Law of Value- drafts for the upcoming video series

The links below are drafts of my scripts for the upcoming video series “Law of Value”. At the moment there are 11 videos. I may make 2 more, on the why animals and machines don’t create value and a concluding video on “The Challenge of the Law of Value” which will talk about the challenges Marx’s analysis presents for those who seek to change the world.

I am posting these drafts because I would like feedback from viewers. I would like these videos to be a resource to people so it’s important that they make sense, that the answer the sort of questions people want answered, and that they are free of errors. Many viewers gave me a lot of good suggestions about topics they’d like to see covered, points to make, and questions to answer. I hope that some folks might find that time to read through the script of one or two videos and leave comments, questions or suggests. I can’t promise I will use all of them, but they are all welcome.

The production of each video can take some time. In addition to revising all of the scripts I have to find images for 11 different videos! If any viewers know of any great public domain film clips that might work well for a section of a script, or have the ability and time to create some good images (still or moving) that they think might help illustrate a point, I would be grateful for such contributions. I can’t promise I will use everything, but if I think it will work I definitely will.

I hoped to make each video in the series under 10 minutes. Some topics were too big to fit in. Eventually I hope to whittle down the longer scripts, but a few will probably stretch into longer videos. I may break some up into two videos.

Law of Value 1: Introduction

Law of Value 2: The Fetishism of Commodities

Law of Value 3: Das MudPie

Law of Value 4: Use-Value, Exchange-value and Value

Law of Value 5: Production and Exchange

Law of Value 6: Equalization of Commodities

Law of Value 7: Abstract Labor

Law of Value 8: Socially Necessary Labor Time

Law of Value 9: Simple and Complex Labor

Law of Value 10: Supply and Demand

Law of Value 11: Prices of Production

Law of Value- 10. Supply and Demand (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Supply and Demand

Some people have the mistake impression that the labor theory of value is some sort of substitute for the laws of supply and demand. This is not the case. All of the classical economists from Adam Smith, to David Ricardo to Karl Marx where aware of the forces of supply and demand. Yet they didn’t think supply and demand were sufficient for a theory of value. Instead supply and demand were seen as the mechanism through which value operates.

For Marx, the theory of value is more than just a theory of prices. Price theory might help us make business decisions, but value theory is concerned with deeper social questions like “Why do the products of labor take the form of commodities with prices?” and “What sort of social relations between producers are necessary in order for this to happen?” In the process of answering such questions we can build a theory of the social relations of a capitalist society in all of its antagonism and dynamism.

Bourgeoise economic theory takes the opposite approach. It abstracts away from production relations, treating all economic phenomena as the product of individual psychology. It focusses on prices and not on value. [Insert critique of circularity of marginal utility here?]

There are 3 basic points from other videos in this series that we should summarize before we move on to discussing supply and demand.

1. Value is Socially Necessary Labor Time. Prices fluctuate all the time. I could go on Ebay right now and try to sell my autograph for a million dollars. That would be me setting a price. Anyone can set any price any time. Yet, over time market forces exert pressure on this seemingly lawless process of setting prices. If I actually want to sell the things I produce I will be forced to sell at the market price. This competition at market price will force me to discipline my own labor time so that I am producing as close to the social average as I can. Beneath these fluctuations of price it is this social labor time that is being regulated. This social labor time then should be the focus of economic analysis, not the temporary movements of prices. Price fluctuations are the mechanism by which a socially necessary labor time is established.

2. Money represents labor in the abstract. How do we represent the value of things? With money. More money equals more value. Thus all of the qualitative differences between different labors become merely quantitative expressions of more or less value, more or less labor time. If the price of coffee fluctuates above its value then coffee makers will receive more value in exchange then they actually create with their labor. If the price of coffee fluctuates below its value then coffee makers will be giving up some of the value they create.

3. Price is a special form of value. Value is a social process that involves many stages, production, exchange, consumption. Price is a particular form taken by value. It is an instance of the value of a commodity being measured against the value of money.

Supply and Demand

Now on to supply and demand…

What does it mean to say that supply and demand meet? It means that at a certain price no more or less of a commodity will be produced or demanded. It is a stationary point, often called an equilibrium price. In reality this equilibrium point is never reached. Supply and demand constantly fluctuate. But we’ll critique this notion of equilibrium later. For now it will allow us to make some important observations.

1. If supply and demand are in balance they cease to explain anything. If demand is way above supply then obviously demand is exerting a stronger force on price, pulling prices higher than the equilibrium price. If supply is way higher than demand then this oversupply is exerting a stronger force, depressing prices. But when the two balance out they cease to explain anything. How do we explain why the equilibrium price of coffee is lower than the equilibrium price of cars? We can’t using just supply and demand.

2. Supply and demand also require that we have some theory for the forces behind supply and demand.

What creates demand? As much as bourgeois theory likes to dwell on the psychological basis of demand we never hear it mentioned that psychological desires are conditioned by their social environment. We are taught what to desire and how to desire it. In a capitalist society dominated by marketing we are taught to desire commodities and to attain them through the market.

Even more importantly though, demand isn’t just an abstract notion of what people want. Effective demand is what matters economically. Effective demand is demand backed up by actual purchasing power. I may want a million dollar yacht but since I don’t have a million dollars I don’t have any effective demand for yachts. This means that consumer demand is actually a process whereby people measure their desires against the amount of value they have to spend. What determines the amount of value people have to spend? The amount of money they have been paid for their work! Demand is essentially a process where consumers compare the value of their labor to the value of the labor in the products they want to purchase. Because this value takes the form of money and commodities we don’t have to consciously think that we are comparing labors. Yet we do it anyway because labor is what forms the basis of our income and the products of our desire. [this paragraph could be rephrased more elegantly.]

Demand isn’t just consumer demand. Capitalists also have demand for capital goods, that is goods destined for production. And of course the rich have demand for all sorts of luxury goods that the ordinary consumer could never buy: yachts, jets, mansions, etc. Though mainstream economics makes blanket observations about the rationality of consumer habits empirical evidence shows that demand changes radically with income. Changes in price have very little effect on the purchasing behavior of the filthy rich, while they have drastic changes on the behavior of the poor.  (Actually, more specifically the argument is that changes in income change the proportion at which goods are demanded, the “ordinal ranking”. This shows that consumer utility is not an autonomous psychological state but one conditioned by an already existing distribution of prices and income.)

We should also raise the objection that mainstream economics likes to conflate the motives of producers and consumers. This is most blatantly seen in the fact that the supply and demand curves are drawn to look like mirror images of each other. Bourgeois economists claim that just as producers seek to sell at price which maximizes their profits consumers buy at a price that maximizes their utility, giving them a “consumer surplus”. Yet unlike capitalist profit, a real objective magnitude measured in money, this consumer surplus can’t be found anywhere in the real world. It exists only in the minds of economists. Money is a clearly objective phenomenon. Psychological satisfaction is not an objective thing, it can’t be measured in any numerical amounts, and there clearly can be no such thing as a surplus of subjective satisfaction over an objective amount of money spent. Such logical mistakes abound in marginal utility, reducing its theories to circularity and meaninglessness.

What creates Supply?

Obviously supplies of commodities must be created by labor. Labor is not the only “factor of production”, yet it is the only one that we have control over as a society, and thus the one that is important in economic analysis. The sun, water and land are crucial for agricultural production. Yet these factors are pre-existing gifts of nature. If we are to try to exert control over them so that we can ration them differently through irrigation, improvements in fertility, or greenhouses, these improvements will require labor.

Sometimes people argue that the rareness of commodities are what give them value. But the high price of a diamond or a pearl reflects the great amount of labor that must go into locating, and extracting such a resource. A diamond buried deep beneath the ground has no value at all until someone takes the time to find it, dig it up and transport it to market.  The true scarcity is human labor time. We only have so much of it at any given moment to devote to the production of different things.

Changes in productivity have an effect on the amount of labor that is required to create a commodity. New machines and new production techniques all make it possible to produce more commodities more cheaply. These machines and techniques all represent past labor. Marx was very interested in theorizing these changes in productivity and their effect on values and social relations over time.

We might criticize some of the assumptions behind the neoclassical supply curve as well. For one it makes the ridiculous assumption that production will continue at super low or super high price. In reality, if prices are really low cadillac manufactures won’t just produce one car a year. They’ll just go out of business. And if prices are really high this will attract more investors into the market which will eat into profits and bring prices back down.

[The supply curve also assumes the same level of productivity across industries. In contrast Marx has a marginal concept of productivity which accounts for the effect on prices when producers produce at different levels of productivity. Specifically this relates to his theory of rent in agriculture. But this is really complex and I don't know how to summarize it in this video.]

Time

We often heard it said that value is subjective implying that consumer demand is the determining influence on price. [Since for Marx price is only a momentary form of value, the critique is a bit complex. Where to start first? With idea that demand determines price? Or that value is subjective? I think that it's important to show that these are two separate yet related questions]  The only way that demand can determine price is if we hold supply as frozen. If all labor stopped today then demand would be the only changing factor. A rise in demand would raise prices. Such a perspective corresponds well to the needs of bourgeois ideology which likes to both abstract away from all production relations, and paint the present social order as an eternal, timeless unchanging order.

But when we realize that the entire point of demand and supply is that they adjust to each other then we must realize that a rise in demand will have a corresponding effect on supply. More of a good will be produced, more labor will go into it. And once supply and demand balance again they don’t help us explain the long term price of a commodity.

The long term price of a commodity corresponds to its value. Temporary fluctuations may cause the price to rise above or below its value. But these fluctuations can’t change the amount of labor that actually goes into the production of the commodity. The only thing that changes this is changes in productivity.

Equilibrium doesn’t exist

Though talking about the balance of supply and demand helps us make some observations about the relation of value and price, it must be realized that supply and demand rarely ever meet. The market is a place of constant fluctuations, constant guessing. The approach of mainstream economics is to ignore these fluctuations and to build models which just assume that an economy is always in equilibrium.

Marx has a more subtle approach, one that embraces these fluctuations. Firstly, since for Marx price and value diverge all of the time, his theory isn’t disturbed by these fluctuations. In fact the fluctuation of price above and below value is the mechanism by which the law of value works. When prices rise above values this attracts investment, reapportioning labor to new sectors. When price falls below value labor must be withdrawn from that sector. But unlike bourgeois theory which treats changes in demand as the dominant force in these fluctuations, Marx stresses changes in technology caused by competition to produce under the socially necessary labor time.

At one level we can say that these fluctuations are just disturbances that oscillate around values. Thus we can abstract away from supply and demand to study the underlying movement of value, of labor time. This approach is taken by Marx at times and by many contemporary Marxists.

At another level though we can show that it is hard to even talk of an equilibrium price at any level of relevance. Critics of equilibrium like to show that there is no justification for assuming that once a price is not at equilibrium that it will ever converge to equilibrium. Prices will only converge upon equilibrium under certain conditions.

Conclusions
Marx’s treatment of the law of value gives us a much more nuanced and profound understanding of the forces and dynamics behind supply and demand than either the classical economists before him or the neoclassical school of thought that followed him.

Law of Value- 11. Prices of Production (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

I’ve already explained the theory of prices of production in my video “What Transformation Problem?” This video will explore some of the theoretical background and significance of the theory.

The notion of prices of production will be much more easily understood if we begin by reminding ourselves that prices and values diverge all of the time. In fact, the deviation of price from value is the mechanism by which the law of value operates. Socially necessary abstract labor time serves as an ultimate regulating force amidst a sea of fluctuating prices. How else can any economic law assert itself in a market than as a tendency amidst constant fluctuation and correction?

Price and Value

The theory of prices of production explains how prices diverge from value in the context of an average profit rate. Many people have found fault with Marx for this idea that there could be a systematic deviation of price from value in conditions of average profit rates. This causes some people to really get their panties in a bunch because they have a false understanding of the way Marx deduces the existence of value. Their mistake goes something like this: “Marx says that two things exchange for each other because they embody equal quantities of labor time. If he now argues that in the real world prices can systematically diverge from values this means that his original deduction of value makes no sense.” But, as we have seen, Marx’s original argument actually was that because any commodity can express its exchange value in any other commodity this means that they all must have a common social substance. Marx does not say that values have to equal prices all of the time in order for exchange to happen. He just says that this social substance, this socially necessary labor time, is what underlies exchange. People don’t know the social value of something when they buy or sell it. They guess, and through this guessing process values are established. There must be deviations of price from value is this social labor time is to be apportioned through market signals.

In conditions of monopoly prices deviate from values. But this doesn’t render exchange impossible. In a monopoly a producer receives more value in exchange than they produce in production. There is a value transfer. (If prices deviate from values in a monopoly then what use is the theory of value? For one, it helps explain the different between a monopoly price and a non-monopoly price. Secondly, Marx uses the law of value to develop his theory of capital and through this theory of capital comes a theory of monopoly that explain the tendencies toward and away from monopoly in a capitalist economy.)

Average Profits

In the theory of prices of production there is also a value transfer. The great classical economists before Marx knew that labor created value yet they were perplexed by how this theory could be reconciled with the phenomenon of average profits. The problem went like this: Different industries have different ratios of dead to living labor. Living labor means workers. Dead labor means the product of past labor- machines, raw materials, partially finished goods, etc. A capitalist must buy both living and dead labor. But if only living labor creates value then the profits of firms with lots of workers and very few machines would be higher than those with lots of machines and few workers. There would be an unequal profit rate.

Yet in a free market higher profit rates will attract investors which will raise supply thus lowering prices and profits. This process moves the profit rates of different industries toward an average profit rate. Some even call it an equal profit rate. (Throughout both the classical and neoclassical tradition equal profit rates were assumed in economic analysis.) So it seems like the labor theory of value predicts unequal profit rates, yet an observation of competition suggests equal profit rates. Marx’s predecessors were unable to solve this problem. Marx however did solve this problem. The solution is quite brilliant and helps clarify a lot of things about the theory of value.

Marx’s method

Marx’s analysis of capitalism proceeds through a series of unfolding abstractions. At each stage of the analysis the picture he is painting becomes more and more complex and takes on greater and greater explanatory potential. Marx’s goal was to lay bare the social relations of a capitalist society, relations that were obscured by the fetishism of commodities.

Marx begins with the most fundamental relation of all: the commodity. All other economic relations in a capitalist society, whether it’s workers selling their labor to capitalists, bankers selling loans to capitalists, or capitalists selling to each other, take the form of commodity exchanges. Therefore the starting point of Marx’s analysis is the commodity relation. From the commodity relation he deduces the existence of value. It is the movement of this value that forms the basis of all other economic relations. The law of value is primary.

Marx next shows how the law of value implies the existence of capital. The analysis of capital is merely a higher stage of the analysis of the law of value. Capital is a theory of the expansion of value through the exploitation of labor. This brings a second social relation into view: the antagonism between labor and capital. [For market socialists like David Schweikart the labor-capital relation does not immediately spring from the value relation. Market socialists believe that markets between worker cooperatives can exist without a labor-capital relation coming into existence. I do not know what the justification of this position is in light of Marx's methodical derivation of the capital relation from the value relation. For mutualist anarchists like Ben Tucker and Kevin Carson it is precisely the opposite from Marx. Capital is an abomination that disturbs the law of value. They see capital as the result of unequal exchanges made possible through state violence. Without the state they say the law of value would make exploitation impossible. In my opinion such views grossly misunderstand the duality of labor power and the notion of capital as self-expanding value. For Carson this mistake is probably due to his attempt to think of the law of value in subjective terms.]

The Mystery of Capital…

Marx’s theory of exploitation helps explain a mystery about capital. The law of value explains that value is created in production not in exchange. Exchange can only transfer value from one place to another. But capital is a process of expanding value, of money turning itself into more money in the form of profit. How is it possible for the total capital to be expanding in a world of equal exchanges? Marx’s theory of exploitation shows that when labor power trades at its value it can still be exploited in production. This is because there is a difference between what a worker is paid and how much value they produce (the difference between the use-value and exchange-value of labor power.) This is a crucial point. All of the forms of profit whether they be industrial profit, rent or interest are all based on the exploitation of workers. But the capitalist who exploits his workers may not himself receive the full profit from this exploitation. These profits can be redistributed in exchange to landlords, bankers, merchants and other parts of the capitalist class. But though profits may be redistributed in exchange they can’t be created in exchange. Value can only ever be created by human labor.

From the analysis of capital Marx makes all sorts of observations about the social antagonisms of a capitalist society, the forces behind technological change, the cycles of boom and bust, cycles of unemployment, and all sorts of other phenomenon. (Because neoclassical theory confines its microeconomic analysis merely to explaining day to day prices and not to explaining the social relations between producers the neoclassical tradition has no theoretical tools to explain many of the social phenomena addressed by Marx’s theory.) For much of the analysis Marx is looking at things from the perspective of capital-in-general and labor-in-general. He’s talking about social relations in their basic, abstract forms. He’s not talking about this or that capitalist or worker but capitalists as a class, workers as a class. And through this perspective he is able to show that whenever there are capitalists and workers there will always be exploitation, poverty, crisis, growth for its own sake, debt, etc.

[These are qualitative features of a capitalist society that are inherent in capital. There are also quantitative features of the analysis. Capital can only grow through the quantitative difference between the wages paid to workers and the total value these workers produce. The total social capital, the collective capitalist class, must constantly grow and this can only happen by exploiting the collective working class. This is because exchange is a zero-sum game. The economy can't grow just by exchanging things. Even if I make a profit by ripping you off I haven't created any more value. I've only transferred value from you to me. No growth has occurred. But capital as a whole, as a system, as a class, must grow. The total social capital must always be growing or capital goes into crisis. This growth cannot come from exchange. It can only come through the exploitation of the working class.]

Marx realized that the source of profit, or surplus value as he called it, is often obscured through exchange. In exchange all sorts of relations go on between capitalists filtching surplus value from one another. Bankers siphon off some of the surplus value created by industrial capitalists through loans. Merchant capital filtches some of this surplus value away as well. Landlords act as a parasitic class siphoning off surplus value from industrial capital and siphoning income from the wages of workers. All of this creates the illusion that growth can happen just by loaning money, renting land, or selling things in the market. But these things are all just transfers of value already created somewhere else. To attribute the value creating powers of labor to money, land or exchange is the most gauche of fetishism!

For this reason Marx spends the entirety of the first 2 volumes of Capital just talking about the capital-labor relation. It’s not until Volume 3 of Capital that he starts to look at the relations between capitalists. Once we understand that value can’t be created but only transfered between capitalists we are on our way to solving this mystery of the average profit rate. The creation of an average profit rate means that surplus value is redistributed between capitalists in exchange. Prices to diverge systematically from values. Industries with lots of workers and few machines sell their commodities below their values. Industries with lots of machines and few workers sell their commodities above their values. These are the “prices of production.” Through this systematic deviation of prices from values an average rate of profit is formed. (For more explanation see my video “What transformation problem?”) [explain this systematic deviation better?] But this deviation of price of production from value doesn’t create any value!

Average Profits

It should be said that there is a dispute among many Marxists as how to interpret the notion of average profit. Marx’s theory seems to explain how prices of production would form in the condition of an equalization of profit rates across industries. But most of the time he uses the term “average profit” rate which is different than an equalized profit rate. (The average age in a coffee shop might be 29 but the formation of this average doesn’t reduce everyone’s age to 29.) In reality profit rates vary across industries. This leads many people to question whether the theory of prices of production is all that important and to claim that empirical evidence shows a closer value-price relation within industries. [Maybe refer to some specific schools of thought here.]

Who cares about Prices of Production?

Prices of production at first may seem like a boring academic problem. What do they really tell us about capitalism? They are actually really important. For one, the transfer of surplus value between capitalists means that exploitation is truly a matter of one class as a whole, exploiting another class as a whole. Secondly, since profit rates are equalized across the economy this means that the amount of profit an individual capitalist makes is determined by the amount of their total investment, regardless of whether this investment is in workers or machines (living or dead labor.) Profit appears to emerge equally from both living and dead labor. Capital itself seems to be creating value. And this indeed explains the fetishistic illusion that attributes magical powers of value creating to inanimate objects and pieces of paper.

If the profits of individual capitalists are not affected by the ratio of dead to living labor then there is no mechanism in which to keep the economy as a whole from eliminating more and more living labor from production. This is why Marx moves immediately from his theory of prices of production to discussing his theory of crisis. The drive to maximize efficiency causes capitalists to spend more and more on machines, less and less on labor, thus eliminating the real value-creating substance from production. And this is the source of economic crisis. (See my video on the “Falling Rate of Profit” or “Crisis- the Overaccumulation of Capital”.)

Remember that Marx begins his analysis of capitalism by analyzing the commodity. The commodity contains a contradiction: it is both a use-value and an exchange value. At first this contradiction doesn’t seem that severe, yet over the course of his exposition we see this contradiction take on greater and greater meaning. Human labor is sold as a commodity as labor power. The difference between the exchange value of labor (it’s wage) and its use (it’s ability to create value) creates the possibility for exploitation and thus for capital to self-expand. But as capitalists to compete to get more profit than they seek to produce at less than the socially necessary labor time, that is to eliminate labor from production. This means that capital is self-contradicting. It exploits, mistreats and attempts to eliminate whenever possible the very thing that gives it life: human labor. Prices of production embody this contradiction. The value-creating powers of labor appear as powers of capital. The capitalist is motivated to increase her profit by increasing her capital investments regardless of whether these investments drive out actual value-creating labor. And individual capitalists can prosper quite well doing this. But the class as a whole doesn’t. And this is the prisoner’s dilemma that is a capitalist economic crisis.

Criticisms

Often one hears it said that Marx’s value theory has long ago been “debunked” or “discredited”. About half of the time that people say this they have no idea what they are actually referring to. (You should always ask people what they are specifically talking about when they say this.) The other half of the people are usually referring to 2 different lines of criticism that have been directed at this theory of prices of production.

The criticism that has had the biggest effect on the discussion of Marx in the academy is a rather math-y criticism called “The Transformation Problem” which was formulated by Ladislas Bortkiewicz in 1907, but which came into popularity in the 40’s. “The Transformation Problem” has been refuted by modern Marxist economic currents, though many people have yet to acknowledge this and still refer to the Transformation Problem as if it is a valid argument. I explain this debate in my video “What Transformation Problem?” so I won’t duplicate the explanation here.

The other line of criticism is an earlier one posed by the Austrian economist Bohm-Bawerk in his book “Karl Marx and the Close of His System”.  Bohm-Bawerk’s critique, like the rest of Austrian economics, has not been very influential in the academic debates over Marx’s value theory. But his arguments are still sometimes evoked often so they are worth mentioning.

Bohm-Bawerk’s criticism extended beyond Marx’s theory of prices of production but he focussed much of his energy on the prices of production theory because he felt that this theory exposed the weaknesses of Marx’s argument.

Bohm-Bawerk’s basic argument was this: In volume 1 Marx claims to that prices equal values. In volume 3 he claims that prices deviate from values. Therefore Marx contradicts himself. A seemingly devastating critique? Perhaps if it was true that Marx anywhere claimed that prices always equal values. But as we have already stressed this is not the case. Marx instead held that price was a form of appearance of value, a fleeting momentary estimation of value in a constantly fluctuating, anarchic market. Underneath these fluctuations of prices one can see labor time being apportioned to different tasks in a never-ending, dynamic process.

The fact that two things exchange with each other does not mean that they have to have been the products of the exact same expenditures of socially necessary labor time. It just means that they share a common substance, value, which is being compared. There is no way for two individuals to know if their exchange is of equal value. But when millions of people meet in the market to exchange commodities we see the law of value assert itself over time.(rephrase all this)

Another charge of Bohm-Bawerk’s was that the theory of prices of production made a theory of value irrelevant. He said that all prices of production was was the admission that prices are just the cost of production plus average profit. This had been theorized by many people before. Big deal. It’s not a theory of value.

The response is that in some ways Bohm-Bawerk is right. Marx theory of prices of production is that prices are cost of production plus average profit. But what makes him unique is in his examination of where this profit comes from: that profit can’t be created in exchange, that it comes from a the exploitation of one class by another, that it obeys the law of value. Furthermore Marx shows in detail how prices of production are derived from values. They are a systematic deviation, still measured in value terms. It is not a matter of just replacing one theory with another. This analysis led him to identify two main points: 1. The total value in society is equal to the total level of prices; and 2. The total amount of surplus value is equal to the total amount of profit.

Bohm-Bawerk rejected these two equalities. He said that merely saying that two quantities are equal is a meaningless statement. I could say that the total amount of prices is equal to the total weight of all commodities, but that individual weights systematically deviate from their price. This is an interesting criticism and it takes us to the root of the question of what value is and why it should be analyzed.

If the point of economic analysis was just to play intellectual parlor games, or merely explain momentary prices then perhaps Bohm-Bawerk’s critique would be useful. The reason that weight or color or any other physical property isn’t a useful tool for a theory of value is that these are not economic categories. Labor is. Economic theory must be able to explain how labor is apportioned through commodity exchange. It must be able to explain what happens when social relations between producers take the form of commodity relations.

[I should make a longer presentation and critique of Bohm-Bawerk on my blog.]

Law of Value- 4. Use-value, Exchange-value and Value (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

The Commodity: Use-Value, Exchange Value, Value

We begin with commodities. Why? Because the exchange of commodities in the market is the way in which capitalist society is organized. We work all day to produce a commodity, not for us to use but for someone else to use. We exchange these commodities in the market at certain ratios. In this process of commodity exchange the private labor and private consumption of millions of people are coordinated. Some people think this is the best possible way to coordinate human productive activity. Marx saw that there were fundamental social antagonisms at heart in this means of coordination… that, if left to itself, production for market exchange led to all sorts of unexpected consequences including gross inequality, exploitation, and crisis. If we are to learn how this coordination works we need to start by analyzing this thing called the commodity.

A commodity has a use-value and an exchange value. Marx held that these two things implied a third thing, value, and that there was a fundamental antagonism inside this relation between use-value and exchange value. This contradiction pops up again and again in his writing on capitalism. Let’s see what he was talking about.

A commodity has a use. This is its use-value. What does use-value tell us? It tells us how a commodity satisfies a social need. If we want to feed everybody we need a certain quantity of food. If we want to build everyone a house we need a certain quantity of wood and nails.

Some use-values require no effort to attain: air, sun, gravity, etc. Others require effort to attain. There is a finite limit to the amount of labor that can be devoted to the production of use-values. Society must apportion this labor between the production of different use-values in some way. As technology changes the amount of labor required to produce some use-values decreases thus signaling a change in the apportioning of labor. As technology evolves to reshape what human labor is capable of producing so do our needs and desires evolve.

In different societies this labor is apportioned by different methods. In a market society it is the buying and selling of the products of labor in the marketplace that serves the purpose of allocating labor between the production of this use-value or that use-value. This creates a second type of value, unique to market societies: exchange-value.

Exchange value is the ratio in which one good exchanges for another. Perhaps one baseball exchanges for a loaf of bread. Or a new car exchanges for a thousand bottles of whiskey. These ratios are all exchange values. In a developed market society one commodity eventually emerges as the primary commodity in which all other commodities express their exchange value. This is what money is. For most of the history of capitalism this commodity has been gold. By comparing the ratio of tomatoes or cars or baseballs to gold all commodities measured their exchange value in ratios to gold.

These two sides of the commodity, its use-value and exchange value, form two opposing, contradictory poles. They may not seem very contradictory right now, but over the course of Das Kapital Marx will show us just how much of the social antagonisms of capitalism are rooted in this tension between use-value and exchange value. For now let’s content ourselves with some very basic observations:

Use-value only exists for a person using a commodity. If I am selling a tomato or a baseball this commodity has no use-value at all for me. Its use-value only exists as a social use-value for a society that has demanded its production. But I, the seller, have no use for it at all. I am only interested in the exchange-value, how much money I can get for it. Once the commodity has been consumed it looses exchange value. (How does Cleaver phrase this? It’s clearer…)

This contradiction between use-value and exchange-value becomes more and more significant, becomes more and more antagonistic the more we examine all of the ways that it plays out in a capitalist society. We can’t really talk about them here until we work out the concepts of capital, profit, etc. But a simple example might suffice for now:

[(picture of a house)This is one of many abandoned houses in my neighborhood. The owner, a slumlord from a different city, let the property deteriorate until it became unlivable and doesn't want to pay the money to make it livable again. There are thousands of abandoned houses in this city, and thousands of homeless people. Despite the urgent social need for the use-value of a house these properties are not used to satisfy this social need. Why not? Because the owners of these commodities are not interested in their use. They are interested in their exchange-value, the rent they receive from the property. For decades they collected rent while the use-value of the house deteriorated. And now, to the landlords, these houses that blight the neighborhood are just assets waiting for the right investment opportunity. (maybe start with this paragraph?) or probably don't use it at all]

Austrian subjective value theory talks about a “double-inequality of exchange.” It says that the only reason exchange happens is that two people value the other person’s product more than the product they are giving up. Marx actually goes even further than this. He says that to the seller the commodity has no use-value at all. This is because in a market society exchange is not just accidental or temporary. In a capitalist society people don’t produce for their own wants and then sell off the surplus they don’t want. They spend their lives working to produce things for other people to buy. The purpose of their work is to get exchange value, not specific uses. The commodities they produce have no use-value at all to them. They exist solely as the product of their labor for which they seek exchange value in the market. (Why do people produce for exchange and not for their own subsistence? This only happens in a society in which people are divorced from their own means of subsistence. People in a capitalist society cannot produce all of their needs for themselves because they don’t own enough of their own means of production. The means of production are privately owned by the capitalist class. This forces us to enter the market place to attain our needs.)

Uses are heterogenous and therefore not comparable. They do not reduce to a common substance. How do we compare the usefulness of a tissue to the usefulness of a pencil? You can’t. They are both useful. Maybe today society will spend a 2 thousand hours producing tissues and 1 thousand hours producing pencils. Does that mean that tissues are more useful? No. It just means that more people needed tissues.

(There have been attempts by neoclassical economists to reduce the usefulness of commodities to some common substance. Since there is no common substance that makes up usefulness they have to make up an imaginary substance called “utils”. These economists actually say things like, “A cup of coffee has 13 utils and a car has 3000 utils of utility”. But such attempts to invent imaginary substances with which to reduce utility to are generally thought to be pretty silly and misguided. In neo-classical economics this concept has been mostly replaced by the concept of ordinal utility: A consumer has a ranking of demand preferences but these can’t be reduced to some common scale. In this way the question of value, in the sense that a commodity has a definite amount of value as determined by subjective social demand, is abandoned. But then the problem arises that neo-classical economics is trying to explain real world objective phenomena like prices and profits measured in definite amounts of money by appealing to completely unquantifiable subjective psychology. Not only this but these subjective decisions can only make sense given a pre-existing objective world of prices for individuals to respond to.)

We can’t compare uses yet commodities are compared with each other all the time in the market in the form of exchange ratios. A funny thing happens when we look closer into this mystery. Let’s say a book equals a bag of apples. What if we take the apples away and compare the book to 2 beers? Now the book has two exchange values, two ratios which express its value. We could continue to make a chain of exchange ratios (one book=1 bag of apples= 2 beers= a pack of banjo strings=a DVD=etc.) until all of the commodities in the world are related to each other. If the exchange value of a book can be expressed through an infinite variety of exchange ratios this means that the book has an exchange value which can take various forms of appearance depending on what it is being related to. (repeat this) These forms of appearance of exchange value are called price. Price is just the particular ratio of a commodity to money at a specific time and place. As the value of money fluctuates and as the value of the commodity fluctuates so does the price fluctuate.

Hmm… I just made a logical leap here when I said “as the value of the commodity changes so does its price.” I was talking about a commodity having an underlying value which is expressed in its exchange value. But perhaps this leap made intuitive sense. After all, we often wonder if a commodity’s value is worth its price (We say things like, “What a deal!” and “What a rip off!”). Now we are moving on to a 3rd concept implied by the phenomenon of exchange-value. This is value. Let’s go back and try to make sense of this.

Let’s describe a book: it is hard, it smells like paper, it has writing on it, it holds up desk legs… it costs 20 bucks. This last property, its exchange value is unique. Exchange value is not a physical property. It’s also not a use-value. If I walk up to you on the street and say “20 bucks” you wouldn’t know if I was talking about a book or a DVD or a fancy necktie. All you would know is that I was referencing exchange-value in the abstract.

This “exchange value in the abstract” is unique to a capitalist society. “20 bucks” means nothing to Cavemen or Robinson Crusoe. Cavemen and Robinson Crusoe are very concerned about specific products of labor and their uses. They don’t give a hoot about “exchange value in the abstract”. But here in the capitalist world we are very interested in “20 bucks”. Sometimes we even prefer to have that “20 bucks” rather than a commodity. When we work all day at the factory or office or wherever we don’t come home at the end of the day holding the commodities we produced. We come home with money- exchange value in the abstract.

Marx says that all of these things are clues: the fact that we have exchange value in this abstract form called money, the fact that all commodities can be exchanged for one another despite their diverse uses, the fact that we labor to produce commodities specifically so that we can exchange them for other commodities, the fact that prices are the mechanism by which labor is apportioned between tasks… these are all clues that there is a 3rd thing implied by use-value and and exchange value, an invisible thing that links the two concepts together. This is what Marx calls “value”. The reason why we can exchange one commodity for another is that they both have value. Value is a common substance belonging to all commodities that allows them to be compared with each other in exchange.

What is this value? It’s not moral values or family values. It’s not some physical substance that we can find by cracking open a commodity and peering inside it. Often times we use the word value in a subjective way when we say ” I value my family,” or “I value the education I got in elementary school”. Marx is not talking about this sort of psychological subjective valuation when he uses the term value. Sometimes people make the mistake of criticizing Marx’s theory of value by saying “But value it subjective!” The problem with this line or argument is that it refers to a different use of the word “value.” [insert good example of two definitions for same word] Marx is perfectly aware that people make subjective decisions in the market place, but when he uses the word value he is talking something different.

Marx is talking about a social relation between people as they coordinate their labors through market exchange. This social substance which he calls value is made up of human labor. When we work to create commodities we are creating value. The amount of labor that enters into the production of a commodity is what determines the magnitude of its value. So, for instance, a car which takes a great deal of labor to make has more value than a pencil which takes relatively less labor.

Here are 3 fancy expressions that may sound a bit ponderous and German, but might help you understand value better.

1. The substance of value is labor: This simply means that value is created by human labor. This value is the way the division of labor is coordinated in a market society.
2. The magnitude of value is labor-time: This means that the amount of value created corresponds to the amount of time spent laboring. Since labor is apportioned through fluctuating market forces this is never an exact correspondence, but it is the general tendency. Commodities that take a many hours to make are more expensive than ones that take few hours. Later we’ll see that Marx adds other variables to this concept like the intensity of labor and the skill of the labor.
3. The form of value is exchange value: So value is created by labor time. Yet we don’t see this value until we exchange commodities in the market. When commodities are exchanged their value takes the form of a specific exchange value. 3 hours of bread baking takes the form of whatever that bread is exchanged for: shoes, books, three gold pieces, 10 dollars, whatever.

Value and exchange value are different

It’s important to understand that value and exchange value are different things. For Marx the underlying essence of a capitalist economy, the underlying process that is going on, is that the labors of zillions of individuals are being coordinated through commodity exchange. This labor is what value is- it is the basic social substance through which we interact. If we are to demand that so many hours of labor go into the production of books and so many other hours of labor go into the production of tuna sandwiches then there must be some relation between this labor time and the prices, or exchange values, of these commodities. If there wasn’t there would be no way of organizing the division of labor.

This relation between labor time and price is the relation between value and exchange-value. Exchange-value is the “form of appearance” which value takes. Value exists. It is real. A definite amount of labor time is required to produce a tuna sandwich. Yet we can’t see this value when we look at the sandwich. All we see is its price, its exchange-value. This exchange value is a form of appearance of value, a representation of value. What does it mean to say that exchange-value is a representation of value?

Think about a portrait. A portrait is a representation of a person. But it isn’t the person. It looks a lot like the person. But it doesn’t look exactly like them. We could make a lot of different portraits of a person, each would approximate the real person yet never quite capture them perfectly. This is very similar to the difference between exchange-value and value. A commodity’s exchange-value is an approximation of its value. Sometimes the approximation comes very close to the actual value. At other times it is very far from it.

This is an important point to understand because people often interpret Marx to be saying that price is always exactly equal to labor time. But this is not what Marx said at all. He was very clear that prices fluctuate all the time as supply and demand fluctuate. If supply and demand actually met at their equilibrium price then price would equal value. But supply and demand rarely ever meet. Instead they fluctuate. And thus prices fluctuate around their values. In this way price is a form of appearance of value.

As we will later see these fluctuations are essential to Marx’s theory. It is this fluctuation of supply and demand that makes up the basic mechanism by which labor is reapportioned between various tasks. It is this ability to explain fluctuation and dynamic movement that distinguishes Marx’s theory from the static equilibrium theories of his predecessors and the neo-classical tradition that followed him.

[I am using price and exchange-value interchangeably at times. Exchange value refers to the ratio which a commodity exchanges with another commodity. A book can express its exchange value in a myriad of exchange-ratios as it expresses its value by comparing itself to other commodities. Price is a specific exchange-value, the exchange-value between a commodity and money.]

Last thoughts

Since exchange value is just a form of appearance of value we can now say that the antagonism between use-value and exchange-value is better thought of as an antagonism between use-value and value. But what’s so antagonistic about this? What does this help us understand about all of the real social antagonisms of a capitalist society? Marx’s analysis is a constantly expanding picture of the way this basic contradiction between use-value and value develops into all of the various antagonistic social phenomena of our society: capital, wage-labor, productivity, crisis, inequality, etc. Space does not allow a full explanation here, but perhaps I can give you a sneak preview.

The fact that value exists in the abstract in the form of money means that money becomes the ultimate form of social power. It becomes possible to engage in production not just to produce things for your own needs but to produce merely for the purpose of getting more money. You can invest money in production merely to get more money. This is what capital is.

But how do you get more money for your money? You purchase a unique commodity: labor power, or the ability of people to work. When people sell their labor as a commodity this means that they have a use-value and an exchange-value just like any other commodity. The exchange-value of labor is its wage. The use-value of labor is that it creates value. (Repeat this.) But there is no reason that the amount of money paid in wages is equal to the amount of value a worker creates. A capitalist can take advantage of this difference. This is exploitation. This means that the antagonism between the use-value and value of labor is reflected in the social antagonism between capitalists and workers.

With his theories of capital and exploitation Marx is able to explain much of the dynamism of a capitalist society, including economic crisis. Here are some ways we can see this use-value/value antagonism in our current crisis. Insane speculative activity in the stock market is an example of financial capitalists in pursuit of value in the abstract. In their rush to turn money into more money they bypassed the production of real value altogether. But this is contradictory because, in the end, value must be created in production. This led to over-valued assets, fictitious capital, that all eventually had to implode. This requires a drastic devaluation of assets: writing down the values of companies and houses, the closing of companies and the devaluation of the labor force through unemployment and falling wages. All over our cities people are loosing their houses. Why? Because the banks and mortgage companies were only interested in their values, not their use-values. The antagonism between value and use-value is real!

[The implosion of the financial sphere revealed underlying problems in the productive sphere. We heard all over the news about overcapacity in the auto-industry. What is overcapacity? It's when... this is too complex to explain here...]

The Law of Value- 9. Simple and Complex Labor (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Simple labor- the script

Production in a capitalist society takes an atomized form, the private labors of billions of people scattered over the planet with no direct coordination between them. There is no dictator, or committee or democratic process which makes this all work. What unites these labors is the law of value. Value, acting as a basic social substance which binds together these atomized private labors, is the starting point for an understanding of the dynamics of a capitalist society in all of their stunning complexity, misery, and violence.

As we’ve previously noticed, our world contains a great diversity of labors which create a great diversity of commodities. Specific commodities require specific types of labor to create them. As we’ve seen, part of the role of supply and demand is to apportion labor between various specific jobs. This apportioning of labor in general between different specific jobs reveals a process of abstraction. We don’t just have a world of specific, private labors. These private labors are made social through a process of abstraction. Money prices abstract away from specific uses and specific concrete labors. Money prices just reflect value in general, labor in the abstract.

If we looked a little more closely at the problem we’d see that the diverse qualities of different labors (doctors, janitors, cab-drivers, construction workers) are abstracted away from to reveal their common quality: that they are human labor in general. This allows labors to be compared to each other purely in quantitative terms. We say that one person has created $20 of value, another $30. These quantitative ratios are the only economic way in which different labors are related. In a capitalist society differences in quality become expressed as differences in quantity.

Labor-time

If money prices measure amounts of this social substance called value, and if value is something only created by labor then what does it mean to have more or less value? more or less labor? How is labor measured. In general Marx treats labor as an expenditure of time. Elsewhere you may hear people create theories of labor based on caloric expenditure, energy, or even the subjective preferences to various kinds of work. But Marx chooses time. Why?

Labor-time is not  just a theoretical simplification. It is an observation of a real process going on in the world. Perhaps if humans lived for ever it wouldn’t matter how much time we devoted to making things. But we have a limited amount of time at our disposal to create the things we need and desire. This time is precious. It has value. In a capitalist society, with its mad pursuit of increasing profits through exponential growth, the need to be as efficient as possible, to micro-manage and control labor time is an utmost priority. Scientific management, public schooling, and the automation of production all seek to reduce labor to a common expenditure of average labor time. We measure productivity in output per labor hour. We are paid in hourly wages. We work an 8-hour day and a 40-hour work week. It all has to do with time.

This is not the case with other measures of labor. There is no social process which reduces work to caloric output. There is no social process that makes a product more valuable because the worker enjoyed or despised their work.

Simple-labor

But if value is an expression of labor-time what do we make of the differences in skill between laborers? Isn’t it a fact that an hour of a doctor’s labor produces more value than an hour of an unskilled factory worker? Marx has a solution to this puzzle. He calls an an hour of average labor “simple labor” and the work of highly trained workers “complex labor”. Complex labor counts as “multiples of simple labor.” Therefore an hour of a doctor’s labor counts as many hours of simple labor. Like any economic process in capitalism this is not a planned or conscious reduction, but a process that goes on “behind the backs of the producers.”

Though Marx devoted little if any more thought to the issue some of his critics and his admirers have devoted a considerable amount of time to it. Austrian critic Bohm-Bawerk claimed that the simple-labor problem represented a fundamentally unsolvable problem in the law of value that exposed the inherent falseness of the theory. Basically Bohm-Bawerk argues that Marx has told us that 2 commodities have the same value because they both represent the same amount of labor time. But now he tells us that different amounts of labor time can equal each other, that 1 hour of a doctor’s labor could equal 40 hours of a factory worker’s labor. Marx is contradicting himself. On top of this Marx doesn’t identify a social process by which complex labor can be reduced to simple labor.

These have remained the two basic theoretical problems associated with the Simple-labor issue: 1. How is the reduction of complex labor to simple labor theoretically justified? and 2. What is the mechanism by which this reduction takes place?

Many different defenses and criticisms have been presented over the years. Before we move on to them, we should point out four pitfalls that people sometimes fall into when thinking about the problem. Avoiding these pitfalls will not only help you understand the debate but also keep you from sounding like an idiot when you try to talk about simple-labor.

Pitfalls- watch out!

1. Simple labor isn’t the same as unskilled labor.
It’s really hard to talk about unskilled labor. Everything requires some sort of skill. Most jobs require the ability to read and speak a language. A lot of jobs require a high-school education. Workers need to be able to follow directions, keep a schedule, do simple math, etc. Capitalism creates a workforce that can do all these things mainly through the public education system. This basic, average level of skill is “Simple labor”. As production conditions and economic forces change what is required of simple-labor changes. For instance, over the last 20 years the ability to type and use computers has become an important component of what is required of all workers. The public education system has responded to this by making “computer literacy” a core part of the education system.

Complex labor is significant in that it exceeds this social average. Complex labor is labor that has additional skill on top of these basic social expectations. (This is similar to the way Marx treats intensity of labor. If a capitalist can get his workers to work more intensely than the social average, through intimidation or motivational speeches, then he can generate a profit above the social average. But if all capitalists follow suit and increase intensity then the social average itself moves.)

2. Simple labor doesn’t mean that all work is physically the same.
The establishment of simple labor doesn’t mean that different jobs lose their physical differences. But it does mean that it becomes easier to switch between jobs. In a modern capitalist society we have a degree of indifference to our occupation that the skilled artisans of the past never had. A modern worker may switch careers many times during her lifetime. This is only possible because of social processes which reduce the amount of control workers have over the labor process, making it easy to replace one worker with another. This flexibility is an essential part of a developed division of labor coordinated through markets. There must be some way of quickly moving labor between different sectors in pursuit of profits. This could never happen in a medieval guild system where workers are locked into a chosen profession for life.

3. Don’t confuse wages with the value created by workers.
This difference between the money paid to workers in wages and the actual amount of value they produce is crucial to Marx. This is the basis for his theory of exploitation. Like any other commodity, the worker has a use-value and an exchange-value. Their exchange value, or the price of their labor, is their wage.  Their use-value is that their labor is used to create value. This antagonism between the exchange-value and use-value of a worker is what forms the basis of all of the antagonistic social relations of a capitalist society.

Now it’s true that skilled workers not only produce more value but that they also usually get paid higher wages. Why is this? To produce the commodity called the skilled worker society must expend a lot of energy. A skilled worker requires the labor of many teachers. She also spends years of her own time acquiring these skills. This is all socially necessary training time. When people train to become doctors and lawyers they acquire a great deal of debt. This cost passes into the price of the worker.

It’s also possible for wages to fall above or below the value of labor-power as a result of class struggle. A shortage of doctors may allow them to inflate the price of their labor above its value. An oversupply of simple laborers may depress their wages below their values.

4. The simple-complex labor issue is different than the abstract-concrete issue.
How do you compare swinging a hammer to slicing a pizza? It can’t be done if the focus is on the concrete qualities of the labor. This comparison only makes sense in the abstract. The first thing that happens in a market society is that the market abstracts from the concrete forms of labor and assigns value based on labor in the abstract. The comparison of simple labor to complex labor is one that compares difference qualities of work: doctors to factory workers, computer programmers to janitors. But before we can do this we must realize that society already abstracts away from qualitative differences when it assigns prices to commodities. Qualitative differences become quantitative differences.

The Solution

With this last point the problem is mostly already solved. Remember the two questions we wanted to answer were 1: What is the theoretical justification of reducing complex to simple labor? and 2. What is the mechanism by which this happens?

The theoretical justification is that the market already abstracts from concrete qualities of work and reduces them to quantitative differences. This makes it possible for us to talk about complex labor being multiples of simple labor. When labor is considered in its abstract form as universal average labor, the qualitative differences in work become quantitatively related. ie. A doctor produces 10 times the value a factory worker does in an hour.

Why is this? Why is complex labor complex? Complex labor represents the pent-up value of years of training. This is not only the work that the student expends but all of the labor of the teachers and others involved in the training. All of this labor is not realized until the skilled worker begins working. Any musician is familiar with this concept. He practices the piano 5 hours a day only to perform once a week. The stored up value of all of that practice is condensed into that one hour of performance. This is why that one hour of performance produces more value than an hour of simple labor.

[In some ways this is similar to the way constant capital is treated. Constant capital (machines, raw materials, etc.) all represent past labor. Yet the value of constant capital isn't realized until living labor turns it into a finished commodity. Constant capital like machinery can also make labor more efficient than the social average thus creating super-profits. I believe that Itoh has criticized this constant capital-like analogy though I can't afford to buy his book and the copy on Googlebooks leaves out the two pages where he makes these criticisms. I think the critique has to do with the equalization of profit rates. I assume the argument is that if the added value of skilled labor is just a cost of past labor like constant capital, this means that the rate of profit of skilled labor is lower than that of simple labor. But I wonder if Itoh makes the connection between labor-saving constant capital that allows for super-profit and skilled labor which produces more efficiently than the social average and thus garners a super profit... I also wonder if thinking of the problem in this way may venture too close to neoclassical human capital theory.]

This helps explain the theoretical justification for treating complex labor as a multiple of simple labor. But what of the 2nd question: What is the mechanism by which this happens?

Like any market phenomenon whether it be the creation of abstract labor, the establishment of socially necessary labor time, or the reduction of complex to simple labor, these are spontaneous phenomena that take place behind the backs of producers. There are social processes that establish a base-level of skill we call simple labor. There are other social processes that train people to have very complex skills. The more efficiently they work relative to simple labor the more value they create relative to simple labor.

Some people insist that there must be more to the theory than this, that there must be some mechanism for measuring the amount of simple labor in complex labor. But this misses the point. There are many economic phenomena that are hard to measure but this doesn’t mean that the phenomena are not real. For instance government statisticians try to measure how many year 2000 cars are worth how many 2010 car. In doing so they have to use guess work and arbitrary assumptions. Yet this doesn’t mean that we should question the theoretical possibility of comparing the value of cars, or the existence of cars. (This point is taken directly from a chapter of Andrew Kliman’s in “The Value Controversy” which is excerpted here:

http://marxisthumanistinitiative.org/2009/05/22/nitzan-and-bichler-on-critical-discourse-anti-economism/)

Marginal utility theory, which imputes value to subjective psychology, is even more lacking in any method of measure. Prices are supposed to reflect more of less amounts of desire yet there is no empirically observable desire to measure. Thus we are asked to accept that whatever prices are must be because people wanted them that way.

Marxists economists interested in doing empirical research often disagree on how to handle the complex-simple labor issue. Some think that it isn’t important for large-scale, long-term analysis. Others think that the market expression of value should be taken as the expression of reduction. Still others think that the issue makes empirical work problematic. But most all agree that the possible difficulties in measurement don’t disturb the theoretical basis of the solution.

Law of Value- 8. Socially Necessary Labor Time (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Socially Necessary Abstract Labor Time

Alone on his tropical island Robinson Crusoe can take as long as we wants to build a cabin for himself. It’s up to him. We don’t have that luxury when we produce for market exchange. When Wonder Bread makes bread they are competing in the market against Pepperidge Farm, Arnold and White Rose. If their workers are less productive that doesn’t mean they can sell their bread for more money. The social value of bread is set not by the most inefficient of producers but by the average amount of time it takes to produce a commodity. This is called the “Socially Necessary Labor Time”. (SNLT)

In neo-classical economic theory there are all sorts of concepts that, though mathematically elegant on paper, have very little descriptive power in the real world. When was a capitalist society ever in General Equillibrium? When was there ever Pareto Optimality? When did consumers ever measure their desires in utils?

SNLT is a great example of the practical, real-world nature of Marx’s value theory. SNLT is something very real that we can observe at work everyday. The private labor that goes on behind factory doors will not know for sure how much value it is creating until the products of that labor enter the market to be compared to the products of other workers. In the market these private labors become social. Socially necessary labor time is asserted. This SNLT then acts back upon production. It disciplines what goes on in the factory. Factories that were spending more labor than was socially necessary are considered inefficient. They must change their production methods or else go out of business.

At the same time competition drives producers to constantly try to produce under the socially necessary labor time. If the SNLT for bread is 10 minutes a loaf and I make a new machine that allows my workers to produce bread for 5 minutes a loaf then I am producing at half the SNLT. This means that I can sell more bread at a lower cost, out-competing my rivals in the market and making a super-profit. Once other competitors catch on they will also buy new machines and the SNLT will move down to 5 minutes.

This process goes on everyday in a capitalist society. We have an obsession with time and efficiency. Everything from the working day, to the motions of workers are timed and rationalized. From the moment the alarm clock rings you are checking train schedules, punching time cards, and working as efficiently as possible. There is an entire field of industrial engineering which is devoted to decreasing the SNLT in society. Some of the most influential minds of the last century have been people like Henry Ford and Frederick Taylor who made substantial contributions to the reduction of SNLT.

The reduction of SNLT is also important in raising the rate of exploitation. When individual capitalists can get their workers to produce below the socially necessary labor time they gain extra profits. This quest for super-profits is what motivates much of the technological dynamism of a capitalist soceity. When the SNLT that produces consumer goods falls so do the prices of consumer goods. This cheapening of the means of subsistence allows wages to be reduced over time which allows capital to make extra profit. (obviously this paragraph needs serious rephrasing…)

Marx considered his theory of SNLT a major achievement that differentiated his value theory from the labor theory of value of Adam Smith and David Ricardo. Rather than just being a theory about the determination of prices by labor Marx’s theory was about the way private labor becomes social in a market society. It is only through the market that an economic bond between producers is established. And it is only through this bond called ‘value’ that production can be organized.

Sometimes on the internet you may hear someone attempt to criticize the labor theory of value by saying something like, “If I spend 100 hours to make a cupcake that doesn’t make the cupcake more valuable than one made in 1 hour. Therefore the labor theory of value is false.” Now you know why such a person is an idiot who forms their opinions about theories prior to understanding them.

Sometimes people try to argue that this idea of “socially necessary” means that demand is what creates value: People will only buy at the socially necessary price and so it must be their utilities that are creating that price. But such an argument makes multiple errors. For one it conflates value and price. Prices fluctuate all the time for various reasons. Value serves as a moving center of gravity for those prices. [I know Freeman hates this metaphor but I can't think of a better one at the moment.] Utility can’t change value: no matter how much I desire a commodity I can’t change the amount of time it takes to make that commodity. Socially Necessary Labor Time is established by the average level of productivity which is given by the state of technology. As Marx later explains in his theory of capital, changes in technology are driven by the quest to better exploit the working class, not by the demands of consumers.

Law of Value- 7. Abstract Labor (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

This is a dollar. It is a socially recognized measure of value. And value is the form that human labor takes in a society organized by commodity exchange. Yet when we look at a dollar we have no idea what specific labor it represents. A baker’s labor? A truck driver? A nanny? A miner? A dollar represents any and all labor. Every commodity and thus all labor finds its expression in money.

These private labors of specific workers are “concrete”. To make bread requires a specific concrete labor process. To mine coal takes a different concrete labor process. But when measured in money all of these labors just becomes value in the abstract. They express themselves as parts of the same common social substance. This is called “Abstract Labor”.

When I say “girl” I am making an abstraction. Instead of referring to concrete individuals I am referring to “girls” in general. In order to do this I have to abstract away all of the specific traits of particular girls like their height, color, name, etc, and focus on universal characteristics.

Marx’s concept of abstract labor is a concept which abstracts away from all of the specific concrete labors in society and deals with what is universal about value: that it is an expression of socially necessary labor time. For this reason you often hear the phrase “Socially necessary abstract labor time”. But this is more than just a mental abstraction for philosophers. This abstraction is a real one taking place before our eyes everyday. Money is an abstract representation of social value. It has no concrete meaning until it is exchanged for a specific commodity. When people produce for exchange they are not producing use-values for themselves. They are producing commodities for the purpose of turning them into exchange value, ie into money. For companies it doesn’t matter what concrete commodities they make as long as they can be turned into exchange values. Ford and IBM built tanks and computers for the Nazis. Were they concerned with the use-value of their commodities? No, they only wanted the abstract power of money.

In exchange private labor becomes social labor and concrete labor becomes abstract labor.

Some critics (Bohm-Bawerk) have asked why value is an expression of abstract labor and not abstract use. Marx begins Capital by saying that there is no such thing as use-value in the abstract, that there is no way of reducing the bouncy-ness of a ball and the fire-power of a tank to some common substance. Yet Marx is perfectly content to reduce the labors of ball makers and tanker makers to a common substance called abstract labor. What is the difference between use and labor?

If our goal is to play intellectual parlor games we can abstract away anything we like and form theories of abstract weight, abstract color, abstract smell. But if our task is to explain something about how the world works than we must make useful abstractions. As we’ve seen in video 3: Das MudPie Marx’s method starts from an examination of the way in which people create their own social life through their labor. He is interested in the way production is organized in different societies and sees these different types of production relations as being crucial to understanding the lives of people in these societies.

Another reason that Marx performs the abstract that he does might be illustrated by looking at the difference between changes in labor productivity and changes in consumer preferences. If productivity increases this means that less labor is socially necessary to make a commodity. As we all know productivity increases mean falling values. What happens if demand rises suddenly for a product? It’s price rises. This signals more labor to enter that sphere of production. This raises the supply which causes the price of the commodity to fall back to where it was before. Unless there is a change in productivity the value does not change in the long run. In this example subjective preference has caused a temporary fluctuation in price. This fluctuation hasn’t changed the usefulness of the commodity or the labor that is required to make it. All it has done is signaled a reapportioning of labor so that no industry enjoys privileged advantages. This is another reason why use in the abstract isn’t useful for a theory of value.

This common denominator of value, abstract labor, has a measurable substance: labor time. It is the time which society devotes to the production of a commodity that gives it value in the market. (This basic, average expenditure of labor Marx calls “simple labor”. Different intensities of work and different skills are merely multiples of simple labor.) Use has no common denominator. We can’t reduce use to some common, measurable substance like time. (Neo-classical economists have attempted to theorize imaginary quantum of utility they call “utils”. But in general this project revealed the idiocy of trying to reduce use to an abstract use.)

We see the abstraction that is abstract labor all the time in the world, though it may be so much of the common experience of our lives that we are not aware of it. In Marx’s time the historical memory of capitalism’s revolution of the institutions of feudalism was much more potent. In feudal Europe labor was not abstract at all. People worked as peasants or craftsmen or knights or priests. These weren’t just jobs. There were definite social classes, often inherited by birthright. The labor of these different classes related directly to each other without the need for market abstractions. But with the conquest of capitalism over the European continent came the destruction of feudal class structures and with them the destruction of the idea of peasant work, guild work, etc. The working class, driven off the land they had used to produce their means of subsistence, had nothing to sell but their labor in general, labor that could be put to any use. Work became work-in-general, the various working classes became “the working class”, and the landlord and merchant classes were supplanted by the capitalist class.  And with this new class structure arose the concept of “man-in-general”, of universal-brotherhood, universal rights, and universal equality.

Whereas a peasant worked directly to produce her own means of subsistence or directly for her landlord’s wealth, a worker in a capitalist society produces merely for exchange. From the point of view of her own consumption it doesn’t matter what work she performs as long as it makes money. Workers in a capitalist society are constantly switching occupations, something that is only possible in a world where labor is separated from concrete means of production and has to sell itself in the market in this abstract form.

conclusion:

Often people make the mistake of thinking that Marx’s value theory is a universal theory that attributes value to any product of labor anywhere, anytime. But as we have just seen it is a historically specific theory. Marx was interested in the evolution of human societies through different organizations of production and different class structures. In a market society in which workers are divorced from their means of production, set afloat in the market with nothing to sell but their own ability to work, humans are reduced to a common element: workers in the abstract. When Ford lays off a thousand workers (refer to a specific news event?) does it care about the concrete lives of the workers? No. It only sees them as labor in the abstract. What is the basic message behind our education system if not that our worth as individuals is our ability to perform work, in the abstract, for society? What is the meaning of the right-wing counter-demontrator’s cry “Get a Job!” if not that you should shut-up, put your head down, and accept your lot as nothing but an undifferentiated unit of abstract labor?

There were many positive things that Marx saw in this development. The reduction of diverse cultures to a common material interest meant the creation of a universal class with universal interests. The destruction of local superstitions and feudal classes, the slow march of civil rights movements, are all part of this progressive leveling of society, of the inherent equality in this reduction of all people to their abstract labor. On the other hand, these progressive features only occur within the context of the antagonism between capital and labor. For Marx, the bourgeois revolution was an unfinished revolution. It was a revolution that would require a second revolution in which this universal class could come overcome capital and achieve its true liberation.

Law of Value- 6. Equalization of Commodities (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

The marketplace is a realm of great freedoms. Nobody tells you what you have to do for a living. Nobody tells you what you have to buy. But this doesn’t mean you can do any labor you want or buy anything you want. In fact, though in theory it seems like we could do anything, in practical, every-day reality most of us know that our freedom to work and consume are very restricted.

This is because our working and consuming activities implicate us in a complex world of social labor. When we sell the products of our labor in the market we are entering into a vast network of social relations in which the laborers of zillions of people are all being related in the market. While we may wish we had the freedom to do any work we wanted, at whatever pace we like, the reality is that that we are compelled to do socially useful work at something near the average level of productivity. While our consumer culture preaches to us about the great heights of individualism and self-expression possible to us, there is a great leveling force in a capitalist society- a tendency toward equalization. More specifically this is the tendency toward equalization of labor through the equalization of commodities.

[In the marketplace the relations between laborers are established through the relations between commodities. When you go to the store to buy tomatoes you don't know how much labor has gone into their production. You don't know what conditions they were produced under. All you can see is the price and the quality. You want the best quality for the lowest price. Yet in comparing different tomatoes with each other you send signals to producers. It is only through this competition between tomatoes in the market that tomato growers find out what the average quality and price is, or in other words, the average level of productivity.]

As you walk down the aisle in the grocery store you notice that commodities of the same kind tend toward an average price. Slightly higher quality versions are slightly more expensive. Generic rip offs are slightly cheaper. But competition keeps prices and quality within a narrow range. There is a force pulling the commodities toward equalization.

This same force is also pulling the labor of producers toward equality. In order to produce as well as the the competition one must achieve an equal level of efficiency. This means bringing production technology and techniques in line with the social average. If conditions are not favorable- like poor soil, or a poorly located factory- then steps must be taken to bring these conditions in line with the average conditions as much as possible.

The same force applies between different spheres of production. If there is a shortage of hats and hat prices go up this will attract more labor into the hat-making business until price falls back down. If there is a glut of baseball cards labor will move out of the the baseball card industry. So the same tendency toward equalization of productivity and conditions is also a tendency toward equal distribution of labor between sectors. This doesn’t mean equal distribution in terms of numbers, but equal in the sense that no industry has a greater advantage than another.

This means that there is a constant force towards conformity and control in the workplace. In the early 20th century an entire science of work was developed by management theorist Frederick Taylor, whose sole aim was to reduce the motions of labor to their basic, measurable units so that all labor everywhere could be planned and carried out at common levels of efficiency. As machines began to occupy more and more prominence in the workplace, this forced the motions of the worker to succumb to the steady rhythm of the machine. It became possible for manual work everywhere to be reduced to its most, basic universal elements: the expenditure of equal, abstract labor. (This movement toward the simplification and homogenization of work made it possible for workers to easily move from one job to another. People in a modern capitalist society often have many different occupations over the course of their lifetime.)

When western governments responded to the economic crisis of the 1970’s by eliminating international trade barriers this created a force for the equalization of labor between countries. US corporations moved production overseas where labor was cheaper. This began a long, slow decline of the position of labor in the US as workers saw benefits, wages and pensions slowly deteriorate over several decades. The forces of the market were exerting a tendency toward equalization between first and third world workers. This doesn’t mean equalization was ever reached. Equalization is a direction in which things move, not a permanent state of existence.

The same forces that move us toward equilibrium also pull us away from it. It’s not just that producers strive to achieve average productivity. They strive to do better than average productivity. Just as the market punishes those who don’t produce at the socially necessary labor time, it rewards those who produce more efficiently than what is socially necessary. So, the average productivity is always moving. Not only that, but if socially necessary labor time is the average level of productivity that doesn’t mean that everyone produces at the average. If I say that the average age in the room is 30 that doesn’t mean that everyone in the room is 30. As producers scramble to out-produce each other in the market they are presented with all sorts of advantages and disadvantages, obstacles and opportunities, which effect their distance from this moving average. In fact, when an average is moving its hard to call it an average at all.

Some industries have enormous barriers to entry because of the huge amounts of capital needed to compete. On the other hand huge investments in plant and equipment lock companies into the long-term use of this technology even if new competitors enter the market with cheaper more efficient technology. Industrialized nations often attempt to suppress the spread of technology and capital to the developing world so as to maintain economic supremacy. Cycles of explosive growth and crisis mean that some sectors of the economy experience ecstatic orgies of investment and development while others sometimes experience devaluation and stagnation. This leads to an asymmetry in the conditions of labor. Yet these tendencies toward disequilibrium are created by the same forces which move the economy toward equilibrium.

Many economic theories before and after Marx presented models of equilibrium, discussing forces that moved the economy towards an equilibrium state. Marx’s theory is unique in both the way he understood both the tendency toward and away from equalization. For one, Marx realized that the leveling tendency of money and prices was an expression of a deeper phenomenon, the equalization of labor: both the conditions of labor and the labor itself. On the other hand Marx saw the conditions of labor in a capitalist society exist on an antagonistic basis. The antagonism between labor and capital produce a constant drive to increase efficiency and to innovate, as well as constant cycles of boom and bust.  This produces all sorts of inequality in labor markets, uneven geographical development, and constant changes for the lives of laborers. In Marx’s theory of capitalism we see technological dynamism, cycles of growth and crisis and unequal development between sectors and countries. This means that there is a tendency both towards and way from equalization of labor.

Law of Value- 5. Production and Exchange (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Production and Exchange

[I think this is a good draft. It needs to be edited so that I introduce each point thru the example, instead of stating the abstract idea, giving the example, summarizing the abstract idea...]

We have seen that in a capitalist economy social labor takes the form of value. This labor produces commodities for exchange. It is only by exchanging these commodities in the market that our labor becomes social. If we just work on our garden at home making tomatoes and we eat all these tomatoes ourselves this is not social labor, we aren’t creating value. But if we were to build a greenhouse and go into business selling tomatoes then we would be engaging in social labor, we would be creating value. In both examples we perform the same type of labor, yet in one example we create value in the other we don’t. Why?

Because value is a social relation. It is not defined by the specific type of labor or the specific qualities of the product. It is defined by a specific type of social relation: the organization of the division of labor through commodity exchange. This is a tricky form of organization to theorize because production and exchange constitute two different moments in time, two very different processes, yet value is a unity of these two things.

Production

What does it mean to produce for exchange? For one it means that we are not producing for our own use-values but solely for the purpose of exchanging our commodity in the market. For the producer the commodity has no use-value at all. This means that producing goods for market exchange is radically different than producing goods for our own use.

From this starting point we can already see the problem with theories of markets that begin by abstracting away from the market. For instance, a lot of neo-classical economists follow Adam Smith in beginning their discussion of capitalism by talking about how Robinson Crusoe, stranded on a tropical island, would organize his productive activity to maximize his utility. Thus they form their theories of capitalist markets by abstracting away capital and markets. What actually ends up happening is that they project capitalist categories back in time to make them seem like universal characteristics of human nature that were just percolating beneath the surface for millennium waiting to find their full expression in the present. This is pure ideology, painting the present social order as eternal and inevitable.

Robinson Crusoe doesn’t produce exchange values. He only produces use-values. This means that his labor is not disciplined by the market. It is only disciplined by his own desires and the limitations of his tropical island. If he decides to build a log cabin to live in he can decide how much time to devote to that task, how hard to work each day, and what the quality of that work will be. Once he has produced the basic necessities of survival (fish) he can decide whether to devote extra time to producing a surplus or to spend his time doing recreational swimming. There is no external market force which disciplines his labor time.

[use more numerical examples for following discussion of SNLT]

If Crusoe were to be rescued and brought to a capitalist nation he would find things quite different even if he were to continue to build cabins and eat fish. Now instead of catching his own fish Crusoe has to buy them. In order to do this he has to produce something of his own to exchange in the market. In a capitalist society you don’t produce your own means of subsistence. Instead you buy your means of subsistence in the market and sell the products of your labor in the market.

imposition of commodity form on society. (how do I state this briefly without getting into selling labor power?)

Let’s say Crusoe now uses his new log cabin building skills to make a living. Now it does matter how efficiently he works. If other cabin-builders are more efficient than him they will push him out of the market. Crusoe may prefer to go swimming rather than build cabins but he will have to build the cabins anyway because he can only attain his means of subsistence by selling the products of his labor in the market. If he doesn’t sell cabins he won’t have any money to buy fish to eat.

The competition with other cabin-makers compels Crusoe to work at an average level of productivity. Marx called this average productivity the Socially Necessary Labor Time, an idea which will be discussed in more depth in another video. But Crusoe doesn’t know this average level of productivity before he enters the market. He can only guess as to this average productivity based on his previous experience in the market. If his competitors buy better tools or develop better methods in the interim he won’t discovers this until he returns to the market with his commodity. This rise in social productivity will force him to sell his cabins below their value. And this is what will force him to change his own productivity when he returns to production.

Notice that now Crusoe is very conscious of his labor time as it relates to others. He must work as efficiently as possible, and constantly be on the look-out to improve his efficiency. This obsession with labor time is one of the hallmarks of market societies and is responsible for much of the productive dynamism of a capitalist society. [It is also responsible for the very clear distinction between work and non-work that manifests itself in the contrast between stressful workplaces and indulgent, consumer recreation.]

So the separation of production and exchange in space and time, the coordination of private labor through markets, means that producers are always guessing what the value of their commodities are, always trying to beat the market, and always being disciplined by the market. No one person is in control. Instead the market is in control. It has basic structural characteristics that compel producers to behave in certain ways. The choices that individuals make are always choices within the incentive structure created by the market. Because the market is so all-encompassing this makes it very difficult to escape from these structural forces.

Exchange

While value is created in production it is “realized” in exchange. After we have worked to make something we say, “I think I can sell this shoe I just made for 20 bucks.” But we don’t know for sure what the price is until we enter the marketplace and compare our shoe-making labor to the labor of other shoe-makers. (Furthermore this value itself, this “20 bucks”, is merely an expression of the relation of our labor to the total social labor of society.)

Because we don’t realize the value of a commodity until it is exchanged this creates the illusion that value is created in exchange. Subjective value theory is based around this illusion. Subjective value theory thinks that because we must compare commodities in the market to realize their value that this means that the subjective comparisons between commodities in the market is what creates their value. (By abstracting away production of course this allows bourgeois economic theory to avoid discussing the unequal organization of production in a capitalist society: that the means of production are privately owned by a minority while the majority must sell their own labor to survive.)

For Marx these subjective valuations don’t create value, but they are a part of the mechanism through which the law of value works. When consumers choose between different shoes to buy their decisions help enforce an average level of productivity (SNLT) amongst shoemakers (just like Crusoe’s labor was disciplined by its comparison to other cabin-makers). Consumer choices also signal changes in the apportioning of labor between different sectors. But none of these subjective decisions can change anything about the productivity of labor. If the demand for toothbrushes goes up then more labor is devoted to making toothbrushes but unless there is a change in the productivity of toothbrush makers there will be no change in the value of a toothbrush.

What happens if I produce toothbrushes more efficiently than the social average? I can then sell my toothbrushes for more than their value and reap a super-profit. In other words I am receiving more value in exchange than I created in production. Does this mean that value has been created in exchange? No. When I receive a super-profit this means that a less-efficient toothbrush maker somewhere else is not selling his whole product. My super-profits are balanced out by his loss of profit. The total amount of value stays in the same. No value has been created.

The same happens if I cheat someone. If I sell you a bridge that doesn’t exist I have cheated you out of a million dollars. Does this mean value has been created in exchange? No. It just means that value has been transferred from you to me. The only way to create value is to perform socially useful work.

The fact that value cannot be created in exchange, but only transferred around, is a crucial one for Marx. It is one of the basic ideas behind his theory of exploitation: Since value can’t be created in exchange the only way surplus value (profit) to exist is for workers to be paid less than the value they create. This concept also figures prominently in Marx’s understanding of banking and financial capital.

Law of Value- 3. Das MudPie (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Das Mudpie

A Spectre haunts the face of Marxist theory: the spectre of the mudpie argument. It was this central conundrum that Marx devoted his momentous work “Das MudPie”. It has since haunted Marxist theorists of all persuasions. How can Marxists theory go on in light of this devastating contradiction?

Just Kidding…

If you spend any time reading about Marx’s theory of value on the internet you probably will come across some version of this asinine excuse for a critique called “the mudpie argument.” The basic style of the mudpie argument is similar to many advanced by those who know nothing about Marx’s theory of value: one constructs a ridiculous strawman argument that has nothing to do with Marx and then proceeds to knock it down with “devastating” brilliance, moral outrage, and a few clever asides about Stalinism. The MudPie argument goes something like this:

Marx claimed that labor is what gives all commodities value. But what if I make a mudpie? This is a product of labor yet nobody will buy it. It has no value. So Hah! Take that Karl Marx!

The problem with this argument is that Marx never claimed that anything produced by work has value. Value, for Marx, is an historically specific form of social labor. Let’s look closer at what is meant by “Social Labor”.

What is a society?

The key difference between human and animals, for Marx, is in the way they create their own worlds. Humans aren’t slaves to their own evolutionary destiny, repeating the same patterns of survival over and over for millennium.  Instead humans actively shape the world in which they live. There is certain creative aspect to human labor in which we imagine the product of our work in our mind before we go about the work:

“But what distinguishes the worst architect from the best of bees is this, that the architect raises his structure in imagination before he erects it in reality.”
-Das Kapital, Karl Marx

This world which we create forms the structure of our lived experience: we live in, wear, eat and think about the products of our own creation. The structure of our social relations, from the way we relate in cultural and family groups, to the organization of production, to ideas about the world we live in, constitute a created universe powered by the creative power of human labor. Yet this world of our creation also acts back upon us. It structures both our desires and our means of attaining these desires. In this sense, “Men make their own history, but they do not make it as they please” (The 18th Brumaire of Louis Bonaparte, Karl Marx)

In different times and different places this organization of human activity has been radically different. The level of technological development, the organization of production, the organization of classes, and the shared conceptions about the world have all changed radically over time. It is the organization of these different “modes of production” and the way the organization of production effects the other aspects of a society that was of interest to Marx. In essence Marx is asking what this organization of production can tell us about a society.

This means that Marx is not just interested in any labor. He is interested in “social labor”- labor that is part of this mode of production, labor that goes into the make-up of a society. The first step then, in looking at a particular historical mode of production, is to ask how the private labor of an individual becomes social labor. In many pre-capitalist modes of production labor is “directly social”, that is, the relations between laborers is organized directly like in a family farm or a hunter-gather society.

In a capitalist society labor becomes social through commodity exchange. People don’t directly relate their labor to each other. Instead they exchange their labor in the market in form of commodities. Even the ability to work itself is bought and sold in the market in the form of the commodity “labor power” which is bought with a wage. Instead of seeing one person’s work directly related to another’s we see two commodities being related to each other. This leads to all sorts illusions in which people ascribe the powers of labor to commodities. (see video on “fetishism”)

It is this relation of labors to one another, in the form of commodity exchange, which forms the basis of the law of value. (This is not just occasional trade between Native American tribes, or along the Silk Road. Marx is concerned with a society in which the dominant type of production is the production of commodities for exchange.) This comparison of private labors with each other exerts an indirect disciplining force upon production. Marx’s theory of value seeks to understand the nature of this disciplining force.

The MudPie argument assumes that when Marx is talking about labor and value he it talking about all labor and value for all time. But this is contrary to the entire point of Marx’s project which begins with an analysis of how labor becomes social in the particular, historically unique instance of capitalist commodity exchange.

The underlying implication in the MudPie argument is that a MudPie doesn’t have value because it doesn’t have any use to anyone, it doesn’t have any subjective value. This is used, supposedly as proof that it is this desire or demand for commodities which gives them their values. But no labor can become social, in any society, without producing something useful. Just because social labor has a use doesn’t mean that that usefulness is what gives it value.

For Marx useless things have no value. Similarly useful things which don’t require labor (like air, or gravity) have no value. Marx’s definition of a commodity includes the fact that commodities have both use-values and exchange-values.

Even more shocking to “MudPie theorists” would be the fact that Marx was very clear that changes in demand had effects on price. When demand increases prices rise temporarily. This price rise signals a reapportioning of social labor- more labor (living labor and dead labor) is moved into the production of this commodity (1).

But underlying these fluctuations of demand and supply lies a more basic observation about human society. We only have so much time as a society to devote to the production of our needs. If we are to have food, houses, clothes, DVD’s, and beer we are going to have to devote work to these things. Some things take a lot more labor to produce than others. They cost society more in terms of its expenditure of the total social labor. In a market society this cost isn’t decided by a committee, it’s decided by prices in the market. And this is what value is. Labor becomes social when its products obtain a price in the market. And these prices coordinate the social labor process.

Conclusion
When Marx says that labor, in a capitalist society, creates value we should take him literally. Only human labor can create commodities. No matter how much we may desire a commodity this desire cannot create the commodity. But this doesn’t mean that any product of labor has value. In order for labor to become social it has to exchange its product on the market. This implies that the labor has produced something socially useful.

(1) Living and Dead labor: Dead labor is past labor embodied in already-made commodities. Living labor is current labor. So a bread maker combines the dead labor embodied in sugar, grain, etc. with their own labor of baking.