Marx on Piece Work (1961)

From the February 1961 issue of the Socialist Standard

"Let us now consider a little more closely the characteristic peculiarities of piece-wages. The quality of the labour is here controlled by the work itself, which must be of average perfection if the piece-price is to be paid in full. Piece-wages become, from this point of view, the most fruitful source of reductions of wages and capitalistic cheating.

They furnish to the capitalist an exact measure for the intensity of labour. Only the working-time which is embodied in a quantum of commodities determined beforehand and experimentally fixed, counts as socially necessary working time, and is paid as such.

Since the quality and intensity of the work are here controlled by the form of wage itself, superintendence of labour becomes in great part superfluous. …

Given piece-wage, it is naturally the personal interest of the labourers to strain his labour power as intensely as possible; this enables the capitalists to raise more easily the normal degree of intensity of labour."

– Karl Marx, Capital, Vol. 1, Kerr Edition, pages 605-606.

Letter: Marx and economics (2002)

Letter to the Editors from the October 2002 issue of the Socialist Standard

Marx and economics

Dear Editors,

I purchased, and enjoyed, amongst others the pamphlet Marxism Revisited and Some Aspects of Marxian Economics. Now, thankfully, my understanding of economics isn’t all that strong, but I could just about follow what you were saying there. But could I just ask you to explain about socially necessary labour. I understand, that according to Marx, the value of a commodity is determined by the amount of socially necessary labour that is contained in it. But I always understood that this concept was no longer academically respectable. How can socialists still believe in this concept today?

In the Marxism Revisited pamphlet you talk of being opposed to all wars. Which is fine to take a principled stand but how could a socialist stand back and not take a stand in the Spanish Civil War or, in, what the Russians rightly call The Great Patriotic War, WWII. Surely socialists should have (did) support the Republic and should have been against fascism in WWII.

I just want to know how you could be opposed to the Republic fighting against Franco? Back then socialists should have urged Britain to join forces with the Spanish government instead of turning their backs and worse, by allowing the Italians and Germans to police the waters around Spain on the pretext to stop supplies to Franco. They damn well helped him!

That all said, I have enjoyed what I read, particularly the Market System Must Go. But there I detected a nostalgia for the Gold Standard, surely not!

Steven Johnston, 

Stockport

Reply:

Regarding socially necessary labour time (and the labour theory of value of which it is a key component) we do not really care whether it is academically respectable or not. Most concepts and theories which are academically respectable at some point – especially in the arts and social sciences – are not necessarily those which will stand the test of time. Indeed, academic respectability in these fields is largely a transient phenomenon which is far more reflective of ideological developments within capitalist society than it is of anything else.

Few disciplines demonstrate this more transparently than economics. Theories taken for granted thirty or forty years ago (the wholly beneficial effects of the Keynesian multiplier, the use of interest rates as a policy instrument for Balance of Payments control, the Phillips Curve, etc) are now oddities only to be found in textbooks of economic history. Much of monetarist theory (and even more recently, neo-classical theory) has been going the same way.

The ultimate test of any economic theory is whether it is able, over time, to accurately account for what happens in the real world. We contend that Marxian economics has been able to do this in a way none of the other theories have as the fashion for them has waxed and waned.

For over a century now, conventional economic theory has been unable to even remotely explain something as essential to the market economy as the prices at which various commodities sell. Demand and supply tells us why strawberries at local convenience stores are selling at £1.50 a punnet this week as opposed to £1.30 last week but it certainly doesn’t explain why a bicycle persistently costs more to buy than a strawberry, a car persistently costs many times more to buy than a bicycle and an oil tanker several more times again than a car. How could it?

Conventional demand and supply theory as found in modern economics textbooks certainly helps to explain short-term price movements for commodities, but to say that demand and supply determines commodity prices as a whole is like saying that the fluctuations of the waves on the sea determines the depths of the ocean.

The labour theory of value, with its concept of socially necessary labour time, is the only explanation that fits: commodities tend to exchange in certain value relationships because of the amount of labour time it takes to produce them from start to finish. It is around this value that prices tend to fluctuate, as influenced by demand and supply. You will no doubt have read in our pamphlets that because the labour theory of value also points to the fact that workers are exploited in capitalist society, giving unpaid labour (surplus value) to the capitalists when they produce commodities for them, it is a theory that the supporters of capitalism are happy to try and bury.

We might also add that it is through applying the labour theory of value that Marxian socialists have been able to explain the economic phenomenon of inflation which has beset the capitalist world since the Second World War. Our pamphlet The Market System Must Go – Why Reformism Doesn’t Work has more detail on this and other applications of Marxian economics, though we should add that we certainly have no nostalgia for the Gold Standard. While this had both advantages and disadvantages to the capitalists as an international trading system, we as revolutionary socialists are interested in the abolition of all the defining characteristics of the capitalist economy (wages, capital, prices, money, etc) including the paraphernalia of international trade.

Finally, you raise the issue of the Second World War and its precursor in Spain. The socialist position is that that worst thing the working class can do politically is put its class enemies in control of the machinery of government and the armed forces, as sooner or later they will be used against them. Both sides in the Spanish Civil War and both sides in the Second World War were pro-capitalist and anti-working class and socialists would not – and did not – support a capitalist government of either complexion. Socialists would of course prefer to operate under conditions of limited bourgeois political democracy than outright fascism and political dictatorship but history demonstrates that even elementary political democracy in capitalism cannot be defended through wars (for one thing, that is never their purpose – not in Iraq now, nor as in western Europe then).

If illustration of this is needed, how grateful the Spanish working class (including those elements struggling towards taking up socialist positions) must have been when the side of democracy won the war in 1945 . . . and then proceeded to protect and nurture the Franco dictatorship in Spain and the Salazar dictatorship in Portugal. They must have been almost as delirious as those freed from the yoke of the Nazi tyranny in Germany were when they were subsequently delivered into the hands of one of the worst police states in history (the mis-named German Democratic Republic) by those friends of the workers and arch-democrats themselves, F. D. Roosevelt, Winston Churchill and Joseph Stalin.

Editors.

Inflation and prices - Part 2 (1965)

From the August 1965 issue of the Socialist Standard

Link to Part 1

II. The influence of gold

In our first instalment, we examined the commodity’s value and we discussed two of the reasons for price fluctuations—the forces of supply and demand and the influence of monopoly conditions in supply. The examples were of fluctuations above and below what may be called the normal price and, as we have said, it would simplify matters if we could assume that the normal price is the value and that fluctuations due to supply and demand are variations above and below value.

In actual practice, the normal price is not always the same as value, and probably the great majority of commodities do not normally sell at their value, but at some point above or below it. Marx developed this question of what he called all the same thing as what the manufacturer calls his cost of production. It is arrived at from the labour theory of modifications to his theory and showed that the normal price of commodities in the market is not their value but what he called the price of production. The first thing to notice about this is that the Marxian price of production is not at value, but it takes into account the fact that there is a continuing tendency for the return on invested capital to be equalled in different industries so that if the average rate of profit for example is taken at 10 per cent, the capital invested in the oil industry or in agriculture or in shipping, will all tend to receive something approximating to the same 10 per cent average rate of profit.

The next point is that changes in the value of a commodity can cause changes in its price. The value of a commodity falls, for example, if through inventions and discoveries the amount of socially necessary labour needed for producing it is reduced. In that instance, the value would fall and the price would tend to fall with it. On the other hand, it is possible for the value of a commodity to rise because the amount of socially necessary labour required to produce it increases. This could happen to coal and other minerals. As the richer and more readily accessible seams of coal are exhausted and mines have to go deeper, more labour is required to produce a ton of coal than before, and the value rises, and as the value rises, the price will tend to rise with it. So, to take our example of 24 hours being the amount of socially necessary labour required to produce a bicycle, if it fell to 20 hours or rose to 40 hours, this would cause a fall or a rise in the price of bicycles.

So much for changes in the prices of individual commodities, but what about general changes of all prices? Why was it that in 1921 and 1922 the price level in Great Britain dropped by about a third and why is it that the present price levels are three or four times what they were in 1939? Why were prices rising at the end of the 19th century and in the early 20th century? To explain these movements, we have to come back to our example about the bicycle and the suit of clothes and one ounce of gold, which was by law cut up into four gold sovereigns each weighing about one-quarter ounce.

We have seen that gold has a value like all other commodities. So has silver or lead or brass or aluminium. The value of these and all other commodities are related to the amount of labour needed in their production. Because of this factor common to all commodities, the value of each commodity can be expressed in terms of any other commodity. In fact, historically, because of certain conveniences attaching to gold, the capitalist trading world came to accept gold as the universal equivalent, the money commodity and all commodities came to have their values expressed in terms of gold. We might imagine that the trading world could have made use of weights of gold and expressed the prices of all commodities in terms of a weight of gold—one-quarter, one-eighth or one-sixteenth of an ounce, etc., but this was obviously not so practical for purposes of internal trade as to have the gold turned into coins of legally fixed weights, although of course the particular weight differed in different countries.

In Great Britain, as already mentioned, gold coins were by law fixed at about one-quarter an ounce of gold. Actually the legal relationship was that one ounce of gold was priced at 77/10½d, but it is simpler to call it about one-quarter ounce per gold sovereign. Under the currency system as it was operated in Great Britain in the 19th century, and similarly in the U.S. with regard to the dollar, the value relationship between commodities in general and gold was preserved by what is called convertibility. Gold coins were in normal circulation alongside Bank of England notes, but there was a legal right at any time for a holder of notes to convert them into gold or to take gold bullion to the Bank of England for conversion into notes or coins. The gold bullion or coins were freely imported or exported.

Under these conditions there could never be any but minor variations between the purchasing power of Bank of England notes and the purchasing power of gold. Now we may ask how in such circumstances was it ever possible for the prices of commodities to undergo a general rise or a general fall. The answer is that, just as the value of commodities of any kind can rise and fall in certain circumstances, because more or less value is required to produce them, the same thing can happen to gold. The value of gold itself can undergo a change. If, for example, methods are devised which produce or refine gold more efficiently, then it is possible for the value of gold to fall, or, conversely, if it becomes more difficult to produce gold, then the value of gold would rise. The only thing to remember about this is that it operates in a sort of inverse direction, that is to say that a fall in the value of gold expresses itself as a rise in the price of all other commodities and vice versa.

Now let us come back to our examples of the bicycle and the ounce of gold. They had equal value because both of them take 24 hours of socially necessary labour for their production, but suppose that the labour required, to produce one ounce of gold was reduced from 24 hours to 12 hours. Twenty-four hours of labour would still be required for one bicycle, but 24 hours would now produce two ounces of gold instead of one ounce, so that one bicycle now has the same value as two ounces of gold. Under the requirements of the law in Great Britain, two ounces of gold were still divided into quarter ounces; so the bicycle now would equate with £8 instead of £4. Because the value of gold had fallen to one-half, the gold price of the bicycle would be doubled from £4 to £8, and of course the opposite could happen if the value of gold rose, that is to say, if more labour came to be required to produce one ounce of it than before.

A fall in the value of gold caused by new and more efficient production processes was in fact going on at the end of the 19th century and the beginning of the 20th century and, in accordance with the explanation already given, it showed itself as a general rise in the prices of other commodities. There is another circumstance in which, even with a convertible currency, you could have a general rise or general fall in prices. This is when booms and slumps occur. In a boom, every manufacturer is trying to buy raw materials, machinery and so on, with the result that the price of these things would rise and there would be a general rise in prices. In a slump on the other hand, the reverse takes place. Manufacturers and traders in a slump are all trying to sell goods at cut prices in order to get hold of money, and in these circumstances, you could have a more or less general fall in the price level.

Edgar Hardcastle

(To be continued.)

Labour-Power and Wages (1976)

From the August 1976 issue of the Socialist Standard

The particular form of society in which we live is capitalism which is composed of two classes, defining class as relationship to the means of production. The capitalist class own the means of production, which enables them to exploit the working class and to live luxuriously on the surplus-value the workers produce. The working class have no ownership in the means of production and must therefore, to live, sell the only commodity they possess: : their mental and physical energies, viz., labour-power.

Labour-power is not to be confused with labour; the latter is the function of the former. Labour-power, being a commodity, is subject to the same economic laws as other commodities. The value of any commodity is determined by the amount of socially-necessary labour-time required for its reproduction. In applying this yardstick we shall see that labour-power exists in the living individual: therefore the value of labour-power resolves into the means of subsistence, food, clothing, living accommodation, all the things required to reproduce the labour-power for the employment in which it is engaged. This includes provision for the worker’s family, as his children must replace him in the labour market.

The purely physical means of subsistence required to keep the worker sufficiently supplied with energy to continue in working order is qualified by historical or social elements; these reflect wants arising from developing social conditions, and varying standards of living obtained by workers in different countries. The value of labour-power may therefore vary within certain limits. It may, for example, be increased by the expansion of the social element, or the social element may be brought nearer to the bare means of subsistence just sufficient to keep the worker as exploitable material. Any further reduction, reducing wages beyond the physical element, would result in labour-power failing in normal efficiency.

Wages are the price of labour-power, the expression of its value in terms of money, although price and value are not necessarily identical. Wages therefore may rise above or fall below the value of labour- power, depending on the pressure of capital on one side and the resistance workers are able to put up. A constant struggle takes place as a necessary result of the wages system. The worker must always try to maintain his standard of living, the capitalist will always try to increase his profit.

The value produced in a working day is divided into two parts. The first is that which has to be returned to the worker as wages. The remainder is appropriated by the capitalist class as owners of the means of production, and is called surplus-value. Clearly the one cannot increase without the other decreasing. Also, wages can never rise above the point where the average amount of profit is threatened to any extent. However, it is a mistake to suppose that this conflict of interests constitutes the class struggle. It is one part of the class struggle, a necessary but limited one. The ultimate struggle is over the ownership of the means of production and distribution, and its prosecution requires comprehensive political action.

Failing that, the basic position of the wage-worker remains unaltered. As we have seen, labour-power is a commodity and like other commodities has value. But it is unique among commodities in that by its use, i.e. when the worker produces by applying his energies to natural resources and raw material, he creates value. He not only adds value, but more value than that of his labour-power. It is the difference between what the worker receives as wages, and the total value he produces, that is the source of the capitalist’s profit. The worker must supply the capitalist with surplus-value in order that he may work for his own livelihood.

Socialists ask their fellow members of the working class to look beyond the wages system, to become conscious of the need to move on to an altogether different society. A society where wages would have no place, there would be no wage-working class, and no capitalist to appropriate what is produced. Property society has served its purpose. Socialism will give rise to new social relations corresponding to the ownership of the means of living being in the hands of the world community. The aim should be to abolish the wages system and to replace it by a system where people can freely take the things they require, as they will freely take part in producing them.

P. Young

"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.

Letter: Classes and prices (1976)

Letter to the Editors from the June 1976 issue of the Socialist Standard

IS and others accuse the SPGB of standing "aloof” from the class struggle. But surely the class struggle consists in that over which classes struggle, by which they derive their separate existences as classes, i.e. ownership of the means of life?

Money and wages are only manifestations of private ownership. Accordingly, the struggle over wages implies an acquiescence to the continuance of private ownership, unless accompanied by the revolutionary struggle to dispossess the capitalist class. The SPGB, far from standing aloof, appears to be the sole party concerned with the very essence of the class struggle and the solution that will terminate it—abolition of wage-labour and capital, the two sides of the same coin that is capitalism. It must be asked of others why they should demand anything less than Socialism, since the material conditions that make it practicable have long been in existence. Besides, the conspicuous absence of what one should expect from “socialists” — an unrelenting clamour for Socialism out of the horse’s mouth so to speak — serves only to banish authentic Socialism in the minds of the misinformed, and confuse the clear-cut choice between Socialism and capitalism.

A question on economics. How do you translate value into price and why it is that prices, according to supply and demand, fluctuate about value (or do they?)? How does value express itself in price, and what happens to the relationship between prices, profits and wages as value declines? Finally, how will value under Socialism compare with value under capitalism?

Robin Cox

Haslemere

Reply:

When talking of commodities, there are two distinct uses of the term "value”; use-value and exchange- value. Use-value is the actual physical utility of an object, i.e. a bicycle’s use is to be ridden as a means of transport. Exchange-value is the amount of "worth” a commodity possesses on the market, in the form of abstract human labour. Exchange-value equates different amounts of various commodities to each other. For example 1 oz. of gold may be worth 2 cwt. of copper. According to the labour theory of value, the more labour a commodity contains the more value it contains (the measure being socially-necessary labour time). The amount of socially-necessary labour contained in an object includes all the processes involved in its production, not just the last one.

Price is the amount that a commodity realizes on the market, and generally speaking commodities sell at or around their values. Prices reflect the value of commodities. While we are of course aware that supply and demand will affect price, when supply and demand are equal then commodities will sell at their value. In the case of monopoly the price can be kept artificially high, and in the case of subsidy artificially low. In times of inflation (i.e. the excess issue of paper currency) there is a general rise in the prices of all commodities, even though their relative values remain constant.

Whilst a capitalist who is selling a commodity may not himself know the amount of labour embodied in it, he does know what he has paid for it including those processes carried out before it reached his factory. He will ask as high a price as he dare on the market, but must always try to keep competitive with his rivals. In society, as commodities exchange, the values are transmitted unconsciously through the price of each transaction.

When commodities change their values, this is due to a change in the amount of socially-necessary labour involved in their production, and this change will be reflected in the relative exchange-value of the commodities. For example, if 1 oz. of gold will buy 2 cwt. of copper we may say that 1 oz. of gold=

2 cwt. of copper. If then the amount of labour required to produce 1 oz. gold is halved, but the same amount of labour is still necessary for 2 cwt. of copper, then 1 oz. of gold=4 cwt. of copper. Assuming gold to be the money commodity, a fall in the value of gold while other commodities retain their values would be represented by a rise in the prices of the other commodities. The converse would be true if the value of gold were to double.

It must be remembered that labour-power is a commodity and is special in that it is the only commodity able to create value and to reproduce itself. A wage is the price of labour-power and on average represents its value: that is, the amount necessary to the worker to keep him going in the same task and for him to bring up the next generation of workers. It is of course up to workers and their organizations to get as much as they can in the form of wages from their employers.

We agree with you when you say that the struggle for higher wages without a revolutionary Socialist purpose implies acquiescence to the system and its private-property relations. Most workers are not yet Socialists and again we agree that a lot of the blame for this must be laid at the door of “left-wing” parties, including is, for their confusion and misrepresentation of Socialism. Why indeed ask for anything less than Socialism? Socialism will usher out all the paraphernalia of capitalism including capital, commodities, exchange-value, wages, prices, etc. Instead production will be carried on for the benefit of the whole of society.

Editorial Committee.

Correction

The July 1976 issue of the Socialist Standard carried a correction to the original reply:

"We are grateful to correspondents who have drawn our attention to an arithmetical error which occurred in our reply Classes and Prices, June 1976. The passage read “If then the amount of labour required to produce 1 oz. gold is halved, but the same amount of labour is necessary for 2 cwt. of copper, then 1 oz. of gold = 4 cwt. of copped.” The last line should have read “then 1 oz. of gold = 1 cwt of copper." "

The Economics of Capitalism - Part 2 (1954)

From the October 1954 issue of the Socialist Standard

(Continued from August issue)

The whole of the labour of society is engaged in producing the whole social product, but not in accordance with a predetermined social plan. Each producer works on his own account and does not know, until he tries to sell his product, whether or not he has kept in line with the average socially necessary labour criterion. If his product remains unsold he knows, too late, that he has failed. There is the further fact that society only requires commodities in appropriate proportions. For example, at a given time, there is a certain effective demand for bread, coats, and shoes, and labour employed in producing these commodities in excess of this demand is superfluous labour, and does not count in determining their values. As producers are working on their own account, producing commodities of different kinds with labour of different degrees of intensity, the common measure of value, that lies at the back of all kinds of skilled labour, is the labour that is the same in all human beings—just the expenditure of energy in its simplest form. The greater the skill involved in the work that is being done, the more of simple labour is compressed in an hour's employment of this labour, and the greater is the value produced in relation to what is produced by simple labour in the same time, even though the result may be a vastly increased product with a fall in the value of individual commodities.

The reduction of skilled labour to simple labour in the estimation of the value of a commodity is not done consciously by the producers but is accomplished behind their backs. An illustration may help to make this clear. If we turn back to the the early history of mankind, to conditions of barter when articles were exchanged against articles, those who were making the exchanges within the communities did so on the rough basis of the work involved in each article. The products were such that one man could have made any of them himself, if he had the time, but it was more convenient for him to exchange his surplus of one article for his neighbours surplus of another. If his neighbour asked what he considered too much for an article then he would make it himself. The products were so few that the members of the community knew the time that would be involved in the production of each of them. Now let us transfer the idea to the present time. All kinds of companies and the like are engaged in the production of a variety of commodities, commodities so dissimilar as bread and fur coats. Money is invested in the production of these commodities for the purpose of making a profit out of doing so, and money flows into the most profitable channels. This flow of investment increases the production of the more profitable commodities until it so far outstrips effective demand that the prices of them, and their profitability, is reduced. The flow of investment then forsakes the production of the commodities whose profit capacity has declined and moves into more profitable productions. This ebb and flow of investment ensures that, in the long run, all the commodities produced by society sell at prices that are round about their values.

Now let us go a little further into the question of prices. Over a period the price of an article goes up and down, and these ups and downs are caused by the rise and fall of demand; that is to say when supply exceeds demand prices are low, and when demand exceeds supply prices are high—the black market has been a sufficient indication of that fact. The average of these ups and downs is round about the actual value of a commodity. There are those who argue that it is supply and demand, and not the quantity of labour required to produce it, that determines the value of a commodity. They overlook the fact that in the alternations between supply exceeding demand and demand exceeding supply there must be a period when supply and demand are equal and therefore cancel each other out. During that period the supply and demand theory cannot be the answer to the question of the value of a commodity. No amount of mathematical manipulation can get over this hurdle. Supply and demand as an explanation of value must be ruled out. At best it can only explain the fluctuations in prices but not the point about which they fluctuate.

When commodities are being exchanged through the medium of money value is being; exchanged for value, but what really underlies the process is that the labour of one man or group of men is being exchanged, for the labour of another man or group of men; there has been a social division of labour. For instance the labour of housebuilding has been exchanged for the labour of shoemaking; and so on. Thus value is really a social relation; a relation between people, between one man’s labour and that of another; but this social relation between the labour of different people is expressed as a relation between the commodities they have produced; it is expressed when the latter appear on the market for sale. People have been producing articles for use all through history but they have only produced commodities, articles possessing value, where a system of exchange has come into operation. Further, it is only under a system of commodity production, the production of articles for the purpose of being exchanged, that value becomes one of the essential qualities of a product. As Marx puts it:

“Every product of labour is. in all states of society, a use-value; but it is only at a definite historical epoch in society's development that such a product becomes a commodity. viz. at the epoch when the labour spent upon the production of a useful article becomes expressed as one of the objective qualities of that article i.e., its value.”

Thus with the abolition of commodity production value will also disappear. Articles will no longer be looked upon as having so much value but will only be appreciated according to their usefulness for consumption or enjoyment, and diamonds and furs will lose a good deal of their attraction. At the same time the mysterious nature of commodities will disappear: the mystery of money arises out of the relation of the individual producers to the total of their own products which appears to them as a social relation between the objects they produce.

There is one aspect of commodities which, unless it is understood, will leave, room for confusion. Commodities are articles that are regularly produced for the market, therefore only those articles that are capable of constant reproduction are commodities. A genuine antique is not a commodity because it cannot be indefinitely reproduced; it is true it comes upon the market and is sold and thus, although not a commodity, takes on a commodity character. Likewise honour takes on a commodity character when politicians sell their votes. In the huge productive output of to-day these are die comparatively odd things.

Finally, the labour of private individuals becomes labour directly social in its form owing to the fact that production is for the market; individual labour becomes an indistinguishable part of the general social labour. It is impossible to tell by looking at products as they appear on the market, what different portions of the world's population have taken part in their production; the raw materials may have been produced in India, China or Russia, the machinery in England, France or Germany, and the finished products in America, Japan, or Holland. They appear on the markets, local, national, and international, just as articles for sale produced by a portion of the general labour of society.

Gilmac.

(To be continued.)

Aspect: Marx’s Critique of Political Economy (1971)

From the November 1971 issue of the Socialist Standard

After the failure of the European democratic revolutions of 1848 Marx, in exile in England, decided to improve his knowledge of economics or “political economy” as it was called at that time. The first result of this research, mainly at the British Museum was the publication in 1859 of A Contribution to the Critique of Political Economy*. Marx had intended, as he said in the Preface, to examine various aspects of the capitalist economic system and he listed capital, landed property, wage-labour, the State, foreign trade and the world market. In fact before he died in 1883 he had only got as far as capital with the publication of the first volume of his main book in 1867.

The Critique itself only covered the commodity and money, and is much the same as the first three chapters of Capital (though “exchange value” in the one becomes “value” in the other). In fact it too begins, “The wealth of bourgeois society, at first sight, presents itself as an immense accumulation of commodities . . .”, but is a good introduction to the labour-time theory of value, especially as applied to money.

Marx emphasises that money is not just a convenient device for facilitating the buying and selling of goods but is also, as he puts it, “an expression of a social relation of production”. Money, in other words, is a sign that the people who use it have a particular form of society; at the very least it tells us that the means for producing wealth are not owned in common and that production is not carried on according to some definite social plan. The regulation of production by money and the market disguises the domination of the means of production by a minority class.

Marx’s theory of money is that where wealth is exchanged one commodity (or, product of labour produced for sale) will eventually emerge as the one which can be exchanged for all other commodities. This commodity, which acts as a measure of the amount of socially necessary labour-time spent on producing all other commodities, is money. Being the measure of value is the money-commodity’s primary function, but it is a role which can only be played by something which itself has a labour-time value by virtue of being the product of socially-necessary labour. Say it takes the same amount of social labour-time to produce an overcoat as an ounce of gold, then we can say that the overcoat (or 4 chairs or 10 books, etc, etc) is worth 1 oz. of gold. This is its price, the expression of its exchange-value in units of the money-commodity. Being a standard of price and a unit of account like this is money’s second role. The units in which prices are expressed are purely conventional. In our example they are units of weight (which is what they originally were, a £ having once been a lb. of silver) but are now special money-units like cents and dollars or roubles and kopecks fixed by governments. These units can still be related, however indirectly, to weights of gold; the American dollar for instance was for a long time defined as l/35th oz. of gold. Finally, money serves as a means of settling debts, what Marx calls a means of payment.

Originally, the money-commodity itself, usually gold or silver, circulated as the currency in the form of coins. Where this is the case, said Marx, the amount of money that is needed depends on the total prices of all the goods and services to be bought and sold (and the total amount of debts to be settled) and, since coins can be used more than once, on how quickly the coins circulate. Marx rejected the Quantity Theory of Money, at least in the form put forward by Hume and Ricardo which made the price level depend on the quantity of the money-commodity rather than vice-versa.

But, Marx went on, “where paper notes are the sole medium of circulation”, i.e. where the currency is composed of paper notes circulating as tokens for the money-commodity, then the situation is reversed: the price level does depend on the quantity of (paper) money. This does not contradict the theory that the amount of real money is determined in the end by the price level. For the basis of the Quantity Theory of paper-money is that only a definite amount of real money is needed so that, if the amount of paper money issued exceeds this, then currency depreciation—and inflation—will result. This is because paper money is worthless in itself and only has value insofar as it represents gold or silver. If the amount of gold or silver to be represented is given, then obviously the more tokens are issued the less amount of gold or silver each will come to represent. Prices rise because in effect the whole standard of price has been altered.

As Marx put it:

Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound-sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.

That inflation will be the inevitable result of issuing more paper currency that the amount of the money- commodity which would have to circulate if there were no (inconvertible) paper currency was once recognised even by bourgeois economists. It was forgotten under the influence of Keynesian economics and is only now, after over thirty years of non-stop currency depreciation and rising prices, being rediscovered.

The Preface to the Critique contains Marx’s well-known account of his historical method—the materialist conception of history. The structure of a particular society, including the ideas predominant amongst its members, said Marx, was conditioned by how its members were organised with regard to the production of wealth. This, in its turn, was mainly dependent on technology and the level of productivity. As technology changed and productivity increased so social forces were set in motion which eventually led to a change of society. Marx mentioned four main stages through which human society has passed — later known as Asiatic society, chattel-slavery, feudalism and capitalism—and went on to say that the coming social revolution would end in the establishment of Socialism.

Also published with the Critique as with the original 1904 translation is a document called An Introduction to a Critique of Political Economy which is an unfinished and rough draft dealing mainly with the relationship between production, distribution (defined as a person’s share in what has been produced) and consumption. Though translated on its own into English in 1904 it is really the first part of a set of manuscripts known as “Marx’s Grundrisse," which are only now being translated. The Introduction is interesting in that it shows that Marx would have rejected the orthodox Trotskyist description of Russia as a “contradictory combination of a non-capitalist mode of production and a still basically bourgeois mode of distribution” (Mandel).

Actually, “non-capitalist” is too weak a term to convey what the Trotskyists really have in mind. For they consider that as far as the production of wealth is concerned Russia is a classless society. They do not deny that there is a privileged group in Russia but claim that this group is privileged only with regard to the distribution of wealth. To make this point Trotsky called it a “caste” to distinguish it from a class.

True, classes are defined by how groups are related to the use of the means of production rather than by how they stand in relation to the distribution of the products, but the real question is: Could a class-type mode of distribution exist alongside a classless mode of production?

Marx’s answer can be clearly inferred from the following:

The structure of distribution is entirely determined by the structure of production. Distribution itself is a product of production, not only with regard to the content, but also with regard to the form, since the particular mode of men’s participation in production determines the specific form of distribution, the form in which they share in distribution.

And how in fact could a group be privileged with regard to the distribution of the products without being at the same time privileged with regard to their production? For having the power to distribute products to your advantage amounts to being able to decide what should be produced and so to deciding how the means of production should be used — which is precisely what being privileged in relation to production means. The orthodox Trotskyist analysis of Russia is an absurdity and, as the Introduction shows, quite at variance with Marx’s theory of society.

An introduction by Maurice Dobb and two reviews of the work by Engels complete this edition. Dobb, by the way, seems to imply that commodity-production and money were not central to Marx’s conception of capitalism, but this is what you would expect from someone who mistakenly believes that, although money and commodities still exist there, Russia has abolished capitalism and established Socialism. As Marx always made clear, capitalism is the highest form of commodity-production and money-economy while Socialism by establishing democratic social control over production necessarily means the abolition of production for sale and of money.

Adam Buick

* Just republished by Lawrence and Wishart — £1.50.

Descriptive economics (2008)

Book Review from the August 2008 issue of the Socialist Standard

Economics for Everyone By Jim Stanford (Pluto Press)

This is a very readable description (rather than analysis) of how capitalism works, at least in the form we know it at the moment. At first sight, Stanford’s definition of capitalism seems alright:

“There are two key features that make an economy capitalist.

1. Most production of goods and services is undertaken by privately-owned companies, which produce and sell their output in hopes of making a profit. This is called production for profit.

2. Most work in the economy is performed by people who do not own their company or their output, but are hired by someone else in return for a money wage or salary. This is called wage labour.”

Production for profit and wage labour are indeed defining features of capitalism, but elsewhere Stanford makes it clear that he thinks that it is not production for profit as such that defines capitalism but only production for private profit. “One defining feature of capitalism”, he writes later, “is that most production is undertaken to generate private profit”.

But this is to ignore the experience of the former USSR and of nationalised industries in the West, where the economy was still based on wage labour but where those who controlled the State or who ran the state-owned industries still undertook production to generate a profit extracted from the labour of the wage and salary workers. He has made the same mistake here as the old Labour Party thinkers who identified capitalism only with private enterprise capitalism, completely ignoring state capitalism (which in fact they were in effect advocating).

Because his approach is purely descriptive, Stanford dismisses Marx’s labour theory of value on the grounds that it can’t be observed directly. It is true that the market price of goods is not a direct reflection of the amount of what Marx called “socially necessary labour-time” incorporated in them, but is fixed by enterprises adding the going rate of profit to the costs of producing them. But the going rate of profit can only be adequately explained on the basis of the labour theory of value (as an averaging amongst capitals of the total surplus value produced).

Stanford accepts – because it’s obvious – that wealth can be produced only by work on nature-given material, but because his approach is purely descriptive he has to explain profits as a sort of ransom extracted from workers by private capitalist firms by virtue of them having private property rights over means of production. This is one way of putting it but, without a theory of value as well as a theory of price, there is no way of establishing the amount and limit of profits. In fact, Stanford says that if the “perfect competition” of the economics textbooks existed it would reduce profits to zero as goods would sell just at their cost price. Marx’s labour theory of value explains why this wouldn’t happen and why the price of goods would still contain some surplus value.

Stanford is also wrong about banks. He seems to think that they simply create credit as they wish, to lend to private industry and to individuals. Banks do indeed lend money and they do have a choice of who to lend to and when and this does have economic consequences, but they can only lend what has been deposited with them or what they have borrowed from other banks and financial institutions. They do just recycle spare money.

Stanford, an economist working for the Canadian Auto Workers union, writes as an open reformist who would like to see capitalism reformed so as to be what it is like in the Scandinavian countries. Although this is disappointing, it is heartening to see criticism of capitalism surfacing again and being given serious consideration.

Adam Buick

Inflation and prices - Part 1 (1965)

From the July 1965 issue of the Socialist Standard

Why do individual prices rise and fall and why, at certain times, is there an upward movement of prices, which is called inflation, or the opposite movement, a downward movement of prices, which is known as deflation? There is no need to stress the importance of the subject, but it may be useful to point out one or two of the difficulties that we come up against. There are, for example, people who think that capitalism would not be so bad if prices were not so high. They believe that prices are high simply because manufacturers and shopkeepers want them to be high and that the Government ought to tell them to stop it. On the other hand, there are people who think that prices are high because trade unions put up wages and that the Government ought to tell them to stop it too. The fact is that there are real economic causes of high prices that have not much to do with the wishes of the shopkeepers, trade unionists and others.

One particular reason for looking at the question of inflation is that in Great Britain and in a number of other countries, for the past 25 years, we have had prices rising more or less continuously; we cannot afford not to know why this happens. The subject is a somewhat difficult one; with three separate aspects. First, we have to consider what determines what we may call the normal price of each article that is sold, what Marx in some places called the natural price. Secondly we have to consider what causes deviations in the normal price of each article, and third, we have to consider what causes the broad general movements of prices up or down, affecting all prices equally and not merely the prices of particular articles. The next point that must be borne in mind is that you cannot study prices and inflation as something separate and distinct from other economic questions.

Before we can understand the movements of prices, we have to go back to the commodity’s value. Almost all of the things which have a price have it because they are the products of human labour and the amount of human labour required in their production is the measure of their value. The things bought and sold are also useful or have a use value, but that is a different quality, not to be confused with value. Value is a social relationship of capitalism, a relationship between persons that expresses itself as a relationship between the things produced for sale, which we call commodities. If, under average conditions of production in a given industry, it takes 24 hours of socially necessary labour to produce a certain commodity, then that commodity will have the same value as other commodities which also take 24 hours of socially necessary labour.

However, if one firm in that industry is inefficient and takes 30 hours, the value of its product will still be the social average of 24 hours. On the other hand, if an exceptionally efficient firm can do the job in 20 hours on average it is still the socially necessary labour that counts.

It has to be borne in mind that when we talk about producing a commodity, we mean all of the processes that are necessary for its production. Suppose we assume as an example that the socially necessary labour for producing a bicycle is 24 hours, this means not merely the time taken in assembling the bicycle but all the necessary processes, from obtaining the rubber and metal and other materials, right down to the finished product, including any necessary transporation of materials including wear and tear of factory machinery and the consumption of electricity or other power to drive the machinery, and so on. Having taken as an example that it takes 24 hours of socially necessary labour to produce a bicycle, let us now carry it a stage further and assume that a suit of clothes also takes 24 hours, then the bicycle and the suit of clothes would be of equal value.

Let us also assume that 24 hours of socially necessary labour would produce one ounce weight of gold; then we have three different kinds of articles with different uses and of different materials and different weights, but all having the same value. Now one stage further is to turn our one ounce of gold into money and to assume, which is approximately true in Great Britain before 1914, that the Government by law fixed the pound sterling, or the sovereign as it was called, at one quarter ounce weight of gold, then if you had 4 gold sovereigns, or £4, you had about one ounce of gold, and on our assumption, its value was the same as the bicycle or the suit of clothes.

Now it would be very simple if we could say that price and value are identical. We would then be able to explain all prices of all articles simply by saying that the price of the bicycle and of the suit of clothes was £4 and that the prices of all other commodities would be according to their value, measured in terms of the amount of socially necessary labour required in their production. Unfortunately, we cannot treat the matter as simply as that. We cannot say, in other words, that price and value of individual commodities are identical. In actual practice it is rarely so, because all sorts of other factors come into play.

When Marx dealt with this subject in Chapter 6 of his pamphlet Value, Price and Profit, and said that commodities on an average sell at their values, he added that this was apart from the effect of monopolies and some other modifications, although he did not deal with these modifications either in Value, Price and Profit or in the first volume of Capital. As the chief purpose of this series is to deal with the general rise of prices—that is to say, inflation—it is not necessary here to deal with all these modifications. It will be sufficient merely to refer to them briefly and to refer to sources of information on some of the others.

Now the first cause of deviations of prices from their normal price arises through what is called supply and demand, when although the value of a commodity remains unchanged, its price may rise or fall because of variations of supply and demand. To take an example, suppose that storms at sea prevent fishing trawlers from entering a port. This interrupts the supply of fish and immediately prices go up. When later on the trawlers do arrive, probably a large number of them together, and all land their catches of fish, then the prices will fall again. These are examples of variations in supply and demand.

The other factor referred to by Marx was monopoly. Monopoly is a particular form of interruption of supply. If a company controls all or most of the supply of an article, it can force up the price until such time as new sources of supply come into operation or until substitute articles come on the market and break the monopoly. In Great Britain for many years, there have been monopolies in alcohol and tobacco which are created not by the companies but by the Government. The Government controls the production and import of alcohol and tobacco and can thus establish a monopoly price far above the value of these commodities and can use that monopoly price as a means of skimming off excess profit for government revenue. There is also a kind of opposite example, and that is government subsidies. Whereas a monopoly such as those referred to operated by the government can force up the prices far above value, the government can and has for many years subsidised certain foodstuffs so that they can be sold well below their value. What happens in effect is that the government pays the producers to sell the article cheaply.

Edgar Hardcastle

(To be continued.)

Answers to correspondents. (1925)

Letters to the Editors from the September 1925 issue of the Socialist Standard

T. Mosley (Notts).—We have no trace of a previous letter asking about trade unionism. Your suggestion that the weakness of our position lies in our aloofness from the trade union movement is not supported by any evidence. The aim of trade unions is not Socialism and, therefore, the principles and policy of The Socialist Party is quite distinct from those of trade unions.

Trade unions are organised within capitalism to “collectively bargain” with employers terms of wage slavery. The Socialist Party’s aim is to abolish wage slavery and establish Socialism.

We recognise the necessity of trade unions under capitalism, and, therefore, endeavour to make them more effective by urging the workers to recognise the class struggle and its implications. The spread of Socialist knowledge is the best antidote to the poison of “labour-leaders,” and is the only policy to hasten the abolition of wage slavery which trade unions are powerless to accomplish.

—Ed. Com.

W. C. E. (Leyton).—Your question : “What is the relative economic position of the worker compared to 50 years ago?” will be dealt with in an article at an early date.

S. Warr (Southend) asks the following-question :-—

“As value is determined by social necessary labour power or time, what then would be the value of gold as means of exchange if its production were unrestricted and of great volume ?

“I ask this as the machinery, science and organisation of mines to-day has very greatly increased the production of gold; also the knowledge of its location.”

(Answer).—The effect of the reduction of the value of gold due to less labour being required to produce it is that more gold has to be given in exchange for other articles. In other words, there is a general rise in prices. If gold could be produced with relatively very little labour, it would make it less suitable as a medium of exchange. It still contains, however, a large value in a small compass and, therefore, serves the purpose of a medium of exchange better than any other commodity.

—Ed. Com.

Labour and Value. Harold Cox on Karl Marx. (1924)

From the November 1924 issue of the Socialist Standard

A correspondent (Francis H. Napier) takes exception to Mr. Harold Cox’s criticisms of the Labour Theory of Value expounded by Marx. He quotes from a series of “Daily Mail” articles by Mr. Cox as follows :—

  “… many socialists . . . even when admitting that the greater part of modern wealth is created by the machine and not by the men will try to wriggle out of the consequences of that fact by arguing that the machine itself is the product of labour, and therefore anything that it produces ought to belong to labour. This very common Socialist contention ignores the fact that the workpeople who produced the machine were all paid for the work they did. Some of them may have been underpaid; some may have been overpaid; but they all received payment. They are not entitled subsequently to claim that the machine is theirs.”

Mr. Napier correctly points out that in admitting that the machine was produced by labour, Harold Cox is also admitting the accuracy of the statement that wealth is produced by labour; but both Mr. Napier and Harold Cox misrepresent Marx in suggesting that he made this the basis of a moral claim for the labourer of the full value produced. Mr. Cox, of course, is very well aware that Marx made no such claim. We cannot deal with that point here, but with regard to the question of payment for work done it must be quite apparent that if the workers did receive the full value of the machines produced by them, then the machines, or their equivalent, would belong to the workers after the work was finished, and there would be no surplus to go as profits to the employer. That profit represents the difference between the value of the product and the value of the workers’ labour-power. The workers do receive the value of their labour-power, their wages, but they do not receive the full value of their product.

Mr. Napier goes on to ask if it is correct, as Harold Cox says, that Socialists argue that “value . . . merely depends upon the amount of labour.” He states that he was not aware that Socialists held this view, “but rather that the value of the commodity was determined by its cost of production.”

Mr. Napier has fallen into an error here through a confusion as to the meaning of terms. When Marx speaks of “cost of production” he means its cost in labour, not the cost to the manufacturer of materials, wages, etc.

Marx deals plainly and simply with this subject in “Value, Price, and Profit” (chapter 6). He writes as follows: “The relative values of commodities are, therefore, determined by the respective quantities or amounts of labour, worked up, realised, fixed in them” ; and again, “The greatness of its value . . . depends . . . on the relative mass of labour necessary for its production.”

Mr. Napier quotes further from Harold Cox a question as to whether labour spent in pulling down a house is creating value, and answers it himself by showing that if a certain plot of land is required for the building of a new house or factory, then the work of demolition is a necessary part of the new building scheme, and the labour is therefore, in the words of Marx, “socially necessary” and value creating.

He quotes also illustrations of what Harold Cox calls “wasted or non-productive labour.” Two fishing boats set out to sea, and only one of them succeeds in getting a catch. Two watchmakers make a watch, but only one of them will go. Have the unlucky boatman and the bad watchmaker created value? asks Mr. Cox.

The answer is that a certain proportion of unlucky voyages is inevitable, and this wasted labour is therefore a necessary feature of the security of the amount of fish required by society. The socially necessary labour cost of obtaining fish includes this proportion of wasted labour. Marx, as Harold Cox knows, never claimed that value “merely depends upon the amount of labour,” but on the amount which at a given time it is necessary for society to expend. If labour is wasted unnecessarily, then it is not value creating. This is the position of the watchmaker who knows so little of his trade as to make a watch which will not go.

While we are on the subject of Harold Cox, it is interesting to learn that he has only just found out that MacDonald is an anti-Marxist. After quoting from MacDonald’s writings to show that the latter has long ago repudiated Marxism, he continues :—

  “To repudiate Marx is to repudiate Socialism as well as Communism. Ramsay MacDonald may claim to have a peculiar brand of Socialism of his own manufacture, but he is not entitled to act as interpreter for other socialists when he repudiates the prophet who founded their creed.” (Saturday Review, 25th Oct.)

It is noticeable, however, that the Harold Cox of the “Saturday Review” does not agree with the Harold Cox of the “Daily Mail,” to whom MacDonald is not merely the proprietor of a “peculiar brand of Socialism of his own manufacture,” but a representative Socialist.

Edgar Hardcastle

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

A Brief Exposition of Socialist Theory. (Continued.) (1921)

From the November 1921 issue of the Socialist Standard

Link to Part 7.

VALUE—continued.

The last article under the above heading appeared in the Socialist Standard of December, 1920. The long interruption in the series was due to circumstances out of the control of the writer.

In the article referred to, we commenced the discussion of the theory of value; the following is a summary of the conclusions arrived at :

  Economic wealth is the result of human energy applied to the materials provided by nature.

  The wealth of to-day appears as a multitude of useful articles for sale—commodities.

  A commodity is a useful article (not to the producer, but to the potential buyer) produced for sale.

  The uses of such an article are as many as the human wants it can satisfy ; but these uses have no connection with its value.

  The value of an article is something contained in it that is only expressed in exchange. Absolute value cannot be expressed, only relative value.

  The only common property of all commodities, apart from their physical properties, is their property of being the product of human energy.

   All commodities represent certain proportions of simple human energy.

   Human energy is measured by time.

  The value of a commodity is measured by its cost of reproduction in human labour time— the time simple human energy would occupy in reproducing it.

The conclusion that the value of an article is determined by the amount of socially necessary labour contained in it, gives us the key to the apparent mystery of commodities. At the bottom, commodities represent the relation of the labour of one man, or group of men, to that of another man, or group of men; this relation becomes mysterious, simply because it appears before our eyes as a relation between two articles. In other words, at the back of the expression of value lies the relation between different methods of expending human energy.

The next point we have to consider is the double-sided nature of the labour contained in commodities. On this point Marx wrote as follows :

"I was the first to point out and to examine critically this twofold nature of the labour contained in commodities. As this point is the pivot on which a clear comprehension of political economy turns, we must go more into detail."

We have seen that a commodity is a useful article and a value; and that the latter is determined bv the amount of labour-power required to reproduce such an article. But just as an article must be looked at from two points of view, so also must the labour contained in it. For example, the labour incorporated in a commodity appears on the one side as the work of a baker, a shoemaker, an engineer, and so forth. That is to say, labour of a particular kind or quality, labour that produces a particular kind of article. But on the other side it appears just as the simple expenditure of human energy—getting tired. All its particular physical characteristics are abstracted and it is viewed as the normal activity of the human organism.

If, therefore, taking for illustration the simple exchange of one article for another, we say : 

l pair of boots = 1 hat,

we are simply stating that the same general substance—human energy—exists in the same quantity on each side of this statement or equation.

On the one hand, therefore, we have concrete or useful labour; on the other hand, abstract or value-creating labour. We look at one from the point of view of quality— the kind of labour (baking, engineering, etc.), we look at the other from the point of view of quantity—the amount of labour; the unifying point is the fact that labour of different qualities is, at the bottom, the simple expenditure of human energy.

From the above it will be seen that labour expressed in value has different attributes from labour as a producer of use-value. This enables us to understand another point around which there is a considerable amount of confusion.

At a first glance it would appear that an increase in the quantity of articles produced would necessarily result in an increase in value—more articles, more value. If we examine the matter closely, in connection with what we have already learnt of the twofold nature of labour, we will see that the above statement is not correct.

Suppose a method of producing boots was discovered whereby two pairs of boots could now be produced with the expenditure of the same amount of energy as it formerly took to produce one pair; we would now have two pairs of boots instead of one (an increase in material wealth), but the same quantity of value is contained in the increased amount of wealth as was formerly contained in the smaller amount. This illustration shows the necessity of understanding the twofold nature of labour contained in commodities.

As different commodities are the products of different kinds of labour, commodity production—Capitalism—could not come into existence until the method of expending human labour power had reached the point where it was split up into a multitude of different kinds carried on independently of each other. To put the case another way : Before the exchange of products in the form of commodities can exist as a social basis, the labour of society must have become sectionalised in such a manner that human energy is expended in different ways, each way being carried on independently and for the account of private individuals; there must have arisen a social division of labour. This naturally follows when we remember that, in bringing two different commodities upon the market to exchange for each other, we are in reality exchanging two different kinds of labour. There would be no point in exchanging one hat for another of exactly the same description, i.e., the labour of a hatter for the labour of a hatter. From this fact it follows that while we can have the social division of labour (as in primitive societies) without commodity production, we cannot have commodity production without the social division of labour.

The value of a commodity represents the expenditure of human labour in general, but this simple labour is generally expended under the cloak of labour of different degrees of skill. Skilled labour in essence is more intensified simple labour—a given quantity of skilled labour is equal to a greater quantity of simple labour.

In the process of commodity production all kinds of labour—no matter what the degree of skill may be—are reduced to the simple expenditure of human energy. This reduction of skilled labour to simple labour is not done openly or consciously—as Marx puts it :

"The different proportions in which different sorts of labour are reduced to unskilled labour as their standard are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom."

A good illustration of the point with which we are dealing was provided in the Whistler versus Ruskin case some years ago.

In the course of the action, one of Whistler's pictures (the subject of the action, the "Nocturne in Black and Gold") came up for discussion. This picture had been exhibited at a gallery and marked two hundred guineas. After Whistler had informed the Attorney-General that, altogether, he had only been two days working upon it, the latter asked : "Oh, two days ! The labour of two days, then, is that for which you ask two hundred guineas !" To this Whistler replied: "No; I ask it for the knowledge of a lifetime."

The above puts the case in a nutshell. Highly skilled labour is the result of the expenditure of energy in the past to make it skilful—it is more intensified labour—a multiple of simple energy.

Gilmac.

(To be continued.)