Economic Theory of the Leisure Class. Nikolai Bukharin 1927

Chapter V.
The Theory of Profit (Continued)

1. Two Causes for an Overestimation of Present Goods; (a) The Difference in the Relation between needs and the Means for their Fulfilment at Various Times; (b) The Systematic Underestimation of Future Goods.
2. Third Cause for the Overestimation of Present Goods; Their Technical Superiority.
3. The Subsistence Fund; The Demand for Present Goods and the Supply; The Origin of Profit.

1. Two Causes for the Overestimation of Present Goods.

In the preceding section we found that the realisation of profit is made when the capitalist sells goods; potentially, however, the profit arises when labour is purchased. As a rule, the subjective evaluations of present goods exceed those of future goods. But since the subjective evaluations determine the objective exchange value of the price, present goods. as a rule surpass future goods of the same type not only in their subjective value, but also in price.^[133] The difference between the prices paid by the capitalist when purchasing future goods, particularly labour,^[134] and those obtained in the sale of the commodity resulting from the production process (the “maturing of future goods into present goods”), constitutes capital’s profit. We must therefore trace the formation of this profit and begin with an analysis of the subjective evaluations from which the objective value — in each concrete case, the price — takes its origin.

Böhm-Bawerk points out three causes for a higher evaluation of present goods as compared with future goods: (1) the difference in the relation between requirements and the means for their fulfilment at various times; (2) the systematic under-estimation of future goods; (3) the technical superiority of present goods. Let us consider each of Böhm-Bawerk’s arguments in order. As to the first “cause”: “The first chief cause calculated to produce a difference in the value of present and future goods is to be found in the difference between the relations of demand and ‘covering’ at various periods.” (Böhm-Bawerk: Positive Theorie, p.440.) This “cause” for the higher evaluation of present goods is represented as occurring in two typical cases: first, in all the cases in which persons find themselves in a difficult situation; second, in the evaluations of all persons, who count on a secure position in the future (young physicians, lawyers, etc.). For both these categories the “present” one hundred florins are far more important than the “future” florins, as the future “relation of demand and covering” may involve far more favourable opportunities for both categories. But there are a number of persons for whom precisely the reverse relation exists between demand and “covering,” namely, a comparatively favourable situation at present and a poorer one in the future. In this case, Böhm-Bawerk says, the following must be considered: The present goods, a florin for instance, may be consumed either in the present or in the future. This is true particularly of money, which is capable of easy preservation. The relation between present and future goods may cover only future needs, while the present goods may cover these future needs and also such present needs as are situated in a more proximate epoch. Again, two cases may be distinguished: (1) the present and more proximate future needs are less important than future needs; in this case, the present goods are set aside to cover the future needs; the value of these goods is determined by the importance of the latter; the present goods will be equivalent to the future goods in value;^[135] (2) the present goods are more important; in this case the value of the present goods surpasses that of the future goods, since the latter obtain their value only from the future needs, not at all from the present. It follows that the present goods may be equal to the value of the future goods, but may in no case have less than that value. But this equality is further weakened by Böhm-Bawerk with the assertion that the possibility of a relative worsening of the material situation in the near future is always present; this possibility adds to present goods further opportunities of more advantageous use, which cannot apply to future goods: “Present goods are therefore in the most unfavourable case equal to future goods in value, but as a rule superior by reason of their usefulness as a reserve stock.” (Ibid., p.443.) According to Böhm-Bawerk, only those cases constitute an exception in which the preservation of present goods is connected with difficulties or rendered impossible. We thus obtain three categories of persons: (1) a very great number of persons is situated in poorer circumstances at present than in the future; these will value present goods higher than future goods; (2) a second, likewise very numerous group, who are holding present goods as a reserve stock in order to make use of them in the future, will estimate present goods as either equal to future goods in value, or at a some-what higher value; (3) there is a small number of persons with whom “the communication between present and future is obstructed or menaced by special circumstances”; these will estimate present goods as lower than future goods. But in general, subjective evaluations have a tendency to be higher for present goods and lower for future goods.

This is Böhm-Bawerk’s “first cause” for the overestimation of present goods.

We shall now analyse this “cause,” pointing out above all that such a formulation of the question has very definite historical limits, being valid only for an exchange economy, and entirely impossible in all types of economy in kind. Furthermore, this statement applies not only to goods that are difficult to keep, but, as Karl Pearson and Ladislaus von Bortkievitz have pointed out, to other goods also: “A man who should be offered as much coal, wine, etc., as would be needed to supply him throughout the presumable course of his life, would show but little gratitude for such an offer,” is Pearson’s remark in his discussion of Böhm-Bawerk’s theory, although Pearson on the whole accepts this theory, “while the case is of course different with money.” (Ladislaus von Bortkievitz: “Der Kardinalfehler der Böhm-Bawerkschen Zinstheorie,” Schmoller’s Jahrbücher, vol. XXX, p.947.) We have further seen that the overestimation of present goods as compared with future goods depends in great measure, according to Böhm-Bawerk, on the fact that present goods may also satisfy the more important future requirements, from which their value is furthermore derived. Let us assume we are dealing with a person whose present is comparatively secure, but whose future offers less security. The ten florins at present in the possession of this person will now satisfy a need of 100 units; as this person would in the future be likely to have a smaller sum at his disposal, the value of the ten florins would rise, let us say, to 150 such units. We must infer that the future ten florins would be esteemed more highly by the given person than the present ten florins. But Böhm-Bawerk draws a different conclusion; he declares that since the present ten florins may be saved and thus applied even in the future, they have even now (at present) the value of the future florins. In this manner the future value is projected into the present; but this presupposition — that of a possibility of a transfer of the value of the future possession of the present goods — contradicts Böhm-Bawerk’s fundamental notion as to the origin of profit. What would be the result, for instance, if we should apply Böhm-Bawerk’s assumption to instruments of production?

Every means of production — machinery or labour — may be viewed in two ways: as present goods and as future goods (the former only to the extent that it is possible to realize on its value in the present, and that a physical form of the possession is available, such as machines, etc.). We may realize on the value of a given means of production at present; we may sell it and get for it, let us say, 100 value units; we may apply it in the production process and get 150 value units after the expiration of a certain time; therefore the future value of the given means of production is equal to 150 value units, while its present value is 100 such units. If we now assume, with Böhm-Bawerk, the possibility of an evaluation of present goods according to their future value, we shall find that this is quite inadmissible, particularly with regard to means of production, for in this case all difference between what the capitalist himself pays and what he later receives would disappear; the commission (the agio) which Böhm-Bawerk considers the basis of profit would be absent. Böhm-Bawerk’s fallacy is in his excluding for future value the possibility of a present application.^[136]To be sure, the imaginary future goods cannot realise their value at present. Yet precisely the means of production which are already physically available in the present time cannot be accommodated at all to the category of “imaginary florins.” Either present goods cannot borrow their value from future utility (of course within the limits of the first cause to which we have already devoted our attention), in which case there is no occasion for an overestimation of present goods, for the equality in the estimation of present and future goods disappears; or, the present goods can derive their value from the future utility, in which case it remains to be explained whence Böhm-Bawerk will derive his profit (of course, again only within the limits of the first cause). In both cases the outcome is not exactly flattering to Böhm-Bawerk.

Let us consider the subject now from the point of view of the present capitalist reality, i.e., the point of view of capitalists and workers, taking the latter first. The workers sell their commodity, labour, which is purchased by capitalists as a means of production, i.e., a future goods, in exchange for “present” florins. The worker “voluntarily” sells his labour (future goods) at an evaluation lower than that placed upon the product of his labour. But this is done not at all for the reason that the worker may count on a better relation between demand and covering, but rather as a result of the comparatively weak social position of the worker. (Stolzmann, op. cit., pp. 306, 307.) He has no hope, furthermore, of “rising in life,” and this constitutes the peculiarity of the proletarian position in all countries. The “first cause” for the overestimation of present goods as compared with future goods is therefore not at all present in the worker’s evaluation motives. Nor is this explanation at all applicable as a reason for the evaluations of the capitalist employers. Böhm-Bawerk himself has the following to say on this point: “If the capitalists would evaluate their entire possessions as present goods, i.e., consume them in present enjoyment, the needs of the present would obviously be superabundantly supplied, while the needs of the future would remain entirely unprovided for ..... Insofar as we are concerned only with the relations of demand and covering in present and future, the opposition of an aggregate holding of present goods exceeding the demands of the present is of less value to its possessors (as present goods) than future goods.” (Positive Theorie, p.510.)

For the capitalist such goods, insofar as they exceed his own needs, are useful in that he consumes them productively, i.e., in that he transforms them into future goods. This circumstance causes the future goods, in this case labour, to be evaluated higher than the present goods. We thus see that the “first cause” is completely untenable both from the point of view of demand and that of supply.

Turning now to the “second cause,” we find that Böhm-Bawerk conceives it as follows: “We systematically underestimate our future needs and the means serving for their satisfaction. “ (Ibid., p.445.) Böhm-Bawerk has no doubts as to the fact itself but finds that it manifests itself in various degrees, depending on the race, the age, the individual; its crudest manifestation is in children and savages, for which there are three reasons: (1) the incompleteness of the conceptions of future needs; (2) the defective nature of the will, causing one to prefer present satisfaction even though the harmfulness of such preference may be apparent; (3) “the consideration of the brevity and uncertainty of our life.”

In our opinion, this “second cause” is as incorrect as the first. If we are dealing with an economic establishment, there must exist a definite economic plan, which will consider not only the needs of the present but also those of the future. Böhm-Bawerk’s reference to savages and children can hardly be taken as evidence. What can be the influence of a defective quality of our will, of our imperfect “conceptions of the future” or even of “considerations as to the brevity and uncertainty of our life,” on the calculated plans of a modern industrial magnate? Economy has its own logic, and the motives of economic activity, the economic considerations, are as far apart from the motives of children and savages as earth from sky. The accumulation of money, where such is advantageous, the waiting for a favourable business situation, intricate plans for the future — such are the characteristic traits of a capitalist economy; though the capitalist may at times be a “child,” his childishness is operative only in the case of his “pocket money”; in his essential valuations, however, in his purely economic operations, all proceeds in accordance with definite calculation. Friedrich von Wieser rightly observes in this connection: “It appears to me that in civilised conditions every good economist and, for the most part, even every mediocre economist has learned to govern in a certain connection this weakness of human nature [the underestimation of future goods. — N.B.] ... . The need of care and foresight in this connection is particularly great, and it should not surprise us to find it effective here above all.^[137] Aside from the above, it is undesirable, even from Böhm-Bawerk’s point of view, to resort to the risk connected with the “future” in one’s explanation of the origin of the profit of capital, for, as Ladislaus von Bortkievitz observes, “the Böhm-Bawerk theory is concerned with an explanation of the interest on capital in the proper sense, i.e., with net interest and not with gross interest, which contains, among its other components, the premium on risk, representing a discounting of the factor of uncertainty, and may be disregarded in considering net interest.” (Bortkievitz, op. cit., p.950.)

Let us now take up the question of workers and capitalists. It appears to Böhm-Bawerk that the worker himself might appear in the role of a capitalist and obtain the product of his labour in the future; yet he prefers to receive at least a part of it at present, since he systematically “underestimates” future goods. As a matter of fact, the process is quite different from Böhm-Bawerk ‘s understanding of it. The worker does not sell his labour power because he “underestimates future goods,” but because he lacks completely the means of obtaining any goods at all except by the sale of his labour power. In his case there is no choice between producing himself and producing in the employer’s factory; he has no opportunity at all to transform the future goods — labour — into present goods; he therefore does not evaluate his labour as future goods at all. Such an attitude is quite foreign to him, in fact, the situation is so clear that even bourgeois economists grasp it unless they are engaged in a systematic apology for capitalism, even though it would be difficult for them to develop such an apology with the zeal displayed by Böhm-Bawerk. “The industrial worker,” writes Professor Wilhelm Lexis, “was now unable to realise on his labour power with his own resources; he needed for this the immense new means of production that were owned by capital, under the conditions dictated by capital. The worker does not conduct his own production establishment; the product of his labour does not belong to him and is a matter of indifference to him; economic husbandry for him means the acquisition and expenditure of his wages.” [The italics are the author’s.]^[138]

Such is the situation from the point of view of the worker; let us now examine the same situation from the point of view of the capitalist. Böhm-Bawerk himself here admits that capitalists, when acting as such and not as spendthrifts, are never guilty of any overestimation of present goods. (Positive Theorie, pp. 520, 521.) We thus find that the “second cause” also is not at all valid, either for demand or supply.

“Of the three factors, therefore ..... for the capitalists as a mass [we have seen that this is true for the workers also. — N.B.], the former two are not operative. On the other hand, the third factor, with which we are already acquainted, may become effective: the technical superiority of present goods [the italics are the author’s] or what is otherwise termed the ‘productivity’ of capital.” (Op. cit., p.521.) We have therefore still to examine only the third “cause” — the technical superiority of present goods.

2. The Third Cause for the Overestimation of Present Goods; Their Technical Superiority.

This third cause, which Böhm-Bawerk considers as having a decisive significance, consists in the fact that “as a general rule present goods constitute a more perfect means for the satisfaction of our requirements, for technical reasons, and therefore assure us a higher marginal utility than future goods.” (Op. cit., p.454; italics mine. — N.B.) We shall first make a preliminary remark. Böhm-Bawerk has thus far always assumed present goods to mean “consumption commodities,” goods of the first order, or, in the worst case, “present” florins, which may easily be transmuted into articles of consumption, which in turn represent an immediate satisfaction of human needs. It was florins which the capitalist exchanged for the “future possession,” labour, as a true commodity. But here the case is quite different; Böhm-Bawerk is no longer contrasting means of production with means of consumption, but comparing the means of production, the various categories of means of production, among themselves. A number of consequences result from this, which we shall discuss below. To return to our theme: we know from the preceding section that the production process, according to Böhm-Bawerk, is the more successful as it occupies more time. If we assume any unit means of production, for instance, a month’s labour, applied in technically unequal production processes, the result will be quite different, depending on the duration of the production process. Böhm-Bawerk adduces the following table in elucidation of this theorem:

TABLE I

In order to satisfy needs in the year 1909, says Böhm-Bawerk, a month’s labour performed in 1910 or 1911 is of no effect at all. The month’s labour in 1909 will produce 100 production units; in order to satisfy needs in the year 1914, a month’s labour in 1911 will yield 350 units; in 1910, 400; in 1909, 440 units of product.

“Whatever be the epoch taken as a basis in the comparison, the older (present) average of means of production is always technically superior to a younger (future) means of equal magnitude.” This superiority, Böhm-Bawerk further intimates, is not only technical but economic in character: the product turned out in a “more capitalistic” branch, i.e., by means of a longer course of production, is superior to that of the “less capitalistic” branch not only in the number, but also in the general value of the units produced.

“But is it [the older aggregate of means of production. — N.B] also superior in the magnitude of its marginal utility and of its value? Indeed it is. For if it places at our disposal, in any conceivable sphere of requirements in whose satisfaction we might or would apply it, more means of satisfaction, it must surely be of greater importance for our welfare.” (Ibid., p.457.)

For one and the same person, at one and the same epoch, says Böhm-Bawerk, a greater mass of products will also have greater value. Such is the case with the value of the product; but how is it with the value of the means of production? As we have seen from the corresponding section on value, the value of the means of production is determined in various types of consumption by the maximum of the value of the product, i.e., by the value of the product turned out under the most advantageous conditions.

“In the case of commodities permitting of an alternate and different application with varying magnitudes of marginal utility, the highest marginal utility is the determining one — in our concrete case, therefore, that product which represents the highest value sum.” (Ibid., p.458.)

But, obviously, the inference should have been drawn that the value of the means of production depends on the maximum mass of products, i.e., on the maximum prolongation of the production process. But the Böhm-Bawerk theory actually — and let the reader mark this particularly — furnishes an entirely different answer. The highest value sum, says our author, “must not coincide with that product which contains the greatest number of individual units. On the contrary, it rarely or never coincides with this product. For the greatest number of units would be secured by means of an immoderate duration, perhaps 100 or 200 years, of the production process. But commodities which will not be rendered available until the days of our great-grandsons and great-great-grandsons have practically no value in our present-day estimation.” (Ibid., p.460.) Therefore the greatest value sum will belong to that product whose number of units, multiplied by the value per unit, yields a maximum sum, in which connection we must also consider “the relation between demand and covering in the given economic period and ..... the reduction in perspective that becomes operative in the case of future goods"^[139] [i.e., the reduction in value. — N.B.].

Let us assume the “first reason,” i.e., “progressively improving means of providing,” to be given; let us further assume that the corresponding (decreasing) value of a unit of product, termed the “true value” by Böhm-Bawerk, amounts for the annual product of 1909 to 5; of 1910, to 4; of 1911, to 3.3; of 1912, to 2.5; of 1913, to 2.2; of 1914, to 2.1; of 1915, to 2 ; and of 1916, to 1.5. The corresponding figures, when the second reason is operative, i.e., the reduction in perspective, will be equal respectively to 5; 3.8; 3; 2.3; 1.8; 1.5; 1. We are therefore assuming, together with Böhm-Bawerk, a reduction in the value of “future goods” as compared with “present goods,” by virtue of the two reasons we have previously investigated. On the basis of this material, Böhm-Bawerk constructs the following tables:

TABLE II

TABLE III

These tables show that the maximum of value for the work expended in the year of 1909 (840 value units) is higher than that of the value which resulted as a consequence of the later labour of the year 1912 (525). If we make these calculations also for the years 1910 and 1911, recapitulating the results in a table similar to Table I, the following figures will be obtained:^[140]

TABLE IV

“The present labour month is therefore actually superior to all future months not only in its technical productivity, but also in its marginal utility and value."^[141]

Böhm-Bawerk therefore considers it proved that the present productive commodities are not only technically but also economically superior to future productive commodities. Böhm-Bawerk now passes over to a consideration of present goods proper, i.e., to present consumption commodities, by way of the following considerations: The possession of a certain supply of present consumption commodities permits one to consume means of production in the most productive processes; if one possesses but scant means of existence, one cannot wait very long for the product to be completed. Furthermore, a certain duration of production is connected with a certain quantity of means of existence, and the earlier the means of production are obtained, the better can they be utilised. If we have a stock of present consumption commodities sufficient for ten years, the present productive commodities may continue to be consumed for the whole period of ten years; but our future goods can stay only a shorter time in the production process, on the other hand, if we are not to obtain the means of production until three years have elapsed; in this case the maximum age of the production process will be ten minus three, i.e., seven years, etc.^[142] “The state of the case,” says Böhm-Bawerk, “is as follows: Our control over an aggregate of present means of consumption covers our subsistence in the current economic period and thus releases our available means of production during this period (labour, utilisation of the soil, premiums on capital) for the technically more profitable service of the future.” (Böhm-Bawerk: Positive Theorie, p.469.) In other words, since the present productive goods have a higher value than the future goods, and since the availability of present consumption commodities favours this factor, the latter acquire a certain premium. The increased value of present productive commodities involves an increase in the value of the present consumption commodities.

So much for the “third” cause. Before proceeding to a criticism of this most important and in our opinion most scholastic argument of Böhm-Bawerk, let us once more recapitulate the course of his reasoning:

1. Present productive goods yield a higher mass of products than future productive goods.

2. The value of this product at any given moment, as well as the maximum value, is greater in present productive goods.

3. Therefore the value of present means of production is greater than that of the future means.

4. Since present articles of consumption make possible the utilisation of means of production in the most productive operations, i.e., their immediate pre-emption for a long period of time, present articles of consumption have a higher value than future articles of consumption.

Now for our critical examination of this reasoning. On Point 1 above: Present productive commodities, we read in Böhm-Bawerk, yield a greater mass of products, in support of which Table I is offered. If Böhm-Bawerk’s reasoning is to have any meaning at all, we must exclude everything connected with the above-discussed first two “causes” of the overestimation of present goods. The number of products obtained must be taken as independent of when they were obtained. Yet the production series in Böhm-Bawerk’s table terminate at the end of the given year in each case. But if we assume that the period at which the product is completed is of no importance for us, we shall arrive at entirely different results, as does Ladislaus von Bortkievitz.

TABLE I

TABLE Ia

If we assume that the production series of the years 1909, 1910, 1911, and 1912 are of equal duration, the number of products will also be the same as in 1909; there is no difference in the quantity of product. The only difference now will be that this equally great quantity of product is not obtained at the same time, but rather, as a means of production is more remote from the “present” means of production, an equally great result would be attained all the later, depending on its absolute magnitude. While a month’s labour in the year 1909 will yield 500 units of product as early as 1916, a month’s labour in 1910 would not yield these 500 units of product in 1916, but only in 1917, and a month’s labour in 1911 would not yield this quantity until 1918. It follows that if we ignore the varying evaluation of earlier and later products, the total quantity of the product will remain the same.

On Point 2: We now come to the question of the value of the product and the maximum value. We have seen above that a consistent application of the Böhm-Bawerk position would necessarily result in a maximum value if the production process should be materially prolonged, and consequently also if the mass of products should rise to a maximum. But Böhm-Bawerk denies this, appealing to the fact that products to be turned out in the epoch of our great-grandsons will have practically no value for us. This presupposition, which is the basis of his calculations, is methodologically inadmissible: if we already discount in advance the effect of the underestimation of the future possessions (“which is conditioned either by the first or the second cause”), we are thus rendering impossible the analysis of the “third cause,” i.e., of precisely the question which now interests us. As a matter of fact, Böhm-Bawerk surreptitiously introduces the effect of the first and second factor and it is only this circumstance that enables him to arrive at results which he — on the contrary — assigns to the effect of the third factor. Indeed, where does Böhm-Bawerk obtain his different maximum value for the product of the means of production of various lengths of production periods? Surely only from the fact that he has twice diminished the value of the product as dependent on time:

The first two columns show the diminution of the value of the goods under the influence of the “progressively improving conditions of providing,” the other two show the diminution of value under the influence of reflections on the insufficiency of human life, etc., i.e., the influence of the second cause. If this were not the case, we should have the same figure for all the years, namely, 5. If we now set up a table analogous to Table IV, assuming a diminution of value in all the vertical columns as the mass of products increases, we shall have the following results:^[143]

TABLE IV

TABLE IVa

A comparison of Tables IV and IVa will show that the “maximum of value” in Table IV is different (840, 720, 630, 525), while it is equally great in Table IVa (840). This difference is due only to the fact that the diminution in Table IV is assumed as dependent on time, with the result that the second vertical column begins with a different number (380 instead of 500). The diminution in value in Table IVa, on the other hand, is made dependent only on the quantity of product; the initial figures of all four columns are equal, since the quantities of product also are equal.^[144] It thus becomes clear that the higher results for the economic productivity for the present means of production are obtained only by reason of the fact that both factors alluded to have been included in the calculations. It goes without saying that we shall obtain the same result (but quantitatively somewhat lower) if we permit only one of the two factors to operate, it matters not whether we choose the first or the second. It is clear, at any rate, that the notorious “third cause” simply is non-existent as an independent factor, and this disposes completely of the question as to the value of present and future means of production also (Point 3).

On Point 4: If we assume that the first three “causes” of the “third cause” are valid, we are by no means able to grant Böhm-Bawerk his transition from productive commodities to consumption commodities. Here Böhm-Bawerk indulges in the following considerations: since present production commodities are more valuable than future production commodities, present consumption commodities are also more valuable than future consumption commodities. The consumption commodities are therefore regarded here as a means of production for means of production, in which connection the productive commodities are taken as the determining factor, and the consumption commodities as the factor to be determined. But this theorem contradicts the fundamental view of the entire School, which considers articles of consumption as of primary character and articles of production as goods of a more remote order, as derived quantities, at least as to their value. We therefore find that Böhm-Bawerk’s explanation here again moves in a circle.^[145] The value of the product determines the value of the means of production; the value of the means of production determines the value of the product. This alone would constitute a contradiction. But aside from this, the relation between the determination of the value of present goods, as influenced by their marginal utility and by their destination as resulting from the operation of the greater technical and economic productivity of the present means of production, remains unexplained still. Let us assume the marginal utility of a certain supply of present goods to be 500; if the first two causes should not be operative at all, while the effect of the third cause remains in abeyance for the time, the future supply of the given commodities will also have a marginal utility of 500. Let us assume, further, that the result of the most advantageous production period, whose appearance is due to the availability of our assumed supply, yields us 800 units of value, while a postponement of one year (i.e., assuming a shorter production process) will yield us only 700 units of value. According to Böhm-Bawerk, there would result in this case a superiority in favour of the value of the present goods over the future goods. This would be the case (we take the two principal cases) if either the value of the present goods should rise above 500, or that of the future goods should fall below 500. The first case is out of the question, for this would be an obvious violation of the law of marginal utility. Nor is the second case possible, for how on earth could commodities lose in value merely because something cannot be made of them which is not embraced in the “scale of requirements” at all? This is obvious drivel and the explanation is very simple. The artificial construction of Böhm-Bawerk here assumes that the articles of consumption are dependent for their value on the articles of production; the articles of consumption are considered up to a certain limit as means of production for the manufacture of means of production. Böhm-Bawerk thus sacrifices completely the seriousness of his fundamental constructions. The basis of the theory depended on the marginal utility of the articles of consumption which constituted the primary foundation of all value. But if the articles of consumption themselves are now to be regarded as means of production, the theory of marginal utility will lose its meaning altogether.

Aside from this, Böhm-Bawerk’s entire reasoning as to the “third cause” is based on the assumption that there are production processes of varying duration; in fact, in this case it is precisely the advantage of a longer production process which results in the deriving of profit. But since Böhm-Bawerk, as we have already seen, admits the insufficiency of the two former causes, the “technical superiority of present goods” appears in reality as the only foundation for an explanation of profit. Yet there is no doubt at all that if we assume production processes equal also in duration, profit does not yet cease to exist. If (to use the Marxian terminology) the organic composition of capital is equal in all the branches of production, or, to put the matter in different terms, if the organic composition of capital in each specific branch of production is equal to the average social composition of capital, profit will none the less not yet have disappeared. A deviation from “concrete reality” is to be found only in the fact that the average norm of profit is realised directly, without any flowing of capitals from one branch of industry to another. On the other hand, however, the “differential profit”; or surplus profit, arising in a specific enterprise by reason of improved technique, but not yet having become a common possession of all, cannot be taken as an example of profit in general; for the latter arises even in a completely similar technique, namely, as a specific income not of a single entrepreneur, but of the entire capitalist class. “If all capitalists,” says Stolzmann, “are capable of obtaining equal advantage from the increase in productivity, there will remain no means of surplus profit; ‘surplus value’ can no longer be derived between the divergence of the quantity of product produced without resorting to the capitalist detour and the quantity of product obtained by its utilisation.” (Stolzmann: Op. Cit., p.320. See also Bortkievitz, op. cit., p.943.)

Turning now to a consideration of the motives of capitalists and workers, we find the following condition of the facts. The worker has no choice at all between this path of production or that, for the very simple reason that, being a worker, it is impossible for him to produce unaided. Merely to formulate the problem in this way is, as far as the worker is concerned, completely ridiculous. But, in the case of the capitalists, we may turn Böhm-Bawerk’s own weapons upon him, in the following manner: labour as a means of production permits the capitalist to resort to any roundabout way he likes; the present florins would remain dead capital if they were not fructified by labour; in other words, the “present goods” are of significance to the capitalist only insofar as he can transmute them into labour (we here ignore the other means of production). Insofar, therefore, as we are here concerned with contrasting money and labour (disregarding articles of consumption, which as such are completely superfluous for the capitalist), labour has a higher subjective value from the point of view of the capitalist. This might be inferred even from the exchange transaction: if it were not advantageous for the capitalist to purchase labour, i.e., if he had not estimated it as higher in value than his florins, he would not purchase it at all. For the capitalist considers in advance the profit which he may derive, a circumstance which influences him in all his evaluations.

Let us now formulate the question in a more general way. Let us assume that we are dealing with 1000 florins of present money or of future money. Will the capitalist estimate the present 1000 florins higher than the future 1000 florins?

He will, for the simple reason that “money breeds money.” His higher evaluation of cash money is based on the possibility of credit operations, in other words, therefore, on the basis of profit. Such a case, which is, furthermore, typical for capitalist society, cannot be adduced in explanation of “income without labour,” since the case presupposes the existence of such income. On the other hand, we may prove in another manner also that the superiority of the value of present goods does not explain the creation of profit. We have seen that Böhm-Bawerk, in his investigation of the “third cause,” offers as his chief argument in favour of the overestimation of present goods, and of the explanation of the phenomenon of profit, the fact that present goods make possible the application of productive methods. Let us assume for a moment that this advantage of present goods really exists; let us assume, furthermore, that the capitalist has no cash at his disposal but must, on the other hand, obtain money on interest in order to be able to resort to the long-term production processes. It is obvious that his profits cannot be explained by the superiority of the present sum as opposed to the future sum. Even the “third cause” is thus shown to be invalid.

We have examined Böhm-Bawerk’s principal argument in its various aspects, and all our paths have led to the same result. The argument is based on perfectly scholastic presumptions, which are dragged in by the hair, and which either contradict reality (such as the assumption of evaluations by both the worker and the capitalist) or are contradictory within themselves (such as the “third cause,” which is dependent as it were, on the former two causes, defining the value of consumption commodities by the value of the production commodities, and vice versa, etc.). In his effort to trace profit back to the different character of the technique in various production branches (longer or shorter duration of production). Böhm-Bawerk evidently conceals the wish to cloak the general causes of profit, which arise from the class position of the bourgeoisie, and the origin of profit cannot be explained but only obscured by applying a peculiar terminology and a scholastic hair-splitting type of argument.

3. The Subsistence Fund; The Demand for Present Goods and the Supply of such Goods; The Origin of Profit.

We must now investigate the question of the nature of the “present goods” whose exchange for future goods (labour) is declared to be the cause of the formation of profit. This question is answered by Böhm-Bawerk in his theory of the “subsistence fund”: “ ... The supply of subsistence advances [Vorschüsse] in any national economy is represented, with an insignificant exception, by the totality of all the resources existing in it, with the exception of the soil. The function of this totality of resources consists in maintaining the population during the interval obtaining between the application of its [the population’s] original productive forces and the attaining of their fruits mature for consumption, in other words, during the average social period of production; and the social period of production may be extended over any desired epoch, depending on the magnitude of the accumulated totality of resources.” (Positive Theorie, p.525)

“In truth, therefore, the entire accumulated totality of the resources of society, with the extremely insignificant exception of those aggregates of resources that are consumed by their possessors themselves, are brought to market as an offer of subsistence advances.” (Ibid. p.527.)

“The totality of resources in a national economy serves as a subsistence fund or advance fund from which society draws its subsistence during the socially customary production period.” (Ibid., p.528.)

Regardless of the fact that the entire “totality of resources” of society also includes means of production, i.e., material elements of constant capital, which are not suitable for immediate consumption. Böhm-Bawerk nevertheless counts this “totality of resources” as a part of the subsistence fund, since a constant “maturing” of future possessions into present possessions takes place in society. We have still to clarify the position of the parties, i.e., the buyers and sellers, who engage in trade with the various present and future goods. Böhm-Bawerk points out the following with regard to the supply of present goods. The volume of the supply of means of subsistence is represented by the entire accumulated stock of resources, with the exception of the soil and those portions of the resources which “are consumed, definitively or by way of an installment, on the one hand, by the impoverishing possessors of resources, and on the other hand, by those possessors of resources who are producing independently.” (Ibid., p.538.)

“The ‘intensity’ of the supply^[146] is of such nature that “the subjective utility value of present goods for the capitalists is not greater than that of future goods. They would therefore be willing, in an extreme case, to pay, for ten florins to be available at the end of two years, or, what amounts to the same thing, for one week of labour which will net them ten florins in two years, practically the entire sum of ten present florins."^[147]

The demand for present goods is made by:

1. Numerous wage workers; some of these estimate their labour at 5, others at as low as 21/2 florins[!!].

2. A small number of persons who seek consumption credits and are ready to pay a certain commission for present goods.

3. A number of independent petty producers, who seek production credits required by them for prolonging the production period.

Since all sellers, in Böhm-Bawerk’s opinion, estimate present and future goods at approximately the same value, while purchasers have a higher estimate of present goods, the resultant depends on which side has the numerical superiority.

It must therefore be proved “that the supply of present goods must be numerically exhausted by the demand” (Ibid., p.541), which Böhm-Bawerk seeks to prove in the following manner:

“The supply,” he says, “is limited even in the richest nation by the present status of the national wealth. The demand, however, is practically a limitless quantity; it extends at least as far as the yield of production may be expanded by a prolongation of the process of production, and even in the case of the richest nations this limit lies far beyond the present condition of resources."^[148] The superiority is therefore on the side of demand. And since the market price must be higher than the price offered by those prospective purchasers who are excluded from the competitive struggle, and since this price, furthermore, already includes a certain commission for present goods (the overestimation of present goods by the purchasers), the market price must also include a certain commission for present goods. (Ibid., p.540.)” Interest and commission, “ says Böhm-Bawerk, “must now put in their appearance.” (Ibid., p.541.)

Having presented the final conclusion of the Böhm-Bawerk theory of profit, we shall now proceed to an analysis of it.

In the first place, the artificial and contradictory nature of the “subsistence fund” is glaringly apparent. The “subsistence fund,” which is now made to embrace only present goods, includes — with the exception of the soil and the articles of consumption of the capitalist — everything, i.e., it embraces all the means of production. Böhm-Bawerk believes he has a right to make this assumption for the reason that the future goods “mature” into present goods, that the means of production are transformed into articles of consumption. But this assumption is only partially correct, since the means of production are transformed not only into means of consumption, but also into means of production. In the process of social reproduction, not only the articles of consumption, but also the means of production must be manufactured. Furthermore, with an expanding reproduction, the share which is charged to the expenditures for labour — devoted to the means of production — will constantly increase. It is thus entirely inadmissible to eliminate constant capital from the analysis. At bottom, Böhm-Bawerk is here repeating the old fallacy of Adam Smith, exposed by Karl Marx in the second volume of Capital; Smith divides the value of commodities into v (available capital) and s (surplus value) and completely ignores c (constant capital). “But so much more,” says Marx, “Adam Smith [or Böhm-Bawerk. N.B.] should have seen that this excludes the value of the means of production serving within the sphere of production, — the means of production which produce means of production — a portion of value equal to the value of the constant capital employed in this sphere and excluded from the portions of value forming a revenue, not only by the natural form in which it exists, but also by its function as capital."^[149]

Such a conception of the “subsistence fund” becomes even more ridiculous when we deal with an opposition between present and future goods, for does not Böhm-Bawerk’s task consist in elucidating the exchange relation between present goods on the one hand and future goods (labour) on the other? Present and future goods must here be revealed as opposite poles; from this point of view the subsistence fund can be nothing else than the total mass of present goods offered on the market. (Böhm-Bawerk himself calls his section dealing with this subject: “The General Market for the Means of Subsistence.”) Under these circumstances, Böhm-Bawerk quite consistently excludes those articles of consumption- the “present goods” — which enter into the consumption of individual capitalists, for these goods do not come upon the market as objects of demand on the part of the workers. On the other hand, Böhm-Bawerk includes in this fund the means of production, i.e., obviously future goods, whereupon he contrasts them with labour, which is likewise future goods, in spite of the fact that these two categories of commodities have no relation whatever with each other. Furthermore, Böhm-Bawerk includes, in his classification of demands, persons seeking production credit, i.e., persons interested in means of production rather than articles of consumption (while the worker desires to eat, the capitalist desires to “prolong the production processes”). The entire system thus acquires the appearance of an incredible hodge-podge of heterogeneous elements. On the other hand, persons who seek production credits may be placed on the same level with workers only inasmuch as both categories obtain their commodity equivalent in the form of money. It is only from this point of view that we may say: “The loan market and the labour market are two markets on which ... the same commodity is supplied and demanded, namely, present goods ... Wage workers and credit seekers thus constitute two branches of one and the same demand, mutually supporting their effects and together forming the price resultant.” (Positive Theorie, p.524.) We cannot consider these two categories under the same head, except by fixing our eyes on the money element. As soon as the demand for “articles of consumption,” in other words, the “market for means of subsistence,” receives the chief attention, all similarity between the worker and the person seeking production credits at once disappears.

Let us now turn our attention to an analysis of the relation between the demand for present goods and the supply of such goods. We may distinguish two principal attitudes on Böhm-Bawerk’s part in this question. On the one hand, his entire theoretical structure is apparently based on the fact of the purchase of labour, in which profit results from the fact that the workers underestimate the value of future goods; on the other hand, it is the demand for present goods on the part of persons seeking production credits which is made the explanation for profit in the last analysis.

In the former case, the decisive part is played by the competition between the workers; in the latter case by that between capitalists. The second point of view^[150]will not bear criticism if only for the reason that it cannot explain the origin of the profit of the capitalist class. The loan market, the payment of interest on loans — all this is merely a redistribution of values between two groups of the same capitalist class; but even this redistribution cannot explain the origin of surplus value. A society is conceivable in which there will be no loan market at all, yet profit will continue to exist in such a society. There remains only the competition between the workers as a basis for the formation of profit. Böhm-Bawerk, as we have already mentioned, presents the facts in the following way: The capitalists advance the means of subsistence to the workers (purchase of labour), the workers meanwhile estimating their labour as less valuable than the future value of its products; there results the commission (the agio) on present goods. The numerical superiority of the workers also moulds prices in such manner as to cause the commission on present goods to be shaped in the market. It might be inferred from this that it is precisely the socially weak position of the working class which constitutes the cause of profit. But since the slightest suggestion of such a thought completely disconcerts Professor Böhm-Bawerk, he is untiring in his efforts — regardless of all the resulting contradictions with the most important forms of his own theory — to assure us again and again that all workers are constantly finding work to do, that the demand for labour is by no means smaller than the supply of labour, and that profit may therefore not be explained by the competition between the workers. Here is an example of such reasoning: “No doubt the circumstances unfavourable to the purchasers may be counterbalanced by an active competition between the sellers. Even though there be few sellers, they have all the greater present goods to fructify... . Fortunately these cases are the regular rule in life.” (Ibid., p.575; italics mine. — N.B.)

But let us ignore these blunders, important though they are in their consequences for Böhm-Bawerk’s theory. Let us assume for the sake of argument that profit arises from the purchase of future goods (labour) and let us consider the transaction between capitalists and workers both as it actually transpires and also in the form in which Böhm-Bawerk conceives it. We here encounter a thought which completely overthrows all of Böhm-Bawerk’s discussion; for his theory is based on the assumption that the capitalist grants an advance to the worker; in fact, all his principal notions are based on the gradual maturing of labour which affords profit only after it has attained its mature state; the difference in value between the costs and the yield results precisely from the fact that the compensating of labour takes place before the beginning of the labour process, i.e., in accordance with the value inherent in labour as a “future goods.” But this assumption is precisely the unproved condition, which contradicts reality. In fact, the very opposite is the case; it is not the capitalist who makes an advance of wages to the worker, but the worker who makes an advance of labour power to the capitalist. The payment of wages is made not before the labour process but after it, which is particularly clear in the case of piece work, where wages are paid for the actual number of completed products. “But the money which the labourer receives from the capitalist is not given to him until after he has given the capitalist the use of his labour-power, after it has already been realised in the value of the product of labour. The capitalist holds this value in his hands, before he pays for it... . Labour power first supplies, in the form of commodities, the equivalent which is to be paid to the labourer, and then only is it paid to the labourer in money. In other words, the labourer himself creates the fund out of which the capitalist pays him.” (Karl Marx: Capital, vol. II, p.439.) To be sure, cases also exist in which payment is made in advance; but, in the first place, this phenomenon is not at all typical for modem economic life, and in the second place, it would prove nothing against our assertion. For if profit may even result in cases in which wages for labour are paid after the labour process, it is clear that some other phenomenon than the difference between present and future goods must be responsible for the origin of profit.

The phenomenon in question is the social power of capital, based on the fact that the capitalists as a class have monopolised the means of production, thus compelling the worker to surrender a portion of his product. Social inequality — the existence of antagonistic social formations — this is the fundamental fact of modern economic life; precisely these relations between the classes, in the field of economy, the production relations, constitute the “economic structure” characteristic of capital society; any theory which neglects to analyse these conditions is doomed to impotence in advance. Yet the effort to obscure the antagonism between classes is so great that modern bourgeois science prefers to hatch a thousand empty “explanations,” to accumulate one foolish argument after the other, to create entire “systems,” to resuscitate long forgotten theories, and produce mountains of printed matter — all for the simple purpose of proving to us that “there is nothing in the nature of interest ..... nothing that might be considered unreasonable or unjust as such.”

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