Marxism and Bourgeois Economics. Paul Mattick

Value and Price

Although classical economic theory had been able to recognize in labor the source of value, it was incapable of reconciling the production of surplus value with the exchange of equivalents required by the law of value. By failing to distinguish between labor and labor power, David Ricardo could not consistently apply the value concept in his investigations of the capitalist economy and its development. But then, Ricardo took capitalist society for granted; he was not so much concerned with the capitalist exploitation relations as with the distribution of the social product between the recipients of wages, profits, and rent, on which in his view the fortunes of capital accumulation depended. He saw the value of commodities as emerging out of the physical production process and not, as did Karl Marx, out of the specific social production relations of capitalism, which are what make a mere production process into a value-producing and value-expanding process.

Like Marx, Ricardo was little interested in the determination of particular market prices, but concerned himself with the broad aggregates of production and distribution as determined by the existing class relations. In his view, the value of labor equals its costs of production. Profits result from the difference between the amount of labor required to produce the workers’ subsistence and the value of the total social product. The less the workers receive, the more the capitalists will get, and vice versa. In Ricardo’s view, this division of the social product between labor and capital depends, on the one hand, on the value equivalent of the means of existence of the labor force and, on the other hand, on the competition of the workers for employment, as determined by the Malthusian law of population. The value of labor varies here not only with its cost of production but also with the state of supply and demand on the labor market. Similar inconsistencies were displayed in his distribution theory with respect to profit and rent, thereby disqualifying the value concept as the sole key for comprehending the capitalist world. Thus Ricardo was not able to detect the contradictions of capitalism in capitalist production itself, but found them in the progressive exhaustion of the soil, which, by raising the cost of production for labor, diminishes the profits of capital in favor of rent, thereby impeding the capitalist accumulation process.

While Marx fully appreciated Ricardo’s acuity, he was nonetheless obliged to point to his inconsistencies, ambiguities, and confusions, not only in order to strengthen the coherence of the labor theory of value, but also to ask the hitherto unraised question of why there was value production, and a corresponding theory, in the first place. Marx noticed that the classical concept of value, although derived from capitalist exchange relations, was not restricted theoretically to these relations but was conceived as identifying a phenomenon valid throughout history. This may already be gathered from Adam Smith’s definition of human nature as characterized by a “propensity to exchange,” as well as by his illustration of the exchange of labor-time values in an “early and rude state of society” in which neither capital nor landed property exists. For Ricardo, too, this was “really the foundation of the exchangeable value of all things, excepting those which cannot be increased by human industry."[1] There is, however, no evidence that this rule of exchange actually prevailed in precapitalist times and the assumption that it did implies no more than the ascription of contemporary conditions to the past, or a reading of history with capitalist eyes.

Of course, the hypothetical labor-time exchange broke down as soon as capital and landed property entered the picture, giving rise to all the inconsistencies of classical value theory. Although Marx, too, started his value analysis with the exchange of equivalents, he did so not on the assumption that such an exchange is a real possibility, either in the present or the past, but as a methodological device for demonstrating that an exchange of labor-time equivalents presupposes the existence of the capital-labor relationship and the transformation of labor power into a commodity — that is, that the exchange of labor-time equivalents is nothing other than a means to the appropriation of surplus-value by capital.

It was necessary to deal with the phenomenon of value not only because it was the principle of bourgeois political economy, but also by reason of the fact that commodities can only be exchanged after they have been produced, and because the varying production times required for different commodities necessarily have some effect upon their relative values. As Marx remarked, “all economy is economy of time”; but labor time is one thing and labor-time value another. Commodities appear as values not because their production requires time but because they are commodities, produced for exchange, and are therefore in need of a common denominator regulating the exchange. The generalization of commodity production in capitalist society, including the commodification of labor power, demands a universal value equivalent to allow for the distribution of the social labor in accordance with the existing production or property relations between individual capitalists and between them and their workers.

Without these capitalist production relations it would still be necessary to consider labor time, so as to assure a rational social production capable of satisfying the needs and demands of the producers. But in the absence of class and therefore property relations, labor time would merely be a technical datum. It would not appear expressed as value in exchange, but as a direct notation in the material production process, which as such would leave the distribution of the social product indeterminate. In other words, labor time appears as labor-time value not because it is a necessary requirement of social production, but because this production is carried on under specifically capitalist relations of production.

Without attempting to recapitulate Marx’s abstract value analysis of commodities and their exchange, it may be pointed out that though human labor creates value, it does not itself possess value, but acquires this character with the commencement of commodity production and its progressive generalization. In order to express the value of any particular commodity in terms of a certain quantity of human labor, this value must be represented by something other than the commodity itself. It must have an existence independent of the existence of the commodity as a thing of utility. As use values, commodities are qualitatively differentiated, just as the kinds of labor involved in their production are qualitatively distinct. But as exchange values, they are expressed in quantitative terms, as different quantities of undifferentiated labor. “Every product of labor,” Marx wrote, “is, in all states of society, a use-value, but it is only at a definite historical epoch in a society’s development that such a product becomes a commodity, viz., at the epoch when labor spent on the production of useful articles becomes expressed as one of the objective qualities of that article, i.e., as its value."[2]

The concept of value based on labor and seen as an objective quality of the commodity arises with the dominance of commodity production under the auspices of capitalist entrepreneurs and the availability of wage labor — in short, in a society where basic social relations take the form of relations between owners of commodities, either of capital goods or of labor power. These relations seem to arise naturally out of social production itself, whereas in reality their source is in the capitalist class and exploitation relations prevailing at this particular stage of the general development of the social powers of production. Social relations — which are, after all, relations between people — assume here the form of relations between commodities. Under these conditions,

the labor of the individual asserts itself, as a part of the labor of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers. To the latter therefore, the relations connecting the labor of one individual with that of the rest appear, not as direct relations between the individuals at work, but as what they really are, material relations between persons and social relations between things.[3]

But so it is: a historical fact, which found theoretical expression in the labor theory of value. There is, then, no point in denying the theory’s validity, even though it refers to no more than a social production system that can be “social” only via the specific capitalist exchange relations, by way of commodity production. Because exploitation is an integral part of this process, the class profiting from it will see in commodity exchange the regulator of social production, allocating social labor in the socially required proportions, as if guided by an “invisible hand.” The “invisible hand” represents what Marx called the “fetishism of commodity production,” the control of the producers by their own product and the subordination of social production, and therefore of social life in general, to the vicissitudes of market events.

In order to show that the value concept is itself a fetishistic category, Marx referred to a noncapitalistic mode of production that would also require the consideration of labor time, but without the need to express this fact as a value relationship between commodities, and in which the recognition of individual labor as a part of the total social labor could allow for conscious regulation of social production in accordance with the will of the associated producers. “Political economy,” Marx wrote,

has indeed analyzed, however incompletely, value and its magnitude, and has discovered what lies beneath these forms. But it has never once asked the question why labor is represented by the value of its product and labor time by the magnitude of that value. These formulae, which bear stamped upon them in unmistakable letters, that they belong to a state of society, in which the process of production has the mastery over man, instead of being controlled by him, such formulae appear to the bourgeois intellect to be as much a self-evident necessity imposed by nature as productive labor itself.[4]

The bourgeois labor theory of value represented an attempt both to understand and to justify the capitalist system of production. It looked for the ordering element in the general disorder of market events, and found it in the labor content of commodities, which determines their relative values and regulates their exchange. Without bothering themselves with the question of why the capitalist relations of production must take on the form of value relations between commodities, the bourgeois theoreticians held that varying market prices are merely temporary modifications of commodities’ exchange values as determined by labor time. For them, the law of value allocates social labor via the supply and demand relations or, vice versa, the assumed equilibrium tendency of supply and demand implies an equilibrium in terms of labor-time quantities, or the automatic regulation of social production.

Not only in the bourgeois mind, but even in the Marxist camp, the labor theory of value, both in its classical and in its Marxist version, is often seen as an equilibrium mechanism, operating through the market, to bring about the distribution of the social labor required by the system as a whole.[5] In Marx’s view, however, the working of the law of value or, what is the same, the lack of conscious regulation of social production, precludes any kind of equilibrium and “regulates” the capitalist economy “like an over-riding law of nature — only in the sense in which “the law of gravity asserts itself when a house falls about our ears. In his view, the dynamics of capitalist production exclude an equilibrium situation with regard to the distribution of the social labor, or to any other aspect of the economy. What the law of value brings about are crisis conditions, which affect capitalist production as soon as its dynamic is impaired by a distribution of the social labor that hinders or prevents the expansion of capital.

To be sure, value production, being the production of surplus value, is not really an exchange between labor and capital, but the appropriation of part of the workers’ product by the capitalist owners of the means of production. Although wages are paid for labor power, their commodity equivalents are produced by the workers, plus the commodity equivalent comprising the surplus value, or profits, of the capitalists. The wages merely determine the conditions under which the workers can produce both their own means of subsistence and the surplus product that falls to the capitalists. The capital-labor exchange is only apparent, for the means of production, as well as the capital advanced in the form of wages, are parts of already appropriated surplus value produced during earlier production cycles. This process found its historical starting point in the workers’ divorce from the means of production — that is, in the primitive accumulation of capital — which first brought the modern wage worker into existence. The allocation of social labor is thus organized basically not really by exchange relations but by the social production relations. Like the law of value, “wage labor” and “capital” are fetishistic categories for capitalistic exploitation relations. But, again like “value,” they are nonetheless names for real relations that determine the nature and development of capitalism.

To speak of the allocation of social labor by the law of value is to refer not to a general necessity, valid for all systems of production, but exclusively to the conditions of capitalist society. Thus it refers not to an allocation of labor that satisfies the regulatory requirements on social production for the various articles of utility on which social life depends, but to an allocation of labor on the basis of its division into labor and surplus labor, or value and surplus value, through the exchange relations represented by the exchange value of commodities. The allocation of social labor required to satisfy the actual needs of the population is merely incidental to its allocation for the production of exchange value. Although, generally, exchange values must also be use values, it is the first and not the second that determines whether goods will be produced or not. Capital, not producing anything at all, appropriates surplus value because of the exchange-value character of labor power, the size of which is determined by the division of labor into necessary and surplus labor, where necessary labor means that required for the production and reproduction of labor power. Thus it is the quantitative relationship between necessary and surplus labor that determines whether or not capitalist production is undertaken, and therewith also the allocation of the social labor under conditions of capital production.

No other social limits are set to the production of exchange value, as an abstract form of wealth, than those that hinder the expansion of surplus value, that is, the extent of the exploitability of labor power. Capitalists strive to appropriate the maximum of surplus value, of unpaid labor, simply because they are capitalists, quite apart from the circumstance that they are also in competition with other capitalists and are therefore compelled to expand their capital by increasing their appropriation of surplus value. Leaving the allocation of labor to the winds, to the “invisible hand,” or to the law of value, the production of useful commodities is determined solely by their exchange value, that is, by their capacity to turn surplus value into additional capital. The allocation of social labor is thus determined by the expansion of capital, and the fact of accumulation indicates that the law of value distributes the social labor in accordance with the exploitation relations of capital production.

Capital accumulation is a dynamic process, implying continuous disequilibrium. The appropriation of surplus value and its expansion imply continuous changes in the productivity of labor and therewith in the value and exchange relations in general, as well as with regard to labor and capital. Only conceptually may the system be considered as stationary, should this be of help in comprehending its movements. Actually, there is no static situation: the system either expands or contracts; at no time can it be found in balance.

An increase in the productivity of labor means that more can be produced with less labor. The individual commodity labor-time value decreases with increasing productivity. But the larger quantity of commodities brought forth during the same amount of time previously needed for a smaller one compensates for the loss of labor-time value with respect to the single commodity. The same or a larger exchange value is now expressed in a larger quantity of use values. For the capitalists to be positively affected by an increase in the productivity of labor, the relationship between necessary and surplus labor must be altered. This can be brought about in two ways: either by lengthening the working-day, i.e., the increase of absolute surplus value, or through an increase of labor productivity, which reduces the value of labor power by reducing the value of the commodities in which it finds its expression. This increase of relative surplus value provides the capitalist rationale for the increase in the productivity of labor.

The twofold character of the commodity, as both a use value and an exchange value, allows for the fact of surplus value. While the workers receive the exchange value of their labor power, the capitalists get its use value, which includes its ability to produce surplus products beyond those containing the necessary labor. Capital accumulation implies a decrease of the value of labor power through its increasing productivity. But as all commodities, and not only those that constitute the commodity equivalent of necessary labor, are affected by the increasing productivity, an increase of production is not necessarily accompanied by an equal increase of exchange value. Value production is thus not only the instrument of its own expansion, but also a procedure that may lead to a relative decline of exchange value with respect to the physical expansion of production and the mass of commodities.

This contradictory movement, inherent in the two-sided nature of commodity production, compels the capitalists to always greater efforts in the appropriation of surplus value, for it is only by a relatively faster increase of surplus value that the decline of exchange value associated with the increasing productivity of labor can be countered. In an expanding system like capitalism, however, a greater mass of commodities may well yield an equivalent or greater mass of surplus value despite the commodities’ declining exchange value. This decline exists then as a mere tendency, constantly counteracted by the expansion and extension of capital and therefore unnoticeable. Nonetheless, it provides a spur to the accumulation of capital independent of the compulsion of intercapitalist competition. In this way, the relative decline of exchange value comes to the fore as an absolute growth of value and surplus value, or the accumulation of capital.

As the allocator of social labor in capitalism the law of value implies, first of all, a continuously changing division between necessary and surplus labor and, based on this division, continuous alterations in the exchange relations with regard to both the use-value aspect of commodities and their exchange-value content. But we must now point out that the law of value is not a natural law of the sort that govern physical phenomena, even though it asserts itself as if it were such a law, by seeming to operate outside of human control. The law of value refers in fact to the results of a system of social production that, due to its peculiar social relations, does not and cannot concern itself with production as a social undertaking and finds its “regulation” only through the bondage of the commodities’ exchange values to their use values.

Surplus value is appropriated in the form of commodities. These commodities, as well as those that satisfy the requirements of necessary labor, must have the quality of being of definite utility, even if this has to be quantitatively expressed in their exchange value. The quantification of the qualitative differences between different commodities, as well as between the various types of labor that produce them, is actually accomplished in the money form in which all value relations are expressed. All articles of utility find their exchange value and their commensurability in terms of money — the most abstract form of value, as well as its universal equivalent. According to Marx,

the fact that the exchange value of the commodity assumes an independent existence in money is itself the result of the process of exchange, the development of the contradictions of use-value and exchange-value embodied in the commodity, and of another no less important contradiction embodied in it, namely, that the definite, particular labor of the private individual must manifest itself as its opposite, as equal, necessary, general labor and, in this form, social labor. The representation of the commodity as money implies not only that the different magnitudes of commodity values are measured by expressing their values in the use-value of one exclusive commodity, but at the same time that they are expressed in a form in which they exist as the embodiment of social labor, that they are translatable at will into any use-value desired.[7]

The money form of value is the counterpart of abstract labor, that is, labor per se, without regard to its different qualifications. Of course, abstract labor does not really exist as such, independently of the types of concrete labor, just as the abstract money form of the commodities’ exchange value does not negate their use-value aspects. In both cases, however, what is meaningless when looked upon from the physical side of production and exchange, is nonetheless true and cannot be otherwise in a capital-producing society. According to Marx, capitalism displays an actual tendency to turn concrete into abstract labor, by transforming skilled into unskilled, and specialized into general labor, or sheer labor power. Apart from this tendency, the difference between skilled and unskilled labor can be quantitatively expressed by counting skilled labor as multiplied simple labor, that is, as labor that produces in less time a given quantity of the value and surplus value incorporated in commodities. Actually, capitalist enterprises do not concern themselves with the individual qualifications of their labor forces; they do so only insofar as the physical process of production is concerned, but not for purposes of commercial calculations, which are based on their total wage bills, considered as costs of production. The wage bill measures the cost of a total labor time, regardless of the different individual contributions that enter into it and yield a quantity of commodities embodying the necessary and surplus labor time expended on their production. What is true for the single enterprise holds also for total social production, so that at any particular time the total social labor time equates with the total of produced commodities, no matter what the differentiations within the concrete labor process may be.

Social labor is necessarily abstract labor. Just as it is not the particular labor time applied by the individual producer, but the socially necessary labor time, that enters into the value determination of the commodity, so the product of any specific enterprise, in any of the different spheres of production, must be socially necessary, in order to be a part of value production. The interdependence of social production has become a fact of social existence, which subjects all separate producers to its necessity. Each capitalist produces only a part of the total social product, the market determining whether or not it is actually a part of the whole. It is then the totality of social production, or the whole of the labor time expended on the total mass of commodities, that determines whether and to what extent the individual producer is also a social producer and thereby enabled to partake of the social product.

The regulation of all individual producers by the capitalist requirements of social production is only another way of saying that it is the total mass of socially expended abstract labor time that sets limits to the different shares of surplus value falling to the individual capitalists. It is abstract labor time because it is not associated with any particular kind of production, but represents the sum total of all the different production processes subjected to the law of value or to the distribution of the total social labor which allows capitalism to exist and expand. As a sum total, it does not exist as concrete labor, but only as a conglomeration of all kinds of labor divorced from their peculiarities. It is abstract labor, moreover, because no conscious arrangements of social production actually exist; in fact, the social character of production has to assert itself, so to speak, behind the backs of the producers, through their products and the quantitative value relations between them.

Because every capitalist reckons his capital in money terms, he engages in production in order to increase it in terms of money. If he fails, he has not employed his capital capitalistically, that is, has not increased its value. Unaware of the actual use-value production requirements of social existence, capitalists strive for the maximum of exchange value, as the only criterion for success of their operations; if they do succeed in their endeavors, they have by that token also satisfied capitalistically determined social needs in terms of use values. If they do not succeed, their capital, insofar as it is not lost, must be differently engaged in order to function as capital. Thus it is the amassing of exchange value, or its universal equivalent, money, that serves as the allocator of social labor with regard to the use-value requirements of capital production. But it can perform this function only through the quantification of all qualitative relationships, that is, through the abstract money form of value and the transformation of individually concrete labor into socially abstract labor.

Because in the competitive money economy capitalists can only concern themselves with the maintenance and therefore the enlargement of their own capitals, social necessities must assert themselves in the face of — and indeed through — the lack of social consideration on the part of the individual producers. How are we to explain that, in the absence of any social consideration of the fragmented production process, there nonetheless exists a recognizable regularity and a definite developmental trend of capital production? In the classical bourgeois view, to recall, this is brought about through the competitive market mechanism, which tends toward the establishment of a supply and demand equilibrium in which market prices approximate the value of commodities. Since the production process is here regulated via the exchange process, it is only the latter that warrants theoretical consideration. The abstraction from the production process allows for abstraction from the social relations of production and therefore from commodity production as a process of surplus-value production.

In Marx’s view, in contrast, it is only by abstracting from competition and market relations that it becomes possible to lay bare what regulates capitalism and determines its development. That is not to say that market competition has no regulatory functions, but only that these functions are in turn predetermined by occurrences in the sphere of production. Commodities are not produced solely for the purpose of exchange; rather, commodity exchange is instrumental in the extraction of surplus value, without which there would not be a capitalist market. Capitalist production means the division of the labor time of each and every commodity into necessary and surplus labor. On the assumption, which is also a possibility, that all commodities are exchanged, both the necessary and the surplus labor go through the market to their social destination — the first to meet the consumption needs of the workers, the second to meet those of the capitalists and their retainers and to be incorporated in the expansion of capital. This process presupposes an allocation of the social labor with regard to both use value and exchange value, which yields such proportional amounts of consumption goods and capital goods as a frictionless reproduction of capital, on either the same or an enlarged scale, requires. This allocation of the social labor must be brought about through the uncoordinated activities of the diverse capital entities in their competitive pursuit of surplus value. And if it is brought about in some fashion, this is not due to any equilibrium tendencies stemming from the supply and demand relations, but is accomplished through shifts of labor-time relations at the point of production, as determined by the value and surplus-value relations of capital production. Because the production of commodities is subordinated to that of capital, the social allocation of labor is determined by the accumulation of capital. The regulatory element in capital production must then be looked for not in the market, but in the production of value and surplus value as determined by the capitalist relations of production.

The market exchange of commodities must lead to the accumulation of capital. If it does not serve this end, there exists no possibility for the exchangeability of all commodities, which is a necessary condition of the equation of supply and demand. With the consumption propensity of the workers restricted to the value of their labor power — that is, to the necessary part of the total social labor time — the whole of the surplus value, in its commodity form, would have to be consumed by the capitalists in order to assure the exchangeability of all that has been produced. This would imply a condition of simple reproduction, which, however, is foreign to capital. It is, then, the accumulating part of the surplus value that may allow for the exchangeability of all commodities and therewith for an apparent identity of supply and demand — an identity indicating not an equilibrium of production and consumption, however, but only a relationship between necessary and surplus labor assuring the enlarged reproduction of capital. Only this can provide a basis for the allocation of labor over the different spheres and branches of production. Thus it is always an allocation of labor resulting from the social relations of production and therefore from the value relations in which they find their fetishistic expression.

The actual capitalist production process is a matter of the production of commodities and their saleability on the market. It is the descendant of previous precapitalist processes of production, in which earlier generations managed some kind of coordination between their production and its marketability. The progressive “socialization” of production through the extension of the division of labor and the expansion of market relations did not prevent the individual producers from finding, by trial and error, some balance between the production and the exchange of their commodities. They would not for long overproduce and waste their time manufacturing unsaleable commodities, and they would, where possible, increase production should the demand for saleable goods grow. In this way, changing supply-and-demand relations undoubtedly affected the allocation of labor producing for the market, with labor time allotted in accordance with the specific requirements of the different products, and finding its reflection in their prices. The allocation of labor through market relations thus preceded capitalism and provided the starting point for the capitalist allocation of social labor via the law of value.

The allocation of social labor by way of the law of value is something other than its allocation through the supply and demand relations of the limited market. The latter was based on commodities’ use values, produced by concrete labor, whereas the allocation of labor via the law of value rests upon exchange value and abstract labor. The so-called laws of the market of bourgeois theory, from Jean-Baptiste Say to almost the present day, were based on the idea that everyone produces in order to consume, that supply creates its own demand, and that the allocation of labor reflects no more than the extension of the social division of labor. And in early capitalism, due to the relative scarcity of capital and the still limited productivity of labor, the use-value aspects of production seemed indeed to dominate the exchange relations. But the extension of the capitalist mode of production and the expansion of capital implied a shift of emphasis from use value to exchange value. To be sure, just as the use values of the past had definite exchange value, so the dominance of exchange value cannot dispense with its embodiment in definite use values. But it is now their exchange value and its expansion that, in increasing measure, determines the character of use values and makes their production dependent on the accumulation of capital. That is to say, use values are only produced to the extent that their exchange value incorporates surplus value utilizable for the augmentation of the existing capital.

With surplus value the goal of production, the expansion of capital depends on an allocation of the social labor that assures the enlarged reproduction of the total social capital via the accumulation of individual capitals. It is the interdependence of the various production processes that demands the expansion of the total social capital to assure that of the separate capital entities. Total capital, however, is a fact without being a datum on which calculation might be based. It consists, of course, in the sum of all capitals existing at any particular time. It is enlarged through all the isolated attempts of the separate capitals to enlarge themselves, each finding support, but also a limit, in the expansion of other capitals. What is at the disposal of total capital is the total social surplus value, also an unknown but nonetheless a real quantity in the form of the commodity equivalent of surplus value expressed in money terms. There is no way of ascertaining the quantity of surplus value required to assure the enlarged reproduction of the system as a whole, on which the increase of the separate capital entities depends. The individual capitals can only try to increase their own profits by enlarging their production in anticipation of larger markets. They may or may not succeed; whether they do or do not is discovered in the sphere of circulation, although determined in that of production by the relationship between necessary and surplus labor required if the total capital is to accumulate.

It is in the same sense in which total capital is a fact without being a datum, and total surplus value a real but unknown quantity, that the law of value underlies market and price relations, even though neither value nor surplus value is a directly observable or measurable phenomenon. In classical theory, to recall, labor-time value, or “natural price,” determines “the respective quantities of goods which shall be given in exchange for each other,” even though there are “accidental and temporary deviations of the actual market prices of commodities from this, their primary and natural price.” In Ricardo’s view, it was the changing supply-and-demand relations that led to these temporary deviations of price from value, but also “prevented the market prices from continuing for any length of time either much above, or much below their natural price,” so that these deviations could be disregarded and price and value be treated as identical. This equation of value and price was carried over into neoclassical theory, albeit now expressed in subjective value terms. In Marx’s theory, however, prices alone exist in the actual capitalist world, even though these prices find their social determination in value relations.

Although commodities do not reveal the quantities of necessary and surplus labor incorporated in them, their production testifies that labor and surplus labor have entered into their prices. Marx did not attempt to discover the labor-time content of commodities in their prices. For him, capitalist production is possible only on the basis of price relations, which differ from value relations but by that token verify the labor theory of value as the key for comprehending the real capitalist world, its price formations and its development. For Marx — as for the classical economists and for everyone else — only prices exist. As regards exchange relations, value, whether considered as of an objective or a subjective order, is not an empirically observable but an explanatory category. As such it does not cease to be a real phenomenon, but manifests itself not in its own terms but in terms of prices, precisely because capitalist society rests upon value relations. These value relations, with their source not in the physical production process but in the social relations under which it is carried on, will for that reason not be recognizable in the individual commodities, or in any particular sphere or branch of production, but only in the fact of capitalism’s existence as a social system of production and in its expansion or contraction, as the case may be.

It is value and surplus value, not labor and surplus labor, that determine the formation of prices and their changes. These prices are not prices in a general unhistorical sense, as they are conceived by bourgeois economic theory, but prices specific to the capitalist mode of production. They are determined not by supply and demand, nor by physical needs and possibilities, but by the accumulation of the total social capital, which enforces a distribution of the total social surplus value through price relations, which, although not changing the labor-time content of the commodities, do alter their relative exchange values, in accordance with the surplus-value requirements of the system as a whole.

Price must deviate from value to allow for the existence and expansion of capital. However, “deviation of price from value” is a somewhat unfortunate expression, because, mixing explanatory and empirical terms, it appears to refer to an empirically verifiable process, while observable reality contains no values but only market prices. Nevertheless, there is no way of avoiding the value-price duality, if we wish to understand why prices are what they are and why they change. On the other hand, the “deviation” of price from value does not mean that the labor-time content of commodities can be deduced from their prices, in the sense that the former are merely concealed and the latter open to scrutiny. The value of commodities can only find expression in prices and does not exist outside of price relations.

Given that the value of the commodity can only appear in its price, which thereby ceases to measure its labor-time content, the labor theory of value seems indeed to be contradicted by the actual exchange process. While it remains true, of course, that price itself refers to labor-time quantities, price-regulated exchange is not the exchange of labor-time equivalents. Classical economy started with the obvious observation that commodities are produced by labor. It assumed that their relative values must be proportional to the labor time incorporated in them, only to find out that this was not so in reality. Marx started with the discrepancy between value and price, in order to find out why they deviate and whether or not this deviation made the labor theory of value redundant. It is true that Marx started as a Ricardian, but Smith and Ricardo had already raised the question of the difference between value and price and had unsuccessfully tried to accommodate this fact to the labor theory of value.

Adam Smith realized that under capitalist property relations the exchange value of commodities does not correspond with their labor time, for besides wages it included profit and rent. Ricardo noticed that the accumulation of capital occasions different proportions between fixed and circulating capital in different industries and different degrees of durability of the fixed capital, both of which preclude exchange relations based on labor-time values. Inconsistently, both Smith and Ricardo relegated the exchange of labor-time values to an earlier stage of society, “before much machinery or durable capital is used; ... but after the introduction of these expensive and durable instruments, the commodities produced by the employment of equal capitals will be of very unequal value."[10] The principle of labor-time exchange was not applicable to industrial capitalism, or was applicable only with great modifications. The identity of value and price was a thing of the past and not true for capitalism.

Notwithstanding some ambiguous statements on Marx’s part, which may be ascribed to the unfinished and provisional state of the manuscripts comprising the second and third volumes of Capital, and judging by the whole corpus of his work and its inner consistency, it is quite clear that for Marx value was a historical category, in the sense that it evolved with capitalist commodity production and is bound to disappear with the ending of capitalism. Still, Marx found it “quite appropriate to regard the value of commodities not only theoretically, but also historically, as existing prior to the prices of production."[11] From this, Friedrich Engels drew the conclusion that the law of value dominated all commodity exchange, from its earliest beginnings thousands of years ago, up to the fifteenth century, from which time forward the proportional labor-time exchange turned into disproportional exchange in terms of prices of production. This of course would turn value into an ahistorical category, as it was for Smith and Ricardo. It would also relegate the value concept to the sphere of exchange, not to that of social production relations, and would falsely identify labor-time value with labor time as such.

Now it is obvious that commodities are produced by labor and that labor time must necessarily be considered in the formation of more or less regular exchange relations. What is produceable in one hour will not willingly be traded for a product requiring, say, five hours of labor. If one wishes to refer to this state of affairs as a “law of value,” then, of course, it applies only to noncapitalistic situations, whereas it was Marx’s intention to demonstrate the validity of this law for capitalist conditions. It would have only as much historical connection with value in capitalism as, for instance, the existence of money as a medium of exchange has with money as capital. Whether the mutual “rational” consideration of expended labor-time quantities in exchange was a historical fact, or a mere assumption on the part of classical theory, it has in either case no bearing upon the question Marx was concerned with — namely, how the law of value asserts itself in a society where there is no “rational” mutual consideration of the labor-time requirements of social production, but only the blind drive of individual producers to amass capital. It is therefore of no interest whether or not precapitalist exchange approximated an exchange of labor-time quantities, which, in any case, could not be the abstract labor-time value of Marx’s theory, but only labor time in the classical sense, that is, as a unit of account for quantities of concrete labor time spent in the physical production process.

For Marx,

price is not equal to value, therefore the value-determining element-labor time — cannot be the element in which prices are expressed, because labor time would then have to express itself simultaneously as the determining and the nondetermining element, as the equivalent and nonequivalent of itself. Because labor as the measure of value exists only as an ideal, it cannot serve as the matter of price comparisons.... The difference between price and value calls for values to be measured as prices on a different standard from their own.[13]

Value cannot find a measure in itself, but only in its price form. In the latter form, it finds its social determination, which overrules all the diverse labor-time values of commodities, as well as the difference between the kinds of labor required for their production. The “social” character of capital production comes to light not in value relations but in price relations.

Smith’s and Ricardo’s “early stage” of society, in which labor-time exchange is the “general rule,” was a figment of their imaginations, for value exchange presupposes surplus value, that is, the commodity character of labor power and its dominance in social production — in brief, capitalist society. Evolving out of the emerging capitalist conditions, value theory could only be grasped as a theory of surplus value. But even though Adam Smith saw, at times, that profit and rent were deductions from the products of the laboring class, at other times he spoke of wages, profits, and rent as being component yet independent parts of exchange value. And though Ricardo insisted upon labor as the sole source of value, he could not square this with the unequal exchange that was actually taking place. This confusion agitated classical economy as the problem of the difference between “real” and “exchange” value. There was not only the distinction between use and exchange value, but also that between the latter and value as such. “Exchange value” referred to a commodity’s purchasing power, while its real value consisted of the quantity of labor expended in its production. This difference was also expressed as one between relative and absolute value. It is from this state of the value theory, in which Marx found it, that he proceeded to clarify the reason for the divergence of price from value. Well aware of this discrepancy, Marx nonetheless begins by considering isolated value relations. It was, however, the consideration of price relations that led him to this analysis. Once this was done, it was possible to reverse the procedure — and to demonstrate the derivation of prices from value relations. This is in theory only; in reality there are always only prices, whose movements and their consequences with regard to capital accumulation reveal the regulatory value relations.

“Even if there were no chapter on value in Capital,” Marx wrote to Kugelmann, “the analysis of the real relationships which I gave would contain the proof and demonstration of the real value relations. All that palaver about the necessity of proving the concept of value comes from complete ignorance both of the subject dealt with and of scientific method.” [14] The real relationships appear of course as price relations, as the selling and buying of labor power; the prevalence of profit, interest, and rent; supply and demand; competition and an average rate of profit. But these relations constitute the phenomenal capitalist world and shed no light upon its inner connections and its particular dynamic. To discover these, a systematic analysis of the existing economic categories and of their interrelations is necessary, so as to distinguish between the essential and the derivative, between reality and appearance. This analysis could, in principle, start anywhere in the manifold capitalist world. Marx chose to begin with the commodity and its value character because his analysis of capital evolved out of the critique of classical value theory. He could just as well have started with the analysis of market prices, only to end up with value relations, as the fetishistic form of the capitalist relations of production.

The labor-time value of a commodity refers to socially necessary, not to individual, labor time. It manifests itself as market value and reflects a rough kind of social average productivity, from which individually produced values deviate. The variations between the particular conditions of production in different enterprises lead to value differences prior to price deviations due to changing market relations. The latter affect the oscillations of the individually produced values around the socially established market values, which then gain their final form as varying market prices, distinct from market values. Like value itself, the market value of any commodity does not exist as such but appears as a definite price, or price range. Insofar as prices are determined by market values, they emerge as a result of all the isolated strivings of capitalists to secure their profitability. The given prices, which serve as the capitalists’ point of orientation, are established independently of their own individual activities and yet are the result of these very exertions establishing and altering the market values of commodities. In this way prices are altered by the changing productivity of labor (e.g., lowered with the increasing productivity of labor), which implies that the division between necessary and surplus labor (or, in capitalist terms, the relationship between wages, as a cost of production, and the market prices of the commodities) has been changed.

Because the market value in a particular sphere of production differs from individually produced values but dominates the exchange relations, it leads to different rates of profit for different enterprises operating under varying conditions of production. As all producers must sell the same type of goods at the same price, which reflects the market value, their profits vary. Instead of different prices, derived from heterogeneous values, there are roughly identical prices and different rates of profit. The social determination of value finds its expression in price competition through all the various attempts on the part of the individual capitalists to secure for themselves a rate of profit sufficient to stay in business, that is, to come close, to reach, or to surpass the rate of profit determined by the market value of commodities.

Assuming equal rates of exploitation in all enterprises in a particular sphere of production — an assumption that is at best only approximately true in reality — the different conditions of production, leading to different rates of profit, would signify differences in the “organic compositions” of the various capitals. This Marxian term refers to the relationship between constant and variable capital — between capital invested in means of production and capital invested in labor power — with respect both to value quantities and in a technical sense. As the rate of profit is “measured” on the total invested capital (that is, on constant and variable capital combined), and as only its variable part yields surplus value, a capital of high organic composition (that is, one with relatively more constant than variable capital) should yield a lower rate of profit than a capital in which these conditions are reversed. It is, then, not only the determination of any particular commodity’s value by socially necessary labor time that leads to different rates of profit in a special sphere of production; the different conditions of general production, characterized by varying organic compositions of capital, differentiate the rates of profit even more. Whereas it is conceivable, and in some measure even true, that the conditions of production within a particular sphere of production are increasingly equalized by way of capital concentration, this equalization cannot be realized for totally different spheres of production, although here, too, the concentration of capitals yields a tendency in this direction — one held in check, however, by the use-value aspects of capital production.

The expansion of capital cannot free itself from its embodiment in use values, such as labor power, the various means and materials of production, and the countless utilities of the commodities brought forth. The material or physical side of production, which in its abstract side is the increase of exchange value, cannot be shed, but only bent to suit the accumulation needs of capital. Each sphere of production produces what is required of its particular commodities by the prevailing demand as determined by the expansion of capital and the system as a whole. Subordinated to exchange value, the necessary use-value requirements of capitalist production assert themselves through capitalist competition within and between the different spheres of production. In the search for the best profits, capital wanders from one sphere to another, and through these wanderings establishes a kind of socially average, or general, rate of profit. This general rate of profit is the average of all the average rates of profit in the different spheres of production. Of course

the real profit deviates from the ideal average level, which is established only by a continuous process, a reaction, and this only takes place during long periods of circulation of capital. The rate of profit is in certain spheres higher in some years, while it is lower in succeeding years. Taking the years together, or taking a series of such evolutions, one could in general obtain the average profit. Thus it never appears as something given, but only as the average result of contradictory oscillations.[15]

But there can be no doubt that

aside from unessential, accidental, and mutually compensating distinctions, a difference in the average rate of profit of the various lines of industry does not exist in reality, and could not exist without abolishing the entire system of capitalist production.[16]

Approaching this fact from the standpoint of value theory, the mechanics of this process consists in the establishment of market values in the separate spheres of production and in the equalization of the profit rates in all spheres of production through capital movements from one to another. Prices, corresponding to market values, represent the socially necessary labor time assigned to commodities by competition. These are the prices capitalists must pay for the commodities they buy and utilize in their own production process. They constitute their cost prices, the starting point for all their commercial calculations. The cost prices, however, are here considered as value relations before they become prices of production that contain the capitalist profit. In this form, cost prices do not exist in reality, because the elements of production are bought on the market, where the cost prices already include the realized profit. The cost prices must therefore be analytically deduced from the prices of production. This dissociation of the profit components from the labor-time components that constitute the capitalist expenditures for purposes of production require a thought experiment that separates the profit components from the value components of the prices of production. Considering society as a whole, it is not only possible, but quite realistic, to place the sum total of all cost prices on one side, and the sum total of profits on the other side, as the two components of the total labortime value expanded in production. Looking at capitalism from this vantage point, it is clear that whatever the composition of the prices of production may be, all actual prices together cannot express anything else than the total value and surplus value of the commodities brought to the market. In this sense, according to Marx, “the fundamental law of capitalist competition which regulates the general rate of profit, and the prices determined by it, rests on the difference between the value and the cost-prices of commodities, and even on the resulting possibility to sell a commodity at a profit even below its value."[17]

In the real capitalist world, all that matters is a sales price that stands high enough above the cost price to allow an approximation of the general rate of profit. This rate is the point of orientation that determines the capitalists’ reactions to market events. Differences in profit rates are noticed by comparing market prices with cost prices. In every sphere of production the average rate of profit determines the expansion of individual capitals, in the sense that a low profit rate will discourage further investments and even eliminate capitals of insufficient profitability. Capital will move to other spheres of production where the profit rates are comparatively higher, indicating the possibility of further profitable capital expansion. This is not a question of moving capital bodily, in the form of means of production, from one sphere to another (although it is not excluded that the same type of means of production may serve in the production of commodities belonging to another sphere), but of shifting new investments from less profitable to more profitable branches of production. This is the more easily accomplished because capital accumulation goes hand in hand with the development of the credit system. For “credit is the means by which the capital of the whole capitalist class is placed at the disposal of each sphere of production, not in proportion to the capital belonging to the capitalists in a given sphere but in proportion to their productive requirements."[18] In Marx’s own words:

A decline in the rate of profit below the ideal average in any sphere, if prolonged, suffices to bring about a withdrawal of capital from this sphere, or to prevent the entry of the average amount of new capital into it. For it is the inflow of new, additional capital, even more than the redistribution of capital already invested, that equalizes the distribution of capital in the different spheres ... As soon as a [profit] difference becomes apparent in one way or another, then an outflow or inflow of capital from or to the particular spheres [begins]. Apart from the fact that this act of equalization requires time, the average profit in each sphere becomes evident only in the average profit rates obtained, for example, over a cycle of seven years, etc., according to the nature of the capital. Mere fluctuations above and below [the average rate of profit], if they do not exceed the average extent and do not assume extraordinary forms, are therefore not sufficient to bring about a transfer of capital, and in addition the transfer of fixed capital presents certain difficulties. Momentary booms can only have a limited effect, and are more likely to attract or repel additional capital than to bring about a redistribution of the capital invested in the different spheres.

One can see that all this involves a very complex movement in which, on the one hand, the market-prices in each particular sphere, the relative cost-prices of the different commodities, the position with regard to demand and supply within each individual sphere, and, in addition, the speed of the equalization process, whether it is quicker or slower, depends on the particular organic composition of the different capitals (more fixed or circulating capital, for example) and on the particular nature of their commodities, that is, whether their nature as use-values facilitates rapid withdrawal from the market and the diminution or increase of supply, in accordance with the level of the market prices.[19]

Whatever the complexity of this process, the general rate of profit can only be understood with reference to the social value relations. These relations, however, are not something given, from which the general rate of profit can be deduced; on the contrary, the existence of a general rate of profit requires an explanation consistent with the actual material production process in its capitalist form and leads therewith necessarily to labor-time relations.

Without the value concept, the average rate of profit

would be purely imaginary and untenable. The equalization of the surplus-value in different spheres of production does not affect the absolute size of the total surplus-value, but merely its distribution among the different spheres of production. The determination of this surplus-value itself, however, only arises out of the determination of value by labor-time. Without this, the average profit is the average of nothing, pure fancy. And it could then equally well be 1000 per cent or 10 per cent.[20]

On the other hand, the average rate of profit cannot be explained directly in terms of value relations, but requires intermediary reference to capital competition, though competition itself can neither increase nor decrease the given surplus value, but only affect its distribution.

Forgetting the value relations altogether and attending only to market events, it is quite obvious that any particular capitalist producing specific commodities in competition with other capitalists will expand his production as long as this yields him the customary profits. If the profit should decline consistently, he will stop expanding his production, and the resulting lack of new investments, within the general framework of the expanding economy, will come to the fore as a relative decline in the production of the commodities in which he specialized. Or, to look at it the other way around, changes in the composition of the total social capital in the course of its accumulation may reduce the demand for his particular commodities or eliminate it altogether, in which case this capitalist will experience his loss of profitability in a decline of the demand for his commodities, and he will either attempt to gain a larger share of a diminishing market, at the expense of other capitalists, or withdraw from this particular sphere of production. In either case, the production of commodities in which each capitalist is engaged depends on processes beyond his comprehension, as determined by the allocative labor-time requirements of the system as a whole.

The system as a whole, to repeat, is nothing other than the combined production of all capitalist enterprises: a mass of value and surplus value, representing socially necessary labor-time quantities embodied in commodities. This mass of value and surplus value is, at any moment, of a definite size, alterable only by either the destruction or the expansion of capital. This mass sets the limits within which each capital can move and therefore to the enlargement of any particular capital. The viability of the system rests then upon a distribution of the total social surplus value that assures the expansion of the total capital in physical and in value terms. This distribution can only be exacted by way of capital competition, which, without concerning itself with the distribution of surplus value, effects its distribution nonetheless through the averaging of profit rates via the profit needs of the individual capitals.

How is the equalization of profit to form an average rate actually brought about? If commodities have been produced in excess of the effective demand as determined by the accumulation of the total social capital, part of the total social labor has been wasted. Some commodities represent a smaller quantity of abstract labor on the market than is actually incorporated in them. As some cannot be sold, and those that are sold yield a lower price profits decline. The opposite takes place if the quantity of social labor employed in a certain sphere of production is not large enough to meet the social demand: prices and, with them, profits, will be higher than the average. This over- or underproduction with respect to social necessities, within the framework of capital production, is not a question of supply and demand, but finds its source in the expansion or contraction of the total social capital and the dislocating changes in the production processes connected therewith. These changes with regard to use-value requirements and the ability of use values to serve as carriers of exchange value first become visible in the circulation process, on the market, where they are experienced as supply and demand discrepancies affecting profit rates.

It is clear that these rearrangements of the expanding capital structure — which, on the one hand, grow out of the blind pursuit of profit and, on the other hand, force the capitalists to always new and equally blind efforts to maintain their profitability — cannot possibly constitute an even process that sets the average rate of profit at a point yielding an equilibrium of supply and demand. In any case, such an “equilibrium” — that is, an allocation of the total social labor corresponding to the accumulation requirements of the total social capital — would not exist as an immediate reality at any particular time, but only as an average of very uneven capital movements over a number of years. The average rate of profit appears as a tendency to which all capitalists, at all times, are equally subjected. Nevertheless, capitalist competition, which brings this tendency about, does succeed, albeit in a very contradictory manner and with all kinds of losses, in effecting a continuous redistribution of the social capital.

Experience tells capitalists that profit rates cannot be set arbitrarily. They cannot do anything about the market prices which constitute their production costs: these are what they are, determined by the labor-time values and the average profit incorporated in them. Similarly, their own sales prices are circumscribed by the state of competition in their respective spheres of production. Their customary profit is the empirical expression of the average rate of profit. It is that profit the capitalist expects through the employment of his capital — be it large or small — in any kind of business activity. Should his capital turn over more slowly than other capitals, or his products be sold in near or more remote markets, in all cases, he counts on the customary profit on his investments and sets his prices accordingly.

Every circumstance which renders one line of production profitable, and another less, is calculated as legitimate grounds for compensation, without requiring the ever renewed action of competition to demonstrate the justification of such claims.... All those claims for compensation, mutually advanced by the capitalists in the calculation of the prices of commodities of different lines of production, repeat in another way the idea that all capitalists are entitled, in proportion to the magnitude of their respective capitals, to equal shares of the common loot, the total surplus-value.[21]

As profit rates cannot be equalized in the production process, the average rate of profit can only be formed in the sphere of circulation, where differences in the rate of surplus value do not matter, for here it is the total surplus value, its mass, which finds its equal distribution among the individual capitals in the general rate of profit. The distribution of the total social surplus value in accordance with the necessities of capital production finds its market expression in the competitive supply and demand relations, the over- or underproduction in different spheres of production, their corrections, and the associated price relations, through which surplus value is transferred from one sphere of production to another. And thus, while each capitalist enterprise strives for the maximum of unpaid labor, its profits are not dependent upon the surplus value extracted from its own labor force, but determined by the amount of capital at its command and the average rate of profit. Of course, the magnitude of this rate depends on the total social surplus value on hand, and therefore on the degree of exploitation on a social scale, so that the capitalists’ desire for the maximum of unpaid labor, though not affecting the averaging process of profit rates, determines their magnitude at any given time. Whereas the average rate of profit differentiates the surplus value produced by individual capitals from the profits they receive, the magnitude of the total social surplus value is the limit of the sum of parts into which it may be divided. It is here quite immaterial whether or not the entire surplus value is realized in terms of prices, which is actually never the case; but in “so far as the formation of prices is concerned, the sum of the average profit plus rent in their normal form can never be larger than the total surplus-value, although it may be smaller."[22]

In whatever complicated manner the movements of profit bring about the movements of capital, and the movements of the latter, in turn, movements in the rate of profit, in a ceaseless and intertwined process of production and exchange that can only be arrested and dissected in a purely conceptual way, in an attempt to isolate all the interconnected components that together constitute the social production and distribution process, one thing, at least, remains certain: no matter how the social mass of surplus value may be distributed among the capitalists, the mass of profit, or surplus value, cannot be anything but the total surplus value brought forth in the social production process.

To the concept of capital as a whole, and the explanation of the general rate of profit as the average of the profit rates of all the various capitals of different organic compositions, within and between all spheres of production, corresponds in practice the fact that each separate capital is but a part of the total social capital and is only distinguished from it, and from other individual capitals, by its particular magnitude. Because the organic compositions of different capitals differ, there arises a social average composition of capital, in which the relationships between constant and variable capital are such as to equate its surplus value with its profit; that is to say, its total surplus value yields a definite rate of profit corresponding with the socially average organic composition of capital. As noted before, Marx called capitals of “high” organic composition those that contain a larger percentage of constant and a smaller percentage of variable capital than is to be found in the social average composition of capital, and capitals of “low” composition those in which these relations are reversed. There may be capitals extant that have the same composition as the social average, which would yield the rate of profit determined by the social average composition of capital. Their prices of production, cost prices plus profits, would be equal, or at least approximately equal, to the value and surplus value contained in their commodities. In all other spheres of production, the surplus value would vary, but the profit rates would be the same, that is, correspond with the general rate of profit as derived from the average organic composition of the total social capital. Their prices of production would deviate from the value of their commodities without changing anything in the fact that the sum total of all prices of production for society as a whole would be equal to the sum total of the value and surplus value of the produced commodities. It is for this reason that Marx suggested looking upon capitalism as if it were one large stock company, and the various capitals, as far as their profits are concerned, as so many shareholders partaking in the company’s profits in accordance with the number of shares in their possession:

Every 100 of any invested capital, whatever may be its organic composition, draws as much profit during one year, or any other period of time, as fall to the share of every hundred of the total social capital during the same period.... That portion of the commodities which buys back the elements of capital consumed in the production of commodities, in other words, their cost-prices, depends on the investment of capital required in each particular sphere of production. But the other element of the price of commodities, the percentage of profit added to this cost-price, does not depend on the mass of profit produced by a certain capital during a definite time in its own sphere of production, but on the mass of profit allotted for any period to each capital in its capacity as an aliquot part of the total social capital invested in social production.[23]

The entanglements of social production are such as to exclude any attempt to trace the specific value content of commodities in their prices, or to deduce from their prices their specific value content. A disentanglement is only a theoretical possibility, a mental dissociation of what cannot be actually taken apart — the market prices from their market values, the cost prices from the prices of production, the value of labor power from its modification through the deviations of production prices from the value of the commodities that constitute variable capital. The theoretical attempt to penetrate the bewildering complexity of capitalist production is not only forced to adopt analytical procedures that cannot be duplicated in reality, but requires the construction of a model of capitalist production and distribution that is not identical with the directly observable capitalist system, but merely picks out the essential features on which the existence of the system depends. Apart from the fact that the data necessary for a strictly empirical study of the system are unobtainable, and the actually extant data are largely useless for the analysis of capitalist production, the very nature of the market economy and the price system precludes a realistic investigation even in terms of its own superficial categories.

If it were otherwise, if it were possible to recognize in the price relations the underlying value relations, this too would merely be an academic exercise of no practical consequences; for the capitalist system can only exist as a price system, even if it does find its unsolicited “regulation,” its possibilities and limitations, in labor-time value relations. The law of value, which refers to general necessities that assert themselves blindly within the capitalist system of production and exchange, does not exist independently of price relations, as something with which the latter could be compared, but has its reality in the prices themselves, seen in the context of a social system of production as the production of capital. Thus there is no “law of value” as a concrete phenomenon; but there is a way of looking at capitalist society from the point of view of its inescapable necessities, and of recognizing that these necessities must be met by social labor and by the allocation of this labor in definite proportions, that is, by labor-time quantities, which have the form of labor-time values just because they are expressed in terms of prices.

Any concern with value relations as labor-time relations on the part of the bourgeoisie, and of all those satisfied with the capitalist system, would be a needless perversity. It was a luxury the classical economists could still allow themselves at that early stage of capitalist development, but one that became highly detrimental under more advanced conditions and the increasing polarization of class relations. Here it was a godsend that the price form of value covered up not only the exploitation relations at their base, but the value character of production itself. For in the price form, “the basis of the determination of value is removed from direct observation” and

it is only natural that the capitalist should lose the meaning of the term value at this juncture. For he is not confronted with the total labor put into the production of commodities, but only with that portion of the total labor which he has paid for in the shape of the means of production, whether they be alive or dead, so that his profit appears to him as something outside of the immanent value of commodities. And now this conception is fully endorsed, fortified, and ossified by the fact that from his point of view of his particular sphere of production, the profit is not determined by the limits drawn from the formation of value within his own circle, but by outside influences.[24]

It was thus discretion as well as ignorance, and soon only ignorance, on the part of the capitalists that made them forget the real relations of production and exchange, and cling instead to their outward appearances on the market.

In reality the value of commodities is the magnitude that exists first, theoretically speaking, comprising the sum of the total wages, profits, and rent, quite apart from their relative quantities expressed in prices. These magnitudes are there also at the end of the analysis, if the system is looked upon, as it must be, in its totality, no matter how the surplus value is distributed among the capitalists via the “transformation” of values into prices of production. Thus, while it is not possible to relate the prices of individual commodities directly to their values, there can be no doubt that the total of prices represents nothing other than the value relations dominating capitalist society.


1. P. Sraffa, ed., The Works and Correspondence of David Ricardo, Vol. I (Cambridge: Cambridge University Press, 1966), p. 13.

2. Capital, Vol. I, p. 71.

3. Ibid., p. 84.

4. Ibid., pp. 92-93.

5. One example among many: According to I. I. Rubin, “the law of value is the law of equilibrium of the market economy. ... The aim of this (Marx’s) theory is to discover the laws of equilibrium of labor allocation behind the regularity in the equalization of things in the process of exchange. ... The subject-matter of the theory of value is the interrelation of various forms of labor in the process of distribution, which is established through the relations of exchange among things, i.e., products of labor.” Essays on Marx’s Theory of Value (Detroit: Black and Red, 1972), p. 67.

6. Capital, Vol. I, p. 86.

7. Theories of Surplus-Value, Vol. III (London: Lawrence and Wishart, 1972), p. 130.

8. The requirements of the capitalist reproduction process have been illustrated by Marx in the abstract reproduction diagrams in the second volume of Capital (Chapters XX-XXI). These diagrams divide total social production into two sectors: one producing means of production and the other means of consumption. Each sector is composed of constant and variable capital and produces surplus value. The transactions between the two sectors are imagined to be such as to reproduce the total social capital either on the same or on an enlarged scale. But what is a presupposition for the postulated reproduction diagrams – namely, that the allocation of social labor required for the reproduction process – must in reality first be brought about blindly, through the uncoordinated strivings of the individual capitals that make up the total capital.

9. Ricardo, pp. 88-97.

10. Ibid., p. 42.

11. Capital, Vol. III (Chicago: Kerr, 1906), p. 209.

12. F. Engels, Ergänzung und Nachtrag zum 3. Band des Kapital, Marx-Engels Werke, Vol. 25, p. 909.

13. Grundrisse (Harmondsworth: Penguin, 1973), p. 140.

14. Marx-Engels, Selected Works, Vol. II (Moscow: Foreign Languages Publishing House, 196?), p. 461.

15. Theories, Vol. III, p. 463.

16. Capital, Vol. III, p. 181.

17. Ibid., p. 50.

18. Theories of Surplus-Value, Vol. II (London: Lawrence and Wishart, 1969), p. 211.

19. Theories, Vol. III, p. 463.

20. Ibid., p. 190.

21. Capital, Vol. III, p. 246.

22. Ibid., p. 969.

23. Ibid., p. 187.

24. Ibid., p. 199.