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.