by John McLean
From original hand-written manuscripts
Transcribed for the Revolutionary Communist Group by Workers’ Web project, 1998
Mirrored by the Marxists Internet Archive, 1999

ECONOMICS, is the science that treats of the production and distribution of wealth.

WEALTH, under capitalism, consists of a mass of commodities. (Good-will, credit-papers, services are excluded)

A COMMODITY is an object of wealth, produced for exchange or sale. A produces a chair and sells it to B who uses it. To A the chair has exchange-value - to B the chair has use-value.

USE-VALUE is the power of a commodity to satisfy human or animal - mainly human. It is due to the NATURAL properties of the substance forming the commodity.

EXCHANGE-VALUE is the power of a commodity to exchange for others in a definite proportion, e.g. 1 chair = 20 loaves, or = 4lbs butter. It is due to the SOCIAL property added to the natural properties to adapt the substance to the satisfaction of wants. This social property is labour, Expended Labour Power. Certain economists used to hold that the value, e.g. Utility, not Labour, determined Exchange-Value. Now, most economists hold that Final Utility determines Exchange-Value.

With Final Utility we will deal later. Here we raise objection to Utility as the cause of E.V.

  1. Many useful articles have small price (small E.V.), e.g. loaves, milk. Vice versa, e.g. gold, diamonds.
  2. E.V. implies measurability. U.V. has not yet been measured definitely. Properties of matter are fixed, but different properties have no common denominator. The same object affects different people differently.
  3. While people’s tastes remain constant & the properties of matter remain constant we find the E.V. of different com[modities] periodically change. Now 1 chair = 20 loaves say. Again, 1 chair = 17 loaves say.
We hold then, that U.V. or U. does not alone explain E.V. or at all determines it quantitatively. All commodities are the products of men, contain Labour, and the quantity of Labour periodically changes with improvement in methods of production.

LABOUR-POWER is the energy stored up in the body that enables one to work. (Compared with Potential Energy in dynamics. Examples - water in Loch Katrine, gun powder, …pendulum at highest point.)

LABOUR is Labour-Power in motion, the expenditure of L.P. (Compared with Kinetic Energy in dynamics. Examples - water flowing into houses, powder explosion, pendulum in motion.)

VALUE is Labour embodied in substance to form commodities. Air is substance without Labour embodied. Therefore air has no Value.

Exchange-Value is a superficial phenomenon, is a ratio between any two commodities. It but externally gives expression to the inherent property of the separate commodities, the fixed or embodied Labour or Value. Substances without Value have no Exchange Value, e.g. air.
In Value there is no substance and therefore no Utility, only Labour, and that only as found absorbed by substance. Labour spent is measurable by time. The unit is one LABOUR-HOUR.
LABOUR TIME is the time needed to produce a commodity and is measured by the number of hours required to finish the commodity.
Three points to be noted about Value-creating Labour: -
(1) Complex or Skilled labour must be reduced to simple labour.

1 joiner’s hour = 2 labourer’s hours (say)

(2) Concrete labour must be reduced to Abstract labour - to labour of a common denominator. It is concrete when we think of the particular commodity produced. It is abstract when we think of the individual’s loss of energy.

                                    --> Concrete - Boots
  Human Body}  -> Abstract Labour ----> Concrete - Coats
                                    --> Concrete - Bread

Concrete labour produces useful articles, Abstract labour produces Value. The same person can do various types of work. Therefore there is no inseparable gulf between one kind of labour and another. There being something common, we can abstract and compare.
(3) Individual labour must be reduced to social labour. Each separate person or firm takes a different time to produce a pair of boots (say). But they meet on the market where one price is given for one kind of boots. At any one time there is an average time needed to produce the boots. Although this average time always tends to lessen yet at any moment it is fixed, definite. All makers are, through social competition & interaction, granted the average time. Value then is abstract human labour embodied in substance, and is measured by the average time socially necessary for the production of a particular commodity.

We found that the value of a commodity is determined by the labour spent in its production and that labour is measured by labour-time.

The shorter the time taken to produce a commodity, the less its value and vice versa.

If we even superficially investigate commodities, we will find that normally their respective prices, when compared, about agree with the relative amounts of time taken to produce these commodities; i.e. a pair of boots at 1 has taken about 80 times the period taken in the production of a loaf at 3d.

The best tests of the labour-time theory of Value are to be found in the progress of the methods of production. Every method that enables a commodity to be produced in less time enables a capitalist to hold his own, to survive in the struggle, against his competitors. The race is to the speediest.

Here are expedients resorted to in order to get work down more quickly or diffuse knowledge about them:-

  1. Workers are put in groups or in lines. If work is heavy and monotonous, "breathers" are allowed every hour. Each worker becomes more productive.
  2. Sub-division of labour or differentiation of function with adaptation of tools necessary.
  3. Use of machinery and most powerful driving force. Processes are automatically linked together by moving belts, platforms, etc.
  4. Experimentation in pure science and science applied to industries. New technical colleges and training.

  5. Democratisation of invention.
  6. Using of by-products and former waste materials; e.g. coal tar products.
  7. Improved supervision of workers.
  8. Inducements to speed up:- piece-work, bonus system, profit sharing.
  9. Improved business methods in offices. Typewriting, shorthand, Esperanto, telephone, telegraph, press etc.
  10. Influence of Exhibitions etc.
[As a rule, the larger the production, the greater the possibility of economising time.]

In the Middle Ages, Guilds fixed the conditions of production and exchange. As the means of production were simple and were seldom altered, it was easy to fix the price of an article according to its time of production.

Today: No Guilds, ever-changing methods of production, enlarged area of making same commodities, vastly improved fluidity of labour and capital, anarchy of production, keen competition.

Therefore, although no arbitrary fixing of value through prices now, the anarchy, together with the fluidity brings into operation the Law of Supply and Demand which limits prices to levels above and below the price coinciding with the value.

[Figure showing "Value Level" - missing]

The Law of Supply and Demand has two aspects:-

  1. The greater the SUPPLY of a commodity, the lower the price; the less the SUPPLY, the higher the price.
  2. The greater the DEMAND, the higher the price; the less the DEMAND, the lower the price.
It applies to commodities, labour power, the bank rate, stocks and shares, etc. By its application, it connects all industries via the rate of profit; and in this way normal prices tend to be in proportion to one another as the time taken to produce them.

The following diagrams try to bring out the connection between industries, prices, profits etc.

Suppose only two industries in the world; boots and hats:

[Figures showing relationship between Wages, Price and Profit. - missing]


    Boots: suppose between 1880 and 1890 the capital increases, the number of commodities will increase, more workers will be needed wages will rise. After a time, prices will fall and profits will fall from 5% to 4% say.
    Hats: during the same time the capital decreases, fewer workers are needed, wages fall and after a time prices rise and profits rise from 4% to 5% say.
New capital enters hat trade because of large profits and therefore there is less in boot trade. The above process becomes reversed. See-saw process.

Example of this lately in Ceylon in rubber and tea. If price rises above Normal Price, the profits are above the normal and hence influx of capital.

By this process, prices are kept within limits and by this means articles tend to exchange according to their value.

Two commodities stand out for special consideration:- Labour-Power and Gold.

The workman does not sell or exchange Labour for Wages, but his Labour-Power. Labour-Power then is his disposable commodity. It obeys the Law of Value and the Law of Supply and Demand.

The exchange value of a commodity in relation to MONEY is called its Price. Wages then is the Price of Labour-Power. Wages rise and fall, as other prices do, when trade is good or bad; i.e. when the demand is great or small. (See "Labour Gazette") This proves that wages obey the law of Supply and Demand.

The questions arise - How can the normal wage represent the Value of Labour-Power? What do we mean by the Value of Labour-Power?

Value is the labour-time necessary for the making of a commodity. Labour-Power is not directly produced by labour: it is produced by food, clothing, shelter - the necessities of life. These take labour-time to produce: they have a certain amount of Value. The Value of Labour-Power is equal to the value of the commodities needed to produce a normally efficient worker. Account has now to be taken of the strength or skill required, regularity, social convention, trade organisation etc. The greater the value of the necessities of life, the greater the Value of Labour-Power; and vice versa. One normal Labour-Power represents a family of five. A workman’s wage, then, is regulated by what is needed to maintain the average family. Experience shows that the wages of the working class just about keeps it going. The savings of the working class are about 600 millions pounds. The debts are not known, but perhaps equal the savings when starvation is added to money debts.

Those who may save:- The unmarried, married people without family, married people after family grown up etc. Those with large families etc. cannot save. Employers have never been anxious to get the people to "abstain", "save", live meagrely.

Workers are asked to accept wages on the basis of the "cost of living". Capitalists have experimented with lunatics, paupers, soldiers, navvies, etc., to find out the minimum cost with maximum efficiency.

We last saw that the Value of Labour-Power was estimated by the cost of maintenance of a family of five. in this connection see Rowntrees’ "Poverty, a Study of Town Life" chapter IV.

The worker toiling 60 hours a week produces three times as much Value as his Labour-Power is worth: i.e. his wages can only purchase commodities produced in about 20 hours; i.e. for every 3 pounds of Value he creates, he receives 1 pound as Wages. The "Census of Production" and "An Enquiry into the Wages of the Working Class" fully demonstrate this. If the worker’s year is 300 days, he works 100 for himself - the necessary Labour Time; and 200 days over and above - the Surplus Labour Time. In the Surplus Labour Time he creates surplus commodities containing Surplus Value. This Surplus Value is the source of Interest, Profits, Rent, etc.


Let the Productivity = 1

    200 commodities             10 hours            10/-

    100     "   (Nec. Com.)      5   "   (N.T.)      5/- (Value of L-P)
    ---                         ---                 ----
    100     "   (Surp. Com.)     5   "   (S.T.)      5/- (Surplus Value)

                           10 hours    
           A ------------------|----------------- B - length of day 
                   5 hours     |     5 hours
               100 commodities | 100 commodities
                     5/-       |       5/-

                            100 C     5 hrs     5/-
    Rate of Exploitation    -----  =  -----  =  ---   or  100%
                            100 C     5 hrs     5/-

    If the Capital were 100% then the Rate of Interest would be 5%



    P = 2

    400 commodities             10 hours            10/-

    100     "   (Nec. Com.)    2 1/2 "   (N.T.)      2/6 (Value of L-P)
    ---                        -----                 ----
    300     "   (Surp. Com.)   7 1/2 "   (S.T.)      7/6 (Surplus Value)

                            300 C     7 1/2 hrs     7/6
    Rate of Exploitation    -----  =  ---------  =  ---   or  300%
                            100 C     2 1/2 hrs     2/6

    If the Capital were 100% then the Rate of Interest would be 7 1/2%

(C) - (Case of Philanthropic Capitalist)

    P = 2

    360 commodities              9 hours             9/-

    120     "   (Nec. Com.)      3   "   (N.T.)      3/- (Value of L-P)
    ---                         ---                 ----
    240     "   (Surp. Com.)     6   "   (S.T.)      6/- (Surplus Value)

                            240 C     6 hrs     6/-
    Rate of Exploitation    -----  =  -----  =  ---   or  200%
                            120 C     6 hrs     3/-

    If the Capital were 100% then the Rate of Interest would be 6%

Some social results of increased productivity:-

  1. Capitalist has larger number of commodities to sell. Therefore keener competition in home market. Those with best methods sell at lower price and yet get higher profits. For those with worst methods, bankruptcy. Number of firms tends to lessen till trustification comes.
  2. Commodities not sold at home must be sold abroad. To secure markets, colonisation, treaties, empire-building. Hence armies and navies, wars and annexation.
  3. Increased profits for capitalists. Increase of luxury. Increase of capital which saturates home markets and then proceeds abroad to "open up" backward countries, thus bringing these lands up to capitalist level with increasing velocity. Still an unused surplus allowed to gather till a crisis comes with unemployment etc. This brings feverish competition with lower prices and the incentive to improve methods of production. Unemployment and starvation with reduced wages arouse the workers to form protective unions leading to strikes and lock-outs.

Gold, the money commodity, obeys in exchange the Law of Value. There is nothing mysterious about money. It is only peculiar in the part it plays, the function it performs.

Four distinct stages in the evolution of money:-

  1. Exchange of one article always for the same one: e.g. bows and arrows for cattle (say),
  2. Exchange of one article for a growing number of other articles: e.g. bows and arrows for cattle, again for ornaments etc. These two stages evolve in savage and barbaric societies.
  3. Many articles express their value in one generally recognised commodity: e.g. armour, grain, wine, etc. are considered worth as many cattle. As exchanges increase, commerce starts as a separate trade and, in time, races - e.g. the Phoenicians - become largely commercial.

  4. Markets, bazaars spring up and to save time all commodities have to be expressed as equal to so many cattle, hides, as much salt, grain etc.
  5. All commodities express their value in precious metals, ultimately gold and silver, the distinctive money commodities in so far as they are made into coins of specified weight by the various States. Gold is money, is the legal tender in this country. Silver and copper coins are token money, i.e. they have greater worth as coins than as bullion.
MONEY is the commodity acting as the universal equivalent. PRICE is the value of a commodity expressed in gold coin acting as MONEY. Changes in normal prices are difficult to understand because the value of gold changes in the same way as the value of other commodities.

Illustrations of changes in price:-

    I   P=1    20 commodities     =   1oz. gold       =   40 hrs Value

                [VARIABLE]            [CONSTANT]
   II   P=2    40 commodities     =   1oz. gold       =   40 hrs Value
        P=1/2  10 commodities     =   1oz. gold       =   40 hrs Value

                [CONSTANT]            [VARIABLE]
  III   P=2    20 commodities     =   2oz.   gold     =   40 hrs Value
        P=1/2  20 commodities     =   1/2oz. gold     =   40 hrs Value

   IV   Vary both sides and you get a multitude of results.

Law I - The greater the productivity of commodities, the less the time to produce each; the less the value of each and therefore the LOWER the price.

Law II - The greater the productivity of gold or silver, the less the time to produce either: the less the value of each ounce or pound, the less the value of coins made from the bullion of either, and therefore the HIGHER the prices of commodities will be.

Law I is easy to grasp. Law II is difficult to grasp because here the standard (money commodity) varies in value. It should be noted that if the money commodity and all other commodities increase in productivity at the same time and rate, no change price takes place.

Historic Proof of Law II (See Price’s "Money and it’s Relation to Prices"):

  1. When Spaniards brought American gold to Europe in Elizabeth’s reign,
  2. When Californian and Australian gold fields were discovered about 1850,
  3. At the present when the Rand is pouring out large volume of gold.
Historic Proof of Law I:
  1. After 1817 when England adopted a gold standard,
  2. After 1870 when Germany and the Latin countries adopted gold.
In the first instances prices rose because gold had less value; in the latter they fell because gold had a greater value.

Owing to price-rising, injustice is done in paying debts after a number of years and hence to arrive at a strictly accurate payment of debts, statisticians have devised INDEX NUMBERS. The three systems referred to in Ashley’s "The Rise in Prices and the Cost of Living". The index number helps to show the SECULAR MOVEMENTS of prices.

[Figures showing SECULAR MOVEMENTS in NORMAL situation and under effect of the Law of SUPPLY AND DEMAND]

At one time countries had a double standard - gold and silver. The rates of value had to be fixed for coinage at about 15oz. silver = 1oz. gold. As in the bullion market this ratio did not obtain. It was found that the metal over-valued by the State remained as coin whilst the other metal was melted in obedience to Gresham’s Law:- that bad money drives good money out of circulation. For facts, see Gide’s "Political Economy".

Because of experience, countries have now become MONOMETALLIST, although in international trade gold and silver do equally well since they are both treated as bullion.

John Maclean Archive