It was Ricardo who gave political economy, and the determination of exchange-value, on the basis of labour-time, its final form, and so its primarily against him the criticisms of later economists were addressed. Marx summarises those arguments that came under the generic heading of what Marx calls “vulgar economy”.
“One. Labour itself has exchange-value and different types of labour have different exchange-values. If one makes exchange-value the measure of exchange-value, one is caught up in a vicious circle, for the exchange-value used as a measure requires in turn a measure.” (p 61)
In fact, labour does not have an exchange-value, but is an activity, the process of creating new value. What has exchange-value is not labour, but the commodity labour-power, which the wage-worker sells to the capitalist. Labour-power is not at all the same as labour. Labour-power is the capacity to preform labour, and has a cost of production, i.e. the cost of reproducing the worker. Labour, by contrast, is the actual performance of that capacity for labour. The value of labour-power, i.e. of reproducing the worker, is not at all the same as the new value created by the worker, and if it were there would be no possibility of creating surplus value, and so no basis for profit and the capitalist to employ the worker.
“This objection merges into the following problem: given labour-time as the intrinsic measure of value, how are wages to be determined on this basis. The theory of wage-labour provides the answer to this.” (p 61-2)
The second objection follows on from the first.
“Two. If the exchange-value of a product equals the labour-time contained in the product, then the exchange-value of a working day is equal to the product it yields, in other words, wages must be equal to the product of labour. But in fact the opposite is true. Ergo, this objection amounts to the problem, – how does production on the basis of exchange-value solely determined by labour-time lead to the result that the exchange-value of labour is less than the exchange-value of its product? This problem is solved in our analysis of capital.” (p 62)
In other words, discounting the value of constant capital transferred to the end product, the value of output for a day is, say, 10 hours labour, but the worker is paid, say, only the equivalent of 5 hours of labour, as wages. Marx points out that the Ricardian socialists used this argument against capital, demanding that workers should receive the full fruits of their labour, a delusion that also found its way into Clause IV of the Labour Party Constitution. The idea was also taken up by Proudhon, and, later, the Lassalleans. As Marx notes, he demolished this argument in The Poverty of Philosophy, in response to Proudhon, and he did so again in The Critique of The Gotha Programme, in response to the Lassalleans.
The fact is that workers sell a commodity – labour-power – and receive for it, its value, the labour-time required for its reproduction. Having bought this commodity, the capitalist uses it, and the length of time to which it is put to work is in no way limited to the time required for its reproduction.
“Three. In accordance with the changing conditions of demand and supply, the market-price of commodities falls below or rises above their exchange-value. The exchange-value of commodities is, consequently, determined not by the labour-time contained in them, but by the relation of demand and supply.” (p 62)
This begs the question of what determines the demand and supply? Will suppliers continue to produce and supply commodities at a price that does not, at least, cover their costs of production? What determines those costs of production, which are themselves prices? In fact, will capitalist producers continue to produce and sell commodities that not only cover their costs of production, but also produce for them, at least, the average annual rate of profit? For any consumer, they may or may not consider any given commodity a use-value, it being a question of utility, but, assuming they do, is not their level of demand itself a function of the price of the given commodity?
“In fact, this strange conclusion only raises the question how on the basis of exchange-value a market-price differing from this exchange-value comes into being, or rather, how the law of exchange-value asserts itself only in its antithesis. This problem is solved in the theory of competition.” (p 62)
Marx never got to set out this theory of competition, which involves an analysis of the basis of both supply and demand.
“Four. The last and apparently the decisive objection, unless it is advanced – as commonly happens – in the form of curious examples, is this: if exchange-value is nothing but the labour-time contained in a commodity, how does it come about that commodities which contain no labour possess exchange-value, in other words, how does the exchange-value of natural forces arise? The problem is solved in the theory of rent.” (p 63)
In fact, its not only in the theory of rent that this issue is dealt with. It is dealt with also in the theory of interest, as the price of capital, but also in the theory of prices of production.
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