If Marx had decided to end this volume after chapter 2, he would have given us a relatively interesting philosophical analysis of labour. It would have been completely wrong, of course. Part of the book is his labour theory of value and several theorems deduced from it. The rest of the book is a scare tactic on how bad industry is. Whenever argument is lacking, in come the sob stories.
We should perhaps cut off one argument at the pass. You will hear some say that Marx anticipated problems in today’s marketplace. He did no such thing. When Marx uses terms like alienation, he means something entirely different than why the minimum wage advocate means today.
This review will focus mainly on the first part of the book. The reason is simple: it is the heart of his argument and if it is wrong, it really doesn’t matter what he gets right.
Chapter 1: Commodities
A commodity is a thing outside of us that satisfies our wants.
“The utility of a thing is its use-value,” and this is independent of the labor that goes into it. Consumption of a product actualizes the use-value.
A thing’s exchange-value must be equal to another commodity. (Marx also says that exchange value is a mode of a thing’s existence. It is a “phenomenal” form, “contained in it, yet distinguishable from it.” For someone who hated metaphysics, Marx uses many metaphysical concepts).
Marx then moves to the heart of his system, and indeed, the most fatal problem to it. Since a thing’s exchange-value is equal to another thing’s exchange-value, how do we make this work? In other words, how do I really know that x weight of corn = y weight of iron? Marx sees this problem, so he introduces a third term: each entity must be reducible to this third term.
What is this “something?” Marx tries really hard to find it. He notes that “exchange-value” is just an abstraction, and since any abstraction is as good as any other, we can do away with that. What seems to be left is “labor.” In language reminiscent of Renaissance alchemy, Marx notes that the “material thing is put out of sight.”
Let’s summarize the problem: there is a common substance (metaphysics-language again!) but it keeps manifesting itself as “exchange-value.”
Let’s go back to use-value. Marx says a thing is valuable “only because human labor in the abstract has been embodied or materialized in it.” The only way we can measure this value is by the quantity of labor. I don’t think Marx is saying that the hours spent making a watch determine how much we can sell it for. He says “the total labor power of society,” the sum total of the values, “counts here as one homogenous mass of human labor.”
That does nothing to help me find out how much to sell my watch. Marx’s answer isn’t much different from the earlier one: we take the average sample.
Conclusion: “The value of one commodity is to the value of any other, as the labor time necessary for the production of the one is to that necessary for the production of the other.” As Sir Roger Scruton remarked in Fools, Frauds, and Firebrands, Marx isn’t dealing with empirical data but with some occult entity embedded in the exchange. There is always a hidden essence in the exchange. Whereas real economists would focus on how supply and demand influence pricing, Marx thought that irrelevant since it said nothing about the hidden essence.
In earlier metaphysics, either Christian or Neo Platonist, there was a cycle of exitus and redditus, of exit and return. Imagine a circle with God (or Being or Good) at the top and a movement downwards along the circle. That is the exitus. There is then a return movement to the top, the redditus. Marx does the same thing with currency and commodity. We begin with C, Commodity. It is exchanged for Money, M, and that money is then used to purchase another Commodity, giving us:
C → M → C
Marx takes it a step further: there are antagonisms within these oppositions. Even more so, the commodity actually changes into the form of money. This is alchemy. This transformation is itself an alienation (chapter 3, sect. 2).
In the next chapter, Marx explains how this transformation completes the cycle. We now move to M → C → M. After further transmutations, Marx concludes that this is the general formula of capital. All of this is very interesting, but the reader might be asking: what does this have to do with how much something should cost? That’s the problem with Marxist economics: facts are subservient to theory. Marx is always considering the matter in the abstract. That’s completely backwards.
We’ll refute this in detail at the end. It is worthwhile, in the meantime, to explain some of his other concepts:
Labour power: the aggregate of those mental and physical capabilities in a human being when he produces value. Its value is specifically determined by labour time. If the owner sells the product at a profit, the surplus doesn’t go back to the labourer. He is thus alienated from his labour.
The rest of the book is a collection of sob stories. Now to the refutation:
First, as Bohm-Bawerk notes, Marx rests upon Aristotle’s theory of equality in exchange. Aristotle said that goods of equal value are traded in an exchange. Marx agrees but puts labor as one of the terms. But if that’s true, then there is no reason to even exchange anything. Nothing would disturb the equilibrium (Bohm-Bawerk 2007:70).
Further, Bohm-Bawerk continues, some goods that are exchanged do not involve any labor time: such as the soil, wood in trees, water power, coal beds, stone quarries, petroleum reserves, mineral waters, gold mines, etc.”
There are even more damaging criticisms of the labour theory. Labor isn’t homogenous, so how can it serve as a uniform medium of exchange? Furthermore, Marx thinks that the businesses that are labour-intensive are the most profitable (which he has to say, since there has to be an active agent putting his labour into the product). This means that the more machinery one employs, the less profit there will be. Experience tells us the complete opposite.
Moreover, Marx sees all credit systems as the fat cat capitalist oppressing the poor borrower. He never imagines a situation where the creditor lends to the government.
Marx has no concept of time-preference, where he sees production only as the gratification of immediate selfish needs.
Throughout his writings Marx says that the worker is on the side of society, and the interests of capitalists is against the interests of society, yet it is undeniable that capitalists produce technology (medicine, scientific advancements, etc) that benefit society.
It is true that there were many abuses in the Industrial Revolution. We can be grateful for child-labour laws and the like. None of that, however, requires a Marxist outlook on life.
Böhm-Bawerk, Eugen v. 2007. Karl Marx and the Close of His System. Auburn: Mises Institute.