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Monday, April 5, 2021



My Interpretation of the Thought of Karl Marx


Part Six: The Problem Ricardo Did Not See


Marx goes on for quite some time portraying commodities and commodity exchange in deliberately mystified and buffoonish ways. Those who are interested in exploring this in greater detail can take a look at my little book, Moneybags Must Be so Lucky. But let me move along with my exposition of Marx’s argument. You will recall that I said Marx chose to write volume 1 as though Ricardo’s simple Labor Theory of Value were correct because he thought there was a deeper problem that neither Ricardo nor any of the other classical political economists had recognized. The problem quite simply is that they are unable to explain why there is any profit at all in a capitalist system of the sort we are examining.


Entrepreneurs purchase the materials of production in the market, they combine them – or more precisely command that they be combined – in the factory, and then they bring the finished commodities back to the market to be sold. Assuming that commodities exchange in proportion to the quantities of labor directly or indirectly required for their production, labor that in Ricardo’s felicitous phrase is “embodied” in those commodities, it follows, or so it would seem, that the labor embodied in the output in any cycle of production exactly equals the labor embodied in the inputs and communicated by them to that output. So how is it that in England in the middle of the 19th century, and indeed everywhere in the world then and since where capitalism rules, commodities are selling for more than what it costs to produce them so that normal efficient standard capitalists make a non – zero going profit rate on their invested capital?


Marx has some fun ridiculing the explanations offered by those whom he calls “vulgar economists”.  One common explanation was that the capitalists simply slapped 10% onto the cost of their production and charged more than they had paid for their inputs, but the geniuses who offered this as an explanation for profit neglected to note that the producers of the inputs would be doing the same thing so that there would be simply universal inflation but no profit. There were also some religiously minded political economists who suggested that the enormous profits manifestly being reaped by capitalists could be explained by their puritanical self-discipline in limiting their lifestyle so as to hold back a little bit as profit, what might be called the cheese – pairing explanation. But in fact neither Smith nor Ricardo had realized there was a problem to be solved here and so neither of them offered a coherent explanation for the existence of profit in a capitalist system. (I might note in passing, though it has nothing to do with the subject we are now discussing, that in the general equilibrium models so favored by the Nobel laureate neoclassical economists of the modern era the profit rate is also zero, but that seems not to trouble them in the slightest.)


Finally in the very last paragraph of chapter 5, Marx poses his problem. “Our friend, Moneybags, who as yet is only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation then he threw into it at starting.”


Just a word of comment about this translation from the German, which was done by Samuel Moore and Edward Aveling and overseen by Engels himself. The German for “moneybags” is “Geldbesitzer,” which simply means possessor of money.  But the German conveys the image of someone sitting on a bag of money, rather like the little capitalist in the top hat and cutaway coat on the card from the old Monopoly game. “Moneybags” is a brilliant translation that captures perfectly Marx’s mocking tone. It is for that reason – and there are many such examples in the early chapters of the book – that I prefer this old translation to newer translations which are strictly speaking closer to the text but lose all sense of irony, scorn, and mystification that are essential to an understanding of what Marx is about.


Immediately in the first paragraph of the next chapter Marx offers his solution to the problem he has posed. “(O)ur friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use – value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labor, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labor or labor – power.”


The point is this: in a capitalist economy the workers are treated theoretically, although of course not in practice, as though they were petty capitalist producers of one more factor of production, namely labor. Assuming with Ricardo and with Marx in volume 1 that commodities exchange in proportion to the quantities of labor required for their production, the capitalist will buy this particular input into the productive process at a price proportional to the amount of labor required for its production and hence embodied in it. How much labor does it take to produce one day’s labor power? The answer is obvious. It takes as much labor as is required to produce the food, clothing, and shelter that the worker needs in order to make himself or herself ready to work for another day(plus a little bit for a depreciation fund, which is to say for the children.)


Now let us suppose with Marx that it takes six hours of labor somewhere in the entire economy, whether in the agricultural sector or the clothing sector or the housing sector, to produce one day’s food, clothing, and shelter. Then that is what the rational entrepreneur will pay. But he (it was usually he in those days) has purchased one day’s labor power and he can put that to work in his factory for 10 or 12 hours. In the first six hours that the worker labors, he or she compensates the entrepreneur for the money that the entrepreneur has laid out but what of those extra four or six hours? That extra labor or surplus labor confers additional value on the commodities being produced in the factory, and that extra or surplus value is the source of the capitalist’s profit. The problem has been solved.


This is a crazy way to talk! The worker is not a commodity producer like a farmer or tailor or silversmith! Exactly so! But capitalism treats the worker as though he or she were just that and therein lies both the craziness, the mystification, the verücktheit of capitalism and the secret of its fundamental nature, which is Exploitation.


David Palmeter said...

I’m having a hard time with this analysis. The term “quantity of labor” evokes in my mind someone counting the blows of a hammer or the turns of a wrench. It overlooks other kinds of labor that go into the production of a product, e.g., design. It devalues the creative part of the process, including the labor of the capitalist in deciding what to produce and how to produce it. Maybe the capitalist isn’t exploiting other laborers, but is merely being compensated for his own labor.

s. wallerstein said...

Jeff Bezos is being compensated for his own labor with a couple of hundred billion dollars (I can't keep up with the figure), while his workers have to piss in bottles?

Jerry Brown said...

David Palmeter, my guess is that Marx is not talking about small businesses where the owner is actually involved in the production, but rather larger businesses where the owner hires managers to run the business.

David Palmeter said...


We may believe Bezos is overcompensated for his labor, but that isn't the point. The point, I believe, is that Bezos contributed something to Amazon, and that has to be part of the picture. Marx (and Smith and Ricardo if I'm reading correctly) seem to be confining their analysis to the physical production of a product, and do not seem to treat the non-physical.

David Palmeter said...

Jerry Brown,

That may be what Marx is talking about, but if it is, then he doesn't seem to be talking about all that has to go into the production of an article, the original product idea, the design, the planning--all of that--and if he isn't taking about those things, is he relevant today or is he just part of the intellectual history of economics along with Smith, Ricardo, Mill and the rest?

Z said...

Jeff Bezos owns a considerable stake in Amazon. His salary is nominal. Other compensation brings this to $1.6 million. Membership in the capitalist class in virtue of stock ownership accounts for his eye-popping net worth.

I recently inherited brokerage accounts from a relative [my lawyer tells me any possible challenges wouldn't get very far]. The new likelihood of retiring early enough to finally do something to which I'm suited suddenly made interesting certain previously arid-seeming subjects, such as accounting, finance and investments. This was eye opening.

Based on the anthropological evidence--if you believe David Graeber and others, currency, markets (meaning, markets that exchange commodities and securities for currency) and the state are inseparable. Marx appears to have been correct that under "true communism" the state would wither away. Along with the state, sovereign currency, the market and commodities would wither along with it.

Aside to a digression to a non sequitur. Libertarians would object to the idea that markets aren't free-floating, untethered institutions, but they should refuse to get paid in sovereign currency if they don't want to be taxed by they state issuing the currency in which they are paid for their labor. The opportunity cost for switching to such arrangements for them is exactly what they think the opportunity cost for changing jobs for others is: zero. That's what I tell them, anyway.

s. wallerstein said...

David Palmeter,

I'm not a Marxist myself. It seems to me that any ethical system with its eyes open must end up deciding that the difference between what Bezos is making and what his employees are is
not justifiable.

I agree with Jerry Brown above that what Marx says and what I say about capitalism does not apply to the small vegan store where I buy my whole-grained bread, owned and run by a woman
who, besides her teenage son and daughter, has one employee to help out.

Z said...

Does ethics really play a role in this analysis? In one sentence: capitalists do not compensate employees for the full cost of production. What cost? The opportunity cost to the employee in lost time, autonomy, labor expended, reduced life expectancy, etc. You could take a narrower economic view and say that the employee has no better alternative, so the opportunity cost is zero. Marx's argument comes down to the opportunity cost of working under capitalism. Maybe under capitalism the opportunity cost is conveniently zero, but it appears there is considerable room for disagreement. It also appears that you do not need the labor theory of value to conclude that capitalists do not compensate employees for the full cost of production--they don't want to pay any cost of production, and it may even be rational, but not moral, for them to want this. The same argument against employees applies to them, though: under certain systems, they have no better alternative than to pay the costs that they do, therefore the opportunity cost to them for paying them is zero. It is part and parcel of the mystification process of capitalism that we do not equally apply the same standards of argument to employers and employees.

David Palmeter said...

s. wallerstein

I agree with you on the ethical point, but I don't think that was the subject of the post. Marx and other were attempting to describe how, in fact, an economic system worked. Whether it is just or unjust, ethical or unethical, is another--albeit all-important--question.

Getting back to Bezos, the point was made above that Bezos' vast wealth comes from his share ownership in the company.

s. wallerstein said...

I don't care whether Bezos's wealth comes from the stock market or from an inflated salary he pays himself. It's not justifiable that anyone should be so rich.

When I'm dictador, I'll give him back his initial investment in Amazon with a good interest rate and hasta la vista, Jeffcito.

Jerry Brown said...

David Palmeter, I don't really know what Marx was saying. Which is part of why I am interested in Professor Wolff's explanation of Marx. I mean aside from generally enjoying his observations of various topics on this blog.

But I am at least a student of economic theory and am predisposed to think that Marx's ideas are relevant in that they form part of the basis of what I consider as the most accurate current economic description and analysis. And I remain open to adjusting what I think based on a better understanding of Marx. Which hopefully will be achieved in part through Professor Wolff's writings here.

Alex said...

This is an interesting essay. Just to clarify, this insight about capitalism resting on exploitation of the workers assumes the Labor Theory of Value, right? I.e. paying someone to work for a day actually costs less than one day’s output of “socially acceptable abstract universal labor quantum” (or however we put it).

If I don’t take the Smith/Riccardo theory of value too seriously am I still obliged to arrive at the exploitation conclusion?

LFC said...

@ Alex

Pr. Wolff has an essay, "A Critique and Reinterpretation of Marx's Labor Theory of Value," available at the "box" link at the top of the blog, which argues, to simplify and put it in a nutshell, that the exploitation conclusion is right even though the way Marx uses the LTV doesn't "work" or, rather, is open to certain serious objections once the linear algebra is done (actually, not nec. to really get linear algebra to follow the reasoning). [RPW has summarized his argument on this pt at the blog and also on youtube, and that's what I'm basing my mini-summary here on. Must consult the orig article or his summaries of it for the details.]

LFC said...

My brief (for lack of more time) comment on this post has to do with the matter of irony. Prof. Wolff has said that one of his aims is to "put the irony into the equations," but where is the irony here? I get the mocking language ("moneybags") and the element of mystification, but mockery and mystification aren't the same as irony. So where is it?

p.s. Irony is certainly not very evident, not to me at any rate, in the long and earnest, non-mocking footnote at the end of chap. 5 (in the '76 Penguin Books edition of Capital vol.1, footnote 24 on p. 269). Sorry have no time to elaborate on this just now.

Gabriel said...

No.Mental labor is accounted for and is part of the analysis. This is clear if you read Capital.

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