Marx, Markets, & the Major League

For Bob Weick

Economics is hard. Political economy is even harder. In order to structure and justly award and distribute material goods in a society, we must have at least some idea of the nature and determination of value. No theory thus far has managed to get it all right. Arguably, no theory thus far has gotten enough of it right to understand political economy. Today the division between theories usually breaks into two camps: the classical economists and the Marxian. On the neoclassical side, we find brilliant economists like Alfred Marshall, who discover fantastic formulas like the law of supply and demand, but who are dismally ignorant of whatever it is exactly that supply and demand consist of. On the Marxian side, we have Karl Marx himself, who paints economic vistas into the broad landscape of human society, but who–along with his followers–fails to satisfactorily provide us with a pragmatic economic model for the conduct of individual life.

The division between theories leaves a crack in academic economics a mile wide. The big questions upon which all economic knowledge rests seems to have slipped through that crack: Should we have private property? Is money a boon to or a flaw in a just economy? What is the source of poverty? Trying to understand economics today is like trying the solve the word jumble in the daily newspaper, only it’s written in a lost language, with innumerable symbols that no one, not even the experts, really knows what they mean. At the bottom of this well of confusion is the simple fact that after more than three hundred years of economic theory, we still don’t know how material things come to be valued in human societies. The Marxians will say it’s labor, just the labor that goes into production, nothing more, nothing less; but when you try out that theory, it falls flat. The classical economists have a theory that doesn’t fall flat. It does have predictive power, but it consists of units of measure that are mysterious and ineffable.


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Our situation is a little like being lost in the wilderness: we keep trekking, despite not being sure where we are going and without bothering to really ask why. And our leaders in this trek, the economists, are the least sure of us all. This would be bad enough, but to make matters worse, value theory, that is economic value theory, the search for a what gives material things the prices they command, has all but been abandoned by both camps; Marxians because they think they have it and neoclassical economists because they think they don’t need it. Sometime in the 20th century, capitalist businesses realized they don’t really need to know where value comes from to turn a profit, and in fact, it might be dangerous for business to find out. Thus, they prefer their economic explanations to be functional but not terribly explanatory. It’s the economic equivalent of going to a doctor to treat the symptoms: “Doc, my whole left side hurts.  I don’t want to know why and I certainly don’t want to have to do anything differently, but can yeh gimme something for the pain?” Economics departments the world over dole out drugs like corner boys around a west Baltimore high-rise. To be fair, they can’t really do any more than that, it would be beyond the scope of their science. Economics, you see, is a political function and just as there is a world of difference between politics and political science, so is there between political economy and economics. Where the former questions the nature of human relations through material things and worries about things like justice and group cohesion; the latter is the comforting realm of science, merely observing how nomological systems operate and reporting the patterns that are useful.

The first thing we’ll need to understand is that politics is primary and economics is derivative. Marx, according to his partner Friedrich Engels, over-emphasized the economic component of his theory because economics were the intellectual fad of his day. Marx then presents the material necessities of human society shaped their ideologies, including their politics. It was the available means of production that determined if a society was to be primitively communist, feudal, capitalist, socialist, or communist; and those dominate economic relations would determine if that society would have a monarchical, oligarchic, aristocratic, or democratic government. Things only moved from the material to the ideal for Marx, who was reversing Hegel on this point. However, ideas shape what we desire, and its that which truly determines our needs, and our needs which determine our labors. Ideas shape materials, and materials, in turn, reshape our ideas. The pattern is cyclical. For example, we have yet to develop mass production techniques for the “artificial appendix” as we have for the horseless carriage.

“AH HAH!” the orthodox Marxists triumphantly shout, “You’ve misunderstood Marx! A thing without use-value has no value at all, accord to him. So, of course, the ‘artificial appendix’ being useless, would have been a waste of labor, because it wasn’t socially necessary! That is why we never build one.” But Marx’s belabored theory of socially-necessary labor is precisely the problem. It’s a long walk he had to create because he had to discount the role of use in determining price.

Marx’s error–to put it playfully–was the assumption that there is no use for use-value in determining price. A commodity either has a use or it does not, according to Marx. Use-value then functions as an economic data bit; it’s either 0 or 1 and nothing in-between. It has no quantifiable distinctions. On this bold assumption, Marx launched the armada of his economic theory, which held some striking conclusions: 1) consumers don’t matter one tiny bit in the creation of value (outside of determining whether labor is socially necessary labor or not), 2) production, specifically the labor units of production, is the only input of value, 3) labor, measured in units of time, can be counted objectively and so the value of everything should be able to be calculated objectively, 4) markets are unnecessary for determining value, 5) money, as a lubricant of exchange, is only necessary if markets are necessary, so given four it’s also unnecessary, and 6) without the need for markets, money, or consumers, we could eliminate private property as vestigial organ of economics, an invention of the bourgeoisie, which we are now free to evolve beyond. As anyone who has read Capital Volume I will attest, Marx does nothing small.

But if Marx was wrong and use-value is quantifiable then all six of his conclusion given above are suspect. And sadly, the quantifiability of use was staring Marx right in the face; he even said it himself: the value of capital to the capitalist is its ability to reduce the need for labor. He just didn’t take the next step and realize then the use of all commodities is their reduction of the labor of the consumer in the tasks they employ them for. Marx didn’t see this, because he couldn’t see it. It would make his theory subject, a subjectively determined value, which in his mind would threaten his theory of surplus-value and thus the idea that laborers were being exploited by capitalists. It’s a very forgivable mistake.

Nevertheless, if every commodity, even food, can be reduced to a sort of “labor-savings” or negative labor it can be quantified just like labor can, and what is more, the units will exchange with labor in exactly the way a negative integer, exchanges with a positive one. Thus we can weigh labor-savings against the labor required to produce a commodity and determine a subjective value, but the result of this equation is still necessarily a labor theory of value. Marx cleverly pointed out that in order for things exchange for one another some common substance must be present in both. For example, for seafood to exchange for say taxi services, something must be a common denominator of both. And Marx rightly deduced that this common substance was human labor. He just didn’t understand that the labor savings of the commodity play a role in quantifying its value. The implication of this undoes a good deal of Marx’s later economic theory, so that: 1) consumers are in fact necessary to determine value, 2) markets are thus required, 3) so then is money. But the one theory of Marx’s that is not undone; rather, is actually confirmed by this insight, is that labor and only labor is the source of value of things. And the implications for that… well, let’s just say that employers, landlords, investors, lenders, or in a word, the bourgeoisie, will not be happy.


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This is the beginning of a brave, new socialism, but before we get to that, we should make sure that Marx was actually wrong about the role of use-value. To do that, we’re going to reconsider use-value from a purely materialist standpoint. For his theory, Marx’s needed to solve the “use paradox”, that is the problem of understanding why water, which is so useful, is so cheap, whereas a diamond, which is so useless, is so expensive. Marx did so by eliminating it. But this masterstroke blinded him to what his own method of inquiry, regarding material necessities, should have laid plain. Use-value is a fancy name for simply being able to consume a commodity, that is, actually use it; and here’s the kicker, we can’t consume any material commodities communally.

Non-material commodities, like the music that streams over the radio, can be shared by consumers within earshot simultaneously; we can all sit around and listen and no one loses out on enjoying the music just because I am listening to it. The radio device itself, on the other hand, is a material thing, and can only be set to one station at a time. But who gets to decide where it’s set? The owner, of course. This is what we mean by “owner”, whoever gets to determine where the radio is set. Unlike music, it cannot be simultaneously enjoyed. Individual owners are necessary to determine the use of any material thing, from your toothbrush to the means of production. So, at the same time, individual owners determine use-values.

This suggests that ownership is a necessity of use and so, contra Marx, private property turns out to be necessary. Let’s call this the consumer theory of private property. When it comes to material goods, private property is an essential fact of human existence because those goods cannot be consumed without an exclusive right to them. While it’s true that Marx overlooked this, he was right that use plays no role in determining the productive labor that goes into a commodity. The error was to think that consumers play little to no part in determining a commodity’s full value. Productive labor confronts consumers as a burden, a cost which decrease the labor-saving value of the commodity to them. That’s why we would all rather pay less for the same good if we can. If producer A can get a commodity for you for $10 and producer B for $12, then we will buy it from A. Let’s say that we think this commodity will provide us $X labor-savings. Then the actual value of the commodity to us is either X – 10 or X – 12; X being constant, and -10 being higher than -12, producer A’s commodity is more valuable. Producer A’s commodity is literally worth more to us. 

Compare this to Marx’s theory that suggests that the amount of labor time that went into each producers commodity would determine its actual value. In this case, producer A and B should be charging the same amount. The fact that they are not is evidence that something shady is going on. But that is not necessarily the case. Perhaps the metal used in the manufacture is hard to extract for producer B than for producer A. Thus it took more labor for producer B to bring his product to market than producer A. The question then becomes, can Marx’s concept of socially necessary labor time save it. Yes, it can. But it is a costly intervention. By determining that producer B has wasted some labor time by extracting less attainable ore, Marx has spun his entire system around. He has reversed the order of price determination and now is using the relative market prices as fixed, in order to prove that some labor was socially unnecessary. This is a serious problem because using Marx’s system we never would have been able to get those market prices in the first place, so how could we rely on them to tell us when labor was socially necessary or just a waste of time? 

So, we cannot share the things we consume, at least not as we consume them, and we need private property. If we need private property we need all the trappings that come with them: markets, money, trade laws, etc.. This has resounding implications for the remainder of Marx’s theory, but at the same time it certainly doesn’t justify capitalism. Marx’s intuition that capitalism is highly exploitative, unfair, and unjust is still intact. What has changed are the reasons why those things are true. The trouble with capitalism is that it also fails to recognize the role of use in property, but from another side, another angle. If you are reading this as a classical economist, I imagine that last line strikes you as something very odd. Isn’t use inessential to determining price? Well, no, and that’s why your profession has struggled to understand anything for the last two hundred years. Price, for the consumer, is how much labor you would have to expend to acquire a property right in a commodity, its value is the amount of labor that commodity saves over and above that cost. No one buys anything that costs them more than it’s worth or is worth to them individually at least.


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So you might be thinking, “okay, but really who cares!?! How is the role of use, not some economic pinhead on which a thousand angels dance?” Well, including use shows that while the Austrian school might have the math right, it’s the socialists and the Marxists who have the moral right. They’re both right, just about different aspects of economics. And that means we can finally understand where injustice enters in our system of economics. We can synthesize the labor theory of value with the subjective theory of value and arrive at a subjective labor theory of value. Doing so is certainly anathema to Marx’s theory, but it is not a vindication of capitalism because it firmly establishes the role of use in justifying ownership over a particular piece of property. This is to say, that in order to claim we “own” something, we must demonstrate our exclusive need to use it, not merely the labor we expended or traded to acquire it. This delegitimizes many of the so-called “uses” of private property that socialists condemn as a matter of course: namely rent, interest, and profit, all three of which can be shown to be anything but exclusive. Without these three, capitalism loses its exploitative element. This is certainly a step in the right direction and what I have elsewhere argued is the essential step in transforming capitalism into socialism. However, it not the last step. This libertarian socialism will still face other problems inherent in any private property and trade based system. 

To see this problem we need to go back to the idea that political economy is a subsection of politics. You might say that if politics is the study of human relations in groups, then economics is the study of human relations through material things. Politics surrounds economics on all sides and channels it. Even the quasi-sacred law of supply and demand is really only relevant inside a community, it does nothing to describe the economic decisions of Robinson Crusoe, alone on his little island. This is best understood through an extended analogy, so let’s introduce one.

Major League Baseball can be imagined as a microcosm of our political economy. There is a league that oversees the rules, just like a government that oversees the laws. There are teams and players, just like there are businesses and laborers. There are club owners just like there are investors. There are competition and cooperation. There are incentives and disincentives. The whole thing seems sometimes chaotic and sometimes orderly and well understood. MLB differs from the political economy mostly in impact and relevance. Far fewer people suffer extreme poverty at the hands of a misguided club owner than at the hands of a misguided Federal Reserve Board. But the most important difference is that every now and again, MLB resets everyone back to zero. That’s important! That’s really, really important! In baseball, unlike the real economy, you can’t just keep riding on your laurels indefinitely, games and seasons eventually end, and you have to start all over from the beginning again.

But why? Why does professional baseball reset at the end of a “season”? They could just take a break and then pick back up right where they left off. Why don’t they just keep chalking up victories and defeats? Well, mostly because that’s boring to watch. But it’s boring because the cooperative elements of the sport are essentially ruining the competitive elements. It doesn’t matter if the league decides to just declare the Yankees the winners of every game they show up at (like a totalitarian regime) or if they just allow them to start every game with a merit run for every world series they’ve previously won (like a capitalist regime); the end result is boring. And it’s boring because it’s unfair. We want victory or defeat to be the exclusive outcome of the efforts (dare I say labor) of the players on the field, not some privilege for previous labor. Each game and each season requires the teams to start as equals in order to ensure that it is this effort that leads to achievement, this is what it means to be fair.

It’s the same with economics. Competition between businesses is supposed to lead us to the best products, the best production methods, and the best law and regulation. This is what we mean by a just economy. But competition has to be fair in order to provide these results. So, we want a political economy were the profits and losses are a result of the efforts of the laborers, not the merits held-over from some bygone era. Imagine two restaurant owners in the same area. Producer A starts their business with a loan and producer B with a grant from family. Even if producer A offers better fare and earns more patronage, they may still lose to producer B who has lower-overhead. This is not a natural law of economics but is a choice at the political or “league” level. The choice is between two goods: one is protecting competition which tests out differing methods allowing us to determine the superiority of one or the other, while the other is allowing people to benefit directly from their efforts. The two goods at some point come into conflict. This is the problem of capitalism: it ceases to progress and be a good for society the more it allows individuals to benefit from their efforts and it ceases to be a benefit to individuals the more it insists on competition. We can see it’s different from the problem with state socialism which solves the problem with an ax, eliminating both the individual benefit and competition. Such a solution is accompanied by different, and arguably worse problems, which is beyond our scope here.

Capitalism, then, is like the league that allows teams to horde up runs for use in other games. We allow businesses to save profits by reducing wages to less than the full market value of their products, either voluntarily or exploitatively. But this “forced savings” is not necessarily a problem; what is a problem is that the beneficiaries of those savings are not the people doing the saving. The horde of runs is not for the players benefit, but for the club owners. Eliminating profit, making all business would merge the class of club owners with that of player, thus making those who save, those who benefit from the savings. However, what that solution does not do is protect society from the ill-effects of private monopoly. For that, we need something else, specifically something that will counter-balance the self-interested tendency to dominate a market by growth. One solution accompanies the loss of rent, interest, and profit, which is the great reduction to the interest to make income beyond a certain finite amount. This is the real result of putting use-value back in economics. But what we really require is something like the league equalizing the teams after every season.

We need a “league” that will maintain a healthy competition between “teams” and fair play amongst the “players” without micro-managing the games either, the way Keynesian economics do. The league cannot maintain competition through laissez-faire practices, so the league must set rules that foster competition, then and only then can we step back and let the umpires enforce the rules. The goal of any political economy then, is to set the right rules to maintain a healthy competition between businesses and fair and equitable treatment of all participants while allowing as much individual benefits from effort as possible.

The occasional forced economic redistribution that brings everyone back to some kind of equality before setting them loose again to follow their self-interest would do this, but I have nothing so ham-fisted as a yearly revolution in mind. Instead, I suggest we think about the other type of cooperation in baseball, that between teammates. Teammates work together in competition with other teams who are all cooperating together in the league for the good of the sport. Understood this way, competition is really just a different kind of cooperation or cooperation at a higher level as Hegel might say. In this case, even competition with winners and losers still benefits everyone in the long run. This Rawlsian, pro-capitalist line, has long been used to justify capitalism, I’m well aware. But without the exploitative element, we discussed above removed, we can actually be sincere about it. Competition can be benevolent, it just has to be fair in order to be so. Players in baseball, show up and do their best only because they believe the game isn’t rigged. If they knew they were being cheated, they would just stay home and there would be no game for anyone. The whole system then relies on everyone involved in it believing that it is fair and if I may be so bold as to say if everyone believes something is fair it is fair.

The solution then is a guaranteed income, preferably one that is pegged to some general economic indicator, e.g. providing a quarter of the per capita distribution of the GDP to everyone who doesn’t make more through labor. This simple solution allows for the social benefits of competitive experimentation in production while still allowing the benefits of large-scale productive activities that result from self-interested reinvestment in the enterprise. Not to mention countless other social benefits elaborated by better authors than myself, see a list of them here. I have argued other reasons why such a system of compelled taxation to finance a guaranteed income is necessary, but this one alone would be sufficient.

In sum then, I tried to lay out the basic economic theory that undergirds a theory of libertarian socialism. This theory calls for the abolition of rent, interest, and profit and the provision of a guaranteed income to every citizen. These two changes convert capitalism into stable libertarian socialism by maintaining the trade-based private property system of capitalism but removing its ability to be exploitative individually or socially. There is no doubt in my mind that other problems with libertarian socialism will appear if it is established and the hegemonic economic order. However, I cannot anticipate these and thus I have no solutions to offer. I leave that to other thinkers.

The Genius & Folly of Karl Marx

In this paper, I invite my reader to assume a particular view of Karl Marx and his theories.  In this view, we see Marx as a physician, treating an ailing society.  Through our examination of his work, we will conclude that his diagnosis is keen; in fact keener than any before or since.  However, his actual understanding of the disease is very limited, and his methods of treatment, where they exist, sadly misguided.  I don’t want to condemn him for efforts, but nevertheless, his theoretical faults are real and dire.

We will proceed by summarizing Marx’s general position on the exploitation of labor by capital and his explanation of it by means of his positive economic theory.  Our analysis will then focus precisely on the first chapter of the first volume of Capital, in which Marx attempts to render utility or use-value as a purely qualitative function of economic exchange.  I hope to show that Marx’s positive economic analysis is doomed because utility is not merely qualitative but quantifiable; in fact, it is quantifiable in units of labor-time.  With a reintroduction of use-value into the determination of an exchange-value, private property and markets for exchange become a necessary economic reality.  Finally, the paper will conclude that despite this error in Marx’s thinking, that capitalism is, in fact, exploitative of labor.   Thus, I will find that Marx’s conclusions ultimately prove correct, but not at all for the reasons he believed.


Part One

It is not clear, to me anyway, whether Marx’s theory of exploitation came as a result of his positive economic theorizing or whether his positive economic theory was devised to explain his theory of exploitation.  What is clear is that Marx ultimately links the two in such a way that future scholars, both opponents and followers of Marx, have acted as though the theory of exploitation is contingent on Marx’s positive economics.  The need to sever the causal relationship here is paramount.  To begin then I’d like to describe both of these theories independently, that is without the implicit assumption that they are causally linked.

Marx’s theory of exploitation involves only the question of who has the right to the value of the fruit of human effort?  For Marx, the answer is the same as it was for John Locke, the laborers and the laborers alone have a right to the value of the fruit of their labor.  For Locke, this meant the ownership of the concrete object itself, but for Marx, it was abstracted to value the object represents.  Marx saw that value, in this abstract form could be siphoned off through legal economic practices and in this Marx recognized exploitation.  If the value of the manufactured object was solely produced by the laborer, then the laborer who was not being paid the full measure of value was being cheated.

How this value was created and how it was extracted needed to be explained and, if possible, proved.  This was the work of Marx’s positive economic theory.  His theory center’s around the labor theory of value.  Marx’s labor theory of value–like that of Ricardo’s–finds its roots in Locke, who wrote,

For ‘tis not [merely] the Plough-man’s Pains, the Reaper’s and Thresher’s Toil, and the Bakers Sweat, is to be counted into the Bread we eat; the Labour of those who broke the Oxen, who digged and wrought the Iron and Stones, who felled and framed the Timber imployed [sic] about the Plough, Mill, Oven, or any other Utensils, which are vast Number, requisite to this Corn, from its being seed to be sown to its being made Bread, must all be charged on the account of Labour, and received as an effect of that: Nature and the Earth furnished only the almost worthless Materials, as in themselves.

This idea of value as an account of labor, a tally of each hour spent in every pursuit minimally necessary for the creation of each useful thing produced by human industry is taken virtually unquestioned from Locke through to Marx.  For simplicity’s sake, I’ll call this labor accounted for in the creation of a thing or commodity the labor of acquisition, which I define as labor necessary to bring about a commodity and deliver it into the hands of those who would use it.  For Marx, the labor of acquisition is a sufficient cause for and the sole determinant of the full value of every commodity.  Marx is alone in this.  Locke, Ricardo, and other economists all believe that there is more to the determination of value than the labor of acquisition.  

The advantage of Marx’s theory is that value can be objectively and empirically calculated, prior to markets of distribution.  It is obvious that, if the value of any given thing was exactly equal to the minimum number of human labor hours necessary to bring about its possession then we can objectively measure the value of every particular thing by simply counting up all the hours.  But there has always been a disadvantage associated with Marx’s cut and dry labor theory and that is use-value.

Political economists have–since Adam Smith at least–separated the value associated with the utility of an object, e.g. driving nails for a hammer or digging for a shovel, from the value it is said to exchange for with another object.  The former being the object’s use-value and the latter its exchange-value.  Smith and others suspected a relationship must exist between the two; however, by the time Marx was writing no one had yet to successfully formulate a theory showing how the two values related.  If use-value is a factor in determining exchange-value, as was suspected, then the labor of acquisition is not sufficient to determine value.  In other words, the central component of Marx’s positive economic theory, i.e. his labor theory of value, would be necessarily false.  Where Marx to simply include use-values, he would have to reintroduce markets and establish private property as necessary economic conditions.  Rather than do that, Marx opted to find a way to show that use-values were not a factor in value determinations.  


Part Two

Marx begins the first volume of Capital with a discussion of the commodity-form–that is a useful thing made for the purpose of exchanging it–which he considered the basic unit of capitalism.  At the very beginning of his investigation into the political economy of capitalism, Marx writes that the usefulness or use-value of a commodity is “independent of the amount of labour required to appropriate its useful qualities,” and a few sentences later, “use-values are only realized in use or in consumption.”  Now Marx realized, commodities, in order to exchange for each other at all, must have some common property, but Marx meant to prove that the value we associate with use, plays no part in determinations of appropriation of a thing (which recall is measured in labor), aside from the fact that it must have some use to even be considered worthy of appropriation.  Thus, utility or use is not the common property of all commodities, according to him.  

Marx then draws a bright line between subjective use-values and labor, dismissing the former as the valueless “material bearers” of exchange-value.  Like Locke in the quotation above, Marx has determined the material part to be worthless except that it is necessary as a value-bearer.  This role as value-bearer is unquantifiable, and so plays no part in the tallying of exchange-value.  Marx holds that use-values “constitute the material content of wealth, whatever its social form may be”.  By this he means that use-value is merely qualitative and has no value measurable in units, be they labor or anything else; it is–in Marx’s estimation–a function of the socially-determined, material form of the object.  He expresses it again this way, “As use-values, commodities differ above all in quality, while as exchange-values they can only differ in quantity, and therefore do not contain an atom of use-value”.  He means that when we are evaluating commodities for the purpose of trade, their usefulness is not a factor in determining their value to us.  Hence, Marx suggests use-values can and should be dismissed:

If then we disregard the use-value of commodities, only one property remains, that of being products of labour.  But even the product of labour has already been transformed in our hands.  If we make abstraction from its use-value, we abstract also from the material constituents and forms which make it a use-value.  It is no longer a table, a house, a piece of yarn or any other useful thing.  All its sensuous characteristics are extinguished.  Nor is it any longer the product of the labour of the joiner, the mason or the spinner, or of any other particular kind of productive labour.  With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour.  They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.

No one–as far as I know–questions Marx on this point.  Marx’s brilliance in finding a way to reduce value to the labor of acquisition, which is objectively and empirically accountable (at least in theory) is undermined by his inadvertently eliminating labor as a concept distinct from mere physical activity from his labor theory of value.  

To “disregard the use-value of commodities” is to assume that any random and purposeless physical action is labor.  Labor, however, is purposeful activity aimed at the creation of some particular object for which a use is intended.  Marx has abstracted use to being a property of a material thing, and in so doing he has missed use’s necessary relationship to laboring itself.  To be able to disregard use, Marx must claim that material things can have a use-value, without necessarily having a particular end (viz. use) associated with them by any human being.  That is to say that commodities may possess an abstract use, which requires no intention of any usage at all.  But such a thing is self-contradictory because it asserts that uses exist which do not require a user.  In other words, Marx is assuming here that although no human being has a use for a commodity, it may nevertheless possess an abstract utility (not a hypothetical one) which renders it a bearer of value as the product of labor.

Marx is entirely correct that use or use-value and the labor of acquisition are entirely distinct from each other, and that the latter is the concern of the producer while the former is the concern of the consumer.  He is also right to claim that in order to exchange at all, objects must share a common substance.  As we just saw Marx assumes that use has nothing to do with labor.  But it is consumption and thus use that drives the intention behind labor.  Without use, labor is indistinguishable from random physical activity.  It is through labor that we can see use’s relationship to value beginning to emerge.  Labor indeed is the common substance between all commodities, as Marx suspected, but labor itself is necessarily linked to use and so the use-value of commodities cannot be summarily disregarded without also disregarding labor from our theory of value.

To make this more concrete we might employ a simple reductio ad absurdum.  According to Marx’s theory, all value is equal only to the labor of acquisition.  Suppose now that you are tasked with digging a drainage ditch in your yard to protect your house from flooding.  Now rather than dig up the yard with your bare hands you seek a tool to assist in the excavation.  Now suppose that you find two digging objects that have the same labor that went into bringing them to you.  One is a large stainless steel cooking spoon and the other a steel-headed wooden-handled shovel.  Both of these commodities would be useful in digging up the yard, i.e. they would be better than using your hands, and both have the same labor of acquisition and so the same price at market.  According to Marx’s theory then they both have a use and so can bear value and the value to you the consumer should be perfectly equal.  Thus, since use-value is not a factor in determining value you should be just as likely to buy the spoon as to buy the shovel for digging the drainage ditch.  This obviously absurd.  The shovel is the better tool.  But to even say the better tool some quantitative measure of use must be employed.  If use can be quantitatively rendered, then use-values are not merely qualitative and simply the material form.  And if this is the case then use-values may, and probably do constitute a factor in determining value.


Part Three  

What is useful about an object is precisely that it saves labor toward some intended end and how much.  Marx’s divorce of the value of things–including things as commodities–from their material uses misses the obvious fact that to use a thing is synonymous with laboring with that thing and that laboring always has a use in mind.  Thus, labor can be found in both directions from one’s situational relationship to a particular commodity.  Just like every act of selling is an act of buying, so also is every act of valuing an act of appraisal of usage.  The use-value differs from the labor of acquisition in that it is future-oriented and evaluates upcoming labor expenditures in which the object might be some measure of assistance.  The labor of acquisition, as we well know, is past-oriented and evaluates the labor required to legally lay claim to the object that it may be used.  These two labor evaluations are both necessary to sufficiently yield a final value determination or exchange-value.  Value is recognized only in the combination of use-value and the labor of acquisition relative to the particular seller, buyer and the buyer’s task at hand.  

Locke showed that human beings need to come to possess a thing in order to use it (i.e. acquisition through labor), but they also require a reason to come to possess it in the first place (i.e. they need an intention to use that thing).  Also instructive here is Smith’s notion that labor itself carries both a utility and a disutility.  While I grant Marx that use is only possible when there are possession and possession requires a certain amount of labor expended to obtain an object, that labor is not the only labor with which we associate the value of a commodity.  The other labor involves the object’s deployment, i.e. it uses.  How many hours will it take you to dig the ditch with your bare hands?  How much less with the spoon?  How much less with the shovel?  If the shovel has less than the spoon and your hands it has a higher use-value.  This use-value is then set against the cost of the labor of acquisition.  If the shovel is so expensive, that it would require more hours of labor at another job for you to acquire it than it would take for you to dig the ditch with your bare hands, your interests would be best served by digging the ditch barehanded.  

The problem Marx hoped to solve with socialized abstract labor is that different physical labors are qualitatively different from each other, so that–for example–tailoring is different from weaving.  By abstraction, labor can be divested of its qualitative aspects leaving only its quantity, measured in labor hours.  Physical labor is different from the general pool of hours available to all human beings of the same relative abilities.  These temporal hours are all abstractly alike and so can be rendered merely quantitative, i.e. an hour of anyone’s labor-time is equal to an hour of everyone’s labor-time. 

And this is true as far as the labor of acquisition is concerned; for when the the buyer is confronted by the commodity, the particular skills, tools, and substances of its creation are all equalized in an abstract averaging.  There are exceptions, but those exceptions tend to fall on the side of use-value as opposed to the labor of acquisition.  Note however that this averaging is only true from the perspective of the buyer.  The seller rather sees the labor of acquisition as the lowest starting point of the object’s value, the minimum for which the commodity may be released; to the labor of acquisition, the seller always wishes to add the use-value of his would-be customer.  

Socialized abstract labor is an average in the mind of the buyer, and as such, it cannot be individuated although it is individually generated.  The effect is that socialized abstract labor appears as “one homogeneous mass of human labour-power”.  This mass can be divided among the “world of commodities”–supposedly providing their exchange-values–but it is not individuated because it has been averaged.  For example, if three workers produce use-values in x, y, and z quantities of physical labor-time, then their abstract labor would be the mean of x, y, and z.  It would be a statistical error to then reassert that each worker produced one-third of that average.  What can be asserted is that the commodities produced by the workers have a total labor of acquisition (from the point of view of the buyer) equal to the mean of x, y, and z.  

To understand the problem with this averaging, we need only return the fact that when divorced of the link to use and use-values, all of the “productive expenditures of human brains, muscles, nerves, hands, etc.” are not in fact labor.  What is deceptive in this quotation is Marx’s inclusion of the word “productive”, which attempts to sneak “use” back in where it was supposedly being disregarded.  To be productive is to produce something, and by the expenditure of human power.  With that broad definition, every action could be an act of socialized abstract human labor, including sleep which produces rest, or television-viewing which produces leisure.  This interpretation of “productive expenditures” renders every hour indistinguishable from every other hour of every person.  The only measure of socially necessary labor time, i.e. socialized abstract labor, would be the total amount of available hours for every conceivable human pursuit (viz. twenty-four a day) multiplied by the total number of human beings currently in existence.  Another absurdity! 

Surely Marx did not intend to reduce the meaning of “labor”–by socializing and abstracting it–to mere physical activity, any physical activity; instead, I imagine that he had some subset of physical activity that is purposeful.  To be purposeful is to have an end in mind, and that is the same as saying that there is some use to the activity in that it brings about some end.  Further, because this end is socialized, it cannot be just any end, but one that is socially defined (to be laborious).  Thus, not all “productive expenditures” that take human hours constitute labor; labor is only the hours of “productive expenditure” devoted to completing a socially-defined work task.  The “task” is necessary to distinguish labor from mere physical activity, which is to say that the qualitative aspect is what identifies the activity as labor.  When Marx abstracts it away, we can no longer tell what is and is not labor.  The “homogeneous mass of human labour-power” must include leisure hours as well as work hours.  Clearly if leisure can be considered labor then the capitalists are contributing their fair share of socialized abstract labor to society, by handling all of its socially necessary leisure time.  

Marx is sneaky with his words; the “socialized” in socialized abstract labor is meant to sneak “use” back in, for what could be socialized except the tasks labor is set to accomplish?  This is not to condemn abstract labor, but merely to show that such abstractions can only be quantified at the subjective, individual perspective.  To put it another way, I can count the number of hours it would take me to perform any kind of labor, because I–and I alone–know my relative abilities to complete a task.  My estimation would need to include my skills, my knowledges, and my relative physical situation, along with any and all tools at my disposal.  My present situation is vital.  Consider that an apple on the tree five miles from you takes longer to gather than one growing right in front of you.  The situation changes the labor of acquisition as well as use-value.  Thus, only I can estimate the abstract labor-time necessary to complete a task and that estimation applies only to myself.  These kinds of abstractions cannot be generalized, and so it is an error to socialize abstract labor as Marx has done.  A subjective labor theory it stands to reason does not commit this error.   

Before explaining the real problem, we should get a false problem out of the way.  The fact that the market value is not fully derived from labor-input, i.e. there is a subjective component of value appraised by the consumer, does not defeat Marx’s complaint of exploitation.  The value appropriated by the capitalist is merely the exchange-value already paid by the consumer; the use-value component of the consumer is not a factor between the laborer and the capitalist.  The exchange-value cannot be realized until the price is already attained, in this sense the price is merely the actualization of the mutually agreed upon exchange-value of the buyer and seller.  In order to keep the surplus-value the capitalist must be said to own the product before it is sold, i.e. the capitalist must also be the sole owner and seller of the product, and in order to ensure that there is a surplus-value the capitalist must ensure that the wages of the workers are below the price the commodity will fetch, whatever it will fetch.  What exploitation occurs then, happens prior to the commodity every reaching the market, and is equal exactly to the extent of surplus-value, as Marx claimed.  The subjective aspect of value-determination does not save the capitalist from a Marxist accusation of exploitation.     

The real problem with Marx’s theory is that his explanation is not sufficient to prove the exploitation of the laborers.  This is a result of the subjective component, for Marx’s argument is only sufficient if socialized abstract labor is solely responsible for the total value of a commodity.  Now, I have no doubt that if the laborers are being exploited by capital, the mechanism Marx describes is the one by which it is taking place.  But describing how workers could be exploited is a different thing from proving that they are being exploited.  In order to prove that workers are being exploited–assuming a subjective labor theory in necessary as I have claimed–one would have to show that the individual laborers are fully entitled to the product of their labor; that is that laborers are the sole owners and sellers of the commodities they produce.  

The difficulties this presents are more formidable than Marx understood.  The socialized production system–the form of socialism or communism that Marx recommends–would not necessarily entitle the laborers to the full measure of the exchange-value of their product any more than capitalism would.  If the products are common property or State property, Marx may have merely exchanged potential exploitation by capitalists for potential exploitation by demagogues and bureaucrats.  Socialism and Communism, as Marx understands them, do nothing to protect the laborers–their labor being only an abstract part of the whole–every individual laborer is just as alienated and just as vulnerable.  Without a theory proving that the individual laborers are solely entitled to the full value of their individual or collective productive input, Marx has yet to prove exploitation or provide a bulwark against it for workers.


Part Four  

Marx’s sense of the labor-process is incomplete without his understanding of the role of capital.  To understand capital’s role we need to examine the “self-valorization” appearance of capital.  “[C]apital is money, capital is commodities”, Marx said.  Commodities must possess a useful aspect to have a value, and the use of capital–according to Marx–is Kapitalverwertung or self-valorization.  Self-valorization is the appearance through the process of labor-production and exchange in which capital seems to conjure from itself a profit.  Seen from a particular view-point a certain investment of capital yields a certain amount of return, which is above and beyond the value of the investment itself which is retained or reclaimed.  In concrete terms, the use of capital qua capital is to yield a profit.  To yield a “profit”, the value of the capital invested must itself be maintained.  This is obvious, for if the investment depreciated correspondingly with the return–as David Ricardo believed–the loss of capital would equal the return.  We might benefit by thinking of this as simply selling to the laborers, there would be no return beyond the price of the capital sold to (rather than invested in) the firm.  The process by which capital self-valorizes is mysterious and still heavily debated today by economists.  Marx’s theory reveals self-valorization to be a subterfuge from where the exploitation of labor results in profit, through the ownership of the means of production.

To elucidate this process, we may simply build on Marx’s basic model of exploitation given above.  As the owner’s of the means of production, the capitalists’ lay claim to the products of labor.  The product is sold for more than it cost the capitalist to produce creating a profit.  This profit is appropriated by the capitalists thus valorizing their capital.  Marx maintained that the market value was fixed at the socially minimal amount of labor necessary to produce the product and thus the only way the capitalist could extract a profit would be to pay the laborer’s less than the full amount of value their labor produced.  Economic logic would prove that the more capital investment the more profit, and so the capitalist is likely to invest at least a portion of this profit into more capital.  Thus perpetuating the cycle of capital reinvestment.

Marx recognized that the material use of capital is its ability to save labor, and by so doing increase the productivity of labor and cheapen commodities.  The inherent conflict comes from the tendency–also noted by Ricardo–for wages to drop as a result.  The laborers experience the increase of productivity as a reduction of the value of their labor, while the capitalist experiences the same as an increase in their profits, at least for a time.  The conflicting interests of laborers and capitalists Marx details forms the basis for his belief in class warfare, which is inherent to the capitalist mode of production.

As a condemnation of capitalism, this argument is sufficient; but in order to correct the problem capitalism merely represents, we need to better understand the role of capital in production.  Towards this end, we might assert that the value capital adds to a commodity (or a service or end of any kind) is in the labor it saves through its usage.  This saved labor is necessarily different from the labor involved in the production of the capital itself.  To put this in Marxian terms, we might argue that just as there is a difference between labor and labor power, capital, also, has differing costs and productive value capacities.  A labor cost (the exchange-value of the capital) and a use-value (measurable in labor-saved) work much like labor and labor power; so while the average healthy laborer’s ability to produce value typically exceeds the cost of sustenance necessary to reproduce the laborer’s efforts, well-deployed capital has the ability to produce more labor-savings than the labor costs to produce and maintain it.  History bears this out, since the whole productive increase of the industrial revolution is a testament to this fact.

The value of capital is equal to the reduction of the necessary labor required to meet some end, e.g. produce some thing or benefit from some service–its use-value–minus the labor cost of producing the capital–its exchange-value.  Since, as Marx said, “capital is commodities”, all commodities are also capital; and thus, all commodities share this determination of value.  This definition of value is a serious problem for the rest of Marx’s theories, but a major insight for us: use-values are quantifiable in units of labor-saved and are also necessary factors in the determination of a commodity’s value to a consumer, who must be the ultimate source of all economic evaluations in this theory.  Keep in mind that this determination is necessarily subjective, although it can be plural, it is never communal or social.

Marx’s labor theory, which supposes that the value of a thing consists wholly in the labor that went into its construction, provided a technique for objectively calculating the absolute value of a thing without the need for markets.  If his labor theory were correct, then it would follow that markets could be dispensed with, which is tantamount to saying exchange-value could be independently determined, as long as the quantity of (absolute) use-values, i.e. the material object themselves themselves, comprising the total social need could be determined.  Without any need for market determination, money in such a system loses its function and may also go extinct, taking with it the irrational desire for endless accumulation, or what Marx’s perceived as avarice.  Privatizing property for consumption becomes reducible to what we find useful as a society and nothing more, this would effectively restore natural checks and balances to the economic system while keeping modern production methods in place.  This–I believe–is what Marx had in mind by “scientific socialism”.  From where Marx sat, a society of modestly intelligent people, living and laboring in a particularly communal political arrangement should be able to assess and meet their own needs–as use-values–quite easily; thus the only thing holding back a just and equitable society of such individuals must be the oppressive historical development of capitalist greed; held in place by the tyrannical political force of the monopolists of the means of production, viz. the bourgeoisie.

Scientific utopia, then, wholly depends on just one thing: the ability to derive absolute value from the calculation of socialized abstract labor in a commodity, which I have just shown is not actually possible.  Without it, scientific socialism is an impossibility because we can never determine the true value of things merely by accounting for their production labor.  We need to incorporate use-values, which means, consumers fulfill the role of ultimately deciding for themselves how much a commodity is worth.  Thus, markets and money will prove to be indispensable.

But all is not lost here.  The upshot of capital having a use-value in saving labor is that the labor savings could potentially be made beneficial to the society at large, contingent on a restructuring of the economic order.  Scientific socialism may be dead, but some flavor of socialism may yet prove triumphant.  But to prove it, the real culprit behind economic oppression must first be identified.

To summarize then, Marx’s genius was to identify the mutual exclusivity of interests between capitalists and laborers and to recognize the exploitation of the laborers by the capitalists.  His folly, on the other hand, was to develop a theory of value based entirely on labor that failed to recognized the necessary factor of use-value in total value determinations.  I have attempted to show that use-value is a factor determining the exchange-value of all commodities at market and thus it is not the labor of production alone that determines value and price.  I have also shown how the labor of production or what I call the labor of acquisition reduces the general value of a commodity on the market and so the lower the labor of acquisition, the more valuable the commodity.  Use-values, contra Marx, are in fact quantifiable and serve as the positive value that allows consumers to spend more on a commodity than the labor of acquisition.  Without the labor of acquisition as the sole determinate of value, most of Marx’s subsequent socio-political and economic theories fall apart.  Nevertheless, I insist that capitalism is still exploitative and that the theory that proves it is yet to be addressed.


Afterword      

I believe that profit, rent, and interest are the real agents of economic oppression in the capitalist system.  As a family of economic behaviors we might call these acts by the collective name of rent.  Essentially, neither private property nor bourgeois greed, but rent that is the source of class conflict and exploitation in capitalism.  Without going into the details, I want to briefly outline the structure of a non-Marxist theory of labor exploitation.  While Marx’s theory based exploitation on positive economic theory, this theory bases it on the political right and social necessity of private property.  In other words, the same theory that provides private property rights to the members of a society condemns rent as a practice just as surely as it condemns thievery.

The justification for a right to private property–according to John Locke–is based on the labor of acquisition and relies on the necessity of individual use and/or consumption.  In other words, without the need to individually consume the property, the labor of acquisition is insufficient to bestow private property legitimation.  The right of the landlord against the tenant farmer to the ownership of the farm land falls on the side of the tenant farmer who actually needs the land.  Those who both need the land and do the work of acquiring it have a rightful claim.  It follows from this that when the need to individually consume is dispensed with, the prior justification for ownership goes with it.  One might only own private property when one both legitimately labored to earn it, and retains some need for its exclusive private usage.

So it is that rent, in any form, fails to justify ownership for the renter.  The problem is obvious: when I lease out my object for money I give up my claim to a personal need to exclusively use that object.  My claim then rests only on my legitimate possession of the object through some labor of acquisition.  However, we just saw that this is inadequate.  Further troubling the matter is the claim of the rentee, who does possess the back-ground need necessary to justify exclusive ownership.  But the two aspects cannot be spread across two people, as exclusive rights must in fact be exclusive.  If the property rights are shared between the renter and rentee, then the property in question is by definition common property, and neither party has an exclusive claim to it.  This is all well and good, until a superfluous charge is made by the renter upon the rentee, i.e. the rent itself.  In order to charge this rent, the renter would have to hold exclusive property rights upon the object being lent.  But the act of lending itself simultaneously dissolves these rights.  The actual ownership of the lent object is shared or common and no charge may be made to property the rentee has a fully justified claim too, i.e. the rentee “owns”.

The “use” of renting is not a legitimate use because it is self-defeating.  To lend is to share property rights with another, to charge rent on shared property cannot be legitimated.  And this is where capitalism is exploitative.  Capitalism allows for rent in all its sundry forms.  The most serious problem with capitalism has never been private property or greed or markets or money, but only the family of illegitimate economic procedures we call rent.  Rent allows those with a claim of prior ownership to extort value from the value-generating labor efforts of those who use that capital.  This extortion cannot be legitimated despite the fact that capitalism allows it.  Here then is the source of economic inequality and oppression we find inherent in capitalist countries.

 

A Non-Marxist Theory of Exploitation: And How to Resolve It

Karl Marx (1818-1883), philosopher and German poli
UNSPECIFIED – CIRCA 1865: Karl Marx (1818-1883), philosopher and German politician. (Photo by Roger Viollet Collection/Getty Images)

Introduction

It’s been a century and a half since Karl Marx published Das Kapital and a century since the Soviet revolution.   I think it’s time to consider class and labor exploitation outside the shadow of Marx’s economic system.  Central to Marx’s social and economic theory was his theory of exploitation.  His theory, in a nutshell, proposed that capital siphons off the value labor produces allowing the owners of the means of production to self-validate their property.  More specifically, the contribution of the owners in providing the means of production was already reflected in the value of the commodity at market.  So, the commodity’s profit was entirely owing to the contribution of labor.  Any profit taken by the owners of the means of production, i.e. the capitalists, was an exploitation of the workers’ labor efforts.  Marx’s entire positive economic theory was an attempt to expose how the system generated exploitation and, assuming Marx’s determinism, would eventually succumb to its own contradictions and give way to scientific communism.

There are many arguments against Marx’s account, but the most notable is a lack of capitalism’s demise.  I’m no proponent of determinism, but even if capitalism is determined to fail, the lack of failure despite reoccurring economic collapses, seems to paint a picture of capitalism as a flawed, perhaps even contradictory, system that nevertheless, humankind is willing to support and sustain indefinitely.  Contradiction is not enough to overthrow a failing system, a new system must be ready in the wings to takes its place.  Communism itself seems contradictory as it seems to suggest that humans, who may produce and “own” in common, may consume in common as well.  This last is not possible and without it neither is communism.  Private property it seems is here to stay.  The question for this century is how to affect private property without exploitation and without contradiction.

To take a step in that direction, I want to challenge Marx’s account and give an alternative theory of capital’s exploitation of labor.  My alternative is based on the labor theory of private property, like that proposed by John Locke.  If I’m right, the justification establishing private property rights also implies that capitalism, as it is generally understood, is exploitative of labor efforts.  Whereas Marx saw the exploitation of labor as a result of his theory of value–one based exclusively on labor–this theory insists that labor is exploited because the ownership of the means of production is only justified by those doing the labor of producing.  Labor alone justifies ownership and this ownership is necessary to claims of entitlement to profit.  Like Marx’s theory, this theory sees the fractionation and distribution of profits from the sale of commodities as the method that exploits labor.  The theory differs from Marx’s solely as to why the mechanism of exploitation is unjust.

The labor theory of private property is not itself without controversy.  For the sake of expediency, however, I will leave arguments against the labor theory of private property aside for now and simply assume that it is the best available justification for establishing private property rights.  The goal here is not to argue for labor theory but to show that if labor theory is the best justification for private property then capitalism must be exploitative.  Aside from Marxists, we might all agree that private property needs some sort of justification.  As Locke observed, there is no natural justification why this or that thing might be privately owned.  Thus, we seek some social justification to exclude all others from the use of a thing that cannot be consumed except exclusively.   Like Locke, we seek a method for individuating the common world that we might all agree is fair.  The result of this fair method would be a justified scheme of private property ownership.

Labor theory satisfies this method by asserting that by laboring to acquire a thing for the purpose of exclusively consuming it one ought to have the right to fulfill that purpose.  Labor thereby justifies ownership.  Ownership here, it is important to note, is limited to those things one intends on using one’s self.  Without this boundary, labor cannot be applied to anything, and this renders any labor theory of property uncogent, as Robert Nozick has pointed out.  For example, we might say that a crafter who sews bags is entitled to the use of the bag unless they transfer that right by some legitimate method.  They are neither entitled to do whatever they wish with the bag nor is the scope of the bag indeterminable.  What is important here is that labor theory requires a background right, namely the assumption that since one must exclusively use certain goods if one is to use them at all then one must of some means of legitimately gaining exclusivity.  Also important is the fact that the labor theory of property implies that labor has a stronger claim to ownership than mere nominal claims.  In other words, a claim to private property is only as good as the labor claim supporting it.  For example, in the case of the means of production, the mere owners of capital have no labor claims and thus have no legitimate claim to either the means of production or the products that are produced with them.

Before moving on, I wish to be as explicit as possible about what I mean as my labor theory of property.  For the most part, I will follow Locke’s reasoning; however, I am making a few modifications or making explicit what is implicit in Locke.  Firstly, Locke’s theory applies only inside a society and that as such, it is not a universal theory of individual rights, but a theory for individual rights as a need of society.  Civilizations, if they hope to remain stable, must solve the problem of the individual consumption of the common world, and this is what the labor theory of property does.  Secondly, I link labor to use far more explicitly than Locke, although it is both present and essential in Locke’s argument.  Labor acquisition operates only under the assumption of personal use in a labor theory of property.  Thirdly, the link between labor and use is bridged by intention; thus, intentionality serves, in lieu of actual use, to justify exclusive ownership in this labor theory of property.  I acknowledge that these are no minor modifications and that each should be argued for; however, I feel this paper is not the place for those arguments and I hope my reader will grant these assumptions until such time as they may be questioned directly.

Ironically perhaps, this theory is positioned in opposition to both the dominant western economic paradigm, which merely assumes the nominal ownership of the capitalists, as well as the reigning critique of that paradigm, viz. Marxism.  Thus, I have two arguments to make here: (1) that capitalism is exploitative and (2) that it is not for the reasons Marx claimed it is.  Naturally, I will structure what follows in two parts.  The first part is why an economic critique based on Marx’s labor theory of value fails to prove exploitation.  The second part will hopefully show why a theory of exploitation based on a labor theory of property works.

Part 1: Contra Marx

It is no easy task to critique and condemn a thinker whose conclusions one feels to be more or less all correct.  The reason is quite simply that the argument continues to feel right even where it is wrong.  Marx’s folly was not that capitalism is actually just, but that he misidentified how and why capitalism is actually unjust.  Marx rested his critique of capitalism by trying to identify all value with labor, specifically the labor in a commodity.  The labor that went into making the commodity and delivering it into the hands of the consumer is, for Marx, the sole source of all its value.  This is Marx’s labor theory of value.  My critique of Marx begins right here with his positive economics.  I want to show that Marx’s positive economics is missing some key elements, which render value-judgments questionable.  I will argue that labor does provide all the value of the commodities, as Marx claimed, but that labor only has value in concert with use and further that labor-use only bestows value because it justifies a claim to ownership.  In other words, labor provides a value to commodities precisely because it justifies private property rights, or the right to exclusively consume a commodity.

Marx, I fear, got off on the wrong foot and everything went wrong from there.   In the first section of the first chapter of the first volume of Capital, he makes the dubious assumption that use is purely qualitative and so can be summarily dismissed from any further talk of value.  There is nothing like an argument to critique here.  Marx simply assumes use plays no part in value determinations and moves on to what he believes does.  This doesn’t present a problem, Marx thought since he was only concerned with a commodity’s value on the market and not as it is consumed.  He believes that the price (exchange-value) hovers around what he called the socially-necessary abstract labor required to produce the commodity.  In short, how much human labor time society needs to invest in bringing a commodity to market given current technological capabilities.  Since Marx’s interests in commodities values end at the moment of acquisition, use-value is indeed superfluous.  But it appears that rather than letting his assumptions imply his theory, Marx let his theory imply his assumptions.  Use-value was an inconvenient truth for political economists, one that Marx had to explain away rather than explain and incorporate into his theory, and he did just that.

Despite Marx’s assumption, use’s relationship to value is just as pivotal as labor’s.  Primarily, use provides the desire for an object in the first place.  Marx too admitted as much, but use is not just qualitative.  We can measure how useful a commodity is or estimate how useful a commodity is likely to be in similar terms of abstract labor that Marx employed.  Only here we’re not speaking of the labor embodied in an object, but the labor saved to us by employing an object at a given task.  For example, we might claim that the use-value of a phone is the labor it saves us from having to travel to speak with someone.  If use-value can be quantified in this way, then Marx’s theory has a gaping hole in it.   This is significant because it adds another value into the equation that results in exchange-value or price.  Now instead of saying exchange-value simply equals the amount of socially necessary abstract labor involved in a commodity’s production, we must fit use-value in somehow.

Marx looked at the situation too closely from the point of view of the producer of commodities and not nearly enough from the point of view of the consumer of commodities.  From the point of view of the producer, the question of value is nebulous, but from the point of view of the consumer, it is much more concrete.  The consumer simply estimates the use-value of the object in question relative to themselves and then subtracts the cost of acquiring it.  This is necessarily an individual estimation since objects can only be consumed individually.  Interestingly, the cost of acquiring it is the consumers attempt to guess the quantity of socially necessary abstract labor they would have to expend to achieve the acquisition.   In other words, the consumer looks around for the best deal (socially averaged labor cost) and then determines if the commodity will ultimately save them more value in use, if so it is worth buying, if not, then your interests are best served by leaving it on the shelf.  If this sounds a lot like the market place to you, you’re right.  The market determines the price by allowing consumers to weigh use-values against production costs in relations to their needs.  Just determining the costs, as Marx did, is insufficient to determine value.  Value is not socially abstract in the way Marx claimed, that is as an abstraction of production efforts.  Instead, value is socially abstract as an averaging of consumer’s demands.

This means that neoclassical positive economics is much closer to the truth than Marx’s.  Neoclassical models adequately describe the actions of values in the volatile market place.  But before western economists break open the champaign, a great irony should be noted: the values these western economic models describe purely quantitatively are in fact units of labor-use.  Neoclassical economics is describing the labor consumers estimate they will save by purchasing a commodity against the labor they must expend to acquire it.  Consumers, and never producers, set the value on all commodities.  These facts are highly problematic for both Marxists and neoclassical economics alike.  Simply put, Marxist economists can’t actually describe how value is generated because Marx’s positive economic model doesn’t take consumer’s needs into consideration, and neoclassical economists can calculate values, but can’t tell you what it is they are calculating because they don’t have a phenomenological model of what value is.  For a normative economic system hoping to be fair, we’re going to need a model that can both calculate value and understand what that value consists of.

Part 2: Exploitation Through Property

The labor theory of property as I have described it reveals exploitation in capitalism that does not rely on value.  Values factor in only afterward and reveal only how much exploitation is going on.  The exploitation itself is based on the justifications for the way we come to own property and what rights are conferred as we come to own it.  A need for personal use is the necessary background right for an act of labor to make something exclusively ours.  It is not enough merely to labor, but to labor for something we must use individually for private property rights to be conferred.  As Locke maintained, it is unacceptable to deprive others of that which one has no intention of using in a civilized society.  One is free to claim goods through labor for personal use and even exchange, which is also a form of personal use.  But there are other uses which violate the principle which made the property exclusively yours and this family of special uses are what we must examine to understand the exploitative nature of capitalism.  This family of special uses go by the name of rent and consist of rent, interest, and profit.

To illustrate why rent is problematic we should return to Locke who conceived of the labor theory of property as an argument purporting to show that the tenant farmers were more entitled to the land and produce of that land they worked than the landlords who nominally owned it.  The landlords claim to the land was purely political, often as a grant from the monarch.  This feudal system perpetually kept the tenant farmers in a state of perpetual poverty despite the fact that they worked ceaselessly and at the same time kept their lords, who produced nothing, very wealthy.  Locke, like Marx, recognized this as exploitation and struggled to both explain and condemn it.  While I feel Locke got closer to the truth than Marx, he nevertheless failed to successful eradicate exploitation with his pro-capitalist theory.  Instead, the feudalism against which Locke argued was replaced by a capitalist system, which, while initially radical, grew more and more conservative over time, eventually coming to resemble the feudalism it replaced.  By the time Marx began his critique, capitalism had gone from undermining the landlords’ claim to exclusive ownership to reinforcing their position.  While landlords under feudalism relied on ancestry and royal grants, landlords under capitalism relied on their socially agreed-upon right, through labor, to private property to justify their wealth.

The capitalist’s claim, as it comes to us from Locke, is simply that as the owner of the property they have the right to use that property as they will, including lending or leasing it.  Now no one holds this position absolutely.  For example, no one is going to claim that private property ownership of a handgun gives one the right to use it on anyone you want.  However, rent it could be argued is a much more reasonable use of property; at least that is until we consider what conditions are necessary to grant property to owners in the first place.  As we saw, labor theory asserts that labor and an intention of personal use are both necessary for a legitimate claim to exclusion.  Even if we assume that an owner justly acquired their property through labor, the moment the intention to personally use that property is removed, the legitimacy of their claim falls away.  They simply no longer meet the prior condition.  By definition, there cannot be an intention of personal use in the act of renting.

The use of rent does not require exclusivity.  Rent requires a dual use, as an object of rent is only rentable when someone else has a need to use it exclusively but cannot acquire it themselves.  During rent, the object is released to the person with a need for the exclusive use of it, but the nominal ownership is retained.  Thus, during rent a second use is created for private property beyond the one that requires exclusive use.  The problem of rent can be seen as making what is private, common again.  When the property is shared it cannot by definition be private.  What we end up with is two individuals, each with a partial claim to the same property: the renter and the rentee.  The renter has a claim to ownership through the labor of acquisition to the object, but at the point of lending the object for rent, the renter lacks a need for exclusive use.  The rentee has the right through the need and intention of exclusive use, but when renting lacks the labor of acquisition to legitimately possession of the object.  This seeming impasse is not insurmountable, however.  The right granting power of labor, it must be recalled, rests on wholly on the background right for the need for exclusive use.   The rentee, it seems, ultimately has the stronger claim.

Before moving on, let us consider a few objections.  First, we might ask, but what of lending without charge?  If renting is a problem, wouldn’t lending be a problem too?  The short answer is no, lending is not a problem because there is not a second use in play with lending.  The ownership may remain with the lender because the lender is not able to use the object while it is being lent.  It is the dual use of “private” property that defeats its own justification.

Second, rent, our capitalist friends might suggest, is not the same thing as profit.  In some ways this is true, but as far as what is at stake here, it is not.  The question for the laborer and the capitalist is merely a question of who owns the product at the end of the production line.  The laborer has the need for the means of production to produce, just as the owner of the means of production requires labor to produce.  Just like the rented object we can see that labor has a stronger claim to ownership under a labor theory of property.  So it is that under a labor theory of property ownership of the product is legitimately labor’s to use or sell.  In fact, the claim to the ownership of the means of production is most legitimately that of the laborers.  Under a fair economic system then, all businesses should actually be owned by the workers and not by capitalist investors.  This is just like saying, as Locke did, that farms ought to be owned by the farmers and not the landlords.  The landlord–or capitalist as it may be–should be incentivized to sell the land they are not using themselves by disallowing a profit to be generated from it.  As with the land, the same holds true of the means of production.

Finally, what about incentives?  What incentive can there be for lending, which we might readily admit is useful and necessary to an economy, without rent, interest, or profit?  Incentives don’t really change.  What changes are how those incentives get expressed.  People will still have reasons to lend, just not to make more money.  In fact, the incentive to make more money is at the root of much of the world’s sorrows.  The unending desire for more, that is the ethos of capitalism is an evil that pits all against all in perpetual economic warfare.  But that is the structure of the system, not the incentive to acquire, nor the incentive to be economically secure and comfortable.  Everyone might want infinitely more money, but barred for the uses of rent, interest, and profit, they’ll have to labor for every cent they make.  My hunch is that this will create a disincentive to acquiring more and more wealth.  Without the endless desire to accumulate, resources can be distributed more equally both inside society and between societies.  Without the fierce competition for resources, we might slow down our mad rush to strip the Earth and foul our nest.  We might all breathe a little easier, live a little better, and smile at one another.  The goods of economic peace to too great to be counted, and that is the only incentive we ought to be concerned with.

To reiterate, the goal of an economic system based on private property must be to get the property that needs to be used exclusively into the hands of those who need to use it, i.e., to make it their exclusive property.  Measuring capitalism by that standard we can see that capitalism fails because it does not distribute private property to those who are most entitled to it, that is those who are going to actually, physically use it.  The fact that capitalism allows for rent sets it at odds with the economic advantages of a system based on private property.  Make no mistake, I am forcing capitalists into a rather unpalatable dilemma with this argument.  Either private property is justifiable or rent (and profit and interest) are justifiable, but not both, and capitalism as it currently defined requires both.  Rent, obviously, requires private property, but we might have a private property based system that does not permit rent.  But the capitalist, who lives by rent or interest or profit, as opposed to labor, is necessarily eliminated from economic consideration.  With the capitalist, goes capitalism as we know it.  What is left is a private property based economic system that deals in free markets, utilizes money, and places ownership of the means of production squarely in the hands of those who will use it best, the workers.  Surely such a system is not capitalist, but neither could it be considered communist or even particularly socialist.  Whatever name history chooses for it, let us have it.

There are many pragmatic problems to overcome in implementing such a system, but these problems are neither innumerable nor insurmountable.  Such as system is not only feasible it is efficient.  It is more efficient than the perpetual cycles of boom and bust, of welfare and austerity, of liberalism and conservatism that cost millions of dollars and hours, every time we have to stop and reverse direction.  This simple system will go farther to end economic exploitation with less effort, and at the same time achieve a fair and balanced economic situation that is at the same time more stable and more flexible than either capitalism or communism or any hybrid could possibly hope to be.