In my last diary I discussed what capitalists and workers are, the basic outlines of Marx's economic theory of society, and why capitalism is necessarily prone to crisis and inequality. In this diary, I'll discuss some more specific Marxist concepts such as the labor theory of value and surplus-value. These concepts sound pretty intimidating, but they're really fairly simple. Why should you care about them? You should care about them because they will help you understand the world around you, where you are in that world, what is going on with your labor, and why businesses and governments pursue certain policies.
As I remarked before, this diary is intended for a non-academic, popular audience, so I'm intentionally dumbing things down. I think us Marxists often shoot ourselves in the foot by insisting on embracing Marx's own dialectical way of speaking, thereby rendering ourselves incomprehensible to any but other academics.
Before getting to those more specific concepts, it's important to first talk a bit about economic justice. What constitutes justice in exchange or a what is a just exchange? In raising this question, I'm not asking the question of what a just economy would look like, nor am I proposing or defending any particular sort of economic system (gift economy, feudalism, capitalism, socialism, communism, etc). No, I'm just asking what we all assume when we say that economic exchanges are just and fair. Whether you're a capitalist, an advocate of a barter or gift economy, a communist, or a socialist, I wager that lurking deep down in your thought is this particular assumption as what constitutes fair exchange. One of the great merits of Marx's economic theory is that he never resorts to easy answers such as suggesting that capitalists cheat or steal in order to attain their profits. Rather he attempts to show how injustice is inherently built into the capitalist economic system.
I'd like to suggest that all economic systems, no matter how disparate, assume the following: an exchange is just and fair when the commodities exchanged are of equivalent value. Conversely, an exchange will be unjust and unfair when the person trading the commodity gets less in return than the value of the commodity. In other words, the idea of just exchange is based on the very simple principle that A = B. If I get such and such a wage for a day's labor, then that wage will be just if its value is equivalent to the value of my labor for the person that bought my labor. Likewise, if I trade a pound of corn for a few yards of linen, that exchange will be fair if the linen and corn are of equal value. When someone gets something of more value than what they gave in an exchange, we don't say that this is fair or just, but that they deceived or swindled the other person. Understanding this point is tremendously important to understanding the ethical dimension of Marx's critique of capitalism. It is also important to notice that this principle of just exchange is non-controversial within economic theory.
Where Do Value and Property Come From?
Speaking of which, where does value come from anyway? Here, of course, I'm not talking about things like moral values, but rather economic values. What makes a particular commodity worth something? Where does it get its worth from? How do we come to place a value on something like linens, gold, a plot of land, food, and so on? How are we able to say that two things that are so different in terms of their qualities-- say corn and tea --are of equivalent value? Moreover, how do we come to own things at all? What is it that makes something property? It's not self-evident that property should exist, nor that things-- even gold --have value.
Marx's theory of value is pretty complicated, so here I'll only discuss some of the high points. With respect to how things come to have value, the first obvious response is that they are useful. We value a thing because it feeds us, shelters us, clothes us, or gives us some sort of pleasure. This kind of value is what Marx calls "use-value".
This sort of value isn't all that mysterious. What's mysterious is how one thing can come to have equivalent value to another value. In other words, where does what Marx calls exchange-value come from? How can a diamond come to be equivalent in value to thousands of pounds of corn when their qualities and their uses are so different?
From capitalist economic theory, we're accustomed to saying that things get their exchange-value from "supply and demand". The value of a commodity fluctuates as a function of how much it is in demand and how great a supply of that thing is available. Under this theory, diamonds thus have the value they have because there's great demand for them, yet very few of them. Marx doesn't entirely reject this thesis as exchange-values do fluctuate, however he thinks that this theory is incapable of completely accounting for value because regardless of how great the supply of something is, its value never goes to zero. In other words, despite the fact that there are fluctuations in the value of things due to supply and demand, there's nonetheless an average constant that remains the same across these fluctuations. We need a theory capable of accounting for this constant value.
Enter Marx's highly controversial labor theory of value. Marx draws the seeds of the labor theory of value from John Locke (upon whom capitalist economists such as Ricardo and Smith based their economic theories). Locke argues that our first private property consists of our bodies. Through laboring on other things, our body, as it were, mingles with those material things, making the things upon which we labor our property. For example, a bit of land becomes my property because I constantly tend to it and cultivate it, thereby mingling my body with that of the land. The case is similar if I take a piece of wood and carve it into a beautiful sculpture. According to Locke, this is how property arises. I "make" things my own by working on them.
Marx, along with other economists of the period, extrapolated from this idea and argued that labor is also the origin of value. Suppose we have two pieces of wood, one simply picked up from a forest floor, and another picked up from the forest floor and then carved into the figure of a graceful eagle. Why is the latter worth more than the former, despite the fact that it came from the same place and weighs less? Marx argues that the latter is worth more because of the labor that went into it. It only takes a small amount of labor to gather wood from a forest floor, while it takes a great deal of labor to turn a piece of wood into a beautiful sculpture. The case is no different with diamonds and gold. They have the value that they have because it requires a great deal of labor to extract and refine these minerals and metals.
Exchange-value thus arises from labor. When we say that a particular diamond is worth a thousand pounds of corn, what we're saying is that equivalent labor goes into extracting and refining a diamond and cultivating a thousand pounds of corn. If the exchange is just, it is because the same amount of labor goes into the production of these two commodities. The question of just how we're supposed to calculate value based on this principle is a difficult one, but Marx argues that it is a function of what it costs to sustain a worker (in terms of food, water, shelter, and clothing) and the time and effort it takes to produce the commodity.
Capitalist economic theory portrays value and wealth as arising from capitalists. The story runs that capitalists invest their capital in production to create goods and commodities. This, in turn, creates jobs which creates wealth for everyone. For Marx the situation is precisely the reverse. Wealth and value come from workers because those are the ones that labor. Capitalists get their wealth from workers, not the reverse. As a result, workers are the foundation of a society's wealth.
So let's go back to the beginning and the assumption of just exchange. If it is true that exchanges are only just when the commodities exchanged are of equal value, how do capitalists make a profit through their exchanges? Capitalists pay workers for their labor. Workers create commodities through their labor. Capitalists then sell these commodities and make a profit. But where is that profit coming from? Somehow, through some strange alchemy or magic, capitalists are getting more out of their investment than they put into their investment. This would seem to suggest that there is some sort of injustice at work in capitalism, yet Marx does not say so.
For the sake of this post, we can say that profit is what Marx calls "surplus-value". Through an investment of his money in labor, apartment buildings, etc., the capitalist gets more out of his investment than he put into it. He gets a surplus of value from his investment or a profit. Yet how does this magically happen when just or fair exchange requires that there be an equitable exchange between commodities (in this case, the commodity of labor that the worker sells to the capitalist and the money the worker receives in the capitalist).
In a nutshell, Marx argues that surplus-value arises from the difference between "labor value" and "labor power" under wage labor. That's a mouthful. "Labor value" is the value of a workers labor for a particular amount of time. This is calculated as a function of how much time it takes to train the worker, coupled with the amount it costs for the worker to clothe, shelter, and feed himself. "Labor power" consists of what a worker can produce in a given amount of time. Capitalists work the difference between labor value and labor power to create surplus-value.
This is all abstract, so let's take a concrete example. Suppose that you're paid 5 dollars an hour to produce bricks. Your labor is a commodity that the capitalist has bought. Because he has bought your labor for that one hour time period, he owns whatever commodities you produce during this hour. By structuring how you produce bricks during this hour through the use of machines and things such as assembly lines, the capitalist is able to create a circumstance in which you create more value than he paid you. For example, you produce 15 bricks each worth $2 dollars in an hour by working on an assembly line, thereby producing $30 dollars worth of value. As a consequence, $25 dollars worth of surplus-value has been created through your labor ($30 - $5 = $25). It is through working the difference between the value of your labor and the value your labor is able to produce that the capitalist is able to create more value than he originally invested.
So why is this a just or equitable exchange? Capitalist economic theory argues that this arrangement is just because the capitalist provides the means by which the worker produces commodities and therefore deserves the fruits of that investment. The capitalist provides the factory where the worker produces, the materials transformed into commodities, the machines and tools by which these materials are transformed, as well as the energy required to produce these economies. The worker cannot afford these things, so it is the capitalist ought to reap the benefits from investing in all this infrastructure.
This is a just arrangement, right? It certainly is, for a time. Remember Locke, we make something our property by laboring on it or intermingling our body with it. Notice that at a certain point the workers, through the production of surplus-value, will completely repay capitalists for their investment in materials, tools, machines, and factories. They will generate enough surplus-value to pay back all these things. If this is true, we can ask "why don't the means of production come to be owned by the workers rather than the capitalists that initially invested in them?" It seems there is an injustice here. Ordinarily when we borrow money we own the thing that we borrowed the money for once we've paid all that money back. Yet in capitalist systems, the debt of workers to capitalists is never erased. Why is this? If you think this is just and equitable, then you must give an alternative account of how something comes to be property.