THE TRADITION carried down from the Physiocrats through Ricardo passed not to Ricardo’s direct descendants but to Marx (1818-1883), who took the Ricardian system, sheared it of its “natural law” framework, and revolutionised its qualitative significance. Marx was remarkable precisely for these features of his work which have most rarely been appreciated; but set against the background of the type of questions which classical Political Economy was concerned to answer, his system can justly be said to have crowned the classical edifice. Certainly Marx crowned it in a peculiarly Hegelian way: in the manner in which he claimed in his philosophy of history to have turned Hegel upside down – to have stood him on his feet where he found him standing on his head by substituting a materialistic interpretation of history for an idealistic one.

Marx did not start from the concept of natural order underlying the capitalist system; for him capitalism did not constitute the final term of economic progress, but was historically relative and transitional. Hence he was biased by no desire to identify market prices with real cost. Labour in an objective sense – the expenditure of human energy of muscle or nerve – constituted value, that is the social valuation to be placed on the commodities which were the fruit of this labour. It was the fundamental equivalent, the criterion by which one could judge the significance of the price relationships established by the market under varying sets of conditions. Without it there was no ultimate criterion. One could not say whether a certain act of exchange represented a passing of equivalents or not; and hence without it the Physiocratic concept of “surplus,” as something which accrued without any equivalent being absorbed in return, would have no meaning. Under certain sets of conditions, [1] market prices would coincide with values. Exchange would be of equivalent for equivalent; but by no means under all sets of conditions. It is precisely in the failure to appreciate this that the monstrous misapprehensions which affected nearly all Marx’s subsequent critics consist. Marx never identified market value with labour value, as Ricardo tried to do. How then could there be a “Great Contradiction” when Marx, in vol. iii. of Capital, developing what Ricardo had admitted as an “exception,” specifically stated that under conditions of modern capitalism commodities did not exchange at their values; but at what he called their “price of production"? This latter quantity equalled wages plus a normal rate of profit on the capital employed, and diverged from “value” to the extent that the ratio of machinery to labour what he termed the “organic composition of capital” – varied in different lines of industry.

Marx’s problem was to determine the distinguishing characteristic, the social significance, of capitalist profit. If it was a surplus in the Physiocratic sense of values paid to someone without a giving of equivalents in exchange, how did it arise and on what conditions did its emergence depend? His method was to take a “simple commodity society” where commodities exchanged at their values (avoiding the complication of different compositions of capital), and to enquire how a surplus could arise on such assumptions. It could not arise in the course of exchange, because this was an exchange of equivalents. The answer he gave was that it arose from the peculiarity of labour power as a commodity in producing more commodities than were used up to produce the original labour-power – used up in the subsistence necessary to replace the energy expended. Labour-power produced a value greater than its own value. The capitalist purchased labour at its value; and this constituted for him the primary expense of production. The value of labour-power was itself determined by the amount of labour required to produce it – that is, by the subsistence necessary to maintain the worker in working efficiency under any given set of social conditions and at any given time. The capitalist was able to annex, as his profit, the difference between this (viz., wages) and the gross value which labour, when set to work, produced. Wages were the payment of equivalent for equivalent-subsistence of the worker replacing the energy he expended in his employer’s service. Profit, in contrast, arose from the peculiar quality of the commodity labour-power that, when put to use, this labour created a value greater than its own value-profit arose from an exploitation of the difference between the value of labour and its product. Hence its qualitative peculiarity, which he characterized by the term “surplus value”; hence a class antagonism between receivers of surplus value and the producers of it, which in our own day is more significant than Ricardo’s antagonism between landlord and capitalist.

But labour-power only figured as a commodity, bought and sold in a labour market, under a definite set of historical conditions – when historical processes had created a propertyless proletariat without other means of livelihood, on the one hand, and a propertied class on the other hand. The emergence of profit, therefore, was not a “natural” category rooted in a natural order of things: it was a category of income peculiar to a particular stage of historical institutions, to a particular form of class society.

In the later stages of his analysis Marx introduced the conditions which caused market prices to diverge ‘from value equivalents. Chief of these was the need imposed by the competition of capitals for profit to be spread out so as to yield an equal rate per £, as water finds a common level given a sufficiency of connecting pipes. This caused commodities which had been produced with a relatively large proportion of fixed capital to labour to sell above their value-equivalent, and commodities which had been produced with a relatively small proportion of fixed capital to labour to sell below their value equivalent. But this divergence was not of a kind to invalidate his central theorem – to upset the character of profit as surplus-value. It effected an altered distribution of this surplus between different lines of industry and altered proportions of production in different lines; but it did not affect the size of surplus-value in the mass.


1. e.g. what Marx, a little obscurely, termed “a society of simple commodity production” in vol. i of Capital.