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"Understanding the Economic Basics & Modern Capitalism: Market Mechanisms and Administered Alternatives"
by Dan Blatt - Publisher of FUTURECASTS online magazine.

Smith: Wealth of Nations.   Ricardo: Principles.
Marx: Capital (Das Capital).   Keynes: General Theory.
Schumpeter: Capitalism, Socialism and Democracy.

Economics is the miracle science. Even imperfect capitalist markets routinely raise billions out of poverty.

Table of Contents & Chapter Introductions

Karl Marx
(Britannica Great Books translation)

Part I: Value Determined by an Abstract Labor Standard

FUTURECASTS online magazine
Vol. 5, No. 10, 10/1/03.


Karl Marx:
"Capital (Das Kapital)"

Volume 1, Part II: "Contradictions in Capitalist Industrialization."

Volume 2, Part III:  "The Circulation & Expansion of Capital."

Volume 2, Part IV: "Criticism of Adam Smith."

Volume 3, Part V: "Profits."

Volume 3, Part VI: "Interest, Rent & Labor Use-Values."

Introduction to Vol. 1, Parts I & II

Economic value:



  Of those who have waded through "Das Kapital," few - especially among the "Marxists" - had the economic knowledge to evaluate it. Indeed, very few who call themselves "Marxists" - it is widely acknowledged - have ever bothered to even read Karl Marx. This is quite understandable.

The rationalizations begin with a tautology - contain major blatant contradictions - are permeated with distinctions that don't reflect any differences - and are based on definitions and redefinitions of economic terms that are indeterminate, completely without function in the real economy, and applied in slipshod and clearly inappropriate fashion.

  Volume 1 of Das Kapital is 383 small print - densely paragraphed pages in the Britannica Great Books translation. It is composed of tediously interminable, repetitively and minutely detailed rationalizations, that are nevertheless obviously incomplete and irrational. About 100 pages are dedicated to presenting the undoubted horribles of economic life in the 19th century and in the several centuries prior to that period.
  This is continued through the next two volumes, as well - in total, approximately 1800 pages. The primary affect of this design is to smother the many omissions and flaws of logic - and thus to shed much heat while providing little light. Yet, the concept of capitalism presented can all be accurately stated in a few paragraphs.

  • Only productive labor adds value to the commodities produced. Labor itself is "a particular commodity" - "labour power" - that is saleable like a commodity - and is measurable in terms of an abstract labor standard - based on duration of average simple unskilled subsistence wage labor. The "labor power" standard can be used as a unit of measure like the "horsepower" standard.

  • Capitalists - as owners of capital - contribute no labor to commodities and thus contribute nothing of value to production.

  • Commercial factors contribute no industrial labor to commodities, and thus contribute nothing of value to production,. At most, they just prevent loss of value during circulation.

  • Capitalist wealth is totally due to egregious misappropriations of productive assets beginning as far back as the period of the breakup of feudalism - "primitive accumulation" - and/or to the subsequent exploitation of laborers who have been separated from the means of production and thus made dependent on capital.

  • Capitalists are thus entitled to nothing back from the productive process except the wages they pay for labor. Anything more that they receive constitutes "surplus value" that they have extracted by the unjust exploitation of labor.

  • All capitalist expansion is achieved only by capitalizing the surplus value wrongfully obtained by the exploitation of labor.

  • Therefore, the capitalist ownership interest can be dispensed with without economic loss - with considerable justification - and with gain from the elimination of capitalist exploitative conduct.

  • The natural course of capitalism is towards greater concentration of wealth and power. Continuous increases in productivity cause overproduction, squeeze profits, cause periodic economic crises, and make "redundant" an ever enlarging "reserve army" of unemployed and underemployed workers. Capitalists respond to these factors by mercilessly imposing ever harsher working conditions and by squeezing more labor for lower wages from their workers.

  • The plight of labor must thus inevitably worsen as capitalists greedily  strive to maintain and increase their profits. Ultimately, an ever more numerous and aroused proletariat will overthrow their capitalist bosses and retake control of productive assets. See, Karl Marx, "Capital (Das Kapital)" vol. 1, Part II, "Contradictions Asserted in Capitalist Industrialization."

  Note: Throughout these articles on Volume 1 of Das Kapital, the term "profits" is used as normally defined - NOT as redefined by Marx in Volume 3.

Das Kapital is full of obvious important internal inconsistencies, a basic reliance on tautological reasoning, numerous distinctions without practical difference, bald denials,  selective - one hand clapping - analyses of causation, semantics games based on sly and nonfunctional definitions and redefinitions of terms, and a host of omitted essential factors.


Even Marx, although working feverishly on Das Kapital for about three decades, ultimately found it impossible to work logically with his own ideas.

  There are obvious answers to this narrow Marxist view of the labor theory of value and the expectation of chronic capitalist crisis.

  • In the modern world, most of the value produced by labor and capital is attributable to management. This was true even well before the middle of the 19th century.

  • Without the incentives of the ownership interest - and the signals provided by commercial and capitalist markets - good management is impossible. Indeed, so important are the ownership incentives that - even with market signals - government management is INHERENTLY inept.

  • In socialist nations that lack both ownership incentives and market signals, "government economic management" is an oxymoron.

  • That goods in the market are worth more than goods on the manufacturer's loading dock is observable fact. This additional value can only come from the commercial factors that bring goods to market.

  • Workers have in fact been visibly improving their lot in the advanced capitalist nations since the middle of the 18th century, and a growing middle class has been providing an ever widening array of goods and services that are clearly far more than just "luxuries."

  • Increases in productivity always permit an economy to produce more goods and services than before - as well as new goods and services that previously could not be economically provided. The changes caused by increased productivity always bring more opportunities than hardships.

  Adam Smith evenhandedly recognized both the abuses and economic contributions of industrialists, financial institutions and merchants - with explanations that are both brief and remarkably clear. See, Adam Smith, "The Wealth of Nations," (Part I - "Market Mechanisms"). Karl Marx, on the other hand, created a dense rationale for emphasizing the undoubted abuses and arguing that all the contributions of the capitalist ownership interest and capitalist financial systems are of no value and can thus be dispensed with.
  Schumpeter explained many of the glaring weaknesses in Marx' doctrine even while accepting Marx as “the one great socialist thinker” for providing the first comprehensive theory of socialism. See, Schumpeter "Capitalism, Socialism, and Democracy," at segments on "Socialist expectations," and "Evaluation of Marx."
  Keynes’ “General Theory” is dependent on a
host of important elements in Marx’ doctrine. While rejecting Marx’ criticism of exchange values, private property, paper money and competitive markets,  Keynes is considerably less than an ardent defender of many of these basic concepts of capitalist markets. See, Keynes, The General Theory (I), Keynesian theory. and Keynes, The General Theory (II), Interest Rates, Aggregate Demand, and the Business Cycle.
  Repeatedly, Marx' logic breaks down.
To deal with these problems, Marx relies on semantics games based on definitions and redefinitions of terms that even Marx and Engels are ultimately forced to acknowledge as functionless.  Instead of definition being dependent on reality, reality is viewed as a malleable thing that can be made dependent on Marx’ definitions.
  In addition, there are obvious important internal inconsistencies, a basic reliance on tautological reasoning, selective - one hand clapping - analyses of causation, numerous distinctions without practical difference, bald denials, and a host of omitted essential factors - as will be presented throughout these articles. They demonstrate that even Marx and Engels - although working feverishly on Das Kapital for about three decades - ultimately found it impossible to work logically with his own ideas.

The labor definition of value is exclusive because other things of value in the market don't meet it. Things of value that don't involve industrial labor have no value because they don't involve industrial labor.

  Glaringly omitted from the Marx definition of economic value are all the factors that contribute to economic production of goods and services but that have no direct relation to labor on commodities as defined by Marx. Marx perforce recognizes a few of these omissions - things that are bought and sold in the market - things that have a market price - like honor and conscience. Quite unscientifically - and in this instance with remarkable brevity - buried in the bowels of the book - he has recourse to a tautology.
  His narrow labor definition of value - limited to industrial labor use-values - is exclusive because other things of value in the market don't meet it. Things of value that don't involve industrial labor have no value because they don't involve industrial labor. Since the labor theory of value is scientific truth, it cannot be undermined even by a multitude of obvious exceptions some of which he expressly recognizes as of economic benefit. Any value that doesn't conform to his definition of value must therefore be "imaginary." He is the Wizard of Oz exclaiming: "Pay no attention to those values behind the curtain."
  Thus omitted from economic value - besides honor and conscience - are such obviously essential economic factors as

  • private property,

  • reliability,

  • courage, 

  • variety, 

  • savings,

  • financial independence,

  • financial security,

  • scarcity,

  • rarities like works of art and antiques,

  • the absorption of risk,

  • the universe of financial services,

  • the time cost of money (interest rates), 

  • the time cost of productive assets,

  • the productive incentives of the ownership interest,

  • the commercial activities that bring goods to market,

  • competition, without which efficient management is impossible,

  • all of the management tools available only to profit-seeking enterprises, without which efficient management of complex economic entities is impossible, and

  • all the signals provided by competitive commercial and capitalist markets, without which efficient management is impossible.

  Late in Volume 3, Marx notes in a single sentence that works of art and such are not a part of these "scientific investigations."

After all, who needs all those management processes of capitalism if they can all be replaced simply by the issuance of communist directives?

  Two centuries of socialist experiments at all levels would fail abysmally because of their inability to efficiently function without such factors.

  • Deferred maintenance and inability to keep up with technological advances would be particular problems with socialist experiments at the national level due to the absence of such factors as ownership incentives and the time cost of money.

  • The factor of quality would prove difficult to evaluate - and variety an impossibility.

  • The lack of incentive for diligence would be a problem for all socialist enterprises that are managed in an egalitarian manner. Under egalitarian socialism, the average level of labor intensity would drop precipitously. In the Soviet Union, the workers would explain: "We pretend to work, and they pretend to pay us."

  • A lack of competition would be a prescription for gross inefficiency in any system - even capitalist systems.

  • No other system is as reliant on ethics as capitalism. It runs on trust and reliability at every level - one of the primary reasons for its efficiency and success. That there are failures and scandals is not nearly so remarkable as the relative infrequency with which they occur.

  • The incentives of the ownership interest - which are peculiarly sensitive to the risks and rewards of enterprise - provide the only mechanism with which to even roughly balance optimism with pessimism - ambition with caution - greed with fear - to generate prudent action.

  • Exploitation of labor by the state in autocratic socialist systems would routinely prove far more onerous - and far more inescapable - than even the worst examples of exploitation by capitalists - and would invariably fail to produce promised levels of economic development..

  With incredible naïveté, Marx - and the Marxists that came after him - would assume that socialist systems would solve all their managerial problems simply by employing managers and issuing appropriate directives. As Schumpeter acknowledges, they can always back up their directives by terror and the use of force. See, Schumpeter "Capitalism, Socialism, and Democracy," at segment on "The road to serfdom." After all, who needs all those management processes of capitalism if they can all be replaced simply by the issuance of socialist directives?

Marx commits the ultimate sin in economics - he is not practical. Any concept of value that cannot be accurately and readily calculated is useless for the fundamental purpose of allocating scarce resources.


Marx is attempting to clap with just one hand. True, that one hand is responsible for the clapping - but not alone - or even predominantly. And worse - Marx offers just half a hand - omitting for his propaganda purposes major factors even on the supply side.

  However, the impracticality of the Marxist abstract labor standard would be the most damaging weakness. For all his dense explanations:

  • Marx' abstract labor standard can only be applied  to simple tasks dictated by the pace of industrial machines.

  • Marx - and the Marxists who followed him - would fail to explain how his abstract labor standard of value would apply to the vast mass of real labor that - because of talent, diligence and/or skill - rises above average levels.

  • Indeed, they would never be able to determine how much unskilled labor of each particular type and level of diligence is needed to reach subsistence labor levels, even when the pace of work is dictated by machinery.

  • Thus, rapid calculations of  "undifferentiated human labor" values for each of the myriad of products and services produced in an economy would prove impossible. "Labor power" is not anything like the physically measurable "horsepower" standard which is applied in turn to physically measurable phenomena.

  Economics, after all, is a practical art by which scarce resources are allocated. Marx commits the ultimate sin in economics - he is not practical. Any concept of value that cannot be accurately and readily calculated is useless for the fundamental purpose of allocating scarce resources.
  Marx, himself, would repeatedly be forced to have resort to market prices as an approximation. Where there are no market prices - as in socialist experiments based on administered prices - it would remain impossible to evaluate real labor in terms of the standard labor unit devised by Marx.
  Marx is attempting to clap with just one hand - consisting of factors of supply. True, that one hand is responsible for the clapping - but not alone - or even predominantly. And worse - Marx offers just half a hand - omitting  for his propaganda purposes  major factors even on the supply side.
  The pricing mechanism of even modestly competitive capitalist markets easily proves far superior to all subsidization schemes and administered pricing alternatives. "Rationing by the purse" invariably proves to be the most efficient - and the fairest - method of allocating scarce resources. Capitalist systems, too, would prove grossly inefficient whenever administered prices were substituted for market prices - or whenever markets became almost totally uncompetitive. 
  The economic impact of government intervention to assist a needy few inevitably pushes up costs in the pertinent markets to the point where practically everybody becomes dependent on government to access those markets. Major segments of the vital health care industry are providing a prominent example - and are staggering under the burdens of administered pricing procedures. The costs of education are being driven out of reach by government subsidies. Housing costs repeatedly balloon uncontrollably. The costs of public governance rise out of control in many jurisdictions.

Propaganda myths:



  Rationalization is not reason! Das Kapital is a massive exercise in rationalization almost entirely devoid of reason. It is useful only as a propaganda myth, at which it proved spectacularly successful. Nevertheless, many of the most important elements of Marx propaganda myth continue to be widely accepted and remain relevant into the 21st century.

A) The "Science" Propaganda Ploy

Pseudo science:



  The propaganda purpose of this book becomes apparent even before it begins. Marx starts right off in his Preface to the second edition by invoking the science propaganda ploy - a common practice for him by this time. After all, who can doubt the word of "science?"

Marx predicts the imminent demise of capitalism.

  However, the approximately one dozen forecasts made in this book on the basis of its "scientific" theories turn out to be almost entirely in error. It is the most basic principle of science that when forecasts go wrong, something must be amiss with the theory. What could it be?

  Keynesians today insist that they should not be expected to offer accurate forecasts. They insist that economic developments cannot be forecast. They insist that we must accept their expertise and take their assertions on the basis of faith, no matter how often their expectations prove in error.

  Within the three books, approximately 1800 pages, of Das Kapital, Marx did manage to get some things right. Most important, Marx recognized the working class as an existing or potential source of social power. Marx also provided a theory of concentration foretelling the consolidation of the great industrial giants that would blossom towards the end of the 19th century, and the social situation they were bound to create.
  The ridiculousness of this claim to scientific certitude is immediately revealed when Marx - in the same 1873 Preface (during a time of economic recession) - confidently and smugly predicts the imminent end of days of capitalism. The bourgeois economy was already "in the time of its decline" in the advanced Western nations. The business cycle was visibly - to Karl Marx - reaching the point of capitalist overproduction where it would produce an economic collapse that would be chronic and catastrophic.

  "The contradictions inherent in the movement of capitalist society impress themselves upon the practical bourgeois most strikingly in the changes of the periodic cycle, through which modern industry runs. That crisis is once again approaching, although as yet but in its preliminary stage; and by the universality of its theatre and the intensity of its action it will drum dialectics even into the heads of the mushroom-upstarts of the new, holy Prusso-German empire."

  Of course, the "mushroom upstarts" would prove to be the Marxists. The last quarter of the 19th century would be a period of unprecedented economic growth and widening prosperity in capitalist nations - and although not without serious problems, the 20th century would be much better.
  Like certain religious sects that are forever expecting the imminent Apocalyptic end of days or the coming of the Messiah, Marxists and some socialists and Keynesian economists - even as late as the 1990s - would stupidly expect every downturn in the business cycle to develop into the predicted chronic depression of  "mature" capitalism.
  So much for scientific certitude. For Marx as for so many other ideologues, reality is perverse. It simply refuses to conform to ideological expectations.

Economics is a nonscientific practical art - requiring a professional analytical approach.


Karl Marx is very aware of the propagandistic use of the term "science," and repeatedly accuses others - especially other socialists - of this propagandistic misuse of the term. 

  Economics is not a "science" in any meaningful sense of that term.  It is a nonscientific practical art - requiring a professional analytical approach - like law and accounting and warfare and the delivery of health care - and like politics and sociology - two other fields with stupid pretensions to scientific status.
  Scientific certitude - something that is not without considerable variability even within those experimental sciences that enjoy broad access to the full scientific method - is the closest to absolute certainty that humans can rationally come.
  However, the "scientific method" is not broadly available in the nonscientific practical arts. The availability of  some useful scientific tools is not sufficient to broadly provide scientific certitude in such fields. The availability of paints and brushes made scientifically by Dupont does not change painting into a "science."
  The most that can be expected in these fields is the opinions of professionals. Such professional opinions - when offered by professionals with deep understanding of their fields - can be remarkably reliable - but scientific certainty they cannot provide.
  Only propagandists - and the ignorant - speak of economics and these other fields as "science." Karl Marx is, of course, very aware of the propagandistic use of the term "science," and repeatedly accuses others - especially other socialists - of this propagandistic misuse of the term. This pot does not hesitate in calling the kettles "black."

In Das Kapital, the obviously vital productive roles of capitalist commerce and private ownership interests are being rationalized away and made to disappear.

  For Karl Marx is here performing propaganda magic. Like Lamont Cranston - "The Shadow" back in the days of radio drama - he is clouding the eyes of the suitably credulous so that obvious aspects of  reality seem to disappear.
  In Das Kapital, the obviously vital productive roles of capitalist commerce and private ownership interests are being rationalized away and made to disappear -  for a surprisingly large class of suitably credulous people. Many of these people nevertheless pride themselves on being part of an "intellectual elite" - knowledgeable of worldly matters - and capable of taking charge of and managing the economy of a communist system.
  Most of these true believers never plumb the depths of the caliginous bog of interminable rationalization tedious with detail and repetition - but nevertheless glaringly incomplete - with which Marx blinds their eyes. With the faithful - those that blindly follow Marxism as a secular religion - those ideologically willing to be blinded to reality - Marx succeeds magnificently.
  Karl Marx is clearly the modern world's most successful propagandist. However, his economics is grossly incompetent - as is shown throughout this review. There is, after all, a major difference between "rationalization" and "reason."

B) The Labor Theory of Value

The "value" of commodities:

  Identification of the "socially recognized standards of measure" of useful objects in commerce - of commodities - is the problem with which Marx begins this work. 

For the determination of the magnitude of value by labor time, Marx creates a "uniform labour power" standard  - "human labour in the abstract" - based on homogeneous, simple, unskilled, subsistence wage labor.

  Market exchange values are stated in constantly fluctuating sums of money or in barter commodities as defined by the market without any concern for the use values of the items - although the fact that the items have use value is inherent in their marketability. Market exchange values are also unconcerned with the particular labor involved in bringing items to market - but labor is clearly a major factor affecting market exchange values. In the market, all goods "are reduced to one and the same sort of labour, human labour in the abstract."
  This "human labour in the abstract"
is "a mere congelation of homogeneous human labour, of labour power expended without regard to the mode of its expenditure." It is embodied in every marketable object as "values."
  This abstraction is essential for "the determination of the magnitude of value of labour time" because the value of labor is subjective - it varies immensely not just with measurable duration but also with factors of skills, quality and variety that are not directly measurable. The value of the unskilled idler, Marx notes, is not worth as much per hour as that of the diligent skilled craftsman.

"The labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time."

  Marx thus must create an abstraction - an objective labor standard of value - both for propaganda purposes and as an alternative to capitalist market exchange values.

  • It must be "abstract" - not dependent on actual labor expended.

  • It must be "simple" - based on the effort required of unskilled labor to achieve subsistence.

  • It must be "homogeneous" - "one uniform labour power" - an average - existing similarly in all marketable items.

  Unlike "horsepower," however, it is not a fixed measurable physical standard for application to other measurable physical phenomena. Marx recognizes that it must change with changes in the various conditions of production and the needs of society. It is impossible to apply to labor that by talent and/or skill rises above the simple, unskilled subsistence level. It cannot by itself even determine how much of each of the multifarious forms of labor working under multifarious conditions is actually needed to cover subsistence costs.

  • It must be "socially necessary" - to eliminate useless labor. This factor is something else that is highly variable.

  This requirement that labor be "socially necessary" is especially important, because it is the only objective factor that ties the narrow industrial labor concept of "value" to the market. This factor must be constantly kept in mind since Marx persistently violates it, as will be persistently demonstrated herein.

  However, these "values" are constant - rigid - changeable only slowly over long periods with changes in the industrial factors of production - and totally unresponsive to the wishes of consumers. Actual day-to-day conditions in the market have no impact on values. They only affect the extent to which such values can be "realized" in terms of money.
  In one of his numerous digressions - here during discussion of ground rents in Volume 3 - Marx provides an explanation of the extent to which production in excess of  "social need" affects "value." In short, it doesn't affect "value" at all. "Value" remains the same - a constant in the short run. However, it becomes "impossible to realize the value of the commodity and thus the surplus-value contained in it," if goods are overproduced.

  "[Assuming that] too much cotton goods have been produced, [then] too much social labour has been expended in this particular line; in other words, a portion of this product is useless. It is therefore sold solely as if it had been produced in necessary proportions."

  It is hard to know where to begin to explain the multiple weaknesses revealed in this short digression.

  • Marx has just eliminated the only objective factor he recognizes on the demand side that can provide guidance on immediate market conditions for producers. "Value" is totally supply driven - and driven by only a narrow part of the supply-side factors. The market just determines the cutoff point, after which these values are being produced in excess.

  • This view of consumer markets is totally rigid, unresponsive and simplistic. While "value" can at least change over time, "social need" is a fixed quantity, not subject to expansion or contraction in response to price changes due either to market conditions or changes in production or substitution among similar products. In the workers' paradise, everyone must live like monks. Nobody is entitled to own an extra shirt, or an extra dress - or to aspire to higher quality goods or items of greater variety. Marx is concerned only with subsistence level living.

  • "Social need" is fixed in time. Cotton goods are not even perishable, yet an oversupply renders some of it "useless." There is no expectation in this paragraph that time and producer responses to market conditions can ultimately allow the market to clear with all goods sold.

  • Other than the oversupply, the rest is sold "solely as if it had been produced in the necessary proportion." There is here no indication of decline in value or even of price - nothing to signal producers to reduce production until the market clears - no appreciation of factors that permit flexible and sensitive response to supply and demand  conditions.

  Marx, of course, is fully aware of the functioning of capitalist markets. How capitalists are dominated by the forces of market competition is a pervasive theme in Das Kapital. Substitution effects apply even for necessities. Consumption can vary over time even for necessities.
  In Volume 3, he recognizes that "it is not true that the consumption of necessities of life does not increase as they become cheaper. The abolition of the Corn Laws in England proved the reverse to be the case." Sudden price variations may be met with an inelastic demand curve, but price changes over time will affect consumption. Also, he recognizes that necessities can be produced for non-essential uses - as when grains are used for whiskey. Also, substitution effects apply when more than one type of commodity can fill necessary requirements. And, international trade introduces additional elements of elasticity into a market for necessities.

  However, his basic attitude towards those functions caused this remarkable slip-up. Market functions have no value and are unnecessary.

  Numerous direct contradictions arise throughout Das Kapital because of this obvious requirement that labor be "socially necessary." This becomes painfully clear in Volume 2 when Marx tries to dismiss as "an illusion" all value dependent on commercial activities that don't directly involve the industrial laborer. See, Karl Marx, Capital (Das Kapital)  (vol. 2 Part III), "The Circulation and Expansion of Capital," and Karl Marx, Capital (Das Kapital) (vol. 2 Part IV, "Criticism of Smith's Definition of  Capital."

  Incredibly, not only Marx, but all Marxists ever since would remain dumb with respect to the extent that their narrow labor theory of value - limited to industrial labor use-values - necessarily violates this essential requirement that labor be "socially necessary."

  • It must be embodied in "commodities."

 "Each of these units is the same as any other, so far as it has the character of the average labour power of society, and takes effect as such; that is, so far as it requires for producing a commodity no more time than is needed on an average, no more than is socially necessary. The labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time."

Homogeneous commodities all are measured by the same kind of value regardless of the actual labor employed in bringing them to market.

  Marx then must define "commodity."

  • It must be "an object of utility."

  • It must require labor - not be freely available like air or water.

  • It must be produced for others - not just for the personal use of the producer.

  • It must be transferred by "exchange" in the market - not provided to others as a servitude.

  Marx would forget these last two requirements when insisting that Adam Smith was in error for stating that seeds retained by a farmer are among his "fixed assets." Marx insisted they were "commodities" that the farmer "sold to himself."

  • Labor itself is also a "value" exchangeable in the market, but it is "a particular commodity" with peculiar characteristics.

  Thus, homogeneous commodities all are measured by the same kind of "value" regardless of the actual labor employed in bringing them to market. They "are only definite masses of congealed labour time." They embody not just utility, but also value for exchange for other commodities.

  As much trouble as socialist experiments had in assigning values to homogeneous commodities, they would prove totally incompetent with non homogeneous commodities. Factors of quality and variety were beyond their capacity to deal with. The world of services - inherently variable - was alien territory. And, of course, valued characteristics that were not the product of labor - characteristics both useful and scarce - like honor, courage - and the incentives of ownership - are dogmatically excluded from the system - laughably dismissed as "imaginary" values - because of the lack of industrial labor involved in their creation.

The abstract labor standard is "human labour pure and simple" that need only be defined in units of time for purposes of the calculation of values.


When coats are exchanged for linen, the exchanged items clearly have different values in use, but they have the same value in exchange - which is measured by Marx in equivalent amounts of "labour in its abstract character."

  To make his labor standard "homogeneous," Marx reduces it to its lowest common denominator - "unskilled, simple labor." This is "human labour pure and simple" that need only be defined in units of time for purposes of the calculation of values.
  As Adam Smith pointed out for the wage laborer, it is a constant determined by what is required for the laborer and his family to survive and reproduce. While the subjective value in utility - "use value" - and the objective value in exchange - "exchange value" - of the products of this labor vary with the momentary changes in various  factors - the abstract, objective simple labor standard itself remains relatively constant - affected only by changes in long run factors of productivity and use.
  By the time Marx is writing, the level of productivity is a capitalist level - and no unskilled labor could produce enough commodities to subsist with a family without the tools and materials supplied by capitalists. All "unskilled, simple labor" has been rendered by capitalism to below subsistence level if acting by itself - and must thus depend on capital to survive. See, "Surplus labor," below.
  Exchange values are objective and precisely determinable. However, they are inevitably influenced by abstract human labor values no matter what the different forms of labor actually applied in bringing the exchanged items to market. Thus, weaving, "in so far as it weaves value, has nothing to distinguish it from tailoring, and, consequently, is abstract human labor" when coats are exchanged for a particular amount of linen in the market. "The value of a commodity obtains independent and definite expression by taking the form of exchange value."
  Marx spends inordinate time explaining this difference between the subjective use values of items and their objective values in exchange. When coats are exchanged for linen, the exchanged items clearly have different values in use, but they have the same value in exchange - which is measured by Marx in equivalent amounts of "labour in its abstract character." How many coats can be exchanged for how much linen is determined by productivity - which is a variable for "labor in the abstract."

  Marx recognizes the magic of the market. In the bargain, each party gives up a value - which the bargain makes objectively determined - and receives use value - which remains subjective within the recipient. Absent mistake, the values given up - the abstract labor values - are equivalent. Not so the use values.
  Absent mistake, the objectively determined exchange value given up is the minimum that the subjective use value can be - and the use value will usually be more - even considerably more - so that both sides feel that they have gained in the bargain. Moreover, by specialization, market participants may considerably increase the saleable labor value they bring to market and with the proceeds thus procure far more use values from the market.

  "With reference, therefore, to use-value, there is good ground for saying that 'exchange is a transaction by which both sides gain.'"

  However, in terms of labor value, there is no gain, for they have given value for value.
  Similarly, in the bargain, particular types of labor are manifested in amounts of "abstract human labor" that can be compared by means of the exchange of the commodities produced. Even though different forms of "concrete labour" cannot be directly compared, by manifesting itself in its opposite, "abstract human labour," comparisons can be made.

The labor that creates one type of commodity "stands expressly revealed as labour that ranks equally with every other sort of human labour."


It is the magnitude of value that controls exchange proportions.

  For barter economies, a value relationship must be calculated between each commodity and all other commodities in trade. Each isolated exchange results in a "different elementary expression" of value that must be repeated for each of the numberless commodities in the economy. Here it is revealed that value "in its true light" is just "a congelation of undifferentiated human labour."
  The labor that creates one type of commodity "stands expressly revealed as labour that ranks equally with every other sort of human labour, no matter what its form, whether tailoring, ploughing, mining, etc., and no matter, therefore, whether it is realized in coats, corn, iron, or gold." This equality of labor places all commodities in "a social relation - - - with the whole world of commodities." The particular forms of use value have become irrelevant.
  The values as determined by barter between two commodities may be mere accident, but the complex of values throughout a complex economy cannot be accidental. Thus, "it becomes plain that it is not the exchange of commodities which regulates the magnitude of their value; but, on the contrary, that it is the magnitude of their value which controls their exchange proportions." And that value is determined by the "undifferentiated human labour" congealed within each commodity.

The money commodity:

  Money begins to come into existence when the value of all other commodities is expressed when exchanged for one particular commodity.

The money commodity becomes the universal equivalent.

  Marx carves this process up into four distinct steps, which he explains in tedious length.

  "The expanded form of value comes into actual existence for the first time so soon as a particular product of labour, such as cattle, is no longer exceptionally, but habitually, exchanged for various other commodities."

  As soon as a particular commodity is designated to fulfill this role, we have money.

  "By this form, commodities are, for the first time, effectively brought into relation with one another as values, or made to appear as exchange values."

  With the advent of a money commodity, in order for each commodity to express its value simultaneously in terms of all other commodities, it must refer to the same equivalent as used by all other commodities. The money commodity becomes "the universal equivalent."

  "It thus becomes evident that, since the existence of commodities as values is purely social, this social existence can be expressed by the totality of their social relations alone, and, consequently, that the form of their value must be a socially recognized form."

  The "undifferentiated human labour" in the money commodity is the equivalent of that in all other commodities. It becomes "the social résumé of the world of commodities." That the labor is "human labor constitutes its specific social character." In the 19th century, the money commodities were metallic - most widely gold and silver.

Social fictions:

  Commodities thus manifest both perceptible utility in use, and imperceptible value in exchange.



"[With commodities], the value relation between the products of labour, which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. There it is a definite social relation that assumes, in their eyes, the fantastic form of a relation between things."

  For Marx, this value in exchange is a fantastical relation between things and other things and between all these things and man - a figment of the human mind - much like the religious imaginings of gods, and the imaginings of interactions among gods and between man and the gods.

  "A commodity is, therefore, a mysterious thing simply because in it the social character of men's labour appears to them as an objective character stamped upon the product of that labour, because the relation of the producers to the sum total of their own labour is presented to them as social relation, existing not between themselves, but between the products of their labour. This is the reason why the products of labour become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses. - - - [With commodities], the value relation between the products of labour, which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. There it is a definite social relation that assumes, in their eyes, the fantastic form of a relation between things. - - - This I call the fetishism which attaches itself to the products of labour, so soon as they are produced as commodities, and which is, therefore, inseparable from the production of commodities."

"The equalization of the most different kinds of labour can be the result only of an abstraction from their inequalities, or of reducing them to their common denominator, viz., expenditure of human labour power in the abstract."

  In the production of commodities, human labor, too, takes on a social character. This social character does not show itself, however, until the products of that labor - the commodities that were produced - are exchanged in the market.
  Marx goes into typical repetitive detail in explaining the character of labor when engaged in producing goods of a useful nature for market. The following is a brief relatively accessible sample.

  "[To the producers], therefore, the relations connecting the labour of one individual with that of the rest appear, not as direct social relations between individuals at work, but as what they really are, material relations between persons and social relations between things. - - - This division of a product into a useful thing and a value becomes practically important only when exchange has acquired such an extension that useful articles are produced for the purpose of being exchanged and their character as values has therefore to be taken into account, beforehand, during production. - - - [This labour] must, as a definite useful kind of labour, satisfy a definite social want, and thus hold its place as part and parcel of the collective labour of all, as a branch of a social division of labour that had sprung up spontaneously. On the other hand, it can satisfy the manifold wants of the individual producer himself, only in so far as the mutual exchangeability of all kinds of useful private labour is an established social fact, and, therefore, the private useful labour of each producer ranks on an equality with that of all others. The equalization of the most different kinds of labour can be the result only of an abstraction from their inequalities, or of reducing them to their common denominator, viz., expenditure of human labour power in the abstract. - - - [In the exchange of products], the character that his own labour possesses of being socially useful takes the form of the condition that the product must be not only useful, but useful to others, and the social character that his particular labour has as being the equal of all other particular kinds of labour, takes the form that all the physically different articles that are the products of labour, have one common quality, viz., that of having value."

"The determination of the magnitude of value by labour time is therefore a secret, hidden under the apparent fluctuations in the relative values of commodities."

  Marx presents the labor theory of value as a great discovery - a discovery begun by economists like Smith and Ricardo, but only brought to completion by Marx - a discovery equivalent to that of laws of nature like gravity. That it is hidden behind the money form of values serves to conceal "the social character of private labour, and the social relations between the individual producers."

   "[In] the midst of all the accidental and ever fluctuating exchange relations between the products, the labour time socially necessary for their production forcibly asserts itself like an overriding law of nature. The law of gravity thus asserts itself when a house falls about our ears. The determination of the magnitude of value by labour time is therefore a secret, hidden under the apparent fluctuations in the relative values of commodities. Its discovery, while removing all appearance of mere accidentality from the determination of the magnitude of values of products, yet in no way alters the mode in which that determination takes place."

  Unfortunately, absent guidance from a fairly competitive market, the abstract, simple human labor standard is impossible to apply to either labor or commodities.

  To begin his attack on the bourgeois form of production, Marx provides an account of other forms of production in history and in contemporaneous societies. The "fantastical" bourgeois form is neither a law of nature nor immutable.

The impact of economic exchange:



  Commodities become commodities by their exchange. By exchange, they both achieve exchange value for the provider and use value for the purchaser. Only by exchange does the labor spent upon them prove itself "useful for others." Indeed, "the labour spent upon them counts effectively only in so far as it is spent in a form that is useful for others."

Because of the market economy and money, the relations of producers "to each other in production assume a material character independent of their control and conscious individual action."

  Property rights are an essential feature of exchange. In tribal communities, where all property was held in common, exchanges occurred only at the margins, between one tribe and another with the property each community owned. However, as soon as such exchanges turn property into commodities, they are viewed as such for internal intercourse as well. "What makes them exchangeable is the mutual desire of their owners to alienate them" to acquire the "foreign objects of utility" that they can be exchanged for.
  Ultimately, some "products of labour" will routinely be produced not for their use value or consumption, but for what they can bring in exchange.

  "From that moment the distinction becomes firmly established between the utility of an object for the purposes of consumption, and its utility for the purposes of exchange. Its use value becomes distinguished from its exchange value."

  The proportions with which they are exchanged is dependent on the labor in their production. Custom soon "stamps them with values of definite magnitude." These values come to be measured in relation to the money commodities - in the 19th century, gold and silver. These appear to become even in their raw form "the direct incarnation of all human labour."
  Once established, money appears to take control of the production process.

  "Hence the magic of money. In the form of society now under consideration, the behavior of men in the social process of production is purely atomic. Hence, their relations to each other in production assume a material character independent of their control and conscious individual action."

Money and the circulation of commodities:









    Thus, the riddle of money is "the most glaring form" of the riddle of commodities. Marx reviews the various roles played by money.

  1) Money is the measure of value of all other commodities.

  "The value, or in other words, the quantity of human labour contained in a ton of iron, is expressed in imagination by such a quantity of the money commodity as contains the same amount of labour as the iron."

  Marx cites the price fluctuations of gold and silver bullion. The impossibility of separating gold and silver money from the impacts of those fluctuations is proof of the continued relationship between money and its commodity form.

  2) Money is also the standard of price because it can be divided accurately into particular units - for silver, into pounds and ounces. However, because of centuries of debasement by kings and princes, nothing in fact remains of the original weights of coins but the names. These now artificial names become the money of account for fixing the value of an article in its money form. See, "Money is the measure of account," below.

Market price is usually only an approximate - seldom an exact or "ideal" - measure of "value" as defined by reference to the abstract labor standard.

  However, prices fluctuate sometimes with great volatility. Price thus is not necessarily an accurate reflection of social labor value. Prices may be set either too high or too low in comparison with the value of the social labor represented by the product.
  Marx thus must deal with the observable fact of price volatility. Since no concept of labor value can be permitted to rise and fall as rapidly as prices fluctuate, he must distinguish between price and value.

  "If the conditions of production, in other words, if the productive power of labour remain constant, the same amount of social labour time must, both before and after the change in price, be expended in the reproduction of a quarter of wheat."

  There is no necessary relationship between magnitude of value and price. Indeed, deviations between the magnitude of value and price are more than just possible - they are "inherent in the price form itself." However, this is perfectly proper, since the "apparently lawless irregularities" of the pricing system "compensate one another" by fluctuating about a mean level. Market price is usually only an approximate - seldom an exact or "ideal" - measure of value.

  But if even the market - through its pricing mechanisms - cannot accurately establish "value," how is value to be determined without guidance from the market? How can a system allocate scarce resources without the pricing mechanism? How can it determine to increase production of certain items by reducing production of others without the sensitive guidance of price fluctuations in the market?
  The socialist alternative would be "five year plans" divorced from reality and based on administered allocations of scarce resources - allocations almost always of incredible stupidity even with respect to quantities. They generally don't even address the factors of quality and variety. Marx' expectation that socialist production will deal with this problem by routinely producing a surplus of each commodity turns out to be just another of his fearless failed forecasts.
The fundamental economic problem of allocating scarce resources is expected to somehow disappear under socialism.

An object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics."

  Marx, himself, is repeatedly forced to have recourse to market price as the measure of value for his examples.
  Here, Marx reaches the point where he must deal with attributes that clearly have a price but are not produced by labor. On the basis of his false premise about the limited scope of economic value, he draws an absurd conclusion.

  "Objects that in themselves are not commodities, such as conscience, honour, etc., are capable of being offered for sale by their holders, and of thus acquiring, through their price, the form of commodities. Hence, an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics."

  The scarcity element of value doesn't exist for Marx except as it is a factor in determining the degree of social necessity for labor on commodities. He thus dismisses it - without bothering with any justification - as "imaginary."  This feeble rationalization may suffice for a propaganda myth, but it is hardly a proper application of "scientific" method.
  Marx then offers an incredible sentence - a sentence that only an economic simpleton could write - or read and take seriously.

  "If a definite quantity of labour, say thirty days, is requisite to build a house, the total amount of labour incorporated in it is not altered by the fact that the work of the last day is done twenty-nine days later than that of the first."

  But without knowledge of the time cost of money and the time cost of productive assets, efficient management of productive assets is impossible. Wherever the time cost of money was not taken into account, socialist production would exhibit incredible ineptness.
  And without the productive incentives of ownership interests, socialist production would become the plaything of a variety of counterproductive incentives. Diligence and those skills dependent on talent would frequently not be properly compensated due to the absence of recognition of scarcity value. Such virtues thus would seldom be exercised in those instances.

  When exchanges take place, "the price realized may be abnormally above or below the value." Social labor value is the "hidden regulator" and remains ideally somewhere at the mean price level around which the forces of supply and demand cause prices to fluctuate. However, the ideal is not the reality, and even mean price levels differ somewhat from social labor value. Somewhat inconsistently, Marx recognizes that social labor value must change in response to some of the influences that cause those price fluctuations - conditions of overproduction or underproduction - glut or scarcity. 

  The price fluctuations provide the constant flow of sensitive signals that permit managers to rationally allocate scarce resources. The standard supply and demand curves in economics deal only with price, not with social labor value.
  It is impossible to determine what "social labor value" is without guidance from the pricing mechanism, since conditions of glut or scarcity become long term rather than temporary without market guidance, and even mean pricing levels become so attenuated as to be meaningless for practical economic purposes.

  Marx is, of course, aware of inflation and its affect on prices. Substantial new supplies of precious metals are flowing in from newly discovered mines - and the metal in the coins is being clipped or allowed to be worn away. However, for the purposes of this analysis, he reasonably assumes a fixed valuation for the monetary metal - as in the short run it generally has.

The seller who receives money may not necessarily expend it again - he may take it out of circulation - he may hoard it - producing "a crisis" if too many hold too much overly long.

  3) Money is the medium of exchange. It is the measure of exchange value. Marx goes on in extraordinary length to show how the money commodity - as the medium of exchange - facilitates an endless string of transactions involving the purchases and sales of goods in commerce - "the circulation of commodities."

  "Money functions as a means of circulation, only because in it the values of commodities have independent reality. Hence its movement, as the medium of circulation, is, in fact, merely the movement of commodities while changing their forms [from values to use values]."

  But this string is not foreordained to continue.  Whereas, in barter, two different commodities are immediately exchanged for their use value to the new possessors, money breaks this necessary connection. The person who receives the money may not necessarily expend it again - he may take it out of circulation - he may hoard it - producing "a crisis" if too many hold too much overly long.

  "We see here, on the one hand, how the exchange of commodities breaks through all local and personal bounds inseparable from direct barter, and develops the circulation of the products of social labour; and on the other hand, how it develops a whole network of social relations spontaneous to their growth and entirely beyond the control of the actors."

  This process of "crisis" is explained by Marx in terms of his pseudo scientific gibberish - of "contradictions" and "thesis" and "antithesis" - by which he attempts to reduce the complex and inherently indefinite logic of economic analysis to a formulaic method with pretensions to scientific certitude.

  "The antithesis between use-value and value; the contradictions that private labour is bound to manifest itself as direct social labour, that a particularized concrete kind of labour has to pass for abstract human labour; the contradiction between the personification of objects and the representation of persons by things; all these antitheses and contradictions, which are immanent in commodities, assert themselves, and develop their modes of motion, in the antithetical phases of the metamorphosis of a commodity."

  At this point of the analysis, crisis is merely possible. Its inevitability is explained by analysis of further elements of the capitalist economic system, which  Marx of course repeatedly emphasizes.

  Marx then gives his views on the velocity of money as currency, in another typical tediously long segment. His views, as with those of Adam Smith, depend on the money having an intrinsic value - as when it was based on precious metals. Thus, the amount and velocity of money in circulation is determined by the amount and prices of commodities. It is economic law "that the quantity of the circulating medium is determined by the sum of the prices of the commodities circulating, and by the average velocity of currency."

  By Marx' own terms, gold may have a lower social utility in Spain, which receives copious amounts of it from its mines, than in England, which must earn its gold with the export of commodities. It takes more labor to get gold into England. But also, as Smith points out, Spain's mercantilist policies keep gold supplies artificially high. In this way, even with gold, the amount of money can impact the price level - as well as the production - of commodities. Not just socially necessary labor, but relative scarcity as well, impacts value.
  Even with gold - money matters.

Marx asserts that paper money can have no value unless it is pegged to gold or other precious metal.


Even when paper money is tied to gold, Marx asserts that it can circulate only within the state where it is enforced as a contract.

  More to the point, the notion that paper money can function on the basis of scarcity alone - without any relation to a monetary commodity - is disparaged by Marx. "Only in so far as paper money represents gold, which like all other commodities has value, is it a symbol of value."  In predicting that fiat paper legal tender money will prove unsustainable, Marx makes his second major forecasting error of this volume.

  Yes, inflation is inherent in the use of paper currencies - but it is inherent not because they have no relation to monetary commodities, but because governments - with their insatiable appetites for revenues - keep expanding the money supply faster than the economy can absorb it. Scarcity does affect value even without regard to its impact on the social utility of labor.

  Even when paper money is tied to gold, Marx states that it can circulate only within the state where it is enforced as a contract. "This compulsory action [as legal tender] of the State can take effect only within that inner sphere of circulation which is coterminous with the territories of the community."

  But "hard" paper - and digital - currencies like the dollar, euro and pound now circulate worldwide - not just as transitory mediums of exchange, but also as monetary reserves and as reliable stores of value worldwide - based not on gold but on their status as legal tender with reliable claims on the produce of the issuing nations. This is the third major faulty fearless forecast for Marx.

  4) Money can be hoarded, as a store of value. "The desire to hoard is in its very nature insatiable."

  To Marx, again, scarcity has no real value. Security and financial independence are things of only "imaginary" value, since they cannot be measured in terms of an abstract labor standard based on the unskilled, undifferentiated human labor of the subsistence wage earner who, by definition, can never achieve security or financial independence.

  However, he recognizes that hoarding vanishes "as a distinct mode of acquiring riches - - - with the progress of civil society." Nevertheless, it is replaced by a need for reserves for periodically settling debt obligations. This need exists at all levels - from the personal to the national to the international. However, as Marx notes, such reserves - such hoards - earn nothing. They are "dead stock." The logic of capitalism is thus to keep money reserves - money hoards - to a minimum.

  5) Money is a measure of account, the means of calculating the amount of credit extended and the means ultimately of satisfying the resulting debt. By means of credit, the process of exchange need not be instantaneous. Payment can be made some time after receipt of the purchased commodities.

 "The money is no longer the means that brings about the process. It only brings it to a close."

  For major business operations, institutions have been created to settle such accounts against each other, so that money need only be provided to the extent the accounts do not cancel out.
  The opposite can also occur. Payment in advance obliges the seller to perform as promised within an agreed time. Marx recognizes this arrangement, but does not here deign to consider it.

  Sophisticated systems for extending and clearing credit have a habit of breaking down catastrophically - causing panic that suddenly destroys credit and reduces all transactions to those that can be arranged with hard cash. There is a "money famine." This sudden destruction of financial purchasing power - the sudden collapse of credit - greatly contracts economic activity. As Marx notes, even in the 17th century it was observed that: "The poor stand still, because the rich have no money to employ them, though they have the same land and hands to provide victuals and clothes as ever they had."
  Once credit arrangements are brought into the picture, it becomes evident that the previous simple calculation of the amount of money in circulation - involving commodity prices and volatility - no longer applies. Indeed, since credit instruments can be negotiable and can be discounted by banks, most of the nation's industrial and commercial activity is financed not with money but with credit instruments. The use of gold and silver money is relegated mainly to the retail trade.
  Now, a more sophisticated calculation has to take place - involving the average length of the periods of payment. The shorter the periods, the smaller the sums of money needed to cover the transactions.

Marx asserts the superiority of systems that rely on in-kind payments. 

  Marx ventures two more confident predictions - both of a minor nature - the fourth and fifth faulty fearless forecasts for Marx in this volume - based on his "scientific" understanding of economics. He professes confidence in the "ancient forms of production" that are not dependent on money. He predicts continued strength for the Ottoman Empire if it can avoid shifting from payments in kind to money payments for rents and taxes, and he predicts financial disaster for Japan's small agricultural units if Japan shifts to money rents from rents in kind.

  The Ottoman Empire failed to modernize its economy, and collapsed. Japan modernized as fast as it could, and prospers - along with its pampered small farmers.

The creation of capital:

  When money buys commodities not for use but for resale, the commodities become capital, and the holder a capitalist.

  The objective is not personal use, but monetary gain. Money is not used to gain commodities - it is commodities that are used to gain money - the embodiment of exchange value. In the latter case, the money isn't spent, it is merely "advanced."

  Marx is variously inconsistent on this point. At certain points, he insists that capitalist production doesn't begin until enough workers are employed so that the capitalist can be freed from all manual labor. Only then do we get "capitalists" and "capital." "This point coincides with the birth of capital itself."  Before then, employers are just "small masters." At other times, however, he views even merchants and moneylenders who may have no employees or few employees as capitalists greedily growing their capital. 

  In modern usage, everyone with productive tools and/or productive or saleable skills and/or financial resources has "capital." Thus, we are, in fact, all capitalists - benefiting from the labor of society - even if we never employ a single soul. Marx heaps scorn on this perfectly reasonable view. It clearly doesn't conform to his "scientific" understanding.

  Each purchase of commodities for use is an independent transaction. Succeeding transactions require the addition of labor value to provide new commodities.

Since the commodity still retains its original labor value, the gain by merchants is "surplus value." In terms of adding labor value to commerce, merchant transactions are meaningless.


These merchant transactions thus boil down to the exchange of capital for capital for more capital - the equivalent of trading money for money for more money - devoid of any addition of labor value to account for the surplus value this process produces.

  However, merchant transactions - the purchase of commodities for resale at a profit - when successful - provides monetary gains and permits "interminable" transactions without any addition of labor value. Advancing money to gain money is mere speculation - a gamble. "More money is withdrawn from circulation at the finish than was thrown into it at the start." Since the commodity still retains its original labor value, the gain is "surplus value." In terms of adding labor value to commerce, merchant transactions are meaningless.

  "The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus value or expands itself. It is this movement that converts it into capital."

  The object of the capitalist is not consumption, but constant gain.

  "This boundless greed after riches, this passionate chase after exchange value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never-ending augmentation of exchange value, which the miser strives after by seeking to save his money from circulation, is attained by the more acute capitalist by constantly throwing it afresh into circulation."

  The commodities, themselves, are no longer viewed as use values, but as exchange values - just like money. Such commodities are capital - just like money. These transactions thus boil down to the exchange of capital for capital for more capital - the equivalent of trading money for money for more money - devoid of any addition of labor value to account for the surplus value this process produces.

  Marx conveniently ignores the ways in which merchant transactions differ from commodity speculation. Were it otherwise, farmers markets would everywhere displace super markets.
  The merchant trade of commodities as capital cannot be sustained at a profit if it doesn't deliver value by bringing those commodities most efficiently to the ultimate consumers in the market. The inability to efficiently deliver goods to the ultimate consumers would be one of the most distressing failures of socialist systems.

  The industrialist and the creditor are not really any different from the merchant, even though the steps of the transaction are more complex in the former instance and more direct - money advanced to gain money plus surplus value - in the latter.
  But for industrialists, Marx distinguishes between the "small master" who employs so few workers that he must himself actively engage in manual labor, and industrial "capitalists" who employ enough workers so that the surplus value that can be gleaned is enough to free him from the need for manual labor.

The merchant's markup "can only have its origin in the twofold advantage gained, over both the selling and the buying producers, by the merchant who parasitically shoves himself in between them."

  Marx blindly - determinedly - denies that commerce adds value - again relying on the faulty premises about what is and is not value. In the Marxist world, the retail buyer and the producers of commodities could just as easily have met in the market place without the intervention of a merchant and without adding the merchant's profit to the transaction.

  That the producers of commodities might more efficiently have used their time producing their saleable commodities than transporting them to market and sitting around waiting for sales and returning with and storing the unsold inventory doesn't enter his feeble calculations in Volume 1. The time cost of money remains alien territory to him in Volume 1.

  However, in Volume 3, when Marx deals with these subjects specifically, he is forced to recognize some of the many obvious benefits of these commercial factors. Nevertheless, he retains his view that they add no value - they just help in the process of "realizing" value already created by industrial labor power. (This is more tautological reasoning and distinctions without a difference.)
  As between the buyer for use and the seller for money, there is a zero sum game. No surplus capital can be generated, although one can take advantage of the other and by shrewd bargaining make a gain at the other's expense.
  However, when the capitalist merchant steps in between these two, he extracts value - surplus value - from them both. The merchant's markup "can only have its origin in the twofold advantage gained, over both the selling and the buying producers, by the merchant who parasitically shoves himself in between them." Yet elsewhere, somewhat inconsistently, Marx recognizes that the time necessary for sale must be “superadded to that necessary for - - - production.”

  All who sell and buy through merchants rather than direct must be stupid not to see this! But Marx, himself, undoubtedly got groceries from merchants.

  The interest revenues of money lenders are even more blatantly parasitic, since they draw surplus value directly from one party in return for nothing of value - in terms of  the standard of value of social  human labor in the abstract - which Marx continues to invoke as the sole legitimate measure of value in order to reach this whole series of absurd conclusions.

  With his "scientific" understanding of capitalist economics, Marx is thus obliged to again deny reality - to denigrate the advantages for productivity and flexibility derived by capitalism from its sophisticated commercial and financing mechanisms. In Volume I, he focuses on only the abuses and risks. It must be kept in mind that the vast majority of those who read Marx' "Capital" read only Volume I.

Wage Labor:



Wage labor is labor sold as a commodity - a phenomenon of the capitalist system.

  Labor can also be sold like a commodity if sold for a particular purpose and time. If sold totally, it becomes slavery. The laborer must sell his labor because he lacks the implements and materials with which to produce for sale the commodities he produces for his employer.
  That some should possess money and commodities while others possess nothing but their labor is not a natural phenomenon, but is a characteristic of the capitalist economic system. Wage labor is labor sold as a commodity - a phenomenon of the capitalist system.

  The average exchange value of basic, unskilled labor power at subsistence wage levels sufficient to maintain the laborers and the families from which the next generation of laborers will come is referred to by Marx - as by Adam Smith -  for his calculations. The acquiring of skills involves additional labor, and so has a higher value that generally commands a higher price, but which can be measured in terms of the undifferentiated human labor standard. (Try making such a calculation for yourself - without the assistance of market prices.)

  "The value of labour power resolves itself into the value of a definite quantity of the means of subsistence. It therefore varies with the value of these means or with the quantity of labour requisite for their production."

Since laborers provide their labor for a period of time - a week or two or a month - prior to payment, the employer receives use value prior to payment.

  Since laborers provide their labor for a period of time - a week or two or a month - prior to payment, the employer receives use value prior to payment. Laborers are thus obliged to extend credit to their employers. A bankruptcy can deprive them of their wages. Having no reserves, they are obliged to buy their immediate needs on credit or from high priced company stores.
  Of course, since the means of production are provided for a period of time before laborers produce commodities and sales can be transacted, the employer is also providing credit to the laborer who in the meantime has the use of those assets and will frequently be paid before the products are sold.
  However, this is not something Marx deigns to recognize. He denies any value to the time cost of money and the time cost of productive assets, since time is not a product of labor. The provision of productive assets to labor is just an "advance" for the productive process.
  Capital not in use is "dead capital."
Workers do the capitalist a favor by working with his capital and bringing it back to life. The benefit they bestow saves the capital from decline. Thus, only the time necessarily spent in labor counts. (Of course, labor without employment can be viewed as "dead labor" - which it can turn out to be literally as well as figuratively.)

The rate of exploitation:

  "Labour uses up its material factors, its subject and its instruments, consumes them, and is therefore a process of consumption," Marx acknowledges.

The profit comes from paying for labor according to its abstract social labor standard value, but keeping the laborer working long enough to provide a greater sum of use value for the capitalist.

  The capitalist efficiently acquires and maintains both the factors of production and the necessary labor - "with the keen eye of an expert." Labor - raw labor power - is to him a thing that he possesses - a use value - like all the other factors of production. His manager and supervisor add the value of their labor to the process. He has a personal interest in everything.

  "The labour process is a process between things that the capitalist has purchased, things that have become his property. The product of this process belongs, therefore, to him, - - -."

  The product of this process is commodities that are use values. But to the capitalist, they are mere "depositaries of exchange-value" - part of his capital. If he can sell them for more than the costs of production, he earns profit and his capital grows. The profit comes from paying for labor according to its abstract social labor standard value - based on subsistence wages - but keeping the laborer working long enough to provide a greater sum of use value for the capitalist - to be incorporated in more commodities for sale - enough to cover all the costs of production and more - a profit - which is thus acquired from surplus value.

Note: In the first four articles of this series, covering Volumes 1 and 2 of Das Kapital, the term "profit" is used in its normal sense. Marx redefines "profit" for propaganda purposes, but thereby destroys its functional meaning. However, it is not until Volume 3 that this becomes relevant. There, he tells us that - as he defines it - "the amount of profit - - - is actually identical with the amount of surplus-value" when goods are sold at "value." This, however, does not solve his theoretical problems. It just compounds them.

  The capitalist ownership interest has added nothing of value to the process, Marx again somewhat inconsistently asserts, since the costs of production include the costs of managers and supervisors. Marx then claims that this process as he describes it in no way violates "the laws that regulate the exchange of commodities."

  This assertion is backed up by an extensive rationalization - detailed, repetitive and tedious - but nevertheless with the usual glaring omissions - in his usual style. For all his ostentatiously careful detail, much is omitted. Among the most obvious omissions:

  • If profit were not an ordinary and necessary cost of production, then goods for sale at a profit would be priced out of existence in the market.

  As Marx earlier admits, producers who try to sell their commodities for more than labor value will find their customers going elsewhere and will eventually be left without compensation. Price can fluctuate - but it cannot remain above "value" on average more than temporarily.

  Marx in fact expects profits to collapse - with disastrous consequences for capitalism - but only because of ruinous competition between profit-driven capitalists. But, of course, it never does happen because of capitalist processes such as creative destruction, and the development of new and improved goods and services - processes Marx is aware of but persistently - stupidly - underestimates. The signals given off by capitalist markets that limit and bar the permanent establishment of periods of overproduction are signals the value of which Marx and Marxists are determinedly ignorant of.
  During the 19th century, cooperative nonprofit living was attempted hundreds of times by secular socialists, without a single success. There were even a few efforts that were well funded and run by people of demonstrated skill. Nevertheless, failure generally came within just a few years. Yet, all they had to do was to produce some product and undersell the capitalists in the market by the amount of the profit charged by the capitalists. Why did this prove to be impossible? Why does it still prove to be impossible?
  Some sectarian cooperative efforts succeeded for impressively long periods - as much as a century - even when celibate. Yet Marxists nevertheless denigrate religion. They insist that religion has no real value - but religious cooperatives somehow succeeded in out producing the secular nonprofit cooperatives. Where are the productive values that accounted for this difference?

 While Marx at one point suggests that the capitalist interest can be totally divorced from management and supervision, in a couple of brief instances - like the one quoted in the second paragraph of this segment, above - he lets slip his acknowledgement that it is the capitalist that supplies the care, management and supervision that makes the process work. Marx often seems to acknowledge that the capitalist must in fact add entrepreneurial skills for best results. "That a capitalist should command on the field of production is now as indispensable as that a general should command on the field of battle." other points, Marx acknowledges that the profit motive of the ownership interest provides the capitalist with the incentive to make sure that the work is done properly. But to Marx, profits nevertheless add no value to production.

  • Who else but those with the ownership interest have the incentive to continuously exercise such care and skill? Who else has the incentive to carefully balance ambition and caution - risk and reward - to venture prudently into uncertain markets - to prudently risk what has already been earned on uncertain prospects for future gain?

  Who else has the incentive to carefully monitor what the best means are to fulfill the needs of the public in the market? Certainly not a governing bureaucracy - even if made up of some intellectual elite.

  • It is blatantly obvious that entrepreneurship involves labor of a scarce and highly skilled type - not measurable in terms of basic labor. It only exists because of ownership incentives.

  It is a rare entrepreneur, indeed, who can leave his ownership interests entirely in the hands of hired managers and supervisors. Even then, he has exhibited unusual skill in recognizing and utilizing such paragons of virtue.
  The weaknesses and risks inherent in the total divorce of management from ownership interests even today plagues investments in public corporations. Scandals involving managers milking public corporations have been common from the earliest days of capitalism to the present. Adam Smith was very pessimistic about the possibilities of success for such public corporations.
  Most notoriously, noxious incentives would become evident in nationalized industries like the oil industry of the old Soviet Union. Today, eastern Europe is littered with the bones of decrepit socialist industries, and Russia still struggles to recover from the deferred maintenance afflicting its oil industry.

  • But even absentee ownership interests serve essential purposes in capitalist production.

  Who else provides the essential risk capital that absorbs the blows delivered by the winds of change? Who else - by purchase or sale of shares - imposes effective discipline on management that - however imperfect - is available in no other way? Who else creates the profit system without which even the most skilled managers cannot efficiently function? See, Profits and capitalist productivity.

  • Again, there is the glaring failure to recognize the value in such things as entrepreneurial skills, scarcity, honor and reliability, and the time cost of money and of productive assets. Marx tries to make a joke of these factors - disparagingly calling them "imaginary" values - but they would prove to be no joke to the socialist experiments - both private and nationwide - that failed to take them into account.

  But of course, Marx has to ignore such factors. They are the very essence of the system of capitalist production. Marx is engaged in constructing a propaganda myth justifying the destruction of such factors. Success for Marx is measured by the number of credulous people whom he can convince that economic productivity is not materially enhanced by such factors. Thus, their loss costs nothing, and indeed productivity can be increased by the reduction in costs attributable to profits - by the reduction of "surplus value."
  He will find no shortage of such credulity, since this is the core belief of all socialists.

Propaganda magic:

On these faulty premises, Marx will perform his great magic trick - and make economic reality disappear from before the eyes of his true believers.

  On the basis of such faulty premises, Marx thus goes on for hundreds of pages drawing his absurd conclusions about surplus value. They are absurd not just for their weaknesses of logic, but also because of the obvious manner in which they are divorced from reality. The errors are numerous and obvious - for those with eyes to see.
  Indeed, he has now created the premises - faulty as they obviously are - on which he will perform his great magic trick - and make economic reality disappear from before the eyes of his true believers.

Unused capital is dead capital, and constantly depreciates. Workers do the employer a favor by working with his assets - bringing them back to life - and providing the wherewithal for their maintenance.

  Marx must disparage the capitalist's role as provider of the tools and wherewithal of production if he is to achieve his propaganda purposes. So, he turns this activity on its head, and instead emphasizes the employee's role in providing the wherewithal - the use-value of his labor - to maintain the capitalist's capital. Unused capital is dead capital, and constantly depreciates. Workers do the employer a favor by working with his assets - bringing them back to life - and providing the wherewithal for their maintenance.
  Our poor exploited laborer is thus not only made to work long enough to provide profit for the employer, but to make a "gift" to the capitalist of enough labor - providing use-value to the capitalist - by which the values of productive assets are incorporated into the produced commodities sufficiently to cover maintenance and replacement of working capital.
   Moreover, physical productive capital does depreciate over time - even without use - after all, Marx acknowledges (while still refusing to acknowledge the time cost of money and assets). The laborer not only produces enough to maintain himself and his family, but also to maintain all of the capitalist's productive assets that depreciate even when not in use - and to cover non-industrial processes like purchasing offices, sales offices, clerks and bookkeepers and all the other overhead operations. Financial capital is eaten away by fixed costs - taxes, rents, ongoing costs of maintenance of physical assets - after all, and the laborer produces enough to cover these costs so that the capitalist's financial capital can be maintained. This, too, thus becomes a part of "surplus value."
  There is no "value" but labor and commodities, according to the premises established "scientifically" by Marx. Of course, with faulty premises we get absurd results. The provision of productive capital provides no "value" to the productive process except for the materials consumed and the minute values lost in the actual wear and tear of production - all of which, after all, are commodities consumed in the production process.

  Marx is not exactly consistent in what labor adds or does not add value. At the end of Volume 3, we learn that bookkeepers are very important. Indeed, in communist systems, they will be extremely important, since it is they who will have to evaluate and keep track of all these indeterminable "values" that will supposedly govern the communist system. Once the capitalist system is superseded, bookkeeping processes on a vast and complicated scale encompassing the ascertaining of "values" "becomes more essential than ever."

  You bet it does. It becomes a mission impossible - even as systems of administered pricing.  Without money and a pricing system, it is indeed impossible.

The spun yarn examples:

  Marx thus provides an example involving spun yarn.

The capitalist would be earning "surplus value" and "exploiting" labor even if he were operating at a loss.

 A manufacturer of spun yarn provides about £1,000 in capital - including £90 for labor - that produces a £90 increase in total capital - surplus value that is profit - or 9%. However, after production, £500 of value still remains in the fixed machinery. It adds no "value" to the yarn, and so can be eliminated from the calculation.
  There is no "time cost" of money or assets to Marx. Presto-Change-o - the rate of surplus value - the rate of "exploitation" -  is now 18%.
  For Marx, the existence of the machinery added no value to the product except for minute sums of wear and tear. The capitalist would be earning "surplus value" and "exploiting" labor even if he were operating at a loss. Marx is so pleased with this absurd result of his rationalizations, that he presents it as a joke on capitalism.

   Taken by itself, it would be great satire on the misuses of economic analysis. However, satire - to be great - must be readily accessible - and Marx buries this absurdity deep in his tediously interminable and repetitively detailed rationalizations - where few people will ever bother to delve thoroughly enough to even reach it, much less understand how this absurdity is arrived at. And, Marx does not intend it as satire. He thus provides a satire of his own "scientific" form of economic analysis.

  Then, Marx takes his rationalizations even one step further. The materials consumed and the minute values lost in the wear and tear of production are referred to as "constant capital," since as commodities, their value is fixed. Only the laborer adds new value, so this labor power is termed "variable capital," although Marx must admit that as a practical matter it is as "constant" as the other factors of production.
  Not so coincidentally, these two terms - "constant" and "variable" - have meanings in mathematical reasoning - permitting Marx to perform more magic. This time, Marx elevates form over substance in order to play some games with the misapplication of mathematical reasoning. (Well, if economics is "science," it should conform to mathematical forms of reasoning, shouldn't it?)
  With some simple mathematics, Marx here makes even the consumed capital disappear as a contribution of the capitalist.
  The laborer's efforts in the spun yarn example have produced not only enough to provide for the subsistence of himself and his family and the surplus value for the employer's profit, they have also transferred to the commodities being produced the consumed values from fixed assets and consumed materials. Thus, as a matter of mathematical logic, equal "constant" values appear on both sides of the equation, and may be canceled out in simple mathematical calculations, leaving only labor - the "variable" in the equation.

  "[Thus], we know that surplus value is purely the result of a variation in the value of - - - that portion of the capital that is transformed into labour power; - - -. Therefore, in order that our investigation may lead to accurate results, we must make abstraction from that portion of the value of the product, in which constant capital alone appears, and consequently must equate the constant capital to zero or make c=0. This is merely an application of a mathematical rule, employed whenever we operate with constant and variable magnitudes, related to each other by the symbols of addition and subtraction only."

  What could be more reasonable? Unfortunately, you don't calculate percentages in this manner. Percentage "rates" are not calculated by means of just "addition and subtraction only."

  With this  metamorphosis of economic concepts into mathematical concepts by means of sly definitions, Marx proudly reduces his example by the amount of the £410 worth of consumable capital. This leaves the £90 paid for the labor that produced the surplus value of which £90 is an increase in the capitalist's total capital - a profit in the yarn example - which Marx here refers to only in terms of the broader concept of surplus value.

After the mathematical cancellation step, surplus value - with its much higher "rates" - can substitute for profits when it comes to analysis of capital accumulation.

  This now meaningless figure has obvious importance for propaganda purposes. Marx thus gives it a special designation - "the rate of surplus value" - and uses it as a measure of "exploitation." After all, as Marx repeatedly notes, the rate of profits - unlike the rate of surplus value - is calculated against all the capital involved - resulting in much lower rates - just 9% in the yarn example - not nearly as useful for the propaganda purpose of emphasizing "exploitation."

  "[If] there were branches of industry in which the capitalist could dispense with all means of production made by previous labour, whether by raw material, auxiliary material, or instruments of labour, employing only labour power and materials supplied by nature, in that case, there would be no constant capital to transfer to the product. This component of the value of the product - - - would be eliminated, but the sum of £180, the amount of new value created, or the value produced, which contains £90 of surplus value, would remain just as great as if [constant capital were] the greatest value imaginable." (Since Marx stated in his example that the £90 served to increase the capitalist's total capital, it was not just "surplus labor," it was "profit.")

  Unfortunately for this line of reasoning, in the real world, the amount of capital required impacts the ability and willingness of new capitalist competition to enter the market. Where no capital expenditures are required, all increase in capital is not just "surplus value," it is "profit." But, where there is little or no capital required, competition is notoriously fierce, and profits minimal. Without capital, all surplus value, too, would be attributed to profit - and would be minimal.

  Marx repeatedly insists that it is "the production of surplus value" that is the "compelling motive" of capitalist activity. This is clearly absurd.

  Of course, although profit is surplus value, surplus value is not necessarily profit. Marx tries to equate the two concepts by redefinition of "profit," but we do not need to get to that until the articles on Volume 3. It is the single digit and low double digit profits that are the only benefits that provide capitalist incentives. The triple digit "benefits" of surplus value are illusory - the product of a fevered ideological mind.
  Despite the 100% and higher rates of surplus value, how come nobody wants them in the absence of profits? Clearly, it is these "surplus" values that are the real "imaginary" values. Without profits - or at least the prospect of profits - capitalists routinely abandon their productive assets or sell them for salvage rather than strive for such "benefits."
  The profit incentive to maintain capital assets is insanely of no value to Marx. Failure to properly maintain assets would bedevil socialist and communist systems throughout the 20th century.

  But with the mathematical trick of canceling out from his calculations both the consumed capital and the commodity values that replaced it, Marx is left only with surplus value that is profits. This allows him to have his cake and eat it too.
  "Surplus value" is not confined to "profits" but includes all costs other than for wages, productive consumables and wear and tear of equipment. In the spun yarn example, there are no other such costs. Thus, after the mathematical cancellation step, surplus value - with its much higher "rates" - can substitute for profits when it comes to analysis of capital accumulation.
  Thus, when it comes to his analysis of capital accumulation, Marx need not explain the grind of increasing capital on the basis of a 9% rate of profits - from which the capitalist's own gluttonous livelihood must also be drawn and other expenses such as taxes must be paid. Marx can present it as capitalist engorgement on the basis of a 100% rate of surplus value.
  Although it is obvious even to Marx that capital accumulation comes only from profits, Marx seldom uses that term in his first two volumes, but instead prefers the more general term "surplus value" so he can have propaganda recourse to its much higher "rates." His analysis will be not how capital arises from profits, but "how capital arises from surplus value." As stated above, in Volume 3 he attempts by redefinition of "profit" to equate the two.

Surplus labor:





  Labor time is "unnecessary," Marx asserts, when expended beyond what is needed to produce subsistence values for the worker. For a worker paid subsistence wages, pay is actually only for his "necessary" labor time. The rest is "unpaid" labor time that the worker is compelled to give to the exploiting capitalist who controls the necessary means of production.

Labor time is "unnecessary" when expended beyond what is needed to produce subsistence values for the worker.

  Compulsory unpaid labor is just one step away from feudal bondage. (Who could be in favor of feudalism?) It is just one step away from slavery, in that the worker has some ability to shift about among different slave-master capitalists. (Who could be in favor of slavery?)
  This "unnecessary" labor time is "surplus labour time"
that provides "surplus labor" - "extracted from the actual producer, the labourer" - for the exclusive benefit of the capitalist. In the spun yarn example, above, this amounts to half the working day.
  Marx applies some slippery logic on top of his false premises to reach this result.

  "If instead of working for the capitalist, he worked independently on his own account, he would, other things being equal, still be obliged to labour for the same number of hours [half his working day] in order to produce the value of his working power, and thereby to gain the means of subsistence necessary for his conservation or continued reproduction."

  However, as Marx later sets forth, all things are not equal. Without the capitalist's tools and materials - and adequate management and supervision - our 19th century unskilled laborer could work for a week without being able to produce a small fraction of the yarn produced with them in a day. He has been transformed into a "manufacturing labourer" dependent on the capitalist workshop for his subsistence.
  After all, by Marx' own reasoning, only the efforts of the capitalist successfully brings together all the tools, materials and labor needed for competitive production. "Hence, concentrations of large masses of the means of production in the hands of individual capitalists is a material condition for the cooperation of wage labourers, - - -." Nevertheless, Marx insists that the capitalist act of accumulating and providing these tools and materials adds nothing of value to production.

  The socially necessary time needed to produce the exchange value of spun yarn equivalent to the laborer's subsistence needs at this time is determined by the means of production provided by the capitalist. To first obtain tools and the materials consumed in the production process would require - according to the spun yarn example - not just half day labor, but full day labor for long enough to generate the £1,000 needed to acquire them. At less than 3 shillings a day, this would be quite an undertaking.

  The laborer would have to acquire them rather than produce them since, as Marx notes, each day that the laborer produces yarn, his work consumes four days worth of consumable materials including wear and tear on equipment, "for, in the example we are considering, the production of the raw material and instruments of labour demand four working days - - -, and their conversion into yarn requires another such day." Thus, only by purchasing these materials and including their value in the value of his yarn can the laborer cover such costs - only thus can he turn "one working day into five."

  This could be achieved by borrowing - something greatly facilitated by capitalist credit mechanisms. Nevertheless, the lender's services have no value according to Marx, and are pure exploitation. There is no legitimate time cost for money - and so the lender is entitled to no interest in return. So, from whom could the laborer borrow? Perhaps he could hit that filthy capitalist Engels for gifts - like Marx does.

  Of course, if the capitalist's assets are expropriated and dedicated to the use of the workers, this problem is solved. "If this labourer were in possession of his own means of production, - - - he need not work beyond the time necessary for the reproduction of his means of subsistence," which Marx correctly notes would have to be expanded to include the time needed to maintain his productive assets - including a reserve against depreciation. He would then be obliged to exploit himself to maintain his working capital to the extent it depreciates during idleness - which he is obliged to do in order to sustain his output at the levels normal with the productive capabilities of the day.

  But even this would not be enough. He could not employ the services of merchants without being exploited and unjustly deprived of some of his labor value. He would thus constantly have to travel to the markets to purchase his consumable materials. He would also have to expend extra time and effort to take his yarn to the markets and wait on customers - which might be very unproductive if his sales skills are lacking. He would have to bear the risks of the market - although lacking the reserves needed to absorb disappointments. He would have to return with and store what he could not sell. In Volume 3, Marx perforce recognizes that merchants bestow such benefits on producers.
  He would also have to be his own supervisor and manager - and perhaps also his own maintenance worker -  skills which by definition in the yarn example he has not. At least these latter skills are recognized by Marx as adding value to commodities and so might properly be acquired if the worker alone or as part of a group can aff ord them.

  Marx assures us that this rationalization is just “scientifi c analysis of value and surplus value.” However, the problem, as Schumpeter points out, is that Marx’ “scientific analysis of value and surplus value” simply does not conform to the plain facts of reality. See, Schumpeter "Capitalism, Socialism, and Democracy," at segment on "Evaluation of Marx.

  The hard reality - which remains a fact regardless of pseudo-scientific efforts at obfuscation - is that the capitalist as owner brings considerable value to the production process. This is a process where all exploit all to maximize their productivity and returns. The capitalist exploits labor and management - the manager exploits capital and labor - the laborer exploits capital and management - society exploits them all - and all exploit the activities of society..
  Of the three, it is management that holds the key. Capital and labor are fungible, except for some who have unique skills. Both capital and labor must always seek out best management to maximize their productivity and returns. Successful investors know that they invest in management - not in corporations.
  However, best management practices under socialist systems are impossible, since government enterprise lacks essential productive incentives and management tools. See, Government futurecast, at §II. Thus, government management is INHERENTLY inept - as 200 years of experiments with socialist and government administered enterprise proves beyond any doubt.
  No, the expropriation of capitalist assets is not the answer. It is just the beginning of insolvable problems - as the communists in Cuba and North Korea keep proving.

  Marx assures us that this rationalization is just "scientific analysis of value and surplus value." (Absurd premises carried to their logical conclusion achieve absurd results.) In the spun yarn example, where half the labor time was for provision of surplus value, the rate of exploitation was 100%. For half his time, our laborer works like a slave.

  "The rate of surplus value is, therefore, an exact expression for the degree of exploitation of labour power by capital, or the labourer by the capitalist."

  Marx then spends some time demonstrating his accomplishment.

  "The method of calculating the rate of surplus value is therefore, briefly, as follows. We take the total value of the product and put the constant capital which merely reappears in it equal to zero. What remains is the only value that has, in the process of producing the commodity, been actually created."

When using "the rate of surplus value," the Marxist implies that the capitalist interest brings nothing of value to the production process but the money with which the worker is paid, and is entitled to nothing else in return for it.

  Thus, Marx arrives at his definitions of "surplus value" and the "rate of surplus value."

  • "Surplus value" includes all the benefits "given" to the capitalist by labor - including not just profits, but also the use-values needed to maintain the capital assets used other than the consumables - machinery wear and tear and materials - actually consumed in production. Even with respect to the consumables, the laborer has been so kind as to include their value in the value of the commodities produced for sale by the capitalist.
  • However, when arriving at the "rate of surplus value," even the consumables are made to disappear by means of some pseudo-scientific mathematical games. Thus, this rate is calculated only against worker pay - providing a suitably high ratio - a surplus value figure useful for propaganda purposes. When using the rate of surplus value, the Marxist implies that the capitalist interest brings nothing of value to the production process but the money with which the worker is paid, and is entitled to nothing else in return for it.

With a 100% rate of surplus value, the wage laborer is being paid for only half his day, and is being forced to provide "unpaid" labor for the sole benefit of the capitalist for the other half.

  On the basis of such false premises - rationalizations completely detached from reality - Marx provides four senseless chapters on wages. Having eliminated the value of the other essential contributing factors to capitalist production, Marx can gaze amazedly at the absurdity he has himself created. A wage laborer, for example, who produces 6s. in value per day - a 12 hour day in the spun yarn example - will only be paid the 3s. per day that he and his family need to subsist. 

  "Thus, we have a result absurd at first sight -- that labour which creates a value of 6s. possesses value of 3s."

  This "absurd" capitalist result is hidden by means of the wage system, which makes it appear that the laborer is being paid for each and every hour worked during the day - or for each piece produced. It is the role of the "science" of Karl Marx to reveal the truth in the "hidden substrata" underneath the surface appearance of the wage labor system. The wage laborer is being paid for only half his day, and is being forced to provide "unpaid" labor for the sole benefit of the capitalist for the other half.
  Marx adds this nonsense to the very real harsh realities of 19th century wage and piece labor to create some more of his potent propaganda brew for use by his true believers.

  See, Marx, "Capital (Das Kapital)" Volume 1, Part II: "Contradictions in Capitalist Industrialization," and Volume 2, Part III:  "The Circulation & Expansion of Capital," and Volume 2, Part IV: "Criticism of Adam Smith," and Volume 3, Part V: "Profits," and Volume 3, Part VI: "Interest, Rent & Labor Use-Values."

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