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April 28, 2010
Part 1 of the Law of Value series.
Intro:
Marx Quiz:
Addendum:
An economic crisis is also a time of ideological crisis. It’s a time when people start to reevaluate their ideas about the world, questioning some of the most basic assumptions they once had. Every capitalist crisis in history has brought about a rethinking and regrouping of mainstream economic thought. Interestingly this rethinking has always happened within the context of some sort of radical challenge to the economic order.
Marginal Utility theory, which still serves the basis of modern mainstream economic theory, emerged from the Great Depression of the late 1800s (yes there was another Great Depression prior to 1929) as an answer to the challenge of Karl Marx’s thorough critique of capitalism. Keynesianism emerged from the Great Depression of the 1930′s as a response to the failures of liberal economics, the challenge of a successful Bolshevik revolution and strong worker movements in the Western world. Neoliberalism emerged from the crisis of the 1970′s both as a backlash against the failures of Keynesianism to manage crisis and as an assault against the growth of large popular left-movements like the anti-war, student, civil-rights and women’s movements and the power of entrenched labor.
Alan Greenspan:
“Remember that what an ideology is is a conceptual framework with the way people deal with reality. Everyone has one… to exist you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is: Yes, I’ve found a flaw- I don’t know how significant or permanent it is but I’ve been very distressed by that fact.”
With such admissions of failure from the neoliberal establishment we can’t help but begin to question the dominant economic ideas of our time. Yet it is not clear that we are entering this ideological crisis in the context of any viable challenges to the economic order. The failures of centrally-planned Soviet-style economies have largely purged the idea of alternatives to capitalism from the popular consciousness. At such a time in may be useful to re-exmine the ideas of Karl Marx, to see what exactly he was trying to say in his critique of capitalism- not because we have some desire to repeat the political experiments of Lenin, Mao, Stalin or any of the others who claimed to embody the ideas of Marx, but because Marx presents a systematic, and thorough critique of capital that is wholly different, wholly unique in the history of economic thought. Such radical ideas are crucial in our search for a new understanding of our present condition and possibilities for social transformation. A society without the ability to critique itself is a dangerous society to live in, especially as it enters a long period of crisis.
There is a crucial difference between all the great bourgeois economists and Marx. They all saw crisis (except Keynes maybe) as something that came from outside of capitalism, disturbing the natural equilibrium of the market. When confronted with the reality that capitalism was prone to inequality, exploitation and crisis- that is, when it becomes apparent that there is a discontinuity between their theories and reality- bourgeois economists always blame reality for not conforming to their models. Reality has been poisoned by invading external forces, they say, in the form of state intervention, labor-movements, human greed, etc. We see this same reactionary approach today in rising right-wing populism which blames the invasive influence of foreigners, left-intellectuals, homosexuals, non-Christians, and black presidents for the problems of society.
Marx takes the opposite approach. He sees the social antagonisms of capitalism as internal to the system. These social antagonisms are so basic to the system that they drag all other parts of society into their gravitational field.
Bourgeois economists have always seen the market as a realm of great freedom and equality. The fact that there is so much inequality, crisis and unfulfilled freedom in market societies is seen as an imperfection in reality, not theory. Contrary to what some lay people think, Marx does not start with an analysis of these social bads and then proceed to a critique of market relations. Marx doesn’t begin by talking about monopoly, poverty, exploitation, or state violence. He begins with this same realm of market freedom that his bourgeois critics are so enamored with, and then shows how all of these social antagonisms spring out of this basic productive relation. For Marx it all starts that the fact that capitalist production is production for market exchange. This basic form of production takes on law-like properties that he calls “The Law of Value”.
The Law of Value
What did Marx find so interesting about capitalist societies? It wasn’t just the freedom to buy or sell anything you wanted. It was the fact that in order to participate in the social life of a market society one has to buy and sell things. In order to survive, in order to participate in society, one has to enter the market to buy things and to sell the products of their own labor. This is a distinctly different organization of society than previous societies where working people largely supported themselves with their own labor- that is, they labored to make things for their own use. (Or more specifically, laboring classes supported themselves with their own labor and supported the ruling class.) In a capitalist society people don’t make things that have any use for themselves at all. They produce things in order to exchange them. Thus the coordination of the social labor process happens indirectly through exchange.
In a society of private producers, coordinated indirectly through the market, the social relations between these people take the form of relations between things, of commodity relations. The relations between people become value relations expressed in commodity prices. Economically, people can only relate to each other through money prices, through value. This world of commodity relations takes an independent form, outside of the control of individuals, that acts back upon and directs the flow of human affairs. Adam Smith called it the “hidden hand of the market.” Marx calls it “the law of value.”
What is the law of value? It is the impersonal, blind forces of the economy exerting their influence upon society. It is unique to a society in which the dominant form of labor is production for market exchange. The relations between people become value relations between commodities. And these value relations become impersonal forces which have unexpected consequences for society. For instance, we get capital:
People have always used tools and other resources in their labor. These are called “means of production”. In a capitalist economy means of production become capital. Tools, machines, materials, and even workers are all commodities with values. This makes it possible to buy means of production in the market and sell the products of those means of production for a profit. That is, a person can invest money in production merely for the sake of getting more money. The pursuit of value as an end in itself becomes the dominating force in the society. This is what capital is, the expansion of value for its own sake, regardless of the social cost. Capital takes the form of a class that owns the means of production and another that must produce the profit for capital.
Capital is inherently asymmetrical, great poles of wealth and poverty spreading out from it in geographical and economic space. Capital is also self-negating. Although it represents an impersonal force above society, dominating the worker, it also relies on the worker to create profit for it. There is a social antagonism at it’s root. This social antagonism leads to periodic crisis and constant instability.
All of these radical implications and many more are part of Marx’s theory of value.
This video series will cover various topics in Marx’s theory of value: The difference between use-value, exchange value and value, the relation of supply, demand and price to value, abstract labor, exploitation, crisis, socially necessary labor time, and even what an understanding of value can tell us about changing the world. It is hoped that they can contribute to a better appreciation of the importance of value theory to radical movements today as they seek ideas with which to articulate their demands and strategies.
How much do you know?
Many people, supporters and opponents of Marx, think that they already know all there is to know about Marx’s theory of value. Let’s take a brief quiz to find out how much you know. Here are 10 True or False questions. Take out a paper and pencil and keep track of your answers. I’ll give the answers at the end.
True False Quiz:
1. Marx’s theory of value holds that any human labor creates value.
2. Marx’s theory of value is intended to be a theory of market prices.
3. Marx’s theory of value is the same as his predecessor David Ricardo.
4. Marx didn’t believe the forces of supply and demand were relevant to explaining value.
5. Marx’s theory of value is a theory of what workers should get paid.
6. Marx’s theory of value was a theory about how a communist society should be run.
7. Marx didn’t think consumer demand played a role in prices, value or other economic phenomena.
8. Marx’s theory of value doesn’t work in free markets.
9. Marx’s theory of value can’t explain why useless things like mudpies don’t have value.
10. Marx hated babies.
The answer to all of these questions is “FALSE”! If you answered “True” to any of them then perhaps you don’t know enough about Marx’s theory of value to actually make an informed judgement about it. If you are interested in understanding one of the most thorough theoretical critiques of capitalism ever created then perhaps this video series might be a good starting point. If you already know that you are going to hate Marx’s analysis then perhaps watching this video series would be a good starting point in educating yourself so that you don’t sound like a total idiot when you go mouthing-off all over the internet.
How you should watch these videos
The internet has given us access to more information than any generation before us. It has allowed for a great leveling of our access to information, allowing everyone to contribute to the sharing of information. But this hasn’t necessarily made our culture better informed, more intelligent, or better at critical thinking. In our rush for instant information we are losing our ability to properly contextualize information, to synthesize ideas, and to discern what sources of information we can trust. Let’s face it- in our consumer-culture we are conditioned to want instant gratification for no effort. We want easy answers that don’t require any personal sacrifice. (Neo, matrix, downloading information into his brain.)
You can’t learn everything you need to know about capitalism from a YouTube video. On the internet any fool can and will explain their inarticulate and half-formed personal theories into a web cam. These videos are not like that. They don’t represent my ideas at all. I am trying, to the best of my ability, to explain a complex body of intellectual work that spans a long history of debates as people grappled with these ideas. By acquainting ourselves with the history of ideas we can make sure that we don’t repeat the mistakes of the past, and that we are aware of the implications of our arguments.
But a video or a blog cannot substitute for the real thing. I am dealing with complex, difficult ideas and I am not perfect. I may make mistakes. I may leave things out. If you really want to understand Marx you must go to the source.
We should also be aware of the ability of video to manipulate us on an emotional level. Images, tone of voice and background music can all be helpful in helping us understand things. But they can also evoke emotional responses that are not necessarily rational. We should be aware of the way media effects our understanding of material and not let this get in the way of rational intellectual thinking. There is already enough of a shortage of rational thinking in our society.
There are a lot of ideas in each of these videos. One viewing may not be sufficient to absorb everything. That’s why I post the full text on my blog. The blog sometimes also contains tangents and side-arguments that were cut from the video as well as references and suggestions for future reading. I hope that the references on my blog might be a good starting point for people who are interested in learning more.
As we move through these different topics in the Law of Value our understanding of the Law of Value will deepen. At the end of each video there is a summary of the new layer of meaning we have added to the law of value. It would be wise to keep returning to this basic question as we progress through these videos: What happens when the relations between working people take the form of value relations between commodities?
Additional Reading:
Does the Internet Make You Smarter- Nicolas Carr, Wall Street Journal
http://kapitalism101.wordpress.com/2010/04/28/law-of-value-introduction/
Part 1:
Part 2:
In many videos I’ve argued that exploitation is central to capitalism.
In my recent video on money I explained how the contradictions within money itself can only be resolved by a process which circulates money solely for the purpose of circulating money while at the same time measuring and representing real value. In this video I will tie both of these themes together by explaining how exploitation allows capitalism to attempt a resolution of the contradictions within money.
Barter is a simple system of commodity exchange in which people trade one commodity or another. We can represent this with the diagram: C-C
As trading grows and there are more and more commodities to be traded societies began to develop money. Money can be any universally desired commodity with a stable value: silver, gold, axes, cattle, etc. What makes money different from other commodities is the fact that it can be exchanged for any commodity. For instance- at one point in history the gold commodity could buy anything, but donkey commodities or potatoes commodities couldn’t. Thus money became a way of expressing the value of any commodity- a property unique to one commodity which is singled out from all other commodities and given the name “money”.
So now, instead of C-C we have C-M-C. Both types of exchange existed side by side for a long time before C-M-C began to dominate.
The establishment of money as a universal equivalent (a commodity which can buy anything) gives money status as the ultimate form of social power. People then, can be tempted to hoard money, not for the sake of buying commodities, but just for the sake of having more money.
Not only does money create this temptation, but it also requires some process where money is hoarded sometimes and then injected back into circulation at others. This is because we need to have just the right amount of money in circulation to represent the values of all the commodities that are being traded (C-M-C) at a given time. Commodity production is erratic. If we don’t have the right amount of money in circulation commodities either can’t circulate or circulate at erratic prices. The only way to solve this problem is to take money out of circulation when it’s not needed and then to inject it back in when it is.
So with money there is both the possibility and the need for M-C-M…. that is, some process which circulates money just for the sake of circulating money. But why would someone want to trade money for money? This only makes sense if they are making more money from the trade!
In C-M-C people are trading (with money) one commodity for another, because they have a use for the other commodity. In simple commodity production, people are exchanging these “uses” or “use values”.
But the purpose of M-C-M isn’t to trade use values at all but to get a greater quantity of the same thing- money. Instead of being qualitative it’s a quantitative process.
Now how do you get more money? With C-M-C exchange only happens if people agree to trade things for equal value. People measure the value of commodities with money and exchange them for money. If I sell something I’ve made for $10 and then go spend that $10 on stuff I am essentially trading $10 of my labor for $10 of other people’s labor. An equal exchange has taken place with the aid of money as a measuring of value. The value that is being measured corresponds to the amount of labor that has gone into making the commodity.
But if we are going to do M-C-M we need an unequal exchange. We need to end up with more money than we started with. How is this possible?
Well, I could sell a commodity for more than its worth- that is, more than its labor value. What happens when I do that? This can only work if I have a monopoly on selling this commodity, because if I’m selling for more than something’s worth other people can just undersell me. If I do have a monopoly I can count on the fact that I won’t have a monopoly forever. When one person profits from an unequal exchange it attracts other people into that industry. Soon there are competitors all trying to undersell each other, eating away at the profit margin until the product trades at its value again.
So if there is a tendency for exchange to gravitate toward equal exchange, where do we get the profit we need for M-C-M? Exchange equalizes within a closed economic system where buyers and sellers are aware of what the money price is of all commodities. But what if there are were other people- somewhere else in a different economic community who valued commodities differently than us- maybe it was easier or harder for them to make some commodities and so we could benefit from unequal exchange with them. Or maybe commodity exchanged hadn’t even become generalized in their culture yet and so they didn’t have a good sense of the value of something.
This is exactly what the early merchant class was all about. Savvy traders traversed the globe looking for “bargains”: trying to find cultures willing to part with their pelts, spices, jewels and gold for less so they could return home with commodities and sell them for more. And when they couldn’t find unequal exchanges they made them in the form of theft. The early merchant class was rife with pirates who made a living from stealing commodities in order to sell them.
The other class that mastered M-C-M early on was the money lending class. By lending money to people and then charging them interest on the loan, the money lending class could turn a profit. This was called usury and it was frowned upon at many times in history, even outlawed at times.
It should be pointed out that neither merchant capital or usury actually created more value. They merely took commodities from one place and moved them to another. But this moving of commodities was such a source of wealth that it pushed traders and loans to the farthest corners of the universe in search of profit.
And so the world was slowly brought together by merchants exploring the world looking for unequal exchanges to get rich off of. But when ever merchants pushed to the borders of the economic universe they found that the economic integration they had spawned had gone and created their worst nightmare: equal exchange. As cultures were brought into closer contact, as people began to find out how much things exchanged for in different places, as more and more merchants began traveling the same silk roads- it was harder and harder to find people to rip off.
And so those who lived by unequal exchange had to find new ways to make profit. They began to ask, “what if there was a magic commodity?… a commodity which could produce more value than it cost to buy?”
They found such a commodity- it was human labor.
When I sell the products of my own labor on the market I get all the money myself. But what if I am selling my labor to someone else? If I sell my labor to a capitalist for a wage the capitalist can pay less for my wage than he sells the commodity for. Thus he transfers the inequality of profit in exchange into the production process.
Let’s take a closer look. When I sell something I’ve made myself on the open market I am selling a commodity. When I sell my labor to someone else I am selling my labor power- that is, my capacity to do labor. How much I produce is subject to how hard I work, the quality of the tools and materials I use and the organization of the workplace. I’m paid by the hour, so the harder I work the more I can produce per hour. Thus the amount of money I’m paid doesn’t necessarily correspond to the amount of value I produce. If it did the capitalist wouldn’t be making a profit.
This is what capitalists do. They profit from inequality in the sphere of production instead of exchange. They are modern day pirates.
Why are workers willing to work for less than the value of what they produce? Wages, instead of being related to the value of the commodities workers produce, are related to the amount of money necessary to “reproduce the worker.” This is a fancy term for “what it takes to get the worker to show up for work the next day.” This usually means paying a worker enough for rent, food, entertainment and whatever else the general standard of living in a society requires. This cost of “reproducing the worker” varies from place to place over time as the standard of living adjusts to the whims of capitalist development. For instance, the standard of living for most Americans has fallen in the last 30 years making labor power cheaper for capitalists to buy.
But still this doesn’t explain why workers consent to this. After all, they choose to work for a wage rather than simply produce goods themselves. Well many people do choose to work for themselves if they can. In fact, as real wages have fallen in the American economy the percentage of self-employed people has risen. But in order to produce commodities yourself you have to have access to tools, materials, a work area… We call all of these things “means of production.”
In a capitalist society a small amount of people (capitalists) own the vast majority of the means of production. Thus workers have no choice but to sell their labor power for a wage to a capitalist. This has caused some people to refer to wage labor as “wage slavery”.
This didn’t just happen by accident one day. The process by which simple commodity producers- farmers, craftsmen, etc.- were deprived of their means of production so that they had to work as wage laborers was a long and violent one. It demolished communities, destroyed cultures, eroded feudalism, etc. This process, accomplished by dispossessions, outright theft and usury, is often referred to as “primitive accumulation” to differentiate it from the “capitalist accumulation it made possible.
Along with the profits of merchant capital, primitive accumulation provided the money and capital needed to deprive most of the world of their means to produce and concentrate these means of production, as private property, in the hands of a relatively small class of people: the capitalist class.
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