Law of Value 7: Production and Exchange

This is part 7 of a series on the law of value.

Part 1:

Part 2:

Part 3:

Production- Exchange script

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 covered in strange hieroglyphics can only be understood when we look at the role money plays in the complex coordination of modern capitalist production. Take away capitalist production and this rectangular piece of paper loses its meaning. If we take away this context of social relations it is impossible to understand what money really is. If we view money in isolation we end up treating all of its social power as if it is a natural property of rectangular pieces of paper. This 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 the failure to see things and concepts relationally is par for the course when dealing with bourgeois ideology.

This video examines the relation between exchange and production. It argues 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; 3. Value

1. Freedom and Equality

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 the 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. What kind of society is required to have a world where buyers and sellers are free to sell labor (labor power to be specific) and commodities as 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 from and sell to they are not free to not buy and sell. This is because we can only access our subsistence through the market. Such a situation does not occur naturally. It presupposes a specific type of relation between producers.

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 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 ourselves as equals in a world of inequality, that we can 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, inspiring 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 reached naturally when 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 everyones 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 human 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 these 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. 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. (1)

The profit-maximization of capitalists forms the bulk of the economic activity in our society. Yet it is easy to fall under the illusion that the economy is just made up of individuals maximizing their utilities. 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, and the capitalist state.)

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- economics assumes it into existence as it does the isolated, hedonistic consumer.

When we interrogate our textbook and ask for a theory of what creates supply we are given a familiar 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 diverted from any 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 the work of people that produces things in given quantities. Our “choices between scarce resources” are actually choices between different distributions 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 social organization of working activity that produces a certain type of individual and a certain way of pursuing our interests. Our textbook has done a clever thing. It has abstracted away all social context from individuals and the objects they confront. It has made society the result of the individual, not the other way around. It has assigned social powers to 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 in order to 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 world. Commodities exchange in certain ratios. A commodity’s exchange value is the ratio at which it exchanges with another commodity. At first glance exchange-value can seem random, accidental. But we observe that in reality exchanges are not accidental and random. Stocks of commodities are replenished, creating a regularity to exchange ratios. What could this process be that takes away the accidental nature of exchange and replaces it with a social regularity?

When I say one book equals 30 pencils 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 which leads 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. (2)

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. Labor is the way we create the objective world we encounter and the way we create ourselves.

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. We don’t have a sense of our labor as a purposeful activity, or a social activity. 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.

As you may know Marx’s bourgeois predecessors, Adam Smith and David Ricardo amongst others, subscribed to a labor theory of value. You might think then that this means that they too had a proper dialectical understanding of the relation between production and exchange. But this is not the case. Marx reproaches both Smith and Ricardo for reducing form to content. The distinction turns out to be crucial.

The content of value is labor. By this we mean that the “social substance” that makes up value is labor. (Later on Marx will have to examine what kind of labor this is, socially necessary abstract labor, and what kind of society produces it.) But we don’t see this content when we examine a commodity. No matter how we may poke, prod, smell it or take it apart, we can’t see its social content. That’s because this content takes a material form. This form is exchange-value. When we say it takes a material form we mean this literally. The value of the book takes on the form of pencils or tires or baritones. So Marx makes a distinction between the content of value, labor, and the form of value, exchange-value.

This means that value and exchange-value are different. And since price is just a special form of exchange-value, price and value are different. Prices are just the surface appearance of value. But this value has no fixed, physical form independent of its material expression in pencils, tires or money. We only see the form of value, not the content.

For Smith and Ricardo price is immediately identifiable with value. This is what Marx means when he says they reduced form to content. They treated the content of value, labor, as it it immediately had an exchange value. They failed to understand that value is a process whereby labor takes on the material form of exchange value. But these exchange ratios are not value. They are merely the expression of this 3rd thing, called intrinsic value. This allows Marx to examine the ways in which prices fluctuate around values which allows him to solve some theoretical problems that alluded his predecessors. (3)

It also leads him ask an important question that Smith and Ricardo had never asked: What type of labor produces value? Because Smith and Ricardo saw labor and price as identical they assumed all labor, in all times, created value. As we know, these sort of appeals to universality and eternal concepts are problematic. It is only a specific type of labor that produces value: labor for exchange. Thus only a specific type of society, in which there is a regular, predictable, disciplining of labor to the needs of market exchange, can be a society ruled by the law of value.

Rather than seeing value as a universal aspect of human labor. Marx sees it as something unique to a specific form of labor: production for exchange. Thus in distinguishing between content and form Marx is able to also distinguish between the universal and particular, to show that the properties of the market are specific to a certain type of production: capitalist production.

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 underly 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.

Footnotes:
1. Now one might argue that all these commodities must still be sold to consumers and that therefore the satisfaction of utility still lies at 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.

2. One might identify several strands of response to Bohm-Bawerk’s critique of Marx’s argument for labor as the content of value. There are those that defend the specific approach of Marx’s argument in Chapter 1 of Vol. 1 of Capital. Off the top of my head the names Rudolph Hilferding, Andrew Kliman, and Guglielmo Carchedi come to mind in this category. Then there are those that say that it is wrong to thing of Marx’s argument in this chapter as an analytical proof. Rather, the argument for abstract labor as the content of value must be understood within the context of Marx’s method (that he takes the mode of production to be the fundamental organizing principle for all human society). I.I. Rubin takes this approach. In a third approach there is the recent work of Nicole Peppereli, whose blog Rough Theory I have recently been checking out, who argues that the structure of the first chapter of vol. 1 of Capital is quite peculiar. She argues that Marx starts off with a simple analytic proof, divorced from social context, one-sided, in order to draw the reader in via a mockery of bourgeois method. But by the end of the chapter he has turned the tables on this simplistic analytic formula with his fetishism argument…. An interesting approach. I have tried to combine some of each of these approaches at times.

3. For instance, this allows Marx to have a theory of socially necessary labor time which explains all of the things detailed in video 6 of this series. It also allows Marx to create his theory of Prices of Production which solves the problem of average profits, a conundrum that eluded Ricardo. This is explained in my “What Transformation Problem” video. The other key distinction hinted at here (I felt I didn’t have time to go into it here) is between labor power and labor. This is covered in some of my earlier/awkward videos like “what is capital” and “where does profit come from?”

Suggested Reading:
From Political Economy to Economics, by Fine and Milonakis
This is a great history of economic theory, discussing the methodological evolution of all of the different tendencies within political economy, and the long historical process whereby bourgeois economics excluded all contrary tendencies in order to constantly redefine itself as a narrower, specialized, mathematical science.

Dialectical Phenomenology;Marx’s Method, by Rosolyn Bologh
I really like this book. It is probably the clearest and most convincing explanation I’ve read for why we need dialectical analysis to understand capital.

The New Dialectic and Marx’s Capital, Chris Arthur
Probably the most important point that I gleaned from Arthur’s work is the necessity of understanding all of the steps in the analysis of value as steps existing within the context of capitalism. Arthur has good critiques of the attempt to develop certain aspects of value theory from merely exchange in the abstract. He has especially good critiques of the notion of “simple commodity production”. I have tried to keep this perspective in this series. That is, I have tried to make it clear, at all times, that I am dealing with capitalism and not some abstract pre-capitalist form of exchange.

Dance of the Dialectic, Bertell Ollman
very good intro to dialectics

Essays in Marx’s Theory of Value, II Rubin
this is especially good on production/exchange, and content/form/substance

Marx’s Concept of Intrinsic Value, Andrew Kliman
A very detailed defense of Marx’s logical steps in the derivation of intrinsic value and labor as the content of value.

Kapital, Karl Marx

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10 Responses to Law of Value 7: Production and Exchange

  1. $$$ says:

    Very interesting that i got really excited when my feed reader told me that this video had finally been uploaded, although it basically is about the way in which my life is turned into a mess. Excuse my bad english.

    Brendan, could you fix the law of value youtube playlist, please ^^?

  2. Joao Rodrigo says:

    I Translate your vid and upload in my channel =)
    channel rodsk885
    nice work!
    if u can, i apreciate a nice recomendation to what translate good stuffs for brazilians
    thanks

  3. ... says:

    Law of Value 4: Value (2 of 2) is still missing in the law of value youtube playlist ^^

    Can’t wait for your approach on (market) prices (of production).

    The visual style of your videos is improving continuously, very nice.

  4. radioraheem84 says:

    Latest videos are amazing!

  5. Dean says:

    A couple points:
    -You mention the labor theory of value, but I always find it important to confront the very confusing parts of the theory right from the start. This is because it seems absurd, without having a broader sense of labor from the offset. The easiest way I find to explain the point is that labor is a part of the cost of acquisition. A discussion of the issue can be found here, where another user better approximates some of Marx’s positions than I did: http://www.revleft.com/vb/ltv-p2043984/index.html

    -You say that people are “taught what to desire.” This is only half true. In fact, the human drives which resolve into the “utility maximization” you point to are mediated by the social forces of economic and political conditions. I think its important to appreciate this process, because too much of economics relies on prejudices one way or the other: Marxists like to claim that people are taught what to do, and propertarians like to claim that all human activity is free, so long as it appears voluntary. “Escape From Freedom” by the Marxist Erich Fromm provides a wealth of information and discussion on this very issue.

    Enjoying your blog, by the way :-)

  6. Hi Brendan, I’ve been listening to your videos at work since a while now (I’ve extracted the audio) and I have some very simple questions in mind: When you say that only human labor can produce more value in the production process, unlike machines or constant capital, In what specific qualities or actions taken by humans they produce more value than the input? and secondly, A friend once told me that it was ok that the capitalist earn a profit above his wage laborers because it was his idea to organize the process and produce a commodity in the first place, while the worker have no idea about how to manage and organize the production process and the like. I told him that the fact that the worker can’t organize the labor process was a social condition, the worker have no option than sell his labor force to the capitalist, and it was educated to do so. But I got quite confuse about why the capitalist would not “deserve” such a profit in the first place bacause despite the fact that he does not produce directly the surplus value, he does set the conditions (inputs) to produce such a surplus. Perhaps it is here that the true issue lies: why in the first place the capitalist OWNS such conditions (i.e. the means of production as private property)?

    How would you respond to such a simple claim of my friend?

    • patricio,

      question 1: it’s not just that only labor can produce surplus value; it’s that only labor can produce any value. This is because value is not a measure of physical output but of a social relation. It’s perfectly true that a machine can produce physical outputs of products. But value is not just about counting numbers of physical products. IT’s a social relation between producers that is mediated by the exchange of commodities. this is dramatized in the duality of use-value and exchange-value. I’d be happy to go into more detail if you like.

      question 2: To be a capitalist all you have to do is own capital, period. It requires nothing else than ownership. The returns on your investment have no relation to the amount of work you may do or not do. The returns are only in relation to the amount of surplus value you extract from workers.

      • Now I think I got it more clearly. My first question was directed to the term ‘variable capital’, and I think that this keyterm says it all between the lines. As Marx says, a machine cannot work faster than its capacity or else it brokes, it merely tranfers value. A person can work harder or softer, thus producing more or less value than the social average, right? But, a worker also have human limits, meaning that its variability has boundaries. How do capitalists deal with such limit? I think that this leads us to the rate of exploitation and the falling rate of profit theory, and I must say that I think this is the best part of your videos, since I haven’t read capital 3 yet.

        Thanks for answering and for the good work,
        An architect studying Marx

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