One of the first times I was provoked to think about the labour theory of value was in a university seminar, in which we discussed what lay behind the prices of things. Demand? Usefulness? Or was it completely random? The amount of labour embodied in a commodity certainly didn’t seem to explain the real world in which prices regularly fluctuate. Indeed, explaining this movement of prices is what most mainstream economic theories set out to achieve with their value theories. However, price is just one entry point into Marx’s theory. I think a better place to start is by thinking about work.
In a letter on the topic of value, Marx wrote:
Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labour of society… No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves.
This suggests that what Marx primarily seeks to explain is how people’s working activity is organised in a society of private, individualised production. If an advanced economy is not planned – by aristocracy, dictatorship or democratic deliberation – then how is labour distributed in a way that is roughly proportional to the needs of society? For me, this is a much more interesting question than the generic focus on prices as a starting point. In the modern global economy, states and other planning bodies organise a lot of work, but a staggering amount of labour is distributed and undertaken according to the self-interested behaviour of a vast array of private companies. And yet, for all its problems, capitalism operates in a remarkably coherent manner on a daily basis.
Marx’s solution to this puzzle is to propose that value is the unconscious organising principle of capitalist work. How? Let’s take an example of two craftspeople: a carpenter and a baker. In some organised economies, they would produce their goods according to production quotas that correspond to human needs or elite whims. In a private market economy there is no such coordination. In order to trade a chair and a loaf of bread on the market, some exchange ratio must be established. Yet how can we possibly compare the usefulness of a chair and a loaf of bread in quantitative terms? Any attempt to establish some intrinsic superiority of furniture over bread (or vice versa) is doomed to fail. What both of these products have in common is that they are the result of human labour – labour that takes a definite amount of time and can thus be quantified. This crystallised expenditure of working time is the substance of value. If the average time it takes to build a chair, from start to finish, is five times greater than the time it takes to create bread, then this ratio will tend to establish itself on the market. When trade is mediated by money, prices will tend to mimic this ratio, e.g. $5 to $1.
However, as I noted earlier, prices fluctuate, and not usually according to changes in the amount of labour embodied in the product. Can we honestly claim that all of the regular changes in furniture prices are due to changes in the time it takes to build them? No, we can’t – and neither did Marx. For Marx, changes in supply and demand are what lead to price fluctuation. This oscillation of supply and demand doesn’t negate the labour theory of value, but turns it into a dynamic system.
Let’s imagine that our carpenter is just one producer amongst many in the carpentry branch of the economy. Chair prices tend to fluctuate around an average of $5. Suddenly, consumers fall out of love with the chair, and start to buy beanbags instead. There are too many chairs on the market, and not enough demand for them. Prices of chairs start to fall below their labour values – let’s say to $3. Carpenters are losing money at this price, so they start to exit the business en masse and gravitate towards trades for which there is more demand. As the number of chairs being produced falls, and they become more scarce on the market, their price begins to move back towards their labour value of $5. In other words, society’s overall labour is realigned so as to respond to falling demand in one branch.
This process is constantly unfolding in all branches of the economy. Labour is distributed and redistributed across different sectors, in reflection of the changing demands of society. Understood in this way, it is not a theoretical problem that prices do not always correspond to labour values, rather it is exactly this divergence of price and value that coordinates work in a capitalist economy. Marx’s theory does not set out to explain every price fluctuation. It sets out to show how prices and values are the “transmission belt” (in the words of I. I. Rubin) through which changes in demand are translated into changes in working patterns. The operation of what Marx calls the ‘law of value’ turns an economy of atomised producers into a functioning whole, or totality.
Whether you are convinced by Marx’s argument or not, it’s important to know what questions he sets out to answer. While the economists before him (and many after him) stopped at the door of the workplace, Marx burst inside. Rather than starting from the traditional price obsession, we must read his theory as using prices to address the social relations of work.