Unit 3: Marxian Economic Thought - Subjective Questions

Marx's critique of classical economics focused on its failure to explain the historical and social character of capitalism.

• Classical economists such as Adam Smith and David Ricardo examined production, distribution, and value, but often treated capitalism as a natural and permanent economic system.
• Marx argued that economic categories such as wages, profit, rent, capital, and the market are historically specific to capitalism.
• Classical economists recognized that labor was important in determining value, but they could not adequately explain the origin of profit.
• Marx showed that profit arises from the exploitation of wage labor and the production of surplus value.
• He criticized the classical belief that exchange between workers and capitalists is naturally equal. Although workers sell their labor-power at its value, they produce more value than they receive in wages.
• Marx also emphasized class conflict, arguing that capitalism is based on antagonism between the bourgeoisie, who own the means of production, and the proletariat, who sell their labor-power.

Thus, Marx transformed political economy into a critical analysis of the social relations and contradictions underlying capitalism.

A commodity is a product made primarily for exchange in the market rather than for direct personal consumption.

Its two essential characteristics are:

• Use value: A commodity must satisfy some human want or need. For example, food satisfies hunger and clothing provides protection from weather.
• Exchange value: A commodity must be capable of being exchanged for other commodities in definite proportions.

A commodity therefore has both a qualitative and a quantitative aspect. Its use value refers to its usefulness, while its exchange value expresses its social relationship with other commodities through exchange.

Marx argued that commodities are produced under capitalism by workers, but the social labor embodied in them appears in an indirect form as an exchange relation between things. This concealment of social relations is an important feature of commodity production.

Use value and exchange value are two different aspects of a commodity.

For Marx, a commodity must possess use value because no one will buy a completely useless object. However, use value alone does not make a product a commodity. It must also be produced for exchange.

Exchange value is the visible form through which the value of a commodity appears. The underlying basis of exchange value is value, which Marx explained in terms of socially necessary abstract labor.

According to Marx, the value of a commodity is determined by the amount of socially necessary labor time required to produce it.

Socially necessary labor time means the labor time required to produce a commodity under average conditions of production, with average levels of skill, intensity, and technology prevailing in society.

The value of a commodity is not determined by the individual labor time of a particular producer. If a worker takes ten hours to produce an item that can normally be produced in five hours, the commodity does not acquire twice the value. The relevant measure is the socially necessary average.

Value is based on abstract labor, meaning human labor considered without regard to its specific form, such as weaving, carpentry, or farming. In exchange, different kinds of concrete labor are treated as equivalent.

Technological progress generally reduces socially necessary labor time and therefore lowers the value of commodities, assuming other conditions remain unchanged.

Marx distinguished between concrete labor and abstract labor as two aspects of labor embodied in commodities.

• Concrete labor is labor performed in a particular form, such as weaving cloth, baking bread, or constructing a building. It creates the use value of a commodity.
• Abstract labor is human labor considered generally, without reference to its particular form. It creates the value of a commodity.

For example, weaving and tailoring are different forms of concrete labor because they produce different useful products. However, when their products are exchanged in the market, these different labors are treated as comparable quantities of human labor. This common social quality is abstract labor.

The distinction shows that commodities have both a material and a social dimension. Concrete labor explains why commodities are useful, while abstract labor explains why they can be exchanged. Under capitalism, the private labor of individual producers becomes social only through market exchange.

Marx's theory of value is fundamentally a labor theory of value. It states that the value of a commodity is determined by the socially necessary labor time required for its production.

A theory based merely on utility explains value through the satisfaction that consumers obtain from a commodity. Marx considered utility necessary for a product to have use value, but he did not regard utility alone as the source of exchange value.

The differences are as follows:

• Utility is subjective and varies between individuals, whereas socially necessary labor time is a social and objective measure.
• Utility explains why people want a commodity, but labor explains the common basis on which different commodities are exchanged.
• A useful object produced without labor may have use value but does not necessarily have exchange value as a commodity.
• Marx's theory connects value with production and the social organization of labor, not simply with consumption.

Thus, utility explains the usefulness of a commodity, while labor explains its value in capitalist exchange.

Labor-power is the physical and mental capacity of a person to perform work. Labor is the actual exercise of that capacity in the production process.

Marx made this distinction because the worker does not sell labor that has already been performed. The worker sells labor-power to the capitalist for a definite period.

The value of labor-power is determined by the socially necessary labor time required to produce and maintain it. This includes the cost of food, clothing, housing, education, training, and other necessities required to sustain the worker and reproduce the working class.

Once the capitalist purchases labor-power, it can be used for a longer period than the labor time necessary to reproduce its value. For example, if wages represent four hours of necessary labor but the worker works for eight hours, the remaining four hours create surplus value.

This distinction explains how exploitation can occur even when the wage contract appears legally equal.

Surplus value is the excess of the value created by workers over the value paid to them as wages.

The capitalist purchases:

• Means of production, such as machinery and raw materials
• Labor-power from workers

During production, workers transfer the value of raw materials and machinery to the final product, but they also create new value. The value of labor-power is represented by wages, which cover the worker's means of subsistence. However, workers may work beyond the time required to reproduce the value of their wages.

For example, suppose a worker creates value equal to the daily wage in four hours but works for eight hours. The first four hours are necessary labor time, while the remaining four hours are surplus labor time. The value created during surplus labor time is surplus value.

The capitalist appropriates surplus value because the capitalist owns the means of production and controls the production process.

The rate of surplus value measures the degree of exploitation of labor. It is expressed as:

Since variable capital represents wages, the formula can also be written as:

where represents surplus value and represents variable capital.

In terms of labor time:

For example, if necessary labor time is four hours and surplus labor time is four hours, then:

This means that the worker performs an equal amount of necessary and surplus labor. The rate of surplus value is significant because it reveals the relationship between the value received by workers as wages and the value appropriated by capitalists.

Absolute surplus value and relative surplus value are two methods of increasing surplus value.

• Absolute surplus value is obtained by lengthening the working day while keeping necessary labor time unchanged. For example, if necessary labor time is four hours and the working day increases from eight to ten hours, surplus labor increases from four to six hours.
• Relative surplus value is obtained by reducing necessary labor time through higher productivity, improved technology, or lower prices of wage goods, while the total working day remains constant. If necessary labor time falls from four hours to three hours in an eight-hour working day, surplus labor rises from four to five hours.

The main difference is that absolute surplus value increases the total length of labor, whereas relative surplus value changes the division of the working day between necessary and surplus labor.

Both methods increase capitalist profit, but relative surplus value is especially associated with technological change and competition among firms.

Marx divided capital into constant capital and variable capital according to the different roles they play in production.

• Constant capital, represented by , consists of means of production such as machinery, buildings, tools, and raw materials. It transfers its existing value to the final product but does not create new value.
• Variable capital, represented by , is spent on labor-power. It is called variable because labor-power creates more value than its own value represented by wages.

The value of a commodity can therefore be represented as:

where is the value of the commodity, is constant capital, is variable capital, and is surplus value.

The distinction is important because only living labor creates new value and surplus value. Machinery can increase productivity, but it merely transfers its own value to commodities over time.

The organic composition of capital refers to the relationship between constant capital and variable capital as determined by the technical conditions of production. It is commonly expressed as:

where is constant capital and is variable capital.

A rising organic composition means that capitalists use relatively more machinery, equipment, and raw materials compared with the amount spent on labor-power. This generally occurs as capitalist production becomes more technologically advanced.

Its significance includes:

• It shows the changing balance between machinery and labor in production.
• It helps explain the tendency of the rate of profit to fall.
• It reflects the competitive pressure on capitalists to adopt labor-saving technologies.
• It demonstrates the contradiction that capital seeks to reduce labor costs, although living labor is the source of surplus value.

The organic composition is different from the technical composition of capital, although the two are closely related. The technical composition refers to the physical relationship between means of production and labor, while the organic composition expresses this relationship in value terms.

Marx's law of the tendency of the rate of profit to fall is based on the increasing organic composition of capital.

The rate of profit is expressed as:

The rate of surplus value is:

If the rate of surplus value remains constant, an increase in constant capital relative to variable capital causes the denominator to rise faster than the surplus value generated by labor. As a result, the rate of profit tends to fall.

For example, if capital changes from and to and , and the rate of surplus value is , surplus value falls from to . The rate of profit changes from:

to:

Marx described this as a tendency rather than an automatic or uninterrupted decline because several counteracting forces can temporarily raise profitability.

Marx regarded the falling rate of profit as a tendency influenced by counteracting forces. Important counteracting factors include:

• Increasing exploitation: Longer working hours, greater work intensity, or lower real wages can raise the rate of surplus value.
• Cheapening of elements of constant capital: Technological improvements and mass production may reduce the value of machinery and raw materials.
• Expansion of foreign trade: Foreign markets may provide cheaper inputs and profitable outlets for commodities.
• Growth of a relative surplus population: Unemployment and competition among workers can restrain wages and increase profitability.
• Creation of joint-stock capital: The separation of ownership and management can permit profits to be shared in ways that affect the apparent rate of profit.
• Depreciation of existing capital: Economic crises can reduce the value of capital assets and restore profitability for surviving firms.

These factors do not eliminate the underlying contradiction. They merely slow, offset, or postpone the tendency for the rate of profit to decline as the organic composition of capital rises.

Marx viewed capitalist development as a dynamic and contradictory process driven by the accumulation of capital and competition.

The main features are:

• Capitalists reinvest surplus value to expand production and accumulate more capital.
• Competition forces individual firms to introduce new technology and reduce production costs.
• Technological progress increases the productivity of labor but often raises the organic composition of capital.
• Capital accumulation produces a larger industrial reserve army or relative surplus population.
• Production expands beyond the purchasing power of workers, creating the possibility of overproduction.
• Periodic crises destroy commodities, reduce investment, and devalue capital.
• These crises temporarily restore conditions for renewed accumulation but also deepen class antagonism.

Marx therefore rejected the idea that capitalism develops smoothly toward equilibrium. It develops through cycles of expansion, competition, concentration, crisis, and restructuring. Its growth creates immense productive capacity but also generates unemployment, inequality, and instability.

Marx explained capitalist crises as the result of contradictions within the system rather than as accidental disturbances.

Major causes include:

• Overproduction: Capitalists produce commodities in pursuit of profit, but workers' purchasing power is limited by wages. Consequently, commodities may not be sold profitably.
• Disproportionality: Different sectors of the economy may expand at unequal rates, causing imbalances between the production of consumer goods and capital goods.
• Falling profitability: A rising organic composition of capital can reduce the rate of profit and discourage investment.
• Credit expansion: Credit can temporarily increase demand, but excessive debt intensifies instability when repayment becomes difficult.
• Class conflict: Efforts to raise wages may reduce profits, while efforts to lower wages restrict consumption and demand.

A crisis may lead to unsold goods, business failures, unemployment, falling wages, and the destruction or devaluation of capital. It can also create conditions for renewed accumulation by eliminating weaker firms and reducing production costs.

The production of surplus value and its realization are two distinct stages of capitalist accumulation.

• Production of surplus value occurs in the labor process when workers create more value than the value of their labor-power.
• Realization of surplus value occurs when commodities are successfully sold in the market and the value embodied in them is converted into money.

A capitalist may produce commodities containing surplus value, but if the commodities cannot be sold, the surplus value remains unrealized. This creates the possibility of crisis.

The contradiction arises because production is social and potentially unlimited, while consumption is restricted by the distribution of income. Workers receive wages that are generally less than the total value they produce, and capitalists cannot consume all the output themselves.

Credit and foreign markets may temporarily solve the problem, but they cannot permanently remove the contradiction. When markets become saturated, inventories accumulate, prices fall, firms reduce production, and unemployment rises. Thus, crises result partly from the gap between the production and realization of surplus value.

Class struggle is the conflict between social classes with opposing economic interests arising from their different relationships to the means of production.

Under capitalism, the two principal classes are:

• Bourgeoisie: Owners of factories, land, machinery, and other means of production.
• Proletariat: Workers who do not own sufficient means of production and must sell their labor-power for wages.

The capitalist obtains surplus value from the labor of the worker, while the worker seeks higher wages, better working conditions, shorter hours, and greater control over production. These interests are fundamentally opposed.

Class struggle appears in economic and political forms, including strikes, trade union activity, wage negotiations, resistance to workplace discipline, and movements for political change.

Marx considered class struggle the driving force of historical development. Under capitalism, it can develop from spontaneous resistance into class consciousness and organized collective action aimed at transforming the system of production.

The bourgeoisie and the proletariat occupy different positions in the capitalist system, which creates opposing interests.

The capitalist seeks to reduce labor costs, lengthen working time, increase productivity, and control the labor process. Workers seek to limit exploitation and improve their share of the social product.

Although workers and capitalists depend on each other in production, their relationship is unequal and conflictual. This antagonism forms the economic foundation of class struggle.

Exploitation occurs because workers produce more value than the value of their wages. The difference is surplus value appropriated by the capitalist.

Alienation refers to the separation of workers from important aspects of their productive activity. Under capitalism, workers may be alienated:

• From the product, which belongs to the capitalist
• From the process of work, which is controlled by the employer
• From their creative and human potential
• From other workers because of competition and market relations

Class consciousness is the awareness by workers of their common position, shared interests, and opposition to capitalist exploitation. Workers initially may experience hardship individually, but collective organization can transform individual grievances into a broader understanding of class relations.

Class consciousness can encourage trade union organization, political action, and efforts to alter the ownership and control of the means of production.