Economic Theory of the Leisure Class. Nikolai Bukharin 1919

The Policy of Theoretical Conciliation[153]

Tugan-Baranovsky’s Theory of Value

The swift evolution which the former “legal Marxists” were obliged to pass through during the nineties includes a very specific tendency, namely, the rise of a liberal-bourgeois ideology, as opposed not only to the ideology of the Narodniki (Populists), who were hostile to capitalism, but also to that of the revolutionary proletariat, i.e., to Marxism. This tendency, a unit at the time, was accordingly of complicated character, like any social phenomenon. Not all the bearers of the bourgeois ideology were equally adroit in accomplishing the transformation “from Marxism to idealism.”

In the heat of the race, some have already attained the goal and now look back in pride on those who have not yet reached it; others have nearly attained the goal; still others have been left far behind. It is worth while to pay some attention to the individual participants in this noble emulation.

For instance, there is Sergey Bulgakov, the “former Marxist” and a professor of political economy. Give him a cassock, and you have your full-fledged learned dominie. Also, there is another “former Marxist,” Mr. Berdyayiev, likewise a pious Christian, who reasons with great predilection (for who has not his hobby?) concerning both the “earthly and heavenly Aphrodite.” Somewhat apart from them stands the incomparable Peter Struve, the heavy artillery of the Cadet-Octobrist [Liberal-Conservative — Translator] erudition. All these honourable gentlemen have broken definitely with their past, which they now include among their “youthful indiscretions.” They are advancing unswervingly, these knights-errant of Russian capitalism. Lagging far behind them, but obviously inspired with the ambition to overtake his colleagues, moves Professor Tugan-Baranovsky, the former Marxist and present counsellor of the industrial magnates. Tugan-Baranovsky’s Christian mumbling, began much later than those of the others. He is still flirting with Marxism, wherefore many naive persons still count him among the almost “reds.” In a word, he is an “apostle of conciliation.” He cannot make up his mind to join the camp of the enemies of the proletariat and accept their theory wholeheartedly; he merely prefers, as he says, to “cleanse Marxism from its unscientific elements.” For this reason, he is more misleading than the others; his theoretical activity is the more harmful. He will not “deny” the labour value theory outright, but seeks to reconcile it with the theory of Böhm-Bawerk, this classical representative of bourgeois aspirations. The reader may judge for himself what are the results of these efforts of Tugan-Baranovsky in the field of the principal problem of political economy, namely, the theory of value.

1. Tugan-Baranovsky’s formula.

Tugan-Baranovsky begins with a paean on Böhm-Bawerk.

“The great merit of the new theory,” he says, “is in the fact that it offers a promise of definitely terminating the dispute as to value, for, proceeding from a single uniform fundamental principle, it affords a complete [!] and exhaustive [!!] explanation for all the phenomena of the process of evaluation.” (Tugan-Baranovsky: Foundations of Political Economy, p.40, 1911, in Russian.)

In another passage: “The theory of marginal utility will have remained the fundamental theory of value; it may in its various parts suffer change and amplification in the future, but in its fundamental ideas it remains an eternal achievement of economic science.” (Ibid., p.55)

“An eternal achievement of economic science” — these are proud words. Unfortunately this “achievement” looks less brave on closer inspection; but for the present let us postpone our objections and examine Tugan-Baranovsky’s “platform of conciliation.”

According to the doctrine of the adherents of the Austrian School, the value of a possession is determined by its marginal utility. This in turn depends on the volume of possessions of the same type. The greater the volume, the more “saturated” the demand, the lower will be the urgency of the requirement, and the lower the marginal value of the possession in question. In other words, the Austrian School concludes its analysis by assuming as given a specific volume, a specific quantity of the possessions to be evaluated. Tugan-Baranovsky quite consistently asks a further question: what determines this quantity of goods? In his opinion, this quantity depends on the “economic plan”; the factor of labour value plays the decisive part.

“Marginal utility is the utility of the last units of any type of goods,” says Tugan-Baranovsky, “it varies together with the compass of production. By expanding or diminishing production, we may produce corresponding expansions or diminutions of marginal utility. On the other hand, the labour value of a unit affords us something given objectively, something independent of our will. It follows that in the elaboration of the economic plan, labour value is the determining element, while marginal utility is the element to be determined. Expressed mathematically, marginal utility must be a function of labour value.” (Ibid., p.47.)

As to the nature of the relation between the marginal utility of goods and their labour value, Tugan-Baranovsky reasons as follows: Let us assume we are dealing with two branches of production, A and B. A rational economic plan would require that the distribution of labour in both these branches of production be so organised as to make the resulting utility equal in both cases during the last unit of time.[154] Without such an equilibrium, a rational plan, i.e., the attainment of the highest utility, is inconceivable. For, assuming that the last hour in production branch A yield a utility of ten units, while that in production branch B yield only five units, it is obvious that it would be more profitable to stop producing commodity B and devote the time thus gained to the production of commodity A. But if the labour value of the commodities, the utility produced during the last unit of time, is equal, it will follow that the “utility of the last units of every type of freely reproducible goods — their marginal utility — is inversely proportional to the relative quantity of these goods producible within a unit of time; in other words, it must be in direct proportion with the labour value of these goods. (Ibid., p.47.)

So much for Tugan-Baranovsky’s remarks on the relation between the marginal utility and the absolute labour value of commodities. We here find no contradiction at all, only harmony: “In spite of the prevalent opinion, “ says Tugan-Baranovsky, “to the effect that the two theories mutually exclude each other, perfect harmony prevails between them. The difference is only that they investigate two different phases of the same process of economic valuation. The theory of marginal utility explains the subjective factors in economic evaluation, while the labour value theory explains its objective factors.” (Ibid., p.49.)

He goes on to say that the two theories cannot be spoken of as diametrically opposed, with the result that the adherents of the theory of marginal utility may extend a friendly hand to the adherents of the labour value theory. We believe we can show nevertheless that the assumption of neighbourly relations is based on a very naive conception of both theories. But before we proceed to an unmasking of the fundamental fallacy of Mr. Tugan-Baranovsky, let us make a critical study of the manner in which our peace apostle views the labour value theory. This will reveal a few interesting peculiarities of his mental processes, and thus throw some light on the reasons for his conciliation policy.

2. Mr. Tugan-Baranovsky’s “Logic.”

The above presentation would lead any sensible person to the following conclusion:[155] since value (the subjective value determined by the marginal utility of goods) is proportional to labour value, and since this value, furthermore, constitutes the basis of price, it follows that labour value is the true basis for price. As a matter of fact, if labour value and marginal utility are connected by any such firm, definite, relation as direct proportion, it is obvious that these magnitudes must in analysis be mutually replaceable. If we assume with Tugan-Baranovsky that “the determining factor is labour value while marginal utility is the factor to be determined” (Ibid., p.47) the above point of view assumes compulsory cogency. The succession of phenomena then becomes: price, marginal utility, labour value. The labour costs are here connected with the subjective value and consequently also with the price. This circumstance even makes Tugan-Baranovsky declare that “the labour value theory ..... from a certain point of view is ..... an economic theory of value par excellence, while the theory of marginal utility is a more universal psychological theory of value, and not a specifically economic theory of value.” [Ibid., p.50; italics mine. — N.B.]

Labour value, therefore, determines marginal utility, which in turn determines price; in other words, labour value is the ultimate basis of price. So far, so good; but only eight pages further on we encounter the following “criticism” of Karl Marx:

“In spite of offering a criticism of labour costs, Marx gives us a theory of absolute labour value.....

In his well-known criticism of the third volume of Capital, Sombart attempts[156] to defend Marx’s labour value theory by interpreting it as a theory of labour costs. By labour value he understands ‘the degree of the social power of production of labour’. If this is the case, why should it be necessary to designate the expenditure in labour as ‘value’ and thus give rise to the notion that the expenditure of labour is the basis of the price, of the exchange relations between commodities (which is obviously not the case), instead of recognising the independent right to existence of both these categories: value and costs.” (Grundzüge der Theorie des wirtschaftlichen Güterwerts, p.58.)

Mr. Tugan-Baranovsky asks whether it is proper to interpret labour value as social labour costs.[157] This is quite right, but everything that Tugan-Baranovsky adds is wrong. He is so enamoured of his own criticism, that he cannot grasp that he is criticising not only Marx, but also himself. We have already seen that Tugan-Baranovsky’s principles result in the inference that labour value is the basis of price. We now suddenly find that this is “obviously not the case.” Which of the statements is true? the former or the latter? It is a most peculiar form of mental clarity which Tugan-Baranovsky here offers us, one might almost term it “cast-iron logic.” But perhaps the reader has doubts as to the permanence of Tugan-Baranovsky’s last “thought.” Let Tugan-Baranovsky give himself strength:

“In Karl Marx, labour is in its essence nothing more or less than labour costs. But this must not be taken as a terminological fallacy on the part of Marx. Marx did not only term the socially necessary labour of production simply the value of the commodity, but he was constantly at effort to trace back to labour the exchange relations between commodities themselves... It is only by absolutely distinguishing between the conceptions of value and of costs that a correct logical theory of value and costs in accordance with the facts, can be built up.” [Ibid., p.69; italics mine. — N.B.]

We quote another passage:

“Marx’s fallacy was ..... that of failing to understand the independent significance of this category [i.e., the category of costs. — N.B.] and of attempting to relate it with the theory of price; for this reason he called labour costs, not costs, but value."[158]

No doubt; and Tugan-Baranovsky has already forgotten that he himself had connected labour costs with value and price, and that he now finds himself engaged in the process of dissolving this criminal alliance. His logic is indeed astonishing! We shall now permit ourselves a question. If the category of costs is so independent of the question that Tugan-Baranovsky has a right to consider it a mortal sin to drag it into this above-mentioned connection, what is left of the economic importance of these categories? To be sure, he assures us that they are of “very great” importance, yet we find nothing here but “ethical rhetoric,” which we need not take seriously.

We may pass on to Tugan-Baranovsky’s “fundamental fallacy.” In spite of his pronounced ability to construct a system consisting of the most contradictory principles, it will here be shown that his “formula” is an even more outrageous achievement.

3. Tugan-Baranovsky’s Fundamental Fallacy.

Thus far we have been assuming Tugan-Baranovsky’s formula as to the proportional relation between labour value and marginal utility without offering any criticism. We shall now reveal the theoretical emptiness of this famous formula, for which perhaps we must first state Tugan-Baranovsky’s view on political economy, and therefore on any “formula,” a view shared by us also. But we have too much respect for Professor Tugan-Baranovsky to deprive him of the opportunity, of presenting this absolutely correct position in his own words:

“What distinguishes the science of economics from the other social sciences, namely, the construction of a system of causal laws for economic phenomena, is precisely the result of the characteristic peculiarities of their present subject of investigation: the condition of a free exchange commodity ..... We have every reason to recognize political economy as an original science dealing with the causal interrelations of economic phenomena, closely connected with modern economic life. This science arose and grew up together with this economic life; it will disappear from the scene together with it.” (Grundzüge der Theorie des wirtschaftlichen Güterwerts, p.17.)[159]

This is a clear statement to the effect that political economy makes the exchange system the object of its investigation, particularly the capitalist exchange system. And it is from this point of view that we shall proceed to an analysis of Tugan-Baranovsky’s formula. As we have already stated, he assumes that a proportional relation exists between marginal utility and labour value. Let us begin our analysis with the latter half of the formula, namely, with labour value. Tugan-Baranovsky assumes that labour value determines the economic plan. Yet the “economic plan” he has in mind is a category of the individual economy and, moreover, of an economy in kind, producing the most “varied goods” for its own use. But a glance at the modern individualistic economy, i.e., the capitalist system, will present no “economic plan” at all in Tugan-Baranovsky’s sense, for the simple reason that factory production has become specialised; there is no room here for a distribution of time over various “branches.” For each industry produces a single product. Aside from this, the category of labour value does not concern the economic individual working in the capitalist enterprise, for this individual “works” with the aid of hired hands and of means of production purchased on the market. If there is no reason at all for mentioning labour value here, the latter can be considered only as a social category, as far as the modern mode of production is concerned (which constitutes the real object of the study of political economy), i.e., a conception that is applied not to individual establishments, but to their totality, to their social aggregate. This is Marx’s conception of labour value. Its correctness or error is not a question that concerns us at this moment; we consider it to be correct; Tugan-Baranovsky assumes the opposite. At any rate, however, Karl Marx fully appreciated the absurdity of a category of labour value as a category of an individual economy, since this category may acquire meaning only when understood in its social character.

The second half of the formula is concerned with marginal utility. According to the understanding of all the adherents of the theory of marginal utility, marginal utility signifies a possession serving the will of an “economic subject”; this is a certain evaluation, presupposing a conscious calculation. It is obvious that the category of marginal utility can have meaning only if used of an individual economy; it is completely worthless (even from the point of view of its advocates) as soon as the entire social economy is concerned. Certainly the latter does not “evaluate” as an individual entrepreneur may do. For, the social economy is a system which unfolds by the operation of natural law, and with a peculiar and characteristic logical sequence. If, therefore, marginal utility is to have any significance at all, it can be only that of a category of individual economy.

We already know that Tugan-Baranovsky states that there is a proportional relation between marginal utility and labour value. Labour value may be understood in two ways: either as a social category (this view is the only correct one when dealing with a capitalist economy) or as an individualistic category. Obviously, labour value in the former sense cannot be brought into any direct relation with marginal utility; they are two quantities having nothing in common, in principle, since they lie in entirely different planes. To maintain that a quantity that is applicable only in the field of an individualistic economy is proportional to another quantity applicable only in the field of social economy, is equivalent to “grafting telegraph poles on pockmarks.”

We thus find that a correct understanding of the labour value theory will lead precisely to the conclusion that it constitutes a diametrical opposite to the theory of marginal utility. There is still to be considered the connection of the nonsensical notion of labour value as the category of an individualistic economy, with the conception of marginal utility. Tugan-Baranovsky succeeds in accomplishing even this, which of course does not improve his theory, which collapses completely as soon as an attempt is made to compare it with the capitalist reality. The result is about the same as with the advocates of the Austrian School, whose doctrines work very well as long as we limit ourselves to the sphere of interests of the economic Robinson Crusoe, and — consciously or unconsciously — keep aloof from capitalist relations. But as soon as we study these relations, which constitute the proper subject of political economy (as Tugan-Baranovsky himself maintains), the theory is revealed as the wretched and empty thing it is.

We shall make one more remark before concluding. Tugan-Baranovsky’s entire theory is concerned with enterprises producing commodities. This is an honourable distinction between him and the pure marginal utilitarians who seem to forget that commodities do not descend from the skies but must be produced. And it is precisely in the case of productive economies that Tugan-Baranovsky sets up his “proportional law.” We shall take another passage from the second section of his book:

“We must stick to the real economic relations,” he says, “under which price is formed in modern capitalist economy. We must not assume, as does Böhm-Bawerk, for instance, that the seller of a commodity needs the latter for himself and will even be willing, if the price should be too low, to keep it for himself.” (Ibid., pp. 212, 213.)

This is true. Furthermore, it is a great advance over the theoreticians of marginal utility of the purest water. Yet how will Mr. Tugan-Baranovsky’s own theory hold water if his producing establishments should not estimate commodities according to their utility (i.e., their marginal utility)? In order that the above-mentioned proportional relation should be applicable, it is surely necessary that the required quantities should be in existence. We have seen above that the principle does not work as far as labour value is concerned. Now Tugan-Baranovsky himself tells us that an evaluation according to the marginal utility is completely nonsensical, as far as sellers are concerned, under the conditions of capitalism (or even of a simple commodities economy).

We have investigated Tugan-Baranovsky’s theory without dwelling on one of its ingredients, the theory of marginal utility. And our theoretician has failed to substantiate that portion of his theory also. This is a noteworthy fact. In their quest for new weapons, the Russian bourgeois philosophers are very “critically” disposed toward Karl Marx only; but when dealing with the capitalist scientific ideology of Western Europe, they are inspired with an almost religious awe. It is this fact which again reveals the true nature of the “new ideas in political economy” so zealously preached by Messrs. Tugan-Baranovsky, Bulgakov, Struve, e tutti quanti.