The classics versus the labor theory of value - Part IV - Karl Marx
A cost-price theory is not the same than a labor theory of value
Marx’s price theory: Labor, labor, labor
Marx’s price theory is classic in the sense discussed in the previous posts. Like his classic peers, Marx also argues that value of use (utility) is needed for an item to have value of exchange (price). His wording, however, shows a more transparent subjectivist approach than other classics, even including factors of production. This is Marx in Das Kapital, Vol. 1 (DK1, pp. 41-42, bolds added):
A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.
The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When treating of use value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use values of commodities furnish the material for a special study, that of the commercial knowledge of commodities. Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange value.
Consider the last sentence of Section I (DK1, p. 48, bolds added):
Lastly nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.
Like the classics, once the distinction between value of use and value of exchange is presented, the focus falls on the value of exchange (or “value” in short). Marx has an Aristotelian influence in the sense that, in any exchange, the two items must have some equality. There must be a third “variable” that makes two things equal (DK1, pp. 43-44, bolds added):
Let us take two commodities, e.g., corn and iron. The proportions in which they are exchangeable, whatever those proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron: e.g., 1 quarter corn = x cwt. iron. What does this equation tell us? It tells us that in two different things – in 1 quarter of corn and x cwt. of iron, there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange value, must therefore be reducible to this third.
If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour.
Marx is steps away from a
labor → price theory (DK1, p. 45, bolds added):
A use value, or useful article, therefore, has value [of exchange] only because human labour in the abstract has been embodied or materialised in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labour, contained in the article. The quantity of labour, however, is measured by its duration, and labour time in its turn finds its standard in weeks, days, and hours.
Marx has been subject to superficial and inaccurate criticisms. For instance, picking a diamond from the floor requires little labor, yet said diamond would have a high market price. The diamond example does not deal with Marx’s argument. For Marx, the labor that matters is the one needed in “average” to produce a good or, in his own words, the “labor socially necessary” to produce said item. Picking a diamond from the floor is not the “labor socially necessary” to make the diamond in the first place (DK1, p. 46, bolds added):
Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour power. The total labour power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour power, composed though it be of innumerable individual units. […] 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. […]
We see then that 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. Each individual commodity, in this connexion, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value. The value of one commodity is to the value of any other, as the labour time necessary for the production of the one is to that necessary for the production of the other.
The difference between Marx and the Smith-Ricardo-Mill price theory is that for him, (1) (socially necessary) labor is the only determinant of price, and (2) the capitalist appropriates part of the exchange value that belongs to the worker (surplus value). In Marx, the capitalist plays a similar role to the landlord in Ricardo and Mill.
For Marx, the working day is divided into (1) paid labor and (2) unpaid labor, the source of surplus value. This distinction is concealed behind the veil of a “wage.”
The wage form thus extinguishes every trace of the division of the working day into necessary labour and surplus labour, into paid and unpaid labour. All labour appears as paid labour. In the corvée, the labour of the worker for himself, and his compulsory labour for his lord, differ in space and time in the clearest possible way. In slave labour, even that part of the working day in which the slave is only replacing the value of his own means of existence, in which, therefore, in fact, he works for himself alone, appears as labour for his master. All the slave’s labour appears as unpaid labour. In wage labour, on the contrary, even surplus labour, or unpaid labour, appears as paid. There the property-relation conceals the labour of the slave for himself; here the money-relation conceals the unrequited labour of the wage labourer.
Labor is only paid the amount necessary to replenish the workforce. The capitalist “steals” the difference between the price produced by labor and the wage paid. In short, Marx’s price theory is the following:
(cost of socially necessary labor) → price
Theory versus reality: A known problem
It is well known that Marx’s treatment led to a dilemma. It follows from his treatment of surplus value that owners of labor-intensive (more variable capital) businesses will make more profits than owners of capital-intensive (more constant capital) businesses. This is in plain contradiction with observed reality. Marx notices this tension between reality and his theory (DK1, p. 334-335, bolds added):
A third law results from the determination, of the mass of the surplus-value produced, by the two factors: rate of surplus-value and amount of variable capital advanced. The rate of surplus-value, or the degree of exploitation of labour-power, and the value of labour-power, or the amount of necessary working time being given, it is self evident that the greater the variable capital [labor], the greater would be the mass of the value produced and of the surplus-value. […] With a given rate of surplus-value, and a given value of labour-power, therefore, the masses of surplus-value produced vary directly as the amounts of the variable capitals advanced. […] The law demonstrated above now, therefore, takes this form: the masses of value and of surplus-value produced by different capitals – the value of labour-power being given and its degree of exploitation being equal – vary directly as the amounts of the variable constituents of these capitals, i.e., as their constituents transformed into living labour-power.
This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant and little variable capital, does not, on account of this, pocket less profit or surplus-value than a baker, who relatively sets in motion much variable and little constant capital. For the solution of this apparent contradiction, many intermediate terms are as yet wanted, as from the standpoint of elementary algebra many intermediate terms are wanted to understand that 0/0 may represent an actual magnitude.
Marx runs into a severe problem. Assume an item is produced by two firms using different technologies; one is capital-intensive, and the other is labor-intensive. If we follow Marx’s surplus-value theory, each firm will have different economic profits. However, in equilibrium, the rates of return must be the same, which means it cannot be the case that capital-intensive firms receive more surplus value. The problem is that the price of final goods must be either determined by surplus value or competition; it can’t be both.
In terms of price theory, Marx develops a similar explanation to that in Smith-Ricardo-Mill. The similarity is that Marx also has a
cost → price theory. The main difference is what factors of production determine the final price and how their income is explained if they do not contribute to the final price. For Ricardo and Mill, land does not contribute to the final price, and its income is defined through different productivities. For Marx, capital income is explained through a theory of surplus value. The following table summarizes which factors of production justify prices for each author.
Even in the case of Marx, talking about a labor theory of value can be misleading.
Next: Jean Baptiste Say
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