Kapitalism 101: Law of Value

Video 3.1

Video 3.2

A Spectre haunts the face of Marxist theory: the spectre of the mudpie argument. It was this central conundrum that Marx devoted his momentous work “Das MudPie”. It has since haunted Marxist theorists of all persuasions. How can Marxists theory go on in light of this devastating theoretical problem?

Just Kidding…

If you spend any time reading about Marx’s theory of value on the internet you probably will come across some version of this asinine excuse for a critique called “the mudpie argument.” The basic style of the mudpie argument is similar to many advanced by those who know nothing about Marx’s theory of value: one constructs a ridiculous strawman argument that has nothing to do with Marx and then proceeds to knock it down with “devastating” brilliance, moral outrage, and a few clever asides about Stalinism. The MudPie argument goes something like this:

Marx claimed that labor is what gives all commodities value. But what if I make a mudpie? This is a product of labor yet nobody will buy it. It has no value. So Hah! Take that Karl Marx!

The problem with this argument is that Marx was very clear that labor has to be useful labor to create value. Yet he didn’t think that is was this usefulness that creates value. Labor has been doing useful things for millennia. All societies are made up of useful labor. Marx calls this useful labor that makes up a society “social labor”. The organization of this social labor differs from society to society. In a capitalist society this social labor is organized through the commodity exchange: the products of labor are assigned market values and the fluctuations of these values coordinate the social labor process. This is a way of organizing social labor unique to capitalism and it has all sorts of unique properties that other forms of social labor don’t have. The usefulness of labor is not what is specific to capitalism. Value is. Hence, usefulness is not what Marx interested in talking about. Value is.

In video 4 we will look at why usefulness can’t explain the amount of value a commodity has. For now we will look at this more fundamental question: What does it mean for useful labor to take the form of commodity exchanges?

What is a society?

The key difference between humans and animals, for Marx, is in the way they create their own worlds. Humans aren’t slaves to their own evolutionary destiny, repeating the same patterns of survival over and over for millennium. Instead humans actively shape the world in which they live. There is a certain creative aspect to human labor in which we imagine the product of our work in our mind before we go about the work:

“But what distinguishes the worst architect from the best of bees is this, that the architect raises his structure in imagination before he erects it in reality.” -Das Kapital, Karl Marx

This world which we create forms the structure of our lived experience: we live in, wear, eat and think about the products of our own creation. The structure of our social relations, from the way we relate in cultural and family groups, to the organization of production, to ideas about the world we live in, constitute a created universe powered by the creative power of human labor. Yet this world of our creation also acts back upon us. It structures both our desires and our means of attaining these desires. In much mainstream economic thinking human desires and the means of attaining them are treated as universal, timeless things. Marx says the opposite: What we desire and how we go about getting the things we desire changes as the organization of our society changes. In this sense, “Men make their own history, but they do not make it as they please” (The 18th Brumaire of Louis Bonaparte, Karl Marx)

In different times and different places this organization of human activity has been radically different. The level of technological development, the organization of production, the organization of classes, and the shared conceptions about the world have all changed radically over time. It is the organization of these different “modes of production” and the way the organization of production effects the other aspects of a society that was of interest to Marx. In essence Marx is asking what this organization of production can tell us about a society. [This mode of inquiry is called "historical materialism" because it is interested in the way the production of our own material conditions of existence has changed over time. It is different than theories of history that treat human society as a progressive evolution of disembodied ideas, or of abstract psychological states (bourgeois economics.) Ideas and psychology are important but they can't be understood apart from the basic organizational structure of the social relations of society.]

This means that Marx is not just interested in any labor. He is interested in “social labor”- labor that is part of this mode of production, labor that goes into the make-up of a society. Useless labor, like that of the mudpie maker, is not social labor. The first step then, in looking at a particular historical mode of production, is to ask how the private labor of an individual becomes social labor in that society.

If you were a medieval peasant working a plot of land with your family you would be laboring directly for your own use (or the use of the landlord.) There would be no mystery about whether the labor you were doing had use to your social group or whether the right amount of labor was being allocated to the right tasks. The private labor you did on your land would be “directly social.”

In a capitalist society we don’t produce things in order to use them ourselves. We produce things in order to exchange them in the market. We don’t care about the usefulness of the things we are producing. We only care about receiving money in exchange for our labor. We then use that money to enter the market and buy the things we need for our own personal use. The production of a commodity and the use of it are separated in space and time. They are separated by value. They are linked by value. In order for our private labors to become social they must first take the form of value.

This is a very different type of social labor than in pre-capitalist societies. Rather than being directly social, capitalist labor is indirectly social. People don’t directly decide what to produce. Instead these decisions are made through the fluctuations of market signals, a constant back and forth of buyers and sellers. But these market signals aren’t some autonomous power. They are composed of the aggregate individual labors of millions of separated producers. This separation of production and consumption means that our labor has both an individual value and a social value. The individual value is the amount of work that actually goes into making something. The social value is the actual amount of value the commodity sells for when it enters the market.

Because producers are separated from each other by the market, because we have no collective control over production, we have no way of knowing, for sure, how much labor time society requires of us and what sort of labor it should be. We don’t know what the demand will be for our product. We don’t know how much of the product other producers are making. We have to guess these things. We only find out once the products of our labor meet the products of everyone else’s labor in the market. This means that the individual value, the amount of time an individual puts into making a commodity, and the social value, the amount of time society requires go into it, can differ.

If individual value and social value diverge what does this mean? Some people think that Marx held that individual value had to equal social value, that if I spend 15 hours making a sandwich then this has to be the value of the sandwich. But this is not at all what Marx argued. Marx wanted to show how individual values become social values in a market society. Unlike other forms of production in which we labor directly for use, in a capitalist society we labor to produce value. Yet society must still use the products of our labor. We can’t all make the same thing or all make useless things. Labor must be apportioned between the right tasks in the right proportions. Value is the mechanism that does this since value is the only connection between individual laborers. Marx sought to explain how value acted as a force for the regulation of individual labor, turning individual labor into social labor.

[The fact that social value differs from individual value is not a defect to Marx's analysis. It is the mechanism by which value asserts itself. How else could labor be apportioned between tasks in a society where labor is only indirectly social? The very fact that we have a field called economics in the first place is because the transformation of private labor into social labor is a mysterious, invisible one, it's law-like properties hidden behind constant fluctuations of market prices.]

The fact that we discover the social value of our individual labor in the market creates the illusion that it is the market itself which is creating value. We bring the objects of our labor to market and there they are turned into money, making it seem like the subjective decisions between buyers and sellers are what create these money prices. This is what is being insinuated by the Mudpie argument: that it is the subjective valuation of the usefulness of a commodity that determines its value, not the labor that goes into it. Yet this is an illusion, a fetish created by the fact that our labor is indirectly social.

Yet contrary to what some vulgar economists want you to believe individuals are not free to buy and sell commodities at any price they want. This is because exchange is not just a fleeting, isolated contract between two individuals. Each exchange is part of a vast web of exchanges which unites the productive labors of society. [close-up of two people exchanging, zoom out to their other hands being exchanging with others (duplicate image), zoom out to reveal of vast network of the same images all linking hands..] This is what it means for an individual’s labor to become social. When this happens, society acts back upon the individual, disciplining their labor to make sure that they are doing socially useful labor at something near average productivity.

Thus the transition from individual value to social value isn’t a random one. It has law-like properties that govern the connection between the private laborers of millions of individuals and the aggregate social labor process. These law-like properties that link our private laborers to their social value is what Marx calls the “law of value.” There are two basic forces that govern the way individual values become social values:

1. The first is average productivity. Let’s say the average widget maker takes 1 hour to make a widget. This social average is the social value of the commodity: the amount of time society requires to make a widget. But I am old and slow. I take 3 hours. This is the individual value. My individual value is higher than the social value. But that doesn’t mean I can sell my widget for more. I must sell at the social average. Marx calls this “socially necessary labor time”. In this case the determination of social value is made not by my individual labor time, but by the average productivity of society. If the socially necessary labor time changes due to changes in productivity then the individual value and social value will change too.

2. The second factor is the interaction of supply and demand. Supply is determined by the total amount of labor that goes into making widgets and the productivity of that labor. But when we go to the widget factory to work we do not know how much labor as a whole society is devoting to making widgets. There could be a million other people making widgets or only a few. We only learn how much labor society has put into widget making when we enter the market and compare the products of our labor with the rest of society. If too much labor goes into widget making then there is an over-supply of widgets. Their social value falls below their individual value. [The private labor of widget makers counts as less social labor.] If not enough work has gone into widgets there is an under-supply and their social value rises above the individual value. [The private labor of widget makers counts as more social labor.] This fluctuation of social value around individual values is what allows labor to be apportioned.

But what of demand? Isn’t demand a random subjective element in the equation? As we will see later on the video on Supply and Demand, demand traces its power back to the labor process as well. Demand isn’t just an abstract psychological substance. It is a definite amount of purchasing power made of of worker’s wages and capitalist profits. Even the things demanded, be they inputs for the production process, or subsistence goods for maintaining the worker are needs generated by the structure of production. People’s demand for things change as the value of those things change. When the average productivity of widgets rises, their value falls and the demand for them rises because now they are cheaper. So rather than demand existing in some subjective vacuum, it is is always dependent on a preexisting world of values. But most important to the MudPie theory, demand doesn’t create the social value of a commodity. It only helps determine if labor has been apportioned to the right tasks. Labor is creating the value. Labor is doing the work. Demand tells us if this labor has been socially useful. But demand can’t create commodities, nor can it be separated from the web of social labor.

Conclusion

You might notice when you go to the grocery store that there isn’t a mudpie aisle filled with unsold mudpies. Though capitalist production involves this element of guessing, this uncertainty of transforming private labor into social labor, this doesn’t mean that production is totally random and absurdist. If exchange was random and sporadic then there would be no way for the division of labor to be coordinated. But exchange is not random and sporadic. It is constant. Every act of exchange links the buyer and seller in a complex network of buying and selling that connects all buyers and sellers everywhere. This constant interaction of production and exchange means that most of the time we have a pretty good idea of what social labor is. We don’t go around making mudpies, or bicycles with square wheels, or hip-hop polka records.

Sellers are constantly saying, “This is how much labor went into this commodity and so this is what we think it is worth”. Buyers are constantly saying, “Less labor should go here, more labor should go there.” The constant interaction of buyers and sellers apportions labor to the right tasks. This is only made possible by the fact that there is a correspondence between the labor that goes into something and its price. But this correspondence is loose, constantly fluctuating. The fluctuations are what allow labor to be reapportioned. As productivity changes values change.

Underlying these fluctuations of demand and supply lies a more basic observation about human society. We only have so much time as a society to devote to the production of our needs. If we are to have food, houses, clothes, DVD’s, and beer we are going to have to devote work to these things. Some things take a lot more labor to produce than others. They cost society more in terms of its expenditure of the total social labor. In a market society this cost isn’t decided by a committee, it’s decided by prices in the market. And this is what value is. Labor becomes social when its products obtain a price in the market. And these prices coordinate the social labor process.

More Conclusion:

What have we learned about value in this video. Value the way the social labor process is coordinated in a capitalist society. The relation between workers takes the form of relations between commodities in the market, each with a market value. Because producers are separated from each other in time and space this coordinating process is indirect, marked by fluctuations of individual values and social values. The thesis of the MudPie argument is that these deviations of individual from social value is some sort of flaw in Marx’s theory. But this display’s a profound ignorance of Marx’s theory of value. For Marx this divergence is one of the most important part of the theory of value. This divergence is the mechanism by which labor is apportioned in a society of atomized, isolated individuals competing in the market.

Suggested Reading:

Capital, vol. 1 Karl Marx

Essays in Marx’s Theory of Value, I.I. Rubin

Frontiers of Political Economy, Guglielmo Carchedi