Cooking the Books: Value and Surplus Value

People write the strangest things. Here, for instance, is John Lanchester in an essay ‘Marx at 193’ in the London Review of Books (5 April):

“In Marx’s judgement surplus value is the entire basis of capitalism: all value in capitalism is the surplus value created by labour. That’s what makes up the cost of the thing.”

While Marx did say that the extraction of surplus value is the basis of capitalism and that all value is created by labour, he did not say that all value is “surplus value”. Only some value is.

In the process of capitalist production, according to Marx, the workers, through the exercise of their mental and physical energies (their ‘labour-power’), transfer to the product the previously existing value embodied in the raw materials, energy, wear and tear of machines and the like. At the same time they create new value. A part of this, corresponding to the value of their labour-power, returns to them as wages; the rest, over and above this, is appropriated by their employer as “surplus value”.

That Lanchester’s statement, “all value in capitalism is the surplus value created by labour” is not just bad wording becomes clear when he goes on to write of Marx’s “surplus theory of value” rather than of his “theory of surplus value”. This leads him to bandy about the term “surplus value” in bizarre ways. According to him, you can create surplus value for yourself, and, as a customer or client of a company, you create surplus value for that company when it makes you book online or deal with a phone menu. This has nothing to do with Marx’s use of the term.

While Marx thought that all value was created by labour, he did not think that all work created value. Products only acquire value when they are produced for sale on a market (as ‘commodities’). This was expressed, when they were bought and sold, as their ‘exchange value’ (in money terms, price). In fact, for Marx, it was only through exchange value that a commodity’s value can be expressed.

Products not produced for sale do not have a value even though they are products of work. They are simply products, useful things that people have made to use. Before capitalism, most products were produced to be used directly and not for sale. Even today under capitalism, there is work that does not produce value. Housework doesn’t, nor does DIY or gardening. To say that such work does not produce value is not to say that it is worthless. On the contrary, most of it is very worthwhile. It is just that it does not produce ‘value’. Work in socialism won’t either as it won‘t be producing things for sale.

Even when there is production for sale not all work produces value. According to Marx, only labour that is ‘socially necessary’ does that, by which he meant the time which it takes a worker of average skill to produce a particular product. Otherwise, the slower workers worked the more value they would create.

For Marx, the value of a commodity was determined by the amount of socially-necessary labour embodied in it from start to finish, i.e., not just the labour at the final stage, but also all the labour at previous stages right back to extracting the raw materials from nature.

Marx did not think that under capitalism commodities actually exchanged at their value. He explained in Volume III of Capital that, due to the averaging of the rate of profit, goods sold at what he called their ‘price of production’ (cost + the average rate of profit). So Marx’s theory of value is not a theory of price, but rather an explanatory tool to understand the working of the capitalist system as a whole.