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.

Is The Labor Theory Of Value Compatible With Automation?

Automation Of Chinese Ports

With automation, many processes for production and distribution now execute with minimal human oversight. How can the labor theory of value, as in volume 1 of Capital, be compatible with this?

Marx has some comments on this subject in the Grundrisse:

The exchange of living labour for objectified labour – i.e. the positing of social labour in the form of the contradiction of capital and wage labour – is the ultimate development of the value-relation and of production resting on value. Its presupposition is – and remains – the mass of direct labour time, the quantity of labour employed, as the determinant factor in the production of wealth. But to the degree that large industry develops, the creation of real wealth comes to depend less on labour time and on the amount of labour employed than on the power of the agencies set in motion during labour time, whose 'powerful effectiveness' is itself in turn out of all proportion to the direct labour time spent on their production, but depends rather on the general state of science and on the progress of technology, or the application of this science to production. (The development of this science, especially natural science, and all others with the latter, is itself in turn related to the development of material production.) Agriculture, e.g., becomes merely the application of the science of material metabolism, its regulation for the greatest advantage of the entire body of society.

Real wealth manifests itself, rather – and large industry reveals this – in the monstrous disproportion between the labour time applied, and its product, as well as in the qualitative imbalance between labour, reduced to a pure abstraction, and the power of the production process it superintends. Labour no longer appears so much to be included within the production process; rather, the human being comes to relate more as watchman and regulator to the production process itself. (What holds for machinery holds likewise for the combination of human activities and the development of human intercourse.)

No longer does the worker insert a modified natural thing as middle link between the object and himself; rather, he inserts the process of nature, transformed into an industrial process, as a means between himself and inorganic nature, mastering it. He steps to the side of the production process instead of being its chief actor. In this transformation, it is neither the direct human labour he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which appears as the great foundation-stone of production and of wealth. The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis. The free development of individualities, and hence not the reduction of necessary labour time so as to posit surplus labour, but rather the general reduction of the necessary labour of society to a minimum, which then corresponds to the artistic, scientific etc. development of the individuals in the time set free, and with the means created, for all of them.

Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary. On the one side, then, it calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it. On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value. Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means, and are merely means for it to produce on its limited foundation. In fact, however, they are the material conditions to blow this foundation sky-high. 'Truly wealthy a nation, when the working day is 6 rather than 12 hours. Wealth is not command over surplus labour time' (real wealth), 'but rather, disposable time outside that needed in direct production, for every individual and the whole society.' (The Source and Remedy etc. 1821, p. 6.)

Nature builds no machines, no locomotives, railways, electric telegraphs, self-acting mules etc. These are products of human industry; natural material transformed into organs of the human will over nature, or of human participation in nature. They are organs of the human brain, created by the human hand; the power of knowledge, objectified.

The development of fixed capital indicates to what degree general social knowledge has become a direct force of production, and to what degree, hence, the conditions of the process of social life itself have come under the control of the general intellect and been transformed in accordance with it. To what degree the powers of social production have been produced, not only in the form of knowledge, but also as immediate organs of social practice, of the real life process. -- Karl Marx, Grundrisse, Contradiction between the foundation of bourgeois production (value as measure) and its development. Machines etc.

I take the paragraphing above from David McLellan's severely abridged version. I think I need a hard-copy version if I am ever going to fully read the Grundrisse. For what it is worth, John Von Neumann has a theory of value for a fully automated economy.

Marx above seems to offer one story of how capitalism will end. An issue exists with finding supposed anti-Marxist arguments echoed in writings unpublished in Marx's lifetime. It is not clear how to working class has a role in the above story. Is this story consistent with what Marx says in Capital, as quoted in Section 4 here? Sundry observations do not neccessarily add up to a consistent theory.

Adam Smith's 'Effectual Demand'

"There is in every society or neighbourhood an ordinary or average rate, both of wages and profit, in every different employment of labour and stock...

There is likewise in every society or neighbourhood an ordinary or average rate of rent...

These ordinary or average rates may be called the natural rates of wages, profit and rent, at the time and place in which they commonly prevail.

When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price...

The actual price at which any commodity is commonly sold, is called its market price. It may either be above, or below, or exactly the same with its natural price.

The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it maybe sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said, in some sense, to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it...

When the quantity brought to market is just sufficient to supply the effectual demand, and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price. The whole quantity upon hand can be disposed of for this price, and can not be disposed of for more. The competition of the different dealers obliges them all to accept of this price, but does not oblige them to accept of less...

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it.

The whole quantity of industry annually employed in order to bring any commodity to market, naturally suits itself in this manner to the effectual demand. It naturally aims at bringing always that precise quantity thither which may be sufficient to supply, and no more than supply, that demand." -- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter VII.

I prefer the term 'prices of production' to Smith's 'natural price'. Smith calling something 'natural' does not mean he approves of it, but I prefer to avoid the argument.

I wish I had access to Alex M. Thomas' 2021 article in The European Journal of the History of Economic Thought.

Adam Smith speaks of supply and demand in the above quotation. These are levels of quantities. Neither is a schedule showing how the quantity quantity supplied and demand varies with prices. These supplies and demands are thus not the curves graphed in introductory courses in contemporary mainstream economics.

I think of 'effectual demand' as being dependent on income distribution. It depends on how landlords, for example, divide up their income among savings, consumption on luxury commodities, and consumption of staples.

Some literature builds on and critiques Smith's metaphor of market prices gravitating towards or around prices of production.

Anyways, suppose all industries are producing at the level of effectual demand. Market prices match prices of production. In this situation, the total labor force of the country is distributed among industries in definition proportions. "The masses of products corresponding to the different needs require[s] different and quantitatively determined masses of the total labor of society."

Karl Marx described these quantities of labor being expended in each industry as "socially necessary".

A Personal Note: My Mind Is Going. I Can Feel It.

So my computer crashed. I hadn't backed it up in a while. But, even so, my backup failed, too. I am currently paying for some specialist organization to restore the data, and they are on their third attempt. The cost seems a lot for an individual, but I feel like I need a lot that is on it.

I am going to buy a new computer, and I have been slow about this. Until I do this, I will not be able to post any mathematical examples. I think that I have posted enough that I can recreate these examples. But I have lost draft introductions and conclusions not in posts. This is always my difficulty, and what I had should probably have rewritten those parts anyways.

I have also lost code, some for applications I do not recall. I have lots of PDFs, some for works I have also in books. I had downloaded PDFs for collected works of Ricardo, Marx & Engels, and Lenin. I am not sure whether these are still freely available.

Anyways, maybe I will post less frequently for quite a while.