Posts Tagged ‘labor theory of value’

Law of Value 8: Subject/Object

November 15, 2011

Law of Value 8: Subject/Object

part 1:

part 2:

part 3:

part 4:

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

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

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

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

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

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

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

a point of clarification:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the Real World….

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

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

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

Subjects, Objects and their Prices

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

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

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

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

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

A further examination of demand

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

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

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

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

Subject/Object inversion

[Mitt Romney quote about corporations being people]

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

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

conclusion:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

further draft of subject-object

October 24, 2011

Perhaps it borders on narcissism to think that the world is interested in following the successive redrafting of the scripts to my videos. But I suppose there are worse things to clutter the internet with. I do always find feedback quite useful. This is the 2nd half of my Law of Value 8: Subject Object script, totally reworked. I posted the entire script last week but I decided that the second half, which deals with marx’s concept of subject/object inversion needed to be rewritten entirely.

My goals in this revision were:

1. Address the effect of demand on market prices and explain why we don’t need a subjective theory of value to explain this or why this is not a problem for marx’s theory of value.

2. Tie the point about “real abstraction” to the concept of subject/object inversion and fetishism.

3. re-order the flow of concepts to make things as succinct as possible and less academic sounding. This point still needs work.

Here it is:

Subject-Object, draft 4, second half:

In the Real World….

In the real world, outside of the fantasies of bourgeois economics, subjects and objects have no meaning apart from their relations to each other. There is no such thing as a subjective individual floating in a vacuum. We develop our subjectivity through our relation to the objective world we inhabit. And while the objective world can surely exist without subjects, it has no meaning for a social theory like economics except the meaning that people give it. Subjects and objects always exist in a relation, deriving their meaning from this relation.

This relation is not just one of coexistence. It is an active process of by which subjects engage with the objective world, transforming it. People work on nature. We chop trees and make houses. We build cars and dig up oil to power them. In so doing we transform the objective world and also transform ourselves. The manner in which groups of people work on and transform the world around us has changed through history. These different modes of relating to and transforming the world Marx calls “modes of production”. (brief mode of production chart with Feudalism, Slaveocracy, Capitalism, Communism, etc. and some picture depicting S/O relation?) (footnote on materialism)

This productive activity doesn’t just transform and create the objective world around us. it also creates our subjectivity. It determines what sort of things we value, how we go about getting the things we desire and how we relate to other people. Different modes of production produce drastically different types of societies with different value systems, different ways of relating to our desires, and different social relations between people.

Every mode of production is limited in terms of the social results it can achieve. The capitalist mode of production, for instance, though quite good at producing lots of stuff, is unable to solve basic social problems like poverty, exploitation, war, and economic crisis within the parameters of the capitalist mode of production. This is because capitalism has a very interesting quality as a mode of production, a quality Marx calls “subject/object inversion”. We will return to this quality in a moment.

Subjects, Objects and their Prices (image of commodity and person, both with price tags)

In addition to producing at the average level of productivity, there also must be a demand for the products of labor if private labor is to become social. If too much private labor goes into the production of elevator music than there is demand for elevator music then some of this music will remain unsold and some of this private labor will not become social. Producers will be forced to move their labor elsewhere. But rather than this being an example of demand creating value, it is an example of how changes in demand effect the distribution of social labor. This is part of the phenomenon Marx is explaining in his theory of value: the labor of society is coordinated through the fluctuations of prices, a phenomenon only possible because there is a relation between prices and labor time.

Furthermore, demand itself can only be understood if we abandon the concept of the isolated individual and see demand as part of a huge social process whereby capitalist production reproduces itself. The only type of demand that counts in the market is “effective demand”, that is demand backed up by money. Consumer demand comes from wages paid to workers. The products which consumers buy with this money are not just the random result of psychological preferences. In fact, most of our money goes to the purchase of very basic things we need in order to keep us alive as workers so that we can produce more value for capitalism each day: rent, food, clothes. (footnote on consumption) These are needs and desires dictated to us by capitalism, for the purpose of perpetuating capitalism, not the abstract psychological preferences of isolated individuals.

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

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

Subject/Object inversion

[Mitt Romney quote about corporations being people]

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

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

Now…. do you get any of that heavy stuff with marginalism?

conclusion:

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

Like a schoolyard bully, a system is always the most violent when its weakness is exposed. When the law of value breaks down the politics begin. Subjects must become active. This can be the politics of the ruling class as it scrambles to reassert the status quo or it can be the politics of radical movements that posit the possibility for new social orders.

Posted in The Law of Value | Tagged abstraction, capitalism, crisis, demand, economics, fetishism, labor theory of value, marginalism, marx, materialism, object, price, socialism, subject, subjectivism, value | 9 Comments »

Law of Value 8: Subject/Object -draft

October 9, 2011

This is a draft of my script for the 8th video in my Law of Value series (see link to the right). All comments and criticisms are extremely welcome… that’s why I post these scripts before going into production.

Subject/Object

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

Eugene Bohm-Bawerk

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

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

If economic value is subjective, as the theory of Marginal Utility argues, then the marketplace is just a clearinghouse for our desires. It serves as a vast, unconscious, democratic network, adjusting needs and production with scarcity to provide the best possible organization of our competing subjectivities. The outcome of this market process can’t be critiqued because it is just the spontaneous result of our desires. There is nobody to blame if something goes wrong. Responsibility is dispersed between millions of individuals. The only thing we can critique, from the Austrian perspective, is those who try to interfere with this market process.

If value is entirely subjective then we can have no theory of exploitation. The division of the social product into wages of workers, profit of capitalists and rent to landlords is not explained by the power of these social classes. Instead it is seen as the result of purely technical factors, like the scarcity of inputs relative to the subjective decisions made by workers and capitalists as they enter into free contracts. Rather than a theory of classes, we have a theory of pure individuals, all seen as equals in the market.

And since individuals have always had subjective values the subjectivists can argue that capitalism is the expression of universal human characteristics and not a particular historical form subject to change.

Marx would not disagree with the obvious fact that individuals make subjective choices in the market. But he would not be very interested by this fact since these choices happen within the context of larger institutional arrangements which we have no choices at all over. It is these larger structures which we don’t have choices over that Marx is interested in: Private Property, wage-labor, commodity exchange, and the law of value.

Individuals may have the power to choose coke over pepsi but this pales in comparison to our lack of freedom to chose what sort of world we want to live in, to chose meaningful occupations, to live in a world without poverty, injustice war or exploitation. In a capitalist society economic laws have power over people and governments and there is nothing we can do about it. We are all hyper-aware of this fact today as we watch the most powerful people and states in the world flounder helplessly in the face of this economic crisis. The Law of Value commands, people obey. For Marx the market is a place where blind economic laws dominate over us, where subjects are powerless and where objects like money and commodities are imbued with social powers.

a point of clarification:

The argument for a subjective theory of value may appear self-evident at first when we consider the obvious fact that everyone makes subjective value judgements when they go shopping, deciding which commodities we prefer over others. But the personal value judgements we make in our heads are not the same as the exchange values of commodities. Commodities have exchange values, the values they possess in relation to other commodities. Exchange value is most often expressed in money prices.

The discussion can get confusing if we forget that we are using the word “value” in two different ways. In the first sense we are talking about personal, subjective, psychological value judgements that are immeasurable and unquantifiable. In the second case we are talking about quantitative, measurable exchange ratios between commodities (so many apples exchange for so many pencils). Just because we use the word “value” for both things doesn’t mean they are the same.

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

Subjectivist Island

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

Ok, now setting aside the fact that most of us don’t carry around a preference scale in our pockets, there is a bigger problem: Subjectivist want you to believe that this little story about Eugene and Subjectivist Island is all that you need to know in order to understand the functioning of modern capitalist society. Funny then, that we had to abstract away all of capitalism, all society in fact, in order to arrive at our theory of preferences. Were we to think critically we might begin to suspect that there is something fishy going on with this abstraction.

That fishy something is the stink of an ideological abstraction. We discussed such ideological abstractions in the last video, Law of Value 7, but let’s review a few points here. The point of a dominant ideology is to make it seem like the present order of things is a universal order; that the status quo is the natural expression of things, unchangeable. How convenient then, for our bourgeois theorists, that our natural, universal man, Eugene, happens to contain the seed of modern capitalist society in all of his preferenc-ing and acting. It’s as if every choice made by every human since the dawn of time was just an expression of capitalist instincts, waiting to come into being in our modern society. (footnote re Hayek)

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

It does this through the fantasy of barter. Let’s say Eugene, while back-stroking one day, discovers another island called Barter Island. Here lives Ludwig who cracks coconut all day. They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish.

“Now,” says the subjectivist, “we have shown that our abstraction was legit and that we can explain exchange ratios purely through the science of preference scales.” If only it were that simple.

The first thing we might notice is that the exchanges on Barter Island can only take place because Eugene and Ludwig have different resource endowments. If they both had access to coconut and fish then there would be no reason to trade. In order for trade to continue in a sustained way, trade must reproduce these differences. This means that in order for a capitalist market to work there must be the constant reproduction of a certain type of property relations in which people have to enter the market in order to get what they need to live. Specifically people must be deprived of their own means of production, forced to enter the market to sell their labor in order to buy the things they need. This property relation must be continually reproduced through exchange so that there is always scarcity and people are always dependent on the market.

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

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

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

Real Abstraction, or Why Karl Marx is Still Relevant

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

In a capitalist society human labor becomes abstract. In the caste system of feudalism where people were born into certain types of work and there were strict divisions between castes there was no such thing as labor in general, or a worker in general. But in a capitalist society labor loses all of these specific features. People aren’t peasants, soldiers or guildsmen. They are just workers. We have “a job”. Our education prepares us for “work”, and we move between multiple jobs in a lifetime. Most of all, economic value is not tied to this work or that work but to labor in general. It is labor in the abstract that creates value, regardless of the specific nature of this work. We will discuss this more in Law of Value 9: Abstract Labor.

Outside of the ideal abstractions of philosophers, in the real world, subjects and objects have no meaning apart from their relations to each other. There is no such thing as a subjective individual floating in a vacuum. Subjects form their sense of self, their meaning, in relation to an objective world. While the objective world can surely exist without subjects, it has no meaning for social theory except the meaning that people give it. If people decide that gold is valuable then it is valuable. Subjects and objects derive their meanings from each other.

Furthermore, subjects and objects don’t derive these meanings by coexisting side-by-side. There is an active process of by which subjects engage with the objective world, transforming it. In other words, people work on nature. We chop trees and make houses. We build cars and dig up oil to power them. In so doing we transform the objective world and also transform ourselves. The subject-object relation is an active one. In different times and places the way we as subjects transform and relate to the objective world has varied. These different modes of relating to and transforming the world Marx calls “modes of production”. Modes of production are inherently social, defining the way large groups of people transform and relate to the material world. The capitalist mode of production is his primary topic of interest to Marx.

Notice that the subject-object relation, as we are talking about it here, is not just an ideal relation, based on our ideas about the world. It is based in real, concrete working activity of people actively transforming the world. This is what is meant when Marx talks about “materialism.” He wants to stress this real-world process of human activity as opposed to theories that dwell in ideas and psychology, like that of the subjectivist school that think we can understand capitalism just by an examination of the psychology of consumers. Often people think that “materialism” means that individuals are unimportant, or history is predestined, but this is not what Marx means. He wants us to understand the specific ways in which subjects and objects relate through the real activity of people in their day-to-day activity, in their mode of production.

A curious thing happens in the capitalist mode of production: the subject-object relation gets inverted. Objects take on social power and individuals are left powerless. Blind economic laws rule and people obey. All along subjects are still the active participants, the ones working and transforming nature into objects for human use. But somehow people cease to act for themselves and instead act for objects. Money becomes more powerful than people. Corporations become people and exert more power in society than individuals or even social movements. While people run around in the street with signs begging the system to take notice of them, the cold-logic of capital becomes the active agent in society, using the body of the worker like a passive expendable commodity, subordinating societies, governments and even nature itself to the impersonal motives of profit. Capital appears as the subject and the worker as its object. The subject-object relation is inverted.

Economic laws are another name for this subject-object inversion. Economic laws cause people to do things they don’t want to do. When capitalism crashes due to its inherent cycles of instability it compels capitalists to lay off workers and compels governments to impose austerity.

But crises are also a time of instability in the system, a time when the economic laws of capitalism are exposed not as eternal, universal laws as the bourgeois economists would want us to think, but as the particular laws of this time, laws that we might be able to overthrow. In a crisis, the order of the market breaks down and political will must move into the picture to assert some semblance of order. When the law of value breaks down the politics begin. Subjects must become active. This can be the politics of the ruling class as it scrambles to reassert the status quo or it can be the politics of radical movements that posit the possibility for new social orders.

Fetish.

[diagram of capitalist society, with all property relations, production relations, etc.]
This is a capitalist society in all of its complexity, all social relations subordinated to the imperative of profit.

[zoom into image of exchange within picture]
This is capitalism as depicted by subjective value theory, all social context abstracted from the picture. Bourgeois economists, sitting in their offices, playing idle mental exercises argue that we can abstract away all of this, and still explain a capitalist society. But in doing so they run into all sorts of problems because their theory can’t explain any of the things it wants to explain without bringing questions of class, property, and exploitation back into the picture. It’s original abstraction is illegitimate. Yet this abstraction is understandable. After all, we live in a world of fetishized social relations. The relations between people appear as relations between individuals and commodities. It is the perspective of the isolated individual interacting with a world of commodities, not of commodities coordinating the relations between people.

But this fetishized perspective is not just a lie. It represents a particular vantage point within the larger phenomenon that is commodity fetishism. It’s not that the world of commodity exchange is all an illusion. The illusion is real. Commodities really do have social power. Corporations really are people in the sense that they have more social power than social movements. Capital becomes the subject and society its object. There is a real subject-object inversion. But the other side of the coin is that capital’s power only comes from us, not from some divine, natural eternal essence. It rests only on a particular configuration of production relations. That means that capitalism is only sustainable to the extent to which we are willing to sustain it. Were the political will sufficient we could reconfigure our social relations in a more human way where people actively, consciously control our working activity as we shape the world in conscious ways. This is the task of radical politics, and this is the time for it.

Posted in The Law of Value | Tagged bohm-bawerk, economics, hilferding, labor theory of value, marx, mises, objective value, subjective theory of value | 13 Comments »

Subject/Object- thoughts

June 9, 2011

subject/object- preliminary thoughts.

While I often post early drafts of scripts on the blog it is not often that I actually post something of this sort- a pre-draft exploration of a topic. I am doing so because I find the input, criticism and insights of my readers useful in these matters. I also could use this exercise in self-clarification on the topic at hand before worrying about the actual presentation of the idea.

Law of Value 8 will be called “subject/object”. It will begin by discussing the troublesome dualism in which this debate over whether value is objective or subjective is often cast. Why do I say this is troublesome? The trouble is apparent in the deluge of libertarian/zombie commenters on my videos all repeating the mantra “Everyone knows that value is subjective!” Setting aside the obvious clue (“Everyone knows that”) that we are dealing with ideology, there is something bothersome about this appeal to facts, to basic empirically-verifiable personal experience… I know that I form value judgments and that these inform my economic decisions, therefore value must be subjective. The Marxist response to this argument cannot be to deny the subjective experience of forming economic judgments. It instead must take the form of arguing two things: 1. that this subjective experience of value is not what Marx is talking about when he discusses value; and 2. that these subjective experiences of value are completely out of our control… that, rather than reflecting the positive, liberatory aspects of the market that our capitalist apologists want us to believe in, they are actually the reflection of alienation, the opposite of liberation.

This two-fold critique does better than to fall into the simplistic duality in which the subjective-objective debate seems to fall at times. It is not that the subjective experience of value formation doesn’t exist. It is quite real. But it is not the whole picture. The subjective experience of value requires certain objective conditions for it to exist. The organization of social labor through commodity exchange is an objective fact. Wage labor is an objective institution.

Furthermore, the subjective decisions actors make in the market do not happen in a vacuum. The decisions we make in the market depend on a pre-existing world of value around us. We do not, as individuals, set market values. This is an anarchic process that takes place through the aggregation of decisions. Of course, this much is assumed by the subjective argument: the subjective decisions of individuals coalesce to form the best possible distribution of values, in an obvious parallel with bourgeois democracy. We vote with our money.

The marxist critique of this argument must again involve two dimensions. Firstly it must be argued that these subjective market choices in the end are only the mechanism by which the objective structure of production expresses itself. In other words, there is an existing, objective productivity of labor, and an existing, objective distribution of labor. The haggling of actors in the market can do little more than to eventually arrive at an arrangement of market prices that reflects this distribution and productivity. Yet, if we were to paint the picture in this entirely one-sided fashion we would be remiss (and un-dialectical). In fact, consumer demand can push prices above or below values and this is the mechanism by which labor is reapportioned. In fact, this movement of prices around values is an essential part of the process of value itself, the mechanism by which value does what it is supposed to do, coordinate social labor. (This brings us to another important question- the relation of exchange value to value, and the ultimate question “what the hell is value anyway”? I’ll bracket this question and return to it later). So though the objective structure of production determines values, the subjective actions of market actors can change the distribution of social labor by causing deviations of exchange value from value. This means that Marx cannot mean that the objective structure of production completely determines the specific character of the distribution of labor within that structure. Marx is not arguing some theory of predestination. If more people like Coke than Pepsi there will be a redistribution of labor to Coke. This redistribution is very real and it is the result of subjective preference. Yet this redistribution is not possible unless the price signals are tied to labor time. If price does not reflect social labor than price variations would not be able to reapportion labor time. The labor time it takes to make something is an objective quantity existing at a time history, at a certain level of social productivity. Yet, as Marx is first to point out, this level of productivity too changes constantly as the result of class struggle and it is this class struggle that is an objective movement- a necessary relation with its own objective tendencies.

Secondly, the market actor is not a creature in a vacuum. It is a product of an objective state of affairs. In fact, it is the degradation of the individual subject that is the focus of Marx’s efforts. He is not interested in annihilating the freedom of the individual and subjecting him/her to the objective force of some meta-logic. This is not the liberation that Marx desires. Rather, Marx’s concept of emancipation is one in which the individual’s desires are liberated, in which we are capable of authoring our own future in a way that is impossible under capital. After all, there is something insulting about the libertarian claim that our subjective consumer decisions in the market over Oreos and Cheerios are the culmination of the quest for human freedom.

If my market valuations of Oreos and Cheerios are not an abstract, timeless expression of human freedom, but are instead bound to a definite period in history, to a specific type of individual formed through certain objective conditions, than what type of individual am I? Yes, as the economic sociologist will tell us, we are creatures of cold calculation- utility maximizing machines. And in other societies, past and future, humans are not, by nature, utility maximizing. (I just read a great essay by Mashall Sahlins in his book “Stone Age Economics” in which he makes this very point through a study of hunter-gatherer societies.) Therefore the economic man that bourgeois theory wants to project backwards and forwards in history is the same as every other bourgeois category that our capitalist apologist wants to declare a universal: pure ideology.

But the plot is thicker than this. It’s not just that the utility-maximizing individual is a created individual, a social product of a certain organization of production. The reason we have this impasse in the debate over subjective-objective value, the reason we can’t just appeal to our immediate sensual experience to solve the problem, the reason libertarians can say “everyone knows value is subjective” at the same time that the economy is doing terrible things to everyone that nobody wants it to do, is that there is a contradictory subject-object relationship at the heart of the organization of a capitalist society.

The relationship of value theory to subjectivity is part of the fetishism argument. Our subjective experience of the market is real but it is not complete. The fetishism of commodities is not an illusion. Objects really do have social power, people really are the personification of objective categories. Yet the realness of this fetishism is incomplete. There is a deeper reality running through it, behind it. This deeper reality isn’t just the structure of production. It is the actual mode in which we view/interface with reality itself. This interface, this mode of production, is the real totality which we must seek to understand through theory since it obscures itself from our immediate subjective experience.

This is why I am calling this video “Subject-Object” and not “subjective-objective”. While a clarification of the relation of the structure of production to demand and supply and price formation is a crucial step, there is a more profound observation about capitalism at work in Marx’s value theory. This is the relation between the individual and his/her object.

Let’s cut to the chase. The reason that the subjective-objective debate misses the point somewhat is that Marx’s aim is not the subject or the object but instead the means by which subjects appropriate objects and the ways in which this act of appropriation creates the individual. This mode by which we as subjects interface with our objective world Marx calls a “mode of production”. It is this mode of production, and not the subject or the object, that is the focus of Marx’s scrutiny. The goal is not to analyze the structure of production or the banal bourgeois individual. (After all what is more boring that counting factories or observing the stupidity of the commercial-conditioned consumer?) The goal is to understand the mode of production.

And what is the capitalist mode of production, fundamentally? It is an inversion of subject and object. Rather than subjects exercising a creative control over their destiny through their work they find themselves pressed-down upon, thwarted and controlled on all sides by the alienation of the market. The products of our creation stand opposed to us, dominating us, controlling our actions and causing untold suffering and violence.

[If folks have not watched the exchange between panelists at the end of the 1st panel of the Marxist Humanist Initiative's crisis conference in November I highly recommend it. At the end of the panel there are distinct positions taken over this key issue of what needs to be changed to overthrow capital. For Rick Wolff all we need to do is get rid of the capitalist class. Wolff actually argues that exploitation can be defined simply as the relation between capitalists and workers. Myself and Andrew Kliman respond by arguing that classes are merely the personification of economic categories and that these categories are what must be overthrown. These categories are the inversion of subject and object, the alienation of the individual in the capitalist mode of production. It becomes a debate between market socialism and some communist mode of production/distribution.]

Now, if overcoming this subject/object inversion requires more than just eliminating its personifications as class actors, what must be done? The answer, and I am influenced very much by Kliman on this issue, is to address the problem of creating a society with “directly social labor”. In short, such a society would not be ruled by the market because labor would not be disciplined by socially necessary labor time. I believe I have actually addressed this issue fairly well in the SNLT video (law of value 5 video).

Anyway, these are my sprawling thoughts on the topic and I invite any commenters, critiques, suggestions. Again, this is not even the outline of an actual script, just a self-clarification before embarking on the actual writing.

Posted in The Law of Value | Tagged capital, dialectic, economics, inversion, labor theory of value, marx, object, objective, subject, subjective, value | 13 Comments »

Kapital vol 3; Chapter 14. Counteracting Influences

November 30, 2010

Capital Vol. III Part III: The Law of the Tendency of the Rate of Profit to Fall
Chapter 14. Counteracting Influences

(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 rate of profit does not just plummet downward toward destruction and crisis everyday. Like any other observation we can make about the structural contours of a relation, once we understand the inherent tendencies within this relation we have to put it in a wider context of other relations to see how this wider context mediates the potency of our initial observations. For instance, we know that the wage relation pits workers and capitalists against each other in diametrically opposed material interests. Yet the extent of exploitation and the level of class struggle are mediated by all sorts of other factors like the political strength of both classes, the value of the means of subsistence, etc. Yet these other factors don’t change the basic form of wage-labor. They merely mediate its expression.

More important though is to understand the notion of tendency more deeply. It was until I read Paul Sweezy’s critique of the Tendency of the Rate of Profit to Fall (TRPF) in his classic “Theory of Capitalist Development” that I began to understand the importance of the inner relation between a tendency and a counter-tendency. Of course, I completely disagree with Sweezy on this point. Sweezy points out that many of Marx’s counter-tendencies are linked to the same force as the tendency, the development of the social productivity of labor. He says, for instance, that we can’t privilege the rising organic composition over the rising rate of surplus value because both are caused by a rise in productivity (By introducing more machines into the labor process we raise the organic composition thus lowering the rate of profit, but we also cheapen subsistence goods raising the rate of exploitation and thus the rate of profit.) Sweezy argues that because the tendency and counter-tendency are bound up in the same force that there is no way to determine the dominance of one over the other. It makes more sense, he argues, just to talk about a net change in the rate of profit, not some tangly mess of tendencies and counter-tendencies. Similarly, David Harvey dismisses those who give primacy to the TRPF because of the “complex interaction effects” of all of these counter-tendencies.

Thus, when Sweezy develops his underconsumptionist theory of crisis (the theory which would become the defining backbone of the ‘monopoly school’ or ‘monthly review school’) he treats counter-tendency differently. He identifies a long-term tendency towards underconsumption and stagnation which is mediated by a set of external counter-tendencies. The state mops up surplus capital, the state stimulates demand, foreign markets are opened up, etc. Each tendency is external to the logic of the basic drive to underconsumption. Thus he is able to argue that in the end all of these counter-tendencies will run-out, leading to a long-term tendency towards stagnation.

In critiquing Sweezy’s approach we can bring out what is really crucial and distinctive about Marx’s approach.The whole point of a tendency is that it is generated by the same forces that make for a counter-tendency. And because of this inner relation of a tendency with its own limits, with its own opposite, we get three possible types of motion. This is motion and dynamism generated from an internal contradiction. In his Frontiers of Political Economy Guglielmo Carchedi lists 3 types of tendencies:

1. The tendency dominates and the counter-tendencies are fluctuations around a tendential point. ie the wages
2. The Counter-tendency dominates, the tendency causing aborted and incomplete motions toward a tendential point that is never reached. ie the average rate of profit…
3. Cyclical movement where either the tendency or counter-tendencies are dominant given the point in the cycle.

The TRPF is of the latter, cyclical type. At the rise of a boom constant capital is cheap and the rate of surplus value high. Over time the successive development of the means of production can only squeeze so much more surplus from workers. Every time you double the productivity of a worker you get half as much more SV from them, yet they require twice as much constant capital. And as the mass of surplus value grows relative to the amount of workers in the economy the only place for it to go is into constant capital. It doesn’t matter if the constant capital is getting cheaper. The mass of profit is always getting bigger and more and more of it is going into constant capital while the amount going into wages is falling.

All economic laws act as tendencies and thus all of them have counter-tendencies that are inherent to their internal logic. For instance, there is a tendency for capitalists to overproduce without regard to their markets. But at the same time there is counter-tendency to respond to market signals (falling prices and devaluation) and reallocate capital to more productive investments. This is a dialectical phenomenon. Forces have relations to their opposites. This relation creates a type of motion.

In contrast, Sweezy’s approach is not dialectical but positivistic. He defines underconsumption and its counter-tendencies in isolation, not relationally. Once defined positivistically he brings them into interaction. But this doesn’t allow for any theory of motion. So instead of some sort of cycle we get a theory of long-term stagnation. I wonder if we can even push this critique farther and ask if all theories of stagnation must be missing some crucial dialectical notion of motion…..

And now for a look at those counteracting tendencies…

I. INCREASING INTENSITY OF EXPLOITATION

If the rate of profit is s/(v+c) then obviously an increase in the rate of exploitation will increase profits. But how is the rate of exploitation increased? Much of the time the rate of surplus value is increased by increasing the social productivity of labor, by having the same amount of or less workers put into motion more materials or more machines. Thus, while profits rise, the organic composition of capital (v/c) rises as well. In order for a rising rate of exploitation to arrest the falling rate of profit the organic composition must remain stable or change slower than the rate of exploitation.

A rise in absolute surplus value through the lengthening of the working day or hiring more workers can potentially raise the rate of surplus value without changing the composition of capital. Workers work longer and produce a higher rate of surplus value but they aren’t working up more constant capital in relation to the variable capital. The amount of labor being employed is not shrinking in relation to constant capital. This would have the opposite effect of the falling rate of profit. Of course the ability to extract absolute surplus value does imply a growing mass of fixed capital to employ the new laborers so we can’t really argue that there would be no alteration in the composition of capital.

In Volume 1 Marx talks about the historical and theoretical limits to a rise in absolute surplus value. The working day can only be increased so long given the state of class struggle. The working population can only be increased so much relative to the size of capital before wages start to rise. Thus capitalists turn to relative surplus value.

Relative surplus value is produced by the increasing the social productivity of labor. The means of subsistence are cheapened by decreasing the socially necessary labor time for means of subsistence. Or individual firms produce at under the socially necessary labor time driving this average level of productivity up through competition. Either way a rising organic composition is implied which means a falling rate of profit even as the rate of exploitation rises.

Here Marx even says that the struggle over relative surplus value is the “real secret of the tendency of the rate of profit to fall.” This relates to my question at the end of the previous chapter as to whether relative surplus value was at the heart of Marx’s theory of rising organic composition. It seems from this passage that it is and that I must be misreading the passage in chapter 13 that I thought suggested otherwise.

One further point, a point Paul Sweezy should have understood but didn’t: There is a limit to the amount of surplus value you can squeeze from a worker. Let’s say that I work 8 hours a day, 4 hours of necessary labor and 4 hours of surplus labor. My boss decides to double my rate of exploitation changing the proportion to 2 hours of necessary and 6 hours of surplus. In so doing I require twice as much constant capital. This doubling of constant capital produces 2 extra hours of surplus. He then decides to double my productivity again. This changes the proportions to 7 hours of surplus and 1 hour of necessary labor. This time the constant capital has doubled but the surplus has risen by half as much. If we continue the procedure each doubling of constant capital produces half as much additional surplus value. This why the rising rate of exploitation is a counter-tendency and not a tendency.

II. DEPRESSION OF WAGES BELOW THE VALUE OF LABOUR-POWER

Marx doesn’t talk about this here even though he says it is a major factor in arresting the FRP. The depression of wages below the value of labor power belongs to an analysis of competition, which doesn’t happen in this volume. What does Marx mean by this? Clearly prices of production involve competition. The theory of prices of production are a theory of capitalists in competition equalizing the profit rate. I am very interested in Marx’s order of operations so I want to make sure I understand this statement. I think Marx’s order of operations begins in this volume with a look at the rate of profit as an effect of the capital-capital relation. This allows him examine the falling rate of profit which requires an understanding of capital-capital relation and the wage-labor relation. Everywhere here the law of value still operates cleanly. It may take on different quantitative expressions with the price of production, but there are no disturbances in supply and demand which keep market prices from equalling their prices of production. In the real world forces like monopoly and state regulation or just the daily disturbances away from equilibrium force prices away from their prices of production. But we can’t understand these market interferences without first understanding value and prices of production. We measure the strength of monopoly by looking at the degree to which monopoly forces price to diverge from value. Thus value comes first, then the deviation. The same goes for the commodity called labor power. Wages can be depressed below the value of labor power. But we can’t understand this deviation until we understand the price of labor power first. Thus competition which alters the law of value from operating freely is secondary in the primary analysis of the law of value. We first must look at the falling rate or profit and the natural countervailing tendencies that grow out of the basic formal structure of the rate of profit before we look at other forces which alter the ability of the law of value to express itself.

III. CHEAPENING OF ELEMENTS OF CONSTANT CAPITAL

This countervailing tendency is probably the one that has led to the biggest critique of the falling rate of profit. In physical terms, the amount of machines and raw materials can increase per worker but this doesn’t mean that the value of these means of production must increase. The same social productivity which demands more machines and materials also decreases the value of these materials. Marx has already qualified, multiple times, his description of the rising organic composition by saying that the value of means of production rises more slowly than their mass. Here he devotes just two short paragraphs to the topic and doesn’t really ever give a reason as to why this tendency isn’t strong enough to serve as a long term fix.

In the 2nd short paragraph he does talk about depreciation which is often mentioned as a limit to this counter-tendency. Depreciation of existing capital happens when improvements in social productivity mean that cheaper means of production are being created which lower the market value of the already owned capital. Now, just because the current value of the means of production falls, this doesn’t mean that capitalists that already owned these machines can just subtract the difference from their balance sheets. If my means of production are devalued this means that I have to sell my commodities at a loss and eat it. My rate of profit, measured on my total capital investment, falls because of the depreciation. This is the argument made by the TSSI and others. Notice that it hinges on this notion of temporality. The only way to argue that depreciation lowered the organic composition of capital on already existing capital would be to argue that time was static and that all rates of profit should be measured in some timeless void. (The debate over how to measure the cost of fixed capital (whether at its historical cost or its current cost) is a hot topic. For more see the debates between Andrew Kliman and Michael Husson.)

Yet here in this paragraph it seems unclear as to whether Marx makes this temporal distinction. He seems to be saying that depreciation can arrest a falling rate of profit. He says, “The foregoing is bound up with the depreciation of existing capital (that is, of its material elements), which occurs with the development of industry. This is another continually operating factor which checks the fall of the rate of profit, although it may under certain circumstances encroach on the mass of profit by reducing the mass of the capital yielding a profit. This again shows that the same influences which tend to make the rate of profit fall, also moderate the effects of this tendency.” This doesn’t seem like a good defense of the TSSI reading, yet I can’t see how Marx could be correct in claiming that depreciation of fixed capital arrests a falling rate or profit.

IV. RELATIVE OVER-POPULATION

Here we are discussing an external counter-tendency.

Overpopulation relative to the demand for labor cheapens labor. This takes away some of the urgency in the quest for relative surplus value. If labor is easily exploitable why bother mechanizing and investing in more efficient means of production? Marx argues that this counter tendency is not strong enough to check the TRFP because most industries follow a trajectory of low to high organic composition. As time progresses the raising of absolute surplus value is less and less useful and the pursuit of relative surplus value gradually increases. The organic composition slowly rises.

Now I think Marx is accurate in describing this gradual rise in organic composition in many industries. But it certainly isn’t true in all industries. This is another area in which the falling rate or profit is sometimes critiqued. In our lifetime we have seen a dramatic rise in the service sector. Some argue that this means a more labor-intensive capitalism. I wonder though if this is really the case with the service sector. Take a hotel for instance. I bet most hotel jobs are classified as service jobs. Now the ratio of constant capital to wages in a hotel isn’t nearly as high as in a auto-factory. Still, a hotel spends a lot of money on fixed capital and energy costs. It’s not exactly a low organic composition industry either. How many of these service jobs really have truly low organic compositions? I’m curious if there has ever been an attempt to actually chart organic composition in various industries. This would certainly add a lot to the debate. Erik Olin Wright cites a 1972 paper by Mario Cogoy on this subject and concludes that, “Even a strong proponent of the rising organic composition thesis such as Cogoy has to admit that the meagre data which support his views are as equivocal with the data which oppose them.”(I haven’t read Cogoy’s paper myself as it appears to be in French though he did write a 1973 paper on the topic in response to Paul Sweezy which I may take a look at.) Of course not all jobs classified as “service sector” are productive labor. The financial industry is often characterized as a service industry but these are not productive industries and so they do not figure into accounts of organic composition. And we can’t forget that the rise of the “service sector”, both unproductive and productive, came as a response to the crisis of the 1970′s which was a crisis of large industry with high organic compositions.

V. FOREIGN TRADE

This is also an external counter-tendency.

Foreign trade allows capital to seek out cheaper inputs, thus lowering the cost of constant and variable capital. This raises the profit rate. But this also encourages the growth of accumulation which tends to raise the organic composition which tends to lower profit rates. Like the decreasing value of constant capital Marx always sees the overall trajectory of accumulation itself as the primary motive force in falling profits. If anything foreign trade is a means of postponing these falling profits. This idea of displacing crisis geographically doesn’t really appear in any mature form in Marx, as far as I know, but it is a key part of David Harvey’s analysis of the geography of capitalist accumulation. Marx does here say that there is a need for an “ever-expanding market” though he doesn’t give a reason for this here. I assume that, true to his argument in volume 1, that this means that capital is always in search of more labor power and more raw-materials, though he could also mean, as the underconsumptionists argue, that this ever-expanding market comes from the need to sell-off surplus product.

Foreign trade can also boost the rate of profit because of imbalances in the rate of profit, value of labor-power, rate of exploitation, and exchange rates between countries. A highly-mechanized first-world country can produce commodities more efficiently than in peripheral nations. When they sell in those markets they do exactly the same thing that a capitalist who produces below the socially necessary labor time does: they sell their commodities in this foreign market above their value but below the socially necessary labor time in the country. Thus they realize higher profits than they would in their home country.

Colonial and peripheral countries often have higher rates of profit which attracts the investment of capital. I don’t quite understand the point Marx is making in regard to Ricardo in terms of investing capital in these countries with higher profit rates…

But this unequal exchange can boost profit rates in both the advanced country and the dependent country. The advanced nation receives more labor through the inequality of exchange. While the dependent nation gives up more labor in exchange, they also receive commodities at prices much lower than they must pay in their own country. If they are buying productive inputs then this can boost the rate of profit in both countries. But regardless of these effects, the overall trajectory of foreign trade is toward a rising organic composition in the home country and over-production for foreign markets.

Before Marx goes onto discussing the last counteracting tendency, stock capital, he takes about a page to summarize his argument about counteracting tendencies. (He does this here, rather than at the end of the chapter, because the last counter-tendency is of a different nature.) The counteracting tendencies don’t “do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.” It would be nice to get a more thorough explanation of how this effect takes place over long periods of time, what form it manifests itself in, etc. But we don’t get that here. This idea of falling profit rates over long periods of time does correspond with the theory of Long Waves (which I associate with Mandel’s book on Long-Waves) as well as with Kliman’s recent research into long-term profit rates (different than Long Wave theory).

The only new point Marx makes in the summing up is that profit rates don’t fall because of a rise in wages. This was the conservative explanation of the crisis of the 1970′s. We heard echoes of it again when this crisis revealed excess capacity and stagnation in the US auto-industry. Marx says that a rising rate of surplus value can accompany a falling rate of profit. Capital goes into crisis because labor is more productive, not less productive. Of course a rise in wages could squeeze profits. But this runs counter to the entire trajectory of accumulation which tends to decrease the value of labor power. Thus a fall in profits due to rising wages must be seen as an exception to the general tendency of accumulation.

VI. THE INCREASE OF STOCK CAPITAL

This last point is different from the rest because it involves the distribution of surplus value between money-capital, productive-capital, and rent. Interest payments are a deduction out of total surplus value. Thus they are smaller than the total surplus value. Money-capital gets a lower rate of return on investment than the average rate of profit. If we were to calculate the profit rate based on interest payments the TRPF would be even lower. That is why Marx doesn’t talk about this division of the surplus until after he’s talked about the rate or profit in the abstract.

Now, just dividing the mass of surplus value up into interest, rent, merchant capital, productive profit, etc. doesn’t effect the rate of profit. But when people invest in stock they accept a lower rate of return on their investments, called dividends. This keeps the profit rate from equalizing which means that joint-stock companies like railroads don’t enter the equalization of profit rates. If these companies were brought into the equation the profit rate would drop even lower.

I don’t think I fully understand this. Why would issuing stock keep a firms profit from entering into the equalization of the profit rate? It seems that the credit system is a tool for equalizing the profit rate even better. Yes, is smoothes over temporary fluctuations in profitability, but it also unifies all investment decisions around a uniform interest rate.

Flipping through David Harvey’s “Limits to Capital” I found a brief mention of this issue. Speaking of the centralization of capital in his chapter on interest-bearing capital he says, “But the credit system also furnishes means to counter the de-stabilizing effects of technological and organizational change. For example, Marx lists an increase stock capital as one of the influences counteracting the tendency towards a falling rate of profit. Undertakings of particularly high value composition comprised largely of fixed capital can be organized via the credit system so as not to ‘enter into the equalization of the rate of profit’ since they can be produced if they yield ‘bare interest’ only.” (Limits, p.271. The quotes are from Marx.)

Ironically I see a giant question mark next to this passage that I must have drawn when I read this book several years back. But then over the question mark are drawn three exclamation marks to show that on a later rereading I had figured out what it was all about. I then had written, “Brilliant!” underneath the passage. Of course now I don’t remember what was so brilliant or how I had made sense of this. So it goes!

I later posed this question on marxmail and got some long responses from a few different folks, some which disagreed with each other. One day I will get around to sorting this out and posting a better explanation.

Posted in Kapital Vol. 3 | Tagged andrew kliman, capital, capitalism, counter-tendency, crisis, Das Kapital, David Harvey, economics, falling rate of profit, kapital, karl marx, labor theory of value, prices of production, profit, surplus value, tendency, underconsumption, volume 3 | 10 Comments »

Law of Value 6: Socially Necessary Labor Time

September 21, 2010

Socially Necessary Labor Time

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

part one:

part two:

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

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

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

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

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

Profit vs. super-profit

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

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

Physical vs. Value Productivity

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

Appropriating Value in Exchange

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

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

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

SNLT and the Labor Process

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

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

SNLT and the centralization and concentration of capital

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

SNLT and Market Socialism

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

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

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

A world without What?

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

Kapital vol 1 Karl Marx, first chapter

Andrew Kliman “The Transformation of Capitalism into Communism”

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

Posted in Econ 101-value profit exploitaiton, The Law of Value | Tagged capitalism, communism, Das Kapital, economics, karl marx, labor theory of value, market socialism, profit, socialism, socially necessary labor time, super-profit, wage labor, worker | 58 Comments »

Law of Value 5: Contradiction

August 20, 2010

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.

Posted in Econ 101-value profit exploitaiton, The Law of Value | Tagged capital, capitalism, class, crisis, Das Kapital, economics, Exploitation, karl marx, labor, labor theory of value, profit, surplus value, use, value, wage labor | 30 Comments »

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

August 10, 2010

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

Property, exchange and violence

Labor Power

Profit

Class

The Labor Process

Crisis

Conclusion.

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…

Posted in The Law of Value | Tagged capital, capitalism, class, crisis, economics, Exploitation, karl marx, labor theory of value, machines, marx, profit, surplus value, value, wage labor, worker | 13 Comments »

Law of Value- Introduction

April 28, 2010

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

Posted in The Law of Value | Tagged capitalism, class, contradition, crisis, economics, exchange, Exploitation, labor theory of value, market, marx, socialism, value | 26 Comments »

Das Kapital vol.3 Chapter 9: Formation of a General Rate of Profit (Average Rate of Profit) and Transformation of the Values of Commodities into Prices of Production

December 14, 2009

In all of the consternation, debate and quarreling over Marx’s value theory this chapter, chapter 9 of volume 3, lies in the center of much of that (though perhaps chapter 10 even more so). There are basically two lines of criticism leveled at Marx that draw heavily on this chapter: those associated with Bohm-Bawerk and those associated with Bortkiewicz. The latter criticism is known as “The Transformation Problem”.

Bohm-Bawerk’s main idea is that Marx’s theory of the prices of production and his theory of value contradicted each other. He said it was impossible for Marx to hold that both were true. In volume one Marx claimed that commodities traded at their socially necessary labor time. In volume 3 he now tells us they trade at their cost price plus average profit. For Bohm-Bawerk this was a thinly disguised admission that the labor theory of value didn’t work. He does admit that the logical structure of Marx’s argument flows very neatly and convincingly from Marx’s premises. But Bohm-Bawerk takes issue with these basic premises. Because of the errors in his premises, says Bohm-Bawerk, Marx’s value theory runs into trouble when, in chapter 9 of Volume 3, it actually steps forward to confront the real world and bumps up against the “prices of production”. This leads Bohm-Bawerk to launch a rigorous critique of many aspects Marx’s value theory. I plan to write a more sustained summary and analysis of Bohm-Bawerk’s criticism elsewhere so for our purposes here I will constrain my references to Bohm-Bawerk’s argument that there is a contradiction between the theory of value and the theory of prices of production. It should be pointed out, however, that much of the lay criticism of Marx’s labor theory of value that one confronts on the internet does not come from this notion of a contradiction between value and prices of production. Instead it mostly comes from Bohm-Bawerk’s more general critique of Marx’s assumptions. (Even here, however, most of the lay criticism online presents Bohm-Bawerk’s critique in a bastardized, simplified manner that doesn’t really stand up.)

Bortkiewicz’s argument, known as “The Transformation Problem”, is of a different nature though people sometimes conflate them. I deal with Bortkiewicz’s criticism and the Temporal Single System Interpretation’s (TSSI) response to it in my video “What Transformation Problem?” and the accompanying Math Supplement, so I will not go into this in detail here. Bortkiewicz argued that if the creation of average profits led to prices of production which differed from their values then both outputs and inputs must trade at their prices of production. In the mathematical examples Marx gives in this chapter he only changes the output prices. Bortkiewicz found that if one plugs the output prices back into the input side of the equation all hell breaks loose with the math. This mathematical inconsistency has been held as proof that Marx’s theory of prices of production, and even the labor theory of value, is internally inconsistent. The TSSI response is to ask why output prices should become the input prices of the same production period. They should be the input prices of the next production period. The TSSI argues that Marx’s value theory is temporal- that it describes the movement of value through time. Attempts to collapse this temporal theory into neoclassical equilibrium models that simultaneously value input and output prices will necessarily arrive in contradiction.

My posting of this blog entry on this chapter has been delayed by many different circumstances one of which was my trip to the 2009 Rethinking Marxism conference in Amherset Mass where I heard Alan Freeman and Andrew Kliman give a tutorial on the TSSI. Freeman’s talk centered on his criticism of the idea of equilibrium price and equilibrium of supply and demand. While I have been aware of the TSSI’s temporal treatment of input and output prices as part of a larger critique of general equilibrium, for some reason I had never realized that this extended to a critique of the basic idea of supply and demand meeting. I’ve since been reading through a bunch of Freeman’s papers (as well as some by Kliman) trying to wrap my head around this idea. I think that this will most likely change my reading of volume 3 and perhaps cause me to edit both the already-posted and the yet-unposted drafts of my blog entries on volume 3. The TSSI’s distinction between value and exchange value, it’s claim that Marx’s value theory is a temporal, non-equilibrium theory have bearing on both the Bohm-Bawerk and Bortkiewicz criticism.

When reading this chapter with these debates in mind I am asking myself two questions. 1. What is the relationship between value, price of production and price and how does Marx justify the use of value if values don’t equal prices of production? 2. In relation to the Bortkiewicz critique I am looking for evidence that Marx conceives of his theory in a temporal manner. I will conclude with some thoughts on both of these points. Let’s actually see what Marx has to say.
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Since the theoretical problem Marx is tackling involves how different organic compositions can have the same rate of profit Marx abstracts away all variations in surplus value and turnover time so that we can look specifically at the relation of organic compositions themselves to profit rates.

Marx begins with a table that presents 5 different capitalists, each with a different organic composition of capital. Each has a cost price of 100, but the different distribution of capital between constant and variable capital means that each produces different amounts of surplus value and therefore has a different rate of profit. The prices of the total product of each firm (value of product) are also different since the price of the total product is c+v+s.

Now what if we treat each of these 5 capitalists as if they were different branches of the same firm? Marx suggests we imagine it is a cotton mill with 5 different internal departments: spinning, carding, etc. With today’s multinational corporations scattering production all over the globe we could think of some modern examples of firms with such an internal-division of production between different departments. In such a firm the main concern is the total rate of profit. Totaling up the columns in his example Marx shows that the total surplus value is 110 and total cost price is 500. Dividing surplus value by cost price he finds that the average profit for the firm is 22%. The average profit for each department of the firm is 22%.

In order for the average profit to be 22% the “value of the product” for each department must change. Department 1, for instance, has a cost price of 80c+20v with a surplus value of 20s. The value of the product produced by department 1 is 120. But at this selling price it would only achieve a profit rate of 20%. In order to achieve average profits we must sell it for 122 which gives us a 22% profit rate. Marx then goes on to show (table 3) how by varying the value of the product in each sphere up or down the departments can obtain an average rate of profit. The total value of the product remains the same, the total surplus value remains the same, but the surplus is redistributed between departments via these changed prices. These new prices, which deviate from their values are c+v+p where p is the average profit redistributed to each firm. Marx calls this new price the “price of production”. Simplified we might say that prices of production equal cost-price plus average profits. Prices of production are still a function of surplus value, but the surplus is distributed differently than it would be if there was no average rate of profit.

Before showing this 3rd table Marx points out that the price of production for each of his firms doesn’t need to result in all “values of the product” being equal to 122. This is because different amounts of constant capital enter the actual value of the final product depending on how much constant capital is used up in production. Remember that we count constant capital differently when measuring profit rates than when figuring prices. The entire outlay on constant capital enters the figuring of the profit rate, even if little of it is only used up. But only this used up portion enters the prices of commodities.

All of these observations hold true when we break up our multi-department firm and view this as a matter of 5 different firms competing in the market. Each firm sells its product in the market at its price of production. This price allows it to recoup its cost-price. But each firm does not receive profits in relation to the total surplus value it has created. Instead it receives the average profit which could be higher or lower than the surplus value the firm actually creates. It is as if each capitalists is just a stockholder in a large-firm receiving interest on their investment in relation to the total size of their investment. It is the magnitude of their investment, the cost-price, that determines the magnitude of their profit, not the actual amount of surplus value they create.

This analogy which compares capitalists in competition with capitalists as different parts of the same firm points to an important aspect of Marx’s method. He even restates the analogy in different form a few pages later, asking us to image that all five capitals represents different investments of one man. The analogy is quite true to Marx’s method which was to treat the labor-capital relation before he treated the capitalist-capitalist relation. The observations we have made about price, value and profit from analyzing the labor-capital relation still hold. But they hold for the total labor to total capital relation. Individually between capitalists the correlation between value and price is less direct, mediated through this matter of average profits. In the aggregate total value=total price, total surplus value-total profit, and total value rate of profit= total money rate of profit.

But then Marx points out what could be misinterpreted as a paradox. How can we say that total price=total value when we know that the prices of some commodities enter the cost-price of other firms? When a steel company sells $1000 of steel this $1000 becomes the input price of other firms. It seems like output prices can count as the input prices of some firms. This would mean that we count the value of some products twice. Surely this would cause total price to be higher than total value. This puzzle Marx poses is reminiscent of Bortkiewicz’s “transformation problem” in that it plugs output prices into input prices and results in a contradiction. And similar to the TSSI refutation of Bortkiewicz’s transformation problem, Marx refutes this puzzle with similar logic though he doesn’t explicitly refer to any temporality. He says that you can’t count surplus value twice in the calculation of total price. The profits of an individual firm can’t make up their own cost-price. They can enter the cost-price of another firm. (If a firm is producing directly for consumption its total price enters directly into the calculation of total price.) But if its product is to be bought by another firm for production we must subtract this value from our calculation of total prices. To find total prices we add up all the cost-prices of all the firms and then add up all the profits. But first we subtract all the profits from the cost-prices.

How is Marx’s point here similar to the TSSI? Marx’s point that surplus value can’t be counted twice, as both an input and and output, without reaching a contradiction is similar to the argument of the TSSI which says that we can’t plug output prices into the input prices of the same firm, in the same production period and expect to achieve the same price=value equality. Every production period new value is created and this must count toward the value of the next period, not the current one. In these two paragraphs Marx could be seen using a-temporal logic. After all, he is merging the output of one firm into the input of another, two production periods, into one. On the other hand he is saying that if one does this, you can’t count the surplus value twice. So there is an implicit understanding of the temporal nature of the problem.

Marx then turns to a more general question about input prices. Aren’t input prices also calculated as prices of production and not values? Isn’t constant capital bought at its price of production and not its value? Isn’t variable capital indirectly related to the prices of production of the means of subsistence? Yes it is, Marx says. As we move backwards in our equations we see that every c and v reduces itself to cost-price plus average profit. But for every instance where average profit exceeds the surplus value of a particular product there is a counter-instance of a product whose surplus value falls below average profit. These values add up in the end so that our aggregate equalities hold. “Under capitalist production, the general law acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.”

From such an argument it is hard to buy the commonly repeated claim that Marx “forgot to transform input prices.” Bortkiewicz’s entire critique is based on this idea of a “transformation problem”- that Marx forgot to transform input prices into prices of production and that when we do so we get inevitable mathematical errors. It is true that Marx does not provide mathematical tables to demonstrate how such transformations would happen, but in this paragraph he most definitely shows that he is aware that input prices need to be transformed. But he doesn’t seem worried that this causes any mathematical problems, probably because, as he states above, he realizes the surplus value can’t be counted twice.

“Since the general rate of profit is formed by taking the average of the various rates of profit for each 100 of capital invested in a definite period, e.g., a year, it follows that in it the difference brought about by different periods of turnover of different capitals is also effaced. But these differences have a decisive bearing on the different rates of profit in the various spheres of production whose average forms the general rate of profit.” p.161(italics added)

This paragraph seems a confusing way of beginning the argument that Marx develops over the next page and a half. I think that the sentence on the following page gives us a better idea of what Marx is trying to say: “The formation of the average rate of profit is, therefore, not merely a matter of obtaining the simple average of the different rates of profit in the various spheres of production, but rather one of the relative weight which these different rates of profit have in forming this average.” (Italics added) I did some head scratching after reading that. Is the average rate of profit an average of the individual rates of profit or not?

First we must realize that the “individual rates” of profit refer to what the rate of profit would be if there was no average rate of profit. They are figured as s/(v+c). In Marx’s first example he wants to make it very obvious that each firm has a different organic composition so he picks his numbers so that the total capital invested (v+c) adds up to 100 for each firm. This allows us to think of the organic composition as percentages. Individual rates of profit can be thought of in this “percentage logic”. It doesn’t matter how much total capital is invested when we are looking at individual rates of profit. The proportion of total surplus value (s) to total cost-price (c+v) is what matters.

But things are different with the general rate of profit. The general rate of profit is formed by dividing total surplus by total cost price. This means that the magnitude of the capital invested is important. If my profit rate is a healthy 50% but I only invest 100 dollars a year I don’t add much to the average profit rate. If my profit rate is 13% but I invest a million dollars each year I have a much bigger influence on the general rate of profit. So we can’t just take the average of the different rates of profit to find the general average since firms effect the general profit rate differently according to how much they invest.

This argument, rather simple when you think about it, is made even more confusing by a mathematical typo Marx, or Engels, makes in one of his examples. Unlike the other error I mention earlier this one is not corrected in the Internet Archive version. In Marx’s numerical illustration of this concept he says:

“Let us take four capitals A, B, C, D. Let the rate of surplus-value for all = 100%. Let the variable capital for each 100 of the total be 25 in A, 40 in B, 15 in C, and 10 in D. Then each 100 of the total capital would yield a surplus-value, or profit, of 25 in A, 40 in B, 15 in C, and 10 in D. This would total 90, and if these four capitals are of the same magnitude, the average rate of profit would then be 90/4 or 22½%.”

The equation should actually read 90/400, not 90/4. 90/4 gives us 2250% rate of profit. Again, the equation for the rate of profit is found by adding up all surplus values (90 in this case) and dividing them by the total cost-price (400 here). Marx’s typo makes it look like he is dividing the 90s by the 4 capitalists which could lead to a misunderstanding of the equation for the rate of profit. The next example he gives (720/5500) is correct.

To conclude this whole point Marx gives us two factors that determine the general rate of profit.:
“1) The organic composition of the capitals in the different spheres of production, and thus, the different rates of profit in the individual spheres.
2) The distribution of the total social capital in these different spheres, and thus, the relative magnitude of the capital invested in each particular sphere at the specific rate of profit prevailing in it; i. e., the relative share of the total social capital absorbed by each individual sphere of production.”

This whole point may help to explain an earlier paragraph in which Marx says that though differences in turnover time effect the individual firm’s rate of profit they fail to effect the average rate of profit. If I understand Marx correctly on this point, I believe he is saying that total surplus value produced relative to total cost price within a given period is what effects the general rate of profit, regardless of whether or not these aggregate totals involve more or less turnovers. (I am not sure about this interpretation at all. Any thoughts from others would be welcome.)

In case we were too daft to realize what is going on Marx points out that we are now moving from a discussion of value to a discussion of prices of production. In volume one where we dealt with socially necessary labor time between commodity producers and with the aggregate labor-capital relation we could deal with value as a qualitative expression of capitalist social relations. When we introduce competing capitals we see a further transformation of value into prices of production. Firms producing at high value/organic compositions sell their products at prices of production above their real values. Firms producing below the average value composition sell their products at prices of production below the real value of the product. It should be pointed out that prices of production are still a step removed from market prices which fluctuate with supply and demand.

In moving from value to price of production is anything changed about the theory of exploitation? Clearly the relative degree of profit accruing to individual capitalists diverges from the amount of surplus value they produced, but it still remains a fact that workers must produce more value than they are paid if profit is to exist. The price of production is still higher than cost price. Now, cost-price is also modified by our new perspective because constant capital is bought at its price of production instead of its value. It is the money price of this constant capital, this means of production, which is important to the capitalist, not the actual value embodied in it. Profit still takes place even with these modified prices.

(The groundwork for this journey from value to production price is laid by Marx in chapter one of Volume one (Bohm-Bawerk could have benefited from reviewing this) when Marx explained that prices diverge from values all of the time. When exchange values diverge from values (which they do most of the time) this allows the sellers of commodities to get more or less value in exchange than the actual value of their product. This happens because money is the abstract form of value: when prices rise above values the seller appropriates more abstract labor than is represented by the commodity. Marx often assumes, for the sake of specific arguments, that prices equal values. But in the real world, he tells us in many times over, prices do not equal values. They don’t even equal prices of production. It is this constant movement of capital in search of these super-profits (these prices above value) that explains the dynamic motion of capital. This is why the law of value is better than just a theory of price- it describes the movement of prices in non-equilibrium over time.)

One could easily read over this paragraph and miss another, parallel, argument that is going on. This parallel argument is of special interest to us since we are reading this chapter with the TSSI-vs.-Bortkiewicz issue in mind. In Bortkiewicz’s critique of Marx’s transformation he attempts to do the math that Marx “forgot” to do. He plugs prices of production back into the inputs of Marx’s tables. Because new surplus value is being added each production period this keeps the numbers from adding up. The 3 aggregates (total value=total price, total profit=total sv, total money rate of profit=total value rate of profit) can’t all hold. In order for Bortkiewicz’s model to work at all he has to sever prices and values into two different columns. He has a column for input values and another for input prices, a column for output values and another for output prices. This “dual system” is another thing critiqued by the TSSI which argues for a “single system”. The TSSI argues that capitalists buy their means of production at their prices of production, not their values so it is ridiculous to have two different figures moving simultaneously through the tables.

Marx’s comments in this paragraph (p.164-165) seem to conform with the TSSI argument:

“But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities.” “It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it.”

Wow! Isn’t this the very same error Bortkiewicz makes? Then Marx says, “Our present analysis does not necessitate a closer examination of this point.” In other words, we don’t need to worry about the fact that means of production are bought at their prices of production. “The cost-price of a particular commodity is a definite condition which is given, and independent of the production of our capitalist, while the result of his production is a commodity containing surplus-value, therefore an excess of value over and above its cost-price.”

Capitalists buy commodities at their prices of production! So we must use these figures when calculating the new prices of production! We do this by dividing the new aggregate surplus value created by this aggregate cost-price.

Marx then gives us an updated formula for the price of production of a commodity. Before we had said price of production=k+p, or cost-price plus profit. But profit is really the average rate of profit multiplied by the size of the capital invested, or kp’ (p’ being the general rate of profit). So now our formula for the price of production is k+kp’.

This allows us to identify the 3 things which can change the price of a commodity. 1. If the general rate of profit changes the price of production can change without any change in the actual value of the commodity, the actual amount of living labor in the commodity. 2. If the productivity of the workers making the commodity changes. That is, if there are more or less workers relative to machines this changes the value of the commodity. Also, if the value of any of the elements of the cost-price change this will change the price. And 3, there can be a combination of 1 and 2.

Changes in the general rate of profit are long term changes, taking place over long periods of fluctuation. Therefore most short-term changes in prices are due to changes in the amount of labor time going into a commodity. Changes in the general rate of profit can happen through changes in the rate of exploitation, changes in the value of constant or variable capital, or changes in the overall organic composition of capital.

Marx’s next point, spanning 167 to 168, is about the difference between appearance and essence…. the way the formation of a general rate of profit obscures surplus value. We have already seen in part one of this book that since the individual rate of profit is effected by all sorts of things like the cost of constant capital, turnover time, etc. that this obscures the fact that surplus value comes from labor alone. But, back in part one, at least the total surplus value produced by a firm was equal to its total money profit. With prices of production this is severed as well. Surplus value, exploitation of workers, is even more obscured. Now that money profits depend on changes in a general rate of profit, and since this general rate of profit is shaped forces way beyond the amount of labor employed in a specific firm, the origins of profit are even more obscured. It’s obscured to the capitalist, the worker, and to the bourgeois economist alike.

A theory like Marx’s, which makes such a clear distinction between essence and appearance, should rouse suspicion in us. We want our theory to be able to explain reality. If the theory opposes itself to reality, if it claims that any real phenomenon that negate the theory are merely illusions of a world of appearance, delusions of bourgeoise ideology, then how do we know if it is true? How do we know if it has anything useful to tell us about the world?

What Marx is doing is to show us that this world of appearance is not an illusion. It is a necessity of the basic structure of surplus value and markets. We can only express the social relations of capital through the market. In volume 1 Marx explains this fetishism- that social relations take on the forms of relations between things, commodities. Much of Volume 3 seems like an extension of this framework. Marx is showing how surplus value must be expressed through prices of production and average profit rates, how it necessarily takes on an appearance that obfuscates the underlying logic.

“How could living labour be the sole source of profit, in view of the fact that a reduction in the quantity of labour required for production appears not to exert any influence on profit? Moreover, it even seems in certain circumstances to be the nearest source of an increase of profits, at least for the individual capitalist.”

It certainly is a shock to some people when they hear that Marx’s theory of crisis is that rising productivity causes profit rates to fall. It seems contradictory. But capitalism is a contradiction. The theory of prices of production really requires a theory of the falling rate of profit. We can’t have one without the other. If changes in the organic composition within the individual firm do not change the individual profit rate then we must seek theoretical confirmation in changes in the aggregate profit rate. These changes happen over long stretches of time as minor changes in fluctuations in either direction cancel each other out.

Closing thoughts

I am convinced by the Temporal Single System Interpretation and its refutation of Bortkiewicz’s “transformation problem.” The few passages that deal with the issue of temporality, input and output prices, etc. seem to suggest a temporal, single-system interpretation. When we look at the history of the transformation problem, its origins in marginalism and general equilibrium models, it is even more obvious that Marx was not theorizing within the context of a theory of general equilibrium in which output prices should be plugged back into the input-side of equations.

The Freeman papers I mention earlier make an even stronger point: equilibrium prices are not the norm. Most of the time supply and demand don’t meet and price doesn’t equal value. This is something Marx points out very early in Volume 1 of Capital. When there is too much supply products sell below their value and this causes labor to be withdrawn from a sphere of production. The opposite happens when supply is too low. But these alterations of

Bohm-Bawerk’s critique, though not as influential in the academy as the “transformation problem”, is more worth pondering. I feel a bit torn on how to characterize Bohm-Bawerk’s arguments. Some of them are cheap tricks derived from overly-simplistic reductions or mischaracterizations of Marx’s argument. Yet he also has some brilliantly crafted and well-articulated criticisms that anyone who holds to the validity of the labor theory of value should be able to respond to.

Bohm-Bawerk asks a good question: What relevance is the labor theory of value if commodities don’t trade at their values?

The most basic answer is to point out that Marx nowhere claims that prices have to equal values all of the time. This is what distinguishes his theory of value from the Smith and Ricardo and from the marginalist tradition. This theory is not just a theory of price. It is a theory of all that goes on in the motion of capital and labor. Prices fluctuate everyday with supply and demand. But in the long term we can see relations between value and price. Yet, Freeman cautions, this doesn’t mean we should treat Marx as an theorist of equilibrium price. It’s not that in the long run values act as a center of gravity pulling prices into them. This is because values change over time as well. This means that though prices are constantly pulling away from and falling back towards values, values are constantly moving forward and prices are constantly diverging form value. The system never reaches equilibrium. It never rests. This is why it is perfectly reasonable for Marx to theorize about a divergence from value.

Yet what is the significance of the theory of value now? Has Marx replaced it with a theory of prices of production?Before we introduced average profits into the picture value was the mechanism by which the social labor process was apportioned. The formation of socially necessary labor time was what allowed consumer demand in the market to have an effect on the apportioning of social labor. Now competition leads to average profits what is explained? How does labor time exert a force upon the market? Are any of our conclusions about the qualitative aspects of the LTV still valid? How is labor apportioned? How are social production relations expressed? And is there any quantitative connection between socially necessary labor time and price or are the two irreparably split?

Both the qualitative and the quantitative aspects of the LTV still have a strong presence in the theory of the price of production. Even if the profits that accrue to a capitalist don’t correspond precisely with the surplus value of a firm, profit is still a function of surplus value. Profit is still made by getting more work for less wages. Thus all of Marx’s observations about the dynamics of the labor-capital relation still hold true.

Quantitatively there is still a correlation between price and value. Price equals cost of production plus average profit. All of the surplus value of the economy is pooled together and distributed equally among capitalists as average profit. Equal profit for equal investment. Marx has already said, earlier in this volume, that capitalists and workers value the labor time of the worker differently. For the worker an expenditure of labor is an expenditure of his own life. But, Marx explains over and over, while variable capital costs the capitalist a wage, surplus value costs him nothing. So how does a capitalist know how to price his surplus value? He doesn’t. He takes the average profit and doesn’t know any better.

Sometimes we see debate over the meaning of Marx’s first model for the LTV. He begins Kapital Volume 1 talking about commodity production in the abstract, as if he was discussing a society of simple commodity producers, each individual owning his own means of subsistence. Later he adds in the capital-labor relation and the model becomes more complex. One of the reasons for doing this, there are others, is that the labor-capital relation takes the form of market exchange anyway, of the buying and selling of labor power, and so this market mechanism (through which we first observe the LTV) presupposes the wage relation. But an important difference in the two levels of abstraction is this notion of the valuation of a commodity. For the capitalists the valuation of surplus labor is very different than it would be in a society of independent producers. No matter how much machinery I might buy to help me make shoes I have to charge enough money to compensate myself for my labor time or else there is no point in continuing to produce in an industry. For a capitalist there is no urgent need to have surplus value fully realized in price. Even if it was realized there would be no way of knowing it had happened because capitalists don’t keep close watch of the ratio of surplus labor time to paid labor time. (I wonder if these observations about the valuation of labor hint at more of a Smithian concept of value as “toil and trouble”- as a subjective valuation of labor time like that advocated by the Mutualist Kevin Carson. I think that my above points work quite well in explaining why average profit replaces surplus value in Volume 3, but I wonder if my arguments veer to close to a subjective take on the value of labor…)

Do prices of production still regulate labor time? Yes. After all, a part of the price of the price of production goes to wage labor. The cost of production must at least be realized in the market. If a capitalist can’t sell enough products to pay wages to the workers then he goes out of business. Beyond cost of wages, labor is apportioned in a more general way in the market. The amount of surplus labor might vary yet average profit stays the same. So the apportioning of labor time is less direct, more subtle. On the macro level, total value equals total price. On the macro level the capitalist class exploits the working class. Another quantitative regulator of the relation between prices of production and value is the falling rate of profit. As the ratio of past to living labor increases profit rates start to fall, devaluing the capital invested in small proportions of labor.

Posted in Kapital Vol. 3, Uncategorized | Tagged andrew kliman, average profit, bohm-bawerk, bortkiewicz, capital, capitalism, chapter 9, Das Kapital, economics, karl marx, labor theory of value, prices of production, transformation problem | 7 Comments »

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Posts Tagged ‘labor theory of value’

Law of Value 8: Subject/Object

a point of clarification:

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

In the Real World….

Subjects, Objects and their Prices

A further examination of demand

Subject/Object inversion

conclusion:

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Subject/Object

a point of clarification:

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

Real Abstraction, or Why Karl Marx is Still Relevant

Fetish.

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Capital Vol. III Part III: The Law of the Tendency of the Rate of Profit to Fall Chapter 14. Counteracting Influences

I. INCREASING INTENSITY OF EXPLOITATION

II. DEPRESSION OF WAGES BELOW THE VALUE OF LABOUR-POWER

III. CHEAPENING OF ELEMENTS OF CONSTANT CAPITAL

IV. RELATIVE OVER-POPULATION

V. FOREIGN TRADE

VI. THE INCREASE OF STOCK CAPITAL

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Capital Vol. III Part III: The Law of the Tendency of the Rate of Profit to Fall
Chapter 14. Counteracting Influences