How Ownership Obtains A Return According To Marx

1. Introduction

Elsewhere on the internet, I have been explaining my understanding of some rudiments of the political economy of Karl Marx.

Marx's concept of surplus value is a generalization of the concept of profit, in some sense. Surplus value takes in all returns to ownership, whether they be profits, interest, rent, and so on. Surplus value arises from the distinction between the use value and the exchange value of labor power, a peculiar commodity. Because capitalists own the means of production, they can ensure through their domination of the workers, that laborers work longer than the time needed to reproduce their means of subsistence.

2. A Simple LTV as the Setting of Marx's Theory

Marx explains the generation of surplus value in volume 1 of Capital. For the sake of argument, he assumes a special case in which a simple labor theory of value holds. Market prices tend towards prices of production. When the organic composition of commodities does not vary among industries, prices of production are proportional to labor values. Marx knows this is a special case.

Why assume the labor theory of value? It was a dominant theory at the time. Marx can take it over from Ricardo, albeit he modifies it and critiques it. It also accords with what some socialists think is fair. Marx wants to explain surplus value when nobody is cheating anybody:

"This sphere [of simple circulation or of exchange of commodities] that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all." -- Karl Marx, Capital, volume 1, chapter 6.

This emphasis on fairness in exchange also justifies a lack of focus on market prices. Marx does not want to explain surplus value as 'profits on alienation', on cleverness in buying low and selling high. He is looking for a system-wide explanation, not an explanation arising from lucky transactions.

3. Labor-Power as a Commodity

According to Marx, what workers sell is the capacity to labor under the direction of the capitalist and with materials and equipment provided by the capitalist. Like all commodities, labor-power has an exchange-value and a use-value. The exchange value is its labor value, that is, the amount of labor-time needed to produce the commodities needed to sustain the worker.

The value of labor-power depends on social conventions about what is needed for consumption. Marx, unlike Ferdinand Lassalle, does not hold an 'iron law' of wages. In chapter 25 of volume 1 of Capital, Marx describes how the wage varies with the increase and decrease of the 'industrial reserve army'. Richard Goodwin has a formal model of this aspect of Marx's theory.

The use-value of the commodity of labor power is the expenditure of labor in production. It is the realm of production that we are arriving at after leaving the realm of exchange above. But, before discussing this commodity and its use-value further, I want to note one more statement of Marx's problem domain:

"In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value." -- Karl Marx, Capital, volume 1, chapter 6.

4. On The Existence of Labor-Power

Marx is searching for the preconditions of capitalism and of political economy. He wants his reader to realize that some properties of a commodity-producing economy are not eternal natural-laws, but have a history and a start. They thus might also have an end.

The availability of labor-power for purchase on the market is one aspect of capitalism that has a history. For labor-power to be a commodity, workers must have a double freedom:

"In themselves money and commodities are no more capital than are the means of production and of subsistence. They want transforming into capital. But this transformation itself can only take place under certain circumstances that centre in this, viz., that two very different kinds of commodity-possessors must come face to face and into contact; on the one hand, the owners of money, means of production, means of subsistence, who are eager to increase the sum of values they possess, by buying other people's labour power; on the other hand, free labourers, the sellers of their own labour power, and therefore the sellers of labour. Free labourers, in the double sense that neither they themselves form part and parcel of the means of production, as in the case of slaves, bondsmen, &c., nor do the means of production belong to them, as in the case of peasant-proprietors; they are, therefore, free from, unencumbered by, any means of production of their own. With this polarization of the market for commodities, the fundamental conditions of capitalist production are given. The capitalist system presupposes the complete separation of the labourers from all property in the means by which they can realize their labour. As soon as capitalist production is once on its own legs, it not only maintains this separation, but reproduces it on a continually extending scale. The process, therefore, that clears the way for the capitalist system, can be none other than the process which takes away from the labourer the possession of his means of production; a process that transforms, on the one hand, the social means of subsistence and of production into capital, on the other, the immediate producers into wage labourers. The so-called primitive accumulation, therefore, is nothing else than the historical process of divorcing the producer from the means of production. It appears as primitive, because it forms the prehistoric stage of capital and of the mode of production corresponding with it." -- Karl Marx, Capital, Volume 1, Chapter 26 (my emphasis)

For surplus value to exist, workers must be constrained to work longer than needed to reproduce their wage. The division of the working day into the time to replace wage goods and the time that produces surplus value is not obvious in looking at a single industry. Many workers are producing capital goods, not goods that they consume. Here too one must look at the economy as a whole.

Capitalists can constrain workers to work long enough to produce surplus value because they own the means of production. Production requires labor to work with produced capital goods. These were previously produced by other workers. Because of the products of labor are alienated from the workers, capitalists are able to use their domination of the production process to acquire surplus value. Under this domination, productivity increases and it becomes even more difficult for a group of workers to go into business for themselves.

5. An Exception

In his first draft for Capital, Marx explicitly recognizes that some workers can escape having to sell their labor power. But this cannot be true for workers in general:

"When we look at social relations which create an undeveloped system of exchange, of exchange values and of money, or which correspond to an undeveloped degree of these, then it is clear from the outset that the individuals in such a society, although their relations appear to be more personal, enter into connection with one another only as individuals imprisoned within a certain definition, as feudal lord and vassal, landlord and serf, etc., or as members of a caste etc. or as members of an estate etc. In the money relation, in the developed system of exchange (and this semblance seduces the democrats), the ties of personal dependence, of distinctions of blood, education, etc, are in fact exploded, ripped up (at least, personal ties all appear as personal relations); and individuals seem independent (this is an independence which is at bottom merely an illusion and it is more correctly called indifference), free to collide with one another and to engage in exchange within this freedom; but they appear thus only for someone who abstracts from the conditions, the conditions of existence within which these individuals enter into contact (and these conditions, in turn, are independent of the individuals and, although created by society, appear as if they were natural conditions, not controllable by individuals). The definedness of individuals, which in the former case appears as a personal restriction of the individual by another, appears in the latter case as developed into an objective restriction of the individual by relations independent of him and sufficient unto themselves. (Since the single individual cannot strip away his personal definition, but may very well overcome and master external relations, his freedom seems to be greater in case 2. A closer examination of these external relations, these conditions, shows, however, that it is impossible for the individuals of a class etc. to overcome them en masse without destroying them. A particular individual may by chance get on top of these relations, but the mass of those under their rule cannot, since their mere existence expresses subordination, the necessary subordination of the mass of individuals.) These external relations are very far from being an abolition of 'relations of dependence'; they are rather the dissolution of these relations into a general form; they are merely the elaboration and emergence of the general foundation of the relations of personal dependence. Here also individuals come into connection with one another only in determined ways. These objective dependency relations also appear, in antithesis to those of personal dependence (the objective dependency relation is nothing more than social relations which have become independent and now enter into opposition to the seemingly independent individuals; i.e. the reciprocal relations of production separated from and autonomous of individuals) in such a way that individuals are now ruled by abstractions, whereas earlier they depended on one another. The abstraction, or idea, however, is nothing more than the theoretical expression of those material relations which are their lord and master. Relations can be expressed, of course, only in ideas, and thus philosophers have determined the reign of ideas to be the peculiarity of the new age, and have identified the creation of free individuality with the overthrow of this reign. This error was all the more easily committed, from the ideological stand-point, as this reign exercised by the relations (this objective dependency, which, incidentally, turns into certain definite relations of personal dependency, but stripped of all illusions) appears within the consciousness of individuals as the reign of ideas, and because the belief in the permanence of these ideas, i.e. of these objective relations of dependency, is of course consolidated, nourished and inculcated by the ruling classes by all means available." -- Karl Marx. Grundrisse (my emphasis)

I am not sure where I should have cut the above quotation. I need some reference for "case 2" in the highlighted part. As far as I can see, the Grundrisse reads mostly like the above. By contrast, Capital mostly reads as if it is positivist social science.

Back in the 1960s, one might have thought that the exception would become the rule over a worker's lifetime. If retirement were universal, a group of elderly people would be living off surplus value, so to speak, generated by working-age population. But that is only true for those in the 'formal' part of the economy, and maybe not even always then.

6. Conclusion

Surplus value, according to Marx, is generated by the use value of labor power being potentially a longer time to work than the time needed to reproduce the labor value of labor power. Because of the separation of the means of production from the workers, the capitalists can constrain the workers to generate surplus value. This explanation relies on institutions needed to sustain capitalism.