Whereas Keynes’ preoccupation with monetary questions was based on his desire to make the capitalist system work more efficiently, Marx’s relative neglect of these issues stemmed from his goal of formulating a theory of capital development. This labor theory of value evolved out of his criticism of classical value theory.

In order to yield regulatory results, the market automatism presupposes a principle on which exchange is based, a principle that explains prices and their changes. If a price is given, it may vary in the interplay of supply and demand, but the question of what determines prices remains. For the classicists, price derived from value and value was determined by the labor incorporated in commodities. This conception does not rule out specific cases in which price has no relation to labor time. Marx found the labor theory of value indispensable for understanding the developmental tendencies of capital production and in fact, the only “rational basis of political economy.”

The labor theory of value underlies both early bourgeois economic theory and its Marxian critique, and in both cases deals with social production and its distribution between different social classes. Classical economy, according to Marx, culminated in Ricardian economies and was an expression of the rising industrial capitalism within the decaying feudal regime. It represented itself as the theory of the productive classes, as opposed to the nonproductive classes, which appropriated their privileges in the form of Interest and rent. It did not as yet concern itself with the industrial proletariat and was thus able to see in labor the sole creator and measure of economic value.

The labor theory of value became an embarrassment for the capitalist class as soon as the newly-arising frictions between bourgeoisie and proletariat replaced and overshadowed those between the feudal and the capitalist regime. If the value of commodities is determined by the quantity of labor time required for their production, and the product of the whole of social labor is divided into rent, profit, and wages, it would seem to follow that the elimination of profit and rent would allow for an equal exchange of commodities in accordance with their labor-time. Ricardian economics gave rise to a school of “Ricardian Socialists,” which demanded an exchange system that would assure producers the full value of their labors.

Marx did not draw similar conclusions from the labor theory of value. Nonetheless, as Friedrich Engels pointed out, “in so far as modern socialism, no matter of what tendency starts from bourgeois political economy it almost exclusively links itself to the Ricardian theory of value.”^[1] It is for this reason that Marx has often been called “the last, as well as the greatest of the classical economists.” ^[2] This fulfills the double purpose of granting Marx his undeniable greatness and yet dismissing his theory as outdated, along with all classical theory. Even though Marx accepted and developed Ricardo’s value theory, he was not the “greatest” of the classical economists, but their adversary. He knew that the social labor process itself has nothing to do with either value or price but only with the time-consuming physical and mental exertions of the laboring population, and that “value” and “price” are fetishistic categories for existing social production relations. His criticism of political economy was conceived as part of a social struggle to abolish capitalism together with the economic theories which rationalized its existence.

Bourgeois economic theory sees the relations of bourgeois production as natural relations, that is to say, it holds “that these are the relations in which wealth is created and productive force developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time. They are eternal laws which must always govern society. Thus there has been history, but there is no longer any.”^[3] For Marx, however, capitalism was only an historical form of social production. He recognized that underlying this specific form of social development is the general process of social development – comprehended in the materialist conception of history – which expresses itself in a variety of socio-economic formations bound up with different levels of labor productivity. This process has its source in man’s struggle for existence in a natural setting that enables and forces him to increase his capacity for work and social organization. Its starting point is lost in prehistory, but in known history the different stages of human and social existence reveal themselves in the changing tools and modes of production.

When Marx speaks of the “law of value” as relating to a deeper reality which underlies the capitalist economy, he refers to the “life process of society based on the material process of production.”^[4] He was convinced that in all societies, including the hoped-for socialist society, a proportioning of social labor in accordance with social needs and reproduction requirements is an inescapable necessity. “Every child knows,” he wrote to Kugelmann, “that a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs require different and quantitatively determined masses of the total labor of society. That this necessity of the distribution of social labor in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident. No natural law can be done away with. What can change in historically different circumstances is only the form in which these proportional distributions of labor assert themselves. And the form, in which this proportional distribution of labor asserts itself in a state of society where the interconnections of social labor are manifested in the private exchange of the individual products of labor, is precisely the exchange-value of these products.”^[5]

It has been said that this and similar statements by Marx “disprove the generally accepted view that Marx regarded all economic laws as being of an historic-relative character.”^[6] According to Oscar Lange, for example, Marx’s position seems to have been “that the economic laws of universal validity are so self-evident that there is scarcely need for a specific scientific technique for their study, and economic science ought to concentrate, therefore, upon investigating the particular form these laws assume in a definite institutional framework.”^[7] But all that Marx has said on this point is that there are natural laws and social necessities which no economic law can violate for very long without destroying society. Natural laws and social necessities are not “universal economic laws,” even though, when unattended as in capitalism, they may assert themselves as manifestations of that system’s economic law of value. In the preface to the second edition of the first volume of Capital, Marx quotes with approval the statement of a Russian reviewer of his work, to the effect that he, Marx, “directly denies that the general laws of economic life are one and the same, no matter whether they are applied to the present or the past ... Such abstract laws do not exist. On the contrary ... every historical period has laws of its own. As soon as society has outlived a given period of development, and is passing over from one given stage to another, it begins to be subject also to other laws.”^[8]

Like any other form of social production, value production, too, in Marx’s view, implies an allocation of social labor in accordance with social and natural necessities. For Marx, the law of value represented the only indirect form that social organization of production could take in a commodity-producing society; but it was also, at the same time, a form restricted to such a society. He illustrated his view with actual and imaginary descriptions of similar processes under non-capitalist conditions. The pre-capitalist conditions Marx dealt with need not concern us here; with regard to the imaginary conditions, Marx referred first to Robinson Crusoe, who knew that his labor, whatever its form, was nothing but his own activity to secure his existence. This knowledge compelled him to apportion his time accurately between different kinds of work. Let us picture, Marx wrote, “a community of free individuals, carrying on their work with the means of production in common, in which the labor-power of all the different individuals is consciously applied as the combined labor-power of the community. All the characteristics of Robinson’s labor are here repeated, but with the difference, that they are social, instead of individual ... The total product of our community is a social product. One portion serves as fresh means of production and remains social. But another portion is consumed by the members as means of subsistence. A distribution of this portion among them is consequently necessary. The mode of this distribution will vary with the productive organization of the community, and the degree of historical development attained by the producers. We will assume, but merely for the sake of a parallel with the production of commodities, that the share of each individual producer in the means of subsistence is determined by his labor-time. Labor-time would, in that case, play a double role. Its apportionment in accordance with a definite social plan maintains the proper proportions between the different kinds of work to be done and the various wants of the community. On the other hand, it also serves as a measure of the portion of the common labor borne by each individual and of his share in the part of the total product destined for individual consumption. The social relations of the individual producers, with regard to both their labor and its products, are in this case perfectly simple and intelligible, and that with regard not only to production but also to distribution.”^[9]

No “law of value” enters this hypothetical arrangement; it is directly determined by the conscious considerations of the producers. It is also true that Marx wrote that even after the abolition of the capitalist mode of production, “the determination of value continues to prevail in such a way that the regulation of the labor time and the distribution of the social labor among the various groups of production, also the keeping of accounts in connection with this, becomes more essential than ever.”^[10] But the term value in this connection is a mere manner of speech; for, obviously, what Marx meant was that the abolition of capitalism does not end the need to allocate labor in accordance with social requirements. In a socialist society, Engels wrote with greater precision, “the people will arrange everything very simply without the intervention of the much-famed ‘value’.”^[11]

As regards the allocation of social labor, it has also been said that socialism merely makes apparent, and therefore more effective, what in capitalism appears as the “regulatory force of the law of value.” From this point of view, it is only the mystification of the social organization of labor as a “law of value” which comes to an end with the end of capitalism. Its demystified results reappear in a consciously-regulated economy. According to Rudolf Hilferding, for instance, the theory of value “is restricted to the epoch wherein labor and the power which controls labor have not been consciously elevated to the rank of a regulative principle of social metabolism and social predominance, but wherein this principle unconsciously and automatically establishes itself as a material quality of things ... It is ... because labor is the social bond uniting an atomized society, and not because labor is the matter most technically relevant, that labor is the principle of value and that the law of value is endowed with reality.”^[12] By defining labor as the principle of value, Hilferding continues, Marx recognized “the factor by whose quality and quantity, by whose organization and productive energy, social life is causally controlled.”^[13] For this reason the value principle is “identical with the fundamental idea of the materialist conception of history.”^[14]

Apparently, in Hilferding’s view, the law of value fulfills the functions of Adam Smith’s “invisible hand.” But whereas in bourgeois theory it is the exchange process which assures the proper distribution of social labor and the products of this labor, for Hilferding it is labor itself and the necessary distribution of this labor which regulate social life behind the back of the producers. In either case, social necessities assert themselves independently of human activities and force a definite behavior pattern upon them.

Social necessity is here seen as a force which, recognized or not, overrules on its own accord all human activities by which it may be contradicted. For Hilferding, social necessity turns into a law of value in capitalism because social relations between persons are attached to things and appear as things, as commodity relations, and not as what they really are, namely, social production relations between persons. By doing away with the fetishism of commodity productions he believes the law of value would be revealed for what it really is – the necessity to regulate the social labor process in accordance with social needs directly recognized in the needs of persons. And it is only in this sense, according to Hilferding, that the law of value is historical. In socialism, it will be replaced by a social organization of production and distribution based on the principle of labor and its appropriate distribution. This change, however, only makes apparent and direct what hitherto asserted itself indirectly and unconsciously in the form of value relations.

According to P. M. Sweezy, another Marxist, it is “one of the primary functions of the law of value to make clear that in a commodity-producing society, in spite of the absence of centralized and coordinated decision-making, there is order and not simply chaos. No one decides how productive effort is to be allocated or how much of the various kinds of commodities are to be produced, yet the problem does get solved and not in a purely arbitrary and unintelligible fashion. It is the function of the law of value to explain how this happens and what the outcome is.” It follows from this, Sweezy says, “that in so far as the allocation of productive activity is brought under conscious control, the law of value loses its relevance and importance; its place is taken by the principle of planning. In the economics of a socialist society the theory of planning should hold the same basic position as the theory of value in the economics of a capitalist society.”^[15]

In Sweezy’s view, then, the opposition of value production to planned production is one between unconscious and conscious control of production. The functions of the law of value, i.e. the regulation of “exchange ratios among commodities, the quantity of each produced, and the allocation of the labor force to the various branches of production,”^[16] are also the functions of the planning principle, with this difference, however, that the latter is accompanied by knowledge and foresight and the former is not.

According to Marx, “all economy is finally reducible to the economy of time.” ^[17] But even though the “economics of time” determine the allocation of labor in both socialism and capitalism, the allocation itself will be different for the two systems. In capitalism it is determined by the production of capital as exchange-value; in socialism, production is supposedly a value-free production for use. The allocation of labor in capitalism is therefore not identical with the distribution of labor that prevails in other forms of social production. It is a capitalistically-modified form of this necessity to distribute labor in definite proportions. And it is precisely this modification which makes the allocation of labor in capitalism appear as an “economic law” operating blindly like a natural law. For the nature of the production process determines the allocation of labor within the necessities set up by the “economy of time.” Although value production, too, rests on social labor and the economics of time, it is not derived from the laboring process itself. Rather, value production derives from the laboring process as the social relations of capitalism modify and change it. What Marx defines as the “rational and naturally necessary,” and as the “life process of society based on the material process of production,” is neither an economic category nor an “economic law of universal validity,” but simply the rock-bottom condition of all social existence and development.

Despite Hilferding’s assertion, the materialist conception of history is not identical with the labor theory of value. It discusses social development in general, of which capitalism is only a special case. The labor theory of value refers to the specific social relations which operate under capital production. Capital production transforms the laboring process into a value-producing process and the social relations into economic categories. The labor theory of value does refer to the inescapable need – common to all societies – to work and to distribute the social labor in definite proportions. But this general necessity is manifested in a law of value only in capitalism, and only because the market economy cannot divorce the value-producing process from the production processes itself. The law of value does not operate apart from market relations and is not a necessary requirement for the social organization of labor. But the social organization of labor is necessary for social production, and capitalism finds its answer to this need in the law of value.

The type of regulation of production brought about by the law of value is also specific to capitalism. The proportional allocation of social labor is necessary in all systems of social production; but it will vary nonetheless with the differences between these systems. Even the most general requirements of social production, which may be valid at all stages of social development, take on a specific historical character when applied in different social systems of production. This is not merely a question of conscious as against unconscious regulation, as Sweezy seems to imply by referring to the displacement of the law of value by the planning principle; for the regulation of production under the planning principle will be quite different from that determined by the law of value.

For Marx, “even the most general categories, which possess universal validity just because of their abstract nature, are nonetheless historically conditioned and have full validity only for, and within, the historical relations in which they arise.”^[18] For instance, he pointed out, both the fact and the concept of abstract labor, of “labor in general,” are rather ancient. Yet abstract labor as an economic category is a modern accomplishment. The Physiocrats still considered agricultural labor the only kind of labor that created value. With Adam Smith, however, it is already labor as such, whether applied to manufacture, commerce, or agriculture, which yields the wealth of nations. Wealth is brought forth by all kinds of labor, by labor in general. From this it may appear, Marx wrote, “that finally there has been found the abstract expression for the simplest and oldest of social production relations of general validity. In one sense this is true, of course, but in another sense not, for the modern lack of interest regarding specific types of labor presupposes the great and actual variety of the labor activities of modern capitalism, of which none in particular can be adjudged the ruling type of labor... Labor as such, labor in general, this simple abstraction, which is the starting point and the high point of bourgeois economy, appears as a practical truth only as a category of modern society, even though it also expresses an ancient and for all social formations valid relationship.”^[19]

It is because capitalism is the hitherto most developed organization of social production that its economic categories throw light upon past social production relations. “Just as the anatomy of man is a key to the anatomy of the ape,” Marx said, “so bourgeois society is a key to the production relations of previous social formations.” But not in the sense of bourgeois economic theory which, by disregarding historical differentiations, discovers in all past societies only its own economic categories. The economic categories of bourgeois society may lead to the apprehension of the conditions of existence common to all social formations; but they will not lead to the discovery of “economic laws of universal validity.” The labor theory of value, i.e. the equation of social wealth in general with social labor in general, which has also yielded insight into the “rational and naturally necessary” common to all social formations, will continue in the future as it has in the past to have general validity in so far as it is itself an expression of the “rational and naturally necessary,” but not in so far as it is an expression of the specific capitalist production relations.

As a measure of value and an allocator of social labor, the theory of value evolved for, and within, the bourgeois relations of production. It is surplus-labor which leads to capital, and thus it is labor time by which social wealth is measured. But the formation of wealth as the accumulation of surplus-value is just a particular, historically-conditioned form of wealth production, bound up with the specific class and property relations of capitalism. Although wealth as capital can only be increased through the increase of surplus-labor as surplus-value, this is due not to the process of material wealth production as such, but to the form this process takes with in the social relations of capitalism. Capital arises from labor time, and grows the faster the more labor time becomes surplus-labor time; but real social wealth depends only on the actual productivity of labor and on the real conditions of production, and is not necessarily tied to appropriated quantities of labor time. For Marx and Engels economic value is “a category that belongs to commodity production and disappears with this mode of production, as it did not exist prior to this mode of production.”^[20] The ruling economic categories “are only abstractions of the social production relations and are truths only while these relations exist.” ^[21] While they exist, however, they determine economic activities. A critique of political economy must therefore start with the analysis of value relations.

It is on the market that the products of labor acquire a uniform social status as commodities. This status is distinct from their varied forms of existence as objects of utility. According to Marx, this division of a product into a useful thing and a value does not stem from the labor process as the metabolism between man and nature, but is a social accomplishment. It gains practical importance “only when exchange has acquired such an extension that useful articles are produced for the purpose of being exchanged, and their character as value has therefore to be taken in account, beforehand, during production.”^[22] The private labor of each producer is socially equal to that of every other producer only because the mutual exchangeability of all kinds of labor and useful products is an established social fact. And this “equalization of the most different kinds of labor can be the result only of an abstraction from their inequalities, or of reducing them to their common de nominator, viz., expenditure of human labor-power in the abstract.”^[23]

It is precisely the difference in the various kinds of labor which is the necessary condition for the exchange of commodities “measured” in terms of abstract labor-time. The reduction of all kinds of labor, regardless of skill and productivity, to abstract or simple labor is not only a postulate of value theory but is actually and constantly established in the exchange process. “A commodity may be the product of the most skilled labor, but its value, by equating it to the products of simple and unskilled labor, represents a definite quantity of the latter alone.”^[24] Furthermore, it is not the individual’s productivity which determines the value of any particular commodity but the socially-necessary, or average, productivity required for its production; and it is not the individual’s particular skill which finds consideration in the exchange process but only the social evaluation of this skill. And this evaluation, by the nature of the thing, can only be quantitative – a multiplication of simple labor expressed in money terms.

Capitalism is not a society of independent producers who exchange their products in accordance with the social-average labor time incorporated in them: it is a surplus-value producing economy engaged in the competitive pursuit of capital. Labor-power is a commodity; its value (exchange-value) is determined by its production and reproduction requirements measured in terms of labor time. Its use-value has the capacity to produce, besides its own exchange-value, a surplus-value. This type of production is possible because the workers are divorced from the means of production, and are thus forced to sell their labor-power to the owners of capital. Obviously, the “equal” exchange between capital and labor in terms of value is based on the fact that part of the social labor is not exchanged at all, but is simply appropriated by the buyers of labor-power.

But whether appropriated or exchanged, the whole social product enters the market in the form of commodities. Whatever part of it cannot be sold has no value, even though labor has been expended on it. The unsold part of social labor would be a waste of surplus-labor; there simply would be less surplus-value than, there was surplus-labor. To realize all the produced surplus-value, it is necessary to produce commodities for which there is a sufficient demand. By trial and error individual capitalists will adjust their production to the changing social market demand.

Labor and labor-time is every entrepreneur’s preoccupation, even if his eyes focus on market prices as he attempts to maximize his profits. For in order to get these profits, he must first maximize the surplus-labor in the production process. He can do so either by lengthening the working time or by increasing the intensity and productivity of labor during a given time. In either case, the workers’ exchange-value will be at a minimum and surplus-value will therefore be at a maximum for a given total expenditure of labor-power. What holds for the individual entrepreneur holds also for society as a whole: out of total production, a minimum of wages will yield a maximum of profits.

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1. Preface to Marx’s The Poverty of Philosophy, Moscow, p. 8.

2. G. Lichtheim, Marxism, London, 1961, p. 175.

3. K. Marx, The Poverty of Philosophy, p. 121

4. K. Marx, Capital, Vol. I, p. 92 (Kerr ed.)

5. Marx-Engels, Selected Correspondence, Moscow, 1953, p.

6. O. Lange, On the Economic Theory of Socialism, Minneapolis, 1938, p. 132.

7. Ibid., p. 132.

8. Capital, Vol. I, p. 23.

9. Ibid., p. 90

10. Capital, Vol. III, p. 992

11. F. Engels, Anti-Dühring, Chicago, 1935, p. 325.

12. R. Hilferding, “Böhmm-Bawerk’s Criticism of Marx,” in Karl Marx and the Close of his System, New York, 1949, pp. 133, 134.

13. Ibid.

14. Ibid.

15. P M. Sweezy, The Theory of Capitalist Development, New York, 1942, p. 53.

16. Ibid.

17. K. Marx, Grundrisse der Kritik der Politischen Ökonomie Berlin, 1953, p. 89 (from here on referred to as Grundrisse)

18. Ibid, p. 25.

19. Ibid.

20. Engels to K. Kautsky, Aus der Frühzeit des Marxismus, Prague, 1935, p.145.

21. Marx to P. Annenkov, Selected Works, Vol. II, p. 446.

22. Capital, Vol. I, p. 84.

23. Ibid.

24. Ibid., p. 51.