<\/p>\n\n\n\n
This article features in the S.P.G.B. pamphlet Marxian Economics<\/a><\/em><\/p>\n\n\n\n The Labour Theory of Value is a theory in the science of political economy to explain how the working class are exploited under capitalism and how capitalist society works. This article also explains such phenomena as wages, prices, and profits. <\/p>\n\n\n\n Capitalism is the stage in the development of human society characterised by class monopoly of the means of production, with wage-labour and commodity-production. (Also see What is Capitalism<\/a>, Why there are two classes<\/a>).<\/p>\n\n\n\n The Labour\nTheory of Value is central to an understanding of the economics of capitalism because\ncapitalism is commodity production par excellence, and the Labour Theory of Value\nbasically explains what fixes the value of a commodity. At one time there were rival\ntheories of value, but now academic economics tends to deny the need for such a\ntheory. All you need, they say, is a theory of price. We shall see, however, that prices\ncannot be explained without recourse to the concept of value.<\/p>\n\n\n\n \n Wealth<\/strong> is anything useful produced by human labour from\nmaterials found in nature. In capitalist society, Marx said, wealth takes the form of an\nimmense accumulation of commodities. <\/p>\n\n\n\n \n A commodity<\/strong> is an article of wealth produced\nfor the purpose of being exchanged for other articles of wealth. Thus commodityproduction\nis an economic system where wealth is produced for sale, for the market. In\nits simple forms it exists only on the outskirts of non-commodity producing societies\nwhere wealth is produced directly for use, either by the producers for themselves or by\na subject class for their masters. In the beginning commodities were bartered, but as\ncommodity-production developed one commodity came to assume a special role: it\nbecame the universal equivalent, for which all commodities could be exchanged and\nvice versa; it became, in short, money. Here we have a problem for the science of\npolitical economy: what determines the proportions in which commodities exchange one\nfor the other?<\/p>\n\n\n\n \nOne conclusion we can draw from the fact that commodities consistently exchange for\none another in fixed ratios is that all commodities must share some common\ncharacteristic to a greater or lesser degree. What? As articles of wealth all commodities\nshare two characteristics: they are useful and they are products of human labour. Which\nof these could provide a standard? Some have suggested usefulness (or utility), but the\ntrouble here is that the same article can be useful to a greater or lesser degree to a\ndifferent person. Usefulness is a personal matter: a personal relation between the\ncommodity and its consumer. So utility would be a changing; subjective standard and\ncould not explain why commodities consistently exchange at stable ratios. We are thus\nleft with commodities as products of human labour.<\/p>\n\n\n\n \nUnlike usefulness the amount of labour embodied in a commodity can be objectively\nmeasured : by how long it took to make it, for instance. However, all wealth, not just\ncommodities, shares this characteristic of being products of human labour.\nWhat we want to know is how do commodities differ from other forms of wealth. Wealth,\nwe know, only takes the form of commodities under certain social conditions,\nspecifically when it is produced for sale. Similarly with labour (used-up human energy):\nunder the same social conditions it becomes “value”. Thus value is not something you\ncan find in the physical or chemical properties of a commodity, for it is a social property,\na social relation. However, as value only expresses itself in exchange, as exchangevalue,\nthis social relation appears as a relation between things. This is what is behind\nMarx’s writing about the “fetishism of commodities”. Price is the monetary expression of\nvalue.<\/p>\n\n\n\n \nLabour, says the Labour Theory of Value, is the basis of value. But how does labour\ndetermine the value of a commodity? The value of a commodity, said Marx, is\ndetermined by the amount of socially necessary labour contained in it or, what is the\nsame thing, by the amount of socially necessary labour-time spent in producing it from\nstart to finish. Note that the Labour Theory of Value does not say that the value of a\ncommodity is determined by the actual amount of labour contained in it. That would\nmean that an inefficient worker would create more value than an efficient worker. By\nsocially necessary is meant the amount needed to produce, and reproduce, a\ncommodity under average working conditions, e.g. average productivity, average\nintensity of labour. For instance, take the coal industry, assuming that the average output is about\n43cwts. per man shift and there are approximately 230 pits in operation. In some of\nthese output per shift will be above 43cwts. and in others below, but the value of the\ncoal is not fixed by the labour of the workers at pits of either sort. Its value is the social\naverage brought out by the market. This means of course that what is socially\nnecessary\nis continually changing. The whole process of producing the commodity coal\nalso includes the labour of workers outside the pits, who are producing materials\nnecessary for coal mining.<\/p>\n\n\n\n \nUnder capitalism nearly everything is a commodity, or takes the form of a commodity, is\nbought and sold. This qualification is necessary to counter the argument often advanced\nagainst the Labour Theory of Value that some things that are bought and sold either are\nnot products of labour or sell at prices quite out of proportion to the amount of labour\nembodied in them, e.g. land and objects of art. Land, under capitalism, has a price\nwhich, in its pure form, is merely the capitalisation of its rent. Land has no value as it is\nnot the product of human labour. Paintings and antiques are indeed products of human\nlabour but are not really commodities because they cannot be reproduced; the concept\nof “socially necessary labour” therefore has no meaning with reference to such articles.\nOne silly objection is: why is a lump of gold from a meteorite valuable, when there is no\nlabour embodied in it? Actually, this is a confirmation of the Labour Theory of Value\nsince its value is the same as that of gold produced under normal conditions. If gold\nwere to regularly fall from the skies then its value would drop to what is needed to\ncollect it.<\/p>\n\n\n\n \nAnother thing that under capitalism takes the form of a commodity is labour-power (the\nability of human beings to work, human energy). Indeed this fact is the basis of\ncapitalism since it presupposes the separation of the producers from the ownership and\ncontrol of the means and instruments for producing wealth. But there is one very\nimportant difference between labour-power and other commodities. labour-power is\nembodied in human beings who can think, act and struggle to get the best price for what\nthey are selling. Otherwise its value is fixed in the same way as that of other\ncommodities: by the amount of socially necessary labour spent on creating it and\nrecreating it. The labour spent on creating a man’s labour power is that spent in\nproducing the food, clothing, shelter and the other things needed to keep him in a fit\nstate to work. Thus the value of an unskilled man’s labour-power is equal to about\nenough to keep him and his family alive and working. Skilled men get more because it\ncosts more labour to produce and maintain their skills. When the worker finds an\nemployer he is paid a wage, which is the price he is paid for allowing the employer to\nuse his labour power for, say, 8 hours. Wages, then, are a special kind of price; they are\nthe monetary expression of the value of labour-power.<\/p>\n\n\n\n \nLabour-power has a peculiar characteristic. Because wealth can only be produced by\nhuman beings applying their mental and physical energies to materials found in nature\nand because labour (the expending of labour-power) is the basis of value, labour-power\nhas the property of being able to produce and create new value. Let us assume that our\nworker’s labour-power is worth 4 hours labour a day. After he has worked 4 hours does\nhe stop? Of course not. Under his contract he must work for another 4. Since he is\nworking in his employers’ place, with his employers’ tools, machinery and raw materials\nanything he produces belongs to his employer. Thus, in this case, the employer gets 4\nhours free labour. This is the source of his profit, which he shares with his creditors as\ninterest and with his landlord as (ground) rent (and with the State as taxes). So the\nsource of all Rent, Interest and Profit is the unpaid labour of the working class. <\/p>\n\n\n\n \nLet us look into this process of exploitation a little closer. The first point to notice is that\nit takes place at the point of production. Workers are exploited at work. When a worker\nreceives his wage (or salary, another name for the price of labour power) he has\nalready been exploited. He cannot therefore be exploited again by moneylenders or\nshopkeepers or landlords or taxmen (though of course they can rob and cheat him, and\nhe them, but that’s a different matter). So-called secondary exploitation is a myth. <\/p>\n\n\n\n \nFor Marx capital, like value, is not a thing but a social relation; indeed it is value or\nrather a collection of values. Only under certain social conditions do the means of\nproduction become capital, specifically, when they are used to exploit wage-labour for\nsurplus value. Thus we find Marx describing the process of capital accumulation as the\n“self-expansion of value”. Capital, in its pure form, is money-capital. A capitalist invests\nhis capital, say, in producing cotton textiles. He must advance his capital to buy a\nfactory, textile machinery, raw cotton, etc, and also to buy labour-power. His capital can\nbe divided into categories. Fixed capital is the buildings and machinery that are not\nconsumed entirely in the production process; circulating capital is the raw materials and\nlabour power that are. More significant from the socialist point of view is the division into\nconstant and variable capital. Constant capital is that invested in the buildings,\nmachinery and raw materials. In the process of production their value, or a part of their\nvalue, is only transferred to the finished product. Variable capital is that invested in\nlabour-power and is so called because this is the part of capital that expands.\nLabour power not only transfers its own value and is instrumental in transferring that of the\nconstant capital, but it also creates new value. We see then, that machines do not\ncreate value. All they do, and this only when set in motion by human beings, is transfer\npart of their own value (itself of course a past creation of the work of human beings) to\nthe finished product. Even capitalist accountants recognise this: the part of the cost of a\ncommodity they put down to depreciation is to cover the value transferred from the\nbuildings and machinery.<\/p>\n\n\n\n \nWe saw earlier that part of the working day is spent in producing the equivalent of the\nlabour-power used up, and the rest in producing surplus value for the capitalist. The first\npart of the working day Marx called necessary labour (not to be confused with “socially\nnecessary labour”) and the second surplus labour. We are speaking here in terms of\nparts of the day. This is not to be taken literally otherwise you make the mistake of of\nthe economist in Marx’s day who opposed the Ten Hour Bill to limit the working day on\nthe grounds that all the profit was made in the last hour! In fact, surplus value is\nproduced each moment the worker is at work.<\/p>\n\n\n\n \nMarx called the ratio of surplus labour to necessary labour (which is the same as the\nratio of surplus value to variable capital) the rate of surplus value, or rate of exploitation\n(s\/v). It is obviously in the interest of the capitalist to increase the proportion of surplus\nlabour to necessary labour. There are two ways in which this can be done. The first is\nby lengthening the working day itself. The extra surplus value so produced is called\nabsolute surplus value. The other way to increase the ratio of surplus labour to\nnecessary labour is to reduce the necessary labour. The crudest way to do this is to\nreduce the workers’ standard of living by reducing wages, which of course the employer\nwill always do if he can. But the same result, of reducing the proportion of necessary\nlabour, will occur if productivity is increased so that, for example, the labour time\nnecessary for the production of the articles the worker needs is reduced and their prices\nfall, with the consequent reduction of the value of labour-power without reducing the\nworker’s standard of living. The extra surplus value so produced is called relative\nsurplus value.<\/p>\n\n\n\n \nHow do the complications of capitalist production affect the value of a commodity? The\nvalue of each unit of cotton textiles turned out will be made up of the value of the raw\nmaterials, the value of the machinery transferred, the value of the labour power and the\nsurplus value, or the commodity’s value = c + v + s, where c is the part of the total\nconstant capital (C) transferred to the product. The rate of profit is S\/(C + V).\nThe value of a commodity is fixed by the amount of socially necessary labour embodied\nin it from start to finish, not just in the final stage of its production. Thus it is inaccurate\nto say that agricultural workers produce food or that car workers produce cars.\nProduction under capitalism is a social process in which all workers take part. An\nimportant corollary of this is: the capitalist class as a whole exploits the working class as\na whole. The worker is not exploited just by his particular employer, but by the whole\nclass of capitalists.<\/p>\n\n\n\n \nIt may come as a surprise, after all that has been said about commodities exchanging in\nfixed proportions according to their values, to be told that under capitalism commodities\ndo not sell at their values. But this is in fact the case. This is why it is important to\nunderstand that the Labour Theory of Value is not a mere theory of price. There are two\nsimple reasons why price and value can differ: prices fluctuate with supply and demand,\nand with monopoly, a commodity will sell at above its value (or, with subsidies, below its\nvalue). The third reason is more complicated but must be grasped if you want to\nunderstand the observable workings of capitalism, e.g. what is behind the pricing\npolicies of businesses. Those who decide on prices, don’t know what the value is, and\ndon’t need to. What do they act or, then?<\/p>\n\n\n\n \nWe saw that the capital advanced can be divided into constant and variable and that it\nis only the variable capital that increases to create the surplus value. The ratio C\/V Marx\ncalled the organic composition of capital. Given the same rate of exploitation (s\/v) in all\nindustries, if all commodities sold at their value this would mean that the highest rates of\nprofit should be made in the technically backward, labour-intensive industries. But\nis this so? Not at all; the tendency is rather for capital to get more or less the same rate\nof profit wherever it is invested.<\/p>\n\n\n\n \nHow to reconcile a labour theory of value with the averaging of profits was a problem\nthat baffled Adam Smith and Ricardo. But Marx solved it in the only way possible: by\nabandoning the assumption that all commodities sell at their values. Critics have called\nthis the “great contradiction” in Marx’s work, but it is nothing of the sort. As we have\nseen capitalist production and circulation is a social process: each individual capitalist\ndoes not exploit only his own employees but the whole capitalist class exploits the\nwhole working class. Each capitalist employs so many workers who produce so much\nsurplus value. Instead of going to the individual capitalist this surplus value goes, as it\nwere, into a pool from which it is shared along with the rest of the surplus value\namongst all the capitalists in accordance with how much capital they have invested.\n(This explains why, incidentally, a fully automated factory would still make a profit.)\nConsider the consequences of this on prices. Say s\/v is 100 per cent and that there are\nthree sectors with different organic compositions:<\/p>\n\n\n\n \nWith no averaging of profits B is the most profitable sector, but with an averaging we\nget: <\/p>\n\n\n\n \nMarx called this selling price, which is made up of cost plus average rate of profit, the\nprice of production. This, in fact, is how businesses do operate and is regarded by\nacademic economics (who, as Marx pointed out, merely take a businessman’s view of\neconomic events) as enough. But it is not. It is all very well talking airily about price\nbeing set at cost plus “normal profit”. But what is normal profit? Something fixed by\ncustom! This is only what it appears to be. Only the Labour Theory of Value, with its\nconcept of value and surplus value, based on labour, can adequately explain why the\n“normal” rate of profit is, say, 10 per cent rather than 15 per cent.<\/p>\n\n\n\n Back to the Economics index<\/a><\/p>\n\n\n\n
\n\n\n\nWhy is the labour theory of value important?<\/h3>\n\n\n\n
\nSome definitions<\/h3>\n\n\n\n
\nWhat all commodities have in common…<\/h3>\n\n\n\n
\nLabour power as a commodity<\/h3>\n\n\n\n
\nUnpaid labour<\/h3>\n\n\n\n
\nWhat is capital?<\/h3>\n\n\n\n
\nThe rate of exploitation<\/h3>\n\n\n\n
\nDefining the value of a commodity<\/h3>\n\n\n\n
\nWhy price does not always equal value<\/h3>\n\n\n\n
C<\/strong><\/td> V<\/strong><\/td> S<\/strong><\/td> value<\/strong><\/td> rate of profit<\/strong><\/td><\/tr> A<\/strong><\/td> 80<\/td> 20<\/td> 20<\/td> 120<\/td> 20%<\/td><\/tr> B<\/strong><\/td> 40<\/td> 60<\/td> 60<\/td> 160<\/td> 60%<\/td><\/tr> C<\/strong><\/td> 60<\/td> 40<\/td> 40<\/td> 140<\/td> 40%<\/td><\/tr><\/tbody><\/table>\n\n\n\n C<\/strong><\/td> V<\/strong><\/td> S<\/strong><\/td> profit<\/strong><\/td> value<\/strong><\/td> price<\/strong><\/td><\/tr> A<\/strong><\/td> 80<\/td> 20<\/td> 20<\/td> 40<\/td> 120<\/td> 140 above value<\/td><\/tr> B<\/strong><\/td> 40<\/td> 60<\/td> 60<\/td> 40<\/td> 160<\/td> 140 below value<\/td><\/tr> C<\/strong><\/td> 60<\/td> 40<\/td> 40<\/td> 40<\/td> 140<\/td> 140 at value<\/td><\/tr><\/tbody><\/table>\n\n\n\n
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