Marx tells us that the confusion about money will disappear once we look at the evolution of money. Does he mean the historical evolution or a logical evolution? Marx says that it is crucial to understand the particular forms of Money and their interrelations. This is difficult because all bourgeois relations are money relations. In order to get to the heart of money, and its relation to the mode of production, Marx will only deal, in this book, with the forms of money that arise directly from commodity production. He will not deal with credit money. This is also his approach in Capital.
1. Measure of Value.
Gold becomes the measure of value because all commodities measure their value in gold. These exchange values with gold are prices. Price is the form of appearance of exchange value in circulation. There is an equalization between the labor in gold and the labor in all other commodities. Of course, like any other commodity, the labor that goes into gold can vary with changes in the productivity of gold producers.
Prices are commodities transformed into gold in imagination. Prices measure the abstract labor contained in commodities, while their use-values correspond to the specific concrete labors that formed them.
The difference between exchange value and price (notice he doesn’t say “value and exchange value”… though I assume this is what he means) is super-important. This is the kernel of the storms that rock capitalist production… the source of uncertainty and crisis. Whether or not exchange value equals price is a matter of chance. The flip side of the necessity for alienating the commodity from the worker is the possibility of the non-alienation of the commodity.
Standard of price: The standard of price is the particular unit of gold that is used to measure value. Measure of value and standard of price are not the same!!! The measure of value is a measure of the abstract labor time contained in a commodity. The standard of price is a unit of weight (pound, etc.). It is similar to the difference between distance and a foot. A foot is a unit of measurement. Distance is the thing to be measured in feet.
Historically there was a process by which the same unit of measurement (the pound for instance) came to represent a smaller and smaller amount of gold. This seems insane but it happened all the time. A piece of gold was stamped as a pound. In circulation it lost some of its weight (through people shaving off parts and through wear and tear.) Now we see the importance of the state in establishing the value of the money of account. Money of account is the specific legal unit of account (pound, franc, etc.)
In order for money of account to exist, gold only needs to exist in the mind. Tokens of the money of account can circulate.
Now’s the part that fucks up your brain: The mint price of gold is the price of gold measured in the unit of account. But money has no price!
B. Theories of the unit of measure of Money
The purpose of this section is to critique previous theories of the unit of measure. Marx makes important points about the logical and practical relation between the unit of measure and the measure of value. He also discusses the problem with utopian labor-money schemes.
Marx first begins with the theory of the ideal unit of measure of money. This theory holds that since the unit names of money (pound, dollar, franc, etc.) are what is used to measure value that these units don’t represent quantities of gold, but instead directly measure ideal “atoms” of value. Thus value seems to have an abstract, independent, ideal form. (But this is impossible since we only can see value through exchange value. Value does have some independent abstract essence to measure without reference to an exchange value.)
Marx’s critique might seem like a nitpicky one but he immediately moves to a real-world example. During the reign of England’s William III silver coins were becoming debased. This meant that the market price for silver rose above its mint price. Why? The mint price is the amount of silver a coin says it represents. The market price is the actual amount of coins one receives for selling an ounce of silver bullion. Since the coins were debased it took more coins to buy an ounce of silver. In Marx’s example an ounce of silver bullion was minted into 5s 2d (5 shillings 2 pennies) but after debasement an ounce of silver bullion could be sold for 6s 3d! Eventually there was a re-coining of silver coins so that each silver coin was worth less silver than originally.
Now comes the interesting part: Lowndes, Biritish secretary to the treasury, declared that the reason for the rise in market price above mint price was not the debasement of the currency. Rather the rise in market price was a sign that silver had become more valuable (because it was measured in more units of the unit of measure!) The unit of measure represented ideal atoms of value and hence the rise in market price could only mean a rise in value! The upshot os this bullshit theory was that the British state could argue that it should pay back its debts in devalued currency!
This sort of problematic thinking directly relates to questions of inconvertible paper money. Marx says that regardless of civil law, the economic law is that paper gets its value from gold. Or, perhaps to put it better, paper’s ability to measure value is derived from gold’s place as a measure of value. The theorists of inconvertible paper money, Marx says, take refuge in this notion of an ‘ideal unit of measure’, as if worthless scraps of paper can represent ideal atoms of value directly, without measuring value through commodity exchange.
The same problem applies to Gray’s utopian labor money schemes. Gray advocated a system whereby all inequalities in exchange could be eliminated through a system whereby each commodity was automatically stamped with a price directly corresponding to the labor that went into it. Gray thought that the labor in all commodities could be directly social, without having to move through the process of exchanging against a money commodity, and all of the divergences of price and value and corresponding adjustments that take place in capitalism. Marx critiques this idea at length in other places, but here he points out that labor will not become directly social just because a bank or state declares it. The indirectly social nature of capitalist labor comes from commodity production not from a problem with the measure of value. If labor were directly social then there would be no need for gold or commodity production. But this is not the society that Gray is imagining.
I recently had the privileged to appear on Tom O-Brien’s excellent podcast Alpha2Omega. We discuss, among other things, the Occupy movement, Marx’s critique of labor-money. The interview can be heard below. Alpha2Omega is a really excellent podcast. Tom has really top-notch guests on each week, he asks excellent questions, and does a great job of editing the interviews. I don’t feel like I was able to be as spontaneously articulate as I’d have liked to have been during our interview but so it goes.
It’s a great paper. I’ve referenced it several times on this blog.
Also, listeners interested in thinking more about ‘socialist labor vouchers’ should know that there is currently a heated debate happening on the topic on Libcom. I have not had time to read through it all but it looks like a spirited and sophisticated discussion. Here is a recent summary and response to that discussion.
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.
[This is video 10 in my ongoing Law of Value series. It's a controversial topic... so, let's see what folks think of my attempt...]
Here’s a yo-yo. Let’s say it took an hour to make, parts and everything. And here’s a bag of high-fructose jelly beans. Let’s say they took 20 minutes to make. What if they both sold for $5, despite having different labor contents? Wouldn’t this be a big problem for Marx’s value theory?
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. Ack! Is this non-identity of value and price the end of Marx and the end of all radical politics?
I hope not. After all, the reason we have two concepts, value and price, is because they are not the same. It is the relation between them that counts. 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 already knew all of these things then there would be no need to have value or price or even a market for that matter. We could just plan everything on a computer.
But we don’t have a planned economy. How many yo-yos and jelly beans should society produce? How much of society’s labor time should go in to each? Nobody knows! And when the capitalist buys plastic and string and hires yo-yo makers she doesn’t know how much profit she’ll make. And when we go to the store we can’t see how much work went into our yo-yos and jelly beans! 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 mean that Joe Shmoe on the jellybean assembly line is pushed to work at the average level of productivity. On the shop floor he is pushed by the speed of the machine and his boss. But the machine and his boss are being pushed by competition in the market to lower the Socially Necessary Labor Time it takes to make jellybeans. (see my video ‘Socially Necessary Labor Time’)
When we say that labor is ‘apportioned’ we are talking about how many people work at the jelly bean factory and how many work at the yo-yo factory, and so on. In other words, we are talking about the division of labor.
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 (see my video Production and Exchange). 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 this almost everything else falls into place. Value is created in production by human labor. It takes the form of commodities with definite values. Commodities 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 and Money
Yo-yo’s don’t walk around with “1 hour of labor” written all over them. We only know the social value of a Yo-Yo through its money price. This is what we mean when we say that price is the ‘form of appearance’ of value. It is the visible, tangible form that value takes in the world. 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. Thus price is a very special type of exchange value. Prices represent values in the abstract. They are measures 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.
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.
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 supply 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.
In the case of a monopoly or oligopoly supply is kept artificially low so that prices rise and the monopolists get extra profit.
If the supply and demand of yo-yos, jellybeans and all other commodities magically balanced, then prices would equal values. (That is, if we are abstracting from prices of production.) But if this was the case we wouldn’t have much need for price. We’d automatically know how much labor input went into anything we demanded and we could just organize everything on a computer without a market.
Side Note on Marx’s Method
Sometimes people think that profit comes from unequal exchange. This can be true for individuals but not for society as a whole because value cannot be created in exchange. One person’s loss is another’s gain. In order for there to be an aggregate increase in society’s profit there must be exploitation of workers for surplus value. In order to not confuse the individual profits than can occur from unequal exchange with the surplus value generate from exploiting workers Marx often suggests that we imagine that values=prices. This allows us to more easily see the origin of surplus value.
This does not mean that Marx actually thinks that prices always equal value, or even that they gravitate toward that state over the long run. In fact he says just the opposite: that demand and supply rarely meet and that prices and values are rarely the same.
Marx’s argument about surplus value, and all of his other conclusions as well, are totally valid whether or not values equal price. Sometimes people think that by pointing to value-price divergences they have somehow undermined the theory of surplus value. This is an error.
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.
Component Parts of Value
I haven’t been to a yo-yo factory but I picture an assembly line of people wrapping string around yo-yos. There’s probably another room where plastic gets poured into molds. But this isn’t all of the labor that goes into a yo-yo. Before any of this labor can commence materials much be purchased: string, plastic, molds, paint. And all of those inputs come from past labor processes elsewhere in the world. Every labor process has new active labor, which Marx calls “living labor”, and inputs from past labor, which Marx calls “dead labor”.
Dead labor cannot create value. The cost of purchasing inputs like string and plastic is passed onto the output prices of yo-yos, but no new value comes from this labor because it is already done laboring!
Living labor creates the new value. The worker creates the value of their wage so that the capitalist makes back their investment. The worker also performs surplus labor for the capitalist. This is surplus value.
At the beginning of the day the capitalist lays out money for inputs and wages. This is her cost of production. If she wants to continue to make yo-yos tomorrow she will need to make back enough money to buy inputs and wages tomorrow. Thus prices are inherently tied to the need for the system to reproduce itself. She also needs an incentive to invest: this is profit. Thus prices are inherently tied to the need for the capital to exploit labor.
The capitalist doesn’t lay out anything for surplus value. This she acquires from the worker for free. That’s why it’s called exploitation. But the profit capitalists get from selling their commodities is not always equal to the surplus value they produce. If the price of yo-yos rise above their value then when they are sold the capitalist’s profit is higher than the surplus value contained in the product! Surplus value has been transferred in exchange.
I started by saying that price and value were not equal because they were different concepts. Now we can add that surplus value and profit are not always equal because they represent different concepts as well. Surplus value can only be created in production but it can be redistributed in exchange.
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. They are a necessary part of capitalist competition.
Prices of Production
Now if you really want to talk about surplus value being redistributed in exchange then you have to talk about Prices of Production.
It starts with a puzzle:
Let’s say jellybeans take just a tiny bit of living labor compared to all the dead labor that goes into the inputs. You basically buy a lot of sugar, corn syrup and die, and and then you hire someone to push some buttons in factory while machines turn that sugar into bean shaped sugar. But let’s say that yo-yos take a lot more labor in comparison. You buy some plastic and string and then you have to hire people to make plastic molds, paint the yo-yos, and then let’s not forget how long it takes to wind up a yo-yo…. So the two industries have different proportions of living to dead labor.
Since the yo-yo factory has a higher proportion of living labor we can assume (assuming equal rates of exploitation) that the yo-yo factory must produce more surplus value than the jellybean factory. More workers means more value means more surplus value. We’d expect the yo-yo factory to be more profitable.
But there’s also this phenomenon called Average Profits.This is where the puzzle comes in. 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. Jellybean makers start to invest in the yo-yo industry, cutting into their profit margins. Capital flows from one industry to the other. Supply and demand change. Prices change. Eventually, assuming the free flow of capital, jellybean makers and yo-yo makers enjoy the same rate of profit.
Now you see the puzzle. One industry produces more surplus value than the other, but they have the same rate of profit. HOW CAN THIS BE?
If we remember that value cannot be created in exchange, and that surplus value cannot be created in exchange, then we can easily solve the puzzle. First we note the following two principles:
1. Total prices equal total values.
2. Total surplus value equals total profit.
And the answer to our riddle is this: Surplus value is redistributed between capitalists to form an average rate of profit. That should seem simple enough since we’ve already discussed the redistribution of value in exchange.
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 rise, 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”.
Prices of production systematically deviate from values yet they are directly related to values. The total level of surplus value created determines the amount of value that can be redistributed to form these new prices of production. In addition, the tendency towards an average rate of profit is merely a tendency. Just as supply and demand fluctuate, never balancing, so do profit rates.
Another note on method.
So we see several different factors to keep in mind when discussing price.
If there is no equalization of profit rates and demand and supply are in balance then we can say that price=value.
If we assume a perfect equalization of profit rates and supply and demand are in balance then we can say that price=prices of production.
If we then let supply and demand fluctuate around these prices of production we get market prices.
Sometimes Marx just talks about value, sometime he talks about prices of production, and sometimes he talks about market price. These are three different levels of abstraction. Many mistakes have been make by people not paying attention to what level of abstraction is currently being discussed. Bohm-Bawerk, for instance, complained that in one place Marx said that value=price but in another place said that prices of production=price. He thought Marx was contradicting himself. But had Bohm-Bawerk been interested in actually reading Max a little more closely he might have realized that Marx’s analysis takes place on many levels of abstraction and that we must keep these levels in mind at all times if we want to understand what is going on.
We should also keep in mind that Marx’s central conclusions about exploitation, crisis and all of the other antagonisms of a capitalist society still hold whether we are talking about value, price of production or market price. Regardless of the level of abstraction, value cannot be created in exchange, and surplus value can only come from the exploitation of the working class.
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. There is definitely a lot more to say on the topic, and a number of controversies to examine. On my WordPress blog you can find footnotes and references pointing you to more information and resources on this topic.
And now we can see how radically different Marx’s theory of price is from his Neoclassical critics. For neoclassical economics price is a reflection of equilibrium, of a state rest where all utilities are maximized. For Marx price formation is a ceaseless process of fluctuation that is part of a much larger process of value formation and distribution as capitalists compete to exploit workers better than their competitors, thus constantly revolutionizing the technological basis of society.
From Marx’s theory of price we can immediately move to a theory of capitalist crisis. Because the tendency toward an average profit rate redistributes value between industries there is no way to keep firms from investing more and more in machines and less and less in workers. In fact the race for super-profit compels capitalists to decrease socially necessary labor time by spending more on machines to make workers more efficient. This means while individual capitalists race to increase their own super-profit, that over time the average profit rate of the economy as a whole falls. The worker finds herself confronted with a greater and greater mass of machinery, while the capitalist class finds itself getting a lower and lower rate of return on larger and larger investments. The time is right for a crisis!
Footnotes: Actually this is more like a glossary of terms and topics:
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 focusing 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. Isaac Rubin has a good discussion of Indirectly Social labor here.
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. A bourgeois economist might argue that because the owner of land gets rent from their land that this means that the land has produced value. But in Marx’s system only human labor can produce value. The rent a landlord gets is an appropriation of value. The value is created elsewhere and the landlord appropriates it. (There’s a much more complex theory of rent, but that’s another topic.) Or we might hear that risk creates value. It could be that risky ventures require a greater potential reward to encourage risk. But there is a difference between making a big monetary reward on an investment (appropriating value) and actually creating value.
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. While Marx’s theory of money is robust and historical enough to allow for the evolution of non-commodity forms of money, at the abstract level he roots his analysis of Money in the money commodity (usually gold). Money gets its value from the fact that it is a product of labor. Money itself is a commodity with a use-value and an exchange value. But because its use as money becomes its purpose in measuring the value of other commodities this leads money to have some rather unique qualities. I will delve more deeply into the topic of money in a future video in this series. The best thing to read on Money is Marx’s “Critique of Political Economy“.
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. This is discussed in vol. 3 of Marx’s Capital Part 2.
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. This is discussed in vol. 3 of Marx’s Capital, chapter 8.
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.
Input and Outputs prices: There is debate amongst Marxists as to the proper way to theorize input and output prices under Prices of Production. In short, many argue that input prices should not be valued at their original actual cost to the capitalist, but instead by the price it would cost to replace those inputs. This is called the ‘reproduction price’ of inputs. The logic behind this is that if prices of inputs rise I need to sell my product for more if I am going to repeat production tomorrow. This leads to a static equilibrium procedure in which input prices are retroactively revalued to meet output prices. But this process of holding input and output prices equal leads to the transformation problem and the various partial solutions to this problem. In response the Temporal Single System Interpretation (TSSI) holds that input prices should not be revalued to equal output prices, but that, instead there should be a temporal process in which output prices become the input prices of the next period, not the one that has already passed. Rather than valuing inputs at their ‘reproduction prices’ the TSSI folk value them at their ‘pre-production reproduction price’. That is the reproduction price of the input before it enters production. (See Kliman’s ‘Reclaiming Marx’s Capital’ for more on this.)
Transformation Problem: In short: Marx showed how value is redistributed in exchange to form prices of production. To do this he set up a simple numerical example where inputs purchased at their values are transformed into prices of production. But in the real world, his critics cried, inputs would be purchased at prices of production, not values! Since input prices and output prices must be the same in equilibrium theory (see above Inputs and Output prices) then there was some fancy math involved in figuring this all out. The upshot: total prices and total values don’t equal each other anymore. Furthermore value and production price were severed into two separate systems and it wasn’t clear what the relation was between them. The Temporal Single System (TSSI) response is to say that output prices of production are the input production prices of the next period, not the previous one. This eliminates the mathematical inconsistency in the transformation and also keeps values and prices of production as part of the same system, rather than two separate systems whose relation is only metaphysically related. The book to read on this topic is Andrew Kliman’s “Reclaiming Marx’s Capital; Refuting the Myth of Inconsistency”.
Levels of Abstraction: Marxists treat the levels of abstraction in value theory differently. This is often because of the strange way in which the transformation problem developed. The traditional interpretation of the transformation problem severs value and price of production into two separate systems whose relation has to be arbitrarily imposed mathematically. Value is seen as somehow determining prices of production, and then market prices are seen as fluctuations around these prices of production. The Temporal Single System Interpretation (TSSI) takes a different stance on the issue. It seems values being created in exchange but being sold at market prices. These market prices form the inputs into production and the outputs. Prices of production are tendential prices that market prices gravitate toward. Critics claim that the TSSI has erased important theoretical distinctions between value and price and just explained prices through past prices. But the TSSI claims that it has cut through the bullshit metaphysics and mapped out the practical way in which inputs and outputs relate in a temporal, fluctuating economy. Central to the TSSI’s understanding of these levels of abstraction is Marx’s statement that price is the form of appearance of value (or more specifically in chapter 3 of Vol 1 “Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.”). Thus value cannot exist in some separate metaphysical system, whispering into the ears of prices. Instead if appears as price and is transformed in exchange through the ways described above.
NeoClassical Economics: There are plenty of things to read if you are looking for a good critique of the neoclassical orthodoxy. The reason there are so many things to read is that orthodox economics is a huge religion, all smoke and mirrors, with little relevance to the real world. Viewers who know too much to be watching my videos in the first place will notice that in this video I throw Pierro Sraffa’s face into some of the group shots of bourgeois economists. Sraffa is not a neoclassical economist and is actually responsible for a number of quite useful critiques of the neoclassical orthodoxy (See Steve Keen’s “Debunking Economics” for a good synopsis of the Sraffian critique”. So it is technically wrong for me to group Sraffa in this category. On the other hand the Sraffians still maintain that there is an internal inconsistency in Marx’s transformation procedure because they insist on modelling value and price through general equilibrium analysis. Many 20th century Marxists also have been influenced by the Sraffian critique of Marx. For a good critique of some of the problems with this approach see Alan Freeman’s great essay “The Psychopathology of Walrasian Marxism”. That Freeman paper appeared in an excellent, and prohibitively expensive, volume of essays, many of which contain good critiques of equilibrium economics. I also enjoy Mark Linder’s “Anti-Samuelson” as well as Simon Clarke’s “Marx, Marginalism and Sociology” which I’ve written about here.
Frontiers of Political Economy by Guglielmo Carchedi is a pretty solid exposition of the value price relation from a TSSI perspective.
Marx’s Theory of Price and Its Modern Rivals by Nicholas Howard is a recently published book on the topic which takes an alternative position than the one I’ve put forward here (at least on a few points). Howard takes a different view of input prices and the transformation problem than the TSSI folk and the TSSI and ‘New Interpretation’ are the subject of critique in the book. The book also has a fairly thorough critique of neoclassical, Keynesian, and Sraffian price theories.
Essays in Marx’s Theory of Value by II Rubin, though much of the book is devoted to more qualitative aspects of value theory, does get into the issues of price of production and market price. Rubin’s approach still seems mired in an equilibrium framework to me, though I think the book is great on the whole.
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.
A reader wrote to me a while back asking me to recommend some good books for a reading group he helps organize. This was the message:
“A major component of our organizing is developing workers who we recruit onto our committee as revolutionary organizers that can become leaders within the proletariat. A large part of this process is using our committee meetings as forums to educate workers on marxist political economy, in order to make it understood that by fighting for better working conditions we are engaging in class struggle, and make the political content of that struggle explicit.
“We’ve tried material like “Economic Interpretation of the Job” for curriculum, and had some success: But feeling as if that was inadequate, more recently we’ve tried to read “Wage Labor and Capital” as a group, trying to get workers to understand the the abstractions described in it through observations of how they manifest in the workplace. We’ve had very little success with this, and are now re-assessing what is a decent curriculum.
“As someone with an apparent gift for conveying theory on market exchange and the labor process to people with almost no background in Marx, I was wondering if you had any advice on a curriculum on political economy proceeding from a basic understanding of class struggle, expanding into more complex concepts like SNLT, crisis, and commodity fetishism, that by the end one would hope that the student has a solid theoretical analysis of capitalism and the ability to articulate that theory to others and withstand argument.”
I suspect that there are probably even better suggestions that readers out there may wish to add to the list. Yes in a perfect world I would just say “read Capital and nothing else!” But since the reader says that Value Price and Profit was too abstract I don’t think ‘read Capital!” is the right response. I prefer to be more practical. Have others out there had luck with intro-to-Marx sort of reading groups, especially ones linked to organizing efforts? Does anyone have good suggestions of books that I might pass on?
In A Recent Interview on the DietSoap Podcast. I discuss robots, value, abstract labor, and other matters with host Doug Lain. As always, it was an enjoyable interview. Doug is moving his podcast to a new host, so stay tuned to douglaslain.com for more info on how to follow the podcast in the future.
I also highly recommend Doug’s past interview with Alan Freeman.
[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.
