Analysis of value at increasing levels of complexity includes its relationship with class and exploitation (see chapters 3 and 4), and the expression of value as price (explained below).
Commodities are produced by a co-ordinated set of concrete labours usually performed at the farm, factory or office. These labours are performed with varying degrees of efficiency, diverse skills and distinct technologies, and at different points in time. In spite of these differences, all commodities of the same kind have the same value, which appears through their price. Output values cannot be identified at the firm or sectoral levels for two reasons: first, value creation is a social process determined by the predominance of specific relations of production, in which case individual production has meaning and significance only as part of the whole; second, values and prices are determined by the abstract labour time necessary to reproduce each type of commodity, including its inputs. In sum, the value form of the product is due to the social division of labour, values are quantitatively determined by the collective effort and the productive potential of society, and prices are determined for the mass of commodities rather than good by good or at the level of the firm or sector in isolation.
The equalisation of labour and the determination of values and prices are the outcomes of a real process in three stages: first, individual labours are normalised across those producing the same kind of commodity; second, they are synchronised across those that have produced the same kind of commodity in the past or with distinct technologies; and, third, they are homogenised across the other types of labour as the commodity is equalised with ideal money.1
This chapter has four sections. The first explains the normalisation of labour, including the reduction of complex into simple labour and competition within branches. The second analyses the synchronisation of labour, including the determination of reproduction values, value transfers and the impact of technical change. The third explains the homogenisation of labour, including the determination of market prices when demand and supply fail to match. The fourth section summarises this chapter.
Capitalist production is mass production in two senses. First, the output is generally massive. Even when a bewildering variety of products is available, often made to order, commodity production in its broadest sense—including finance, accounting, design, planning, logistics, hiring, training and managing the workforce, manufacturing, marketing, distribution, and so on—is a large-scale and continuous operation managed meticulously and professionally, often by large organisations. Each stage of this process is closely intertwined with the others, and with production carried out elsewhere.
Second, capitalist production employs a massive number of workers. Even when individual firms are small, or downsize, or spin-off independent companies, the production process remains integrated vertically into tightly-knit systems of provision or commodity chains, which employ large numbers of workers in order to produce specific commodities, including food, clothes, autos, TV shows and many others.2 In each system of provision, the concrete labour of individual workers exists only as part of the whole, and it is performed according to the rhythm dictated by management and machinery (limited by collective resistance on the shopfloor). Therefore, wage labour performed under the control of capital is, typically, average labour:
Capitalist production only really begins … when each individual capital simultaneously employs a comparatively large number of workers, and when, as a result, the labour-process is carried on an extensive scale, and yields relatively large quantities of products … This is true both historically and conceptually … The labour objectified in value is labour of an average social quality, it is an expression of average labour-power … The law of valorization therefore comes fully into its own for the individual producer only when he produces as a capitalist and employs a number of workers simultaneously, i.e. when from the outset he sets in motion labour of a socially average character.3
This averaging out of labour in production, rather than on the market as is the case under simple commodity production (see section 2.2.1), is due to the organised, integrated and mechanised character of capitalist production:
each worker, or group of workers, prepares the raw material for another worker or group of workers. The result of the labour of the one is the starting-point for the labour of the other. One worker therefore directly sets the other to work … [T]he direct mutual interdependence of the different pieces of work, and therefore of the workers, compels each one of them to spend on his work no more than the necessary time. This creates a continuity, a uniformity, a regularity, order, and even an intensity of labour, quite different from that found in an independent handicraft or even in simple co-operation. The rule that the labour-time expended on a commodity should not exceed the amount socially necessary to produce it is one that appears, in the production of commodities in general, to be enforced from outside by the action of competition: to put it superficially, each single producer is obliged to sell his commodity at its market price. In manufacture, on the contrary, the provision of a given quantity of the product in a given period of labour is a technical law of the process of production itself.4
Mass production always averages out labour. Whereas this is the exception under pre-capitalist modes of production, characterised by fragmentation and small-scale production, it is generalised under capitalism. Moreover, only under capitalism do firms compete with others producing the same goods across a range of markets, which forces them to impose strict production norms and innovate (see section 5.2) in order to survive.
These pressures arising from production and exchange normalise wage labour performed for capital within production. Normalisation of labour is a double process. On the one hand, it is the averaging out of labour productivity within each firm and sector, described above.5 On the other hand, normalisation is the subsumption of the labours performed in each firm and sector under the social process of production of each type of commodity.
Recognition of the fact that labours are normalised across those producing the same use value has three important consequences for value analysis. First, the labour time that determines value is socially, rather than individually, determined, and commodity values express the abstract labour time necessary to produce each kind of commodity, rather than the concrete labour time required by any individual worker or firm to produce a sample of the object.6
Second, commodities with identical use values have the same value whatever their individual conditions of production (see section 5.2).7 Third, during production both labour and the inputs are transformed into the output. Therefore, normalisation involves not only those labours performed in the last stage of production (e.g., assembly, packing or transport) but also the labours that produced the inputs used up. Consequently, commodity values are partly created in their own production, and partly determined by the value of the socially necessary means of production.8
Suppose that the workers are identical and that the firms operating in one branch of industry are also identical, but labour is more intense in one firm than elsewhere. This difference can be analysed at two levels. From the point of view of profitability, the firm with more intensive labour is more profitable because its unit labour costs are lower than its rivals’. From the point of view of value production, this profitability difference is due to the greater value-creating capacity of intense labour:
Increased intensity of labour means increased expenditure of labour in a given time. Hence a working day of more intense labour is embodied in more products than is one of less intense labour, the length of each working day being the same … Here we have an increase in the number of products unaccompanied by a fall in their individual prices: as their number increases, so does the sum of their prices … The value created varies with the extent to which the intensity of labour diverges from its normal social level of intensity.9
This conclusion holds more generally: differences or changes in the intensity or complexity of labour, and differences or changes in the level of education and training of the workforce, have identical effects on value production:
the value of a commodity represents human labour pure and simple, the expenditure of human labour in general … More complex labour counts only as intensified, or rather multiplied simple labour, so that a smaller quantity of complex labour is considered equal to a larger quantity of simple labour. Experience shows that this reduction is constantly being made. A commodity may be the outcome of the most complicated labour, but through its value it is posited as equal to the product of simple labour, hence it represents only a specific quantity of simple labour.10
In sum, all else constant, more intense or complex labour, and better educated and trained workers, generally create more use values and, consequently, more value per hour. The quantitative difference depends upon the relationship between individual and social productivity in each branch, that is known precisely only ex post. More generally, there is no necessary or systematic relationship between these variables and possible differences or changes in wages, the value of labour power or the rate of exploitation (similarly to the absence of any fixed relationship between the value of labour power and the value produced by labour; see section 4.1).
Marx’s conclusion has been criticised because the reduction coefficients (the ratio between the value-productivity of skilled and simple labour) are not specified endogenously.11 Two alternative solutions have been proposed for this perceived problem, reduction by wages or by the indirect labour stored up in the trained worker.12 Reduction by wages presumes that there is a fixed relationship between the productivity of trained workers and their monetary rewards or, alternatively, that the individual rates of exploitation are identical. However, there is no justification for these assumptions, for three reasons. First, labour power is not a commodity produced for sale by profit-maximising agents; alternatively, employment patterns are not primarily determined by the rate of exploitation. Second, wage discrepancies across the working class are only partly due to differences in the value-creating capacity of individual workers; to a large extent, they derive from custom, convention and deliberate attempts by management to divide the workers. Third, even if this were not the case, it is generally impossible to assess the contribution of individual workers in large-scale mechanised production.13
Reduction by the labour stored up assumes that the expenditure of skilled labour power counts as the simultaneous expenditure of the skilled worker’s ‘original’ simple labour, plus a share of the worker’s own past simple labour learning the skill, and a share of the direct and indirect labour of others who contributed to the training process. This view is unsustainable, because it conflates education and training with the storing up of labour in machinery and other elements of constant capital (see section 5.2); in other words, it explains the value-creating capacity of skilled labour in a different way than the value-creating capacity of simple labour. This approach presumes that, in contrast with simple labour, skilled labour has no value-creating capacity; its expenditure is merely a regurgitation of past labour, with no allowance for the possibility that training may save labour.14 In sum, and reiterating,
There is absolutely no suggestion … that the increased value-creating capacity of an hour of more intense labor bears any relationship to the amount of additional labor required to produce an hour’s worth of labor-power so consumed … [T]he augmented value-creating capacity of skilled labour exists for the same reason. Skilled labour creates more value in equal periods of time than does unskilled labour because it is physically more productive, and there is no reason to suppose that any determinate relationship exists between this increased physical productivity and the physical productivity of the extra labor required to produce the skill. Hence, there is no determinate relationship between the increased value-creating capacity of skilled labour and the value equivalent of this training labor.15
Intra-sectoral competition, between firms producing the same use values, compels each firm to minimise costs in order to maximise its profit rate. Suppose that the workers are identical and that the firms producing a given commodity are also identical, but one of them produces more with the same labour input because its shopfloor design is more efficient. This simple example shows that improved technology cuts unit costs or, more precisely, increases the value-productivity of otherwise identical labour.16 More generally, greater labour intensity increases the output (and the total value produced) because more simple labour is condensed in the same concrete labour time; however, it does not affect the unit value of the product (see section 5.1.1). In contrast, technical improvements reduce the quantity of simple labour necessary to produce a unit of the product and, consequently, tend to lower its value:
Production for value and surplus-value involves a constantly operating tendency … to reduce the labour-time needed to produce a commodity, i.e. to reduce the commodity’s value, below the existing social average at any given time. The pressure to reduce the cost price to its minimum becomes the strongest lever for raising the social productivity of labour, though this appears here simply as a constant increase in the productivity of capital.17
Competition within branches compels firms to introduce new technologies in order to cut costs and, in so doing, increase the value-productivity of their employees.18 These technical innovations will be copied or emulated elsewhere, eroding the advantage of the innovating firm while preserving the incentives for further technical progress across the economy. At the level of capital in general, this process reduces the value of all goods, including those consumed by the workers and, all else constant, it permits the extraction of relative surplus value (see section 4.1).19
The most important element in intra-sectoral competition is mechanisation, or the introduction of new technologies and new machines. For capital, mechanisation is a form of increasing profitability as well as a tool of social control. The process of mechanisation has three principal aspects. First, as was shown above, mechanisation increases the value-productivity of labour and the profit rate of the innovating capitals. Second, mechanisation facilitates the extraction of relative surplus value:
Like every other instrument for increasing the productivity of labour, machinery is intended to cheapen commodities and, by shortening the part of the working day in which the worker works for himself, to lengthen the other part, the part he gives to the capitalist for nothing. The machine is a means for producing surplus-value.20
Third, mechanisation is a tool of capitalist control. It reduces commodity values and allows increasingly sophisticated goods to be produced with greater investment, which can reduce the scope for competition by independent producers and their ability to survive without selling their labour power (or as subordinated contractors). Moreover, mechanisation dilutes the workers’ individuality through collective labour:
Manufacture … has the form of a productive mechanism whose component parts are human beings. It represents a directly social form of production in the sense that the worker can work only as part of the whole. If the need for the workers to sell their labor power had initially been grounded in their propertylessness … it now becomes grounded in the technical nature of the labor process itself. This “technical” nature is intrinsically capitalist.21
More generally, underneath their seemingly neutral, scientific and productivist guise, machines are despotic dictators of the rhythm and content of the labour process. Historically, countless disputes over pay and working conditions have been either triggered or resolved by mechanisation: 22
technology is not merely control over Nature, it also provides control over Man. The division of labor and the factory system provided ways of controlling the pace and quality of work, as do modern assembly-line methods. Technology provides for social control and discipline in the workplace. So the development of technology is not socially neutral; it will reflect class interests and sociopolitical pressures.23
Machines have been often deployed deliberately in order to wrestle both the knowledge24 and the control25 of production away from the workers, sometimes even at the expense of profitability:26
machinery does not just act as a superior competitor to the worker, always on the point of making him superfluous. It is a power inimical to him, and capital proclaims this fact loudly and deliberately, as well as making use of it. It is the most powerful weapon for suppressing strikes, those periodic revolts of the working class against the autocracy of capital … It would be possible to write a whole history of the inventions made since 1830 for the sole purpose of providing capital with weapons against working-class revolt.27
Mechanisation is closely related with deskilling. Deskilling is a two-fold process. On the one hand, deskilling is a direct result of mechanisation. It was shown above that mechanisation changes work patterns and job descriptions, usually leading to their fragmentation into simpler operations, that are easier to measure and control (detail work):
in place of the hierarchy of specialized workers that characterizes manufacture, there appears, in the automatic factory, a tendency to equalize and reduce to an identical level every kind of work that has to be done by the minders of the machines.28
On the other hand, deskilling is the transformation of the workers’ abilities and experience into commodities. This process includes the codification of talents previously controlled by individual workers and their reproduction across the working class through market mechanisms and other social institutions, especially education and training.29 The appropriation by capital of the talents and abilities of individual workers increases their versatility, or the employability of the class across the economy according to capital’s demand. One can, therefore, speak both of deskilled jobs, that do not depend upon talents or abilities monopolised by individual workers, and of de-skilled workers, whose talents and abilities can be reproduced commercially:
the flexibility of capital, its indifference to the particular forms of the labour process it acquires, is extended by capital to the worker. He is required to be capable of the same flexibility of versatility in the way he applies his labour-power … The more highly capitalist production is developed in a country, the greater the demand will be for versatility in labour-power, the more indifferent the worker will be towards the specific content of his work and the more fluid will be the movements of capital from one sphere of production to the next.30
The interaction between these two aspects of deskilling implies that capital does not tend to transform talented craft workers into brutes who can perform only repetitive elementary tasks in the production line, as Charles Chaplin’s character famously did in the film Modern Times. Even though technical change is usually associated with unemployment and changes in job descriptions, the remaining workers need to be trained in order to perform different tasks and operate more complex machines.31 Critically, however, the training required for optimum worker performance in unskilled jobs can be provided as and when required by capital. By the same token, unskilled workers can be readily hired when their contribution is needed, and dismissed when they are no longer necessary:
Deskilling is inherent in the capitalist labour process because capital must aim at having labour functions that are calculable, standardised routines; because this labour must be performed at the maximum speed and with the minimum of ‘porosity’; and because capital wants labour which is cheap and easily replaceable.32
Deskilling, versatility, and the decomposition of tasks into detail work, have two important consequences. First, they increase worker alienation, because ‘the object is no longer a product in direct reference to the individual subject of labour, but only in relation to the individual capital’.33 Second, they increase capitalist control over the labour process, because of mechanisation and the greater depth, flexibility and integration of the labour markets.
These are important aspects of the transformation of goods, services, assets, technologies and social relations into commodities. This process results from, and reinforces, capitalism and, more specifically, capitalist control of the workers. Control structures include, directly, foremen, managers and consultants and, at a further remove, financial institutions and the stock market. Capitalist control and competition are twin forces that normalise the value-producing capacity of the workers, and subject both the output and the labour process to social determinations.
The simultaneous sale, at the same price, of commodities produced in different moments shows that individual concrete labours are synchronised across those that have produced the same kind of commodity at other times, or with distinct technologies. Because labours are normalised and synchronised, all commodities of a kind have the same value, regardless of how, when and by whom they are produced. Normalisation explains why the labour time necessary to produce a type of commodity is socially determined, and includes that necessary to produce the inputs (see section 5.1). Synchronisation implies that this labour time is indistinguishable from and, therefore, is equivalent to living labour:
All the labour contained in the yarn is past labour; and it is a matter of no importance that the labour expended to produce its constituent elements lies further back in the past than the labour expended on the final process, the spinning. The former stands, as it were, in the pluperfect, the latter in the perfect tense, but this does not matter. If a definite quantity of labour, say thirty days, is needed to build a house, the total amount of labour incorporated in the house is not altered by the fact that the work of the last day was done twenty-nine days later than that of the first. Therefore the labour contained in the raw material and instruments of labour can be treated just as if it were labour expended in an earlier stage of the spinning process, before the labour finally added in the form of actual spinning.34
The equivalence between labours producing the same commodities at different points in time or with distinct technologies is due to the fact that value is a social relation established by, and reproduced through, capitalist production, rather than a substance ahistorically embodied in the commodities by concrete labour (see section 2.1). The social reality of value implies that only living labour creates value or, alternatively, that Marx’s value theory is based upon social reproduction costs. More specifically, values are determined by the current ability of society to reproduce each kind of commodity, or the reproduction socially necessary labour time (RSNLT). Values are not set in stone when the commodities are produced. Rather, they are socially determined continuously, and they can shift because of technical change anywhere in the economy:
The value of any commodity … is determined not by the necessary labour time that it itself contains, but by the socially necessary labour-time required for its reproduction. This reproduction may differ from the conditions of its original production by taking place under easier or more difficult circumstances. If the changed circumstances mean that twice as much time, or alternatively only half as much, is required for the same physical capital to be reproduced, then given an unchanged value of money, this capital, if it was previously worth £100, would now be worth £200, or alternatively £50.35
The value of labour power provides the clearest example of reproduction SNLT. It was shown in section 4.2 that the value of labour power is determined by the workers’ reproduction needs, rather than the concrete labour time embodied in the workers or in the goods that they consume, or have consumed in the past:
When Adam Smith is examining the “natural rate” of wages or the “natural price” of wages, what guides his investigation? The natural price of the means of subsistence required for the reproduction of labour-power. But by what does he determine the natural price of these means of subsistence? In so far as he determines it at all, he comes back to the correct determination of value, namely, the labour-time required for the production of these means of subsistence.36
Carefully sifting through Marx’s works one can find passages where he seems to defend another view of value: for example, that the value of the inputs is embodied in the output and carried over through time. This has led some to defend distinct interpretations of value theory (see section 2.1), and others to complain of inconsistency.37 However, these alleged textual discrepancies are often cited out of context, and they can be explained by the age of the texts (some older texts can seem closer to the embodied labour view), their level of abstraction (the more abstract they are, the more value resembles embodied labour) and the context of the analysis (for example, where Marx contrasts constant and variable capital).38
Commodity values have two parts: first, the abstract labour necessary to transform the inputs into the output, determined by RSNLT through the normalisation and synchronisation of labour (see above); second, the similarly determined value transferred from the inputs. The transfer of input values is a real process with two aspects. On the one hand, living labour transforms the inputs into the output; this is the basis of the normalisation of labour.39 On the other hand, value expresses the conditions of social reproduction, including the ability of society to re-start production in the next period; this is the basis of synchronisation. The transfer of input values includes the circulating constant capital used up, and the physical and technical (‘moral’) depreciation of the fixed capital.40 Let us deal with each of them in turn.
The value transferred by the circulating constant capital is determined, as was explained above, by the abstract labour time currently necessary to produce the inputs, while the socially necessary inputs are determined by the dominant technique of production of the output:
The values of the means of production … (the cotton and the spindle) are therefore constituent parts of the value of the yarn … Two conditions must nevertheless be fulfilled. First, the cotton and spindle must genuinely have served to produce a use-value; they must in the present case become yarn … Secondly, the labour-time expended must not exceed what is necessary under the given social conditions of production. Therefore, if no more than 1 lb. of cotton is needed to spin 1 lb. of yarn, no more than this weight of cotton may be consumed in the production of 1 lb. of yarn. The same is true of the spindle. If the capitalist has a foible for using golden spindles instead of steel ones, the only labour that counts for anything in the value of the yarn remains that which would be required to produce a steel spindle, because no more is necessary under the given social conditions.41
Consequently, and somewhat counter-intuitively, the original value of the inputs used up, and the money-capital spent buying them, are irrelevant for the determination of the output value:
the values of the material and means of labour only re-appear in the product of the labour process to the extent that they were preposited to the latter as values, i.e. they were values before they entered into the process. Their value is equal to the … labour time necessary to produce them under given general social conditions of production. If later on more or less labour time were to be required to manufacture these particular use values … their value would have risen in the first case and fallen in the second … Hence although they entered the labour process with a definite value, they may come out of it with a value that is larger or smaller … These changes in their value, however, always arise from changes in the productivity of the labour of which they are the products, and have nothing to do with the labour process into which they enter as finished products with a given value.42
It is similar with fixed capital. To the extent that production physically consumes the elements of fixed capital, value is added to the output such that when the machines are finally scrapped (or when new tools or buildings are necessary), enough money is available for their replacement.43
Technical change in the production of the elements of fixed capital, e.g., machines, brings into existence a new generation of machines that is, in general, cheaper to run per unit of output. When new machines are introduced, the value transferred by the old machines (and the unit value of the output) declines.44 Two important implications follow. First, technical change in different sectors of the economy can shift the value of the elements of fixed capital suddenly and unpredictably:
According to simple value theory, capital goods unrealistically depreciate according to predetermined patterns just as they do in neoclassical production theory. Once we go beyond the analysis of semistatic, expanded reproduction, we require knowledge about future economic conditions before we can calculate the amount of abstract labour embodied in a commodity. For example, if unpredictable technical change can make a tool obsolete in the near future, how do we develop an appropriate rule to allocate the movement of value from the tool to the final product?45
These capital losses are potentially large, and they may be distributed unevenly because of the distinct technologies employed by each firm.46 Firms may bear these costs in different ways, depending on their choices and relationship with the financial markets and the accounting conventions, and the costs may even be ignored temporarily. However, they cannot be avoided indefinitely because discrepancies between the technologies employed in each firm and the socially dominant techniques affect their profitability:
When large divergences [between prices and reproduction values] become typical throughout the economy, the price system will become increasingly incapable of coordinating the economy. Malinvestment will become common … Eventually, forces of competition will compel prices to fall in line with reproduction values … Marx repeatedly explained how, over and above changes in reproduction values, value can appear to take on a more or less independent existence until a crisis brings values back in line with reproduction values … [I]n a real economy, actual prices tend to drift away from underlying labor values. As the linkage between prices and values becomes looser, the price system gives increasingly misleading signals, making speculation more profitable than earning profits by producing goods and services for the market.47
Second, the possibility of technical change introduces an unavoidable indeterminacy in the output values. This indeterminacy is due to the unknowable ‘true’ value transferred by the fixed capital, which depends upon the implications of future technical change for the current value of the machines. Moreover, the potentially different ways in which technical depreciation is incorporated by each firm (in spite of the uniformity of output values), and the impact of the bursts of spending that accompany the replacement of fixed capital, open the possibility of bankruptcy and financial crisis: 48
Reproduction costs shift in unpredictable patterns. Because we cannot predict what future technologies will be available at any given time in the future, we have no way of knowing in advance how long a particular capital good will be used before it will be replaced … We cannot calculate the values of goods produced today, because knowing the appropriate values of the constant capital being transferred today is impossible without advanced knowledge of future reproduction values … Alternatively, we could calculate the value of goods based on capitalists’ estimates of future depreciation patterns. Once we embark on the path of taking subjective estimates of future depreciation into consideration, we open a new can of worms … To begin with, we have no way of knowing the capitalists’ subjective opinions. In addition, Marx’s assertion about bankruptcies suggests that these subjective opinions are grossly mistaken.49
Uncertainty with respect to the output values has a knock-on effect on the calculation of surplus value, the residual left after the reproduction costs are subtracted from the output value and, consequently, upon the distribution of surplus value as profit, interest and rent. These difficulties are due to real contradictions in the process of economic reproduction, and they do not affect the meaning and significance of the concept of surplus value or the theoretical stature of value. However, they need to be accommodated into an analytical framework that is sufficiently flexible to allow them room to move, yet sufficiently robust to represent the structures of determination of reality, including the equivalence between labours performed in competing firms within each sector (normalisation), and in different firms across time or in firms employing distinct technologies (synchronisation).
Normalised and synchronised labours in distinct sectors of the economy generally create different quantities of value in a given time, for example in window cleaning and computer programming. The homogenisation of labour translates the different value-productivities of normalised and synchronised labour into distinct quantities of abstract labour (RSNLT).50 Labours are homogenised as commodities receive a price, or when money fulfills the function of measure of value. At this level of analysis, the law of value ensures that commodity prices correspond to their RSNLT (see section 4.1).
Homogenisation has three important implications. First, value cannot appear directly as a quantity of labour-hours; it appears only as price (see sections 8.1 and 8.2).51 In other words, the value-productivity of labours performed in distinct firms or sectors is assessed only through the (money-) value added per hour. Second, the values and prices of all commodities are determined simultaneously (see section 5.2). Third, Marx’s statement that money is ‘the direct incarnation of all human labour’,52 or immediately social labour, implies that the production of money is distinctive because in this sector labour is not homogenised. Rather, the value of money is the pivot of the homogenisation of labours performed in the other sectors, and it provides the benchmark for the formation of prices.
Although homogenisation is conceptually clear, the assessment of the value produced is uncertain because prices are affected by a wide range of variables at distinct levels of complexity. For example, price reductions may be due to technical progress, the possibility of capital migration (see chapter 7), excess supply, industrial, financial, tax, trade or exchange rate policies, and other variables:
The magnitude of the value of a commodity … expresses a necessary relation to social labour-time that is inherent in the process by which value is created. With the transformation of the magnitude of value into the price this necessary relation … may express both the magnitude of value of the commodity and the greater or lesser quantity of money for which it can be sold under given circumstances. The possibility, therefore, of a quantitative incongruity between price and magnitude of value … is inherent in the price-form itself. This is not a defect, but, on the contrary, it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities.53
For example, let us follow Marx’s analysis of differences between supply and demand. For simplicity, suppose that the workers are identical and that the firms producing the commodity (say, linen) are also identical. Even under these circumstances, the market price of linen may be different from the direct expression of its value in terms of money. This can happen if, for example, too large or too small a share of the social labour is applied in the production of linen, given the social need for this use value:
Let us suppose … that every piece of linen on the market contains nothing but socially necessary labour-time. In spite of this, all these pieces taken as a whole may contain superfluously expended labour-time. If the market cannot stomach the whole quantity at the normal price of 2 shillings a yard, this proves that too great a portion of the total social labour-time has been expended in the form of weaving. The effect is the same as if each individual weaver had expended more labour-time on his particular product than was socially necessary. As the German proverb has it: caught together, hung together. All the linen on the market counts as one single article of commerce, and each piece of linen is only an aliquot part of it.54
Excess supply does not imply that the commodity has lost part of its use value, that the unsold items have lost their entire use value, or that the value of each commodity has shrunk, as if value were determined by price rather than the converse (see section 2.2.1). Excess supply merely modifies the expression of value as price; it contracts the total price of this commodity vis-à-vis its total value (money hoards, velocity changes and credit adjust the quantity of circulating money to the demand for the product, see section 8.1):
if the commodity in question is produced on a scale that exceeds the social need at the time, a part of the society’s labour-time is wasted, and the mass of commodities in question then represents on the market a much smaller quantity of social labour than it actually contains … These commodities must therefore be got rid of at less than their market value, and a portion of them may even be completely unsaleable.55
The products of capital are generally commodities, and they have both value and use value (see section 3.1). Overinvestment, excess capacity and the accumulation of inventories and, consequently, low profitability and the devaluation of capital show that too much capital and labour have been allocated to this sector, relative to the social need; in other words, part of this labour was not socially necessary from the point of view of exchange. However, this does not affect either the concept of socially necessary labour in production, or the fact of exploitation:
The total mass of commodities, the total product, must be sold … If this does not happen, or happens only partly, or only at prices that are less than the price of production, then although the worker is certainly exploited, his exploitation is not realized as such for the capitalist … indeed, it may even mean a partial or complete loss of his capital. The conditions for immediate exploitation and for the realization of that exploitation are not identical. Not only are they separate in time and space, they are also separate in theory. The former is restricted only by the society’s productive forces, the latter by the proportionality between the different branches of production and by the society’s power of consumption.56
The impact of economic crises is very similar. Crises may lead to market contractions and price crashes. In this case, previously created value may be redistributed or destroyed:
When speaking of the destruction of capital through crises, one must distinguish between two factors … [Firstly, in] so far as the reproduction process is checked and the labour-process is restricted or in some instances is completely stopped, real capital is destroyed … Secondly, however, the destruction of capital through crises means the depreciation of values which prevents them from later renewing their reproduction process as capital on the same scale. This is the ruinous effect of the fall in the prices of commodities. It does not cause the destruction of any use-values. What one loses, the other gains … If the value of the commodities from whose sale a capitalist reproduces his capital was equal to £12,000, or which say £2,000 were profit, and their price falls to £6,000, then the capitalist … [cannot] restart his business on the former scale … In this way, £6,000 has been destroyed, although the buyer of these commodities, because he has acquired them at half their [price of production], can go ahead very well once business livens up again, and may even have made a profit.57
Value determination through RSNLT and its expression as price through normalisation, and the possibility of differences between value production and realisation because of the misallocation of social labour or economic crises, belong to distinct levels of analysis. The latter is more complex, because it includes not only the production conditions, but also the circumstances of exchange, the distribution of labour and the possibility of crisis. More generally, firms whose profit rates are lower than the average are always penalised. Within each branch, inefficient firms produce less value than their competitors, and may go bankrupt or become the target of takeover bids. These pressures can become stronger if the sector produces in excess of demand, which depresses the profit rate of all firms. Differences between individual and sectoral profit rates vis-à-vis the average are the capitalist mechanism of reallocation of labour across the economy and, simultaneously, the main lever of technical change.
Abstract labour, value and price are central concepts in Marx’s analysis of the social form of work and the mode of exploitation under capitalism. These concepts express the dominant social relations of production, and they can be viewed at distinct levels. At a highly abstract level, value is a social relation that derives from the mode of production; therefore, labour performed within the relations of production typical of capitalism produces value regardless of the circumstances in exchange or distribution. The quantity of value produced is determined by RSNLT, and it appears initially as ‘value’, ‘direct’ or ‘simple’ price.58
The relationship between value and price can be analysed more concretely, but there is often a trade-off between conceptual detail and quantitative determinacy. For example, the transfer of the value of the means of production introduces a quantitative indeterminacy in the output value and, correspondingly, arbitrariness in the price level, because the rate of technical depreciation of the fixed capital is unknowable. By the same token, price can be seen as the mode of existence of value, as the condition of supply, or as the money that can be commanded on sale, which are, prima facie, unrelated to the mode of labour. In addition to these difficulties, discrepancies between supply and demand and economic crises blur the relationship between values and prices even further. In sum, shifts in the level of analysis modify the relationship between value and price and, therefore, the homogenisation of labour. In contrast, normalisation and synchronisation remain unaffected, because they are determined in production.
These limitations show that attempts to calculate values independently of prices through estimates of the vector of abstract labour are limited both conceptually and empirically, because they presume that value can appear in two different ways, both directly (as if it could be measured by concrete labour time) and through price. Simply put, the value analysis developed in this chapter does not allow the quantitative determination of long-run prices better than alternative approaches (see chapter 7). Its main advantage is theoretical: it explains the social relations underlying economic activity more clearly than alternative views.