Discuss Marx's Theory of Value by Focusing on Abstract and Concrete Labour.

Classical Political Economy Tarandeep Baxi

BSc Development Economics 117514

Discuss Marx’s Theory of Value by Focusing on Abstract and Concrete Labour

The labour theory of value is a doctrine that was established by the classical economists, particularly by Adam Smith and David Ricardo; it “states that the value of a good is determined by the amount of labour input needed to produce that good”. In order to explain this, the labour theory of value can be separated into 2 divisions;

value in use and
value in exchange

“The word VALUE, it is to be observed, it has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called ‘value in use’; the other, ‘value in exchange’. The things which have the greatest value in use have frequently little or no value in exchange…those which have the greatest value in exchange have frequently little or no value in use.”

The utility of a product creates its ‘value in use’, when dealing with value in use, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. If a commodity were in no way useful, it would be destitute of exchangeable value, however, scarce it may be, or whatever quantity of labour may be necessary for its production.

The exchange value of a commodity is the power of purchasing other goods with the possession that object conveys. Exchange value presents itself as a quantitative relation, as the proportion in which values in use of one sort are exchanged for those of another.

According to Adam Smith ‘value in exchange’ is the most important determinant in the theory of value. However, it is important to be able to establish the value of one commodity in terms of another; therefore, in reference to this, Smith associates two types of labour with ‘value in exchange’.

labour embodied and
labour commanded

Labour embodied can be defined as the labour that has gone into the production of the good; labour commanded on the other hand, is the labour that you can save yourself from doing, through the exchange of products, for example, by exchanging butter for a jacket, you save yourself the labour of making the jacket. Labour commanded is measured by dividing the price of goods by the wage rate, ().

In the original state of society, for example, before capital had accumulated and before land was privatised, goods were exchanged through the quantity of labour that had gone into the production of each good. In developed society, this was no longer a valid method for exchange, the value of goods was now measured by a number of input costs of profit + wages + rent, even if labour did constitute the largest part of the final value. This is referred to as the natural price, as was suggested by Smith.

David Ricardo based most of his work on the foundations that had been laid by Smith, some 40 years earlier. However, as Ricardo was more of an economist than Smith was, so his conclusions were more distributional, more static, as opposed to growth-orientated. Ricardo agrees with Smith that value is determined by two factors; ‘value in use’ and ‘value in exchange’, but he rejects the importance of ‘value in exchange’ and instead concentrates on ‘value in use’. This is because according to Ricardo nominal wageis in fact, the price of real wage. For example, workers receive just enough wages to be able to purchase the necessary goods that they require; it is the equivalent of the workers receiving the goods in hand, rather than the wages.

The concept of exploitation is linked with ‘value in use’; such that workers are exploited under capitalism when the commodities which they purchase with their wages, embody less

labour-time than they expect in earning their wages. According to Marx, workers do not sell their labour-time, but the ability to work under capitalist direction. Marx refers to this commodity as labour power. Since this commodity produces a greater value than it costs, Marx calls it variable capital. Surplus value (or the rate of exploitation) results from the labourers working longer hours than they need to, in order to produce constant capital and variable capital.

Ricardo reinforces the importance of ‘value in use’ in the following example,

If the price of good 1 rises; consumers are forced to ...

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Ricardo reinforces the importance of ‘value in use’ in the following example,

If the price of good 1 rises; consumers are forced to consume less of good 1 and to increase the consumption of good 2. However, this will not have any effect on nominal wage because the consumer has altered his consumption level from of good 1 andof good 2 to of good 1 and of good 2; therefore, the consumer is still consuming the same quantity of total goods as before, but has changed the individual consumption level of goods 1 and 2. Ricardo found that this example proved his importance of ‘value in use’ as an accurate measure of the value of goods.

Ricardo emphasises on ‘labour embodied’, which he also describes as the labour that has gone into the production of a commodity, however, he stresses that the value of production, is determined by the difficulty and cost of production of that commodity; in this respect, diamonds are literally very valuable, due to the difficulty in producing them and water which is readily available, will have less value; whereas in reality, water is a necessity and as a result, very valuable. Therefore, if it is not possible to reproduce a good, its value will increase, such as paintings like the Mona Lisa. A lot of labour may have been spent producing something i.e. writing a book, however, if no ones wants it; it holds no value. On the other hand, if someone were to find a lump of gold by chance, involving no labour, the gold will still be very valuable. Some economists questioned in this case, whether the labour theory of value encouraged workers to become lazier, taking longer to produce goods, so that they would increase in value. However, this was not true. A country prospers not by increasing the labour value of a given output, but by increasing the use values that can be produced by the labour force. The ‘necessaries and conveniences of life’, as Smith states, are increased, by decreasing the labour values of commodities.

Karl Marx accepted this labour theory of value, which had been put forward by Smith and Ricardo. According to Marx, “the exchange values possessed by commodities are put there by society. For commodities in society do not exchange in differing ratios, as would likely be the case if individual hunters bartered their deer against the salmon caught by individual fisherman”. In a situation such as this, we would find that society manages to establish ratios that determine the terms on which deer can be exchanged for salmon. When explaining value, Marx states that it is important, to firstly establish what kind labour makes value, and under what conditions do products become commodities.

In order to answer the first question, Marx focuses on ‘labour embodied’, which he studies by separating into two divisions;

concrete labour and
abstract labour

In Marx's view, just as a commodity is “a complex of two things- use-value and exchange value,” so labour has a two-fold nature under capitalism. Just as the physical properties of a commodity determine its use-value, concrete labour activities are required to produce commodities. The labour of the joiner, mason and spinner in this case are mentioned as examples. Marx further describes concrete labour as a type of labour that is highly specific in the time, skill and manual side of labour; therefore, its use-value will be very high as ‘specific labour’ has been used to make a particular product and as a result no two products produced by concrete labour are the same, nor do any two products of concrete labour hold the same use-value. Each product produced using concrete labour is unique.

Abstract labour is a type of labour that is common to all commodities, including those commodities producing using concrete labour, as a measure of the time gone into production. However, it is difficult to ‘pin-point’ exactly what abstract labour is, it doesn’t exist to the human eye, but it is still recognised. Marx states that it is abstract labour that creates the value of a product; it represents the human activity undertaken during production. Labour is also defined as labour as expenditure under average conditions of a quantity of average labour-power. In earlier writings, Marx uses the term 'universal social labour' instead of abstract labour; his argument is that in a commodity society labour becomes social labour only as abstract labour. Average social labour-time is the only social substance common to commodities, which can be the basis of social relations equating them as more or less the same thing.

“The value of a commodity represents human labour in the abstract, the expenditure of human labour in general. And just as in society, a general or a banker plays a great part, but a mere man, on the other hand, a very shabby part, so here with mere human labour. It is the expenditure of simple labour power, i.e. of the labour power which, on an average, apart from any special development, exists in the organism of every ordinary individual.”

Marx uses the following example to explain abstract labour further, in relation to the theory of relative price;

If the time taken to produce one chair is 2 hrs and the time to produce one table is 4 hrs, in 4 hrs either one table or two chairs can be produced, =. This is what Marx describes as the theory of relative price; and it is this relative price, that instigates interest amongst economists. As suggested by Marx the theory of relative price and exchange value are the results of abstract labour.

In reference to the second question; under what conditions do products become commodities; Marx identifies that there must be social conditions present in order to turn products into commodities. There were two main conditions that Marx concentrated on,

mobility of labour and
production to be undertaken by autonomous, independent producers in competition

Mobility of labour includes the opportunity for workers to change jobs and/or production techniques, in the absence of hereditary rights to jobs, i.e. in agriculture. Production to be undertaken by autonomous, independent producers that are in competition with each other increases efficiency and competition continues through tradition. Both of these points, I and II, are also conditions that are present in industrial capitalism.

“Marx’s …argument reveals that it requires a particular set of historic circumstances to bring about such a peculiarly “abstract” kind of labour. This particular set of circumstances is, …the mode of production called capitalism. Capitalism is a socio-economic system built on profit gained from production…”

Marx and Ricardo agreed on the concept of socially necessary labour time, this was the time needed to make a product; i.e. a table would need 4 hours. However, if total output exceeds the social need of the product, the socially necessary labour time will decrease. The social need of the product is determined, in this case, by the demand and supply markets. If the technology in a particular area rapidly improves, the total output produced by that area will increase, the cost of production and the human labour that has gone into production, will both consequently decrease, and as a result the relative ratio will also decrease.

Marx’s socio-analysis reveals that the classical assumption of a common kind of labour within all commodities poses the question for, not the answer to, the problem of value. The labour theory of value, as illustrated by Marx is therefore not merely a key to exchange ratios; it is the key to the historic past of capitalism, the clue to the existence of social relationships essential for capitalist society.

The labour theory of value starts from a real objective fact of social nature; labour. All other theories of value start from concocted subjective concepts which actually come down to assuming capitalist relations in order to prove capitalist relations, and it is the only theory that gives us an independent way of valuing the inputs to production, the value added in production and the outputs from production and therefore, it is the only one which enables us to explain profit rather than just assuming it is a natural part of the costs of production. This theory of value allows us to make educated predictions about the effects of class struggle on wages and profits and methods of production.

It is often suggested that it is not labour alone that contributes to the creating of new value, but also other factors of production, including land and capital. But it can be argued that labour is a common measure of these factors of production, as capital and land in its actual form as an economic inputs, at least in developed capitalist economies are products of labour.

Only relatively standard commodities, produced under relatively standard conditions and thus embodying relatively definitive quantities of average social labour, have clearly defined values. These are the vast majority of the commodities exchanged in modern society.

"The analysis of labour into abstract labour and concrete labour, points to an understanding of the particular 'bourgeois form of labour'. It is central to the 'value theory of labour'. Marx's analysis of the labour process will show that as capitalist production develops, labour tends to become more and more abstract for the worker (mere sacrifice of rest, freedom and happiness) and more and more concrete for capital (more productive of a rich

variety of wealth)."

Both Ricardo and Marx agreed that value is determined by the labour embodied in a product, in order to explain the labour theory of value; they used the relative price method. Whilst doing this they came across a problem, often referred to as the transformation problem. The transformation problem is how to transform relationships in the system of labour values into relationships in the system of prices of production. The principle relationships to have been investigated in earlier literature revolve around; relative prices and values, the rate of profit, total surplus value and total profits and total value and total prices. Some Marxists have questioned whether quantitative relationships should be expected to hold between values and prices since they belong to different levels of analysis. The following example is used to explain the transformation problem more clearly; 2 industries, operating on different scales, will put in different amount of capital and labour into the production of a product,

Firm 1 - 100 workers, £500 capital

Firm 2 - 300 workers, £1500 capital,

Both firms will aim to make 10% of their capital, in order for their capital invested to be a worthwhile investment, as a result, this will create differences in each firm's selling price, despite the fact that they may be producing similar products.

The labour theory of value states that market prices are attracted by prices proportional to the labour time embodied in commodities. In other words, relative prices tend toward relative labour values. The labour theory of value is restricted to the analysis of reproducible commodities that have a use-value in a capitalist society. “Although the labour theory of value is commonly associated with Classical economists, arguably neither Marx nor any first tier Classical economist accepted the labour theory of value as a valid

theory for capitalist economies.”

Much of the controversy surrounding the labour theory of value deals with associated doctrines, particularly the doctrine that the exploitation of the worker is the ultimate source of profits in a capitalist economy. Ricardo and Marx thought that their analyses had greater applicability than the special cases in which the labour theory of value is valid also as a theory of price. According to some, Ricardo accepted the labour theory of value when writing the first edition of ‘The principles of Political Economy and Taxation’, but not before or when modifying his book for later editions. Marx seemed to think that abstract labour time is a common substance in all commodities, while denying that prices tended to be proportional to labour values.

The labour theory of value applies to all commodities produced and sold in capitalist societies. Commodities have both use values and exchange values. Value, according to Marx, is abstract labour time. The accumulation of exchange values as an end in itself distinguishes capitalism from simple commodity production.

Marx's approach to value was essentially Ricardo's labour theory of value. According to Marx, the values of "All commodities are only definite masses of congealed labour time." As an advocate of Ricardo's original theory, he also followed and built on his solutions to the labour value theory's innate deficiencies. Although Marx used the classical concepts of value he applied his broad philosophical and sociological knowledge, to reach conclusions in ‘Capital’ that diverged radically from them. Like Aristotle, exchange of value or more appropriately exchange of ‘just’ value had for Marx, moral and judicial implications as well as economic ones.

The labour theory of value is a fundamental component of the economic and social theories

of Marx and of his analysis of capitalist exploitation. Marx argues that the value of any

commodity is determined by the socially necessary labour time that goes into its production. Marx uses the term ‘socially necessary labour time’ because the labour time required to create a commodity depends on the society's levels of technology and craft. In Marx's theory, commodities should in principle be exchanged in the market place for prices that exactly correspond to the necessary labour time embodied in them. When a commodity is exchanged- or sold - for more than its labour value, a surplus value is realized. This theory of value provides the foundation of Marx's claim that labour is exploited in a capitalist society: the capitalist, through the power of capital ownership, is able to pay the worker less than the market value of the commodities produced and the surplus value is captured by capital and largely re-invested to increase the means of production.

Bibliography

A History of Economic Thought, 1979, I.I. Rubin, Pluto Press
Collins Dictionary of Economics, 3rd Edition, 2000, C. Pass, B. Lowes and L. Davies, Harper Collins
Marxism- For and Against, 1980, R.L. Heilbroner, W.W. Norton & Co.
Studies in the Labour Theory of Value, 2nd Edition, 1979, R.L. Meek, Lawrence and Wishart Ltd
Wealth of Nations, 2000, A. Smith, Oxford University Press
http://www.workersliberty.org/wlmags/capital/cs1.html
Lecture notes- 24/10/2001 and 31/10/2001