Adam Smith had abandoned his Labour Theory of Value, because he saw that wages did not equal the new value created by labour. He argued that, as soon as landed property and capital arise, the owners of these factors of production will demand a price for allowing their use. As Marx sets out, he need not have abandoned his Labour Theory of Value, and, in places, where he is being analytical, he reverts to it. Ricardo, indeed, did not abandon it, but was, then, presented with the same contradiction faced by Smith that wages did not equal the new value created by labour.
Smith had, in fact, done all the work required to understand, as the Physiocrats did, that surplus-value is created in production, and only realised in exchange. His error was in not distinguishing between the use-value/commodity labour-power, and the value creating activity labour. Had he done so, he would have seen that there is no need to abandon the LTV. The value of labour-power, bought by the capitalist, is, like every other commodity, equal to the labour required for its reproduction. The capitalist does not exploit labour-power, does not cheat the worker in the price they pay for it, but pays the worker its full price. The capitalist does not exploit labour-power, but exploits rather labour.
The value of a day's labour-power may be, say, 8 hours labour, and that is what the capitalist pays to the worker for that labour-power, as wages. But, having bought that labour-power for a day the capitalist can utilise it for a day, and that day might be 10, 12, or more hours in duration. In other words, the labour creates 10, 12 or more hours of new value. The difference between that and the 8 hours of necessary labour (value of labour-power) then forms the surplus-value/profit.
Smith, basically, took over the Physiocratic advances but went further with the LTV, in recognising that value is labour. But, like the Physiocrats, he recognises the contradiction seen in the fact that wages do not equal the new value created by labour, by arguing, as they did, that the owners of the factors of production – land, labour and capital – demand a price for their supply. Because capital is scarce, and labour plentiful, he says, capital is sold above its value, and labour below. His explanation of the falling rate of profit flows from this, as he says that, as capitalism progresses, and capital is accumulate, the supply of capital will rise relative to demand, and the supply of labour will fall.
But, as Marx notes, by the second half of the 19th century, the functional role of the private capitalist had also disappeared, just as it had, earlier, for the landlord class. As the scale of industrial capital grew, it could only be managed and administered by a growing professional, middle-class army of managers, administrators, accountants, technicians and so on. They were drawn from the working-class, requiring an expansion of free, public education. They became the functioning capitalists, just as the industrial capital, itself became “socialised capital”, as the collective property of the “associated producers”, i.e. the workers and managers. The monopoly ownership of capital by private capitalists had become a fetter on the development of capital. The expropriators were expropriated.
The former capitalist owners were relegated to the role of suppliers of money-capital, owners of fictitious-capital, with no social role in production, as had happened to the landlords. They were, now, just a parasitic excrescence living off their ownership of money-capital. As with the landlords before them, if they ceased to exist, production would continue as before, but, now, with their revenues being used productively to accumulate additional capital.
The bourgeoisie and its ideologists, who recognised this, in respect of the old ruling-class – the landed aristocracy – of course, do not admit it when it comes to the redundancy of their own position.
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