§ I. Marx’s Theory of Value and Surplus-value

Capital, according to Karl Marx, comes to the world “dripping from every pore from head to foot with blood and dirt.”¹ It is, according to its very nature, nothing else than the unpaid-for, stolen labor of the workman; or, as Lassalle calls it, “the property of others” (Fremdtum). In order to substantiate this death-verdict on capital, Marx avails himself of his peculiar theory of value which we have discussed in detail in an earlier chapter (p. 46 sqq.).² He distinguishes two kinds of value—value in use and value in exchange. Value in use consists in the utility of an object to satisfy human wants; value in exchange consists in the ratio in which commodities are exchangeable for one another. Value in use, it is true, forms the basis of value in exchange, in so far as only useful things can have exchange-value. But in other respects value in exchange is entirely independent of value in use. The exchange-value is determined by the labor embodied in an object.

¹ Capital, vol. I. p. 726.

² There are some who wish to retain the materialistic conception of history without accepting Marx’s theory of value. But then they cease to be adherents of Marxian socialism. It is indeed inadmissible to represent the matter as if Marx had argued thus: Surplus-value is unjust, therefore capitalist society must be abolished. This is not Marx’s view of the matter. His real argumentation is rather as follows: Surplus-value is essentially based on exploitation, and by its very nature tends to an increase of exploitation by which society will finally be divided into a mere handful of billionaire capitalists and a countless herd of proletarians, and then the collapse will ensue. In this sense Marx undoubtedly considered his theory of surplus-value as a fundamental tenet of his system. His conception of capital, capitalism, accumulation of products, is based entirely on the doctrine of surplus-value, which in turn necessarily presupposes his theory of value. Also Engels, as we have seen above (p. 35), plainly tells us that by the materialistic conception of history and by the doctrine of surplus-value, socialism has received its scientific character.

Let Marx explain his idea himself.¹ He says: “Let us take two kinds of merchandise, e.g., wheat and iron. Whatever may be their ratio of exchange, it can always be expressed by an equation in which a certain quantity of wheat equals a certain quantity of iron, e.g., one bushel of wheat=x pounds of iron. What is the meaning of this equation? It means that an equal amount of something common to both is contained in two different things. Both are equal to some third quantity, which in itself is neither the one nor the other. But each of the two, in as far as it is value in exchange, must be resolvable into this third element.”

¹ Capital, vol. I. p. 3.

But what is this third element common to both? “This common element cannot be any geometrical, physical, chemical, or other natural quality of the merchandise. Its material qualities come into consideration only in so far as they contribute to its utility. On the other hand, precisely the abstraction from the value in use evidently characterizes the ratio of exchange of different commodities. Within the limits of this ratio one kind of use-value is worth as much as any other provided it is present in the right proportion.” What then is that remaining element? “If we abstract from the use-value of merchandise, it retains but one quality, the quality of being the product of labor. But also the labor product has been changed in our hands. If we abstract from its use-value, we abstract also from its material composition and form by which it is useful. It is no longer a table, or a house, or yarn, or any other useful object. All its external qualities are, as it were, blotted out. It is also no longer the product of the work of the joiner, or carpenter, or spinner, or of any definite productive labor.” “Nothing has remained but the same ghostlike actuality, a mere crystallization of human labor without distinction, i.e., of the expenditure of human labor capacity without regard to the manner of expending it. These objects now represent only the fact that in their production human labor has been expended, human labor has been stored up.”¹

¹ Capital, vol. I. p. 4.

“A value in use or an object has value only because human labor considered in the abstract is embodied or materialized in it. But how are we to measure the amount of its value? By the amount of ‘value-creating substance,’ i.e., labor, contained in it. The quantity of labor itself is determined by the time employed, and the labor-time again is measured by the unit of certain periods, as hours, days, etc.”

“Now it might seem that if the value of any commodity is determined by the amount of labor expended in producing it, this commodity would be the more valuable the lazier and clumsier its producer, because he would need more time to produce it. The labor, however, which forms the substance of value must be equal human labor, an expenditure of equal labor capacity. The sum total of labor capacity in the whole society . . . is taken here as one and the same human labor capacity, although it consists of countless individual labor capacities. Each one of these individual capacities is the same as any other in so far as it has the character of average labor capacity and as such produces an average amount of social labor and needs therefore in the production of any commodity only the average labor-time or the socially necessary labor-time. Socially necessary labor-time is the time required to produce a certain value with given normal social conditions of production, and with the average social degree of skill and intensity of labor.”²

² Ibid., p. 5.

How Marx has utilized the principle that exchange-value is something intrinsically independent of use-value and consists only in ‘crystallized labor-time” for the explanation of capitalistic “surplus-making,” we have already shown (p. 46 sqq.). The Marxian doctrine of surplus-value and of the process of accumulation is inseparably connected with his theory of value. If the latter is false, then all the consequences deduced from it are null and void. Therefore we must examine this theory more closely.

For his fundamental principle that the exchange-value of an object is not determined by its use-value, but exclusively by the labor expended upon it, Marx can appeal to the authority of the greatest political economists, Adam Smith, Ricardo, and others. Socialism in this as in many other regards, is only the lineal descendant of liberalism; it only draws the logical inferences from the principles of liberalism. Not until Marx, Lassalle, and other socialists had taken hold of this principle to use it as a deft weapon against private capital did any misgiving arise concerning it; then authors began to abandon it or at least to restrict it very materially.

In reality this principle is untenable. To understand this we need but inquire into the notion of value. It is one of those simple and primitive notions which are evident to every man and become obscured only when we attempt to analyze them. An object is said to be of value to us if it in any way appears desirable. Value therefore includes an objective and a subjective element. In order to be of value to us an object must be good in itself or at least it must appear to us as such, and moreover it must have some relation of adaptation to us, i.e., it must appear as in some way conducive to our preservation and perfection. In other words, value is the capacity of any thing to serve the needs and desires of man and therefore to be estimated as desirable.¹

¹ Cf. Devas, Political Economy, p. 4.

Also purely spiritual goods are of value. The kingdom of heaven is far more valuable than any earthly goods, and therefore the prudent man is like unto a merchant who sacrifices all his earthly possessions to acquire the pearl of great price spoken of in the Gospel. In a similar manner life and health are more valuable than money and estates.

Of economic value we speak in a more restricted sense. It is the business of economics to provide those material goods which are needed for the support, continuance, or enjoyment of man’s material and intellectual life on earth. Therefore the economic value of these goods is the capacity they are estimated to possess of satisfying the above-mentioned needs.¹ Our striving after well-being impels us to aim at increasing the values at our disposal and to prevent their decrease.

¹ Ibid., p. 5. Cf. also Philippovich, Grundriss der polit. Oekonomie

(1901), p. 6.

In economic goods a twofold value may be distinguished: value in use and value in exchange. Also Marx rightly makes use of this distinction which we find already adopted by Aristotle and his commentators. Aristotle² distinguishes a twofold use of earthly goods: the one is proper to an object according to its peculiar character (χρῆσις οἰκεία); the other is common to it with all other objects (χρῆσις οὐκ οἰκεία). The philosopher illustrates this distinction by the example of a shoe. A shoe has a twofold use: the first is peculiar to it in contradistinction to other objects, and consists in this, that it can be used for the protection of the foot; the second consists in this, that it may be exchanged for other goods. This second use is common to the shoe with all other objects of merchandise. It may therefore be called common use or secondary use.³ Value in use is therefore a far more comprehensive notion than value in exchange. Exchange-value is also a kind of use-value, but not every value in use constitutes an exchange-value. Air and light are of continual value in use, but they are of no value in exchange.

² Polit. I, 9. St. Thom. in I, Pol. l. 7. Silv. Maurus in I. Polit. c. 6, n. 2.

³ This distinction of use-value is much clearer, simpler, and more objective than those which we generally meet with in the works of modern political economists. Many call use-value the fitness of an object for the use of the possessor himself, and exchange-value the fitness of the object to be given in exchange. But exchange itself is a use of the object by the possessor. Consequently the first member of the definition contains also the second. Others call use-value immediate value, and exchange-value mediate value. Others again reject this distinction altogether, and divide value into subjective and objective. As often as we shall, according to the ruling custom, distinguish between use-value and exchange-value, we shall understand by use-value the fitness of an article for all kinds of use, the use of exchange alone excepted.

What constitutes value in exchange? or in other words, what is required to make any object of value in exchange? First of all it must be capable of becoming private property. Exchange or barter is a kind of contract whereby one man yields up to another some economic good and receives some equivalent in its stead. This contract presupposes private property in some form or other.

Moreover, in order to be of value in exchange an object cannot be at the disposal of everybody in any desired quantity. Thus water is of great value in use, but in ordinary circumstances it is of no value in exchange, because it is free to all and because it is therefore useless to appropriate it, since no one will barter anything for water. But within the restrictions here mentioned every object which is of value in use is also of value in exchange. But how is this exchange-value to be determined? This can be done by comparing different objects with regard to. the utility derived from them. The greater and more urgent the need which is relieved by some object in use, the smaller the quantity in which it is found, and the greater the trouble to be undergone in obtaining it, the greater also the value which we attribute to it. But in most cases this determination of value does not depend on the judgment of the individual, but on the general estimate formed by society. This estimate is not immutable, it changes according to time and place. African negroes attach great value to many things which Europeans look upon as trifles, whilst some things which are of the utmost value to civilized man are of no importance to savages.

If Marx had confined himself to the distinction of these two kinds of value, no serious objection could be raised against him; but he has completely rent them asunder. Value in use, according to him, is no factor in the determination of value in exchange. He asks, why can I exchange, e.g., a bushel of wheat for x boxes of shoe-blacking or y pounds of silk or z ounces of gold, or why can I consider these quantities of the substances indicated as being of equal value? And he answers: “In the ratio of exchange the exchange-value of different objects [appears] as something entirely independent of their values in use.”¹ Therefore, according to Marx, value in use has no determining influence on value in exchange. But this assertion of his is unproved and incorrect, and involves him in contradictions.

¹ Capital, vol. I. p. 4.

1. It is unproved. The chief argument which Marx adduces for his opinion is the following: Value in exchange must be something common to all merchandise; but this common element cannot be anything else than the human labor embodied in it, taken in the abstract. Therefore the labor contained in an object forms its exchange-value.

We grant that exchange-value is something common to all merchandise, because the various objects of merchandise may be compared with each other according to their value in exchange. But we deny that this common element consists only in the labor contained in them. Marx does not produce any arguments for this opinion, but only mere assertions.

“The common element in all kinds of commodities cannot be a geometrical, physical, chemical, or any other natural quality of the goods themselves. Their physical properties come into consideration only in as far as they go to constitute their utility, or use-value. On the other hand, the exchangeableness of commodities is evidently characterized by abstracting from their usefulness. In regard to exchange the use-value of one object is just as much as the use-value of another, provided it be forthcoming in due proportion. As to their use-value, goods, in the first instance, differ in quality; but as to their exchange-value they differ only in quantity, and contain not a particle of use-value.”¹

¹ Capital, vol. I. p. 12.

This passage contains only assertions in lieu of arguments; nay, false statements presented to us as “evident.” And yet upon these statements depend all the subsequent conclusions. We are surprised, in fact, that Marx so confidently affirms without proof that apart from labor there is no common element in different goods. Aristotle, to whom he repeatedly appeals, could have taught him better. This great philosopher teaches expressly that there is a common element in all commodities, according to which they can be compared with one another and estimated. This common measure or standard of exchangeable goods, according to the philosopher,² is usefulness, that is, their fitness for supplying the wants of mankind.

² Δεῖ ἄρα ἑνί τινι πάντα μετρεῖσθαι . . . τοῦτο δ’ ἐστὶ τῇ μὲν ἀληθείᾳ ἡ χρεία, ἣ πάντα συνέχει.—Ethic. v. 8.

The commodities to be exchanged may be ever so different in other respects, they all agree in this one point that they satisfy some human need, that in some way or other they are useful and desirable. This furnishes a point of comparison and a standard of measurement.¹

¹ Hohoff (Warenwert und Kapitalprofit, p. 5) writes as follows: “Commodities become commensurable only by abstracting from their use-value. Linen, iron, wheat, the Iliad, illuminating-gas, arsenic, Eau de Cologne, and Asafœtida, etc., cannot be compared to another and measured by one another regarding their utility or use-value.” And why not? In their specific use-value they differ indeed, yet they all agree in this, that they are useful to man, that they supply some human demand, in this respect they can be compared, estimated, and measured according to a fixed standard.

2. But the assertion of Marx that labor alone constitutes exchange-value is not only gratuitous: it is also untrue. Unwittingly Marx himself has penned his own refutation. He says: “ Within the same ratio of exchange-value, the use-value of one object is as great as that of another, if it is only forthcoming in the same proportion.” Why must the use-value be forthcoming in the same proportion? Evidently because in the determination of the exchange-value the usefulness of an object is by no means indifferent, but a decisive element. Moreover, how is it that, even according to the concessions of Marx himself, useful objects only can have exchange-value for society? Certainly because use-value or utility is an essential element in exchange-value. If one, for instance, with the greatest expenditure of labor manufactured boots from pasteboard, he yet could not find customers to buy them; they would have no exchange-value, because they would be useless; in other words, because they would have no use-value. Use-value is, therefore, an essential element of exchange-value.

But there are objects of use-value which have no exchange-value. Air and light, for instance, are useful though not exchangeable commodities. Very true; but what follows from this fact? Only this, that mere usefulness does not suffice to constitute exchange-value; that other conditions must be added; but it by no means follows that those things which have exchange-value do not owe this value at least in part to their usefulness. What would Marx say to the following argument? There are men who are not artists; therefore the notion of man does not belong to the notion of an artist. The conclusion drawn by Marx is not more logical. In order that a useful object may have exchange-value it must be fit to pass into the exclusive possession of an individual, and must not be forthcoming in such quantities that all can have of it whenever they please. But this supposed, the exchange-value of an object depends chiefly upon its use-value, or utility. In the primeval forests of South America wood has no exchange-value, either because there is no one to use it, or because every one can have it for nothing, like air and water. But suppose a merchant brings several shiploads of different kinds of wood to a European harbor, what will then be the standard of its value? Is it the amount of labor, the amount of expense and time, which the transportation has cost? Certainly not; otherwise all different species of wood conveyed from South America would sell at the same price, which is not the case. The better and more durable material will sell at a higher rate. Fine cedar or mahogany, abstracting altogether from the labor expended on it, has a much greater exchange-value than pine or birch.

By a thousand such instances we might show that the value or price of an article is determined in the first place by the general estimate of its usefulness. Good wine sells at a higher rate than bad wine, although the vintner may have expended the same amount of labor on the preparation of both. Why do our mine-owners sell coal from the same mine at different prices? Because the quality is different. In short, it is the quality, or the different degrees of objective goodness, that generally determines the exchange-value of objects independently of the amount of labor consumed upon them.

It would be carrying coal to Newcastle to attempt any further proofs of this truth. Nor can it be objected against the examples alleged that in all cases labor is necessary to give the object real value, for we do not deny that labor has a certain influence upon the exchange-value; but we do say that labor alone does not constitute exchange-value. For the rest, labor generally comes into account only in so far as it tends to give greater usefulness to a thing. Besides, there are in nature also objects which require no labor in order to be made useful, but which may be directly appropriated and exchanged for other commodities. Such are, for instance, coal-oil, wild fruits, etc.¹ Thus also in the products of human labor the exchange-value is determined in the first place not by the “socially necessary labor-time,” but by their artistic qualities or other intrinsic perfections. If two authors, after an equal amount of labor and preparation, publish their works, which of the two will have the larger sale? His, no doubt, which appears to the public more perfect in contents and expression. What determines the value and price, of paintings at an exposition? Surely not the “socially necessary labor-time,” but their intrinsic perfection, the fruit of genius rather than of labor. Why will a painting or even a pencil-sketch of Raphael or Dürer fetch such fabulous prices? Why are old manuscripts, rare prints, ancient medals and coins, and other things of that kind paid for so lavishly? Is it on account of the labor represented in them? Is it not rather their rarity, their perfection, their importance for the history of civilization, or something of that sort?

¹ Cf. Von Hammerstein, S. J., Stimmen aus Maria-Laach, vol. x. p. 426; Hitze, Kapital und Arbeit (1880), p. 9 sqq. According to St. Alphonsus Liguori (Theol. moral. l. 3, n. 801 sqq.) it is the common doctrine of Catholic theologians that the price or exchange-value of an object depends not only on the labor expended in its production, but also on many other circumstances, on the utility of the commodity, on supply and demand, etc. Thus St. Thomas (S. theol. 2. 2. q. 77, a. 2 ad 3) declares that the price of an article of merchandise is determined not by the degree of perfection of its nature, because sometimes a horse is dearer than a slave, but by the utility which man derives from the object in question.

3. Marx involves himself in contradictions. According to Marx’s theory of value the rate of profit, i.e., the relation of surplus-value to the total capital invested in any enterprise, must needs vary according to the “organic composition of the capitals.” The value of raw materials and machines, the amount of materials used, and the wear on the machines differ considerably in different undertakings.¹ It is therefore to be expected that at the same rate of surplus-value every branch of industry should show a different rate of profit. But what is the case in reality? Here we find it to be a general law that capitals of equal magnitude yield equal profits regardless of their composition. Marx himself concedes the fact and acknowledges that it appears to be in flagrant contradiction to his law of value. But now how does he set about harmonizing facts and theory? Spirited controversies were carried on for years, within and without socialist circles, as to how Marx would unravel this Gordian knot, a feat which he had reserved for the third volume of his “Capital.” The volume has finally been published by Engels, and lo! Marx simply abandons his law of value. He confesses quite candidly that the rate of profit is independent of the composition of capitals, and that mercantile commodities are sold not according to their value— i.e., the labor contained in them—but partly below, partly above their value.¹

¹ Capital, vol. III. part I. p. 132.

¹ Ibid.

Therefore Marx in the first instance bases his law of value upon experience, and acknowledges finally that his law is contradicted by experience. Of course, he endeavors to prop up his tottering law of value by the assertion that the sum total of prices paid corresponds to the sum total of values.² This contention is ably refuted by Boehm-Bawerk, who remarks that the purpose of the law of value can be no other than to formulate and explain the actual ratio of exchange of the various commodities. We wish to know why, e.g., a coat has as much value in exchange as twenty yards of linen, and according to what standard the exchange is effected. This is the purpose assigned to the law of value by Marx himself. But the ratio of exchange comes into question only in reference to single commodities.³ But if it is granted that the ratio of exchange of single commodities is not determined by their value (the labor contained in them), then also the law of value is abandoned, and it is an arbitrary and useless assertion to maintain that the law of value remains in force for the sum total of commodities exchanged.

² Ibid., p. 140.

³ Boehm-Bawerk, Zum Abschluss des Marxschen Systems, p. 116 sqq.

4. If, therefore, the exchange-value of commodities is not determined exclusively by labor, but, above all, by their utility and applicability in the satisfaction of human needs, then also the entire theory of surplus-value, of the nature of capital, of the accumulation of capital, etc., must needs collapse, for all these are but deductions from the theory of value. We agree with Marx when he says: “The wages of labor are not what they seem to be [to many], namely, the value or price of labor itself; they are but the value or price of labor capacity.” For, the contract between employer and laborer is ordinarily no more than a contract of hire. The laborer hires out his labor capacity, and in return receives the price of hire, in other words, the price for his hired-out labor capacity. But when Marx maintains that the exchange-value or the value of hire of human-labor capacity is determined by the cost of its production, he is but drawing a false conclusion from his theory of value. For, even supposing that two laborers need equally as much for their own support and for their families, still their labor capacities may differ widely as to their exchange-value, in so far as one man is more experienced, talented, skilful, and reliable than the other. A skilled worker will find employment sooner and receive better pay than the raw novice. As in all commodities, so also in labor capacity the value in exchange is determined in the first place by utility and practical applicability.

Just this very example, the difference in exchange-value of different labor capacities according to the utility of each, deals the death-blow to the Marxian theory of value. In accordance with this theory the exchange-value of labor capacity should be regulated by the cost of producing and sustaining it. This, however, is not the case. Why is a higher salary awarded to a capable, experienced, reliable manager, engineer, physician, or foreman than to an ordinary workman? Why do the perquisites of “star” actors, musicians, and singers often reach such enormous figures, whilst others in the same walk of life must be satisfied with a mere pittance despite their painstaking labor? Does the “star” actress, perhaps, need so much more for her sustenance than another? Or can talent, genius, beauty of voice and action, and similar qualities be reduced to the standard of “average labor-time,” so that their cost may be figured out?

The collapse of Marx’s theory of value necessarily implies also that of his other assertion, that the laborer needs but a part of his actual labor-time in order to produce an equivalent for the price of his labor capacity—the necessary labor-time—and that during the rest of the time he is doing “surplus work” for the benefit of the capitalist. The untenability of this assertion becomes still more evident, if we consider that according to Marx “the value of labor is determined not only by the labor-time necessary for the sustenance of the individual laborer, but also by that required for the sustenance of his family.”¹ Who on earth has told Marx that every wage-earner imparts to the manufactured commodities not only as much exchange-value as is required for his own support and that of his family, but also something over and above, which is freely appropriated by the capitalist as surplus-value?

¹ Capital, vol. I. p. 359.

In fine, the entire socialist theory of value is so absurd that we are forced to ask ourselves, how could a man of Marx’s talent and capacity hit upon such a theory and make it the foundation of his whole system? The only explanation to be found in this is that in a very one-sided manner he took into consideration only the condition of industrial wage-earners, generalized that which is applicable to them under certain circumstances, and by purely ideological processes developed it into a comprehensive theory, into a so-called “scientific” system.

To meet a possible objection we would here remark that even in the socialist state the exchange-value of goods would still remain, and could not, even in socialistic circumstances, be determined by the labor spent in its production; for not only in commerce with foreign nations, but also in the division of produce among individuals, the exchange-value of goods would have to be taken into account, and even in this case it would be determined chiefly by the standard of usefulness. If two laborers in the socialist state would perform the same amount of work, it would be unjust to give to one as a remuneration a case of Johannisberger or Riidesheimer, and to the other the same amount of bad Mosel wine, or cider, on the plea that both the productions cost the same amount of labor. So also in the socialist state more labor could be procured for a bushel of good wheat than for the same amount of bad wheat, although the expenditure of labor upon the bad wheat may be just the same as upon the good. The same may be said of all similar commodities.