Marx’s Theory of Capitalism
The Labor Theory of Value; Exploitation, and Injustice
Compare Marxism and utilitarian
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Both have micro and macro story
Utilitarian
o Micro story
 Pareto story; each individual transaction
o Macro
 Free transaction maximizes utility of time; “an invisible hand” theory – no
individual participant is trying to maximize overall output but the result of their
individual selfish actions is that wealth is created
This lecture is about Marx’s macro story; Marx too has an invisible hand theory. For Marx the
benevolent hand becomes malevolent over time.
All Enlightenment thinkers are motivated by the idea of individual freedom as the highest good and
politics rooted in the principles of science; without regard to tradition, custom, religion, natural law, etc.
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Freedom: The Absence of Alienation
o “…[t]he division of labor offers us the first example, as long as man remains in natural
society, that is, as long as a cleavage exists between the particular and the common
interest, as long, therefore, as activity is not voluntarily, not naturally, divided, man’s
own deed becomes an alien power opposed to him, which enslaves him instead of being
controlled by him. For as soon as the division of labor comes into being, each man has a
particular, exclusive, sphere of activity, which is forced upon him and which he cannot
escape. He is a hunter, a fisherman, a shepherd, or a critical critic, and he must remain
so if he does not wish to lose his means of livelihood; while in a communist society
[utopian ideal], where nobody has one exclusive sphere of activity but each can become
accomplished in any branch he wishes, society regulates the general production and this
makes it possible for me to do one thing today and another tomorrow, to hunt in the
morning, fish in the afternoon, rear cattle in the evening, and criticize after dinner, just
as I have a mind, without ever becoming hunter, fisherman, shepherd or critic.” – Karl
Marx. The German Ideology (1845)
o Utopian Marx
 As soon as division of labor exists we become slaves to our position in the
economy; we are alienated from our true selves
o Can only return to being fully rounded human beings
 Precondition is superabundance of wealth; Marx’s macro theory will explain
how this leads to a breakdown of capitalism
o His basic issue is freedom, not equality
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Components of Marx’s objectivism
o Materialist conception of history
o Reductionism
 History has a direction
 Its moving through a variety of phases, each of which has internal contradictions
which play out in a reductionist manner
 How tensions of feudal society with serfs vs. lords play out determines
course of that society
 An Emergence of bourgeois class which will bring about capitalism
 Working class created by capitalism has tensions with bourgeois which
eventually play out to
 Socialism and communism
 It’s the economy stupid; for Marx economics drives everything
o Class in itself versus class for itself (Marx makes a distinction)
 Class in itself
 Class I’m in objectively
 Class for itself
 Class I’m in subjectively
 What drive everything, what matters for history is the in itself. The objective
logic of class logic will drive things – not perceptions.
 Communist revolution vs. previous revolutions is when the two are
synonymous
 For the first time in history the working class for itself will come to see
itself as the working class in itself;
o We will understand our objective in the division of labor and
self-consciously create the new order.
 Whereas in all previous modes of production people don’t understand
their objective place in the division of labor and so they create orders as
invisible hands;
o They create orders as by-products of their intended activities
not as products of their intentional design.
 Marx is an individualist
 Defines classes by reference to the way in which individuals’ relate to
the means of production
 Working class
o Have to sell labor to someone else in order to live. They do not
freely choose to work; there is an element of compulsion.
 Not just physical labor
o The Labor Theory of Value (*Marx works with a perfectly competitively model; at least
at first)
 More refined than Locke’s, Smith’s & Ricardo’s
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o
The exchange value of any commodity is determined by the amount of socially
necessary labor time (SNLT) for its production.
 “SNLT is defined as “The labor-time required to produce any use-value
under the conditions of production normal for a given society and with
the average degree of skill and intensity of the labor prevalent in the
society”
o I and John are making typewriters
 Marx: If John is a perfectionist than half the time he
spent with his perfectionism in his head did not produce
a superior typewriter; so the cost of his typewriter is
not twice that of mine. Half of John’s labor was socially
unnecessary
 If I introduce a new labor saving device for making keys
quicker and John doesn’t and my typewriters are
produced more quickly; John’s typewriters do not more
than my typewriter because half of his labor intensity
was not necessary
 Both scenarios end with two people producing similar
quality typewriters with market competition intact
The Labor Theory of Surplus Value (Marx proven right by infinite regress of lack of free
will; cause and effect; determinism)
 Living human labor-power is the only source of new exchange-value
 The workmanship idea on crack
o Locke said value is maybe 90% from work
 Labor-power is a commodity like any other.
 Its exchange value is determined by the SNLT needed to produce it.
 ALL EXCHANGE VALUE COMES FROM WORK
o All commodities that are produced are the product of human
work; it’s the single common denominator
 The capacity to work is a commodity like any other; pay
(value of work) is determined by amount of labor time
put into produce the labor
 Wages are reflective of the cost in time and
energy invested in producing that worker
 Wages are NOT explained by the value of what
they produce; but by the cost of their own
production
o Why are professional athletes paid so well?
 It’s not just the players own talent
 Why doesn’t Britain produce great MLB
players?
o

They don’t have minor leagues, scouts,
etc.; all of which play into the wage
differential – though admittedly it’s a
stretch
o Why is a Michelangelo so valuable?
 Not just training Michelangelo
 All of the time and energy and money spent on all the
failed painters
o Both are a stretch
o Winner-take-all market
 Marx can’t explain so he would have to use above
arguments
 Difference between major and minor league baseball
leagues
 Before invention of gramophone, being a good opera
singer you could do well; every city would have theaters
and people pay.
 After records everyone can buy Pavarotti
 The difference between the best live singer and
the next best and after and so on, matters much
more after gramophones.
 Labor-power has one unique property; its consumption as a use value
leads to the creation of fresh exchange.
o If I spend $1000 on a dinner when I’m done, it’s over. The meal
is gone.
o If I pay $1000 to have my house painted then when the painters
are done, I pay them, they leave and now my house is painted;
it is more valuable than it was before the exchange.
 Living human labor-power has created fresh exchange
value; unlike the consumption of other commodities
o Labor-power is the only source of fresh value
Constant capital and variable capital
 Capital is what capitalist spends in productive process
 Variable capital is wages
 Constant capital is everything else
 C=c*v
o All capital = everything the capitalist spends on production *
wages
o Thus wages are driven to subsistence
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o
There are always some unemployed; unemployed
workers won’t turn down a job. Thus there is always a
source of cheaper labor
o Subsistence is relative
 At any given time unemployment will drive wages
towards the subsistence level of that economy
(minimum wage)
Relative & Absolute Surplus Value & Rate of Exploitation (Micro theory)
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For some portion of the output of a given working day will pay the workers’
wages (10 hour working day)
 For this example the work done in the first 4 hours covers the wages
Any value produced over the workers’ wages is surplus value
 Not the entire surplus is profit because the capitalist must buy raw
materials, do advertising, management, research & development, etc.
 6 / 4 = 1.5 hours surplus labor
It’s a competitive market
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Competitor increases workers hours to 11 hours
 Laborers can’t say no or they will hire unemployed laborers
Now there is 7 hours of surplus labor instead of 6
 7 / 4 = 1.75 hours of surplus labor
 Now this capitalist will be able to sell his product cheaper
Thus capitalists are afraid of each other in Marx’s theory
So every other capitalist will have to lengthen the work day
 Thus under primitive capitalism the battles will be over the length of the
working day
o History proved him right; 19th century Britain
Yet wages are already at subsistence level so how is an advantage gained?
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o
7 / 3 = 2.33 hours labor surplus
o
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All capitalists will be forced to upgrade to a new technology to
increase productivity
o Real secret to capitalism’s dynamism is not move from A to B,
but from A to C; technology
 Use technology to reduce the amount of time it takes
for a laborer to fulfill his wage bill
Yet production is becoming more capital intensive; capitalists are always
spending more on constant capital
 There is a short-run long-run conflict of interests
o In the short an innovation will lead to higher profits
o Once the innovation is adopted in the long-run the industry’s
profits begin to decline
 Once all producers in a given industry adopt an productivity increasing
innovation the industry will experience a decline in the rate of profit as
a former innovation becomes commonplace
Marx answers the question of classical political economy; why is there a
tendency for the rate of profits to fall? Technology and the consistent
availability of unemployed labor.
CONSIDER
 Say that a capitalist found his situation in example A above untenable;
workers can pick B or C.
o Workers obviously want C
o Yet this seems counterintuitive because the workers want a
system with a higher rate of exploitation
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We decide how well off we are is not a self-referential comparison; we
aren’t concerned only with what we get, but what OTHERS are getting
o
o
What makes us happy is not just what we have but what we
have compared to others
Empirically (it’s been studied):
 Marx is half right
 People are connected to what others, but
usually connected to what people similarly
situated to themselves have; they will not
compare themselves to those far above or
below themselves socioeconomically
 He was right to think we are other-referential, but he
was mistaken in thinking that workers would compare
themselves to capitalists
 [What about narcissists?]