[Note: In this post when I refer to Smith I mean John Smith, not Adam Smith.]
Smith and value
Unlike Lenin’s “Imperialism: The Highest Stage of Capitalism” and Baran and Sweezy’s “Monopoly Capital,” Smith in his “Imperialism” has set himself the task of explaining the imperialist—monopolist—phase of capitalism in terms of Marx’s theory of value and surplus value. Smith has set himself the extremely ambitious task of unifying Marx’s “Capital” with Lenin’s 1916 pamphlet. In addition, he seeks to update the Leninist theory of imperialism (1) for the early 21st century. The logical starting point of such an ambitious undertaking is the theory of value.
John Smith, Keynes and left Keynesians on value
“The exchange-value of a commodity,” Smith writes on p. 58 of his “Imperialism,” is determined not by the subjective desires of the buyers and sellers, as both orthodox and heterodox economic theory maintains, but by how much effort it took to make it.” Smith makes an important point here. Both orthodox economists (the so-called neoclassical school and the Austrian school) and heterodox economists (left Keynesians) support or at least do not challenge the marginalist theory of value, which for more the century has dominated academic economic orthodoxy.
The marginalist theory of value holds that value arises from the scarcity of useful objects, which may be products of either human labor or nature, relative to subjective human needs. Instead of beginning with production and labor, as both the classical school and Marx did, marginalists begin with the subjective valuations of the consumer.
Smith quotes Keynes (p. 59): “real exchange relations … bear some resemblance to a pregnant observation by Karl Marx. … He pointed out that the nature of production in the actual world is not, as economists seem often to suppose, a case of C–M–C’, i.e. of exchanging commodity (or effort) for money in order to obtain another commodity (or effort). This may be the standpoint of the private consumer. But it is not the attitude of business, which is a case of M–C–M’, i.e. of parting with money for commodity (or effort) in order to obtain more money.”
Here Keynes, who claimed that Marx’s work was useless, was forced to turn to Marx in order to describe what capital actually is. Beginning in Ch. 4 of Volume I of “Capital,” Marx explained that capital involves the use of money to make more money, or M–C–M’. This, as Keynes correctly pointed out, is something quite different than using money to simply purchase commodities, or C–M–C, which represents not capital but rather the simple circulation of commodities. Marx showed that it is perfectly possible to have commodities and money without capital, but it is impossible to have capital in any form–let alone capitalist production–without commodities and money.
Smith wants to show that Keynes was obliged to acknowledge in this one passage if not elsewhere the truth of the classical and Marxist theory of value based on labor, though Keynes used the term “effort” and not “labor.” Why did Keynes substitute “effort” for “labor”? Even assuming that Keynes meant “labor” by “effort,” he managed to overlook the fact that money also represents “effort”–that is, labor–since money according to Marx, and this blog, must be a commodity. (2)
What exactly does Keynes mean by “effort”? For example, what unit of measure should we use to determine the quantity of “effort”? Perhaps “effort,” as has sometimes been suggested, is an expenditure of some unit of energy. Physicists define energy as the ability to do work. But work in this context is obviously something very different than human labor. In the above quote, Keynes uses Marx–clumsily and partially incorrectly–to make the distinction between simple circulation (C–M–C) and capital (M–C–M’). But he almost certainly substituted the term “effort” for “labor” to avoid as much as possible the so-called labor theory of value.
Keynes’s knowledge of bourgeois political economy like that of Marx was immense (3). If he could have found a bourgeois—especially marginalist—source instead of Marx to “define production in the actual world” (by which Keynes meant capital-using) he would surely have used it in preference to Marx.
In my opinion, Smith should not have borrowed Keynes’s deliberately vague terminology—notice how Keynes uses Marx to define capital without actually using the word “capital” but calls capital “the attitude of business,” as though capital was some kind of subjective “attitude” rather than an objective social relation of production.
Throughout his “Imperialism,” Smith refers to exchange value—which the mature Marx, unlike the classical economists and the pre-1857 Marx, considered to be the only form of value—when he should have simply used the word “value.” By failing to make this distinction, Smith mixes up value—the quantity of (abstract) human labor needed to produce a commodity under the prevailing conditions of production with exchange value, the form of value in the market measured in terms of the use value of another commodity.
The most familiar examples of exchange values are the money prices we are all acquainted with in our daily lives. To review, value is always a quantity of labor measured in terms of some unit of time, while price is ultimately a quantity of money material such as gold bullion measured in some unit of weight.
As regular readers of this blog know, the distinction between value and the form of value plays a central role in crisis theory. It also explains why a “metallic barrier” —as Marx called it in Volume III of “Capital,” must arise regardless of the monetary system in effect—gold standard, gold-exchange standard, or paper money standard. It is the metallic barrier that brings to a screeching halt all attempts by the capitalist state and central banks to eliminate crises by expanding effective monetary demand once overproduction has reached a certain point in the course of each industrial cycle.
Smith’s book is not about crisis theory, where the failure to distinguish between value and exchange value—money price—as the form of value would be fatal, but rather about 21st-century imperialism. Still, though Smith’s failure to distinguish between value and exchange value is hardly surprising considering the general state of Marxist economics today, it weakens his case. The inevitable periodic crises of general overproduction play a crucial role in the centralization of capital that leads to monopoly. In the Leninist tradition, monopoly is the essence of imperialism.
Once capitalism reached a certain point of development—which had occurred by the year 1825 when the first crisis of general overproduction broke out—the industrial capitalists were able to increase industrial production at a faster pace than the market for commodities could expand. I have devoted this blog to analyzing why this is true.
When capitalist production approaches its full engineering capacity—what the capitalist economists misleadingly call “full employment” (4)—the market is soon flooded with commodities that cannot be sold at the prevailing level of prices. A general economic crisis of overproduction has broken out. A portion of competing capitalists must then be eliminated in order to restore profitable production. This reduction in the number of independent competing capitals Marx called the centralization of capital. This should not be confused with the related phenomena of the concentration of capital, which refers to the increasing size of individual industrial enterprises.
Tendency toward centralization gains upper hand over tendency toward decentralization in capitalist production
In the wake of each successive crisis, the market expands for awhile faster than production. This enables new independent industrial capitalist enterprises to pop up. The tendency for capital to become less centralized is especially evident in new branches of industry. But over time, the development of overproduction in each successive industrial cycle means that the tendency for the number of independent competing capitals to diminish must gain the upper hand over the tendency for the number of independent competing capitals to increase.
Therefore, as Lenin stressed, at a certain point the development of free competition must lead to its opposite—monopoly. Capital is based on free—not perfect—competition, which means that capital can exist only in the form of “many capitals.” But its very laws mean that as capitalism develops, the number of independent capitals must diminish.
This fact shows that the further development of capitalism must at some point lead to a higher stage of society where private property in the means of production will disappear. A society based on private ownership of the means of production with its many capitals will be replaced by a society based on the collective ownership of the means of production by the associated producers—communism.
Lenin saw monopoly capitalism, also called the imperialist stage of capitalism, as the first stage of transition between capitalism with its many capitals and free competition and communism based on the collective ownership of the means of production without any capitals.
In his “Imperialism,” Lenin demonstrated how the crisis of 1873 played a key role in kicking off the process that led to the transformation of industrial capitalism into monopoly capitalism. Lenin showed that industrial capitalism based on free competition reached its peak on the eve of the 1873 crisis. Within 30 years after the outbreak of that crisis, capitalism had been transformed into the monopoly-ridden imperialism that dominated the entire inhabited globe by the turn of the 20th century.
Therefore, in the Leninist tradition, crisis theory and the theory of imperialism leading to the inevitable downfall of imperialism and a victorious socialist revolution are interlocked. It is through crisis theory that we can best unify Marx’s “Capital” with Lenin’s “Imperialism.”
Lenin versus Baran and Sweezy and Shaikh
In both Marx and Lenin, capitalism is not a static system that reproduces itself endlessly. Despite the many differences, this is the way both Shaikh in his “Capitalism” and Baran and Sweezy in their “Monopoly Capitalism” present the capitalist system. In contrast, both Marx and Lenin saw capitalism as a dynamic system driven by its own internal laws and the crises that through the centralization of capital leads inevitably toward a higher form of society—communism (5).
Lenin strongly praised Rudolf Hilferding’s “Finance Capital,” first published in 1910, because it was the first Marxist work on political economy that put monopoly at the center of its analysis. But he noted that the book made a mistake on the theory of money. This shows how seriously the soon-to-be leader of the Russian Revolution took Marxist theory, even though he was writing a popular pamphlet and not a work like “Capital.”
Labor theory of value versus the labor definition of value
Marxist and even classical value theory is not really a labor “theory” of value at all but rather a labor definition of value. Last month, I explained that bourgeois economists invent “currencies of constant purchasing power” when they attempt to compare the purchasing power of wages in one epoch with the purchasing power of wages in another. But as we go further back in time, this procedure becomes ever more divorced from reality. It is quite a stretch to compare the purchasing power of wages in the Roman Empire, for example, with the purchasing power of wages in 2018 using currencies of constant purchasing power.
But all attempts to use currencies of constant purchasing power break down completely when we study societies before the development of currency—coined money—and even more when we study societies that did not use money as a measure of value. Today’s university experts on early pre-class/pre-state societies are called anthropologists, not economists. They “value” the products of early pre-monetary societies in terms of the quantity of labor measured in some unit of time that they believed were necessary for these societies to expend in order to produce them. They do this because there is no other way the products produced by such societies can be valued.
The classical economists and Marx, who upheld the so-called labor theory of value, realized that the same principle underlies capitalist society even if it operates in a far more complicated way. In modern capitalist society and earlier societies based on commodity relations, the labor time necessary to produce a given product cannot be measured directly but must instead take the form of exchange value, or monetary value. Marx, after he thought about it for many years, came to understand that exchange or monetary value was not the essence of value but only the form of value. He then defined value as the quantity of labor socially necessary to produce a commodity. On this foundation, Marx developed his theory of commodities, money and prices, surplus value and profit. If we are to unite Lenin’s “Imperialism” with Marx’s “Capital,” we have to build the theory of imperialism on the same foundation.
Smith confuses the production period with the labor period
Smith writes, “If … it takes twice as long to produce a pair of trousers as a sack of flour, then the equilibrium exchange-value of a pair of trousers would be two sacks of flour.” (p. 58) In Smith’s example, a pair of trousers is the relative form of value, while a sack of flour is the equivalent form of value, the embryo of the money form. However, Smith makes a mistake when he says that it takes “twice as long to produce a pair of trousers as a sack of flour.” He should have said: if it takes twice as much labor to produce a pair of trousers than a sack of flour. By leaving out the word “labor,” Smith confuses the quantity of labor, or labor period, with the production period.
The production period of fine wine and value
I live in a region known for the production of fine wines. Recently, I saw an announcement of a wine-tasting event where the vineyard owner would explain why fine wines are so much more expensive than the cheap stuff. What a nice event to attend, assuming of course that there was a designated driver. Not only would the vineyard owner—an industrial capitalist—try to explain a question that was hotly debated among the economists back in the days of Ricardo, but there would be the opportunity to get pleasantly buzzed.
The opponents of Ricardo’s labor-based theory of value claimed that the theory couldn’t explain why “wine aged in old oak chests” is so much more expensive than cheap wines. The production period includes a quantity of labor and a quantity of time when the wine is aging. (6)
We know that in the case of the production of wine the labor and production periods are quite different. Yet in terms of the labor definition of value, only the labor period contributes to the value—as opposed to the price—of the wine.
If I had been able to attend the event, which unfortunately I was not, I would have gotten the take of the vineyard owner on exactly why fine wine is so expensive. I assume the explanation would have gone something like this: Fine wine, unlike the cheap stuff, must be stored in wooden barrels and aged over many years. In this way, the wine will very slowly absorb chemicals from the wooden barrels that give fine wines their subtle tastes. It is the presence of these subtle tastes that distinguish fine wine from cheap wine.
During this time, I imagine the vineyard owner would explain shifting from her role as an expert on the use value of fine wine to her role as a practicing industrial capitalist: My capital is tied up in the wine aging in oak chests. During this period, I must accrue a profit that I will realize in terms of money once I sell the wine. If I wasn’t compensated for the long period in which my capital is tied up, I could not as a business person afford the opportunity cost I incur by producing fine wine, samples of which you are enjoying today.
To clarify things for the non-businesspersons and non-economists in the audience, she might ask: Would you lock up your money in the bank if you were not paid interest on it? Of course you wouldn’t! This is why I and my fellow vineyard owners have to charge such a high price for fine wine compared to the cheap stuff we can turn out in a short period of time.
Ricardo’s opponents claimed that the high price of fine wines that do not absorb labor while it is aged shows that something other than the quantity of labor is involved in determining the value of commodities. What this example really brings out is the difference between value—the quantity of abstract human labor necessary on average to produce a commodity under the prevailing conditions of production—and exchange value, or price. Price being defined as the quantity of money material necessary to purchase a given quantity of the commodity measured in terms of the appropriate unit of measure for the use value of that commodity. For example, $1999.99 per bottle of a fine wine.
Let’s assume a society organized as a communist community. This society will know neither “value” nor “price.” But it has to carefully account for the expenditure of its available labor among the various branches of production. This is because the availability of labor—measured in units of time—is not unlimited. If our communist community expends labor on, say, the production of fine wine, there will be that much less labor available for the production of other needed products.
Our society’s accountants may find that, when it comes to expending labor on wine, the production of fine wine aged in old oak chests (6) does not require much more labor than the production of ordinary wine. However, the accountants will be aware that as the wine ages in old oak chests, no workers will have to tend it. These workers will be available to perform other jobs including the production of ordinary wine. Therefore, our communist society will be well aware that it is not expending that much more labor on the production of fine wine versus ordinary wine. But just like is the case under capitalism today, our communist society would still have to wait longer for the fine wine than it would for ordinary wine.
Those economists—and they are legion—who think the example of fine wine aging in old oak chests refutes the concept of labor value are confusing the labor period with the production period. They are also confusing value with price.
Smith on constant and variable capital
Smith writes: “M–C is now the purchase not of commodities for resale, but of ‘factors of production’: labor-power, means of production, and raw materials. C—C’ is the production process, in which living labor replaces C, its own value and that of materials, etc., used up in production, and generates a surplus value (the difference between C and C’). The time spent by living labor producing this surplus value Marx called surplus labor. This surplus labor is the source and substance not only of profit in all its forms, but of capital itself, which is nothing but accumulated surplus labor.” (p. 59)
This as written is incorrect. First, the capitalist begins with M, not C, and ends with M’ not C’. In addition, living labor does not replace the value of C, which stands for constant capital. Instead, living labor helps transfer value from the physical form of the constant capital (machinery, factory buildings, and other forms of fixed capital), as well as raw and auxiliary materials—circulating capital—into the final product—commodity capital. Nor does living labor replace its own value. Living labor cannot replace its own value because labor has no value any more than, as Engels put it, heat has a temperature.
Rather, (abstract) human labor once it becomes embodied in commodities is the social substance of value but has no value in itself. Presumably, Smith meant to say labor power in the above passage, and the failure to add “power” could be a simple typo. I admit I do this all the time. If this was the origin of Smith’s failure to write labor power instead of labor, it would simply indicate rather sloppy editing by Monthly Review Press. But if we assume this is the case, our difficulties with the passage only increase. The reason is that, as worded, Smith makes no distinction between the process by which constant capital transfers its value to the final product and the value-creating process through which labor power replaces its value.
For example, if the cotton used in producing cotton shirts increases in value because of a harvest failure, everything else remaining equal, the value of the shirts increases and in all probability the price of shirts will rise as well. But what happens if the value of labor power increases because the workers—not only in the production of cotton shirts but in general—succeed through trade union organizing in increasing the moral component that is added to the value of labor power? Unlike the case with the rise in the value of cotton, this will not cause an increase in the value of the product, and in all probability it will not increase the price of shirts.
This is true because labor power—not living labor—does not, in contrast to constant capital, transfer its own value to the cotton shirt but rather replaces its own value while also producing a surplus value. Unlike the case of cotton that increased in value due to a harvest failure, the higher value of labor power means that the workers work a greater portion of the working day for themselves and a smaller portion for the capitalist and his hangers-on. All things remaining equal, this will lower the rate of surplus value and the rate of profit, but it will not raise prices.
We could perhaps ignore the above passage as some combination of typos and sloppy editing if it were not for the fact that, unlike Ricardo and Marx, Baran, Sweezy, Kalacki, and more recently Monthly Review editor John Bellamy Foster all insist that a general rise in wages causes a rise in prices. This is important because it has ramifications for Smith’s claim that the low wages of workers of the global south benefit the workers of the global north—the imperialist countries—presumably because low wages mean low commodity prices that therefore raise the living standards of workers in the global north. Bourgeois economists often make these claims, explaining that low wages in China, Vietnam, India, Bangladesh, and so on enable “us”—those of us living in the imperialist countries of the global north—to enjoy cheap electronics, clothes, footwear, and so on.
But do low wages in the global south mean low commodity prices and therefore a lower cost of living for workers in the global north, or do they rather mean a higher rate of profit for increasingly globalized capital? I will explore this question in its concrete complexities in the coming months.
Comparing the labor of workers with different skills
To compare any two things quantitatively, they must be qualitatively comparable. How do I compare my hour of labor with your hour of labor? And how do we compare an hour of labor with different degrees of skill applied to different areas of production, for example an hour of labor digging a ditch compared to an hour of labor making jewelry? Here I will follow the long tradition in economics of using ditch-digging labor as the “lowest,” most unskilled type of labor imaginable, though this is arguably unfair to people who perform this type of labor. I will make “assembly labor” an example of “average labor” and a jeweler an example of “skilled labor.”
These three types of labor are quite different, one from another, as examples of concrete labor. Ditch digging requires physical strength, assembly requires the ability to work fast in order to keep up with the line as well as a tolerance for boring work, while making jewelry requires great skill that takes many years to master. The labor of the assembler is therefore often used as a stand-in for human labor that on average every normal human being can perform with minimal training.
Attempts to define the value-creating ability of these quite different types of labor based on the expenditure of energy have failed. The ditch digger expends far more calories of energy per unit of time than a jeweler, yet a jeweler creates far more value in a given unit of time than the ditch digger.
To understand the difficulty, consider the following situation. If an industrial capitalist sends 10 ditch diggers to an assembly line, he will probably get poor results, since the ditch diggers lack the skill and training to do assembly well. The industrial capitalist would end up with far fewer commodities than normal in a given period of time and many would be defective. If he sent either ditch diggers or assemblers to replace the jeweler, he would get no products at all. So the differences between the concrete labor powers of the ditch digger, assembler and jeweler are qualitative.
Although the labor of the ditch digger, assembler and jeweler greatly differ in terms of quality, they do have one thing in common. They all belong to the logical class “human labor.” It is the logical class human labor—human labor as such—that, once embodied in a commodity, forms the social substance of value. Since human labor as a social substance is produced by human labor power—the ability to perform labor—we arrive at the logical class of simple human labor power. A worker working with an average simple labor power for let’s say an eight-hour working day will represent exactly the same quantity of value regardless of the use value it produces as long as the commodity has a use value for some people.
The labor powers of the majority of real-life workers will therefore approximate—but virtually never exactly equal—average simple labor power that in one hour by the clock will produce one hour’s worth of value. Like a bell curve, there will also be outliers. At one end there will be a few highly skilled workers such as jewelers whose hour of concrete labor will count as many hours of abstract labor, while at the other end a few workers’ hours of concrete labor will equal considerably less than one hour of abstract labor.
The highly skilled concrete labor powers represent many simple labor powers. These highly complex labor powers must always be offset by other concrete labor powers that represent fractions of average simple labor power. Here the law of averages prevails.
However, all concrete labor powers can be converted into complex (more than one) or fractional (less than one) average, simple labor power. And one simple labor power has the same value—remember, we are assuming a single unified market where the law of one price prevails for all commodities including labor power. This means that every average, simple labor will produce the same quantity of value and surplus value in a given period of time.
But how do we know that concrete types of human labor power that differ qualitatively with one another can be reduced to a common quality—simple human labor power? We know this because they are compared every day quantitatively in terms of a common substance—money.
For example, assume an hour of the concrete skilled labor of a jeweler counts for 50 hours of abstract human labor. Then the wage of the jeweler will, assuming that all prices are direct prices (the value of a sum of money material exactly equals the value of the commodity whose value the money material is measuring) will be 50 times the average money wage, while the wage of an assembler will equal the average money wage. In contrast, the wage of a ditch digger might be only 1/10th the average money wage.
Let W stand for the sum of money that is used by the industrial capitalists to purchase one hour of labor power. We will assume that the ditch digger works with 1/10th of an average labor power, the assembler works with exactly a whole labor power, while the jeweler works with 50 labor powers. The ditch digger must perform 10 hours of concrete labor to produce an hour’s worth of value; the assembler has to work only an hour to produce an hour’s worth of value; and the jeweler has to work only 1.2 minutes by the clock to produce an hour’s worth of value.
Assuming that the rate of surplus value is 100 percent, the workers work half the time for themselves and half the time for the boss. This means that the ditch digger on average produces exactly the same amount of surplus value in 10 hours of concrete labor that the assembler produces in an hour and the jeweler produces in 1.2 minutes.
It is important to realize that the differences in value that different concrete labors produce in equal periods of time does not arise due to the wage differentials. Rather, the wage differentials arise because of the difference between the value-creating powers of different concrete labor powers. We, therefore, have to distinguish between the situation where the wage differentials represent very real differences between the values of different concrete labor powers, on one hand, and where wage differentials represent the inability of some workers to obtain the full value of their labor powers due to sexism, racism, and other special circumstances, on the other hand.
Wrong views on how skilled labor produces more value than unskilled labor
Here I will deal only with the mistaken views popular among Marxists and not with
the human capital theory of the “Austrian economists.” For a critique of that theory, see here.
A popular, though in my view mistaken, theory for explaining the extra value- creating ability of skilled labor is that skilled workers possess an extra tool in the form of the skill. The supporters of this theory observe that skilled workers must spend money acquiring the extra education or training to acquire their skills. Also correctly in my opinion, the extra tool theory correctly holds that the cost of education enters into the value of the labor power of skilled workers. It takes more labor time for society to produce a skilled than an unskilled labor power. Therefore, the value and price—wage—of skilled labor must at the very least cover these educational expenses. Otherwise, nobody could afford to get the education to become a skilled worker. Up to this point, the extra tool theory is correct. But then we run into problems that, I believe, are ultimately fatal to the theory taken as a whole.
I first encountered what I call the extra tool theory of skilled labor many years ago in the work of Ernest Mandel. Mandel, if my memory is correct, attributed this theory to Austrian Marxist leader and economist Otto Bauer. I at first accepted this theory but over the years found elements in it in clear contradiction to what Marx and Engels themselves wrote. Further thinking about this question gradually convinced me that the extra tool theory of skilled labor is in basic contradiction to Marxist value theory.
A tool, let’s say a screwdriver, is a form of constant, not variable, capital. Like other forms of constant capital, the tool during its lifetime gradually passes its value on to the commodities it helps produce. Therefore, unlike variable capital, it is a form of fixed capital. More importantly, unlike variable capital (labor power that has been sold to an industrial capitalist) constant capital produces no value and therefore no surplus value. If the extra tool theory were correct, the labor power of the skilled worker would be partially a form of constant capital. The “extra tool,” or “skill,” of the skilled worker would, therefore, produce no surplus value at all.
If the extra tool theory is correct, it would mean that the labor power of the skilled worker, once purchased by the industrial capitalist, is a hybrid type of capital, partially variable—value and surplus value-producing—capital and partially constant capital that produces no value. The greater the skill—the longer the training period—of the worker, the more labor power of the skilled worker would represent constant capital and the less it would represent variable capital. This would mean that, assuming that commodities sell at their direct prices—not production prices—the rate of profit on skilled labor will be lower than the rate of profit on unskilled labor.
Another problem is the actual wage differentials between the wages of skilled and unskilled workers is simply too great to be alone explained by the transfer of the extra value added to the labor power of the skilled workers through training. Does the value that teachers add to workers’ labor power over a seven-year apprenticeship really explain the extra wage that skilled workers earn during their working lifetimes?
The skilled workers indeed need a wage that can fully cover the cost of an apprenticeship or college education, but they will then expect additional lifetime wages beyond it. If the extra wages of a skilled worker only compensated the worker for the costs of education, it simply wouldn’t be worth the effort and expense to acquire the skill. Instead, it would make more sense for a young worker to begin earning money immediately as an unskilled worker. If that were the case, there would be very few skilled workers.
How the law of value regulates the distribution of workers among various ‘skilled’ occupations
As a rule, workers are attracted to skilled trades that require extra effort and money to learn because they will ensure a higher wage income over their working lives than simply working in a “regular” job that requires only average training. This means that the labor power of skilled labor contains multiple simple labor powers. Like complex numbers contain prime numbers—numbers divisible only by themselves and one—skilled labor powers contain multiple simple labor powers. This does not mean that wage differentials at any given point in time coincide with the multiple of simple labor powers workers of different skills have to sell. This will be true only on average over a considerable number of years.
Periodic gluts and shortages of particular types of labor powers occur constantly. When a particular type of skilled labor—complex labor power—is in short supply relative to demand, many young people will attempt to enter the “hot” field. This will continue until the field becomes overcrowded and the wage falls below the value of the complex—skilled—labor power.
For example, if a particular type of complex labor power represents four abstract labor powers, perhaps at a given point of time three of these labor powers will be realized in the form of money wages. The field will then be seen to be overcrowded and young people will shun the field. In time, like is the case with other commodities, the glut of a particular type of complex labor power will be transformed into a shortage.
The wages the capitalists will offer for the particular type of skilled labor power in question will then rise above the value of the extra labor powers that this particular type of skilled labor power represents. For example, though the value of the complex labor power consists of four simple labor powers, the wage will rise to five simple labor powers. The field is again perceived as “hot” and the cycle repeats. Through this mechanism, the law of value sees to it that in the long run, skilled labor powers are produced in the proportions the capitalist buyers of skilled labor powers need and demand.
Shortages of skilled labor power at the top of the industrial cycle
This explains why there rarely is a shortage of unskilled labor power, even at the top of the industrial cycle. However, shortages of skilled labor powers always appear as the cyclical peak approaches. If a shortage of skilled labor powers failed to appear even at the top of the industrial cycle, over time the wage of the skilled labor power would fall to the average level. The supply of skilled labor powers available on the labor market would progressively disappear.
From simple labor to average simple labor, the substance of value
In order to fully grasp the value-creating nature of human labor, we have to use the method of abstraction. Here I will assume that we are dealing with a branch of capitalist industry where the direct price equals the price of production. I will assume that the branch uses only simple labor, or rather that we have already reduced complex—and fractional—labor produced by complex and fractional labor powers to simple labor. An hour of labor by the clock equals one hour of simple labor.
However, we still run into the problem that not all simple labor is equally productive. Some workers work faster than others, while some enterprises can produce more commodities per hour of labor time because they use more powerful machinery. In order to isolate the effects on the production of value and surplus value of differences in labor productivity I will have to assume that the commodities produced have exactly the same use values of the same qualities. Once we do this, our commodities are now identical in every way except for the quantity of labor that actually went into producing them.
As far as the buyers of our commodities are concerned, there are no visible differences whatsoever. We also assume that they are sold within the same market, so the law of a single price prevails. Armed with these assumptions, we can then carry out the reduction of simple labor to average simple labor and arrive at the social substance of value.
The economic models, whether of Ricardo or Marx, assume stability. They generally take a snapshot of the economy at one moment of time. But in reality, the economy, as Shaikh emphasizes, is in a state of turbulent movement. How do we make the logical transition from the assumption of stable economic relations to the turbulent and constant change that characterizes the real world?
The divisions between skilled and unskilled labor that we examined above can be assumed to show some stability over time. However, as Marx explained, the extent to which the labor performed by workers in various occupations counts as complex labor does change over time. But it is almost certainly true that throughout the lifetime of the capitalist mode of production an hour of concrete labor of a jeweler will represent more value than an hour of concrete labor of a ditch digger.
The same principle prevails in analyzing how the differential fertility of unimproved land under capitalist production gives rise to differential ground rent. Marx was well aware that the progress in agriculture can transform previously unfertile land into fertile land, while the exhaustion of agricultural land can transform previously fertile land into unfertile land. So the assumption of a stable relationship between the fertility of different agricultural lands does not hold in reality. However, in order to grasp the relationship between the fertility of different pieces of land, we have to assume a certain stability in the differentials in fertility.
But how about the differential productivity between different simple labors? Can we assume stability here, considering that the history of the capitalist mode of production has been characterized by a constant growth in the productivity of human labor?
Let’s take the example of piece work. Piece work forces workers to work up to the limits of their maximum physical ability. However, the physical abilities of individual workers to work fast is not the same. The most productive workers—those who produce more pieces per unit of time than average—work with more average simple labors than the workers who work at the average pace. Their labor powers therefore produce multiplied, or complex, labor. Under piece work, they get paid for their extra labor powers. They are not more exploited than the average worker as long as they are paid for their additional average simple labor powers.
Inevitably, according to the law of averages, other workers will be working below the average in terms of producing pieces. They will also be paid less by the clock because they are producing fewer pieces than the average worker. But they might still be paid for each hour of average simple labor power they expend. Piece work, therefore, tends to lead to a situation where workers are paid for the average simple labor power that their concrete labor power actually represents. What could be fairer?
To the extent this is true, all workers will be equally exploited, though they will produce different amounts of surplus value in a given period of time. That is, the part of the work day they work unpaid for the boss compared to the time they work for themselves will be equal among all the workers. However, piece work intensifies competition among the individual workers. As a result, the rate of surplus value will, all other things remaining equal, be higher under piece work than it will under time wages, which is why the bosses prefer piece work over time wages where possible.
The ability of workers to work fast if represented graphically will form a bell curve. Most workers will be grouped near the top of the “bell,” but there will be some outliers who can work phenomenally fast and others who work at a pace far below average. However, since the ability of humans to work at a certain speed will not change much over time, we are dealing with a stable situation.
Abandoning the assumption of stability
But to complete our analysis of value, we have to abandon our assumption of stability and enter into the world of turbulent, real competition of Anwar Shaikh—not the perfect competition and unchanging world of Leon Walras and the neoclassical school that Walras’s work spawned. What we will examine below will have great relevance not only for our analysis of imperialism but for crisis theory as well.
First, we will assume that time wages prevail. All workers are paid the same wage by the clock. We will assume an assembly line is used. This means that all workers within a given industrial capitalist enterprise at a given point in time will have the same productivity because the pace of work is determined not by outermost limits of their physical ability of the individual workers, as is the case with piece work, but by the speed of the assembly line. To hold their jobs, the individual workers must, however, be able to “keep up with the line.”
So in this case, despite their different individual abilities, the productivities of the workers on the line will be identical. The boss unable to depend on the competition between individual workers will attempt to “sweat” labor by speeding up the line. The limit to this process will be reached when it becomes impossible to find enough workers to keep the line going at the prevailing speed, or if the workers are unionized, the resistance of the union. We assume that all industrial capitalists have to pay the same wage to the assembly line workers because they are operating in the same country and therefore must hire workers from the same labor market.
The “law of one price” will, therefore, prevail, meaning that every industrial capitalist must pay the same wage per unit of time—for example, $15 an hour. In order to simplify (7), we assume that there are two methods of production available to the bosses. Method one is the traditional one that uses a lot of assembly line workers. The other method, developed only recently, replaces many of the assembly line workers with industrial robots. As a result, these industrial capitalists will produce their product with less labor.
How do we calculate the social value? We do that by dividing the total number of commodities of a given use value and quality produced in a given period time—for example, ten thousand automobiles—by the total quantity of (simple) labor used to produce them. We will assume for reasons of simplification that all new plants use the cheaper “best practice,” while older plants using the more labor-intensive traditional method will temporarily shut down and be renovated so they too use the “best practice.”
As new plants are built—and built they will be—because capitalism is a process of expanded reproduction, the social value of the commodities will fall from the individual value of commodities produced by the traditional method toward the lower individual value of commodities by the “best practice” method.
Suppose the market is booming. Demand for our commodities is so strong that capitalists using “best practice” cannot meet the demand if the market price were to fall to their individual direct price. The capitalists can just meet the demand if the commodities sell at the individual direct price of the commodities using the traditional method. Therefore, the market price will be ruled by the individual direct price based on using the traditional method of production.
The difference between the lower direct price of the capitalists using the new “best practice” and the direct price of the capitalists using the traditional method represents a super-profit made by the industrial capitalists who adopted the “best practice.” They have installed a method of production that has slashed their cost price, while their selling price remains unchanged. However, since the market price, thanks to the market boom, continues to equal the higher direct prices of the capitalists using the traditional method of production, the capitalists using the traditional method will still make average profits. As the number of new plants increase, the social value will continue to progressively drop towards the lower individual value of the new plants using “best practice.” The gap between the falling social direct price and the market price will continue to grow.
The workers in the plants using “best practice” will be working with extra average simple labor powers and therefore will produce more surplus value. However, they will not be paid for the extra labor powers. The workers in the plants working with the traditional method will now be working with only fractional labor powers but will receive wages in excess of the actual value of their now fractional labor power. This is only possible, however, because the market price increasingly exceeds the social direct price.
But unless there is a rent factor—such as a shortage of land, and we assume here that there isn’t—the situation described above is extremely unstable and cannot last. The reason is that crises of overproduction—both partial and general—are inevitable for all the reasons we have explored throughout this blog.
During every boom, of course, there are always capitalist optimists who proclaim that this time it is different. We are now in a “new era” and “old laws” do not apply. But they are always wrong. Inevitably, the point will be reached that the capitalists who are applying “best practice” will be able to fully meet demand at their individual direct prices—and for a time they will able to flood the market to the extent that they will not be able to sell their commodities except at prices below their individual values.
After a “turbulent” movement of crisis, the market stabilizes. The market prices will now coincide with the direct individual prices of the capitalists using the best-practice method. There is no longer any room on the market for the capitalists using the traditional method and they have to shut down their plants. The former “best practice” capitalists will now become the only “practice.” With the closing down of the last plants using the traditional method, the individual value of the commodities produced by plants using the former “best practice”—and now only practice—will coincide with the new lower social value of the commodities.
This means that every worker in the industry—under our highly simplified assumptions—will be producing in one hour of labor exactly one hour’s worth of social value and exactly the same surplus value. All our capitalists will, therefore, make the rate of profit, their profits being exactly proportional to the size of their total capital in a given period of time.
This stable situation will last as long as there isn’t a new innovation that introduces a new cheaper “best practice” that once again leads to the differentiation of the social value of commodities into different individual values. As soon as this happens, the situation will again become increasingly unstable until a new crisis once again breaks out and brings a period of temporary stability once more. This “Shaikhian” movement of “real competition” unfolds as new technological innovations cheapen production and destroy the existing equilibrium between social and individual values and social values and prices until a new crisis once again restores the proper relationship between value and the form of value—price.
We have now arrived at average simple labor, the social substance of value. Average simple labor is produced by average simple labor powers that all concrete labor powers can be reduced to. There is no longer any difference as regards the quality of labor powers the labor they perform, nor their differing productivities. Simple average labor powers produce the same value and the same surplus value in equals periods of time.
Next: The world market, the nation-state, national value and global value.
1 On the eve of World War I, there were essentially two theories of imperialism competing with one another within the Second International. One theory viewed imperialism as arising from the scramble for markets located in the capitalistically underdeveloped agrarian regions—what we now call “the global south”—between the developed industrial countries. In order to secure access to these markets, the developed industrial—imperialist—countries strove to annex the agrarian countries to their colonial empires.
This theory of imperialism was developed to its highest point in Rosa Luxemburg’s “The Accumulation of Capital,” first published in 1913. According to Luxemburg, surplus value cannot be realized in a pure capitalist society made up only of workers who produce surplus value and the capitalists, landlords, and their hangers-on. In order to realize surplus value, Luxemburg believed, industrial capitalists must sell to non-capitalist, simple commodity producers, who in practice are mostly peasants.
Eventually, the conversion of the great majority of peasants of the global south into wage workers must lead to the demise of capitalism both in the old capitalist countries of Europe and the United States and the global south itself. Therefore, the imperialist drive of the highly industrialized countries of the “global north” to colonize the countries of the global south represents an historically doomed attempt of capitalism to stave off the inevitable economic collapse caused by the inability to realize surplus value. This theory of imperialism can be found in a less developed form in the works of Karl Kautsky and other Second International writers.
Lenin rejected Luxemburg’s claim that surplus value could not be realized in a pure capitalist society. On the contrary, Lenin believed that surplus value could be fully realized in a pure capitalist society made up only of industrial capitalists and their hangers-on and industrial workers producing surplus value as long as the proportions of production—which would include the branch producing money material—are correct. In contrast to Luxemburg, Lenin saw the centralization of capital leading to monopoly as the defining feature of imperialism. Therefore, in Lenin’s view it is the growth of monopoly that makes world socialist revolution inevitable.
Lenin’s theory of imperialism dominated the Third International (1919-1943) and the post-Third International world Communist Movement (1943-1991) as well as the Trotskyist movement and their present-day successors. Baran and Sweezy’s “Monopoly Capital” also put monopoly at the center of their analysis and therefore are, broadly speaking, in the Leninist as opposed to the Luxemburgist tradition. Not all Marxists today support the Leninist theory of imperialism. One is Anwar Shaikh, who rejects the claim that there is a specifically monopolistic/imperialist phase of capitalism. (back)
2 The theory that “modern money” in the final analysis must represent a commodity—gold bullion—is of course hotly disputed by most—though not all—present-day Marxists. However, this was the position of Marx and more importantly, as this blog has demonstrated, it is true in reality. The development of capitalism over the last 40 years cannot be explained without the assumption that “modern money” ultimately represents gold bullion in circulation. (back)
3 Unlike Marx, Keynes (1883-1946) did his work after the so-called marginalist revolution in (bourgeois) economics. Indeed, his teacher Alfred Marshall was one of the key leaders (1842-1924) of the marginalist revolution. So in this respect, Keynes’ knowledge of the history of economic thought exceeded that of Marx. Yet he still couldn’t find any economist other than Marx to describe capital as the process of using money to make still more money! (back)
4 Even if machines, factory buildings, and farms are fully utilized, it does not mean that all people willing and able to work will actually have jobs. (back)
5 Marx and Lenin divided communism into two broad stages. In the lower stage—after a transitional stage between capitalism and communism—private property in the means of production, including land, and the division of society into classes has been replaced by the ownership by society—the associated producers—in the means of production. However, people—all normal people beyond infancy are now workers, so there is no class of workers—are paid, with some modifications, according to the quantity of labor they perform. In “State and Revolution,” and other writings, Lenin sometimes called this lower stage of communism “socialism.”
In the higher stage of communism, the productive forces will have reached such a high state of development that people for the first time will be able to work according to their abilities and will receive according to their needs. Monopoly capitalism marks the beginning of the transition between capitalism based on free competition and the common ownership of the means of production by the associated producers. However the transition from capitalism to the lower phase of communism can only be completed if the working class wins political power—called by Marx the dictatorship of the proletariat. Otherwise, modern society will, in the words of Marx and Engels in “The Communist Manifesto” end in the common ruin of the contending of classes, the capitalists and working class. (back)
6 The oak chests (barrels made of oak used for aging wine) are fixed capital and transfer over the production period their value to the wine. However, the extra value added to the fine wine in the making accounts for a small portion of the difference in price between ordinary wine and fine wine. (back)
7 We can make our two-method abstraction because it is contained within a far more complex reality. By reducing the available methods of production to two and only two, we can analyze the essence of the process that occurs in a far more complex way in the real world. (back)