I have always had a soft spot for Marx’s labour theory of value. I’m not an economist, which for most in that discipline would account for my lingering respect for a theory way past its sell-by date. But I remain obstinate. The most I am willing to concede in this thinking-out-loud or exploratory blog is that I am even more disinclined to bend the knee to mainstream ‘neoliberal’ economics than I am to let go of Marx’s effort.
One of the clearest short summaries of Marx’s theory I have encountered is by Mariana Mazzucato in her The Value of Everything: Making and Taking in the Global Economy (Allen Lane, 2018). What follows is very much a precis of her exegesis (pp.47-56).
‘Productive’ human activity, Marx argued, is very much a function of time and place. Under capitalism, businesses produce commodities – from hammers and nails motorcycles – which are exchanged, or sold, and thus have an exchange value. If a people produce commodities for personal consumption, then these do not have exchange values.
‘Exchange value crystallises the value inherent in commodities.’ The source of this value is a commodity that workers own, namely their labour power or their capacity to work. Capitalists buy labour power with their capital and, in exchange, pay workers a wage. Workers’ wages buy the commodities like food and housing that are required to restore their strength to work. Thus, ‘wages express the value of the goods that restore labour power.’
To this point, Mazzucato argues, Marx differed little from Ricardo. But Marx went on to offer a resolution to Ricardo’ fruitless search for an ‘invariable standard of value’ by which the value of all other products might be determined. Marx’s resolution? He distinguished between: (a) labour expended in production, and (b) labour power (ie the capacity to work). Workers expend labour, not labour power. Critically, workers can create more value than they need to restore their labour power. This is the crux of his labour theory of value. If a worker has to work five hours per day to produce the value required to restore labour power, then the labour power’s value is equivalent to the five hours of work. But if the working day lasts ten hours, the additional five hours of work will create value over and above that needed to restore labour power. ‘Labour power creates surplus value.’
Under capitalism, workers generate historically unprecedented amounts of surplus value. Capitalists have been able to purchase workers’ labour power because the latter have lost their independent means of subsistence and need a wage to survive.
‘The trick is to get them to work longer than needed to produce (wages) that they spend on their subsistence needs – again, food and housing. Workers, in other words, are ‘exploited becaiuse capitalists pocket the surpus value workers produce over and above their subsistence requirements.’
Moreover this surplus is not squandered. Capitalists have incentives to reinvest to expand production and make more profits.
Marx saw a contradiction in capitalism. The drive to increase production would lead to mechanisation and a consequent displacement of labour, which would in turn reduce the key source of profits, namely, labour power. Financialisation too could underline production.
So labour produces surplus value, which fuels capital accumulation and economic growth. In the process, and most especially as the division of labour becomes more and more specialised, workers become alienated.
At any given juncture, there is a ratio of surplus value to value used for workers’ subsistence, which Marx termed ‘the rate of surplus value’. This determines what share of the economic product can (potentially) be used for accumulation and growth. Marx referred to capital deployed to hire labour as ‘variable capital’: ‘the workers produce more capital than is invested in them, so the capital that hires them ’varies’ in relation to the capitalists’ total capital.’ Capital that is not deployed to hire workers is invested in other aspects of production that are ‘constant capital’ – machinery, but also land, buildings and raw materials – whose value is ‘preserved’ but not boosted during production.
Mazzucato rightly (in my view) emphasises that Marx introduced the concept of ‘class struggle’ (‘the side with more power could force through a wage rate favourable to itself’). Capitalists, he maintained, would try to keep a ‘reserve army’ of the unemployed to hold down wages and increase their own share of the value workers created.
The value of labour power takes the form of wages to workers and of profits to capitalists. The rate of profit for any enterprise is the surplus value divided by variable and constant capital (nowadays, approximating to the rate of return on a company’s assets).
Marx also distinguished between types of capital(ist) by function. He distinguished between production (or industrial) capital and commercial capital. Production capital produces commodities, and commercial capital circulates commodities by selling them (‘making the money available to production capital for buying the means of production’). Production capital creates surplus value, commercial capital ‘realises’ it. Mazzucato offers a contemporary illustration:
Amazon is a commercial capitalist because it is a means by which production capitalists sell their goods and realise surplus value. Bank’s money transfer services are also an example of commercial capital.’
As production expands, so separate capitalist enterprises emerge to function as commodity or money capitalists. The labour they employ are purely concerned with the circulation of capital (ie they do not produce commodities that generate surplus value and are therefore unproductive). Nevertheless, as capitalist enterprises, they require the same rate of profit as production capital; so some surplus value is diverted to become their income, in the process diminishing the average profit rate in the economy.
Marx went on to write of interest-bearing capital(ists). Capitalist enterprises like banks earn interest on loans that production capitalists take out to expand production. The interest is deducted from the production capitalist’s profit rate. Unlike commercial capital, interest-bearing capital does not lower the general rate of profit, but rather subdivides it between recipients of interest and earners of profit. Like commercial capital, interest-bearing capital too is unproductive.
Finally, Marx identified another form of capital(ist), involving scarce resources like land, coal or patents. These can enhance productivity (‘the same product can be produced in less labour time or with fewer means of production’); and this in turn creates ‘surplus profits’ (what Adam Smith and Ricardo might have called ‘rent’) for capitalists, landlords or proprietors who can exploit ‘advantageous production conditions’. This led to a theory of ‘monopoly gain’.
Mazzucato elaborates:
‘… in Marx’s theory of value every privately organised enterprise that falls within the sphere of ‘production’ is productive, whether it is a service or anything else. Here, Marx’s achievement was to move beyond the simple categorisation of occupations and map them onto the landscape of capitalist reproduction. Marx’s production boundary now runs between goods and services production on one side and all those functions of capital that were not creating additional surplus value, such as interest charged by moneylenders or speculative trading in shares and bonds, on the other. Functions lying outside the production boundary take a chunk of surplus value in exchange for circulating capital, providing money or making possible surplus (monopoly) profits.’
To repeat myself, I am no economist, and Marx was of course writing a century and a half ago. But I have a few tongue-in-cheek observations on the labour theory of value. First, and on purely economic criteria, it seems clear to me that Marx was an impressive innovator. Moreover it is apparent from his writings that he grounded and backed his theories with extensive statistical research. In addition, he appended to previous works theories of exploitation and class struggle – via his labour theory of value – all but absent in previous treatises on capitalism. Some economists, of course, continue to work on the prospect of a labour theory of value fit for the 21st century.
Second, I have a qualification to offer re-much contemporary economic theory, at least post-Keynes. Many mainstream economists, all the more so since the advent of financial(ised) capitalism from the mid-1970s, have, it seems to me at least, settled comfortably into ‘servicing’, and therefore accepting a diverted smidgeon of surplus value courtesy of what I have termed the hard-core of the capitalist executive (much less than the 1% fingered by the Occupy Movement), and are in the process conniving with oligarchic or plutocratic governance. Surely too it is apparent that occupation-based classifications of class routinely deployed by ONS statisticians and many professional sociologists, culminating in NS-SEC, absent class in the Marxian sense. This absenting precludes serious study of what Marx understood as the class struggle so fundamental to capitalism in all its forms.
Third, just maybe the labour theory of value continues to have an (extra-orthodox) economic purchase.
My fourth and last remark is the one I would like to stress, however timidly. I wonder if Marx’s labor theory of value might be so recast as to serve in 2019 as an equivalent to Habermas’ notion of the ideal speech situation. In a conversation I recall from many decades ago with an old Marxist friend, now sadly deceased, Terry Boswell, Terry argued that the formal, procedural character of Habermas’ theory was a weakness, whereas I saw it as its strength. Habermas maintained that every conversation we have presupposes an ideal speech situation in which all involved can contribute freely and openly and in which all contributions can be checked out etc. Of course in practice power relations intrude. But if an ideal speech situation is not possible, why bother to talk, why do we ever trust each other? The virtue of Habermas’ concept as I see it is that it facilitates the substantive study of failures to accomplish an ideal speech situation; that is, it allows for the identification of ‘distorted’, and ‘systematically distorted’ communication. Now, might it be that Marx’s labour theory of value – recast in formal or procedural terms – could function as just such a yardstick against which the extent of current exploitation might be assessed?