Abstraction, Abstract Labor and Ilyenkov

What reading Ilyenkov helped me understand about Abstraction and Abstract Labor.

All theory makes abstractions. Marx’s abstractions are different than how we often think of the term. His method, a dialectical materialist method, treats abstractions in a different way than other methods. One of these differences is that abstractions appear in reality itself, not just in the mind of those contemplating reality. Abstract Labor is not a result of theory. It is a real phenomenon of capitalism.

For awhile I have been frustrated with my understanding of Abstract Labor and with my understanding of the relation of abstract labor to Marx’s dialectical method. (There is a two-part video in my Law of Value series in which I attempt to deal with both abstract labor and abstraction but I think I really missed the mark completely on both topics in that video.) So I recently turned to Evald Ilyenkov’s classic book “The Dialectics of the Abstract and the Concrete in Marx’s Capital” to straighten me out. After spending several weeks doing a close reading of the book I can now say “I once was lost but now I’m found, twas blind but now I see.” This book does not fuck around. I highly recommend it.

I knew I was lost, that I was missing something crucial about the relation of abstraction to abstract labor, when I came across this passage in Marx’s Value-Form Appendix to the first German edition of Capital vol. 1, a passage that I didn’t understand:

“Within the value-relation and the value expression included in it, the abstractly general counts not as a property of the concrete, sensibly real; but on the contrary the sensibly-concrete counts as the mere form of appearance or definite form of realisation of the abstractly general. The labour of tailoring, which, for example, hides in the equivalent ‘coat’, does not possess, within the value-expression of the linen, the general property of also being human labour. On the contrary. Being human labour counts as its essence (Wesen), being the labour of tailoring counts only as the form of appearance (Erscheinungsform) or definite form of realisation of this its essence. This quid pro quo is unavoidable because the labour represented in the product of labour only goes to create value insofar as it is undifferentiated human labour, so that the labour objectified in the value of the product is in no way distinguished from the labour objectified in the value of a different product.

“This inversion (Verkehrung) by which the sensibly-concrete counts only as the form of appearance of the abstractly general and not, on the contrary, the abstractly general as property of the concrete, characterises the expression of value. At the same time, it makes understanding it difficult. If I say: Roman Law and German Law are both laws, that is obvious. But if I say: Law (Das Recht), this abstraction (Abstraktum) realises itself in Roman Law and in German Law, in these concrete laws, the interconnection becoming mystical.”
Marx, Value Form Appendix to 1st German Edition of Capital vol. 1, 1867

Often, in common language, when we talk about abstraction we are identifying the general properties that all objects of a certain class have, setting aside (abstracting from) differences. For instance, when I say ‘piano’ I refer to the general features that all pianos have (strings hit by hammers activated by keys, etc.) but I abstract away from all differences between particular pianos (size, model, age, etc.). In this everyday, non-dialectical sense of abstraction (Ilyenkov calls it ‘Old Logic’) an abstraction is based on the general features of a class of objects. The abstraction itself, the abstract piano, does not exist in reality. Only particular pianos exist. Therefore the abstract piano only exists in the mind. For old logic abstractions are only in the mind while the opposite of abstract, concrete, refers to the objects of the real world, the particular pianos. For old logic an abstract idea is correct if it adequately captures the general features of a class of objects. It is wrong if there are concrete objects within this class that do not have the general features of the abstraction. Thus, if there is a piano with no hammers (like the Yamaha Avante-Grand) this would challenge our abstraction that a piano is something with strings hit by hammers activated by keys.

But this is not how Marx deals with abstract and concrete. In the quote above he says that “the abstractly general counts not as a property of the concrete, sensibly real; but on the contrary the sensibly-concrete counts as the mere form of appearance or definite form of realisation of the abstractly general.” In our old-logic abstraction ‘piano’ the abstract general features (strings, hammer, keys, etc.) were all properties of the concrete. They were specific features of the concrete that we singled out, abstracted, as the general features of all pianos. Here Marx is saying, quite explicitly, that this is NOT what he means by ‘abstract’ when he talks about abstract labor. Instead he says that the concrete is merely an expression of the abstract. Concrete labors are just the form of appearance of abstract labor. This implies that abstract labor is a real thing, existing in reality, and that concrete labors are merely the various guises that abstract labor appears in.

Clearly this is a different way of looking at abstract-concrete. We could explain this by saying that Marx is being Idealist, that he thinks the Ideal exists in reality and that concrete reality is just an expression of the Ideal. This would be the Hegelian approach. But we know that Marx is not an idealist so that can’t be the explanation.

Let’s put this quote of Marx’s to the side for the moment and return to it after looking at some of the things Ilyenkov clarifies about Marx’s notion of abstract and concrete.

Whereas old-logic sees abstraction as a mental process and concrete as a quality of sensual reality, Marx sees reality itself as having abstract and concrete aspects. Thought can also be abstract or concrete. An abstract aspect of reality is reflected in an abstract concept. A concrete aspect of reality is reflected in a concrete concept. So the first thing we have to rid ourselves of is this notion that abstract-concrete is analogous to mind-matter.

The next thing we have to consider is the way in which meaning, for Marx, is all about the interrelations of things within a complex system. Contrary to positivist notions of reality in which objects can be understood on their own, in isolation from a system of interactions, Marx only understands things relationally. The meaning, the essence of an object, is not found by observing it in a vacuum. It’s essence is found in the role it plays within a larger system. The same object could have a different essence in a different system.

Concrete reality is composed of many interrelations, relations which form laws of motion. The goal of theory, or science, is to understand this concrete reality in all of its interrelations. A concrete concept is one that captures the real essence of these interrelations. The goal of thinking, of theory, is concrete concepts. However we cannot immediately see all of reality and understand all of the complex interrelations all at once. We can only see a bit at a time. We point our camera to the right, then to the left, then we zoom in, then we zoom out, etc. What is this process? It is the process of abstraction. Abstraction means to leave out some detail and focus in on certain aspects at the expense of others.

The goal of this abstraction is to eventually identify the essential connections between different abstract aspects, slowly piecing the pieces together to give us a concrete picture of the whole. However this can only happen if we abstract correctly. There are two senses in with Marx talks of abstractions, a good and a bad way of abstracting. When abstraction has gone bad Marx often refers to the abstraction as ‘one-sided’. This means that the abstraction views an aspect of reality in an incomplete, one-sided way. An essential aspect of the nature of the object has been left out. Often Marx critiques bourgeois economists for making one-sided abstractions that make it seem like capitalism is a universal, a-historical system by abstracting away all of the historically specific aspects of capital. For instance, if we say that capital is just tools used to make more tools we have performed a sloppy, 1-sided abstraction. We are viewing capital merely from the abstract general features that capital has of increasing physical quantities of things while abstracting away the historically specific value-relations that give capitalism its essential nature.

This shows that abstraction can be arbitrary. If we are free to select one general feature over another we can radically change the concept of capital. If we choose only the ahistorical features we can make capital seem eternal. If abstraction is just seen as the identification of general features then we have no choice but to be arbitrary in our abstractions. But if abstraction is seen differently, as identifying the essential nature of an object, as identifying the “relation within which this thing is this thing” as Ilenkov puts it, then we can be scientific about our abstractions.
When we make an abstraction we want to select that aspect of the object which identifies its essence. Since the essence of things is in their relation to other things, we want to identify the essential relations which govern the object, abstracting away other non-essential aspects. Thus capital’s essence is in the increase of value in production through the exploitation of wage labor. A funny thing happens when we make abstractions of this kind: They often cease to be general features of the entire class. For instance, the above abstract definition of capital does not describe the general features of all capitalist activity. For instance, banks have an increase in value over time but they do not engage in production. Neither do landlords. So the abstraction, capital, is not a general property of capital. Instead it is an abstraction that gets to an essential relation. The profit of banks and landlords is a derivative profit, a subtraction from the surplus value created in production by other capitalists. This is a very different sense of abstraction that we are often used to. Here the abstraction ‘capital’ identifies the essential relation which makes all forms of capital possible, wether or not they share the same general features! The same is true with the basic abstract starting point of Marx’s theory: the commodity. As Ilenkov points out, Marx defines the commodity form very abstractly, even abstraction away money at first and just looking at the relation of one commodity to another. But this basic commodity-commodity relation is generative of the whole complex of social forms that exist in a capitalist economy. Even though some aspects of capitalism (credit default swaps for instance) are not the exchange of one product of labor for another this basic C-C relation is the logical and historical cell which is generative of the whole.

This way of abstracting gets us out of the arbitrary nature of old-logic where we chose whatever general features we wanted. Instead when we abstract we must identify the essential relation which defines an object, a relation that is generative of the class. This requires a very careful scientific approach to understanding how one form generates another, etc. This is the process of unfolding contradictions, etc…. but I will not get into that here.

A good abstraction, one that really identities the essential “relation within which the thing is the thing” is called a ‘concrete abstraction’. From the standpoint of old-logic this seems a contradiction in terms. But it makes perfect sense once we jettison the prejudice that abstract-concrete refers to thought-reality. Concrete abstractions don’t just refer to ideas. They refer to real things in the world. Every concept is abstract in the sense that it just refers to one aspect of reality. Every concept (every well-defined dialectical concept) is concrete in that it refers to the specific features that define an object in relation to the whole rather than to abstract general features. So every well-conceived dialectical concept is a concrete-abstraction.

This returns us to our discussion of abstract labor, an aspect of labor that Marx says is really existing in the world, and which appears in the form of concrete labor. At first it seems like Marx’s general use of abstract-concrete does not map onto his discussion of concrete and abstract labor. Concrete labor refers to the specific working activity of people, the use-values they make and the specific type of labor needed to make that use-value. Abstract labor seems at first, given Marx’s definition of “productive expenditure of a certain amount of human muscles, nerves, brain, etc.”(Capital vol. 1), to be a general feature of all labor, a description that doesn’t describe a relation.

Meanwhile concrete labor seems abstract and seems to define the interrelation of labors. Concrete-labor refers to the 1-sided development of specific laborers, the fact that in a developed division of labor people’s specific working activity is developed 1-sidedly at the expense of other skill sets. This 1-sided development leads to the interdependence of labors on one another. So, at first glance it seems like Marx’s use of abstract and concrete labor is the opposite of his use of abstract-concrete in his method in general.

However, though the inter-relation of all labors is a result of the division of labor, this is not the relation which defines the essential capitalist nature of labor in our society. The division of labor refers to a much wider historical category of labors. It is not an abstraction that captures “the relation within which the thing is the thing”. The specific aspect of capitalist labor that needs to be explained is that fact that it is value producing and that this value is a homogenous substance, one value product commensurable with another despite having different use-values and being the product of different heterogeneous labor-processes.

Were Marx to just appeal to old-logic’s method of generalization to identify the homogenous quality of capitalist labor he could be accused of being arbitrary. Marx’s method requires that abstraction refer to a real process or thing, something existing outside of the mind. Theory must trace the development of things in reality, not in the mind. This causes Marx to look to real events, real processes to identify the substance which produces this homogenous value.

When Marx speaks of abstract labor he is referring to the real development of an aspect of the labor process in capitalism. Capitalist labor is developed one-sidedly. It is developed purely for its abstract productivity, productivity developed for its own sake, not related to any specific use-values or social need. This causes labor to be machine-like, to be devoid of any content outside of its physical productivity. The process of social averaging which is socially necessary labor time also abstracts from the differences in productivity between workers so that the product of all labor has a uniform value. This is the essential aspect of capitalist labor that makes “the thing the thing.”

As objectified abstract labor, value takes an independent form, money, which exists as value in the abstract. But abstract labor itself, though it is real, though it is objective, only exists through its manifestations as various concrete labors. Here the concrete becomes a subordinate to the abstract. This is because in capitalism abstract laws dominate individuals. Isolated, independent concrete labors are at the mercy of abstract social forces which dominate individuals.

I hope others find this clarifying. Coincidentally Bruce Wallace has been writing about Ilyenkov on his blog as well.

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Indirectly Social Labor

Indirectly Social Labor

(This is a draft chapter. Comments appreciated.)

This chapter considers Marx’s distinction between directly social and indirectly social labor. Indirectly social labor is a key concept used by Marx to characterize the distinctive nature of capitalism. Any attempt to theorize a way to break with capitalist production, to form a new society not organized around capitalist social relations, must have a plan to break with the indirectly social nature of capitalist production.

Since these are two types of social labor perhaps the first place to begin is to clarify what ‘social labor’ is in the first place. It is obvious to anyone that any labor process which requires more than one person (moving a piano, for example) is an inherently social activity since it requires the direct cooperation of individuals to achieve a task. This cooperation also entails mutual dependence of all laborers involved. (If one person drops the piano then everyone is screwed.)

But not all tasks require direct cooperation between people to be executed. A piano tuner, for instance, works alone. Her work does not require the direct cooperation of other workers and she is not mutually dependent on anyone else in order to tune a piano. However Marx argues that the piano tuner’s work is still social labor. Why?

But also when I am active scientifically, etc. – an activity which I can seldom perform in direct community with others – then my activity is social, because I perform it as a man. Not only is the material of my activity given to me as a social product (as is even the language in which the thinker is active): my own existence is social activity, and therefore that which I make of myself, I make of myself for society and with the consciousness of myself as a social being.”1

So even though our piano tuner works alone her labor is social because it is part of a much larger social organization of labor extending beyond the piano to encompass all of society. The materials which she uses (wrench, tuning fork) and the material she works on (piano) are all products of other people’s labor. Furthermore, the language she uses (equal-tempered tuning) is a social creation, the product of centuries of development. And the art of piano-tuning itself is an art which has developed over time through the labor of thousands upon thousands of other tuners. Each piano that she tunes supports the labor of piano players and teachers in her city as well as the training of future pianists. To be a piano tuner is to be a part of this much larger development and organization of labor. Thus, her “own existence is a social activity,” and “that which she makes for herself she also makes for society.”

The social nature of labor is an ever-present theme in Marx’s work not just because all labor is social but because labor is the activity through which society is produced and reproduced each day. Societies do not fall from the sky nor do they develop out of the mind of God or humans. They are built and rebuilt each day through practical human activity. Social relations are reproduced everyday with this labor. Thus labor is the basic constitutive unit of society. Because this constitutive unit is an activity, society’s essence is constantly in motion, in the process of creating itself. This explains the ability of human society to change so drastically over the course of history, from living in caves to living in condos. The specific organization of this social labor defines the particular essence of any human society, from primitive communism, to feudalism, to capitalism. By understanding human activity as the constitutive unit of society Marx is able to identify the radical potential of human activity, labor’s potential to radically transform society into new forms.

Directly and Indirectly Social Labor

The distinctive thing about the organization of social labor in a capitalist society is that, in opposition to all previous forms of society, the private labor of individuals manifests its social character through the value relations between commodities. In capitalism the labor of individuals is private labor, the labor of atomized, separate individuals, which only reveals its social nature indirectly through the exchange relations between the products of labor, commodity values. This indirectly social labor is different than the directly social labor of prior societies in which the labor of individuals was not private labor separated by the mediation of value.

Take for instance the “patriarchal system of production”, as Marx calls it, where the family unit was the basic productive unit, each member of the family contributing different labors to the collective product of the family. Here the labor of each individual is not private and the product of that labor does not take the form of private property to be exchanged against the product of other family members’ products. The labors of the family members do not take the form of commodities with values and they do not require exchange to reveal their social nature. Instead the labor of each individual is already directly social: each person’s contribution to the family’s product is immediately part of the total product of the family, without having to pass through the mediation of money.

Personal vs. Objective Dependence

The direct social labor of pre-capitalist societies was organized through relations of personal dependence. Individuals were dependent on other members of the community in direct, subjective ways. Relations reflected the specific personal relations between individuals whether they be the relations between members of a family or between feudal classes. This made social custom, belief structures and religion quite crucial in regulating the relations between people. Capitalism, by reducing all interactions between producers to commodity relations, annihilates these ties of personal dependence as well as these customs and belief structures. This change liberated people from direct, personal dependence on one another, freeing humans from relations of direct servitude and other forms of coercion associated with pre-capitalist class society. However Marx cautions that this apparent freedom from relations of personal dependence is not as free as it at first seems. Capitalism replaces the “personal restriction of the individual by another” with “objective restriction of the individual by relations independent of him and sufficient unto themselves.” “These external relations are very far from being an abolition of ‘relations of dependence'; they are rather the dissolution of these relations into a general form….These objective dependency relations also appear, in antithesis to those of personal dependence (the objective dependency relation is nothing more than social relations which have become independent and now enter into opposition to the seemingly independent individuals; i.e. the reciprocal relations of production separated from and autonomous of individuals) in such a way that individuals are now ruled by abstractions, whereas earlier they depended on one another.”2

What does Marx mean when he says that relations of personal dependence are replaced by relations of general objective dependence? The change from personal dependence to general dependence is easy enough to to grasp. Capitalism with its global distribution of labor, complex chains of payments, etc links individuals into a vast, global organization of social labor, each person dependent on society in general but not dependent on any particular person. But why does Marx call this general dependence “objective” and how do these objective relations “enter into opposition to the seemingly independent individuals”?

The over-arching point which Marx is aiming at here is the fact that capitalism is not ruled by people, by subjects making choices, but instead by objective economic laws. These laws rule people rather than people ruling over the laws. “Individuals are subsumed under social production; social production exists outside them as their fate; but social production is not subsumed under individuals, manageable by them as their common wealth.”3 A capitalist economy is of course made up nothing more than individuals making choices. However the circumstances of these choices is not a choice. Choices are made within a pre-existing system of production which has its own laws of motion, laws that take on a character of objective independence from society. As long as the capitalist mode of production exists these laws act in the same way as a law of nature: they are inevitable, unbreakable and proceed free from the actions of humans. Because relations between producers are not direct, because they are mediated through the value relations between objects, these value relations take an independent form, an autonomous force that regulates production outside of the control of the producers. This is why Marx was highly critical of proposals to modify surface features of capitalism without doing away with the system of indirectly social labor that lay at the root of capitalist production. Individuals, groups and states cannot run capitalism. Capitalism runs people. This is an inescapable aspect of indirectly social labor.

But what accounts for this objective, law-like quality of a capitalist economy? Let us look more closely at what it means for social relations between producers to be mediated by value relations between commodities, for labor to be indirectly social. In order to have money to buy my means of subsistence I must produce a commodity and it must sell in the market for a price. The connection between my labor and the labor of the rest of society is contingent upon the sale of my commodity for money. This money does not just measure the value of my own personal labor. The value of the widget I create is not determined by myself alone. It is determined by the socially necessary labor time it takes to make a widget. If I take 2 hours to make a widget but the socially necessary labor time for widgets is 1 hour then my two hours of labor are only worth 1 hour to society. Not all of my labor is counted as social labor by society. Only the socially necessary part of my labor counts as social labor. This is why we say that our labors are only indirectly social in capitalism. Our labors are only social in this limited, contingent way. The fact that my two hours of labor only count as 1 social hour is not a decision made by people. It is a result imposed upon me by forces outside of any person’s control. Even though socially necessary labor time is a result of human actions its imposition upon people takes the form of an impersonal objective force.

While in the above example my 2 hours of labor only count as 1 hour of social labor, money always counts for its full value. This is one of the ‘peculiarities of the equivalent form’ as Marx calls it.4 While the labors of people are always indirectly social, money, the mediating link between these labors, is directly social because it always counts for exactly as much value as it represents. Money can be exchanged for, it can measure the value of, any commodity. Money is social value in the abstract, unattached to any particular use-value. Of course the social power of money comes from society, from labor, but this social power appears as a force independent of individuals, an alien power confronting individuals. Money, the direct incarnation of social wealth, the objective link between individuals, exists in the form of an object which can be owned and amassed by, as well as kept from, people. “The individual carries his social power, as well as his bond with society, in his pocket.”5

So in a system of indirectly social labor not only are private labors regulated by social forces (socially necessary labor time) which are outside of the control of society but money, the mediating link which stands between these labors, appears as an objective social power outside of the control of individuals as well. Whereas pre-capitalist societies were organized through the direct personal dependence of people on one another, in capitalism this dependence becomes a general objective dependence. We depend on money. Money serves as our link to the rest of society. Money confronts us as the executor of objective economic laws.


In the same way that we said that directly social labor is constituted of subjective relations of dependence we could also say that directly social labor is organized around the particular aspects of labor as opposed to capitalism which organizes the universal aspects of labor. Returning to our hypothetical patriarchal family production unit we see that my contribution to the family’s product is very much bound up in the particularities of my labor. My particular skills, speed, habits, mood, health, etc all are immediately relevant factors in what I contribute to the family. This is not the case in a capitalist society where my output is a tiny part of the total output of society. The value of the widgets I make in a capitalist factory do not depend on my particular skills, speed, habits, mood or health. Instead this value is a universal, social value established by the time it takes society in general to produce a widget, the socially necessary labor time of widgets. Rather than the particularities of my labor it is the universal aspect of my labor that counts as part of the total social output. If the socially necessary labor time to produce widgets is 1 hour per widget but I require two hours to make a widget my widgets are not worth anything extra just because I took a long time to make them. They are only worth the social average. The particular nature of my work does not count. What counts is the universal aspect of my work.

What is this universal aspect? “This abstraction, human labour in general, exists in the form of average labour which, in a given society, the average person can perform, productive expenditure of a certain amount of human muscles, nerves, brain, etc.”6

This universal aspect Marx calls “Abstract Labor” and it forms the topic of a separate chapter in this book. However it is appropriate to explore the topic here briefly. These ‘universal’ aspects of labor may exist for all labors in all types of society. They also may only be some among many other universal aspects of labor. However these specific universal aspects are the ones deemed important to capitalism, the aspects which capitalism develops to the extreme, at the expense of other aspects of labor. Capitalism requires that all private labors are only counted as social to the extent that they take part in the formation of social averages of productivity, productivity measured as output over time. If socially necessary labor time is 1 widget per hour my labor will only count as social labor to the extent that it can produce at that average. Thus what is universal, what is social about my labor, is not any particular feature of me or the way I work. What is universal is the ability of my muscles, nerves and brain to produce 1 widget per hour. Marx argues elsewhere that capitalism is production for production’s sake. This productive imperative is reflected in abstract labor in which it is only productivity in the abstract that is socially valued. All particularity is erased and replaced by the imperative to produce at the social average. Capitalism develops this abstract character of labor, its physical productivity, to the extreme in its drive to amass profit for the sake of amassing profit.

If we look at labors in their particularity we see that they are all quite different, some much more productive, more efficient than others. However if we look at labor from the perspective of the person at Wallmart in charge of buying product from suppliers, then we see that all particularities are irrelevant. It does not matter what country the product comes from, the conditions of the producers, the health and safety standards of the conditions of production, etc. All that matters is the unit cost of the product. From the perspective of Wallmart all of those particular labors are just manifestations of value in general. They are considered only in their universal aspect. How would Wallmart calculate the value of an individual’s contribution? Wallmart would merely take the total value of the product and divide it by the total hours worked to create it. Through this process of averaging all particularity is erased and human labor is considered only in its most abstract aspects. “Labour, thus measured by time, does not seem, indeed, to be the labour of different persons, but on the contrary the different working individuals seem to be mere organs of this labour.”7

When does labor ‘become social’? (hint: trick question)

We have said that labor in a capitalist society is indirectly social because the labor of private producers only realizes its social character in the value relations between producers rather than the producers directly relating to each other. This seems straight-forward enough. However this concept has produced different interpretations. Isaak Rubin’s highly influential reading takes Marx to mean that the private labor of individuals does not become social until the products of labor are exchanged on the market. This then means that the labor itself, when it is happening, is not social (or only social in some ideal sense). The exchange process is what makes the labor social. For Rubin, it is market exchange which is the distinctive aspect of capitalism, the aspect that establishes the social relation between private producers.8

It is easy to see why such a reading would be tempting. The labor of separated, isolated producers does not appear to be social at first glance. The exchange process brings the products of those labors into relations with each other, establishing their social connectivity, and so it would seem that it is exchange which ‘makes labor social’ post festum. However Marx does not actually characterize the situation in this way. He speaks of exchange ‘realizing’ the social character of production. ‘Realizing’ the social character is different than ‘making’ the social character. If I ‘realize’ that the sun is out today this does not mean that I have caused the sun to come out today. If the exchange of commodities ‘realizes’ the social character of capitalist labor this does not mean that the exchange has caused one’s private labor to become<br / social labor. Furthermore, as we saw with our example of the piano tuner above, her labor was already social labor even though it was private labor. It was social labor because it was part of the total past and present labor of society. Even though her work is done in isolation, it is still a component part of a much larger social process of production. Exchange may realize these social connections, it may reveal the linkages between labors, and this labor may be production for exchange, but this does not mean that labor is not already social during production. In fact, her labor is always social because it is the labor of an individual in a society.

This distinction may sound like academics splitting hairs however there is more at stake here than first meets the eye. Rubin’s characterization of the matter suggests an understanding of capitalism in which it is market exchange that defines the essence of capitalism. Rubin often counterposes market exchange to the socialized production of communism in which planners replace the market with a plan. This seems to make sense of the directly-indirectly social labor distinction: markets are indirectly social; planning is directly social. This market-plan dichotomy is the hallmark of many Marxist and bourgeois characterizations of the difference between capitalism and communism. The fact that Marxists and their bourgeois critics accept the same characterization of communism and capitalism, plan vs. market, should be a clue that too much has already been conceded to the bourgeois vantage point.

But if we interpret the market to be merely ‘realizing’ the indirectly social nature of capitalist production then it is not necessarily the case that replacing the market with a plan will eliminate the indirectly social nature of production. If production is indirectly social then it could be realized by a market or a plan. If we take into consideration the above discussion of Marx’s critique of those who want to fix capitalism by managing it better without ridding it of value production, we might ask how planning alone can alter the indirectly social nature of value production. After all, do highly-planned production chains in capitalism have a more directly social character? Does the planned production of state industries have a directly social character? If the answer is ‘yes’ then planned capitalism might the road to communism!

In contrast to the ‘circulationist’ reading of Rubin there has been a development of Marx’s idea of indirectly social labor within the Marxist-Humanist tradition developed by Raya Dunayevskaya.9 This reading links the category of indirectly social labor to socially necessary labor time, a link we have already discussed above. Since SNLT is established in production and then realized/enforced in the market, this then implies that the indirectly social character of labor is present during production, to be realized later in exchange. Capitalist labor is not un-social in production, becoming social after the fact in exchange. Rather exchange realizes the indirect sociality of capitalist production (just as the labor of our piano tuner, above, is already stamped with a social form before the labor is even finished.) The essence of this indirectness is the fact, discussed above, that an individual’s labor is only social through a process of averaging which eliminates the particularity of labor, counting only the most abstract qualities of labor as social. Because only socially necessary labor is social, individuals do not relate their labors to one another in a direct sense. Their labors are only social in an indirect sense, mediated through this process of averaging.

The distinction between this humanist reading and the circulationist reading still may seem trivial. After all, SNLT only exists because we produce for exchange. Exchange plays a vital role in the process of regulating labor in a capitalist economy where private labors happen in relative isolation from each other. However the distinction becomes more crucial once we consider the nature of labor in the state-planned economies of the USSR. Soviet economists claimed to operate under the law of value, to produce commodities, similarly to capitalism. However they also claimed that they were doing so consciously, using the law of value to their advantage, as a conscious tool of state planning. This meant, according to Soviet economists, that while other categories of capitalist production may have been at play, labor was directly social. It was directly social because it was planned by people, not blind economic forces. This was meant to prove the socialist nature of their state-planning.10

But if we understand indirectly social labor to be the result of socially necessary labor time then it does not matter whether this labor’s social nature is realized by a market or by a plan. What gives it its indirectly social nature is the fact that one hour of my work is not worth as much as another’s. Labors are not treated equally. Instead a process of social averaging takes place which rewards some labors and punishes others. The mechanism which realizes or reinforces this does not alter matters. This argument has been used to argue that the USSR was actually a state-capitalist society, not a communist society. Such a claim requires an empirical analysis of the organization of the USSR, something outside the topic of this book. [cite mh and ticktin] What is important for our purposes here is to show the relevance and importance of the category of indirectly social labor. It is clearly a central concept to grapple with if we are to know how not to repeat the mistakes of the USSR as well as know how to build a real communist society in the future.

Directly Social Labor and Communism

Marx lays out, briefly, a way to make labor directly social, breaking with capitalist value production, in his Critique of the Gotha program. In Marx’s concept of directly social labor he advocates a system which breaks with the disciplining of production by socially necessary labor time. Producers in this post-capitalist society will not be compensated according to the social average but instead compensated directly for the actual amount of labor time they expend in production. If I spend 2 hours making a widget I get a labor-certificate entitling me to purchase consumption goods equal to two hours of labor. If you spend 3 hours making the same widget you get a certificate entitling you to 3 hours of consumption goods. Regardless of productivity our labors are directly social because they are compensated in full, considered part of the total labor of society, no matter what.11

Careful readers may ask how such a society would determine the labor-content of consumption goods (the ‘prices’ at which workers ‘buy’ them with their labor-certificates) in the absence of socially necessary labor time. This calculation would be based on the average social labor-time that it took to make a commodity. The calculation could be done simply by adding up all of the concrete labor times that go into making widgets and dividing this by the number of widgets. Such a calculation would allow society to continue to make production plans and to ‘price’ commodities. But the compensation of laborers would not be done through such a process of averaging. So such a system would not eliminate the role of average labor time as an accounting unit. What it would eliminate is the role of average time in the compensation of workers.12

Earlier we used a similar example of a Wallmart executive finding the average cost of of producing a commodity to set the price of the commodity. This example demonstrated how this process of averaging, which determines the socially necessary labor time, erases all particularity of workers, treating individuals only as units of average labor time, as abstract labor. Here, in our example of a communist society with directly social labor, we also see an example of the ‘prices’ of goods being calculated through a similar calculation of average labor time. What is the difference between these two examples? The difference is that Wallmart pays the same price for all of the commodities it buys from suppliers and those suppliers in turn only pay workers to the extent that they can produce at the social average. Any wasted time is not compensated. This creates an incentive for speed-up, exploitation, and the domination of machines over humans in production. In our communist society workers are compensated for the actual amount of time they labor, not just the part that achieves the average. This means that their labor is directly social. The immediate practical implications of this are that there is not an incentive for speed-up and so machines do not loom over production demanding more and more life from the worker.

To execute such an organization of labor it would be necessary for production to be owned and planned by society and not by individual capitals competing in the market. A society of directly social labor would entail different property relations and a different organization of production. In such a system labor-certificates would not circulate independently as money nor would alternative monies emerge spontaneously. This elimination of money would not be the result of political fiat. It would be a result of the organization of the mode of production. Directly social labor has no need for money. Money does not have a role in measuring socially necessary labor time. There is no need for a money commodity to measure the abstract labor content of commodities. The products of labor do not function as commodities with values. Without money and commodities there is no capital.


We saw earlier that capitalism’s system of indirectly social labor requires a process of social averaging in which individual labors are measured against a social average, measured in money. This money becomes an independent, objective economic force and society becomes ruled by impersonal, abstract forces. In contrast to the personal dependence relations of directly social labor in pre-capitalist society, capitalism gives us a general objective dependence on society. Marx’s labor-certificate proposal evolves directly out of this analysis of capitalism. In order to rid ourselves of this domination by objects and objective laws we must eliminate money and production for money. By rewarding all labors equally a communist society would eliminate the primary function of money, its role as a post-festum measure of socially necessary labor time.

We also saw how capitalism ignores the rich diversity of human labor and instead only counts as social the most universal and mechanical aspects of labor, the ability of human muscles and nerves to generate a certain average output over a span of time. Marx’s proposal would have the opposite effect. By counting all labor as social, with no exceptions, this eliminates the factory clock as the slave-master of the laborer. The drive to increase production at all costs ceases. Instead human labor is valued in its own right. Society can begin to develop the full-spectrum of human potentialities rather than the narrow spectrum of abstract labor.


1. Economic and Philosophic Manuscripts of 1844 from the essay “Private Property and Communism” p. 44
2Marx. Grundrisse p. 164
3Marx,Grundrisse p. 158
4Marx, Capital vol. 1 p. 151
5Marx, Grundrisse p. 157
6Marx.Contribution to a Critique of Political Economy p. 8
7Marx, Contribution to a Critique of Political Econ. p. 25
8In his essay Abstract Labor and Value in Marx’s System, which appeared in the Soviet journal Under the Banner of Marxism in 1927, Rubin answers critics who charge him with claiming that value is created in exchange (and that therefore labor is made abstract in exchange and labor becomes social in exchange). Rubin defends himself by saying that there are two senses in which we talk about exchange. One is exchange as a form of social reproduction in general and the second is exchange as a moment within the process of reproduction. Although exchange itself is only a moment within a larger process of reproducing capitalist relations Rubin argues that the entire process is characterized by exchange, that it is the fact that products are exchanged which accounts for the unique aspect of capitalist production. This allows him to try to pacify his critics by saying that labor is ideally abstract, ideally social at the time of production but only becomes abstract and social when commodities are exchanged. I find this solution problematic. Marx talks about ‘ideal price’ being realized in exchange but does not talk about ‘ideal value’ being realized in exchange. Rather Marx argues very explicitly that commodities and money enter the market already with values, therefore already representing a sum of abstract labor. If value already exists prior to exchange then the labor that makes this value must already have a social character prior to exchange.
9For the relation of indirectly social labor to socially necessary labor time see Kliman, Hudis and Weiss cited in Bibliography.
10Kliman, “A new look at the Russian Revision of Marx’s concept of ‘directly social labor’.”
11Saying that labor is compensated “in full” is slightly misleading. As Marx points out in the Critique of the Gotha Program, society would most likely choose to make certain deductions from compensation for a common fund that would fund the consumption of those who cannot work, allow for the construction of public goods, etc. See Gotha Critique p. 528-529
12Why is ‘price’ in quotes here? Ideally there would be a completely different term to designate this concept without needing to refer to the categories and terms of capitalist society. While indirectly social labor must be expressed in money prices (always averages expressed in the body of the money commodity), directly social labor could be expressed directly in labor hours. Stamping the products created by a communist society with their labor times would allow people to spend their labor certificates on a given amount of goods. However these labor times would not function in the way capitalist prices do. For one, labor certificates would not circulate as money because there would be no value production and thus no need for a general equivalent. Because goods would not be produced for exchange they would not have exchange values or intrinsic value and thus would not need to externalize their value in the form of the equivalent, money. See Pannekoek quote in David Adams piece cited in Bibliography
Hudis, Peter. “Directly and Indirectly Social Labor: What Kind of Human Relations Can Transcend Capitalism?” http://www.internationalmarxisthumanist.org/articles/directly-and-indirectly-social-labor-what-kind-of-human-relations-can-transcend-capitalism-by-peter-hudis
Kliman, Andrew “A new look at the Russian revision of Marx’s Concept of ‘directly social labor’”, News and Letters; Nov.-Dec. 2005. http://www.newsandletters.org/issues/2005/Nov-Dec/Kliman_Nov-Dec_05.htm
Marx. “Capital” Penguin edition
Marx. “Critique of the Gotha Program” in “Marx-Engels Reader” ed. Tucker
Marx. “Contribution to a Critique of Political Economy”. Marxist Internet Archive http://www.marxists.org/archive/marx/works/1859/critique-pol-economy/
Marx. “Grundrisse” Penguin edition
Marx. “Economic and Philosophic Manuscripts of 1844” Marxist Internet Archive translation https://www.marxists.org/archive/marx/works/1844/manuscripts/preface.htm
Rubin, II. Abstract Labor and Value in Marx’s System, in “Under the Banner of Marxism” 1927. http://marxists.org/archive/rubin/abstract-labour.htm
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On Labor as the Substance of Value

(This is a draft. All comments welcome. Citations and footnotes are incomplete.)

Labor as Substance of Value

Once Marx has established that value is a property intrinsic to commodities he immediately goes on to ask what this value is and what determines the magnitude of this value. The answer to both questions is human labor time. Human labor creates commodities. The magnitude of labor (the time spent producing) determines the magnitude of the value of the commodity. Value itself is ‘objectified labor time’. That is, once a worker has produced a commodity this commodity represents, or ‘contains’, however many hours of past labor. This past, objectified labor is value. Objectified labor is the substance of value. Active human labor time determines the magnitude of this value.

Why is labor the substance of value? Marx’s argument is quite simple and short.

A commodity is a product of labor that has a use-value and an exchange-value. We know that exchange value is an expression of intrinsic value so exchange value cannot be the substance of value. Use-value also cannot be the substance of value. Use-values are heterogeneous and thus cannot be compared with one another. How do we compare the use of an apple to the use of a piano? There is no common denominator which we can reduce all uses to. Furthermore use-value has no quantitative properties, only qualitative ones. We cannot divide the usefulness of a piano in half or multiply it by 4.  Yet we know value is a homogenous substance, that commodities with value share a common quality that can be divided, multiplied, etc. Value implies numerical relations between commodities.

Once we have excluded use-value and exchange-value Marx says that the only property of the commodity left is that the commodity is the product of human labor. In some ways this is a very simple and obvious argument since Marx has defined the commodity from the beginning as a product of labor that has a use-value and exchange-value. Since exchange-value and use-value cannot be the substance of value then the fact that they are products of labor is the only remaining attribute which can explain the value character of the commodity.

Many objections have been raised to Marx’s argument over the years. The great bulk of these critiques can be found in Bohm-Bawerk’s 1898 book “Karl Marx and the Close of His System”. Marx was not alive to address all of Bohm-Bawerk’s critiques. Let us see what we can do to remedy this here.

1. Bohm-Bawerk takes issue with the structure of Marx’s argument. Marx has defined a commodity as being a product of labor with a use-value and exchange-value. When he shows that use-value and exchange value cannot be the substance of value then only labor is left. Bohm-Bawerk argues that this is only possible because of the crafty way in which Marx defines ‘commodity’, sneakily leaving out other exchangeable goods which are not the product of labor.
“From the beginning he only puts into the sieve those exchangeable things which contain the property which he desires finally to sift out as “the common factor,” and he leaves all the others outside.” p70
    “To exclude the exchangeable goods which are not products of labor in the search for the common factor which lies at the root of exchange value is, under the circumstances, a great error of method.” p70
    “ his idea of “commodities” is narrower than that of exchangeable goods as a whole.” p71

BB is correct. Marx does not look at all exchangeable goods when he derives labor as the substance of value. He intentionally only considers commodities, which he defines as being useful objects produced by labor for exchange. This is because, contrary to some interpretations, Marx is not trying to explain the phenomenon of exchangeability or to explain prices. He is trying to explain the commodity. He says so very explicitly in the first lines of Capital:  “The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,”[1] its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.” (also cite Notes on Adolph Wagner and Kliman)

Marx’s topic is the commodity because the commodity is the basic unit of capitalist wealth. Commodity production, production for exchange, is the dominant form of production. This does not mean that commodity production is the only form of production, or that commodities are the only things that are exchanged. It instead means that commodity production dominates all other production and exchange. A common theme in Marx’s writing is the way in which value relations permeate and impose their logic on all other forms of social organization. This means that in order to understand our society we must first understand its most basic unit, the commodity and the value-form that it contains. Then we can examine the way the logic of the commodity effects other aspects of social organization.

Still, it seems we have not entirely disposed of BB’s critique. After all, Marx is saying that labor and only labor creates value in a capitalist society. Yet there are examples of things that have exchange-value that are not products of labor. How does Marx deal with this? He holds that not everything with an exchange-value has a value. This seems odd at first since we have said previously that exchange-value is the form of appearance of value. If a good has no value, is not the product of labor, what is its exchange-value measuring?

In fashioning a response a good place to start might be to try to name some exchangeable goods that are not a product of labor. Bohm-Bawerk asks us to imagine the products of nature: trees, land, minerals. But it is quite hard to distinguish between the product of nature and the labor that is required to turn these natural products into exchangeable goods. Trees must be cut and transported. Minerals must be mined, refined and transported. The only product of nature that seems able to have an exchangeability somewhat independent of human labor is the land itself. Land, of course, is hard to distinguish from the built environment that humans have produced. Much of the land is a result of the construction of spaces and transportation networks. So it is actually quite hard to have a theory of the exchange-value of land that is entirely divorced from a theory of production. At the same time there remains an aspect of land that is not directly produced for exchange. This aspect falls under the category of rent.

The theory of rent is a bit too complex to deal with in detail here, but a look at the basic contours of the theory will help us answer the question at hand. One plot of land is different from another and these differences constitute different resource endowments that convey productive advantages to the owners of land. As producers compete to produce below the socially necessary labor time in order to outsell rivals these difference in the productivity of land allow some sellers to produce below the socially necessary labor time thus obtaining a super-profit (see chapter on SNLT). This super-profit can be capitalized upon to become rent. Rent is a function of the relation of different productivity of the land to socially necessary labor time. Rent is a derivative category which we can only theorize once we understand value production. The price of land is related to rent. (Once one also considers other derivative forms of capital like credit, we can theorize other aspects of the exchange-value of land, as land becomes the focus of speculation and other credit-based investments.)

Land does not just have value by itself. Rent does not grow from the soil. The value of land, rent, is a product of the relation of land to the productivity of labor. Thus Marx’s exclusion of land from his analysis of commodities is entirely justified. Humans have worked on land for millennia. It is only in a capitalist society that land takes the form of private property that generates rent. If we want to understand the price of land we need to understand the wider social relations which generate this price form.

Later in Chapter 1 of Capital Marx explores the exchange of other non-produced goods:

“Objects that in themselves are no commodities, such as conscience, honour, &c., are capable of being offered for sale by their holders, and of thus acquiring, through their price, the form of commodities. Hence an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics.”

(As an aside I find it amusing that Marx uses such strange examples of non-commodities here like conscience and honor. Clearly it is hard to find examples of non-produced exchangeable goods! Perhaps a modern-day example might be a politician who sells his “loyalty” to the capitalist class or an athlete who sells his “like-ness” to advertisers.)

In discussing rent we decided that rent was a derivative category of value production and that therefore Marx was justified in theorizing rent after he had formed a theory of commodities. Here we have a different matter, “imaginary value”. The first thing we might note is that since conscience and honor are not products of labor they are not freely reproducible and thus do not respond to the laws of supply and demand, or socially necessary labor time, the typical forces by which prices are established. This is a good reason to exclude them from the class of goods that we are considering since this sale of conscience or honor does not follow any predictable economic logic. Rather, the price of conscience or honor would be whatever the two parties of the exchange decide upon at the moment. We draw no further conclusions or laws from this. If we were to use these exchanges to construct a theory of value we would end up with an indeterminate, nihilistic theory of value in which values are merely whatever people decide they are in the moment, with no law-like regulation by the production process. (This is, of course, the direction that BB and his ilk would like to move value theory, into a nihilistic, hedonistic terrain where value is whatever an individual decides it is leaving us unable to make any theories about social structure, class, or production relations.)

But it is not the fact that we can deduce no laws from it that Marx excludes imaginary value from the central focus of a theory of value. Instead it is because such exchanges are an entirely irrelevant and peripheral phenomenon in our society. The nihilistic, indeterminate logic of “imaginary values” does not extend into the realm of commodity production. So there is no reason to bend the laws of commodity value to fit into the arbitrary whims of those who sell conscience and honor. On the other hand, the basic category of value (and money!) extends over all exchangeable goods. Because commodity production dominates all production and exchange, the exchange of “imaginary values” takes the form of commodity exchange, even though it is not commodity exchange proper. To win the loyalty of a Cardinal in medieval Europe a king would need ply the Cardinal with political favors. To win the loyalty of a politician in a capitalist society one must give her money. Thus the price of loyalty takes the form of commodity exchange even if it is not commodity exchange proper.

By “form of commodity exchange” I refer to a class society in which most people must buy their subsistence and sell their labor power in the market because they are divorced from the means of production. Labor is organized through commodity exchange and money stands as the universal measure of value. The exchange of products of labor take the form of market exchange. The exchange of non-produced things, like honor and conscience, also take the form of commodity exchange, even though they are not commodities.

Though BB does not bring up the topic at this point we might also mention the exchange-value of produced commodities that are not freely reproducible. A one-of-a-kind work of art like a Picasso painting is a commodity but it cannot be reproduced. Thus it does not respond to the pressure of socially necessary labor time. The exchange-value of a Picasso is a reflection of whatever someone is willing to pay for it at the moment, much like honor and conscience. Marx excludes non-reproducible commodities from his analysis for the most part as well since they are peripheral to capitalist production. However, like imaginary value, when we look at non-reproducible commodities we see that they take the form of commodity-exchange because that is the dominant form of social labor in our society.

2. BB’s second objections to Marx’s argument for labor as the substance of value is that there are other common properties to commodities other than being the products of labor.

“is there only one other property? Is not the property of being scarce in proportion to demand also common to all exchangeable goods? Or that they are the subjects of demand and supply? Or that they are appropriated? Or that they are natural products?….Why then, I ask again today, may not the principle of value reside in any one of these common properties as well as in the property of being products of labor” (BB p.75)

Since value is a social relation this means that we cannot look to natural properties (natural products) of commodities for a common property. Excluding their natural properties is the same as excluding their character as use-values since use-value is directly tied to the natural properties of the object. In addition, as Marx argues, there is no such thing as use in the abstract, as use-in-general, so use cannot be the common property we are looking for. There are only specific uses for things.

Certainly all commodities are scarce in proportion to demand. Is this a property of a commodity? When we buy a commodity are we purchasing a sum of scarcity? A sum of supply and demand? How can these be the substance of value? Here again we see what happens when BB conflates value and exchange value. Marx is certainly in agreement that supply and demand affect the formation of prices. Yet he does not believe this to have any relation to the determination of value.  These cannot be the substance of value.

Ultimately, when it comes to society, human labor is the scarcity that matters. Society only has so many hours in a day to produce the commodities needed to reproduce itself. It must apportion these labor hours in such a way that shit gets done. Yes, there is a scarcity of natural resources as well. But this scarcity is measured in labor time! If it takes a million hours of labor a year to produce all the oil society needs then a million hours if the measure of the scarcity of oil.

3. BB’s third objection takes a different tack.
“Labor and value in use have a qualitative side and a quantitative side. As the value in use is different qualitatively as table, house, or yarn, so is labor as carpentry, masonry, or spinning.”p76

Marx has said that use-value can’t be the substance of value or the determination of its magnitude because use-value is not homogenous. We cannot compare one use-value to another. Just as use-values are heterogeneous so too are the labors that create these use-values. The labor that creates apples is not the same as that which creates pianos. How can we equate the two? What makes them a common substance? Isn’t Marx using one argument to dismiss use-value and then ignoring the same argument when it comes to labor?

It may seem that BB has come up with a clever retort here unless we realize that Marx himself poses this same question in the first chapter of Capital. “As the coat and the linen are two qualitatively different use values, so also are the two forms of labour that produce them, tailoring and weaving.”

Notice however that Marx does not say here that the labors are qualitatively different in any and all senses. Rather he says they are qualitatively different as the coat and linen are different use-values. The aspect of human labor that accounts for the different qualitative use-values is “concrete labor”, heterogenous labor unique in the motions, skill and knowledge specific to apple growing or piano making. Yet despite these specific, concrete differences all labor is also human labor in general, or “abstract labor”. As will be discussed further in the chapter on abstract labor, labor is both concrete and abstract at the same time. As concrete labor it is heterogeneous, differentiated. As abstract labor, it is part of the total labor expended by society, the same as all other labor in the sense that it is a function “of the human organism, and that each such function, whatever may be its nature or form, is essentially the expenditure of human brain, nerves, muscles, &c.” (from fetishism section of Chapter one.)

So even though labors are different these different labors are all just examples of labor in general, of labor in the abstract. If Marx can make this concrete-abstract distinction with labor why not also for use-value or utlity? The answer is simple: there is no such thing as use in general. Uses are only concrete, specific to the commodity and the way it is used. [footnote]

But isn’t the fact that we have the word “use” that applies to both apple eating and piano playing evidence that there is a concept of ‘use in general’? A ha! This question brings us to the heart of what is really interesting and important about Marx’s concept of abstract labor. The word ‘use’ is a category which encompasses all specific types of using just as the word ‘labor’ is a category that encompasses all specific types of labor. However Marx is arguing that abstract labor is not just a theoretical abstraction, not just a handy linguistic device for tying together heterogenous concrete actions. Instead abstract labor is a real entity existing in capitalist society.

This is covered further in the chapter on abstract labor however the basic line of argumentation is this: There are multiple forces in a capitalist society that reduce human labor to an abstraction, a pure expenditure of physiological labor. Socially necessary labor time reduces all labor to its maximum output so that all labors everywhere are valued the same, that is, they are all labors producing at maximum efficiency. We can compare the labor of apple pickers to piano makers because both are human labor expended in its most efficient form. Capital of course has no care for the specific use-values it creates and therefore no care for the concrete labor that produces them. It only cares about value production, value in general. Thus capital treats all labor as abstract units in a giant profit calculator. Whether this labor produces apples or pianos or rubber ducks makes no difference as long as it is working at maximum efficiency. For this reason workers in a capitalist society have a much higher degree of subjective indifference to their work than in past societies. People move from job to job with much more flexibility than in, say feudalism where one was born into a caste and worked in the same capacity for life. Etc….

Thus Marx can say that labor is the substance of value because labor is both concrete and abstract at the same time.

Part Two: Other arguments

Setting aside BB’s objections it should be noted that some folks, Marxists included [Rubin for example], have not always found Marx’s above argument satisfactory enough to not need additional argumentation. Marx’s argument has the flavor of an analytical proof (a commodity is x, y and z. Since x and y can’t explain value then it must be z.) and such forms of argument don’t always sit well with folks. Andrew Kliman has advanced a very thorough defense of Marx’s argument (see “The Fourth Thing on the Third Thing”) which there is no need to repeat here. However, when something is true there are often multiple ways of knowing or explaining why it is true, so it does no harm to examine other arguments that have been put forward to defend the idea that labor is the substance of value.

Humans and Robots

Human labor most often uses tools or machines or even robots in the course of doing work. These machines allow us to be more productive. In a sense machines ‘do work’. But is this work the same as human labor? Many have argued against Marx by claiming that machines labor just as humans do (see Sraffa, Keen, etc.). This has led to discussions as to what specifically is so unique about human labor. Why is human labor the substance of value but the work done by machines, or even nature for that matter (like when the apple tree does the work of growing an apple) is not considered the substance of value? [insert footnote as to how the dead-labor in machines is transferred to the product.]

We use machines to make our labor more productive. Productivity is a measure of the amount of use-value created in a span of time. Since, for Marx, value is determined by labor time an increase in productivity (in use-values) does not create a corresponding increase in value. The same amount of value is created, just spread out over a larger quantity of use-values. This difference between use-value production and value production is one of the hallmarks of Marx’s theory of value. It allows Marx to explain many of the most important contradictions at the heart of capitalism: the domination of living labor by dead labor, the tendency of the rate of profit to fall, ETC. This also explains why unit prices tend to fall as productivity rises. If we were to argue, contrary to Marx, that machines create value then we wind up with a theory in which use-value production is the same as value production. An increase in productivity would mean an increase in value-production. This results in a very different theoretical understanding of the economy. Such an understanding cannot derive any of the same contradictions that Marx’s theory does. There is no tendency for the profit rate to fall with rising productivity, living labor is not dominated by dead labor, profit doesn’t come from exploiting workers, and prices do not fall with rising productivity.

Merely pointing to the different implications of these two perspectives is not some proof that labor is the substance of value. In the search for ‘proof’ defenders of Marx’s value theory have sometimes tried to point to the unique properties of human labor, properties that machines do not have. Marx himself makes reference to the unique properties of human labor in a famous passage: “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. At the end of every labour-process, we get a result that already existed in the imagination of the labourer at its commencement. He not only effects a change of form in the material on which he works, but he also realises a purpose of his own that gives the law to his modus operandi, and to which he must subordinate his will.” [capital chapter 7]

With each successive revolution in robotics more and more types of activity are removed from the list of “exclusive human activities”, leaving less and less options for those who want to point to an essential aspect of human labor that differentiates it from machines.  In the above passage Marx brings out probably the most essential difference between human labor and the work of machines: that the worker imagines the product and process before she commences production. However, in this age of rapid advances in computing and artificial intelligence I believe it is dangerous to hinge our argument on an aspect of human work that is directly under attack by the artificial intelligence industry. I think it is much more fruitful to find a unique property of human labor that holds even if robots one day can do every task that humans can do.

Caffentzis makes, in my opinion, the only possible argument: “if labor is to create value while machines do not, then labor’s value creating capacities must lie in its negative capability, its capacity to refuse to be labor.” ["Why Machines Cannot Create Value" Caffentzis 1997 in "Cutting Edge" ed. Jim Davis] In other words, what makes humans different than machines is that humans can refuse to work. This makes human labor a social relation. Humans must be coerced/convinced to do work. They do not operate like machines that can be just turned on and off. This distinction brings out the coercive side of value relations. Feudal society had knights and the Catholic Church to make the serfs work the land. Capitalism has value relations which are their own form of coercion.

Of course if robots ever evolved to the point in which they could refuse to work then their work would also become a social relation and thus would be value creating. Of course, if this ever happens we might have more important problems on our hands…

Production as the Dominant Moment

Marx’s argument for labor as the substance of value is often placed, quite rightly, within the context of his wider historical method which treats the organization of production relations as the central defining aspect of all societies. It is argued that since the organization of human productive activity is the defining aspect of all societies, and since the production of value is the specific form of organization this takes in a capitalist society, that the substance that capitalist labor produces is value. [cite Rubin? Hilferding?]

The organization of human social relations is not handed down to us by God. It is something we actively create and recreate each day. In an obvious physical sense our labor produces food and other necessities needed to continue our daily physical existence. But our labor also reproduces the social relations within which we live. When a feudal peasant produces surplus grain for the landlord they are reproducing the class relations of feudal society. So too do workers in a capitalist society reproduce capitalist class relations when they produce surplus value for the capitalist class. And this is not all that workers produce. Everything from the built environment, to the means of subsistence, to the forms of entertainment and diversion are creations of human labor, creations that must continually be reproduced in order to reproduce capitalist social relations. Marx sees this creative power as central to the organization of society. Other aspects of social organization like state forms, ideology, family, distribution, etc derive their character through the fact that they exist within a society organized by capitalist social relations. Capitalist states can, of course, take different forms, but they are all various forms of the capitalist state. Capitalist ideology can take different forms but they are all various manifestations of capitalist ideology. Their essential character is defined by their relation to the mode of production.

This way of looking at society is often criticized as ‘reductionist’. There are many forces that act upon and shape a society. What right does Marx have to privilege one aspect, production, above other aspects?

In his online lectures on Capital David Harvey gives this defense: “My own view of it is that it is an inspired idea but, like most reductionist arguments, ultimately it fails. But by taking that reductionist position you start to see all kinds of things you would not otherwise see. And without that reductionist impulse Marx would never have understood all manner of things.” After a brief aside about reductionism in the biological sciences he goes on to say, “…the very search for reductionism has produced very important insights in the biological field in exactly the same way that I would argue that Marx’s holding to principles of reductionism here plays a very significant role in his method of inquiry, in his compulsion to inquire. And one of the things I get annoyed at is people who say ‘Oh it’s reductionist therefore don’t believe it!’ If people were not prepared to be reductionist about things we would hardly know anything about anything.” (Reading Capital with David Harvey Class 2)

Regardless of whether one agrees with Harvey’s characterization of the issue this is a rather weak defense of Marx’s method. For Harvey Marx’s placement of production at the center of social relations is not an accurate representation of reality. It is merely an inspired viewpoint that allows us to generate interesting insights. Such criteria could justify any method of reduction if it generated an interesting insight. For our purposes here, justifying the argument that labor is the substance of value by appealing to the role of production as the central category in all societies, Harvey’s argument is even more useless. We are trying to justify the results of the method by showing the legitimacy of the method. Harvey is trying to justify the method by showing the legitimacy of its results. It is hard to justify the means by the ends in social theory. Is a faulty form of argumentation justified because the conclusions conform to our preconceived political opinions or because they paint a picture of the world that helps us ‘make sense of things’? No doubt people often do appeal to this type of justification but this cannot be an adequate framework for a radical theoretical project to critique and transform capitalism.

When we consider the relation of production to distribution, consumption and exchange it is easy to seem caught up in an endless game of ‘chicken and egg’. For example, production produces the objects we consume but consumption, or the need to consume, is the force which triggers the need to initiate production. How then does Marx have the right to claim that “production is the real point of departure and hence also the predominant moment”? (Grundrisse p.94) Marx is certainly aware of the ways in which production is informed by consumption, exchange and distribution, yet he insists that production is the dominant moment.

I believe that the best answer is to consider the alternatives. What would it mean to define capitalism as a ‘mode of consumption’ rather than a mode of production? What would a mode of consumption be? Just as there is no ‘use in general’, no ‘use in the abstract’, there is no general mode of consuming by which we can classify all of the consumptive activities of a capitalist society. We only have specific ways of consuming. Furthermore these are not social relations but relations between individuals and objects. The only aspect of consumption which can apply to all consuming activity is that most consumption in our society is consumption of commodities. This, however, is a definition that requires an understanding of commodity production. It is commodity production that stamps capitalist consumption with its unique character.

This same argument could be carried out in relation to exchange and distribution. To the extent that we can define a specifically capitalist mode of exchange it is commodity exchange. [Footnote on distribution. Tie in to the point earlier on about commodity relations dominating other relations. Follow Marx's argument from intro to Grundrisse.]

Empirical evidence

There is a long history of debate about whether or not Marx’s theory of value can be empirically confirmed. Depending on how one understands the theory attempts to prove or disprove the theory empirically take different approaches. This is not the place to evaluate all of these. However a few points can be made that should help clarify the issue.

One of Bohm Bawerk’s chief complaints against Marx is that Marx ignores empirical evidence that contradicts his theory of value.  BB argues that Marx himself contradicts his own theory of value laid out in volume one of Capital when later in Volume 3 he develops the theory of ‘prices of production’. I explain ‘prices of production’ in the chapter ‘Value and Price’. For now all that needs to be said is that in the theory of prices of production Marx shows how prices systematically deviate from values in the context of competition between capitals. BB sees this as an admission by Marx that in reality prices deviate from values. He takes this to be an empirical counter-factual that brings into question why labor should be the determinant of value.

BB makes repeated claims that Marx began with one theory of value and then later changed his mind when writing volume 3. We now know that Marx actually penned much of volume 3 before beginning work on volume 1. Marx was completely aware of the systematic deviation of prices from values when he introduced the concept of labor as the substance of value in the opening chapters of Capital. Clearly, to Marx, there is no contradiction between value and prices of production. Why does BB see things differently?

The answer to this question lies in the fact that BB is quite confused as to what value is in the first place. BB has conflated value and price. He thinks that Marx is arguing that the magnitude of price is determined by labor time. Thus if there is a systematic deviation of value and price this shows that other factors influence the magnitude of price. Therefor labor time cannot be the exclusive determinant of price.

However this is not Marx’s theory of value at all. Prices of production are prices which deviate from values (the commodity bears a price that is more or less than the labor time that entered into its production.) However prices of production are still a sum of value.

If I trade an apple pie worth 1 hour of labor for a piano worth 100 hours of labor I have sold my apple pie for far above its value. However both apple pie and piano are sums of value. The reason we can say that the exchange was an unequal exchange is because we know that both commodities have a value outside of their exchange value. Price is just a special form of exchange value, the exchange value of any commodity with the money commodity. If I trade my apple pie with money representing 100 hours of labor time then the same unequal exchange has taken place. And, once again, both the apple pie and the money represent sums of value.

If Marx had merely said that labor time is the primary determinant of commodity values then we could easily prove or disprove his theory with empirical studies of prices in relation to labor inputs. But Marx’s argument that labor is the substance of value is a different beast entirely. All money prices represent sums of value. These prices can be above or below the actual labor content of a commodity. This can happen through unequal exchange. It can happen through imbalances of supply and demand. And this happens systematically with prices of production. Regardless, none of these deviations stop prices from being sums of value or stop labor from being the content of this value.

What then can be done to empirically verify Marx’s theory of value? I do not believe there is any knock-down empirical proof that labor is the substance of value. However, the argument that labor is the substance of value suggests several tendencies/phenomena that can be empirically judged, to an extent. For one, even though prices systematically deviate from values this is a systematic deviation. They do so in a predictable way. This means that there are still correspondences between value and price. The chief correspondence is the fact that a decrease in labor time per unit produced (increases in efficiency) leads to falling unit prices. This is a prediction based on Marx’s theory of value and it is a prediction that is quite obviously borne out empirically again and again. Everyone is aware that commodity prices fall as labor becomes more productive.

Another phenomenon suggested by Marx’s theory of value is the ‘tendency of the rate of profit to fall’, a subject which has its own chapter in this book. If only human labor produces value then we would expect profit rates to fall when capitalists invest more in non-human inputs (machines, raw materials) than living labor. There is quite a lot of debate about the extent to which empirical evidence supports this theory. As with any empirical debate the devil is in the details. There are quite a lot of different factors involved in measuring profit rates, and even greater difficulties when it comes to showing any causality investments in living labor relative to machines and profit rates. It may be that the present state of record keeping and number crunching is in adequate to properly adjudicate Marx’s value theory through an empirical study of profit rates.

[footnote on Kliman's position on whether his work 'proves' the TRPF]


The role of labor as the substance of value, and of labor time as the determinant of the magnitude of value, is one of the most controversial aspects of Marx’s work. At the same time it is one of the most crucial. Without a theory of value Marx could not have explained the phenomenon of surplus value which defines the class relation between capitalists and workers. Without a theory of value Marx would not have been able to understand the role of money in capitalism and to argue against the money-reformers of his time. Without value theory Marx would have been unable to theorize the recurrent crisis tendencies of capitalism. The list goes on and on. Value theory sits in a central place in Marx’s universe of thought.

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Intrinsic Value

(What follows is a draft. Citations and footnotes are incomplete.)

Intrinsic Value

[cite Kliman's paper on Intrinsic Value as helping me to understand the importance of the concept.]

Throughout the opening chapter of Capital Marx jousts with many intellectual opponents, not all of whom are immediately named. One of these is Samuel Bailey. (cite Rubin, Kliman.) In Bailey’s “Critical Dissertation”, published in 1825, he sets out to clear up the mess of confusion associated with the concept of value in economics. He does so by arguing against any notion of an intrinsic value possessed by commodities. Rather, for Bailey, value is nothing more than the fleeting and temporary exchange value a commodity has when it finds itself being exchanged for another commodity. Following Adam Smith Bailey defines value as “the power of purchasing other goods.” (p.11)

“According to this definition, it is essential to value, that there should be two objects brought into comparison. It cannot be predicated of one thing considered alone, and without reference to another thing. If the value of an object is its power of purchasing, there must be something to purchase. Value denotes consequently nothing positive or intrinsic, but merely the relation in which two objects stand to each other, as exchangeable commodities.” (Bailey p. 11)

Bailey is setting up a clear dichotomy between a notion of intrinsic value in which value is something belonging to the commodity in isolation from other commodities, apart from and prior to exchange, and a relative notion of value in which value is only something that exists through the relation of one commodity to another. Since in everyday life we measure the values of commodities in their relation to one another (so much of A is worth so much of B) Bailey advocates for this second, relational notion of value and rejects the intrinsic notion.

This leads to some interesting conclusions. Because value is only relational for Bailey, not intrinsic to the commodity, the value of A is whatever it is exchanged with. If today A exchanges for 2B then 2B is the value of A. If tomorrow A exchanges for 4B then 4B is the value of A. An intrinsic theory of value would say that perhaps the value of A has stayed the same while the value of B has changed or that the value of A has changed while the value of B has stayed the same, or even that both values have changed. But for Bailey this makes no sense. There is no intrinsic value of A or B that can stay the same or change. The value of A is only its exchange value with B at the moment of being exchanged. It has no value of its own before or afterwards.

Examining how this might relate to the classical labor theory of value Bailey asks the reader to consider a quantity of corn, the value of which is determined by the labor time required to produce it. What happens if the labor time required to produce the corn stays the same while the labor time of all other commodities changes?  Even though the corn’s labor time has remained the same it will exchange for a different quantity of other commodities. It will form new exchange ratios every time the labor time of other commodities change. Thus its “value” changes even though the labor time that it takes to make the corn has not changed. Here Bailey is attempting to prove that value is not an intrinsic aspect of commodities because exchange ratios are inherently relational. Since a ‘value’, as he defines it, is nothing more than a relation between two commodities, it cannot, by definition be the property of one commodity outside of this relation. [This is a repetition of the previous paragraph, but perhaps still helpful.]

Marx sets out to argue the exact opposite of Bailey. Marx argues that value is an intrinsic property of commodities and, at the same time, its also a relative concept. How is this possible?

The key theoretical move that makes this possible for Marx is to distinguish between value and exchange value. Value is intrinsic to commodities. It is the amount of labor time society requires to produce the commodity. If a widget takes 2 hours to produce then its value is two hours. Exchange value is the ratio in which one commodity exchanges for another. If a widget exchanges for 3 apples then 3 apples is the exchange value of the widget. If the widget exchanges for 30 pencils then 30 pencils is the exchange value of the widget. What then is the relation between value and exchange value?

Similar to Bailey’s conception each different pairing of the widget with a different commodity produces a different exchange value. However where Bailey sees in this nothing but random, fluctuating, relativist values, Marx argues that each of these exchange values is a reflection, a measure of an intrinsic value.

Marx’s argument is quite simple actually. If we say that commodity X is equal to commodity Y this means, by definition, that they both contain quantities of a common substance/property. Just as the comparison of physical properties like weight, volume and height is only possible if both objects share the same property, the comparison of economic value is only possible if both commodities possess an intrinsic value. [footnote: there are debates as to the validity of Marx's argument. Kliman provides a stellar defense of Marx in his paper "The 4th thing on the 3rd Thing". I will not repeat those arguments here.]

When we say that commodity X is equal to commodity Y this implies that they are both made up of the same substance, value, and that their values are of the same magnitude. We cannot see the value of X by looking at it in isolation. Commodities do not walk around with their values ‘stamped on their heads.’ Instead we only see the value of X when it stands in relation to Y. Y measures the value of X. X is worth so much Y. The same is true if we measure the weight of an object. A piano has a weight of its own that does not depend on other objects. But we can only measure the piano’s weight in relation to some standard unit of weight, a pound or kilogram. This unit of weight, the pound, is always defined in relation to an actual object, arbitrarily chosen to be the standard.

Bailey had argued that the value of X cannot change without also meaning a change in value for Y. Look at how Marx’s distinction between value and exchange value allows us to see the problem differently. Both X and Y have an intrinsic value. Let us imagine that the value of Y changes while X stays the same. This variation in the value of y produces different exchange values (x=y, x=2y, x=3y, etc.) The intrinsic value of X does not change but its exchange value does change! Various quantities of Y are expressing the value of X.

I believe that this way of understanding value is much more intuitive and inline with common sense. Consider the effect of inflation on the value of a widget. If I sell widgets for $10 and a decade later the value of the dollar falls by 50% I will adjust the price of the widget to $20. Has the value of the widget changed? Are widgets worth more to society? Not at all. All that has changed is the value of the unit by which we measure the value of the widget.

Marx’s argument that commodities have an intrinsic value is immediately followed by his argument as to what this value is and what determines the magnitude of this value. His answer is that value is objectified human labor and that living labor determines the magnitude of this value. Often discussion/debate immediately jumps to this issue of whether or not labor is the substance of value, skipping over the important implications of the notion of intrinsic value. We will deal with the notion of labor as substance of value in the next chapter. For the remainder of this chapter we will examine some of the important implications of Marx’s notion of intrinsic value.

Intrinsic Value is Relative

Bailey had established a dichotomy between intrinsic value and a notion of value as something relative. As we have seen, Marx shows that the relative aspect of value that Bailey is talking about is actually exchange value, not value, and that exchange value is an expression of something intrinsic to commodities, their value. However Marx also holds that this intrinsic value is also relative. [cite Kliman]

Intrinsic value is not relative in the way exchange value is. As we have seen, exchange value can change while intrinsic value does not. To understand how intrinsic value is relative we have to fast-forward to the topic of a future chapter, ‘socially necessary labor time’. Marx does not hold that the value of a commodity is determined by the individual labor time it happens to have been created with. Rather, value is determined by the amount of labor time necessary for society to create the commodity at a given place and time. It is the average labor time required for a commodity’s production that defines its value. Thus the value of a commodity is not the product of one isolated laborer. Rather it is relative to the average productivity of an industry. Socially necessary labor time is also constantly changing as productivity increases. If a toaster took  2 hours to make in 2013 but only takes 1 hour to make in 2014 this doesn’t meant that a toaster from 2013 is worth more than a toaster from 2014. The 2013 toaster is revalued at the current socially necessary labor time. It is relative to current levels of productivity.

“as value it appears as something merely contingent, something merely determined by its relation to socially necessary, equal, simple labour-time.  It is to such an extent relative that when the labour-time required for its reproduction changes, its value changes, although the labour-time really contained in the commodity has remained unaltered.” [Marx, Economic Notebooks 1861-63]

Thus socially necessary labor time determines the magnitude of the (intrinsic) value of the commodity. Exchange value is the means by which this value is expressed through its relation to other commodities.

value is not exchange value or use-value

Marx’s argument about intrinsic value is often referred to as ‘the 3rd-thing argument’ because Marx is arguing that in addition to commodities having a use-value and an exchange value that they also have a 3rd thing, value.

Despite the clear distinction between value and exchange value it is quite common in the literature to see instances of the two concepts being confused and/or conflated. To make matters more confusing Marx himself did not make the distinction clearly in his writings prior to the publication of vol. 1 of Capital. He also often asks us to assume, for the purpose simplifying an argument, that commodities sell at their values, in other words, that commodities have exchange-values that are quantitatively equal to their values.

Use-value refers to the specific utility or value-in-use that a commodity has. Because use-value is determined by the physical body of the commodity (Hammers are for pounding nails because they have handles and hard heads; Knives are for cutting bread because they have handles and sharp blades, etc.) Marx also refers to the physical body of the commodity as a use-value. When we equate commodity X to commodity Y we are measuring the value of X in the body of Y. The use-value of Y becomes the unit by which we measure the value of X.  Y can perform this function because both X and Y are commodities with values.

Marx is very clear that the value of commodities does not come from their use-value. We will discuss this further in the next chapter. Since commodities measure their value in the use-value of another commodity it sometimes appears as if value is arising from the particular nature of the use-value rather than due to social production relations. We usually see this confusion arise when discussing money. Money is the commodity in which all other commodities measure their value. As such it is a representation of value in general. Throughout history this has produced the illusion that money’s power comes from its use-value, from some mystical property of money itself, rather than from the social relations of production which give rise to money.  [footnote on money commodity and MELT and paper money....]

Unequal Exchange

Marx’s distinction between value and exchange value also allows us to theorize unequal exchange. What happens if commodity A worth 1 hour of labor exchanges for commodity B worth 2 hours of labor? Obviously the owner of commodity A wins out! We have two different sums of value, 1 hour and 2 hours. The exchange value of A is 2 hours and the exchange value of B is 1 hour. The exchange values are different than the values. When A trades for more than its value the owner of A receives a greater sum of value in exchange. The opposite happens for the seller of B who receives a lesser sum of value. We could not theorize unequal exchange without a concept of intrinsic value. For Bailey an exchange ratio is just an exchange ratio and it cannot be more or less equal or unequal because there is no intrinsic value being measured in the exchange process.

This distinction comes in handy later when we discuss deviations of price from value. Price after all is just the exchange value that a commodity has when it exchanges with money. Just as a commodity is a sum of value, so is money. [Footnote on money commodity and MELT] If a commodity’s price is greater than its value then the seller receives a greater sum of value in exchange than she parts with. Sometimes critics of Marx point to price-value divergences as if such divergences prove that value is being created by something other than the labor that created the commodity. But, as we have seen from the simple example of unequal exchange in the previous paragraph, labor has created the value of A and B. Whatever social forces have caused the exchange to be unequal (monopoly, imbalance in supply and demand, dishonesty, etc.) are not creating value. They are merely causing an unequal exchange to take place. This unequal exchange is still an exchange of two sums of value value created by labor. Such a distinction would not be possible with Bailey’s notion of relative value. But with Marx’s clear division between value and exchange value we can easily theorize how an exchange value can be different from a commodity’s intrinsic value while still holding to the idea that labor is the sole source of value.

Quality and Magnitude of Value

This points us to an important distinction. When we say that X is equal to Y it means that they are of the same magnitude of something, the same quantity of some substance. This substance must be the same substance, the same quality, in order to be of the same magnitude/quantity. The weight of two objects can be the same (or different) because they both have weight. But we can’t compare the weight of a piano to the height of a chair because weight and height are different qualities.

The fact that we can make quantitative comparisons between commodities means that they share the same quality, the quality of having an intrinsic value. But commodities do not have to have identical magnitudes in order to share the same quality of being values. We can compare the weight of a piano to a chair because they both share the quality of having weight not because they have the same magnitude of weight. In other words, commodities have the same quality of having value regardless of whether of not they have the same magnitude of value. This clarification is important because many, such as Bohm-Bawerk, have assumed that Marx is arguing that intrinsic value can only be deduced in the case of the exchange of equivalent magnitudes.

This common quality, value, is of much more interest to Marx than the question of the magnitude of value. An investigation into the forces which affect the magnitude of value is, of course, also of critical importance to Marx’s theory. But the investigation of the question of why commodities have the same quality of having values leads Marx to an understanding of the specific social nature of capitalist production. It is the exploration of this intrinsic quality which drives much of the investigation in the first chapter of Capital, allowing Marx to unlock important categories like abstract labor and to understand the nature of money. What is interesting and unique to capitalism is that the private labor of individuals takes on a uniform social substance embodied in objects. This is a curious form of social production, unique to capitalist society. It imbues capitalism with its fetishistic character in which objects have social power and the relations between objects express social relations between people.

How exactly does the private labor of an individual take on a general, universal social form, the form of undifferentiated, homogenous value? It is a question we will have to explore in greater detail in the chapters on Abstract Labor and Socially Necessary Labor Time. However, a basic outline can be dealt with here. In order for the private labors of different individuals to have the same social character there must be a process which reduces their labor to a common standard and quality. Imagine a fictional society in which everyone produced the same widget in the same amount of time. Here it would be easy to see how one person’s labor was just as good as another’s. It would be easy to see that all individual labors shared the same quality.

What if we took this one-commodity society and dropped the assumption that all workers produced widgets at the same level of productivity? Here the value of each widget would not be the individual amount of labor it contained. Rather, value would be determined by socially necessary labor time. Thus, though individual productivity varied, each commodity would still be stamped with a social character. Each individual’s labor would only count as a fraction of the social whole, no one persons’ labor having any different quality than any others’.

What if we then imagine a society in which workers produced either widgets or pears? How could we claim that the labors of widget-makers and pear-pickers were of the same social substance, of the same quality? There must be some social force that reduces both types of labor to a common expenditure of effort, the same level of productivity, so that one hour of pear-picking is of the same value as one hour of widget-making. What else could this social force be but, again, socially necessary labor time, which disciplines labor to ensure that production time revolves around a common standard? Once this is understood it is easy to move from our two-commodity society to the real world of billions of commodities. Although these labors take many different concrete forms they are also all expenditures of equal labor in the abstract, an abstraction imposed upon them by a society which conditions and disciplines labor to a common level of efficiency.

The examination of the qualitative nature of value, that it is an embodiment of abstract human labor conditioned by socially necessary labor time, allows Marx to theorize value in direct relation to the unique character of the labor process in a capitalist society. Whereas the classical political economists before Marx had been focused on establishing the causal relation between labor time and prices Marx’s analysis of the qualitative nature of value gets to the heart of the distinctive way in which labor is organized in a capitalist society. This approach not only theorizes the alienation, exploitation and domination of capitalist labor but also allows us to understand the historical specificity of value relations and capitalist labor, allowing us to understand that such conditions are not universal and inescapable. They are not universal conditions of all human labor. They are socially created conditions and they can be socially transcended.


Bailey’s notion of relative value allows no room for comparing the value of a commodity over time. Since commodities don’t have their own value apart from their exchange value he holds that it is impossible to say that the value of a commodity has changed. Commodities, for Bailey, don’t have a value which can change or stay the same. We are left in a nihilistic state of not being able to say anything about anything. In contrast, Marx’s notion of intrinsic value allows us to compare changes in value over time. Of course, in everyday life we constantly compare changes in the value of a commodity over time. A Steinway piano appreciates. An iPhone depreciates. Profit is a measure of the change in value over time. We cannot theorize credit without a notion of value changing over time.

Intrinsic Value is a product of Production Relations and not Exchange Relations

In various debates around Marx’s theory of value there is often tension over how much influence and power to ascribe to market forces in relation to production. As always, the devil is in the details, in the specific claims being made and their implications. Rather than opening the various hornets nests involved it may be more appropriate here to point out the way that the concept of intrinsic value allows us to frame the general issue.

In the equation 1 coffee= 1 apple the apple expresses the value of the coffee. Exchange value expresses intrinsic value. This implies that value is present in the coffee prior to exchange. The coffee gets its value in production. It realizes this value when it is exchanged for the apple. If we deny that value is intrinsic to commodities then we end up with a Bailey-ish conception of value in which value appears to be created in exchange. Money too would also only acquire a value in exchange. Hence commodities and money would enter the market valueless and exit with values. Value, for Bailey, is a product of exchange, of the market.

Marx’s theory of value is a theory about production relations. Value expresses the relation between the worker and her product. It also expresses the relation between the worker’s labor and all of the other labors in society since it is the socially necessary labor time that determines the value of the commodity.

How then does exchange fit into this theory? How do the relations of buyers and sellers fit into the picture? Exchange is a process whereby sellers attempt to ‘realize’ the values of commodities. Sometimes they realize more or less value than that embodied in the commodity. But, as demonstrated in our discussion of unequal exchange, no new value is being created in exchange. Value is just being moved around, reapportioned. This reapportioning of value is not unimportant. When commodities sell above their value this attracts investment into that line of production, reapportioning labor. When commodities sell below their value this triggers outflows of labor and capital and a disciplining of labor in that industry.

These fluctuations in price are an important part of the way production is disciplined and organized. Producers do not always know the socially necessary labor time or the market demand for their commodities. They discover these things after production has taken place. They then use these discoveries to alter future production plans.

The term “realize” is quite apt. When we realize an idea we are discovering something that already exists. When we realize the value of a commodity we are not creating anything. We are not changing anything. We are merely allowing something that already exists to come to fruition, to take the form of exchange-value. Not only is the individual commodity value realized in exchange but the entire spectrum of production relations is realized in exchange. Exchange finishes the work of production.

immanent measure vs expression of value/measure of value

“The external measure of value already presupposes the existence of value.  For example, gold can only measure the value of cotton if gold and cotton—as values—possess a common factor which is different from both.  The “cause” of value is the substance of value and hence also its immanent measure.” [marx 1861]

A commodity’s value is determined the the labor time required to produce it. Labor time is the immanent measure of the value of the commodity. This value is expressed in the exchange relation when the commodity’s value is measured in the use-value of another commodity (the book is worth so many apples.) The apples express the value of the book. This means that there are two ways of measuring the value of the commodity. One is by labor time (it’s immanent measure) and one through its exchange-value (its external measure).

Because commodities have two means of being measured Marx often moves with ease back and forth between them. We can say that a commodity is worth 5 hours of labor or worth 50 dollars. If an hour of labor equals 10 dollars then both expressions are correct. Of course, in the market place commodities are only measured in their exchange values. This does not mean that the immanent measure of value is only theoretical. The capitalist workplace has developed the measurement of labor time into a science. The scientific study of productivity has resulted in rigorous systems of the measurement of labor time relative to commodity output. [cite Braverman]

It doesn’t need to be exchanged to have a value… or an exchange value!

“it is a matter of indifference…whether, as in the case of the seed in agriculture, a part of the product is directly re-employed by the producer himself as a means of labour, or is first sold and then converted afresh into a means of labour. Whatever their role as use values in the production process, all the means of labour that have been produced now function at the same time as elements in the valorisation process. To the extent that they are not converted into real money, they are converted into money of account, they are treated as exchange values, and the value element they add to the product in one way or another is precisely calculated.” p. 952 in Capital 1 Penguin, Resultate

In other words, the act of exchange only formally realizes the value of a commodity. But this value still exists even if the commodity is never exchanged. In the case Marx cites of the farmer who uses part of his seed crop to replant, the farmer takes the value of the crop into consideration when planning his production even though this seed never enters the market. And, as Marx says, he not only considers the value of the seed but he considers the exchange-value, its price, even though the seed is never sold. The seed has an ideal exchange-value. It is treated as an accounting unit in production without ever actually taking the form of an actual exchange value.

If this sounds surprising consider that we all own commodities whose exchange-values we are aware of regardless of whether or not we are actively selling the objects. I am aware of the exchange-value of my piano but I never plan to sell it. If I sold the piano I would realize its price. But it has the price before I sell it.  [cite Kliman 4th Thing on 3rd Thing]


Because the value of a commodity is expressed in the use-value, the body, of another commodity this gives rise to the illusion that value is something that comes from the “thing-ness” of the commodity. Such an impression makes value seem like a natural property of things and not a socially determined force.

One reflection of this fetish is the fact that economic analysis, before and after Marx, often orients itself around the question of what determines exchange-values, the relations between objects. While we are perfectly capable of theorizing the determination of prices from within Marx’s value theory it would be a mistake to treat this as the most important question. Exchange-values express object-object relations. Capital however is a social relation. It’s economic categories are expressions of these social relations. The object-object relation that is exchange-value is nothing more than an expression of value relations. These value relations are the focus of Marx’s analysis.

“it is characteristic of labour based on private exchange that the social character of labour “manifests” itself in a perverted form—as the “property” of things; that a social relation appears as a relation between things (between products, values in use, commodities).  This appearance is accepted as something real by our fetish-worshipper, and he actually believes that the exchange-value of things is determined by their properties as things, and is altogether a natural property of things.  No scientist to date has yet discovered what natural qualities make definite proportions of snuff tobacco and paintings “equivalents” for one another.” [Marx economic manuscripts 1861-3]

“…Bailey is a fetishist in that he conceives value, though not as a property of the individual object (considered in isolation), but as a relation of objects to one another, while it is only a representation in objects, an objective expression, of a relation between men, a social relation, the relationship of men to their reciprocal productive activity.”


Hopefully the reader will find the above points useful in clarifying the unique contours of the concept of intrinsic value. Our next task, in the following chapter, is to ask what this value is, what it consists of, and what determines its magnitude.


Money Commodity and MELT

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Surplus Value (draft)

Another draft chapter for my book. All comments welcome. The most interesting part, I think, is the last section.

Surplus Value

Marx begins Capital with an analysis of the commodity form. He immediately tells us why: because the commodity is the most elementary form of capitalist wealth. From an analysis of the commodity a whole host of categories arise, many of which have been discussed in previous chapters (abstract and concrete labor, general equivalent, money, intrinsic value, etc.) These categories all relate to specific social relations, relations between producers. However, what is missing from the opening moves in Marx’s analysis is an exploration of the twin categories that are the hallmark of his analysis of capitalism: wage-labor and capital. It is not until the second part of Capital that he introduces these central categories.

This is no accident. It is true to Marx’s form. Reality is a concrete totality of many inner relations. It is the job of philosophy to begin with the most abstract categories and slowly expand them until we construct a picture of the concrete totality. In a famous passage in the Grundrisse Marx discusses the task of his new science:

…the abstract determinations lead towards a reproductionof the concrete by way of thought. In this way Hegel fell into the illusion of conceiving the real as theproduct of thought concentrating itself, probing its own depths, and unfolding itself out of itself, by itself,whereas the method of rising from the abstract to the concrete is only the way in which thoughtappropriates the concrete, reproduces it as the concrete in the mind. But this is by no means the processby which the concrete itself comes into being. For example, the simplest economic category, say e.g.exchange value, presupposes population, moreover a population producing in specific relations; as wellas a certain kind of family, or commune, or state, etc. It can never exist other than as an abstract,one-sided relation within an already given, concrete, living whole.”1

The abstractness of value cannot exist on its own. It only makes sense within a certain type of society. But in order to prove that this type of society is necessary for value relations to exist we must probe the category of value as much as we can to see how much it can explain on its own. Once we hit limits, once we find questions we can no longer explain, we find that we are forced to expand the analysis outward to encompass more concrete social relations. If we were to claim, in Hegelian fashion, that reality was a product of the self-expansion of these ideas we would be making a mistake. Rather, our ideas are a product of the world we live in. To make sense of ideas we must identify the social relations that make them possible. We must ‘ground’ the ideas in concrete social practices.

Because Marx holds back his introduction of wage-labor and capital he is able to tease out many of the subtleties of the commodity form that might be skipped over if we rushed head-long into a discussion of wage-labor and capital. For instance, other forms of the accumulation of abstract value, such as hoarding, merchant capital, usury, etc., are all theoretically developed, to an extent, prior to introducing wage-labor and capital. Of course, because wage-labor has not been introduced to the discussion yet these categories often appear only partially, or as potentials. It is not until capitalist production takes the stage that they can develop fully.

At the same time this allows Marx to explain how a theoretical project of building up a concrete picture of capital from the most basic abstractions is different than the real, historical process of capitalist development. Many of the component elements of a capitalist society (money, usury, merchant capital, even the commodity!) existed long before the capitalist mode of production. In their pre-history these categories all exhibited potentials, partially developed aspects of the commodity form that would only fully develop in a capitalist society.

The fact that Marx does not develop the categories of wage-labor and capital until after he has developed all of the categories of the form of value (intrinsic-value, abstract and concrete labor, money, etc.) has historically led some Marxist writers to conclude that Marx began Capital with an analysis of a pre-capitalist society based on “simple commodity production”: a society in which small, independent producers own their own means of production and exchange wares in the market. This interpretation, which begins with Engles and dominates a great deal of Marxist thought, has more recently fallen out of fashion.2 If we try to image how a ‘simple commodity production’ society would operate under the law of value we quickly see that value relations would have a very difficult time disciplining and apportioning labor in a society in which producers were tied to their own means of production. You can not fire and hire workers in response to market signals or race to beat the socially necessary labor time when everyone works for themselves on their own means of production.3 If such a society had existed historically then we could speak of it too having certain potentials and partially developed aspects that could eventually fully develop in a capitalist mode of production. However there does not seem to be historical evidence for this type of society. Rather history shows us communities organized around some form of directly social labor which then sell their surplus product to other communities.

A variant of this myth is that though Marx is not talking about an historical period of simple commodity production he is making an abstraction which operates on the level of a theoretical simple commodity production, a sort-of thought-experiment which imagines the relations between independent commodity producers. I see no evidence in the actual text to support this interpretation. (The most glaring evidence is the lack of the term “simple commodity production” in any of Marx’s writing!4) Rather, what Marx is doing is to slowly expand his picture of capitalism beginning, as he tells us, from the most elementary form of capitalist wealth, the commodity. He will not introduce new categories into his analysis until the categories themselves force the analysis in that direction. This has the advantage of avoiding arbitrary choices in levels of abstraction and starting points. It also allows him to fully develop the potentials of each category before moving on.

This chapter reviews the details of how Marx grounds his analysis of the commodity-form by introducing the categories of wage-labor and capital. It does so by asking the question “Where does profit come from?” Along the way we review the reasons why value cannot be created in exchange, which will lay the groundwork for a discussion of Marx’s theory of price in chapter 9. The end of this chapter discusses the importance of a temporal, non-equilibrium framework for Marx’s theory or surplus value.

The theoretical precision and discipline of Marx’s exposition in Capital is such that he must always develop categories from previously developed ones. It is not enough for Marx to say to his readers, “You must look behind circulation to the realm of capitalist production!” Marx has to show the reader that the categories of circulation are inadequate to the task. He must show that circulation cannot explain itself without reference to production relations. In this way his exposition constantly drives itself forward.

The phenomenon within circulation that drives the analysis toward production is the phenomenon of capital. Marx shows that circulation always maintains a conservation principle: value cannot be created by the mere circulation of commodities and money. Yet capital is a phenomenon made possible by the existence of profit. Because aggregate profit cannot come from circulation we must look to production to discover is origins. This leads to the revelation that the exploitation of wage-labor is the source of profit. Let us review some of the details of this argument.

Marx begins by contrasting two forms of circulation: simple commodity circulation (C-M-C) and the circuit of capital (M-C-M).

Susan sells a pie for $10. She then uses this $10 to buy a book. A commodity (C) has turned into money (M) and then this money has turned into another commodity (C). The same sum of value has changed forms twice: Commodity-Money-Capital, or, as Marx abbreviates, C-M-C. C-M-C, or simple-commodity-circulation, deals with the production of commodities and their exchange with money.

This is contrasted to the circuit of capital: M-C-M. Here a capitalist starts with a sum of money with which she buys commodities. She then sells these commodities for money. Obviously this process is only worth the investment if the capitalist ends up with more money at the end of the process. There must be a profit in sight at the end of M-C-M in order for the circuit to begin.

These two processes, C-M-C and M-C-M, are qualitatively and quantitatively different. C-M-C starts with a use-value and ends with a use-value. When Susan begins the circuit she has a final use-value as her aim even though her initial production is production for exchange. By contrast our capitalist begins with value in the abstract and ends with value in the abstract. The goal of capitalist investment is not the attainment of a specific use-value but rather the attainment of value in the abstract, unattached to any specific use-value.

A superficial reading might make it seem like C-M-C is a tale of ‘simple commodity production’, the supposed mythical society in which all producers are self-employed persons owning their own means of production. There certainly are many people who are self-employed and who participate in the market this way. However the primary way the great mass of people enter the market is by beginning C-M-C with the sale of a very special commodity: labor-power. By selling their labor-time as a commodity to the capitalist they attain money to buy their means of subsistence. C-M-C refers to the way in which both the self-employed and workers participate in the social economy.

M-C-M describes the behavior of capitalist investment. Because the goal of this investment is to make more money this is often written as M-C-M’ to show that the two sums of money are of different quantities. This circuit describes all types of capital investment: banking capital (which loans money in order to earn interest), merchant capital (which buys cheap in order to sell dear), and productive capital (which exploits wage-labor in order to produce profit.) As we will later see, while bank capital and merchant capital predate productive capital, it is capitalist production that dominates in a capitalist society.

These are the qualitative differences between C-M-C and M-C-M. These qualitative differences reflect different social classes with different access to resources and different relations to the social labor process. There is an obvious quantitative difference as well. After Susan buys her book this circuit closes. The book and the pie have left circulation and are in the possession of their final owners. C-M-C has a finite timeline. When Susan makes her pie she ends up with another commodity of the same value. She does not become wealthier through the process. The opposite is the case with M-C-M’. Since capital begins and ends with the same substance, money, there is no point to the process other than to continue investment, to continue to increase the amount of money. Money capital stays in circulation, constantly being reinvested in the search for more profit. The circuit has an infinite timeline. This gives Susan and the capitalist very different motives. It is common in popular discourse to treat the expansive quality of capital as the result of subjective motivations. In other words, we hear a lot of complaints about ‘corporate greed’ as a cause of social ills. As we can see from this simple analysis of the circuit of capital, the term ‘corporate greed’ is a useless concept. The pursuit of value as an end in itself is a natural and logical result of the circuit of capital. There may be a lot of greedy capitalists in the world but they are greedy as a result of the structure of the circuit of capital, not vice versa.

Even though there is a quantitative difference for Susan and the capitalist there is also a very important quantitative similarity. Both C-M-C and M-C-M obey the same conservation principle: value is not created through either process.

Susan starts with a $10 pie, sells it for $10 and buys a book for $10. All together $30 of value has changed hands: a $10 pie, $10 of cash and a $10 book. All that has happened is that three sums of value have changed hands. It would be the same as if three friends went to a Christmas gift exchange and traded three gifts worth $10. No value is created in this process. Value has just changed hands. This is what circulation is, the movement of previously produced values between different people.

Things might seem different for the circuit of capital but they are not! Our capitalist begins with $100, buys $100 worth of commodities and sells them for $110. The capitalist has seen an increase in value but what about the total value in society? We started with three sums of value ($100 in money, $100 of commodities, and $110 in money) for a total of $310 worth of value. At the the end of the process these three sums of value still exit and still add up to $310. While the capitalist has benefitted from the process, no value has been created merely by moving these three sums between different hands. In the above example the capitalist has benefitted from exchange while the buyer of the $100 of commodities has lost $10 of value in the process. Profit merely through buying and selling, merchant capital, is an old form of capital, one that proceeds industrial capital. While merchant capital may be a good way for a class of merchants to make money it is not a way to increase the total amount of value in society. It can only profit through an inequality in exchange. This is why industrial capital comes to be the dominant form of capital. More on this shortly…

The same law of conservation would apply if Susan was to exchange her pie for $11 instead of $10. Here a $10 pie trades for $11. The process involves $21 of total value changing hands. One person wins and another loses but there is no aggregate increase in value. Exchange of unequal values is par for the course in a society where production and exchange are regulated through fluctuating averages enforced through market laws. People get ripped off, they have incomplete information about markets and demand and supply constantly fluctuate. None of this changes the aggregate value in society. It merely producers winners and losers.

The concept that value cannot be created in circulation seems simple enough and we would be able to leave the issue and move on were it not for a category-confusion introduced into the discussion by subjective value theory. Subjectivists claim that commodities have no intrinsic value but that they get their exchange value from the subjective valuations that consumers give to them in exchange. Hence they argue that exchange is not an exchange of equivalents (as when Susan sold a $10 pie for $10) but rather of non-equivalents, that in exchange people trade something they value less for something they value more therefore ending up with a ‘subjective profit’. Prices are merely a result of this process and not a reflection of an underlying value.

There are too many problems with subjective value theory to deal with them all here, but there is one major one that we should address: the conflation of two different notions of ‘value’.5 People make subjective judgements about their preferences for commodities. Commodities have exchange-values. These subjective valuations are not the same thing as exchange-values. Subjectivists have to prove a necessary, causal relation between personal values and exchange-values. There are many problems with their attempts to do so. Regardless of these arguments exchange-values are really existing magnitudes. Thus if a pie has a price tag of $10, regardless of whether this price is a result of its socially necessary labor time or the subjective preferences of consumers, and if this pie is sold to a consumer for $10, then equal quantities of exchange-value have traded hands and no exchange-value has been created from the process. Subjectivists may make arguments about an increase in psychological satisfaction that comes from either side. Though this cannot be quantified or proven they are welcome to make these assertions, but this changes nothing about the fact that equal amounts of exchange-value have changed hands.6 Thus there is nothing about subjective value theory that can change the law of the conservation of value in circulation.

In C-M-C money serves as a passing mediation between two use-values. But in M-C-M’ the commodity stands between two sums of money. Our capitalist’s capital changes form between money and commodities while always being a sum of value. Where as C-M-C is a finite process that ends in the consumption of a use-value, M-C-M’ is a never-ending process of the ‘self-expansion of value’. Capital is this process of self-expansion. A sum of value expands itself over and over by changing form between money and commodities. This new value, above the quantity of the original investment, is ‘surplus-value’.

Saying that value cannot be created in circulation is the same as saying that value cannot be created through the change of form between money and commodities. A capitalist can make money through unequal exchange, buying cheap to sell dear, but this does not change the total amount of value in society. A profit system that relied purely on unequal exchange would not allow an economy to grow because net gains would always be balanced by net losses. Yet we know that capitalist economies grow and that the aggregate profits of the capitalist class grow. How can we explain this given the conservation of value in the circuit of capital?

If surplus-value cannot arise from the change of form of commodities and money then it must arise from one of the stages of the circuit M-C-M. It makes no sense to look for the source of surplus-value in the money stage because money, as a mere quantity of value has no ability to expand. Change in a piggy-bank does not grow more change just by sitting there. However the commodity stage of the circuit points us to the realm of commodity production. We know that production is the sphere of value creation so it makes sense to look there for a source of surplus-value.

When the capitalist invests in production she buys different types of commodities, materials, machines/tools, and labor-power. The non-labor inputs into production Marx calls “constant capital” because these inputs do not transfer any more value to the final product than the original cost of their purchase. If Susan buys a bag of apples for $5 and bakes 5 pies with these apples then value of $1 of apples is passed onto each pie.

The same logic applies to machines which transfer their cost onto the final product over a longer period of time. We call these ‘fixed capital’, a subset of constant capital. If a machine costing $1,000 is used in the production of 1000 widgets over a period of years then $1 of value is transferred into the final value of each widget. Sometimes this way of looking at the value transfer of fixed capital is not intuitive to people. For instance, it is not uncommon to hear the opposite (hypothetical) conception: “I spent $1000 on grow-lights and fertilizer. It was a big expense but after the first batch of marijuana was sold it was all paid off. All future batches were pure profit.” In this conception the cost of the inputs are transferred in full to the first production period (or as many as it takes to pay off the fixed capital) and the successive production period pass on no fixed capital value to the final product. However, such an interpretation is not as logical as it sounds. On one hand, the question is just one of perspective. If, say, we grew 2000 plants over the life of the grow-lights and fertilizer then we could say that each plant contained .50 cents of fixed capital value ($1000 divided by 2000) or we could say that the first 1000 plants contained $1 and the next 1000 plants contained no fixed capital value. When looked at in the aggregate, over the lifetime of the fixed capital, it is the same regardless of how choose to look at the division.

On the other hand, if we want to really be specific, it would be wrong to say that some plants created with the fixed capital contain this value while others do not. If the grower is a reasonable capitalist he does not raise his prices when he buys a new grow-light and then drop the prices as soon as the grow-light is “paid off”. He keeps his prices consistent with the market price. This is obvious evidence that the value of fixed capital transfers over the life of the machine, and not all at once.

This brings us to a second conversation principle, one related to production: constant capital transfers its value into the value of the final product but it does not create surplus-value. This accords with Marx’s basic concept of value, that value is abstract labor. While labor is done on constant capital, while human labor transforms constant capital into new products, it is not the constant capital that is doing the labor and therefore constant capital cannot increase in value during production.

This law of conservation even applies to fully-automated production such as in “lights-out manufacturing” where production is carried out in the dark because there are no humans present in the factory. From Marx’s perspective a totally automated factory produces no value but that does not mean that its owners receive no profit from their investment or that the commodities produced by robots cannot have prices. This is explained through the transfer of value in exchange. We will explore this concept in more detail later, however for now we can at least shed a little light on the subject by analogy with a laundromat. A laundromat is an investment that requires little or no human labor yet the owner of the laundromat makes a profit every time their machines are used by customers. The machines, in Marx’s system, are not creating value but they are certainly filling up with quarters. Rather than being value creation, these machines function more like rent. In the same way you might rent a house or a car, you rent the use of a washer/dryer for an hour. Rent doesn’t involve value creation at all. It just involves extracting money from consumers in exchange for the use of something. There are many ways in which profit can be made without creating value. But these are not methods that increase aggregate value in society. This is the fundamental distinction to be made between surplus-value through production (which we will get to in a moment) and the transfer of value in exchange which happens any time something is rented or when a labor-less product is sold. These forms of making money are parasitic upon the dominant mode of production in society, capitalist production, which produces value. Without capitalist value production there could be no automated factories, laundromats or landlords siphoning off value.

The only commodity that is capable of producing surplus-value is labor-power. This is because of the distinction, which Marx was the first to theorize, between labor-power and labor. Labor, the act of working, is what creates value and this is measured in hours of socially necessary labor time. Labor-power is the ability to work, our working time, which the capitalist buys from the worker for a period of time in return for a wage. Labor-power is a commodity and like every other commodity it has a use-value and an exchange value. It’s exchange value is the wage, which is set by the prices of commodities that the worker needs for her subsistence. The use-value of labor-power is that labor is used to create value. There is no necessary relation between the wages paid to workers and the amount of value that they create. There is no law of conservation that requires the hourly wage to equal the value produced in an hour, either on the individual level or in the aggregate. In fact, the difference between these two quantities, the wage and the value produced, is the source of surplus-value. Without it capital could not not self-expand and there would be no capitalist production. There is therefore an incentive to increase value produced relative to wages.

The total working day is divided into two portions, necessary and surplus labor. The necessary labor is the amount of time the worker spends creating value equal to the value of their wage. The remainder of the working day is surplus labor time in which the worker creates surplus-value that forms the profit of the capital. Whereas the value transfer of constant capital is constant, calculated simply by dividing the cost of constant capital by the number of commodities it is turned into, the value transferred by the wage is of a different nature. How much surplus labor will workers do relative to necessary labor? This is a variable factor which is why Marx calls wages “variable capital.” The ratio of surplus-value to variable-capital (the ratio of surplus labor to necessary labor) Marx calls the “rate of exploitation.”

Value Conservation and Expansion in Production

The final value of a commodity is equal to the cost of constant capital inputs plus the labor time involved in its production (value=c+L; where c is constant capital and L is living labor). Since constant capital is the product of past labor (or “dead labor” as Marx calls it) the value of the commodity is dead labor plus living labor. Living labor is divided into two portions, necessary and surplus labor, or variable-capital and surplus-value (L=v+s, where v is variable capital and s is surplus value). The rate of exploitation (s/v) does not change the total amount of of living labor and thus doesn’t change the price of the commodity. The rate of exploitation only defines an internal division within the total labor time that goes into a commodity. Thus the final value of the commodity is also constant capital plus variable capital plus surplus value (value=c+v+s). The cost of production to the capitalist is constant capital plus variable capital (c+v).

This introduces an important conceptual nuance into our conservation principle. Surplus-value is created in production thus setting in motion the self-expansion of value that forms forms basis of capital. Increasing the rate of exploitation will increase the amount of surplus-value capital exploits from workers. But increasing the rate of exploitation does not change the amount of value created. It merely changes the proportions in which the social product is divided between capitalists and workers. The total amount of value is still equal to the total amount of labor performed. Increasing exploitation creates more surplus-value but not more value.

Surplus-Value and Circulation

In order for a capitalist to reinvest in production each day they must have at least earned back the value of their initial investment from the previous day (v+c). They also expect a reasonable rate of return on their investment. However when their products are sold in the market capitalists can receive less or more surplus value than is actually contained in the commodities. In other words, if prices are above values than capitalists receive a greater sum of surplus-value than the value contained in the commodity. If prices are below values then they lose value in exchange. Of course, prices could be so low that capitalists do not even make back the price of their original investment. If this continues they will go out of business.

Earlier we observed that while value changes hands in circulation it cannot be created in circulation. Since surplus-value is a component part of value the same holds for surplus-value. It is quite common for firms to realize more or less of the surplus-value contained in their products. But one firm’s gain is another’s loss. There is no aggregate increase in surplus-value through this process. The conservation of value in circulation remains.

In earlier chapters we discussed the difference between price and value. We said that price is the expression of value, the way value is expressed when a commodity is equated with the money commodity. The difference between value and price allows us to explain the temporal, non-equilibrium dynamism of a capitalist economy. Total value equals total price while the deviations in individual prices and values are the mechanism of rewarding and punishing producers. There is a parallel distinction between surplus-value and profit. Surplus-value is the component part of total value that comes from the surplus-labor that the capitalist class has extracted from the working class. Surplus-value is expressed in profit, the money part of total price that individual capitalists receive after selling their commodities. Total surplus-value equals total profits. The deviations between individual firms’ surplus-value production and profits are the mechanism of rewarding and punishing firms. However, as we will see in the chapter on the Tendency of the Rate of Profit to Fall, this mechanism, rather than encouraging healthy investments that create balanced growth, encourages investments that contribute to the long term instability of the system.

The Role of Surplus-Value in Marx’s System

The theory of surplus-value takes a central place in Marx’s theory of capitalism. It claims that wherever profit exists exploitation also exists. The backbone of capitalism is the exploitation of workers. Of course prior economic systems also relied on exploitation. Feudal peasants worked the land to produce surplus product for their landlords. But this exploitation was easy to see. The peasants worked part of the year on their own land and part of the year on the landlord’s land. There was no mystery about the exploitative relationship. In capitalism the class relation between workers and capitalists is obscured by the fact that both parties agree to the terms of work as legally consenting equals in the market. The commodity labor-power exchanges at it’s value. There is no inequality in exchange between workers and capitalists. The real inequality is only revealed in production, in the relation between necessary and surplus labor in the workplace. This makes exploitation impossible to see unless we examine production and the particularly unique use-value of labor-power.

Capitalist exploitation is also a matter of value expansion and not a matter of physical surpluses. The feudal peasant produced a surplus of product. The modern worker produces a surplus of value. These are different matters, as we will examine below.

The Fundamental Marxian Theorem and Equilibrium Theory

In the introduction to this book we discussed the tendencies of some “Marxist” writers to dismiss Marx’s value theory and instead advance their own reformulations. What allows these writers to still call themselves “Marxist” after abandoning Marx’s theory of value? Often the answer is that these writers claim to be able to deduce Marx’s conclusions via alternative logic and methods. Because of the central place that capitalist exploitation holds in Marx’s theory and in his moral critique of capitalism, these authors often try to deduce the existence of exploitation through alternative methodologies, most often, equilibrium methods. Despite throwing out the concept of value these authors still make the claim that surplus labor is the source of profit. It has become commonplace to refer to this theory, that surplus labor is the source of all profit, as the “Fundamental Marxian Theorem” or “FMT”.7

We can probably assume that Marx would not be happy to know that his complex, multi-faceted theory of capitalism had been reduced to one fundamental theorem. As we have seen in this chapter, the theory of exploitation is directly linked to the conservation of value in circulation. It is therefore closely linked to the concept of value, abstract labor, and, as we will read in chapter 11, the theory of crisis. It is very hard to extract one piece of this interlocking jigsaw puzzle while throwing out the rest, yet this is precisely what is done by writers who seek to reject value theory while rescuing the FMT.

We have previously discussed many of the problems of equilibrium analysis. Here we will look at a demonstration that proves the impossibility of holding the FMT in an equilibrium condition. It is precisely because of Walrasian equilibrium methods that many Marxists have been led to jettison part or all of Marx’s value theory while still trying to maintain the FMT. Yet, as we will soon see, this is impossible. This is a problem not for Marx but for the equilibrium method.

Let us say we have an industry, say a potato farm, that requires potato as inputs. At the beginning of production the farm purchases 10 pounds (units) of potatoes at $10 a pound. This makes the total expenditure of constant capital (C) $10. Workers must work 10 hours to pay back the value of their wage (V) and another ten hours of surplus labor to produce capitalist profit (S). We assume labor produces $1 of value per hour worked.

Table 1

# of units of input Unit price of input C V S W # of units of output Unit price of output
10 $1 $10 10 10 $30 50 $0.6

At the end of production $30 of value (W8) have been produced and 50 pounds of potatoes. The unit price per pound of potatoes is now $0.6.

This is how Marx’s theory of value sees the relation of input values to output values. But this is not how the equilibrium theorist sees the world. For the equilibrium theorist there is a problem with the above example: it is not in equilibrium! The input prices and output prices do no match. Such an example does not have a single equilibrium price. Therefore the equilibrium theorist must impose an equilibrium condition on the example, determining input and output prices simultaneously. Because this method is a central part of equilibrium analysis the method is often referred to as simultaneism.9

The simultaneist/equilibrium approach determines input and output prices as follows:10

10x + 20 =50x

10 units of potatoes at the equilibrium price (X) plus 20 hours of labor are equal to 50 units of potatoes at the equilibrium price (x). The equation solves for x=.50. Now that we know that 50 cents is the simultaneist price we can look at the table again with this new price:

Table 2

# of units of input

Unit price





# of units of output

Output unit Price









With the new unit price we find C (10x.50=5) and W (50x.50=25). There is a surplus of 40 units which allows us to find what the surplus value is (40x.50=20). Subtracting S and C from W we get V, 5. The numbers are different than the first example and the rate of exploitation is different, but there is still a correlation between surplus labor time and profit. It seems that the FMT is still intact.

Now let us examine a different example, one in which the same system of production produces surplus labor but not a surplus product.11 The system is still self-reproducing because enough output is generated to restart production, but no surplus product is created. Here would be the common-sense way of looking at the picture:

Table 3

# of units of input Price of input C V S W # of units of output Output unit price
10 $1 $10 10 10 $30 20 $1.50

Again, this is a problem for the simultaneist because input and output prices are not equal. To impose an equilibrium price on the model we perform the same procedure as before.


This tells us that the equilibrium price is $2. Plugging this back into our table we find:

Table 4

# of units of input Price of input C V S W # of units of output Output unit price









This tells us something quite interesting. Even though we know that surplus labor has been performed there is no profit in the simultaneist version. The simultaneist logic cannot produce surplus value without a surplus product. In fact, if we were to create an opposing example (and I encourage readers to try tabulating such an example themselves) where there was no surplus labor but there was a surplus product then we would find that the simultaneist logic concludes that there is profit without surplus labor! This means that simultaneist methods are not capable of proving the FMT. This is just another example of the complete incompatibility of equilibrium methodology with Marx’s value theory.

There is also another crucial aspect of the simultaneist method that is revealed by this example. Simultaneist logic ties value magnitudes directly to physical magnitudes, to use-values. We found that with zero physical surplus there could be no value surplus even though we know that surplus labor has been performed. The surplus value calculation was directly tied to the amount of potatoes produced and had nothing to do with the labor-time involved. If we just look at the basic equation for simultaneous valuation (10x+20=20x) we can see that the value, x, is being determined in relation to physical quantities. Remember that we derived the values of V and S via subtractions from W. No adding up of labor-times was involved in the calculation.

Theoretical approaches wherein value systems are entirely dependent on the use-value structure of the system are called “physicalist” approaches.12 Simultaneism leads to physicalism.13 They are two sides of the same coin. Both are anathema to Marx’s theory and methods. Marx clearly distinguishes between use-value and value. We can know nothing about a commodity’s value by looking at its physical form or its quantity. Instead commodity values are the result of relations between laborers. Physicalism erases all of these social relations and portrays an economy as merely a quantitative arrangement between objects. It is the ultimate fetishism.

The critique of simultaneism and physicalism comes from the Temporal Single-System Interpretation (TSSI) of Marx’s value theory which is discussed often in this book. Temporal interpretations imitate the real world in that inputs enter production at once set of values and leave with another set of values. There is no requirement that we go back in time and change input prices. Interpreted temporally there is always a relation between surplus labor and profit and thus the FMT always holds. However, there is also no need to frame the analysis in terms of a “fundamental” theorem in the first place since a temporal interpretation allows us to continue to use all of Marx’s method and accept all of his important conclusions, not just one, arbitrarily chosen, “fundamental” one. TSSI authors have continually shown that interpreted in a temporal, non-equilibrium framework, Marx’s value theory is internally consistent.

The FMT is actually an attempt to achieve Marx’s conclusions via bourgeois methods (equilibrium, simultaneism, physicalism).14 This is a common phenomenon in the academy where intellectuals are under pressure to conform to the methods of the dominant bourgeois paradigm. However such attempts, as we have just seen, are actually unable to achieve their aim. What is really proven is that the results are in the method. What distinguishes a school of thought is not just its conclusions but the assumptions and methods by which it reaches those conclusions.15 Marx’s radical conclusions about capitalism flow naturally from his method, a temporal, non-equilibrium method.

1Marx, Grundrisse p.101

2An important work debunking the idea of ‘simple-commodity production’ is an essay by Christopher Arthur called “The Myth of Simple Commodity Production”

3In the chapter on Intrinsic Value we briefly discussed the way in which value relations still permeated pre-capitalist societies to a degree. These societies, however, were not simple-commodity-production societies. Rather, they were societies where production happened for subsistence inside the community and trade happened between communities.

4Again, see Arthur “The Myth of Simple Commodity Production”

5Hence, we see that behind all attempts to represent the circulation of commodities as a source of surplus value, there lurks an inadvertent substitution, a confusion of use-value and exchange-value.” Marx, Capital vol. 1 p. 261

6Quoting first Destutt de Tracy, then Mercier de la Riviére Marx says, “With reference, therefore, to use-value, there is good ground for saying that ‘exchange is a transaction by which both sides gain.’ It is otherwise with exchange-value. ‘A man who has plenty of wine and no corn treats with a man who has plenty of corn and no wine; an exchange takes place between them of corn to the value of 50, for wine of the same value. This act produces no increase of exchange-value either for the one or the other; for each of them already possessed, before the exchange, a value equal to that which he acquired by means of that operation.’” Marx, Capital vol. 1. p. 259-260

7“This theorem, first proved by Morishima (1973), states that the existence of exploitation and the possibility of positive profits cannot are equivalent to each other: without exploitation positive profits cannot exist, and conversely, if positive profits are possible then there must be exploitation.” Mayer, Tom “Analytical Marxism” p.74

8W stands for Wert, German for “value”. It is common to use W for “total value” tables such as this.

9Kliman, “Reclaiming Marx’s Capital” p. 75

10This method of finding the equilibrium price is common in simultaneist/Sraffian literature. See Vienneau, Robert “A Sraffian Interpretation of Marx.” As Vienneau explains, this approach is one of three possible ways of arriving at the same result. http://www.dreamscape.com/rvien/Economics/Essays/sraffa.html

11This method of proving that the FMT cannot always be proven via simultaneist methods comes from Kliman, “Reclaiming Marx’s Capital” chapter 10. What follows paraphrases, more or less, Kliman’s approach. See Kliman for a more rigorous critique.

12“Physicalism” is Kliman’s shorthand for Ian Steedman’s “physical quantities approach” (Steedman “Marx After Sraffa” p. 72) Kliman, “Reclaiming Marx’s Capital” p. 76

13This is one of the most important aspects of the TSSI critique of Sraffa, equilibrium, etc. All simultaneist methods are also physicalist and therefore incompatible with Marx’s conclusions.

14Kliman, “Reclaiming Marx’s Capital” p. 175

15This is another crucial aspect of the TSSI. It is easy to get bogged down in the algebra and forget to look at starting assumptions. Economics in particular has a fetish (not the Marxist fetish) for math. Math gives economists the illusion that they are doing science. And the faux-science allows them to claim that their arguments are neutral, unassailable and value-free. The TSSI critique of equilibrium theory challenges this entire approach to doing economics.

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Critique of Political Economy: C. Theories of the Medium of Circulation and Money – notes

C. Theories of the Medium of Circulation and Money
At the end of Chapter 1: Commodities we had “A:Notes on the History of the Theory of Value”. At the end of Chapter 2 part 1: The Measure of Value we had “B:Theories of the Unit of Measure of Money”. Now at the end of Chapter 2, after we’ve discussed the medium of circulation and money as money we get “C: Theories of the Medium of Circulation and Money.” It’s perhaps the densest part of the book but also the most useful for understanding contemporary debates on the role of Marx’s theory of money in our contemporary inconvertible system of money. Here we go….

Marx begins with an interesting discussion about Mercantilist theories of money. Mercantilist thought held that the goal of trade was the accumulation of money, and it understood this money to be commodity money such as gold and silver. The mercantilists singled out trade and certain branches of industry as the source of this monetary wealth. This wasn’t because they were blind to the profit-maximizing of capitalist production. It was because capitalist production wasn’t dominant enough to be the source of material wealth. Feudal production created products for subsistence. These products did not become commodities and therefore products were not turned into money. Feudal products were not embodiments of abstract labor. Money may have been the goal of trade but it was not the goal of production. In this primitive stage of trade the mercantilist focus was on circulation not production. They therefore confused money with capital leading to much confusion.

At the same time Marx snidely remarks that the long theoretical war of classical political economy against the “money and mercantile system is mostly due to the fact that this system blabs out in brutally naive fashion, the secret of bourgeois production, viz, its subjection to the dominance of exchange value.” In doing so Ricardo and Smith fail to see the ‘barbaric’ embryo of their own system in this subordination to money, to exchange value. Furthermore Marx points out the continued importance of commodity money in contemporary capitalism, as the final form of world money. Classical political economy focused on money’s capacity as medium of circulation rather than its role as money. This leads to a focus on the coin that circulate as tokens of value.  And this leads us to Marx’s critique of the Quantity Theory of Money….

Hume is the target. The context is the depreciation of precious metals in the 16th and 17th century, something Hume was focused on.  Hume believes that the quantity of money in circulation determines the value of money and the price level (the total value of commodity prices to be circulated in a period of time.) This is the Quantity Theory of Money (QTM). Marx hates the QTM. The rest of the chapter is a tirade against the QTM.

Marx believes that commodities have ideal money prices, prices measuring the relation of the labor embodied in the commodity to gold, and that they have these prices prior to entering circulation. Thus he believes that the amount of money in circulation is determined by the total level of prices and the value of money. Gold flows in and out of hoards (or is produced by mines) to adjust the level of gold to the needs of circulation. Of course in a system of token money, where symbols of gold circulate, tokens can’t be hoarded. Remember that Marx considers hoards of tokens to still be in circulation. This means that the quantity of tokens in circulation can rise and fall thus inflating or deflating the value of the tokens relative to the gold they represent. So how is Marx’s understanding of the role of token money different than the QTM? Let’s follow his critique of Hume for some clues.

Marx agrees that it sometimes appears that a change in the quantity of metallic money or tokens of money in circulation have a uniform effect on the price of commodities. The periods Hume considers are ones where there were sudden changes in the price level accompanied by corresponding changes in the quantity of tokens. But Hume’s problem is that the periods he considers were also periods where the value of money was also changing. There were openings of gold mines during this period which altered the value of money.

Hume treats gold as if it were the same as tokens of value. He thus makes all forms of money medium of circulation and ignores the role of measure of value. Hume has gold entering circulation without value and deriving its value from its quantity rather from its labor content. In fact he makes it seem as if gold enters circulation as “non-commodities; but as soon as they appear in the form of coin, he turns them, on the contrary, into commodities, which must be exchanged for other commodities by simple barter”. Hume imagines an “imaginary mechanical equalization process” whereby the quantity of gold and the volume of commodities balance.

In other words, for Hume the total volume of gold stands for the total value of all commodities and each commodity exchanges for just the right amount of gold in proportion to its value in relation to the total social product. For Marx this erases the antagonism between use-value and value which “manifests itself in the circulation of money.”

The difference between the QTM and Marx’s treatment of token money might seem like an abstract technical distinction. It’s not. For Marx, the quantity of coin, of tokens of value, in circulation change the unit of account but they don’t change the value of gold or commodities. They just change the unit names that these values are measured in.

There is an equilibrium assumption behind Hume’s QTM. If the amount of gold can de divided evenly to represent the corresponding magnitudes of the world of commodities, if total amount of money equals total commodity value to be exchanged, then we have erased the entire point of money in the first place: it’s ability to apportion and discipline labor through price-value divergences. In Hume’s theory there is a perfect balancing of labors and money is just a numeraire to facilitate the balancing of commodity values. There is no independent role for money as a representative of abstract labor. Though Hume is writing long before the imposition of general equilibrium analysis on bourgeois economics there seems to be an underlying hint of general equilibrium sentiment in his QTM. Marx accuses him of replacing a theory of commodities and money with an “imaginary mechanical equalization process”.

Sir James Stuart comes next. His ideas seem less problematic, if I am understanding the text. Despite some criticisms that Marx doesn’t develop, Stuart correctly develops the functions of money from the different aspects of commodity exchange. At a given time the “ready money demands” of society (the total amount of money needed to facilitate transactions) can only absorb so much gold. If there is too much gold it is hoarded. If there is not enough it can be replaced by tokens. Stuart argues that credit money can replace commodity money but not in the world market. This all seems to line up with Marx’s line of thinking. Marx hints at other disagreements with Stuart but he doesn’t develop them.

Ricardo gets a lot of attention from Marx. Marx gives us a cursory history of the historical phenomena that influenced 19th century discussions of money: the “suspension of specie payment by the Bank of England in 1797, the rise of prices of many commodities which followed it, the fall of the mint price of gold below its market price, the depreciation of bank notes…” These all led directly to political struggles in parliament and theoretical struggles outside of it. Of these theoretical struggles Marx notes that many thinkers confused bank notes with tokens of value or government-issued legal tender paper money. Bank-notes are not the same as tokens of value/state legal tender in Marx’s view. Furthermore Marx says that although these thinkers claim to deduce the laws of token money from the laws of metallic circulation they actually do the opposite, drawing conclusions about token money and then imposing these onto metallic money. They thus erase the function of money as measure of value and develop a theory based solely on money as means of circulation. This is similar to Hume.

Ricardo sees an increase in paper bills corresponding with a rise in prices. This causes him to focus on the effects of the quantity of money on the level of prices, over looking the function of money as measure of value.

However, Ricardo seems to start off in the right direction: The value of gold is determined by labor time. The volume of money is determined by the value of commodities and the value of money. Token money (tokens of gold) can replace gold without changing prices. Marx agrees with these positions.

The chapter can get confusing here because it seems, at first glance, that Marx next lays out a completely different version of Ricardo’s ideas, one the contradicts what he has just said. If I am reading the chapter correctly I believe that this is what is going on: Marx says that Ricardo’s mistakes begin when he looks at the international circulation of precious metals. This is where he starts to develop a QTM that contradicts his theory of labor-time determining the value of gold. Marx thinks that Ricardo’s argument just gets confused when he is dealing with the international sphere. So Marx abstracts away from international circulation for a few pages and presents the essence of Ricardo’s argument without the international circulation. What we get is a QTM:

Ricardo believes that if legal tender (tokens of money) are forced to stay in circulation then the money supply cannot adjust to changes in the value or quantity of commodities in circulation. Money then becomes a token of greater or lesser value depending on the total amount of tokens and the total amount of commodity value in circulation.The same happens with gold in circulation. It becomes a token of itself, representing greater or lesser amount of itself. Marx parenthetically points out that this concept of gold becoming a depreciated token of itself is an abstract deduction that comes from imposing the laws of legal tender on the laws of metallic money. We end up with a theory where the rise or fall of prices appears as effect of the increase or decrease in the amount of gold in circulation. When just the right amount of money is in circulation then money trades at its own value and prices are determined by the labor time embodied in commodities. But when the quantity of money is out of equilibrium with the total value in circulation then the quantity of money determines the price level. This movement of the value of gold and prices triggers changes in the production of gold mines which either increase or decrease gold production to bring the system back into balance. The same logic applies to tokens of value (which can be legal tender paper money) and to bank-notes, inconvertible or not convertible.

I have not read Ricardo on this topic so I can only surmise that Marx is developing this description in the way he does in order to make a specific point. Marx is starting from a theory of metal and then developing it to explain bank-notes. A reader may be more likely to intuitively accept that the quantity of bank-notes in circulation cannot be withdrawn from circulation and that therefore their quantity determines the price level. But we are less likely to believe that gold cannot leave circulation and that therefore the quantity of gold determines the price level. Marx is casting the argument mostly in terms of gold in order to bring out this problem.

At the same time we can see many similarities between Ricardo’s view and Marx. Earlier in the book Marx explained how gold coins can become debased therefore leading to a discrepancy between bullion value and nominal value. But because Marx understood gold to have the function of measure of value he did not see this process effecting the prices of commodities in the same way. Prices of commodities are ideal gold. However Marx does see gold being re-coined in response to debasement, which leads to tokens of value replacing gold. This leads to a change in nominal prices and the development of money as unit of account. In other words, the British “pound” ceases to be an actual pound of gold. The prices of commodities are measured in token units of account that are related to gold values. So for Marx, while the quantity of tokens has an effect on the price level measured in these units of account it does not effect the exchange value of commodities against gold. In other words if a banjo is worth a pound of gold this relation can be measured in various units of account. We could say a banjo is worth 600 dollars and 600 dollars is worth a pound of gold. Or if there is inflation we could say a banjos is worth 1000 dollars and a 1000 dollars is worth a pound gold. (Or this would be Marx’s argument if dollars were tokens of value rather than bank notes!) Because gold stands behind coin as the measure of value Marx is able to make this distinction between the medium of circulation and the measure of value.

Ricardo doesn’t make this distinction and so he counts the quantity of gold like he counts the quantity of tokens. This leads him to a theory of the equilibrium quantity of gold. This obsession with finding the perfect quantity of money dominates his understanding of international trade. For Ricardo there is equilibrium in international money supplies when all of the money in each country trades at its labor-value. This is a ‘normal’ volume of money. When the volume of money is ‘normal’ there is no need to export or import gold and prices are equal to values. The ‘normal’ level of a national currency is expressed as a balance of currencies in the international market.

How is this ‘normal’ level disturbed?- Marx asks. This is an important question. What Marx is getting at is that Ricardo believes the export and import of coin is not caused by trade imbalances, but vice versa, that the export of coin is caused by the cheapness of coin.  If there is too much coin and thus money is depreciated then commodities are expensive and can’t be exported. This causes a trade imbalance. Ricardo then thinks that trade imbalances will be solved not by addressing the underlying inequalities in production between nations but by addressing the quantity of money in circulation!

Marx points out this idea collides with facts. He gives several examples of Ricardo’s theory clashing with historical facts. Ricardo states that in years of poor harvest there was too much coin in relation to the quantity of crops to be sold. This led to a depreciation of money and a rise in commodity prices which led to a trade imbalance. Marx says that the empirical evidence is against Ricardo on this, that in such instances as bad harvests there is not a super-abundance of currency. He references Tooke on this point. I will not list all of Marx’s other examples here.

We can see that although there appeared to be a superficial similarity between Ricardo and Marx on some points that there are important differences between the QTM and Marx and that these differences lead to radically different understanding of things like international trade imbalances. It became fashionable after Schumpeter to classify Marx as a ‘metalicist’ because he derives the money form from the commodity. It is also common to hear it said that Marx had a commodity theory of money. These two terms could mean many things and could lead one down the path of thinking that Marx had a more narrow view on money than he actually did. It is not true that Marx didn’t have a theory of tokens of value, or legal paper currency. And although he doesn’t develop a theory of credit money (bank notes, etc.) anywhere many, including myself, think that such a theory can exist within his framework. What is unique and important about Marx, and what makes him more than a simple ‘metalicist’, is that he develops his theory of money from the commodity form. Thus his theory of money is not exogenous to his theory of capitalism but flows directly from it. He develops all of the forms of money directly from the commodity form. Thus there is always a need for money as measure of value at some place in the theory. This need can take different forms at different places in history. It is common today for some to think that there is no need for a theory of money as measure of value, especially since general equilibrium models so popular in economics leave no room for money as a measure of value and treat money only as a numeraire. However I believe that these theories are gravely mistaken and that the everyday reality of money  screams out the continued importance of money as a measure of value, especially in the arena of world money where the dollar is increasingly losing ground, the market price of gold is rising…. etc… ok I am getting off topic.

James Stuart Mill makes an appearance next. Mill continues Ricardo’s QTM but doesn’t bother with the international trade angle. Mill paints a picture of use-values circulating without prices, money circulating without value, everything to be determined in the market by the quantity of money. To get rid of the bothersome problem of hoarding to his theory Mill makes very liberal, and irresponsible, use of the concept of velocity. He basically slows down the measure of the velocity of money so that all money circulates in a time period.

The commercial crisis of the 1825 and 1836 led to further attempts to apply Ricardo’s theory to reality. Resolutions to these crisis were sought in the realm of monetary circulation. Ricardo’s so-called ‘laws’ of metallic currency were applied to credit and bank notes. The most general and noticeable phenomenon of a crisis, Marx tells us, is the sudden fall in prices after a prolonged period of rising prices. A fall in prices, by definition, means that the value of money rises (ie, money can purchase more commodities). Thus pointing to the fall in prices and saying this is because  of the rise in the value of money is a tautology. It doesn’t actually explain anything. One is the flip-side of the other. Our only recourse is to theorize changes in the value of commodities or money. Did the value of money rise or fall due to changes in the production of gold? Did commodity prices rise or fall because of changes in productivity? Only these questions can unpack the phenomena to be explained.

Ricardo’s ideas led to the “currency principle” which became law in England in 1844 and 1845 at the hands of Lord Overstone and others. It led to immediate disaster. The idea behind the “currency principle” was that bank notes should be forced in and out of circulation so that they were directly proportionate to the quantity of gold in the country. Gold exports and imports had to be mirrored by changes in the quantity of bank-notes so that the amount of money in circulation was in equilibrium. Marx ends his tirade with “Thus did Ricardo, who proclaimed paper money currency as the most perfect form of money, become the prophet of the bullionists.”

The chapter ends with a brief discussion of Tooke. Tooke began as a Ricardian but the glaring contradiction between empirical reality and Ricardo’s ideas led him to abandon Ricardo’s theory of money. Tooke came to the conclusion that the expansion or contraction of currency, when the value of gold is stable, is always a result not a cause of changes in the price level.

While Marx is influenced by Tooke and Fullarton, and while he commends their ability to theorize money in many forms besides just medium of circulation, he also lists a few criticisms. They don’t establish an organic connection between the forms of money in the way Marx does, developing each form of money from the unfolding of the commodity form. They don’t understand the category of Capital in relation to money and commodities. Capital can be money but it can also be commodities. Gold becomes means of payment not because it is capital but because it is money. They also don’t grasp money in abstract form, derived from simple circulation. The vacillate between abstract forms of money which distinguish it from commodities and advanced forms of money which conceal real social relations. Marx does expand on this last point. I assume that he means that advanced forms of money like credit conceal creditor-debtor relations while money in simple circulation only references buyer and seller. Tooke and Fullarton must not make distinctions between these levels of analysis.

The critique of political economy is often published with an introduction. The same introduction is always published with the Grundrisse. I will not be posting notes on this introduction in this series. However I am starting a Grundrisse reading group here in NYC this fall (2013) so I/we may post some notes on this text then.

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Critique of Political Economy Chapter 2 part 3 and 4- notes

3. Money

In a text that is so obviously all about money it may seem funny to have the above section title here in the middle of the book. But up until now we have been considering money as a means of circulation. The social relations we dealt with were the social relations of simple circulation or C-M-C (commodity-money-commodity) where the goal of exchange is for the commodity to change hands. Here in part 3 Marx begins to consider forms of money where the goal of exchange is to acquire money. Here money is more than just a symbol. This requires real money, gold. Gold is the universal commodity, the bodily representative of material wealth.

Of course the quintessential form of this M-C-M is capitalist production where wage labor is exploited for the profit of capital. Marx is still not ready to get to an analysis of capitalist social relations. So instead he wets our appetite with a discussion of hoarding, means of payment and world money. These are all forms of money that require money as real money but exist logically prior to the discussion of capital. They are all still observable within C-M-C (simple circulation).

Gold becomes money not because society has consciously decided so but as a result of the natural evolution of the commodity form. As money gold is a unity of measure of value and medium of circulation. However as a unity it also has a separate existence in these functions. “As measure of value it is only ideal money and ideal gold. As a medium of circulation it is symbolic money and symbolic gold.” For instance, a price reflects an ideal amount of gold which a commodity exchanges for. This commodity can be purchased with token money, realizing the value of the commodity without gold ever changing hands. Gold is necessary for this function but only ideally.  
Since all commodities represent imaginary quantities of gold then money is the only real commodity! Commodities are particulars. They represent “independently existing exchange value”. But gold is “the material form of abstract labor”. Commodities are specific in their use-values while gold can be converted to any use-value. Money is the god of commodities.

a. Hoarding.
Coin becomes money when circulation is interrupted. When a sale is not immediately followed by a purchase then money freezes in it’s circuit. This isolation of gold/money is “a material expression of the disintegration of the process of circulation…” This reminds us of Marx’s critique of Say’s Law in other places.  Marx’s theory of money allows him to theorize the breakdown of circulation and later the breakdown of capitalist production in a way that other theories which lack a real understanding of the role of money in capitalism are unable to do. (By ‘other theories’ I mean not just JB Say but also all theories which rely on a general equilibrium framework. This encompasses all forms of neo-classical economics as well Sraffians and many post-Marx Marxists such as the New Interpretation school and the Simultaneous Single System school. None of these schools of thought can adequately account for the role of money in the organic way that Marx does.)

Marx spends some time discussing this idea of an interruption in C-M-C. Selling is determined by labor time but buying is determined by wants. In order to buy without selling one must have already sold without buying. In other words, in order to have any money to buy without selling I must have already sold something without buying. The break in C-M-C presupposes a previous or future break in C-M-C. This means that the flow of coin must constantly coagulate in reserves of money. Since we don’t always buy right away after selling, since we sometimes save for awhile before reentering the market, we need to consider the role of hoarding. These reserve hoards are constantly appearing and disappearing. Here the hoarding mechanism does not require us to convert coin to gold yet. Money merely becomes ‘suspended coin’. It exists just within this basic framework of simple-circulation as a “technical aspect of money circulation.” Still, it exists as money and not just medium of circulation. It is a baby-step towards money as Money proper.

Primitive exchange is based on surplus-product. People work for themselves first and then sell this surplus in the market. Surplus must be hoarded. Gold becomes the adequate form for the preservation of this surplus. Gold here takes the form of abstract social wealth. Because of the natural properties of gold and silver they are perfect for hoarding: they are indestructible incarnations of social wealth. This is hoarding for its own sake, for the love of social wealth. It is therefore different than the type of ‘suspended coin’ hoarding that we talked about in the previous paragraph. Here gold is money to the extent that it is NOT a medium of circulation.

Hoarding is motivated by greed. It belongs to simple circulation as opposed to forms of accumulation which belong to capitalist production. It is the barbaric form of production for production’s sake. It is a hallmark of ancient societies. In contrast capitalist production is about the reinvestment of money into the production process. Capitalist accumulation is not hoarding.

Hoarding also brings money in and out of circulation allowing the amount of currency in the market to adjust to the price level. This becomes a crucial part of Marx’s critique of the Quantity Theory of Money which argued that the amount of money in circulation determined prices and the value of money. For Marx the value of money and of commodities are already given in ‘ideal gold’ and ‘ideal value’. The quantity of money in circulation is determined by the quantity of money needed to facilitate these transactions (divided by the velocity of money). If more money is needed it flows out of hoards. If less money is needed it flows into hoards. The relationship of this theory to fiat and credit money will be taken up later.

Capitalism centralizes its hoards in banks. Banks also have coin reserves. These are not hoards. Coin reserves are part of the total amount of token money in circulation. This is an important addendum to the above paragraph. Token money cannot be hoarded. It remains in circulation even when in the bank. This means that it follows different rules than gold in terms of the considerations of the above paragraph. Marx does not pursue the issue further here so we will return to it later.

b. Means of Payment
So far we have two forms which distinguish money from mere circulating medium: 1. hoards proper and 2. suspended coin (a sort of mini-hoard). This leads us to a discussion of means of payment. As soon as money develops, via hoarding, into abstract social wealth it assumes special functions within circulation.

In the same way that paper can represent gold a buyer and seller can represent future buyers and future sellers. The payment for a commodity can be delayed in time (as when I buy something with my credit card.) Or the payment can be made first and the commodity can arrive later. This separation of purchase and sale in time means that money takes on a new function: means of payment. Means of payment is another example of how “All of the forms in which gold develops into money are but the unfolding of potentialities which the metamorphosis of commodities bears within itself.” This is important: if we are going to later develop a Marxist theory of credit we need to see how credit still bears the mark of its origin in the simple circulation of commodities. Credit is not something exogenous to commodity production.

Previously we saw how tokens came to symbolize money. Now we see how the personal symbolism of the buyer becomes money in the form of a promise to pay. What had seemed a merely imaginary difference between purchase and sale now becomes real. The seller-buyer relation becomes a creditor-debtor relation. Price is a measure of obligation.

When we buy something with credit no actual money is present. Money is only there ideally in the price of the commodity. The price is also a measure of obligation on the buyer. Only when the credit payment is due does money enter circulation. But it does not enter circulation as means of purchase. The purchase has already happened. It enters circulation “as the only adequate expression of the commodity, as the absolute form of existence of exchange value…. in short as money, and money in its distinct form of a universal means of payment.” Money appears as the god of commodities but not apart from circulation as in hoarding. It appears as god of commodities within circulation.

[Question: Does Marx reserve the term "credit" for capitalist credit systems, making credit a type of means of payment? Or are the terms credit and means of payment synonymous?]

If these payments are always paid in time then production and exchange are unaffected. But in a crisis we see the real difference between means of payment and means of purchase. Purchases are made but payments don’t follow. The chain of payments breaks down, etc.

Marx makes another interesting point here: in C-M-C we assume that the buyer has sold something previously to allow him to have money to buy the commodity. Selling commodities becomes a necessary prerequisite to buying them. In contrast to hoarding where C-M served merely the private greed of the hoarder here we have a different way in which accumulating money becomes an essential part of exchange. “The motive or essence of sale for the sake of payment becomes from a mere form of the process of circulation its self emanating substance.”

This is important because when, in Kapital, Marx analyzes capitalist social relations we learn that the compulsion to sell in order to buy is a function of the fact that the working class does not own its own means of production and thus must sell labor power. Marx is not making this argument here. He is merely showing how the compulsion to sell is inherent, formally, in simple circulation and that this formal aspect is developed further, takes on more concrete specificity, when we discuss credit. When considering the obligation to pay, the creditor-debtor relation, the need to sell in order to buy becomes the “self-emanating substance” of circulation.

The temporal differences between purchase and sale that bring out the need for credit/means of payment originate in simple circulation (though they are obviously much stronger in capitalism). The regular repetition of purchase and sale leads to goods being purchased in advance. Differences in seasons, productivity, etc result in the needs to delay payment.

It is interesting to me that Marx needs to develop this aspect of the value form within circulation itself and prior to an analysis of capitalist production. There may be several reasons. The dialectical structure of the presentation is such that the logical unfolding of categories starts with the most general (C-M-C which expands back historically to pre-capitalist society, and is logically more abstract/less-determined by more concrete determinations) and gradually expands the sequence of categories to take on more concrete determinations specific to capitalism (M-C-M, labor power, profit, class, etc.). This means that the compulsion to sell in order to buy, easy to see in capitalism where the worker must sell labor power in order to buy means of subsistence, also exists at a more general level of abstraction, within credit relations and, formally, within simple circulation. And it means that this compulsion is there in pre-capitalist societies, to the extent that credit and/or simple circulation is present.

Money as means of payment increases at the expense of means of purchase. Coin remains in retail use but means of payment takes over large commercial transactions. “As the universal means of payment money becomes the universal commodity of all contracts…” The extent to which money takes this exclusivity shows the extent to which exchange value has “taken hold of production.”

How much money enters circulation as means of payment? First we balance accounts. Then we take the remaining payments and total up their prices. We divide this by the velocity of money and this answers our question. The price level (of the commodities needing to be paid for with means of payment) and the value of money is determining the quantity of money needed for these payments. This seems to be the same method Marx uses for determining the quantity of gold in circulation in the abstract case where gold is the material used for circulation. It is different than the method used for token money used in circulation. The reason it is the same is because real money, not tokens or more credit, is needed at some point to bring the cycle of means of payment to a close. Means of payment cannot exist in perpetuity without a commodity basis. This becomes especially apparent during a crisis when the chain of payments breaks down and money as money, as gold, becomes essential.

This chain of payments (A owes B, B owes C, etc.) reveals a deeper social connection than the chain of metamorphosis of commodities. The metamorphosis of commodities is a slowly developing chain whereas the chain of payments represents hands that have “already clasped each other”, already existing social connections. This makes a break in the chain of payments felt by all.

If all payments happened at the same time no money would be required. Money would only be an ideal measure of value, as above. It would be ideal money of account. But money as money, gold, is latently present, waiting to assert itself in times of crisis. The need for payments is another factor requiring the establishment of reserve funds/hoards.

To find the total amount of money needed for circulation we take the above calculation of the amount of money needed for means of payment and add this to the total amount of money needed for all other transactions (total of all other prices divided by the velocity of money). Thus the presence of money as means of payment does not alter the law that the prices of commodities and the value of money determine the amount of money needed for circulation.

The value of money can change (due to changes in the productivity of gold or silver mines) before payments are due. Debts can be repaid in money that is of greater or lesser value and this, obviously, hurts or helps creditor and debtors depending on which way the value of money has changed. In such an instance the commodity function of money comes into conflict with its function as a measure of value.

It seems there is a tendency for contradictions in the commodity form to constantly be resolved by breaking the functions of use-value and value into separate objects: commodity and money, then money as measure of value vs money as medium of exchange. Then these aspects of money are further expanded to include hoarding and credit. But still the commodity basis of money comes into conflict with these higher forms.

C.World Money

To review, with hoarding gold becomes money proper and is distinguished from coin. This gold “enters” circulation but as a non-circulating medium! In other words, with the concept of hoarding: gold, as opposed to coin, enters the our picture of the component necessary parts of circulation. But it doesn’t actually circulate.

World Money is a new category. Here gold ‘breaks through the barriers of home circulation” to become the universal measure of value on the world market. While coin can replace gold for purposes of circulation within the home market, between countries accounts must be settles in gold. Why? Because, obviously, the rubles are useless to the French and francs are useless to the Russians. Previously we traced the path of gold measured in weight evolving into weight names that stand for different, lesser amounts of gold, etc. Here the opposite process takes place. The actual, real weight of the gold is all the matters for its value when it comes to world money.

As world money gold is not acting as a medium of circulation. It is a universal means of exchange. This takes two forms: Gold serves as means of payment in settling debts between countries and it serves as means of purchase when exchange is one-sided. In home circulation coin was means of purchase in a one-sided exchange. But in the international arena gold does this. Means of payment takes on the function of settling international balances.

Settling balances means taking into the account how many purchase and sales were made between various countries in a certain span of time and ‘settling-up’ on the difference through the payment of gold. This requires hoards of gold that can serve this purpose. This can be also a be a movement directly from gold mines to other countries. Gold can flow out of mines and enter international circulation as world money, trading at it’s socially necessary labor time with commodities of equal value, before it penetrates the national sphere. I don’t think Marx is saying here that all gold enters as world money first. I think he is just saying that it can do this in order to serve as means of payment. But he is saying that all gold can serve the function of universal money and so I guess, in this sense, newly produced gold is immediately world money. But it seems to me that it is not world money until it is used as world money. Maybe I don’t have this correct.

Regardless, Marx says that the value of the gold as world money falls and rises with its socially necessary labor time. This relation of the value of gold as world money to its production happens regardless of the manner in which gold enters the home market.

Lastly, gold helps create the world market. Countries trade looking for gold. In the same way that one must sell in order to buy in simple circulation, countries must sell in order to obtain gold to buy things they need to import. This forces nations into the world market.

4. Precious Metals
This subchapter discusses the qualities of the previous metals that make them ideal for their function as money. I don’t find it of particular interest. Perhaps there is a point being scored against Ricardo who had sought an unvarying standard of value. Marx remarks that gold is not by nature money but money is by nature gold and silver. However gold and silver are not able to “fulfill the requirements they are expected to meet in their capacity of money, viz. to remain values of unvarying magnitude.” He then discusses the history of the changes in relative value between gold and silver as the technique of their mining evolved. Marx is not interested in finding some abstract invariable measure of value. But he is not directly addressing Ricardo here as far as I can tell.

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