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Study "Value Price and Profit"
Karl Marx, "Value, Price, and Profit." International Publishers, New York, 1969. The pamphlet is available free. Reading the original pamphlet with a group of serious students would probably be better than working this short lesson, but not as convenient.
Of the two small pamphlets that lead up to Marx's great dissection of capitalism, Capital, this is the more valuable. While "Wage Labour and Capital" was written earlier, the present work was written in 1865, while the author was completing his economic theories. Marx paused in writing Capital because he was asked to supply an argument against the simple theories of a man named John Weston, who was espousing the bosses' argument that workers have no reason to seek higher wages.
The short version of Weston’s oft-repeated nonsense is that capitalists will always raise the price of commodities as soon as they are forced to raise any wages. Workers, then, would not be able to buy any more with their higher wages than they could with their previous income.
Weston ignored, and tried to get others to ignore, the realities of capitalist economics, including the productive powers of labor, changes in productivity, the value of labor, the value of money, the intensity of labor, fluctuations of market prices, industrial cycles, and, most importantly, the class struggle that determines all relations between labor and capital. Marx demolished Weston's static model in short order, but then went on, in Chapter 6 and onward, to reveal some of the fundamental secrets of capitalism. The forward concludes on page 9, "A study of this pamphlet is still the best introduction to Marx's Capital."
Marx asserted, and proved, that workers should indeed strive for higher wages and better living conditions. If they did not, he said, "...they would be degraded to one level mass of broken down wretches past salvation." He went on to say that they must go further and struggle to overcome the entire system of capitalism: "Instead of the conservative motto: 'A fair day's wages for a fair day's work!' they ought to inscribe on their banner the revolutionary watchword: 'abolition of the wages system!'"
Page 29: Marx credit’s Ricardo’s “On the Principles of Political Economy” of 1817 with destroying the bosses’ myth that wages determine value. Elsewhere he credits Ricardo with the labor theory of value. In this work, on page 31, he credits America’s own Benjamin Franklin with having been among the first to hit upon the true nature of value, back in 1721.
Page 26 demolishes the idea that wages, or the value of any commodity, is fixed by supply and demand. “Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value, but they can never account for that value itself.”
For the purpose of this argument, Marx does not talk about “use value,” or the intrinsic value of anything that we might find useful. He is talking only about commodities, which are for sale. Their “exchange value,” not their “use value,” is the topic. How do commodities get value, and how might that value be ascertained?
The value of a commodity is determined by the average amount of socially necessary labor that goes into it. It includes the immediate, or most recent, labor in its production. It also includes previous labor that went into raw materials and part of the value of machines used in production. In bookkeeping terms, the value of machinery is partially amortized into the value of the new product. Old labor and new combine to determine the value of the commodity.
A commodity’s price is almost the same as its value. Price is forced up and down by market conditions and by monopolies, but averages out to the commodity’s actual value. Thus, no matter what your economics professor may have told you, the market can not, in the long term, make new automobiles sell for the same price as safety pins. Both automobiles and safety pins have a value determined by the labor in them, and the market will only vary their price around their value.
In Marx’s day, gold and silver were almost the same as money. Even now, the price of gold erratically measures any paper currency. Precious metals, because of their scarcity and their easy transformation into coins, became the commodity that measures all others. On page 35, Marx says, “The value of gold or silver, like that of other commodities, is regulated by the quantity of labor necessary for getting them.”
Inflation and deflation are connected to the availability and use of the money commodity in circulation. On page 24, Marx shows his understanding of what we now call the “velocity of money” -- how quickly it is being used in an economy -- as a factor as important as the total amount of money available. Gigantic inputs of newly-created money do not necessarily result in inflation, if the money is not circulating.
Labor power, the potential for doing work, is what capitalists purchase from workers. They pay the worker for his/her potential to work. It is important to note that labor power is not the same thing as labor.
The value of labor power is determined the same way as any other commodity, by the amount of socially necessary labor expended in its production. In other words, a worker’s labor power is worth the labor expended in birthing, rearing, propagating, and training him or her.
Capitalists buy a certain amount of labor power and other commodities, such as raw materials or machinery, in the process of producing new commodities.
A given worker soon expends enough labor to repay the capitalist for the labor power bought. If the worker then stopped working, the economy would be in balance and all commodities would average out to a fair trade for one another. But the capitalist requires the worker to continue working after he or she has produced enough to recompense the capitalist for the labor power bought. In other words, the capitalist gets the new value that the worker creates AFTER having equaled the value of his or her labor power!
That is the secret of capitalism. The capitalist makes his profit by extension of the time worked.
After the worker has produced enough value to replace his or her own value, they go on producing surplus value that is usurped, taken, by the capitalist. Marx gives a number of numerical examples to explain this all-important mystery of capitalism. I’ll give only one: Suppose that an average worker’s value is such that a week’s work nets him or her $1,000. Suppose he or she makes $1,000 in new values in only one day. Thus, the capitalist cashes in the rest of the week! If he can force the worker into 7 days’ labor, he gets 700% of his investment! If the worker will only work 5 days, then the capitalist has still profited by 500%!
As Marx puts it on page 52, “The more capital succeeds in prolonging the working day, the greater the amount of other people’s labor it will appropriate.”
Even when this pamphlet was written, the hours of work were an important axis of the class struggle, and that fight continues through today! From then to now, workers have struggled to lessen their hours of work and capitalists have struggled to lengthen them! Incidentally, Marx agrees with today’s union leaders when he says that workers must carry this fight into the political arena. On page 59 he says, “As to the limitation of the working day, in England, as in all other countries, it has never been settled except by legislative interference.... This very necessity of general political action affords the proof that in its merely economic action capital is the stronger side.” Marx thus settles the argument about whether or not workers and revolutionaries should be involved in politics.
No one could explain the ins and outs of labor productivity, especially the use of machinery, better than Marx himself; consequently, there is no substitute for reading this pamphlet. He was as aware of the differences between fixed capital (such as machinery) and variable capital (especially labor power) and the effects that they have on values as any modern economist or bookkeeper. He points out that capitalists use more and more machinery and less and less labor as they compete with one another. His treatment on pages 59-61 lays the basis for some of his most amazing revelations in Capital. For purposes of this discussion, suffice it to say that the increasing use of machinery tends to raise productivity and devalue both labor power and the rate of profit.
Capitalism must always seek to lower the value of labor power and its price, wages. Workers have no choice but to fight back. Labor unions are effective in this fight, but not adequate to change a system that is always against workers.
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