Cooking the Books – Two questions answered
An enquirer from Vietnam has asked us (and others) a couple of questions on Marxian economics. Here they are with our reply.
Does the commodity value come mainly from demand, market evaluation and utility, not from labor? (explain labor theory of value v/s marginal value theorem)
A commodity (as a product of labour produced to be sold) does have to be useful to sell but its price is not related to its usefulness. Water, for instance, is more useful than gold but this is not reflected in their respective price. Nor could a commodity’s price be determined solely by the paying demand for it as supply conditions have also to be taken into account. A stable price for a commodity arises when supply and demand are equal, as Marginalist theory notes, but this tells us nothing about what that price will be. For this we need to look at what it costs to produce the commodity.
No capitalist enterprise is going to produce something to sell unless it recovers the commodity’s money cost of production plus a mark-up for profit. The cost of production to a capitalist enterprise is the labour embodied in the materials and machines the enterprise has to buy to produce it and the wages paid to those working at the final stage of its production. These wages, however, represent less labour than the labour the workers add through their work. The part of the added labour that is not paid for – the surplus value – is the source of the capitalist enterprise’s profit.
So, a commodity’s value, reflected in its price, does depend on labour. It is not quite as direct as that, though, as a commodity’s market price will not normally be an exact reflection of its value due to the averaging of the rate of profit (see the answer below to your second question) but it is still related to the labour required to produce it. Gold is more valuable than water because it needs more labour to produce it.
2. Do employers, business owners, corporation boss… (capitalist class) earn money and create profits from their efforts in marketing and managing their companies… (choose market output with great needs), from the difference in value and price of goods (increased due to consumer demand after being marketed by the boss). Therefore, the capitalist class gets rich on its own merit, not through the exploitation of surplus value by the working class (workers) and the workers’ wages are fair for their labor.
No, the source of profits is surplus value created by workers, not necessarily by the workers that a particular capitalist enterprise employs but from that created by the working class as a whole. Capitalist enterprises compete to obtain a share of this in the form of profits on the capital they have invested. Competition has brought about a situation where each capital ends up tending to make the same rate of profit through capital having moved from less profitable to more profitable fields of activity.
Some capitalist enterprises can make more profits than others depending on how astute they are in anticipating trends, cutting costs and marketing their products. To this extent, the actual profits a particular enterprise makes can reflect the knowledge and experience of its managers (these days capitalists themselves don’t normally manage their business themselves) but the source remains surplus value created by the working class. The managers can justly claim that their skills have brought in more profits, but the skill is in capturing a share of surplus value not creating it. The capitalist class as a whole does not get rich from this; in fact could not as there are losers as well as winners — some individual capitalist enterprises get more in this way but at the expense of others.