Economic Theory of the Leisure Class. Nikolai Bukharin 1919
1. The Historical School in Germany; Sociological Characterisation of the Historical School; Logical Characterisation of the Historical School.
2. The Austrian School; Sociological Characterisation of the Austrian School; Brief Logical Characterisation of the Austrian School.
3. The Anglo-American School.
4. The Predecessors of the Austrians.
It is more than thirty years since the inspired words of the great thinker of the nineteenth century, whose thoughts were to become the lever of the proletarian movement throughout the world, ceased to flow from his lips; the entire economic evolution of the last few decades — the mad concentration and centralization of capital, the elimination of petty operation even in the most remote districts, the rise, on the one hand, of powerful captains of industry crowned with crowns of gold, and the formation, on the other hand, of the proletarian army which, as Marx says, has been trained, united and organized by the mechanism of capitalist production itself — completely confirms the correctness of the economic system of Karl Marx. It was Marx’s object to reveal the economic law of motion of present-day capitalist society. The prognosis made by him, first in the Communist Manifesto and then in more complete and developed form in Capital, has already been nine-tenths confirmed.
One of the most important portions of this prognosis, the theory of concentration, has now become a common possession, a generally admitted scientific truth. To be sure, it is generally served in some other theoretical sauce, thus depriving it of the simplicity so characteristic of the Marxian theory. But the “economic romanticists,” who beheld in this theory only a Utopian’s imaginings, had lost the ground under their feet when the tendencies revealed and pronounced by Marx recently developed in so swift a manner and on so magnificent a scale that only blind men could fail to observe the victorious advance of large-scale industry. While certain good-natured persons considered the stock corporations to be merely an evidence of a “democratisation of capital” and regarded them, in their fond delusion, as a guarantee of social peace and general prosperity (unfortunately such persons were to be found even in the labour movement), the “economic reality” of the present is destroying this petty bourgeois ideal in the rudest manner. Capital in shares has become a tremendous instrument in the hands of a small band of usurpers to suppress ruthlessly the advance of the “Fourth Estate.” This alone is sufficient to show how important an instrument of knowledge is the theoretical structure raised by Marx.
But further, even such phenomena in capitalist development as have only now become evident can be grasped only with the aid of the Marxist analysis. (Rudolf Hilferding’s Das Finanzkapital will be found very useful in this connection.) The rise of enormous producing organizations, of syndicates and trusts, the establishment of banking organizations, of hitherto unknown immensity, the penetration of banking capital into industry, and the hegemony of financial capital in the entire economic and political life of the advanced capitalist countries — all these are merely a combination of the development of the tendencies pointed out by Marx. The domination of financial capital merely accelerates tenfold the tendency toward concentration and transforms production into social production, already mature for its subjection to social control. To be sure, bourgeois scholars recently declared that the organization of industrial trusts would put an end to the anarchy in production and eliminate crises. But, alas, the capitalist organism continues to be subject to its periodical convulsions, and only very simple people can still believe that capitalism can be cured with the aid of reformist patchwork.
The historical mission of the bourgeoisie has already been fulfilled all over the world. It is now approaching its end. There is now ensuing a period of great performances of the proletariat, in which the struggle has already gone beyond the national boundaries of the state, assuming more and more the forms of a mass pressure on the ruling classes, and already in sight of the final goal. The time at which Marx’s prophecy, namely, that the last hour of capitalist property will have struck, will be fulfilled, is no longer far off. And yet, however emphatically the correctness of Marx’s conception is borne out by the facts, its acceptance among official scholars is not only not advancing, but even declining. While formerly, in backward countries — Russia and to a certain extent Italy, for example — even university professors occasionally flirted with Marx, of course always interpolating their own more or less “significant corrections,” the entire social evolution, the sharpening of class contrasts and the consolidation of all the shades of bourgeois ideology are now causing all to take up the struggle against the ideology of the proletariat, by eliminating these “transition types” (of economic scholars) and substituting for them the “purely European,” “modern” scholar, his theoretical garment patterned according to the latest Prussian, Austrian, or even Anglo-American fashion.
The bourgeoisie presented two fundamental tendencies in the economic doctrine which it devised to oppose the ironclad Marxian system: the so called Historical School (Wilhelm Roscher, Eduard Hildebrandt, Karl Knies, Gustav Schmoller, Karl Bücher, etc.), and the Austrian School (Karl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser) ; the latter has recently found many adherents. Both tendencies, however, merely express the bankruptcy of bourgeois political economy, but they express this bankruptcy in two quite opposite forms. While the former tendency of bourgeois theory went to pieces because it denied the validity of any abstract theory at all, the other tendency sought to construct merely an abstract theory and therefore arrived at a number of extremely ingenious meretricious exceptions, which failed to hold water just at the point where Marx’s theory is particularly strong, namely, in questions as to the dynamics of present-day capitalist society. The classical school of political economy, as is well known, attempted to formulate the general, i.e., the “abstract” laws of economic life, and its most prominent representative, David Ricardo, affords astonishing examples of this abstract-deductive mode of study. The Historical School, on the other hand, makes its appearance as a reaction to this “cosmopolitanism” and “perpetualism” of the classical economists.
There are profound social-economic causes for this difference. The classical theory, with its free trade doctrine, was extremely “national” in spite of its “cosmopolitanism”; it was the necessary theoretical product of English industry. England, obtaining exclusive hegemony in the world market by reason of a number of causes, was not afraid of any competitors and had no need of artificial, i.e., legislative, measures, in order to assure it the victory for its competitors. Therefore English industry was not obliged to make reference to specifically English conditions as an argument for the erection of customs barriers of any kind. The theorists of the English bourgeoisie, therefore, had no need to turn their attention to the specific peculiarities of English capitalism; although they represented the interests of English capital, they spoke of the general laws of economic evolution. Quite different is the picture presented by the economic development of the European continent and America.
Germany, the cradle of the Historical School, was a backward and — for the most part — an agricultural country as compared with England. The rising German industries suffered perceptibly from English competition, particularly in the metallurgical industry; while the English bourgeoisie did not need to emphasize national peculiarities in any way, the German bourgeoisie was obliged to give exceptional attention to precisely the peculiarities and the independence of the German evolution, in order to use them as a theoretical foundation for proving the necessity of “nursery tariffs.” The theoretical interest was concentrated precisely on making clear the concrete historical situation and the national limitations; the selection and emphasis of precisely these phases of the economic life was made by theory itself. Considered from a sociological point of view, the Historical School was the ideological expression of this process of growth of the German bourgeoisie, which was afraid of English competition, which therefore demanded protection for the national industries, and consequently emphasised the national and historical peculiarities of Germany, later — in a more general form — of other countries also. Considered from a social-genetic stand-point, both the Classical and the Historical School are “national,” since both are the products of an evolution within historical and territorial limitations; viewed from a logical point of view, however, the classical economists are “cosmopolitan,” while the historical economists are “national.” Thus, the German protective tariff movement was the cradle of the Historical School. In its further development, this movement produced a number of nuances, the most important of which, headed by Gustav Schmoller (the so called “Younger Historical” or “Historical-Ethical” School), assumed an agrarian-conservative tinge. Idealization of the transition form in production, particularly of the “patriarchal” relations between landholders and farm workers, the fear of the “proletarian pestilence” and the “red peril” are constantly unmasking those “objective professors” and revealing the social roots of their “pure science.” This sociological designation of the Historical School also affords us the corresponding logical characterization.
From the logical point of view, the Historical School is characterised particularly by its negative attitude toward abstract theory. All abstract investigations move this School to profound aversion; it doubts, occasionally denies outright, any possibility of undertaking such investigations; the word “abstract,” as used by this School, means “nonsensical.” Many of these scholars even assume a skeptical attitude toward the most important concept of science as a whole, namely, the concept of “law,” recognising at most the so called “empirical laws” established by the .aid of historical, economical and statistical investigations.
There resulted a narrow-minded empiricism, which recoiled from any generalisation at all. The extreme representatives of this School made it their watchword to collect concrete historical material and postpone indefinitely the work of generalising and of theory. Thus, Gustav Schmoller, the recognised head of the Historical School, characterises the “younger generation” as follows: “The difference between the Younger Historical School and him [Roscher.-N.B.] is in that they refuse to generalise so swiftly, that they feel a need to advance from a polyhistorical gathering of facts to special investigations of the various epochs, opinions, and economic conditions. They demand, in the first place, economic monographs. They would rather explain, to begin with, the history of the individual economic institutions than that of political economy or world economy as a whole. They start with a severe method of investigation of legal history, but wish to supplement their book knowledge by travel and by means of their own understandings, to which they add the results of philosophical and psychological science.” (Gustav Schmoller: Grundriss der Allgemeinen Volkswirtschaftslehre, Leipzig, 1908, p.119.) This attitude, opposed in principle to all abstract method, is still dominant in Germany. In 1908, Schmoller again declared: “We are still largely concerned with preparatory work and with the collection of material.” (Schmoller, ibid., p.123.)
Another peculiarity of the “historical tendency” is also connected with its demand for concrete facts: This School does not separate the social-economic life at all from the other phases of the process of life, particularly from law and custom, in spite of the fact that the purposes of knowledge would be best served by such a division. This point of view is again a result of their aversion to all abstraction; for, as a matter of fact, the life process of society is a single stream; there is in reality only one history, not a number of histories — a history of law, of economy, of customs, etc. It is only with the aid of the abstractions of science that we can divide this single life into parts, artificially emphasising certain series of phenomena and grouping them according to specific traits. Logically, therefore, he who is opposed to abstraction in general should also be opposed to a division between economy and law and custom. But this standpoint would, of course, be untenable. No doubt the social life is a unit; it must not be forgotten, however, that no knowledge is possible at all without generalisation: even conception as such is an abstraction from the “concrete”; likewise, all description presupposes a certain selection of phenomena according to traits considered important for one reason or other, and abstraction is therefore only a necessary attribute in the acquisition of knowledge; it is to be rejected only when the process of generalisation from concrete traits results in an absolutely empty abstraction. which is therefore useless for the purposes of science.
Science requires the analysis of the indissoluble life process. The latter is so complicated that it must be divided, for purposes of investigation, into a number of series of phenomena. Whither should we be led by an investigation of economy if we should seek, for example, to include in this investigation also things constituting the object of the science of philology — attempting to justify ourselves with the statement that economy is a human structure and that humans are united by their language? It is obvious that any given science may use the results attained by another science where these results may give assistance to the subject of the first; yet these extraneous elements may then be regarded only from the point of view of the given science and may serve only the purpose of an auxiliary device in the investigation.
The accumulation of material of many kinds therefore leads rather to obstructing than facilitating the gathering of knowledge. We must add that the “psychological-ethical consideration” on the part of the Younger Historical School has assumed the form of moral evaluations and inculcations. The object of science is to reveal causal relations, and here we find the absolutely extraneous element of ethical standards introduced into science, whence this school obtains its name: he Historical-Ethical School.
A number of descriptive historical works have been published as a result of the activity of the Historical School: the histories of prices, of wages, of credit, of money, etc.; yet these works contribute not in the slightest degree toward advancing the theory of price or of value, the theory of wages, of money circulation, etc. But it must be clear to everyone that the two fields are quite distinct. “It is one thing to set up statistics of prices in the Hamburg or London markets during the last thirty years and quite a different thing to construct a general theory of value and price as is contained in the works of Galiani, Condillac, and David Ricardo.” (Luigi Cossa: Introduzione allo Studio dell’ Economica Politico, Milano, 1892, p.15.)
It is precisely this negation of a “general theory” that would deny the right of political economy to be called an independent theoretical discipline.
Science in general may pursue either one of two goals; it either describes things actually existing at a certain time and in a certain place, or it attempts to derive the laws of phenomena when such are capable of expression in the formula: if A, B and C are present, D must follow. In the first case, science is idiographic in character; in the second, it is nomographic.
It is clear that the theory of political economy is of the second type of science; its object is chiefly to solve nomographic tasks, but since the Historical School scorns to set up general laws, it practically destroys political economy as a science and replaces it with a “mere description” of idiographic type; in other words, it makes this science identical with economic history and economic statistics, with idiography par excellence. This science was unable to find a place for its only correct idea — evolution — within the framework of theoretical investigation, and therefore the science, like the Biblical fig-tree, has remained unfruitful. Its positive importance is to be found only in the collecting of materials for theoretical treatment, and in this sense the labours of the Historical School are quite valuable. It is sufficient to point out only the important works issued by the Verein für Sozialpolitik on the subjects of handicraft, petty trade, and the agricultural proletariat.
Karl Menger, the father of the Austrian School, has given an excellent characterisation of this School: “The point of departure, as well as the highest achievement of its [the Historical School’s. — N.B.] evolution, is an external combination of solid historical knowledge and a careful but leaderless eclecticism in the domain of our science.” (Karl Menger: Die Irrtümer des Historismus in der deutschen Nationalökonomie, Vienna, 1884, Vorwort, p. IV.)
Quite different is the picture presented by the Austrian School, which entered the field of science as a pronounced opponent of historicism. In the polemical conflict which was fought most bitterly between Karl Menger and Gustav Schmoller, the new theorists of the bourgeoisie rather thoroughly unmasked the fundamental errors of their predecessors; they demanded, in turn, a recognition of “typical phenomena,” of “general laws” (in fact, of “exact laws,” according to the terminology of Karl Menger). After carrying off a number of victories over the Historical School, the Austrian School, represented by Böhm-Bawerk, proceeded to demolish Marxism, and announced the complete theoretical fallacy of the latter. The Marxian theory is “not alone incorrect, but, when examined as to its theoretical value, must be assigned to one of the last places among all theories of interest.” (Böhm-Bawerk, Kapital and Kapitalzins, p.517.) Such was the judgement of Böhm-Bawerk.
It is no cause for surprise, therefore, that this new effort of bourgeois ideologists should have come into a sharp clash with the ideology of the proletariat. The bitterness of this conflict is a necessary result of the formal similarity between this new attempt at abstract theory and Marxism, in so far as Marxism makes use of abstract method, while in essence the new system is in complete opposition to Marxism. This may be explained, furthermore, by the fact that the new theory is a child of the bourgeoisie on its last legs — a bourgeoisie whose experience of life, and therefore whose ideology, is far removed from the experience of life of the working class.
We shall not dwell at length in this chapter on the logical characterisation of the Austrian School, since we intend to revert to it later. We shall here make only the attempt to present the fundamental outlines of a sociological description of the Austrian School.
In his last work on the origin of the “capitalist spirit,” Werner Sombart (Der Bourgeois, 1913) investigates the characteristic traits of the entrepreneur psychology, depicting, however, merely the ascending phase in the evolution of the bourgeoisie; he does not investigate, he has no eyes for, the bourgeois psychology in its decline. Yet interesting examples of this psychology may be found in his book, though they do not deal with the latest period. Thus, Sombart characterises the haute finance in France and England during the seventeenth and eighteenth centuries as follows: “These were extremely wealthy persons, mostly of bourgeois origin, who had enriched themselves as tax farmers or creditors of the nation and who now floated on the surface of the broth as circles of fat, completely removed, however, from the economic life.” (Ibid., p.46.)
As the “capitalist spirit” in Holland declines in the course of the eighteenth century, the “bourgeois” is not “feudalised,” as was the case in other countries; he simply lays on adipose tissue, grows “fat.” “He lives on his revenues. All interest in capitalistic enterprises of any type whatsoever diminishes more and more.” (Ibid., p.188; italics mine. — N.B.)
Another example: Daniel Defoe, the well-known English journalist-romancer (1661-1731), describes the process of the evolution of merchants into coupon-cutters as follows: “Formerly it had been necessary for him [the merchant. — N.B.] at any rate to be diligent and active in order to acquire his fortune; but now he has nothing else to do than to determine to be indolent and inactive. National rents and land ownership are the only proper investment for his savings.” (Der Bourgeois, p.201.)
It should not be assumed that no such psychology is possible in the present day; in fact, precisely that is the case. The capitalist evolution of the last few decades involved a swift accumulation of “capital values.” As a result of the development of the various forms of credit, the accumulated surplus flows into the pockets of persons having no relation whatever to production; the number of these persons is constantly increasing and constitutes a whole class of society — that of the rentier. To be sure, this group of the bourgeoisie is not a social class in the true sense of the word, but rather a certain group within the ranks of the capitalist bourgeoisie; yet it displays certain traits of a “social psychology” that are characteristic of it alone. With the evolution of stock corporations and banks, with the rise of an enormous traffic in securities, this social group becomes more and more evident and intrenched. The field of its economic activity is predominantly that of a circulation of financial paper — the Stock Exchange. It is characteristic enough that within this group, living on the income from securities, there are a number of different shades; the extreme type is the stratum which is not only independent of production, but also independent of the circulation process altogether. These are, above all, the owners of gilt-edged securities: national bonds, secure obligations of various kinds. Furthermore, there are persons who have invested their fortunes in real estate and draw permanent and secure incomes from the latter. These categories are not even troubled by the disturbance of the Stock Exchange, while shareholders, being closely connected with the ups and downs of speculation, may, in a single day, either lose everything or become rich men. While these persons are thus living the life of the market, beginning in the morning with attendance at the Exchange and ending in the evening with a perusal of the quotations and the commercial supplements, the groups enjoying the income of silt-edged securities have severed this bond connecting them with the social-economic life and have emerged from the sphere of circulation. Furthermore, the more highly developed the credit system, the more elastic it has become, the greater is the possibility of “growing fat” and becoming “indolent and inactive.” The capitalist mechanism itself takes care of this matter; by making the organisational functioning of a considerable number of entrepreneurs socially superfluous, it simultaneously eliminates these “superfluous elements” from the immediate operations of the economic life. These elements are secreted to the surface of the economic life like the “circles of fat on the surface of the soup” — to use Sombart’s apt expression.
And it must be remembered that the owners of gilt-edged securities do not represent a decreasing stream of the bourgeoisie of coupon-cutters, but that, on the contrary, this stream is constantly increasing. “The bourgeoisie is being transformed into rentiers who have about the same relation to the great financial institutions as they have to the State whose obligations they acquire; in both cases, they are paid their interest and have nothing else to worry about. As a result, this tendency of the bourgeoisie to transfer their fortunes to the State obviously must now be really increasing ... since ... the State presents the admitted advantage of greater security. A company share no doubt offers chances of gain not afforded by the State obligations, but also immense possibilities of loss. It must be borne in mind that the bourgeoisie annually produces a considerable surplus of capital; but even in periods of industrial booms only a small part of this surplus capital is absorbed by new issues of shares; by far the greater part is invested in national loans, municipal obligations, mortgages, and other securities affording fixed interest.” (Parvus: Der Staat, die Industrie und der Socialismus, Dresden, pp. 103-4.)
This stratum of the bourgeoisie is distinctly parasitical; it develops the same psychological traits as may be found in the decayed nobility at the end of the ancien regime and the heads of the financial aristocracy of the same epoch. The most characteristic trait of this stratum, one which sharply distinguishes it both from the proletariat and the other bourgeois types is, as we have already seen, its removal from the economic life. It participates directly neither in the activities of production nor in trade; its representatives often do not even cut their own coupons. The “sphere of activities” of these rentiers may perhaps be most generally termed the sphere of consumption. Consumption is the basis of the entire life of the rentiers and the “psychology of pure consumption” imparts to this life its specific style. The consuming rentier is concerned only with riding mounts, with expensive rugs, fragrant cigars, the wine of Tokay. A rentier, if he speaks of work at all means the “work” of picking flowers or calling for a ticket at the box office of the opera. Production, the work necessary for the creation of material commodities, lies beyond his horizon and is therefore an accident in his life. There is no mention of genuine active work for him; his whole psychology presents only passive shades; the philosophy, the aesthetics of these rentiers, is purely descriptive in character; they completely lack the active element so typical of the ideology of the proletariat. For the proletariat lives in the sphere of production, comes in direct contact with “matter,” from which it is transformed into “material,” into an object of labour. The proletariat is an eye-witness to the gigantic growth of the production forces of capitalist society, of the new and more and more complicated machine technology, making possible the throwing of larger and larger quantities of commodities on the market, with. prices going lower and lower. the more the process of technical perfection progresses. The psychology of the producer is therefore characteristic of the proletarian, while the psychology of the consumer is characteristic of the rentier.
We have already seen that the class of society here discussed is a product of the decline of the bourgeoisie. This decline is closely connected with the fact that the bourgeoisie has already lost its functions of social utility. This peculiar position of the class within the production process, or, to put it more correctly, without the production process, has led to the rise of a peculiar social type that is characterised particularly by its asociality. While the bourgeoisie as such is individualistic from its very cradle — for the basis of its existence is the economic cell which is engaged in the bitter struggle of competition for independent existence with other cells — this individualism in the case of the rentier becomes more and more pronounced. The rentier knows nothing of the social life at all; he stands apart from it; the social bonds are loosed; even the general trials of the class cannot weld together the “social atoms.” There disappears not only the interest in capitalist enterprises, but any interest in the “social” altogether. The ideology of a stratum of this type is necessarily strongly individualistic. This individualism expresses itself with particular sharpness in the aesthetics of this class. Any treatment of social themes appears to it eo ipso as “inartistic,” “coarse.” “tendencious.”
Quite different is the evolution of the psychology of the proletariat. The proletariat swiftly discards the individualistic garb of the classes from which it takes its origin, the urban and rural petty bourgeoisie. Held captive within the stone walls of great cities, concentrated in the centres of a common labour and a common struggle, the proletariat develops the psychology of collectivism, of a keen sense of the social bonds; only in its very earliest stages of development, when it has not yet evolved into a specific class, does it still present individualistic tendencies, which soon disappear without leaving a trace. And thus the proletariat evolves in a direction that, is just the opposite of that taken by the bourgeoisie of rentiers. While the proletariat has a collectivist psychology, the evolution of individualistic traits is one of the fundamental traits of the bourgeoisie. An outspoken individualism is the significant characteristic property of the rentier.
The third characteristic trait of the rentier, as of all the bourgeoisie in general, is the fear of the proletariat, the fear of impending social catastrophes. The rentier is not capable of looking forward. His philosophy of life may be resolved into the maxim: “Enjoy the moment.” Carpe diem; his horizon does not extend beyond the present; if he thinks of the future, he thinks of it only after the pattern of the present; in fact, he cannot imagine a period in which persons of his type will not be collecting interest on paper securities; his eyes close in horror at such a possibility; he hides his face at the prospect of coming things and tries not to see in the present the germs of the future; his thinking is thoroughly unhistorical. Quite different is the psychology of the proletariat, which presents none of these elements of conservative thought. The class struggle, as it unfolds, confronts the proletariat with the task of surmounting the existing social-economic order; the proletariat is not only not interested in the maintenance of the social status quo, but it is interested precisely in its destruction; the proletariat lives chiefly in the future; even the problems of the present are evaluated by it from the point of view of the future. Therefore its mode of thought may be declared outright — and particularly its scientific thought — as distinctly and pronouncedly dynamic in character. This is the third antithesis between the psychology of the rentier and that of the proletariat.
These three earmarks of the “social consciousness” of the rentier, which arise directly from his “social being,” also influence the highest stages of his consciousness, namely, his scientific thought. Psychology is always the basis of logic; feelings and moods determine the general course of thought, the points of view from which reality is viewed and later logically manipulated. While it may not in every case be possible, even after the most exhaustive analysis of a specific isolated sentence in some theory, to expose its social substructure, this substructure always makes itself clearly obvious as soon as the distinguishing marks of the great theoretical system, its general points of view, have been pointed out; now each individual sentence acquires a new meaning. becomes a necessary link in an entire chain embracing the life experience of a specific class, a specific social group.
Turning to the Austrian School and to its most prominent representative, Böhm-Bawerk, we shall find that the psychological traits of the rentiers, as described above, here present their logical equivalents.
In the first place, we here find for the first time a consistent carrying out of the point of view of consumption. The initial stage in the development of bourgeois political economy, which arose during the rule of commercial capital (mercantilism), is characterised by the fact that it considers economic phenomena from the point of view of exchange. “It is quite characteristic of the bourgeois horizon, which is entirely bounded by the craze for making money,” says Karl Marx, not to see in the character of the mode of production the basis of “the corresponding mode of circulation, but vice versa."
The following stage corresponded to an epoch in which capital had become the organizer of production. The ideological expression of this condition was the Classical School which considered economic problems from the point of view of production (the “labour theories” of Adam Smith and David Ricardo) and placed the emphasis on their theoretical investigation of production. This point of view was taken over from the classics by the proletarian political economy. On the other hand, the bourgeois rentier finds his task in a solution of the problem of consumption. And it is this point of view which constitutes the fundamental, most characteristic, and the newest theoretical position of the Austrian School, as well as of those tendencies related to it. Even though the Austrian theory may merely be a continuation of a theoretical tendency of earlier origin, there is no doubt that the theories which made the consumption and the consumption value of “commodities” the basis of their analysis, never found such ready acceptance in the official strata of the science as did the Austrian School. It is only the latest stage of evolution that has created, in the rentier psychology of the modern bourgeois, a firm foundation for those theories.
This crass individualism is likewise neatly parallelled in the “subjectivist-psychological” method of the new tendency. To be sure, the theorists of the bourgeoisie had assumed an individualistic attitude even in earlier periods; they always enjoy making references to Robinson Crusoe. Even the representatives of the “labour value theories” based their position on individualistic references: their labour value was not, as one might perhaps expect, the social objective law of prices, but the subjective evaluation of the “economic subject” (the economic man) who evaluates the commodity variously, depending on whether the expenditure of labour has been connected with greater or less inconveniences (for example, Adam Smith). It is not until Marx that the labour value assumes the character of a “natural law,” making the exchange of commodities independent of the will of the agents of the modern order of society. Nevertheless, it was only now, and precisely in the doctrine of the Austrian School, that psychologism in political economy, i.e., economic individualism, attained its justification and its completely renewed formulation in political economy. (Cf. Albert Schatz: L'Individualisme economique et sociale, 1907, p.3, note.)
Finally, the fear of revolution is expressed in the representatives of the theory of marginal utility in their most pronounced aversion towards everything historical. Their economic categories (according to the opinion of these authors) are declared to be various for all times and epochs; they never even consider the possibility of an investigation of the laws of evolution of modern capitalist production as a specific historical category, as is the Marxian point of view. On the contrary, such phenomena as profit, interest on capital, etc., are considered eternal attributes of human society. Here we already find the attempt to justify the present conditions. But the weaker the elements of a theoretical knowledge, the louder resounds the voice of the apologist of the capitalist order of Society. “There is nothing in the essence of interest [i.e., of profit. — N.B.] that would make it appear unreasonable or unrighteous per se,” — such is the final conclusion (and, in our opinion, the object) of all of Böhm-Bawerk’s huge treatise. (Positive Theorie des Kapitals, third edition, vol. i, p.574.)
We consider the Austrian theory as the ideology of the bourgeois who has already been eliminated from the process of production, the psychology of the declining bourgeois, who has thus immortalized, in his scientifically fruitless theory - as we shall see later — the peculiarities of his failing psychology. It is no contradiction of this statement to find that the theory of marginal utility itself, as formulated by the Austrians, is being supplanted at present by the now even more fashionable Anglo-American School, whose most prominent representative is John Bates Clark. The present period of capitalist evolution is an epoch of the utmost exertion of all the forces of the capitalist world. The economic process of the transformation of capital into “finance capital" is again incorporating in the sphere of production a portion of the bourgeoisie that had held aloof (in so far as banking capital is being, absorbed in industry and thus being made an organiser of production) for instance, the organisers and managers of the trusts, an extremely active type whose political ideology is a militant imperialism and whose philosophy is an active pragmatism. This type is very much less individualistic, for it has been trained in organisations of entrepreneurs, which are, after all, a unit in which the personal ambition is to a certain extent relegated to the background. Accordingly, the ideology of this type is somewhat different from that of the rentier; it counts on production; it even applies the “social-organic” method of investigation to the entirety of the social economy. The American School is the product of a progressive, and by no means of a declining bourgeoisie; of the two curves now to be observed — that of progressive ascent and that of incipient disintegration — the American School expresses only the former. It is not by accident that this School is permeated with the American spirit, with the spirit of the land of which Sombart, the minstrel of capitalism, declares: “All that the capitalist spirit can express in the way of consequences has to-day been developed to the highest point in the United States. Here its strength is as yet unbroken. Here, for the present, everything is still in a whirlwind of growth.”
It is therefore precisely the rentier type which represents the border type of the bourgeoisie, and the theory of marginal utility is the ideology of this border type. From the psychological point of view, this theory is therefore of interest; likewise, from the point of view of logic, since it is obvious, after all, that the American economists view this theory merely as eclectics. For the very reason that the Austrian School is the ideology of the border type of the bourgeoisie, it embodies a complete antithesis to the ideology of the proletariat. The methodological difference between Karl Marx and Böhm-Bawerk may be summarized concisely as follows: objectivism — subjectivism, a historical standpoint an unhistorical stand-point, the point of view of production — the point of view of consumption. The purpose of this exposition is to provide a logical analysis of this methodological difference, both in the bases of the theory in question, as well as in the entire theoretical work of Böhm-Bawerk.
A few words should be said concerning the forerunners of the Austrian School.
In Condillac’s work we already find a presentation of the fundamental ideas of what was later to be the theory of marginal utility. Condillac lays great stress on the “subjective” character of value, which in his opinion is not a social law of prices, but the individual judgment, based on the one hand on usefulness (l'utilité), and on the other on rarity (rareté). This writer comes so close to the modern formulation of the problem as to distinguish even between “present” and “future” needs (besoin présent, besoin eloignée) which, as the reader knows, is precisely the main point in the transition from the theory of value to the theory of interest, as formulated by the principal representative of the Austrian School, Böhm-Bawerk.
Similar ideas may be encountered at about the same period in Count Verri, an Italian economist, who also considers value as a resultant of utility and rarity.
In 1831, there appeared a book by Auguste Walras, the father of the famous Leon Walras, entitled De la Nature de la Richesse et de l'Origine de la Valeur, in which the author derives value from the rarity of useful commodities and seeks to refute those economists who turn their attention only to the utility of the commodities of which “wealth” consists. Owing to the clarity of this fundamental doctrine, the work really is deserving of more attention from the representatives of the new tendency than they have bestowed upon it.
In 1854, Hermann, Gossen (1810-1858) presented an exact and lucid defence of the theory of marginal utility, which he formulated mathematically in his work, Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fliessenden Regeln für menschliches Handeln. Hermann Gossen was not only seeking “new paths,” but also imparted a carefully devised and finished form to his theory. Many theses ascribed chiefly to the Austrians (Karl Menger) are to be found in Gossen already in perfect formulation, so that we really should regard Gossen as the father of the theory of marginal utility. Gossen’s work passed entirely unnoticed; the author would have fallen into complete oblivion if he had not been rediscovered in the seventies; the later representatives of the ideas that resemble Gossen’s at once recognized him as the father of the school. Gossen himself had a very high opinion of his work and called himself the Copernicus of political economy.
At approximately the same time, a firm foundation for the new tendency was laid in three countries, England, Switzerland, and Austria, by the labours, respectively, of W. Stanley Jevons, Leon Walras and Karl Menger. It was these men, further-more, who again called attention to the work of their forgotten predecessor Gossen. The importance of Gossen is perhaps best to be judged from the tributes bestowed upon him by Stanley Jevons and Leon Walras. After expounding Gossen’s theories, Jevons adds: “It is apparent from this exposition that Gossen anticipated my work both in his general principles as well as in the method of economic theory. As far as I can judge, his manner of treating the fundamentals of the theory is actually more general and more profound than mine.”
The opinion of Leon Walras is quite similar: Etudes d'économie sociale, Lausanne and Paris, 1896; particularly the section: “Un Economiste inconnu,” p.360.) “We are dealing with a man who lived entirely unnoticed and who was one of the greatest economists that ever lived.” (pp. 354-5.) Yet Gossen did not succeed in establishing a new school of thought. The school did not arise until the activities of the later economists began; only at the beginning of the decade 1870-80 did the theory of marginal utility find a sufficient prop in the “social public opinion” of the ruling scientific circles and rapidly become communis doctorum opinio. The school of Jevons, and more particularly Walras, who laid stress on the mathematical character and the mathematical method in political economy, elaborated a cycle of ideas diverging somewhat from the Austrian theory; so did the American School, headed by Clark. The Austrians, on the other hand, devised a theory of subjectivism (psychologism) on the basis of an analysis of consumption. In this process, Böhm-Bawerk became the crassest spokesman of the Austrian theory. He published one of the best motivated theories of value, from the point of view of this School, and finally, starting with the theory of marginal utility, set up an almost entirely new theory of distribution. He is the acknowledged head of the School, which is at bottom not Austrian at all, any more than it ever has been Austrian (as we have already been able to show by a cursory reference to its predecessors), and which has actually become the scientific implement of the international bourgeoisie of rentiers, regardless of their domicile. It was only the development of this bourgeoisie that gave the “new tendencies” serious support; up to that time, there had been only learned “individual scholars.” The rapid evolution of capitalism, the shifting of social groupings and the increase in the number of the class of rentiers, all these produced in the last decades of the nineteenth century all the necessary social-psychological presuppositions for bringing these delicate plants to efflorescence.
It was the international rentier who found his learned spokesman in Böhm-Bawerk; in Böhm-Bawerk’s theory, he found a scientific weapon not so much in the struggle against the elemental forces of capitalist evolution, as against the ever more menacing workers’ movement. We are therefore delivering a criticism of this new weapon as embodied in the person of Böhm-Bawerk.