II.

True to his method of “no philosophy,” Marx set about his task of finding the true laws of exchange-value in the most “unphilosophic,” matter-of-fact way. He argued that, while the laws of value furnish the key to the understanding of our economic system, those laws themselves can only be derived from the observation of the actual every-day facts of our production and distribution. In order, however, that these facts may be properly understood and appreciated they must be examined in their historical connection and in their proper historical setting.

The production and distribution of the capitalist system can be best studied by an examination of a typical capitalistic commodity: a Factory Product. While the capitalist system has impressed itself upon every phase of life of every society in which it prevails, so that nothing can escape it, whether properly belonging within its domain or not, its characteristic features, its vital elements, are contained in their purity and simplicity only in its historic embodiment,— the factory product. The factory product is not only the historic form of capitalist production, accompanying its appearance on the historical arena as its technical embodiment, but it represents the vast majority of all the commodities of capitalist society. The factory product bears the imprint of capitalism so deeply emblazoned upon it, and is so free from entangling alliances with any forms of production other than capitalistic, that there can be absolutely no mistaking its origin and virtues. Not so with other products. Take, for instance, a farm product. You can not, by the mere fact of its production as a farm product tell whether it was produced under the capitalistic regime or not. This is due to the fact that our form of ownership and cultivation of land have to a great extent remained far behind the general progress of our economy. We cannot, therefore, by examining a farm product tell the characteristics of capitalist production, for we cannot tell which of the properties of the farm product are the result of capitalism and which are the survival of some prior mode of production. After we shall have learned to know the characteristics of capitalist production, we shall see that these characteristics are to be found also in the capitalistically produced farm product. The examination of the farm product may, therefore, serve to find the limits of the laws of capitalistic production, but not these laws themselves. For that purpose we must study the factory product.

It is well to remember in this connection that historically the capitalist system has built its foundation on the ruins of farming, and that their progress is usually in the inverse ratio to each other. It is one of the contradictions of capitalist society, that while it needs farm products in order to sustain itself, farming does not fit into its scheme. In such typically capitalistic countries as England, for instance, this contradiction was solved by practically eliminating farming, and drawing its food supply from abroad. But as this is an obviously impossible solution for the whole capitalistic world, attempts have been made to capitalize farming. So far, this has met with only indifferent success. That is why the “agrarian question” is now uppermost in all economic discussions. From all this it is perfectly plain that if we want to understand the capitalistic system we must study the factory product.

The most characteristic feature of the factory product as a natural phenomenon, that which marks its contrast to the farm product, is its comparative independence of climatic and other natural phenomena— an independence which makes it practically reproducible at will. Unlike the farm product, which depends for its successful production on the varying conditions of soil and climate (conditions usually not subject to change at the hands of man) and is therefore limited in its production by a force to which all men must bow, the factory product knows no other superior but man who reproduces it at will. The limits of the production of the factory product are not given by nature, but imposed by man; production of the factory product increases or slackens in accordance with the demands of the “market;” that is to say, its limits are set by the relations of the members of society in the distribution of the manufactured product among themselves. In this it typifies the capitalist system. With the advent of the capitalist system poverty and riches have ceased to be a natural condition; they have become a social relation.

Let us, then, take the factory product and follow its natural course in life; let us examine the manner of its production, the course it takes in the circulation of goods to the point of its ultimate destination,— consumption; let us see who are the persons participating in its production, instrumental in its circulation and sharing in its distribution.

In thus writing the biography of any factory product we will find that its life history will read as follows:

It was produced in a large factory building owned or hired by the manufacturer. It was made by a large number of workingmen hired by the same manufacturer, who paid them for their labor, out of materials provided for by the manufacturer, and by means of machinery owned by him. After our factory product was ready for use it was shipped to a wholesale dealer, who bought it from the manufacturer, and who, in turn, sold it to a retail dealer. From the retail dealer it went to the consumer, who purchased it from him. This is the usual course. There are, however, variations of this course. The wholesale dealer may, for instance, have been omitted, if the manufacturer sells direct to the retailer; or, there may have been a good deal more of buying and selling done in it before it finally reached the consumer. One thing is sure, however, its life-course led through these three stages: manufacture, trade, consumption.

The persons whom it met in this, its life-course, who affected its existence and its different changes, and who participated in its distribution in one way or another, besides those who participated in the production and distribution of the raw material from which it was made, which may itself have been a factory product, are: The laborer who produced it and was paid for it; the manufacturer who caused it to be produced, paid the cost of its production and received the purchase price from the trader who bought it from him; the merchant who bought it at one price and re-sold it at another, pocketing the difference; and, finally, the consumer, who paid for it and kept it for consumption, either personal, non-productive, or impersonal, productive consumption in the manufacture of some other factory product. There may have been others: the manufacturer may have paid rent for his premises to the landlord or interest for his capital to the banker; the trader may have paid rent, interest, or for help; there may have been a lot of time and labor spent in transporting it from place to place until it finally reached its place of ultimate destination, the consumer— and all of this had to be paid for.

All these persons who participated in the production or circulation of our factory product, and all those with whom they must “divvy up,” must share in our factory product, that is to say, in the price which the ultimate consumer paid for it. Let us see how it is done.

We must, of course, as already pointed out above, assume that each gets what is due to him, under our present system, as they are all presumed to be honest, the cases of one getting advantage of the other are exceptional, and they are all free agents working without compulsion. The workingman is “free” to work or not to work, so is the manufacturer and merchant to hire, buy and sell. The capitalist system needs for its proper development, and we therefore assume, absolute freedom, personal and commercial. How, then, is the share of each determined, when is it produced and when paid over?

It must always be remembered that none of those interested in the production, circulation and distribution of the factory product, have any interest whatever in its existence, or desire for its possession. None of them gets any share of it physically. Their distributive share comes out of the purchase price paid for it by its ultimate consumer, who takes it out of the “market,” converts it from a commodity into an ordinary good possessing only its natural qualities of a use-value. In other words, each of their distributive shares comes of the exchange-value of the commodity which is turned into the universal medium of exchange— money— by its sale to the ultimate consumer.

This exchange-value first manifests itself when the manufacturer has the commodity ready for sale and places it on the market for which it was produced. The manufacturer produced it not for its use-value,— he never had any personal use for it and never intended to use it,— but for its exchange-value, and as soon as it is ready in exchangeable form he offers it for sale or exchange. He sells it, again, to somebody who has absolutely no personal use for it and does not intend to use it himself, but buys it just as the manufacturer manufactured it, because of the exchange-value there is in it, and which, by the way, for some reason or other, he expects to be more than what he pays for it.

On this first manifestation of the exchange-value of the factory-produced commodity the manufacturer gets in exchange for it a certain sum of money or other commodities, the price obtained on its sale or exchange. The exchange value of the commodity has realized itself in his hands in the form of its price.

We must not, however, confound price with value. Value is something which the commodity possesses when placed upon the market and before any price is paid for it, and it is because of this value that the price is paid for it. The value is the cause of the price. Furthermore, value and price do not always coincide in amount. The price of an article may be greater or less than its value, according to circumstances. The proof of this is the fact that things may be bought “cheap” or “dear,” that is to say, for a price above or below their value. If the price of a thing and its value were the same, nothing could be bought either cheap or dear, because the price paid would be its value. The fact that we speak of things as being bought or sold “cheap” or “dear” proves that our valuation of the thing is something outside of the price, and therefore something with which the price may be compared and proved either too high or too low. It is, therefore, manifest that value and price are not only not identical in their nature, but that they do not always even coincide in amount. And this, notwithstanding the fact that value is the cause of price. The reason for it is easily discovered. Value is a social relation and is therefore determined by social conditions, whereas price is an individual valuation and is therefore determined by individual motivation. Value being the cause of price, the chief motive of the individual setting the price, will, of course, be the value of the thing priced. This does not mean, however, the actual value of the thing, but his opinion of its value. Whether this opinion will be a correct estimate of the actual value of the thing depends, of course, on a number of individual circumstances and conditions. Besides this chief motive, again, there may be a number of subsidiary motives, all being either directly individual in their character, or individual estimates of social conditions or relations. All this produces what is called the “haggling of the market.” As a result of this haggling comes the price actually paid for the article, and the average of the prices paid makes the market price.

This price is purely accidental within certain limits, being the result of individual volitions based on individual estimation. It is so within certain limits only, for it is controlled by its primary cause— value— which sets the standard by which it is measured and to which it naturally tends to conform, and will conform the more the nearer to the truth are the individual estimates of the social relations and conditions, and the freer the individual motivations are from purely personal considerations. Value is the norm about which the “haggling” of the market takes place, and the price which results from this “haggling” naturally gravitates towards its norm-value. Price will be “cheap” or “dear” according to whether it is, in the estimation of the person making the valuation, below or above the actual value of the thing.

What is this social element, this social relation, which gives a commodity its value? A careful search will reveal only one element common to all commodities, which is social in its character and is capable of giving commodities the value which will express the social relations of production, and that is— Human Labor. The production of the typically capitalist commodity, the factory product, is wholly a question of the application of human labor, physical or mental, and its results merely a question of the quantity and quality of the human labor expended. It is this labor which gives the product its value. It is by the expenditure of this labor that its value is measured. It is as the embodiment of a certain quantity-quality of human labor that the finished product is placed upon the market for sale, and it is as such that it is exchanged for another commodity, or the universal commodity— money. In making a sale or exchange the parties knowingly or unknowingly estimate the respective quantities of labor contained in the articles exchanged or in the articles sold and the price given, and if one finds them to be equal or to preponderate in his own favor he makes the bargain. The question of quality is also regarded as a question of quantity, labor of a higher nature being reduced to its simple form of ordinary average labor of which it represents a larger quantity.

It must be borne in mind, however, that, value being a social phenomenon based on social conditions and relations, it is not the labor which happens to be accidentally contained in any given commodity, as the result of some individual conditions or circumstances under which its producer worked, that gives the commodity its value, but the socially necessary labor therein contained. In other words, the value of a commodity is not derived from the particular labor actually put into its production, nor from the amount of labor actually expended upon its production, but from the amount of average human labor which it is necessary for society to expend for its production. The mere expenditure of labor on the production of any article does not make that article a commodity having exchange-value. It is social expenditure of the labor, that is, its expenditure for the purposes of social production, of the production for society of things which are useful for it, that makes the article produced a commodity having exchange-value. The expenditure, therefore, in order to create value must be necessary in accordance with the social relations and conditions existing at the time the valuation is made. This includes a variety of considerations, only the most important of which can be noted here.

To begin with, “socially necessary” labor must not be confused with “average” labor. The average labor only comes into play when the productive power of individual producers working with the same tools is under consideration. Otherwise, “socially necessary” and “average” may, and very often do, represent different things. For instance, the labor expended on the production of an article, in order to create new value, must, in addition to having been productive according to the average expenditure for the production of such articles, have created something which was necessary for society. In determining whether an article is “necessary” for society or not, it is not merely the general usefulness of the article and its actual necessity for some of the members of society that is to be considered, but also whether, in the state of the society's economy, the need for such articles has not already been provided for sufficiently when compared with other needs, and having due regard to the general conditions of production and distribution in society. If too much of a certain commodity is produced, too much not absolutely, but according to existing social conditions and relations, such production does not create any additional value. It is so much labor wasted. Of course, that does not mean that any particular labor thus expended will create no value, or that any particular article thus produced will have no value. But, value being a social relation, all the labor expended in the production of this class of articles in society will produce less value proportionately, each article will have so much less value, so that the aggregate of such articles produced will have no more value than if that labor were not expended and the additional article were not produced.

Again,— the tools of production in a certain industry may be undergoing a change by which the amount of labor necessary to be expended in the production of a certain article is reduced. During the period of transition the “average” amount of labor expended in the production of the article will be considerably above the amount necessary for its production by means of the new tools and considerably below that of the old, for the average is made up of the articles produced by means of both the old and the new tools in so far as they are being used. The value of the commodities produced, however, will not be measured by the average expenditure of labor, but either by that of the old or that of the new method. If the new method has not yet been sufficiently perfected, so that it can not as yet supply the needs of society, or is the subject of a monopoly, then the valuation will be in accordance with the old method; if it has been so perfected, and is free for use, then in accordance with the new method. If, between the time of the production of an article and its valuation in the market, the new tools have attained the required degree of efficiency, or the monopoly has been broken, the value of this article, whether produced by the old or the new method, will change from the valuation in accordance with the old method, which was socially necessary at the time of production, to that in accordance with the new method, which is that now socially necessary.

In other words, the value of a commodity is determined by the amount of labor which society will necessarily have to expend for its production when it requires it; that is to say, by the amount of labor socially necessary for its reproduction.