A forgotten economic work by Rosa Luxemburg

Introduction

If it is the task and object of political economy to explain the laws of the origin, development and spread of the capitalist mode of production, it is an unavoidable consequence that it must as a further consequence also discover the laws of the decline of capitalism, which just like previous economic forms is not of eternal duration, but is simply a transitional phase of history, a rung on the endless ladder of social development. The doctrine of the emergence of capitalism thus logically turns into the doctrine of the decline of capitalism, the science of the mode of production of capital into the scientific foundation of socialism, the theoretical means of the bourgeoisie’s domination into a weapon of the revolutionary class struggle for the liberation of the proletariat. (Luxemburg 1925 in Hudis 2013: 141)

The recent and very useful edition of Rosa Luxemburg’s economic works edited by Peter Hudis (2013, 2015) left out one essay: her review of the first volume of Karl Marx’s Theories of Surplus Value, first edited by Karl Kautsky in 1905 (see Appendix). While book reviews are nowadays a minor genre, that was not the case when Luxemburg wrote her essay: the article was extensive and dealt with a variety of theoretical and political issues. This is the first edition in English of her review, which contains in a condensed form many of her former concerns and at the same time announces some of the lines of work she would subsequently pursue. We will focus on her remarks on the method of Marxist political economy.

Rosa Luxemburg’s early economic writings

Luxemburg started working on economics as a PhD student in Zürich, under the direction of an economist from the German historical school, Julius Wolf. Her dissertation was technically on Staatswissenchaften (political science), but its subject was clearly political economy. Her main goal was to support with vast empirical evidence a political thesis, namely that the economic integration of Russia and Poland had made Polish independence both unfeasible and undesirable:

The capitalist fusing of Poland and Russia is engendering as its end result that which has been overlooked to the same degree by the Russian government, the Polish bourgeoisie, and the Polish nationalists: the union of the Polish and Russian proletariats as the future receiver in the bankruptcy of, first, the rule of Russian tsarism, and then the rule of Polish-Russian capital. (Luxemburg 1898, in Hudis 2013: 74)

However, as Nettl states, the work was ‘Marxist only by implication’ (Nettl 1966: 106); it is interesting as a piece of economic history and for its political conclusions, but the academic framework in which she worked meant that she did not openly pose Marxist methodological questions in this book.

Social Reform or Revolution? was the first work in which Luxemburg elaborated upon the Marxist method in political economy. ¹ The polemic with Bernstein is best known for its defence of revolutionary Marxism in the controversy between revisionists and ‘orthodox’ in the Second International. Bernstein elaborated his ideas in his book The Preconditions of Socialism and the Tasks of Social Democracy, according to which there was a tendency to the attenuation of the main contradictions of capitalism. Bernstein argued that Marx’s labour theory of value was mistaken, since the rate of profit had not fallen nor had unemployment significantly increased; that the emergence of trusts and cartels, as well as the development of the credit system, facilitated more rational control of economic phenomena, thereby diminishing the prospect of a general crisis of capitalism; that joint-stock ownership also contributed to social stability by expanding the number of members of the possessing classes; that the greater economic stability generated by the new Anpassungsmittel (‘means of adaptation’) of capitalism and the extension of ownership discouraged class-consciousness; and that if socialism was neither economically nor politically inevitable, it could only come about by virtue of its ethical superiority over capitalism. Bernstein concluded that a parliamentary democracy based on universal suffrage represented the best alternative to violent revolution.

Luxemburg disputed these points one by one, arguing that, if cartels and credit could delay crises, they ultimately intensified their depth and scope. Credit, like money, commodities, and capital, was an organic link of capitalist economy at a certain stage of its development and, at the same time, an instrument of destruction, since it aggravated the internal contradictions of capitalism. She also disputed Bernstein’s ideas about the growth of the middle classes, noticing that property over capital could be distributed by the share system, but that this also implied the appearance of gigantic capitalist economic units. Bernstein’s theory pulled all these details out of their living context. From this analysis, she drew a methodological conclusion, namely the need to analyse all the ‘manifestations of contemporary economic life as they appear in their organic relationship with the whole of capitalist development, with the complete economic mechanism of capitalism’ (Luxemburg 1908 in Scott 2008: 70). In her view, Bernstein’s theory was rooted in the perspective of the individual capitalist advocated by vulgar economics, which believed that it was ‘possible to regulate capitalist economy. And in the manner of Bernstein, it arrives in time at the desire to palliate the contradictions of capitalism’ (Luxemburg 1908; in Scott 2008: 71–72). She closed by criticizing Bernstein’s rejection of the theory of collapse (Zusammenbruch). In her own words:

Bernstein began his revision of the Social Democratic program by abandoning the theory of capitalist breakdown. But since the breakdown of bourgeois society is a cornerstone of scientific socialism, the rejection of this cornerstone logically led Bernstein to the breakdown of the whole socialist doctrine (because) without the breakdown of capitalism, the expropriation of the capitalist class is impossible.

In her view, Bernstein’s conclusion was intrinsically related to his rejection of dialectics, to his theoretical eclecticism and to his abandonment of a proletarian viewpoint in favour of progressive-bourgeois political ideas (Luxemburg 1908, in Scott 2008: 96–99). ²

The German historical school

After the disintegration of the classical school, bourgeois economics had taken two main roads: one trend, the psychological school, rejected the labour theory of value and advocated instead a subjective theory of value based on the marginal utility considerations of individual consumers – the so-called ‘marginalism’ or ‘Austrian school’ of economics. ³ Another trend disposed with the search for economic laws altogether and confined itself to produce monographs on economic history – this was the so-called German ‘historical school’, whose best-known representative was Werner Sombart. ⁴ In an article published in 1900, Luxemburg criticized the basic premise of the historical school, which was to deny the possibility of a universal economic science, because it considered that economic behaviour depended on culture and tradition. The founders of the historical school repudiated the deductive method, claiming allegiance to the historical-inductive method, analysing only particular historical situations and arguing for the impossibility of drawing general conclusions.

‘Back to Adam Smith!’ (1900) was the title of Rosa Luxemburg’s review of a book by the German economist Richard Schüller, Die Wirthschaftspolitik der historischen Schule (The Economic Policy of the Historical School). Schüller argued that the key to the success of classical political economy lay in the use of the ‘deductive’ method and that the abandonment of that method (and of any fixed or universal principles in political economy) by the historical school had led to theoretical barrenness. Luxemburg believed that, before issuing a call for a return to the method of classical political economy, it was necessary to explain the reasons for its abandonment by the German historical school and for the latter’s persistent influence, despite its theoretical weakness. The classical school had predominated in Germany in the period of the Stein-Hardenberg Reforms (bourgeois reforms implemented in Prussia 1807–1814 under the impact of the military defeats during the Napoleonic Wars). Those reforms had partially eliminated some of the main features of feudal society ‘from above’, without giving birth to a strong bourgeoisie or a correspondingly strong liberal political movement. Thus, they elicited two kinds of reaction: the first by the Junker class, expressed in the romantic school of political economy, which criticized bourgeois reforms and claimed for a return to the principles of feudal natural economy (a school akin to the reactionary government that came to power after the Congress of Vienna); the second by the traditional, guild-belonging middle classes, which protested the effects of the reforms without wanting to go back to feudalism, fostering an eclectic and incoherent viewpoint. This latter trend was continued by the ‘new German historical school’, although socially, it represented a different social layer: the German bourgeoisie, which was no longer interested in laying bare the laws of the capitalist mode of production. On the contrary, due to the growing class struggle the interest of the bourgeoisie was to mystify those laws (Luxemburg 1900 in Day and Gaido 2018: 382–385).

Luxemburg therefore argued that a way out of the dead-end in which political economy found itself could not be found just by returning to the deductive method of classical political economy. Schüller understood this method as consisting in ‘applying commonly accepted principles to research’, specifically ‘freedom of economic activity, freedom of movement, and freedom of trade’. But the romantic school could also proceed from fixed principles, such as patrimonial jurisdiction and servitude, which were of equal value. The key issue was that the principles of classical political economy corresponded to the needs of social development during the golden era of capitalism; it necessarily involved a ‘concept of the universal human normality of capitalist commodity economy’. Overcoming this viewpoint required an analysis of the historical character of capitalist production. For example, in respect to labour, Ricardo had seen the value-producing character of labour as something natural, but Marx had explained that this was an abstraction corresponding to given social conditions (commodity production), thus distinguishing between concrete individual labour and undifferentiated abstract social labour (Luxemburg 1900 in Day and Gaido 2018: 386–388). Luxemburg argued that in order to distinguish ‘statically, the double-sided character of labour’, Marx first had to distinguish ‘dynamically, in historical sequence, the commodity producers from the working people in general; that is, he had to recognise commodity production merely as a specific historical form’. In order to do that, Marx ‘had to turn the metaphysical deduction of the classics into its opposite, into dialectical deduction’ (Luxemburg 1900 in Day and Gaido 2018: 388). It was therefore impossible for bourgeois economics to return to the assumptions of the classical school: the only way forward was provided by Marx’s analysis, which for class reasons official economics could not accept.

Rosa Luxemburg’s and Rudolf Hilferding’s reviews of Marx’s Theories of Surplus Value

Luxemburg produced no new economic works during the following 5 years, but in 1905 she offered again methodological insights into Marxist economics in her review of the publication by Karl Kautsky of the first volume of Marx’s Theories of Surplus Value, which we are now making available to the English-speaking public. Reviews are sometimes seen as a marginal literary form, but they were a very important literary genre in the socialist parties of the Second International, where they served to popularize the main concepts and conclusions of abstruse theoretical works that regular party members could not normally study in full, since they usually lacked the necessary time and educational background. Also, as we have tried to show in previous work (Day and Gaido 2018), the study of reviews can offer insights into the process of gradual discovery and reinterpretation of Marxist theory by socialist theoreticians, as they gained growing access to Marx’s works. Finally, socialist authors did not write reviews just in order to summarize the content of a book, but usually also used them as weapons to carry on ongoing debates and polemics.

In this article, Luxemburg stresses how the investigation of the origins of the concept of surplus value goes far beyond a mere historical exposition of its development, because surplus value is the central driving mechanism of capitalism. She highlighted the importance of Marx’s exposition of the concept of productive labour, which made it possible to contrast clearly the historical method of Marx, which analysed the productivity of labour as stemming from specific historical conditions, with the method of bourgeois economics that dealt with such matters through arbitrary definitions. She also highlighted the importance of Appendix II in the German edition of the first volume of Theories of Surplus Value, where Marx analysed step-by-step the problem of the distribution of value between different departments of capitalist production, ending with the exposition in Volume II of Capital of ‘his original theory of the exchange between the production of articles of consumption and the production of means of production’. She offers here clues about her subsequent interest in the problem of accumulation as the basis of imperialism.

Luxemburg’s methodological observations can be compared with Hilferding’s remarks in his review of the third volume of Theories of Surplus Value, published by Kautsky in 1910 (Hilferding, 1911–1912). Among the many thinkers whom Marx discussed in portraying the breakdown of the Ricardian system, Hilferding singled out Richard Jones (1790–1855) as the one ‘who most clearly recognised and enunciated the historical character of capitalism’. Jones had shown that capitalist ground rent presupposes capitalist landed property, and that this, in turn, presupposes capitalist industry, the transformation of the labourer into a wage-worker, the appearance of an independent capitalist class, and equalization of the rates of profit. Jones highlighted the different forms of labour as the distinguishing characteristic of societies, and wage-labour as ‘the great distinctive phenomenon of our actual economical condition’, thus becoming, according to Hilferding, ‘one of the most important precursors of the materialist conception of history’. Jones stated quite explicitly that capital and the capitalist mode of production were to be ‘accepted’ merely as a transitional phase in the development of social production, but this recognition remained, according to Hilferding, ‘completely barren for economic theory’. The ‘fundamentally new element in Marx’ was the combination of the historically informed ‘inductive method’ of Jones with Ricardo’s ‘abstract-deductive method’, thus explaining the historically conditioned character of capitalist society and the necessity of its supersession by a more developed form of labour organization as a law-governed process. This methodological approach enabled Marx to raise the criticism of capitalism ‘beyond historical description to theoretical comprehension’. It was not the discovery of the rules for the establishment of socialist societies, but rather an explanation of the laws of the capitalist world that turned socialism into science (Hilferding 1911 in Day and Gaido 2018: 322–323).

Rosa Luxemburg’s methodological approach very similar to Hilferding’s, and it is no coincidence that the reviews of Theories of Surplus Value triggered such complementary reflections by both.

Rosa Luxemburg’s Introduction to Political Economy and The Accumulation of Capital

Between 1906 and 1909, Luxemburg taught political economy at the SPD’s party school. In the course of that work she produced several teaching manuscripts, the most important of which was later edited under the title Introduction to Political Economy (Hudis 2013: 89–300). Besides some brilliant paragraphs like the quotation with which we introduced this article, the work contains few new insights into the method of Marxist political economy, because she was aiming at a more popular exposition, using examples from German economic facts to illustrate her points.

In 1913, Luxemburg published The Accumulation of Capital: A Contribution to the Economic Explanation of Imperialism, in which she argued that Marx had made a mistake in his exposition of expanded reproduction in the second volume of Capital. With the help of those accumulation schemes, Marx had explained how capitalism, in order to maintain equilibrium in production, must keep a certain proportion between Department I, producing means of production, and Department II, producing articles of consumption. However, she argued that Marx’s solution was untenable, because it did not take into account the real conditions of accumulation, particularly the increasing productivity of labour. She then offered an example in which the ratio between constant and variable capital grew gradually as a result of technical progress, arguing that Marx’s numbers did not fit in (Luxemburg 1951: 337). Furthermore, according to Luxemburg, Marx left something unexplained: where did the increasing demand for the portion of surplus value destined to be reinvested in accumulation come from? (Luxemburg 1951: 132–133). She concluded by stating that sources of demand external to capitalist society (mainly colonial regions with pre-capitalist modes of production and pre-capitalist residues in capitalist countries) were needed for the realization of surplus value (Luxemburg 1951: 446). This was the economic key to explain the rise of modern imperialism.

Luxemburg’s main argument was not well received by her contemporaries, with a few exceptions. ⁵ Her case was based on evaluating the possibilities for value exchange among the different sectors of the capitalist economy, from the point of view of capital as a whole, but in real economic life, different capitalists are not buying and selling at the same time (Day 2012). In other words, by introducing only some of the conditions of concrete accumulation Rosa Luxemburg ultimately offered a flawed definition of imperialism, although she correctly pointed out against Kautsky’s ‘centre’ (which argued that imperialism was a reversible economic policy) that imperialism was an unavoidable last stage in the development of capitalism. This does not imply that her method of analysis was wrong; it only serves as a reminder that methodology, important as it is for Marxist political economy, does not by itself guarantee correct results. We can understand the historical circumstances that conditioned her research and, at the same time, criticize her conclusions from the point of view of the development of political economy using the very method she did so much to develop and clarify.

Conclusion

Rosa Luxemburg consistently singled out three main themes in the Marxist critique of political economy: the necessity of analysing the totality of capitalist society from an international point of view before assessing any particular trend; the necessity of interpreting former works in the realm of political economy from a historical-dialectical point of view, which enables Marxists to show how certain economic points of view reflect stages of development of capitalist economy and particular class interests; and the criticism of the different contemporary schools of bourgeois and revisionist political economy as variants of vulgar economics. Just as she criticized Bernstein for taking economic phenomena out of the overall development of capitalism, she emphasized the distinction between Marx’s dialectic-deductive method and the abstract-deductive method of classical political economy and criticized the blurring of fundamental theoretical issues by mainstream historians through the use of sterile definitions. Rosa Luxemburg believed that it is impossible to overcome ‘the hopeless uncertainty of today’s economists about themselves as well as about the nature of classical political economy’ within the framework of decadent capitalist society – or, as she put it in her own inimitable style, that ‘it is just as impossible for today’s political economy to return to the deductive method and the insight of the classics as it is for today’s “naïve” German cabaret poetry to return to the sweet Tandaradei of Walther von der Vogelweide’.