(a) On the Meaning of the Marxist Theory of Value

“From which incidentally the practical application follows that there are sometimes difficulties with the popular claim of the worker to the ‘full proceeds of his labour’.” – ENGELS, Herr Eugen Dühring’s Unwälzung.

According to the Marxist theory surplus value is, as we have seen, the pivot of the economy of a capitalist society. But in order to understand surplus value one must first know what value is. The Marxist representation of history and of the course of development of capitalist society begins therefore with the analysis of value.

In modern society, according to Marx, the value of commodities consists in the socially necessary labour spent on them measured according to time. But with the analysis of this measure of value quite a series of abstractions and reductions is necessary. First, the pure exchange value must be found; that is, we must leave aside the special use values of the particular commodities. Then – in forming the concept of general or abstract human labour – we must allow for the peculiarities of particular kinds of labour (reducing higher or complex labour to simple or abstract labour). Then, in order to attain to the socially necessary time of work as a measure of the value of labour, we must allow for the differences in diligence, activity, equipment of the individual workers; and, further (as soon as we are concerned with the transformation of value into market value, or price), for the socially necessary labour time required for the particular commodities separately. But the value of labour thus gained demands a new reduction. In a capitalistic developed society commodities, as has already been mentioned, are sold not according to their individual value but according to their price of production – that is, the actual cost price plus an average proportional rate of profit whose degree is determined by the ratio of the total value of the whole social production to the total wage of human labour power expended in producing, exchanging, etc. At the same time the ground rent must be deducted from the total value, and the division of the capital into industrial, commercial, and bank capital must be taken into the calculation.

In this way, as far as single commodities or a category of commodities comes into consideration, value loses every concrete quality and becomes a pure abstract concept. But what becomes of the surplus value under these circumstances? This consists, according to the Marxist theory, of the difference between the labour value of the products and the payment for the labour force spent in their production by the workers. 1t is therefore evident that at the moment when labour value can claim acceptance only as a speculative formula or scientific hypothesis, surplus value would all the more become a pure formula – a formula which rests on an hypothesis.

As is known, Friedrich Engels in an essay left behind him which was published in the Neue Zeit of the year 1895-96, pointed out a solution of the problem through the historical consideration of the process. Accordingly the law of value was of a directly determining power, it directly governed the exchange of commodities in the period of exchange and barter of commodities preceding the capitalist order of society.

Engels seeks to prove this in connection with a passage in the third volume of Capital by a short description of the historic evolution of economics. But although he presents the rise and development of the rate of profit so brilliantly, the essay fails in convincing strength of proof just where it deals with the question of value. According to Engels’ representation the Marxist law of value ruled generally as an economic law from five to seven thousand years, from the beginning of exchanging products as commodities (in Babylon, Egypt, etc.) up to the beginning of the era of capitalist production. Parvus, in a number of Neue Zeit of the same year, made good some conclusive objections to this view by pointing to a series of facts (feudal relations, undifferentiated agriculture, monopolies of guilds, etc.) which hindered the conception of a general exchange value founded on the labour time of the producers. It is quite clear that exchange on the basis of labour value cannot be a general rule so long as production for exchange is only an auxiliary branch of the industrial units, viz., the utilisation of surplus labour, etc., and as long as the conditions under which the exchanging producers take part in the act of exchange are fundamentally different. The problem of Labour forming exchange value and the connected problems of value and surplus value is no clearer at that stage of industry than it is to-day.

But what was at those times clearer than to-day is the fact of surplus labour. When surplus labour was performed in ancient times – and in the middle ages no kind of deception prevailed about it – it was not hidden by any conception of value. When the slave had to produce for exchange he was a simple surplus labour machine. The serf and the bondsman performed surplus labour in the open form of compulsory service (duties in kind, tithes, etc.). The journeyman employed by the guildmaster could easily see what his work cost his master, and at how much he reckoned it to his customer.

This clearness of the relations between wages of labour and price of commodities prevails even on the threshold of the capitalist period. From it are explained many passages that surprise us to-day in the economic writings of that time about surplus labour and labour as the sole producer of wealth. What appears to us the result of a deeper observation of things was at the time almost a commonplace. It did not at all occur to the rich of that epoch to represent their riches as the fruit of their own work. The theory arising at the beginning of the manufacturing period of labour as the measure of exchange value (the latter conception then first becoming general) certainly starts from the conception of labour as the only parent of wealth, and interprets value still quite concretely (viz., as the cost price of a commodity), but forthwith contributes more towards confusing the conceptions of surplus labour than of clearing them. We can learn from Marx himself how Adam Smith, on the basis of these conceptions, represented profits and ground rent as deductions from the labour value; how Ricardo worked out this thought more fully, and how socialists turned it against the bourgeois economy.

But with Adam Smith labour value is already conceived as an abstraction from the prevailing reality. His full reality is in “the early and crude state of society” which precedes the accumulation of capital and the appropriation of land, and in backward industries. In the capitalist world, on the other hand, profit and rent are for Smith constituent elements of value beside labour or wages; and labour value serves Smith only as a “concept” to disclose the division of the products of labour – that is the fact of surplus labour.

In the Marxist system it is not otherwise in principle. Marx certainly sticks to the idea of labour value more firmly than Smith, and has conceived it in a more strict but at the same time also more abstract form. But whilst the Marxist school – and the present author amongst them – believed that a point of fundamental importance for the system was the passionately discussed question as to whether the attribute of “socially necessary labour time” in labour value related only to the manner of the production of the respective commodities or included also the relation of the amount produced of these commodities to effective demand, a solution lay already in the desk of Marx which gave quite a different complexion to this and other questions, forced it into another region, on to another plane. The value of individual commodities or kinds of commodities becomes something quite secondary, since they are sold at the price of their production – cost of production plus profit rate. What takes the first place is the value of the total production of society, and the excess of this value over the total amount of the wages of the working classes – that is, not the individual, but the total social surplus value. That which the whole of the workers produce in a given moment over the portion falling to their share, forms the social surplus value, the surplus value of the social production which the individual capitalists share in approximately equal proportion according to the amount of capital applied by them for business purposes. But the amount of this surplus value is only realised in proportion to the relation between the total production and the total demand – i.e., the buying capacity of the market. From this point of view – that is, taking production as a whole – the value of every single kind of commodity is determined by the labour time which was necessary to produce it under normal conditions of production to that amount which the market that is the community as purchasers – can take in each case. Now just for the commodities under consideration there is in reality no exact measure of the need of the community at a given moment; and thus value conceived as above is a purely abstract entity, not otherwise than the value of the final utility of the school of Gossen, Jevons, and Böhm-Bawerk. Actual relations lie at the foundation of both; but both are built up on abstractions.

Such abstractions naturally cannot be avoided in the observation of complex phenomena. How far they are admissible depends entirely on the substance and the purpose of the investigation. At the outset, Marx takes so much away from the characteristics of commodities that they finally remain only embodiments of a quantity of simple human labour; as to the Böhm-Jevons school, it takes away all characteristics except utility. But the one and the other kind of abstractions are only admissible for definite purposes of demonstration, and the propositions found by virtue of them have only worth and validity within defined limits.

If there exist no exact measure for the total demand at one time of a certain class of commodities, practical experience shows that within certain intervals of time the demand and supply of all commodities approximately equalise themselves. Practice shows, further, that in the production and distribution of commodities only a part of the community takes an active share, whilst another part consists of persons who either enjoy an income for services which have no direct relation to the production or have an income without working at all. An essentially greater number of men thus live on the labour of all those employed in production than are engaged actively in it, and income statistics show us that the classes not actively engaged in production appropriate, moreover, a much greater share of the total produced than the relation of their number to that of the actively producing class. The surplus labour of the latter is an empiric fact, demonstrable by experience, which needs no deductive proof. Whether the Marxist theory of value is correct or not is quite immaterial to the proof of surplus labour. It is in this respect no demonstration but only a means of analysis and illustration.

If, then, Marx presumes, in the analysis of the production of commodities, that single commodities are sold at their value, he illustrates on a single object the transaction which, according to his conception, the total production actually presents. The labour time spent on the whole of the commodities is in the sense before indicated, their social value.

And even if this social value is not fully realised – because a depreciation of commodities is always occurring through partial overproduction – yet this has in principle no bearing on the fact of the social surplus value or surplus product. The growth of its amount will be occasionally hindered or made slower, but there is no question of it standing still, much less of a retrogression in its amount in any modern state.

The surplus product is everywhere increasing, but the ratio of its increase to the increase of wages-capital is declining to-day in the more advanced countries.

By the simple fact that Marx applies the formula for the value of the whole of the commodities, to single commodities, it is already indicated that he makes the formation of surplus value fall exclusively in the sphere of production, where it is the industrial wage earner who produces it. All other active elements in modern economic life are auxiliary agents to production and indirectly help to raise the surplus value when they, for example, as merchants, bankers, etc., or their staff, undertake services for industry which would otherwise fall upon it, and so they lessen its cost. The wholesale dealers, etc., with their employees, are only transformed and differentiated clerks, etc., of the industrial entrepreneurs, and their profits are the transformed and concentrated charges of the latter. The employees for wages of these merchants certainly create surplus value for them, but no social surplus value. For the profit of their employers, together with their own wages, form a portion of the surplus value which is produced in the industry. Only, this share is then proportionately less than it was before the differentiation of the functions here under consideration or than it would be without it. This differentiation only renders possible the great development of production on a large scale and the acceleration of the turnover of industrial capital. Like division of labour generally, it raises the productivity of industrial capital, relatively to the labour directly employed in industry.

We limit ourselves to this short recapitulation of the exposition of mercantile capital (from which, again, banking capital represents a differentiation) and of mercantile profit set forth in the third volume of Capital.

It is clear from this within what narrow limits the labour that creates supply value is conceived in the Marxist system. The functions developed, as also others not discussed here, are from their nature indispensable to the social life of modern times. Their forms can, and undoubtedly will, be altered; but they themselves will in substance remain, as long as mankind does not dissolve into small social self-contained communities, when they then might be partly annulled and partly reduced to a minimum. In the theory of value which holds good for the society of to-day the whole expenditure for these functions is represented plainly as a deduction from surplus value, partly as “charges”, partly as a component part of the rate of exploitation.

There is here a certain arbitrary dealing in the valuing of functions in which the actual community is no longer under consideration, but a supposititious, socially-managed community. This is the key to all obscurities in the theory of value. It is only to be understood with the help of this model. We have seen that surplus value can only be grasped as a concrete fact by thinking of the whole economy of society. Marx did not succeed in finishing the chapter on the classes that is so important for his theory. In it would have been shown most clearly that labour value is nothing more than a key, an abstract image, like the philosophical atom endowed with a soul – a key which, employed by the master hand of Marx, has led to the exposure and presentation of the mechanism of capitalist economy as this had not been hitherto treated, not so forcibly, logically, and clearly. But this key refuses service over and above a certain point, and therefore it has become disastrous to nearly every disciple of Marx.

The theory of labour value is above all misleading in this that it always appears again and again as the measure of the actual exploitation of the worker by the capitalist, and among other things, the characterisation of the rate of surplus value as the rate of exploitation reduces us to this conclusion. It is evident from the foregoing that it is false as such a measure, even when one starts from society as a whole and places the total amount of workers’ wages against the total amount of other incomes. The theory of value gives a norm for the justice or injustice of the partition of the product of labour just as little as does the atomic theory for the beauty or ugliness of a piece of sculpture. We meet, indeed, to-day the best placed workers, members of the “aristocracy of labour,” just in those trades with a very high rate of surplus value, the most infamously ground-down workers in others with a very low rate. A scientific basis for socialism or communism cannot be supported on the fact only that the wage worker does not receive the full value of the product of his work. “Marx,” says Engels, in the preface to the Poverty of Philosophy, “has never based his communistic demands on this, but on the necessary collapse of the capitalist mode of production which is being daily more nearly brought to pass before our eyes.”

Let us see how in this respect the matter stands.