What Every Child Should Know About Marx's Theory of Value

By Michael A. Lebowitz

Republished from Monthly Review.

Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour. —Karl Marx [1] [2]

Every child in Marx’s day might have heard about Robinson Crusoe. That child might have heard that on his island Robinson had to work if he was not to perish, that he had “needs to satisfy.” To this end, Robinson had to “perform useful labours of various kinds”: he made means of production (tools), and he hunted and fished for immediate consumption. These were diverse functions, but all were “only different modes of human labour,” his labor. From experience, he developed Robinson’s Rule: “Necessity itself compels him to divide his time with precision between his different functions.” Thus, he learned that the amount of time spent on each activity depended upon its difficulty—that is, how much labor was necessary to achieve the desired effect. Given his needs, he learned how to allocate his labor in order to survive. [3]

As it was for Crusoe, so it is for society. Every society must allocate its aggregate labor in such a way as to obtain the amounts of products corresponding to the differing amounts of its needs. As Marx commented, “In so far as society wants to satisfy its needs, and have an article produced for this purpose, it has to pay for it.… It buys them with a certain quantity of the labour-time that it has at its disposal.” [4] It must allocate “differing and quantitatively determined” amounts of labor to the production of goods and services for direct consumption (Department II) and a similarly determined quantity of labor for the production and reproduction of means of production (Department I).

To ensure the reproduction of a particular society, there must be enough labor available for the reproduction of the producers—both directly and indirectly (for example, in Departments II and I, respectively)—based upon their existing level of needs and the productivity of labor. This includes not only labor in organized workplaces, which produce particular material products and services, but also necessary labor allocated to the home and community and to sites where the education and health of workers are maintained. Every society, too, must allocate labor to what we may call Department III, a sector that produces means of regulation, and may contain institutions such as the police, the legal authority, the ideological and cultural apparatus, and so on.

In addition to the labor required to maintain the producers, in every class society a quantity of society’s labor is necessary if those who rule are to be reproduced. Thus, the process of reproduction requires the allocation of labor not only to the production of articles of consumption, means of production, and the particular means of regulation, but, ultimately, to the production and reproduction of the relations of production themselves.

Reproduction of a Socialist Society

Consider a socialist society—“an association of free [individuals], working with the means of production held in common, and expending their many different forms of labour-power in full self-awareness as one single social labour force.” [5] Having identified the differing amounts of needs it wishes to satisfy, this society of associated producers allocates its differing and quantitatively determined labor through a conscious process of planning. In this respect, it follows Robinson’s Rule: it apportions its aggregate labor “in accordance with a definite social plan [that] maintains the correct proportion between the different functions of labour and the various needs of the associations.” [6]

The premise of this process of planning is a particular set of relations in which the associated producers recognize their interdependence and engage in productive activity upon this basis. “A communal production, communality, is presupposed as the basis of production.” Transparency and solidarity among the producers, in short, underlie the “organization of labour” in the socialist society with the result that productive activity is consciously “determined by communal needs and communal purposes.” [7] The reproduction of society here “becomes production by freely associated [producers] and stands under their conscious and planned control.” [8]

To identify their needs and their capacity to satisfy those needs, the producers begin with institutions closest to them—in communal councils, which identify changes in the expressed needs of individuals and communities, and in workers’ councils, where workers explore the potential for satisfying local needs themselves. Those needs and capacities are transmitted upward to larger bodies and ultimately consolidated at the level of society as a whole, where society-wide choices need to be made. On the basis of these decisions (which are discussed by the associated producers at all levels of society), the socialist society directly allocates its labor in accordance with its needs both for immediate and future satisfaction.

Driving this process is “the worker’s own need for development,” “the absolute working-out of his creative potentialities,” “the all-around development of the individual”—the development of what Marx called “rich” human beings. [9] This goal is understood as indivisible: it is not consistent with significant disparities among members of society. In the words of the Communist Manifesto, “the free development of each is the condition for the free development of all.” [10] Accordingly, given the premise of communality and solidarity, this socialist society allocates its labor to remove deficits inherited from previous social formations. The socialist society, in short, is “based on the universal development of individuals and on the subordination of their communal, social productivity as their social wealth.” [11]

Conscious planning—a visible hand, a communal hand—is the condition for building a socialist society. This process does more, however, than produce the so-called correct plan. Importantly, it also produces and reproduces the producers themselves and the relations among them. What Marx called “revolutionary practice” (“the simultaneous changing of circumstances and human activity or self-change”) is central. Every human activity produces two products: the change in circumstances and the change in the actors themselves. In the particular case of socialist institutions, the labor-time spent in meetings to develop collective decisions not only produces solutions that draw upon the knowledge of all those affected, but it is also an investment that develops the capacities of all those making those decisions. It builds solidarity locally, nationally, and internationally. Those institutions and practices, in short, are at the core of the regulation of the producers themselves (Department III activity). They are essential for the reproduction of socialist society. [12]

Reproduction of a Society Characterized by Commodity Production

But what about a society that is not characterized by communality, a society marked instead by separate, autonomous actors? Such a society’s essential premise is the separation of independent producers. [13] Rather than a community of producers, there is a collection of autonomous property owners who depend for satisfaction of their needs upon the productive activity of other owners. “All-around dependence of the producers upon one another” exists, but theirs is a “connection of mutually indifferent persons.” Indeed, “their mutual interconnection—here appears as something alien to them, autonomous, as a thing.” Yet, if these “individuals who are indifferent to one another” do not understand their connection, how does this society go about allocating its “differing and quantitatively determined amounts of society’s aggregate labour” to satisfy its “differing amounts of needs”? [14]

Obviously, such a society does not utilize Robinson’s Rule: it cannot directly allocate its aggregate labor in accordance with the distribution of its needs. “Only when production is subjected to the genuine, prior control of society,” Marx pointed out, “will society establish the connection between the amount of social labor-time applied to the production of particular articles, and the scale of the social need to be satisfied by these.” [15] Although the application of Robinson’s Rule is not possible, its function remains. As Marx commented, those simple and transparent relations set out for Robinson Crusoe “contain all the essential determinants of value.” [16] In particular, the “necessity of the distribution of social labour in specific proportions” remains.

The necessary law of the proportionate allocation of aggregate labor, Marx insisted, “is certainly not abolished by the specific form of social production.” Only the form of that law changes. As Marx wrote to Ludwig Kugelmann, “the only thing that can change, under historically differing conditions, is the form in which those laws assert themselves.” In the commodity-producing society, the form taken by this necessary law is the law of value. “The form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.” [17]

Since the allocation of society’s labor embedded in commodities is “mediated through the purchase and sale of the products of different branches of industry” (rather than through “genuine, prior control” by society), however, the immediate effect of the market is a “motley pattern of distribution of the producers and their means of production.” [18] Yet, this apparent chaos sets in motion a process by which the necessary allocation of labor will tend to emerge. In simple commodity production, some producers will receive revenue well above the cost of production; others will receive revenue well below it. Assuming it is possible, producers will shift their activity—that is, they will show a tendency for entry and exit. An equilibrium, accordingly, would tend to emerge in which there is no longer a reason for individual commodity producers to move. Through such movements, the various kinds of labor “are continually being reduced to the quantitative proportions in which society requires them.”

In short, although “the play of caprice and chance” means that the allocation of labor does not correspond immediately to the distribution of needs as expressed in commodity purchases, “the different spheres of production constantly tend towards equilibrium.” [19] Through the law of value, labor is allocated in the necessary proportions in the commodity-producing society. In the same way as “the law of gravity asserts itself,” we see that “in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature.” [20] There is a “constant tendency on the part of the various spheres of production towards equilibrium” precisely because “the law of the value of commodities ultimately determines how much of its disposable labour-time society can expend on each kind of commodity.” [21]

Can that equilibrium, in which labor is allocated to satisfy the needs of society, be reached in reality? If we think of a society characterized by simple commodity production, equilibrium occurs when all commodity producers receive the equivalent of the labor contained in their commodities. In fact, however, there are significant barriers to exit and entry: the particular skills and capabilities that individual producers possess will not be easily shifted to the production of differing commodities. Indeed, this process might take a generation to occur, in which case producers in some spheres will appear privileged for extended periods.

In the case of capitalist commodity production—the subject of Capital—the individual capitalist “obeys the immanent law, and hence the moral imperative, of capital to produce as much surplus-value as possible.” [22] Accordingly, there is a “continuously changing proportionate distribution of the total social capital between the various spheres of production…continuous immigration and emigration of capitals.” [23] Equilibrium here occurs when all producers obtain an equal rate of profit on their advanced capital for means of production and labor power. This tendency “has the effect of distributing the total mass of social labour time among the various spheres of production according to the social need.” [24] However, here again there is an obstacle to the realization of equilibrium—the existence of fixed capital embedded in particular spheres does not permit easy exit and entry.

PLEASE SUPPORT OUR WORK BY MAKING A DONATION TODAY

Nevertheless, for Marx, the law of value (the process by which labor is allocated in the necessary proportions in capitalism) operates more smoothly as capitalism develops. Capital’s “free movement between these various spheres of production as so many available fields of investment” has as its condition the development of the credit and banking system. Only as money-capital does capital really “possess the form in which it is distributed as a common element among these various spheres, among the capitalist class, quite irrespective of its particular application, according to the production requirements of each particular sphere.” [25] In its money-form, capital is abstracted from particular employments. Only in money-capital, in the money-market, do all distinctions as to the quality of capital disappear: “All particular forms of capital, arising from its investment in particular spheres of production or circulation, are obliterated here. It exists here in the undifferentiated, self-identical form of independent value, of money.” [26]

Equalization of profit rates “presupposes the development of the credit system, which concentrates together the inorganic mass of available social capital vis-á-vis the individual capitalist.” [27] That is, it presupposes the domination of finance capital: bankers “become the general managers of money capital,” which now appears as “a concentrated and organized mass, placed under the control of the bankers as representatives of the social capital in a quite different manner to real production.” [28]

Marx’s Auto-Critique

There is no better way to understand Marx’s theory of value than to see how he responded to critics of Capital. With respect to a particular review, Marx commented to Kugelmann in July 1868 that the need to prove the law of value reveals “complete ignorance both of the subject under discussion and of the method of science.” Every child, Marx here continued, knows that “the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour.” How could the critic not see that “It is SELF-EVIDENT that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production!” [29] Similarly, answering Eugen Dühring’s objection to his discussion of value, Marx wrote to Frederick Engels in January 1868 that “actually, no form of society can prevent the labour time at the disposal of society from regulating production in ONE WAY OR ANOTHER.” [30] That was the point: in a commodity-producing society, how else could labor be allocated—except by the market!

Although Marx was clearer in these letters on this point than in Capital, he was transparent there in his critique of classical political economy on value and money. In contrast to vulgar economists who did not go beneath the surface, the classical economists (to their credit) had attempted “to grasp the inner connection in contrast to the multiplicity of outward forms.” But they took those inner forms “as given premises” and were “not interested in elaborating how those various forms come into being.” [31] The classical economists began by explaining relative value by the quantity of labor-time, but they “never once asked the question why this content has assumed that particular form, that is to say, why labour is expressed in value, and why the measurement of labour by its duration is expressed in the value of the product.” [32] Their analysis, in short, started in the middle.

This classical approach characterized Marx’s own early thought. It is important to recognize that Marx’s critique was an auto-critique, a critique of views he himself had earlier accepted. In 1847, Marx declared that “[David] Ricardo’s theory of values is the scientific interpretation of actual economic life.” [33] In The Principles of Political Economy, Ricardo had argued that “the value of a commodity…depends on the relative quantity of labour which is necessary for its production.” By this, he meant “not only the labour applied immediately to commodities,” but also the labor “bestowed on the implements, tools, and buildings, with which such labour is assisted.” Accordingly, relative values of differing commodities were determined by “the total quantity of labour necessary to manufacture them and bring them to market.” This was “the rule which determines the respective quantities of goods which shall be given in exchange for each other.” [34]

Marx followed Ricardo in his early work. “The fluctuations of supply and demand,” Marx wrote in Wage Labour and Capital, “continually bring the price of a commodity back to the cost of production” (that is to say, to its “natural price”). This was Ricardo’s theory of value: the “determination of price by the cost of production is equivalent to the determination of price by the labour time necessary for the manufacture of a commodity.” Further, this rule applied to the determination of wages as well, which were “determined by the cost of production, by the labour time necessary to produce this commodity—labour.” [35] The same point was made in the Communist Manifesto in 1848: “the price of a commodity, and therefore also of labour, is equal to its cost of production.” [36]

In the 1850s, however, Marx began to develop a new understanding. In the notebooks written in 1857–58, which constitute the Grundrisse, he began his critique of classical political economy. Marx concluded the Grundrisse by announcing that the starting point for analysis had to be not value (as Ricardo began), but the commodity, which “appears as unity of two aspects”—use value and exchange value. [37] The commodity and, in particular, its two-sidedness is the starting point for his critique and how he begins both his Contribution to the Critique of Political Economy (1859) and Capital. [38]

The Best Points in Capital

The law of value as a “regulative law of nature” was not one of the best points in Capital, nor one of the “fundamentally new elements in the book.” After all, if the law of value is the tendency of market prices to approach an equilibrium in the same way as “the law of gravity asserts itself,” then this “regulative law of nature” was already present in Ricardo.

Rather, what Marx argued in Capital is that classical political economy did not understand value. “As regards value in general, classical political economy in fact nowhere distinguishes explicitly and with a clear awareness between labour as it appears in the value of a product, and the same labour as it appears in the product’s use value.” [39] But that distinction, Marx declared to Engels in August 1867, is “fundamental to all understanding of the FACTS”! That “two-fold character of labour,” he indicated, is one of the “best points in my book” (and indeed, the best point in the first volume of Capital). [40]

Marx made the same point in the first edition of the first volume of Capital about the two-fold character of labor in commodities: “this aspect, which I am first to have developed in a critical way, is the starting point upon which comprehension of political economy depends.” [41] Writing again to Engels in January 1868, Marx described his analysis of the double character of the labor represented in commodities as one of the “three fundamentally new elements of the book.” All previous economists having missed this, they were “bound to come up against the inexplicable everywhere. This is, in fact, the whole secret of the critical conception.” [42]

The secret of the critical conception, the starting point for comprehension of political economy, the basis for all understanding of the facts—what made the revelation of the two-fold character of labor in commodities so important? Very simply, it is the recognition that actual, specific, concrete labor, all those hours of real labor that have gone into producing a particular commodity, in themselves have nothing to do with its value. You cannot add the hours of the carpenter’s labor to the labor contained in consumed means of production and come up with the value of the carpenter’s commodity. That specific labor, rather, has gone into the production of a thing for use, also known as a use value. Further, you cannot explain relative values by counting the quantity of specific labor contained in separate use values. If you do not distinguish clearly between the two-fold aspects of labor in the commodity, you have not understood Marx’s critique of classical political economy.

Marx’s Labor Theory of Money

“We have to perform a task,” Marx announced, “never even attempted by bourgeois economics.” [43] That task was to develop his theory of money—in particular, to reveal that money is the social representative of the aggregate labor in commodities. For this, Marx demonstrated that (1) the concept of money is latent in the concept of the commodity and (2) that money represents the abstract labor in a commodity and that the manifestation of the latter, its only manifestation, is the price of the commodity.

If adding up the hours of concrete labor to produce a commodity does not reveal its value, what does? Nothing, if we are considering a single commodity. “We may twist and turn a single commodity as we wish; it remains impossible to grasp as a thing possessing value.” [44] We can approach grasping the value of a commodity only by considering it in a relation. The simplest (but undeveloped) form of this relation is as an exchange value—the value of commodity A is equal to x units of commodity B, where B is a use value. We always knew A as a use value but now we know the value of A from its equivalent in B. (If we reverse this, we would say the value of B is equal to 1/x units of A, and here A is the equivalent.) The second commodity, the equivalent, is a mirror for the value in the first commodity. It is through this social relation that we may grasp the commodity as something possessing value.

Having established that the value of a commodity is revealed through its equivalent, Marx logically proceeds step-by-step to establish the existence of a commodity that serves as the equivalent for all commodities—that is, is the general form of value. It is a mini-step from there to reveal the monetary form of value: money as the universal equivalent, money as the representative of value. [45] In short, once we begin to analyze a commodity-exchanging society, we are led to the concept of money. This is what Marx identifies as his task: “We have to show the origin of this money form, we have to trace the development of this expression of value relation of commodities from the simplest, almost imperceptible outline to the dazzling money form. When this has been done, the mystery of money will immediately disappear.” [46] But this was a closed book to the classical economists; “Ricardo,” Marx commented years later, “in fact only concerned himself with labour as a measure of value-magnitude and therefore found no connection between his value-theory and the essence of money.” [47]

But what is money? To understand money, we need to return to the two-fold character of labor in commodities, that point upon which comprehension of political economy depends. We know that concrete, specific labor produces specific use values. Insofar as labor is concrete, we cannot compare commodities containing different qualities of labor. But we can compare them if we abstract from their specificities—that is, consider them as containing labor in general, abstract labor, “equal human labour, the expenditure of identical human labour power.” [48] The aggregate labor of society is a composite of many “different modes of human labour”: “the completed or total form of appearance of human labour is constituted by the totality of its particular forms of appearance.” [49] That “one homogeneous mass of human labour power,” that universal, uniform, abstract, social labor in general, “human labour pure and simple,” enters into each commodity. [50]

Think about the aggregate labor in commodities as so-called jelly labor, as made up of a number of identical, homogeneous units. A certain amount of this jelly labor goes into each commodity. The value of a commodity is determined by how much of this jelly labor—how much homogeneous, universal, abstract labor, that common “social substance”—it contains. Obviously, we cannot add up jelly labor simply, as we might attempt for concrete labor. How, then, can we see the value of a commodity? We have answered that already. The value of a commodity (that is, the homogeneous, general, abstract labor in the commodity) is represented by the quantity of money, which is its equivalent. Indeed, the only form in which the value of commodities can manifest itself is the money-form.

Every society obtains the amounts of products corresponding to the differing amounts of its needs by devoting a portion of the available labor time to its production. As noted above, “in so far as society wants to satisfy its needs, and have an article produced for this purpose, it has to pay for it…[and] it buys them with a certain quantity of the labour-time that it has at its disposal.” [51] How do we satisfy our needs within capitalism? We buy them with the representative of the total social labor in commodities—money.

Ignorance both of the Subject under Discussion and of the Method of Science

As Michael Heinrich writes, “many Marxists have difficulties understanding Marx’s analysis.” Like bourgeois economists, “they attempt to develop a theory of value without reference to money.” [52] It is a bit difficult to understand why, however, given Marx’s criticisms of classical political economy about this very point. Ricardo, Marx commented, had not understood “or even raised as a problem” the “connection between value, its immanent measure—i.e., labour-time—and the necessity for an external measure of the values of commodities.” Ricardo did not examine abstract labor, the labor that “manifests itself in exchange values—the nature of this labour. Hence he does not grasp the connection of this labour with money or that it must assume the form of money.” [53]

That is why Marx undertook his task “to show the origin of this money form” and to solve “the mystery of money,” a task “never even attempted by bourgeois economics.” We need to understand the nature of money, and how we move from value directly to money. As he explained in chapter 10 of the third volume of Capital:

in dealing with money we assumed that commodities are sold at their values; there was no reason at all to consider prices that diverged from values, as we were concerned simply with the changes of form which commodities undergo when they are turned into money and then transformed back from money into commodities again. As soon as a commodity is in any way sold, and a new commodity bought with the proceeds, we have the entire metamorphosis before us, and it is completely immaterial here whether the commodity’s price is above or below its value. The commodity’s value remains important as the basis, since any rational understanding of money has to start from this foundation, and price, in its general concept, is simply value in the money form. [54]

To understand why Marx felt it was essential to solve the mystery of money, it helps to understand his method of dialectical derivation. Like G. W. F. Hegel, upon examining particular concepts, he found that they contained a second term implicitly within them; he proceeded then to consider the unity of the two concepts, thereby transcending the one-sidedness of each and moving forward to richer concepts. In this way, Marx analyzed the commodity and found that it contained latent within it the concept of money, the independent form of value—and that the commodity differentiated into commodities and money. Further, considering that relation of commodities and money from all sides, Marx uncovered the concept of capital. [55]

The concept of capital, in short, does not drop from the sky. It is marked by the preceding categories. Since money is the representative of abstract labor, of the homogeneous aggregate labor of society, capital must be understood as an accumulation of homogeneous, abstract labor. By understanding money as latent in commodities, we reject the picture of money juxtaposed externally to commodities as in classical political economy and therefore recognize that abstract labor is always present in the concept of capital.

However, all accumulations of abstract labor are not capital. For them to correspond to the concept of capital, they must be driven by the impetus to grow and must have self-expanding value (i.e., M-C-M´). How is that possible, however, on the assumption of exchange of equivalents? Where does the additional value, the surplus value, come from? The two questions express the same thing: in one case, in the form of objectified labour; in the other, in the form of living, fluid labor. [56]

The answer to both is that, with the availability of labor power as a commodity, capital can now secure additional (abstract) labor. This is not because of some occult quality of labor power, but, because by purchasing labor power, capital now is in a relation of “supremacy and subordination” with respect to workers, a relation that brings with it the “compulsion to perform surplus labour.” [57] That compulsion, inherent in capitalist relations of production, is the source of capital’s growth.

Let us consider absolute surplus value by focusing upon “living, fluid labor.” The value of labor power, or necessary labor, at any given point represents the share of aggregate social labor that goes to workers. The remaining social labor share is captured by capitalists. When capital uses its power to increase the length or intensity of the workday, total social labor rises; assuming necessary labor remains constant, capital is the sole beneficiary. The ratio of surplus labor to necessary labor—the rate of exploitation—rises.

Alternatively, let the productivity of labor be increased. To produce the same quantity of use values, less total labor is required. Accordingly, increased productivity brings with it the possibility of a reduced workday (a possibility not realized in capitalism). If, conversely, aggregate social labor remains constant, who would be the beneficiary of such an increase in productivity? Assuming the working class is atomized and capital is able to divide workers sufficiently, capital obtains relative surplus value because necessary labor falls. Alternatively, to the extent that workers are sufficiently organized as a class, they will benefit from productivity gains with rising real wages as commodity values fall. In Capital, this second option is essentially precluded because, following the classical economists, Marx assumed that the standard of necessity is given and fixed. [58]

In short, we need to understand money if we are to understand capital, and for that we need to grasp the two-fold character of labor that goes into a commodity. Unfortunately, many Marxists fail to grasp the distinction “between labour as it appears in the value of a product, and the same labor as it appears in the product’s use value”—the distinction Marx considered “fundamental to all understanding of the FACTS.” As a result, they offer a “theory of value without reference to money,” what Heinrich calls “pre-monetary theories of value,” which I consider to be pre-Marxian theories of value or Ricardian theories of value. [59]

Ricardian Marxists do not grasp Marx’s logic, or how Marx logically moves from the abstract to the concrete. The problem is particularly apparent when it comes to the so-called transformation problem. What those who attempt to calculate the transformation from values to prices of production fail to understand is that, rather than transforming actually existing values, prices of production are simply a further logical development of value. [60] The real movement is from market prices to equilibrium prices, that is, prices of production. As we have seen, this is how the law of value allocates aggregate labor in commodities, similar to a law of gravity. The failure of these Marxists to distinguish between the logical and the real demonstrates their “complete ignorance both of the subject under discussion and of the method of science.”

Notes

1. In his fine introduction and interpretation of Capital, Michael Heinrich criticizes traditional and worldview Marxism in An Introduction to the Three Volumes of Karl Marx’s Capital (New York: Monthly Review Press, 2012). Heinrich further expounds the early sections of the first volume of Capital intensely in Michael Heinrich, How to Read Marx’s Capital (New York: Monthly Review Press, 2021).

2. Karl Marx and Frederick Engels, Collected Works (New York: International Publishers, 1975), vol. 43, 68.

3. Karl Marx, Capital, vol. 1 (London: Penguin, 1977), 169–70.

4. Karl Marx, Capital, vol. 3 (London: Penguin, 1981), 288.

5. Marx, Capital, vol. 1, 171.

6. Marx, Capital, vol. 1, 172.

7. Karl Marx, Grundrisse (London: Penguin, 1973), 171–72.

8. Marx, Capital, vol. 1, 173.

9. Marx, Capital, vol. 1, 772; Marx, Grundrisse, 488, 541, 708; Karl Marx, Critique of the Gotha Programme in Marx and Engels, Selected Works, vol. 2 (Moscow: Foreign Languages Press, 1962), 24.

10. Marx and Engels, Collected Works, vol. 6, 506.

11. Marx, Grundrisse, 158–59.

12. On this view of socialist society, see Michael A. Lebowitz, The Socialist Alternative: Real Human Development (New York: Monthly Review Press, 2010) and Michael A. Lebowitz, Between Capitalism and Community (New York: Monthly Review Press, 2020).

13. Discussion of the individual commodity producer applies as well to collective or group commodity producers (as in the case of cooperatives).

14. Marx, Grundrisse, 156–58.

15. Marx, Capital, vol. 3, 288–89.

16. Marx, Capital, vol. 1, 170.

17. Marx and Engels, Collected Works, vol. 43, 68.

18. Marx, Capital, vol. 1, 476. It is important to keep in mind the distinction between the aggregate labor in commodities and the aggregate labor in society as a whole.

19. Marx, Capital, vol. 1, 476.

20. Marx, Capital, vol. 1, 168.

21. Marx, Capital, vol. 1, 476.

22. Marx, Capital, vol. 1, 1051.

23. Marx, Capital, vol. 3, 895.

24. Karl Marx, Theories of Surplus Value, Part II (Moscow: Progress Publishers, 1968), 209.

25. Marx, Capital, vol. 3, 491.

26. Marx, Capital, vol. 3, 490. We are describing here so-called jelly capital.

27. Marx, Capital, vol. 3, 298.

28. Marx, Capital, vol. 3, 528, 491.

29. Marx and Engels, Collected Works, vol. 43, 68.

30. Marx and Engels, Collected Works, vol. 42, 515.

31. Karl Marx, Theories of Surplus Value, Part III (Moscow: Progress Publishers, 1971), 500.

32. Marx, Capital, vol. 1, 173–74.

33. Marx and Engels, Collected Works, vol. 6, 121, 123–24.

34. David Ricardo, The Principles of Political Economy and Taxation (Homewood: Richard D. Irwin, Inc., 1963), 5–6, 12–13, 42.

35. Karl Marx, Wage Labour and Capital in Marx and Engels, Collected Works, vol. 9, 208–9.

36. Marx and Engels, Collected Works, vol. 6, 491. Here, Marx accepted Ricardo’s symmetry in the production of hats and men, and he continued to hold that position in Capital. For a criticism, see Lebowitz, “The Burden of Classical Political Economy” in Lebowitz, Between Capitalism and Community, chapter 6.

37. Marx, Grundrisse, 881.

38. By the time of the writing of Capital, however, Marx had moved to identify that two-fold nature of the commodity as use value and value and explained that exchange value is merely the necessary form that value takes.

39. Marx, Capital, vol. 1, 173n.

40. Marx and Engels, Collected Works, vol. 42, 407.

41. Albert Dragstedt, Value: Studies by Karl Marx (London: New Park Publications, 1976), 11.

42. Marx and Engels, Collected Works, vol. 42, 514.

43. Marx, Capital, vol. 1, 139.

44. Marx, Capital, vol. 1, 138.

45. In classical political economy and in Marx’s time, gold was the money-commodity; however, Marx’s theory of money only requires social acceptance as the universal equivalent.

46. Marx, Capital, vol. 1, 139.

47. Karl Marx, “Marginal Notes on Adolph Wagner’s Lehrbuch der Politschen Oekonomie” in Dragstedt, Value, 204.

48. Marx, Capital, vol. 1, 129.

49. Marx, Capital, vol. 1, 157.

50. Marx, Capital, vol. 1, 129.

51. Marx, Capital, vol. 1, 288.

52. Heinrich, An Introduction to the Three Volumes of Karl Marx’s Capital, 57, 63–64.

53. Marx, Theories of Surplus Value, Part II, 164, 202.

54. Marx, Capital, vol. 3, 294–95.

55. See the discussion of the derivation of capital in Michael A. Lebowitz, Beyond Capital: Marx’s Political Economy of the Working Class (New York: Palgrave Macmillan, 2003), 55–60.

56. “The rate of surplus-value is therefore an exact expression for the degree of exploitation of labour power by capital, or of the worker by the capitalist.” Marx, Capital, vol. 1, 326.

57. Marx, Capital, vol. 1, 1026–27.

58. See Lebowitz, Between Capitalism and Community, chapter 7.

59. Heinrich, An Introduction to the Three Volumes of Karl Marx’s Capital, 57, 63–64.

60. As Heinrich indicates, the transformation of values “represents a conceptual advancement of the form-determination of the commodity.” Heinrich, An Introduction to the Three Volumes of Karl Marx’s Capital, 148–49.

Relative Surplus Value: The Class Struggle Intensifies

By Mazda Majidi

Republished from Liberation School.

Toward the end of our earlier introduction to surplus value, the heart and motor of the class struggle, we wrote that:

The rate of surplus value for the capitalist is the rate of exploitation for the worker. By merely prolonging the working day, the capitalist accrues more (absolute) surplus value. Increasing the working day from eight to 10 hours results in two more hours of surplus value for the capitalist and of exploitation for the worker.[1]

For any working period—whether it be a day, an hour, or five minutes—part of the period is “necessary labor” and another part is “surplus labor.” The former is when the worker produces the value of their own wage, and the latter is when the worker produces surplus value for the capitalist. The ratio between the two is the rate of surplus value for the capitalist and the rate of exploitation for the worker.

Absolute surplus value, Marx says, is “produced by prolongation of the working-day” [2]. In other words, if the ratio between necessary and surplus labor is fixed, then prolonging the working day will result in more surplus value for the capitalist and a greater degree of exploitation for the worker.

Capital’s entire reason for being is to produce surplus value, to increase the exploitation of the working class. As a result, there’s a logical impulse for each capitalist to extend the working day as much as possible. Yet not only might this produce problems for capitalism as a whole (in that it could exhaust the supply of labor-power available), but the working class fights back against exploitation, and at times is able to force limits to the length of the working day.

What happens, then, when political legislation limits the working day to, say, eight hours? This is obviously a limit to capitalist accumulation. For capital, however, “every limit appears as a barrier to be overcome” [3]. Relative surplus value is capital’s strategy for overcoming this limit.

Relative surplus value

If absolute surplus value is produced by lengthening the working day, then relative surplus value is produced by “the curtailment of the necessary labour-time, and from the corresponding alteration in the respective lengths of the two components of the working-day” [4]. Let’s say the working day was previously 10 hours, and that 10 hours was divided between four hours of necessary labor and six hours of surplus labor. If the working day is reduced to eight hours and wages remain the same, capital will lose two hours of surplus value. The only way to overcome this barrier and to reclaim those two hours of surplus labor is to reduce necessary labor by two hours.

How can this happen?

Remember that necessary labor time is variable capital, or the value of labor power. The value of labor power is, like all values, determined by the socially-necessary labor time required for its production and reproduction, which as we saw in the last part was largely the product of class struggle. The value of labor power can be represented by the bundle of commodities that go into the worker’s production and reproduction, like the value of housing, clothing, education, child-rearing, electricity, and so on.

If the conditions are right, the capitalist can—and sometimes does—merely decrease workers’ wages in this scenario. The state can also step in and provide some of the basic commodities that factor into the value of labor power. However, in Capital, Marx sets these aside because he wants to show us how it can happen within the very logic of a “perfectly” functioning capitalist system.

Two interrelated forms of relative surplus value

There are two interrelated ways that capitalists drive down necessary labor. One way it happens is by decreasing the value of the commodities that factor into the value of labor power:

Whenever an individual capitalist cheapens shirts, for instance, by increasing the productiveness of labour, he by no means necessarily aims at reducing the value of labour-power and shortening, pro tanto, the necessary labour-time. But it is only in so far as he ultimately contributes to this result, that he assists in raising the general rate of surplus-value.[5]

The second form explains the reason the capitalist producing shirts ends up raising the rate of surplus value even though they don’t intend to.

To understand this, we have to distinguish between two values: individual value and social (or real) value. Remember that part of the reason Marx calls value socially-necessary labor time is because it’s the average labor time required to produce some useful good or service “under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time” [6]. This is the social or real value: the average of all production times.

The individual value is the labor time required for production in a particular factory or under a particular capitalist.

Capitalists are always in competition with each other. They’re subjected to “the inherent laws of capitalist production” the “external coercive laws having power over every individual capitalist” [7]. Each capitalist is always seeking to gain an edge over their competitors, and as a result, they’re trying to produce more (and sometimes better) commodities faster.

If the socially-necessary labor time required to produce a commodity is two hours, then every capitalist wants to find a way to produce it in less time. If a capitalist can, by employing some new method or technology, produce the same commodity in one hour, then the individual value of the commodity is half of the social value. As Marx writes:

“If therefore, the capitalist who applies the new method, sells his commodity at its social value… he sells it… above its individual value, and thus realizes an extra surplus-value” [8]. Suppose the social value of a shirt is $4 but a capitalist’s individual value is $2. In this case, they can gain an extra $2 in surplus value.

However, whereas previously a working day of eight hours was represented by two shirts, it’s now represented by four shirts. In order to sell the extra shirts, the market needs to be twice as large or the capitalist will sell the shirt at, say, $3—above its individual value but below its social value. In this case, necessary labor is shortened, and the capitalist captures more relative surplus value.

The contradictions of relative surplus value production

Just as capital sees barriers as obstacles to overcome, each new limit it surpasses only creates new contradictions and intensifies existing ones. There are several contradictions that arise from the pursuit of relative surplus value.

The first contradiction is that the capitalists are producing more commodities in terms of use values, yet each commodity contains less value (and therefore exchange-value). This can potentially benefit workers. If wages remain the same, they can either spend less on shirts or purchase more shirts than before. Such a scenario will depend on the class struggle, of course.

This drive to decrease necessary labor can also contribute to a crisis of overproduction. All capitalists are trying to decrease necessary labor time, which means more and more commodities are produced in a given time frame. For the commodities to be realized (sold), there must be an expansion of the market. But at some point, there will be a glut in the market, and there will be more commodities than can be sold at a profit.

The third contradiction is that the “external coercive laws of competition” compel competing capitalists to decrease their own production times, and “this extra surplus-value vanishes, so soon as the new method of production has become general, and has consequently caused the difference between the individual value of the cheapened commodity and its social value to vanish” [9]. Consequently, the overall rate of surplus value also declines, and the need for even faster production re-emerges. Moreover, the competing capitalists don’t only want to match the new innovation and production time but they want to beat it, thereby exacerbating the above contradictions.

Initial methods of producing relative surplus value

There are two initial methods of producing relative surplus value that don’t entail capitalism revolutionizing the means of production. These take place when capital “formally” subjects production to its command, meaning that it takes existing production processes but without fundamentally altering their nature.

One is cooperation, which is a quantitative distinction that leads to a qualitative change. Merely by bringing workers together in one place, capitalists help facilitate the cooperation of workers. “Even without an alteration in the system of working, the simultaneous employment of a large number of labourers effects a revolution in the material conditions of the labour-process. The buildings in which they work, the store-houses for the raw material, the implements and utensils used simultaneously or in turns… in short, a portion of the means of production, are now consumed in common” [10].

Cooperation results in “an increase in the productive power of the individual” worker as well “the creation of a new power, namely, the collective power of masses” [11]. A collective of workers “working in concert has hands and eyes both before and behind and is, to a certain degree, omnipresent” [12]. Importantly, this doesn’t cost capital anything, although it looks like it’s a power of capital itself.

This is the beginning of the collectivization of labor or the production of the collective laborer, which is another contradictory process because “as the number of the co-operating labourers increases, so too does their resistance to the domination of capital” [13]. Workers can more easily agitate and organize, distribute literature and build class consciousness when we’re together in one place.

The other is the division of labor. Capitalism also, without revolutionizing the production process, produces relative surplus value by increasing the division and specialization of labor. When the worker is no longer producing the entire commodity but merely performing one action in the production process, the productivity of labor increases. In other words, “a labourer who all his life performs one and the same simple operation, converts his whole body into the automatic, specialized implement of that operation” and “takes less time in doing it” [14].

Taken together with cooperation, it also decreases any gaps in the labor process: the worker doesn’t have to get up and move to different stations, sit back down, use different tools, and so on.

Capitalism encounters a crucial limit to these methods of relative surplus value production, namely that it is still the workers who are the active agents in production or who serve as the “regulating principle of social production” [15]. The production processes above still rely on the workers’ bodies, skills, knowledges, and so on. Living labor still had the upper hand over dead labor, or the means of production.

Real subjection: Machinery

Marx says capitalists first take existing production processes as they find them and “formally subject them” by, for example, lengthening the working day or instituting cooperation. In order for capitalism to come into its own, it had to totally or really subject labor to its command, and it could only do so by taking the skill and knowledge of the worker and absorbing it into machinery, so that machinery, and not the workers, would drive production; so that dead labor dominates living labor.

Thus is born the industrial factory:

An organized system of machines, to which motion is communicated by the transmitting mechanism from a central automation, is the most developed form of production by machinery. Here we have, in the place of the isolated machine, a mechanical monster whose body fills whole factories, and whose demon power, at first veiled under the slow and measured motions of his giant limbs, at length breaks out in the fast and furious whirl of his countless working organs.[16]

The worker becomes, Marx says, “a mere living appendage” to the machine [17].

As constant capital, the machine can’t produce new value; it can only transfer its existing value to the finished product. However, machinery can produce relative surplus value by decreasing necessary labor time for the individual capitalist and lowering the value of labor-power.

Yet again, this is never finished. It’s only when the capitalist employs new labor-saving technologies that they can produce relative surplus value.

During this transition period… the profits are therefore exceptional, and the capitalist endeavours to exploit thoroughly ‘the sunny time of his first love’.[18]

The love doesn’t last, as other capitalists match or beat the new technologies with more productive ones. The overall rate of surplus value is driven down and, moreover, there are fewer workers engaged in production. The capitalist ends up investing more in machinery and less in labor-power and, overall, surplus value decreases (this is also tied to the tendency of the rate of profit to fall).

This explains why, as Marx and Engels wrote in The Manifesto of the Communist Party, “the bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society” [19]. The search for relative surplus-value in the face of the limits imposed on capital by the class struggle compel the constant revolutionizing of productive forces like technologies and machinery.

Contradictions intensify

There are numerous other key impacts technological transformations have on capitalism, workers, the class struggle, colonialism, imperialism, and more. Marx addresses many of these, some of which previous Liberation School articles cover [20]. For this introductory article, we want to touch on just a few more issues.

In their ruthless search for surplus value, capitalists work to increase the productivity of labor and the mass of commodities in the world. They produce unemployment and induce crises of overproduction. As Marx puts it:

The enormous power, inherent in the factory system, of expanding by jumps, and the dependence of that system on the markets of the world, necessarily beget feverish production, followed by over-filling of the markets, whereupon contraction of the markets brings on crippling of production. The life of modern industry becomes a series of periods of moderate activity, prosperity, over-production, a crisis and stagnation[21].

The expansion and intensification of capitalism’s command over life and work is accompanied by an enlargement and escalation of its internal contradictions. The capitalist system produces ever more and ever greater misery and destruction.

At the same time, this destruction of the worker, the earth, and its inhabitants produced by modern industry—which is spurred on by the search for relative surplus value—can lay the foundations for socialism: “By maturing the material conditions, and the combination on a social scale of the process of production, it matures the contradictions and antagonisms of the capitalist form of production, and thereby provides, along with the elements of the formation of a new society, the forces for exploding the old one” [22].

There’s nothing deterministic or mechanistic about this argument. Marx isn’t saying it will automatically happen or that it will only or universally happen after a certain level of technological development takes place. It’s important to remember that Marx’s case study in Capital is England, where the capitalist mode of production was most developed [23].

Absolute and relative surplus value as tactics

Absolute and relative surplus value are dialectically related. On the one hand, Marx says, they’re the same in that relative surplus value is absolute in the sense that it lengthens the part of the working day that the worker works for the capitalist (by reducing necessary labor time), and absolute value is relative because it compels an increase in the productiveness of labor.

On the other hand, when we look at the matter practically, they’re distinct. The difference between the two, he writes, “makes itself felt, whenever there is a question of raising the rate of surplus-value” [24]. In other words, sometimes capital will try to get absolute surplus value, and other times it will try to get relative surplus value.

They are each class tactics in its arsenal of exploitation. If workers can limit the working day, capitalists will go back to relative surplus value. But if capital can lengthen it, either by peeling back legislation or by destroying the entire concept of the working day, like it’s done with the “gig economy,” then it will pursue absolute surplus value.

For the working class, it’s imperative to know the tools in capital’s arsenal. When we fight for a normal working day and a living wage, we can make gains by limiting absolute and relative surplus value, but capital can change tactics and exploit us in different ways. If capital can’t increase absolute surplus value by lengthening the work day due to the united struggle of the workers, it will try to increase relative surplus value by increasing the intensity of work through introducing new technologies to the productive process. Conversely, when capital is unable to overcome the workers’ resistance to increase relative surplus value, it will look for ways to extend the workday. For example, capital might increase the number of salaried workers, whose wages do not increase when they work longer workdays.

Class struggle is conducted in many spheres–political, ideological, cultural, and of course the most easily observable, economical. The economic struggle between workers and capitalists over the rate of absolute and relative surplus value, and hence the rate of exploitation, is yet one more facet of class struggle between labor and capital.

Notes:

[1] Ford, Derek and Mazda Majidi. (2021). “Surplus value is the scass Struggle: An introduction,”Liberation School, March 30. Availablehere.
[2] Marx, Karl. (1967).Capital: A critique of political economy (vol. 1): The process of production of capital, trans. S. Moore and E. Aveling (New York: International Publishers), 299.
[3] Marx, Karl. (1993).Grundrisse: Foundations of the critique of political economy (rough draft), trans. M. Nicolaus (New York: Penguin Books), 408
[4] Marx,Capital, 299.
[5] Ibid., 299-300.
[6] Ibid., 47.
[7] Ibid., 257.
[8] Ibid., 301.
[9] Ibid., 302.
[10] Ibid., 307.
[11] Ibid., 309f1. In a footnote, he quotes John Bellers, who writes “As one man cannot, and ten men must strain to lift a ton of weight, yet 100 men can do it only by the strength of a finger of each of them.”
[12] Ibid., 310.
[13] Ibid., 313.
[14] Ibid., 321.
[15] Ibid., 347.
[16] Ibid., 360.
[17] Ibid., 398.
[18] Ibid., 383.
[19] Marx, Karl and Friedrich Engels. (1848/1967).The communist manifesto, trans. S. Moore (New York: Penguin), 222.
[20] Hernandez, Estevan, John Prysner, and Derek Ford. (2019). “A Marxist approach to technology,”Liberation School, December 9. Availablehere.
[21] Marx,Capital, pp. 425-7.
[22] Ibid., 472.
[23] In fact, later on he wrote that the Russian “rural commune” can “by developing its basis, the common ownership of land… become a direct point of departure for the economic system towards which modern society tends.” Marx, Karl. (1881). “First draft of letter to Vera Zasulich,” trans. A. Blunden. Availablehere.
[24] Marx,Capital, 479.

The Multiple Meanings of Marx's Value Theory

By Riccardo Bellofiore

Karl Marx's "critique of political economy" is grounded in his value theory. "Critique" has to be distinguished from criticism: Marx aimed not only to point out the errors of political economy, but also to learn from its scientific results. Here the key names are François Quesnay, Adam Smith, and David Ricardo. Marx was also interested in assessing the conditions and the limits of the knowledge provided by classical political economy. At the same time, he saw the critique of the "science" of political economy as the means to develop a critique of capitalist social relations.

Among Marx's unique contributions was that his value theory is the only one consistently put forward within a monetary analysis: that is, it introduces money in the very initial deduction of value. In fact, Marx's object of inquiry is capital understood as a "social relation of production," defined by two main traits: the exploitation of labor within a monetary commodity-producing economy and an internal tendency to crisis. The connection between money and class exploitation on one side and the endogeneity of crisis on the other is related to the view that, in a capitalist economy, the "value added" (a monetary magnitude) newly produced in a given period has its exclusive source in "abstract labor" as an activity - more precisely, in the living labor of wage workers.

In a nutshell, Marx's reasoning may be considered a macro-monetary theory of capitalist production. In the capitalist labor process, the totality of wage workers reproduce the means of production employed and produce a net product. The net product is expressed on the market as a new money value that is added to the money value attached to the means of production, historically inherited from the past. This value added is the monetary expression of the living labor time that has been objectified by the wage workers in the period. The value of the labor power (for the entire working class), which is exhibited in money wages, is regulated by the labor-time required to reproduce the capacity for labor, and hence by the labor-time required to reproduce the means of subsistence bought on the market. Accordingly, the surplus value(value added less value of labor power) originates from surplus labor, defined as the positive difference between, on the one hand, the whole of living labor spent in producing the total (net) product of capital and, on the other, the share of that living labor which has been necessary to devote to reproducing the wages, which Marx labels "necessary labor."

The Marxian critique of political economy is inseparable from the meaning Marx gave to the "labor theory of value," which in his case was rather a value theory of labor. The issue is how relations of production and circulation are affected by the fact that labor takes the capitalist social form of producing value and surplus value embedded in "things," in commodities. In what follows, I will look at Marx's value theory from five perspectives: (1) as a monetary value theory; (2) as a theory of exploitation; (3) as a macro-monetary theory of capitalist production; (4) as a theory of individual prices; and (5) as a theory of crises.

A Monetary Value Theory

Marx's starting point is that capitalism is an economy wherecommodity circulation occurs throughuniversal monetary exchange. The analysis of exchangeas such is given priority relative to the analysis of capitalist exchange, and money is introduced before capital. In exchange "as such," individual commodity producers are separate and in competition with each other. The labor of these asocial individuals is immediately private and "becomes" mediately social on the market. Socialization of labor goes on indirectly, through the selling of commodities. Each commodity is shown to be equal to the others in certain quantitative ratios. The commodity has a use value, but it also possesses an exchange value: though invisible in the commodity, it is externally exhibited in money as the "universal equivalent."

At this stage of Marx's original argument, money must be a (special) commodity with universal purchasing power, gold, as a result of a historical process of selection and exclusion sanctioned by the state. The equal "validity" of products sold on the market is in fact an a posteriori equalization of the labors producing them. Thus, labor is not social in advance, but only insofar as its true output will be money, a form of "generic" or "abstract" wealth. Individual labor, which is concrete labor producing an object with some utility for some other agent (a social use-value), counts for the producer as its opposite, as abstract labor. Abstract labor is a portion of the total labor exhibited in the money value of output: it is then also a portion of the gold-producing concrete labor, the latter being the unique, immediately social labor. The "value of money" is fixed when gold first enters monetary circulation, in the original exchanges with the other commodities.

Although private labor becomes social labor only through money as a universal equivalent, it is not money that renders the commodities commensurable. On the contrary, commodities possess an exchange value because, even before the final exchange on the commodity market, they have already acquired the ideal property of being universally exchangeable, giving them the form of value. This property, so to speak, grows out of objectified labor as the substance of value: the form of value in the individual commodity is a ghostly entity, but it materializes by taking possession of the body of money as a commodity; the internal duality is now "redoubled" in the external duality of commodity-money. Money is nothing but value made autonomous in exchange, divorced from commodities and existing alongside them, and as the form of value it is the outward necessary exhibition of abstract, indirectly social labor.

This qualitative analysis of exchange-as-such has a quantitative counterpart. The magnitude of value of a commodity is determined by the socially necessary labor-time needed for its production. "Socially necessary labor-time" has two meanings: production must run according to average techniques and intensity (determined by intra-industry competition), but it is also driven by the paying social need (what Marx calls "ordinary demand"). In a particular branch of production, each commodity of a given type and quality is sold at the same money price. Hence, the magnitude of value is ruled not by the "individual" labor-time actually spent by a single producer (i.e., by its individual value) but by the labor-time that has to be expended under "normal" conditions (i.e., by its social, or market, value). The magnitude of value is inversely related to the productive power of labor (the labor time required to produce the commodity, given the prevailing level of intensity). Commodity values are necessarily manifested as money prices. The quantity of money that is produced by one hour of labor in a given country and period may be defined as the monetary expression of labor: the magnitude of value of a commodity multiplied by the monetary expression of labor gives the so-called simple or direct price.

From this perspective, it is always possible to translate the external monetary measure of each commodity's value (ideally anticipated by producers before exchange) into the immanent measure in units oflabor-time. Note, however, that value is not identical with price, with the latter defined as any arbitrary relative ratio between commodity and money fixed on the market. Value instead expresses a necessary relation with the (abstract) labor-time spent in the production of commodities. To be effective in regulating market prices, value implies a coincidence between individual supply and demand. In that case, the spontaneous allocation of the private labors of autonomous producers affirms itself a posteriori on the market as a social division of labor. Price is the money-name taken by commodities, and since individual supplies and demands may well diverge, price may in turn exhibit a labor amount that differs from the socially necessary labor contained in the commodity. The whole mass of newly produced commodities is a homogeneous quantity of value whose monetary expression is necessarily equal to their total money price. The discrepancy between values and prices simply redistributes among producers the total direct labor, i.e., the content hidden behind the money form taken by the net product.

This approach to value theory, where value eventually "comes into being" in money, may be characterized as Marx's monetary value theory. In it, value and money cannot be divorced. It is formulated most clearly in the opening pages of Capital, where Marx moves from exchange value to value, from value to money, and from money to labor. It may be attacked on several grounds. In his famous critique of Capital, the nineteenth-century Austrian economist Eugen Böhm von Bawerk failed to notice the essential monetary side of Marxian value theory, instead looking only at what he saw as a linear deduction in the sequence exchange value-value-abstract labor. Quite reasonably (from this limited reading), he observed that abstracting from specific use-values does not mean abstracting from use value in general. Moreover, an exchange value is also attached to non-produced commodities. It follows, then, that hidden behind the notion of value are the common properties that allow for exchange on the market, namely utility and scarcity.

A more recent criticism stresses that while the backward connection from money to value is convincing, less so is Marx's idea of an absolute or intrinsic value justifying that inverse movement from the inner dimension of value to the outer dimension of money. Marx himself shows that the social equalization among labors is achieved only when commodities are actually sold in circulation: before that, in production, we meet only concrete labors, which are heterogeneous and non-additive.

A Theory of Exploitation

All these positions ignore the fact that for Marx, commodity exchange is universal only when the capitalist mode of production is dominant-that is, only when workers are compelled to sell their labor power to money as capital, as self-valorizing value. Consequently, labor is for him the content of the value-form because of a more fundamental sequence going from money-capital to (living) labor to (surplus) value. The private "individuals" who are distinct and opposed on the commodity market, where they eventually become "social" (in capitalist terms) through the metamorphosis of their products into money, are now to be interpreted as the collective workers organized by particular capitals in mutual competition.

To explain the origin of the value added, and thereby of the surplus value contained in it, Marx begins from two assumptions: supply meets a demand of the same amount, and commodities are sold at prices proportional to the labor required to produce them ("simple" or "direct" prices). The argument is based on a two-step comparison. First, he sketches a hypothetical situation (but one that expresses something very real and significant in capitalism) where the living labor extracted from wage workers is equal to the necessary labor required to produce the historically given subsistence. It is a situation of simple reproduction without surplus value, akin to Joseph Schumpeter's "circular flow," where the rate of profit is absent. In the second step, Marx imagines a (or rather, reveals the actual) prolongation of the working day beyond necessary labor imposed by capitalists. The extension of the working day beyond the necessary labor time creates a surplus labor and its monetary expression, surplus value.

In this argument, some points must be noted. First, Marx does not abstract at all from circulation. Account must be taken, before the capitalist labor process, of the buying and selling of labor power on the labor market, and of the way subsistence is determined. He must also assume that the potential (latent) value within the commodities produced will be confirmed as a "social use value" in circulation: the metamorphosis of the commodities into real money must happen according to sales expectations. Moreover, to make clear that abstract living labor is the only source of value, Marx must abstract from the tendency toward the equalization of the rate of profit between the branches of production. Throughout the first and second volumes of Capital, Marx ignores "static" (Ricardian) competition as the tendency towards the equality of the rate of profit among industries. Already in the first volume, however, he cannot avoid considering "dynamic" (Schumpeterian) competition, the intra-industry struggle to obtain extra surplus value. The diversification and stratification of the conditions of production is determined by innovation and spreads the rate of profit within the sector.

The "generativity" of the surplus is an endogenous variable, influenced by the social form taken by production as production for a surplus value to be realized on the market. With given industrial techniques, and assuming that competition on the labor market establishes a uniform real wage, necessary labor is constant. Surplus value is extracted by lengthening the working day. Marx calls this method of increasing surplus value the production of absolute surplus value. When the length of the working day is limited-whether by law or through workers' resistance-capital may enlarge surplus value by the production of relative surplus value, that is, through technical innovations or by speeding up the pace of production (a greater intensity of labor). Technical change, which increases the productive power of labor, lowers the unit-values of commodities. To the extent that the changing organization of production directly or indirectly affects the firms that produce wage-goods, necessary labor falls, and with it the value of labor power. This makes room for a higher surplus labor, and thus a higher surplus value.

Changes in production techniques yielding relative surplus value are a much more powerful way of controlling worker performance than is the simple personal control needed to obtain absolute surplus value. Moving from "cooperation" to the "manufacturing division of labor" to the "machine and big industry" stage, a specifically capitalist mode of production is developed. Here labor is no longer under a formal subsumption to capital (with surplus value extraction occurring within the technological framework historically inherited by capital) but it is under a real subsumption to capital (enforced by "technology," i.e., a capitalistically designed system of production). Workers (the human bearers of labor power) become mere "appendages" of the means of production, a means of "absorption" of labor power in motion (living labor). The concrete "qualities" possessed by laborers spring from a structure of production incessantly revolutionized from within and designed to command living labor. At this point in the argument, labor does not only "count" but really "is" purely abstract, indifferent to its particular form (which is dictated by capital), in the very moment of activity, where it has lost the nature of the active element and become the passive object of capitalist manipulation in the search for profit. This stripping away from labor of all its qualitative determinateness and its reduction to mere quantity encompasses both the historically dominant tendency to de-skilling and the periodically recurring phases of partial re-skilling.

A moment of reflection is needed to appreciate the special features of this unique social reality where labor is made abstract already in production. Profit-making springs from an "exploitation" of workers in a double sense. There is, first, exploitation through the division of the social working day, with laborers giving more (living) labor in exchange for less (necessary) labor. The perspective here is that of the traditional notion of exploitation, which considers the sharing-out of the quantity of social labor contained in the new value, added within the period. Its measure is surplus labor over and above necessary labor. This, however, is the outcome of a second, more basic exploitation of workers, in the form of the use of workers' labor power. Capitalist wealth is created only on the condition of this "consumption" of workers' bodies and minds, which perverts the nature of labor. The quantitative measure of this "productive" notion of exploitation, which refers to the formation rather than the distribution of the fresh "value added," is the social working day in its entirety. From this second perspective, exploitation becomes identified with the whole working day, and with the abstract (living) labor of wage workers. This is the ultimate reason for tracing back value to labor, because of the value form taken by labor.

Marx shows that abstract labor reflects an inversion of subject and object (what philosophers would call a "real hypostatization"), which is deepened in the theoretical movement back from the commodity-output market to the labor market and the production process. Within commodity exchange, objectified labor is made abstract because the products of human working activity, as long as they are commodities, manifest themselves as an independent and estranged reality, divorced from their origin in living labor. The consequent "alienation" of individuals is coupled by "reification" and "fetishism": reification because in a commodity-capitalist economy production-work relations among people necessarily take the form of an exchange among "things," and fetishism because, as a consequence, the products of labor seem endowed with social properties, as if these were bestowed upon them by nature. These characteristics reappear in the other two moments of the capitalist circuit. On the labor market, human beings become the personification of the commodity they sell, labor power (or "potential" labor). Within production, living labor (or labor "in becoming") is shaped by capital as abstract labor, and embedded in a definite technique and organization specifically designed to enforce the extraction of surplus value. Abstract labor in motion (as the activity producing value and money as its result) is the true subject of which the real individual workers performing it are the predicates. In this way, Marx's capital as self-valorizing value is akin to Hegel's Absolute Idea, seeking to actualize itself and reproducing its own conditions of existence; but it is potentially limited by workers' resistance to their "incorporation" as internal moments of capital.

At this point, it is possible to understand that behind the anarchic "social division of labor"-carried out by private producers independently of one another and effected a posteriori via the market-a different "technical division of labor" within production is taking place. In the latter, inasmuch as it is subjected to the drive of valorization, an a priori despotic planning by capitalist firms leads to a technological equalization and social pre-commensuration of the expenditure of human labor power, tentatively anticipating final validation on the commodity market. This process imposes on labor-already within direct production and before exchange-the quantitative and qualitative properties of being abstract labor spent in the socially necessary measure. Even though capitalist production is completely actualized only in exchange-and therefore single capitals in competition are not guaranteed to find an outlet for their production-individual workers are immediately socialized in production.

Capitalist production is the paradox of dissociated firms whose production is "in common," but which have yet to appear as part of total social labor in the eventual validation on the commodity market. This pre-commensuration of labor and socialization within production, in its turn, is conditional on a monetary ante-validation expressed by the finance for production that money-capitalists grant to industrial capitalists. For Marx, once capitalism has reached its full maturity in large-scale industry, the subjection of wage workers to capital, with the consequent (ex ante) abstraction of living labor already in production, and hence the theory of exploitation, must be seen as the foundation of the monetary value theory.

A Macro-Monetary Theory of Capitalist Production

I have heretofore surveyed two interpretations of Marx's value theory: as a monetary theory of value and as a theory of capitalist exploitation. Here I will summarize a contemporary analysis that may link these two: an approach to the value theory as a macro-monetary theory of capitalist production. This interpretation was put forward by the Italian economist Augusto Graziani, as part of his version of the theory of the "monetary circuit," and it has the advantage of revealing a hidden Marxian current in the work of the "bourgeois" monetary heretics of neoclassical theory (Knut Wicksell, Schumpeter, D. H. Robertson, the Keynes of the Treatise on Money).

According to both the Marxian view and these monetary heretics, the capitalist "cycle," or circuit, is logically split into a sequence of successive phases: first, the initial buying and selling of labor power on the labor market (where money wages are bargained); then, immediate production, where labor power is used; and eventually, the final selling of commodities in the moment of circulation (where real wages are eventually fixed), leading to the reconstitution of the money capital which has been advanced. If we distinguish money-capitalists from capitalist-entrepreneurs, this series follows the tripartite separation of Graziani's macro-agents in the most basic abstract picture of the monetary circuit: financial capital, industrial capital, and the working class. Means of production circulate only within the firm-sector, out of reach of wage-workers, whose purchasing power can only materialize in buying the means of consumption that the capitalist class makes available to them.

The defining features of Marx's value theory can be characterized as follows. It is, first of all, a class macroscopic analysis, which leads directly to a description of the capitalist economic process as a monetary circuit. In the cycle of money capital, money is initial finance from the banking system, allowing the firm-sector as a whole to purchase labor power from the working class. Money, before being the universal equivalent in circulation (the "social relation" in circulation), is what puts capitalists in a specific "social relation" with workers in production. The possibility of crisis arises when money is hoarded, because of the pessimistic prospects of capitalist-entrepreneurs or money-capitalists, and brings with it unsold commodities and involuntary unemployment. Crisis is a "break" in the circuit-a point which encompasses both Keynes's view of crisis as the result of a rise in liquidity preference (failure to "close" the circuit), and circuitists' view of crisis as an outcome of capitalist-entrepreneurs' reluctance to invest (failure to "open" the circuit).

"Valorization" means an enlargement of abstract wealth. In a truly macro-monetary perspective, no exchange internal to the firm-sector can contribute to valorization. If we assume Marx's macrosocial, monetary, and class point of view, it is clear that surplus value (gross profits) cannot originate in internal exchanges within the capitalist class: inter-firm transactions could only give way to "profit upon alienation" (or "profit upon expropriation"), cancelled out at the level of the firm-sector as a whole. The genesis of surplus value can be found instead in the only external "exchange" for capital as a whole, the one between capitalist firms (financed by banks) and the living bearers of labor power. Following Michał Kalecki's revision of Rosa Luxemburg's argument, the level, composition, and distribution of output can be easily determined. The "autonomous" capitalists' expenses for investment and their own consumption fix the amount of their profits, their market power (expressed in the "degree of monopoly") defines the profit share on income, and from here it is straightforward to derive the level of output, income and employment. In this view, in a capitalist economy, the totality of the means of production must go to capitalist-entrepreneurs. Thus, the entrepreneurs must be able to buy all the new means of production which have been produced. The profit margin must be set at a level such that the mass of profits is equal to realized investments.

It is noteworthy that in this reconstruction of Marxian theory what the working class actually receives are the consumption goods that firms put on the market for them, even if there are household savings. Financial wealth allows individuals to modify their consumption stream over time, but it is irrelevant for the aggregate. A reduction in saving is followed by higher real consumption by workers only if the firm sector autonomously decides to increase the supply of wage goods. Even shares represent a fictitious ownership, as long as decisions over real production are out of workers' control. This does not mean that distribution is immutable. However, workers exert influence on firms' or government's decisions about the real composition of output through non-market actions: conflict in production, or struggles in society, or political interventions.

On the Marxian theory of money, Graziani also offers some original insights. We must distinguish "money" (Geld in Marx's original German) from "currency" (Münze). The former represents abstract "wealth in general," while the latter is the universally accepted intermediary of exchange, and is one among many representatives of wealth in general. If we accept this distinction, the valorization process is defined as money-commodity-more money, or M-C-M´, while the monetary circuit enabling its reproduction is defined as currency-commodity-currency. It follows that the specific goal of the capitalist is to acquire money in the sense of abstract wealth, not to accumulate money as currency. When Marx discusses the nature of gross profit, he makes clear that it is acquired by capitalists solely in the form of commodities.

While Marx stresses that currency as "means of circulation" in commodity markets is itself a commodity, currency representing money as a form of capital must be a form of credit, and more specifically bank credit ex nihilo. The role of currency as bank credit ex nihilo is not made explicit in Capital because, when Marx writes of money and currency, especially in volume 3, he does not present a "pure" theory of the monetary circuit, but only an inquiry into what we today call the practice of money markets. Moreover, he assumes an open economy and the presence of the state. It has been suggested that the assumption that money is a sign (like that made by the monetary heretics) threatens to undermine Marx's theory of exploitation, since money as capital may seem to be valueless. This is not so. The problem of the value of money as capital is reduced to the problem of determining wages, because in a class macro-monetary approach the only purchasing power of the advanced currency is the number of workers hired: following the general principle of the theory of value, the value of the real wages of workers is equal to the given (subsistence) real wage .

A Theory of Individual Prices

The macro-monetary reconstruction, like the other perspectives on Marx's value theory I have presented, deflates the theoretical drama which has been going on for a century or more about the so-called transformation problem. This debate centers on Marx's value theory as a theory of the determination of (relative) prices: the conclusion many drew from the discussion was that Marx failed to transform the "simple" or "direct" prices (proportional to the labor contained in the commodities exchanged, sometimes labelled "labor-values") into the "prices of production" (containing an equal rate of profit, and systematically diverging from simple prices).

The reason is easy to understand. In volume 1 of Capital, Marx focuses on the rate of surplus value (identical to the rate of exploitation)-that is, the surplus value divided by the money capital spent in buying labor power (what Marx calls variable capital). This ratio is identical to that between surplus labor and necessary labor. The rate of surplus value is positively related to the length and intensity of the working day. It also rises with increases in the productive power of labor, which is positively affected by the capital composition: the ratio between the money capital advanced to buy means of production (labelled by Marx constant capital) and variable capital. Surplus value springs only from the use of labor power bought with variable capital, and not from the means of production bought with constant capital-hence, their respective names.

The rate of surplus value explains the origin of gross profits for total capital, confronted with the working class as a whole. Total capital extracts the new value, as exhibited in money, of the living labor of the working class, and pays back the value of labor power, as exhibited in the necessary labor. However, for the individual capital, the success of an investment is rather measured by the rate of profit: the ratio between total surplus value and total capital (the sum of variable capital and constant capital). Because of inter-industry, "static" competition, the rate of profit tends to be equal among branches of production.

Here the problem is said to emerge. The rate of profit is positively related to the rate of surplus value, and negatively related to capital composition. The rate of surplus value tends to be equal in every industry, but there is no reason for capital composition to equalize across industries. Commodities, including the elements of constant and variable capital, cannot be evaluated at labor-values when inter-industry competition is introduced-hence the need to transform the labor-values in prices of production, with the rate of profit helping to determine the elements of variable and constant capital.

I will not go into the intricacies of this debate. The point is that, whatever the opinions on the technical details of the transformation, the problem simply cannot exist as such: it is a pseudo-problem. If the core of Marx's value theory is taken to be the a posteriori socialization of labor on the market against the universal equivalent, the argument may be put forward that there are no actual "labor-values" before the eventual validation on the final market . There is only a single system of prices, and the assumption of simple or direct prices is just a "law of exchange," to be removed at a lower level of abstraction. The vision of Marx's value theory as a theory of capitalist exploitation, tracing back surplus value to the extraction of living labor from human beings as bearers of labor power, is even more radical: the point there is that valorization arises from the social relation of capital and workers in the capitalist labor process as a contested terrain, through class struggle in production. Accordingly, the extraction of living labor meets specific social difficulties for the buyers, because the labor power sold by workers (and hence the living labor to be extracted from them) are attached to the sellers, who in capitalism are supposed to be "free" and "equal" individuals. Thus the new value produced in the period cannot but be the monetary expression of living labor alone: whatever the "rule of prices," the ratios by which commodities exchange cannot but redistribute the new value. By definition, gross profits appropriate a share of workers' living labor.

The macro-monetary theory of capitalist production complements this argument, assigning a more fundamental role to the labor-values hidden behind simple or direct prices as a price rule. In fact, it is maintained that in the macro-social argument, in the first volume of Capital, the relevant price between class macro-agents is the rate of surplus value, adequately expressed through simple or direct prices. The reason is easy to see. The new value added by current production is identical to the monetary expression of living labor, and the value of labor power is the monetary expression of the labor contained in the real wage of the working class. All this occurs independently of saving behavior, and, we may add, it remains true whatever the ruling price system. As Graziani argues, in a quite extreme but effective fashion, Marx's theory of value has nothing to say directly about the phenomenon of the prices in final commodity-circulation, since valorization has been accounted for in the macroscopic class analysis, which includes the buying and selling of labor power and immediate production.

The macroeconomic inquiry into valorization is prior to the microeconomic determination of individual prices. At stake in the latter are not the relations between total capital and working class, but the exchange-relations of single firms. The determination of prices of production may well give way to a disparity between the labor commanded (in exchange) by gross profits and the labor contained (in production) within surplus value, and between the labor commanded (in exchange) by the money wage bill and the labor contained (in production) within the real wage for the working class. However, this "unequal exchange" can only obscure the process of valorization, not erase it. The new value (and then the living labor extracted by total capital from workers) and the value of labor power (and then the necessary labor required to produce the given real wage of the working class) remain the same.

Both the Marxists, and their neo-Ricardian or neoclassical critics-who dealt with the determination of prices of production within a simultaneous exchanges perspective-were unfaithful to Marx, because they overlooked the process that constitutes the equilibrium position. In fact, Marx's value theory as it has been depicted here is a non-equilibrium theory. This is something intrinsic to all the foregoing accounts of Marx's value theory: that value eventually comes into being with money as its phenomenal form (the monetary value theory); that class struggle and intra-capitalist competition affect the extraction of living labor (the theory of exploitation); as well as in the view of the essential monetary ante-validation of labor power as potential labor through the financing of production (the macro-monetary theory of capitalist production). "Non-equilibrium" refers to the constitution of the economic magnitudes, allowing us to distinguish, afterward, between equilibrium and disequilibrium. This is not a "temporal" but a "logical" re-reading of Marx's value theory. In my understanding, this duality of value theory (an out-of-equilibrium perspective, embodying both an equilibrium and a non-equilibrium) is at the core of David Harvey's notion of "anti-value," which has eluded many commentators.

A Theory of Crises

Another controversial area in Marxian political economy is the theory of crises. According to Marx, accumulation-i.e., the conversion of some portion of surplus value into additional (constant and variable) capital, to produce more surplus value-is a contradictory process. Crises are at once necessary explosions of the contradictions, and temporary solutions to them.

Capitalism's tendency toward instability is already evident in its structure as a monetary economy, where commodity-exchange is universalized. For some of the separate and autonomous firms, the anarchy in capitalist social division of labor may easily lead to an incomplete "realization" in circulation of the value potentially produced in immediate production. The presence of money dissociates sales from subsequent expenditures, so that hoarding may disrupt the smooth sequence of supply finding its own outlet on the market as incomes are spent. Most of Marx's inquiry in the three volumes of Capital, however, rests on the assumption that commodities are sold on the market at their "social values" (in volumes 1 and 2) or at "prices of production" (in volume 3)-something akin to Keynes's basic model in the General Theory of fulfilment of short-term expectations.

In volume 2 of Capital, drawing on an original insight by Quesnay, Marx constructs his schemes of reproduction, which show that a balanced growth path, independent of the level of consumption demand, is a theoretical possibility. Marx divided social output into two departments, the first producing capital goods and the second consumption goods (which may be subdivided into wage-goods and luxury-goods). The value output of both sectors is seen as the sum of its three constituent parts, i.e., constant capital, variable capital, and surplus value. In simple reproduction, capitalists unproductively consume the entire surplus value, resulting in zero growth. In enlarged reproduction, they more or less completely invest surplus value in new constant and variable capital, allowing for accumulation. What the scheme clarifies is that each value component of the output is also a component of demand for its own or the other sector. Equilibrium, which is always possible, depends on some balance among intersectoral trades. Against Malthus and Sismondi, Marx affirms that capital may expand over time without meeting a barrier in effective demand, because it is the mainspring of its own demand. Nevertheless, against Ricardo and Say, Marx also states that, since equilibrium needs exchange in definite, "correct" proportions-and not only in value, but also in use value and money terms-a balanced long-run accumulation is not a guaranteed outcome, but rather materializes by "accident" (a point taken up again in the Harrod-Domar growth models).

The likelihood of departures from equilibrium because of this absence of planning simply reflects the possibility of crises occurring in a market environment. Marx instead seeks to explain the necessity of crises arising from the capitalist class relation itself. In his view, failures of effective demand issue from a fall in investments, which itself proceeds from a profitability crisis. Thus, the question becomes one of understanding the systemic, recurring causes of profit shortfalls. A first argument is described in the "general law of capital accumulation" at the end of volume 1 of Capital: assuming a constant composition of capital, a sufficiently rapid growth in the value invested exhausts the supply of labor power and tightens the labor market. Wage increases outpace the rise in the productive power of living labor, the rate of profit starts falling, and consequently, accumulation and the demand for labor slow down. A more lasting solution to this difficulty, located in distributive struggles over the partition of the new value added, is the introduction of labor-saving, capital-intensive methods of production. For a given capital, mechanization reduces the share of variable capital, and thereby the demand for labor, to produce the same output: it displaces workers, replacing them with machines.

Theoretically, a rise in the rate of accumulation may enhance or reduce employment, according to the relative weight of the two forces, the increase in the size of capital and the change in its composition. Through the cycle, the pace and structure of the accumulation of capital (the independent variable) constantly vary to reproduce an industrial reserve army of potential workers ready to be included in the valorization process, exerting a downward pressure on wages-the dependent variable. A permanent downward pressure on the real wage, i.e., an "absolute" impoverishment of the workers, is among the possible outcomes. All the same, the normal situation is very different. Capitalist accumulation is propelled by the production of relative surplus value, which presupposes a positive dynamics of the productive power of labor. The real wage, then, has room for improvement (without impeding the tendency for a greater share of the surplus value in the new value added to go to the capitalist class), as long as the increased level of workers' consumption is expressed in a lower value of labor power. This is what Luxemburg called the tendency toward a fall in the relative wage, i.e., a contraction in wages as a proportion of national income-a relative, not an absolute, impoverishment. On the other hand, with the rise of trade unions and a more militant working class, wage struggles can become partially independent from the labor market, break the tendential fall in the "relative" wage, and develop into an independent cause of capitalist crises.

Mechanization of production is also an autonomous drive for capital to control living labor and to remove workers from the point of production. If mechanization is a powerful lever to regulate both the exchange value and the use value of labor power, it nevertheless creates a further difficulty. The rise in what Marx calls the technical composition of capital - the "physical" ratio of the number of means of production to the number of workers employed-contributes to the expulsion of workers from the productive process; but workers' living labor, we know, is the exclusive source of value and surplus value. According to Marx, the consequent rise in the composition of capital expressed in value terms yields a tendency of the rate of profit to fall. It must be noted, however, that Marx expresses the "law" with reference to the rise in what he calls the "organic" composition of capital (in which the elements of constant and variable capital are evaluated at the prices before the diffusion of innovation), and not in the value composition of capital (in which these elements are evaluated at the prices after such diffusion). The latter definition fully reflects the revolution in the evaluation of constant and variable capital produced by mechanization, whereas the former measures inputs at their original prices. The "organic" composition follows the increase in the "technical" composition, but the trend in the profit rate depends on the "value" composition. The clarification of the distinction between physical, value, and organic composition of capital was a fundamental contribution made by Ben Fine and Laurence Harris in the late 1970s, and developed more recently by Alfredo Saad-Filho.

Some authors have interpreted the tendency of the rate of profit to fall not only as a cause of cyclical crises, but also of capitalism's long waves, and others have considered it the reason for a secular downward trend in profitability. There is some justification for this view. The application of greater quantities of constant (and especially, fixed) capital per unit of output is the most effective means to propel surplus value extraction from workers. Marx thought that the increase in the rate of surplus value could not compensate in the long run for the negative influence on the rate of profit of the higher (value) composition of capital, and so he downgraded it as a mere counter-tendency. Marx's strongest argument in favor of the "law" is an appeal to an absolute limit to the surplus labor that may be pumped out of a given working population.

To understand what is involved here, it is best to view the composition of capital as an index of the ratio between, on the one hand, the dead labor contained in the means of production and, on the other, the living labor expended in the period-that is, to represent it as the ratio between constant capital and the sum of variable capital and surplus value. Assuming that variable capital is tending toward zero, and thus that the whole social working day is objectifying itself as surplus value, the (value) composition of capital becomes the reciprocal of themaximum rate of profit. This latter can be seen as the ceiling for the upper movements of the actual rate of profit. Marx suggests that the numerator of the maximum rate of profit meets a "natural" constraint in the amount of living labor that can be extracted from workers, while, on the contrary, its denominator is free to grow without limits. At the ruling social values, individual capitalists are willing or forced to introduce more capital-intensive methods of production. In this way, they lower unit costs to gain excess temporary profits, but the longer-run effects of their behavior force a reduction of the social values of commodities and depress the average rate of profit.

Nevertheless, to deduce a necessary fall in the rate of profit would be unjustified, because progress in the productive power of labor, accelerated by mechanization, ends up reducing the values (i.e., prices) of all commodities, and thereby also those of the means of production. It cannot be excluded a priori that the devaluation of constant capital might even be strong enough to raise the maximum rate of profit, removing the barrier to the actual rate of profit. The latter is both a positive function of the rate of surplus value and a negative function of the composition of capital. Another criticism is thus that there is no reason to exclude the possibility that the rise in the rate of surplus value can offset the (possible, not necessary) rise in the value composition of capital.

It is interesting to observe that the higher the rate of surplus value soars, and thereby the more the tendency for the rate of profit to fall is repressed, the more likely the system is to run into a third type of crisis, that of realization. Some Marxists have indeed suggested that the rate of profit falls because actual (or expected) effective demand is insufficient for the system as a whole to buy commodities at their full value (including the average rate of profit). Two conflicting positions have been dominant in this group of theories. One approach (that of Hilferding, for example) stressed that disproportionalities-i.e., sectoral imbalances between supply and demand-were intrinsic to a spontaneous, chaotic market economy. If excess supply persistently affects important branches of production, this can spread to other sectors and easily degenerate into a general glut of commodities. This kind of difficulty, however, depends on the speed of price-and-quantity adjustment to disequilibrium, and may disappear in a more "organized" form of capitalism. Some of its proponents (such as Mikhail Tugan-Baranovski) even ended up endorsing the view that, being "production for production's sake," capitalism encounters no true barrier in effective demand, and in principle sustain a balanced growth path with declining consumption. The other approach (associated with Luxemburg and others) is sometime wrongly labelled "underconsumptionist," though in fact it stresses under-investment. It maintains that net investment could not compensate for insufficient consumption forever, since the long-term profitability of new machine-goods depends on future outlets, and these latter are less and less predictable with a decreasing share of consumption in total demand. The same reproduction schemas prove that the inter-sectoral trade proportions required for expanded reproduction are precarious and unsteady. An increasing extraction of relative surplus value-which is needed to overcome the tendency for the rate of profit to fall, and which strengthens the tendency for the relative wage to fall-shifts them continuously, making them unlikely to be met for long.

For some of these theorists, such forms of realization crisis are of increasing severity and lead to a final breakdown, when the "external" factors mitigating them (such as the net exports to non-capitalist areas) are exhausted. Other writers in the same tradition, as Kalecki, objected that the insufficiency of effective demand may be solved by what he dubbed "domestic exports," i.e., governments' budget deficits financed by the injection of new money; indeed, Luxemburg already hinted at something of this kind in her original argument, under the heading of military expenditures on armaments. A similar role may be played by unproductive consumption by "third persons," drawing their incomes from deductions from total surplus value. To be compatible with a stable accumulation of capital, these "solutions" call for continued pressure on living labor. This confirms the role of the rate of surplus value as the pillar of capitalist development, and of the outcome of the class struggle within the capitalist labor process as the crucial determinant of its dynamics.

A re-reading of Marx's theory of crisis looks at the tendential fall in the rate of profit as a meta-theory of crises, incorporating the different kinds of crises which can be derived from Marx, and extending them to a historical narrative of the evolution of capitalism. From this point of view, the tendential fall in the rate of profits due to a rising value composition of capital was confirmed during the Long Depression of the late nineteenth century. The increasing rate of exploitation needed to overcome the tendency was implemented by Fordism and Taylorism, which jointly strengthened the tendency for the relative wage to fall. The rise in the rate of surplus value, however, created the conditions of a realization crisis, the Great Crash of the 1930s. The so-called golden age of capitalism after the Second World War was predicated on a higher pressure on productive workers, to obtain enough living labor and gain ever higher surplus labor. This in turn opened the way to a social crisis of accumulation, because of the struggles within the immediate valorization process-a key factor in the stagflation of the 1970s.

From this point of view, the so-called Great Moderation, leading to the recent Great Recession (if not Lesser Depression), must be interpreted as capital's reaction to a crisis originating from a rupture in the same capital-labor "social relation" within production. "Great Moderation," of course, was a misnomer, coined by Ben Bernanke in 2004 and founded on the delusion that finance and business cycles were at last under control. Neoliberalism is best captured as a real subsumption of labor to finance and debt within a Minskyian "money manager capitalism": the subordinated integration of households into the stock exchange market, and their descent into bank indebtedness. As I have argued several times with Joseph Halevi, even before Minsky the tendency to household private indebtedness was captured by Paul Sweezy and Harry Magdoff as a powerful countertendency, and Sweezy developed a reading of the new phase of capitalism in terms of "financial dominance." The other side of the coin was the "deconstruction" of labor in the new phase of capitalist accumulation, characterized by new styles of corporate governance leading to a centralization without concentration, and then to a weakening of workers in the labor market and in the labor process. This form of capitalism was based on a capital market inflation, which, though it stabilized the system for a time, has proven unsustainable.

This piece originally appeared at MROnline . It is a revised version of a paper presented at the Union for Radical Political Economics session of the Allied Social Sciences Association Conference in Philadelphia in January 2018, and previously presented at the Historical Materialism Conference in London in November 2017.

Riccardo Bellofiore is a professor of economics at the University of Bergamo.

Marx's Capital for the 21st Century

By Susan Williams

This year marks the 150th anniversary of Volume I of Marx's Capital, a book with the most profound impact on human society of any political work in history. Marxist economic analysis has inspired the freedom struggles of billions of people.

By the 1990s, however, the profit system was staging a comeback in the USSR and China, thanks to decades of Western hostility from the outside and bureaucratic repression and betrayal from within. Socialism was passé; capitalism was the pinnacle of human development. As the world continued to change rapidly - with computers, robotics, the World Bank, hedge funds - Karl Marx seemed even more anachronistic.

But a funny thing happened on the way to the dustbin of history. The global devastation of the 2008 Great Recession underlined accelerating poverty and inequality. It showed that the capitalist monster may have changed its spots, but it was still vicious and hardwired for explosion. Capital turns out to have everything to say to rebels of the 21st century.

Ruthless Criticism of all that Exists

The mid-1800s, when Marx developed his economic theories, was a period with many similarities to ours. People were outraged at injustice, destitution, state violence, the lack of civil rights, and heavy taxation due to governmental debt, conditions caused at that time by the rise of industrial capitalism and the oppressive remnants of feudalism.

In 1848, a revolutionary wave surged across Europe. But the outcome was a series of defeats that left workers and radicals beaten down and believing the capitalist rulers were invincible. Striving to understand why the revolts were crushed and what victory would require, Marx began the economic studies that would occupy the rest of his life.

Before Marx, socialist thought was dominated by utopianism. This was the dream of an ideal society which only had to be imagined "to conquer all the world by virtue of its own power," as Marx's collaborator Frederick Engels wrote. In contrast, Marx and Engels took a scientific approach. Rather than springing from ungrounded wishes and hopes, Marxism analyzes what actually exists in the social and material world.

In his introduction to the first volume of his seminal work, Marx says, "It is the ultimate aim of this work to lay bare the economic law of motion of modern society, i.e., capitalist, bourgeois society." He was embarking on the ultimate "know thy enemy" campaign.

Capital begins with the individual cell of the capitalist organism: the commodity (an object made to be sold). Marx explains step by step the process by which human labor-power adds economic value to commodities above and beyond the owner's costs. And he shows how this process inherently steals from the worker. If you know in your gut that you are being robbed at work even though you get a paycheck, Marx demonstrates logically why you are absolutely correct.

Marx laid out how capitalist economy would unavoidably suffer periodic crises worsening over time while the general rate of profit would slow. These factors would drive the ruling class to take from workers an ever greater share of the wealth they produce. The environment would be despoiled. Economic inequality and poverty would grow drastically. Small business owners and family farmers would lose their livelihoods.

In short, Marx predicted conditions today, with nearly half of the world's population living on less than $2.50 a day. His analysis also showed that there is no possibility of bringing into being a kinder, gentler profit system, because every capitalist is subject to a brutal, take-no-prisoners law of competition.

Class Consciousness to the Rescue

Marx wrote his analysis when the industrial revolution was just setting capitalism on its feet. He foresaw the inevitable globalization of the profit system, and concluded that it was then that its nature would be most fully expressed. With the advent of computerization, instant communication, and an international division of production and distribution, the "free market" became truly a world phenomenon.

From the start, capitalism was set on a trajectory leading to the growth of monopolies, dominance of finance capital (banks, stock markets, etc.), and hyper-concentration of wealth. Case in point: over the last several decades, all the additional wealth created by increased labor productivity has gone into the pockets of the owning class, while the share going to the workers has fallen. Capital is even more a book for our time than for the moment in time it was written, because capitalism has grown into a full-blown system dominating the planet.

Perhaps most of all, this is a book for the 21st century because of how desperately people seeking change in our time need to understand class.

This is a time of anger and revolt, but resistance is fractured. The clannish mentality of identity politics too often prevails, traceable ultimately to the racism, sexism, and all the other "isms" fostered by the ruling class to divide and conquer. But the Black activist fighting police brutality, the Trump supporter frustrated with job conditions in a "right to work" state, the teenager who slings hamburgers by day and is an environmental warrior by night: if they all depend on a paycheck to survive, they share much more than they may know. The beauty of Capital is that by understanding its ideas we can come to understand our common exploitation and the power that we have in fighting back together.

More than ever, those who believe a better world is possible need Marx. Scientific socialism offers a reality-based understanding of how capitalism works and the relationships among the people trapped in its net. This makes it possible to develop an effective plan of attack, including, for example, the need for revolutionary parties.

Capital is not an easy read for current generations. But take heart. Marx was writing for the average educated worker of his time, not the ivory tower elite. The early sections are challenging. Once grasped, however, they lay the foundation for an understanding of everything from the meaning of the fight over the length of the working day to why robots are displacing human employees.

David Harvey's A Companion to Marx's Capital is one of several excellent reading guides to Volume I, the most famous and fundamental of the three-volume series. And Freedom Socialist Party educational retreats have developed a detailed introduction to the Marxist analytical method and a study plan for Volume I that you can find at socialism.com; look for "Trotsky School 2015 Curriculum."

The best way to tackle Capital is in a group. If you would like help setting up a study circle, get in touch! And, before too many more anniversaries go by, let's realize the potential of this amazing book as a tool for winning a liberating future.

This was originally published in the Freedom Socialist newspaper, Vol. 38, No. 4, August-September 2017 (www.socialism.com)

Send feedback to Susan Williams, doctors' union organizer and student and teacher of Marxist economics, at drsusan762@gmail.com.