Law of Value- 5. Production and Exchange (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

Production and Exchange

[I think this is a good draft. It needs to be edited so that I introduce each point thru the example, instead of stating the abstract idea, giving the example, summarizing the abstract idea…]

We have seen that in a capitalist economy social labor takes the form of value. This labor produces commodities for exchange. It is only by exchanging these commodities in the market that our labor becomes social. If we just work on our garden at home making tomatoes and we eat all these tomatoes ourselves this is not social labor, we aren’t creating value. But if we were to build a greenhouse and go into business selling tomatoes then we would be engaging in social labor, we would be creating value. In both examples we perform the same type of labor, yet in one example we create value in the other we don’t. Why?

Because value is a social relation. It is not defined by the specific type of labor or the specific qualities of the product. It is defined by a specific type of social relation: the organization of the division of labor through commodity exchange. This is a tricky form of organization to theorize because production and exchange constitute two different moments in time, two very different processes, yet value is a unity of these two things.


What does it mean to produce for exchange? For one it means that we are not producing for our own use-values but solely for the purpose of exchanging our commodity in the market. For the producer the commodity has no use-value at all. This means that producing goods for market exchange is radically different than producing goods for our own use.

From this starting point we can already see the problem with theories of markets that begin by abstracting away from the market. For instance, a lot of neo-classical economists follow Adam Smith in beginning their discussion of capitalism by talking about how Robinson Crusoe, stranded on a tropical island, would organize his productive activity to maximize his utility. Thus they form their theories of capitalist markets by abstracting away capital and markets. What actually ends up happening is that they project capitalist categories back in time to make them seem like universal characteristics of human nature that were just percolating beneath the surface for millennium waiting to find their full expression in the present. This is pure ideology, painting the present social order as eternal and inevitable.

Robinson Crusoe doesn’t produce exchange values. He only produces use-values. This means that his labor is not disciplined by the market. It is only disciplined by his own desires and the limitations of his tropical island. If he decides to build a log cabin to live in he can decide how much time to devote to that task, how hard to work each day, and what the quality of that work will be. Once he has produced the basic necessities of survival (fish) he can decide whether to devote extra time to producing a surplus or to spend his time doing recreational swimming. There is no external market force which disciplines his labor time.

[use more numerical examples for following discussion of SNLT]

If Crusoe were to be rescued and brought to a capitalist nation he would find things quite different even if he were to continue to build cabins and eat fish. Now instead of catching his own fish Crusoe has to buy them. In order to do this he has to produce something of his own to exchange in the market. In a capitalist society you don’t produce your own means of subsistence. Instead you buy your means of subsistence in the market and sell the products of your labor in the market.

imposition of commodity form on society. (how do I state this briefly without getting into selling labor power?)

Let’s say Crusoe now uses his new log cabin building skills to make a living. Now it does matter how efficiently he works. If other cabin-builders are more efficient than him they will push him out of the market. Crusoe may prefer to go swimming rather than build cabins but he will have to build the cabins anyway because he can only attain his means of subsistence by selling the products of his labor in the market. If he doesn’t sell cabins he won’t have any money to buy fish to eat.

The competition with other cabin-makers compels Crusoe to work at an average level of productivity. Marx called this average productivity the Socially Necessary Labor Time, an idea which will be discussed in more depth in another video. But Crusoe doesn’t know this average level of productivity before he enters the market. He can only guess as to this average productivity based on his previous experience in the market. If his competitors buy better tools or develop better methods in the interim he won’t discovers this until he returns to the market with his commodity. This rise in social productivity will force him to sell his cabins below their value. And this is what will force him to change his own productivity when he returns to production.

Notice that now Crusoe is very conscious of his labor time as it relates to others. He must work as efficiently as possible, and constantly be on the look-out to improve his efficiency. This obsession with labor time is one of the hallmarks of market societies and is responsible for much of the productive dynamism of a capitalist society. [It is also responsible for the very clear distinction between work and non-work that manifests itself in the contrast between stressful workplaces and indulgent, consumer recreation.]

So the separation of production and exchange in space and time, the coordination of private labor through markets, means that producers are always guessing what the value of their commodities are, always trying to beat the market, and always being disciplined by the market. No one person is in control. Instead the market is in control. It has basic structural characteristics that compel producers to behave in certain ways. The choices that individuals make are always choices within the incentive structure created by the market. Because the market is so all-encompassing this makes it very difficult to escape from these structural forces.


While value is created in production it is “realized” in exchange. After we have worked to make something we say, “I think I can sell this shoe I just made for 20 bucks.” But we don’t know for sure what the price is until we enter the marketplace and compare our shoe-making labor to the labor of other shoe-makers. (Furthermore this value itself, this “20 bucks”, is merely an expression of the relation of our labor to the total social labor of society.)

Because we don’t realize the value of a commodity until it is exchanged this creates the illusion that value is created in exchange. Subjective value theory is based around this illusion. Subjective value theory thinks that because we must compare commodities in the market to realize their value that this means that the subjective comparisons between commodities in the market is what creates their value. (By abstracting away production of course this allows bourgeois economic theory to avoid discussing the unequal organization of production in a capitalist society: that the means of production are privately owned by a minority while the majority must sell their own labor to survive.)

For Marx these subjective valuations don’t create value, but they are a part of the mechanism through which the law of value works. When consumers choose between different shoes to buy their decisions help enforce an average level of productivity (SNLT) amongst shoemakers (just like Crusoe’s labor was disciplined by its comparison to other cabin-makers). Consumer choices also signal changes in the apportioning of labor between different sectors. But none of these subjective decisions can change anything about the productivity of labor. If the demand for toothbrushes goes up then more labor is devoted to making toothbrushes but unless there is a change in the productivity of toothbrush makers there will be no change in the value of a toothbrush.

What happens if I produce toothbrushes more efficiently than the social average? I can then sell my toothbrushes for more than their value and reap a super-profit. In other words I am receiving more value in exchange than I created in production. Does this mean that value has been created in exchange? No. When I receive a super-profit this means that a less-efficient toothbrush maker somewhere else is not selling his whole product. My super-profits are balanced out by his loss of profit. The total amount of value stays in the same. No value has been created.

The same happens if I cheat someone. If I sell you a bridge that doesn’t exist I have cheated you out of a million dollars. Does this mean value has been created in exchange? No. It just means that value has been transferred from you to me. The only way to create value is to perform socially useful work.

The fact that value cannot be created in exchange, but only transferred around, is a crucial one for Marx. It is one of the basic ideas behind his theory of exploitation: Since value can’t be created in exchange the only way surplus value (profit) to exist is for workers to be paid less than the value they create. This concept also figures prominently in Marx’s understanding of banking and financial capital.


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One Response to Law of Value- 5. Production and Exchange (draft)

  1. Pingback: Law of Value- drafts for the upcoming video series « Kapitalism101

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