Re: Labor Theory of Value
Posted by Tomski on June 8, 2021, 10:51 am, in reply to "Labor Theory of Value"
That was tortuous and confusing (where do you get these from : )). I am no expert but it seems easier to quote - see this: |
An introduction to Marx's Labour Theory of Value
It is fashionable these days for bourgeois economists and sociologists to refute the dialectical materialist method of analysis developed by Karl Marx. One of the basic ideas of Karl Marx that is constantly being denied by the bourgeois is his theory of value. This is understandable because from this very theory flow all the other conclusions of Marx, in particular that of the need to overthrow capitalism if we are to put to an end to all the contradictions of this unjust system which condemns millions of human beings to abject poverty, mass unemployment, periodic economic crises and wars. In this article Mick Brooks, using up to date facts and figures, shows how the Marxist Labour Theory of Value is still valid today.
Marx's view of history
"Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labour of society. That this necessity of the distribution of social labour in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident. No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves. And the form in which this proportional distribution of labour asserts itself, in the state of society where the interconnection of social labour is manifested in the private exchange of the individual products of labour, is precisely the exchange value of these products." (Marx to Kugelmann, July 11, 1868, shortly after the publication of Capital.)
When looking at historical materialism, the Marxist theory of historical development as a whole, we ask the question: what differentiates humans from other animals? We find that humans differentiate themselves by transforming themselves and external nature. The process by which people define and redefine themselves is the labour process. Sure, humans are thinking beings. But why do they need to develop the capacity for thought? What are they thinking about? Usually they are thinking about survival, about where the next meal is coming from. Marxists argue that the way people organise themselves to gain their daily bread is the mode of production, the skeleton of any form of society. And insofar as we can talk of an objective notion of progress in human history, it is given by the development of the productive forces, which in turn is achieved by raising the productivity of labour, the increase of our power over external nature.
The "magic" of the marketplace
Now to the capitalist mode of production. Capitalism is mystifying to understand. The cause of our mystification is the market system. Capitalism presents itself to us as a system of universal commodity production (that is, where everything is produced for sale) where even labour power is a commodity. That is how Marx defined capitalism. We hear a lot about the "magic of the marketplace". Once in place, a system where everything is bought and sold strikes us as eternal and natural. We need to remind ourselves that generalised commodity production is a late and recent development in social evolution. For hundreds of thousands of years humans made their living without the aid of markets.
Secondly we need to understand what markets do. They are a form of the social division of labour, as explained by Marx. But that is not how they appear to us. A worker in Malaysia gets a job on a dredger, which is digging out tin ore from the river. After passing through dozens of sets of hands the tin ends up in Taiwan, where it is used to make solder to manufacture a transistor radio. Meanwhile a garment worker in Milan machines a piece of cloth that began life as raw cotton in the field of a peasant in Pakistan. The peasant is very poor. All he has to listen to at night is the transistor radio. He doesn't know about the workers in Malaysia or the woman in the sweatshop in Taiwan with the electric soldering iron. He doesn't know about the catwalks in Milan and the illegal immigrant on the outskirts who turned the raw cotton he grew with his own hands into a luxury item.
What is going on here is a division of labour, indeed a global division of labour. But nobody sits down in a meeting and says: "Here's what we need. Here's how long it takes to get it. You're good at this, why don't you do this? You're good at that, why don't you do that? OK, let's vote on it. We've got agreement; let's do it." The worker in Malaysia would like to be a teacher, but it's not to be. He has a family to feed. The woman in Taiwan would probably prefer not to spend long hours looking at circuit boards doing her eyesight in. The market is a ferocious dictator, but no one person takes decisions. It just happens, or so it seems. None of these economic actors (as economists call people) realise how everyone is dependent on everyone else. The forces of supply and demand, we are told, act as signals. Nobody knows how much tin we all need at the moment. But if too little is being produced, the price will go up because of shortages. If the price goes up there is a super-profit to be made. And where there is a super-profit, there will be an inflow of capital. Capitalists making average or below average profits in other sectors of the economy will be attracted to tin production. To keep pumping the stuff out of the factory gate they will be prepared to hire more workers. They may even have to post higher wages, to attract workers from other industries. The system is unplanned. But the capital will keep on flowing in as long as there is money to be made. This is what Adam Smith called the "invisible hand" in celebrating market forces. As more capital flows in the price of tin will be beaten down and the rate of profit in that sector return to the average. Quite often capitalists will overshoot, respond to the shortage by overproducing, leading to unsold stocks and bankruptcies. Capitalism, which is held up to us as the apex of efficiency, necessarily and always wastes human and material resources through its planlessness. The boss wouldn't let you get away with this in "his" factory! But the system, we are told, works itself!
Two divisions of labour
The market is not the only division of labour. In 1937 Ronald Coase, a right-wing economist, posed the question that if markets are so wonderful "why a firm emerges at all in a specialised exchange economy?" He goes on. "It is convenient if in searching for a definition of a firm, we first consider the economic system as it is naturally treated by the economist…The normal economic system works itself. For its current operation it is under no central control, it needs no central survey. Over the whole range of human activity and human need, supply is adjusted to demand, and production to consumption, by a process that is automatic, elastic and responsive. An economist thinks of the economic system as being co-ordinated by the price mechanism, and society becomes not an organisation but an organism." (We shall see later what an idealised view this is of the workings of capitalism, but for the moment bear with it.) After setting forward the conventional view of the magic of the marketplace, Coase goes on. "Within a firm the description does not fit at all…If a workman moves from department Y to department X, he does not go because of a change in relative prices, but because he is ordered to do so."
Way before Coase, Marx had realised that there are two divisions of labour within a capitalist economy, one in the marketplace and the other within the firm. "The very same bourgeois mentality which extols the manufacturing division of labour, the life-long annexation of the worker to a partial operation, and the unconditional subordination of the detail worker to capital, extols them as an organisation of labour which increases productivity - denounces just as loudly every kind of deliberate social control and regulation of the social process of production, denounces it as an invasion of the inviolable property rights, liberty and self-determining genius of the individual capitalist. It is characteristic that the inspired apologists of the factory system can find nothing worse to say of any proposal for the general organisation of social labour, than that it would transform the whole of society into a factory." (Capital)
Both divisions of labour just impose themselves on us as workers. But the division of labour within the workplace is consciously planned by the boss. He doesn't just hope that there are raw materials for you to work on somewhere out there. He makes sure they are stored up ready for you before you get in. And he makes sure there's a worker in place to do what's needed. All this is done in advance. He may say markets are wonderful, but he's not so stupid as to rely on them himself if he can help it. But the only way he can make money is by selling into the marketplace. And here nothing is done in advance. You lay out your stall and hope someone wants your stuff. If they don't, then all your work has gone to waste. But you only find out after the event. The real secret of capitalist production is to be found in the factory, in the exploitation of the working class. This fact is masked by the apparent dominance of market forces over capitalist society. Marx had to start with the commodity (goods made for the market) because the market dominates the form of appearance of the capitalist economy.
Supply and demand?
'The market is governed by the forces of supply and demand'. Isn't this true? Well, yes and no. Capitalism is an unplanned, anarchic, system. It is not chaos. There are forces at work to establish the 'proportional division of labour' that must exist in any society. These forces work in anarchy and through anarchy. Their immediate triggers are greed and stupidity. Capitalists all search for a higher rate of profit. Those on the ball enough will spot a shortage by raising prices. By moving capital into an area with high prices and an above average rate of profit they will help to eliminate the shortage. By their restless search for above-average profits, they will unconsciously help to establish an average overall rate of profit. The apparently random fluctuations in price given by supply and demand no more contradict the role of value as the central regulator of the system than the movement of waves up and down on the surface denies the concept of sea level - which does go up and down according to the pull of the tides. Supply and demand, as Marx pointed out is just the executor of the laws of capitalism. The law of value gives us the basic structure and dynamics of the system. It is the way labour is allotted to various tasks in an unplanned system. Capitalism produces Mars bars and Coca-Cola. It also produces workers and capitalists, rich and poor, and continually reproduces these class relations through the market mechanism, driven by the law of value. The apologists of the capitalist economy say that markets give us 'consumer sovereignty'. The market system is in effect a giant economic democracy, where we vote with our money for what we want, not just once every five years but every time you go down the road for a bottle of milk. Consumers weigh up what goods they want most. For their part producers have to give people what they want in the quantities they want. Otherwise they go out of business.
Is this right? Neo-classical economics starts with people's wants. But where do they come from? Are they just 'exogenously given', as they say in the textbooks? Most of our wants are provided by the possibilities for humans given by the development of the productive system. It is quite likely that medieval peasants were bored on long winter nights. It is unlikely that they sat around wishing someone would hurry up and invent television. And the idea that these days giant oligopoly firms make their money by 'giving people what they want' is quaint, but naive. On the contrary they spend vast sums making sure we will want what they give us, by manipulating people's wants. The most obvious way they do this is through advertising and the sales effort. This doesn't come cheap. Ten years ago advertising alone swallowed up 1.3% of our National Income. Marketing expenses also include finance credit, accounting, lawyers' fees, accounting costs, packaging, commissions, coupons, samples and trade allowances. For toiletries marketing is 14p for every £1 of sales, for soap 10p and for pharmaceuticals 8p. So much for giving people what they want!
Nor is it true that markets equate the costs and benefits to society of production for people's needs. First under capitalism production is for profit, not for need. It is just a nuisance for the capitalist that he has to sell his goods to somebody before he can realise the profit. For the system as a whole it's not a nuisance - it's a contradiction. Each capitalist strives to drive down the living standards of his workforce in order to maximise profits. But for the capitalist system the working class are their consumers. That means they should have plenty of money jangling in their pockets. One way a capitalist nation can solve this contradiction is by driving down wages at home and selling abroad. As Keynes told the MacMillan Committee during the Great Depression, "If you are part of an international system, you can always improve matters by cutting wages more than your neighbour". But for world capitalism there is no abroad. Attempts to offload the contradiction merely generalise the crisis and produce results such as the 1929 Depression.
And markets measure the costs and benefits, not to society as a whole, but for the capitalist. This can have perverse results, results that are very costly for 'society', for the rest of us, but not for the capitalist firm The firm belches out smoke and pollutes our air. It does so because this is cheaper than attaching a filter. The firm doesn't have to pay the costs of hospitalisation and early death of workers with lung and respiratory illness caused by pollution. And once it's in the air, you can't 'choose' not to 'consume' the pollution. Paradoxically this affects the 'consumer sovereignty' of everyone. Even a millionaire in Mexico City can't buy clean air, despite the fact that the pollution poisoning his lungs is the source of his profits.
And what sort of electoral system is it that gives 257 billionaires more 'votes' (more money) than 2 billion poor people in the world? For capitalist economists the distribution of income, like wants, are 'exogenously given'. In fact capitalism produces rich and poor as inexorably as it produces Coca-Cola. But capitalism rests on the exploitation of the working class, whether organised by bureaucrats in a corporation plan (big companies have five year plans just like Stalin) or whether imposed by the apparently impersonal workings of the world market.
Having dealt with how the allocation of social labour time takes the form of value in an exchange economy it is time to look at the central mystery of the market, the ratio of exchange, or in Marxist terms the substance and magnitude of value. In Capital Marx starts with the isolated act of exchange of one commodity for another, in this case of twenty yards of linen for a coat. As inhabitants of a market economy, we don't blink at this notion. But what's really happening? Coats do not really confront piles of linen. People confront each other, but they do so via the products of their labour. That is why market forces are important to us, but also mystifying. Relations between people appear to us as relations between things. This is what Marx called commodity fetishism.
Even in 1867 coats v linen was a tedious example, but note what else is unusual about it. In a market economy we do not usually exchange things we've produced but do not want for things we haven't produced but do want. We swap things around with money. But Marx does not want to take money for granted, as capitalist economists invariably do. He wants to show how the universal equivalent emerges inevitably as exchange becomes generalised. Like him, we will derive the money form from the value form. This belongs a little later. Since twenty yards of linen is being exchanged for a coat, they must have something in common. Clearly this cannot be a physical characteristic. Bourgeois economics argues that they are both objects of utility. But if artisans produce coats all day, they are not producing for themselves and selling the surplus. They are producing the coat for sale from the word go. In other words the coat has no utility for its maker. Sure, if nobody wants to buy it will turn out to have no exchange value. Use-value is a precondition for the determination of value. It does not determine its magnitude. Modern neoclassical economics makes marginal utility the foundation of its value theory. They obviously came up against the objection at a very early stage that water, the most vital requirement of life, is virtually free, while diamonds (basically useless lumps of carbon) are very expensive. They propound a grand 'paradox of value' to be found in almost all the textbooks. This states that the reason we don't rate water very highly is because there's a lot of it about. Though water is valuable in absolute terms we don't care much for any more because we've already got a lot. We value the marginal unit, not the mass. Now really this amounts to nothing more than noticing that water is relatively abundant. Likewise diamonds are dear because they are scarce. They don't really need to go on and on about marginal utility at all. This is not good enough! Marx, and Ricardo before him, were aware that paintings by Van Gogh and the like were exceptions to the law of value. Since they are unique, they are not reproducible at will. In that case their price will be determined entirely by how much collectors are prepared to pay for them, by their utility.
But both Marx and Ricardo were concerned to analyse the production process as the life process of society. If we want to understand the social division of labour imposed by the market, we need to understand how an expansion of demand calls forth a capital inflow and an increase in the supply of the vast bulk of goods that can be increased in quantity by human effort. That bourgeois economists spend so much time contemplating the situation of people seated beside abundant springs or dying of thirst in the desert only shows how remote they are from the real production process.
Use-value and exchange value
That a commodity is both a use-value and an exchange value is a contradiction. What does that mean? It means that labour expended on the commodity is only a potential value. Someone must be prepared to buy it. Value has to be validated in the marketplace. Likewise it is irrelevant to me if you spent twice as long to make a chair as everybody else. You have just wasted your time. I and every other buyer expect an average price determined by the extant productivity in that sector at the moment. It is not the amount of labour individually or accidentally expended on a commodity that determines value, but the amount socially necessary for its production. This is a vital concept when we come to look at the dynamics of the capitalist system.
The only thing both commodities have in common is that they are both objects of human labour. Obviously all real labour is the labour of particular types of worker, whether maker of coats or bus driver. As such they are examples of individual labour. They are also all taken from the general pool of social labour available to satisfy our needs. The worker in Malaysia is qualified to be a teacher, but capitalism in Malaysia doesn't need him as a teacher. He gets a job on the dredger digging up tin ore. In the act of exchange social labour is seen as its opposite, social labour and concrete labour of a particular kind as representative of its opposite, abstract labour. How can the labour objectified by a worker on a dredger into tin ore be equated with the labour of a seamstress objectified in a dress? "Indifference towards specific labours corresponds to a form of society in which individuals can with ease transfer from one labour to another, and where the specific kind is a matter of chance for them, hence of indifference. Not only the category, labour, but labour in reality has here become the means of creating wealth in general, and has ceased to be organically linked with particular individuals in any specific form. Such a state of affairs is at its most developed in the most modern form of existence of modern society." (Marx - Grundrisse) In other words, both forms of individual, concrete labour are part of the pool of social labour available to meet our needs.
What are we doing when we use twenty yards of linen to measure the value of a coat? In effect the twenty yards of linen is used as what he called the equivalent form. In other words it is being used in a one-off act of exchange as performing one of the functions of money. A commodity is both a useful object, a use-value, and an exchange value. It contains a contradiction within itself. When it enters into exchange, the use-value of the equivalent serves to measure the exchange value of the other. The contradiction is not eliminated, it is reproduced on a higher level in the money form.
This is exactly what we do when we weigh things. We know both the things we want to compare are completely unlike in every respect but one. To be comparable, they must have some common property. They both have weight (mass). There is no such thing as weight that we can isolate and measure independently of objects with weight. Likewise with value we can't just add up the quantities of labour congealed in the product at different stages of production. In the case of weighing something we start off by placing one object on a set of scales and finding it equal to the item on the other side, say a lump of metal. At a later stage, as we start weighing things regularly, we will probably ascribe a conventional measure to the lump of metal (for example ten kilograms). This, of course, is how money emerged from the exchange process.
What we are doing in assessing value is essentially the same. First we know both commodities are products of the pool of social labour. So they have this common substance. Now let's move away from Marx's example and go with ten biros equals one pint of beer (both cost £2). Why? Marx's example might give the impression that artisans made the commodities from scratch - herded the sheep, carded the wool, tailored the coat. In that case you might think the artisans could say to themselves, 'this coat contains X hours of my work.' This was never Marx's intention. He was not analysing petty production - he was examining the commodity as a first step in the critique of capitalist production. Now in the case of our more recent example it should be evident that even a 20p ballpoint pen is the product of a world division of labour. And it is the product of large-scale capitalist production. The plastic is manufactured by enormous ethylene crackers by oil that has first been to a refinery. The crude oil may come from the North Sea, extracted by derricks twice the size of Nelson's column. Or it may come from the Gulf states, or Mexico, or Nigeria, or Brunei or anywhere else. We don't know. The metal tip - where does that come from? How much time did it take to extract the ore, refine the metal and shape the tip? It is overwhelmingly obvious that we cannot possibly work out how much labour time is involved in the production of even such a simple object as a cheap pen. Marx's value theory is often presented as a simple costs of production theory, where we add up labour value-added in the various stages of production to come up with a final value. Actually Adam Smith's value theory was one where he tried to assess the 'contribution' of each 'factor of production' to the value of the final product. Ricardo and Marx, on the other hand, resolved the value of a commodity into congealed labour time and then examined the struggle of the classes claiming to personify the factors of production over the value produced.
Just as we don't know how much weight an item has except by comparing it with something else, so we can't assess value except by comparison made in exchange. Exchange value is the phenomenal form of value. And the value of commodities is determined by the labour time socially necessary for their production.
The dynamics of capitalism
Why do we need a theory of value? How does it help us analyse the dynamics of capitalist society? Here's an example. The first ballpoint pen was produced by the Reynolds International Pen Company in 1945. As is usual in capitalist innovation, Reynolds did not invent the ballpoint. He just bought the patent off the shelf. The price was set at $12.50 but the cost of production was just 80c. The novelty value of the pens caught on and production, and profits, expanded sharply. Rivals cashed in, with Eversharp and Schaeffer both marketing pens at $15. By now Reynolds had pioneered mass production methods and unit costs had fallen to 60c. The cosy relationship with Schaeffer, Eversharp and Reynolds not treading on each other's toes came to an end as the Ball-point pen Company of Hollywood marketed a $9.95 model and David Kahn announced plans for the $3 pen. Reynolds retaliated with a $3.85 ballpoint, though production costs were now about 30c a go. By Christmas 1946 there were 100 manufacturers, some selling pens for $2.98. By February 1947 the cutting edge price was 98c and the following year saw the 39c ballpoint costing just 10c to mass-produce. In 1951 prices had fallen further to 25c as the ballpoint effectively replaced the fountain pen (remember them?) in everyday use.
Why did ballpoints get cheaper? Because it took less labour time to produce each one. That's obvious. It's equally obvious that Reynolds and his fellow capitalists were not using labour time calculations. They were just chasing a fast buck. And they decided, in competing with one another, that the best way to sell things cheaper than the opposition is to make them cheaper - that is with a smaller expenditure of labour time. That is precisely how the law of value asserts itself behind the backs of the individual actors.
Every year the 'Financial Times' publishes its 'Global 500', its list of the biggest companies in the world. Businesses are ranked by market capitalisation, which basically means total share price. In 2001 the biggest firm was General Electric (not to be confused with the British-owned General Electric Corporation). General Electric is a conglomerate with a finger in all sorts of pies - though not, these days, electricity. Its market capitalisation comes to $474,955 million. Its sales were $110,832 million, but profits were higher than Microsoft's at $15,942 million. Capital employed was again greater at $119,198 million. In many ways General Electric is more typical of the biggest business. It employs 340,000 workers. In fact if you were to rank big business by the number of workers Wal-Mart would come top with 1,140,000 on the payroll.
Jack Welch was the Chief Executive Officer of General Electric till he retired last year. He must have worked very hard. He collected $40 million in remuneration in 1997. Jack therefore got 1,400 times as much as the average blue-collar GE worker in the US. One reason the firm gave him so much is that he saved the owners (the shareholders) lots of money. He saved money by sacking loyal American operatives and 'downsizing' work to Mexico. Jack earned 9,571 times as much as the average Mexican employee. But don't get the idea Jack is basically on a wage. Most of his wedge came from stock options - the right to buy the company's shares. In the roaring stock market of the 1990s it was a one-way bet for the rich. Chief Executive Officers got 85 times as much as the rest of the workforce in 1990. By 1999 it was 475 times as much, and stock options were the crowbar opening up the gap between rich and poor. In 1979 the top 1% were hanging on to 20.5% of American income. Twenty years later it's over 40%.
In 2000 the biggest firm was Microsoft, with a market capitalisation of $586,196 million. That is nearly $600 billion! Microsoft's turnover (sales) was $19,747 million in 1999. Its pre-tax profit was $11,891 million. The figure for capital employed was $24,438 million. It should be explained that share capitalisation is an assessment of expected future profitability of the company, for that is what speculators are interested in when they buy the shares. It is not a stocktake of the assets. Most of the assets of Microsoft are in any case intangible. They are monopoly rights to intellectual property, like the Windows system itself, rights jealously guarded by high-paid lawyers. Microsoft employs 'only' 31,000 workers - though readers who know how the firm operates realise that plenty more are subcontracted into the global 'team'.