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The value theory of labour

by Jack Copley on March 28, 2015
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One of the first times I was provoked to think about the labour theory of value was in a university seminar, in which we discussed what lay behind the prices of things. Demand? Usefulness? Or was it completely random? The amount of labour embodied in a commodity certainly didn’t seem to explain the real world in which prices regularly fluctuate. Indeed, explaining this movement of prices is what most mainstream economic theories set out to achieve with their value theories. However, price is just one entry point into Marx’s theory. I think a better place to start is by thinking about work.

In a letter on the topic of value, Marx wrote:

Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labour of society… No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves.

communistmanifesto15 (2)This suggests that what Marx primarily seeks to explain is how people’s working activity is organised in a society of private, individualised production. If an advanced economy is not planned – by aristocracy, dictatorship or democratic deliberation – then how is labour distributed in a way that is roughly proportional to the needs of society? For me, this is a much more interesting question than the generic focus on prices as a starting point. In the modern global economy, states and other planning bodies organise a lot of work, but a staggering amount of labour is distributed and undertaken according to the self-interested behaviour of a vast array of private companies. And yet, for all its problems, capitalism operates in a remarkably coherent manner on a daily basis.

Marx’s solution to this puzzle is to propose that value is the unconscious organising principle of capitalist work. How? Let’s take an example of two craftspeople: a carpenter and a baker. In some organised economies, they would produce their goods according to production quotas that correspond to human needs or elite whims. In a private market economy there is no such coordination. In order to trade a chair and a loaf of bread on the market, some exchange ratio must be established. Yet how can we possibly compare the usefulness of a chair and a loaf of bread in quantitative terms? Any attempt to establish some intrinsic superiority of furniture over bread (or vice versa) is doomed to fail. What both of these products have in common is that they are the result of human labour – labour that takes a definite amount of time and can thus be quantified. This crystallised expenditure of working time is the substance of value. If the average time it takes to build a chair, from start to finish, is five times greater than the time it takes to create bread, then this ratio will tend to establish itself on the market. When trade is mediated by money, prices will tend to mimic this ratio, e.g. $5 to $1.

However, as I noted earlier, prices fluctuate, and not usually according to changes in the amount of labour embodied in the product. Can we honestly claim that all of the regular changes in furniture prices are due to changes in the time it takes to build them? No, we can’t – and neither did Marx. For Marx, changes in supply and demand are what lead to price fluctuation. This oscillation of supply and demand doesn’t negate the labour theory of value, but turns it into a dynamic system.

cover (2)Let’s imagine that our carpenter is just one producer amongst many in the carpentry branch of the economy. Chair prices tend to fluctuate around an average of $5. Suddenly, consumers fall out of love with the chair, and start to buy beanbags instead. There are too many chairs on the market, and not enough demand for them. Prices of chairs start to fall below their labour values – let’s say to $3. Carpenters are losing money at this price, so they start to exit the business en masse and gravitate towards trades for which there is more demand. As the number of chairs being produced falls, and they become more scarce on the market, their price begins to move back towards their labour value of $5. In other words, society’s overall labour is realigned so as to respond to falling demand in one branch.

This process is constantly unfolding in all branches of the economy. Labour is distributed and redistributed across different sectors, in reflection of the changing demands of society. Understood in this way, it is not a theoretical problem that prices do not always correspond to labour values, rather it is exactly this divergence of price and value that coordinates work in a capitalist economy. Marx’s theory does not set out to explain every price fluctuation. It sets out to show how prices and values are the “transmission belt” (in the words of I. I. Rubin) through which changes in demand are translated into changes in working patterns. The operation of what Marx calls the ‘law of value’ turns an economy of atomised producers into a functioning whole, or totality.

Whether you are convinced by Marx’s argument or not, it’s important to know what questions he sets out to answer. While the economists before him (and many after him) stopped at the door of the workplace, Marx burst inside. Rather than starting from the traditional price obsession, we must read his theory as using prices to address the social relations of work.

Jack Copley

Jack Copley is a PhD candidate at the University of Warwick, working within the ‘Rethinking the Market’ project. His research focuses on the relationship between financialisation and the struggles surrounding the exploitation of labour. More specifically, he is currently doing archival research at the UK Treasury, Bank of England and Confederation of British Industry to better grasp the expansion of the financial sector in the 1970s. He is the author of the activist handbook An Angry Person’s Guide to Finance (Red Pepper, 2014).

5 Comments
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  • MU
    March 29, 2015 at 7:21 am

    A lovely article, well done! Although I wish more people had as strong an affinity to plural explanations (isn’t it more natural to think that market values reflect both objective and subjective values instead of just one?) as they now have an aversion to them, I will comment by taking up another point.

    The premise underlying your question, which also underlies all pronouncements of the efficiency even magic and wonder of markets, has always struck me as assuming a bit too much; yet concealing it by way of phrasing the question in almost intuitively appealing terms:

    ‘If an advanced economy is not planned – by aristocracy, dictatorship or democratic deliberation – then how is labour distributed in a way that is roughly proportional to the needs of society? [. . .] And yet, for all its problems, capitalism operates in a remarkably coherent manner on a daily basis.’

    It is indeed a much more interesting question, but it is also false stated as it is (me thinks). Which society and whose needs? It is certainly not the needs of (the majority of) Indians, or Venezuelans, or Chinese who are in fact providing the labour. They don’t own the means of production; as for the citizens of the countries which do – certainly, their needs are indeed roughly more or less met.

    I don’t think that if one looks globally, as you say, the dynamics are much changed compared to the nineteenth or early twentieth century. Except now instead of juxtaposing some people against some other within a country (industrialists, owners of large companies vs ordinary workers), the relevant comparison is between some countries and some others (the developed vs the less developed world). Were the needs of Dickens’ workers met? Did the market then work in a more or less ‘remarkably coherent manner on a daily basis’ so that its participants were roughly satisfied? I would say no. For the same reason, I would say that the needs of the workers who produce the wonderful commodities that satisfy our needs are not met. And that the fable of the coherent efficient market satisfying the needs of society is just that – a fable. It satisfies some needs, of some parts of society, but I wouldn’t call that a miracle or wonder. Exploitative regimes do that too.

  • Jack
    March 31, 2015 at 12:04 am

    Thanks for the brilliant comment!

    This piece is describing the simplest form of market economy, one based on what Marx called ‘simple reproduction’, where no surpluses are obtained. This probably never existed in reality, it’s simply a theoretical exercise to understand the basics of how the law of value operates. When we build in the complexity of expanded reproduction, in which workers produce more value than they are remunerated, a wave of ugliness sweeps over this idealised picture. People’s needs are only met to the extent that they can be met profitably – use value is subordinated to exchange value. On a global scale, the implications are horrible. I should have made that more clear in the quote about the ‘needs of society’ that you highlighted. So in that sense, I completely agree with you. I was following the method of Rubin, who is hyperlinked in the article. Whether it is a useful heuristic device or not, I will let others decide.

    That being said, I do stand by the observation that capitalism hurtles forward in a remarkably coherent manner *for an unplanned economy*. Looking around the world at the incredible pace of accumulation, the popping up and disappearing of individual firms, the consequent redistribution of labour on a global scale, all (or I should say, largely) in response to price movements – I cannot help but be struck by the functionality. I can’t think of a way to empirically verify this observation, so I suppose we will have to agree to disagree, although one would imagine that a incoherent, inefficient system would be a bit easier to supplant over the last 200 odd years of struggle. None of this is to deny the inherent crisis tendencies or the disastrous human consequences – there is a difference between a system operating coherently and a system operating coherently for the common good. But without a theory of value that can explain the global operation of an unplanned economy, you are left with conspiracy theories of capitalism, which I think are far harder to demonstrate.

  • MU
    April 4, 2015 at 12:41 am

    Hey, thanks for the great reply! Of course, I understand that you weren’t trying to describe the full complexity of the theory in eight paragraphs! And I agree that a pinch of complexity distorts the initial picture by impressing relations and implications that might not have been visible at the outset.

    I also appreciate your very fine distinction between ‘operating coherently’ and ‘operating coherently for the common good’. I wish to agree with it because, indeed, isn’t it so very intuitively appealing? There is a difference between a production system such as the digital press organising the printing process coherently or efficiently; and the same system destroying lines of work and craftsmanship that perhaps affect the common good. Except – and this is where my inner resistance with the distinction steps in and prevents me from endorsing it in this context – there is a difference between a production system such as the digital press and a market system essentially consisting of human relations and actions. I take it that by ‘coherently’ you mean an evaluation that is supposed to be value-free? That is, value-free as involving no judgments on the common good. But can this distinction be made in the context of a market? The eighteenth century slave trade across the Atlantic was exceptionally efficient (coherent?) in moving vast amounts of population and labour around the world. Perhaps it is perfectly conceptually possible to say that it operated very coherently but personally I would hesitate – precisely because saying that it did already presupposes some assumption about if not the common then someone’s good. The distinction when applied to this example I would suppose says that if the slave trade system was set up to move slaves around and if it did, then it operated coherently. I understand the distinction, I just feel it leads to very perverse pronouncements when applied to human systems. And I am not convinced that evaluative criteria – such as efficiency, or coherence – can be so easily transmitted from non-human to human systems. But that also shifts the discussion on a more methodological level.

    In this sense, perhaps a fruitful question is: how do you define or conceive of a ‘coherent’ operation of a market?
    (I admit I slipped in both ‘coherently’ and ‘efficiently’ throughout, being uncertain as to how close in meaning you find them.)

  • Jack
    April 4, 2015 at 11:39 pm

    Thanks for taking the time to reply again.

    I don’t really understand your objection to a value-neutral assessment of a system’s internal coherence. With regards to your slave trade example, does it put us on a better moral standing to say the transportation of slaves was quite incoherent, with many ships never arriving at their destinations and with many people escaping bondage? Is that a less perverse judgement than to say that it was efficient and coherent in trafficking people between continents? Surely, our moral objection to the slave trade is not based on whether it operated efficiently or not, but the very principle of slavery itself. That being said, the coherence of the trafficking system actually magnified the scale of the crime – so perhaps we do a disservice to the victims by refusing to acknowledge this.

    Regarding your specific question, namely “how do you define or conceive of a ‘coherent’ operation of a market”, I can only refer to the criteria Marx sets himself at the beginning of this piece. Marx believed that every economy must have a way of allocating and organising society’s total labour in response to the consumptive demands of that society. The question of political economy is how this coordination is undertaken in different historical epochs.

    The way I see it, there can be two objections to Marx’s theory of value on these grounds. 1) You can deny that capitalism adjusts to the basic consumptive demands of society. Changing patterns of demand do not result in changing patterns of production, instead they change with no coherent relationship between one another. As I emphasised in my last comment, it is not just that capitalism is inadequate to meet humanity’s diverse needs in their entirety, or that there are periodic breakages resulting in catastrophe – rather, there is simply no transmission mechanism between demand and supply in capitalism. That, to me, is an absurd conclusion that flies in the face of the evidence. 2) There is a link between demand and supply in capitalism, but it is directly coordinated and planned by states or monopolistic corporations. As such, there has never been an unplanned economy, like Marx characterises capitalism. This is perhaps a better criticism, considering the stage of current monopolisation and the important role of states in organising labour – yet I don’t think it sticks. Most labour within the global capitalist economy is still dominated and allocated by private companies that trade with one another through market mechanisms and which respond primarily to the imperatives of price movements.

    So, if we dismiss both of these objections, as I think we should, then we need a theory to explain the unplanned coordination of labour in response to demand in a capitalist economy. This requires a theory of value.

  • MU
    April 5, 2015 at 5:17 pm

    Thanks for your reply. As you say, although as you know even that might not be easy, let us agree to disagree. Good luck with your work!

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