Sunday, March 29, 2009

"Capital," Part 1, Chpt. 1, Sec. 3: "The Form of Value or Exchange-Value"

In Section 3 Marx addresses the question "What is value?", or, you might say, "What is money?" He traces a pseudo historical development of money from a barter society to a fully formed money market economy. In doing so, he expressly rejects the notion that the value of things is merely an expression of their market price.
Our analysis has shown, that the form or expression of the value of a commodity orignates in the nature of value, and not that value and its magnitude originate in the mode of their expression as exchange-value. This, however, is the delusion . . . of the mercantilists and their recent revivers, Ferrier, Ganilh, and others, . . .the modern bagmen of Free-trade. . . The modern hawkers of Free-trade, who must get rid of their article at any price . . . For them there . . . exists neither value, nor magnitude of value, anywhere except in its expression by means of the exchange relation of commodities, that is, in the daily list of prices current.

To Marx, the value of things derives ultimatley from the labor that went into their creation, thus the proposition that value is nothing but the "daily list of prices" seems vulgar and incorrect.

Why incorrect? The most elementary form of value is to express one commodity as a relative value of another commodity: e.g. 20 yards of linen = one coat. Marx introduces a technical definition here: the linen in the example is the "relative value" (relative form of value), whereas the coat is the "equivalent form of value." These are the two forms of value. Every expression of the value of a thing entails the interplay between two things: the relative (linen in the example), and its equivalent (the coat). However, the value of a thing can be expressed like this in relation to an infinite number of other commodities. So, Marx asks, if a coat is worth 20 feet of linen, 100 pounds of coffee, the hind quarter of a cow, so much wheat, etc.--all at the same time--then what is the coat really worth? There must be some underlying, unifying common denominator of value that ties it all together. Marx thinks that the labor that went into the creation of each thing is this common denominator that gives meaning to the the myriad expresions of relative value.

A social relation, i.e. the trade in goods, is necessary for the notion of value because a thing's value cannot be expressed in terms of itself: "20 yds of linen = 20 yds of linen" is a tautology and meaningless. An exchange of commodities is thus essential to the concept of value. No matter how warm or beutiful the coat, the tailor's labor in creating the coat infuses the coat with value only in the moment when the coat is exchanged for something else.
"It is the expression of equivalence between different sorts of commodities that alone brings into relief the specific character of value creating labor, and this it does by actually reducing the differnt varieties of labor embodied in the different kinds of commodities to their common quality of human labor in the abstract. . . . Human labor creates value, but is not itself value. It becomes value only in its congealed state, when embodied in the form of some object. In order to express the value of the linen as a congelation of human labor, that value must be expressed as having objective existence, as being a something materially different from the linen itself, and yet a something common to the linen and all other commodities."

This same relationship holds true in our modern money world. We developed money as a matter of necessity because direct barter is a highly inefficient manner of trading. If you have cows but need a plough, you must find someone who not only has a plough but also wants meat. What if you find someone who wants meat but has no plough and can only offer you linen? To get your plough, you must then also find someone who has a plough and wants linen. What if you are looking for a commodity whose equivalent is less than a whole cow? How could you divide your cow to accomlish the exchange? From such necessity social conventions evolved towards common universally useful mediums of exchange: beaver pelts and dried corn in the American colonies, linen in pre-industrial Europe. These kinds of commodities were chosen for a number of reasons, but above all because they were widely desired, durable, portable and easily stored.

In later stages of economic development, gold became the commodity universally accepted as the medium (the "equivalent") of exchange. Later still, paper money backed by gold reserves served the same purpose, and later still just paper money backed by the full faith and credit of the state treasury. In each case, the socially accepted (and trusted) commodity is universally exchangeable with any other commodity. However, throughout, the value being expressed in the exchange is ultimately the labor that is incorporated in things.
When one commodity serves as the equivalent of another, such as linen (or gold currency), and coats consequently acquire the characteristic property of being directly exchangeable with linen (or the currency), we are far from knowing in what proportion the two are exchangeable. The value of the linen (the currency) being given in magnitude, that porportion depends on the value of the coat. . . . The magnitude of the coat's value is determined, independently of its value-form, by the labor-time necessary for its production."

Observations

It does not appear that this is a prescription for doing away with free markets. The process here seems more descriptive than prescriptive. Marx is trying to come to grips with the fundamental source of value and he thinks the "bagmen of Free trade" have it muddled. He believes labor must be the common denominator of all the exchange equations that could be stated between one commodity and an infinite number of other commodities. In other words, the meaning underlying "1 coat = 20 yds of linen" is an expression of its value in terms of the labor used to produce it. In saying that "that's what the exchange equivalance means," Marx does not need to abandon the market. The market, of course, may get this valuation wrong on any given day in its "list of prices."

On the other hand, if we accept that the underlying source of value in any thing is some multiple of undifferentiated unskilled labor units, one might be inclined to set up an agency to scientifically study and investigate how much labor is in each thing directly, and to set what the labor will be worth; in other words to take the market out of it. Whether the free market (the invisible hand) can do a better job at accurately setting those values than some governmental agency may have been an open question in 1917. Today, I think we would say the experiment's been run, and that a governmental agency will not do a better job at this than the market. Nevertheless, this does not necessarily discredit Marx's observation about labor being an underlying source of value.

1 comment:

  1. Ahhh - the so-called "free market".

    First, lets talk about the "market" in general. You seem to imply that Marx (and Marxism) is somehow "anti-market". I haven't read all three volumes of Capital, but I would venture that Marx has nothing bad to say about the market in general. Actually, the "market" existed before capitalism and it will exist after it. Period.

    As for your concept of "free market" - let me ask you - have you read the history of American business? Have you not heard of the power of large corporations? The concept of Monopolies? The power of Wal-Mart? The fact that all these banks are being bailed out by the state - is that "free market"? The fact that General Motors is being bailed out - is that "free market"?

    Again, I would venture that Marx would probably be happy in a world where there was a "free market". However, the whole history of capitalism is the history of trying to control the market. Otherwise, how do you explain people paying $200 for a pair of "sexy" Nike running shoes?

    Keep reading, my friend.

    Cheers.

    ReplyDelete