The Role of Money According to Marx
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Use value of a good or service is created by all societies, capitalist and non-capitalist. The use values of such are not specifically measurable in a numerical sense; it is the level of demand by a community, or social necessity for certain goods or services. Unique to capitalist production is the exchange value of goods or services. The exchange value is the value of a good or service compared to another good or service. Understanding use value and exchange value broadly defines two kinds of economies - subsistence economies and surplus producing economies. Subsistence economies are concerned with meeting needs for social good while surplus-producing economies are concerned with meeting social needs (real or perceived) and creating excess profit. It is important to remember that a good or service becomes a commodity under capitalism because it is produced with the intention of being exchanged for a profit. “in commodity production, production necessarily implies exchange; exchange in a necessary step in the process of reproduction” (Shaikh 1977).
However, all commodities, in addition to having an exchange value, retain their use value as well. Goods that have a use value can transition to also having an exchange value when they are appropriated by private industry. An example of this is the water industry in Bolivia, which was owned and maintained by the government, and provided as a service to the public. When the water industry was privatized, the service of water was given an exchange value, for which citizens than had to pay for. Through a recent process of renationalization, the water industry was taken back under control of the government and it maintained its use value while it lost its exchange value.
The value of labor power is a laborer’s ability to do work. Labor power is a commodity under capitalism. More specifically, an important aspect of capitalism is free wage labor – in which a worker owns his labor and can sell it to which they choose at a certain wage, as he has no other commodities to sell. Like any other commodity, labor power, once used, must be renewed. The value of labor power is the value of a worker’s means of subsistence, the bundle of goods that workers consume. The value of labor power is different from a laborer’s wages, because wages can fluctuate under differing market conditions, while the value of labor power is a set value in a historical and cultural context for renewing a laborer’s ability to come a perform work each day.
Constant capital is one of two forms of capital. Constant capital is the form of capital invested in production infrastructure, as opposed to variable capital that is capital investing in labor costs. Constant capital is in a sense, “permanent,” it is machinery, buildings, land, etc. It is also the raw materials and non-productive costs of operation. Once an investment in constant capital is made, it is distinctly less flexible than an investment in variable capital.
Socially necessary labor time (SNLT) is a distinct definition in Marxian economics. Most simply, the SNLT is the amount of time it takes a worker of average skill to produce a commodity. The SNLT is controlled by both market demand for the commodity, and the existing state of technology involved with the production of the commodity. The defined SNLT for a commodity is what regulates its exchange value.
The labor value of a commodity is the total amount of indirect and direct labor time that is socially necessary to produce a unit amount of a good. Direct labor time is obviously the labor in the current circuit of production, while indirect labor is the amount of labor time involved in previous circuits of production that created the materials for production.
Money is the chosen “universal measure of value” in commodity exchange economies. The value of all commodities is created in the circuit of production, by the amount of concrete labor that went into producing such a commodity; therefore all commodities (in varying amounts) are comparable to each other. 1 ton of iron = 5 bushels of corn = 500 bags of tea = 1 ounce of gold. In capitalism, money is an inherent part of the system because capitalist production inputs depend on the exchange of many different commodities. Although any commodity could theoretically be a unit of exchange, paper money (a non-commodity) is socially validated as this unit. Money is than both a medium of exchange, and a measure of value. In the circuit of industrial capital, money is the starting input M and the final output M′, and the difference between M and M′ is the money form of surplus value.
Using quotes from Capital Vol. I discuss how Marx rejects the notion that surplus value arises in the sphere of circulation and concludes that it has to originate in the production sphere. Show how by using the notion of SNLT one can derive surplus value. What is the rate of surplus value?
Marx’s theory of surplus value concludes that surplus value is created in the circuit of production, but it is realized in the sphere of circulation. Although prices can change in circuit of exchange, the inherent value of a commodity does not, since value is produced earlier. “It is true that commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of exchange of commodities, which in its normal state is an exchange of equivalents, consequently no method for increasing value.” (Vol. I, Ch. V, 156) If a commodity I am selling is marked up 10%, as a seller I may make 10%, but than as a buyer I am forced to purchase commodities at a 10% mark up as well, so no change has happened. However, if I can find a way in my production processes to cut costs by 10%, than I am creating surplus value. Marx argues because unit prices are regulated by unit costs of production, as a capitalist, understanding the SNLT for the production of a commodity and attempting to lower it are a priority in the creation of surplus value. If the SNLT to make a chair is 6 hours, and I am able to make it in 4 hours, I am producing at below the SNLT to make a chair. My productivity is higher, and therefore my unit labor costs are lower, and my unit price is lower. If you are taking more time to produce something than the SNLT, it is difficult to create surplus value. “In the process we are now considering it is of extreme importance that no more time be consumed in the work of transforming the cotton into yarn than is necessary under the given social conditions. If under normal, i.e., average social conditions of production, a pounds of cotton ought to be made into b pounds of yarn by one hour’s labor, then a day’s labor does not count as 12 hours’ labor unless 12 a pounds of cotton have been made into 12 b pounds of yarn; for in the creation of value, the time that is socially necessary alone counts.” (Vol. I, Ch. 7, 184)
We can define surplus value by subtracting from the cost of production the value of our output. The rate of surplus value is the amount of surplus value divided by the costs of the labor to produce it, S/V. Marx also called this the rate of exploitation, because there is an inverse relationship between profits and wages. The rate of surplus value increases when S increases and/or when V decreases.
On the basis of Shaikh (1983) distinguish between laws of motion (dominant tendencies) and conjunctural determinations. What do these two opposing ways of characterizing capitalist dynamics imply for the role of the state in times of economic crises?
There are two ways to think about what Marx calls the “laws of motion” of the capitalist system. One is to say there are general tendencies of capitalism, like the falling rate of profit, and than counter-tendencies, which alter the general tendencies. So both these kinds of tendencies are sharing the same space, in conflict with each other, and where the balance lies in either direction at a particular point in history is a conjuncture. At this conjuncture we can either see the balance shift in favor of either direction. This is where the idea for the role of the state comes in. When these tendencies are on equal ground, state reform and intervention “can tip the balance and hence actually regulate the outcome” (Shaikh 1983, 139).
The second way to think about the “laws” are as dominant and subordinate or countervailing tendencies. The dominant tendencies “arise out of the very nature of the system itself and endow it with a very powerful momentum (Shaikh 1983, 139). While the subordinate tendencies have strength, they are operating within the limits of the dominant tendencies and can only push so far in the different direction. So the state may intervene to strengthen the subordinate tendencies, but it has limited effect. “…structural reforms, state intervention, and even class struggles which leave the basic nature of the system unchanged have limited potential, precisely because they end by being subordinated to the intrinsic dynamic of the system” (Shaikh 1983, 139). Periods of crisis are inevitable with either definition of the tendencies of capitalism, but if resolving crises is just an issue of timing or proper historical context is up for debate. So we understand that capitalism is not eternal or without weak spots, it is a system that was created and hence if properly analyzed, can also be deconstructed.