Karl Marx Theory Of Value

Theory Of Value, Karl Marx

Use Value, Exchange Value, and Price

In analyzing the value-determining forces at work in the capitalist economy, Marx distinguishes clearly between two kinds of value: "use value" and "exchange value." The former means the usefulness a thing has to its possessor, its utility, or the pleasure or satisfaction derived by its posses­sor from its utilization. Use value is a purely subjective thing, an abstrac­tion that can exist quantitatively only in the mind of the user or prospec­tive user of the thing, and then only as a plus or minus quantity relative to the similarly realized use value of some other thing. By exchange value Marx means the power of a thing to command all other things in exchange for itself, or "the proportional quantities in which it exchanges with all other commodities." Since it is only exchange value that he seeks to ana­lyze, he commonly drops that prefix and uses just value. By value Marx means precisely the same thing the orthodox economist of today means when he uses that term in economics textbooks.

Marx points out that use value and exchange value are obviously vitally related, since no exchange value can exist unless some use value is present. Only in very primitive forms of economy could a thing have use value without having exchange value. If little specialization pre­vailed and little exchange took place, most things would have use value and yet no exchange value. Since Marx is analyzing the determinants of value in a capitalist economy characterized by specialization and intricate exchange processes, the masses of things commonly produced are destined to be exchanged by their producers for other things and therefore have not only use value but exchange value as well. Things having both of these values he terms commodities. It is the determination of the exchange value of commodities that he attempts to explain.

Marx uses the term price, just as do modern orthodox economists, to mean the power of a commodity to command money in exchange for itself. As he puts it, price is the "money name" of the value of a commodity.

Karl Marx, Normal Value and Market Value

Marx, like modern economists, points out that there are several kinds of exchange value (from this point on to be called merely "value"). He distinguishes between what he calls "natural" values (and the correspond­ing natural prices) on the one hand and "market" values (and the corre­sponding market prices) on the other. By the former, which Marx also calls "real" value, he means the "normal" value in modern economic terms. This is the normal long-run level of the value of a commodity, on the average, about which short-run values of the commodity oscillate. Deviations from normal value or real value, Marx held, were caused by supply and demand forces, while the normal value itself, which became the market value when supply and demand were in perfect equilibrium, was determined by another force to be described presently. He therefore makes numerous references to market value or prices being out of line with normal values or prices. Like modern economists, who devote their principal efforts to explaining the determinants of normal value, Marx was primarily interested in this. "The question is what determines the amount which becomes the amount at which supply and demand are in equilibrium."

Marx phrased this distinction between normal or real value and market value in several clear paragraphs in his Value, Price and Profit:

You will find that the fluctuations of market prices, their deviations from values, their ups and downs, paralyze and compensate each other; so that apart from the effect of monopolies and some other modifica­tions I must now pass by, all descriptions of commodities are, on the average, sold at their respective values or natural prices.

At the moment when supply and demand equilibrate each other, and therefore cease to act, the market price of a commodity coincides with its real value, with the standard price round which its market prices oscillate. In inquiring into the nature of that value, we have therefore nothing at all to do with the temporary effects on market prices of supply and demand.
It is interesting to note how closely this distinction follows the words of Adam Smith, whom Marx quotes in Value, Price and Profit as follows:

The deviations of market prices from values are continual, but, as Adam Smith says: "The natural price is the central price to which the prices of commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and some­times forces them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance they are constantly tending toward it."

Karl Marx, Labor as the Value-Determining Element Common to All Commodities

A basic tenet of Marx and other economists of the "labor-cost" school of that time was that whatever the value-determining force was, it had to be something common to all commodities. This meant that an adequate explanation of value necessitated the discovery of something objective (therefore use value would not be suitable) and common to all commodi­ties, and an analysis of the metamorphosis whereby that common element as it existed in all commodities became value.

Marx accepted labor, or muscular and mental human effort, as the one element common to all commodities. In question-answer form, Marx puts it thus: "What is the common social substance of all commodities? It is labor. To produce a commodity a certain amount of labor must be bestowed upon it, or worked up in it."11 If labor is the one element com­mon to all commodities and therefore the clue to values, what common element can be found in all labor? Clearly no qualitative characteristic, for labor obviously varies much from one specialized occupation to an­other. The common element must be quantitative, and the only element in this category found in all labor is time. Thus, labor time becomes the value-creating and value-determining element in all commodities. Marx fol­lows this line of reasoning in a concise summary in Capital:
A use value, or useful article, therefore has value only because human labor in the abstract has been embodied or materialized in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labor, contained in the article. The quantity of labor, however, is measured by its duration, and labor time in its turn finds its standard in weeks, days, and hours.

Summaries of the Marxian Theory of Value

Before we take up certain separate portions of this theory of value for further study, it will be helpful to note several of the most concise of its numerous summaries:

But what is the value of a commodity? The objective form of the social labor expended in its production. And how do we measure the quantity of this value? By the quantity of the labor contained in it.

A commodity has a value because it is a crystallization of social labor. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative values of commodities are, therefore, determined by the respec­tive quantities or amounts of labor, worked up, realized, fixed in them.

In this sense every commodity is a symbol, since, in so far as it is value, it is only the material envelope of the human labor spent upon it.

Theory of Value Includes Past and Current Labor

A complete understanding of this theory of value requires that several points be noted with particular care. Marx makes it clear that by the amount of labor embodied in a commodity he means not only the labor at the final stage of the process, or at that point where the commodity takes on the final characteristics essential to its exchangeability. He em­phasizes that the value-determining labor content of a commodity includes all the labor at all stages in its production back through the production of the necessary raw materials, power, and machinery. The labor required to restore whatever portions of the machinery are worn away in the pro­duction of a commodity is part of the labor content of that commodity. Similarly, if the raw materials entering a commodity are machine-made, the labor necessary to restore any part of that machinery worn out in producing the materials for that commodity is part of the labor content of that commodity. Thus each commodity becomes the "material envelope" of the human labor that went into it, despite the fact that the component parts of this labor are scattered over many separate uses, producing units, and periods of time. Marx summaries this portion of his theory of value and illustrates it as follows:

In calculating the exchangeable value of a commodity we must add to the quantity of labor last employed the quantity of labor previously worked up in the raw material of the commodity, and the labor be­stowed on the implements, tools, machinery, and buildings, with which such labor is assisted.

The labor required for the production of the cotton, the raw material of the yarn, is part of the labor necessary to produce the yarn, and is therefore contained in the yarn. The same applies to the labor em­bodied in the spindle, without whose wear and tear the cotton could not be spun.

Hence, in determining the value of the yarn, or the labor time re­quired for its production, all the especial processes carried on at various times and in different places, which were necessary, first to pro­duce the cotton and the wasted portion of the spindle, and then with the cotton and spindle to spin the yarn, may together be looked on as different and successive phases of one and the same process. The whole of the labor in the yarn is past labor; and it is a matter of no importance that the operations necessary for the production of its constituent elements were carried on at times which, referred to the present, are more remote than the final operation of spinning. If a definite quantity of labor, say thirty days, is requisite to build a house, the total amount of labor incorporated in it is not altered by the fact that the work of the last day is done twenty-nine days later than that of the first. There­fore, the labor contained in the raw material and the instruments of labor can be treated just as if it were labor expended in an earlier stage of the spinning process, before the labor of actual spinning commenced.

Only Socially Necessary Labor Is Value Determining

This theory of values does not imply that labor in itself creates value, no matter what the end product of that labor may be and no matter how inefficient it may be. Marx never argued that the more labor is embodied in a product the more value that product possesses. It is only "socially necessary" labor that is value determining. "In saying that the value of a commodity is determined by the quantity of labor worked up or crystal­lized in it, we mean the quantity of labor necessary for its production in a given state of society, under certain social average conditions of produc­tion, with a given social average intensity, and average skill of the labor employed."

Thus if one firm were to turn out a product with greater or lesser efficiency, in terms of labor time embodied in it, than characterized the preponderant run of the firms producing that product, the normal value of that firm's product would be determined not by its labor time but by that of the bulk of the producers. Any unusual conditions experienced by one producer, affecting the labor time embodied in his product but not "socially necessary" to the production of that product, are not value determining. Marx illustrates this point as follows: "Though the capitalist have a hobby, and use a gold instead of a steel spindle, yet the only labor that counts for anything in the value of the yarn is that which would be required to produce a steel spindle, because no more is necessary under the given social conditions."

It thus follows that the normal value of an existing stock of durable commodities changes in accordance with changes in the socially neces­sary labor time required to produce identical commodities. Marx logically holds that the quantities of past labor embodied in existing commodities of a certain kind no longer determine the normal values of those com­modities if the socially necessary labor required to reproduce them has changed. In illustrating the determination of the normal value of cotton, he contends that

if the time socially necessary for the production of any commodity alters—and a given weight of cotton represents, after a bad harvest, more labor than after a good one—all previously existing commodities of the same class are affected, because they are, as it were, only individuals of the species, and their value at any given time is measured by the labor socially necessary, i.e., by the labor necessary for their pro­duction under the then existing social conditions.

In Marx's theory there are no limits to what may cause a change in the amount of labor socially necessary to produce a given commodity. He makes it a function of the entire environment within which production takes place; consequently, a change in any element in that environment may be the cause of an increase or decrease in the labor time necessary to produce that commodity.

Time Lags in Value Changes

Marx pictures the forces that change the socially necessary labor time to produce any given commodity as working imperfectly and with time lags. Thus if only one firm were to acquire a machine that would shorten the total labor time required in its plant to produce a certain product, that firm for the time being would derive a benefit from the fact that the value of its commodity on the open market (determined by the socially necessary labor time generally required to produce it) has not changed, while its individual value in this limited sphere (determined by the labor time necessary to produce it in this particular plant) has declined. How­ever, Marx further points out that in such a case there would be a down­ward pull on the commodity's normal value and that the rapidity of its fall would be determined by the degree of competition prevailing among the firms producing this product, while this in turn might be substantially affected by the ability of the originating firm to keep its invention a secret.

Exchange Proves the Presence of Use Value

The injection of the "socially necessary" element into the theory that labor time determines value serves to show that unless a thing has use value, labor spent on it cannot create exchange value. The determination of whether a given quantity of labor time has or has not created use value occurs within the exchange process. Marx holds that "whether that labor is useful for others and its product consequently capable of satisfying the wants of others, can be proved only by the act of exchange. Thus the final determination of whether labor is socially useful or not is made by the buyers of the articles in which labor is embodied as they encounter them and react to them in their exchange activities.

There is still another ramification of the "socially useful" idea. Ac­cording to Marx, it is possible for the social usefulness of a given quantity of labor to be diminished by applying it to some line of production when buyers of commodities would rather have it devoted to some other line of production. This, of course, is merely different in degree from the pos­sibility just cited, in which it is conceivable that labor may be put into the formation of things that have no use value—the labor thus used be­coming socially unnecessary and therefore not value creating. This subtle meaning of the term socially necessary is brought out by Marx in the fol­lowing illustration:

Lastly, suppose that every piece of linen in the market contains no more labor time than is socially necessary. [That is, no more than is necessary to make it physically.] In spite of this, all these pieces taken as a whole, may have had superfluous labor time spent upon them. If the market cannot stomach the whole quantity at the normal price [that is, at the value corresponding to the amount of labor socially necessary to produce the physical linen], . . . this proves that too great a portion of the total labor of the community has been expended in the form of weaving. The effect is the same as if each individual weaver had ex­pended more labor time upon his particular product than is socially necessary.

The fact that society was demanding another allocation of its total labor time to the various channels of production thus would become evi­dent through market value or price at a particular time being higher or lower than normal or "natural" value or price. In Marxian theory extra surpluses or losses resulting from these discrepancies would stimulate re-allotment of labor time to its respective uses, thus reestablishing the dom­inance of normal value as determined by the content of socially necessary labor time.

Labor Content in Time Units Determines Value

In relation to value determination, qualities of labor have no significance— only quantities measured in time units are effective value determinants.

It is the quantity of labor required for its production, not the realized form of that labor, by which the amount of the value of a commodity is determined.

While, therefore, with reference to use value, the labor contained in a commodity counts only qualitatively, with reference to value it counts only quantitatively, and must first be reduced to human labor pure and simple.

Skilled labor counts only as simple labor intensified or, rather, as multiplied simple labor, a given quantity of skilled being considered equal to a greater quantity of simple labor.

Marx was vague as to just what "human labor pure and simple" meant. Professor Bober concludes that he meant "homogeneous, abstract, unskilled labor."

Marx conceived of all kinds and degrees of occupational skill as being reducible to standard time units of unskilled labor. Thus, to il­lustrate, a skilled machinist in one clock hour might contribute to pro­duction four of these standard time units of unskilled labor. If an average unskilled-labor hour were the standard unit, the skilled machinist would then embody in the commodity on which he was working four hours of socially necessary (assuming standard efficiency of equipment, etc.) labor time per clock hour worked, while the unskilled laborer would embody in the commodity only one hour of socially necessary labor time per clock hour worked. Since hours of socially necessary labor time, rather than clock hours, are held to be the determinants of value, a commodity pro­duced by the skilled machinist (assuming, to make the case simple, that he was unassisted by other workers or machinery or materials) in one clock hour would have a normal value equal to that of the product produced by the unskilled laborer (assuming he also was unassisted) in four clock hours. In other words, the normal values of commodities bear to each other ex­change ratios difectly proportional to the number of socially necessary standard time units of unskilled labor used up in the production of each.

Marx was extremely vague in explaining what determines the num­ber of units of unskilled labor time to which a certain clock time spent by a skilled laborer will be equivalent. It is obvious that the number of ratios necessary to convert all the socially necessary labor in a com­modity into a quantity of these hours of unskilled labor time would be not only exceedingly numerous but very complicated in a system charac­terized by much specialization and multitudinous categories of skill. The conversion of skilled into unskilled units of labor therefore cannot be done by one who might wish to study the production of a given product and make such a calculation. According to Marx, "the different propor­tions in which different sorts of labor are reduced to unskilled labor as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by cus­tom." In a later reference to the problem of converting units of skilled into unskilled labor, he contends that "whenever, by an exchange, we equate as values our different products, by that very act, we also equate, as human labor, the different kinds of labor expended upon them."20 Marx apparently felt that the impossibility of objectively calculating these rela­tionships or segregating the forces that act in the markets to determine them does not diminish the reality of their independent existence.

Value Is Inherent in the Commodity

Despite certain limitations already noted, Marx finds it possible to con­tend that value thus becomes something inherent in the commodity. "It becomes plain, that it is not the exchange value of commodities which regulates the magnitude of their value; but, on the contrary, that it is the magnitude of their value which controls their exchange proportions." As Professor Bober points out, it was in this regard that Marx departed from Ricardo's labor theory of value. "Ricardo had constantly in mind exchange value, relative value. To him, value is the power of one product to command others in exchange. To Marx value is exchange value; but it is also an intrinsic entity incarnated in a commodity, and the substance of this entity is congealed labor." It is in this regard that Marx may have involved his theory of value in some internal inconsistencies (to be dis­cussed later) and come nearest to making his theory of value merely a part of his philosophy rather than an objective explanation of what hap­pens in the exchange processes of a capitalist economy.

Relationship of Man-Made and Nature-Made Instruments to Value Determination

Of course, if value is always merely "congealed" socially necessary labor, neither the man-made nor the nature-made instruments used in produc­tion can play any direct part in value determination. As previously noted, Marx considered man-made tools and machinery merely the products of labor, so they became indirectly value determining, in that whatever socially necessary labor had gone into tools and machinery actually used up in the production of a commodity were considered part of the socially necessary labor embodied in that commodity. As far as nature or nature-made instruments are concerned, Marx flatly denies (although there are some minor contradictory statements) that the part they may play in pro­duction enters in any way into the value determination of the commodi­ties produced: "Since exchange value is a definite social manner of ex­pressing the amount of labor bestowed upon an object, Nature has no more to do with it, than it has in fixing the course of exchange." "So far no chemist has ever discovered exchange value either in a pearl or a dia­mond." That is, in the purely natural state they are not commodities, be­cause they have no exchange value. Whatever exchange value they may acquire comes only after the application of labor to the natural materials or in anticipation of the possibility of adding human labor to the natural materials. If labor could not be applied, any such exchange value' would immediately vanish. Nature merely furnishes the environment. Exchange values are in no sense a function of the environment. They exist only when labor time has joined itself with nature, and consequently they are the ex­clusive product of labor time. So runs the Marxian theory.

Labor Content Determines Value of Money

Marx considered price to be merely the "money name" of value. What­ever the chosen money metal might be, its value was determined by ex­actly the same forces that determined the values of other commodities— the socially necessary labor time embodied in it. "The value of gold or silver, like that of all other commodities, is regulated by the quantity of la­bor necessary for getting them." Thus each commodity tended to exchange for the number of dollars or pounds containing the amount of gold or silver that embodied an amount of socially necessary labor equal to that embodied in the commodity. "The value, or in other words the quantity of human labor contained in a ton of iron, is expressed in imagination by such a quantity of the money commodity as contains the same amount of labor as the iron." Money thus becomes a common measure of values, whereas money prices merely express relationships between values—that is, between the respective labor contents of commodities on the one hand and of quantities of the monetary metal on the other.

Significance of Monetary Expression of Value

Although Marx held that money prices were mere reflections of values, he attached much significance to the fact that values were so expressed.

The real stuff of which values are composed—that is, labor—thus loses its human aspects and is converted into a sort of inanimate abstraction. "When they assume this money shape, commodities strip off every trace of their natural use value, and of the particular kind of labor to which they owe their creation, in order to transform themselves into the uniform, socially recognized incarnation of homogeneous human labor."36 In dis­cussing this point Lenin held that "money masks the social character of individual labor, and hides the social tie between the various producers who come together in the market."

Modifications of Theory of Value by Marx

Thus far the Marxian theory of value appears to be clear and simple. But from this point on, abstruseness and apparent contradictions feature the theory or theories of value propounded in Volume III of Capital. In pursuing his thought, Marx apparently became involved in certain diffi­culties arising out of his "socially necessary labor" theory of value. This theory appeared to him to fall somewhat short of explaining actual price phenomena as they prevailed in markets. A modified theory of value ap­pears in his later writings. Students have disagreed heartily over whether this modified theory is or is not consistent with the original value theory expounded earlier.

For the purposes of this discussion and for an understanding of the basic features of Marxian thought, it is not necessary to trace these modi­fications and their ramifications in detail. The earlier value theory, which has been outlined, holds that each commodity tends to sell for a value or price determined by its content of socially necessary labor. In his later work Marx injected a concept of averages into this theory. Lenin has in­terpreted Marx on this point as follows: "Naturally, therefore in a society made up of separate producers of commodities, linked solely through the market, conformity to law can only be an average, a general manifestation, as mass phenomenon, with individual and mutually compensating devia­tions to one side and the other."

Thus, the socially necessary total labor going to produce all commodi­ties determines their total values in terms of each other, or the average socially necessary labor content determines the average value. Professor Bober interprets Marx as holding that "only the total volume of commodi­ties produced in all industries can be said to sell according to the mass of socially necessary labor incorporated in it. In individual cases, commodities in one branch of production will sell at less, and in another at more, than the value according to the labor theory. But these deviations compensate each other, as we should expect, since the deviations of the items from their average will always cancel out. .. ."

As will appear later, in the discussion of "surplus value," Marx was interested primarily in mass or aggregate phenomena. His whole system deals with the sweep of evolutionary change in social phenomena. It is evident that he considered value theory more pertinent and meaningful when stated in terms of averages or masses than when expressed in terms of individual commodities. "He does not claim that the two theories are identical, but he urges that the first is still the heart and soul of the second, and that therefore the labor theory enunciated in the first volume is not abandoned in the third."