is not immediately a use
value, but it has also to become so. Of course the exchange process realises a
commodity as a value (for the seller), just as it simultaneously realises it as a
use value (for the buyer). In Marx’s opinion, this means a “contradiction”: the
“realisation” of use value presupposes in his eyes the realisation of the commod-
ity as value, and conversely the “realisation” of value presupposes that of use
value. As the solution of each problem implies that of the other, we therefore
face an endless theoretical regression from one determination of the concept of
commodity to the other. In order to generate this opposition and the endless
regression, the classical meanings of value and use value have been modified.
Use value is now defined as a direct utility relationship between a thing and
its owner, and value is defined as the quantity of such and such commodities
for which it can be exchanged.
The “inner” contradiction of the commodity, Marx continues, brings about
the “equivalent form”, in which a given commodity assumes the “relative” value
form, and the received commodity acts as a “particular” equivalent. The com-
modity is then equated with different quantities of all other commodities, which
act as many particular equivalents: it is the “developed” equivalent form. Marx
stresses, however, that every attempt to transcend a particular equivalent in
order to give value its “general form” is bound to fail: a commodity can be suc-
cessively equated with every other commodity, but each of them nevertheless
remains a particular equivalent. Here we encounter once again a theoretically
endless regression from one determination to another. To obtain the “general
equivalent”, the “money form”, Marx simply reverses the sequence of the par-

Marx, Karl Heinrich (1818–1883) 14
ticular equivalents, which, by means of this operation, express their value in a
determined amount of one and the same commodity.
The meaning of this analysis of the “value forms”, that is, the development
of the original “contradiction” of the two aspects of commodity – stated at the
beginning of Contribution and Capital – and the final reversal which generates
the concept of money, is problematic. (1) The reversal can be interpreted as
a mere subjective reasoning on the part of the dealer who considers his or her
commodity as a general equivalent for all other commodities. However, in this
case no theoretical derivation of money is accomplished: if each dealer wants
his commodity to be accepted by the other dealers as the general equivalent,
no commodity can assume this role (Marx 1867 [1976]: 180). (2) The develop-
ment of the “value forms” could also be interpreted in an idealist way, implying
the progressive realisation of a universal element (value) that aims at a man-
ifestation appropriate to its concept (money), as Hegel would have put it. In
both cases the dialectical deduction of the concept of money is questionable,
and the concept of “abstract” labour, “substance” of value, either vanishes, or
is at best to be understood as an “indeterminate abstraction” (the definition
noted above).
Marx’s classical approach to value
Two further definitions of “abstract labour” can be found in Marx’s texts,
referring to the usual classical understanding of Marx’s economics. The first
conveys a “physiological” conception, which, as for Ricardo at the end of his life,
puts stress on the expense of energy that all labour always involves. “Tailoring
and weaving, although they are qualitatively different productive activities,
are both a productive expenditure of human brains, muscles, nerves, hands
etc., and in this sense both human labour” (Marx 1867 [1976]: 134). This is
why Marx states that “all labour is an expenditure of human labour-power,
in the physiological sense, and it is in this quality of being equal, or abstract,
human labour that it forms the value of commodities” (1867 [1976]: 137).
The second definition of “abstract” or “general” labour stresses the growing
indifference of labourers vis-à-vis their tasks and kinds of labour, an indif-
ference that results from the development of the labour market and from a
process of deskilling imposed by technological progress (Marx 1863–66 [1976]).
“Indifference towards specific labours corresponds to a form of society in which

Marx, Karl Heinrich (1818–1883) 15
individuals can with ease transfer from one labour to another, and where the
specific kind is a matter of chance for them, hence of indifference” (Marx
1857–58 [1973]: 104). This is evident in the United States: “Here, then, for
the first time, the point of departure of modern economics, namely the ab-
straction of the category ‘labour’, ‘labour as such’, labour pure and simple,
becomes true in practice” (ibid.: 104–5).
In Marx’s texts, the line of argument expressed by these definitions is closely
connected to the traditional analysis of Capital and to its stress on the determi-
nation of values in terms of incorporated quantities of labour. This approach
links the analyses of Capital directly to those of classical political economy
and, in systematically developing a quantitative and positive economic anal-
ysis, confers a “naturalistic” flavour on the theory of value. From this point
of view the so-called “socially necessary labour” that must be spent directly
and indirectly to produce a commodity, and which forms its value, is defined
with respect to technical factors, that is, to what can be considered as the
“normal” or “average” technical conditions in each industry at a given place
and time. The “substance” of value, “abstract labour”, is also to be understood
in the same perspective. This is why, among the different definitions that can
be found in Marx, only the “physical” ones can be coherently accepted: that
is, either the one that stresses the “energetical” nature of abstract labour, or
the one that, in pointing out the process of development in the labour market,
in the end simply identifies “concrete” and “abstract” labour. This kind of
“technological” or “naturalistic” approach, of course, does away with a socio-
historical specification of value. It is also at odds with the dialectical deduction
of concepts: it is impossible to see to what extent its concepts of value and use
value (value is supposed to be a quantity of labour, and use value expresses
the physical and concrete aspects of the product of labour) are “opposed” to
each other.
Finally, it is important to note that the ideas expressed by Marx in his dif-
ferent approaches to value – including the classical approach with the attempt
to “prove” that the only thing that commodities have in common is labour –
owe a great deal to Hegel’s philosophy: not only to Hegel’s Science of Logic
but also, and perhaps to a greater extent, to his Philosophy of Right, and that
this source of inspiration is also important for the deductions of the concept of
“capital in general”, wage labour and the different forms of capital (see Reichelt
1970, Faccarello 1983a: chs 14–16, 1997, 2000a).

Marx, Karl Heinrich (1818–1883) 16
Note that the three conflicting approaches coexist in Marx’s texts in differ-
ent proportions, with the classical definition being dominant in Capital. This
coexistence of conflicting conceptualisations is a source of dire controversies
and confusions. In the following we focus on the classical concept of value in
Marx.
Main Themes in Marx’s Classical Approach
From value to surplus value
According to Marx, it is a specific characteristic of the capitalist mode of
production that human labour-power also assumes commodity-form. Its value
is determined, just like that of any other commodity, by the amount of so-
cially necessary labour required in its (re)production. In order to (re)produce
his labour-power the labourer needs certain amounts of means of subsistence
(for himself and his family), that is, a certain consumption basket, the size
and composition of which is determined, at any given time and place, by phys-
iological, historical, and cultural circumstances: “Therefore the labour-time
necessary for the production of labour-power is the same as that necessary
for the production of those means of subsistence; in other words, the value
of labour-power is the value of the means of subsistence necessary for the
maintenance of its owner” (Marx [1867] 1976: 274). That the workers’ remu-
neration cannot systematically exceed the subsistence level Marx explains with
reference to competitive pressures on the labour market that result from the
existence of an “industrial reserve army”, that is, especially from the existence
of a pool of unemployed workers, which is continuously replenished up again by
the displacement of workers consequent upon the introduction of labour-saving
technical progress.
The use-value of the commodity labour-power consists in its “productive
consumption” in the production process: the capitalist “consumes” the com-
modity labour-power he has purchased at its labour-value vby employing it,
together with various means of production whose aggregate labour value is
given by c, in the production of a certain commodity. Marx called the raw
materials, intermediate products, and the means of production purchased by
the capitalist “constant” capital, because their value is merely transferred onto
the product without any change, either in a single production cycle (raw ma-

Marx, Karl Heinrich (1818–1883) 17
terials and intermediate products) or else over a number of production cycles
(tools and machines). With the “variable” part of the capital advances labour-
power is purchased, which reproduces not only its own value but generates
an additional value conferred to the product. The value of the product, λ, is
given by the amount of (socially necessary) labour which has been used up in
its production in the form of “direct” or “living” labour, l, and in the form of
“indirect” or “previously expended” labour, which is “congealed” in the means
of production, c, that is:
λ=c+l=c+v+s(1)
The term sdenotes what Marx calls “surplus value”. Its existence obviously
derives from the fact that a part of the “living” labour performed by the worker
consists of “unpaid” or “surplus labour”, because the labourer has to work longer
than is necessary for reproducing his means of subsistence (l > v). In volumes
I and II of Capital, Marx supposed all commodities, including the commodity
labour power, to exchange at their (labour-)values. Accordingly, “exploitation”
is not “explained” by him from wages being “too low,” that is, from assuming
that workers have to sell their commodity – their labour power – below its
value. Exploitation, Marx insisted, is a phenomenon that is not generated in
the sphere of circulation, but in that of production.
The “transformation problem”
In volume I of Capital Marx maintained that the value of a commodity is given
by the quantity of socially necessary abstract labour required in its produc-
tion. The exchange ratios between any two commodities are then given, by
definition, by the ratio of their labour values. However Marx, who had care-
fully studied the contributions of Smith and Ricardo, was of course aware of the
fact that the “prices of production” (or “natural prices”, as his precursors called
them) must generally deviate from labour values. He was convinced, however,
to have understood much better than his predecessors why these deviations
occur and how their magnitudes can be ascertained. What had prevented his
precursors from developing a correct solution of the problem? According to
Marx, the reason for their failure is to be found in Adam Smith’s erroneous
idea that the annual social product (exclusive of rent) can be entirely reduced
to wages and profits; an idea which had also been implicitly adopted by Ri-

Marx, Karl Heinrich (1818–1883) 18
cardo when he supposed in his determination of the general rate of profits
that all capital can be reduced to advanced wage capital in a finite number
of steps. Both had overlooked that a part of the annual product, which Marx
called “constant capital”, must be used in order to replace the used-up means
of production. If this is taken into account, it becomes immediately obvious
that the deviations of production prices from labour values are caused by the
differences in the proportions of the two capital components in the production
of the various commodities, that is, by differences in the proportions between
“living labour” and “dead labour” (“vorgetane Arbeit”). If the constant capital
is again assumed for simplicity to consist only of circulating capital, the value
of an industry’s annual product is equal to c+l, where cis the value of the
constant capital (the quantity of “indirect” labour) and lis the quantity of
“living” (or “direct”) labour. Denoting by vthe value of the wages advanced in
this industry – Marx’s “variable capital” – the industry’s costs of production in
value terms amount to c+v, and the surplus value generated in this industry
is given by s= (c+l)−(c+v) = l−v. The rate of profits in value terms of
this industry is then given by:
r=s
c+v=s/v
(c/v)+1 (2)
It is thus seen to depend on two magnitudes: on s/v, a ratio that Marx calls
“rate of surplus value” or “rate of exploitation”, and on c/v, which expresses the
so-called “organic composition of capital”. Under competitive conditions (and
on the assumption of the mentioned deskilling of labour and the emergence of a
uniform length of the working day) the rate of surplus value must be the same
in all industries. The organic composition of capital, however, is determined
by technology and will in general differ across industries. An exchange of
commodities at their labour values would therefore be associated with different
profit rates across industries. The tendency towards uniform rates of profits
in competitive conditions therefore leads to systematic deviations of relative
prices from labour values. These deviations are necessary in order to relate
the surplus value of the economic system as a whole, S, which was generated
in the individual industries in proportion to the industries’ variable capitals,
to the capital of the economic system as a whole, C+V.
Marx believed that for the system as a whole these deviations of production
prices from labour values must exactly compensate each other, so that the

Marx, Karl Heinrich (1818–1883) 19
general rate of profits is the same as the one which emerges if the economy as
a whole is considered as a single industry, that is, the same as:
r=S
C+V(3)
where S,C, and Vdenote total surplus value, total constant capital, and total
variable capital, respectively. In Marx’s view, the labour theory of value, al-
though it does not directly give a correct theory of relative prices, nevertheless
provides the basis of such a theory. That Marx felt justified to make use of
the labour theory of value in volumes I and II of Capital was therefore due
to his conclusion, at which he had already previously arrived (but from which
we now know that it is untenable) that the general rate of profits calculated
at production prices is the same as the value rate of profits. However, if this
mode of exposition may have seemed justified to Marx as being easily compre-
hensible for his readers, with the benefit of hindsight it was a mistake, which
has seriously impeded the understanding of his work. The fact that volumes
II and III of Capital became available only much later has contributed to the
solidification of the misconception that Marx had meant to determine relative
prices directly by means of the labour theory of value.
When Marx, in section 2 of volume III of Capital, explicated his idea of the
redistribution of surplus value in the course of the transformation of labour
values in prices of production, he noted explicitly that his transformation pro-
cedure was not fully accurate, because the means of production have to be eval-
uated at production prices rather than at labour values (1894 [1981]: 259–60,
264–5). He overlooked, however, the important implication that he then also
had no justification for supposing that the ratio of total profits to total capital
is the same as if commodities were exchanged at labour values, that is, he
overlooked that his “successivist”, two-step procedure for the determination of
the general rate of profits and relative prices, as Ladislaus von Bortkiewicz
(1906–07 [1952]: 38) called it, was thereby undermined.
Reproduction, accumulation, and crises
As Marx explained in his Foreword to Capital, “it is the ultimate aim of this
work to reveal the economic law of motion of modern society” (1867 [1976]:
92). Accordingly, the analysis of the dynamism of the capitalist development

Marx, Karl Heinrich (1818–1883) 20
process formed a central element in Marx’s work. In this analysis, as in Marx’s
thinking generally, the concept of “reproduction” occupied a prominent place.
Social relations and social formations exist, Marx argued, because the prevail-
ing mode of production systematically reproduces them. In capitalist societies
the reproduction of capital is associated with the reproduction of the class
relations: at the end of the production and circulation process the capitalist
has reproduced his advanced capital, together with surplus value, whereas the
labourer has reproduced only his labour power. If social production is organ-
ised capitalistically, the production process itself thus reproduces capitalists
and labourers as social classes.
Accumulation of capital requires that part of the previously generated sur-
plus value is used in the production process again. If the reinvested surplus
were used only for increasing the activity levels of the existing production
processes, the constant capital and the variable capital would be increased
proportionately, and there is “reproduction on an extended scale”. However,
this need not be the case. In general, the accumulation process is bound up
with changes in the structure and organisation of capital and in production
relations; new machinery and new methods of production, of transportation,
or of organisation are introduced, and new products and new markets are de-
veloped. The competitive process forces each individual capitalist to search
constantly for less costly methods of production, better product quality, new
markets, and so on. In addition, Marx argued that the accumulation process is
also bound up with an increasing concentration and centralisation of capital:
larger capitals displace smaller capitals owing to the exploitation of increasing
returns to scale or scope, and capital becomes ever more centralised by means
of take-overs of competitors.
The schemes of “simple” and “extended reproduction” in chapters 20 and
21 of volume II of Capital, which Marx developed on the basis of François
Quesnay’s Tableau économique, are widely regarded as one his finest analyt-
ical achievements (see Gehrke and Kurz 1995). The model of simple repro-
duction depicts the commodity circulation between two sectors. The first
sector produces capital goods for itself and for the second sector producing
consumption goods, and receives in return the consumption goods required for
the alimentation of the workers and the capitalists’ consumptions. For this
simple two-sectoral model with circular production relations Marx showed the
conditions for a stationary reproduction equilibrium. In the next step, he then
turned to the analysis of extended reproduction and showed by means of sim-

Marx, Karl Heinrich (1818–1883) 21
ple numerical examples that balanced capital accumulation must be associated
with an expansion of the two sectors in lock-step, that is, with steady-state
growth. The original manuscripts published in the MEGA edition show that
Marx had also worked out more elaborate versions of the reproduction schemes
with six sectors, which in terms of their analytical structure are similar to the
three-sector models of Fel’dman (1928 [1964]), Mahalanobis (1953), and Lowe
(1976) (see Mori 2007).
In Marx’s writings there is no consistently elaborated cycle theory, but there
are several approaches to the explanation of crises. One of these relates to the
reproduction schemes and locates the source of crisis-ridden developments in
disproportions that occur in the accumulation process and that tend to rein-
force themselves. In addition, Marx also put forward theoretical explanations
based on under-consumption arguments, which refer to insufficient purchasing
power of the working class as triggering an insufficient overall effective de-
mand. However, Marx’s most elaborate explanation for crises and economic
stagnation derives from his “law of the tendency of the rate of profits to fall”,
which he set out in volume III of Capital.
The law of the tendency of the rate of profits to fall
Like his predecessors, Marx tried to provide an explanation for the supposed
empirical phenomenon of the tendency of a falling rate of profits. His ap-
proach must be seen in connection with the alternative one suggested by David
Ricardo, who had argued that in the course of the accumulation process
the wage share must rise, because the production of foodstuff is subject to
increasing costs as a consequence of the need to have recourse to less and
less productive soils or methods of land cultivation. Accordingly, nominal
wages must rise to keep real wages constant and the rate of profits and the
profit share are bound to fall. Ricardo had also suggested that the rise in
money wages could lead to the substitution of machinery for labour, that is,
to the introduction of machines which have been available already before, but
which could not be profitably introduced at the lower money wages. This can
temporarily retard the fall of the rate of profits, but not ultimately prevent it.
In his argument Ricardo explicitly set aside technical progress proper.
Marx had detected an important error in Ricardo’s reasoning. Ricardo had
maintained that the rate of profits depends only on “proportional wages”, that

Marx, Karl Heinrich (1818–1883) 22
is, the share of wages in the total product measured in labour terms. With
a rise in the latter the former is bound to fall. In his argument, Ricardo had
assumed for simplicity that the advanced capital consists only of wages, or
could be reduced to direct and indirect wages in a finite number of steps; but
such a reduction is possible only with “unidirectional” production processes,
that is, when the reduction series comprises a production stage at which only
“original” factors of production like labour and land are needed in the pro-
duction of the means of production. If Ricardo’s error is corrected and the
existence of circular production relations is taken into account, Marx insisted,
the true cause of the falling rate of profits is revealed.
If we designate the rate of profits with r, the value of the social product with
Y, wages with W, profits with Π, and the wage share with ω, then Ricardo
determined the rate of profits as:
r=Π
W=Y−W
W=1−ω
ω(4)
In the special case contemplated by Ricardo, the rate of profits corresponds
to the rate of surplus value: Ricardo thus derived the falling rate of profits
from a falling rate of surplus value (see Marx 1861–63c [1989b]: 73).
Denoting the total quantity of living labour by L, and the maximum rate
of profits by R, the following relationship can be derived (reckoning in terms
of labour values, where Y=L,W=Vand Π = S):
r=S
C+V=S/L
C/L +V /L =1−ω
1/R +ω=R(1 −ω)
1 + Rω (5)
This shows that the rate of profits depends on two magnitudes, not one (as
Ricardo thought): on the wage share ω– or the rate of surplus value, (1 −ω)/ω
– and on the maximum rate of profits, R. If the latter falls, the rate of profits
must also fall, given the rate of surplus value. Even a moderately rising rate
of surplus value cannot prevent this tendency of a fall in the general rate of
profits.
For Marx the law of the tendency of the rate of profits to fall had two fasci-
nating aspects. First, he regarded it as a striking refutation of Ricardo’s view,
according to which the falling rate of profits is caused by the “niggardliness of
nature”, which gives rise to increasing production costs of subsistence goods.

Marx, Karl Heinrich (1818–1883) 23
For Ricardo, the introduction of agricultural improvements or new machinery
in manufacturing was a counter-acting factor, which could temporarily retard,
but not ultimately prevent, the fall in the rate of profits. Marx believed he
could demonstrate that the rate of profits falls not in spite of, but precisely
because of technical progress, since the latter is bound up with a rising organic
composition. Secondly, the law also revealed, in Marx’s view, one of the major
contradictions inherent in the capitalistic mode of production: the progressive
element in this mode of production is its capacity to develop the social forces of
production and to raise labour productivity. However, since technical progress
under capitalistic production must inevitably take the form of replacing living
labour by machinery – or, in Marx’s terminology, of a rising organic composi-
tion of capital – it paradoxically deprives the capitalistic system also of one of
its constituting elements, since surplus value cannot be generated by “dead”,
but only by living, labour.
However, as the original manuscripts published in the new MEGA edition
show, Marx entertained doubts about the general validity of the “law” (see, in
particular, Marx 1863–67 [2012]). On the one hand, he was clear about the fact
that not all forms of technical progress are necessarily associated with a rising
organic composition of capital. Moreover, even if the organic composition were
rising and the maximum rate of profits were exhibiting a tendency to fall, this
need not necessarily imply a fall in the actual rate of profits, since the former
could be accompanied by a rise in the rate of surplus value. (For a more
detailed account, see Kurz 2010, 2012–13.)
From the point of view of the development of the surplus approach to
value and distribution it was perhaps one of Marx’s most important analytical
achievements to have carried the analysis of prices and income distribution
which he had inherited from his precursors a step forward: by resurrecting the
aspect of circular production relations he could demonstrate the existence of
a maximum rate of profits and show its importance for the analysis of distri-
bution, accumulation, and technical change.
Reception and Influence
It is not possible to summarise the reception and influence of Marx’s economic
work, which has spanned more than 150 years, in its entirety within the confines
of this entry. In order to show some of the main lines of development, it will be

Marx, Karl Heinrich (1818–1883) 24
convenient to make use again of the thematic division introduced above. It is,
however, worth noting that Marx’s work, although he was widely considered as
the scientific head of the international socialist movement after the publication
of volume I of Capital, was at first largely ignored by the so-called “bourgeois
economists”. This was not owing to ideological reasons alone, but also had to
do with the fact that at first only volume I of Capital was available, and this
only in German (a French and a Russian edition were published from 1872
onwards – the French translation having been published by instalments until
1875). Until the turn of the century, the scientific discussion of Marx’s work
was therefore mainly confined to Germany and Russia, and to some extent
also to France and Italy. In England, where Marx was living since 1849, he
remained largely unknown during his lifetime. (For more detailed assessments
of the reception of Marx’s economics, see Howard and King 1989, 1992 and
Steedman 1995.)
The theory of value and prices
From the beginning the discussion of Marx’s work centred on the theory of
value and prices. When Friedrich Engels, in his Foreword to the second volume
of Capital, rejected the idea that Marx had plagiarised the theory of value and
surplus value from Johann Karl Rodbertus, he invited the economists to show
“how an average rate of profits can and must come about, not only without
violating the law of value, but precisely on the basis of this law” (Engels
1885 [1978]: 102), and announced that the third volume would contain Marx’s
definitive solution of the problem. Of the contributions to Engels’s “prize essay
competition”, which came inter alia from Wilhelm Lexis, Julius Wolff, Achille
Loria, Conrad Schmidt and P. Fireman, none was convincing. When the third
volume of Capital was published in 1894, the interest centred mainly on Marx’s
solution to the so-called “transformation problem”. (For a detailed history of
the controversies, see Dostaler 1978 and Faccarello 1983a, 2000b.)
From the standpoint of the neoclassical theory Marx’s theory of value and
prices was criticised by, among others, Philip H. Wicksteed (1884, 1885) and
Vilfredo Pareto (1902). One of the most influential critiques of Marx’s pro-
cedure for the transformation of values to prices (and of the rate of surplus
value to the rate of profits) was Eugen von Böhm-Bawerk’s “Zum Abschluß des
Marxschen Systems” [“Karl Marx and the close of his system”] (1896 [1949]).
Böhm-Bawerk accused Marx of having given up the value theory expounded

Marx, Karl Heinrich (1818–1883) 25
in vol. I of Capital with his theory of prices of production expounded in
vol. III. Between the first and the third volume of Capital, he contended,
there is “an irreconcilable contradiction”. He declared that a determination
of the general rate of profits and of relative prices in the way Marx intended
was impossible and that Marx’s theoretical work has “a past and a present,
but no permanent future”. But although Böhm-Bawerk failed to notice the
real shortcomings of Marx’s theoretical construction, Rudolf Hilferding ([1904]
1949), who was to play the leading role in defending Marx in the ensuing de-
bates, could not counter Böhm-Bawerk’s attack convincingly. Note however
that, in his 1904 answer to Böhm-Bawerk and in his book Das Finanzkapi-
tal (1910 [1981]), Hilferding started a sociological interpretation (see above)
of Marx’s theory of value, which was to be taken up later by a few authors
such as Nikolaï Boukharin in Economic Theory of the Leisure Class (written
in 1914, published in 1927) and Rosa Luxemburg in her posthumously pub-
lished Einführung in die Nationalökonomie (1925) – a line of thought above
all developed in Isaak Illich Rubin’s writings in the 1920s (Rubin 1927 [1978],
1928 [1972]), especially his 1928 Essays on Marx’s Theory of Value (Faccarello
1983b, 2000b; for a historical setting of Rubin, see Boldyrev and Kragh 2015).
Ladislaus von Bortkiewicz (1906–07 [1952], 1907) deserves the credit for
having first demonstrated the errors of Marx’s transformation algorithm, and
for presenting a correct solution procedure. Bortkiewicz demonstrated, first
for the case of unidirectional production processes (where he harked back to a
contribution by Vladimir K. Dmitriev (1898 [1974]) and then also for a circular,
three-sectoral production system, that the rate of profits and relative prices
can be determined on the basis of Marx’s set of data by solving a system
of simultaneous equations. Similar findings were presented in two neglected
contributions by Georg von Charasoff (1909, 1910), who not only anticipated
some of the arguments that were proposed later in the discussion of Marx’s
“transformation problem”, but also noted the duality properties of the price
and quantity system. Moreover, in the course of his investigation he defined
and made use of the concepts of a “production series” (“Produktionsreihe”),
of “original capital” (“Urkapital”), and of “basic products” (“Grundprodukte”),
thus anticipating Piero Sraffa (1960) with regard to the related concepts of
a reduction series to dated quantities of labour, the Standard commodity,
and the basics/non-basics distinction. Bortkiewicz’s approach to a solution
of the transformation problem, which was first made available in an English

Marx, Karl Heinrich (1818–1883) 26
translation by Paul M. Sweezy in 1942, was subsequently generalised by Josef
Winternitz (1948), Francis Seton (1957), and Paul A. Samuelson (1957).
A milestone in the understanding and further development of the surplus
approach of the classical economists and Marx was Piero Sraffa’s Production
of Commodities by Means of Commodities (1960). Without entering into an
explicit critique of Marx’s economic theory, Sraffa demonstrated that the gen-
eral rate of profits can be ascertained on the basis of the classical set of data
(given quantities, given real wage rate, and given methods of production) only
simultaneously with the prices. The implications of Sraffa’s modern reformula-
tion of the surplus approach to the theory of value and distribution for Marx’s
theoretical construction were concisely stated by Ian Steedman (1977): on the
basis of the classical set of data a consistent determination of the general rate
of profits and of relative prices is possible; the recourse to labour values is
dispensable. Moreover, Steedman also stressed that labour values and prices
more generally depend on income distribution if there is a choice of technique
and that Michio Morishima’s “Fundamental Marxian theorem”, according to
which “the equilibrium rate of profits is positive if and only if the rate of ex-
ploitation is positive” (1973: 6) need not hold in systems with (pure) joint
production.
While Sraffa (1960) and Steedman (1977) have implicitly or explicitly shown
that Marx’s (labour) value-based reasoning is difficult to sustain, there have
been various attempts to defend or reinterpret it. Here it suffices to men-
tion only the reconstruction of Marx’s labour theory of value suggested in-
dependently from each other by Duncan Foley (1982) and Gérard Duménil
(1983). The reconstruction emphasises the relation between money and labour
time that preserves the rigorous quantitative relation between paid and unpaid
labour on the one hand and the aggregate wages bill and aggregate gross prof-
its on the other. It became known as “the new solution” to the transformation
problem, which is a misnomer, because the punchline of the argument is that
there is no transformation problem. The “new view” has been criticised for,
among other things, that it is not a faithful interpretation of Marx and that
it wrongly conveys the impression that the classical surplus-based approach to
the theory of value and distribution stands or falls with the labour theory of
value.

Marx, Karl Heinrich (1818–1883) 27
Theory of capitalist development
At centre stage in discussions about Marx’s theory of capitalist development
has been the validity of the law of the tendency of the rate of profits to fall,
on which a large amount of literature exists. An important contribution was
made by Nobuo Okishio (1961, 1963), who proved that for a constant real wage
rate the rate of profits cannot fall with technical progress (now known as the
“Okishio theorem”). It ought to be mentioned, however, that Okishio’s results
are clearly foreshadowed in Ricardo’s analysis and have been anticipated by
Samuelson (1959) and Sraffa (1960). For many economists this demonstrates
the invalidity of Marx’s entire theoretical construction, because a central ele-
ment of his accumulation theory and his crises theory has been shown to be
false. However, as was argued above, Marx seems to have had doubts about the
correctness of his “law” himself, and it is unclear whether he meant to suppose
a constant wage share (or given rate of surplus value) or a constant real wage
rate. Moreover, his argument seems to have been meant to refer, following
Ricardo, to technical changes induced by changes in income distribution, that
is, to “induced innovations”, rather than to technical progress proper.
Marx’s schemes of simple and extended reproduction inspired the develop-
ment of multi-sectoral models of growth and cycles. Michail Tugan-Baranovsky
(1905) and Henrik Grossmann (1929) developed cycle and crises theories from
those schemes; Rosa Luxemburg (1913 [1951]) used the reproduction schemes
for the development of a theory of imperialism; and Russian economists like
G.A. Fel’dman (1928 [1964]) developed multi-sectoral planning models from
them (for a comprehensive survey, see Turban 1980). Marx’s schemes also
influenced Wassily Leontief’s input-output analysis and the associated litera-
ture. (Piero Sraffa’s “first equations”, which he elaborated in 1927–28, however,
were developed independently of Marx’s reproduction schemes; see Kurz and
Salvadori 2015.)
Marx’s analysis of the interrelationship between capital accumulation and
income distribution in an evolving economic system has led to the development
of a still growing class of non-linear cyclical growth models, which generate
endogenous cycles around a growth path on the basis of the “predator–prey”
model developed by Richard M. Goodwin (1967). Strongly influenced by Marx-
ian ideas about the introduction and diffusion of technical progress and the dy-
namics of capitalist development is also a branch of the evolutionary economics
literature inspired by Joseph A. Schumpeter’s Theorie der wirtschaftlichen En-

Marx, Karl Heinrich (1818–1883) 28
twicklung (Theory of Capitalist Development) (1912). The macroeconomic
effects of the tendency towards monopolisation and capital concentration, em-
phasised by Marx, have been investigated by Rudolf Hilferding (1910 [1981]),
Josef Steindl (1952), and Paul A. Baran and Paul M. Sweezy (1966).
See also:
Ladislaus von Bortkiewicz; British Classical Political Economy; Vladimir Karpovich
Dmitriev; Marxism(s); Non-Marxian Socialist Ideas in France; Non-Marxian Socialist
Ideas in Germany and Austria; Non-Marxian Socialist Ideas in Britain and the United
States; Pierre-Joseph Proudhon; David Ricardo; Value and Price; Piero Sraffa.
References and further reading
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of David Riazanov until 1931, and then of V.V. Adoratski, after Riazanov had
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After World War II a new publication was started. The 39 volumes (plus four
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East Berlin (in Russian and in German), contain the most important writings
and correspondence.
An attempt to bring out a complete critical edition called the Marx-Engels
Gesamtausgabe – thus the second MEGA – was started by the same institutes
in 1970, but interrupted by the breakdown of the German Democratic Re-
public and the Soviet Union. In 1990 the Internationale Marx Engels Stiftung
(IMES) assumed the scientific responsibility for the continuation of the project.
The editorial plans were revised and the originally envisaged 164 volumes were
cut down to 114 volumes, of which 62 have been published by 2015. The
manuscripts published in the (second) MEGA edition, in particular those re-
lating to Marx’s preliminary work on volumes II and III of Capital, necessitate
revising the assessments of parts of Marx’s work.
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