Chris Harman

How Marxism Works

The labour theory of value

But machinery, capital, produces goods as well as labour. If so, it’s only fair that capital as well as labour gets a share of the wealth produced. Every ‘factor of production’ has to get its reward.

That is how someone who has been taught a little pro-capitalist economics replies to the Marxist analysis of exploitation and surplus value. And at first sight the objection seems to make some sense. For, surely, you cannot produce goods without capital?

Marxists have never argued that you could. But our starting point is rather different. We begin by asking: where does capital come from? How did the means of production come into existence in the first place?

The answer is not difficult to find. Everything people have used historically to create wealth – whether a Neolithic stone axe or a modern computer – once had to be made by human labour. Even if the axe was shaped with tools, the tools in turn were the product of previous labour.

That is why Karl Marx used to refer to the means of production as ‘dead labour’. When businessmen boast of the capital they possess, in reality they are boasting that they have gained control of a vast pool of the labour of previous generations – and that does not mean the labour of their ancestors, who laboured no more than they do now.

The notion that labour was the source of wealth – usually referred to as the ‘labour theory of value’ – was not an original discovery of Marx. All the great pro-capitalist economists until his time accepted it.

Such men, like the Scottish economist Adam Smith or the English economist David Ricardo, were writing when the system of industrial capitalism was still fairly young – in the years just before and just after the French Revolution. The capitalists did not yet dominate and needed to know the real source of their wealth if they were ever to do so. Smith and Ricardo served their interests by telling them that labour created wealth, and that to build up their wealth they had to ‘free’ labour from the control of the old pre-capitalist rulers.

But it was not long before thinkers close to the working class began to turn the argument against the friends of Smith and Ricardo: if labour creates wealth, then labour creates capital. And the ‘rights of capital’ are no more than the rights of usurped labour.

Soon the economists who supported capital were pronouncing the labour theory of value to be a load of nonsense. But if you kick truth out the front door, it has a habit of creeping in the back.

Turn on the radio. Listen to it long enough and you will hear some pundit or other claim that what is wrong with the British economy is that ‘people do not work hard enough’ or, another way of saying the same thing, ‘productivity is too low’. Forget for a minute whether the argument is correct or not. Instead look closely at the way it is put. They never say ‘machines do not work hard enough’. No, it is always people, the workers.

They claim that if only the workers worked harder, more wealth would be created, and that this would make possible more investment in new machinery. The people who use this argument may not know it, but they are saying that more work will create more capital. Work, labour, is the source of wealth.

Say I have a £5 note in my pocket. Why is that of use to me? After all, it’s only a piece of printed paper. Its value to me lies in the fact that I can get, in exchange for it, something useful that has been made by someone else’s labour. The £5 note, in fact, is nothing more than an entitlement to the products of so much labour. Two £5 notes are an entitlement to the products of twice as much labour, and so on.

When we measure wealth we are really measuring the labour that has been expended in creating it.

Of course, not everyone produces as much with their labour in a given time as everyone else. If I set out, for instance, to make a table, I might take five or six times as long as a skilled carpenter. But no one in their right mind would regard what I had made as five or six times as valuable as a table made by a skilled carpenter. They would estimate its value according to how much of the carpenter’s labour would be needed to make it, not mine.

Say it would take a carpenter an hour to make a table, then they would say that the value of the table to them was the equivalent of one hour’s labour. That would be the labour time necessary to make it, given the usual level of technique and skill in present society.

For this reason, Marx insisted that the measure of the value of something was not simply the time it took an individual to make it, but the time it would take an individual working with the average level of technology and the average level of skill – he called this average level of labour needed ‘the socially necessary labour time’. The point is important because under capitalism advances in technology are always taking place, which means that it takes less and less labour to produce goods.

For example, when radios were made with thermionic valves they were very expensive items, because it took a great deal of labour to make the valves, to wire them together and so on. Then the transistor was invented, which could be made and wired together with much less labour. Suddenly, all the workers in the factories still making valve radios found that the value of what they were producing slumped, for the value of radios was no longer determined by the labour time needed to make them from valves, but instead by the time needed to make them with transistors.

One final point. Prices of some goods fluctuate wildly – on a day-to-day or a week-to-week basis. These changes can be caused by many other things besides changes in the amount of labour needed to make them.

When the frost in Brazil killed all the coffee plants the price of coffee shot up, because there was a shortage throughout the world and people were prepared to pay more. If tomorrow some natural catastrophe was to destroy all the televisions in Britain, there is no doubt the price of televisions would shoot up in the same way. What economists call ‘supply and demand’ continually causes such fluctuations in price.

For this reason, many pro-capitalist economists say that the labour theory of value is nonsense. They say that only supply and demand matter. But that is nonsense. For this argument forgets that when things fluctuate they usually fluctuate around an average level. The sea goes up and down because of tides, but that doesn’t mean we cannot talk of a fixed point around which it moves, which we call ‘sea level’.

Similarly, the fact that prices go up and down from day to day does not mean that there are not fixed values around which they fluctuate. For instance, if all the televisions were destroyed, the first new ones to be produced would be very much in demand and fetch a high price. But it would not be long before more and more were on the market, competing with each other until the price was forced down close to their value in terms of the labour time needed to make them.

Competition and accumulation

There was a time when capitalism did seem like a dynamic and progressive system. For most of human history, the lives of most men and women have been dominated by drudgery and exploitation. Industrial capitalism did not change this when it made its appearance in the 18th and 19th centuries.

But it did seem to put this drudgery and exploitation to some useful purpose. Instead of wasting vast amounts of wealth on luxury for a few parasitic aristocrats or in building luxury tombs for dead monarchs or in futile wars over which son of an emperor should rule some God forsaken hole, it used wealth to build up the means of creating more wealth. The rise of capitalism was a period of growth in industry, cities, means of transportation – on a scale undreamt of in previous human history.

Strange as it may seem today, places such as Oldham, Halifax and Bingley were the home of miracles. Humanity had never before seen so much raw cotton and wool turned so quickly into cloth to clothe millions. This did not happen because of any special virtues possessed by the capitalists. They were always rather noxious people, obsessed only with getting wealth into their own hands by paying as little as possible for the labour they used.

Many previous ruling classes had been like them in this respect without building up industry. But the capitalists were different in two important respects.

The first we have dealt with – that they did not own workers, instead paying them by the hour for their ability to work, their labour power. They used wage slaves, not slaves. Secondly, they did not themselves consume the goods their workers produced. The feudal landlord lived directly from the meat, bread, cheese and wine produced by his serfs. But the capitalist lived by selling to other people the goods produced by workers.

This gave the individual capitalist less freedom to behave as he pleased than the individual slave owner or feudal lord had. To sell goods, the capitalist had to produce them as cheaply as possible. The capitalist owned the factory and was all-powerful within it. But he could not use his power as he wished. He had to bow down before the demands of competition with other factories.

Let’s go back to our favourite capitalist. Sir Browning Browne. Assume that a certain quantity of the cotton cloth produced in his factory took ten hours of workers’ time to turn out, but that some other factory could produce the same amount in five hours of workers’ time. Sir Browning would not be able to charge the price for it equivalent to ten hours of labour. No one in their right mind would pay this price when there was cheaper cloth just down the road.

Any capitalist who wanted to survive in business had to ensure that his workers worked as fast as possible. But that was not all. He also had to make sure that his workers were working with the most up to date machinery, so that their labour produced as many goods in an hour as did the labour of those working for other capitalists. The capitalist who wanted to stay in business had to make sure he owned ever greater amounts of means of production – or, as Marx put it, to accumulate capital!

The competition between capitalists produced a power, the market system, that had each and every one of them in its grip. It compelled them to speed up the work process all the time and to invest as much as they could afford in new machinery. And they could only afford the new machinery (and, of course, have their own luxuries on the side) if they kept workers’ wages as low as they could.

Marx writes in his major work. Capital, that the capitalist is like a miser, obsessed with getting more and more wealth. But:

What in the miser is mere idiosyncracy is, in the capitalist, the effect of a social mechanism in which he is but one of the wheels ... The development of capitalist production makes it constantly necessary to keep increasing the amount of capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist as external coercive laws. It compels him to keep constantly extending his capital in order to preserve it. But extend it he cannot, except by means of progressive accumulation.

Accumulate, accumulate! That is Moses and the prophets!

Production does not take place to satisfy human need – even the human needs of the capitalist class – but in order to enable one capitalist to survive in competition with another capitalist. The workers employed by each capitalist find their lives dominated by the drive of their employers to accumulate faster than their rivals.

As Marx’s The Communist Manifesto put it:

In bourgeois society living labour is but a means to accumulate dead labour ... Capital is independent and has individuality, while the living person is dependent and has no individuality.

The compulsive drive for capitalists to accumulate in competition with one another explains the great rush forward of industry in the early years of the system. But something else resulted a well – repeated economic crisis. Crisis is not new. It is as old as the system itself.


Last updated on 26 January 2010