Law of Value 9: Abstract Labor, draft (parts A and B)

This is draft of my script for Abstract Labor, the 9th video in my Law of Value series. I always appreciate the comments, suggestions and criticism on these drafts. They really help me focus the scripts. This video has a different format. It is broken into two short parallel videos. Video A discusses the concept of ‘abstract labor’. Video B discusses the method of abstraction in Video A. It deals with the concept of abstraction and explains the way Marx uses the concept to capture the totality of capitalist social relations and destabilize his bourgeois opponents.

[everything in brackets is a note about possible visual images for video production]

(everything in parenthesis is something I’m considering cutting out and relegating to footnotes)

Law of Value 9A: Abstract Labor

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. [word 'abstract' appears]

This abstract social power goes by another name: value. The subordination of society to the rule of value we call: The Law of Value.

[Title Sequence]

Value, then, is quite an abstract substance. It does not refer to any specific concrete thing. It is just value in the abstract, social power in the abstract. Our society is ruled by an abstraction. But it is certainly not true that all societies in all times were ruled by abstractions, by value. Only in a certain type of society is social life ruled by abstractions. This begs the question: “What sort of organization of society is necessary for the existence of value in the abstract?” [question appears on screen]

(We ask this question not for fun but because the answer will allow us to figure out how to create a society not ruled by the law of value.  There are several possible answers to this question but not all of them are complete answers. We will move through several answers, several perspectives, the incompleteness of each vantage point driving us to probe further into the social fabric of a capitalist society.)

Free Market

The existence of value implies the free exchange of things between people. Perhaps this is the essential feature of a society ruled by the law of value, by abstractions. In bourgeois theory this free exchange is often deemed all that is necessary to characterize the fundamental elements of our society. We are told that we live in a “free market society” (or that we should live in one), or a “free enterprise system”. Since this narrow picture seems only to show consenting individuals freely engaging in mutual agreements it is often used by apologists of the status quo to defend the system. After all, what is wrong with freely making mutual agreements with others? The positive aspects of this vantage point have influenced some anarchists that seek to build mutualists societies of freely exchanging individuals, as well as market socialists who want to cooperatize the workplace yet leave market exchange in tact.

But we need more than just the phenomenon of free exchange to explain the existence of value in the abstract. It is one thing for two isolated individuals to make one exchange [this could be any image of two isolated people exchanging something... dudes in a desert, etc. I would change the text to fit the image]. But it is quite another thing in a society organized through exchange where we can observe regular, predictable exchange ratios between commodities.

A boat equals a thousand cigars. A book equals 4 pears. These are relations of value between things. In order for us to form predictable, reliable exchange ratios between things (in order for us to know how many boats to exchange for cigars) there must be some predictable knowledge of the supply of these things. And in order for exchange to continue everyday there must be a regularly recurring supply that we can predict to some degree. 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. It determines (at one level of abstraction) the exchange ratios between these commodities.

At the same time the exchange of commodities is the means by which the division of labor is regulated. It is only the raising and lowering of prices that can apportion labor between different tasks. 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 social power of labor 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 an equally abstract aspect of human labor, abstract 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 capitalism 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 phenomena, 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:

People only become abstract units in the profit calculator of capitalism when they sell their work as a commodity in the market. A society ruled by the law of value requires wage labor.

[OWS sign that says "people are not commodities"] People are not commodities but their ability to work is. This is called “labor power”. How does the exchange of commodities apportion labor? This apportioning takes the form of the buying and selling of labor power. 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.

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.

So the institution of wage-labor which forms the foundation of the social power of the law of value require a whole host of political, institutional and social factors. In searching for an answer to our question we have encountered, rather than one simple answer, an assemblage of factors, like pieces in a complex puzzle.

Conclusion

We’ve heard demands to “end capitalism”, “end exploitation”, “end private property” and “abolish class”. That all sounds great. We don’t usually hear people talk about “abolishing Abstract Labor”. It certainly sounds like an obtuse philosophical demand. But, as we’ve seen, Abstract Labor is a very real thing, not just a philosophical idea.

When critiquing capitalism it can sometimes seem difficult to identify what it is we want to end- what exactly would be required to break with the capitalist mode of production. Different political positions on this issue come from different ways of seeing the way the complex array of pieces of capitalism fit together. (Here we’ve traced the abstract social power of money and value to wage-labor. But we’ve also seen that this wage-labor is dependent on a complex assemblage of social and political arrangements.)

For the market-socialist vision, it seems that all we need to do 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 the seizure of state power by a vanguard of the working class, the nationalization of property, 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 resembled 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 series 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?

Law of Value 9B: Abstraction

Jackson Pollock- Number 8

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 totality 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 what full picture of the totality we come up with.

An abstraction by itself will always be an incomplete picture of the totality. In the video on Abstract Labor we began with the abstract power of money. This did not seem adequate to explain capitalism. We were left wondering how there could exist this strange phenomenon of value in the abstract. There was something incomplete, lacking, in our abstraction. We looked to the sphere of exchange, where the exchange of commodities form value relations between commodities. We found that this perspective was still incomplete because it didn’t explain how we could have regularly recurring supplies of and demand for commodities. This led us to examine a labor process that was coordinated by exchange which gave us the idea of Abstract Labor.  But this too was an incomplete picture until we introduced the notion of wage-labor which explains how it is that labor can be come an abstract accounting unit in the profit calculator of capital. But wage-labor then implies a certain class relation, private property and a capitalist state. It was only when these political and institutional factors all came together that our initial abstract was grounded enough to give us an adequate answer to our initial question.

Hegel (Schlesinger 1831)

This movement from the abstract to the concrete is 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 material 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. We often call these ideas fetishes but it would be more correct to call them ideas generated by the fetishism 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.

Law of Value 5: Contradiction

Contradiction and the Law of Value

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

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

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

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

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

Property, exchange and violence

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

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

Labor Power

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

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

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

Profit

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

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

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

Class

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

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

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

The Labor Process

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

Crisis

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

Conclusion.

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

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

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

Law of Value 6: Socially Necessary Labor time- another draft

This is another draft of my SNLT script, substantially different in content than the last script. I must thank previous commentators on the last draft. Their input was really helpful in me forming my thoughts about what I wanted to get across in this script. I have swapped the order of this video with the one on contradictions (the draft of which I posted yesterday). I am hoping to get some good feedback on both drafts before starting production.

The script:

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

Title sequence

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

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

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

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

Profit vs. super-profit

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

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

Physical vs. Value Productivity

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

Appropriating Value in Exchange

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

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

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

SNLT and the Labor Process

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

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

SNLT and the centralization and concentration of capital

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

SNLT and Market Socialism

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

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

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

A World Without SNLT

What would it mean to create a society without surplus value, SNLT or super-profits?

No SNLT means that the products of labor don’t meet in the market as commodities with values. In other words, if we challenge ourselves to imagine a world without SNLT then we must begin to think about a world without value production- a world where the labor process is not coordinated by market exchange. Obviously there are a lot of different ideas about how such a world might be organized. This is not the place to evaluate all of those ideas. Rather, here we should realize that Marx’s theory of value is a powerful tool not just for critiquing capitalism as we know it, but also of helping us evaluate proposals to change the world. That doesn’t mean that Marx’s theory of value has all of the answers for those who want to change the world. But it is incredibly useful in helping us understand the complexity of the task, the consequences of our actions, and the possibilities that might lie before us.

Conclusion

Our private labor doesn’t immediately become social. It must become value in order to be social. But in becoming value it is disciplined by socially necessary labor time. SNLT acts as an external force which disciplines our private labor, constantly compelling us to work more efficiently, yet never actually making our work easier or more fulfilling. SNLT creates the possibility for super-profits when one produces under the SNLT.

In a society not producing for competition or capital, but for communal ownership, there would not be a SNLT. The engineer-worker would be free to design their labor time anyway they wanted, without the external compulsion to maximize output per labor time. There would still be an incentive to increase efficiency, but it would not be an external compulsion to increase efficiency at the expense of the worker. A job would cease to be a job- that is, a passionless series of motions we are compelled to carry out in order to eek out a living in the market. Work could become something much more deep and fulfilling, a means of self-discovery and expression, and a means of establishing social bonds. A radically different notion of work would mean a radically different world.

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

Law of Value 6 (or 5): Contradictions – a draft

An exchange I had with someone regarding my draft of a Socially Necessary Labor Time (SNLT) script has made me think that I should probably do this video first before discussing SNLT. Here is the reason: Since SNLT is a fairly simple concept I wanted to expand on the topic and talk about the way capitalists get a super-profit by producing under the SNLT. But talk about super-profit before talking about profit in general might be confusing. So I think I will make the 5th video in the series this one on “contradiction” since there is a bit about exploitation and profit in this video. This is a draft and, as always, all comments are much appreciated, especially criticism.

Contradictions and the Law of Value

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

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

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

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

Property, exchange and violence

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

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

Labor Power

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

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

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

Profit

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

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

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

Class

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

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

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

The Labor Process

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

Crisis

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

Conclusion.

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

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

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

Law of Value- Introduction

Part 1 of the Law of Value series.

Intro:

Marx Quiz:

Addendum:

An economic crisis is also a time of ideological crisis. It’s a time when people start to reevaluate their ideas about the world, questioning some of the most basic assumptions they once had. Every capitalist crisis in history has brought about a rethinking and regrouping of mainstream economic thought. Interestingly this rethinking has always happened within the context of some sort of radical challenge to the economic order.

Marginal Utility theory, which still serves the basis of modern mainstream economic theory, emerged from the Great Depression of the late 1800s (yes there was another Great Depression prior to 1929) as an answer to the challenge of Karl Marx’s thorough critique of capitalism. Keynesianism emerged from the Great Depression of the 1930′s as a response to the failures of liberal economics, the challenge of a successful Bolshevik revolution and strong worker movements in the Western world. Neoliberalism emerged from the crisis of the 1970′s both as a backlash against the failures of Keynesianism to manage crisis and as an assault against the growth of large popular left-movements like the anti-war, student, civil-rights and women’s movements and the power of entrenched labor.

Alan Greenspan:

“Remember that what an ideology is is a conceptual framework with the way people deal with reality. Everyone has one… to exist you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is: Yes, I’ve found a flaw- I don’t know how significant or permanent it is but I’ve been very distressed by that fact.”

With such admissions of failure from the neoliberal establishment we can’t help but begin to question the dominant economic ideas of our time. Yet it is not clear that we are entering this ideological crisis in the context of any viable challenges to the economic order. The failures of centrally-planned Soviet-style economies have largely purged the idea of alternatives to capitalism from the popular consciousness.  At such a time in may be useful to re-exmine the ideas of Karl Marx, to see what exactly he was trying to say in his critique of capitalism- not because we have some desire to repeat the political experiments of Lenin, Mao, Stalin or any of the others who claimed to embody the ideas of Marx, but because Marx presents a systematic, and thorough critique of capital that is wholly different, wholly unique in the history of economic thought. Such radical ideas are crucial in our search for a new understanding of our present condition and possibilities for social transformation. A society without the ability to critique itself is a dangerous society to live in, especially as it enters a long period of crisis.

There is a crucial difference between all the great bourgeois economists and Marx. They all saw crisis (except Keynes maybe) as something that came from outside of capitalism, disturbing the natural equilibrium of the market. When confronted with the reality that capitalism was prone to inequality, exploitation and crisis- that is, when it becomes apparent that there is a discontinuity between their theories and reality- bourgeois economists always blame reality for not conforming to their models. Reality has been poisoned by invading external forces, they say, in the form of state intervention, labor-movements, human greed, etc.  We see this same reactionary approach today in rising right-wing populism which blames the invasive influence of foreigners, left-intellectuals, homosexuals, non-Christians, and black presidents for the problems of society.

Marx takes the opposite approach. He sees the social antagonisms of capitalism as internal to the system. These social antagonisms are so basic to the system that they drag all other parts of society into their gravitational field.

Bourgeois economists have always seen the market as a realm of great freedom and equality. The fact that there is so much inequality, crisis and unfulfilled freedom in market societies is seen as an imperfection in reality, not theory. Contrary to what some lay people think, Marx does not start with an analysis of these social bads and then proceed to a critique of market relations. Marx doesn’t begin by talking about monopoly, poverty, exploitation, or state violence. He begins with this same realm of market freedom that his bourgeois critics are so enamored with, and then shows how all of these social antagonisms spring out of this basic productive relation. For Marx it all starts that the fact that capitalist production is production for market exchange. This basic form of production takes on law-like properties that he calls “The Law of Value”.

The Law of Value

What did Marx find so interesting about capitalist societies? It wasn’t just the freedom to buy or sell anything you wanted. It was the fact that in order to participate in the social life of a market society one has to buy and sell things. In order to survive, in order to participate in society, one has to enter the market to buy things and to sell the products of their own labor. This is a distinctly different organization of society than previous societies where working people largely supported themselves with their own labor- that is, they labored to make things for their own use. (Or more specifically, laboring classes supported themselves with their own labor and supported the ruling class.) In a capitalist society people don’t make things that have any use for themselves at all. They produce things in order to exchange them. Thus the coordination of the social labor process happens indirectly through exchange.

In a society of private producers, coordinated indirectly through the market, the social relations between these people take the form of relations between things, of commodity relations. The relations between people become value relations expressed in commodity prices. Economically, people can only relate to each other through money prices, through value. This world of commodity relations takes an independent form, outside of the control of individuals, that acts back upon and directs the flow of human affairs. Adam Smith called it the “hidden hand of the market.” Marx calls it “the law of value.”

What is the law of value? It is the impersonal, blind forces of the economy exerting their influence upon society. It is unique to a society in which the dominant form of labor is production for market exchange. The relations between people become value relations between commodities. And these value relations become impersonal forces which have unexpected consequences for society. For instance, we get capital:

People have always used tools and other resources in their labor. These are called “means of production”. In a capitalist economy means of production become capital. Tools, machines, materials, and even workers are all commodities with values. This makes it possible to buy means of production in the market and sell the products of those means of production for a profit. That is, a person can invest money in production merely for the sake of getting more money. The pursuit of value as an end in itself becomes the dominating force in the society. This is what capital is, the expansion of value for its own sake, regardless of the social cost. Capital takes the form of a class that owns the means of production and another that must produce the profit for capital.

Capital is inherently asymmetrical, great poles of wealth and poverty spreading out from it in geographical and economic space. Capital is also self-negating. Although it represents an impersonal force above society, dominating the worker, it also relies on the worker to create profit for it. There is a social antagonism at it’s root. This social antagonism leads to periodic crisis and constant instability.

All of these radical implications and many more are part of Marx’s theory of value.

This video series will cover various topics in Marx’s theory of value: The difference between use-value, exchange value and value, the relation of supply, demand and price to value, abstract labor, exploitation, crisis, socially necessary labor time, and even what an understanding of value can tell us about changing the world. It is hoped that they can contribute to a better appreciation of the importance of value theory to radical movements today as they seek ideas with which to articulate their demands and strategies.

How much do you know?

Many people, supporters and opponents of Marx, think that they already know all there is to know about Marx’s theory of value. Let’s take a brief quiz to find out how much you know. Here are 10 True or False questions. Take out a paper and pencil and keep track of your answers. I’ll give the answers at the end.

True False Quiz:

1. Marx’s theory of value holds that any human labor creates value.

2. Marx’s theory of value is intended to be a theory of market prices.

3. Marx’s theory of value is the same as his predecessor David Ricardo.

4. Marx didn’t believe the forces of supply and demand were relevant to explaining value.

5. Marx’s theory of value is a theory of what workers should get paid.

6. Marx’s theory of value was a theory about how a communist society should be run.

7. Marx didn’t think consumer demand played a role in prices, value or other economic phenomena.

8. Marx’s theory of value doesn’t work in free markets.

9. Marx’s theory of value can’t explain why useless things like mudpies don’t have value.

10. Marx hated babies.

The answer to all of these questions is “FALSE”! If you answered “True” to any of them then perhaps you don’t know enough about Marx’s theory of value to actually make an informed judgement about it. If you are interested in understanding one of the most thorough theoretical critiques of capitalism ever created then perhaps this video series might be a good starting point. If you already know that you are going to hate Marx’s analysis then perhaps watching this video series would be a good starting point in educating yourself so that you don’t sound like a total idiot when you go mouthing-off all over the internet.

How you should watch these videos

The internet has given us access to more information than any generation before us. It has allowed for a great leveling of our access to information, allowing everyone to contribute to the sharing of information. But this hasn’t necessarily made our culture better informed, more intelligent, or better at critical thinking. In our rush for instant information we are losing our ability to properly contextualize information, to synthesize ideas, and to discern what sources of information we can trust. Let’s face it- in our consumer-culture we are conditioned to want instant gratification for no effort. We want easy answers that don’t require any personal sacrifice. (Neo, matrix, downloading information into his brain.)

You can’t learn everything you need to know about capitalism from a YouTube video. On the internet any fool can and will explain their inarticulate and half-formed personal theories into a web cam. These videos are not like that. They don’t represent my ideas at all. I am trying, to the best of my ability, to explain a complex body of intellectual work that spans a long history of debates as people grappled with these ideas. By acquainting ourselves with the history of ideas we can make sure that we don’t repeat the mistakes of the past, and that we are aware of the implications of our arguments.

But a video or a blog cannot substitute for the real thing. I am dealing with complex, difficult ideas and I am not perfect. I may make mistakes. I may leave things out. If you really want to understand Marx you must go to the source.

We should also be aware of the ability of video to manipulate us on an emotional level.  Images, tone of voice and background music can all be helpful in helping us understand things. But they can also evoke emotional responses that are not necessarily rational. We should be aware of the way media effects our understanding of material and not let this get in the way of rational intellectual thinking. There is already enough of a shortage of rational thinking in our society.

There are a lot of ideas in each of these videos. One viewing may not be sufficient to absorb everything. That’s why I post the full text on my blog. The blog sometimes also contains tangents and side-arguments that were cut from the video as well as references and suggestions for future reading. I hope that the references on my blog might be a good starting point for people who are interested in learning more.

As we move through these different topics in the Law of Value our understanding of the Law of Value will deepen. At the end of each video there is a summary of the new layer of meaning we have added to the law of value. It would be wise to keep returning to this basic question as we progress through these videos: What happens when the relations between working people take the form of value relations between commodities?

Additional Reading:

Does the Internet Make You Smarter- Nicolas Carr, Wall Street Journal

Crisis, Value and Marx’s “Order of Operations”

This is a draft of a paper I will be delivering, in some form, Saturday Nov. 7, on a panel called “Temporal Value Theory at a Moment of Crisis” at the “Rethinking Marxism” conference in Amherst. I hope to post a video of the panel next week. My apologies for the incomplete footnotes. I welcome comments.

Brendan Cooney
kapitalism101.wordpress.com

Abstract:
An economic crisis manifests itself in many different forms simultaneously: stock market crashes, housing market crashes, over capacity, unemployment, etc. For every aspect of the crisis there is some theorist who mistakes this surface appearance for the inner mechanism of crisis. But a proper analysis of crisis needs to have some reason for selecting some phenomena as causes and others as effects. There must be a proper ordering of the relations between different economic factors in order for our analysis to avoid being arbitrary and piecemeal. Marx gives us a very clear, though complex, ordering of these relations. This paper will attempt to critique credit-centered and underconsumptionist theories of crisis from the perspective of Marx’s “order of operations”. It will close with some brief remarks about the Falling Rate of Profit.

The Prophet Elijah

Marx was not averse to using all sorts of biblical analogies to illustrate his points and so neither should we be averse to appropriating from “the good book” when it suits our purposes.

The prophet Elijah is having a bad day because everybody wants to kill him. He goes into the desert looking for Yahweh, walks for 40 days and 40 nights, crawls into a cave and waits there for Yahweh to appear to him. The Bible says, “A mighty hurricane shattered the mountain and split the rocks before Yahweh. But Yahweh was not in the hurricane. And after the hurricane, an earthquake. But Yahweh was not in the earthquake. And after the earthquake, a fire. But Yahweh, was not in the fire.” Finally Elijah hears a light murmuring sound, goes out of the cave and encounters Yahweh himself who reveals a prophecy to him. (1)

[And why do I bring up this old-testament acid-trip? Because it is a great distillation of early human ontology. We know from the old-testament that "God created all heaven and earth," that he "Laveth the thirsty land..." that biblical man interpreted the phenomenological world around him as having a common, divine creator. Yet here, in the book of Kings, we get this crucial ontological distinction: God may create hurricanes, earthquakes and fires but God is not in the hurricane, earthquake and fire. To mistake one of these forms of appearance for God himself would be the most gauche of religious fetishism.]

Now, perhaps, you see where I am going with my analogy. Here in 2009, peering out from our caves at a world of destruction and crisis raging all around us we too must remember this same lesson. “There was a great crisis in the housing market. But the fundamental social antagonism of capital was not in the housing market. After the housing bubble there was a collapse of the financial system, but the fundamental social antagonism of capital was not in the financial system. After the collapse of the financial system overcapacity, overproduction and underconsumption were revealed, but the fundamental social antagonism of capital was not in overcapacity, overproduction or underconsumption.”

The prophet Elijah had a luxury that we do not have. After the forms of appearance pass by, the creator himself appears before Elijah. (The old testament could even be read as a history of humans trying to see God in this pure form through trances, drugs, divination, etc. and learning to live with this lack of direct revelation.) But Marx’s fundamental starting point is the idea that in a capitalist society we don’t see these antagonisms in some pure form. They can only be expressed through various forms of appearance: through money, commodities and capital. A crisis is the closest we come to seeing these social antagonisms laid bare, yet here in this current crisis its obvious how easy it still is to mistake credit bubbles and the like for root causes. For our present purposes there are two lessons to learn from Marx’s fetishism argument. 1. We cannot expect to witness the social antagonisms in their pure form. Thus we must avoid mistaking a form of appearance for the thing in itself. (2)  2. We mustn’t err too far in the opposite direction. We cannot dismiss this world of appearance as a completely uninteresting world of illusion. The manner in which these social antagonisms are expressed are crucial to our understanding of them. I think that in some of the erroneous theories of crisis I talk about here there is still a kernel of truth. Here I want to extract what is important about the phenomenal forms of the expression of crisis as well as to critique those theories which dwell too long on the phenomenal form without identifying the root causes of crisis.

order of operations

Peering out of our caves in 2009 we are confronted with a variety of phenomenon, all which express the social antagonisms of capital: housing bubble, predatory banks, decline of the dollar, competition, competitive devaluation, excess capacity, stagnant wages, etc. How do we discover what is fundamental about these? What is the relation of all of these different phenomenon to each other? Marx gives us a logical structure with which to understand the inter-relations of these phenomenon. It is not like a mess of billiard balls all colliding with one another with equal force and mass. It is not like that obnoxious string-of-causes so popular in postmodern theory, “race, class, gender, sexual-orientation, ethnicity, religion…”, where all things are given equal weight and no attempt is made to actually understand the relations between different elements. There is a priority of relations in Marx. The question is always, “What proceeds what logically?” (3) So, for instance, we can’t understand the relations between capitalists until we first understand what it means to be a capitalist in the first place. Thus the labor-capital relation logically proceeds the relations between capitalists. This is why Marx said that one of the two most important discoveries of Capital was his treatment of surplus value independent of its division between different factions of the capitalist class.(4) The labor-capital relation presupposes commodity production, the sale of the products of labor in the marketplace which forms the law of value. Since all of the interactions between actors in a capitalist society take the form of commodity exchange, the law of value is the fundamental relation.

Errors can be made here. This “order of operations” is not an historical ordering. For instance, we know that money existed before capital. Yet with the historical appearance of capital money becomes subservient to capital. Usury becomes transformed into a credit system which serves capital’s needs. Fred Moseley might be reproached here for claiming that “this is not a Marx crisis but a Minsky crisis”, as if the various historical phenomenal forms of crisis somehow erased this subservience of money to capital. (5)

[We could mention other instances of confusion of historical with logical ordering. Engels himself (as well as other great Marxists like Hilferding and Mandel) insisted that the law of value existed historically in the form of simple commodity production prior to capitalist production. But the attempts to theorize this fail- see I.I. Rubin. (6)]

In the same way that this order of operations is not historical, it also isn’t a simple logic of cause-and-effect. It’s not that value causes capitalism and capitalism causes relations between capitalists. The operation of the law of value can only take hold once capital has cleared away barriers to free exchange. The law of value is dialectically wedded to the laws of capital. We cannot have C-M-C without M-C-M. These two things, the value relation and the labor-capital relation, both merely inversions of one another, subjugate all other forces to their power. As much as we may make powerful insights into the ruthless antagonisms expressed in various parts of the economy they can only be forms of appearance of the basic antagonisms of capital.

Credit theories

With this being said we are already half-way done critiquing the credit-centered theories of crisis of Duncan Foley, Fred Moseley and the host of bourgeois pundits who also take this route. (7) What does it mean to say there is a credit bubble? It means that the size of the paper-symbols of value that are floating around on Wall Street have grown larger than the actual amount of real value produced in the economy. But why did so much investment flow into speculative investments instead of flowing into the production of real profits in the “real economy”? And why couldn’t enough value be created to realize the value of this bubble? Why must assets be written down? Obviously theories of finance always beg other questions about the production of real value. Thus we can’t understand investments and bubbles in the financial world without a theory of capital accumulation.

Yet the financial world is not entirely a realm of illusion. Real changes have taken place in the form of world money and these are important for Marxists to include in their analysis. In the 1970′s when Nixon took the dollar off the gold standard he severed the link between world money and its basis in real value (fix this). This liberated world money allowing it to become incredibly good at being a medium of circulation, of lubricating exchange. Problems in production and demand could all be easily papered over with a rapidly expanding flow of credit. Fortunes could be made just through the manipulation of currency exchange rates, bypassing the world of production altogether. Yet as world money became better and better at lubricating exchange it became worse and worse at measuring value. It has become increasingly unclear what the real value of a mortgage-backed security, a pension, or even a dollar is. (8)

This phenomenon is exactly what Marx was talking about in those difficult, highly abstract opening chapters to Kapital. When Marx says that the contradiction between a commodity’s use-value and value is resolved in the money form only for money to internalize this contradiction as a contradiction between the measure of value and the medium of exchange…. Marx is giving us the theoretical framework to understand real phenomenon like the current contradictory nature of world money. Yet these opening chapters on money are directly followed by the chapters on capital. This is because capital effectively resolves the problems of money. It constantly throws more and more value into the economy, subordinating all production and exchange to its rhythms. When credit is advanced, capital creates the value to pay back this loan.

In this sense leftist credit-based theories of the crisis make the same mistake that Austrian conspiracy crisis-theories do with their obsessive paranoia about central banking. They neglect to mention that the amazing powers of world money to lubricate exchange only come into conflict with money as a measure of value when capital is not able to generate enough value to (pay back those loans.) This is because money is absorbed into the circuit of capital and subordinated to the rhythm of capital. Financial bubbles do not arise because of some fluke in state regulation. They arise as an attempt to compensate for the contradictions of capital.

Underconsumption

Underconsumption does appear to veer closer to Marx’s logic in that it stresses the antagonism between labor and capital. It also considers the process of reproduction as a whole. It acknowledges that crisis is not a question of just the financial sector but of the ability of the antagonistic social relations of capitalism to reproduce themselves through this same antagonistic logic. Yet, in addition to the basic logical flaw in the underconsumptionist argument, there is a mistake in the “order of operations”. The mistake is two-fold:

mistake 1: Mistaking the potential for crisis for the cause of crisis.

I will use a slightly awkward and simplistic analogy to illustrate my point.

A bicycle has the potential to crash. It is narrow, hard to balance and is beset on all sides by the forces of gravity. Yet a bicycle has a means of overcoming this potential: a rider who propels the bike forward. This forward momentum overcomes the forces of gravity, actually using gravity to its own purpose in moving the bike forward. If the bike crashes we will see the forces of gravity kicking in, pulling it to the ground. Yet if it crashes we don’t say that the bike crashed because of gravity. We instead try to explain why the forward momentum of the rider failed to overcome gravity: ie. it was hit by a car, or hit a pothole, etc.

In Marx’s  understanding of the circulation of capital there is also a similar logical distinction between the possibility for a crisis and those forces that actually cause a crisis. The fact that production only becomes social in exchange, the fact that money must serve as a mediating link in the organization of the labor process means that the potential for crisis exists. Money separates production and exchange. It separates a purchase and a sale. It makes it theoretically possible that the social product might not be bought or that demand might not be met. Even with the evolution of money into credit, money can’t necessarily resolve all of the difficulties of exchange which require money to be thrown into and withdrawn from circulation to adjust to changing masses of commodities entering and exiting the market.

But as we have already seen, capital provides a forward momentum that overcomes these problems. Capital takes the potential instability of C-M-C and inverts it into M-C-M. If a crisis erupts it is because something has gone wrong with the capital’s ability to provide this forward motion. Yet, this crisis will appear as the separation of a purchase and sale. The circuit of capital will freeze in all of its stages and we will see unsold products, unused capital and unemployed workers. It will look like the problem is in the exchange of these things in the market. But just like we don’t say gravity is the cause of bike accidents, we also don’t say a separation of purchase and sale is the cause of crisis. The underconsumptionist gaze is too fixated on the market when the real determination of market phenomenon comes from production. (9)

mistake 2 (which I give an obnoxiously long title in homage to Marx): confusing the role of total value with the role of the distribution of value in the determination of prices and profit.

When productivity rises why do the prices of individual commodities fall? Because less labor is contained in them. But what is the mechanism which actually forces these prices to fall? There is only so much value in the economy at a given time with which to purchase the mass of use-values created. Capitalists are not free to set any prices they like. They are constrained by the amount of value in the form of purchasing power they confront in the market. (10) When the products of labor meet in the market, when the commodities that make up the entire social product are exchanged with each other, the social relations between producers take on the form of relative prices between their products. In this way the total amount of value constrains the total price. The process of exchange, of realization, is essential to establishing prices and profits. That’s why as productivity increases prices must fall. When these falling prices correspond to a rising cost of production then we get a falling rate of profit.

But underconsumption theory does not focus on the total value, or the cost of producing this value. Instead it focuses on the distribution of value between workers and capitalists. The distribution of value between wages and profits does effect the profit rate in the sense that less wages mean higher profits. But the distribution of purchasing power between wages and profits does nothing to alter the total amount of value that acts as a constraint on prices and profits. This distribution of consumptive power could effect the prices of commodities in the consumer goods sector, but not the profit rate. If wages fall then there is less value in the economy with which to buy back consumer goods (that is, if the capital cannot absorb these goods.) This could cause consumer goods to go unsold or for prices to fall below their value as capitalists compete to sell off this excess of commodities. But this can’t actually cause the profit rate to fall. This is because the unpaid labor of the worker costs the capitalist nothing. If $100 in lower wages means that $100 of toothbrushes aren’t sold to workers then the profit rate is exactly where it was before the wage cuts. (11)

It is not the distribution of purchasing power between labor and capital which is crucial for crisis theory. It is the total mass of value, the total mass of surplus value and the cost of producing this surplus value. This, of course, is the theory of the falling rate of profit.

Falling Rate of Profit

The theory of the tendency of the falling rate of profit succeeds where these other theories fail. It correctly identifies the central dynamics of a capitalist society in the dialectical interrelation between value and capital, the mutual interdependence of C-M-C and M-C-M. Capital contains a contradiction: it incorporates the the body of the worker into its cold, machine-like logic. The worker becomes a commodity, embodying the contradiction of all commodities: that commodities are both use-values and exchange values. The contradiction of the commodity form becomes the contradiction of capital.

Capital plays out this contradiction through the commodity form. It raises the social productivity of labor, thus increasing the mass of use-values produced and increasing the mass of use-values that the worker confronts on the shopfloor. But as it develops the social productivity of labor, the efficiency with which use-values are produced, it undermines its ability to produce surplus value- its own social basis. The production of use-value and exchange value come into conflict.

Thus the theory of the falling rate of profit properly situates Marx’s crisis theory within Marx’s larger historical analysis of the evolution of the forces and relations of production. Capital develops the forces of production beyond the point at which they can continue to support the relations of production. This is why Marx says that the FRP exposes the historical limit to capitalist social relations. (12) Of course capitalist crisis is cyclical. The falling rate of profit is not a theory of some terminal stage of crisis. But it does relate the theory of crisis to Marx’s larger project of identifying the historical nature of capitalism. Other crisis theories do not do this. (13) We will not see the emergence of some new historical form of derivatives that harkens the coming revolution. We will not see some new development of wages that paves the road for socialism. But in the evolution of the forces of production we can see the historical limits to capital. I think that these historical limits are worth thinking about when we analyze the evolution of value, especially now-a-days in the realm of information production. (14)

Footnotes:

(1) Bible. 1 Kings 19:11

(2) I haven’t read enough Autonomist Marxist literature to put forth a criticism of their ideas on crisis here. When surveying the autonomist literature I would keep this aspect of fetishism in mind. To what extent does the focus on the autonomy of the worker in autonomist thinking represent a desire to see the social antagonism of capital in some pure form, free from forms of appearance?

(3) This notion of logical priority is articulated well in I.I. Rubin’s “Essays on Marx’s Theory of Value”. This is a great book, with an extremely careful and detailed analysis of the logical structure of Marx’s argument.

(4) Marx and Engels, “Selected Correspondence”, from a letter from Marx to Engels, August 24th 1867. Marx writes, “The best points in my book are: 1) the two-fold character of labor, according to whether it is expressed in use-value or exchange value. (All understanding of the facts depend upon this.) It is emphasized immediately in the first chapter; 2) the treatment of surplus value independently of its particular forms as profit, interest, ground rent, etc.”

(5) See Fred Moseley’s piece June 08 in the journal International Socialism. http://www.isj.org.uk/?id=463; For a more detailed piece by Moseley see http://www.isreview.org/issues/64/feat-moseley.shtml
For more criticism of Moseley see Andrew Kliman’s “On the Roots of the Financial Crisis and some Proposed Solutions”

http://marxisthumanistinitiative.org/2009/04/17/on-the-roots-of-the-current-economic-crisis-and-some-proposed-solutions/

(6) See Hilferding’s “Response to Bohm-Bawerk” for the classic defense of this theory of the historical precedence of simple commodity production. Also see Ernest Mandel’s introduction to Vo. 1 of Capital. I am convinced by Rubin’ s criticism of this theory in “Essays on Marx’s Theory of Value.” Also see the brief criticism in David Harvey’s “Limits to Capital.”

(7) See Duncan Foley’s trippy graphs in his paper “The Anatomy of Financial and Economic Crisis”: http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-origins-of-the-crisis-beyond-finance/foleytheanatomyoffinancialandeconomiccrisis
While I have a deal of respect for a lot of the other theorists I critique in this paper, Foley’s paper does not garnish one iota of respect outside of the trippy graphs.

(8) See David McNally’s great 2008 paper on this subject: “From Financial Crisis to World Slump”

http://marxandthefinancialcrisisof2008.blogspot.com/2008/12/david-mcnally-from-financial-crisis-to.html

(9) Anwar Shaikh’s criticism of underconsumption as lacking a theory of the rate of accumulation is what I had in mind when constructing this argument. See his “And Introduction to the History of Crisis Theories” on his homepage: http://homepage.newschool.edu/~AShaikh/

Also useful is Harvey’s discussion of the way capital solves the effective demand problem at the end of chapter 3 of his “Limits to Capital.

(10) Here, actually, I feel ambivalent. Is it the total value or the total value in the form of purchasing power that sets the limit on prices? Is there a difference?

(11) see G. Carchedi “Return from the Grave”  http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-origins-of-the-crisis-beyond-finance/carchedireturnfromthegrave

(12) Das Kapital, Vol. 3. Chapter 15

(13) Much has already been written by falling rate of profit theorists about the problematic “solutions” recommended by proponents of erroneous crisis theories. The financial-centered theorists call for nationalization of finance or closer regulation. This makes sense because they see the problem emanating from a faction of the capitalist class, or from the money form, but not from capital and the value form. It thus seems logical from their perspective for the capitalist state to solve the problem. Rick Wolf, representing the underconsumption school, advocates a worker-owned factory, market-socialism type of society to replace capitalism. This makes sense coming from the perspective that the chief antagonism is in the distribution of wages and profits. Because the dialectical relation between C-M-C and M-C-M is not present in Wolfe’s theory there would be no reason for him to question commodity production0 to ask to what extent commodity production eventually reproduces the capital relation.

(14) Here is theoretical terrain that is in desperate need of more theorizing. Marx’s optimism for a post-capitalist future came from his analysis of the development of the forces of production under capitalism. He writes about the way in which the centralization of means of production leads to a truly social labor process, and how abstract labor creates a truly universal class. In our lifetime we have seen the stagnation and death of many industries whose ownership of the means of production have been eroded by the evolution of digital information technologies- technologies which have eliminated productive labor from the task of duplicating and distributing information. This has created an under-theorized collective commons of information creation that has struggled to find a stable commodity basis. The open-source software movement is perhaps the best example of this emerging terrain of conflict. What does this mean for theories of revolution? I don’t know. I am influenced by Tessa-Morris-Suzuki’s writing on this topic. See her essays in the book “Cutting Edge” edited by Jim Davis.

Das Kapital vol. 3 Part 2 chapter 8 Different Compositions of Capitals in Different Branches of Production and Resulting Differences in Rates of Profit

Part 2
The Conversion of Profit into Average Profit

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

Chapter 8. Different Compositions of Capitals in Different Branches of Production and Resulting Differences in Rates of Profit

From the title the concept seems clear. The composition of capital is short for the “organic composition of capital” or “value composition of capital” which is the ratio of constant to variable capital. If a firm devotes more investment to constant capital than variable capital it should have a lower profit rate than one which hires lots of workers and no machines.

Marx begins by explaining that he will make the assumption in this chapter that the rate of surplus value is uniform throughout the economy. This could just be a theoretical abstraction for the purpose of examining different value compositions of capital. But instead Marx goes further and argues that he is justified in this simplification by a real trend in the economy toward a uniform rate of surplus value. Yes he says that different levels of skill make it harder to see this, referring us to the distinction between simple and complex labor in Vol. 1, but that the forces of capital tend to press evenly upon all labor everywhere, reducing it to a common ratio of surplus labor to wages. Of course there are obstacles to this process everywhere, but the tendency of capital is to slowly, over time, remove these barriers and create a uniform rate of exploitation. (I was surprised to see him refer to Adam Smith here. If anyone can explain this Smith reference more I’d be much obliged.)

This reasoning is common in many of Marx’s arguments. The idea that capital has inherent tendencies, inherent within the basic form of capital itself is similar to the idea of value. In the same way that, to the extent that markets penetrate the social relations of society, we can make observations about the way in which the law of value breaks down barriers, monopolies, etc. to establish socially necessary labor time, we can also observe capital, to the extent that it dominates production relations, slowly imposing its internal logic around the heterogeneous and uneven world around it.

The next important distinction to make is between mass of profit and rate of profit. In all our previous analysis of profit rates it might be easy to forget that a lower profit rate doesn’t mean less surplus value is being produced. It just means that producing this surplus value is more expensive. The mass of surplus value in society can grow at the same time that profit rates are falling. In fact this is the prediction of the falling rate of profit. That belongs to part 3 of the book but this distinction will also be important in this part because Marx will be distinguishing between the aggregate mass of surplus value created by the whole economy and the amount of surplus value each individual capitalist can claim as their own profit.

In Part 1 we often compared the organic composition or turnover times of one firm against another. But in reality such glaring differences in organic composition or turnover are more likely to exist between different industries. The same process of competition which tends to even out differences in the rate of surplus value also evens out differences in organic composition and turnover within each industry. But between different sectors of the economy these differences are still quite drastic. The service sector employs a lot of people and does not have big expenses in machines and fixed capital. It therefore naturally has a lower organic composition than the automobile industry which employs a lot more constant capital relative to variable. From here on, when Marx talks of the organic or value composition of a sector/sphere/industry he is talking about the average organic composition. Individual firms may fluctuate above or below this average, but competition pulls them back toward it. The average itself may change over time, but pulling stragglers along with it. The same logic goes for discussions of turnover time.

Marx then goes on to define three terms which sometimes cause some trouble for readers: technical composition, value composition and organic composition of capital. Many writers who write about Kapital complain that Marx uses these terms too interchangeably and that he changes his definitions of them. Sometimes this is used to claim that his thinking about them changed over time and even that perhaps his understanding of them was incomplete. A lot of writers stick with organic composition for the most part though David Harvey prefers value composition in his book Limits to Capital. (critique that term of Harvey’s which attempts to show the way in which value composition is embodied in physical forms….)

This, tripartite distinction has a dialectical basis. It is similar to Marx’s distinction between use-value, exchange-value and value. It’s theoretical basis is the idea that in a market social relations become reified in the physical form of commodities. These commodities have all sorts of technical features: smell, taste, particular uses, etc. But they also are the means of coordinating a social labor process. Thus they also have the quality of having a price. Price is abstract. It is not related to any physical-material-technical quality. Price is the mechanism for measuring and apportioning social labor. Thus value is manifest in exchange value and exchange value is attached to particular, concrete use-values.

Similarly the process of production has basic technical features depending on the given level of productivity. No matter how the labor is coordinated (markets, feudalism, socialism, parecon, etc.) the material aspects of the labor process determine the ratio of people to machines to raw materials. This is the technical composition of capital. It is purely a description of use-values which abstracts from the amount of money paid for the different elements of production. The technical composition measures numbers of people, numbers of machines, numbers of bolts, barrels of oil, etc.

But all of these people, machines, bolts and barrels have a price. This price is the mechanism by which social labor is apportioned. This price determines how much a capitalist can afford to spend on each item, and how much to charge for the final product. Thus the value composition of capital measures the values of each element of production. A number of people becomes wage expenses. A number of machines becomes fixed capital expenses.

The technical and value compositions have an inner relation. The technical composition determines the proportions that are needed to produce a given level of  output. The value-composition determines how much each element costs and how much can be invested in production. Both elements are always changing. Changes in productivity might mean less workers are needed when more machines are bought. Changes in the value of raw materials (caused by changes in the technical composition elsewhere) mean that the technical composition can be changed without changing the amount of money invested. These feedback effects require a third term that distinguishes between changes in value due to changes in the technical composition in the firm and changes in value due to changes in value of the elements of capital caused by changes in productivity elsewhere. This is the organic composition of capital. It ties the material world of use-value to the social world of value. It stands with one foot in each world, reflecting their interaction effects. Organic composition refers to changes in the value-composition which are caused by changes in the technical composition, as opposed to changes caused by alterations of the value of raw materials, labor, etc. If a firm decides to build more machines so that it can increase output with the same number of workers this is a rise in the organic composition. If a firm finds cheaper raw materials which allow it to buy the same amount of constant capital for less money this is a change in the value composition.

It is sometimes pointed out that Marx’s use of organic composition and value compositions is inconsistent. Marx apparently started developing these terms later in his writing of Kapital. Their appearance in volume 1 did not occur until the 3rd edition. David Harvey, in his book “Limits to Capital”, quotes a passage from Marx’s “Theories of Surplus Value” in which the relation between value composition and organic composition seems to conflict with the definition given in Kapital. People also complain that Marx uses the two terms quite interchangeably in Volume 3 which blurs the distinction. From the definition I give above it seems like organic composition describes internal changes to the firms composition while value composition describes the feedback effects of productivity on other firms yet Marx will use organic composition to describe the economy as a whole as well. As we read through Vol. 3 we’ll have to pay attention to how this term is used to see if we can make sense of this distinction.

It is obvious that the distinction will be important to our discussion of the falling rate of profit. There is a reason that a rising organic composition is associated with the FRP. The FRP argues that changes in the ratio of machines to workers, the technical composition, alters the value composition. This is what the organic composition seeks to explain. If the value composition was rising because of increased prices of raw materials this would not be related to the FRP argument.

Harvey makes the distinction that the organic composition makes more sense in relation to the individual firm’s value composition changing due to changes in the technical composition. He reserves organic composition for individual firms and uses value composition for referring to the entire economy. But this is Harvey’s own distinction. Marx uses organic composition most of the time.

…………. moving on

What does variable capital measure? It is the sum of money spent on wages. That lets us understand the value composition. But those wages correspond to a given mass of workers. This mass of workers is part of the technical composition. The value created by this mass of workers is greater than their wages, than variable capital, than their contribution to the value composition. We don’t necessarily know what this value is unless the rate exploitation is given. If we know the rate of exploitation then we can look at the value of the variable capital and both know how many workers are represented and how much surplus value they will produce for capital. For our purposes we are assuming that surplus value is the same for all firms. This allows us to see what changes come about from changes in the organic composition or changes in the prices of the elements of capital.

Marx shows, through some examples, that different technical compositions of capital will result in different profit rates. Firms with a lot of workers and little constant capital expenses (low organic composition) create more surplus relative to cost-price. Firms with lots of machines and few workers (high organic composition) create less surplus relative to cost price. The same is also true if the value composition is changing due to the cost of constant capital or variable capital changing.

Here comes the crucial point/problem. The labor theory of value predicts that lower organic compositions must create more surplus value than firms with higher organic compositions. If this were not the case, if in the real world we saw profit accruing to firms with no relation to the ratio of variable to constant capital, then this would seem to question whether exploited labor is really the source of profit. “If this were not so, then value and surplus-value would be something else than materialised labour. Since capitals in different spheres of production viewed in percentages — or as capitals of equal magnitude — are divided differently into variable and constant capital, setting in motion unequal quantities of living labour and producing different surplus-values, and therefore profits, it follows that the rate of profit, which consists precisely of the ratio of surplus-value to total capital in per cent, must also differ.” The profit rate must vary if the organic/value compositions vary!

But, of course, profit rates in a capitalist society tend toward average profit rates even as their organic/value compositions diverge. Why? Higher profit rates attract investment in that industry. More investments raises supply which lowers prices so that supply and demand balance. This brings down profits to an average level. The opposite happens with low profit rates. Of course this is a theoretical abstraction. In a real economy profit rates are always shifting as firms compete. But in the long run, an average level of profits is established. Does this mean that the labor theory of value is wrong? Let us find out.

The phenomenon of average profits is a phenomena in which the magnitude of profit corresponds to the magnitude of capital invested, or cost price. If I invest $100 in my firm, and the average profit rate is 20%, then I will make $20 in profit. If invest $1000 dollars my profit will be $200. It doesn’t matter if 1% or 99% of this capital is invested in labor. I get the same profit either way. This would make it appear that profit comes from capital itself and not from labor. But it is in this world of appearance where Marx always shows his strength. Of course capital is self-expanding. Capital does create value. But it does so because it incorporates the body of the laborer into capital. The worker breathes life into capital. But in doing so he breathes life into an antagonism.

…And we are not quite up to the chapter on average profits yet anyway. There are a few pages left to go in which Marx discusses other things which should vary profit rates.

Differences in surplus value alter the profit rate. Of course, in this chapter we are assuming that surplus value is the same across the economy. But Marx takes this opportunity to point out that differences in the rate of surplus value between countries is usually what causes different profit rates in different countries.

Marx reminds us that changes in turnover time create changes in profit rates as we saw in chapter 4. The ratio of fixed to circulating capital does not effect the profit rate unless this ratio also involves a change in the organic composition of capital or a change in turnover time.

In concluding Marx says, as timpani rumble in the background, that up until now we have assumed that prices equal values, and that profit equals surplus value. But if these two things are the case then we would have unequal rates of profit across the economy. “…differences in the average rate of profit in the various branches of industry do not exist in reality, and could not exist without abolishing the entire system of capitalist production. It would seem, therefore, that here the theory of value is incompatible with the actual process, incompatible with the real phenomena of production, and that for this reason any attempt to understand these phenomena should be given up.”

We are about to solve this riddle, but it will involve relaxing some of the previous assumptions of the model as we introduce the relation of capitalists in competition into the picture.

next

Das Kapital vol. 3 Part 2- opening thoughts

Part 2
Conversion of Profit into Average Profit

Opening Thoughts

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

Herein lies theoretical ideas that have been hotly debated for well over a century now. Up until now we have assumed that price equals value and that profit is directly related to the amount of surplus value produced. But now, 140 pages into the 3rd volume of Kapital Marx explains that in conditions of capitalist competition prices don’t equal values and that profit is not determined by the surplus value produced by a firm. This has raised all manner of criticism and even ridicule from some corners. Bohm Bawerk made much of this in his criticism of Marx.

On the other hand Marx has told us that as we add more and more relations to our analysis of capitalist social relations our picture will become less and less like the rigid model we began with. Those basic relational features will become increasingly blurred as the picture becomes more complex, more varied, and embraces more complications and exceptions. Still those basic features will continue to have a strong influence in the model. In fact they will have some ultimate determining influence. Of course if the addition of more and more relations (capitalist competition, credit system, state regulation, etc.) eventually changes the dynamics of the system so much that our original starting point no longer has any relevance then we must ask whether we were ever justified in choosing that starting point in the first place.

Our starting point is that in the exchange between two free individuals in the market a social relation is expressed. Though it appears to be a fleeting, isolated act of exchange it actually links the two parties in a vast chain of exchanges happening all over the globe. This apparent realm of freedom is actually profoundly limited by this network of relations. We are not free to sell or buy at any price we choose. We must sell at the market price. We are not free to buy as much as we want. We can only buy as much as we can afford given the amount of money we’ve been paid for our labor or the amount of profit we have made from production. What are these forces that constrain our choices in the market? How much choice do we really have?

For the Austrians value is purely subjective. Price appears through competitive valuations between free persons in the market. Surely the act of exchange entails a subjective valuation. But also, clearly, we are not free to reach any compromise in any exchange. The conditions of the market press down upon us at every moment. Once supply and demand balance out how are these prices reached? Why are relative prices so consistent (pencils always worth less than cars, bread always less than football stadiums)? Perhaps there is something very objective about this subjective valuation. Isn’t it true that in a system of market exchange we all have the same motivation: to maximize our gain for minimal effort? If everyone has the same motivation, this seeming realm of subjective freedom seems a little more like a realm objectively predictable behavior within the constraints of an objectively observable system within its own laws of motion. If we are trying to maximize gain for minimal output then we are essentially valuing our labor time when we enter the market.

All these products of labor, these commodities being exchanged, derive their ultimate value from their place in a social labor process. This process is indirectly regulated by the market. We don’t know the value of things before we sell them. We can only guess. The market tells us if we are right. In a model of a world of simple commodity exchange private autonomous consumers meet in the market to exchange the products of their labor. In exchange their private labor takes on a social dimension. Its value is weighed against the value of all other labors. If its production time took more than the socially necessary labor time it doesn’t allow the producer to sell it for more than the average price. The socially necessary labor time acts as a regulator of price, pulling all private labors into accordance with the social average. Of course this average is never reached by all. All private labors will not ever reach the same level of productivity at the same time. That is because socially necessary labor time is an equilibrium point about which prices fluctuate, deviations always being sucked back towards it.

Many uninformed critics of the labor theory of value mistake these deviations for a flaw in the theory. Bohm-Bawerk argued that if deviations kept price from equalling value most of the time then the theory that labor time creates value is worthless. But this ignores the idea of value as a regulator. It ignores the indirect way in which private labor becomes social in a market. We can’t know the market price of our commodity while we are making it. We only discover this in the process of exchange. We throw our labor, embodied in commodities, into the market and we see what price it fetches. Socially necessary labor time isn’t very visible in the immediate act of exchange. But over time we can see it work its power as a regulator of price, as day to day prices fluctuate around average prices. If a product is being sold for prices far above its value this attracts other producers who start producing this commodity. Eventually prices fall. But they can’t fall too far because we must be able to reproduce the commodity the next day- we have to make at least enough to pay for our costs of production, compensation for our labor and money to put food on the table. Thus objective values are indirectly established through the subjective act of exchange.

Many things interfere with this process. Producers hold monopolies and thus can charge monopoly prices. Scarcity can keep prices above their values. Since we have some sort of basic, intuitive concept of value we complain about monopoly prices and scarcity rents. We say, “Damn the oil company is ripping me off!” and “These pharmaceutical companies are robbing me blind with these prescription drugs!” We say this because when prices deviate far from their values we sense that there is an inequality in exchange and all of our basic, ideological assumptions about markets tell us that exchange should always be fair- that this is the fundamental freedom/right of all people.

Should these interferences with the law of value cause us to reject the working of the law? No. All laws have interfering forces. Gravity and barometric pressure follow objective laws yet the weather is impossible to predict with 100% accuracy. It is through the averages that we can see them at work over time. So too with value. Monopolies don’t last forever. Most scarcity doesn’t either once production eventually adjusts to demand. This relation of deviation to the law is appropriate since we are dealing here with indirect regulation of value and labor through the process of market exchange. Maybe if we were dealing with a planned economy we would need a different standard of the relation between deviations and laws. But in market exchange this is most appropriate.

Why does Marx choose this relation- the buying and selling of commodities in the market- as the primary relation of his model? Why not start with the credit system, the money system, capitalist competition or even the labor-capital relation? Marx is following the law of presupposition: he always asks what relation presupposed what other relation? The credit system presupposes a money system. Money presupposes commodity exchange. Capitalist competition presupposes capital which is a capital-labor relation (which is, dialectically, also a relation of capital to itself.) What form does the labor-capital relation take? The exchange of labor-power for wages between formally free individuals in the market. Thus market exchange is the fundamental presupposition and thus value as regulator of labor and price is our key concept.

As we add relations to the model, labor-capital, capital-capital, etc. We see alterations in the way the law of value operates. But at each level the regulating force of the law of value continues to exert influence. In conditions of simple commodity exchange value exerts itself as socially necessary labor time bringing private production in line, creating average prices, and overtime breaking down monopoly and scarcity.

When we add the capital-labor relation we observe the way value creates a fundamental antagonism between these two classes, one owning the means of production, the other nothing. The capitalist can use this monopoly on ownership to appropriate value from the working class, not in the sphere of exchange where a trade is usually fair and equal, but in the sphere of production where a worker’s time literally belongs to the capitalist. We see more ways in which prices can deviate from values through relative surplus value and the rising of wages above or below values. But ultimately it is the value relation which governs this labor-capital relation. It is the quest to expand value, to turn money into more money, which drives the capitalist class to exploit the workforce. But in this process capital itself takes on objective properties. It too has tendencies and laws which govern its motion through a fluctuating process of averages. Capital must always grow. It must do so at the expense of the working class. As we later will learn, this growth has its own internal limits set by the antagonism of the wage relation which is an antagonism of capitalism with itself. This is the theory of crisis. Because this theory of crisis requires an understanding of the capital-capital relation we don’t learn about it until after the later relation is addressed in part two of this video. This is why Marx gives the incomplete version of crisis in Volume One of Kapital. In Volume 1 we merely get a picture of crisis caused by fluctuations in the attraction and repelling of the labor force. This version of crisis solely depends on the labor-capital relation. The falling rate of profit presupposes the capital-capital relation.

When we introduce the other internal relation of capital, the capital-capital relation we see even more dynamic changes in our model. Most importantly individual prices diverge from values. The magnitude of profit a capital makes diverges from the amount of surplus value it creates. This is topic of Part 2 of Volume 3. If this is so, how does value continue to operate as a law of any relevance? Marx holds three aggregate equalities: 1. total, aggregate value created in society= total, aggregate prices, 2. Total profit=total surplus value, and 3. average rate of profit in value terms equals average rate or profit in money terms. Though individual prices and profits my vary from their values, these aggregates remain.

On the other hand, saying that total-price equals total surplus value isn’t enough to make the law of value still relevant. After all, value comes about from the exchange of specific commodities in the market and from the network of social relations that this chain of exchanges represent. The total social product doesn’t get exchanged with anything. Bohm-Bawerk develops this line of criticism. He further argues that putting two aggregates side-by-side doesn’t tell us anything. I could say total prices are equal to the total weight of all commodities, but that individual weights differ from individual prices. This wouldn’t be much of a theory of price. (More on Bohm-Bawerk’s criticism later.) This is why Marx takes great pains to explain how changes in the productivity of labor always mean changes in prices and the rate of profit. Ricardo had argued the same thing. In fact Ricardo abandoned the idea of tying price to direct amounts of labor, instead stressing how changes in labor effected prices. Marx agrees that, at this level of abstraction, we see the law of value operating not in the simple manner of prices=value, but in this more general sense that changes in value create proportional changes in price. Yet Marx goes further than Ricardo in actually showing the mechanism by which labor-time is transformed into these prices with his theory of “prices of production”.

Though “prices of production” don’t have the same exactitude and simplicity of “prices=value”, the quantitative nature of the theory is still real and clearly visible. When workers are paid less profits rise. When productivity rises profits rise, at least in the short run. Commodities that require more labor time (cars, stadiums) are priced higher than products that take little labor time (pencils, staples). And when labor is completely eliminated from a task (like duplicating information which is now done with the click of a button instead of by scribes and copyists) that tasks looses all exchange value. The exact quantitative proportions are altered but the basic movements are all there.

The qualitative dimension is also there. Social labor is still regulated through market exchange. Profit is still made by buying labor-power and exploiting it. Capitalist are still capitalists. Workers are still workers. The social relations which the labor theory of value is meant to explain are still the same. And these social relations are our goal and our starting point. To return to Bohm-Bawerk’s criticism, we are not interested in a weight-theory of value because we know that prices are not meant to apportion weight. Prices apportion labor time. This is an observable phenomenon and it lies at the heart of what is distinctive about a capitalist economy. When we keep this theoretical starting point in mind objections like Bohm-Bawerk’s melt away.

We should keep all of this in mind when reading Part 2 and when considering the various criticisms that have been leveled at Marx for his theory of the Prices of Production.

The other famous controversy over Volume 3, Part 2 is the matter of the transformation problem. I have talked about this more extensively in my video “What Transformation Problem?” and the “Math Supplement” that goes with it so I will merely refer readers to those pages rather than repeat myself here.

Das Kapital vol. 3 part 1 chapter 7: Supplementary Remarks

Capital Vol. III Part I

Chapter 7 Supplementary Remarks

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

Marx begins by repeating some points from earlier. The fact that capitalists realize the value of their product in the market causes them to believe that it is through the market that value is created. Marx doesn’t complete this point but if he had perhaps he would remind us that the world of appearance, the subjective valuations between buyer and seller in the market, are the mechanism through which the law of value operates. The law of value is formed through the indirect linkage of all of the social labor process through this act of individual market exchange. Therefore it is easy to confuse the value-creating powers of labor with the subjective valuations that happen in exchange. We have seen, throughout these opening chapters, how that profit comes wholly from surplus value. Yet the rate of profit is modified by a variety of other factors like changes in the value of constant capital, turnover time, changes in value of labor power, etc. This is one more way in which we confuse these changes for the cause of value. We might notice that increased turnover time increases profit but this doesn’t mean that time itself creates value. We might notice that a decrease in constant capital costs causes profits to rise. But this doesn’t mean that constant capital is creating more value.

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Is it possible for a firm to increase in size and maintain the same rate of profit? Obviously the mass of surplus would increase but this surplus would be calculated against a larger cost-price so the rate or profit will stay the same if all of the internal portions of capital stay the same: the organic composition and the rate of exploitation. This distinction between mass of profit and rate of profit will be crucial in Part 3 when Marx discusses the falling rate of profit. _____________________

What causes the rate of profit to change? A change in ratio of surplus value to the price of producing this surplus value is what causes the rate of profit to change. Thus changes in the rate of exploitation, the organic composition of capital, or the market prices of constant and variable capital all act to influence the rate of profit. If the market price of an input is changing this shows us the way productivity is really a social phenomenon. The difference between the labor time it takes a particular, concrete firm to produce a commodity and the labor-time it takes society in general to produce something is the difference between necessary labor time and socially necessary labor time. This explains the devaluation or appreciation of inputs. In general a rising organic composition of capital means a falling rate of profit. A falling organic composition means a rising rate of profit. If just the money value of capital changes due to a change in the value of money itself, then the profit rate only changes in name, not real values.

_____________________

These brief remarks don’t tell us anything new but they do a good job of summarizing some of the crucial points from the last 100+ pages. It is now easy to see how the origin of profit in exploitation is obscured by all of the other contingent factors effecting the rate of profit. This obfuscation will be taken further in Part 2.

next post: my opening thoughts about Part 2

Das Kapital vol.3 Part 1 Chapter 2: The Rate of Profit

Kapital Volume 3
Part 1, Chapter 2 The Rate of Profit.

(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)

The summary which begins Chapter Two serves not only to remind us of some important details about the way in which value is produced but also ties together several details that will be essential for understanding our analysis of the law of value in the context of competing capitals. We are reminded first that surplus value is created in production but only realized in circulation. This is a crucial point as it really helps delineate the essential contours of Marx’s argument. The world of appearance is dominated by fetishism. We think that the coercive and tantalizing power of the market, that value, is manifest in commodities themselves as a result of their specific properties. We think that capital itself creates value. And we think that the process of exchange itself can create a profit. The modern neo-classical idea that both sides of an exchange profit because of differences in subjective utility would be the most pathetic form of fetishism to Marx. Of course value must be realized in exchange. Of course we couldn’t have profit without entering the marketplace to sell a commodity. But without engaging in productive activity we would have nothing of value to sell in the first place. Marx reminds us a few sentences later that the capitalist only engages in production in the first place in order to make a profit in the market and that this is only possible if there exists a commodity which can create more value than it costs: the worker.

The fact that value is produced by the worker but realized in circulation is important for our understanding of the theory of prices of production (see Part II). If surplus value is realized in the market then there is no guarantee that all of that value will be realized. A capitalist could realize more or less than the actual value of their commodity. This is precisely how average profits are realized.

The capitalist can’t employ workers without also employing means of production. After all, this is what makes him a capitalist- his ability to dominate the means of production and thus exploit wage labor. The capitalist must always purchase additional means of production whenever (s)he invests in workers. Thus every investment in variable capital is also an investment in constant capital. It becomes impossible to distinguish between the purchase of the worker and the purchase of the tools by which the capitalist dominates the worker. If the capitalist doesn’t suffer from the fetish that his profit comes from the market then he is likely to suffer from the fetish that surplus value comes from capital itself. That is, profit seems to come from investment in total capital and not merely from the variable portion. The mystery of profit is obscured. The indirect mechanism of the market once again draws a veil over the social relation behind it.

Profit, as Marx explains in Volume 1, comes from the excess of surplus value over the wages paid to workers (variable capital). Thus we represent the rate of exploitation:
s/v
where v is variable capital, money spent on wages, and s is the surplus value created by workers above the value of their wages. But if profit is really a measure of surplus value over the entire expenditure on capital, constant and variable, we will need a different equation:
s/(v+c)
where c is constant capital.

This formula for the rate of profit, surplus value over the total capital invested, will become the focal point of the next several hundred pages. Marx will attempt to show how variations of the elements of this equation will produce different results- different worlds of appearance. In fact the rest of Part 1 will be devoted to showing how variations in surplus, variable and constant capital, produce different real world phenomenon. In the course of this painstaking exploration he will describe every single variation possible in the equation and how each results in a different world of appearance. We are expanding on the more general descriptions of class struggle painted by the equation for the rate of exploitation (s/v) in Volume 1. Now we see a more graded, varied world of outcomes as we begin to examine the new dimension of capitalist competition which we are slowly adding to our map of capitalist social relations.

Though much of Part 1 is quite tedious in its example after example of different variations in the equation for the rate of profit, one of the things I do admire about it is that it is a great example of how misinformed those critics of Marx are who label him a determinist. From a superficial glance at the equation for surplus value we would assume that Marx assumed a world of constantly polarizing class struggle, of constant immiseration of the working class at the expense of the capitalist class. And indeed, this is the basic theoretical crux of the theory of exploitation. To the extent that capital reigns supreme, unrestricted, unchallenged, it will extract as much value from the working class as possible. But some see in this some sort of weather forecast, some sort of absolute prediction that is not borne out by the current plurality of working class experiences. But here in Part 1 of Volume 3 we get a long description of the plurality of forms of appearance that capital may take just by adding another variable to the equation, constant capital. Marx is saying that capital has certain essential characteristics, characteristics rooted in the antagonism of the wage relation, but he isn’t saying that there is only one possible world of appearance that this relation may take. He’s just pointing to the essential, abstract relations inherent in all of these possible world’s of appearance.

The formula for exploitation, also called the rate of surplus value, s/v, tells us that the capitalist gets something for nothing, that surplus value costs the capitalist nothing at all. This is essential to the basic contours of Marx’s argument. He assumes equal and fair exchange. He assumes a world of free and equal exchange in which nobody is ripped off and nobody charges monopoly prices. That is, he assumes the existence of bourgeois equality, market equality. The only way capital can exist in the context of bourgeois equality is for there to be a commodity which produces more value than it costs. An equality in exchange can only create profit through an inequality in production. While buyers and sellers are free and independent in the market, the social relation of capital is an unequal one which allows domination in production. This is the basic social relation capitalism.

But as capitalists employ their monopoly on means of production they employ the products of past labor as well as present labor into production. Constant capital enters their calculations. The equation for the rate of profit, s/(v+c) describes the relation of past labor to present labor, of capital to labor, and of cost-price to profit. This is why Marx says, on page 43, that the rate of profit must be deduced from the rate of exploitation and not vice versa. The social relation of dead to living labor, of total capital to profit, etc, can’t be understood without the prior relation of capital and labor.

But then he goes further and says that “it was the rate of profit that was the historical point of departure.” (p 43) I’m not sure how to read this. There is much debate about whether we should interpret Marx’s model of simple reproduction as an historical phenomenon or a theoretical level of abstraction. Many accuse Engels of imposing the historical interpretation on Marx’s writing. Some even challenge the whole idea of simple production (See Chris Arthur’s piece: http://marxmyths.org/chris-arthur/article2.htm). It is true that Marx’s comments on the historical nature of simple commodity production seem scattered and unformed, at least in the 3 volumes of Capital. There are also some important questions to raise about the historical argument: How does primitive exchange become regular enough for the law of value to really operate without the power of capital to break down these barriers to exchange? If primitive exchange contains unequal profit rates based on varying organic compositions (something we talk about in future chapters) why do people invest in high composition industries in the first place? Here are some of the thinkers on either side of this debate: Engels, Ernest Mandel (see intro to Vol. 1), and Rudolf Hilferding (Reply to Bohm-Bawerk) all argued for some historical interpretation. I.I. Rubin (Essays on Marx’s Theory of Value) and David Harvey (Limits to Capital) are the two that I have read who criticize this interpretation. I would be curious to hear other folks’ take on this and other suggested readings.

On with the chapter…

S/V tells us about the basic relations of the production of surplus value. It is assumed that once a surplus is produced that it is realized. But we know that the market contains all sorts of pitfalls and challenges to the actual realization of the value created in production. In this chapter Marx begins to outline some of the basic ways in which “production and circulation intertwine and intermingle”. “Capital passes through the circuit of its metamorphoses. Finally stepping beyond its inner organic life, so to say, it enters into relationships with outer life, into relations in which it is not capital and labor which confront one another, but capital and capital in one case, and individuals, again simply as buyers and sellers, in the other.” As our model of the labor-capital relation is expanded by adding competition between capitals we get a more fleshed-out picture of what capitalism actually looks like.

One of the most important things we notice when examining the process of circulation of surplus value is that circulation time can effect that rate of profit. If a capitalist can turnover a given amount of capital twice as fast as another he can make twice as much profit in the same amount of time. This gives the appearance that turnover time is as important as labor-time in creating value.

The process of production constantly intermingles with the circulation process. One stage morphs into the next in a continual cycle which makes it difficult to single out just one leg of the circuit as responsible for the production of value. Equally distorting is the idea that increasing the rate of exploitation by paying workers less is similar to cutting cost-price by buying cheaper constant capital. Capitalists treat both variable and constant capital as input costs to be slashed.

Marx says this all is a further development of the inversion of subject and object which happens in capitalist production. In the factory the subjective, creative forces of labor appear as the productive forces of capital alone. On the other hand the past-labor embodied in the forces of production become the subjective power of the capitalist. These “inverted conceptions” create a “transposed consciousness” (p.45), a fetishism which attributes the social power of labor to machines and capitalists while treating the living laborer as an objective commodity.

But this is an illusion. In reality there is no inner relation between the amount of constant capital used in production and the amount of surplus value created. Now, of course there is a technical relation at play. For a given amount of workers to perform a given amount of work a certain amount of constant capital will be needed. But this amount of constant capital has no relation to the amount of surplus created. The amount of constant capital varies with the specific technical requirements of a different production processes but has no bearing on the amount of surplus created. Even within the same production process the value of the constant capital employed can change without effecting the surplus value. So Marx tells us there is no inner relation between c and s. This also means that there is no inner relation between k (cost price, or c+v) and s.

Surplus value can only be created by exploiting wage laborers. But this doesn’t mean that in the course of realizing profits in exchange this surplus can’t be redistributed between capitalists. Though the rate of profit is just another measure of the rate of exploitation, though both are just a measure of the amount of surplus value extracted from workers, the rate of profit appears as merely an excess of selling price over cost-price. It remains a mystery where the profit came from. Did it come directly from the exploitation of workers or did it come from exchange? As we will discover later in our exploration of average profits, though surplus value is created in production it is redistributed among capitalists in exchange. Though profit can only come from exploiting labor the equation for the rate of profit shows us that profit occurs as equal returns on total capital. The only differentiation within the total capital that the capitalist is aware of is the difference between fixed and circulating capital, neither of which create surplus value from Marx’s perspective.

Marx concludes the chapter by evoking Hegel: “If, as Hegel would put it, the surplus therefore re-reflects itself in itself out of the rate of profit, or put differently, the surplus is more closely characterized by the rate of profit, it appears as a surplus produced by capital above its own value….” Surplus appears as an inner relation of capital to itself and not as a social relation between capitalists and workers. And of course, appearances always have a ring of truth when we are dealing with the fetishism of commodities. The body of the laborer is incorporated into the circuit of capital. As we breathe life into the machine we gives up our own life, becoming appendages to the machine, our alienated products becoming the active agents of our domination.

Profit is the form of appearance taken by surplus value. Surplus value immediately reveals a social relation to us. Profit doesn’t. Profit obscures surplus value, and appears as a relation of capital to itself. Marx warns that the further we explore this world of appearance the more surplus value will seem divorced from profit. In Part 2 of the book we will see how, in the case of average profit, this causes prices to diverge from values.

chapter 3