Why Marx’s critique of capitalism still matters
Marx’s Capital is subtitled A critique of Political Economy. ‘Political Economy’ was an attempt to explain how capitalism works and how it might develop over time, Two of its main representatives were Adam Smith and David Ricardo and much of Capital is shaped by and addresses the works of those two thinkers. They shared a fundamental idea that we know as the Labour Theory of Value (LTV), but it had a major flaw: the inability to explain the source of capitalist profit. This flaw was only solved in Marx’s Capital. Below, we discuss issues around the theory.
Part I: The Ricardo problem
To understand Marx’s contribution, you first need to understand the problem he inherited from classical political economy.
The classical labour theory of value
Adam Smith and David Ricardo both worked with versions of the labour theory of value. The basic idea: the value of a commodity is determined by the amount of labour required to produce it. The greater the labour-time required, the greater the value of the commodity.
This made intuitive sense and seemed to explain a lot about how markets worked. But it had a fatal flaw that Ricardo acknowledged but couldn’t resolve. By the way, both of them treated ‘labour’ as the only commodity that the worker brings to market.
What Ricardo understood
Labour Theory of Value: Commodities exchange based on the labour time required for their production; labour is the source of value.
Class conflict: He recognised that capitalists, landlords, and workers have opposing interests; rising wages reduce profits and vice versa.
Where Ricardo stopped (and Marx went further)
1. Naturalisation of capitalism
Ricardo: ‘This is how economies function. Labour creates value, always has, always will.’
Marx: ‘Value is specific to capitalism. In other systems like feudalism, labour does not take the form of value.’
Value can be defined as the socially necessary labour-time spent reproducing commodities within the capitalist mode of production.
2. Inability to explain profit’s source
Ricardo’s dilemma: If labour creates all value and workers are paid for for their labour, where does profit arise? He couldn’t resolve this contradiction.
Marx’s solution: Workers are not paid for their labour; they are paid for their labour-power. Labour-power possesses a value, say 10,, reflecting the cost of reproducing the worker (food, shelter, etc.), but normally generates more value, say 12, when consumed. It is the only commodity which can do this, This extra value is the source of profit.
Historical context: Franklin, Smith, and Aristotle
Benjamin Franklin contributed to this discourse by asserting that the value of a commodity derives from the labour hours needed for its production from start to finish. Franklin never developed it into a theory. He was writing about legitimising paper currency.
Adam Smith maintained a contradictory attitude to value, shifting between LTV and a cumulative theory whereby value was determined by wages + profit + rent. He noted that commodities exchanged at equal ratios (one beaver = two deer) but couldn’t explain why this was so.
Aristotle was able to observe the LTV in action – he saw that commodities exchanged at stable ratios (5 beds = one house) but couldn’t explain why this should be so. Marx paid him a compliment writing: ‘Aristotle’s genius is shown by [the fact] that he discovered, in the expression of the value of commodities, a relation of equality’ (Capital volume 1 chapter 1) but the inequality inherent in a slave society blinded him to the source of that equality.
The profit paradox:
Here’s Ricardo’s problem: if, as he argued, commodities exchange at their value (determined by labour-time), and if labour itself is a commodity that exchanges at its value, then ‘where does profit come from?’
Let’s walk through it:
1. A capitalist buys raw materials at their value (say, $50 worth of cotton yarn).
2. The capitalist buys labour from the worker at its value (say, $50 for a day’s work).
3. The worker transforms the yarn into cloth.
4. The capitalist sells the cloth at its value (the combined labour-time of producing the yarn + weaving it into cloth).
Total cost: $100 (materials + labour)
Total revenue: $100 (value of the cloth)
Profit: $0
But capitalists do make profit. So either:
1. Capitalists are systematically cheating (buying below value, selling above value), or
2. There’s something wrong with the theory.
Ricardo couldn’t solve this. He acknowledged the problem but left it as an unresolved contradiction in his system. He died not being able to resolve it. He had his hand on the doorknob, but didn’t turn it and walk through the door. This wasn’t just an academic puzzle – it was the central question of political economy. Without solving it, you couldn’t explain how capitalism actually worked.
The moralistic detour
Some socialist thinkers – particularly Pierre-Joseph Proudhon – seized on this contradiction and concluded: ‘Capitalism is theft’. Workers are being cheated. The solution is to create fair systems of exchange where workers receive the full value of their labour.
Proudhon’s famous declaration – ‘Property is theft!’ – captured this moral outrage. His solution was mutualism: worker cooperatives, mutual credit banks, and systems of direct exchange that would eliminate the middleman capitalist.
But this was a dead end. Why? Because it misdiagnosed the problem. It assumed exploitation happened because of cheating – bad actors violating the principle of equal exchange. Marx would show that exploitation happens within equal exchange, as a structural feature of the system itself. This is the difference between scientific socialism and utopian reformism. Capitalists aren’t villains – they’re playing by the rules. The problem is the rules themselves. But on we go…
Part II: Marx’s breakthrough – Labour vs. Labour-Power
Marx’s genius was in recognising that Ricardo and Proudhon were asking the wrong question. The problem wasn’t that capitalists were cheating. The problem was that labour itself isn’t what workers sell.
The distinction
Marx distinguished between two concepts that everyone before him had conflated:
1. Labour-power: The capacity to work. This is what the worker sells to the capitalist – their ability to perform labour for a certain period of time.
2. Labour: The actual activity of working, which produces value when labour-power is consumed in the production process.
This distinction is subtle but revolutionary. Here’s why it matters:
Labour-power as a commodity
Like any commodity, labour-power has a value – determined by the labour-time required to reproduce it. But what does it mean to ‘reproduce’ labour-power?
It means: ‘the cost of reproducing the worker’.
To show up to work tomorrow, the worker needs: food, shelter, clothing, rest, healthcare, education or training.
The ‘value of labour-power’ is the socially necessary labour-time embodied in these necessities. In other words, it’s roughly the cost of keeping the worker alive, healthy and able to work. There is an additional component too that covers the cost of raising the next generation of workers
Let’s say all this costs $100 per day. That’s what the capitalist pays in wages.
Labour as value-creating activity
But here’s the key: when the capitalist consumes labour-power – when the workers actually work – they produce more value than the cost of their labour-power (Marx lays this out explicitly in Chapter 6 of Capital Volume I).
Let’s say the worker works an 8-hour day and produces commodities worth $200.
The capitalist pays: $100 (the value of labour-power).
The worker produces: $200 (the value created by labour).
The difference: $100 (surplus value, appropriated by the capitalist. It will then be split up into profit, interest and rent, but that is immaterial to the present discussion).
Why this solves the Ricardo problem
Notice what just happened: Exchange occurred at value. The capitalist paid the worker exactly what their labour-power is worth. No cheating. No violation of market principles.
And yet, the capitalist extracted surplus value. This doesn’t come from cheating – it comes from the unique nature of labour-power as a commodity.
Labour-power is the only commodity whose consumption produces more value than it costs.
This is the secret of capitalist accumulation. And it’s why Marx’s critique is fundamentally different from the moralistic critiques that came before. This is why socialists assert that class war originates in the employment process – the less a worker is paid, the more a capitalist accumulates in profit. It’s not about being greedy or evil, or being good or generous. It’s simply necessary to compete in the effort not to go out of business. The capitalist who refuses to extract maximum surplus value doesn’t stay a capitalist for long – they get driven out by competitors who do. The system selects for exploitation.
Part III: Why a moralistic critique is dangerous
Marx didn’t just disagree with Proudhon’s analysis – he considered it dangerous to the working-class movement. Why?
1. It misdiagnoses the problem
If you believe exploitation happens because capitalists are ‘cheating,’ your solution becomes: ‘Make capitalism fairer.’
This leads to reformist dead-ends:
1. Worker cooperatives that still must compete in capitalist markets
2. Ethical consumption campaigns
3. Appeals to capitalist conscience
4. Labour laws that tinker at the margins
These strategies don’t challenge the fundamental structure. Even the nicest, most ethical capitalist must extract surplus value to survive in competition. If they don’t, they go bankrupt.
Bad diagnosis = bad cure.
2. It lets capitalists off the hook
A moralistic critique says: ‘Capitalists are bad people doing bad things.’ This can lead to people organising to use violence and fantasising about using guillotines to get this or that capitalist, which will not solve any problems. The problem isn’t the capitalists themselves, it’s the system’s rules that require the capitalist to behave in a certain way.
A moralistic critique is easy to deflect:
1. ‘I pay above minimum wage!’
2. ‘I offer great benefits!’
3. ‘If you don’t like the wage, don’t take the job!’
Marx’s structural critique is much harder to escape: ‘Even if you’re the most generous capitalist in the world, you are still extracting surplus value. If you didn’t, you wouldn’t be a capitalist. The system requires exploitation to function, regardless of your personal morality.’
3. It divides the working class
If exploitation is about bad bosses, workers start thinking:
1. ‘My boss is actually pretty nice. Maybe I’m not exploited.’
2. ‘We just need to replace the greedy CEOs with ethical ones.’
This fractures class consciousness. Workers waste energy trying to find good employers instead of recognising that all wage labour involves surplus extraction.
3. It obscures the source of power
A moralistic critique makes exploitation seem psychological – a matter of individual greed.
Marx showed that it’s structural. Even a worker-owned co-op, operating in a capitalist market, must increase productivity and accumulate capital to survive. The system itself enforces exploitation.
Part IV: Conclusion: Why this still matters
Marx’s labour/labour-power distinction isn’t just an abstract theoretical point. It has profound implications for how we understand the economy and our place in it.
It explains profit without cheating
You don’t need to believe in conspiracy theories about greedy capitalists. The system works exactly as advertised – and still produces exploitation.
It reveals the structural nature of exploitation
This isn’t about bad individuals. It’s about a mode of production that requires the extraction of surplus value to function.
It clarifies strategy
If exploitation is structural, you can’t reform it away. You can’t create ‘ethical capitalism’ or ‘fair trade’ your way out of it. You need to change the fundamental relations of production. In other words, capitalism can’t be made nice – maybe nicer at the margins, but never nice. The extraction is baked into the structure.
It cuts through ideological mystification
When someone tells you ‘the market is fair’ or ‘you’re paid what you’re worth,’ you can ask: ‘Then where does profit come from?’
The labour/labour-power distinction gives you the tools to see through the illusion of equal exchange and recognise the hidden extraction at the heart of the system.
DAN MULLIN