Capital, commodity production and collapse (I)

by Jehu

Part One: Capital and commodity production

The anti-communist, Karl Popper has argued a good scientific theory is one that can be falsified by evidence. By this measure Popper claimed Marxism was not scientific.

Another, broader, view of what constitutes a scientifically valid theory is offered in Lee Smolin’s book, The Trouble With Physics, which makes this point about good theory: It brings together things once thought separate and thereby broadens our understanding of the world around us. A good theory, even when it cannot be immediately verified by experiment, revolutionizes our understanding of the world around us:

“The most cherished goal in physics, as in bad romance novels, is unification. To bring together two things previously understood as different and recognize them as aspects of a single entity — when we can do it — is the biggest thrill in science.

The only sane response to a proposed unification is surprise. The sun is just another star — and the stars are just suns that happen to be very far away! Imagine the reaction of a late-sixteenth-century blacksmith or actor on hearing this wild idea of Giordano Bruno’s. What could be more absurd than to unify the sun with the stars? People had been taught that the sun was a great fire created by God to warm the earth, while the stars were pinholes in the celestial sphere that let in the light of heaven. Unification instantly turns your world upside down. What you used to believe becomes impossible. If the stars are suns, the universe is vastly bigger than we thought! Heaven cannot be just overhead!”

According to Smolin, a good theory unifies things that were once thought to be separate, like matter and energy, time and space, motion and rest. At any point in time a number of hypotheses may be around to show things we might think different are simply aspects of some larger thing. A good theory, he argues, is a revolution in knowledge that transforms our understanding of the world.

Further, says Smolin, unifying things once thought to be separate and unrelated create implications, since, even when they cannot be proven, they predict new things or explain the nature of things we already know about. This was the case when science demonstrated the stars were not just pinholes in the celestial sphere, but suns just like ours, likely orbited by planets just like ours, and probably populated by living creatures just like us.

Of course, not all proposed unifications are successful. They may be contradicted by observation. Sometimes advocates for a proposed theory just offer explanations that simply conceal defects in their proposed unifications by hiding the consequences that disagree with observation. A good example: physicists could not explain how an electromagnetic field worked, so they proposed it propagated much the way sound propagates through air. The medium through which light propagated was called “aether”.

Physicists knew electromagnetic force operated over a distance between object, but did not understand the mechanism, so they fudged it by proposing a previously unknown substance that transmitted its effects from one object to another. Of course, no such substance existed, as observation and the mathematics of Newtonian physics showed. So, the existence of the proposed substance, aether, was eventually shown to be false.

Labor Theory: The unification of production and exchange

In a similar fashion, many classical economists in the 18th and 19th century proposed a theory to unify labor expended in production with prices in exchange and thus show they were just two aspects of the same thing. Labor and prices, production and exchange, were not two separate things, but expressions of one and the same thing. It was proposed that the quantity of labor expended on production of a commodity determined the price paid for the commodity in the market. This unification between labor expended in production and market prices has been called the labor theory of value. The theory rests on the observation that commodities exchange in the market more or less according to their labor times (values), not according to their physical characteristics or their capacity to satisfy human needs (use values).

The theory was widely popular in the 19th century but ran into a stubborn obstacle: If the prices of commodities were determined by their labor times, where did profit come from? Obviously, profit was produced by labor as well. But when economists attempted to incorporate profit into the price of the commodity an odd thing happened: the prices of commodities no longer agreed with the labor time values contained in them; once profit was included into prices of production, the capitalist production price  (exchange value) of the commodity increasingly diverged from the socially necessary labor time required for its production (value).

If the price of the commodity is an expression of the labor time expended to produce it, and the profit on the commodity was simply that portion of labor time falling to the capitalist, mathematically this produced two different and incompatible measures of socially necessary labor time and two different and incompatible prices. It turns out the formation of prices in the capitalist mode of production was not a simple one. Even today the incongruity of value and capitalist prices of production undermines the full acceptance of the labor theory of value even among otherwise staunch Marxists.

To understand the problem of values and prices, consider two factories operating side by side, a worker-owned co-operative and a capitalist firm, each which produces the same commodity. There is the price of the commodity produced by a worker owned co-op, which has a price equal to its labor value, v; but that same commodity produced in a capitalist owned factory down the street has a market price equal to its value plus the profit of the capitalist, v+s. It would appear the price of the capitalistically produced commodity (v+s) should not be the same as the cooperatively produced commodity (v). Yet we know that market competition would see to it that each commodity would be sold at more or less the same price. This results in a paradox where price (v) equals price (v+s), an apparent equality that actually conceals a real inequality that must be explained by labor theory of value.

Although the prices of the commodities must be equal in the market, the labor value of the cooperatively produced commodity must be different than that of the capitalistically produced commodity. Without this real underlying difference in labor value, v, there is no way the capitalist can produce a profit, s, and still sell his commodity at the same price as his competitors in the co-operative. If the workers in the co-op and the workers in the capitalist factory received the same income, the production price of the two commodities produced must be different.

The problem festered for more than half a century among economists until Marx proposed an elegant solution that at first appears to violate the law of value: the workers in the capitalist factory receive less income than the workers in the co-op. This allowed the labor values of the two commodities to be produced competitively and sold at the same price.

Labor power: Marx’s proposed unification of labor with the commodity

But didn’t this mean the workers in the factory were being cheated by the capitalist out of exchange value that was rightly theirs? No, said Marx. The workers in the capitalist factory were only being paid for their capacity to labor, not their actual labor. They sold this capacity, their labor power, to the capitalist, who then used it to produce his profit. The workers in the co-operative did not sell their labor power like the workers at the capitalist firm; instead, they sold their finished product and thus received the full value of their labor like any independent producer — a blacksmith or a shoe cobbler.

This was a light bulb moment in economics.

To explain capitalist profit, Marx’s discovered a new category of commodity, wholly unique to the capitalist mode of production, labor power, which turned out to be a powerful innovation in labor theory of value. Until Marx proposed labor itself took the form of a commodity under the capitalist mode of production and could be sold in the market like any other commodity, it was understood that labor, although the source of value, had no value of its own. Marx showed the capacity to labor was distinct from labor itself; composed, Marx argued, of “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.”

Marx essentially proposed the unification of labor with the commodity and thus brought labor itself under the same law of value as determined the values of commodities. The capacity for labor, when sold as a commodity in the market, had a value equal to the socially necessary labor time required for its production like any other commodity. By unifying labor with the commodity in the form of a new, previously unknown and uniquely capitalist commodity, labor power, Marx could then explain how profit was created without relying on extra-economic causes — like, for instance, explanations that proposed the capitalist systematically cheated the worker or his customer. He also could now explain also why labor value still determined commodity price despite the surplus labor time (profit) of the capitalist.

Profit, or overproduction as the overriding aim of capital

But Marx’s unification of labor with the commodity posed a problem of its own: if the value of labor was the socially necessary labor time required for the labor power consumed in the production of commodities, the profits realized from this consumption was, by definition, superfluous to the production of the commodity. The mechanism by which Marx explained how profits were produced also implied this profit was unnecessary for the reproduction of the labor power. By definition, the profits produced by the employment of labor power in production is superfluous to the labor power employed in its production.

Why is this important? It is important because Marx’s theory does something no other theory of capitalism does: Marx’s unification of labor with the commodity completely inverts our commonsense notion of what is meant by the term, socially necessary labor time, in the capitalistic mode of production and turns it into a bizarre, otherworldly economic category.

Let me explain how this happens.

Leaving aside all non-labor costs of production, in the worker-owned co-operative, all income realized from the sale of the commodities produced by her labor go back to the co-operative worker in the form of her consumption. However, this is not true for the worker at the capitalist factory down the street: one portion of income ended up in her consumption, but another portion ended up as the profit of the capitalist.

And this poses a problem: after the capitalist built his new mansion, threw his fancy dress dinners, paid his retinue of docile servants and engaged in other forms of conspicuous consumption typical of that class, where did the rest of the profit go? Did profit just sit in a bank vault and accumulate as dead money?

Think about the problem this way: In labor theory of value, the capitalist cannot simply markup the price of his commodity as most people think. If labor values are to determine prices in the market, the profit of capital must come at the expense of the consumption of the worker. However, in a closed system all productive consumption ultimately takes the form of worker income. Ultimately, the productive consumption of the workers is the only real market for the output of capital. Thus, if the productive consumption of the working class is reduced to make room for capitalist profit, this in effect reduces the ultimate and only real market for the output of capital.

The profits created by the workers at a capitalist firm would appear to be a barrier to the normal operation of capital itself, as society suffered what bourgeois simpleton economists call “chronic insufficient demand” The wages of the working class would never be sufficient to purchase all the commodities they produced. Based on this argument, most people who study the mode of production declare capitalism must sooner or later fall into stagnation due to something they call periodic crises of overproduction or, alternately, periodic crises of underconsumption.

Underconsumptionist theories of capitalism are incorrect, because Marx shows the creation of a surplus product over the needs of the workers is not a defect of capital; rather, it is the singular overriding aim of the capitalist mode of production.

Socially necessary labor time and labor power

In chapter 1 of Capital Marx defines the value of a commodity as the socially necessary labor time required for its production. Value is created during production so long as the labor time expended on the production of the commodity is strictly limited requiring, “for producing a commodity, no more time than is needed on an average, no more than is socially necessary.” According to Marx, additional labor time spent on the production of the commodity by producers does not add to its value.

However, this is decidedly not true for one commodity, labor power. For this uniquely capitalistic commodity, the labor time spent on its production must always exceed the socially necessary labor time required for its production. This additional labor time spent on the production of the commodity is what we call profit. Thus, contrary to most models of capitalism that assume overproduction is an inherent defect of the capitalist mode of production, Marx shows capital immediately aims at overproduction, immediately seeks to expend more labor time than is necessary to produce the commodities necessary for the reproduction of the labor power of the workers who produced it. Contrary to underconsumptionist models of capitalist production that are so popular today, Marx argues superfluous labor, labor unnecessary for the production of the commodity, is, from the first, the goal of all capitalist production.

In other words, contrary to most Marxists who study this problem, Marx never assumed v = v+s; i.e., that the labor value of the commodity equals its price of production. The surplus labor time of the workers is, from the capital’s inception, superfluous to the reproduction of the labor power that created it. Ultimately, capitalist prices of production can never equal the value labor power without bringing capitalist production to a halt, because this would imply a profit rate of zero.

Superfluous labor and capital

Marx’s labor theory of value thus revolutionizes our notion of the category of socially necessary labor time under the capitalist mode of production. While economists up until Marx began with a notion of production as an activity determined by human needs and the quantity of socially necessary labor time required to satisfy those needs, Marx proposed that in the capitalist mode of production labor time was determined by production that was entirely superfluous to human needs.

Capital, Marx warned, implied an entirely different notion of socially necessary labor time; a notion grounded not in the needs of society, but began with the constant expansion of labor time that was superfluous to the needs of society. This new, capitalistic, notion of what constitutes socially necessary labor time for capital is labor time that is entirely superfluous — a point he made with startling clarity in his so-called fragment on the machine:

“Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary. On the one side, then, it calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it. On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value. Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means, and are merely means for it to produce on its limited foundation.”

Capital, says Marx, subverts the very concept of what is meant by socially necessary labor time. Previously what was socially necessary labor is determined by the average labor time required to produce the commodities necessary to satisfy the needs of society. What was superfluous is that labor time which was necessary to satisfy the needs of society. Not so for capital: what is socially necessary for capital is the labor time that is superfluous to satisfaction of the needs of society, while the needs of society (and the socially necessary labor time required to satisfy them) are wholly determined by the needs of capital.

Another way to put this: In Capital, Marx shows that value and use value are the same thing in the capitalist mode of production — value (the socially necessary labor time required for production of labor power) is nothing more than a use value for capital. In earlier modes of production, value and use value had no necessary relation to one another,  but in the capitalist mode of production value is itself a use value like any other. In the form of labor power, value becomes the means for the production of surplus value. The same historical movement that unifies labor with the commodity in the uniquely capitalistic form of a new category, labor power, also unifies value with use value and socially necessary labor time with superfluous labor time.


The approach taken by Marx has implications for the mode of production that I will address in another post.