Karl Marx was the first to explain how capitalism works. His approach was to lay out the fundamental elements in detail, then proceed to dramatic insights. The painstaking attention to detail in the earliest part of the explanation has unfortunately stopped some people from continuing. So far, though, there is no better way to do it.

We will begin with commodities and how they are valued.

Daniel Rubin defines a commodity: “...a material or immaterial object produced for exchange either for another object or for a money equivalent. It has both use and exchange value.”

The difference between a commodity and any other product is in its being made for sale or trade. If someone makes a product for their own use, no matter what procedures may be used, it isn’t a commodity. You can rub your own feet and enjoy it without entering into capitalist economics, but if you open a stand and start rubbing other people’s feet in exchange for something of value, you’re producing a commodity.

Any product can have a use value. That is, somebody wants it for something. Foot rubs might be a good example. They are nice to have. A commodity has a use value, but it also has an exchange value. The exchange value is what concerns us in economics, so much so that Marx begins to use the single word “value” to mean “exchange value.”

How is a commodity valued?

Capitalist economists would have us believe that commodities essentially have no value until they are sold in the marketplace. In their view, the market not only reflects value, but actually determines it. It is easy to see that they are wrong when comparing the relative values of two unsold products. If they have no value before being sold, why wouldn’t a new house have the same value as a diaper pin? Would a foot rub be worth as much as a sports car?

What if you were selling foot rubs on a city sidewalk? Would you charge the same for a five-minute basic foot job as your “super deluxe 10-minute workover”? Not feetlikely. In fact, you’d probably charge twice as much for a 10-minute special as you charged for your 5-minute basic rub.

Differences in exchange value (value) come about because of differences in the amount of labor required to produce them. Commodities have value as soon as they are made, and that value comes from labor.

The value of raw materials and machinery comes from the labor required to produce them

“But what about raw materials?” we might ask. The value of raw materials is the value of the labor expended in finding, mining, refining, and delivering them. As raw materials are used up, their value transfers to the product.

“Ah, but what about machines that we use in production?” Those machines were produced by labor, and thus have a value determined by labor. If we use up a part of a machine’s total value in producing a new commodity, then that same value is transferred to the new product.

In sum, even in the most complicated processes, the value of a commodity is determined by the amount of labor expended in its production. The bookkeeping might seem complicated, but the idea is simple.

Getting back to your foot-rub enterprise, suppose you decide to include a dollop of baby oil in your super-duper 30-minute luxury rub? The 30-minute value of the super-duper would be further enhanced by the value of the labor used to produce one dollop of baby oil.

Now let’s get complicated. As a successful foot-rubbing magnate, you decide to add a vibrating machine and offer an “incredible super-duper incomparable 1-hour rub with machine vibration.” The value of the machine is the value of the labor required to produce it. If your machine is good for, say, 10,000 foot rubs before it wears out, then one ten-thousandths of its value transfers to each of your foot rubs.

So the final value of your super-duper footrub would be the labor in a dollop of baby oil, plus the part of the labor used to create the vibrating machine, plus the new labor you added by rubbing.

Value is not the same as price

Capitalist competition tends to force price toward becoming the same thing as exchange value. When you start your foot-rub business and are the only one doing it, you might charge quite a lot. If you were making good money, though, other people would be likely to come into competition with you. Price wars would result, and prices would be forced downward toward the actual value.

In a long-term general sense, the price of foot rubs would not stay below the actual value. If the price were lower than the value, the your competitors (and probably you, too) would quit doing foot rubs.

You would, if you could, always sell your commodity at a price above its value. From time to time, just to hang on to your customers, you might sell your commodity at a price below its value. The ups and downs of the market tend to make prices rotate up and down, but what they are rotating around is their value.

The market does not determine value, it only reflects it. Labor determines value.

How can we talk about labor as if it were always the same?

Then, one might ask, “What kind of labor?” Remember that Marxist economics is macro-economic theory. We are not talking about a specific person’s labor, but the average amount of socially necessary labor-time necessary to produce a given commodity. Some very efficient foot-rubbers might get a satisfactory rub done more quickly than someone else. Some might take longer. It is the average that we rely on to determine value.

When we studied the idea of classes in class society, we noted that it might be interesting to play with far-fetched examples and exceptions to the rule. The same is possible in talking about the average amount of socially necessary labor. It might be fun, but it isn’t necessary.

One final thought for future arguments: if someone tells you that the labor theory of value is obsolete or untrue, ask them for their theory. They won’t have one, or they’ll shyly say “the market,” and give you the last laugh!


Further study: Professor David Harvey has a series on Youtube that takes readers through Marx's masterpiece, Capital. It's called "Class 01 Reading Marx's Capital with David Harvey," 2010. Of course he's British and most of his analogies come from England, but then so did Marx's. He uses the French words of classical Marxism, ("bourgeois" rather than "capitalist) rather than the modern English terms. But so did Marx. And of course, Harvey's actually a professor, not a worker activist. A lot of people read Capital by themselves, but they don't get nearly as much understanding as someone reading it in a class or in some kind of guided study. David Harvey claims to have taught this same book for umpteen years, and lots of people like his video presentations.

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