The following text comes from a pamphlet I am collaborating on. Myself and another comrade are working on distilling Value, Price and Profit down into an even simpler-to-digest form. All the text below is a summary of section 6 of Value, Price and Profit. It deals with the Marxist labour theory of value in its entirety, and its basic relationship to the expression of value in terms of money, price. The rest of the pamphlet will obviously deal with profit.
VI. VALUE AND LABOUR
A. The Labour Theory of Value
1. We need to begin our investigation by asking “what is economic value?” Bourgeois economists don’t have a good answer to this question, but Marxists do.
2. Everyday we become involved in acts of economic exchange. Transactions that you make at the cash register are acts of exchange. We exchange the commodity of money for other commodities, like clothes, TVs, milk, fruit and vegetables, etc.
3. Marx points out that a single commodity is exchangeable for countless other quantities of other commodities. The ratios of commodities required for a successful exchange change depending on the commodity, but the value of the commodities always remains the same.
4. The value of the commodities is the mysterious third thing that makes the exchange of commodities possible. This third thing common to all commodities in exchange, value, is able to be separated out of the equation and analysed separately on its own. We are able to express this identical measure of commodities independently of their physical existence.
5. The value of commodities when they are exchanged is a social function of commodities. It has nothing to do with a commodity’s physical existence. Value is the “social substance” of a commodity, and this “social substance” is Labour. Marx says: “To produce a commodity a certain amount of labour must be bestowed upon it, or worked up in it” (Marx: 1960, 71).
6. This labour is not the individual labour of a single person, but Social Labour. Marx says:
A [person] who produces an article for their own immediate use, to consume it themselves, creates a product, but not a commodity. As a self-sustaining producer they have nothing to do with society. But to produce a commodity, a person must not only produce an article satisfying some social want, but their labour itself must form part and parcel of the total sum of labour expended in society (Marx: 1960, ibid).
7. Crucially, this labour must be integrated into the Division of Labour in society. In order for a commodity to be a commodity, and for it to have value so it can be exchanged, the labour expended on it must be performed as part of the social process of capitalism.
8. The value in commodities is therefore crystalised labour. It is fixed inside the commodity. The only way the value of a commodity can change is if more labour is worked upon it. The more labour a commodity has bestowed upon it, the more value it will have.
9. How do you measure the quantity of labour in a commodity, in order to work out its value? Marx answers this question. The time that the labour lasts. The amount of labour in hours, minutes, seconds. Perhaps even months, or years.
10. It might be pointed out that this theory might not get us any closer to understanding value. Don’t people work at different paces, and at different levels of skill? The lazier worker would bestow much more labour on a commodity, and would therefore make it worth more than someone who worked harder. In the same way wouldn’t someone clumsy make a commodity worth the same, or even more than someone with great skill? Marx has an answer for this:
This, however, would be a sad mistake. You will recollect that I used the world ‘Social labour’, and many points are involved in this qualification of ‘Social’. In saying that the value of a commodity is determined by the quantity of labour worked up or crystallised in it, we mean the quantity of labour necessary for its production in a given state in society, under certain social average conditions of production, with a given social average intensity, and average skill of the labour employed (Marx, 1960: 74).
Marx gives an example on this point. The introduction of the power loom into England in the industrial revolution appeared to make workers work even more. They went from working nine or ten hours daily to working seventeen to eighteen hours a day. But the value of the cloth that weaver dropped by half. This was because it now took only half the time using the new machines to weave the same amount of cloth out of yarn. The product of twenty hours labour now had the same value of what used to take ten hours.
The name for this concept is called Socially Necessary Labour Time. It is easy to work out the average value of labour time in this way. The average of the overall skill, intensity, and productivity of labour, the “aggregate” ratios of all these factors, can be taken from statistics about global or national economic output.
11. If the amount of time it took to make the same amount of commodities stayed the same, the value of those commodities would stay the same. But the productive powers of society are constantly changing. Labour productivity goes up and down all the time. In the short term, labour might be less productive, and create less product per hour, minute, second. But in the long term, since the industrial revolution, labour has become continuously more productive. It is simple to find graphs on the increasing productivity of labour. It is a law of capitalism that the greater the productive powers of labour, the less value will be bestowed upon the commodities created. The less productive labour is, the more values individual commodities will have. This is because there will be less labour bestowed upon more productively made commodities, and vice versa.
12. The productivity of labour also depends on other factors. Apart from the skill and intensity of labour, the productive powers of labour depend on:
First. The natural conditions of labour, such as fertility of soil, mines, and so forth.
Second. Upon the progressive improvement of the Social Powers of Labour, such as are derived from production on a grand scale, concentration of capital and combination of labour, subdivision of labour, machinery, improved methods, appliance of chemical and other natural agencies, shorting of time and space by means of communication and transport, and every other contrivance by which science presses natural agencies into the service of labour, any by which the social or cooperative character of labour is developed (Marx, 1960: 75).
B. Value and Price
13. None of the above theory applies to the price of a commodity. It only applies to a commodity’s value.
14. Price is a particular form that value assumes in the capitalist system. Price is the monetary expression of value. Price is the form of value in money form. This can be put another way. Price is the value of money.
15. The price of money used to be the value of gold. This was called the “gold standard”. Working out the value of money in this way was easy. The pound or the dollar would be set to a specific weight of gold. The amount of socially necessary labour time that it took to produce that specific quantity of gold was the value of the British pound or the American dollar.
16. The international gold standard for the US dollar was abolished by Richard Nixon in 1971. All major currencies are now “free floating”. This means that the price of money is now self-referential. The value of money now changes every millisecond. The value of money is now determined by speculation, by the rapid exchange of money for other commodities on the global market.
17. This doesn’t contradict the Marxist labour theory of value in any way at all. Money is a commodity like any other. Because money is a commodity, it is exchangeable in definite ratios with other commodities. This means it has value. It now no longer necessary to explain conceptually what the value of money is. It can be determined empirically at every instant with a computer.
18. Money is the universal equivalent commodity. It is the commodity that every other commodity uses to express its value in order to be exchangeable on the market. Money is the appearance of value, where socially necessary labour time is the essence of value.
19. Under normal, stable conditions, the price of a commodity will coincide with its value. This means that the price of a commodity will exactly express the amount of socially necessary labour time crystallised in it. This means that identical commodities produced under different concrete regional conditions will have the same price.
20. The market is a dynamic system, and the price of money and of commodities is constantly changing. Market prices may coincide with the values of commodities, but that is not always the case. Contrary to the slander levelled against the Marxist labour theory of value, Marx holds a place for the market forces of supply and demand in his economics. Marx follows Adam Smith in holding that two different concepts explain the reason why prices have the quantities they do. The first concept is market price. The market price of a commodity is determined by the laws of supply and demand. The second concept is the natural price. The natural price of the commodity is the price a commodity should have, and to which all market forces are tending the price to become under equilibrium. Under normal, stable conditions, conditions of equilibrium, a commodity will have its natural price. A commodity’s natural price expresses its value exactly.
21. All of what has been said above assumes that the capitalist system being discussed is a perfectly free market. Contrary to what the enemies of Marxist economics say, Marx assumes in his model of capitalism that it is a perfectly free market. The existence of monopolies under capitalism will distort market forces, and will cause commodities to avoid having their natural price. But that is not our concern here.
“Value, Price and Profit” in The Essential Left (Unwin Books: London, 1960).