The Two Marxes


“As far as logic goes, there are ‘two Marxes’, the Marx of the ‘labour value’ approach, and the Marx of the ‘capital theory’ approach.”

–- Arun Bose

After some recent exchanges over at IOPS, I decided to read some more about Marxism and the “labour theory of value”. I’ve been going through some of the early chapter of Das Kapital. It seems that Marx uses the word “value” in three basic ways (unfortunately the three aren’t always clearly distinguished – and Marx throws the word “value” around the pages of Kapital like confetti, leaving the reader to puzzle out its specific meaning from the context. This makes the book a lot harder to read than it otherwise might be – for me at least!)

Anyway, Marx’s three “values” are, roughly speaking:

1. Use value: the qualitative, subjective utility of an object to a particular individual in a particular context. For example: the use value of a fur coat is low in a desert, whereas the use value of a parasol is high. Or vice-versa in a tundra.

2. Exchange value: the quantitative amount of one commodity (C) that can be exchanged for another, according to an equation like x lots of commodity A = y lots of commodity B. This can be specified in terms of an abstract unit of account like a dollar. Money (M) can then serve as what Marx calls “the universal equivalent” [to commodities] – as the “means of exchange” in the exchange sequence C – M – C . Frederick Soddy has succinctly defined the role of money in an economy operating under the division of labour principle as “money is the nothing you get for something before you can get anything.”

3. “Value”: An unqualified “value” is used by Marx (and other economists) to denote, (roughly speaking) that property (or those properties) of an object which determine its exchange value.

Now clearly exchange value, in the above sense, is an emergent property – you need a society in order to have exchanges. We can’t really talk about an “intrinsic value” (where recall that value is the property (or properties) of a commodity accounting for its exchange value). Rather, “value” for Marx is a little like the concept of a “hole” in a semiconductor (a “hole” being an under-density of electrons, which we can treat as a “particle” moving against a uniform background of electrons, with “hole” properties of positive charge and a negative mass). Clearly you need a material and electrons for there to be a hole in them! There is no hole without the semiconductor and the properties of the hole (its charge, velocity and so forth) depend upon the material properties of the particular semiconductor. It’s the same with “value”: the exchange values of commodities will depend upon the particular social properties of the human economy in which exchanges are embedded.

The question then is: what actually determines exchange value? Marx’s answer was that this is set by the amount of human labour that goes into producing the commodities for exchange. According to the labour theory of value (which if we are really doing “scientific socialism” ought to be called the labour hypothesis of value, but never mind…), the value (in the sense of definition #3.) of a commodity is equal to the social opportunity cost of producing it. Social opportunity cost being the amount of time it takes to produce something versus something else: so if it takes (on average in society) x hours to make commodity A and y hours to make commodity B then A has a social opportunity cost of x/y times that of B. There is only so much you can do in an economy after all – the “aggregate social opportunity cost” will be finite and so you need ways of deciding how much of this or that thing you should do as a society – that’s economics, in a nutshell (“oikonomia” means “household management” and does not mean “terrifying mathematical hieroglyphics”!)

Where I disagree with Marx is here: I don’t think his assumption that social opportunity cost equates to exchange value – that “labour power” is the factor determining exchange value of commodities and hence the “surplus value” of profits – is legitimate. Rather, I think any number of factors in a complex society could contribute to determining exchange values. Some of these might or might not be:

– Relative scarcity or abundance of raw materials of production.

– Relative efficiency or inefficiency of machinery.

– Economies of scale.

– Various “free lunches” provided by nature (or “ecosystem services” in bean-counter-speak) the ultimate source of which is the abundant available energy from the sun, photo-synthesized by plants and consumed by animals as food (if you’re interested in how sunlight might be the basis for of a “theory of value” of sorts, I’ve written about that here).

– Social contrivances like advertising and fashion, which psychologically manipulate people into buying different relative amounts of commodities than otherwise.

– Lack of consumer purchasing power, forcing people to buy cheap, mass-produced, poor durability goods over the more expensive more durable goods they would otherwise prefer.

– Related to the above two points, a bias towards various kinds of “planned obsolescence” and the re (and re) selling of basically the same commodities.

– Market externalities, such that public goods are over-priced and hence under-produced, whist private goods are under-priced and hence over-produced.

– Parasitic rents on land and the “rent” (interest) on our money supply by private banks when they extend “loans”.

– Passing costs on to future generations e.g. climate change, tuition fees bubble, $1000+Tn dollar global derivatives debt bubbles nobody understands etc. etc.

– Vulture/disaster capitalism – carving up efficient public services for short-run private profit, carving up whole countries via “shock doctrine” etc. etc.

– Intellectual property of various kinds.

– And so on, and on and on…

None of the private profitability of the above seem to me to necessarily have anything very much to do with their social opportunity costs. All could work for “Moneybags” (Marx’s recurrent caricature of a capitalist) as sources of the “surplus value” which Marx attributed uniquely to “alienated labour”. Any one of them might generate commodities, with various exchange values in capitalist markets far in excess of the use value(s) required for their production; or failing that might manage to pass the production costs on to third parties (society in general, less developed counties, the future etc.), thus generating profits by “cutting corners” (without necessarily lowering wages).

For Marx, labour was a unique commodity, in the sense that its use (by a capitalist) could generate commodities with a greater exchange value than the use value (a subsistence wage) paid to the worker for its use. Marx is quite clear on this point in chapters 6 and 7 of Capital:

“The value of labour-power resolves itself into the value of a definite quantity of the means of subsistence. It therefore varies with the value of these means or with the quantity of labour requisite for their production. Some of the means of subsistence, such as food and fuel, are consumed daily, and a fresh supply must be provided daily. Others such as clothes and furniture last for longer periods and require to be replaced only at longer intervals. One article must be bought or paid for daily, another weekly, another quarterly, and so on. But in whatever way the sum total of these outlays may be spread over the year, they must be covered by the average income, taking one day with another.” Capital, Vol I, Ch 6

“We now know how the value paid by the purchaser to the possessor of this peculiar commodity, labour-power, is determined. The use-value which the former gets in exchange, manifests itself only in the actual utilisation, in the consumption of the labour-power. The money-owner buys everything necessary for this purpose, such as raw material, in the market, and pays for it at its full value. The consumption of labour-power is at one and the same time the production of commodities and of surplus-value.” Capital, Vol I, Ch 6

“The owner of the money has paid the value of a day’s labour-power; his, therefore, is the use of it for a day; a day’s labour belongs to him. The circumstance, that on the one hand the daily sustenance of labour-power costs only half a day’s labour, while on the other hand the very same labour-power can work during a whole day, that consequently the value which its use during one day creates, is double what he pays for that use, this circumstance is, without doubt, a piece of good luck for the buyer, but by no means an injury to the seller.” Capital, Vol I, Ch 7

I agree with Marx that workers are thus exploited and that labour is a source of surplus value – just not that it is the (i.e. the only) source of surplus value. In fact, any input to production (for example machinery, fossil fuels, etc.) may have the property that its use generates commodities of greater exchange values that the use value paid to produce them (costs like maintaining machinery, drilling oil, etc.) In physics terms, “work” is just force integrated over distance and machines can push weights around just as well as muscles can. Terms like EROEI (“energy return on energy invested”) can quantify such forms of “surplus value” realised as energy. But Marx doesn’t think so, writing that:

“It is known by experience how long on the average a machine of a particular kind will last. Suppose its use-value in the labour-process to last only six days. Then, on the average, it loses each day one-sixth of its use-value, and therefore parts with one-sixth of its value to the daily product. The wear and tear of all instruments, their daily loss of use-value, and the corresponding quantity of value they part with to the product, are accordingly calculated upon this basis. It is thus strikingly clear, that means of production never transfer more value to the product than they themselves lose during the labour-process by the destruction of their own use-value.” Capital, Vol I, Ch 8

Marx may find this “strikingly clear”, but I don’t. Notice how he simply asserts it to be the case that the use-value of productive machinery equals, but does not exceed, the exchange values of the commodities it helps produce – he doesn’t appear to prove this point at all. If there is a “proof” then it rests on his assertion that the exchange value a capitalist pays on the open market for machinery is set solely by the social opportunity cost of making the machinery and that the machine will part with precisely this much use value (and not a penny more!) over the course of its productive lifetime – assertions with which I disagree and have already listed possible exceptions to further up.

If some or all of that list of possible exceptions to Marx’s labour “theory” of value (though Marx himself didn’t call it such, to be fair…) is valid there follow some important implications for Marx’s conclusions as to the “final crisis of capitalism” leading to a historically inevitable socialist revolution. Very roughly, the idea was that competition between capitalists would drive increases in productive efficiency and hence increased investment in machine commodities (which Marx called “constant capital”, c) versus the labour commodity (which Marx called “variable capital”, v) in the capital exchange process M – C – M’ that Marx argued defined capital-ism. Here M’ is an amount of money larger than M and M’ minus M is the profit (or “surplus value”, s) the capitalist gets in selling the commodities  C = c + v + s  produced using an initial capital investment  M = c + v. The surplus, Marx asserts, is added entirely by labour during production.

Increases of machinery relative to labour in the production process would then, if labour is assumed as the only source of surplus value, tend to lead to a falling rate of profit. To maintain profits, capitalists would therefore be forced to reduce the wages of labour, thus provoking a socialist revolution when the latter fell to or below base subsistence rates. Well, that was what Marx’s hypothesis implied would happen. But if an assumption is invalid then the conclusion on which it is based doesn’t follow. Here I agree with Steve Keen (Debunking Economics, chapter 17) that:

“The tendency of the rate of profit to fall was predicated on the propositions that (a) , over time the capital-to-labour ratio would rise, and that (b), this would cause the rate of profit to fall. But (b) was dependent on labour being the only source of surplus value, so that a rising capital to labour ratio would mean a falling rate of profit. If surplus could instead be garnered from any input to production, not just labour [see my list for suggestions], then an increase in the capital-to-labour ratio would have no necessary implications for the rate of profit: it could rise, fall, or stay the same.”

The “iron laws” of “scientific socialism” (again, not Marx’s term…) might appear to have rusted somewhat, but just because an assumption upon which Marx’s conclusion rests is invalid doesn’t mean we need to jettison his whole analytic framework and conceptual toolbox. Marx employed and developed concepts like “use value” “exchange value” “surplus value”, “opportunity cost” (although he didn’t call it that), “commodity exchange” (represented as C – M – C) and “capital accumulation” (represented as M – C – M’) which remain useful for thinking about capitalism today. But I think we should go beyond the labour theory of value upon which Marx built his conclusions and include the many inventive (or devious, if you prefer!) new ways capitalism has found of generating surplus value – which Marx would presumably take great interest in were he alive today.

I think Marx was right about capitalism at some point suffering a final breakdown, but that he identified the wrong ultimate limiting factor to ongoing capital accumulation. For Marx, finite total labour time was the limiting factor, whereas it appears to us today that the limiting factor(s) will be ecological ones – limits to our shared (and finite) biosphere’s capacity to absorb global capitalism’s waste products (carbon, nitrogen, etc.) and shrug off its impacts upon ecosystems (rainforests, coral reefs, etc.).  Never forget that the human economy is a sub-system of the biosphere –  hence the ongoing survival of the former is predicated upon the good health of the latter. This implies hard limits to economic impacts on ecology, some of which have already been surpassed (and even hard limits to GDP growth, in my opinion).

Having said that, the essence of Marx’s thought can be retained, in spite of some of his errors in analysis. We can even take Marx at his word here – as he wrote in his PhD thesis on Hegel:

“It is conceivable that a philosopher should be guilty of this or that inconsistency of this or that compromise; he may himself be conscious of it. But what he is not conscious of is that in the last analysis this apparent compromise is made possible by a deficiency of his principles or an inadequate grasp of them. If a philosopher really has compromised it is the job of his followers to use the inner core of his thoughts to illuminate his own superficial expression of it. In this way what is a progress in conscience is a progress in knowledge. This does not involve putting the conscience of the philosopher under suspicion, but rather construing the essential characteristics of his views, giving them a definite form and meaning, and thus at the same time going beyond them.”

I’ll end on another physics analogy: professional physicists the world over make use of Maxwell’s famous equations of elecro-dynamics every day. Here they are:


How did Maxwell come up with them though? As Richard Feynman explains in his Lectures on Physics, Volume II:

“It was not yet customary in Maxwell’s time to think in terms of abstract fields. Maxwell discussed his ideas in terms of a model in which the vacuum was like an elastic solid [the aether]. There was much reluctance to accept his theory, first because of the model, and second because there was at first no experimental justification.

Today, we understand better that what counts are the equations themselves and not the model used to get them. We may only question whether the equations are true or false. This is answered by doing experiments, and untold numbers of experiments have confirmed Maxwell’s equations. If we take away the scaffolding he used to build it, Maxwell’s edifice stands on its own. He brought together all of he laws of electricity and magnetism and made one complete and beautiful theory.”

Perhaps Marx’s “labour theory of value” is a little like Maxwell’s “luminiferous aether” here? The labour “theory” of value spurred Marx to formulate insights and concepts still useful today, but the idea itself is perhaps best forgotten, just as a scaffold can be left behind in favour of the edifice it served to build.


~ by freedomthistime on December 11, 2012.

2 Responses to “The Two Marxes”

  1. Nice essay David. I like the way you write. Always clear. Gutsy of to take on the “labour hypothesis of value”. Don’t feel I could do that.

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