Value is not the same as price: it is one of the determinants of price, the cause responsible for the long-run average price. In the short term the price may be pushed above the value by shortage or exceptional demand. Also, the price of a commodity that requires more capital investment for its production is normally, even in the long term, above the level corresponding to its relative value (for reasons to be explained later).
This theory of value, the labour theory, was not invented by Marx. It was commonplace among economists at the time. It was given currency by Adam Smith: 'The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour'; Wealth of Nations, Bk.1, ch.5.
This theory of value uses a notion of common, general, abstract, undifferentiated human labour. In a society in which there is little division of labour there would not be much meaning to the notion of human labour as such, in the abstract: there would be the kind of work needed for one task, the different kind of work needed for another. But as the division of labour progresses, the work is homogenized. This may not seem true, since some tasks require specialized skill. But no-one is expected to do a specialized task without training, and training is divided into stages so that anyone can master the first stage just by spending time paying ordinary attention, and anyone who masters the first can then master the second - again by spending time paying ordinary attention; and anyone who has gone through all stages of training can do the job by spending time with ordinary attention. If this is not true, then the task will be changed: further division of labour will take place, or machinery will be introduced. If this process were carried right through (which it has not been, and never will be) then all work would be merely giving ordinary attention for the required time. The essence of work would be the time it takes. This seems to be the sort of reasoning behind the labour theory of value. If so, then it is applicable insofar as there is division of labour. See Heilbroner, Marxism, for and against (HB/197/.5/.H37), pp.99-100.
Capital is money used to make money - by buying commodities which are then to be sold to get an increased amount of money. How can money be used in this way? One answer is: by buying cheap and selling dear as prices fluctuate. This may explain how this or that individual makes money for a while, but since every gain made this way is someone else's loss, if those who gain that way now have an even chance of losing later, then it cannot explain the existence of a definite class of people who regularly make money. The explanation for the existence of such a class (capitalists) is that a limited set of people are in a position to buy a commodity which regularly yields an increase when they sell. This commodity is the service of the worker, which may produce commodities which exceed that service in exchange value (and only when when it does will the worker's services be bought).
The service of a worker is a commodity which has the special use of producing other commodities, which may have more exchange value than it has itself. There are other commodities (e.g. machines) which produce commodities, but (on the labour theory of value, which makes human labour the sole source of value) the exchange value contributed by a machine is simply a fraction of the cost in labour terms of making and working the machine. If over its whole working life it costs $3,000 and produces 3000 items, then it adds $1 to the value of each item. But the amount of labour a worker puts into what he produces over a lifetime may exceed the amount of labour needed to produce and maintain that worker. If some employer buys the worker's services at their value - i.e. for the equivalent of the labour needed to produce the worker - then, since the worker's product belongs to the employer, there will be an excess or 'surplus' value, additional to the value of the wage, that the employer appropriates.
Marx does not think that in the real world full value is always paid. But he conducts his argument on the hypothesis that full value is paid, for several reasons. First, he wants to make it clear that his analysis of capitalism does not rest on the assumptions that capitalists defraud the worker. Even if there were no cheating, capitalism could still exist. Second, he wants to show that even an idealized capitalism would be doomed to destruction (the argumentative strategy of proving the point for the hardest case: a fortiori it holds for other cases). Third, he wants to make it clear that it is in production itself, and not merely in the distribution of the product, that the capitalists' profits originate; it is not accidental that most (though not all) capitals are used to finance production (not, e.g., for buying non-human commodities and selling them unmodified).
Let us consider more carefully the notion of the value of the worker's services for a day - not the price, which may be forced down by competition for a time, but the value, in terms of the labour theory of value. It is the total quantity of labour necessary to bring that worker into the labour market, and keep him fit for work during a normal working life, divided by the number of days in the normal working life. The total includes the amount of labour necessary to produce his food, clothing, shelter, general education, job training, medical care, necessary recreation, and so on. These are the 'wages goods', the goods that have first call on the labourer's wage; or the 'necessities of life'. The necessity is not merely biological; there is a social or conventional or cultural element (e.g. in the standard of general education, the sort of food and shelter regarded as necessary, the sort of recreation needed, and so on).
The quotient, today's share of the total, Marx calls the 'necessary' labour. He pictures the working day as divided into two segments, in the first of which the worker produces for the employer the equivalent of the necessities of life to be purchased by his wage - this is the 'necessary' labour time; the product of the rest of the day is the source of the employer's profit, the 'surplus' labour. It is not 'surplus' in the sense of unnecessary, to the employer - for him it is in fact the whole point of the employment contract. But it is labour 'in excess of' or 'surplus to' the labour needed to produce the equivalent of the necessities of life. The individual employer's profit is not simply identical with this surplus; but in general surplus labour is the source of employers' profits, and also of rent and interest.
So even if the employer pays full value for the hire of the labourer for the day, the labour the worker does during that day will normally exceed the labour equivalent to the value of his hire. The day's share of the labour socially necessary to bring the worker into the workforce and maintain him in working order for a normal working life is less than the whole of the working day. Marx says that it is not labour that the employer buys, because the equivalent in value of a day's labour would seem to be the product of a day's labour, and there would be no profit (if full value were paid). The employer buys labour power, Marx says: more accurately, I think, he buys the right to use the worker's powers for a day. Just as the value of the right to use a machine for a day is one day's share of what it costs to produce the machine and maintain it for its working life, so the value of the right to use a worker for a day is the day's share of what it costs to produce and maintain the worker, which will be less than the value of what that worker can produce in a day (or the hire will not take place). Sometimes Marx says that the 'necessary' part of the day is paid labour, and the surplus 'unpaid': but in fact, in this theory, what is paid for is not labour. What is paid for is the right to use the labourer's powers for the day, for the whole day. The capitalist is supposed in justice to pay the equivalent to the whole value of that.
This is not the full explanation of the possibility of the existence of a class of capitalists, people who can regularly use their money to make money. We need to know why the worker will work for an employer, instead of working the whole day on his own account and keeping the 'surplus' for himself. This is the point that distinguishes Capitalism from what Marx calls 'simple commodity production'. There were (perhaps) some societies which were characterised by commodity production - i.e. most of what was produced was intended for exchange. But the production was by independent farmers and artisans working on their own land and with their own equipment. The village blacksmith, cobbler, tailor, etc. were not employees. The capitalist system is one in which producers are employees, and do not themselves own, or have the means to buy, their own equipment and materials. Marxists often say that capitalism presupposes that the workers have been 'separated' from the means of production. This suggests coercion, and there have in fact been many examples (e.g. the enclosures in England), and continue to be (e.g. in less developed countries) of forcible dispossession of peasants, who then must offer themselves as wage workers. But there is another aspect not to be overlooked: 'separation' in the sense that the labourer's own equipment and resources have become insufficient to compete with the capitalist firm's. And another: the productivity and associated lifestyle of modern industry may make wage work an attractive alternative to workers who could still work in the old way if they were satisfied with the old life. In most historical examples we should probably find coercion mixed in with these other causes. But however it happened, the fact is that in capitalist societies most producers do not have the means of production, and this is what makes capitalism possible. All the worker has to enter the market with is his labour power, which he hires out for a wage. The 'wages system' is another, and perhaps more revealing, name for Capitalism.
(The question 'How is Capitalism possible?' seems to allude to Kant's questions about the possibility of various kinds of knowledge - a reminiscence of Marx's days as a student of philosophy.)
