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CAPITAL (DAS KAPITAL) (Vol. 1)by

Karl Marx(Britannica Great Books translation)

Part I: Value Determined by an Abstract Labor Standard

FUTURECASTS online magazinewww.futurecasts.com

Vol. 5, No. 10, 10/1/03.

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Karl Marx:

"Capital (Das Kapital)"

Volume 1, Part II:

"Contradictions in Capitalist

Industrialization."

Volume 2, Part III: "The

Circulation & Expansion of

Capital."

Volume 2, Part IV: "Criticism of

Adam Smith." Volume 3, Part V: "Profits."

Volume 3, Part VI: "Interest,

Rent & Labor Use-Values."

Introduction to Vol. 1, Parts I & II

Economic value:

Of those who have waded through "Das Kapital," few -especially among the "Marxists" - had the economic knowledge

to evaluate it. Indeed, very few who call themselves "Marxists"- it is widely acknowledged - have ever bothered to even read

Karl Marx. This is quite understandable.

The rationalizationsbegin with a

tautology - containmajor blatant

contradictions - are permeated with

distinctions that don't reflect any

differences - and arebased on definitions

and redefinitions of economic terms that

are indeterminate,completely without

function in the real economy, and

applied in slipshod and clearly

inappropriate fashion.

Volume 1 of Das Kapital is 383 small print - densely paragraphed pages in the Britannica Great Books translation. It

is composed of tediously interminable, repetitively andminutely detailed rationalizations, that are nevertheless

obviously incomplete and irrational. About 100 pages arededicated to presenting the undoubted horribles of economic

life in the 19th century and in the several centuries prior to that period.

This is continued through the next two volumes, as well - in

total, approximately 1800 pages. The primary affect of this

design is to smother the many omissions and flaws of logic -and thus to shed much heat while providing little light. Therationalizations begin with a tautology - contain blatant

contradictions - are permeated with distinctions that don'treflect any differences - and are based on definitions and

redefinitions of economic terms that are indeterminate,completely without function in the real economy, and applied in

slipshod and clearly inappropriate fashion.

Yet, the concept of capitalism presented can all be accuratelystated in a few paragraphs.

y Only productive labor adds value to the commodities produced. Labor itself is "a particular commodity" -

"labour power" - that is saleable like a commodity - andis measurable in terms of an abstract labor standard -

based on duration of average simple unskilledsubsistence wage labor. The "labor power" standard can



be used as a unit of measure like the "horsepower"

standard.

y Capitalists - as owners of capital - contribute no

labor to commodities and thus contribute nothing of value to production.

y Commercial factors contribute no labor tocommodities, and thus contribute nothing of value to

production,. At most, they just prevent loss of valueduring circulation.

y Capitalist wealth is totally due to egregiousmisappropriations of productive assets beginning as far

back as the period of the breakup of feudalism -"primitive accumulation" - and/or to the subsequent

exploitation of laborers who have been separated fromthe means of production and thus made dependent on

capital.y Capitalists are thus entitled to nothing back from the

productive process except the wages they pay for labor.Anything more that they receive constitutes "surplus

value" that they have extracted by the unjustexploitation of labor.

y All capitalist expansion is achieved only bycapitalizing surplus value.

y Therefore, the capitalist ownership interest can bedispensed with without economic loss - with

considerable justification - and with gain from theelimination of capitalist exploitative conduct.

y The natural course of capitalism is towards greater concentration of wealth and power. Continuous

increases in productivity cause overproduction, squeeze profits, cause periodic economic crises, and make

"redundant" an ever enlarging "reserve army" of unemployed and underemployed workers. Capitalists

respond to these factors by mercilessly imposing ever harsher working conditions and by squeezing more

labor for lower wages from their workers.y The plight of labor must thus inevitably worsen as

capitalists greedily strive to maintain and increase their

profits. Ultimately, an ever more numerous and aroused proletariat will overthrow their capitalist bosses andretake control of productive assets. See, Karl Marx,

"Capital (Das Kapital)" vol. 1, Part II, "ContradictionsAsserted in Capitalist Industrialization."

Note: Throughout these articles on Volume 1 of Das

Kapital, the term "profits" is used as normally defined -

NOT as redefined by Marx in Volume 3.

Das Kapital is full of obvious important

internal inconsistencies, a

basic reliance ontautological

reasoning, numerousdistinctions without

practical difference,

There are obvious answers to this narrow Marxist view of

the labor theory of value and the expectation of chronic

capitalist crisis.

y Management beyond mere shop floor and supply

supervision adds no value to labor. Indeed, in themodern world, and even well before the middle of the

19th century, most of the value of labor is attributable tomanagement.



bald denials,

selective - one hand clapping - analyses

of causation, semantics games

based on sly and nonfunctional

definitions and redefinitions of

terms, and a host of omitted essential

factors.

Even Marx,

although working feverishly on Das

Kapital for about three decades,

ultimately found it impossible to work

logically with hisown ideas.

y Without the incentives of the ownership interest -

and the signals provided by commercial andcapitalist markets - good management is impossible.

Indeed, so important are the ownership incentives that -even with market signals - government management is

INHERENTLY inept.y In socialist nations that lack both ownership incentives

and market signals, "government economicmanagement" is an oxymoron.

y That goods in the market are worth more than goodson the manufacturer's loading dock is observable

fact. This additional value can only come from thecommercial factors that bring goods to market.

y Workers have in fact been visibly improving their lot in the advanced capitalist nations since the middle of the

19th century, and a growing middle class has been

providing an ever widening array of goods and servicesthat are clearly far more than just "luxuries."

y Increases in productivity always permit an economy to produce more goods and services than before - aswell as new goods and services that previously could

not be economically provided. The changes caused byincreased productivity always bring more opportunities

than hardships.

Adam Smith evenhandedly recognized both the abuses andeconomic contributions of industrialists, financial institutions

and merchants - with explanations that are both brief andremarkably clear. See, Adam Smith, "The Wealth of Nations,"

(Part I - "Market Mechanisms"). Karl Marx, on the other hand,created a dense rationale for emphasizing the undoubted abuses

and arguing that all the contributions of the capitalist ownershipinterest and capitalist financial systems are of no value and can

thus be dispensed with.

R epeatedly, Marx's logic breaks down. There are obviousimportant internal inconsistencies, a basic reliance on

tautological reasoning, selective - one hand clapping - analyses

of causation, numerous distinctions without practicaldifference, bald denials, semantics games based on sly andnonfunctional definitions and redefinitions of terms, and a host

of omitted essential factors - as will be presented throughoutthese articles. They demonstrate that even Marx - although

working feverishly on Das Kapital for about three decades -ultimately found it impossible to work logically with his ownideas.

The labor definition

of value is exclusive

because other thingsof value in the

market don't meet it.

Things of value that don't involve

industrial labor haveno value because

Glaringly omitted from the Marx definition of economic

value are all the factors that contribute to economic production

of goods and services but that have no direct relation to labor on commodities as defined by Marx. Marx perforce recognizesa few of these omissions - things that are bought and sold in the

market - things that have a market price - like honor andconscience. Quite unscientifically - and in this instance with

remarkable brevity - buried in the bowels of the book - he hasrecourse to a tautology.



they don't involveindustrial labor.

His narrow labor definition of value - limited to industriallabor use-values - is exclusive because other things of value in

the market don't meet it. Things of value that don't involveindustrial labor have no value because they don't involve

industrial labor. Since the labor theory of value is scientifictruth, it cannot be undermined even by a multitude of obvious

exceptions. Any value that doesn't conform to it must therefore be "imaginary." He is the Wizard of Oz exclaiming: "Pay no

attention to those values behind the curtain."

Thus omitted from economic value - besides honor andconscience - are such obviously essential economic factors as

y land,

y reliability,

y courage,y variety,y mental and physical talent,

y savings,y financial independence,

y financial security,y scarcity,

y rarities like works of art and antiques,y the absorption of risk,

y the universe of financial services,y the time cost of money (interest rates),

y the time cost of productive assets,y the productive incentives of the ownership interest,

y the commercial activities that bring goods to market,y competition, without which efficient management is

impossible,y all of the management tools available only to profit-

seeking enterprises, without which efficientmanagement of complex economic entities is

impossible, andy all the signals provided by commercial and capitalist

markets, without which efficient management is

impossible.

Late in Volume 3, Marx notes in a single sentence that worksof art and such are not a part of these "scientific investigations."

A fter all, who needsall those

management processes of

capitalism if theycan all be replaced

simply by theissuance of

communist directives?

Two centuries of socialist experiments at all levels would

fail abysmally because of their inability to efficiently functionwithout such factors.

y Deferred maintenance and inability to keep up with

technological advances would be particular problems

with socialist experiments at the national level due tothe absence of such factors as ownership incentives andthe time cost of money.

y The factor of quality would prove difficult to evaluate- and variety an impossibility.

y The lack of incentive for diligence would be a problemfor all socialist enterprises that are managed in an



egalitarian manner. Under egalitarian socialism, the

average level of labor intensity would drop precipitously. In the Soviet Union, the workers would

explain: "We pretend to work, and they pretend to payus."

y A lack of competition would be a prescription for grossinefficiency in any system - even capitalist systems.

y No other system is as reliant on ethics as capitalism. It runs on trust and reliability at every level - one of the

primary reasons for its efficiency and success. Thatthere are failures and scandals is not nearly so

remarkable as the relative infrequency with which theyoccur.

y The incentives of the ownership interest - which are peculiarly sensitive to the risks and rewards of

enterprise - provide the only mechanism with which to

even roughly balance ambition with caution - togenerate prudent action.

y Exploitation of labor by the state in autocratic

socialist systems would routinely prove far moreonerous - and far more inescapable - than even the worst

examples of exploitation by capitalists.

With incredible naïveté, Marx - and the Marxists that cameafter him - would assume that socialist systems would solve all

their managerial problems simply by issuing appropriatedirectives - backed up by terror and the use of force. After all,

who needs all those management processes of capitalism if theycan all be replaced simply by the issuance of communist

directives?

Marx commits the

ultimate sin ineconomics - he is not

practical. Anyconcept of value that

cannot be accuratelyand readily

calculated is useless for the fundamental

purpose of allocating scarce

resources.

Marx is attempting

to clap with just onehand. True, that one

hand is responsible for the clapping -

but not alone - or even predominantly.

And worse - Marxoffers just half a

hand - omitting for

However, the impracticality of the Marxist abstract labor

standard would be the most damaging weakness. For all hisdense explanations:

y Marx - and the Marxists who followed him - would fail

to explain how his abstract labor standard of valuewould apply to the vast mass of real labor that - because

of talent, diligence and/or skill - rises above averagelevels.

y Indeed, they would never be able to determine howmuch unskilled labor of each particular type and level of

diligence is needed to reach subsistence labor levels.y Thus, rapid calculations of "undifferentiated human

labor" values for each of the myriad of products andservices produced in an economy would prove

impossible. "Labor power" is not anything like the physically measurable "horsepower" standard which is

applied in turn to physically measurable phenomena.

Economics, after all, is a practical art by which scarce

resources are allocated. Marx commits the ultimate sin ineconomics - he is not practical. Any concept of value that

cannot be accurately and readily calculated is useless for thefundamental purpose of allocating scarce resources.



his propaganda

purposes major factors even on the

supply side.

Marx, himself, would repeatedly be forced to have resort to

market prices as an approximation. Where there are no market prices - as in socialist experiments based on administered prices

- it would remain impossible to evaluate real labor in terms of the standard labor unit devised by Marx.

Marx is attempting to clap with just one hand - consisting of

factors of supply. True, that one hand is responsible for theclapping - but not alone - or even predominantly. And worse -

Marx offers just half a hand - omitting for his propaganda purposes major factors even on the supply side.

Of course, capitalist systems, too, would prove grossly

inefficient whenever administered prices were substituted for market prices - or whenever markets became almost totally

uncompetitive. The pricing mechanism of even modestly

competitive capitalist markets easily proves far superior to alladministered pricing alternatives.

"Rationing by the purse" invariably proves to be the mostefficient - and the fairest - method of allocating scarce

resources. Today, in the U.S., major segments of the vitalhealth care industry are providing a prominent example - and

are staggering under the burdens of administered pricing procedures.

Propaganda myths:

And there is more - much more - that is grossly stupid in

Das Kapital - as will be presented in these articles as the detailsof the Marxist propaganda myths are set forth.

A) The "Science" Propaganda Ploy

Pseudo science:

The propaganda purpose of this book becomes apparenteven before it begins. Marx starts right off in his Preface to the

second edition by invoking the science propaganda ploy - acommon practice for him by this time. After all, who can doubt

the word of "science?"

Marx predicts the

imminent demise of capitalism.

However, the approximately one dozen forecasts made in

this book on the basis of its "scientific" theories turn out to bealmost entirely in error. It is the most basic principle of science

that when forecasts go wrong, something must be amiss withthe theory. What could it be?

The ridiculousness of this claim to scientific certitude is

immediately revealed when Marx - in the same 1873 Preface(during a time of economic recession) - confidently and smugly

predicts the imminent end of days of capitalism. The bourgeois

economy was already "in the t ime of its decline" in theadvanced Western nations. The business cycle was visibly - toKarl Marx - reaching the point of capitalist overproduction

where it would produce an economic collapse that would bechronic and catastrophic.

"The contradictions inherent in the movement of capitalist



society impress themselves upon the practical bourgeois most

strikingly in the changes of the periodic cycle, through whichmodern industry runs. That crisis is once again approaching,

although as yet but in its preliminary stage; and by theuniversality of its theatre and the intensity of its action it will

drum dialectics even into the heads of the mushroom-upstartsof the new, holy Prusso-German empire."

Of course, the "mushroom upstarts" would prove to be theMarxists. The last quarter of the 19th century would be a period

of unprecedented economic growth and widening prosperity incapitalist nations - and although not without serious problems,

the 20th century would be much better.

Like certain religious sects that are forever expecting theimminent Apocalyptic end of days or the coming of the

Messiah, Marxists and some socialists and Keynesian

economists - even as late as the 1990s - would stupidly expectevery downturn in the business cycle to develop into the predicted chronic depression of "mature" capitalism.

So much for scientific certitude. For Marx as for so many

other ideologues, reality is perverse. It simply refuses toconform to ideological expectations.

Economics is anonscientific

practical art -requiring a

professional analytical approach.

Karl Marx is very

aware of the propagandistic use

of the term"science," and

repeatedly accuses

others - especiallyother socialists - of

this propagandistic

misuse of the term.

Economics is not a "science" in any meaningful sense of that

term. It is a nonscientific practical art - requiring a professionalanalytical approach - like law and accounting and warfare andthe delivery of health care - and like politics and sociology -

two other fields with stupid pretensions to scientific status.

Scientific certitude - something that is not withoutconsiderable variability even within those experimental

sciences that enjoy broad access to the full scientific method -is the closest to absolute certainty that humans can rationally

come.

However, the "scientific method" is not broadly available inthe nonscientific practical arts. The availability of some useful

scientific tools is not sufficient to broadly provide scientificcertitude in such fields. The availability of paints and brushes

made scientifically by Dupont does not change painting into a"science."

The most that can be expected in these fields is the opinions of

professionals. Such professional opinions - when offered by professionals with deep understanding of their fields - can be

remarkably reliable - but scientific certainty they cannot provide.

Only propagandists - and the ignorant - speak of economicsand these other fields as "science." Karl Marx is, of course,very aware of the propagandistic use of the term "science," and

repeatedly accuses others - especially other socialists - of this propagandistic misuse of the term. This pot does not hesitate in

calling the kettles "black."



I n Das Kapital, the

obviously vital productive roles of

capitalist commerceand private

ownership interestsare being

rationalized away

and made todisappear.

For Karl Marx is here performing propaganda magic.

Like Lamont Cranston - "The Shadow" back in the days of radio drama - he is clouding the eyes of the suitably credulous

so that obvious aspects of reality seem to disappear.

In Das Kapital, the obviously vital productive roles of capitalist commerce and private ownership interests are being

rationalized away and made to disappear - for a surprisinglylarge class of suitably credulous people. Many of these people

nevertheless pride themselves on being part of an "intellectualelite" - knowledgeable of worldly matters - and capable of

taking charge of and managing the economy of a communistutopia.

Most of these true believers never plumb the depths of the

caliginous bog of interminable rationalization tedious with

detail and repetition - but nevertheless glaringly incomplete -with which Marx blinds their eyes. With the faithful - those that blindly follow Marxism as a secular religion - those

ideologically willing to be blinded to reality - Marx succeedsmagnificently.

Karl Marx is clearly the modern world's most successful

propagandist. However, his economics is grossly incompetent -as is shown throughout this review. There is, after all, a major

difference between "rationalization" and "reason."

B) The Labor Theory of Value

The "value" of

commodities:

Identification of the "socially recognized standards of

measure" of useful objects in commerce - of commodities - isthe problem with which Marx begins this work.

F or thedetermination of the

magnitude of valueby labor time, Marx

creates a "uniformlabour power"

standard - "humanlabour in the

abstract" - based onhomogeneous,

simple, unskilled,

subsistence wagelabor.

Exchange values are stated in constantly fluctuating sums of

money or in barter commodities as defined by the marketwithout any concern for the use values of the items - although

the fact that the items have use value is inherent in their marketability. Market exchange values are also unconcerned

with the particular labor involved in bringing items to market - but labor is clearly a major factor affecting market exchange

values. In the market, all goods "are reduced to one and thesame sort of labour, human labour in the abstract."

This "human labour in the abstract" is "a mere congelation

of homogeneous human labour, of labour power expendedwithout regard to the mode of its expenditure." It is embodied

in every marketable object as "values."

This abstraction is essential for "the determination of the

magnitude of value of labour time" because the value of labor issubjective - it varies immensely not just with measurableduration but also with factors of skills, quality and variety that

are not directly measurable. The value of the unskilled idler,Marx notes, is not worth as much per hour as that of the diligent

skilled craftsman.



"The labour time

socially necessary isthat required to

produce an articleunder the normal

conditions of production, and with

the average degreeof skill and intensity

prevalent at thetime."

Marx thus must create an abstraction - an objective laborstandard of value - both for propaganda purposes and as analternative to capitalist market exchange values.

y It must be "abstract" - not dependent on actual labor

expended.y It must be "simple" - based on the effort required of

unskilled labor to achieve subsistence.y It must be "homogeneous" - "one uniform labour

power" - an average - existing similarly in allmarketable items.

Unlike "horsepower," however, it is not a fixed measurable

physical standard for application to other measurable physical phenomena. It must change with changes in the various

conditions of production and the needs of society. It is

impossible to apply to labor that by talent and/or skill risesabove the simple, unskilled subsistence level. It cannot by itself even determine how much of each of the multifarious forms of

labor working under multifarious conditions is actually neededto cover subsistence costs.

y It must be "socially necessary" - to eliminate uselesslabor. This factor is something else that is highly

variable.

This requirement for "socially necessary" labor is

especially important, because it is the only objective factor thatties the narrow industrial labor concept of "value" to themarket. However, these "values" are constant - rigid -

changeable only slowly over long periods with changes in theindustrial factors of production - and totally unresponsive to the

wishes of consumers. Actual day-to-day conditions in themarket have no impact on values. They only affect the extent to

which such values can be "realized" in terms of money.

In one of his numerous digressions - here during discussion of ground rents in Volume 3 - Marx provides an explanation of the

extent to which production in excess of "social need" affects"value." In short, it doesn't affect "value" at all. "Value"

remains the same - a constant in the short run. However, it becomes "impossible to realize the value of the commodity and

thus the surplus-value contained in it," if goods areoverproduced.

"[Assuming that] too much cotton goods have been produced,[then] too much social labour has been expended in this

particular line; in other words, a portion of this product isuseless. It is therefore sold solely as if it had been produced in

necessary proportions."

It is hard to know where to begin to explain the multipleweaknesses revealed in this short digression.

y Marx has just eliminated the only

objective factor he recognizes on the



demand side that can provide guidanceon immediate market conditions for producers. "Value" is totally supply

driven - and driven by only a narrow partof the supply-side factors. The market

just determines the cutoff point, after which these values are being produced in

excess.y This view of consumer markets is totally

rigid, unresponsive and simplistic. While"value" can at least change over time,

"social need" is a fixed quantity, notsubject to expansion or contraction in

response to price changes due either tomarket conditions or changes in

production or substitution among similar

products. In the workers' paradise,everyone must live like monks. Nobodyis entitled to own an extra shirt, or an

extra dress - or to aspire to higher qualitygoods or items of greater variety. Marx is

concerned only with subsistence levelliving.

y "Social need" is fixed in time. Cottongoods are not even perishable, yet an

oversupply renders some of it "useless."There is no expectation in this paragraph

that time and producer responses tomarket conditions can ultimately allow

the market to clear with all goods sold.y Other than the oversupply, the rest is sold

"solely as if it had been produced in thenecessary proportion." There is here no

indication of decline in value or even of price - nothing to signal producers to

reduce production until the market clears- no appreciation of factors that permit

flexible and sensitive response to supply

and demand conditions.

Marx, of course, is fully aware of the functioning of capitalist

markets. How capitalists are dominated by the forces of marketcompetition is a pervasive theme in Das Kapital. Substitution

effects apply even for necessities. Consumption can vary over time even for necessities.

In Volume 3, he recognizes that "it is not true that the

consumption of necessities of life does not increase as they become cheaper. The abolition of the Corn Laws in England

proved the reverse to be the case." Sudden price variations may be met with an inelastic demand curve, but price changes over

time will affect consumption. Also, necessities can be producedfor non-essential uses - as when grains are used for whiskey.

Also, substitution effects apply when more than one type of commodity can fill necessary requirements. And, international

trade introduces additional elements of elasticity into a marketfor necessities.



However, his basic attitudes towards those functions caused

this remarkable slip-up. Market functions have no value. They

can be dispensed with - easily replaced with appropriatesocialist "directives."

Numerous direct contradictions arise throughout Das

Kapital because of this obvious requirement that labor be"socially necessary." This becomes painfully clear in Volume 2

when Marx tries to dismiss as "an illusion" all value dependenton commercial activities that don't directly involve the

industrial laborer. See, Karl Marx, Capital (Das Kapital) (vol. 2Part III), "The Circulation and Expansion of Capital," and Karl

Marx, Capital (Das Kapital) (vol. 2 Part IV, "Criticism of Smith's Definition of Capital."

Incredibly, not only Marx, but all Marxists ever since wouldremain dumb with respect to the extent that their narrow labor theory of value - limited to industrial labor use-values -

necessarily violates this essential requirement that labor be"socially necessary."

y It must be embodied in "commodities."

"Each of these units is the same as any other, so far as it hasthe character of the average labour power of society, and takes

effect as such; that is, so far as it requires for producing a

commodity no more time than is needed on an average, nomore than is socially necessary. The labour time sociallynecessary is that required to produce an article under the normal

conditions of production, and with the average degree of skilland intensity prevalent at the time."

H omogeneouscommodities all are

measured by the same kind of value

regardless of theactual labor

employed inbringing them to

market.

Marx then must define "commodity."

y It must be "an object of utility." y It must require labor - not be freely available like air

or water.

y It must be produced for others - not just for the

personal use of the producer.y It must be transferred by "exchange" in the market -

not provided to others as a servitude.

Marx would forget these last two requirements when insisting

that Adam Smith was in error for stating that seeds retained bya farmer are among his "fixed assets." Marx insisted they were

"commodities" that the farmer "sold to himself."

y Labor itself is also a "value" exchangeable in themarket, but it is "a particular commodity" with peculiar

characteristics.

Thus, homogeneous commodities all are measured by the

same kind of "value" regardless of the actual labor employed in bringing them to market. They "are only definite masses of

congealed labour time." They embody not just utility, but also



value for exchange for other commodities.

As much trouble as socialist experiments had in assigning

values to homogeneous commodities, they would prove totallyincompetent with non homogeneous commodities. Factors of

quality and variety were beyond their capacity to deal with. Theworld of services - inherently variable - was alien territory.

And, of course, valued characteristics that were not the productof labor - characteristics both useful and scarce - like honor,

courage - and the incentives of ownership - are dogmaticallyexcluded from the system - laughably dismissed as "imaginary"

values - because of the lack of labor involved in their creation.

The abstract labor standard is "human

labour pure and simple" that need

only be defined inunits of time for

purposes of thecalculation of

values.

When coats are

exchanged for linen,the exchanged items

clearly havedifferent values in

use, but they havethe same value in

exchange - which ismeasured by Marx

in equivalent amounts of "labour

in its abstract character."

To make his labor standard "homogeneous," Marx reducesit to its lowest common denominator - "unskilled, simple

labor." This is "human labour pure and simple" that need only be defined in units of time for purposes of the calculation of

values.

As Adam Smith pointed out for the wage laborer, it is aconstant determined by what is required for the laborer and his

family to survive and reproduce. While the subjective value inutility - "use value" - and the objective value in exchange -

"exchange value" - of the products of this labor vary with themomentary changes in various factors - the abstract, objective

simple labor standard itself remains relatively constant -affected only by changes in long run factors of productivity and

use.

By the time Marx is writing, the level of productivity is a

capitalist level - and no unskilled labor could produce enough

commodities to subsist with a family without the tools andmaterials supplied by capitalists. All "unskilled, simple labor"

is by itself below subsistence level - and must depend oncapitalism to survive. See, "Surplus labor," below.

Exchange values are objective and precisely determinable.

However, they are inevitably influenced by abstract humanlabor values no matter what the different forms of labor actually

applied in bringing the exchanged items to market. Thus,weaving, "in so far as it weaves value, has nothing to

distinguish it from tailoring, and, consequently, is abstracthuman labor" when coats are exchanged for a particular amount

of linen in the market. "The value of a commodity obtainsindependent and definite expression by taking the form of

exchange value."

Marx spends inordinate time explaining this difference between the subjective use values of items and their objective

values in exchange. When coats are exchanged for linen, the

exchanged items clearly have different values in use, but theyhave the same value in exchange - which is measured by Marxin equivalent amounts of "labour in its abstract character." How

many coats can be exchanged for how much linen is determined by productivity - which is a variable for "labor in the abstract."

Marx recognizes the magic of the market. In the bargain,



each party gives up a value - which the bargain makesobjectively determined - and receives use value - whichremains subjective within the recipient. Absent mistake, the

values given up - the abstract labor values - are equivalent. Notso the use values.

Absent mistake, the objectively determined exchange value

given up is the minimum that the subjective use value can be -and the use value will usually be more - even considerably

more - so that both sides feel that they have gained in the bargain. Moreover, by specialization, market participants may

considerably increase the saleable labor value they bring tomarket and with the proceeds thus procure far more use values

from the market.

"With reference, therefore, to use-value, there is good ground

for saying that 'exchange is a transaction by which both sidesgain.'"

However, in terms of labor value, there is no gain, for theyhave given value for value.

Similarly, in the bargain, particular types of labor are

manifested in amounts of "abstract human labor" that can becompared by means of the exchange of the commodities

produced. Even though different forms of "concrete labour"cannot be directly compared, by manifesting itself in its

opposite, "abstract human labour," comparisons can be made.

The labor that

creates one type of commodity "stands

expressly revealed as labour that ranks

equally with everyother sort of human

labour."

I t is the magnitudeof value that

controls exchange

proportions.

For barter economies, a value relationship must be

calculated between each commodity and all other commoditiesin trade. Each isolated exchange results in a "different

elementary expression" of value that must be repeated for eachof the numberless commodities in the economy. Here it is

revealed that value "in its true light" is just "a congelation of undifferentiated human labour."

The labor that creates one type of commodity "stands

expressly revealed as labour that ranks equally with every other sort of human labour, no matter what its form, whether

tailoring, ploughing, mining, etc., and no matter, therefore,whether it is realized in coats, corn, iron, or gold." This equality

of labor places all commodities in "a social relation - - - withthe whole world of commodities." The particular forms of use

value have become irrelevant.

The values as determined by barter between two commoditiesmay be mere accident, but the complex of values throughout a

complex economy cannot be accidental. Thus, "it becomes

plain that it is not the exchange of commodities which regulatesthe magnitude of their value; but, on the contrary, that it is themagnitude of their value which controls their exchange

proportions." And that value is determined by the"undifferentiated human labour" congealed within each

commodity.



The money

commodity:

Money begins to come into existence when the value of allother commodities is expressed when exchanged for one particular commodity.

The money

commodity becomesthe universal

equivalent.

Marx carves this process up into four distinct steps, which

he explains in tedious length.

"The expanded form of value comes into actual existence for the first time so soon as a particular product of labour, such as

cattle, is no longer exceptionally, but habitually, exchanged for various other commodities."

As soon as a particular commodity is designated to fulfill thisrole, we have money.

"By this form, commodities are, for the first time, effectively

brought into relation with one another as values, or made toappear as exchange values."

With the advent of a money commodity, in order for each

commodity to express its value simultaneously in terms of allother commodities, it must refer to the same equivalent as used by all other commodities. The money commodity becomes "the

universal equivalent."

"It thus becomes evident that, since the existence of commodities as values is purely social, this social existence can

be expressed by the totality of their social relations alone, and,consequently, that the form of their value must be a socially

recognized form."

The "undifferentiated human labour" in the money commodityis the equivalent of that in all other commodities. It becomes

"the social résumé of the world of commodities." That the labor is "human labor constitutes its specific social character." In the

19th century, the money commodities were metallic - mostwidely gold and silver.

Social fictions:

Commodities thus manifest both perceptible utility in use,

and imperceptible value in exchange.

"[Withcommodities], the

value relation

between the products of labour,which stamps them

as commodities,have absolutely no

connection withtheir physical

This value in exchange is a fantastical relation betweenthings and other things and between all these things and man - a

figment of the human mind - much like the religious imaginingsof gods, and the imaginings of interactions among gods and

between man and the gods.

"A commodity is, therefore, a mysterious thing simply

because in it the social character of men's labour appears tothem as an objective character stamped upon the product of thatlabour, because the relation of the producers to the sum total of

their own labour is presented to them as social relation, existingnot between themselves, but between the products of their

labour. This is the reason why the products of labour becomecommodities, social things whose qualities are at the same time



properties and with

the material relations arising

therefrom. There it is a definite social

relation that assumes, in their

eyes, the fantastic form of a relation

between things."

perceptible and imperceptible by the senses. - - - [With

commodities], the value relation between the products of labour, which stamps them as commodities, have absolutely no

connection with their physical properties and with the materialrelations arising therefrom. There it is a definite social relation

that assumes, in their eyes, the fantastic form of a relation between things. - - - This I call the fetishism which attaches

itself to the products of labour, so soon as they are produced ascommodities, and which is, therefore, inseparable from the

production of commodities."

"The equalization of the most different

kinds of labour can

be the result only of an abstraction fromtheir inequalities, or

of reducing them totheir common

denominator, viz.,expenditure of

human labour power in the abstract."

In the production of commodities, human labor, too, takes

on a social character. This social character does not show itself,however, until the products of that labor - the commodities that

were produced - are exchanged in the market.

Marx goes into typical repetitive detail in explaining the

character of labor when engaged in producing goods of a usefulnature for market. The following is a brief sample.

"[To the producers], therefore, the relations connecting thelabour of one individual with that of the rest appear, not as

direct social relations between individuals at work, but as whatthey really are, material relations between persons and social

relations between things. - - - This division of a product into auseful thing and a value becomes practically important only

when exchange has acquired such an extension that usefularticles are produced for the purpose of being exchanged and

their character as values has therefore to be taken into account, beforehand, during production. - - - [This labour] must, as a

definite useful kind of labour, satisfy a definite social want, andthus hold its place as part and parcel of the collective labour of

all, as a branch of a social division of labour that had sprung upspontaneously. On the other hand, it can satisfy the manifold

wants of the individual producer himself, only in so far as themutual exchangeability of all kinds of useful private labour is

an established social fact, and, therefore, the private usefullabour of each producer ranks on an equality with that of all

others. The equalization of the most different kinds of labour

can be the result only of an abstraction from their inequalities,or of reducing them to their common denominator, viz.,expenditure of human labour power in the abstract. - - - [In the

exchange of products], the character that his own labour possesses of being socially useful takes the form of the

condition that the product must be not only useful, but useful toothers, and the social character that his particular labour has as being the equal of all other particular kinds of labour, takes the

form that all the physically different articles that are the products of labour, have one common quality, viz., that of

having value."

"The determinationof the magnitude of value by labour time

is therefore a secret,hidden under the

apparent fluctuations in the

He presents the labor theory of value as a great discovery -a discovery begun by economists like Smith and Ricardo, but

only brought to completion by Marx - a discovery equivalent tothat of laws of nature like gravity. That it is hidden behind the

money form of values serves to conceal "the social character of private labour, and the social relations between the individual



relative values of

commodities."

producers."

"[In] the midst of all the accidental and ever fluctuating

exchange relations between the products, the labour timesocially necessary for their production forcibly asserts itself like

an overriding law of nature. The law of gravity thus assertsitself when a house falls about our ears. The determination of

the magnitude of value by labour time is therefore a secret,hidden under the apparent fluctuations in the relative values of

commodities. Its discovery, while removing all appearance of mere accidentality from the determination of the magnitude of

values of products, yet in no way alters the mode in which thatdetermination takes place."

Unfortunately, absent guidance from a fairly competitivemarket, the abstract, simple human labor standard is impossible

to apply to either labor or commodities.

To begin his attack on the bourgeois form of production, Marx provides an account of other forms of production in

history and in contemporaneous societies. The "fantastical" bourgeois form is neither a law of nature nor immutable.

The impact of

economic

exchange:

Commodities become commodities by their exchange. By

exchange, they both achieve exchange value for the provider and use value for the purchaser. Only by exchange does the

labor spent upon them prove itself "useful for others." Indeed,

"the labour spent upon them counts effectively only in so far asit is spent in a form that is useful for others."

Because of themarket economy and

money, the relationsof producers "to

each other in production assume a

material character independent of their

control and conscious individual

action."

Property rights are an essential feature of exchange. In tribal

communities, where all property was held in common,exchanges occurred only at the margins, between one tribe and

another with the property each community owned. However, assoon as such exchanges turn property into commodities, they

are viewed as such for internal intercourse as well. "Whatmakes them exchangeable is the mutual desire of their owners

to alienate them" to acquire the "foreign objects of utility" thatthey can be exchanged for.

Ultimately, some "products of labour" will routinely be

produced not for their use value or consumption, but for whatthey can bring in exchange.

"From that moment the distinction becomes firmly established

between the utility of an object for the purposes of consumption, and its utility for the purposes of exchange. Its

use value becomes distinguished from its exchange value."

The proportions with which they are exchanged is dependenton the labor in their production. Custom soon "stamps them

with values of definite magnitude." These values come to bemeasured in relation to the money commodities - in the 19th

century, gold and silver. These appear to become even in their raw form "the direct incarnation of all human labour."



Once established, money appears to take control of the

production process.

"Hence the magic of money. In the form of society now under consideration, the behavior of men in the social process of

production is purely atomic. Hence, their relations to each other in production assume a material character independent of their

control and conscious individual action."

Thus, the riddle of money is "the most glaring form" of theriddle of commodities.

Money and the

circulation of

commodities:

The various roles played by money are reviewed by Marx.

1) Money is the measure of value of all other commodities.

"The value, or in other words, the quantity of human labour contained in a ton of iron, is expressed in imagination by such a

quantity of the money commodity as contains the same amountof labour as the iron."

Marx cites the price fluctuations of gold and silver bullion.The impossibility of separating gold and silver money from the

impacts of those fluctuations is proof of the continuedrelationship between money and its commodity form.

2) Money is also the standard of price because it can bedivided accurately into particular units - for silver, into pounds

and ounces. However, because of centuries of debasement bykings and princes, nothing in fact remains of the original

weights of coins but the names. These now artificial names become the money of account for fixing the value of an article

in its money form. See, "Money is the measure of account," below.

Market price isusually only an

approximate - seldom an exact or

"ideal" - measure of "value" as defined

by reference to theabstract labor

standard.

However, prices fluctuate sometimes with great volatility. Price thus is not necessarily an accurate reflection of sociallabor value. Prices may be set either too high or too low in

comparison with the value of the social labor represented by the product.

Marx thus must deal with the observable fact of price

volatility. Since no concept of labor value can be permitted torise and fall as rapidly as prices fluctuate, he must distinguish

between price and value.

"If the conditions of production, in other words, if the

productive power of labour remain constant, the same amountof social labour time must, both before and after the change in

price, be expended in the reproduction of a quarter of wheat."

There is no necessary relationship between magnitude of valueand price. Indeed, deviations between the magnitude of value

and price are more than just possible - they are "inherent in the price form itself." However, this is perfectly proper, since the

"apparently lawless irregularities" of the pricing system



"compensate one another" by fluctuating about a mean level.Market price is usually only an approximate - seldom an exactor "ideal" - measure of value.

But if even the market - through its pricing mechanisms -

cannot accurately establish "value," how is value to bedetermined without guidance from the market? How can a

system allocate scarce resources without the pricingmechanism? How can it determine to increase production of

certain items by reducing production of others without thesensitive guidance of price fluctuations in the market?

The socialist alternative would be "five year plans" divorced

from reality and based on administered allocations of scarceresources - allocations almost always of incredible stupidity

even with respect to quantities. They generally don't even

address the factors of quality and variety.

An object may have

a price without having value. The

price in that case isimaginary, like

certain quantities inmathematics."

Marx, himself, is repeatedly forced to have recourse tomarket price as the measure of value for his examples.

Here, Marx reaches the point where he must deal withattributes that clearly have a price but are not produced by

labor. On the basis of his false premise about the limited scopeof economic value, he draws an absurd conclusion.

"Objects that in themselves are not commodities, such as

conscience, honour, etc., are capable of being offered for sale

by their holders, and of thus acquiring, through their price, theform of commodities. Hence, an object may have a pricewithout having value. The price in that case is imaginary, like

certain quantities in mathematics."

The scarcity element of value doesn't exist for Marx except asit is a factor in determining the degree of social necessity for

labor on commodities. He thus dismisses it - without botheringwith any justification - as "imaginary." This feeble

rationalization may suffice for a propaganda myth, but it ishardly a proper application of "scientific" method.

Of course, Marxists adamantly deny any value for the

incentives of the ownership interest. Similarly denied is thevalue of time of possession - the time cost of money or capital

assets - since these patently involve no transfer of labor value.

Marx then offers an incredible sentence - a sentence that onlyan economic simpleton could write - or read and take seriously.

"If a definite quantity of labour, say thirty days, is requisite to build a house, the total amount of labour incorporated in it is

not altered by the fact that the work of the last day is donetwenty-nine days later than that of the first."

But without knowledge of the time cost of money and the time

cost of productive assets, efficient management of productiveassets is impossible. Wherever the time cost of money was not

taken into account, socialist production would exhibit



incredible ineptness.

And without the productive incentives of ownership interests,

socialist production would become the plaything of a variety of counterproductive incentives. Diligence and those skills

dependent on talent would frequently not be properlycompensated in the absence of recognition of the value of

scarcity. They thus would seldom be exercised in thoseinstances. As for variety - it is unimaginable under socialism.

When exchanges take place, "the price realized may be

abnormally above or below the value." Social labor value is the"hidden regulator" and remains ideally somewhere at the mean

price level around which the forces of supply and demand cause prices to fluctuate. However, the ideal is not the reality, and

even mean price levels differ somewhat from social labor value.

Somewhat inconsistently, Marx recognizes that social labor

value must change in response to some of the influences thatcause those price fluctuations - conditions of overproduction or

underproduction - glut or scarcity. The price fluctuations provide the constant flow of sensitive signals that permit

managers to rationally allocate scarce resources. The standardsupply and demand curves in economics deal only with price,

not with social labor value.

It is impossible to determine what "social labor value" is

without guidance from the pricing mechanism, since conditionsof glut or scarcity become long term rather than temporarywithout market guidance, and even mean pricing levels become

so attenuated as to be meaningless for practical economic purposes.

Marx is, of course, aware of inflation and its affect on prices. Substantial new supplies of precious metals are flowing

in from newly discovered mines - and the metal in the coins is being clipped or allowed to be worn away. However, for the

purposes of this analysis, he reasonably assumes a fixedvaluation for the monetary metal - as in the short run it

generally has.

The seller who

receives money maynot necessarily

expend it again - hemay take it out of

circulation - he mayhoard it - producing

"a crisis" if toomany hold too much

overly long.

3) Money is the medium of exchange. It is the measure of exchange value. Marx goes on in extraordinary length to show

how the money commodity - as the medium of exchange -facilitates an endless string of transactions involving the

purchases and sales of goods in commerce - "the circulation of commodities."

"Money functions as a means of circulation, only because in itthe values of commodities have independent reality. Hence its

movement, as the medium of circulation, is, in fact, merely themovement of commodities while changing their forms [from

values to use values]."

But this string is not foreordained to continue.

"We see here, on the one hand, how the exchange of



commodities breaks through all local and personal boundsinseparable from direct barter, and develops the circulation of the products of social labour; and on the other hand, how it

develops a whole network of social relations spontaneous totheir growth and entirely beyond the control of the actors."

Whereas, in barter, two different commodities are immediately

exchanged for their use value to the new possessors, money breaks this necessary connection. The person who receives the

money may not necessarily expend it again - he may take it outof circulation - he may hoard it - producing "a crisis" if too

many hold too much overly long.

This process of "crisis" is explained by Marx in terms of his pseudo scientific gibberish - of "contradictions" and "thesis"

and "antithesis" - by which he attempts to reduce the complex

and inherently indefinite logic of economic analysis to aformulaic method with pretensions to scientific certitude.

"The antithesis between use-value and value; the

contradictions that private labour is bound to manifest itself asdirect social labour, that a particularized concrete kind of labour

has to pass for abstract human labour; the contradiction between the personification of objects and the representation of

persons by things; all these antitheses and contradictions, whichare immanent in commodities, assert themselves, and develop

their modes of motion, in the antithetical phases of the

metamorphosis of a commodity."

At this point of the analysis, crisis is merely possible. Its

inevitability is explained by analysis of further elements of thecapitalist economic system.

Marx then gives his views on the velocity of money as

currency, in another typical tediously long segment. His views,as with those of Adam Smith, depend on the money having an

intrinsic value - as when it was based on precious metals. Thus,the amount and velocity of money in circulation is determined

by the amount and prices of commodities. It is economic law"that the quantity of the circulating medium is determined by

the sum of the prices of the commodities circulating, and by theaverage velocity of currency."

But this is only in the very short term, during which the value

of the money is fixed. And it doesn't include the operations of the credit financing mechanism.

By his own terms, gold may have a lower social utility inSpain, which receives copious amounts of it from its mines,

than in England, which must earn its gold with the export of commodities. It takes more labor to get gold into England. But

also, as Smith points out, Spain's mercantilist policies keep goldsupplies artificially high. In this way, even with gold, the

amount of money can impact the price level - as well as the production - of commodities. Not just socially necessary labor,

but relative scarcity as well, impacts value.



exchange need not be instantaneous. Payment can be made

some time after receipt of the purchased commodities.

"The money is no longer the means that brings about the

process. It only brings it to a close."

For major business operations, institutions have been created

to settle such accounts against each other, so that money needonly be provided to the extent the accounts do not cancel out.

The opposite can also occur. Payment in advance obliges theseller to perform as promised within an agreed time. Marx

recognizes this arrangement, but does not here deign to consider it.

Sophisticated systems for extending and clearing credit

have a habit of breaking down catastrophically - causing panicthat suddenly destroys credit and reduces all transactions to

those that can be arranged with hard cash. There is a "moneyfamine." This sudden destruction of financial purchasing power

- the sudden collapse of credit - greatly contracts economicactivity. As Marx notes, even in the 17th century it was

observed that: "The poor stand still, because the rich have nomoney to employ them, though they have the same land and

hands to provide victuals and clothes as ever they had."

Once credit arrangements are brought into the picture, it

becomes evident that the previous simple calculation of theamount of money in circulation - involving commodity pricesand volatility - no longer applies. Indeed, since credit

instruments can be negotiable and can be discounted by banks,most of the nation's industrial and commercial activity is

financed not with money but with credit instruments. The use of gold and silver money is relegated mainly to the retail trade.

Now, a more sophisticated calculation has to take place -

involving the average length of the periods of payment. Theshorter the periods, the smaller the sums of money needed to

cover the transactions.

Marx asserts the superiority of

systems that rely on

in-kind payments.

Marx ventures two more confident predictions - both of aminor nature - the fourth and fifth faulty fearless forecasts for

Marx in this volume - based on his "scientific" understanding of economics. He professes confidence in the "ancient forms of

production" that are not dependent on money. He predictscontinued strength for the Ottoman Empire if it can avoid

shifting from payments in kind to money payments for rentsand taxes, and he predicts financial disaster for Japan's small

agricultural units if Japan shifts to money rents from rents in

kind.

The Ottoman Empire failed to modernize its economy, andcollapsed. Japan modernized as fast as it could, and prospers -

along with its pampered small farmers.

The creation of When money buys commodities not for use but for resale,



capital: it becomes capital, and its holder a capitalist.

The objective is not personal use, but monetary gain. Money is not used to gain commodities - it is commodities thatare used to gain money - the embodiment of exchange value. In

the latter case, the money isn't spent, it is merely "advanced."

Marx is variously inconsistent on this point. At certain points,he insists that capitalist production doesn't begin until enough

workers are employed so that the capitalist can be freed from allmanual labor. Only then do we get "capitalists" and "capital."

"This point coincides with the birth of capital itself." Beforethen, employers are just "small masters."

At other times, however, he views even merchants and money

lenders who may have no employees or few employees as

capitalists greedily growing their capital. In modern usage,everyone with productive tools and/or productive or saleableskills and/or financial resources has "capital." Thus, we are, infact, all capitalists - benefiting from the labor of society - even

if we never employ a single soul. Marx heaps scorn on this perfectly reasonable view. It clearly doesn't conform to his

"scientific" understanding.

Each purchase of commodities for use is an independenttransaction. Succeeding transactions require the addition of

labor value to provide new commodities.

S ince the commodity still retains its

original labor value,the gain by

merchants is"surplus value." I n

terms of adding labor value to

commerce, merchant transactions are

meaningless.

These merchant

transactions thusboil down to the

exchange of capital for capital for more

capital - theequivalent of trading

money for money for more money - devoid

of any addition of labor value to

account for the surplus value this

process produces.

However, merchant transactions - the purchase of commodities for resale at a profit - when successful - provides

monetary gains and permits "interminable" transactions withoutany addition of labor value. Advancing money to gain money is

mere speculation - a gamble. "More money is withdrawn fromcirculation at the finish than was thrown into it at the start."

Since the commodity still retains its original labor value, thegain is "surplus value." In terms of adding labor value to

commerce, merchant transactions are meaningless.

"The value originally advanced, therefore, not only remainsintact while in circulation, but adds to itself a surplus value or

expands itself. It is this movement that converts it into capital."

The object of the capitalist is not consumption, but constant

gain.

"This boundless greed after riches, this passionate chase after exchange value, is common to the capitalist and the miser; but

while the miser is merely a capitalist gone mad, the capitalist isa rational miser. The never-ending augmentation of exchange

value, which the miser strives after by seeking to save hismoney from circulation, is attained by the more acute capitalist

by constantly throwing it afresh into circulation."

The commodities, themselves, are no longer viewed as usevalues, but as exchange values - just like money. Such

commodities are capital - just like money. These transactions



thus boil down to the exchange of capital for capital for morecapital - the equivalent of trading money for money for moremoney - devoid of any addition of labor value to account for the

surplus value this process produces.

Marx conveniently ignores the ways in which merchanttransactions differ from commodity speculation. Marx to the

contrary notwithstanding, goods in an accessible market areworth considerably more than goods on the manufacturer's

loading dock many miles away. Were it otherwise, farmersmarkets would everywhere displace super markets.

The merchant trade of commodities as capital cannot be

sustained at a profit if it doesn't deliver value by bringing thosecommodities most efficiently to the ultimate consumers in the

market. The inability to efficiently deliver goods to the ultimate

consumers would be one of the most distressing failures of socialist systems.

The industrialist and the creditor are not really any differentfrom the merchant, even though the steps of the transaction are

more complex in the former instance and more direct - moneyadvanced to gain money plus surplus value - in the latter.

But for industrialists, Marx distinguishes between the "small

master" who employs so few workers that he must himself actively engage in manual labor, and industrial "capitalists"

who employ enough workers so that the surplus value that can

be gleaned is enough to free him from the need for manuallabor.

Here is one of several places in the book where Marx seems toacknowledge that the capitalist must in fact add entrepreneurial

skills for best results. "That a capitalist should command on thefield of production is now as indispensable as that a general

should command on the field of battle."

The profit motive provides the incentive for efficient production, Marx recognizes - (and only the ownership interest

has it). But to Marx, profits nevertheless add no value to production.

The merchant'smarkup "can only

have its origin in thetwofold advantage

gained, over boththe selling and the

buying producers,by the merchant who

parasitically shoveshimself in between

them."

Marx thus blindly - determinedly - denies that commerce

adds value - again relying on the basis of faulty premises aboutwhat is and is not value. In the Marxist world, the retail buyer

and the producers of commodities could just as easily have metin the market place without the intervention of a merchant and

without adding the merchant's profit to the transaction.

That the producers of commodities might more efficientlyhave used their time producing their saleable commodities than

transporting them to market and sitting around waiting for salesand returning with and storing the unsold inventory doesn't

enter his feeble calculations in Volume 1. The time cost of money remains alien territory to him in Volume 1.

However, in Volume 3, when he deals with these subjects



specifically, he is forced to recognize some of the manyobvious benefits of these commercial factors. Nevertheless, heretains his view that they add no value - they just help in the

process of "realizing" value already created by industrial labor power. He is reduced to relying on tautological reasoning and

distinctions without a difference to sustain this central absurdityof his concepts.

As between the buyer for use and the seller for money, there is

a zero sum game. No surplus capital can be generated, althoughone can take advantage of the other and by shrewd bargaining

make a gain at the other's expense.

However, when the capitalist steps in between these two, heextracts value - surplus value - from them both. The merchant's

markup "can only have its origin in the twofold advantage

gained, over both the selling and the buying producers, by themerchant who parasitically shoves himself in between them."(All who sell and buy through merchants rather than direct must

be stupid not to see this!)

The interest revenues of money lenders are even more

blatantly parasitic, since they draw surplus value directly fromone party in return for nothing of value - in terms of the

standard of value of social human labor in the abstract - whichMarx continues to invoke as the sole legitimate measure of

value in order to reach this whole series of absurd conclusions.

With his "scientific" understanding of capitalist economics,Marx is thus obliged to again deny reality - to refuse to

recognize the advantages for productivity and flexibilityderived by capitalism from its sophisticated financing

mechanism.

Wage Labor:

Wage labor is labor

sold as a commodity- a phenomenon of

the capitalist system.

Labor can also be sold like a commodity if sold for a

particular purpose and time. If sold totally, it becomes slavery.The laborer must sell his labor because he lacks the implements

and materials with which to produce for sale the commoditieshe produces for his employer.

That some should possess money and commodities while

others possess nothing but their labor is not a natural phenomenon, but is a characteristic of the capitalist economic

system. Wage labor is labor sold as a commodity - a phenomenon of the capitalist system.

The average exchange value of basic, unskilled laborpower at subsistence wage levels sufficient to maintain the

laborers and the families from which the next generation of

laborers will come is referred to by Marx - as by Adam Smith -for his calculations. The acquiring of skills involves additionallabor, and so has a higher value that generally commands a

higher price, but which can be measured in terms of theundifferentiated human labor standard. (Try making such a

calculation for yourself - without the assistance of market



prices.)

"The value of labour power resolves itself into the value of a

definite quantity of the means of subsistence. It therefore varieswith the value of these means or with the quantity of labour

requisite for their production."

S ince laborers

provide their labor for a period of time -

a week or two or amonth - prior to

payment, theemployer receives

use value prior to payment.

Since laborers provide their labor for a period of time - aweek or two or a month - prior to payment, the employer

receives use value prior to payment. Laborers are thus obligedto extend credit to their employers. A bankruptcy can deprive

them of their wages. Having no reserves, they are obliged to buy their immediate needs on credit or from high priced

company stores.

Of course, since the means of production are provided for a period of time before laborers produce commodities and sales

can be transacted, the employer is also providing credit to thelaborer who in the meantime has the use of those assets.

However, this is not something Marx deigns to recognize. He

denies any value to the time cost of money and the time cost of productive assets, since time is not a product of labor. The

provision of productive assets to labor is just an "advance" for the productive process.

Capital not in use is "dead capital." Workers do the

capitalist a favor by working with his capital and bringing it

back to life. The benefit they bestow saves the capital fromdecline. Thus, only the time necessarily spent in labor counts.(Of course, labor without employment can be viewed as "dead

labor" - which it can turn out to be literally as well asfiguratively.)

The rate of

exploitation:

"Labour uses up its material factors, its subject and its

instruments, consumes them, and is therefore a process of consumption," Marx acknowledges.

The profit comes from paying for

labor according toits abstract social

labor standard value, but keeping

the laborer working

long enough to

provide a greater sum of use value for

the capitalist.

The capitalist efficiently acquires and maintains both thefactors of production and the necessary labor - "with the keeneye of an expert." Labor - raw labor power - is to him a thing

that he possesses - a use value - like all the other factors of production. His manager and supervisor add the value of their

labor to the process. He has a personal interest in everything.

"The labour process is a process between things that the

capitalist has purchased, things that have become his property.The product of this process belongs, therefore, to him, - - -."

The product of this process is commodities that are usevalues. But to the capitalist, they are mere "depositaries of exchange-value" - part of his capital. If he can sell them for

more than the costs of production - he earns profit and hiscapital grows.

Note: In the first four articles of this series, covering Volumes



failure generally came within just a few years. Yet, all they hadto do was to produce some product and undersell the capitalistsin the market by the amount of the profit charged by the

capitalists. Why did this prove to be impossible? Why does itstill prove to be impossible?

Some sectarian cooperative efforts succeeded for impressively

long periods - as much as a century - even when celibate. YetMarxists nevertheless denigrate religion. They insist that

religion has no real value - but religious cooperatives somehowsucceeded in out producing all secular nonprofit cooperatives.

Where are the productive values that accounted for thisdifference?

While Marx at one point suggests that the capitalist interest can

be totally divorced from management and supervision, in a

couple of brief instances - like the one quoted in the second paragraph of this segment, above - he lets slip hisacknowledgement that it is the capitalist that supplies the care,

management and supervision that makes the process work.

y Who else but those with the ownership interesthave the incentive to continuously exercise such

care and skill? Who else has the incentive tocarefully balance ambition and caution - risk and

reward - to venture prudently into uncertainmarkets - to prudently risk what has already been

earned on uncertain prospects for future gain?

Who else has the incentive to carefully monitor what the best

means are to fulfill the needs of the public in the market?Certainly not a governing bureaucracy - even if made up of

some intellectual elite.

y It is blatantly obvious that entrepreneurshipinvolves labor of a scarce and highly skilled type

- not measurable in terms of basic labor. It onlyexists because of ownership incentives.

It is a rare entrepreneur, indeed, who can leave his ownershipinterests entirely in the hands of hired managers and

supervisors. Even then, he has exhibited unusual skill inrecognizing and utilizing such paragons of virtue.

The weaknesses and risks inherent in the total divorce of

management from ownership interests even today plaguesinvestments in public corporations. Without ownership

incentives, the strongest economic incentives affectingmanagers influence them to milk assets - to avoid the

unrewarding trouble of building assets - or even more thanminimally maintaining assets - for the benefit of others after

current management is gone.

Scandals involving managers milking public corporations have been common from the earliest days of capitalism to the

present. Adam Smith was very pessimistic about the



possibilities of success for such public corporations.

Most notoriously, these noxious incentives would become

evident in nationalized industries like the oil industry of the oldSoviet Union. Today, eastern Europe is littered with the bones

of decrepit socialist industries, and Russia still struggles torecover from the deferred maintenance afflicting its oil industry.

y But even absentee ownership interests serve

essential purposes in capitalist production.

Who else provides the essential risk capital that absorbs the blows delivered by the winds of change? Who else engages in

the financial markets that send signals without which even themost skilled managers cannot efficiently function? Who else -

by purchase or sale of shares - imposes effective discipline on

management that - however imperfect - is available in no other way? Who else creates the profit system without which even themost skilled managers cannot efficiently function? See, Profits

and capitalist productivity.

y Again, there is the glaring failure to recognize

the value in such things as entrepreneurial skills,scarcity, honor and reliability, and the time cost

of money and of productive assets. Marx tries tomake a joke of these factors - disparagingly

calling them "imaginary" values - but they would

prove to be no joke to the socialist experiments - both private and nationwide - that failed to takethem into account.

But of course, Marx has to ignore such factors. They are thevery essence of the system of capitalist production. Marx is

engaged in constructing a propaganda myth justifying thedestruction of such factors. Success for Marx is measured by

the number of credulous people whom he can convince thateconomic productivity is not materially enhanced by such

factors. Thus, their loss costs nothing, and indeed productivity

can be increased by the reduction in costs attributable to profits- by the reduction of "surplus value."

He will find no shortage of such credulity, since this is thecore belief of all socialists.

Propaganda magic:

On these faulty premises, Marx will

perform his great magic trick - and

make economicreality disappear

from before the eyesof his true believers.

On the basis of such faulty premises, Marx thus goes on for hundreds of pages drawing his absurd conclusions about

surplus value. They are absurd not just for their weaknesses of logic, but also because of the obvious manner in which they are

divorced from reality. The errors are numerous and obvious -for those with eyes to see.

Indeed, he has now created the premises - faulty as they

obviously are - on which he will perform his great magic trick -and make economic reality disappear from before the eyes of

his true believers.



examples:

The capitalist would be earning "surplus

value" and

"exploiting" labor even if he wereoperating at a loss.

A manufacturer of spun yarn provides about £1,000 incapital - including £90 for labor - that produces a £90 increase

in total capital - surplus value that is profit - or 9%. However,after production, £500 of value still remains in the fixed

machinery. It adds no "value" to the yarn, and so can beeliminated from the calculation.

There is no "time cost" of money or assets to Marx. Presto-

Chango - the rate of surplus value - the rate of "exploitation" -is now 18%.

For Marx, the existence of the machinery added no value to

the product except for minute sums of wear and tear. Thecapitalist would be earning "surplus value" and "exploiting"

labor even if he were operating at a loss.

Marx is so pleased with this absurd result of his

rationalizations, that he presents it as a joke on capitalism.

Taken by itself, it would be great satire on the misuses of economic analysis. However, satire - to be great - must be

readily accessible - and Marx buries this absurdity deep in histediously interminable and repetitively detailed rationalizations

- where few people will ever bother to delve thoroughly enoughto even reach it, much less understand how this absurdity is

arrived at.

And, Marx does not intend it as satire. He thus provides asatire of his own "scientific" form of economic analysis.

Then, Marx takes his rationalizations even one step

further. The materials consumed and the minute values lost inthe wear and tear of production are referred to as "constant

capital," since as commodities, their value is fixed. Only thelaborer adds new value, so this labor power is termed "variable

capital," although Marx must admit that as a practical matter itis as "constant" as the other factors of production.

Not so coincidentally, these two terms - "constant" and

"variable" - have meanings in mathematical reasoning - permitting Marx to perform more magic. This time, Marx

elevates form over substance in order to play some games withthe misapplication of mathematical reasoning. (Well, if

economics is "science," it should conform to mathematicalforms of reasoning, shouldn't it?)

With some simple mathematics, Marx here makes even the

consumed capital disappear as a contribution of the capitalist.

The laborer's efforts in the spun yarn example have producednot only enough to provide for the subsistence of himself and

his family and the surplus value for the employer's profit, theyhave also transferred to the commodities being produced theconsumed values from fixed assets and consumed materials.

Thus, as a matter of mathematical logic, equal "constant" valuesappear on both sides of the equation, and may be canceled out



in simple mathematical calculations, leaving only labor - the"variable" in the equation.

"[Thus], we know that surplus value is purely the result of avariation in the value of - - - that portion of the capital that is

transformed into labour power; - - -. Therefore, in order that our investigation may lead to accurate results, we must make

abstraction from that portion of the value of the product, inwhich constant capital alone appears, and consequently must

equate the constant capital to zero or make c=0. This is merelyan application of a mathematical rule, employed whenever we

operate with constant and variable magnitudes, related to eachother by the symbols of addition and subtraction only."

What could be more reasonable? Unfortunately, you don't

calculate percentages in this manner. Percentage "rates" are not

calculated by means of just "addition and subtraction only."

With this metamorphosis of economic concepts intomathematical concepts by means of sly definitions, Marx

proudly reduces his example by the amount of the £410 worthof consumable capital. This leaves the £90 paid for the labor

that produced the surplus value of which £90 is an increase inthe capitalist's total capital - a profit in the yarn example -

which Marx here refers to only in terms of the broader conceptof surplus value.

A fter the

mathematical cancellation step,

surplus value - withits much higher

"rates" - can substitute for profits

when it comes toanalysis of capital

accumulation.

This now meaningless figure has obvious importance for propaganda purposes. Marx thus gives it a special designation -"the rate of surplus value" - and uses it as a measure of

"exploitation." After all, as Marx repeatedly notes, the rate of profits - unlike the rate of surplus value - is calculated against

all the capital involved - resulting in much lower rates - just 9%in the yarn example - not nearly as useful for the propaganda

purpose of emphasizing "exploitation."

"[If] there were branches of industry in which the capitalist

could dispense with all means of production made by previous

labour, whether by raw material, auxiliary material, or instruments of labour, employing only labour power andmaterials supplied by nature, in that case, there would be no

constant capital to transfer to the product. This component of the value of the product - - - would be eliminated, but the sum

of £180, the amount of new value created, or the value produced, which contains £90 of surplus value, would remain

just as great as if [constant capital were] the greatest valueimaginable." (Since Marx stated in his example that the £90

served to increase the capitalist's total capital, it was not just"surplus labor," it was "profit.")

Unfortunately for this line of reasoning, in the real world, the

amount of capital required impacts the ability and willingnessof new capitalist competition to enter the market. Where no

capital expenditures are required, all increase in capital is not just "surplus value," it is "profit." But, where there is little or no

capital required, competition is notoriously fierce, and profits



minimal. Without capital, all surplus value, too, would be

attributed to profit - and would be minimal.

Marx repeatedly insists that it is "the production of surplusvalue" that is the "compelling motive" of capitalist activity.

This is clearly absurd.

Of course, although profit is surplus value, surplus value is notnecessarily profit. Marx tries to equate the two concepts by

redefinition of "profit," but we do not need to get to that untilthe articles on Volume 3. It is the single digit and low doubledigit profits that are the only benefits that provide capitalist

incentives. The triple digit "benefits" of surplus value areillusory - the product of a fevered ideological mind.

Despite the 100% and higher rates of surplus value, how come

nobody wants them in the absence of profits? Clearly, it is these"surplus" values that are the real "imaginary" values. Without

profits - or at least the prospect of profits - capitalists routinelyabandon their productive assets or sell them for salvage rather

than strive for such "benefits."

The profit incentive to maintain capital assets is insanely of novalue to Marx. Failure to properly maintain assets would

bedevil socialist and communist systems throughout the 20thcentury.

But with the mathematical trick of canceling out from hiscalculations both the consumed capital and the commodityvalues that replaced it, Marx is left only with surplus value that

is profits. This allows him to have his cake and eat it too.

"Surplus value" is not confined to "profits" but includes allcosts other than for wages, productive consumables and wear

and tear of equipment. In the spun yarn example, there are noother such costs. Thus, after the mathematical cancellation step,

surplus value - with its much higher "rates" - can substitute for profits when it comes to analysis of capital accumulation.

Thus, when it comes to his analysis of capital accumulation,

Marx need not explain the grind of increasing capital on the basis of a 9% rate of profits - from which the capitalist's own

gluttonous livelihood must also be drawn and other expensessuch as taxes must be paid. Marx can present it as capitalist

engorgement on the basis of a 100% rate of surplus value.

Although it is obvious even to Marx that capital accumulationcomes only from profits, Marx seldom uses that term in his first

two volumes, but instead prefers the more general term "surplus

value" so he can have propaganda recourse to its much higher "rates." His analysis will be not how capital arises from profits, but "how capital arises from surplus value." As stated above, in

Volume 3 he attempts by redefinition of "profit" to equate thetwo.



Surplus labor:

Labor time is "unnecessary," Marx asserts, when expended beyond what is needed to produce subsistence values for theworker. For a worker paid subsistence wages, pay is actually

only for his "necessary" labor time. The rest is "unpaid" labor time that the worker is compelled to give to the exploiting

capitalist who controls the necessary means of production.

Labor time is

"unnecessary" whenexpended beyond

what is needed to produce subsistence

values for theworker.

Compulsory unpaid labor is just one step away from feudal bondage. (Who could be in favor of feudalism?) It is just one

step away from slavery, in that the worker has some ability toshift about among different slave-master capitalists. (Who

could be in favor of slavery?)

This "unnecessary" labor time is "surplus labour time" that provides "surplus labor" - "extracted from the actual

producer, the labourer" - for the exclusive benefit of the

capitalist. In the spun yarn example, above, this amounts to half the working day.

Marx applies some slippery logic on top of his false premisesto reach this result.

"If instead of working for the capitalist, he workedindependently on his own account, he would, other things being

equal, still be obliged to labour for the same number of hours[half his working day] in order to produce the value of his

working power, and thereby to gain the means of subsistence

necessary for his conservation or continued reproduction."

However, as Marx later sets forth, all things are not equal.

Without the capitalist's tools and materials - and adequatemanagement and supervision - our 19th century unskilled

laborer could work for a week without being able to produce asmall fraction of the yarn produced with them in a day. He has

been transformed into a "manufacturing labourer" dependent onthe capitalist workshop for his subsistence.

After all, by Marx's own reasoning, only the efforts of the

capitalist successfully brings together all the tools, materialsand labor needed for competitive production. "Hence,

concentrations of large masses of the means of production inthe hands of individual capitalists is a material condition for the

cooperation of wage labourers, - - -." Nevertheless, Marx insiststhat the capitalist act of accumulating and providing these tools

and materials adds nothing of value to production.

The socially necessary time needed to produce the exchangevalue of spun yarn equivalent to the laborer's subsistence needs

at this time is determined by the means of production provided

by the capitalist. To first obtain tools and the materialsconsumed in the production process would require - accordingto the spun yarn example - not just half day labor, but full day

labor for long enough to generate the £1,000 needed to acquirethem. At less than 3 shillings a day, this would be quite an

undertaking.



The laborer would have to acquire them rather than produce

them since, as Marx notes, each day that the laborer producesyarn, his work consumes four days worth of consumable

materials including wear and tear on equipment, "for, in theexample we are considering, the production of the raw material

and instruments of labour demand four working days - - -, andtheir conversion into yarn requires another such day." Thus,

only by purchasing these materials and including their value inthe value of his yarn can the laborer cover such costs - only

thus can he turn "one working day into five."

This could be achieved by borrowing - something greatlyfacilitated by capitalist credit mechanisms. Nevertheless, the

lender's services have no value according to Marx, and are pureexploitation. There is no legitimate time cost for money - and

so the lender is entitled to no interest in return. So, from whom

could the laborer borrow? Perhaps he could hit that filthycapitalist Engels for gifts - like Marx does.

Of course, this problem is solved if the capitalist's assets areexpropriated and dedicated to the use of the workers.

"If this labourer were in possession of his own means of production, - - - he need not work beyond the time necessary

for the reproduction of his means of subsistence," which Marxcorrectly notes would have to be expanded to include the time

needed to maintain his productive assets - including a reserveagainst depreciation. He would then be obliged to exploit

himself to maintain his working capital to the extent itdepreciates during idleness - which he is obliged to do in order to sustain his output at the levels normal with the productive

capabilities of the day.

But even this would not be enough. He could not employ theservices of merchants without being exploited and unjustly

deprived of some of his labor value. He would thus constantlyhave to travel to the markets to purchase his consumable

materials. He would also have to expend extra time and effortto take his yarn to the markets and wait on customers - which

might be very unproductive if his sales skills are lacking. Hewould have to bear the risks of the market - although lacking

the reserves needed to absorb disappointments. He would haveto return with and store what he could not sell. In Volume 3,

Marx perforce recognizes that merchants bestow such benefitson producers.

He would also have to be his own supervisor and manager -

and perhaps also his own maintenance worker - skills which bydefinition in the yarn example he has not.

The hard reality - which remains a fact regardless of pseudo-scientific efforts at obfuscation - is that the capitalist as owner brings considerable value to the production process. This is a

process where all exploit all to maximize their productivity andreturns. The capitalist exploits labor and management - the

manager exploits capital and labor - the laborer exploits capitaland management - society exploits them all - and all exploit the



activities of society..

Of the three, it is management that holds the key. Capital

and labor are fungible, except for some who have unique

skills. Both capital and labor must always seek out best

management to maximize their productivity and returns. Successful investors know that they invest in management - not

in corporations.

However, best management practices under socialist systemsare impossible, since government enterprise lacks essential

productive incentives and management tools. See, Governmentfuturecast, at §II. Thus, government management is

INHER ENTLY inept - as 200 years of experiments withsocialist and government administered enterprise proves

beyond any doubt.

No, the expropriation of capitalist assets is not the answer. It is just the beginning of insolvable problems - as the communists

in Cuba and North Korea keep proving.

Marx assures us that this rationalization is just "scientificanalysis of value and surplus value." (Absurd premises carried

to their logical conclusion achieve absurd results.) In the spunyarn example, where half the labor time was for provision of

surplus value, the rate of exploitation was 100%. For half histime, our laborer works like a slave.

"The rate of surplus value is, therefore, an exact expression for the degree of exploitation of labour power by capital, or the

labourer by the capitalist."

Marx then spends some time demonstrating hisaccomplishment.

"The method of calculating the rate of surplus value is

therefore, briefly, as follows, We take the total value of the product and put the constant capital which merely reappears in

it equal to zero. What remains is the only value that has, in the process of producing the commodity, been actually created."

When using "the

rate of surplusvalue," the Marxist

implies that thecapitalist interest

brings nothing of value to the

production processbut the money with

which the worker is paid, and is entitled

to nothing else inreturn for it.

Thus, Marx arrives at his definitions of "surplus value"

and the "rate of surplus value" - based on extensive

rationalizations - totally divorced from reality - but neverthelesswith pretensions of scientific certitude.

y "Surplus value" includes all the benefits "given" to thecapitalist by labor - including not just profits, but also

the use-values needed to maintain the capital assets usedother than the consumables - machinery wear and tear

and materials - actually consumed in production. Evenwith respect to the consumables, the laborer has been so

kind as to include their value in the value of thecommodities produced for sale by the capitalist.

y However, when arriving at the "rate of surplusvalue," even the consumables are made to disappear by

means of some pseudo-scientific mathematical games.



Thus, this rate is calculated only against worker pay - providing a suitably high ratio - a surplus value figureuseful for propaganda purposes. When using the rate of

surplus value, the Marxist implies that the capitalistinterest brings nothing of value to the production

process but the money with which the worker is paid,and is entitled to nothing else in return for it.

With a 100% rate of surplus value, the

wage laborer isbeing paid for only

half his day, and isbeing forced to

provide "unpaid" labor for the sole

benefit of thecapitalist for the

other half.

On the basis of such false premises - rationalizations

completely detached from reality - Marx provides four senseless chapters on wages. Having eliminated the value of the

other essential contributing factors to capitalist production,Marx can gaze amazedly at the absurdity he has himself

created. A wage laborer, for example, who produces 6 s. invalue per day - a 12 hour day in the spun yarn example - will

only be paid the 3 s. per day that he and his family need to

subsist.

"Thus, we have a result absurd at first sight -- that labour which creates a value of 6 s. possesses value of 3 s."

This "absurd" capitalist result is hidden by means of the wage

system, which makes it appear that the laborer is being paid for each and every hour worked during the day - or for each piece

produced. It is the role of the "science" of Karl Marx to revealthe truth in the "hidden substrata" underneath the surface

appearance of the wage labor system. The wage laborer is being

paid for only half his day, and is being forced to provide"unpaid" labor for the sole benefit of the capitalist for the other half.

Marx adds this nonsense to the very real harsh realities of 19th

century wage and piece labor to create some more of his potent propaganda brew for use by his true believers.

See, Marx, "Capital (Das Kapital)" Volume 1, Part II:"Contradictions in Capitalist Industrialization," and Volume 2,

Part III: "The Circulation & Expansion of Capital," and

Volume 2, Part IV: "Criticism of Adam Smith," and Volume 3,Part V: "Profits," and Volume 3, Part VI: "Interest, Rent &Labor Use-Values."

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