Carl Max

Introduction

From the point of view of the history of economic thought, at the end of the 1860s and the beginning of the 1870s, two currents that proposed to break with classical political economy were born. Two movements that, however completely opposed and simultaneously  (with a difference of a few years -Marx, in 1867 and the Marginalists 1870), gave its almost definitive shape to the scene of contemporary economic theory.

Marx’s perspective does not consist in rejecting exhaustively all theories formulated by the pillars of the classical political economy (Smith and Ricardo); but he takes them as its starting point. However, Marx’s objective is to transcend the classical legacy, preserving in part its content but also pointing out its limitations. The importance that Marx himself attributed to the works of Smith and Ricardo is also manifested in the numerous quotations included in Capital, but also in the detailed analysis that he dedicates to them.

There are different interpretations of Marx, and this often gives the impression that his work is a political pamphlet. This is indeed connected to the history of the socialist movement, the origins of which were inspired to a great extent by Marx himself, more specifically by the political and philosophical writings of Marx and Engels (e.g., The Communist Manifesto (1848), The German Ideology (1845–1846). Nevertheless, this narrow interpretation would ignore Marx’s major economic contributions, that is, the three volumes of Capital.

The commodities and abstract labour

The goal of Marx’s economic studies was to “lay bare the laws of motion of modern society” (Capital, vol. I, p. 10), that is to say, to discover social regularities described mainly as long-run tendencies. Marx observes that capitalism is a historically specific system characterised by generalised commodity exchange, so, naturally, the starting point of his inquiry is the analysis of commodities, the most elementary form of the wealth of a capitalist society. As the classic school already pointed out,  commodities have a dual property: they can be used to satisfy needs and they can also be exchanged. Adopting the established terminology in Marx’s time, a commodity is at the same time a use value and value. Again the question posed is: what regulates that exchange? 

If the commodities did not have in themselves “something equal”, they could never be equal in exchange, and that something equal has nothing to do with their respective use values. This is because their material bodies, their use values, far from making them equal, make them different from each other. When the use value of goods is abstracted, there remains a single common property: all of them are products of labour, but of labour considered as indistinct labour. Commodities are values because they represent the abstract human labour that produced them.

When Smith, originally, and later Ricardo, struggled to find what “created” value (the source of value), they came to a conclusion, as original as it was difficult to demonstrate: only and exclusively labour has the capacity to “create” value. Once this finding was established, they proceeded to postulate that there was a proportional relationship between the value and the labour “contained” in the commodities. In this field two crucial differences between the classics and Marx must be pointed out. In the first place, the classical authors always refer to the labour without making further clarifications. They thus confuse two aspects of labour: labour considered as human productive activity in general (what Marx calls abstract labour); and the activity aimed at manufacturing a certain product (useful and concrete labour). These are not two different activities, but two different ways of looking at the same job. In other words, Marx calls the total quantity of abstract labour time, that is, incorporated in a commodity the immanent measure of value of the commodity. 

Secondly, classical political economy was confined mainly to how price, or in other words the exchange value was established. Unlike the classics, Marx has never said that this quantitative determination of value is immediately comparable with the relationship that exists between observable prices in the market. Remember that for both Smith and Ricardo the categories value and exchange value (or price)  are confused until they become one, as if it were a single phenomenon. For Marx, value and exchange value are not the same, contrary to what Smith or Ricardo believed. Consequently, labour should not be confused with value just as value should not be confused with price. 

Socially necessary labour time and the law of value

The value of a commodity is equal to the quantity of the abstract labour time that is socially necessary for the production of the commodity in question. Hence the notion of socially necessary abstract labour time is different from the homogenised labour time of Smith and Ricardo. 

For Marx, the quantity of labour and, consequently, the magnitude of the value, is determined by the labour time required to manufacture any commodity, that is, by the labour time required on average to produce it or, in other words, by the labour time “socially necessary required to produce any use value, under normal conditions of production and with the average degree of skill and intensity of work prevailing in society”. For example, Marx (Capital, vol. I, p. 39) refers to a characteristic example that was observed in England when the introduction of power looms reduced the socially necessary labour time for the production of cloth by about fifty percent. The traditional producers who continued working with hand looms found out that the value of their commodity was slashed by one-half not because of the reduction of their own labour time but because of the reduction of the socially necessary labour time.

How does the magnitude of the value vary? If more work is required in the production of a certain commodity, the greater its value. And in the same way, the greater the productive capacity of labour, the smaller the magnitude of the value, since the amount of work invested in the production of each unit will be less. In short: “the magnitude of the value of a commodity changes directly to the quantity of labour and inversely to the productive capacity of the labour invested in it” (Capital [1867] 1986: 8).

Following this logic, the law of value – according to which the socially necessary labour time is directly embodied in a commodity – is the regulator of the movement of market prices. Prices are the means through which capitalists realise their profits and losses and regulate their behaviour accordingly. Socially necessary labour time constitutes the regulator of prices and profit and, therefore, of social reproduction. The operation of this dual relation is what Marx calls the law of value whose role is analogous to Adam Smith’s “invisible hand”, for it provides an explanation of how the capitalist society reproduces itself and the various scales of its reproduction. 

Surplus value

Marx made the distinction between labour and labour power, a distinction that is absolutely crucial for the understanding of the concept of surplus value.

Labour-power or capacity for labour is to be understood as the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description. (Capital, vol. I, p. 186)

It follows then that labour is the utilisation of labour power, that is, of the useful labour that a labourer performs in a specific period of time. And, like any other commodity, the value of labour power is determined by the amount of labour that its production requires. In this case, the magnitude of value is equal to the labour time required to produce the worker’s livelihood. In other words, the value of labour power is equal to the socially necessary labour time required for the production of commodities that a worker purchases with his money wage to reproduce himself and his family. But the labour time embodied in the commodities normally used by the worker for the reproduction of himself and his family in a day is less than the labour time that a worker actually offers to the owner of capital during the same time period. The result is that for any given time period, the worker produces more value than the wage equivalent which is paid by the owner of capital for the use of the labour power. This difference, Marx calls “unpaid labour” and “surplus labour”.

This argumentative line, starting in the analysis of the commodity and continuing to the ideas of abstract labour, social necessary labour time and labour power constitute the theoretical cornerstone of Marx’s political description of the modern society. For Marx, all societies require labour to reproduce themselves. So much so, that in all societies a particular social class performs more work than what is required for its own reproduction with the excess labour being appropriated by the dominant classes through property relations, traditions, the legal system and also force. Such exploitative relations are quite transparent in pre-capitalist modes of production (e.g., slavery and feudalism), whereas in capitalism they are embedded in monetary transactions that give the impression of equal, and, therefore, fair exchanges.

The difference between total labour time and that required to reproduce the workers’ capacity to work is called surplus labour time and its monetary expression, the surplus value, is appropriated by the propertied classes (capitalists and landlords) and the state. The wealth accumulated in a society is directly related to the amount of surplus labour time, which is inversely related to the necessary labour time of the labour power. The distinction between labour and labour power is Marx’s greatest discovery and contribution to political economy, because through this distinction the source of surplus value can be explained.