In the previous post in this series I showed the significance of the formula M-C-M’  for Marx’s understanding of capitalism. He proposed that the basis of capitalism is that money is used to buy commodities in order to make more money and that capitalism is effectively a system for the circulation of commodities.

But he also stressed that these commodities, which are essential to the functioning of capitalism, are the simplest social form taken by the product of labour. Commodities are physical manifestations of the work put into them. Of course any product (whether or not it is produced under capitalist conditions) is the result of labour but capitalist commodities are specifically the result of collective, social labour. There is a vastly complex network of relationships laying behind every commodity we pick up on a supermarket shelf.

It is this “social labour” which gives commodities value. This partly means that the price tag which we see in a shop is an expression of the work which people have put into making it. Of course we know this logically even if we don’t often think about it we know that buying a t-shirt pays the (likely very meagre) wages of people working in a sweatshop. But Marx makes a more philosophically profound point than this.

The very fact that we can compare the value of different commodities at all is because they are the result of collective labour. The exchange value of commodities (in pounds, euros or dollars) is an expression of the labour that went into making the commodity. The use values of particular commodities may be vastly different and not comparable in any meaningful way. But the one universal thing they have in common is that they are all the product of labour.

Value is central to Marx’s understanding of capitalism and the modern world in general. This seem complex but is understandable when approached in the right way. One of the best interpreters of Marx’s theory is David Harvey whose lecture series and related book on how to read Capital is excellent.

The following is largely borrowed from Harvey:

Marx divides value into three different types: “Use-value”, “Exchange-value” and (confusingly) “Value”. These three are all interconnected and dependent on one another.

The first two are quite straight forward.

Use-value is the ways in which a commodity is useful to people. So, for instance, a hammer is useful for hitting nails, bananas are useful for nutrition and cars are useful for transportation. The use-values of different objects can be vastly different and are not directly comparable.

Exchange-value is completely different to use-value but does rely upon it. This is how much money a commodity is bought and sold for. The market price or the “going rate” for that particular commodity. The price-tag tells us the exchange value.

Exchange-values of completely different (and incomparable) commodities are comparable because they are all expressed as numbers. So, the same £10 might be able to buy me a pizza or a cinema ticket despite these commodities being in themselves not comparable. While we might sometimes consider the price of a particular commodity to be too high and entirely arbitrary it is usually, to some extent, related to  the use-value as it is rare for commodities with no use-value to have much exchange-value. This is, however, a loose relation as very useful commodities (such as screwdrivers or aspirin) are often very cheap and vice versa.

But for Marx the most in important and certainly most interesting of these is value which determined by the amount of work put into it. When we work on anything (constructing a table, writing a song, cooking a meal) we put something of ourselves into that product. Some of our spirit, soul, effort, time however you want to see it. Something of us goes into that thing which we produce.

It is this work that we put into producing things which combines with the intrinsic properties of raw materials to give them a use-value. In order for a hammer to be useful the constituent elements of iron, rubber, whatever else need to be combined in a particular form by human labour in order to be used for hitting nails. Exchange-value (the price) is also determined by the “value” of the labour which is put into the production of the commodity. As the only reason we can meaningfully compare diverse, vastly different commodities in relation to money is because they are produced by the same thing “labour”.

But my labour is not the same as someone else’s. Two people might take vastly different amounts of time to produce the same (or similar) commodity. A less skilled person might take much longer to produce the same thing as a more skilled person so in this case they have put more labour into its production. So does their commodity have a higher value? No, as the labour which determines the “value” of a commodity is “socially necessary labour time”. It is not the labour which a particular individual puts into the production of a commodity that is important but the average labour required to produce that commodity given the standard levels of skill and the technology available at that time.

Ernest Mandel stated

Value is therefore essentially a social, objective and historically relative category, It is social because it is determined by the overall result of the fluctuating efforts of each individual producer (under capitalism: of each individual firm or factory). It is objective because it is given, once the production of a given commodity is finished, and is thus independent from personal (or collective) valuations of customers on the market place; and it is historically relative because it changes with each important change (progress or regression) of the average productivity of labour in a given branch of output, including in agriculture and transportation.

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In this sense “value” is a good example of what Durkheim referred to as a “social fact” as it is entirely socially contingent but is nevertheless objective.

What makes this insight really important is that the value of commodities comes from the collective work we put into them and not even just those individuals directly involved in the production of them but all of society.

We might often think of products we see on the shelf in a shop as having a value because of some intrinsic qualities in themselves or because of their desirability. But for Marx their value is directly determined by the effort put into them and the ways in which society is organised in order to make their production possible. However, the profits from the sale of these commodities go to the owners of the companies, or more usually today the shareholders. The profit comes simply from paying workers less than the value of their labour.

Marx’s labour theory of value has been rejected by mainstream economists today who claim that profits are the result of the speculation of investors. So entreprenuerial investors take on risky propositions and potentially lose their money but when their risks pay off and new commodities are produced which can sell for high prices they reap the rewards. Alternatively, profits are often considered to be generated by the clever management and organisation of production in more efficient and effective ways so as to reduce costs.

I am not an economist and not really qualified to make a conclusive judgement on the empirical reality of either proposition but the fact that there has been an almost constant battle over wages between workers and owners throughout the history of capitalism suggests that the value of labour is pretty important to profits. Since to 2008 wages have stagnated or declined in most parts of the world while the wealth of the richest (those who make their money from “capital”) has increased (see, for instance the work of Danny Dorling and Thomas Piketty). Profits are certainly being made through keeping wages low and if more could be made simply through better organisation and investment then perhaps those who are supposed to be good at those things (managers and investors) are not doing a very good job.