Marx’s “Law of Value” in Volume 1 of Capital

Labour value in volume 1 of Capital is defined in the following passages:

“A use-value, or useful article, therefore, has value only because human labour in the abstract has been embodied or materialised in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labour, contained in the article.” (Marx 1906: 45).

“Since the magnitude of the value of a commodity represents only the quantity of labour embodied in it, it follows that all commodities, when taken in certain proportions, must be equal in value.” (Marx 1906: 53).

“We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour-time socially necessary for its production. Each individual commodity, in this connexion, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value.” (Marx 1906: 46).

“Commodities as values are nothing but crystallized labour. The unit of measurement of labour itself is the simple average-labour.”
Chapter 1 of the first German edition of Capital (1867)
https://www.marxists.org/archive/marx/works/1867-c1/commodity.htm

“A use-value, or useful article, therefore, has value only because human labour in the abstract has been embodied or materialised in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labour, contained in the article.” (Marx 1906: 45).

“Human labour-power in motion, or human labour, creates value, but is not itself value. It becomes value only in its congealed state, when embodied in the form of some object.” (Marx 1906: 59).

“Value is independent of the particular use-value by which it is borne, but it must be embodied in a use-value of some kind. Secondly, the time occupied in the labor of production must not exceed the time really necessary under the given social conditions of the case.” (Marx 1906: 209).

“The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power.” (Marx 1906: 45–46).

“Value is here, as occasionally in the preceding pages, used in the sense of value determined as to quantity, or of magnitude of value.” (Marx 1906: 62, n. 1).

“The recent scientific discovery, that the products of labour, so far as they are values, are but material expressions of the human labour spent in their production, marks, indeed, an epoch in the history of the development of the human race …” (Marx 1906: 85).

That is to say:

(1) the substance of value is abstract socially necessary labour time, which must be defined as a homogeneous unit capable of aggregating and measuring all heterogeneous types of human labour-power (Marx 1906: 45–46);

(2) so therefore value is abstract, socially necessary labour time embodied, crystallised, or materialised in commodities, and

(3) the magnitude of value or quantitative measure of value is the amount of abstract socially necessary labour time, counted in homogeneous units (Marx 1906: 45–46).

But there are devastating problems with the very concept of a homogeneous unit of abstract, socially necessary labour time and serious empirical problems with the theory, as I show here. The very concept, as Marx defines it, cannot be accepted or defended as coherent or meaningful, and is contrary to the empirical evidence.

At any rate, Marx in the text of volume 1 of Capital thinks commodities tend to exchange at pure labour values, as determined by socially necessary labour time (Marx 1906: 176–177; Marx 1909: 208–210). This is called the “law of value” (Marx 1906: 208, 335, 587, 612), “laws of the exchange of commodities” (Marx 1906: 177; Marx 1906: 638), “law of the determination of value by labour-time” (Marx 1906: 350) or “law of the exchange of commodities” (Marx 1906: 257).

However, Marx accepts that prices move around labour values as the latter are the equilibrium price anchors for the system and there are some exceptions.

We can see this from an analysis of the text of volume 1:

(1) In Chapter 1, Marx suggests that diamonds may not always exchange at their true labour values, and perhaps often below their real labour value (Marx 1906: 47). He also cites another economist who suggested that gold may not normally exchange at its true labour value either, but Marx does not explicitly commit himself to this, and indeed it blatantly contradicts his own theory of general price movements later in Chapter 3 (see (5) below).

(2) Marx states in Chapter 1 that it is possible to accurately measure the value of skilled labour by looking at the exchange values of products of skilled labour as against products of unskilled labour (Marx 1906: 51–52), but that makes no sense unless Marx really believes that commodities tend to exchange at pure labour values. That is, this argument does indeed assume that commodities tend to exchange at true labour values.

(3) Marx also says that gold or silver, when initially brought to market, is exchanged with other commodities with an equal socially necessary labour time value as a barter transaction (Marx 1906: 122). That requires exchange at pure labour values.

(3) Marx refers to occasions where sellers sell commodities above their labour values as “swindling” (Marx 1990: 264), because they obtain more value in exchange than what they have given: this assumes that exchange at labour values is the honest state of affairs and the tendency of capitalism.

(4) in chapter 3, Marx admits that, because of supply and demand, market prices can deviate from true labour values:

“Magnitude of value expresses a relation of social production, it expresses the connection that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it. As soon as magnitude of value is converted into price, the above necessary relation takes the shape of a more or less accidental exchange-ratio between a single commodity and another, the money-commodity. But this exchange-ratio may express either the real magnitude of that commodity’s value, or the quantity of gold deviating from that value, for which, according to circumstances, it may be parted with. The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another.” (Marx 1906: 114).

However, there is a mechanism by which prices move back towards labour values (see (5)).

(5) in Chapter 3, Marx goes on to explain general price inflation and deflation in terms of labour value:

“But, although the money that performs the functions of a measure of value is only ideal money, price depends entirely upon the actual substance that is money. The value, or in other words, the quantity of human labour contained in a ton of iron, is expressed in imagination by such a quantity of the money-commodity as contains the same amount of labour as the iron. According, therefore, as the measure of value is gold, silver, or copper, the value of the ton of iron will be expressed by very different prices, or will be represented by very different quantities of those metals respectively.

If, therefore, two different commodities, such as gold and silver, are simultaneously measures of value, all commodities have two prices—one a gold-price, the other a silver-price. These exist quietly side by side, so long as the ratio of the value of silver to that of gold remains unchanged, say, at 15:1. Every change in their ratio disturbs the ratio which exists between the gold-prices and the silver-prices of commodities, and thus proves, by facts, that a double standard of value is inconsistent with the functions of a standard.” (Marx 1906: 108).

“A general rise in the prices of commodities can result only, either from a rise in their values—the value of money remaining constant—or from a fall in the value of money, the values of commodities remaining constant. On the other hand, a general fall in prices can result only, either from a fall in the values of commodities—the value of money remaining constant—or from a rise in the value of money, the values of commodities remaining constant. It therefore by no means follows, that a rise in the value of money necessarily implies a proportional fall in the prices of commodities; or that a fall in the value of money implies a proportional rise in prices. Such change of price holds good only in the case of commodities whose value remains constant. With those, for example whose value rises, simultaneously with, and proportionally to, that of money, there is no alteration in price. And if their value rise either slower or faster than that of money, the fall or rise in their prices will be determined by the difference between the change in their value and that of money; and so on.” (Marx 1906: 111).

So here Marx sees prices as ultimately determined by two factors: (1) the labour value of units of gold and (2) the labour value of commodities as they interact with (1).

(6) For Marx, there is an equilibrium process at work by which prices are driven back towards their true labour values:

“It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).

“It requires a fully developed production of commodities before, from accumulated experience alone, the scientific conviction springs up, that all the different kinds of private labour, which are carried on independently of each other, and yet as spontaneously developed branches of the social division of labour, are continually being reduced to the quantitative proportions in which society requires them. And why? Because, in the midst of all the accidental and ever fluctuating exchange-relations between the products, the labour-time socially necessary for their production forcibly asserts itself like an over-riding law of nature. The law of gravity thus asserts itself when a house falls about our ears. The determination of the magnitude of value by labour-time is therefore a secret, hidden under the apparent fluctuations in the relative values of commodities.” (Marx 1906: 86–87).

These two passages in volume 1 are elucidated by a passage in Chapter 10 of volume 3 of Capital, where Marx specifies this equilibrium process:

“The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).

This is the law of value on volume 1 of Capital, despite two blatantly contradictory footnotes: footnote 24 in Chapter 5 and footnote 9 in Chapter 9.

These footnotes appear to admit that prices of production are the anchors for the price system in 19th century capitalism, and that such prices of production do not correspond to true labour values.

So it seems clear these footnotes hint at the different and contradictory theory Marx had already sketched in the draft of volume 3 of Capital and in a number of private letters as follows:

(1) a letter to Engels of August 2, 1862 (on this letter see here);
(2) an exchange with Engels between June 26 and June 27, 1867;
(3) a letter to Engels of 8 January, 1868 (on this letter, see here);
(4) an exchange with Engels from April 22 and April 30, 1868, and
(5) in a letter to Ludwig Kugelmann on 11 July 1868.

However, if Marx really held his prices of production theory in private, this theory utterly demolished and smashed up the law of value that Marx had been defending in the actual text of volume 1 of Capital, and showed that book to be a tendentious work of communist propaganda.

It also seems that Engels, despite the letters he had from Marx, also dishonestly defended the “law of value” in volume 1: for example, in Herr Eugen Dühring’s Revolution in Science, first published in 1878 when Marx was still alive, Engels defended the idea that commodities tend to exchange at their labour values in modern capitalism (see here).

Moreover, it took Engels years and years to finally publish volume 3 of Capital. In fact, he left it to 1894, even though people were pressing him for the volume and the solution to the transformation problem (Howard and King 1989: 24). And Engels utterly refused to relate Marx’s solution to the transformation problem to any private correspondents (even Marxists) or to have it printed separately before the publication of volume 3 (Howard and King 1989: 24–25), whose publication was delayed for years and years. That is telling.

In light of all this, we can understand why Engels – if he was fully aware of the use of a different theory of price determination in volume 3 – dragged his feet and must have been very apprehensive indeed about the publication of volume 3. That is to say, the reason was that in volume 3 of Capital Marx had used a different theory of price determination by prices of production which totally contradicted the theory of price determination in volume 1.

No doubt wishing to finish Marx’s great work even though it would come with a cost and pressed by Marxists to do so, Engels finally published volume 3.

As I have noted before, once Engels published volume 3, the inevitable happened: hostile critics of Marxism and even some sympathetic supporters of Marx pointed to this devastating contradiction between volumes 1 and 3.

Engels scrambled to re-write history and defend Marx: finally, in his “Supplement and Addendum” to Volume 3 of Capital published in 1895 Engels defended volume 1 by saying that the law of value there only applied to the pre-modern world of commodity exchange before prices of production came to dominate modern capitalism. Engels also
defended this apologetic rewriting of history in a private letter to Werner Sombart of March 11, 1895 (see here).

But that will not do: this was a dishonest Marxist intellectual fraud by Engels; the two volumes of Capital were and are contradictory, as numerous critics of Marxism have noted from Joan Robinson (Robinson 1950: 359) and Gerald F. Shove (Shove 1944: 48–49), to Werner Sombart (1894) and Achille Loria (1895; English trans. Loria 1920; see also here), and to Eugen von Böhm-Bawerk (1949 [1896]).

BIBLIOGRAPHY
Böhm-Bawerk, Eugen von. 1949 [1896]. “Karl Marx and the Close of His System,” in Paul. M. Sweezy (ed.), Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx. August M. Kelley, New York. 3–120.

Engels, F. 1991 [1895]. “Supplement and Addendum” to Volume 3 of Capital,” in Karl Marx, Capital. A Critique of Political Economy. Volume Three (trans. David Fernbach). Penguin Books, London.

Howard, Michael Charles and John E. King. 1989. A History of Marxian Economics. Volume I, 1883–1929. Princeton University Press, Princeton, NJ.

Loria, Achille. 1895. “L’opera postuma di Carlo Marx,” Nuova Antologia di Scienze 55.3 (February): 460–496.

Loria, Achille. 1920. Karl Marx. (trans. Eden and Cedar Paul), George Allen and Unwin Ltd., London.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Robinson, Joan. 1950. Review of Karl Marx and the Close of his System by Eugen von Böhm-Bawerk (ed. Paul Sweezy), The Economic Journal 60.238: 358–363.

Shove, G. F. 1944. “Mrs. Robinson on Marxian Economics,” The Economic Journal 54.213: 47–61.

Sombart, Werner. 1894. “Zur Kritik des ökonomischen Systems von Karl Marx” [Toward a Critique of the Economic System of Karl Marx], Archiv für soziale Gesetzgebung und Statistik 7: 555–594.