document 14 The Psychological Tendency in Recent Political Economy (1892) Conrad Schmidt* Source: Conrad Schmidt, ‘Die psychologische Richtung in der neueren Natio- nal-Oekonomie’, Die Neue Zeit, 10. 1891–2, 2. Bd. (1892), h. 41, s. 421–9, 459–64. Introduction by the Editors There is much irony in the fact that just as Marx was working to complete Capital, and then Engels to make Volumes ii and iii of Capital available, a new approach to economic theory, beginning from a viewpoint exactly the opposite of Marx’s, was emerging in Britain and continental Europe. The so- called ‘marginalist revolution’, a response to the disintegration of the Ricardian * Conrad Schmidt (1863–1932) was a German economist and journalist. In the mid-1880s he studied in Berlin and received his doctorate in 1887 in Leipzig with the thesis Der natürliche Arbeitslohn (The Natural Wage), in which he compared the wages and exploitation theories of Johann Karl Rodbertus and Karl Marx. Schmidt rejected Marx’s theory as an unproven hypothesis in favour of Rodbertus’s views, which were based on the assumption of natural rights. After further study, Schmidt revised this judgement and became a follower of Marxism. In 1889 he published a book for the so-called ‘prize-essay competition’, in which Engels challenged the economists to explain how the formation of an average rate of profit could be made compatible with law of labour value – a solution finally revealed with the publication of the third volume of Capital in 1894. Schmidt’s book was called The Average Rate of Profit on the Basis of Marx’s Law of Value (Schmidt 1889), and gave rise to a lively correspondence between him and Engels. Volumes 48 to 50 of Marx and Engels’s Collected Works include 16 letters addressed by Engels to Conrad Schmidt, ranging from 26 November 1887 to 6 April 1895. In 1890 Schmidt became, at Engels’s advice, editor of the journal Züricher Post, and published a brochure on The Social Question and Land Nationalisation (Schmidt 1890). With the outbreak of the revisionist controversy in 1896, he became an outspoken supporter of Eduard Bernstein and a frequent contributor to his journal Sozialistische Monatshefte (Schmidt 1898). After Schmidt’s conversion to revisionism, Plekhanov crossed swords with him on the pages of Die Neue Zeit, particularly because of calls from Schmidt and Bernstein to go ‘back to Kant’ (see Plekhanov 1898b). For a book-length biography, see Owetschkinm 2003. © koninklijke brill nv, leiden, 2018 | doi: 10.1163/9789004352193_017 406 schmidt school, began in the early 1870s in the works of William Stanley Jevons in Britain, Léon Walras in Switzerland, and Carl Menger in Austria. Its effect was to do to political economy what Marx had done to Hegel: the principle of ‘marginal utility’ would turn political economy on its head. The traditional approach, beginning with Adam Smith and extending through the works of Ricardo and Marx, was principally concerned with the dynamic of capital accumulation and other conditions for economic growth. Smith and Marx were profoundly aware of stages of history, and both meas- ured material progress in terms of expanding the social product in physical terms. But as capitalism in Europe and America entered the ‘long depression’ of the late nineteenth century, the marginalists replaced the focus on growth with the question of how capitalism tends towards equilibrium by efficiently allocating given resources among competing wants. Jevons famously defined the ‘economic problem’ as one of maximising the utility of the social product, given ‘a certain population, with various needs and powers of production, in possession of certain lands and other sources of material’.1 Whereas political economy previously emphasised the conditions for increasing supply, the marginalists concentrated instead on demand. The cent- rality of the ‘consumer’ replaced that of worker and capitalist; personal sav- ing replaced capitalist accumulation; and individual judgements of ‘utility’, or what Marx called use-value, replaced objectively determined exchange-values. The grand panorama of capitalist expansion collapsed into a new narrative of abstract individuals, each making purely subjective appraisals of the value of separate commodities and thereby ultimately determining price as an aggreg- ate expression of their individual preferences. Instead of social existence determining consciousness, exactly the opposite chain of causality was now said to prevail. The exploited worker was replaced by the self-determining individual. The poor were to be regarded as ‘sovereign’ consumers in the same sense as princes, aristocrats, landlords or employers. A neo-Kantian world of individual responsibility was to replace a world of class struggle. Value, surplus value and exploitation would vanish simply by looking at things from a different ‘point of view’. Marx’s laws of history would be replaced by universal principles of individual, utility-maximising choice. 1 Jevons 1871, p. 255. In Economic Theory in Retrospect Mark Blaug wrote: ‘If we are going to describe the last quarter of the 19th century as a period when economists developed a new “paradigm”,the only defensible definition of that paradigm is the proposition that pricing and resource allocation with fixed supplies of the factors of production is the economic problem …’ (Blaug 1985, p. 306)..