draft- Law of Value 7: Production and Exchange

Here is the initial draft of my Law of Value 7 script. I would appreciate any constructive feedback before I begin production of the video later this week. This script was delayed considerably by several things. I was sidetracked by a mountain of reading for a conference on the economic crisis which I spoke at back in November. I also did a mountain of reading for this script, including a lot of reading about dialectics (Christopher Arthur, Bertell Ollman, Roslyn Bolough, to name a few) and bourgeois economy (particularly “From Political Economy to Economics” by Fine and Milonakis). This script and the next 2 will all be based heavily on this reading about dialectics. I’ve made some revisions to my plan of videos. Law of Value 8 will be called “Subject Object”. It will describe Marx’s understanding of the subject-object relation, building on the explanation of his method in this video, and using it to dispense with the problematic duality between “subjective and objective” value. Law of Value 9 will be on Abstract Labor. It may feature some collaboration with another video producer.

Onto the script:

Production- Exchange script… draft

We get into trouble anytime we try to understand something in isolation. The true meaning of things exist not buried inside them but in their relation to other things.

Take money for instance. The meaning of this rectangular piece of paper with strange hieroglyphics all over it can only be understood when we look at the role money has in the complex coordination of modern capitalist production. Take away capitalist production and this rectangular piece of paper loses its meaning.

If we try to deduce the meaning of money by abstracting away these relations we run into trouble. We end up attributing all of the social power given to money by a world of people to money itself, as if rectangular pieces of paper naturally have these powers. If we treat money in isolation rather than as a relation its meaning and power appear not to be specific to a given time and place but universal qualities that exist in all places and all times.

Of course this would be ridiculous. Yet, as we will see, such mistakes abound in many modern understandings of capitalism. This video will examine the relation between exchange and production. It will argue that exchange and production only derive their meaning from their relation to each other and that we have to understand the specific nature of this relationship if we are to really understand the full meaning of common concepts like freedom, equality, utility, scarcity and value. Attempts to understand these concepts without looking at the picture relationally end up being “one-sided”. Meaning appears as internal to the object/concept itself and not something coming from a relation. Because there is no way to account for the specific context in which a meaning appears the meaning seems to be a natural, eternal truth.

We will examine the relation of production to exchange through 3 different, inter-related topics/windows/vignettes. Each one will give us a different perspective on the same problem. 1. Freedom and Equality; 2. Scarcity, Utility and the allocation of resources; 3. Value

1. Freedom and Equality

[clip of Palin or somebody talking about freedom]

Where do the notions of individual freedom and equality so deeply ingrained in our modern consciousness come from? They come from the realm of exchange. Here in the world of buying and selling all individuals are free to buy and sell their labor and the products of this labor as they chose. Nobody forces anyone to buy or sell anything to anyone else. The path of an individual’s life appears as a series of free choices and with this comes the notion of personal responsibility. People appear only to have themselves to blame for their personal state of affairs.

This freedom to buy and sell presupposes the legal relations of individuals to own property. Thus individuals have legal rights, the same rights for everybody, establishing a basis of legal equality for all.

This generates a notion of freedom and equality IN GENERAL. We talk of the inalienable rights of the individual, of human rights, of individual freedom, etc. These are seen as universal properties of humans, and market exchange is seen as a natural expression of these properties.

…already we have clues that there may be something one-sided about our analysis. It appears that the individual has been assigned universal traits, traits that are not due to a specific set of social relations it falls within, but due to its basic nature. The individual is being understood in isolation, one-sidedly. Rather than a social structure generating a particular type of individual, a universal type of individual is seen as generating a specific social system. Whenever we see the particular masquerading as the universal, whenever we see claims as to the universality of a concept, we have clues that our analysis is one-sided.

The other-side:

Such clues demand that we interrogate our notion of market freedom more closely. What kind of society is required to have a world where buyers and sellers are free to sell their products as legal equals? We need more than just money, markets and bourgeois states. We need a particular type of production relation.

Though individuals are free to choose whom they buy and sell to they are not free to not buy and sell. This is because we can only access our means of subsistence through the market. This presupposes a specific type of production relations between people.

In order for individuals to have to enter the market to buy their subsistence they can’t be able to create their subsistence on their own. They must be deprived of means of production. Means of production must be a private commodity owned by the few, compelling the majority to enter the market to sell their labor and to buy their subsistence. In contrast to the perspective of the market where all actors meet as legal equals, in production we see the division of people into classes, workers and capitalists. The world of market equality presupposes a world of inequality in production.

This implies a specific type of production: production for exchange. In production for exchange products are not created for the use of the laborer. They are produced to fetch a price in the market. And because the means of production are owned by the capitalist class the goal of production becomes not meeting the needs of humans, but generating profit for the sake of profit, at the expense of the laborer. The more work that can be squeezed from the worker, the greater the profit of the capitalist.

Yet when worker and capitalist meet in the market to buy and sell commodities and labor-power they meet as free, consenting, legal equals. There is a contradictory relationship between the freedom of the market and the despotic plan of the factory, between the equality of the market and the asymmetry of class. Yet though the two sides contradict each other they also depend on one another. We can’t have market freedom without class and the inequalities of capital.

If we just said that bourgeois freedoms are an illusion draped over a real world of coercion and inequality we would be venturing too far into a one-sided analysis of production. We can never forget that capitalist production is production for exchange, inherently linked to the freedom of the market. Market freedoms are real. But they contradict their own material base.

This contradiction between freedom and coercion, between equality and inequality is what allows us to have a critique of our society in the first place. It is only because we are promised a freedom that we cannot have, because we see our selves as equals in world of inequality, that we form an internal critique of the society we are in.  It is the movement of this contradiction that allows us to posit a possible exit from such a society, inspires us to imagine a world where freedom and equality could stand on a non-contradictory basis, where individuals truly could be free to choose the path of their lives.

2. Scarcity and Utility

If you were to open a standard economics textbook today you would read that economics is the study of how the autonomous decisions of utility-maximizing individuals allocate the use of scarce resources. The optimal allocation of resources is the one where the utilities of all individuals are maximized the same amount. This optimal allocative state is reached naturally if individuals are free to make autonomous decisions in the market. But this doesn’t mean that we can have everything we want. We live in conditions of scarcity. We always want more than is possible for us to have. Therefore we always have to make trade-offs. So our textbook reminds us that the fact that we may want more from the current state of affairs, that we aren’t happy with the world, is just part of life: we will always want more than we can have.

Thus economics defines its aim and focus quite narrowly. It is focussed on the decisions that individuals make in the market. Its focus is on exchange. That doesn’t mean it doesn’t say anything about production. But its observations about production are based on the basic principles it learns from its analysis of exchange. Production is also just a realm of individuals making choices between scarce resources, nothing more, nothing less.

And with this framework neoclassical economics is able to justify all of the central ideological claims of capitalism: that people can only be understood as individuals not classes, that we can only blame ourselves for our lot in life, that free markets are the best route to maximizing everyone’s utility, and that the current state of affairs is not only the best one but also the natural expression of universal human nature.

…here too we have clues that our analysis may be one-sided. As in our previous example there is a conflation of the universal and the particular. Particular aspects of the individual’s market behaviour under capitalism are held to be universal, innate properties of all individuals in all of their behaviour for all of time. The particular types of choices we make in the market are considered universal choices. Scarcity is seen not as a product of a certain organization of production but as a universal, timeless condition. These are our clues. Let us interrogate these notions of utility and scarcity to see how we might situate them within their actual social context.

utility

Who is this calculating, egoistic, utility-maximizing individual? A closer inspection shows that her existence as an individual is dependent on her existence as a social creature. It is only through a certain type of society that we have a particular concept of the individual.

For one, we do no form our desires in a vacuum. We are taught what to desire. We are also taught how to pursue the objects of our desire. In different societies people carry out their intents/purposes quite differently. In a capitalist society we purchase our desires. But this requires that we sell our labor in the market. Thus our utility-calculating isn’t just an abstract measure of how much we want things. There is a social context that structures these calculations. We have to consider our incomes and the social values of commodities. Neither one of these things (wages and prices) can be explained solely by the world of exchange. They both require an analysis of production.

The logic of production does not follow the same logic of utility maximization. That’s because capitalists don’t invest in production in order to maximize utility. They invest in order to make profit, in order to gain value in the abstract. The pursuit of money for its own sake is not a pursuit of utility. It is a separate logic, a blind, calculating logic that pursues its own interest, transforming the capitalist into a mere personification of this logic. Now one might argue that all these commodities must still be sold to consumers and that therefore the satisfaction of utility still lies a the end of all production. But a great deal of the demand in society is not demand from consumers at all. It is demand from capitalists for productive inputs. A great deal of the value in society never resolves itself to consumer products. Instead it consists of products sold back and forth between capitalists.

Despite the fact that the investments of capitalists form the bulk of the economic activity in our society it is easy to fall under the illusion that the economy is merely the aggregation of the acts of disparate utility-maximizing individuals. This is because the social links between all individuals, be they capitalists or workers, always take the form of market transactions. Our social relations are mediated through value-relations between commodities. But this appearance is one-sided. The presence of the utility-maximizing individual presupposes the social organization of a capitalist society (private property, wage-labor, markets, capitalist state, etc.)

As we will discuss more in the next video (Subject Object) we can have no individual without a society. The type of individual, and our understanding of what it means to be an individual, changes with the type of society. When we inquire into the conditions necessary for our calculating, utility-maximizing individual we see that it is not a universal individual. It is a particular individual nestled in a particular set of social relations.

scarcity

In our textbook the individual walks by shelves of commodities to compare and evaluate. We don’t need to know where they came from or how they got to the shelf. Supply is given- a static, preexisting quantity of stuff on the shelves- and we are told that economics starts with this process of consumer decisions.

When we interrogate our textbook and ask for a theory of what creates supply we are given a similar answer: there is a given amount of scarce resources. We must make choices between them. We are shown a static, preexisting world of resources to choose from, as if we were shopping in the market.

Cleverly our focus has been shifted away from any sort of activity that actually brings commodities into being. But how can we actually understand scarcity without understanding the production process? How do we compare the scarcity of coal to wood without an understanding of the fact that wood merely requires the cutting of a tree while coal requires an elaborate mining process? (How do we understand the scarcity of intellectual work without realizing that a Mozart CD can be duplicated an infinite amount of times at the click of a button while a Van Gogh can never be painted again?) Scarcity is only an inversion of production. It is people working that produce things in given quantities. Our “choices between scarce resources” are actually choices between different distribution of labor.

conclusion to part 2:
Thus we have seen that our economics textbook is lacking. None of its central claims make any sense unless they are contextualized in a mode of production: a collective organization of working activity that produces a certain type of individual and a certain way of pursuing our interests. Our text book has done a clever thing. It has abstracted away all social context from individuals and the objects they confront. Yet it doesn’t just throw away this context. It distributes the power of society amongst individuals and objects. The particular organization of capitalist production becomes universal human nature confronting a preexisting world of valuable objects.

3. Exchange Value

Marx was interested in interrogating the notion of exchange-value to get to the heart of what it was really all about. It led him to a conception of an intrinsic value given to commodities by labor. We’ve already followed this argument in video 4 (Value). Here I will review the argument and demonstrate how it functions as an interrogation into the one-sidedness of the concept of exchange-value.

Exchange value is an observable phenomenon in our society. Commodities exchange in certain ratios. An apple is worth so many pencils, a car so many beers (use examples from previous vid 4). Each of these ratios is an exchange-value. A commodity’s exchange value is the ratio at which it exchanges with another.

At first glance exchange-value can seem random, accidental. But we observe that in reality exchanges are not accidental and random. Cars are always worth more than pencils. The price of apples today will probably be pretty similar to the price of apples tomorrow. So while at first glance an isolated exchange may appear to reflect just the free interaction between a buyer and seller, when we look at the regularity of exchange-values we see that there is some social process that regulates these exchange ratios, disciplining them to a social average. What is this process?

When I say one baseball=2 oranges=1 beer= etc. I am comparing magnitudes. But magnitudes of what? To compare magnitudes you have to have some substance/essence that you are comparing! This leads Marx to conclude that commodities have an intrinsic value. All of these different exchange-values are just different ways of expressing this intrinsic value. We never see the intrinsic value, we only see the various commodities that are used to measure its magnitude.

We are still in the world of exchange. All we have done is to analyze the nature of exchange-value to come to this idea of intrinsic value. But here is where we have to leave the world of exchange in order to ground our concept further. Intrinsic value is a pivot concept that forces us to move to the world of production.

What is the substance that intrinsic value is made up of? It can’t be the use-value of commodities because use-values can’t be quantitatively related. You can’t compare the use of an apple to the use of a car quantitatively. The only logical place to look is the labor process, the process whereby individuals create the world in which they live.

This answer to the question of intrinsic value was not accepted by Marx’s critic Bohm-Bawerk. Bohm-Bawerk argued that there are many other things that could make up this intrinsic value like scarcity or utility. Yet, as we have seen already, scarcity and utility are incomplete, one-sided concepts that can’t be understood unless they are grounded in a theory of production. Only through an understanding of the activity of people as they shape their world and the way in which the particular mode of that production shapes the individual can we understand scarcity and utility. This makes labor the obvious focus point for our investigation into the value relations that make up a capitalist society.

It makes sense that this notion of value might not be intuitive for some to accept. In a capitalist society we are separated from our labor. Our working power is a commodity that we sell to a capitalist. The capitalist owns our labor and the product of that labor. It is just a commodity that we sell so that we can buy other commodities. We don’t have a sense of our labor as a purposeful activity, of a social activity. This is because our labor must take the form of a commodity with a market value before it becomes social labor. Value obscures the social nature of our labor.

The notion that there was a relation between exchange-value and labor existed long before Marx. But Marx was critical of the classical notion of a Labor Theory of Value as understood by Adam Smith and David Ricardo. Smith and Ricardo were primarily concerned with developing a labor theory of exchange-value. They wanted to explain prices through labor. Their concern was still with exchange. They also made the mistake of confusing the particular for the general. Smith and Ricardo saw all labor, throughout history, as value creating.

Marx agrees with Smith and Ricardo that the content of value is labor. But he says they miss the form of value. It’s not all labor that creates value. It’s only labor that takes a particular form: labor exclusively for exchange, where the mass of people have to sell their labor in the market for a wage. It is only under these conditions that the products of labor become commodities to be compared to each other as values in the market.

This gives Marx’s notion of value a very different focus than both the classical economists that proceeded him and the neoclassical economists of today. Marx’s theory isn’t focussed in the narrow realm of exchange. It doesn’t have as its goal just to predict prices. It is focused on the organization of production in a society of production for exchange. Thus Marx is able to pinpoint the particular nature of capitalist social relations where those who came before and after him could only make universal claims about human nature.

Conclusion

In case it is not obvious there is a central ideological issue at stake in this distinction between particular and general/universal. It’s quite simple. Things that are universal can’t be changed. There is no use organizing, struggling, studying, complaining or reading about them. If human beings are always a certain way then that’s just how it is. But if we want to change the world we need to know what aspects of our reality are not universal, what things are merely a product of the organization of our social relations, what things might change under a different type of organization.

In a capitalist society much of the world of appearances comes from our experience in the market, in the realm of exchange. But from this one-sided perspective we aren’t able to see the historic specificity of these market experiences. Without a perspective of the type of productive relations that underlie the freedom, equality and individuality of the market we end up making universalizing and inadequate generalizations about human nature. Such a one-sided perspective makes it seem as if we are trapped in the present, as if the problems of today are universal problems of all time, unable to be transcended.

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2 Responses to draft- Law of Value 7: Production and Exchange

  1. arharris says:

    I would like to comment on these sentences: “But he (Marx) says they miss the form of value. It’s not all labor that creates value. It’s only labor that takes a particular form: labor exclusively for exchange, where the mass of people have to sell their labor in the market for a wage.”

    I think it might be more accurate to say that not all human labor produces commodities (or exchange-value; see Marx on the last page of Chapter One, Section One, of Capital, Vol I.: “Whoever directly satisfies his wants with the produce of his own labor, creates, indeed, use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values.”

    My point, I think, is that in capitalist production, labor creates (social) value; this value is fixed in the product before it goes into exchange or on the market; the capitalist appropriates this social value, then sells the product on the market at its actual value for a profit.

    What the “neo-classicists” have done is merely substitute the word “scarcity” and “marginalism” for the “free market.” They really can’t explain profit by using a pure market-based analysis. So they reject Adam Smith and Ricardo and recreate in their own imagination a class-based, exploitative economics of scarcity: 100 people stranded on an island have 200 loaves of bread to last 30 days before they are rescued. Under a “scarcity” economy whoever has the most money and guns will determine how the scarcity is managed, because, remember, it is the management of scarce resources, not the equitable management of scarce resources. Under Marxism, the scarcity would be shared equally based on need. (Also, if you didn’t work, or if you were a marginal economist, you wouldn’t eat.)

  2. arharris says:

    I also wanted to add this. I was re-reading “The Poverty of Philosophy” and came across a discussion of the value of money. Marx argued that money, under capitalism, was the only commodity whose value was not determined or created by labor. Proudhon was saying that money, meaning gold and silver, was valued by the labor needed for its production.

    Marx further added that the value of money alone was determined by supply and demand. This absolutely astonished me. It is a perfect description of monetarism, over a century before there was even such a thing as monetarism. We see it operating every day when the Fed expands or contracts the money supply to lower or raise the value of money.

    Since modern economic “theory” is almost entirely based on money supply, prices, interest rates, etc., it seems very natural for a capitalist economist (aka a vulgar economist) to base his or her theory on the supply and demand of commodities expressed as prices or the “marginal utility” of the commodities. Thus, the focus remains on market prices instead of the process of production.

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