The Critique of Political Economy; chapter 1 notes

Summary of Critique of Political Economy Chapter 1 by Karl Marx
(Chapter 2 to follow in a future post.)
Written before Das Capital, the Critique of Political Economy covers much of the theoretical ground of the opening chapters of Capital but in more detail. Sometimes readers have difficulty with the theoretically dense and stylistically strange nature of Capital’s opening chapters. For those interested in thinking more about these opening chapters, especially the stuff about money, it may be helpful to read the Critique.

The one caveat that is important to note however is that in the Critique Marx had not yet made the distinction between exchange value and value. The development of this important theoretical distinction is one of the most important aspects of the opening chapter of Capital.

What follows is a summary of the Critique. It is no substitute for reading the book itself. I write it mostly for self-clarification as I think about a future video on Money. The stuff on money is mostly in chapter 2, but I thought I might as well type up notes on chapter 1 while I’m at it. The origin of money in the commodity form is in chapter 1 though.

Chapter 1- Commodities

As we know a commodity has a use-value and an exchange value. The use-value of a commodity falls outside of the realm of political economy except in that it is a bearer of exchange value. Why? The use-value does not bear the mark of the social relations of production. We can’t tell that an object is a commodity by examining its use-value. The use-value is limited by the particular properties of the commodity, and is not a universal quality that can be quantified or compared with other use values in any meaningful economic sense.

[Of course, most of the uses that commodities serve are needs created by capitalism. So when Marx says that the use-value does not bear the mark of the social relations of production we should read this in the narrow, specific sense that the use-value has no relation to the division of labor or socially necessary labor time represented by a commodity rather than in the broad sense of the observation that uses and needs are created/conditioned by capital.]

Exchange value appears at first sight as a quantitative relation. Commodities are equivalent to other commodities despite having different, incomparable uses. Despite different uses Marx tells us they “represent the same entity.” (I take it this is a kernel of what later becomes the concept of ‘intrinsic value’) When two commodities have equivalent exchange values this means that they have equivalent volumes of the same time of labor. Though what Marx goes on to talk about is the quality of this labor (that it is abstract, simple labor, etc) it should be pointed out that he does seem to operate under the assumption at this point that equivalent exchange values represent equivalent labor content, on an individual basis. Of course, with his fully-fledged theory of price and value, as worked out in the 3 volumes of Capital (and in his comments in chapter 2 of this book), this identity of value and price, on the level of individual commodities, does not hold. He makes similar statements about quantitative equivalence in the beginning of Capital. My instinct is to take this as an opening assumption, abstracting from the complexities of the later stages of the analysis. But Marx does not state that this equivalence is merely a simplification.

What kind of labor forms the value of commodities? It is abstract, general labor. It is also simple labor. Labor time is the inherent measure of labor.

Simple labor is a real abstraction. There is a real process which reduces all labors to a common denominator. Labor does not appear as different, isolated labors. Instead, under capitalism, labors appear as different arms of the same social organ. As in Capital, Marx says that this is not the place to discuss the actual processes of the reduction of complex labor to simple labor. But tells us that it is a constant process. This makes it a real abstraction.

He covers the concept of socially necessary labor time.

In capitalism private labor produces exchange value. This is how it becomes universal labor, or social labor. This universal labor time is represented in the general equivalent. Hence, universal abstract labor is the specific type of labor of a capitalist society, not all human societies.

Marx enters into a brief discussion of the way the social relations between men appear inverted as social relations between things. This is obviously a precursor to the concept of the ‘fetishism of commodities’ introduced in the end of chapter one of Capital vol. 1.

Labor is both abstract and concrete at the same time. It is both social labor and natural labor. Concrete labor makes use-values. Abstract labor makes exchange values.

Use-values stay the same while the social relations around them change. Hence the labor time it takes to make a use-value can change and thus the exchange value changes. (It seems a simple enough point, yet we see the confusions that have been made in the 20th century by physicalist misreadings of value theory which seem to posit that exchange-value is the same as physical quantities!) Scarcity and abundance effect the productivity of labor and therefore APPEAR to effect exchange value directly.

The exchange value of a commodity is not revealed by examining one use-value in isolation (say, in the nature of a supply and demand graph), but by examining the relation of all commodities to each other. Exchange value manifests itself in the endless series of equations through which commodities demonstrate themselves as being the equivalent of another commodity in value. The universal equivalent is the one commodity that all other commodities measure their exchange value in.

The commodity is not a use-value for the seller, only for the buyer (if only this was understood by marginalists…). The commodity is only an exchange value for the seller and a potential use-value for the buyer. But it must be a use-value to a buyer in order for its labor to be social. (Though this is a condition for social labor it is not a determinate of the value of a commodity.) Private labor is not directly social. It must be socially useful to be social.

Here’s a puzzle: The commodity must enter exchange as social labor but this universality is only a result of exchange! How can this be? The puzzle is solved via the universal equivalent. The universal equivalent has two uses. It has its own use (if it is gold then it can make rings, microprocessors and stuff…) and it has a universal use in that it is used to measure the value of all other commodities. This resolves the contradiction of the commodity, that the commodity has a particular use value but a universal exchange-value. All commodities express their exchange-value not in an endless series of equations, but in one equation, their equivalence with the universal equivalent, money. This is expression of equivalence exists ideally before the purchase has been made. This is why we have price tags. We guess the exchange value of a commodity against money. But this price has to be realized in exchange in order for the process to be complete. Though exchange value has this ideal aspect this does not mean that money is a symbol. Money and value are quite real.

The fetish character of the commodity form is even more striking in money where money appears to have its own autonomous power.

Exchange value, of course, predates capitalist social relations. It originates at the borders of societies where trade begins between societies, not within societies. At first these exchange values are random. But as soon as a part of production begins to be production for exchange and not for use then exchange values begin take on predictable forms. This leads to the development of money.

Bourgeois economy treats barter as a natural form of exchange and sees money as a mere expedient. (This is true for contemporary bourgeois economy as well as the classical political economy.) Money is seen as a material instrument, a tool for simplifying barter, rather than as a social relation. But Marx knows that money doesn’t just solve the difficulties of barter in a technical sense. These difficulties arise from the development of exchange value and from the appearance of social labor as universal labor.

Notes on the History of the Theory of Commodites (a section at the end of Chapter 1) I didn’t take the best notes on this section…

Adam Smith thinks that the Labor Theory of Value applies to pre-capitalist societies. He sees it as a theory of subjective equalizations of labor time. Smith tries to derive exchange value from the social division of labor. Ricardo focuses on the quantitative determination of value rather than the qualitative side which would allow him to see the specifically capitalist nature of the value form. He sees capitalist labor as the eternal form of value. Sismondi focuses on the specific social character of labor, he develops an idea of necessary labor time and a critique of large industrial capital.

Ricardo represents the final shape of classical political economy. He leaves us with some controversies.
1. Labor itself has exchange value yet different types of labor produce different amounts of exchange value. We get into a viscous circle by making exchange value the measure of exchange value… Marx will later solve this by distinguishing between labor and labor power. The capitalist buys labor power but labor is what produces value. Marx says we need a theory of wages to explain this.
2. Point two seems to be a reiteration of point one. Marx says we need a theory of capital to explain this.
3. Supply and demand cause exchange-value to deviate from exchange-value. Marx says we need a theory of competition to explain this. Later, in Capital, when he develops the difference between value and exchange-value, this becomes a little clearer.
4. How do non-commodities have exchange value? For this, Marx says, we need a theory of rent.

Value-Price- a draft script

This is a draft of the script for my next video “Value and Price”. Any feedback is helpful. The footnotes have yet to be numerically linked to the main text.

Intro

There is a lot of confusion over Marx’s theory of value and price. Let’s take care of that. [Obviously I'm just skimming the surface here, but I suspect that what my audience wants is a broad concept of the main points.]

When people get their panties in a bunch about price/value it’s over this issue of price and value not being the same all the time. At noon today a hot dog that took 20 minutes to make might sell for the same price as a bowel of soup that took an hour to make. Ack! Is this non-identity of value and price the end of Marx and the end of all radical politics?

I hope not. The reason we have two concepts, value and price, is because they are not the same. It is the relation between them that explains the inner mechanisms of capitalist production and exchange. If value and price were the same we would automatically know how much labor went into a commodity and what level of output we needed to meet societies demand. But if we knew all of these things then there would be no need to have value or price or a market for that matter. We could just plan everything on a computer.

But we don’t have a planned economy. What division of labor and what level of productivity are necessary for the division of labor to reproduce itself each day? Nobody knows.  When capitalist hire workers and buy inputs they don’t know what sort of profit they will make. And when we go to the store we don’t know how much labor has gone into the things we buy. These decisions all must happen through the fluctuation of price signals. These fluctuations reflect back upon production to discipline and apportion labor.

Discipline and Apportion

When we say that labor is ‘disciplined’ we meant that individual workers must strive to work at the average level of productivity. This is Socially Necessary Labor Time (see my video ‘Socially Necessary Labor Time’). When we say that labor is ‘apportioned’ we are talking about the division of labor, that is, deciding how much labor should be apportioned to what tasks. The division of labor and the SNLT determine what is produced, how much is produced and what the values between these commodities are.

But the unique thing about capitalism is that these decisions about disciplining and apportioning labor only happen after the labor has been performed. Price signals are judgements on past labor which then influence future labor. As the products of labor leave production, enter circulation and then become inputs into future production we have a continual feedback loop of information.

Production and Exchange

This feedback loop could be confusing unless we remember this important principle:

‘value cannot be created in exchange’

Once you understand that almost everything else falls into place. Value is created in production by human labor. It takes the form of commodities with definite values that enter the market place where they acquire prices. Sometimes these prices are above their values. Sometimes below. These signals act back upon production to discipline and apportion labor. Thus the enormous, complex division of labor in a capitalist society is coordinated through the value relations between the commodities.

Because value cannot be created in exchange this means that the exchange of commodities is a zero-sum game. If some commodities sell above values then others must sell below. There can be no aggregate increase in value merely through the process of commodities changing owners. To have new value there must be new labor.

Unlike neoclassical theory where prices arise merely from the collision of subjective motivations of individuals bartering, totally abstracting away from the production process, the Marxist theory of of value and price directly links these phenomenon to the need for society to reproduce itself through a capitalist division of labor.

Value- Price

If value is created in production then the value of a commodity is the socially necessary labor time that goes into it. But we can’t see this labor time when we look at the commodity. All we see are the exchange values that occur when this commodity trades with other commodities. We can only see the social relations between producers through these exchange values. When the commodity exchanges for money then we see a special form of its exchange-value: price. Price is the form of appearance of value. It is the way we see value at work in the real world.

If value can’t be created in exchange this means that the total amount of value produced is always equal to the total prices of these commodities. But individual values and prices can and must diverge in order for the price mechanism to discipline and apportion labor.

Money

When we say that price is the ‘form of appearance’ of value we mean that the value of a commodity is not stamped on its side for the world to see. We only see the relations between laborers through the exchange ratios of commodities. Money is the god of all commodities. It is the one commodity that all other commodities measure their value in. As such money represents value in the abstract. It is a measure of abstract labor (See my video on Abstract Labor).

Thus when the price of a jellybean rises above its value this means that the jellybean, commands more money than its value, that it commands more abstract labor in exchange than it required in production.

Demand and Supply

One of the main reasons that prices deviate from values is the constant fluctuations of demand and supply. As capital revolutionizes the productivity of labor, values change, output and prices change, and demand and supply fluctuate. If demand for jellybeans is higher than demand then the prices of jellybeans rise above their values, they command more abstract labor in exchange, and this triggers a reapportioning of labor to bring supply in line with demand.

If supply and demand were in balance then price would equal value. This is why it is meaningless to try to form a theory of price just by relying on demand and supply. If demand and supply were to actually balance for all commodities we would need some external factor to explain the exchange ratios between commodities. For this reason Marx often abstracts away from demand and supply imbalances when making his analysis of value.

Side Note on Marx’s Method

In fact Marx often asks us to assume, for the purpose of illustration, that value=price. This is not because he thinks that, on the average, or in the long run, value always equals price. It’s because the divergence of value from price has no bearing on any of his main conclusions about the qualitative aspects of value: that the origin of profit is the exploitation of labor, that capitalism is unstable and prone to crisis, etc. By isolating the fluctuations of price and value he can put our attention on the class relation between capital and labor in the workplace, instead of letting us get distracted by the distribution of value through market fluctuations.

Review:

Before we move on we should review the main points thus far: Value can’t be created in exchange, only moved around. Money is the measure of value. If a commodity sells above its value this is the same as saying that it commands more labor in exchange than the labor that went into it.

3 components of value

The value of a commodity is divided into 3 components:
constant capital (c)- is the value of the past labor that went into the production of any inputs.
The other two components of value are new value created by the worker.
variable capital (v)- is the wage paid to the worker
surplus value (s)- is the surplus labor the worker performs for the capitalist above the value of their wage.

The line between V and S is the site of class struggle as capitalists try to get as much surplus labor out of workers at a given wage. That’s why it’s called ‘variable capital’. The value of non-labor inputs are called constant because they can’t create any more value once they are bought. They pass their value directly into the value of the final commodity.

C+V represent the cost of production to the capitalist. Marx calls this the ‘cost-price’. Capitalists must at least recoup the value of their cost-price if they are to continue production each period. If they didn’t at least recoup their cost price they would not have money to pay workers or buy inputs.

But capitalists also must have an incentive to invest. They also require profit. But the profit they get from selling their commodities is not always equal to the surplus value they produce. Previously we said that value is created in production but that the seller can gain more or less value depending on the fluctuation of price. Now we can also say that surplus value is created in production but the capitalist can gain more or less profit than depending on the price of the commodity. If a capitalist’s profit is higher than the surplus value they create in production we call this “super-profit”. As we discussed in the video on SNLT, super-profits are the prime motivating force of a capitalist economy. They drive innovation and attract investment. The deviation of individual capitalists’ profit and surplus value is thus a necessary part of capitalist competition. However the total amount of surplus value produced is always equal to the total amount of profit received. As with price and value, surplus value can only be created in production even though it is redistributed in exchange.

Prices of Production

The most notable case of surplus value being redistributed in exchange is Marx’s theory of Prices of Production. Before explaining that we first have to take a brief detour to talk about average profit rates. If capital is free to invest in any industry, free to move in search of the highest profits, this causes a tendency for profit rates to equalize. As money flows into a high-profit sector, the supply of these commodities rise and their prices fall. Those high-profits start to erode. The opposite happens with low-profit sectors. Of course this doesn’t mean that all sectors of the economy always have the same average profit rate. This is only a tendency, one hindered by barriers to entry, monopoly, etc.

If surplus value can only be created by human labor we would expect the highest profits to come from capitalists who hire the highest ratio of workers to machines. We would expect the lowest profits from capitalists who spend lots of money on machines and very little on workers. (This is the concept of the ‘organic composition of capital’: the higher the ratio of machines over workers the higher the organic composition of capital.) If capitalist A spends $75 on wages and only $25 on constant capital we would expect her to make more profit that Capitalist B who spends $25 on wages and $75 on constant capital. The more workers relative to machines the more surplus value is produced per dollar invested. Both capitalists invest $100 but one has a much higher profit rate than the other.

Assuming no barriers to the flow of capital we should see a tendency for profit rates to equalize, for capitalists to make the same return on investment for every $100 invested. How can this happen? If we keep in mind the fact that value and surplus value can only be created in production but can be redistributed via prices and money then the solution is already in front of us. Surplus value is redistributed between capitalists to form an average rate of profit.

How do capitalist’s redistribute surplus value? Do they send it to each other in the mail? No. Prices do this work of redistribution. The prices for some commodities fall, others raise, and thus capitalists gain and lose surplus value in exchange in a way that equalizes profit rates. In this way surplus value becomes less of the property of the individual capitalist and more the property of the capitalist class as whole, uniting the class in their common interest in the exploitation of labor.  These new prices, the prices which redistribute surplus value to form an average rate of profit, Marx calls “Prices of Production”. They are formed like this:

c+v+p

where p is the total surplus value created by the working class divided evenly between capitalists, or the average profit.

Criticisms

There are some common critiques of Marx’s concept of value and price. There is room here only to sketch out a few and give some brief rejoinders.

1. Q: If price is just cost price (c+v) plus average profit what is the point of talking about value at all? Why not just have a theory of price that says prices are the cost of production plus an average mark-up?

A: Such a strategy would not explain the relation of price to the disciplining and apportioning of labor by capital, the social relations which are coordinated by the price system. After all, cost-price represents a definite quantity of current and past labor. And the average profit is completely dependent on the amount of surplus labor extracted by the working class.
If we eliminate value as a category then we have no way of explaining money. Money, as the commodity which all other commodities measure their value in, is the embodiment of labor in the abstract. Without this real abstraction we have no way of comparing the relative worth of one commodity from the next. This is why neoclassical theory doesn’t really have a theory of money, but rather bases its system upon the notion of barter. Marx, by contrast, shows how the intrinsic value of the commodity can only find its expression in the money prices.

2, Q: If value rarely ever equals price, what is the point of value analysis? How can you prove that they aren’t two sets of numbers, labor times and prices, coexisting with no relation?

A: Attempts to prove or disprove Marx’s theory of value by finding instances of price-value divergence or identity will always fail. This is because the theory only makes sense if individual values and prices deviate. Value is a process, always in motion, and always in fluctuation. By analyzing value we can understand the violent social contradictions that create this dynamism and fluctuation.
Some Marxists like to think of values like long-run equilibrium prices. If demand and supply were in balance, technology didn’t change, and there was no equalization of the profit rate then yes, values would be long-run equilibrium prices. But these conditions never occur and so I don’t know how useful this concept is.

3. Q: The transformation problem
A: There is a long standing claim that Marx’s concept of the Production Price is mathematically incoherent. This charge is called “The Transformation Problem”. But the TP is actually not a problem for Marx at all. It only arises when his value-price theory is forced into a bull-shit Walrasian General Equilibrium framework where input and output prices always equal each other and prices never change or fluctuate. As we’ve seen change and fluctuation are the whole point for Marx so this so-called problem is not really a problem at all. For more on this see my video “What Transformation Problem?”

Conclusion

We can only conclude that Marx gives a a quite robust and practical explanation of the way that commodity exchange regulates the reproduction of a capitalist division of labor and class relations. This in stark contrast with the neoclassical tradition which tells us nothing about the social relations of capitalism. Neoclassical economics’ main ideological purpose is to prove that markets lead to the optimum allocation of scarce resources. In order to meet this aim it must abstract away from capitalist productive relations, basing itself on a theory of barter. This means that money must be artificially injected into the model down the road since there is no role for value in the abstract. And when we get to Walrasian General Equilibrium price even loses its role. This is clearly not a science at all, but a sham set of elegant equations

Footnotes:

Value: Marx’s terms have an elastic quality. In different places they stretch or constrict to contain more or less content.  This is because Marx understands things (and processes) only relationally. Things only have meaning in how they relate to other things. Value is a particularly elastic term because it sits at the very center of capitalist social relations. Sometimes when Marx says “value” he is talking about the exchange value of commodities, sometimes he is talking about the labor that goes into a commodity, sometimes he is talking about the form of social relations unique to a capitalist society. Understanding value theory requires that we are aware of what particular aspect of value is being referred to in a specific context. See Bertell Ollman’s “Dance of the Dialectic” for more on the elasticity of Marx’s terms.

Quality-Quantity: Value theory has both qualitative and quantitative dimensions. It’s a theory of social relations. In contrast to predecessors who treated categories like capital and labor only at the level of content, Marx was concerned with the form of these things took in a market society. In such a society they take the form of value relations and these involve certain laws, imply certain social relations, fetishism, etc…. These are all the qualitative aspects of value theory, in many ways the most crucial aspects of his theory to understand for formulating an understanding of the radical challenges of anti-capitalist politics.
But value theory also has a quantitative dimension, which comes to the foreground when we look at the value-price dimension. At times in the 20th century, due to the persistent myth that there was something internally inconsistent with the quantitative side of Marx’s value theory, Marxists have attempted to distance themselves from the quantitative aspects of value theory, instead developing approaches which attempted to side-step these quantitative aspects by focussing only on the qualitative aspects of the theory. This is no longer necessary, see my vid on TRansformation Problem.

Indirectly Social: Marx calls this unique way of organizing labor “indirectly social”. Rather than operating on some sort of plan where we decide how much labor should go into the production of various things our labor is distributed indirectly through the price signals of the market. We perform private labor. This labor is not social labor when we are performing it. It only becomes social after we finish working when the products of our labor meet in the market. Here in the market we find out if our labor has been socially useful and if it has been performed at the average level of efficiency.

appropriation of value: Bourgeois theory often confuses the appropriation of value with the creation of value in its idea of returns to factors of production.

Money: Marx sees money as the embodiment of labor time in the abstract. He builds this theory directly from his theory of the commodity. Commodities have both a use-value and an exchange-value. The use-value is a specific dimension of the commodity particular to each object and their various uses. Exchange-value is a universal, abstract dimension of the commodity. It is the empty quantitative relations between a commodity and all other commodities. It is numbers, not qualities. This leads to the separation of use and exchange value. Use-value stays in the bodily form of the commodity while exchange-value separates itself from the commodity in the form of money. Money becomes the commodity that all other commodities measure themselves against. As such it is the universal measure of value and the universal measure of abstract labor.

Equalities: Marx famously held three equalities to be true for the economy as a whole: 1. total value equals total price; 2. total surplus value equals total profit; 3. total value rate of profit equals total money rate of profit

Prices of Production: If capitalists receive an average rate of profit regardless of the ratio of constant to variable capital, how do prices of production still regulate the division of labor? Prices of Production still allocate labor because wages and surplus value are still involved in the prices of commodities. But, yes this allocation doesn’t happen as smoothly as it would in a world with no average rate of profit. In fact we already know that there is a systematic tendency in capitalism for capitalists to replace workers with machines. This increases the productivity of the remaining workers, allowing capitalists to produce below the SNLT and thus gain super-profits in exchange. Prices of production allow capitalists to continue to automate production without being punished for producing at a lower individual rate of profit. But if firms are replacing more and more workers with machines then less and less surplus value is being produced relative to the cost of all those machines. This leads to a Falling Rate of Profit in the economy as a whole. This is why in vol. 3 of Kapital Marx immediately moves from the discussion of Prices of Production to the theory of the Falling Rate of Profit. The tendency of the rate of profit to fall can lead to crisis, like the one we are in now. The rate of profit is only restored once enough capital value (ie the costs of production: workers, inputs) has been destroyed or devalued. See my video on the Falling Rate of Profit or any of my coverage of Kliman.

Organic Composition: the ratio of constant to variable capital is called the organic composition of capital and is drawn as c/v. The higher the organic composition in society as a whole, the lower the rate of profit.

Law of Value 9: Abstract Labor

[The video production in Part One of Abstract Labor was done my a fantastic film maker/editor who we shall call 'M' for now. She did a really great job giving the video a consistent, dark vibe and I'm so happy to have been able to collaborate with her on the project.]

Money can really fuck you up. It can make you lose your home. It can make you go to work. It can topple governments, cause wars, pave the jungles…

Of course it’s really nothing by itself: pieces of paper, digits in a computer… And of course money doesn’t literally take away homes, topple governments, cause wars or fuck you up. People do these things. Money then seems to have a strange power to compel people to do things. It has a certain social power.

What kind of social power does money have? It seems to have any social power we might want it to have. In a society in which social life is coordinated by market exchange money has the ability to buy any aspect of this social life, to compel any action, to coordinate any complex activity. The more money we have, the greater our ability to command this social power. This is a non-specific power: It is not tied to any particular activity, commodity or person. It is social power in the abstract.

This is not social power in the form of guns or tanks. It is social power in the form of these strange tokens of value, used to measure the quantitative relations between commodities. This abstract social power goes by another name: value. The subordination of society to the rule of value we call: The Law of Value.

In other times and places social power took the form of a sword. It was direct, concrete. But value is not like this. It is abstract. We do not know where it comes from or where it is going. It does not come from the 1%. It does not come from the FED. It comes from a specific organization of society. “What sort of organization of society is necessary for the existence of this value in the abstract?” [question appears on screen]

This is not just an academic question. This question gets to the heart of how we understand capitalism and how we envision alternatives to capitalism. Often times we hear quite different recipes ending the rule of capital: abolishing private property, ending wage labor, capturing the state, smashing the state, democratizing money, ending money, and so on. There are many different facets, many interpenetrating parts of the dense tapestry of inner relations that make up a capitalist society, and they all bear the mark of the dominance of value relations over our lives. How we understand the relation of the parts to the whole effects how we understand an anti-capitalist project.

So when we ask, “What sort of organization of society is necessary for the existence of this value in the abstract?” we are setting the stage for an exploration of the inner relations of capitalist society.

Free Market

Bourgeois theory tends to restrict its view to the market place. This is why it always refers to capitalism as a “free market society” or a “free enterprise system” rather than a “wage-labor society” or a “production for the sake of production system.” From this narrow viewpoint we only see freely consenting individuals making mutually beneficial exchanges. From this viewpoint it seems that value is nothing else than a benign by-product of mutual agreements between market actors. The benign nature of this viewpoint influences not only mutualist anarchists but also some socialists who want to preserve some element of market exchange in their anti-capitalist vision.

But this narrow picture of exchange is not adequate to actually explain the phenomenon of value in the abstract. When two Robinson Crusoes meet in the desert to trade their exchanges are not abstract at all. They are related to very concrete personal desires. It is quite another thing in a society organized through exchange where we can observe regular, predictable exchange ratios between commodities.

In order for us to form predictable, reliable exchange ratios between things there must be some predictable knowledge of the quantity of things we have to exchange, how much we will have tomorrow, and so on. We must have some predictable supply. The force that constantly replenishes these supplies is, of course, human labor.

This brings us to a fuller picture of our society ruled by abstractions. Rather than just a society of free exchange, it is also a society in which this exchange is regulated by production. The production of commodities by people creates both the demand for and supply of these commodities. The exchange ratios between commodities, their values, are signals which coordinate this social labor process. Thus we have a society in which exchange and production constantly regulate each other. Behind the movement of commodity values in the market lies a parallel process of the movement of labor from one task to another. The social power of money, of value, lies in its ability to move about this labor.

Abstract Labor

If the abstract social power of money comes from its ability to measure and command labor, what kind of labor is this labor? Knitting? Building? Singing? [any examples suffice, depending on good images] It is any kind of labor. Labor in general. Abstract Labor.

We began by asking what sort of society makes the rule of abstractions possible, makes the law of value possible. After penetrating the surface appearance of market exchanges we found that it is a society in which the value relations between commodities are directly related to the labor that produces these commodities. And now we have seen that the abstractness of these value relations is paralleled by the abstract nature of labor. Does this answer our question as to what sort of society makes such abstractions possible?

No.

Marx is sometimes taken to task for his concept of abstract labor. “How is it possible,” some ask, “for Marx to theoretically equate all of these different sorts of labors? Manual and intellectual labor? Skilled and unskilled labor? etc?”  “Labor is never abstract,” they argue, “but is always a specific type labor.”

Marx’s reply is typical of Marx: We don’t have to theoretically equate all these different labors. Society does it for us. Society already treats all labor as an abstraction. For us as individuals our work seems very concrete and very important. But when we suddenly lose our job because of an economic crisis, when we see jobs move to other countries, when we see entire skill sets replaced by machines, we realize that our own livelihood means nothing to capitalism. For capital our work is just an abstract unit in a giant profit calculator. We are just another digit to be moved around. In this sense, though our work seems very specific and concrete to us, for capitalism it is completely abstract. All that matters is that it produces value.

If abstract labor is not a philosophical idea but a real phenomenon, a real abstraction that is made by capitalism itself then that leads us to ask again: what sort of society makes this possible?

The answer is this:

In order for our labor to become abstract units in the profit calculator of capitalism, capital must own our work. Our working time must be a commodity. A society ruled by the law of value requires wage labor.

People are not commodities but their ability to work is. This is called “labor power”. We said that the buying and selling of commodities regulates the division of labor, sending signals that apportion labor between different tasks. This can only happen if labor power itself is also a commodity to be bought and sold, moved about. Wage-labor is the mechanism by which the “hidden hand of the market” moves labor inputs about.

We finally have an answer that seems adequate to our initial question: what sort of society makes possible the law of value, the subordination of society to the abstraction of value? We see that this abstraction of value is tied to the abstraction of labor. And this abstract labor relies on the existence of labor power as a commodity. When labor-power is a commodity then the specific uses of that labor become irrelevant to capital. All that is important is that profit can be produced by exploiting this labor. It doesn’t matter if this labor knits sweaters or makes guns. It doesn’t matter if we work 80 hour weeks or work dangerous jobs. It doesn’t matter when the mines collapse on us. It doesn’t matter when we are replaced by robots or when our jobs move somewhere else. It doesn’t matter when unemployment drives down our wages. Our work is just an input into the production of value, of social power. Capital is the expansion of this value, of this social power, for its own sake, not for any particular purpose.

Value is a social power because it commands people. It buys their time and commands them to do its bidding. It does this not for the sake of the worker or the consumer. It does this not for the sake of the 99% or the 1%. It does this for the sake of producing value for its own sake. It has no human purpose, though there are some humans that benefit greatly from this process.

The Plot Thickens

Yet our answer to this question still points to other questions. What sort of society is necessary in order for wage-labor to be the dominant form of labor? We must have a society in which people don’t have access to their own means of production but instead must sell their labor power in the market in order to survive. This requires private property, a capitalist state to guard this property, and lots of drugs and smooth jazz to keep us passive. This is why whenever the law of value seems to be breaking down, like in an economic crisis, the state must step in to restore the smooth functioning of value relations.

Rather than a simple answer to our question “What sort of organization of society is necessary for the existence of this value in the abstract?” we have arrived at a complex web of social processes. We haven’t found one fundamental evil to be stamped out. Instead, we see that there are many different overlapping dimensions to the question of value. Social power, value relations, class, property relations, and the state are all bound up in our analysis, each reflecting a different aspect of the law of value.

Conclusion

So what parts of this assemblage of factors need to be gotten rid of if we are to overthrow capital? I would argue that we need to do away with it all: value, money, abstract labor, wage-labor, capital, private property, “the state”, etc. Other folks take less ambitious positions. Different political positions on this issue come from different ways of understanding the way the inner relations of a capitalist society fit together.

For the market-socialist vision, it seems that all we need to do is replace the class-relationships in the workplace with a cooperative workplace, leaving market exchange in tact. But such a cooperative society would still have wage labor, socially necessary labor time, value in the abstract, and abstract labor. Cooperatives would still be compelled by competition to produce surplus value in order to expand production and stay competitive. Production would still be for the sake of producing surplus value, and not for the sake of bettering society. It is probable that the most efficient and successful firms would be those with the least cooperative structure and the highest disciplining of labor.

For the 20th century communism of the USSR and China it was initially the seizure of state power by a vanguard of the working class, the nationalization of property, internationalism and the administration of  production by a plan that was thought to be sufficient to break with the capitalist mode of production. Yet the plans of the planners soon began to resemble the most despotic plans of the capitalist workplace. In order to compete in the world market planners found that they needed to extract the highest amount of surplus value from workers as possible. There was still wage labor, socially necessary labor time, surplus value and abstract labor. The same year the conveyor belt was introduced to Soviet Russia they revised their textbooks to claim that the law of value applied to socialism.

This means that if we are to be serious about anti-capitalist politics we have to be serious about our analysis of capitalism. What is it we are really trying to do-away with? And what forms of organization can replace capitalism effectively?

PART DEUX: Abstraction

The word “abstract” can mean many different things. A painting is abstract if it doesn’t have any references to representational objects. An idea is abstract if it moves out of the realm of concrete examples and deals with general principles. When Marx talks about “abstract labor”, as we discussed in video 9, he is using the term in a unique way. For Marx the abstraction that is abstract labor is not one that happens in the minds of philosophers. It is one that happens in reality. It is a “real abstraction”.

This seems an interesting enough proposition to warrant this brief supplementary video on the topic of Abstraction.

To Abstract or Not to Abstract

What does it mean to abstract? We abstract all of the time. When we say “woman” we are not talking about any concrete specific woman. We are talking about women in general. Yet, there is no such thing as a woman in the abstract. We cannot meet her at a bar and buy her a drink. We can only experience concrete women, specific women.

To attempt to look at the complex totality that is a capitalist society only in its concreteness, only in the specific actions of trillions of individuals all happening at the same time, would be madness. We have to separate out the patterns, finding terms that can encompass a broad swath of concrete behaviors into general, abstract terms. Instead of talking about rice, tanks and DVD’s we have to talk about commodities. Instead of talking about carpentry, dentistry, and bicycle repair we must talk about labor.

When we use the word “abstract” we can mean the verb, the act of abstracting, or we can mean the noun, the concept which forms an abstraction.

There are many abstractions which we may choose to extract out of the complex whole of capitalism and label as the most important, fundamental defining abstractions. In forming our abstractions we have choices to make. The way we abstract and the way we piece together these abstractions determines how we understand the whole that we are trying to explain.

In our analysis we found that value is an expression of abstract labor and that abstract labor is a direct result of the organization of production through commodity exchange. We furthermore noted that this organization is only effective when labor power itself is a commodity to be bought and sold. And labor-power only becomes a commodity with a specific type of property relation, and a specific type of state that can guarantee the stability of this property relation. Thus our analysis ‘grounded’ the abstractness of value and abstract labor in a concrete type of social organization.

Rather than an analytical approach that seeks to find an abstract essence behind reality, we took the opposite approach: we moved from the abstract idea of value toward a concrete picture of the sort of world that makes this abstraction possible. Often times in philosophy we see people trying to identify abstract properties or essences that lie behind the concreteness of everyday reality. Marx wants to do the opposite. He wants to identify the specific types of social organization that makes the abstraction of value possible.

This movement from the abstract to the concrete is also a key feature of Hegel’s dialectical method. Yet there is something quite distinctive to the way Marx uses this method: the way Marx’s abstractions are grounded in the real social practices of capitalism.

When we talked about the abstract term “woman” we noted that we cannot ever meet “woman in general”, but only specific women. However we can meet “value in general”. In fact, we carry it around with us everyday in our pocket. It is money. So the abstraction that is value is not a mental or philosophical one. It is a real one. This is why Marx begins his analysis of capitalism with an analysis of the value-form.

This also differentiates Marx’s method from bourgeois methods of understanding capitalism. For Austrian economists like von Mises it is the abstraction of free human action that is the foundational abstraction that frames the theory of capitalism. But we cannot ever see “human action” in the abstract. It is merely a philosophical device and thus appears as an arbitrary starting point for a philosophical system, begging the charge of being an ideologically motivated starting point.

Because abstract labor is a real abstraction this means that the theoretical system that we build out of it is not just a question of logically extrapolating principles and ideas in our heads from a given a starting point, like we would do in bourgeois philosophy. Rather, since the abstraction is a real one, we must proceed by trying to ground this abstraction in real social practice. It becomes an anthropological investigation. This is why, in video 9, the question that always propelled us forward in our analysis was “what sort of society makes this abstraction possible?” We had to uncover a complex system of social practices that allowed such an abstraction to emerge. Such an approach of grounding our analysis in real social practices keeps us from falling into the trap of fetishism.

Fetishism

We have talked about the fetishism of commodities in several videos, uncovering different aspects of the fetish along the way. In one sense the fetish is a bad abstraction. A fetish attaches the social power of the whole to an isolated, abstracted part of the whole. For instance, when we say “money is power” we are taking the social power of labor, as commanded by the value form, and attributing it to little pieces of paper. To treat money like it has some inherent social power is a fetish.

On the other hand, the social power of money doesn’t go away just because we have exposed the fetish with our fancy theories. Money really does have power because value is a real abstraction. This makes Marx’s fetish argument quite mysterious and tricky. It is one thing to make a bad abstraction and attribute the powers of the whole to one piece of the whole. It is quite another when this abstraction is a really existing phenomenon that can’t be changed by theory.

Depending on our vantage point we can argue two different points. One the one hand money and commodities are just objects and do not have any inherent social powers. They derive their value and social power from a specific organization of labor. On the other hand the social power of money and commodities is not an illusion. In a capitalist society they really do have value and social power. The fetish is real.

This strange phenomenon of commodity fetishism leads to all sorts of confusion when we think about capitalism. It can lead people to the conclusion that money has some inherent value, that capital creates its own surplus value without labor, and that exchange value comes from the material properties of commodities.

Marx does not just dismiss such ideas. Instead he subjects them to the same sort of analysis that we have just discussed: he seeks to ground these ideas in real social practices. All of video 9 could be seen as a Marxist critique of the idea that money has some inherent value. Rather than dismissing the idea we acknowledge the fact that money does have power. We then show that this power is not a result of the material properties of money but a result of a specific sort of social organization of labor. Thus we can show that such an idea, the idea that money is power, is the result of a specific type of social relation. In this way Marx destabilized bourgeois theory. He takes bourgeois ideas and shows why they are possible.

A further note on abstraction:

At each step in the analysis it seems like what we mean by “value” is changing. Are we talking about the exchange ratios between commodities? About the relations between the producers of these commodities? About wage-labor? Are we including all of the institutional features of private property and state violence that accompany the law of value? The answer to all these questions is “yes.” When we think dialectically our abstractions have a dimension of flexibility that Bertell Ollman calls “extension”. Our abstractions can contain more or less elements depending on what questions we are looking to answer. When we are talking about the effect of changes in productivity on prices then our use of “value” encompasses commodity prices in their relation to labor time. When we discuss the political crises that have accompanied the current economic crisis then “value relations” refers to the wider set of political institutions as they relate to the contradictions of value production. Our abstraction can extend more or less into theoretical space depending on what questions we are asking.

Suggested Further Reading:

Kapital vol. 1 opening chapters- Marx

The Critique of Political Economy, Chapter 1- Marx

Dance of the Dialectic- Bertell Ollman

Dissasmbling Capital- Nicole Pepperell

Abstract Labor and Value in Marx’s System- Rubin

for a critique of Rubin’s formulation see:

Abstract Labor and the Economic Categories of Marx- Isaak Dashkovskij

Marxism and Freedom – Raya Dunayevskaya

Value and Price Q&A

I have been looking forward to finally putting together a script for a video on Value and Price. As a preparation for that task I’ve written the following: an attempted summary of my understanding the topic. The text is peppered with paraphrases of questions that I have been asked by readers/viewers recently (and some I made up). I find these questions help focus the text and make the direction of inquiry relevant. There is a lot here. I wanted to get everything down so that I can then figure out how to distill it all into a video script. Please let me know what you think of the material, especially if there are unanswered questions or problematic formulations.

Q: Mudpies take labor to produce but they don’t have any value. Therefore everything Karl Marx wrote is a pile of shit. Why do you read that shit?

A: So the first thing we must do is to rid our mind of everything we’ve been told about Marx and the “labor theory of value” (a term Max never used.) The fundamental misconception that must be eliminated if we are to understand the value-price relation is the misconception that Marx thought that labor time and price were the same thing. Stumbling through the blogs and chat rooms one comes across this fallacy again and again. Marx did not think that every product of labor is magically imbued with a price tag equivalent of that labor. In fact, Marx was interested in explaining the opposite phenomenon, the phenomenon where labor sometimes produces nothing of value, sometimes produces a commodity that sells at its value, and sometimes produces a commodity that sells at more than its value. It is the “non-identity” of value and price that is of interest to Marx.

Often times in Capital Marx asks his readers to assume that price=value for this or that commodity so that he can more clearly discuss topics like exploitation and surplus value. Sometimes readers have misinterpreted this to mean that Marx thinks that value always equals price, or that Marx has some notion of long-run equilibrium price where value fluctuates around price. But this is not the case. In many places in Capital Marx states, as a matter of fact, that value and price rarely equal each other and that if they do it is only a manner of chance, an accident. These comments fly in the face of the common value=price misrepresentation of Marx.

Q: If there are so many exceptions where labor time deviates from price what is Marx’s point?
A: Such deviations are no exceptions. They are the phenomena to be explained. When we punch our time-card in the morning and go about our day’s work how do we know that the product of our labor will find a social use? How do we know that our labor will be efficient enough to compete with the workers in other firms? We don’t know these things for certain. We only find out after we have finished working, when the product of our labor enters the market to be compared with the products of everyone else’s labor.

Marx calls this unique way of organizing labor “indirectly social”. Rather than operating on some sort of plan where we decide how much labor should go into the production of various things our labor is distributed indirectly through the price signals of the market. We perform private labor. This labor is not social labor when we are performing it. It only becomes social after we finish working when the products of our labor meet in the market. Here in the market we find out if our labor has been socially useful and if it has been performed at the average level of efficiency. If our private labor has been efficient and put toward a useful end our firm/boss/capitalist is rewarded for our effort. If our private labor has not been put toward a useful end or if we haven’t worked efficiently enough our firm/boss/capitalist is punished by the market. These price signals then act to change the distribution of labor in society. People are hired and fired. The labor process is redesigned to make it more efficient. People are replaced by machines. etc.

Obviously this process couldn’t take place if there wasn’t some relation between the labor time that went into commodities and the prices of these commodities. But equally obvious is the fact that this labor time cannot exactly equal the price of commodities. If it did then there could be no price signals to punish or reward firms. Firms that are producing useless things or not producing efficiently are punished by the market. Better firms are be rewarded. So the simple picture of Marx’s value theory that we are sometimes given, that the labor that goes into production is exactly equal to the prices of commodities cannot be correct. There must be more to it if we are to understand the distinct way in which labor is distributed in a capitalist society.

Q: What do you mean by “social labor”? Aren’t there lots of types of individual labors that are not social at all? What about Robinson Crusoe’s labor?

A: If I make a turkey sandwich for myself and eat it this is privately labor only. My labor does not become social unless I am doing it for someone else. Whenever the products of our labor are exchanged we have done social labor. The fact that we are exchanging products points to an underlying distribution of relations of production. The fact that I need something someone else has produced (the fact that I have not produced it myself) means that there is a developed division of labor in society. The very act of exchange implies that there is a social organization of labor in which the private labors of different people are already socially dependent on one another. If there wasn’t this social aspect to our labor there would be no reason to exchange the products of out labor.

The distribution of labor and the products of labor in our society is based on a prior distribution of means of production in the hands of the capitalist class, depriving the rest of society of their own means of subsistence. Deprived of means of production, the working class must enter the market to purchase their subsistence and enter the market to sell their labor power to the capitalist class. Thus, the distribution of labor takes the form of wage-labor and the distribution of the products of labor take the form of commodity exchange. It is the quantitative value relations between commodities in the market that act back upon production, regulating the social division of labor. But this regulation only happens after the labor has happened: We work, the products of our labor enter the market, and then price signals act back upon production. This gives our investigation unique aspects that differentiate it from other societies based on a different distribution of means of production.

Q: If value and price are not always equal then what exactly is value? Sometimes it seems like “value” means labor time. Sometimes it seems like it means “price”. What is it?

A: Marx’s terms have an elastic quality. In different places they stretch or constrict to contain more or less content.  This is because Marx understands things (and processes) only relationally. Things only have meaning in how they relate to other things. Depending upon the context we may want to refer to more or less aspects of the inter-related parts of value relations. Value is a particularly elastic term because it sits at the very center of capitalist social relations. Sometimes when Marx says “value” he is talking about the exchange value of commodities, sometimes he is talking about the labor that goes into a commodity, sometimes he is talking about the form of social relations unique to a capitalist society. Understanding value theory requires that we are aware of what particular aspect of value is being referred to in a specific context.

Value theory has both qualitative and quantitative dimensions. It’s a theory of social relations that take on a quantitative form. In contrast to predecessors who treated categories like capital and labor only at the level of content, Marx was concerned with the form social relations take in a market society. In a market society they take the form of value relations between commodities and these involve certain laws that regulate and constrain the social relations. These are all the qualitative aspects of value theory, in many ways the most crucial aspects of his theory to understand for formulating an understanding of the radical challenges of anti-capitalist politics.
But value theory also has a quantitative dimension which comes to the foreground when we look at the value-price dimension. At times in the 20th century, due to the persistent myth that there was something internally inconsistent with the quantitative side of Marx’s value theory, Marxists have attempted to distance themselves from the quantitative aspects of value theory, instead developing approaches which attempted to side-step these quantitative aspects by focussing only on the qualitative aspects of the theory. This is no longer necessary: see my video on Transformation Problem.
When it comes to the quantitative aspects of value theory we are primarily concerned with the distribution of labor and the products of this labor throughout society.

Q: So I understand that price signals are the only means of coordinating the division of labor in a market society, but how exactly does this work? It seems there must be some relation between labor and price for this to happen. But there also seem to be lots of other factors that effect price like consumer demand, monopoly, etc. So how is this all understood by Marx?

A: Ok. Let’s get into it. First we should review the concept of Socially Necessary Labor Time, and then see how this relates to demand and supply. Following this Q&A form I’ll break the topics into questions.

Q: What is Socially Necessary Labor Time?

A: I deal with this in my Socially Necessary Labor Time (SNLT) video (Law of Value 6). There we saw that the social value of a commodity is not the amount of time it takes any individual to make a commodity but the average amount of time it takes society to make it. If I take way too long to make a pie this doesn’t mean I can sell it for more than the average pie. The average productivity of society imposes this social value over my individual value. If I produce at less than the socially necessary labor time it means my individual value is less than the social value. This allows me to make a super-profit when I sell at the social value. I haven’t created this super-profit. It was transferred to me in exchange, by people paying me the social value of my pies and not their individual value.

Firms don’t know whether they are producing at the SNLT until they meet in the market to compare their products. But this doesn’t mean that value is being created in the market. All of the value creation has already happened by the time the firms come to market. In fact, if we had some sort of omnipotent information on the productivity of each firm, we could predict that outcome of that market process before the products actually came to market. But we don’t have that information because we live in a capitalist society, so we must use the market to figure it out.

Q: Is SNLT just measuring the value of commodities within one industry? How do we determine value between industries?

A: The SNLT refers to the labor time required to produce a particular type of commodity. Obviously a basketball can have different colors and name brands but its value is still determined by a comparison with all of the other brands and colors of basketballs. This SNLT is the exchange value which basketballs have with money. Since all other commodities measure their SNLT in money as well we can use money prices to compare the SNLT of different types of commodities (basketballs, cars, etc.)

Q: What does it mean to say that value is transferred in exchange?

A: If I sell my product at exactly its value then I have exchanged, say, a beer worth $5 for $5. There is been no net gain or loss of value for myself or the buyer. In Marx’s terms I have “realized” the value of the beer. I have transformed it into its value equivalent. But let’s say I am an inefficient beer brewer and I would need to sell my beer at $8 to realize its value even though the firms producing at the SNLT sell their beer for $5. This would cause me to lose value in the market. I would either have to sell my beer at the SNLT of $5 and take a hit of $3 every time I sold a beer, or I would have to keep my beer at $8 and settle for selling less of them. The opposite happens if I produce under the SNLT. This allows me to make a super-profit in the market.

This idea of value being transferred in exchange is crucial to understanding the price-value relation. There are two different types of value being discussed: the individual value, or the amount of time a private producer spent making something, and the social value, or the SNLT, or the actual amount of money a commodity is sold for in the market. All producers sell at the social value but some lose value in this process while others gain value.

With this understanding we can also begin to conceptualize other price-value deviations. Anytime price is greater than individual value the seller is gaining value in exchange. Anytime price is lower than individual value the seller is losing value.

Q: You seem to be using labor time and value interchangeably here. You say the individual value is the labor time the private producer took to make a commodity but you say the social value is the amount of money the commodity sells at. And then you say that we can compare the two quantities to see the winners and losers. How do we compare hours and dollars?

A: This is a super important question. To answer it fully would require an in-depth discussion of Marx’s theory of money, but for now we can cover the basics. Marx sees money as the embodiment of labor time in the abstract. He builds this theory directly from his theory of the commodity. Commodities have both a use-value and an exchange-value. The use-value is a specific dimension of the commodity particular to each object and their various uses. Exchange-value is a universal, abstract dimension of the commodity. It is the empty quantitative relations between a commodity and all other commodities. It is numbers, not qualities. This leads to the separation of use and exchange value. Use-value stays in the bodily form of the commodity while exchange-value separates itself from the commodity in the form of money. Money becomes the commodity that all other commodities measure themselves against. As such it is the universal measure of value and the universal measure of abstract labor.

Q: OK, but how much labor does it measure? How do we know the relation between an hour of work and an amount of money?

A: Marx begins his discussion of money with the money commodity. The labor that goes into the production of gold becomes the standard against which all other labors are compared. So if an ounce of gold takes one hour of labor to make, then an ounce of gold=1 hour of abstract labor. If a commodity sells for 5 ounces of gold then its social value is 5 hours of abstract labor.

Q: Does this means that Marx’s theory of value rests on the concept of commodity money?

A: You will find a wide divergence of answers to this question amongst contemporary Marxists. I tend to agree with Marx’s own comments on the issue when he says that even though money originates as a commodity, it does not always have to be a commodity to perform its various functions of measure of value, standard of price, unit of account, means of payment, etc. It can be replaced by mere tokens of value like pieces of paper. However, there are times, especially in a crisis, where there arises a need to revert to the commodity form of money. In these cases we see the people flocking to forms of money which have some commodity basis.

Q: If money is not necessarily a commodity then how do we know how much labor time it represents?

A: I like the modern formulation of “Monetary Expression of Labor Time” or MELT (in case you need more jargon in your life). MELT is not a term used by Marx but I believe you can find instances where he uses a similar procedure. To answer your question MELT is found by taking the total amount of commodity prices in a given period and dividing them by the total number of hours worked. If $1000 of commodities have circulated in a year and 1000 hours of work went into them then 1 hour of labor equals 1 dollar.

(MELT is sometimes critiqued for different reasons, not all of which I have studied, but to anticipate some criticism I think it is worth noting that MELT does not imply specific direction of causality between the amount of money in the economy and the amount of labor performed. This is crucial because sometimes it is debated that the value of commodities determines the amount of money in circulation (Marx often argues this) and sometimes it is argued that the amount of money in circulation determines the level of prices. MELT doesn’t say anything about what determines what. It is merely a device for measuring the relation of money to labor time (see this paper on the topic.) It is used by some Marxists to perform calculations and form empirical observations about things like profit rates.)

Q: Your discussion of SNLT makes it sound like the various levels of productivity in an industry determine the social value of a commodity, but doesn’t consumer demand have a role in this price formation as well? What if there is a rise in demand for the products of an industry? Doesn’t this increase the price, the social value, of a product above the SNLT?

A: I get variations of this question all of the time. The short answer is, “Yes. The level of demand effects the social value of the commodity.” But there is more to it than the short answer.

First, there is the basic supply and demand question. When demand rises faster than supply can rise to meet this demand then prices rise. The speed at which supply can adjust to this new level of demand depends on the particular structure of the industry. In some situations it is easy to increase production to new levels without adding to the unit cost of a commodity. In other situations increasing supply involves new investments in plant and equipment, redesigning the labor process, even moving the location of production. These sorts of “inelastic” situations can cause supply to take a period of time to adjust to demand.

But eventually, given no other barriers to investment, supply can adjust to demand. When this happens supply and demand “cancel each other out” as Marx would say, and they cease to explain anything. Once again only SNLT can explain the exchange values between commodities.

When demand causes prices to rise this does not mean that demand is creating value. It is merely causing one industry to appropriate value in exchange. In order for, say, basketballs to sell above their value, other commodities would have to sell for under their value. This is because there is only a given amount of value in the economy at any time since only a specific amount of labor has been performed. This value can be moved around in response to changes in demand, etc. but it can’t be created just through the process of exchange. For more on this topic see my blog post “Value Can’t Be Created In Exchange”.

Q: Does this mean that Marx has an equilibrium theory of price where demand and supply eventually meet in the long run, or where there are long-run fluctuations around an average equilibrium point?

A: Many times you will see Marx’s value theory characterized in this way. This would give it a parallel with bourgeois general equilibrium theory. If we abstract away from changes in productivity then we can imagine a model where demand and supply balance and the price equals the value of a commodity. But if we consider that one of the most consistent themes in Marx is the constant revolution in the value of commodities due to the constant changes in the productivity of labor, then we have to drop this notion of equilibrium. Changes in productivity are driven forward by the capitalist’s quest for surplus value. And these changes constantly create disturbances in the relation of supply to demand as prices change. Rather than equilibrium, Marx’s theory of value and price points towards a constant state of disequilibrium. I have found Alan Freeman’s essay on this subject “An Invasive Metaphor: The Concept of Center of Gravity in Economics” to be illuminating.

Q: Is SNLT based on mean productivity, modal productivity or median productivity?

A: Modal. In math, a you find the mode of a set of numbers by observing which numbers occur most frequently. Within an industry the force of competition over SNLT moves most firms toward a modal level of productivity. But at a given moment there are still some firms which have yet to catch up to this modal level while there are still others that are racing forward to produce under the modal level.

When supply and demand are in balance SNLT is set by this modal level of productivity. But what if demand rises quickly? Then the modal firms cannot produce enough meet demand and the less efficient firms find that their supply becomes crucial to meeting demand. Rather than selling at a loss they find that they now set the SNLT. This is a different way to see the change in price due to a change in demand. Rather than demand just randomly changing prices it selects between different existing levels of productivity.

Q: I’m confused about the prices of clothing. I can buy two shirts of identical quality, obviously made under the same conditions of production, but with substantially different prices depending on the brand name. How is this possible within the labor theory of value.

A: If value can be appropriated in exchange, if value and price can and do diverge all the time, then it is easy to understand the role of other factors that influence price. Monopolies constrain the ability of price to reapportion labor. They artificially bolster up prices, keeping labor from flowing into those industries to bring down prices. The degree of monopoly determines the degree of price-value divergence…

Many companies can mark-up their products above values because they have a monopoly on a certain brand/image. They spend a lot of time, money and labor to create a brand and this gives them exclusive use of this brand. This monopoly over a brand gives them the ability to mark-up prices without fear of being under-cut by competition.

Since value can’t be created in exchange, any time one firm or industry gains super-profit in the market, someone else is losing value.

Q: Why is art work so expensive? What determines the value of art work? What about antiques? Is this a case for the usefulness of Marginal Utility theory?

A: Art and antiques are not freely reproducible commodities. They do not respond to the laws of supply and demand because their supply cannot be altered, their supply does not respond to price signals. There can be no reapportioning of labor time because they can only be produced once. Therefore the only thing that can determine their price is demand relative to their limited supply.

I can imagine this might sound like a concession to the primacy of other factors in ultimately determining price. On the contrary I think this actually brings out the important defining characteristics of Marx’s value theory and shows its superiority to marginalism.

Marginalism makes sense of the economy by abstracting away from production. People form consumer preferences based on a pre-existing world of commodities. These preferences are then considered all we need to know to understand price. This abstraction is much like the market for art or antiques where the commodity already exists as a static supply and all that matters in terms of prices formation is the level of demand for one commodity relative to another. I have criticized marginalism in several previous posts so I will not go into that here (see “simon clarke: Marx Marginalism and Sociology”, “Subject/Object”, “Script for a video that may never be produced“, etc.)

But the majority of the commodities produced are reproducible. Their production is sensitive to changes in price. This sensitivity triggers all of the above mentioned rules of value. We could just as easily posit the opposite situation where the demand for a commodity is static and supply determines the price. (hmmm… example?)

Regardless, when one buys expensive antiques the seller is not making a killing because value has been created in exchange. There has just been a transfer of value in exchange. This value only exists in the first place because it was created in production. The money that buys the antiques exists within a society in which money is the measure of abstract labor. In this way the logic of commodity production subsumes/engulfs all other forms of interchange.

Q: What is this term super-profit you keep using?

A: Marx never actually used the term and it has been used a few different ways by different Marxists. I use it to mean the additional profit a firm can make by selling a commodity above its value. This is different than surplus-value which is the profit the capitalist makes by exploiting their workers. I’ll assume that the concept of exploitation is already understood but a brief summary on the relevant points is probably useful:

Since value can’t be created in exchange the only way to make a profit is to pay workers less than the value they create. Now super-profit can be made by some by selling above value, but not all firms can do this. There is no way to increase the aggregate (overall) profit just by buying and selling. Without the profit proper that comes from exploiting workers there would be no reason for capitalists to invest in the first place. Assuming exploitation is successful, all capitalists make a profit. Some make a super-profit in addition to this.

Q: But a commodity’s price isn’t just the value created by labor. There are also costs of production like machinery and raw materials.

A: Yes Marx considers the total value of the commodity to consist of three parts: wages, costs of inputs, surplus value, or has he calls them “variable capital”, “constant capital” and “surplus value”. Inputs, or “constant capital” are called “constant” because their value is fixed at the time or purchase. The capitalist must transfer their value into the price of the finished product or else take a loss. Constant capital is, of course, the product of previous labor processes and its value is entirely the product of labor and nothing else.

“Variable capital”, or wages, is the called “variable” in order to emphasize the grey line between surplus value and variable capital. You are paid to work a 40 hour week. How much of that time are you producing value equivalent to the value of your wage and how much of that time are you producing surplus value (profit) for your boss? It is hard to say. It is a matter of class struggle. Capitalist constantly strive to increase the amount of surplus they can squeeze from the worker.

Q: What about a fully automated factory? This produced no value at all yet still has an exchange value. What gives?

A: First, an automated factory still has costs which they must pass on to the consumer. These are the costs of raw materials and machines. These are constant capital, just like in a normal factory. The real question is where the profit comes from in an automated factory. Nobody would invest in an automated factory if all they could do was receive the cost of their investment back. People invest for profit. In an automated factory there can be no surplus value production. All profit must be appropriated in exchange ã la super-profit.

We live in a highly mechanized society. Machines do many tasks that people used to do. When people did them they created value. When machines do them they create no value. In some examples this makes intuitive sense. Take the jobs that computers do calculating and duplicating information. Where we used to have to pay someone to set type and manually print a book now we can just duplicate it with a click of a button. No labor is involved. Hence this task no longer produces exchange value.

But take a camera factory that replaces all of its workers with robots  When humans worked there the capitalist added up the costs of production (wages+other inputs) and added the average expected rate of profit to this figure to form the price. When robots replace the humans the capitalist uses the same logic: add up costs of production and add the average expected rate of profit. This makes it seem like the presence or lack of human labor has no bearing on the formation of price.

Sometimes Marxists have responded to this problem by appealing to specifically unique characteristics of human labor. They say, “well robots may be able to turn screws and pull levers but they will never be able to do X” (where X is usually something like “think creatively” to “perceive beauty”.) I think such a defense is really problematic. Given the incredibly fast development of cybernetics I think it is risky to base ones theory of value on some arbitrarily chosen essence of human labor. (I was surprised to hear this argument made recently in a debate on the OPE listserve… I expected better from professional marxists.)

What actually differentiates human labor from robot labor is quite simple: humans have the ability to refuse work. This element of choice makes their labor a social matter. The inter-relations of human labor are social relations. In order to make humans work they must be dependent on the market for their survival. Their lives must be caught up in the consumption and production of commodities. This consuming and producing involves choices, the measuring of choices against each other, seeking personal advantage. The distribution of this labor and consuming is organized through the value relations between commodities.

Now if all production in society were full automated there would be no need for exchange value. Society would just be one big factory where production was carried out according to one big equation. (I should probably explain this more fully.)

Conversely, if robots ever developed enough intelligence to refuse work then their labor would become a social relation like human labor and would be value creating.

Q: What was that thing you were saying about an average rate of profit?

A: Aha! Now we get down to the really interesting stuff. You are an investor. You notice the the profit rate in Industry A is higher than the profit rate in Industry B. You decide to invest in Industry A, as do other people. As more money flows into Industry A this cuts into profits. Why? Because there are more competitors producing more goods. The increased supply doesn’t mean more demand, just lower rates of return. The opposite happens in Industry B. Investment flows out of the industry, supplies lower relative to demand. This brings prices above values and profit rates rise. This process causes a tendency toward an average profit rate.

But this causes a conundrum. If profit is total price minus the total cost of production then we would expect profit rates to be higher in industries with lots of workers and little constant capital costs than in industries with fewer workers and lots of constant capital costs (machines, etc.) Why? Because price is c+v+s (constant capital+variable capital+surplus value). And the rate of profit is s/(v+c+). This means that the lower c is, the higher the rate of profit, given v stays the same. Remember only workers can produce surplus value. So we’d think that having lots of workers is good for profit and replacing workers with machines would be bad for profit. When you replace workers with machines you have high costs of production but you don’t produce much value. This was scene as a paradox to adherents to the ‘labor theory of value’  (LTV) prior to Marx because it conflicts with the notion of an average profit rate. The LTV predicts higher profits for low ratios of machines to workers, but we also know there is a tendency for profit rates to become the same between industries regardless of the particular mix of workers to machines. It seems like profit is just an average return on investment and has nothing to do with labor being a unique source of value. It seems like machines can create value and surplus value just as well as workers. This leads Sraffian economists like Steven Keen to argue that the LTV is wrong and that commodities can produce value on their own.

But we can already anticipate Marx’s response to this notion based on what we already know about the transfer of value in exchange. For Marx the tendency toward an average rate of profit involves some firms losing surplus value in exchange and others gaining it so that firms with a low ratio of machines to workers (c/v) make the same rate of profit as the firms with a high ratio. Some sell at prices below values. Some sell at prices above values. These new prices Marx calls “prices of production”.

Q: So rather than the social value of a commodity involving SNLT now the social value just comes from adding the average rate of profit to the cost of production? Have we just replaced labor values altogether with a different theory?

A: This has been one historic criticism of Marx’s theory of price. Bohm-Bawerk accused Marx of literally contradicting himself on the issue. But there is no contradiction. We have seen that even the elementary theory of SNLT involves the deviation of value from price and the redistribution of profit in through exchange. The same happens with the theory of prices of production.

But what of the more general charge that there is no necessary role for labor as the source of value in the theory of prices of production? Even though there is a systematic deviation of prices from value this deviation is still related to labor times. What is the average rate of profit? It is the individual rates of profit of each industry averaged together. The average rate of profit is still determined by the total amount of surplus value produced by the working class as a whole. Thus the capitalist class literally exploits the working class as whole, not just as individuals.

Marx famously held three equalities to be true for the economy as a whole:

1. total value equals total price
2. total surplus value equals total profit
3. total value rate of profit equals total money rate of profit

Bohm-Bawerk responded that these were just tautologies that prove nothing. But they are not meant to prove anything. They merely frame the contours of what value is. Value is not a phenomenon where every commodity is going to magically appear with an exact measure of its labor time. The economy is much to complex for that. Rather, price, though formed wholly of the substance of value, is always a refracted measure of value, reflecting at any moment a number of different determinations.

Q: What if there are barriers to an average rate of profit? Then do commodities trade at their values?

A: Some people argue that the tendency to an average rate of profit is weak, constrained by lots of barriers to entry in industries, and that therefore commodities can be considered at trading, within fluctuations, at their values, not their prices of production. I think this is failed reasoning. It doesn’t matter that the tendency toward an average rate of profit is a weak tendency. It still must fit into a theoretical framework. We can’t just ignore it on empirical grounds. And even if profit rates weren’t equalized perfectly between industries this doesn’t mean that the profits of automated industries would automatically plummet while the profits of labor intensive firms would shoot up. In the practical world of investment and pricing capitalists expect an average return on their investment relative to their cost of production.

Q: But you said that the point of price was to allocate labor. If prices of production obscure the difference between humans and machines then how can labor be allocated in any sane way?

A: Prices of Production still allocate labor because wages and surplus value are still involved in the prices of commodities. But, yes this allocation doesn’t happen as smoothly as it would in a world with no average rate of profit. In fact we already know that there is a systematic tendency in capitalism for capitalists to replace workers with machines. This increases the productivity of the remaining workers, allowing capitalists to produce below the SNLT and thus gain super-profits in exchange. Prices of production allow capitalists to continue to automate production without being punished for producing at a lower individual rate of profit.

But if firms are replacing more and more workers with machines then less and less surplus value is being produced relative to the cost of all those machines. This leads to a Falling Rate of Profit in the economy as a whole. This is why in vol. 3 of Kapital Marx immediately moves from the discussion of Prices of Production to the theory of the Falling Rate of Profit. The tendency of the rate of profit to fall can lead to crisis, like the one we are in now. The rate of profit is only restored once enough capital value (ie the costs of production: workers, inputs) has been destroyed or devalued. See my video on the Falling Rate of Profit or any of my coverage of Kliman.

Q; I heard/read about this thing called the Transformation Problem that means that Marx’s theory of prices of production is all messed up.

A: See my video on the Transformation Problem and/or the Math Supplement to the video.

Q: I heard about this Okishio Theorem which invalidates Marx’s theory of the tendency of the rate of profit to fall.

A: Read this: Okishio, an obituary, by Andrew Kliman

In summarizing I’d like to say something very important. I hope that I have just shown that Marx’s theory of value is entirely coherent and logically sound. There are no unexplained phenomena. There are no nasty little exceptions that destabilize his argument. We are often told about the existence of all sorts of persistent myths about how this or that exception ruins his value theory. The vast majority of these accusations consist of trying to find examples of instances where prices deviate from individual values, whether that be in Mud Pies, automated factories, prices of production, or antiques. I hope that I have demonstrated that these are misguided attacks.

Just because Marx’s value theory is consistent, rigorous, and holds up to the basic requirements of logic doesn’t mean that it is correct. There is still an argument to be had over whether his theory actually explains the way the world actually works. Sometimes people confuse the two issues.

Steven Keen, for instance, argues that Marx is wrong to say that only labor can produce value. He does this by pointing to a supposed logical mistake in Marx’s description of exploitation. Marx says that the use value of labor-power is that it can produce value. Workers produce more value than they cost. But Machines can do the same thing, Keen argues. Marx ignored that machines can produce more value than they create. If Keen wants to argue for a theory of machines creating value that’s fine, but he shouldn’t do so by acting like he’s found some brilliant little hole in Marx’s logical argument. Keen acts as if he wants Marx, in the discussion of exploitation, to furnish some knock-down proof that machines can’t create value. But by this point in the argument Marx has already established that only labor can crate value. He is merely explaining the logical implications of such a theory. Elaborating on implications of a premise need not prove the premise. I’d almost be willing to say that they can’t prove the premise because you have to assume a premise to elaborate on its implications.

I feel like Keen’s argument is an obnoxious attempt to imitate what seems to be a trend: one makes up nonexistent problems regarding the logical structure of Marx’s argument and then uses these “discoveries” as material for riffing on one’s own theory of capitalism which has no relation to Marx at all. Keen would be better off just debating premises, and the basic questions of what a value theory is and what it means to express social productive relations through commodity exchange rather than to go on a fools errand to find some flaw in Marx’s own structure of argument.

I also want to stress that absolutely none of the qualitative aspects of value theory are effected negatively by the deviation of value from profit. I also do not believe that Marx’s method of deriving labor as the content of value is effected at all by the derivation of value from profit. In many ways, these qualitative and methodological questions are the important ones to have.

Price theory is not the goal of Marxist economics. The important take away is that Marx’s price theory does not contain some poison that destabilizes the rest of his understanding of capitalist social relations.

Value Can’t Be Created in Exchange

After Law of Value 9: Abstract Labor I will conclude the trio of videos dealing with Marx’s method (not that I’ve conclusively said all there is to say on the topic, but all that I have to say for this series). The next 2 or 3 videos deal with the price-value relationship. I suspect that this will be of interest to many viewers as this is a topic full of confusion and varying interpretations. My plan is to stick as closely as possible to what I understand to be Marx’s take on the subject. For this reason I will draw somewhat on the Temporal Single System Interpretation’s literature on the topic, especially some essays by Alan Freeman and the book Frontiers of Political Economy by Guglielmo Carchedi, as this is the school of thought that I think most coherently establishes the logical consistency and relevance of Marx’s value theory (though I don’t claim to have an exhaustive knowledge of the all of the different takes on this topic and their surrounding debates.) Of course Marx’s writing on the subject, especially vol. 3 of Capital will be in the forefront of my considerations as well.

But in preparation for the task of preparing the scripts for these videos I thought some preparatory explorations might be in order. Perhaps the first place to start would be to explore the rationale behind and relevance of Marx’s observation that value cannot be created in exchange.

Value cannot be created in exchange

In his Vol. 3 transformation procedure Marx holds that total value equals total price. (Despite the fact that prices and values diverge, the coherence and relevance of value theory is maintained by the equality of total value and total price, and total surplus value and total profit.)  Bohm Bawerk, Marx’s famous Austrian detractor, argued that this assertion proved nothing. “… it is perfectly true that the total price paid for the entire national produce coincides exactly with with the total amount of value or labor incorporated in it. But this tautological declaration denotes no increase or true knowledge, neither does it serve as a special test of the correctness of the alleged law that commodities exchange in proportion to the labor embodied in them. For in this manner one might as well, or rather as unjustly, verify any other law one pleased- the law, for instance, that commodities exchange according to the measure of their specific gravity.” (Bohm Bawerk, “Karl Marx and the Close of His System” p 36 of the 1975 Sweezy edition) He goes on to give an example where individual commodities do not exchange at their specific weights but total weight equals total price, thereby apparently showing the tautological uselessness of Marx’s first equality.

Gravity

Like much of Bohm-Bawerk’s critique, his reading of Marx here is inaccurate and simplistic. Yet his critique is a good jumping off point for clarifying what Marx is actually arguing. Marx’s theory of value does not require that goods trade in exact proportion to the labor time embodied in them. Neither does his theory require that prices fluctuate around a ‘center of gravity’ that is embodied labor times. Rather Marx argues that prices and values systematically deviate and that this poses no problem for any aspect of his theory of capitalism.

 

Marx’s claim that total price equals total value is not supposed to “serve as a special test of the correctness” of his value theory. Rather it is a logical conclusion of his observation in Volume 1 of Capital that value cannot be created in exchange.  This observation flies in the face of everything that is sacred to the Austrian school. As Bohm-Bawerk writes, “Where equality and exact equilibrium obtain, no change is likely to occur to the disturb the balance. When, therefore, in the case of exchange, the matter terminates with a change of ownership of the commodities, it points rather to the existence of some inequality or preponderance which produces the alteration.” (ibid  p. 68) In other words, people exchange things because of a subjective difference in their estimation of the value of goods. Exchange happens because of an inequality in subjective estimations in value. This leads to the bizarre notion of “subjective profit” which, more than anything else, makes it obvious that the entire idea of marginal utility comes from an attempt to impose the objective rational of the capitalist investor upon the the subjectivity of individual consumers.

Two points should be made in response to Bohm-Bawerk. First, despite the impressions that could be had from a naive reading of the first chapter of Vol. 1 of Capital, Marx does not believe that every exchange involves an equality of labor times.  The very concept of socially necessary labor time (SNLT) implies inequalities in exchange between the social value of a commodity and the individual value (between the labor time considered socially necessary for its production and the labor time actually spent on its production.) The gap between social and private labor is the mechanism whereby value regulates private labor for social purposes. (2) Rather, Marx is claiming that value cannot be created in exchange. While there can always be inequalities in exchange, these cannot be the source of profit because no aggregate addition to the total value of society can be created just by moving commodities from one person’s hands to another’s.

Now Marx does often ask his readers to assume, for sake of argument, that value and price are identical for individual commodities. Why?…because this makes it easier for him to show that profit must come from the exploitation of wage labor, rather than from an inequality in exchange. If value can’t be created in exchange we must look to production and the exploitation of wage labor to explain profit. But this type of profit is different than the super-profit that comes from selling below the SNLT. Thus it makes sense to assume the sale of commodities at their SNLT in order to look at the source of profit proper, rather than super-profit. Sometimes people, like Bohm-Bawerk, claim that Marx holds price and value equal for the first two volumes of Capital, later dropping it for the 3rd volume. But the concept of SNLT, which entails sale above and below SNLT, occurs at the beginning of Vol. 1!

Equivocation is the misleading use of a term with more than one meaning.

Secondly, the Austrian school’s concept of inequality being the prerequisite to exchange is highly problematic. It rests on a conflation of two different definitions of the term “value”: on one hand the subjective estimations made by individuals, on the other the real, concrete prices which commodities sell for in the market. Just because we make subjective judgements about our preferences for commodities doesn’t mean that these judgements are the same as or have any bearing on the market prices of commodities.

 

 

 

I question whether the concept of “subjective profit” so popular to Austrian thought has any usefulness. It seems like a bad analogy to the real, concrete profit of capitalists. Whereas capitalist profit can be easily measured, there is no measure of this so-called subjective profit that individuals supposedly get in exchange. Yes people buy things by their own free will. But on what basis can we say that this is a result of their preferring a commodity more than they prefer money? Money only has value because it can buy things. To say buying deodorant demonstrates that I prefer a $5 stick of deodorant more than I prefer $5 in cash seems to overlook the obvious fact that a commodity worth $5 has just exchanged for $5. I have exchanged one use-value for another yet the amount of economic value I have has not changed. While there has been a transfer of use values there has been no transfer or value. While the Austrian instinct is to follow the movement of these use-values, to conflate their circulation with the motor force of capitalism, Marx is more interested in the movement of value. Since value can’t be created in exchange, the motor of capitalism is the exploitation of wage-labor. This allows Marx’s gaze to focus on production, class, the movement of value… all of the things that the bourgeois economists try to abstract out of their theory.

We need look no further for an illustration of the problematic conflation of subjective value and real market prices than Ludwig Von Mises’ “Human Action”. P. 329: “Valuation is a value judgement expressive of a difference in value. Appraisement is the anticipation of an expected fact. It aims at establishing what prices will be paid on the open market for a particular commodity or what amount of money will be required for the purchase of a definite commodity.” and later:” “The valuations of a man buying and selling on the market must not disregard the structure of market prices; they depend on appraisement. In order to know the meaning of pr ice one must know the purchasing power of the amount of money concerned.” (Human Action, p.329, The Scholars Edition).

Here Mises clearly states that our subjective valuations are not the same as market prices and that market prices effect our subjective valuations. It is a logical conclusion from here to the fact that an exchange of $5 for a stick of deodorant with a $5 price tag is an exchange of equivalent values (value defined in this objective sense) regardless of what the personal  valuations of individuals are regarding deodorant. Mises goes on to assert that these market prices are just the result of personal value judgement.  But just because market prices are formed in the process of people making judgements does not mean that these judgments determine the exchange ratios between commodities.  Regardless, once one acknowledges the fact that prices are an objective quantity one has to admit that value cannot be increased merely by trading two commodities with the same price. Whether or not there is a “subjective profit” (and I don’t think this can be proven or that it has any relevance [1]) has no bearing on the fact that value can’t be created in exchange.

On with the story…

If value can’t be created in exchange then this puts us quite far along in our path to understand the value price relation. The exchange process is one of measuring the value of commodities against each other. If a commodity is exchanged above or below its value then value is transfered from one person to another. This can be a source of profit for one person but it cannot increase the total amount of profit in society.  Though Marx doesn’t use the term, sometimes one hears the words “super profit” used to describe this profit arising from unequal exchanges.

If profit can’t come from exchange then we must look to production for it. There is one commodity that can produce more value than it costs to buy. This is labor power. Labor power is the only commodity whose cost of production (the cost of the means of subsistence) differs from the value it transfers to the final product. The amount of value created by the worker in production cannot be determined by looking at the wage. It can only be determined by looking at the total amount of work that has been done. This is the source of profit proper.

Marx’s theory of SNLT contains both types of profit, profit proper and super-profit. All capitalists in an industry exploit labor and thus make profit. But they also compete to outsell each other in the market by introducing new production techniques which allow them to produce under the SNLT. This allows them to appropriate value through exchange, hence making an additional super-profit on top of the profit proper.

The source of this super-profit is the surplus value created by workers in other firms. It works like this. All capitalists in an industry must at least cover their costs of production or else they will go out of business. So let’s assume all firms are at least making enough to cover costs. Now if the SNLT corresponds to the modal (not average) level of productivity in an industry this means there will probably be firms operating above, at, and below the SNLT. Firms operating above the SNLT will lose business and make less profit. Firms operating below the SNLT will get more business and realize more profit. The more efficient firms carve out a larger space for themselves in the market, squeezing out less efficient firms. They cut into the profits of competitors. Less efficient firms are not able to realize all of the surplus value they have created while more efficient firms realize more profit than just the surplus value their workers created.

If value can be transferred in exchange, and if this transfer of value comes through redistributing surplus value created in production, then we already have the tools needed to understand Marx’s theory of Prices of Production. Sometimes we are told the notion of prices of production involves some modification of Marx’s value theory. I do not believe this to be the case. All of the tools we need to understand prices of production are already present in the notion of SNLT, and all of these points flow logically from the observation that value can’t be created in exchange. (I will leave the topic of prices of production for a future post.)

The Fraternity of Capital

The fact that surplus-value is transferred in exchange allows Marx to theorize the interrelations between different factions of the capitalist class. The theory of prices of production demonstrates that the specific profit a capitalist accrues are not just the result of surplus value originating in their own workforce. Their profits also consists of surplus value transfered in exchange. Thus the capitalists class, as a whole, exploits the working class as a whole.

This however only covers the relation between different productive capitalists. There are also merchants, bankers and the state to consider. Merchants don’t create value but they siphon off value created in production by taking a cut of the Industrial capitalist’s profit in exchange for bringing the product to market. Bankers charge interest for loans to industrial capital. The state siphons off tax revenue. These interactions bind the different factions of the capitalist class in their united interest in the daily exploitation of wage labor. We see the cohesion of the class most strikingly in a crisis where the state must act as the arm of the collective capitalist class to preserve the institutions of wage labor at all costs.

Obviously individual capitalists compete against one another to get more of this super-profit then their competitors. Obviously there are times when some factions of the capitalist class have power over others. For instance, WalMart seems to have the ability to dictate profit margins and production techniques to producers. Or, to take another example, the banking class seems to have a dominant voice in the state’s attempt to mediate the current crisis. But, despite this competition, the one thing that is always constant, the one feature that makes the rest of this system possible, is the exploitation of wage labor.

This should be the cover of the next Penguin edition of Capital...

Footnotes:

1. For one, the use of the word “profit” is problematic because it too closely conflates capitalist investment activity with consumer behaviour. Capitalist investment is an objective, measurable process. Consumer behavior is not. Austrians argue that utility is ordinal. But capitalist profit is not ordinal. It is clearly delineated in objective quantities of money. Capitalist profit cannot emerge merely from exchange, as discussed above. Use of the word profit for both phenomenon is clearly an ideological device for obscuring the nature of capitalist profit.

Consumers don’t take their subjective profit and use it to reinvest in the creation of more profit. They don’t hire accountants to keep track of their subjective profits. The state can’t tax their profits. There is really no way that this concept of subjective profit has any relation to the real profit of capitalists.

2. Now SNLT is an average, a center, which pulls less efficient producers towards it, punishing less efficient producers, disciplining labor to achieve a social average. But this center point which labors are drawn to is also constantly in motion as the same process also rewards those who produce under the SNLT. This is why we can’t think of Marx’s theory of value as an equilibrium theory. The theory does not contain any final resting point at which supply and demand meet, and labor stops undergoing revolutions in productivity.

Law of Value 8: Subject/Object

part 1:

part 2:

part 3:

part 4:

One of the more common objections raised to Marx’s theory of value, at least here in the theoretical void of cyberspace, is the objection posed by subjective value theory. Though these modern objections often take quite a crude, simplistic tone, they are echoes of a rather old debate, one that dates back to debates between Marxists and Austrian economists that took place in the late 1800′s and early 1900′s. Austrian thinkers like Bohn-Bawerk and Mises were staunch defenders of free markets and private property, seeing capitalism as the ultimate expression of human freedom. In response to the revolutionary challenge of Marx’s economic ideas they advanced an alternative view of economics in which economic value was not determined by human labor but by the subjective valuations of individuals.

The Austrians called their theory Subjective Value Theory (STV), also known as marginal utility theory, and they called Marx’s theory an Objective value theory. Marx himself never used this sort of language to describe his theory because such a simplistic dichotomy would have robbed his theory of much of its nuance and depth. Nevertheless, Marx’s defenders often accepted this dichotomy, advancing a staunch defense of Marx’s supposed “objective” theory of value. If we really want to understand Marx’s theory of value we need to dig a little deeper than this.

At first it may seem that this debate over value theory is purely an academic one, not so urgent an issue in these times of crisis and political upheaval. But value theory actually sits at the center of any theory of capitalism and is therefore extremely relevant if we are to understand this crisis of capitalism. The Subjective-objective debate is more than just an academic feud about how to theorize prices. It is a debate about two rival visions of the world, one deeply apologetic of capitalism and one radically critiquing it.

Though mainstream neo-classical econ has sought to distance itself from the  the particularly extreme capitalist apologetics of the Austrian school, both share a common origin in the theory of Marginal Utility. (1) This economic crisis has brought to light the utter bankruptcy of mainstream economics as its ideologues stutter and stumble in the face of an economic depression that doesn’t fit into their models, bringing into question its most foundational theories, like the theory of marginal utility. In this crisis it is important to understand the failures of the dominant ideology so that we know what we are fighting and how not to replicate those mistakes in our own movements. Therefore we will need to spend some time in this video laying out some of the fundamental failures of the subjective, or marginalist approach to economics.

The mantra of all ideologies is the phrase “that’s just the way things are.” Econ professors and right-wing pundits love to use this phrase. When factories close they tell us “that’s just the way things are”. When people are poor and live in degradation we are told that this is the way of the market and that nobody is to blame but the poor themselves. They can make this argument because their theory of the market is based on a theory of subjective value. If economic value is subjective, as the theory of Marginal Utility argues, then the marketplace is just a clearinghouse for our desires. It serves as a vast, unconscious, democratic network, adjusting needs and production with scarcity to provide the best possible organization of our competing subjectivities. The outcome of this market process can’t be critiqued because it is just the spontaneous result of our desires. There is nobody to blame if something goes wrong. Responsibility is dispersed between millions of individuals. The only thing we can critique, from the Austrian perspective, is those who try to interfere with this market process, like unions, social movements or the government.

If value is entirely subjective then we also can have no theory of exploitation. The division of the social product into wages of workers, profit of capitalists and rent to landlords is not explained by the power of these social classes. Instead it is seen as the result of purely technical factors, like the scarcity of inputs relative to the subjective decisions made by workers and capitalists as they enter into free contracts. Rather than a theory of classes, we have a theory of pure individuals, all seen as equals in the market. And since individuals have always had subjective values the subjectivists can argue that capitalism is the expression of universal human characteristics and not a particular historical form subject to change.

It certainly is true that when we go to the grocery store to spend our meagre wages we get to choose between Coke and Pepsi. But if this sort of choice is the ultimate horizon of human freedom then we really haven’t achieved much as a species. While subjectivists busy themselves with complex models of consumer behaviour as we choose between Coke and Pepsi, they miss the fact that these choices happen within the context of larger institutional arrangements which we have no choice over at all. It is these larger structures that Marx is interested in: private property, wage-labor, commodity exchange, and the law of value. For Marx the market is a place where blind economic laws dominate over us, where subjects are powerless and where objects like money and commodities are imbued with social powers. We are all hyper-aware of this fact today as we watch the most powerful people and states in the world flounder helplessly in the face of this economic crisis. The Law of Value commands, people obey.

a point of clarification:

Great confusion comes from the fact that the word “value” is used to mean different things. Some people think that because you and I make personal value judgements when we go shopping that these judgements must be the source of the value of commodities.  But the personal value judgements we make in our heads are not the same as the exchange values of commodities. Commodities have exchange values, the quantitative ratios in which they exchange with other commodities. People make value judgements, judgements which are not measurable or quantitative. Just because we use the same word, value, for both phenomenon doesn’t mean that they are the same thing or that there is any relation between the two at all. This relation has to be proven. Many logical mistakes are made by people who don’t distinguish between these two uses of the same word. Don’t be one of those people!

STV argues that we can understand exchange-ratios solely through a theory of the subjective, psychological motives of consumers. It’s attempt to do so is fatally flawed, shot through with unwarranted assumptions, shoddy abstractions and circular logic. Let’s take a look at some of these problems

The Subjectivist Vacuum, or, Pay No Attention to the Man Behind the Curtain

Welcome to Subjectivist Island. Here lives Eugene, our happy island barbarian. Everyday Eugene makes choices. He decides to spend his time building his teepee, catching fish, or practicing his backstroke. He likes the backstroke most of all, but after so many laps around the island he gets tired of it and starts to prefer catching fish or teepee building. Intent on maximizing his utility, Eugene gets out some paper and a pencil and makes himself a preference scale so that he can figure out the exact proportions to devote to all 3 activities each day. He cherishes this preference scale because it is the source of his freedom. It’s just like the preference scale you carry around in your pocket everyday….. you carry one don’t you? (2)

Ok, now setting aside the fact that most of us don’t carry around a preference scale in our pockets, there is a bigger problem: Subjectivists want you to believe that this little story about Eugene and Subjectivist Island is all that you need to know in order to understand the functioning of modern capitalist society. Funny then, that we had to abstract away all of capitalism, all society in fact, in order to arrive at our theory of preferences. Were we to think critically we might begin to suspect that there is something fishy going on with this abstraction. That fishy something is the stink of an ideological abstraction. We discussed such ideological abstractions in the last video, Law of Value 7, but let’s review a few points here.

The point of a dominant ideology is to make it seem like the present order of things is a universal order; that the status quo is the natural expression of things, unchangeable. How convenient then, for our bourgeois theorists, that our natural, universal man, Eugene, happens to contain the seed of modern capitalist society in all of his preferenc-ing and acting. It’s as if every choice made by every human since the dawn of time was just an expression of innate capitalist instincts, waiting to come into being in our modern society.

But it’s not enough just to point out the obvious ideological basis of subjectivist theory. We must also prove that this ideological abstraction is illegitimate. Let’s do that. It should only take a few minutes.

The parable of Subjectivist Island leads one to think that human desires are formed privately, independent of society. But this has never been the case. Desires are taught, socially constructed, and can’t be understood independently of society. How do subjectivists respond? They say “Yes desires may be constructed but this is out of the scope of economics so we don’t have to consider it.” In fact, this is how modern economics deals with all criticism- it ignores it and says it’s the topic of another discipline. How convenient! It’s like saying that we don’t have to consider the fact that the earth is round because that’s beyond the scope of flat-earth theory.

We can’t understand desire without also understanding the ways in which we go about attaining our desires. Here’s where the abstraction of Subjectivist Island breaks down. On the island Eugene attains his desires by directly acting to get the things he wants. But these are not the sort of choices we make in a capitalist society. In capitalism we have to sell our labor to someone else so we can make a wage that we can then spend on the things we want, but only after we’ve given most of our wage to the landlord, the mortgage company and the state. Subjective value theory has to prove that it can move this abstract model of choice from Subjectivist Island to a full-scale capitalist economy. It does this through the fantasy of barter.

Let’s say Eugene, while back-stroking one day, discovers another island called Barter Island. Here lives Ludwig who cracks coconut all day. They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish. “Now,” says the subjectivist, “we have shown that our abstraction was legit and that we can explain exchange ratios purely through the science of preference scales.” If only it were that simple.

The first thing we might notice is that the exchanges on Barter Island can only take place because Eugene and Ludwig have different resource endowments. If they both had access to coconut and fish then there would be no reason to trade. In order for trade to continue in a sustained way, trade must reproduce these differences.

This means that in order for a capitalist market to work there must be the constant reproduction of a certain type of property relations in which people have to enter the market in order to get what they need to live. Specifically people must be deprived of their own means of production, forced to enter the market to sell their labor in order to buy the things they need. This property relation must be continually reproduced through exchange so that there is always scarcity and people are always dependent on the market.

Thus, we can see that something very sneaky has been done. Hmmm… what is it?  We were trying to form a theory of barter based solely on subjective preferences when all the sudden we realized we needed to assume a certain type of property relation in order to make any sense of it. Thus, abstracting away property relations and forming a theory of exchange without them is impossible and illegitimate.

Even more damning is the fact that capitalist societies don’t have anything to do with barter. People don’t produce to directly exchange products for other products. We produce in order to exchange things for money. Money is an intermediary in all economic activity. So it makes no sense to say we measure our subjective utility for coconuts against fish when exchanging. We measure everything against money. When you are in the supermarket calculating your preference scales with the Preference App on your iPhone you aren’t just considering your preferences for fish and coconuts in the abstract, as if on a desert island. You are also considering the market prices of these commodities. This market price already exists before you make your subjective value judgements.

But this is problematic. Subjective valuations were supposed to explain price, but now we have to assume the prior existence of prices in order to explain subjective value judgements. It seems we are stuck in a big messy circle.

And if we are exchanging everything for money then we must have a utility for money right? But money has no direct utility. It’s not even good for blowing your nose on. The value of money is what it will buy. And this is not set by our preferences but instead reflects the relation of money to all other commodities, reflecting the vast interpenetration of millions of markets all over the world. There is no such thing as a personal utility for money because money’s value is already established by forces beyond our control. (3)

And there are more difficulties presented to subjective value theory by the presence of money. On Barter Island Eugene and Ludwig had direct knowledge of what they were getting from each exchange. But in our world we don’t know exactly how much everything is going to exchange for ahead of time. When we sell a product in the market we don’t know exactly what products we will be able to buy with that income. There is a high degree of uncertainty. But with so much uncertainty how are we ever to form those nice, rational preference scales where we’ve perfectly calculated the exact utility relations of all commodities to each other? Well, we can’t!  (4)

It seems that every time we try to abstract away property relations and production relations they end up sneaking back into the picture. This is because it is absolutely illegitimate to try to explain capitalism without a theory of the social relations between people as they actively produce the world they live in. Luckily we have a better theory, that of Karl Marx.

In the Real World….

In the real world, outside of the fantasies of bourgeois economics, subjects and objects have no meaning apart from their relations to each other. There is no such thing as a subjective individual floating in a vacuum. We develop our subjectivity through our relation to the objective world we inhabit. And the objective world can’t be understood apart from the actions of societies of individuals who transform this world, bending it to their will, giving it meaning. Subjects and objects always exist in a relation, deriving their meaning from this relation.

On Subjectivist Island it seems like subjects form their value judgements through passive contemplation before they act on them; judging happens first and then action. In the real world we can only understand our subjective preferences once we understand the active process by which people relate to and transform the world. People work on nature. We chop trees and make houses. We build cars and dig up oil to power them. In transforming the objective world we also transform ourselves. The modes by which we work upon the world determine our views of the world, the sort of values, needs and desires we have in this world and the manner in which we pursue those desires. These different modes of producing have changed throughout history, each mode producing very different sorts of societies with very different value systems. These different modes of relating to and transforming the world Marx calls “modes of production”. (5)

Capitalism is not the first mode of production characterized by extreme inequality, war, exploitation and instability. These qualities are part of all class societies. What is unique about capitalism is the way this domination of one class over another takes the form of relations between commodities. This is due to a particularly unique subject-object relation in capitalism, something Marx refers to as “subject/object inversion”. We will return to this in a moment.

Subjects, Objects and their Prices

Objections to Marx’s theory of value often have to do with the way his theory of value relates to market prices. If value comes from the amount of labor that goes into producing things, then how do we explain the fact that a rise or fall in demand changes market prices? The fact that demand influences price makes it seem like subjective decisions influence value as much as labor time.

The value-price relation is not an easy one to enclose in neat, tidy definitions. The more we look at it the more complex the network of social relations that go into the formation of prices. I will deal with the value-price topic in more detail in a future video (Law of Value 11: Price), but a few remarks are in order here. We’ve actually covered this ground briefly before in Law of Value 3 where we talked about the way private labor becomes social labor. (6)

Private labor is the amount of labor an individual worker devotes to the production of a commodity. The goal of the worker is for her private labor to become social labor, that is, that her commodity be sold in the market and thus be equated with all the other commodities in the market, making her labor part of the total social labor of society. But this isn’t so easy. Because production is only coordinated through the fluctuation of market signals, it is always uncertain whether commodities will be sold, and whether private labor will become social labor.

As we’ve seen in previous videos, in order for private labor to become social it must produce at the socially necessary labor time. SNLT is a way in which the social level of productivity acts back upon the private labor of the individual, disciplining the individual to work at the social average. Individuals or firms that can’t work at the SNLT go out of business, like when American auto-workers lose their jobs due to competition with plants in other countries. Their labor is then reallocated to other areas where they can be more profitable, or they don’t work at all. As many of us know, losing a job and having to find new work is a long, hard, painful process. But these discomforts don’t matter to the market. The market treats all labor like digits in a calculator, anonymous units to be moved around in the search of profit. The gap between private labor and social labor is the mechanism by which labor is moved around and reapportioned through the blind forces of the market, in the absence of a social plan. (7)

Now all this should sound familiar. But what does this have to do with the relation between demand changes and price? The same process of reapportioning labor happens with changes in demand.  Just like the need to produce at the SNLT, society must also apportion the right amount of labor to produce the right amount of things so that markets don’t become over-saturated or under-stocked. If the supply of elevator music exceeds demand then some of this music will remain unsold and some of this private labor will not become social. Producers will be forced to move their labor elsewhere. This apportioning of labor happens through the fluctuation of price. [insert image of person thinking, though bubble creating a commodity, or a price sign or something] This does not mean that demand creates value. Demand hasn’t created anything. It has merely indicated, through price signals, that labor needs to be reallocated. This is how demand effects the distribution of social labor in a society coordinated through the fluctuations of prices. This distribution is only possible because there is a relation between prices and labor time.

A further examination of demand

So we can show that demand, rather than creating value, is part of the reallocation of labor that is implied in the gap between private and social labor. But we can also take the analysis further and show how demand itself is produced in capitalism. From the perspective of subjectivist island it seems like demand is the product of free, independent minds, viewing reality from some distant, objective standpoint. But in reality our subjectivity is a part of a mode of production. This is nowhere more apparent than in the capitalist mode of production. In capitalism the only type of demand that counts is “effective demand”, that is demand backed up by purchasing power. Consumer demand comes from wages paid to workers. That means we can’t understand demand without first understanding wage labor and exploitation.

The products which consumers buy with this money are not just the random result of psychological preferences. In fact, most of our money goes to the purchase of very basic things we need in order to keep us alive as workers so that we can produce more value for capitalism each day: rent, food, clothes. (8) These are needs and desires dictated to us by capitalism, for the purpose of perpetuating capitalism, not the abstract psychological preferences of isolated individuals. (9)

But the bulk of the demand in society comes not from consumers but from capitalists. You and I buy toothbrushes and pay rent. Capitalists buy factories, assembly lines, natural resources, and private armies. This demand has nothing to do with the personal preferences of capitalists. (10) It has to do with the technical requirements of production, the amount of inputs it takes to make a widget at the SNLT. Some people think that capitalists enter production only in order to meet the demands of consumers. This is a myth. The advertising industry is the best refutation of this myth. Capitalists produce in order to make a profit. Then they go looking for markets. Most of the time they have to create the market by convincing people there is a need for their product. But capitalist firms also sell to each other, totally bypassing the need to find consumer markets. (11.)

This all gives us a very different picture of the subject-object relation than we get in bourgeois economics. Rather than a free society of empowered individuals who are free to act upon their abstract desires and take full-responsibility for their lot in life, Marx’s critique of the capitalist mode of production reveals a world in which individuals are at the mercy of the coercive laws of the market. The sorts of superficial freedoms they have to choose between coke and pepsi pale in comparison to the disciplining of our lives to SNLT and the pursuit of profit.

Subject/Object inversion

[Mitt Romney quote about corporations being people]

There is a lot of talk in the Occupy Wall Street movement about ending “corporate personhood”. The problem with this demand is that the legal status of corporate personhood is just the icing on the cake. In a capitalist society corporations are much more like people than people are. Capital is the active subject and people its object. This is what Marx means by “subject/object inversion.” Rather than people being the active agents of the social order it is the “objective” logic of the market that dominates subjects. Blind economic laws rule and people obey. Money becomes more powerful than life. Corporations become people and exert more power in society than individuals or even social movements. While people run around in the street with signs begging the system to take notice of them, the cold-logic of capital becomes the active agent in society, using the body of the worker like a passive expendable commodity, subordinating societies, governments and even nature itself to the impersonal motives of profit.

The crazy thing is that this “objective” world is still just the product of our own creation. We actively reproduce it everyday. This is what makes Marx’s critique of capitalism so powerful: The world we live in, despite the incredibly disempowering structure of our current situation, is always only the result of our own actions and we do have the ability to collectively change it. But in order to exercise such collective power we must break with the capitalist mode of production.

conclusion:

In case you were wondering Subjectivist Island and Barter Island don’t exist. They are abstractions. Now every theory needs abstractions- we must sift through a world of data and identify the broad contours and important categories that define reality. Subjectivist and Barter Islands are “ideal abstractions”, that is, abstractions that exist only in the minds of philosophers.  Marx makes a different kind of abstraction, a “real abstraction”. A real abstraction is not made by philosophers arbitrarily leaving out parts of social reality. A real abstractions is made by reality itself.

In a capitalist society human labor becomes abstract. In the caste system of feudalism where people were born into certain types of work and there were strict divisions between castes there was no such thing as labor in general, or a worker in general. But in a capitalist society labor loses all of these specific features. Capital treats us like anonymous digits in a profit-calculator, moving us from place to place in the search for profit. Our labor becomes abstract labor. We become, not peasants, knights, or artisans, but workers in general. Marx’s theory of value is based on this real abstraction that is made by the mode of production itself, not the minds of philosophers.

This doesn’t mean that the perspective of marginalism comes from nowhere. Marginalism comes from a real existing standpoint within capitalism, the standpoint of the atomized individual contemplating commodities. This standpoint is real. We experience it everyday at the grocery store. But it is an incomplete perspective because it leaves out the entire world of social production that puts commodities on the shelves and money in our pockets. This perspective is the perspective of commodity fetishism, in which the social power of our own labor takes the form of inherent properties of objects. (12)

But in times of economic crisis we see cracks in the walls of this reality. Old ways of thinking lose their relevance. Crises are a time when the economic laws of capitalism are exposed not as eternal, universal laws as the bourgeois economists would want us to think, but as the particular laws of this time, laws that we might be able to overthrow. As the law of value breaks down, as people start to question the order of things, the capitalist state must enter the picture, replacing the failing law of value with the brutal law of the state. The charming, freedom-loving world of the market apologists is revealed for what it really is, an exploitative order based on violence. Like a schoolyard bully, a system is always the most violent when its weakness is exposed. When the law of value breaks down the politics begin. Subjects must become active. This can be the politics of the ruling class as it scrambles to reassert the status quo or it can be the politics of radical movements that posit the possibility for new social orders.

Footnotes:
1. Undoubtedly I will raise the ire of both neoclassicals and Austrians by treating the two camps as one for much of this video. Both schools of thought have their historic origin in the theory of marginal utility, though the way this theory has been treated and evolved in the two camps has diverged over time. This video deals with marginal utility on a very basic level, analyzing the types of abstractions needed to sustain a theory of marginal utility (namely extracting away production relations) and thus should serve as an appropriate starting point for a critique of either school of thought. There are many more critiques to be made of both camps.

2. Prior to his preference scale Eugene used utils to measure all the objects of his desire. These were basically little bits of his subjectivity that he kept in his pocket like gold coins. He exchanged them with himself every time he made a decision. At some point in the 20th century bourgeois economists decided that utils didn’t exist and replaced them with graded preference scales. These look sort of like a combination of a bar graph and an abacus and all of us carry them with us at all times and consult them before we engage in any human action. They are the primary instrument of our freedom but the government wants to take them away from us and make us slaves.

3. Austrians will be quick to point out that the ‘great’ Ludwig Von Mises provided a solution to this problem of the subjective value of money. He argued that since money was originally a commodity like gold that originally, in barter, people did have a subjective value for the particular uses of gold. Thus the original exchange value of gold was a result of these subjective valuations. Once gold became money, of course, its exchange value was altered by its role in the circulation of commodities. It became worth “what it could buy”. People formed their subjective estimations of gold based on this objective “what it could buy” measure. Yet the fact that we can trace a historic path from the original subjective valuations of the use of gold, to the subsequent layers/sequences of valuations that eventually arrived at the objective value of money seemed, to Mises, a solution to the problem. In Bukharin’s “Economic Theory of the Leisure Class”, in a footnote, he points out that this “solution” by Mises merely replaces an idiographic, historical description for a theory. It doesn’t matter if we can describe some historic process whereby a commodity becomes money. The value of money is not created or altered by subjective preferences for money.

4. The neo-Austrian response to this problem is to distance themselves from the neo-classical idea of the rational consumer and to stress the imperfect information of the consumer. Rather than consumers being super-rational beings that can calculate the relations between the objects of desire, the fallibility of human understanding is stressed and the market is seen as the ultimate informational clearing house which adjusts the imperfect desires of the multitude, smoothing them out, allocating resources in the most efficient and democratic way. Their language often takes on religious overtones here, stressing the inherent insufficiency of human judgement against the omnipotent, mysterious power of the market. The problem is that these magic moves of the hidden hand of the market are just asserted and never proven. Rather than actually proving that the market can do this Austrians prefer to stress that the only alternative is the State-Communist BogeyMan.

5. For Marx the subject-object relation is not just a matter of personal psychology, of people thinking about objects in the abstract. Instead it is based in the real, concrete working activity of people actively transforming the world. This is what is by “materialism.” Often people think that “materialism” means that individuals are unimportant, or history is predestined, but this is not what Marx means. He wants us to understand the specific ways in which subjects and objects relate through the real activity of social groups in their day-to-day activity, in their mode of production.

6. The first thing to note is that, just as the commodity passes through many different hands and fulfills different functions as it moves through the vast network of capitalist social relations, so too value takes many different forms. Different aspects of the value relation come in and out of focus depending on where we turn our gaze. Value can take the form of private labor, social labor, and market price. These three forms of value all act back upon each other, co-determining each other, just as all the various moments of production and exchange influence each other.  Market prices can fluctuate from day to day due the seemingly chaotic way information about prices is transmitted through markets. But through these fluctuations we can observe law-like regularities. etc.

7. And this is why the dream of running your own business and “being your own boss” is only possible in the cracks and interstices of capitalism, in those few paltry industries that it is not profitable for big firms to enter. The amount of resources a large firm has at its disposal make it quite difficult for the self-employed to work at a competitive socially necessary labor time.

8. A timely tangent: The consumption habits of the unemployed and underemployed are also largely dictated by capital. Being unemployed is expensive and time-consuming. One must drive to interviews, have a clean suit to look good for those interviews, send out tons of resumes, etc.

9. This is why we need a theory of distribution before a theory of price. The theory of marginal utility tries to explain price first, and then explain the distribution of the social product between classes afterwards. The most extreme version of this would be the price theory of Mises who argues that not even the cost of production enters into the formation of prices. For Mises, consumers determine prices through their valuations, then the revenue from the sale of the commodity is distributed amongst the factors of production according to the competitive bidding of capitalists. On the contrary, the classical economists before Marx formed their theory of price only after the distribution of the social product between classes… Thus the price of the commodity would be the wages paid to workers plus the profit of the capitalists plus the price of inputs (which go to other capitalists) plus any interest or rent owed to other parts of the capitalist class. Obviously a class analysis of society is only possible with the classical approach.

10. Nor does the capitalist production have anything to do with “corporate greed”. Please, Occupy Wall Street, stop using this ridiculous term. It doesn’t mean anything. There is no such thing as corporate greed. Corporations don’t have personalities. They aren’t greedy. Capitalism is the problem, not the subjectivities of capitalists.

11. Underconsumption theory, one of the more prominent radical theories of the current crisis, is based on idea that production is for consumption. Underconsumption theory argues that since all production is eventually for consumer consumption that a shortage of demand or purchasing power from consumers can cause an economic crisis. This neglects the role of capitalists in creating their own demand for products, not for the personal leisure of capitalists, but for productive consumption, as inputs in the production process.

12. See my video on commodity fetishism: Law of Value 2

Further Reading/Bibliography:

Marx, Marginalism and Sociology by Simon Clarke. This is available online, and I wrote about it recently on this blog.

From Political Economy to Economics by Fine and Milonakis. This is a great history of economic thought with a focus on methodology. It discusses the way economics has been narrowed from the broad social questions of classical economics to the narrow, mathematical abstractions of the modern neo-classical method.

Human Action- Ludwig von Mises. This book is ridiculous. Good for a bathroom read. And if you run out of toilet paper…

Economic Theory of the Leisure Class by Nikolai Bukharin. I have written about this book here.

Dialectical Phenomenology by Roslyn Bologh. This book was quite influential on my thinking about the subject-object relation and the concept of mode of production. It runs cheap on Amazon. It is a discussion of Marx’s method through a reading of the Grundrisse. I highly recommend it.

Disassembling Capital by Nicole Pepperel. This is available here. Pepperel’s blog Uncomfortable Science (formerly Rough Theory) is a fascinating read. She has a really fresh and deeply knowledgeable take on Marx.

Law of Value 6: Socially Necessary Labor Time

Socially Necessary Labor Time

This video is part of an ongoing series: The Law of Value

part one:

part two:

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

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

SNLT is not like that. SNLT is something very real that we can observe at work everyday. The private labor that goes on behind factory doors will not know for sure what its social value is until the products of that labor enter the market to be compared to the products of other workers. In the market these private labors become social. Socially necessary labor time is asserted. This SNLT then acts back upon production. It disciplines what goes on in the factory. Factories that were spending more labor than was socially necessary are considered inefficient. They must change their production methods or else go out of business. Factories that were producing under the socially necessary time, that were more efficient than average, are rewarded.

Let’s say that the average television takes 1 hour to make. 1 hour is the SNLT for televisions. But the owner of the ACME TV factory invests in some fancy new machines that make his workers twice as productive. They can now make a television in 30 minutes. They are producing way below the SNLT. This allows ACME to produce twice as many televisions in the same amount of time.

Now if ACME sold their new TV at half the old price they wouldn’t make any more money than before and there would have been no point in investing in all that new stuff. Rather than sell them at their individual value (30 minutes) they continue to sell them at the SNLT (1 hour), or perhaps just under the SNLT in order to out-sell their rivals. Because the price of TVs hasn’t changed significantly there is still the same demand from consumers for TVs, but now there is a giant surplus of TVs on the market because ACME has been making twice as many TVs. ACME’s rivals won’t be able to sell all of their TVs. Part of their product will go unsold. Meanwhile ACME will sell most of their TVs at the SNLT, making not just their normal profit, but an additional “super-profit” because they sold their TVs above their individual values by selling at or near the SNLT.

Profit vs. super-profit

Profit comes from exploiting workers. The only way to turn money into more money is to invest it in workers, or to be precise, in labor power, the only commodity which can produce more value than it costs. (This is all covered in the video “Law of Value 5: Contradictions”.) When ACME sells TVs at under the SNLT they don’t just reap their normal profits from exploiting workers. They also get super-profits: profit appropriated in exchange because their TVs are made at under the SNLT.

It is this race for super-profits that drives much of the technological dynamism of a capitalist society as capitalists compete to constantly lower SNLT. By doing so capitalists don’t just exploit value from workers. They also appropriate value in exchange.

Physical vs. Value Productivity

A superficial look at the ACME TV factory might give one the impression that ACME is making more profit because they are creating more value. But this is not the case. The same amount of workers are doing the same amount of work as before. The same amount of labor time is being performed, spread out over a greater number of commodities. Thus the amount of value they create is not increasing merely because the physical output is increasing. It is extremely important to understand this difference between physical productivity and value productivity. As it becomes easier to make TVs their prices fall. Thus, just because we can make more of something doesn’t mean we have created more value. If other firms were to adopt technology similar to ACME’s we would see the SNLT of TVs fall to half of its former value and ACME’s super-profits would disappear.

Appropriating Value in Exchange

What does it mean to say that ACME makes a super-profit by appropriating value in exchange? If you trade one commodity for another of greater value then you have appropriated value in exchange. There are lots of ways this might happen. One of these ways of appropriating value is to produce a product at less than the SNLT but to sell it at the SNLT. Thus we get back more in exchange than we put into exchange. But where does this appropriated value come from?

At first glance it appears to come from the consumers that buy the commodities. But these consumers are buying a commodity at its value, at the SNLT. They are not losing value in exchange. They pay $50 for a TV and they get a TV worth $50. The people that do lose value are all of the other capitalists who are still producing at the SNLT. They are not able to sell all of their product. They lose out. ACME is able to lure more consumers away from them.

Exchange is a zero-sum game. Whenever one person wins another must lose. There are only so many people willing to buy TVs at the SNLT. When ACME appropriates value in exchange this doesn’t mean that they are stealing money from the coffers of their competitors. It means that they are filching away sales from their rivals. More value comes to ACME than it actually created, less goes to its rivals. (1)

SNLT and the Labor Process

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

This drive to produce a super-profit does not mean that less and less labor is happening in society. It means that the same amount of labor is producing more output. We are often told that machines will make life easier, reducing the need for work. But this has never been the case in a capitalist society. Machines just create more output per hour worked. Often times machines are used to get more work out of workers because the machine can dictate the pace and intensity of work. SNLT is a force that presses down upon us, disciplining our motions, driving us to produce value merely for the sake of producing value, rewarding us when we can produce above the average productivity and punishing us when we fall behind.

SNLT and the centralization and concentration of capital

Capitalists compete to lower the SNLT by investing in fancier equipment. The better the machines the more efficient the labor process the higher the output the lower the prices the more super-profit the more money available to invest in new machines… Competition for SNLT means that more and more equipment is needed in order to stay competitive. This makes it harder and harder for small firms to stay in the market. The size of the firm gets larger and larger and the amount of firms in an industry shrinks. The winners gobble up the losers and capital is consolidated into fewer and fewer hands. If firms become powerful enough they may even take measures to blunt competition so that nobody can produce more efficiently than them. (2)

SNLT and Market Socialism

The tools we use to critique capitalism determine how we envision an alternative to capitalism. Models for market socialism that talk of worker-owned cooperatives coordinated by market exchange clearly see that production for the enrichment of the capitalist class must be done away with if we are to overcome capitalism. Yet any society coordinated by market exchange is still disciplined by SNLT.

This means that workers in such a society would still have to discipline their actions to the social average. Cooperatives that worked at under the SNLT would appropriate value in exchange. Cooperatives would compete to modernize their equipment so as to lower the SNLT. And how would co-ops obtain the money to invest in better, labor-saving equipment? They would have to exploit themselves. That is, the more money that workers want to plow back into making their labor competitive, they less they can pay themselves. Not only would the workers be disciplined by SNLT, they would also find themselves disciplined by the need to amass surplus value so as to stay competitive. What happens to the workers in firms driven out of business by the centralization of industries? Where do they get the capital to start new firms? Do they have to sell their labor in the market?

Production of surplus-value for its own sake, fierce competition over super-profits, the disciplining of the labor process to the whims of impersonal market forces… sound familiar? Now perhaps one might be of the opinion that it is impossible to do away with SNLT, with market coordination. If this is the case then our best option is do debate what type of market socialism would be least exploitative, least alienating. But why not challenge ourselves to imagine a world without these things?

A world without What?

This seems to be the big question whenever we critique capitalism. Surely labor will always take time and we must have a way of coordinating labor to produce all of the goods society needs. Surely this labor must not just produce immediate goods but also surplus goods, as well as invest in long-term projects like infrastructure and machines that will make work better in the future. So we can’t say that we want to produce a society without work, without time, without surplus product, or without machines. (4)

What is unique about capitalism is that labor time, surplus and commodities are all measured in value. The types of commodities created, the types of assets the surplus is invested in, and the quality of the life of those who do the labor are not important. What is important is this endless expansion of value for its own sake. This is capital’s defining substance.

But if we are to coordinate human labor, the production of surpluses, innovation, distribution, etc without value production then what other method are we to use? It is not within the scope of this series evaluate different proposals for alternatives for capitalism. But it is the place to talk about how Marx’s analysis of SNLT might help us evaluate these different proposals.

We’ve probably all heard Marx’s famous description of the higher phase of communism: “From each according to his ability, to each according to his need.” Marx didn’t actually come up with this phrase but he quotes it in one his rare commentaries on communism. Here an hour of one person’s work is equal to an hour of anyone else’s, creating a basis for real equality throughout society, regardless of the productive abilities (or privileges) of individuals. In the Critique of the Gotha Program Marx describes the lower phase of communism as a system in which, after an hour of labor, all workers receive a certificate entitling them to a certain amount of consumption goods in proportion to their working time, not their level of productivity. There is no SNLT, and no inequality, because everyone’s work has the same social power. Obviously this is not a robust plan for how a communist society should be run. But it gives us a glimpse into the sort of radical questions we should be asking ourselves when thinking about communism. (5)

Conclusion

Our private labor doesn’t immediately become social. It must become value in order to be social. But in becoming value it is disciplined by socially necessary labor time. SNLT acts as an external force which disciplines our private labor, constantly compelling us to work more efficiently, yet never actually making our work easier or more fulfilling. SNLT creates the possibility for super-profits when one produces under the SNLT, and the search for super-profits drives much of the mad, chaotic development of the productive forces of a capitalist society, generating all sorts of unforeseen consequences.

In a society not producing for competition or capital, but for communal ownership, there would not be a SNLT in this same sense. This means that work would not exist in order to make value. Work would exist in order to both provide use-values for society and to better the life of the worker. In our culture we have an intense fascination with those rare people whose work is fulfilling and challenging. Great musicians, athletes, artists, etc inspire us because these are people whose work has challenged them to become the best possible person they can be. Perhaps in a world without SNLT such an experience of work could become more universal.

Footnotes:
1. Here is another example of the way in which individual value and social value diverge. Many times lay-critics of Marx (like the trolls often found stalking this blog) think they can “disprove” Marx’s theory of value by pointing to instances where the individual value of a commodity (the amount of time an individual put into making it) diverges from its social value. But as we can see such deviations are a central part of Marx’s theory. In fact it is these deviations of individual value from social value that create the dynamism and disequilibrium that Marx was so intent on theorizing. It is important to constantly point this out as many lay objections to Marx’s theory of value come form the misconception that social value and individual value must always coincide.

2. On the other hand, there are counter-acting forces that sometimes exert pressures to decentralize capital. The opening up of new, labor-intensive lines of production is one.

3. From Marx’s Critique of the Gotha Program:
“T]he individual producer receives back from society…exactly what he gives to it…He receives a certificate from society that he has furnished such-and-such an amount of labor…and with this certificate he draws from the social stock of means of consumption as much as the same amount of labor costs. The same amount of labor which he has given to society in one form, he receives back in another.”

4. No doubt many viewers are familiar with the ramblings of the “Zeitgeist Movement”. These folks believe that technology can liberate us from all work, establishing a labor-free, money-free paradise where robots do everything for us. These folks also believe, in some form or another, than the liberating potential of machines is being kept from society by the conspiring powers of bankers and other elites tied to “the money system”. As much as I share their desire for a society with out money, bankers, elites, over-work, etc, I am very critical of many of their explanations of the way capitalism works (they don’t use the word capitalist much actually) and the solutions these critiques point them towards. Chief amongst these complaints of mine is their notion of work. They have essentially projected the capitalist experience of work onto the entire experience of work for all time and space, implying that the universal nature of work is evil, something to be avoided. In contrast Marx sees work as the very substance of society, the thing that binds us together as it shapes our social life. The organization of our work effects how we understand our selves individually and collectively. I think that radicals need to recast the nature of work in a potentially liberating way. Similarly the Zeitgeist folks are entirely saturated by the contradictory experience of machines in a capitalist society. On the one hand machines fascinate us with their amazing, seemingly-liberatory potential. On the other hand the reality of the machine is that it is a tool for control of the labor process at the expense of the worker and that the consequences of technology are often socially, environmentally biologically, and psychologically degrading. The Zeitgeist folks make the assumption, then, that if we just had more machines then the problem would be solved. They share the bourgeois romance of the machine as liberator. Without going into an argument as to the ability of machines to replace all human labor, I would question what we would do without some sort of social labor.  What would be the point of anything? As well, I wonder that if machines could really do everything that people could do, including much of our creative labor as the Zeitgeist folks claim, would they not be conscious entities of some sort capable of refusing work, of withholding labor, of claiming some sort of juridical rights in society? I believe that in posing alternatives to capitalism we should aim to heal the separation of conception and execution in the capitalist labor process, not to carry that separation to a further level of alienation.
5. One of the crucial aspects of such a method of organization is that without productivity-based labor certificates there is no chance of these certificates circulating as money. Indeed this is Marx’s objection to some of the labor-money schemes advanced by his contemporaries. What would keep such labor-notes from circulating as money, merely replicating commodity production? Wouldn’t they just make labor indirectly social again? In Marx’s scheme all labor is directly social and therefore there is no reason to exchange labor notes on any black markets. For more on this point see Andrew Kliman’s “The Transformation of Capitalism into Communism in the Critique of the Gotha Program.”

Suggested readings:
Marx, Proudhon and Alternatives to Capital by Seth Weiss

http://www.marxisthumanistinitiative.org/philosophy-organization/marx-proudhon-and-alternatives-to-capital.html

Limits to Capital by David Harvey – chapter 5 on centralization of capital

Kapital vol 1 Karl Marx, first chapter

Andrew Kliman “The Transformation of Capitalism into Communism”

http://www.marxisthumanistinitiative.org/alternatives-to-capital/what-must-be-changed-in-order-to-transcend-capitalism.html

Law of Value 5: Contradiction

Contradiction and the Law of Value

This video is part of an ongoing series on the Law of Value.

Marx is always talking about contradictions in the law of value. But these aren’t logical contradictions like “round square” or “military intelligence”. They are contradictions inscribed into the very heart of the social relations of a capitalist society. Some prefer to use the word “antagonisms”.

We are all painfully aware that modern society is full of social antagonisms. There’s poverty amidst great wealth, over-work alongside massive unemployment, banks taking away homes, gentrification, racial tensions, violence against women, labor struggles, environmental apartheid, police brutality, gang violence, hate groups, massive dislocations of populations, and lots of war. Marx was interested in explaining all of these antagonisms, but he doesn’t start his analysis with any of them.

Instead he begins with what at first seems a rather innocuous thing: the commodity. Why? Because the commodity is the most elemental piece of the social relations of capitalism. The productive relations between people take the form of commodity exchanges. The commodity is the basic organizer of social relations. So if we want to understand how all of these different social antagonisms relate to one another we need to start with the commodity.

As we’ve already seen, the commodity contains a contradiction: it has a use-value and a value. (As we saw, value lies behind exchange value. So while at first we said the contradiction was between use-value and exchange-value, we later refined this to use-value and value.) At first glance this does not seem all that antagonistic. Yet as we start to look closer we see more significant antagonisms emerge.

Property, exchange and violence

Why is it that people must sell their labor in the market for exchange value, for money?-Because they can’t produce their own means of subsistence for themselves. This is a distinct aspect of a capitalism. In previously existing modes of production the majority of people had use of some sort of means of production for themselves which they used to make most of the things they needed. (Note that I say “had use of” and not “owned”. This is because much of feudal production happen on common land. This collective use of land has been part of many other pre-capitalist societies.) People sometimes bartered for things but they did so by selling part of the surplus they had created for themselves. (Selling off your surplus product is very different than producing exclusively for exchange.) Over the course of a very long, violent, historical process called “Primitive Accumulation” these means of production were privatized and became the possession of a group of people called capitalists. Whereas before people labored directly for their own use, now they have to enter the market in order to attain their subsistence.

So already the fact that we produce for exchange and not directly for use expresses a social antagonism between the propertied and the propertyless. There is an underlying coercion already at work in the “free market”. And this coercion requires some threat of violence to enforce it whether it be a state, private military, or hired thugs. Violence was necessary to privatize the means of production and it remains necessary to enforce all of the legal aspects of property.

Labor Power

In order for people to buy their subsistence in the market they have to sell something else. Since the means of production are privately owned the only thing they have to sell is their labor. But of course labor can’t really be sold. Instead we sell our ability to labor: our labor power. We sell a definite amount of working time, whether it is measured in hours, weeks or years. This is why value is an expression of labor time.

Our own creative working ability, the very thing that makes us human and links us to society, becomes a commodity that we sell to someone else, a commodity called “labor-power”. Labor power, like any other commodity, has a use-value and an exchange-value, and… you guessed it- there is a contradiction between them. The exchange value is the money paid for our working time, the wage. Wages are set by the cost of our subsistence. They depend on the cost of food, housing, clothes, transportation, etc. But the use-value of our labor power is that it can produce value. These are the two opposing sides of labor-power: On one hand it costs a wage, on the other it produces value. This makes it possible to produce more value than we are paid for.

You could be paid $5 an hour yet produce $20 worth of commodity value an hour. (1) If this happened you would be being exploited. In fact your rate of exploitation would be 400%. Exploitation is made possible by the contradiction between the use-value and exchange-value of labor power.

Profit

Exploitation explains a puzzle about capitalism: the existence of profit. Capitalists start off the day with a sum of money which they invest in production. At the end of the day they have a quantity of commodities which they sell for more money than their initial investment. It would seem that they have made a profit just by buying and selling things. Yet profit can’t be made through mere buying and selling. This is because buying and selling is a zero-sum game. When we exchange commodities we are just moving commodities from one place to another. This process does nothing to change the total amount of value in society. Sure it might be possible to rip someone off, to over-charge someone, to charge a monopoly price, etc. But a win for one person in the market is a loss for another. There can be no aggregate profit just be moving commodities around. Yet profit is something that does exist in the aggregate. The total amount of value in society grows each year (GDP) through this expansion of value called profit.

So we seem to have a puzzle, or a contradiction, on our hands. On one hand the market is a realm of equality and symmetry. Market exchange conserves the value of commodities: the total value of commodities is not changed merely by transferring ownership. Any loss by one person is offset with a gain by another so that there is an inherent symmetry to commodity exchange. Yet profit is a phenomenon where value expands through the buying and selling of commodities. Profit is asymmetrical. More comes from less. How is this possible?

To solve this puzzle Marx tells us we must look beyond the market into the mysterious realm of production. It is in production where value is expanded through the exploitation of labor. Exploitation does not break any of the rules of market exchange because it doesn’t happen in exchange. Labor power is bought at its value. The products of that labor are sold at their value. No profit has been made through these exchanges. The profit is not from the market at all but from the labor process. It is the amount of labor preformed over and above the value of wages that determines the amount of profit. While the market remains a realm of equality and symmetry, production is a realm of asymmetry and exploitation. Thus there is a contradiction between production and exchange. And this contradiction is made possible by the contradiction between the use-value and exchange-value of labor power.

Class

This antagonism between the use and exchange value of labor power expresses a social antagonism between capitalists and workers. Capitalists and workers have opposing interests. Workers want their means of subsistence: housing, food, clothes, beer. They want use-values. Capitalists aren’t interested in use-values. They are after exchange-value. They want to expand the size of their capital by making a profit. In order for either class to get what the want they need the other. The workers must sell themselves for a wage in order to survive. The capitalist must hire workers in order to exploit them for profits. Yet despite this codependence their interests are entirely antagonistic. The more the workers are paid in wages the less profit the capitalist makes. The more profit the capitalist makes the more impoverished the working class. (This isn’t because capitalists are bad apples. It’s because they personify the interests of capital.)

Clearly the struggle between capital and labor has always been present in capitalist societies whether it takes the form of day to day struggles over the amount of work we consent to, or long-term battles for better wages and working conditions. But even outside of the workplace the class antagonisms of capitalism are clearly ever-present. The distribution of the value created by the working class into wages, profits, rent, interest and taxes has everything to do with the standard of living we are able to enjoy, the kinds of neighborhoods we live in, the type of life-chances we have, and the quality of our lives. In a society structured to maximize profit for one class rather than produce use-values for social need the quality of our lives is inversely proportional to the needs of capital. In the past 30 years, as neoliberalism broke down barriers to the free flow of capital, massive sums of wealth have been consolidated into the hands of a smaller and smaller class of uber-capitalists, while the standard of living for the rest of the world has steadily worsened.

Society has enough food, housing and technology that the entire world’s population could work a lot less and still have all of the basic amenities of life. (Maybe we couldn’t all have mansions, fancy cars, and all the expensive cocaine we wanted, but we could live comfortable lives.) And they’d probably be more fulfilling if we didn’t spend our whole life working for someone else. But we don’t have such a society because our labor is not aimed at creating use-values for society but at creating profit for capital. The constant revolutions in technology and productivity are not aimed at making work easier or improving the quality of our lives, but in creating more profit by submitting labor to greater control. Thus the workplace becomes increasingly dominated by machines, assembly lines and computers all designed to discipline labor to its task of creating more value.

The Labor Process

As the knowledge of work is removed from the worker it is placed into the machine. The worker loses control over the labor process, becoming just a minor cog in the machine, easily replaceable. Another contradiction is revealed: that between the conception and execution of work. Our own knowledge of the labor process is taken away from us and placed in a machine which dominates us, reducing our work to a job- the carrying out of routine tasks with no meaning to us except that they are a means to a wage. This is a contradiction which fascinates popular culture: man vs. machine. But behind the machine lies a social relation between ourselves and our own creative powers that have been taken from us, alienated from us, standing over us, dominating our work.

Crisis

And with this steady accumulation of capital in the form of machines comes another contradiction, this one between the capital invested in dead labor like machines and raw materials, and the capital invested in living labor. Though an increase in machinery allows capitalists to better exploit workers (and to appropriate value in competition as super-profit) machines can’t create value. As more and more capital is reinvested in machines and raw materials and less and less on labor, the actual value-creating substance of society is crowded out. This is the starting point for Marx’s theory of crisis. As the mass of capital that must be constantly reinvested in expanding production grows it becomes increasingly invested in dead labor rather than living labor. This sets the stage for massive crisis that require the destruction and devaluation of capital in all of its forms.

Conclusion.

All of Marx’s model of a capitalist society is derived from his basic starting point: the analysis of the commodity. From this basic idea of value as the organizing principle of a commodity producing society he establishes the contradiction between the use-value and value of a commodity. And then, over the course of multiple volumes he shows how the unfolding of this contradiction reveals all of these other contradictions: contradictions between classes, between society and itself, between people and machines, and between the conception and execution of work. What begins as a seemingly innocuous distinction between use and exchange becomes the substance of class struggle and crisis.

This doesn’t mean that every problem in society is directly explained by the law of value. Yet, how can we really understand any discussion of inequality without first understanding the way in which social wealth and power is created and distributed? How can we understand violence without understanding the coercive nature of the market, the deep inequalities generated by commodity exchange, and compulsion of capital to accumulate at all costs? How can we discuss a solution to the environmental crisis without discussing the way the productive relations of a capitalist society are organized? The problem with the left is not that there are not enough people who care about these things. It is that not enough people have the theoretical tools to think about these things in terms of the basic structure of our society. That is why the law of value is so important to understand today. If we want to overcome the antagonisms of society we need to understand how these antagonisms are related and to do this we must start at the beginning with an analysis of the commodity.
35:40

Footnotes
1. Of course the price of a commodity is more than just the immediate labor that goes into it. There is also the past labor that went into the raw materials and the instruments of production like machines. The price of the commodity is the sum of the money laid out for dead labor (raw materials, machines and other products of past labor) and living labor (wages for workers) plus the amount of surplus value, unpaid labor, performed by workers.

Law of Value 4: Value

Use-Value, Exchange Value, Value

part 4 of the Law of Value series

This is one of many abandoned houses in my neighborhood. The slumlord owner let the property deteriorate until it became unlivable and doesn’t want to pay the money to make it livable again. There are thousands of abandoned houses in this city, and thousands of homeless people. Despite the urgent social need for houses these properties don’t fulfill a social use. Why not? Because the owners of these commodities are not interested in their use. They are interested in their exchange-value, the rent they receive from the property. For decades they collected rent while the use-value of the house deteriorated. And now these houses sit vacant, a testament to the contradiction between use-value and exchange-value.

This is not a contradiction restricted to housing. Every commodity contains this contradiction because every commodity is produced to be exchanged, not to be used by the producer. We have enough food on the planet to feed everyone, yet millions starve. Why? Because we don’t produce food directly for social need. We make food in order to sell it for money. Society has much of the technological ideas it needs to reduce greenhouse gas emissions, yet it isn’t acting fast enough to apply these ideas. Why? Because production is not undertaken to direct   ly mediate our relation with the environment. We produce for profit.

The exchange of the products of labor in the market is just one of many possible ways that the private labors of billions of individuals can be coordinated. Some people think this is the best possible way to coordinate human productive activity. Marx saw that, despite all of the dynamism and technological wizardry of capitalism, there were fundamental social antagonisms at the heart of this means of coordination… that production for market exchange leads to all sorts of unexpected consequences including gross inequality, exploitation, and crisis. And for Marx all of these social antagonisms can’t be understood until we understand the contradiction within the idea of a commodity itself: the contradiction between use value and exchange value.

Use value vs. exchange value

A commodity has a use. This is its use-value. What does use-value tell us? It tells us how a commodity satisfies a social need. If we want to feed everybody we need a certain quantity of food. If we want to build everyone a house we need a certain quantity of wood and nails. Some use-values require no effort to attain: air, sun, gravity, etc. Others require effort to attain. There is a finite limit to the amount of labor that can be devoted to the production of use-values. Society must apportion this labor between the production of different use-values in some way. As technology changes the amount of labor required to produce some use-values decreases thus signaling a change in the apportioning of labor. As technology evolves to reshape what human labor is capable of producing so do our needs and desires evolve.

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

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

These two sides of the commodity, its use-value and exchange value, form two opposing, contradictory poles.  Much of the social antagonisms of capitalism are rooted in this tension between use-value and exchange value. Of course, most of the time when we look at a commodity it doesn’t seem very antagonistic. This is because the antagonistic social relations behind the commodity are not visible. But when we look at a society organized around commodity exchange we can see lots of social antagonisms.  To understand how these social antagonisms spring from the opposition of use-value and exchange-value we will need to take a closer look at both…

You can’t use it AND exchange it!

If I am selling a tomato this tomato has no use-value at all for me. Its use-value only exists for the person that buys it. I am only interested in the exchange-value, how much money I can get for it. Production in a capitalist society is not production for use, but for exchange. This means that we have no inherent interest in the usefulness of our labor outside of its ability to create exchange-value. Now, from a social perspective, it is very important what kind of labor we do: Do we make bombs or flowers? Oil or cupcakes? But as individuals we have no stake in this. We produce in order make money, to get exchange value.

Why do people produce for exchange and not for their own use? Because in a capitalist society the working class does not own the means of producing their own subsistence. The only way for working people to get the necessities of life is buy them in the market. And the only way to do this is to sell our labor to a capitalist for a wage. We spend our whole life making a profit for an employer so that we can spend this wage in the market to obtain our daily bread. Our job is not a means toward personal satisfaction. Our job is a means of making money so that we can buy our satisfaction in the market.

Bourgeois subjective value theory talks about a “double-inequality of exchange.” It says that the only reason exchange happens is that two people value the other person’s product more than the product they are giving up. Marx actually goes even further than this. He says that to the seller the commodity has no use-value at all, other than the fact that it can be exchanged.

Not only does this bourgeois theory of “double-inequality of exchange” give the mistaken impression that people produce for their own wants and then sell off the surplus in the market, but it also imposes the profit-maximizing logic of the capitalist onto the consumer. By claiming that consumers make a subjective profit from exchange it transposes the real, objective profit of a capitalist who pays his workers one sum of money and sells the products of their labor for a greater sum of money, onto a completely intangible and unquantifiable notion of subjective profit. But subjective preferences for commodities can’t be measured, divided, added to, or compared in a numerical fashion. By imposing the logic of capital onto consumers it effectively erases class from the scope of its analysis.

The mystery of exchange value…

One book=  1 car. What does that mean? What does it mean to say something is worth so much of something else?
Some people think that the usefulness of a commodity can answer this. But uses of things can’t be compared. You read books. You drive cars. They are two totally unrelated and incomparable uses. Maybe you like books more than cars. Does this mean that books are worth more than cars? (1)

What does it mean to say a book is worth so many jars of peanut butter, or so many cups of coffee? Clearly jars of peanut butter or cups of coffee are measuring something. And clearly any other commodity could be used to measure this something. A book could be worth so many pencils, so many kittens, so many tires… And each of these exchange values would be a different way of measuring the value of the book.

But this means that the book has a value independent of the particular commodity that we choose to measure it with. Whether we measure the book’s value in beers, beans or kittens it stays the same. Yet we can’t see this value. We only see the specific exchange ratios of the book as it is exchanged with other commodities. [The only thing that changes is the "form of appearance" of this value- the particular manifestation of this value.] But isn’t this what exchange value really is- the comparison of the value of one commodity with the value of another? These exchange-values only make sense, only work, because there is something called value that is being measured by them. Exchange value necessarily implies the presence of an underlying value. Marx uses the term “intrinsic value”. By this he doesn’t mean that value lies buried within the commodity, or that it is magically bestowed upon the commodity, but that it is impossible to compare commodities to each other in the market without a commodity having its own value. But what is this value?

What is the 3rd thing?

We have seen that exchange value implies that commodities have an intrinsic value expressed in different exchange ratios. This value is not use-value or exchange-value but a 3rd thing. What is this value? Where does it come from?

I know you are in a lot of suspense so I’ll just come right out and say it: Marx argues that it is the labor time that society devotes to the production of these commodities that accounts for this underlying value. Commodities that take more labor to create have more value than ones that take less labor. As labor becomes more productive, as it becomes easier to produce things, their value falls. But what is Marx’s justification for choosing labor as this 3rd thing?

Marx’s critic Bohm-Bawerk pointed out that there are lots of properties that are common to all commodities: Marx could just as easily have said scarcity or utility were this third thing. This, of course, is the approach taken by marginal utility theory which argues that it is our subjective desires for commodities in relation to their scarcity that determines their value. Why is it that Marx doesn’t take this route?

For one, scarcity and utility cannot be understood without reference to labor. The amount of a commodity that exists at any point in time is clearly related to the amount of labor that has been devoted to producing that commodity. And utility isn’t just some abstract, individual substance detached from the labor process. Subjective desire only counts economically when it is turned into real action, when we buy things in the market. The only way to enter the market as a purchaser is to also enter it as a seller. We must sell the products of our labor and then use this money to buy the commodities we desire. (More specifically, workers sell their ability to work, their labor power, to an employer. The employer sells the product of that labor in the market. Workers receive a part of this value in the form of a wage.) The only means of attaining our desires is the buying and selling of the products of labor. Not only does capitalism shape our desires, it determines how we go about attaining our desires.

But there is an even more important reason why Marx doesn’t choose scarcity and utility as the determinants of this underlying value. Utility and scarcity both describe the relation between individuals and objects. Marx is interested in the relations between people. If we think back to Marx’s argument about commodity fetishism we will remember that in a capitalist society the relations between people take the form of relations between things. Objects appear to have power and value, on their own. But this wold of appearance is not the full story. These value relations between commodities are actually relations between people whose work is coordinated indirectly through commodity exchange.

And this is where any social theory must begin: with a study of the productive activity of people as they work to create the world  they live in. Not only is this the best starting place for an analysis of society, it is also the best starting point for a radical social theory whose aim is to investigate the possibility of changing the world. If we realize that human society is not the result of some natural or divine eternal logic but merely the creation of our own labor then that means that we have the power to mold and shape that society as we see fit. In a capitalist society these creative powers take the form of an external world of value and capital that acts back upon society, shaping it against the will of its creators. Yet, in the end the world of capital is nothing but the product of our own creation. If we truly want to change the world it is not up to nature, God, fate or experts, but up to us. This is the radical challenge of the law of value.

Let’s review and clarify:

1. The usefulness of a commodity is its use-value. Uses can’t be quantitatively compared.
2. The exchange-value of a commodity is the proportions at which it exchanges with other commodities.
3. Price is a specific type of exchange-value, the ratio at which a commodity exchanges with money.
4. The fact that commodities measure their worth against each other implies that they have an intrinsic value.
5. This intrinsic value is not a physical thing, nor is it magically bestowed upon commodities. It is not a timeless trait existing for all products of labor everywhere. Value, in the way Marx uses the term, is the means by which the labors of isolated producers are coordinated through commodity exchange. It is the social substance the binds together the labors of isolated, disparate individuals separated through the market.

Price and Value (a brief distinction)

We notice then that value and price are not the same thing. The value of a sandwich may be 1 hour of labor. Yet we don’t see this 1 hour when we buy a sandwich. All we see is its price. Prices are just the exchange value of commodities measured in money. The only way we see value is indirectly through these quantitative relations between commodities. Though value and price are indirectly linked, their connection is still strong. If demand rises suddenly causing the price of sandwiches to rise this will trigger an inflow of sandwich-making labor to meet demand. And once demand and supply have balanced, price falls back down to meet value. If the productivity of sandwich-making rises the time it takes to make a sandwich falls. The supply rises and the price falls. Prices and values fluctuate around each other, constantly codetermining each other.

Conclusion

The last thing we should note is that this concept of value is historically specific. Unlike bourgeois economic theory which projects its categories of utility and capital back in time to make all of history retroactively bend to the laws of capitalism, Marx’s theory of value describes a specific type of social organization unique to a society in which the dominant form of production is production for market exchange. When we don’t produce directly for use, but for exchange, we find that our productive activity is regulated by unconscious economic laws which Marx calls the “law of value”. Whereas before we said there was an antagonism between use-value and exchange-value we can now say that this is really an antagonism between use-value and value (since exchange value is an expression of value). As long as production is production to produce values instead of uses we will have to deal with the social antagonisms that spring from this contradiction: The logic of profit will dominate over society rather than the logic of usefulness. And the nature of work will be to maximize profit at all cost rather than to maximize the quality of the experience of work or of the life of the worker.

Footnotes:

1. There have been attempts by neoclassical economists to reduce the usefulness of commodities to some common substance. Since there is no common substance that makes up usefulness they have to make up an imaginary substance called “utles”. These economists actually say things like, “A cup of coffee has 13 utles and a car has 3000 utles of utility”. But such attempts to invent imaginary substances with which to reduce utility to are generally thought to be pretty silly and misguided. In neo-classical economics this concept has been mostly replaced by the concept of rank preferences, or graded utility: A consumer has a ranking of demand preferences but these can’t be reduced to some common scale. In this way the question of value, in the sense that a commodity has a definite amount of value as determined by subjective social demand, is mostly abandoned: Commodities don’t have values, but consumers have preference rankings and these preference rankings result in prices. This approach conveniently eliminates many of the theoretical problems with earlier marginal utility theory (namely the unquantifiable nature of subjective utility), yet it has an inherent circularity: consumer preferences are not formed in a vacuum. They are formed on the basis of preexisting exchange ratios. As the prices of commodities change so do the preference rankings of commodities. So commodity prices must first be assumed in for marginalists to theorize the subjective processes of price formation. This is circular. The pink elephant in the room is the productivity of labor. As this productivity changes so do prices. There are a host of other criticisms lodged at Marginalism by Marxists. Perhaps sometime in the future I can write/produce more on the topic.

Commodities- remix

Commodities (remix)

part one:

part two:

Let’s talk about people.

When we talk about people as individuals we are talking about biology, neuroscience, physiology, etc. We are talking about respiratory systems, circulatory systems, nervous systems, brain waves- in short we are studying the relationships between the different parts that make up a whole- a whole called “the person”.

When we talk about people in groups we are talking about sociology, economics, politics, religion, philosophy. We are talking about families, classes, rulers and ruled- in short we are studying the relations between individuals that make up a whole- a whole called “a society”.

So if we are going to understand anything about societies we first need to understand some basic things about relationships. Some of what I’m about to tell you about relationships will sound obvious at first but we will soon move from the obvious to the mysterious, so bear with me.

Let’s begin by looking at a relationship that is fundamental to the human condition, a relationship that we all have- that between mother and child.

The first thing we might notice about this is that a mother can’t be a mother without a child and a child can’t be a child without a mother. Each requires the other in order to have their identity. So the relationship is mutually dependent.

Here’s another obvious point: A mother can’t be her own mother and a chid can’t be her own child. Obviously a mother is someone else’s child, but she can’t be her own child. When she stands on the mother side of the relation “mother-child” she is only the mother, not both. So the two sides of this relation are exclusive, opposites. They express their identity through their relation to their opposite. We might call this an “identity of opposites”.

The mother-child relationship is an abstract one. In concrete reality it takes the form of the relation between Tanya and Jermaine, Sarah and Riley, or Martha and Brendan. But despite all of the variations in the way mothers and children can appear, there are certain universal traits that transcend all these specific differences. These universal traits cannot be changed by the individual subjective manifestations of mothers and children. At the same time, this abstract relation doesn’t have a pure form divorced from its concrete manifestation. The mother-child relation has to be expressed through Tanyas and Jermaines, Sarahs and Rileys. Through a mother’s relation with her child she knows something about all children everywhere. Through the child’s relationship with its mother it knows something about all mothers everywhere. Through a concrete relation we learn about the abstract.

So in the same way that we draw an equation that says “mother-child” and discuss the identity of opposites in this equation we might also make another equation that says “abstract-concrete” and discuss this relation. All relations are both concrete and abstract at the same time. The concrete world is the everyday world of infinite variation. But all of these variations are just improvisations upon a basic abstract form- a universal relation standing behind the concrete. But abstractions cannot exist by themselves. They must express themselves in the concrete.

When we study relations we are looking to explain two things: What is this universal abstract form? And what is the relation between this form and the concrete appearances it takes?

breathe

Throwing Spears

There are a lot of relationships that make up a society. When we study economics we are studying the way people relate to each other as laborers in order to create and distribute all of the goods we consume. In different places and different times this relationship has been quite different. But in all societies there have been two main relations: the relation of the individual laborer to a larger group, and the relation of different groups to each other.

In early hunter-gatherer societies work was divided between two different groups, hunters and gatherers. Men went out and hunted. Women went out and gathered. How did the two groups relate to each other?  Each group made half of the social product and therefore, neither half could exist without the other half. At the end of the day they met and shared the products of their work.  It was only in this sharing between the hunters and the gatherers that each separate group expressed its true identity. How did hunters know they were hunters? Because they weren’t gatherers. How did gatherers know they were gatherers? Because they weren’t hunters.

How did individual hunters relate to their group? -by throwing spears at antelopes, along with all the other hunters. They coordinated their activity collectively to create the hunter’s half of the “social product”. In other words, the individual hunter was just the concrete manifestation of an abstract group called “hunters”. [Without individuals there could be no group. But without a particular hunter, Joe or Ug, there could still be a group.] How did Joe or Ug understand what it meant to be a hunter? In their relation to another hunter they understood something about all hunters: that hunters throw spears at antelopes. [If joe just threw spears at antelopes by himself he would think, "I am a guy that throws spears at antelopes." But when he looks over his spear and sees all the other guys doing the same thing that he is doing he says, "I am a hunter." ] Through the relation between two concrete things, we find the abstract.

Kings and Peasants

In feudal society the two main groups were landowners and serfs. Serfs made most of the social product. Landowners took some of that product even though they hadn’t created it. Unlike the hunter-gatherers, the landowners didn’t offer anything in return. It wasn’t sharing. It was appropriation. The landlords got away with this because they owned all the land. There were other groups too: In order for the landowners to extract their taxes from the serfs they needed a class of knights to poke the peasants with swords if they didn’t work on the landowner estate and a class of priests to tell people God wanted them to work for the landlord. That’s how the groups related to each other.

Within the serf class, how did individuals relate to each other? Serfs worked together on the landlord’s land, and they worked in smaller family groups on their own land. Through their work with each other they identified themselves as part of an abstract class called “serfs.”

Capitalism

In a capitalist society there are two groups: Capitalists and Workers. Workers create the social product. Capitalists take some of this product without offering any social product back to the workers in exchange. Like the landlords, they get away with this because they own the factories.

How do the two groups relate to each other? The workers go to the factory and work for the capitalist. At the end of the day they don’t get a portion of the social product they created. They get wages. They take these wages to the store and buy back the products they created. So the two groups relate to each other through the buying and selling of commodities. The capitalists buy a commodity called “labor power” and the workers buy commodities called “consumer goods.”

How do individual workers relate to each other? Within a company workers cooperate together to create a commodity. But the social product is made of of billions of different commodities made by workers all over the world. These workers all relate to each other through the buying and selling of commodities. They never see each other, they never speak to each other. The social relations between people become “material relations between people and social relations between things.

This is why commodities are so important to the study of economics. Commodities are social relations. When we buy a commodity we are interacting with millions of other people. This doesn’t happen when we use a commodity. When we use a commodity it is just an interaction with ourselves and the commodity. But when we buy a commodity we are exchanging money representing our own labor (for which we were paid in wages) with the labor of another group of people. But we don’t see these relations. We just see ourselves and the commodity we are interacting with. Thus, the process of exchange in a capitalist society obscures the social relations behind this exchange. When a hunter looked at another hunter he understood his identity as part of a group through this relation. Workers don’t see other workers. They just see commodities. This means that the most important questions of economics- the relations between groups, and the relations of individuals to these groups- are obscured in a capitalist society. They are a mystery.

To unravel this mystery we must look closely at the relations between commodities themselves.

Alienation

Count how many people you interacted with today. Now think about how many commodities you interacted with. Most likely the commodities outnumbered the people tenfold. We wear commodities, eat commodities, drive, sleep and walk in commodities. They dominate our visual space and our thoughts, yet we never ponder where they came from or what abstractions they may represent.

Because our social relations are obscured by commodities they take on a power over us. Instead of needing a coercive army of knights like a feudal landlord, commodities themselves compel us to do things. The need for commodities compels us to work for someone else for a living. The profit we create for capitalists compels them to compete and exploit for a living. “The hidden hand of the market” is the coercive nature of capitalist social relations exercised through the faceless, inanimate form of commodities.

In a capitalist society we often have the feeling that our lives are out of control, dominated by impersonal forces we never really see. But actually those forces are all around for us to see: they are commodities. Through these commodities we can see the abstraction that is the social relations of capitalism. If we looked closely we would see that those commodities are just products of work that we ourselves, as workers, did- that is, we are being dominated by ourselves. This is what it means to talk about alienation in a capitalist society.

[The ultimate goal of those who oppose capitalism- be they anarchists, socialists, communists, etc.-is to replace this alienation with empowerment where people live in a world of their own choosing- not the choosing of blind forces.]

Value

When you eat a potato you are having a relation between yourself and a potato. This is not a very interesting or mysterious relation to discuss: you like potatoes, you eat them, your stomach gets full.

But when you buy a potato you are expressing a very mysterious relation. You are trading money paid to you in wages for your labor in exchange for a commodity made by another worker somewhere in Idaho. When the two things meet in the market place and are exchanged for one another this implies some sort of equivalence. (They must be equal to each other in some way.) A pack of cigarettes equals two hot dogs. A pair of shoes equals three shirts. If we follow along with this process (pack of cigarettes= 2 hot dogs= 1 shirt= loaf of bread= 2 cups of coffee=etc.) we could create an infinite string of relations all expressing the value of commodities in their relationship to one another. This means that there must be some “value” behind commodities- they all must express varying amounts of some common substance.

But what could this common substance be? Smell? Taste? Weight? Bourgeois economists say “use”. But how can use be the substance behind value? Use is just a private experience between oneself and a commodity. It doesn’t tell us about the relations between people. It doesn’t tell us about the way commodities relate to each other.

For a worker, the commodity has no use at all except to be exchanged for a commodity they do need. Thus they produce the commodity not for its “use value”, but for its “exchange value.” Just like the hunter-gatherers who worked with the intent of sharing their labor with the other half of the group, our private concrete labor implies a wider social relationship. Because the hunter-gatherers worked with the intent of sharing their labor with everyone there was no need for a concept of value: There was no exchange, just sharing. In a capitalist society where our labor is coordinated via exchange we need some way of determining the value of the things we exchange so that we know how much labor to devote to what activities.

Now the mystery is already solved… the hidden substance behind value is labor itself. It is human labor, in the abstract, that gives a commodity its exchange value. This idea, that labor is the substance of value is called “The Labor Theory of Value.” It is one of the oldest ideas in the history of economics.

There are just two puzzles left to unravel before we have a complete picture of commodities and their values. They both involve the relationship of the individual laborer to the group, of the concrete to the abstract.

Human labor is diverse. Some people dig ditches. Others give haircuts or serve coffee. How can we reduce all of this concrete work to some abstract notion of value? We do this in the same way that any relation between concrete and abstract proceeds- by identifying what is universal about a relationship. Because the abstraction doesn’t exist by itself, because it must be expressed through the world of the concrete, we must look at specific relations to discover what is universal about the relation.

When we equate digging ditches with serving coffee what is being equated? The only thing that both activities have in common is that they are both expenditures of human labor. Thus the process of exchanging commodities abstracts from the specifics of an individual’s labor and gives it a value only to the extent that it relates to the total labor of the group. Value then, represents abstract labor. As individuals we perform concrete labor. But when we exchange the commodities we produce we are expressing the abstract quality of this labor.

How is this labor measured? Since the specific type of labor doesn’t matter, the only other way we have of measuring labor is through time and intensity. The more time and intensity expended, the more value is created.

In a capitalist society, capitalists are under a lot of pressure to get their workers to be as productive as possible. They try to get the most work out of their workers per hour of work. Thus, the amount of intensity of labor tends toward a social average. Thus the amount of time becomes the primary determinate of value. Commodities that take a large amount of labor to produce (cars) cost a lot more than commodities that take very little time to make (potatoes). Thus, we measure value in labor time.

But what if I take a really long time to make cup of coffee? Does that mean that that cup of coffee is worth more than someone who works more productively at making coffee? No, of course not! The value of a commodity is equal to its “socially necessary labor time”. Because a capitalist society operates under a system of free exchange, people will buy commodities from whomever can make the commodity the cheapest- the most efficiently. This encourages all producers to produce at the same level of efficiency. This average level of efficiency is the “socially necessary labor time”. Even if I take a really long time to make a cup of coffee I still have to sell it at the socially necessary labor time!

We can combine these two terms to say that the value of a commodity is equal to its “socially necessary abstract labor time.” This is a very clear expression of the way the individual relates to the group in a capitalist society. The labor that you as an individual do only has value to the extent that it is part of a larger project of value creation being carried out all over the world by workers everywhere. Like all societies before, the work we do in creating the social product is what unites us as people. It is the foundation of our economic relationships. But unlike other societies, the process of commodity exchange obscures these relations from us. We experience our relationship as workers as a relationship between ourselves and commodities.

What of our relations between groups- between capitalists and workers? This too is obscured through exchange.

In previous societies, when a dominating class appropriated the labor of another class it was easy to see. In feudalism the serfs worked part of the week on the landlord’s land and part of the week on their own land. It was clear that they were giving part of their labor to an exploiting class without being compensated. It was clear that they were only doing this because knights would poke them with spears if they didn’t. In a capitalist society we work the whole week in a capitalist’s factory/workplace and at the end of the week we receive wages. At the end of the week the capitalist has commodities of a greater value than those wages. Profit is the difference between the value workers create for a capitalist and the amount of wages they are paid for that value. But this is much harder to see because of the way in which exchange obscures this process. Exchange makes it appear that profit is something that a capitalists receives through exchange itself, instead of through some domination in the workplace.

If we were to accept this world of appearance and not look behind it to discover the abstract social relations behind it then we could accept the claims of bourgeois economics that capitalism is a system of personal freedoms in which individuals choose which commodities they want to interact with; that because an individual worker chooses which individual capitalist they want to work for, there is no need to look behind this concrete relation to find any abstract form behind it like class. By treating the subjective experience of our relations with commodities as the only relevant perspective bourgeois economics is able to avoid addressing the coercive social relations which lay behind our concrete subjective experiences.

But a useful perspective should take the opposite approach- always asking what concrete experience tells us about the social relations behind it. This is how we should approach an understanding of commodities.