Value Can’t Be Created in Exchange

After Law of Value 9: Abstract Labor I will conclude the trio of videos dealing with Marx’s method (not that I’ve conclusively said all there is to say on the topic, but all that I have to say for this series). The next 2 or 3 videos deal with the price-value relationship. I suspect that this will be of interest to many viewers as this is a topic full of confusion and varying interpretations. My plan is to stick as closely as possible to what I understand to be Marx’s take on the subject. For this reason I will draw somewhat on the Temporal Single System Interpretation’s literature on the topic, especially some essays by Alan Freeman and the book Frontiers of Political Economy by Guglielmo Carchedi, as this is the school of thought that I think most coherently establishes the logical consistency and relevance of Marx’s value theory (though I don’t claim to have an exhaustive knowledge of the all of the different takes on this topic and their surrounding debates.) Of course Marx’s writing on the subject, especially vol. 3 of Capital will be in the forefront of my considerations as well.

But in preparation for the task of preparing the scripts for these videos I thought some preparatory explorations might be in order. Perhaps the first place to start would be to explore the rationale behind and relevance of Marx’s observation that value cannot be created in exchange.

Value cannot be created in exchange

In his Vol. 3 transformation procedure Marx holds that total value equals total price. (Despite the fact that prices and values diverge, the coherence and relevance of value theory is maintained by the equality of total value and total price, and total surplus value and total profit.)  Bohm Bawerk, Marx’s famous Austrian detractor, argued that this assertion proved nothing. “… it is perfectly true that the total price paid for the entire national produce coincides exactly with with the total amount of value or labor incorporated in it. But this tautological declaration denotes no increase or true knowledge, neither does it serve as a special test of the correctness of the alleged law that commodities exchange in proportion to the labor embodied in them. For in this manner one might as well, or rather as unjustly, verify any other law one pleased- the law, for instance, that commodities exchange according to the measure of their specific gravity.” (Bohm Bawerk, “Karl Marx and the Close of His System” p 36 of the 1975 Sweezy edition) He goes on to give an example where individual commodities do not exchange at their specific weights but total weight equals total price, thereby apparently showing the tautological uselessness of Marx’s first equality.


Like much of Bohm-Bawerk’s critique, his reading of Marx here is inaccurate and simplistic. Yet his critique is a good jumping off point for clarifying what Marx is actually arguing. Marx’s theory of value does not require that goods trade in exact proportion to the labor time embodied in them. Neither does his theory require that prices fluctuate around a ‘center of gravity’ that is embodied labor times. Rather Marx argues that prices and values systematically deviate and that this poses no problem for any aspect of his theory of capitalism.


Marx’s claim that total price equals total value is not supposed to “serve as a special test of the correctness” of his value theory. Rather it is a logical conclusion of his observation in Volume 1 of Capital that value cannot be created in exchange.  This observation flies in the face of everything that is sacred to the Austrian school. As Bohm-Bawerk writes, “Where equality and exact equilibrium obtain, no change is likely to occur to the disturb the balance. When, therefore, in the case of exchange, the matter terminates with a change of ownership of the commodities, it points rather to the existence of some inequality or preponderance which produces the alteration.” (ibid  p. 68) In other words, people exchange things because of a subjective difference in their estimation of the value of goods. Exchange happens because of an inequality in subjective estimations in value. This leads to the bizarre notion of “subjective profit” which, more than anything else, makes it obvious that the entire idea of marginal utility comes from an attempt to impose the objective rational of the capitalist investor upon the the subjectivity of individual consumers.

Two points should be made in response to Bohm-Bawerk. First, despite the impressions that could be had from a naive reading of the first chapter of Vol. 1 of Capital, Marx does not believe that every exchange involves an equality of labor times.  The very concept of socially necessary labor time (SNLT) implies inequalities in exchange between the social value of a commodity and the individual value (between the labor time considered socially necessary for its production and the labor time actually spent on its production.) The gap between social and private labor is the mechanism whereby value regulates private labor for social purposes. (2) Rather, Marx is claiming that value cannot be created in exchange. While there can always be inequalities in exchange, these cannot be the source of profit because no aggregate addition to the total value of society can be created just by moving commodities from one person’s hands to another’s.

Now Marx does often ask his readers to assume, for sake of argument, that value and price are identical for individual commodities. Why?…because this makes it easier for him to show that profit must come from the exploitation of wage labor, rather than from an inequality in exchange. If value can’t be created in exchange we must look to production and the exploitation of wage labor to explain profit. But this type of profit is different than the super-profit that comes from selling below the SNLT. Thus it makes sense to assume the sale of commodities at their SNLT in order to look at the source of profit proper, rather than super-profit. Sometimes people, like Bohm-Bawerk, claim that Marx holds price and value equal for the first two volumes of Capital, later dropping it for the 3rd volume. But the concept of SNLT, which entails sale above and below SNLT, occurs at the beginning of Vol. 1!

Equivocation is the misleading use of a term with more than one meaning.

Secondly, the Austrian school’s concept of inequality being the prerequisite to exchange is highly problematic. It rests on a conflation of two different definitions of the term “value”: on one hand the subjective estimations made by individuals, on the other the real, concrete prices which commodities sell for in the market. Just because we make subjective judgements about our preferences for commodities doesn’t mean that these judgements are the same as or have any bearing on the market prices of commodities.




I question whether the concept of “subjective profit” so popular to Austrian thought has any usefulness. It seems like a bad analogy to the real, concrete profit of capitalists. Whereas capitalist profit can be easily measured, there is no measure of this so-called subjective profit that individuals supposedly get in exchange. Yes people buy things by their own free will. But on what basis can we say that this is a result of their preferring a commodity more than they prefer money? Money only has value because it can buy things. To say buying deodorant demonstrates that I prefer a $5 stick of deodorant more than I prefer $5 in cash seems to overlook the obvious fact that a commodity worth $5 has just exchanged for $5. I have exchanged one use-value for another yet the amount of economic value I have has not changed. While there has been a transfer of use values there has been no transfer or value. While the Austrian instinct is to follow the movement of these use-values, to conflate their circulation with the motor force of capitalism, Marx is more interested in the movement of value. Since value can’t be created in exchange, the motor of capitalism is the exploitation of wage-labor. This allows Marx’s gaze to focus on production, class, the movement of value… all of the things that the bourgeois economists try to abstract out of their theory.

We need look no further for an illustration of the problematic conflation of subjective value and real market prices than Ludwig Von Mises’ “Human Action”. P. 329: “Valuation is a value judgement expressive of a difference in value. Appraisement is the anticipation of an expected fact. It aims at establishing what prices will be paid on the open market for a particular commodity or what amount of money will be required for the purchase of a definite commodity.” and later:” “The valuations of a man buying and selling on the market must not disregard the structure of market prices; they depend on appraisement. In order to know the meaning of pr ice one must know the purchasing power of the amount of money concerned.” (Human Action, p.329, The Scholars Edition).

Here Mises clearly states that our subjective valuations are not the same as market prices and that market prices effect our subjective valuations. It is a logical conclusion from here to the fact that an exchange of $5 for a stick of deodorant with a $5 price tag is an exchange of equivalent values (value defined in this objective sense) regardless of what the personal  valuations of individuals are regarding deodorant. Mises goes on to assert that these market prices are just the result of personal value judgement.  But just because market prices are formed in the process of people making judgements does not mean that these judgments determine the exchange ratios between commodities.  Regardless, once one acknowledges the fact that prices are an objective quantity one has to admit that value cannot be increased merely by trading two commodities with the same price. Whether or not there is a “subjective profit” (and I don’t think this can be proven or that it has any relevance [1]) has no bearing on the fact that value can’t be created in exchange.

On with the story…

If value can’t be created in exchange then this puts us quite far along in our path to understand the value price relation. The exchange process is one of measuring the value of commodities against each other. If a commodity is exchanged above or below its value then value is transfered from one person to another. This can be a source of profit for one person but it cannot increase the total amount of profit in society.  Though Marx doesn’t use the term, sometimes one hears the words “super profit” used to describe this profit arising from unequal exchanges.

If profit can’t come from exchange then we must look to production for it. There is one commodity that can produce more value than it costs to buy. This is labor power. Labor power is the only commodity whose cost of production (the cost of the means of subsistence) differs from the value it transfers to the final product. The amount of value created by the worker in production cannot be determined by looking at the wage. It can only be determined by looking at the total amount of work that has been done. This is the source of profit proper.

Marx’s theory of SNLT contains both types of profit, profit proper and super-profit. All capitalists in an industry exploit labor and thus make profit. But they also compete to outsell each other in the market by introducing new production techniques which allow them to produce under the SNLT. This allows them to appropriate value through exchange, hence making an additional super-profit on top of the profit proper.

The source of this super-profit is the surplus value created by workers in other firms. It works like this. All capitalists in an industry must at least cover their costs of production or else they will go out of business. So let’s assume all firms are at least making enough to cover costs. Now if the SNLT corresponds to the modal (not average) level of productivity in an industry this means there will probably be firms operating above, at, and below the SNLT. Firms operating above the SNLT will lose business and make less profit. Firms operating below the SNLT will get more business and realize more profit. The more efficient firms carve out a larger space for themselves in the market, squeezing out less efficient firms. They cut into the profits of competitors. Less efficient firms are not able to realize all of the surplus value they have created while more efficient firms realize more profit than just the surplus value their workers created.

If value can be transferred in exchange, and if this transfer of value comes through redistributing surplus value created in production, then we already have the tools needed to understand Marx’s theory of Prices of Production. Sometimes we are told the notion of prices of production involves some modification of Marx’s value theory. I do not believe this to be the case. All of the tools we need to understand prices of production are already present in the notion of SNLT, and all of these points flow logically from the observation that value can’t be created in exchange. (I will leave the topic of prices of production for a future post.)

The Fraternity of Capital

The fact that surplus-value is transferred in exchange allows Marx to theorize the interrelations between different factions of the capitalist class. The theory of prices of production demonstrates that the specific profit a capitalist accrues are not just the result of surplus value originating in their own workforce. Their profits also consists of surplus value transfered in exchange. Thus the capitalists class, as a whole, exploits the working class as a whole.

This however only covers the relation between different productive capitalists. There are also merchants, bankers and the state to consider. Merchants don’t create value but they siphon off value created in production by taking a cut of the Industrial capitalist’s profit in exchange for bringing the product to market. Bankers charge interest for loans to industrial capital. The state siphons off tax revenue. These interactions bind the different factions of the capitalist class in their united interest in the daily exploitation of wage labor. We see the cohesion of the class most strikingly in a crisis where the state must act as the arm of the collective capitalist class to preserve the institutions of wage labor at all costs.

Obviously individual capitalists compete against one another to get more of this super-profit then their competitors. Obviously there are times when some factions of the capitalist class have power over others. For instance, WalMart seems to have the ability to dictate profit margins and production techniques to producers. Or, to take another example, the banking class seems to have a dominant voice in the state’s attempt to mediate the current crisis. But, despite this competition, the one thing that is always constant, the one feature that makes the rest of this system possible, is the exploitation of wage labor.

This should be the cover of the next Penguin edition of Capital...


1. For one, the use of the word “profit” is problematic because it too closely conflates capitalist investment activity with consumer behaviour. Capitalist investment is an objective, measurable process. Consumer behavior is not. Austrians argue that utility is ordinal. But capitalist profit is not ordinal. It is clearly delineated in objective quantities of money. Capitalist profit cannot emerge merely from exchange, as discussed above. Use of the word profit for both phenomenon is clearly an ideological device for obscuring the nature of capitalist profit.

Consumers don’t take their subjective profit and use it to reinvest in the creation of more profit. They don’t hire accountants to keep track of their subjective profits. The state can’t tax their profits. There is really no way that this concept of subjective profit has any relation to the real profit of capitalists.

2. Now SNLT is an average, a center, which pulls less efficient producers towards it, punishing less efficient producers, disciplining labor to achieve a social average. But this center point which labors are drawn to is also constantly in motion as the same process also rewards those who produce under the SNLT. This is why we can’t think of Marx’s theory of value as an equilibrium theory. The theory does not contain any final resting point at which supply and demand meet, and labor stops undergoing revolutions in productivity.


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37 Responses to Value Can’t Be Created in Exchange

  1. lifeisgood says:

    A coherent explanation of Marx’s ideas on Price, Value and Capitalist exploitation. I found many Austrians stressing that inequality in exchange is needed to have an exchange, which according to them, Marx overlooked. You give a good reply and an explanation of Marx’s position on this issue. Also, I would like to add that use-values can be different for different people, which shouldn’t necessarily imply that exchange-values would be based on these subjective valuations of commodities as pointed above in the post. At last, we have to enquire at the production sphere to understand labour’s exploitation.

    Also, your suggestion for the cover of next ed. of Capital is good ;-). People will at least then take a look at what’s inside this treasure trove. Keep writing!

  2. zkscelso says:

    I think this is a really rewarding post — it’s concise and cogent.

  3. blub says:

    I look forward to your videos about the value-price relation :).
    But i do not think that the the tssi offers a solution to his problem, at least none coherent with volume 1 of capital.
    The central assumption of the tssi is, that c and v are (even in volume 1) determined by the amount of labor needed to acquire the means of production and the means of subsistence, this means: by their actual prices (I also don’t know what Kliman means with this. The real prices, that were paid by the individual capitalist? Or the average prices paid by most of the capitalists i a sphere of production? Or […]? ).
    But Marx states several times in volume 1, that c and v are determined by the value(!) of the means of production and value of the means of subsistence. I think, the assumption above is a simple trick to solve the transformation problem, which does simply ignore central parts of marx’s work.
    I think it is more likely that the solution is delivered by the (what we call it in germany) “monetäre werttheorie” (monetary value-theory). In the english-speaking areas this school of thought is more commonly referred to as “value form-theory” (at least i think so, never read one of those value-form guys, but kliman refers to them in “reclaiming marx’s capital” and both schools of thought seem to be close from what i have read there). Of course i know that you are in knowledge of that theoretical account. Would be much more interesting to read your critic of these guys. Excuse my bad english, comrade :).

    • Blub,

      I don’t think that the TSSI says that value is determined by the amount of labor needed to purchase c and v. Value is created in production and surplus value is redistributed in exchange, via prices of production. The amount of money that is needed to purchase c and v as inputs is not their value but their prices of production. Prices of production are derived from values. Why do you say that this is a “simple trick”? All that TSSI is saying is that we can only make sense of the transformation if inputs are bought at prices of production not values. I don’t think this disagrees with anything in Marx. You just have to be aware of what level of abstraction we are dealing with a different points in the analysis.


  4. thepeoplesfriend says:

    Engels already has proved in his Synopsis of Capital that the value can’t be created in exchange. Engels has proved that ,,the origin of all value is” NOT ,,a subjective matter, an “assignment” to one or another position” and already many years before Mises’s Human action has responded to his ,,magnum opus”. So, let hear Engels what he says against ,,the subjective theory of valuation”:

    ,,The form of circulation by which money becomes capital contradicts all previous laws bearing on the nature of commodities, of value, of money and of circulation itself. Can the purely formal differences of inverted order of succession cause this?

    What is more, this inversion exists only for one of the three transacting persons. As a capitalist, I buy commodities from A and sell them to B. A and B appear merely as simple buyers and sellers of commodities. In both cases, I confront them merely as a simple owner of money or owner of commodities, confronting one as buyer or money, the other as seller or commodity, but neither of them as a capitalist or a representative of something that is more than money or commodity. For A, the transaction began with a sale; for B, it ended with a purchase, hence, just as in commodity circulation. Moreover, if I base the right to surplus-value upon the simple sequence, A could sell to B directly and the chance of surplus-value would be eliminated.

    Assume that A and B buy commodities from each other directly. As far as use-value is concerned, both may profit; A may even produce more of his commodity than B could produce in the same time, and vice versa, whereby both would profit again. But otherwise with exchange-value. Here, equal values are exchanged for each other, even if money, as the medium of circulation, intervenes. (P.119 [156-58])

    Abstractly considered, only a change in form of the commodity takes places in simple commodity circulation, if we except the substitution of one use-value for another. So far, as it involves only a change in form of its exchange-value, it involves the exchange of equivalents, if the phenomenon proceeds in a pure form. Commodities can, indeed, be sold at prices differing from their values, but this would mean a violation of the law of commodity exchange. In its pure form, it is an exchange of equivalents, hence no medium for enriching oneself. (P.120 [158-59])

    Hence, the error of all endeavors to derive surplus-value from commodity circulation. Condillac (P.121 [159]), Newman (P.122 [160]).

    But let us assume that the exchange does not take place in a pure form, that non-equivalents are exchanged. Let us assume that each seller sells his commodity at 10 per cent above its value. everything remains the same; what each one gains as a seller, he loses in turn as a buyer. Just as if the value of money had changed by 10 per cent. Likewise, if the buyers bought everything at 10 per cent below value. (P.123 [160-61], Torrens.)

    The assumption that surplus-value arises from a rise in prices presupposes that a class exists which buys and does not sell — i.e., consumers and does not produce, which constantly receives money gratis. To sell commodities above their value to this class means merely to get back, by cheating, part of the money given away gratis. (Asia Minor and Rome.) Yet, the seller always remains the cheated one and cannot grow richer, cannot form surplus-value thereby.

    Let us take the case of cheating. A sells to B wine worth 40 pounds sterling in exchange for grain worth 50. A has gained 10. But A and B together have only 90. A has 50 and B only 40; value has been transferred but not created. The capitalist class, as a whole, in any country, cannot cheat itself. (P.126 [162-63])

    Hence: if equivalents are exchanged, no surplus-value results; and if non-equivalents are exchanged, still no surplus-value results. Commodity circulation creates no new value.

    That is why the oldest and most popular forms of capital — merchant capital and usurers’ capital — are not considered here. If the expansion of merchant capital is not to be explained by mere cheating, many intermediate factors, lacking here as yet, are required. Even more so for usurers’, and interest-bearing, capital. It will later be seen that both are derived forms, and why they occur historically before modern capital.

    Hence, surplus-value cannot originate in circulation. But outside it? Outside it, the commodity owner is the simple producer of his commodity, the value of which depends upon the quantity of his own labour, contained in it, measured according to a definite social law; this value is expressed in money of account — e.g., in a price of 10 pounds. BUt this value is not at the same time a value of 11 pounds; his labour creates values, but not self-expanding values. It can add more value to existing value, but this occurs only through the addition of more labour. Thus, the commodity producer cannot produce surplus-value outside the sphere of circulation, without coming in contact with other commodity owners.

    Hence, capital must originate in commodity, yet not in it. (P.128 [165-66])


    the transformation of money into capital has to be explained on the basis of the laws inherent to the exchange of commodities, the exchange of equivalents forming the starting point. Our owners of money, as yet the mere chrysalis of a capitalist, has to buy his commodities at their value, to sell them at their value, and yet at the end of this process, to extract more value than he put into it. His development into a butterfly must take in the sphere of circulation and yet not in it. These are the conditions of the problem. Hic Rhodus, hic salta! (P.129 [166])”

  5. Danny Jacobs says:

    1) This is a great topic and I am overjoyed that you have taken it up, because I think its actually relevant to the current field of economic dialogue – Marxists should not waste their time on disproving Monetarism or other junk that is not in discussion.

    2) “This leads to the bizarre notion of “subjective profit” which, more than anything else, makes it obvious that the entire idea of marginal utility comes from an attempt to impose the objective rational of the capitalist investor upon the the subjectivity of individual consumers.

    I am not exactly sure what is meant by this – is it not true that person A might like Broccoli and person B does not; furthermore, what is the “objective rationale” of the capitalist investor? I am guessing you mean profit but “rational” implies an objective thinking. Furthermore, what would be incorrect about marginal utility i.e it literally just states that we think on the margins when we choose something (and really in a more relaxed form, which is implied in the Austrian version of expected utility, just says I buy according to what I think will satisfy me); this doesn’t contradict Marx at all (in fact nothing they say really contradicts Marx, if they actually understand what is meant by contradiction).

    3) “Rather, Marx is claiming that value cannot be created in exchange. While there can always be inequalities in exchange, these cannot be the source of profit because no aggregate addition to the total value of society can be created just by moving commodities from one person’s hands to another’s.”

    I think what Marx is claiming is that (remembering Das Kapital is a historical critique) the peculiar form of value-production regulated by SNLT defines the current mode of production, not trade (I know this might appear to contradict something I just wrote). Trade is ahistorical with respect to human history hitherto, as it has existed as far back as the Hunter-Gatherers era. Thus, the motions of surplus-production (key feature) are only in motion in the sphere of industrial capital (which is defining of our current era); yes, there are the forms of trading capital but these exist pre-capitalism and come down to more fights over distribution (This actually leads me to believe that at one time, for a brief moment, there might have been some truth to Mercantilism).

    4) “Just because we make subjective judgements about our preferences for commodities doesn’t mean that these judgments are the same as or have any bearing on the market prices of commodities.”

    Except the argument is quite strong for why they do. Yes, one’s individual preference does not majorly affect the price but as an aggregation, they do. This along with Wieser’s imputation, does not contradict Marx at all.

    Furthermore, don’t prices simply direct the distribution of value, not the existence of value?

    I interpret Marx’s value like this – even if no one bought my mudpies, I still have “Returns on investment” (this is too narrow but it gets the point across) that I have to fulfill. No Austrian can deny this, for it is the fundamental feature of the market process and gaps in this is what is necessary to “notice whether he has worked more economically than others or not” (Mises: Economic Calculation in the Socialist Commonwealth, 9). This is why Marx describes, in Vol 2 particularly, bourgeois economic crises as resulting from This is kind of why Marx describes capital as a Vampire, needing blood to survive!

    “Whereas capitalist profit can be easily measured, there is no measure of this so-called subjective profit that individuals supposedly get in exchange.”

    This is not true; in fact, this is the whole point of prices and the whole point of economic calculation! You are correct to point out that subjective valuations cannot be measured next to one another (this is the point of intersubjective utility) but the benefit of the price system is such that it produces the “cardinal numbers necessary for the computing [of] the costs and benefits of production processes,” (postscript by Joe Salerno to Economic Calculation) something derived between the bidding of the consumers and the production prices of the producers.
    Now, one can (like Von Wieser) point out how this caters to inequality because the wealthier individuals have more market power and thus, have greater control over the production processes of society.
    In my opinion, all of this totally consistent with Marx, if one really looks into SNLT.

    “But on what basis can we say that this is a result of their preferring a commodity more than they prefer money?”
    Why would they buy the commodity then? I have no idea what this means – are you trying to say how would we know if someone would prefer to having the good and money?
    Just on a side-note to the Austrians – the idea that Marx does not think both parties can benefit from trade is incorrect (this might help resolve the definition of the value with respect to Marx)
    “So far as regards use-values, it is clear that both parties may gain some advantage. Both part with goods that, as use-values, are of no service to them, and receive others that they can make use of. And there may also be a further gain. A, who sells wine and buys corn, possibly produces more wine, with given labour time than farmer B could, and B, on the other hand, more corn than wine-grower A could. A, therefore, may get, for the same exchange value, more corn, and B more wine, than each would respectively get without any exchange by producing his own corn and wine. With reference, therefore, to use-value, there is good ground for saying that ‘exchange is a transaction by which both sides gain.’” – Chapter 5 of Das Kapital

    Us Marxists should not try to prove “objective value.” Marx’s critical view wasn’t purely subjective or objective but in fact a dialectical investigation between these necessarily connected facts. The biggest problem I found with the Socialists of the Economic Calculation Debate is that the Austrians said “jump!” and the socialists responded with “how high?”

    Marx clearly has no problem with the truth of ordinal “subjective valuations” with respect to consumers choosing goods; of the necessity of prices for allowing entrepreneurs (with in Capitalism) to estimate consumer preferences; of the so called “axiom” of human action; of the ability of entrepreneurs to raise productivity (specifically stated in vol 3); that rare paintings/goods have their prices determined by the bidding of those individual actors (stated in vol 3 – also necessary because these are not “commodities” or produced with the purpose of gathering surplus value for expanded reproduction); that nature is also a source of wealth (Menger stupidly accuses Marx/classical economists of not recognizing this); that trade can benefit both individuals, etc. These are all dumb strawmen.

    But his brilliant insight is he recognizes these forms of bourgeois thought as one-sided and unable to PROMISE the emancipation that they once did i.e the bourgeois come to power no longer in the era of bourgeois, but era of Capital. This does not mean these insights are “Bad” but lacking.

    • Danny,

      Thanks for the thoughtful response.

      First, I agree with your point that Marxists shouldn’t go down the road of the objective-subjective debate. I wrote about that a few months ago when making my subject-object video. My argument here wasn’t meant to be a defense of “objective value” in that sense. I also agree that, obviously, consumer demand has an impact on market prices. But I think there is a critique of some of these marginalist concepts that should probably be pushed farther than you suggest they can be pushed.

      For one, when I said “Just because we make subjective judgements about our preferences for commodities doesn’t mean that these judgments are the same as or have any bearing on the market prices of commodities.” I wasn’t trying to claim that demand has no effect on prices. I was merely arguing that the existence of subjective judgments, by themselves, is not some proof of a subjective theory of value, as it is often used. Often a subjective theory of value is defended just through an equivocation between two uses of the word ‘value’. If one wants to prove a relation between prices and subjective preferences one needs to actually argue that there is some mechanism that unites these two phenomenon. I would argue that this can’t be done in any useful way unless it happens within a larger theory of the structure of production, SNLT, division of labor, etc.

      I think one of the primary problems with marginalism is that the calculating, rational, quantitative logic of the capitalist is imposed upon the psychology of the consumer. When a capitalist makes a profit this is a real, measurable profit. The profit represents possession of social labor in the abstract. And the capitalist is compelled to make this profit not by personal desires but by the forces of competition. None of these qualities hold for consumers purchases. Yet marginalism uses the same concepts of supply and demand curves and equilibrium prices to describe the movements of both. This is highly problematic for many different reasons. (I actually have an old script I should post soon discussing some of this critique of supply/demand curves and the conflating of the logic of consumers and capitalists.) To list a few of the problems: during a boom capitalists marginal utility for capital increases the more they purchase rather than falls (the more they invest, the greater their profits, the more demand they have for additional inputs); since capitalist production is production for value not use-value, capitalists don’t calculate based on the utility of use-values; the origin and size of initial endowments are ignored by focusing on margins, thus eviscerating class, thus conflating capitalists and workers into generic consumers; the satiation of consumption that is implied by the point on the margin where consumers no longer want to buy an additional commodity implies that consumption tends toward some equilibrium distribution of use-values, while the process of capitalist investment drives society away from any semblance of equilibrium, constantly revolutionizing the productivity of labor and creating disequilibrium; an increase in profit is not an increase in utility. For these reasons and more I think it’s impossible to try to use the same theoretical tools to analyze the behavior of consumers and capitalists.

      What can we say about consumer behavior? Consumers make choices and these choices are part of the process of allocating labor toward socially necessary uses. But I suspect this is all we can really say about the process. I’m quite suspicious that we can look at the allocation of labor through prices and work backwards toward any bolder theory about consumer psychology based on this. While I haven’t really worked out a full critique, it seems like a problematic leap to me, one that should be questioned. Perhaps part of this is the fact that the sort of ideological claims that immediately spring out of a theory of consumer preference are always problematic (that consumer behaviour drives economic activity, that consumer choices are free choices, abstraction away from productive relations, etc). So there if one wants to have some theory of utility it would be important to be quite specific about what one is actually claiming.

      I suspect that the more specific we get about about these claims the less we can actually claim. To return to the notion of subjective profit, I really think there is no meaningful sense that we can use the same term, “profit”, to describe capitalist and consumer exchanges. Further, since consumers are exchanging money for commodities, and since the utility of money is what it can buy, it seems like we can only describe a rather meaningless circle. Money has no utility of its own. So a theory of consumer preferences can make no sense without recourse to some process which already sets the value of money and commodities prior to the formation of preferences.

      I think you are right that I should be more clear about what specifically I am critiquing about this notion. Yes people can exchange things because they want to. And yes two parties can ‘benefit’ subjectively from an exchange, though not in any quantitatively measurable way. But I think that this is too often painted in the language of barter where two distinct use-values are being exchanged. When money enters the picture everything changes because now we are measuring all commodities against a universal equivalent, not a specific use-value. This immediately binds the subjective preferences of the individual to the entire structure of production and demand. In this sense I think it is meaningless to say I prefer a $5 stick of deodorant over a 5 dollar bill. The theoretically meaningful thing is that $5 has exchanged with a commodity worth $5 but there has been no change in the amount of value held by either party. The fact that one person preferred the $5 and the other preferred the deodorant doesn’t tell us anything about the formation of that price or the purchasing power of money. For the seller of the deodorant there is no preferring going on at all, just a calculation of value.

      • Danny Jacobs says:

        Right – I am not necessarily trying to defend Austrian Economics; I just want to make sure we get our critiques as accurately as possible, because the #1 thing the bulldogs of the school like to do is claim no one reads Mises but people who agree that the Austrian school is the truth.
        You might want to read Von Wieser’s short article on “Natural Value” (not the book – there is an article somewhere) where he describes the process of imputation. He claims to be contradicting intrinsic value (As he calls it) but really he is just describing the process by which entrepreneurs learn if they are producing at the SNLT or not. He also was a total Fabian socialist (shows the downfall of the Left – mentioned below as well with the Luxembourg quote).
        I especially like your point about the application of capitalist logic to consumers. This is a super-key point and I believe it was actually the core point of Marx’s critique. As pointed out in the Grundrisse (and Moshe Poistone likes to make this point), Marx wrote that Kapital should not be written as an economic critique (or really he is referring to categories) but as a sociological critique. It’s the critique of the bourgeois categories of reflection, perception and interpretation.
        Final note – Austrians themselves have some problems with consumer sovereignty. They basically argue that it exists when they are debating Leftists on whether or not the market supplies human wants but that really markets do not happen in that fashion. However, it appears that Von Mises really didn’t make this distinction.

  6. MrEverpresent says:

    “Whereas capitalist profit can be easily measured, there is no measure of this so-called subjective profit that individuals supposedly get in exchange.”

    “This is not true; in fact, this is the whole point of prices and the whole point of economic calculation! You are correct to point out that subjective valuations cannot be measured next to one another (this is the point of intersubjective utility) but the benefit of the price system is such that it produces the “cardinal numbers necessary for the computing [of] the costs and benefits of production processes,” (postscript by Joe Salerno to Economic Calculation) something derived between the bidding of the consumers and the production prices of the producers.”

    I agree. Preferences can for example be measured with ordinal scales. But I think this is a overrationalized depiction of the consumer. Perhaps it is even an ideal type. I think Marx his concept of intrinsic value is ‘concrete’.

    I think that the point however is that the concept of use value depicts uses (washing, eating) and is determined by the physical characteristics of the thing (no use value without the physical characteristics). These uses (eating, washing,…) are not quantitative or measurable.
    There would also be no “preferences” without use value. In an exchange relation, one use value measures its exchange value in the physical body of another use value (quantitatively). Value therefore has to be a characteristic of the commodity itself (in common with other commodities). Preferences are the result of a relation of people with things and therefore are no determining element of value.

  7. Danny Jacobs says:

    Of course its an overrationalization of a consumer – but that’s what they said (that’s why I was pointing this out).

    I don’t know what is meant by “physical characteristics.” The internet is of use but I can’t touch it – in Ancient Greece, you used to pay Sophists to argue with them (if that existed today and was done in the fashion of expanding value, then that would be a commodity).

    Anyways, this is why my last sentence was that the idea that humans purposefully act using means to reach ends to reduce/eliminate their uneasiness via ordinal preferences, does not contradict Marx.

    Finally, we should remember why the LTV is the tool of emancipation; it unnecessary, even hypothetically, whether it describes price movements or capital flows as accurately as modern marginalism. Two quotes:

    “When Bernstein rejects the economic doctrine of Marx in order to swear by the teachings of Bretano, Böhm-Bawerk, Jevons, Say and Julius Wolff, he exchanges the scientific base of the emancipation of the working class for the apologetics of the bourgeoisie. When he speaks of the generally human character of liberalism and transforms socialism into a variety of liberalism, he deprives the socialist movement (generally) of its class character and consequently of its historic content, consequently of all content; and conversely, recognises the class representing liberalism in history, the bourgeoisie, as the champion of the general interests of humanity.” – Rosa Luxembourg, Reform or Revolution (Collapse)

    “ill more specifically, in his famous letter to Kugelmann on the theory of value, he ridiculed the idea of having to “prove” the labour theory of value. If the labour theory of value proved to be the means whereby the real relations of bourgeois society could be demonstrated in their movement, where they came from, what they were, and where they were going, that was the proof of the theory. Neither Hegel nor Marx understood any other scientific proof.” – CLR James Dialectical Materialism and the Fate of Humanity

    That is, the LTV allows for the emancipation of humanity from compulsory labor, something the marginalist theories of values do not.

    • MrEverpresent says:

      Well, for Marx a commodity is physical thing. Use value is conditioned by the physical proporties of the commodity.

      • MrEverpresent says:

        I think it will be difficult to define “the internet” as a commodity if you read chapter one of volume one.

  8. Danny Jacobs says:

    Well – then maybe you should read vol 4. Marx clearly states how a musician or artist working for a bar or brothel creates a commodity i.e their music/art, because they perform and surplus value is realized, to be put into expanding the bar/brothel, etc.

    It has to do with the relation – not because you can touch it.

  9. MrEverpresent says:

    That would contradict the theory of value, especially the idea of an intrinsic value.

    • Danny Jacobs says:

      I don’t think labeling it as intrinsic is correct and its not even close to contradicting the theory of value. Marx’s theory of value deals with a relation; this falls to commodity fetishism. The whole point of Marx’s critique is to overcome value-reproduction and thus free individuals to pursue their full development. By your argument of what value is, this would imply that we should free ourselves from useful things.

  10. MrEverpresent says:

    No not at all. Read:

    • Danny Jacobs says:

      To be honest, I have already argued with Mr. Kliman in person. Although it had to do with validity and truth.

      “On the other hand: an entrepreneur of theatres, concerts, brothels, etc., buys the temporary disposal over the labour-power of the actors, musicians, prostitutes, etc.—in fact in a roundabout way that is only of formal economic interest; in its result the process is the same—he buys this so-called “unproductive labour”, whose “services perish in the very instant of their performance and do not fix or realise themselves “any permanent” (“particular” is also used) “subject or vendible commodity” (apart from themselves). The sale of these to the public provides him with wages and profit. And these services which he has thus bought enable him to buy them again; that is to say, they themselves renew the fund from which they are paid for. The same is true for example of the labour of clerks employed by a lawyer in his office—except for the fact that these services as a rule also embody themselves in very bulky “particular subjects” in the form of immense bundles of documents.

      It is true that these services are paid for to the entrepreneur out of the revenue of the public. But it is no less true that this holds good of all products in so far as they enter into individual consumption. It is true that the country cannot export these services as such; but it can export those who perform the services. Thus France exports dancing masters, cooks, etc., and Germany schoolmasters. With the export of the dancing master, or the schoolmaster, however, his revenue is also exported, while the export of dancing shoes and books brings a return to the country.

      If therefore on the one hand a part of the so-called unproductive labour embodies itself in material use-values which might just as well be commodities (vendible commodities), so on the other hand a part of the services in the strict sense which assume no objective form—which do not receive an existence as things separate from those performing the services, and do not enter into a commodity as a component part of its value—may be bought with capital (by the immediate purchaser of the labour), may replace their own wages and yield a profit for him. In short, the production of these services can be in part subsumed under capital, just as a part of the labour which embodies itself in useful things is bought directly by revenue and is not subsumed under capitalist production.”

      Marx goes on to critique these vulgar, material notions of commodities. The entire reference to productive or unproductive labor refers to their relation with respect to the revenue – i.e. if I just buy a haircut, it is unproductive because I immediatedly consume it. But if I hire someone to give haircuts, their service (the commodity), becomes productive if I take surplus off them and use it to expand my business.

      • MrEverpresent says:

        Thank you for the reference. I think it is extremely important.

      • re. Danny/Everpresent discussion,

        To clarify, Kliman’s essay about intrinsic value is about, among other things, the fact that the exchange relation, where a commodity expresses its value in the use-value of another commodity, implies the existence of an intrinsic value. I found this essay clarifying the first time I read it. It’s been a while, but I don’t recall anything in that essay, or anywhere in Marx, that makes the commodity form dependent on the physical existence of a commodity.

  11. Danny Jacobs says:

    Sorry this is from Vol 4, Chapter 5 of the first book

    • MrEverpresent says:

      Re Brendan:

      I agree but Marx clearly says that “use value is conditioned by the physical proporties of the commodity. It is therefore the physical body of the commodity itself”

      • Danny Jacobs says:

        I don’t know if we might be talking by one another. I was referring to value-reproduction, of which commodities, whether in the form of this potato I am eating or music I am listening to, are the unit of such a system.

        Even if this sense, I guess I could ad hoc argue that music is “physical,” but it might be unnecessary. One could say something is physical without being able to touch it.

        Or perhaps I just disagree with Marx on this – although, he did write Vol 1 after writing 2 and 3 (as a way of introducing concepts to the readers), so he might be just trying to make a simple point.

        I mean Marx considers labor-power a commodity but you can’t touch such a thing – nonetheless it is real and physical.

        Honestly, if I do disagree with Marx’s point here, is from following his own logic.I believe he states in Vol 4, chapter 5:

        “But however large or small the number of these “unproductive labourers” may be, this much at any rate is evident—and is admitted by the limitation expressed in the phrase “services which perish generally in the very instant of their performance”, etc.— that neither the special kind of labour nor the external form of its product necessarily make it “productive” or “unproductive”. The same labour can be productive when I buy it as a capitalist, as a producer, in order to create more value, and unproductive when I buy it as a consumer, a sender of revenue, in order to consume its use-value, no matter whether this use-value perishes with the activity of the labour-power itself or materialises and fixes itself in an object.”

        All I know is Marx definitely considers what bourgeois economists would call “Services” as absolutely subject to the motions of capital relations and that the services fulfill the role that a physical commodity (copies of das kapital) would of fulfilled in the relation.

  12. MrEverpresent says:

    “All I know is Marx definitely considers what bourgeois economists would call “Services” as absolutely subject to the motions of capital relations and that the services fulfill the role that a physical commodity (copies of das kapital) would of fulfilled in the relation.”

    I agree completely.

    Perhaps we should make the distinction between a commodity and a service. I think that capital volume 1 is focused on production of commodities (physical objects) but that it is also valid for service economies (with additions and changes). I always wondered why there is so little on services in capital volume 1. For example in volume 2 there is a bit on the transport sector and the idea of the production process itself as the “thing” that is being sold. They dont sell a commodity but the production process itself.

  13. Or perhaps a “service” also has a “physical body”. Labour power has it.
    There is actually a lot of confusion in the literature. Most say that a commodity for Marx is a service and a good (Kliman for example). But I’m not sure because the physical proporties are stressed in volume 1 and much of volume 2 (storage etc) can’t be used for services (for example consulting). Any thoughts?

    • Oliver C says:

      I think Marx himself was fairly definitive in Volume 2 that services – besides transport – were not considered productive labour. They do not produce value, or surplus value. This does not mean they are not commodities, however. A service is an act of labour, and thus the commodity is labour-power. Yet, it would seem, since the consumption of this commodity is not the production of values but the service which defines it, that we cannot say it is productive.

      It might also be worth pointing out that Marx’s extended discussion of this factor takes place in Vol. II which deals with circulation etc. not production?

      I’ve enjoyed reading this debate – a discussion worth continuing!

      • Danny Jacobs says:

        No – read theories of surplus value. Explicit reference is made to services generating surplus value (musicians for example).

        The debate was how a commodity was defined – not whether services could generate surplus value. It appears that “commodity” was explicitly defined as being something physical (i guess? – i will concede to MrEverpresent on this, its fine) that you can touch but not over whether or not services can generate surplus value.

        For example:

        “. The production cannot be separated from the act of producing, as is the case with all performing artists, orators, actors, teachers, physicians, priests, etc. Here too the capitalist mode of production is met with only to a small extent, and from the nature of the case can only be applied in a few spheres. For example, teachers in educational establishments may be mere wage-labourers for the entrepreneur of the establishment; many such educational factories exist in England. Although in relation to the pupils these teachers are not productive labourers, they are productive labourers in relation to their employer. He exchanges his capital for their labour-power, and enriches himself through this process. It is the same with enterprises such as theatres, places of entertainment, etc. In such cases the actor’s relation to the public is that of an artist, but in relation to his employer he is a productive labourer. All these manifestations of capitalist production in this sphere are so insignificant compared with the totality of production that they can be left entirely out of account.”

      • After rereading some parts of capital (especially volume 1), I am now completely sure that a commodity is a material thing for Marx.
        He uses the term “material wealth” a lot in capital when he’s speaking about the commodity. This is also consistent with his idea of the production and reproduction of life as the fundamental element in a society. Services (for example consulting) would not exist without a material production. Material production can exist without services. The fundamental aspects of life are mediated through the metabolism between nature and material production. Labour power is a commodity. Its use value (the capacity to produce value, transfer value) is conditioned by the physical characteristics of the labourer himself.
        I also think like Oliver that services (for example consulting) always comes down to the use of labour power. I dont think that it excludes the production of surplus value. Surplus value is just unpaid labour.

  14. So yeah, I’ve come to the conclusion that services (consulting, artistry in opera) are commodities in a capitalist society if we define them as expenditures of specific labour powers (I’m not focusing on self employed people). They do not always produce other commodities. Rereading Marx with a specific question, interrogating his texts has been useful for me once again!

  15. Danny Jacobs says:

    Yes – it definitely is helpful to even go after these tiny details! The more specific we get, actually I believe the stronger the historical critique does become
    ( although I understand Brendan’s caution as well)

  16. Oliver C says:

    Danny, I would agree, services are commodities, I was not trying to misdirect. Rather, I was thinking that the physicality of commodities is the condition (generally…maybe) upon which they can embody surplus value. Hence, I was throwing out an idea about why physicality seems so important – because it is perhaps for the production of value.

    Random thought [about the internet]:

    If we look at things like Facebook(TM!) and the direction many internet applications, webpages and corporations have taken more broadly, we can see an increasing commodification of ‘self’ – of identity and individuality (an impressive contradiction if ever there was one). E.g. One can construct yourself in congealed commodity form, based on these limited proscriptions (quotes, movies, music) and respond in so many limited characters.

    Internet forums etc offer many freedoms, but they are also mechanism for increasingly defining ‘self’ in terms of restricted and predictable, marketable preferences. The individual consciousness would seem to be the final frontier of the commodificatory drive of capital. Perhaps, though, it is not the service itself, but the self, which is the commodity in the end. (As with broadcasting corporations selling their audiences to advertisers).

  17. lifeisgood says:

    Dear Brendan, am a regular reader of your blog. Still in embryonic stages of grasping Marx’s Economics, it would be great if you could suggest a good book on “History of Economic Thought” from a Marxist Perspective. I am aware that I.I. Rubin wrote one, but unable to find it on web. Can you recommend any of your choice on this subject?

    [P.S. I also need it to use it as a reference in my Masters’ research thesis, where I might get an opportunity to take up a Research topic in Marxian Econ.]

    Do reply.

  18. Wittg. says:

    What do you think of Joseph Schumpeter and his ideas on entrepreneurial “idealist” innovations complementing the materialist labor inventions as bringing about progress in the accumulation of capital? Any comments on Schumpeter?

  19. Andrew says:

    Brendan, I’m curious what you think about the economic calculation problem. Perhaps you have something worth reading about the topic?

    From my understanding, it seems to be a tautology and thus only applicable within a monetary market system. Meaning, that if the exchange of use-values is mediated by a universal equivalent (money), then this universal equivalent is required to determine what use-value is most worthwhile to produce and to whom it is most worthwhile to allocate it. But so what? This hardly applies to an economic system that does not have a universal equivalent and does not exchange use-values especially considering prices do not directly communicate need in any objective way (meaning, actual human biological and health requirements) or even need in a subjective preference way (at best, it communist this type of need only after someone has met the required purchasing power of that commodity).

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