Cooking the Books: No Marx without Adam Smith? (2026)

The Cooking the Books Column from the February 2026 issue of the Socialist Standard

Next month is the 250th anniversary of the publication of Adam Smith’s The Wealth of Nations. In the run-up to this, the Economist (18 December) carried an article by its ‘senior economics writer’, Callum Williams, in which he suggested that Smith had been ‘misinterpreted and his influence overstated’.

His case was that Smith wasn’t the originator of the ideas he expressed, that he copied from others and was a bad writer, and that he also made mistakes:

‘In the “Wealth of Nations”, he argued for the “labour theory of value” (the idea that the amount of work that goes into a product determines its price, rather than how useful that product is). This theory distracted economists for decades and laid the groundwork for Marxism. Exploitation, in Marx’s view, arose from the difference between how much workers had laboured to create a good and what they were paid for producing it. Without Smith, there could have been no Marx’.

The last sentence is ridiculous. There were others before Smith who put forward the view that the exchange-value of a product of labour depended on the amount of labour required to produce it. In a footnote early on in the opening chapter of Capital, Marx’s quotes Benjamin Franklin as having pointed out in 1729 that:

‘Trade in general being nothing else but the exchange of labour for labour, the value of all things is … justly measured by labour’.

Prior to Capital, in A Contribution to the Critique of Political Economy (1859), Marx credited Franklin as the person ‘who for the first time deliberately and clearly … reduces exchange-value to labour-time.’

In a podcast on the same subject on 1 January, Williams attempted to refute the labour theory of value by saying that, on the contrary, ‘what determines the price of a good is … how much demand there is for that good and how much of that good is supplied by the market’. This differs from what he had written in his article that a product’s price is determined by ‘how useful that product is’. That argument is easy to refute —there are a lot of things that are more useful than gold or diamonds yet gold and diamonds have a higher price; which, clearly, must have something to do with the fact that it is more difficult (takes more work and time) to produce gold and diamonds than it does to produce the other, more useful products.

Supply and demand determine the short-term market price but, in the longer term, supply will only continue if the suppliers — profit-seeking capitalist firms — cover their costs and make a profit. In bringing about the longer-term price the play of market forces will take into account the labour-time required to produce the product from start to finish.

Not that Marx did argue that under capitalism products exchanged at their labour-time value. He was well aware that the pursuit of profits resulted in this happening only accidentally but that the prices at which products sold could only be explained on the basis of a labour theory of value.

The reason why economists came to reject any labour theory of value (Smith’s as well as Marx’s) was that it led to the conclusion Marx reached who, said Williams, based ‘his entire theory of exploitation on the labour theory of value’. It was, he said, ‘precisely because Smith was so influential, his wrong-headedness about the labour theory of value was a big problem.’

This problem was solved, says Williams, when economic theory ‘gets wrestled back through the correct understanding of value by the marginalists at the end of the 19th century’. How convenient for the exploiters of labour, but it turned academic economics from a science into apologetics for capitalism.

"Utility" Goods (1950)

From the June 1950 issue of the Socialist Standard

The 1939-45 Great War and His Majesty’s third Labour Government have made the people of this country “Utility” conscious, but long before 1939 such economists as Bohm Bawerk, Jevons and Marshall were searching in the realm of utility for an answer to the question why a pair of boots exchange for thirty shillings.

The fruit of their efforts is the much-boosted Marginal Theory of Value by which they attempted to explain the value of a commodity—an article produced for sale—as the point at which marginal utility (the utility derived from that unit for which the consumer is just prepared to pay) coincides with the marginal cost of production (the cost to a firm that just pays its way). Thus they claimed their theory of Value takes both demand and supply into account.

Long before Bohm Bawerk and his Utility school of thought, Marx had shown that the value of a commodity is determined by the socially necessary labour time embodied in its production.

The Marginal school criticised this theory of Value on the grounds that Marx had looked at Value from the point of view of the producers and had therefore chosen “labour time” as the basis of Value. They contended that Value should be looked upon from the point of view of the consumer also and that Utility should form part of the basis of Value.

When Marx stated that the only quality commodities have in common with each other is that they are the “products of labour,” the Utility school pointed out triumphantly that commodities also have this in common—they must be useful. On these grounds they have argued that it is merely arbitrary to say that Labour is the source of Value. Indeed they have gone further and stated that only some useful things are the products of labour but all products of labour, if they are to be commodities, capable of sale and exchange, must be useful. They have pointed gleefully to the solitary traveller in the desert picking up a piece of gold or a diamond. They have argued that surely this piece of gold or diamond must have Value but its Value is certainly not determined by socially necessary labour time.

So frequently have the apologists of Capitalism put forward this view, that it is now accepted by most text-books on economics and is usually advanced by lecturers in Universities and Commercial Colleges as the Theory of Value which has ousted that of Marx.

In practically all books dealing with the classification of the Sciences, Economics is classified as a Social Science. That being so, Economics must be concerned with social relationships—the social relationships dealing with the production and distribution of Wealth at that.

We have therefore to examine the means by which Men produce and distribute the wealth of society in order to find which of these theories correctly reflect the law by which boots exchange for Gold (in the form of pounds, shillings and pence).

In all previous systems of society, production had been for use and only the surplus had appeared in the form of commodities but under our capitalistic system of society, production becomes solely for sale—for the World Market. Capitalism is therefore distinguished by the fact that here wealth takes the form of commodities.

In a commodity producing society extensive division of labour and private property are essential factors. That is to say the aggregate labour force of society consists of the sum total of the labour of all the producers of the different types of commodities who carry on their work independently of each other. When therefore we say that a fur cape is equal in value to a wrist watch we are really equating the labour of the furrier with that of the jeweller. In the early days of Man’s history when any surplus product was being exchanged, the question which confronted the two parties or groups involved in the exchange, say of arrow heads for skins, was this—Would it take us as long (or as much labour time) to produce these skins as it took us to produce the arrow heads? If the answer was in the affirmative then the transaction was completed. In the same manner the value of a commodity is determined by the socially necessary labour time embodied in its production.

What confuses the critics is that in capitalism value appears to be a quantitative relationship between things. They only see 100 bricks exchanging for two tables and do not see the SOCIAL RELATIONSHIPS underlying this quantitative equation.

In modern society, however, exchange does not take place in the form of barter (one article for another article) but Money enters into the field. Articles in the shop window have their price tag—their money form. Price is the monetary expression of Value, that is to say Price means the amount of gold equivalent in Value to the article which is being priced.

It is precisely in this developed form of Value that the law of Value manifests itself as the regulating principle of capitalist production. When the supply of a commodity is greater than the demand the price of the commodity falls and conversely when the demand is greater than the supply the price rises. The Capitalist economists see in this the regulator of the markets— the so-called Law of Supply and Demand.

Here again however, the Labour Theory of Value comes into its own. In our commodity producing society, the labour contained in a commodity has two aspects. It is the private labour of the commodity producer and at the same time part of the collective labour of society. To meet the last condition it must satisfy a definite social want—it must be useful to society. The private commodity producer fails to see his labour in this aspect—the social aspect. He never knows how much of a commodity is coming on to the market and what demand there will be for it. He therefore keeps on churning out his product until the demand for it drops and prices fall. Then he curtails production but he never dreams that the cause of the falling prices could be the fall in value of his product—a fall in value occasioned by the fact that he has expended part of the collective labour of society—his own private labour —USELESSLY. The value of a commodity being determined by the amount of SOCIALLY NECESSARY labour time embodied in its production, he has therefore not added one jot of Value to the commodities he has produced in excess of demand. Thus, does Marx’s Labour Theory of Value take Utility into account.

R.R.

Cooking the Books: Two questions answered (2024)

The Cooking The Books column from the March 2024 issue of the Socialist Standard

An enquirer from Vietnam has asked us (and others) a couple of questions on Marxian economics. Here they are with our reply.

1. Does the commodity value come mainly from demand, market evaluation and utility, not from labor? (explain labor theory of value v/s marginal value theorem)

A commodity (as a product of labour produced to be sold) does have to be useful to sell but its price is not related to its usefulness. Water, for instance, is more useful than gold but this is not reflected in their respective price. Nor could a commodity’s price be determined solely by the paying demand for it as supply conditions have also to be taken into account. A stable price for a commodity arises when supply and demand are equal, as Marginalist theory notes, but this tells us nothing about what that price will be. For this we need to look at what it costs to produce the commodity.

No capitalist enterprise is going to produce something to sell unless it recovers the commodity’s money cost of production plus a mark-up for profit. The cost of production to a capitalist enterprise is the labour embodied in the materials and machines the enterprise has to buy to produce it and the wages paid to those working at the final stage of its production. These wages, however, represent less labour than the labour the workers add through their work. The part of the added labour that is not paid for – the surplus value – is the source of the capitalist enterprise’s profit.

So, a commodity’s value, reflected in its price, does depend on labour. It is not quite as direct as that, though, as a commodity’s market price will not normally be an exact reflection of its value due to the averaging of the rate of profit (see the answer below to your second question) but it is still related to the labour required to produce it. Gold is more valuable than water because it needs more labour to produce it.

2. Do employers, business owners, corporation boss… (capitalist class) earn money and create profits from their efforts in marketing and managing their companies… (choose market output with great needs), from the difference in value and price of goods (increased due to consumer demand after being marketed by the boss). Therefore, the capitalist class gets rich on its own merit, not through the exploitation of surplus value by the working class (workers) and the workers’ wages are fair for their labor.

No, the source of profits is surplus value created by workers, not necessarily by the workers that a particular capitalist enterprise employs but from that created by the working class as a whole. Capitalist enterprises compete to obtain a share of this in the form of profits on the capital they have invested. Competition has brought about a situation where each capital ends up tending to make the same rate of profit through capital having moved from less profitable to more profitable fields of activity.

Some capitalist enterprises can make more profits than others depending on how astute they are in anticipating trends, cutting costs and marketing their products. To this extent, the actual profits a particular enterprise makes can reflect the knowledge and experience of its managers (these days capitalists themselves don’t normally manage their business themselves) but the source remains surplus value created by the working class. The managers can justly claim that their skills have brought in more profits, but the skill is in capturing a share of surplus value not creating it. The capitalist class as a whole does not get rich from this; in fact could not as there are losers as well as winners — some individual capitalist enterprises get more in this way but at the expense of others.

A Modern Money Tree? (2022)

Book Review from the May 2022 issue of the Socialist Standard

The New Economics: A Manifesto by Steve Keen (Polity, 2022, 200 pages)

In the last part of the nineteenth century pro-capitalist economists, worried by the use Marx and others had made of the Classical Economist David Ricardo’s labour theory of value, sought to change the whole theoretical basis of economics. They also objected to the Classical Economists’ analysing society as divided into social classes (landlords, capitalists and workers) with conflicting interests.

What they came up with was that it was the utility to consumers that determined the exchange value of goods and services, not labour cost. Consumers were assumed to spend their income in such a way that the ‘marginal utility’ of each different item they bought (i.e ., the added satisfaction they get from one more unit of a good) was equal; the price of goods was the result of consumers all doing this and so would typically decline with every additional unit of consumption as consumers were willing to pay less for it. Similarly, labour and capital were considered as each contributing to production and being rewarded according to their ‘marginal productivity’, the theory being that workers will be hired up to the point when the marginal revenue of production is equal to the wage rate. The reward to capital was profits.

This ‘marginalist revolution’ ushered in Neoclassical Economics and became the dominant view amongst economists and is still taught in schools and universities all over the world. It is against this theory that Steve Keen’s The New Economics: A Manifesto (Polity, 2022, 200 pages), aimed at students about to study economics, is directed. Like all manifestos, it is a call to arms. Keen denounces neoclassical economics as a ‘disease’ and calls for its complete eradication.

Money creationism

But what does he propose to put in its place? As an advocate of so-called Modern Monetary Theory (MMT), his main criticism is aimed at the Neoclassicals’ theory of money and banking. As it happens this is something they inherited from the Classical Economists – that banks are essentially financial intermediaries, borrowing money at one (or no) rate of interest and relending it at a higher rate; that banks do not ‘create’ money but merely redistribute it. Keen defends the contrary view that banks can and do create money.

This is partly a question of semantics about what is meant by ‘creating money’. Even Neoclassical textbooks define bank lending as doing this. So, when a bank makes a loan by definition it ‘creates’ money. The justification for this claim is that when a bank makes a loan it doesn’t hand over the cash but deposits money in the borrower’s account. But this is different from when a customer deposits money in their account, which is a liability of the bank to them (the bank owes it to them). A deposit made by a bank into a borrower’s account is the reverse (the borrower owes it to the bank). It is misleading to treat these two kinds of deposit as the same and to assimilate the second to the first.

Supporters of the view that banks have the power to create new money also point to the fact that a bank doesn’t necessarily have to have the money available at the time it makes a loan. This is true. However, when the borrowers actually spend the money it has to be covered. This may be from inbound income, but if there is a shortfall at the end of a trading day when banks settle up with each other, to cover this the bank has to borrow money on the money market from other banks or from the central bank.

Another confusion arises from the fact that governments, which do have the power to create money, don’t normally do this directly. They do so via the banking system, so creating the illusion that it is the banks rather than the government’s central bank that has created new money or, rather, new money-tokens.

The government money tree

MMT makes an additional claim that distinguishes it from other money-creationists. They are ‘Chartalists’ who hold that money did not evolve spontaneously out of trading but that it has always been the creation of a state. This runs contrary to the Classical view that money originated in commodity exchange when one commodity emerged as the ‘general equivalent’, ie, one that could be exchanged for all other commodities. This was Marx’s view too. Coins are issued by states and are (or were supposed to be) a guarantee of the weight of the money-commodity. Coins are indeed the creation of states but the money-commodity is not. Some coins did weigh the stated amount but others were, or came to be, tokens for this, as are all notes and, even more obviously, electronic money.

MMT argues that, because the state can create money-tokens at will, it does not need to tax or borrow to fund its spending. When it wants to spend it can simply arrange for new money-tokens to be created (or ‘printed’, as it is sometimes anachronistically put) and then spend this; this increases money in the hands of the general public, so stimulating the economy; some of this money can even come back to the state as taxes (if there still are any). Conclusion: the budget doesn’t need to be balanced and can be run at a permanent deficit.

There is nothing ‘modern’ about this theory. People have always wondered why, if something needs to be done, the government doesn’t simply create the money to do it. It is not as simple as that as new money-tokens are not new wealth but additional claims on existing wealth, so that if a government were to do this the result would be inflation causing a rise in all prices; even below the level of the full employment of resources the result, after an initial short-lived stimulation of economic activity, would be stagflation. No wonder some people think that MMT stands for Magic Money Tree.

MMT’s crisis theory

MMT is not quite that crude and Keen offers a theory of crises based on banks supposedly creating too much money by making too many loans and fuelling speculative bubbles, a purely monetary theory of crises. ‘Banks, debt and money’, he claims, are ‘the main factors that drive economic performance and also cause economic crises’ (p. 56). He quotes (p. 84) fellow-economist Hyman Minsky: ‘The tendency to transform doing well into a speculative investment boom is the basic instability in a capitalist economy.’ There is some truth in this; bank lending does expand in a boom but this is in response to the increased demand for loans from firms wanting to make hay while there is an expanding market, a view banks go along with as they, too, expect more profits to be made of which they will get a share as interest.

Contrary to what MMT teaches, increased bank lending comes from the demand side, not from the banks themselves. Despite Keen’s claim, banks seeking more interest from more lending is not what ‘drives economic performance’; what does is capitalist firms seeking profits. What causes a boom to bust is overproduction, in relation to its market, in some key industry, which means that the anticipated profits cannot be realised because not all that has been produced can be sold. Production is curtailed and this has a knock-on effect on the rest of the economy, including the banking sector.

Keen does not think that capitalism’s unstable path can be entirely eliminated, only that it can be dampened down considerably:

‘While financial instability cannot be wholly eliminated from capitalism…… the most egregious elements of irresponsible bank lending can be addressed by limitations on what banks can be allowed to lend’ (p.70).

What he proposes, to remedy this, is some reform to banking law and regulations that would ‘constrain or eliminate’ banks from ‘lending that finances asset price bubbles’ (plus a few pet reforms of his own which no government is likely to adopt).

This, he suggests, would be enough to allow another ‘Golden Age of Capitalism’, as from 1950 to 1973 when there was near full employment, low interest rates and only minor recessions.

Keen’s class analysis

That is not to say that Keen is presenting himself, as most bank reformers do, as a conservative out to save the capitalist system. He writes that ‘to acknowledge that capitalism is a class system is simply acknowledging a fact’ and that ‘with a class-based analysis, the consequences for different social classes of different economic policies must be confronted.’ (p. 142)

Earlier he had given an example of what he had in mind by class-based analysis when he described how a computer model of the business cycle he had devised worked. His model assumes that normally the share of profits in GDP is 12.9 percent, leaving ’87.1 per cent of GDP to be divided between workers and bankers, and it doesn’t matter to capitalists how that is allocated between them’ (p. 87). So he is positing a three-class system – capitalists, workers and bankers. Here is how his model presents the business cycle starting from the boom stage:

‘… [R]ising wage and interest costs ultimately mean that the profits expected by capitalists when the boom began are not realized. The increased share of output going to workers and bankers leaves less than capitalists had expected as profits. Investment falls, the rate of growth of the economy falters, and the boom gives way to a slump. The slump reverses the dynamic that the boom set in motion, but doesn’t quite reverse the impact of the boom on private debt… The recovery from the crisis thus leaves a residue of unpaid debt. The profit share of output ultimately returns to a level that once again sets off another period of euphoric expectations and high debt-financed investment, but this starts from a higher level of debt relative to GDP than before. With a higher level of debt, the larger share of income leaves a lower share for workers. So the workers pay the price for the higher debt in terms of a lower wages share of GDP…’ ( pp 87-8).

So, the class conflict in his analysis is between workers and bankers. But the loss to workers is built into his model because it assumes a constant share of profits in GDP. Since the bankers’ income (interest) has to come out of profits, the more interest capitalist firms pay on loans the less the capitalists retain as profits. It would perhaps have been more realistic to have assumed a constant share of wages in GDP. That would bring out that what would change throughout the business cycle would be the shares of the capitalists and the bankers, which would be irrelevant to workers as it doesn’t matter to them how that is allocated between them, especially as both interest and profits are just a division of the surplus value produced by the workers.

Keen’s model is a specious attempt to show that workers have an interest in reducing the income of bankers whereas doing that would benefit only the capitalists. He is in effect asking workers to take the side of the capitalists against the bankers. But why should they as both productive capitalists and bankers are just two sections of the same capitalist class?

Adam Buick

Economics: the Marginalist Fallacy (2020)

From the June 2020 issue of the Socialist Standard

What is ‘value’ (economically speaking)? It is a good question and one that has often generated controversy. Classical economists like Adam Smith maintained that a commodity’s value depended on how much labour went into making it. This argument was taken up and refined by Marx. Then, in the late nineteenth century, partly in response to Marx’s own labour theory of value and the perceived threat it posed by exposing capitalism’s exploitative character, a new approach emerged. The ‘Marginalist Revolution’ in economics ushered in the idea of marginal utility – the satisfaction you get from consuming an additional unit of a good which declines with each additional unit consumed along with the price you are willing to pay. As the Austrian economist Ludwig von Mises put it: ‘It is ultimately always the subjective value judgments of individuals that determine the formation of prices’ (Human Action, 1940)

However, Von Mises’ explanation won’t wash. The ‘subjective value judgement’ a hungry beggar makes about a three-course meal contributes nothing to its price while they lack the money to afford it but there is, additionally, an obvious epistemological flaw in Mises’ thinking. ‘Subjective value judgements’ are something only individuals can make – not society – but prices are the emergent outcome of millions of individuals interacting, each of whom are external (objective) to everyone else. Furthermore, as social phenomena, prices clearly influence our valuation of a commodity by making us more – or less – inclined to buy it. So the subjective theory of value is based on circular reasoning. Prices are supposed to be determined by subjective valuations which, in turn, are determined by price.

Does this mean that subjective valuation – the utility or ‘use value’ of a good – has no role to play in price formation? Of course not. As Marx himself noted ‘nothing can have value, without being an object of utility’ (Capital, Vol. 1, Ch. 1). However, while the subjectivists conflate ‘use value’ with ‘exchange value’ he insisted they be distinguished. Use value could not account for exchange value even though it was a precondition of market exchange. Fundamentally, only labour could provide a sound explanation of value under capitalism.

Why? Drawing on Aristotle’s observation that ‘exchange cannot take place without equality, and equality not without commensurability’, Marx reasoned that this ruled out utility as the basis on which commodities exchanged. This was because the utilities of chalk and cheese (or anything else) are essentially incommensurable. Commodities can only exchange on the basis of something they have in common.

What jackets and pairs of shoes have in common is the fact that they are both products of human labour. Exchanging one for the other presupposes each took roughly the same amount of labour to produce. After all, no one would exchange something worth more for something worth less.

Equivalence is assured by adjusting the ratios in which commodities exchange. So if our jacket takes more labour to produce than a pair of shoes this may mean exchanging it for, say, three pairs of shoes to ensure equivalence. Of course, today we don’t normally exchange jackets for shoes – barter. Instead, we use money as a universal equivalent with the ‘exchange value’ of a good being expressed in price.

The relationship between price and value in Marxian theory often gives rise to misunderstandings. Largely, this is because critics fail to grasp Marx’s method. As Michael Harrington notes:

  ‘Therefore the reader must be warned that the opening pages of Das Kapital – or, for that matter, the entire first volume – contain conscious simplifications. Marx, like everyone else, actually began with the “chaotic whole” of immediate experience, but in his masterpiece he follows a logical rather than an experiential order. So in understanding any part of the Marxian analysis one must carefully ask: Under what simplifying assumptions is it subsumed’ (Socialism, 1972).

As Marx’s argument unfolds, one ‘conscious simplification’ after another disappears. The purpose of this procedure is to arrive at a progressively closer approximation of capitalist reality. Hence the initial hypothesis that commodities sell at their values gives way to a new hypothesis that commodities sell, not literally at, but around, their value and that their price is influenced by other factors apart from value – such as the interplay of supply and demand.

That does not invalidate the theory, however. Though there is a constant disequilibrium in capitalism, there is also a constant tendency for supply and demand to adjust to each other via the price mechanism. In the long run, argues Marx:

  ‘If supply equals demand, they cease to act, and for this very reason commodities are sold at their market-values. Whenever two forces operate equally in opposite directions, they balance one another, exert no outside influence, and any phenomena taking place in these circumstances must be explained by causes other than the effect of these two forces’ (Capital, Vol. 3. Ch. 10).

Thus, after balancing out supply and demand we have still to explain why, say, a Berlingo van consistently costs so much more than a Raleigh bicycle. It is at this deep structural level that the law of value exerts a powerful gravitational pull on prices. This is buttressed by the fact that prices cannot fall below a business’s costs of production for any length of time which has the effect of keeping them firmly within the orbit of value.

One should bear in mind also that Marx’s theory does not equate ‘value’ with the actual amount of labour it took to produce a good – ‘concrete labour’. If that were the case there would never be any incentive to introduce labour-displacing technology since this would mean less value being produced. Rather the metric of value is ‘abstract labour’ – the socially necessary labour time it takes to produce a good, from start to finish, under average industry-wide conditions.

Socially necessary labour-time is not something you can measure with a stop watch – like concrete labour. Moreover, it can only express itself through market exchange. As Marx explained in the same work:

‘Social labour-time exists in these commodities in a latent state, so to speak, and becomes evident only in the course of their exchange. Universal social labour is consequently not a ready-made prerequisite but an emerging result’.

This means that the value of a product can change even after it has been produced as a result of ongoing technological and other changes.

Robin Cox

The Source of Value: Bourgeois and Socialist theories examined. (1910)

From the April 1910 issue of the Socialist Standard

The proofs adduced by Marx in support of his contention that the origin and rise of capital can be traced, distinctly and indisputably, to robbery, fraud and violence, form only a small part, and by no means the most important one, of his profound investigations into social wealth production. The portions of his work describing so lucidly the process of the reproduction and accumulation of capital are for the purposes of proletarian enlightenment of even greater value.

Marx’s evidence as to the reproduction and accumulation of capital bears out completely his theories of Value and Surplus-Value. According to them only two factors exist in wealth production – natural objects and social, co-operative labour. Capital is part of the social wealth, of which the workers have been robbed and which is invested by its owners for the purpose of further robbery.

Social, co-operative human labour applied to natural objects being alone necessary to produce wealth, it follows that the reproduction and accumulation of capital – a portion of social wealth – can exclusively be traced back to the exploitation of human labour.

The development of capitalist production causes ever-extending co-operation and productivity of labour, resulting in a gradual cheapening of human labour-power. Hence the proletariat, who alone produce all wealth, grow increasingly poorer, since their sole source of income is the sale of their labour power; while the idle owners of the means of production are accumulating more and more social wealth.

So soon as it is conceded that to-day social labour applied to natural objects is the only source of wealth, the claim to the means of production – capital in present-day Society – by its capitalist owners can only be sustained on the ground of heredity or privilege.

Now whenever the possessing class find themselves in the dilemma of being faced by the irrefutable facts of history or economics, they mostly succeed, by means of their wealth, in getting the services of the strongest and most cunning of economic and political prize-fighters. But with the growing enlightenment of the toiling masses the attitude and methods of these “intellectual” pugilists undergo continual change.

Until a few years ago it sufficed for the capitalist class to oppose to the Marxian theory of Value (that labour applied to natural objects is the source of all Value) the utility theory of Jevons – according to which the value of an article depends upon its final utility, that is, upon how useful to the community another article of the same kind would be.

But as this final utility twaddle was exploded by Marxian writers and speakers, the theory was superseded by another utility theory – that of the Austrian school – the theory of marginal utility, according to which “the value of an article is fixed when one is debating whether it is worth while to obtain it or not, the decision arrived at indicating the utility of an article on the margin of production, viz., on the margin of doubt whether it be worth while to produce it or not”.

These two value theories of utility have, however, with the aid of the Fabian theory of “the rent of ability”, fully blossomed out into the “directive ability” so crudely championed by the capitalist economist Mr. W.H. Mallock, (A Critical Examination of Socialism).

Now while Marx in his Capital (p. 322) shows that “directive ability” is only “a special kind of wage-labour”, the Fabians agree with Mr. Mallock that it is an entity apart from wage-labour, possessed by a class of “great men”. Mr. Mallock considers that class to be the capitalist class. The Fabians hold that this ability is possessed by another (strange to say a third) class in society.

Mr. Bernard Shaw in The Times (2.2.1910) made an absurd onslaught on Mr. Mallock because of the latter’s alleged distortion of the Fabian “rent of ability theory”. Shaw, ignorant of economics, cuts a comic figure when he endeavours to instruct others on the subject. But this time he out-Shawed Shaw. Here is one of his “up-to-date pearls of wisdom”, taken haphazard:

  “This is not a question of the difference between the Socialist and the anti-Socialist: it is a question between the gentleman and the cad. Lord Landsdowne has not asked for the hundred millions he saved Europe by making our treaty with Japan, and Lord Charles Beresford, if the German fleet attacked ours, would not refuse to conduct our naval defence unless the country were to be given to him as prize-money when he had saved it.”

In order to flatten Mallock, Shaw hashes up his old balderdash, “Socialism and Superior Brains” in pamphlet form, and therein (p. 57) he gives the following definition of the Fabian theory of the “rent of ability”:

  “He (your skilled economist) does not romance about capitalists inventing Atlantic steamers: he shows you the capitalist and labourer running helplessly, the one with his money the other with his muscle, to the able man, the actual organiser and employer, who alone is able to find a use for mere manual deftness or for the brute strength or heavy bank balance which any fool may possess”.

So ignorant is Shaw that he does not realise that his criticism of Mallock amounts only to the pot calling the kettle black, and therefore tends to still further confuse the issue between Socialist and anti-Socialist.

Now Mallock states his conception of the theory of “directive ability” (A Critical Examination of Socialism, p. 40) as follows:

  “Though labour is essential to the production of wealth even in the smallest quantities, the distinguishing productivity of industry in the modern world depends not on the labour, but on the ability with which the labour is directed, and in the modern world the primary function of capital is that of providing ability with its necessary instrument of direction”.

All this confusion as to what are the factors operating in wealth production and the functions of the capitalist, or whether “directive ability” is an entity apart from the labour-power of the working class, is dispelled, and the issues cleared up by Marx in Capital, particularly in those chapters dealing with “Co-operation, Machinery and Modern Industry”.

The main reason so many seekers after Socialist knowledge remain reformers is that they do not realise that man is a social product and that wealth production throughout human history has been based on co-operation. With a thorough grasp of these primary Socialist principles no proletarian can remain in ignorance of the meaning of social evolution and revolution. In his efforts to trace the history of man as a social product he will discover the fact that society is an organism with its own laws of development and that the various stages of such development are determined by the evolution in the tools of production. And in his endeavour to gather evidence of the existence of the co-operative principle in human society, the worker will learn that the condition of the wealth producers depends entirely upon the ownership of these tools of production, that is, upon whether they are owned by the users, or by another class, to whom such ownership gives the power of exploitation and domination. He will also come to realise that a change in the ownership of the means of production cannot be brought about by any evolutionary process, but, on the contrary, must be accomplished, by the propertyless class, by a political revolution.

In order to be able to show that “directive ability” does not exist apart from wage-labour it is necessary to briefly summarise and illustrate here what Marx has so minutely and exhaustively propounded in Capital, particularly in the chapters on “Co-operation, Manufacture and Modern Industry”.

In perusing such classical writings as Ancient Society by Lewis Morgan, The Origin of the Family by Frederick Engels, The History of Politics by Jenks, and other works by avowed bourgeois authors we learn that the principle of co-operation has throughout history – under savagery, barbarism and civilisation – prevailed in the production of human sustenance. Already in primitive communist society – among the red Indians who lived mainly by the proceeds of the hunt, in the Indian village community that pursued principally agriculture for its maintenance, and in the patriarchal peasant family which produced its own means of subsistence – labour was organised on co-operative lines. Under chattel slavery, where the slave rendered personal service to his master, under feudalism, where the serf was attached to the land and worked part of his time for the maintenance of his master and the other part for himself, and under handicraft, when each handicraftsman used a set of tools of his own to produce an article right out, the principle of co-operation was not obliterated but concealed.

As each producer was only able to produce a particular article of wealth, but required a variety of such articles for his sustenance, exchange of commodities was necessary, and though the principle of co-operation was hidden in the process of production, it was clearly brought to light in the process of exchange. After all, each commodity was the embodiment of one man’s activities, and therefore by the exchange of one commodity for another the exchange of men’s activities was continually taking place.

A close examination into the history of wealth production convinces us that Mallock and his supporters are speaking altogether contrary to fact when they assert that with the development of modern Industry, the capitalists, the owners of the means of production have developed a new factor, possessed by them, namely, “directive ability”, to which can be traced the origin of the greater amount of wealth produced. The records of history prove just the contrary. Whether we take the evidence supplied by Marx and Engels on the one hand, or by Adam Smith, Thorold Rogers and De Gibbins on the other, we find it all supports the contention that the owner of the means of production is only performing the function of superintendent in production while the same is in its infancy, that is to say, while it is in the stage of manufacture, where production is carried on with small primitive tools and by means of ever growing division of manual labour. And the aforementioned historians and economists further agree that as soon as machinery, steam and electricity are introduced into production, resulting in what we term “Modern Industry”, the capitalists engage their superintendents of labour in the same way that they purchase ordinary labour-power. In the modern factory, workshop or other place of production, the average superintendent is not a capitalist but a wage-worker, commonly called a salaried official, who, having as a rule no property, is compelled to sell his labour power to the capitalist. It is true that the salary paid to such official contains not only the price of his labour-power as superintendent of production, but often includes his pay as “hustler”, of the producers.

Marx, far from denying the need for a directing authority in modern production, emphasises the fact of its indispensableness. He writes in Capital (p. 321):

 “All combined labour on a large scale requires, more or less, a directing authority, in order to secure the harmonious working of the individual activities, and to perform the general functions that have their origin in the action of the combined organism, as distinguished from the action of its separate organs. A single violin player is his own conductor; an orchestra requires a separate on.”

But wisely Marx does not ascribe the ever growing productivity of co-operatively used labour to the directing authority, which, after all, is only a single organ of the social organism, and like all others, a social product, which society has nourished, clothed, taught and trained for the position it occupies.

And on the other hand, Marx does not ascribe the increasing productivity to manual labour alone, but proves that all activities, physical and mental, combined in one social co-operative mass, contribute to the production of wealth in society. To single out individuals – even the cleverest and most capable – amounts to an allegation that a man can exist apart from and independent of society. These points are brilliantly explained in the following passages in Capital. On page 311 we read:

  “Capitalist production only then really begins, as we have already seen, when each individual capital employs simultaneously a comparatively large number of labourers; when consequently the labour-process is carried on on an extensive scale and yields, relatively, large quantities of products. A greater number of labourers working together, at the same time, in one place (or, if you will, in the same field of labour), in order to produce the same sort of commodity under the mastership of one capitalist, constitutes, both historically and logically, the starting-point of capitalist production.”

On pages 315-316 we are told:

  “Just as the offensive power of a squadron of cavalry, or the defensive power of a regiment of infantry is essentially different from the sum of the offensive or defensive powers of the individual cavalry or infantry soldiers taken separately, so the sum total of the mechanical forces exerted by isolated workmen differs from the social force that is developed, when many hands take part simultaneously in one and the same undivided operation, such as raising a heavy weight, turning a winch, or removing an obstacle. In such cases the effect of the combined labour could either not be produced at all by isolated individual labour, or it could only be produced by a great expenditure of time, or on a very dwarfed scale. Not only have we here an increase in the productive power of the individual, by means of co-operation, but the creation of a new power, namely, the collective power of masses.”

And on page 319 Marx says:

  “The combined working-day produces, relatively to an equal sum of isolated working-days, a greater quantity of use-values, and, consequently, diminishes the labour-time necessary for the production of a given useful effect.”

and further on:

  “When the labourer co-operates systematically with others, he strips off the fetters of his individuality, and develops the capabilities of his species.”

A cursory glimpse at capitalist production in modern times convinces us that the capitalist – the receiver of interest, profit and rent – has, as far as production is concerned, long ceased to fulfil any useful function whatsoever, and it is no exaggeration to allege that even the work of gathering in the interest, profit and rent is nowadays performed by paid menials – clerks, collectors or private secretaries. And if we occasionally find a capitalist seemingly engaged in work, closer enquiry always shows that his “work” amounts to nothing more or less than scheming how to more successfully exploit the workers. We possess, apart from the statistics of the enemy, practically no figures to prove how much surplus-value the capitalists are wringing from the toilers. The most recent census of production (1907) was taken deliberately to ascertain only the values produced and the number of workers employed in various trades. The Census Act particularly provided that salaries and wages were not to appear in the returns. But taking roughly the underestimated figures of capitalist statisticians for guidance, the surplus-value wrung from the workers in this country approximates 75% of the wealth produced by them.

Now when we consider that the capitalists are not only useless members of society, but the worst of parasites on the social organism, with the result that millions of workers are either steeped in direct poverty or are on the brink of it, we see that the time has arrived when the toilers, realising their tremendous collective power both in the economic and political field, must consciously and revolutionarily organise for the overthrow of the parasite class and their own emancipation from wage slavery.

 Hans Neumann

The Source of Value (1967)

From the September 1967 issue of the Socialist Standard

This article was first printed in the Socialist Standard in 1910

The proofs adduced by Marx in support of his contention that the origin and rise of capital can be traced, distinctly and indisputably, to robbery, fraud and violence, form only a small part, and by no means the most important one, of his profound investigations into social wealth production. The portions of his work describing so lucidly the process of the reproduction and accumulation of capital are for the purposes of proletarian enlightenment of even greater value.

Marx’s evidence as to the reproduction and accumulation of capital bears out completely his theories of Value and Surplus-Value. According to them only two factors exist in wealth production – natural objects and social, co-operative labour. 

Capital is part of the social wealth, of which the workers have been robbed and which is invested by its owners for the purpose of further robbery. Social, co-operative human labour applied to natural objects being alone necessary to produce wealth, it follows that the reproduction and accumulation of capital – a portion of social wealth – can exclusively be traced back to the exploitation of human labour.

The development of capitalist production causes ever-extending co-operation and productivity of labour, resulting in a gradual cheapening of human labour-power. Hence the proletariat, who alone produce all wealth, grow increasingly poorer, since their sole source of income is the sale of their labour power; while the idle owners of the means of production are accumulating more and more social wealth. 

So soon as it is conceded that to-day social labour applied to natural objects is the only source of wealth, the claim to the means of production – capital in present-day Society – by its capitalist owners can only be sustained on the ground of heredity or privilege.

Now whenever the possessing class find themselves in the dilemma of being faced by the irrefutable facts of history or economics, they mostly succeed, by means of their wealth, in getting the services of the strongest and most cunning of economic and political prize-fighters. But with the growing enlightenment of the toiling masses the attitude and methods of these “intellectual” pugilists undergo continual change.

Until a few years ago it sufficed for the capitalist class to oppose to the Marxian theory of Value (that labour applied to natural objects is the source of all Value) the utility theory of Jevons – according to which the value of an article depends upon its final utility, that is, upon how useful to the community another article of the same kind would be.

But as this final utility twaddle was exploded by Marxian writers and speakers, the theory was superseded by another utility theory – that of the Austrian school – the theory of marginal utility, according to which “the value of an article is fixed when one is debating whether it is worth while to obtain it or not, the decision arrived at indicating the utility of an article on the margin of production, viz., on the margin of doubt whether it be worth while to produce it or not”.

These two value theories of utility have, however, with the aid of the Fabian theory of “the rent of ability”, fully blossomed out into the “directive ability” so crudely championed by the capitalist economist Mr. W.H. Mallock, (A Critical Examination of Socialism).

Now while Marx in his Capital (p. 322) shows that “directive ability” is only “a special kind of wage-labour”, the Fabians agree with Mr. Mallock that it is an entity apart from wage-labour, possessed by a class of “great men”. Mr. Mallock considers that class to be the capitalist class. The Fabians hold that this ability is possessed by another (strange to say a third) class in society.

Mr. Bernard Shaw in The Times (2.2.1910) made an absurd onslaught on Mr. Mallock because of the latter’s alleged distortion of the Fabian “rent of ability theory”. Shaw, ignorant of economics, cuts a comic figure when he endeavours to instruct others on the subject. But this time he out-Shawed Shaw. Here is one of his “up-to-date pearls of wisdom”, taken haphazard:

  This is not a question of the difference between the Socialist and the anti-Socialist: it is a question between the gentleman and the cad. Lord Landsdowne has not asked for the hundred millions he saved Europe by making our treaty with Japan, and Lord Charles Beresford, if the German fleet attacked ours, would not refuse to conduct our naval defence unless the country were to be given to him as prize-money when he had saved it.

In order to flatten Mallock, Shaw hashes up his old balderdash, “Socialism and Superior Brains” in pamphlet form, and therein (p. 57) he gives the following definition of the Fabian theory of the “rent of ability”:

  He (your skilled economist) does not romance about capitalists inventing Atlantic steamers: he shows you the capitalist and labourer running helplessly, the one with his money the other with his muscle, to the able man, the actual organiser and employer, who alone is able to find a use for mere manual deftness or for the brute strength or heavy bank balance which any fool may possess.

So ignorant is Shaw that he does not realise that his criticism of Mallock amounts only to the pot calling the kettle black, and therefore tends to still further confuse the issue between Socialist and anti-Socialist.

Now Mallock states his conception of the theory of “directive ability” (A Critical Examination of Socialism, p. 40) as follows:

  “Though labour is essential to the production of wealth even in the smallest quantities, the distinguishing productivity of industry in the modern world depends not on the labour, but on the ability with which the labour is directed, and in the modern world the primary function of capital is that of providing ability with its necessary instrument of direction”.

All this confusion as to what are the factors operating in wealth production and the functions of the capitalist, or whether “directive ability” is an entity apart from the labour-power of the working class, is dispelled, and the issues cleared up by Marx in Capital, particularly in those chapters dealing with “Co-operation, Machinery and Modern Industry”.

The main reason so many seekers after Socialist knowledge remain reformers is that they do not realise that man is a social product and that wealth production throughout human history has been based on co-operation. With a thorough grasp of these primary Socialist principles no proletarian can remain in ignorance of the meaning of social evolution and revolution. In his efforts to trace the history of man as a social product he will discover the fact that society is an organism with its own laws of development and that the various stages of such development are determined by the evolution in the tools of production. And in his endeavour to gather evidence of the existence of the co-operative principle in human society, the worker will learn that the condition of the wealth producers depends entirely upon the ownership of these tools of production, that is, upon whether they are owned by the users, or by another class, to whom such ownership gives the power of exploitation and domination. He will also come to realise that a change in the ownership of the means of production cannot be brought about by any evolutionary process, but, on the contrary, must be accomplished, by the propertyless class, by a political revolution.

In order to be able to show that “directive ability” does not exist apart from wage-labour it is necessary to briefly summarise and illustrate here what Marx has so minutely and exhaustively propounded in Capital, particularly in the chapters on “Co-operation, Manufacture and Modern Industry”. 

In perusing such classical writings as Ancient Society by Lewis Morgan, The Origin of the Family by Frederick Engels, The History of Politics by Jenks, and other works by avowed bourgeois authors we learn that the principle of co-operation has throughout history – under savagery, barbarism and civilisation – prevailed in the production of human sustenance. Already in primitive communist society – among the red Indians who lived mainly by the proceeds of the hunt, in the Indian village community that pursued principally agriculture for its maintenance, and in the patriarchal peasant family which produced its own means of subsistence – labour was organised on co-operative lines. Under chattel slavery, where the slave rendered personal service to his master, under feudalism, where the serf was attached to the land and worked part of his time for the maintenance of his master and the other part for himself, and under handicraft, when each handicraftsman used a set of tools of his own to produce an article right out, the principle of co-operation was not obliterated but concealed.

As each producer was only able to produce a particular article of wealth, but required a variety of such articles for his sustenance, exchange of commodities was necessary, and though the principle of co-operation was hidden in the process of production, it was clearly brought to light in the process of exchange. After all, each commodity was the embodiment of one man’s activities, and therefore by the exchange of one commodity for another the exchange of men’s activities was continually taking place.

A close examination into the history of wealth production convinces us that Mallock and his supporters are speaking altogether contrary to fact when they assert that with the development of modern Industry, the capitalists, the owners of the means of production have developed a new factor, possessed by them, namely, “directive ability”, to which can be traced the origin of the greater amount of wealth produced. The records of history prove just the contrary. 

Whether we take the evidence supplied by Marx and Engels on the one hand, or by Adam Smith, Thorold Rogers and De Gibbins on the other, we find it all supports the contention that the owner of the means of production is only performing the function of superintendent in production while the same is in its infancy, that is to say, while it is in the stage of manufacture, where production is carried on with small primitive tools and by means of ever growing division of manual labour. And the aforementioned historians and economists further agree that as soon as machinery, steam and electricity are introduced into production, resulting in what we term “Modern Industry”, the capitalists engage their superintendents of labour in the same way that they purchase ordinary labour-power. In the modern factory, workshop or other place of production, the average superintendent is not a capitalist but a wage-worker, commonly called a salaried official, who, having as a rule no property, is compelled to sell his labour power to the capitalist. It is true that the salary paid to such official contains not only the price of his labour-power as superintendent of production, but often includes his pay as “hustler”, of the producers.

Marx, far from denying the need for a directing authority in modern production, emphasises the fact of its indispensableness. He writes in Capital (p. 821):

  All combined labour on a large scale requires, more or less, a directing authority, in order to secure the harmonious working of the individual activities, and to perform the general functions that have their origin in the action of the combined organism, as distinguished from the action of its separate organs. A single violin player is his own conductor; an orchestra requires a separate on.

But wisely Marx does not ascribe the ever growing productivity of co-operatively used labour to the directing authority, which, after all, is only a single organ of the social organism, and like all others, a social product, which society has nourished, clothed, taught and trained for the position it occupies.

And on the other hand, Marx does not ascribe the increasing productivity to manual labour alone, but proves that all activities, physical and mental, combined in one social co-operative mass, contribute to the production of wealth in society. To single out individuals – even the cleverest and most capable – amounts to an allegation that a man can exist apart from and independent of society. These points are brilliantly explained in the following passages in Capital. On page 311 we read:

  “Capitalist production only then really begins, as we have already seen, when each individual capital employs simultaneously a comparatively large number of labourers; when consequently the labour-process is carried on on an extensive scale and yields, relatively, large quantities of products. A greater number of labourers working together, at the same time, in one place (or, if you will, in the same field of labour), in order to produce the same sort of commodity under the mastership of one capitalist, constitutes, both historically and logically, the starting-point of capitalist production.”

On pages 315-316 we are told:

  “Just as the offensive power of a squadron of cavalry, or the defensive power of a regiment of infantry is essentially different from the sum of the offensive or defensive powers of the individual cavalry or infantry soldiers taken separately, so the sum total of the mechanical forces exerted by isolated workmen differs from the social force that is developed, when many hands take part simultaneously in one and the same undivided operation, such as raising a heavy weight, turning a winch, or removing an obstacle. In such cases the effect of the combined labour could either not be produced at all by isolated individual labour, or it could only be produced by a great expenditure of time, or on a very dwarfed scale. Not only have we here an increase in the productive power of the individual, by means of co-operation, but the creation of a new power, namely, the collective power of masses.”

And on page 319 Marx says:

  “The combined working-day produces, relatively to an equal sum of isolated working-days, a greater quantity of use-values, and, consequently, diminishes the labour-time necessary for the production of a given useful effect.”

and further on:

  “When the labourer co-operates systematically with others, he strips off the fetters of his individuality, and develops the capabilities of his species.”

A cursory glimpse at capitalist production in modern times convinces us that the capitalist – the receiver of interest, profit and rent – has, as far as production is concerned, long ceased to fulfil any useful function whatsoever, and it is no exaggeration to allege that even the work of gathering in the interest, profit and rent is nowadays performed by paid menials – clerks, collectors or private secretaries. And if we occasionally find a capitalist seemingly engaged in work, closer enquiry always shows that his “work” amounts to nothing more or less than scheming how to more successfully exploit the workers. We possess, apart from the statistics of the enemy, practically no figures to prove how much surplus-value the capitalists are wringing from the toilers. The most recent census of production (1907) was taken deliberately to ascertain only the values produced and the number of workers employed in various trades. The Census Act particularly provided that salaries and wages were not to appear in the returns. But taking roughly the underestimated figures of capitalist statisticians for guidance, the surplus-value wrung from the workers in this country approximates 75 per cent of the wealth produced by them.

Now when we consider that the capitalists are not only useless members of society, but the worst of parasites on the social organism, with the result that millions of workers are either steeped in direct poverty or are on the brink of it, we see that the time has arrived when the toilers, realising their tremendous collective power both in the economic and political field, must consciously and revolutionarily organise for the overthrow of the parasite class and their own emancipation from wage slavery.

Hans Neumann

From the Socialist Standard, April 1910.

A Fabian on Marx. (1932)

From the September 1932 issue of the Socialist Standard

A well-known Fabian, who died recently, has been the means of press reviewers having a tilt at Marx. Professor Philip H. Wicksteed’s life, written by Prof. Herford, refers to Bernard Shaw’s debate with Wicksteed in the ’eighties.

Wicksteed is little read here, hut in American colleges the students are referred to his writings on Economics for guidance. This professor imbibed ideas from Jevons and “popularised" the utility theory of value. In 1884 he set out to show that Marx was wrong; labour was not the measure of value, and Marx had admitted this by including usefulness as a necessary condition of an article having value. Wicksteed’s ideas, like Jevons, were a revival of theories of supply and demand, which Marx had already exploded. Bernard Shaw squashed Wicksteed by using Marx’s economic writings. Shaw, however, found that Marx’s ideas were not suitable for intellectuals, and so he joined Wicksteed in worshipping at the shrine of Jevons.

The practice of modern capitalism in concentrating upon reducing the time spent in producing articles in order to sell cheaper, is a tribute to the truth of the labour theory of value. Nowadays, Bernard Shaw says Karl Marx “made a man of me,’’ which is a nasty blow to the Star reviewer, who says Shaw knew that he was beaten by Wicksteed.

Adolph Kohn

The Importance of Marxism—(continued) (1940)

From the May 1940 issue of the Socialist Standard

In last month's Socialist Standard we dealt in some detail with Marx's important discovery—the materialist conception of history. We showed that this conception was a scientific guide to the interpretation of historical events. In the light of this discovery, capitalism is depicted as a passing phase of social development and Socialists as pioneers of a new and more progressive order of society. This primary aspect of Marxism does not, however, exhaust the range of "Scientific Socialism." The extremely complicated internal structure of capitalism stands also in need of analysis, for unless we understand the working of this mechanism our demand for a Socialist society can rest only on historical foundations. It is Marx’s complementary discoveries in the realm of political economy that have ranked Socialist theory as an economic as well as an historical science.

Introduction

If the reader were to take a bird's eye view of our present economic system he would see it as an intricate network of establishments embracing industry, commerce, finance, law and social administration. Having thus surveyed capitalism, the first question that would most probably occur to his mind would be, " How does such an involved structure keep intact?" or, to express the same point in the language of economics, “What are the economic laws of this mechanism?" This very question may be said to be the subject matter of inquiry of Political Economy, the science that deals with the nature of wealth and the laws that govern its production and distribution. As Marx's concept of value and surplus value can really only be clearly understood when viewed in relation to Political Economy, it is desirable for us to consider the aim, scope and historical background of that science. By presenting the subject in this manner we shall enable the reader to more readily grasp the full import of Marx's economic discoveries.

Theory of Value

The central theme of Political Economy is the theory of value—a theory intended to solve the riddle of what it is that determines price. Why, for instance, should a diamond generally cost more than a hat, or a jeweller receive a higher price for his services than does an agricultural labourer? Problems like these have occupied the attention of economists for centuries.

There is one proposition, however, upon which practically all economists, prior to and contemporary with Marx, have been in agreement, viz., That the average price of an article is regulated by a certain standard, which may be called the article's real value. As a matter of fact, all of us in our daily experience recognise such a standard, for we frequently use the expression "value" in an economic sense during current conversation. We often say, for example, "I've paid more for this article than it's really worth," or conversely, “I've received splendid value for money."

Current Theories of Value

If the reader were to ask the Economic League what determines the value of a commodity he would meet with a reply we have so often received, viz., The value of an article is what it will fetch.

The Economic League are not the only ones to advance this proposition.

The columns of the Catholic Herald have contained a similar thesis in an article devoted to refuting Marxism.

Samuel Butler put it forward in verse in his work " Hudibras," more than two centuries ago, when he wrote: —

“The value of a thing
Is just as much as it will bring."

There may be some justifiable excuse for Samuel Butler and the Catholic Heralds but not so for our modern economists, whose reply surely begs the very question that was raised.

For what a thing will fetch is neither more nor less than its price! Value and price must therefore be considered identical.

But, then, the question still arises, “What determines this value or price?" Does the Economic League think there is any determinant? If not let them explain why a house costs more than a loaf of bread.

Let us leave this fallacy and turn our attention to a much more widespread but equally mistaken notion—the view that supply and demand determine the value or price of an article. In this connection one thing is quite true. If the supply of goods exceeds the demand for them market prices will fall; conversely, where demand exceeds supply (instance torches to-day) market prices will rise.

But let us assume a case where supply and demand are equal.

For example: There are six customers in a shop, each of whom, shall we say, demands a tin of biscuits, and the shopkeeper has precisely six tins of biscuits to sell. What happens in these circumstances ?

Will the shopkeeper charge no price for his wares, just because supply and demand happen to be equal—or will he possibly ask one of his customers to walk out of the shop so as to enable him to fix a price?

Actually, of course, the average price of an article is fixed prior to supply and demand. The latter are factors which send the market price sometimes above the average and at other times below, but they no more determine the height of the average price of a commodity (i.e., the price considered, in normal circumstances, over a given period) than the oscillations of the waves of the sea determine the height of the sea level.

Besides—to those who contend that prices are determined by supply and demand, we would pose the following question: What determines supply and demand?

Finally, let us not omit a reference to the theory of marginal utility.

It would take us too far afield to enter into all the manifold aspects of this modern bourgeois theory, so it must suffice to point out the following:—

Utility, whether marginal or otherwise, cannot possibly serve as an indication of the magnitude of value, for utility itself cannot be measured.

How are we to ascertain, for example, how much more utility there is contained in a diamond than there is in a roll and butter ?

Moreover, quite apart from being an objective measure of value, utility cannot even serve as a subjective measure of value for the capitalist. For it is precisely because the goods his workers have produced are absolutely useless to the capitalist personally that he exchanges them for money. In fact, the ironical part about it all is that their only use value is to him their exchangeable value. And this conclusion alone would lead us to reverse the notion that attributes the exchange-value of an article to its use-value, which is the essence of the theory of marginal utility. Moreover, bootlaces are certainly much more useful than battleships (at any rate, in peace time!), but to the best of my knowledge they have never commanded a higher price. An objection may be here raised that I have merely emphasised one aspect of the theory of marginal utility. I am aware of the fact that there are various schools of thought on the question—that there are some who interpret marginal utility to mean “final demand" and others who include in their idea of utility the concept of “cost of production." These points, however, have already been met in other sections of the article.

Man on Value

According to Marx . . .

That which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour-time socially necessary for its production. . . . As values, all commodities are only definite masses of congealed labour-time. — (“Capital,” Vol. I, page 46, Modern Library Edition.)

On the same page he says: —

The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.”

He then gives the following example of the theory: —

Diamonds are of very rare occurrence on the earth’s surface, and hence their discovery costs, on an average, a great deal of labour time. Consequently much labour is represented in a small compass . . . If we could succeed, at a small expenditure of labour, in converting carbon into diamonds, their value might fall below that of bricks.” (Page 47.)

We shall elaborate on this labour theory of value in a later article. Here we wish to draw attention to the formulation of this concept by economists before Marx—to the evolution of the theory, so to speak.

The Labour Theory of Value Before Marx

One of the first to grapple with the problem of value was Sir William Petty (1623-1687), Governor- General of Ireland. Petty has been called “the father of Economic Science." In his “A Treatise on Taxes and Contributions," written in 1662, he says: —

  If a man can bring to London an ounce of silver out of the earth in Peru in the same time that he can produce a bushel of corn, then one is the natural price of the other. Now if by reason of new and more easy mines a man can get two ounces of silver as easily as he formerly did one, then corn will be as cheap at ten shillings the bushel, as it was before at five shillings. (P. 43, Cambridge Edition.)
  Labour is the father and active principle of wealth as lands are the mother. (P. 68.)

Petty also held a very clear view on wages:

The value of the average daily wage is determined by what the worker needs—so as to live, labour and generate. (P. 60, “Political Anatomy of Ireland,” British Museum Copy.)

Petty was not, however, always consistent in his views. He laboured to a considerable extent under the Mercantilist illusions of his day—the view that only money had any real value. Expositors of the labour theory of value were also Benjamin Franklin (1706-1790) and Richard Cantillon (died 1734), but their views, like Petty’s, were vitiated by Mercantilist notions, which were more or less an expression of the interests of the rising merchant capitalists.

The Mercantilist economists were succeeded in the order of time by the “Physiocrats," the French school of Political Economy. In their works, Francois Quesnay (1694-1774) and S. R. J. Turgot (1727-1781), the leading representatives of this school, divide society into three classes—agricultural, land-owning, sterile (manufacturing, trading, artisan). Physiocratic theory coincides with the interests of the rising French farming class, at that time occupying an ever-growing influence.

Labour was the source of value and surplus value, thought the Physiocrats, but only so far as agriculture was concerned.

Solomon Goldstein

(To be continued)

Karl Marx and his critics: Do profits grow on thistles? (1928)

Book Review from the January 1928 issue of the Socialist Standard

“The Economic Theory of the Leisure Class," by N. Bukharin, (Martin Lawrence, 7/6 net.)

Since the days when Marx analysed the Capitalist system of producing and distributing wealth, laid bare the secret of value, and demonstrated how surplus value is obtained, the agents of the master class have been engaged in numberless attempts to “explain” why the Capitalist is entitled to his profits. A legion of Professors of Political Economy have entered the lists against Marx, with disastrous results to themselves. Journalists and publicity writers have tried their hands where the experts have failed, with even more lamentable results.

One of the most boomed of the Marxian critics, whose general work on Economics ranks, perhaps, higher in Capitalist estimation than that of any other economist of modern times, was Böhm-Bawerk, head of the “Austrian” School of Economics. He was not only a Professor of Economics, but also Austrian Minister of Finance for some time. Thus, to his theoretical knowledge lie added experience of practical affairs, and this would lead one to expect in him a most formidable opponent. Many years ago he loudly proclaimed the discovery of a “great contradiction” between the first and third volumes of “Capital," but the “discovery’" caused hardly more than a flutter before it died.

His two best-known works are his “Theories of Interest,” where he claims to show the failure of all the attempts to explain interest by previous economists, and his “Positive Theory of Capital,” in which he sets out to state the source and reason of interest.

To reach this explanation it was necessary to state a law of value which, incidentally, would expose the hollowness of Marx's theory on the same subject. Here, however, the famous Professor was unable to do anything better than come to England and borrow the late Stanley Jevons's theory of “Final Utility,” published in 1871. A few minor alterations were made, and the title changed to “Marginal Utility,” and then the theory was announced as a brand-new solution of the tantalising problem of value. It is this theory of value that Bukharin criticises in the volume under review.

According to the Marginal Utility theory, value is determined, not by the ordinary utility of any article, but by the utility of the article sold by ”marginal” pair of buyers and sellers that effect a sale in a given market. This is explained as follows. Sellers come into the market, each with a different price in his mind that he is prepared to accept rather than not sell at all. Buyers also come into the market, each with a different price in his mind that he will pay rather than go without the article. It is clear that if the highest price of the buyers is less than the lowest price of the sellers, no sale will take place. Also, if the highest price of the sellers is below the lowest price of the buyers, it is clear that all the articles will be sold. In practice, it is assumed that the lowest selling price will be below the highest buying price, and the actual point of contact will lie somewhere between these two figures. This point of contact forms the ”marginal” price and determines the price of all the other articles of the same kind and quality in that market. In this theory the different prices demanded are taken as representing the different degrees of utility the articles have for the different buyers. Therefore the price at which the actual sale takes place—the "marginal” price—expresses the "marginal” utility of the articles and so determines their value.

It is easy to see that here there is complete confusion between value and price, a confusion that runs throughout the whole of Böhm-Bawerk’s writings; whilst two other points in the theory strike the reader at a first glance. One is that we are here given our old friend, "Supply and Demand," in a slightly different dress, as the explanation of price, for the “marginal" pair are the same couple who effect a sale under the theory of Supply and Demand. The other point is that value, according to this theory, is entirely a question of individual estimates, or, to use the technical term, it is subjectively determined.

On the first point, it is plain as a pikestaff that this “marginal" theory has no connection with the facts. As far as the vast majority of the articles produced for sale are concerned, the prices are fixed beforehand and there is no question of bargaining at all. One does not go into a modern store and start arguing what price one shall pay for an article. The price is there already "marked in plain figures" for the customer to see. Moreover, it would be absurd to suppose that the “marginal” utility or "subjective valuation" of a given article will be alike at different places at the same time. But the prices are the same. And there still remains the criticism that was used against the older theory, namely: When Supply and Demand equal each other, what then determines the price? When the prices of the "marginal” buyer and seller are equal, what determines that price? This question is not even mentioned, let alone an answer attempted, by the Austrian School.

On the second point, that value is a “subjective" question, it is evident that as each individual’s “subjective" estimate will be different from the others, we have here no actual basis of general value at all. Such an “explanation" is a good illustration of the mental bankruptcy of the apologists of the Capitalist class. But it is on the question of interest that this bankruptcy is most clearly seen, and for good reasons.

Capitalists' profits form the danger zone of orthodox economics. It is useless to deny, however “subjectively,” that profits exist. So they must be "explained.” But how? Every apologist answers differently, until Böhm-Bawerk feels impelled to write a large volume to show that they all are wrong. Then what is his explanation? Truly wonderful.

The Capitalist has resources and can buy raw materials, machinery and other plant necessary for the production of articles for sale at some future time. The worker has only his labour-power to sell, and as he is without resources he cannot wait till that  "future time" when the articles will be sold. Moreover, in common with other people, the worker places a greater value upon a present satisfaction or utility than on a future one. The difference between the present and the future valuations is the source of the Capitalist’s interest, and the justification for that interest is found in the time the Capitalist waits before receiving it. An illustration may make this point clear. For the sake of simplicity we will only deal with the worker’s part in production, leaving on one side the question of raw material, plant, etc.

Let us assume that it takes a month from the beginning of the manufacture to the selling of a given article, and that the article sells for 20s. As the worker cannot wait for a month, he would consider the present value of a smaller sum—say 15s.—as equal to the future value (a month hence) of 20s. So the Capitalist, who is a thought-reader, advances the worker 15s. to-day for work that will produce 20s. a month after. There is, of course, no robbery, as the worker is quite ready—nay anxious—to take the 15s. to-day rather than wait a month for 20s. If the worker could wait the month, he would receive the 20s., and interest and profit would vanish!

Why does he not wait? Because he has no resources, says Böhm-Bawerk. Exactly. But why has he no resources? Here Böhm-Bawerk becomes suddenly shy and offers no explanation. The answer is simple. It is because he is forcibly prevented from obtaining any resources by the power in the hands of the Capitalist class.

It is not a question of the worker’s "subjective” valuation of either present or future utilities at all. It is the fact that the only alternative he has to accepting the Capitalist’s terms is starvation. As the worker is forcibly restrained from any access to raw materials or machinery and tools to work upon that material, he is unable to accumulate any resources and must therefore sell his services day by day. It is the difference between the value the worker produces and that value that he receives, that forms the source of surplus value. Interest and Profit are parts of this surplus value, and hence are the result of the robbery of the worker by the Capitalist.

These and several other questions, such as the “abstinence” of the Capitalist, and whether he “advances" the wages of the worker, are dealt with very fully by Bukharin in this volume. The book, however, is one for the student rather than for popular reading. German writers, as is well known, are very fond of cumbersome words and long and involved sentences. Böhm-Bawerk’s writings follow the national model, and Bukharin, apparently, enjoys using the same sort of phraseology, with the result that the book presents a somewhat fearsome appearance to the lay reader. As a technical criticism of the Austrian School, the book can be fully recommended to all who refuse to he frightened by the terminology used.

Jack Fitzgerald