Marx’s Wage-Labour and Capital

Marx’s Wage-Labour and Capital (1849) was an essay he first published in the periodical the Neue Rheinische Zeitung in April 1849, and was taken from lectures Marx had given in Brussels in 1847 to the German Workers’ Society.

The work long pre-dates Capital, and an English translation was published by Engels in 1891, but Engels felt bound to change the text and harmonise it to some extent with Marx’s latter ideas (Marx 1902: 8). Nevertheless, there are some interesting statements in the work that still seem to reflect Marx’s earlier thinking.

There are two issues I discuss below: (1) does this work show that Marx understood subjective utility and (2) how Marx understands the cost of production price in his essay.

Chapter III is called “By What is the Price of a Commodity Determined?” Marx thinks supply and demand determines the surface market prices. The sellers, he says, who sell the most cheaply are sure to win the largest market share so that

“… there takes place a competition among the sellers which forces down the price of the commodities offered by them.

But there is also a competition among the buyers; this upon its side causes the price of the proffered commodities to rise.

Finally, there is competition between the buyers and the sellers; the ones wish to purchase as cheaply as possible, the others to sell as dearly as possible. The result of this competition between buyers and sellers will depend upon the relation between the two above-mentioned camps of competitors, i. e., upon whether the competition in the army of buyers or the competition in the army of sellers is stronger.” (Marx 1902: 27–28).

This is conventional supply and demand analysis from Classical Economics, but that analysis leaves out an important element: subjective utility. The concept of “demand” existed long before the marginal revolution, and when Marx talks about demand and supply determining market prices in conventional Classical Political Economy terms, this does not prove Marx understood subjective value. I see no evidence that Marx understood the importance of subjective utility, and it is not surprising he did not, because he wrote most of his economic writings in the 1850s and 1860s before the marginal revolution of the 1870s.

To continue with Marx’s exposition in Chapter III, Marx thinks – like the Classical political economists – that the cost of production of commodities allows the sellers to calculate profit (Marx 1902: 29), and that excess profits encourage the migration of capital into more profitable sectors:

“Now, what will be the consequence of a rise in the price of a particular commodity? A mass of capital will be thrown into the prosperous branch of industry, and this immigration of capital into the provinces of the favored industry will continue until it yields no more than the customary profits, or, rather, until the price of its products, owing to overproduction, sinks below the cost of production.

Conversely: if the price of a commodity falls below its cost of production, then capital will be withdrawn from the production of this commodity. Except in the case of a branch of industry which has become obsolete and is therefore doomed to disappear, the production of such a commodity (that is, its supply), will, owing to this flight of capital, continue to decrease until it corresponds to the demand, and the price of the commodity rises again to the level of its cost of production; or, rather, until the supply has fallen below the demand and its price has again risen above its cost of production, for the current price of a commodity is always either above or below its cost of production.” (Marx 1902: 30–31).

But Marx in Wage-Labor and Capital has an explicit view of what the cost of production price actually represents:

“The determination of price by cost of production is tantamount to the determination of price by the labortime requisite to the production of a commodity, for the cost of production consists, first, of raw materials and wear and tear of tools, etc., i. e., of industrial products whose production has cost a certain number of work-days, which therefore represent a certain amount of labor-time, and, secondly, of direct labor, which is also measured by its duration.” (Marx 1902: 34).

So at this stage in Marx’s economic thinking the cost of production price is equivalent to labour necessary for its production. It appears that “cost of production” here means total cost of a commodity without profit. Such a notion is absurd, of course, because hourly market wages across an economy are not determined by abstract necessary labour time, but by many other factors, including supply/scarcity of the labour service offered, the subjective utility people place on the labour service/commodity offered and all sorts of other factors. Nor are the prices of non-labour factor inputs equal to the abstract “labortime requisite to the production of a commodity.”

In volume 1 of Capital we get the impression that Marx thinks that many individual exchange values or prices are directly determined by socially necessary labour time (SNLT) and such a “pure” price corresponds directly to SNLT. Although how this happens is not clear.

Tucked away in a footnote in Chapter 5 of volume 1 of Capital (from 3rd German edn. but rev. from 4th German edn. by Ernest Untermann) we have this interesting statement:

“From the foregoing investigation, the reader will see that this statement only means that the formation of capital must be possible even though the price and value of a commodity be the same; for its formation cannot be attributed to any deviation of the one from the other. If prices actually differ from values, we must, first of all, reduce the former to the latter, in other words treat the difference as accidental in order that the phenomena may be observed in their purity, and our observations not interfered with by disturbing circumstances that have nothing to do with the process in question. We know, moreover, that this reduction is no mere scientific process. The continual oscillation in prices, their rising and falling, compensate each other, and reduce themselves to an average price, which is their hidden regulator. It forms the guiding star of the merchant or the manufacturer in every undertaking that requires time. He knows that when a long period of time is taken, commodities are sold neither over nor under, but at their average price. If therefore he thought about the matter at all, he would formulate the problem of the formation of capital as follows: How can we account for the origin of capital on the supposition that prices are regulated by the average price, i.e., ultimately by the value of the commodities? I say ‘ultimately,’ because average prices do not directly coincide with the values of commodities, as Adam Smith, Ricardo, and others believe.” (Marx 1906: 184–185, n. 1).

So here “average price” is something regulated by value of the commodities but it does not “directly coincide” with them. Why? It seems that for Marx “average price” means cost of production price plus a uniform long-run rate of profit.

So is this why it does not “directly coincide” with the labour values of commodities? If, once we strip out the average rate of profit and are left with the pure cost of production price, is this, as in Wage-Labor and Capital, assumed by Marx to be equivalent to labour value?

If we remember that for Ricardo the “natural price” of a commodity is its long run cost of production plus a uniform rate of profit, we can see how to understand the passage above. Marx takes over this concept but calls it the “average price” or later in his writing “cost-price” or “price of production” (see Moseley, “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices.”).

In the Economic Manuscript of 1861–1863, for example, when he discusses Rodbertus, Marx is clear that the “average prices” will be above or below the actual value of a commodity (Marx and Engels 1989: 264).

So what Marx is objecting to in the footnote in Chapter 5 of volume 1 of Capital is that Ricardo and Smith identify the “natural price” or “average price” directly with the value of commodities (understood as labour value). Marx rejects this.

In a letter to Engels of August 2, 1862, Marx makes it clear that he thought that competition reduces the market prices of commodities to the average price, not the labour value, and the average price might be above, below or equal to value, depending on the organic composition of capital (see Letter, Marx to Engels, August 2, 1862 from London).

None of this overcomes the contradiction between volume 1 and volume 3 of Capital, however.

But it does seem that, in Wage-Labor and Capital, Marx states that the “determination of price by cost of production is tantamount to the determination of price by the labortime requisite to the production of a commodity … .” (Marx 1902: 34). Either (1) this idea lies behind his thinking in Capital or (2) his ideas changed.

As an aside, Fred Moseley’s paper “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices” shows how the Temporal Single System Interpretation (TSSI) badly misunderstands Marx’s concept of the “price of production.”

Key Concepts
Average Price
For Marx, “average price” is the cost of production price and a uniform long-run rate of profit. This is equivalent to Smith and Ricardo’s “natural price.” Elsewhere in his writings Marx calls this “cost-price” or “price of production.” These are long-run prices that are a centre of gravity prices where profit rates are equal.

BIBLIOGRAPHY
Moseley, Fred. “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices”
http://www.mtholyoke.edu/~fmoseley/lrcgpric.html

Marx, Karl. 1902. Wage-Labor and Capital. New York Labor News Company, New York.

Marx, Karl. 1982. Capital. Volume One. A Critique of Political Economy (trans. Ben Fowkes). Penguin Books, Harmondsworth, England.

Marx, Karl and Frederick Engels. 1989. Collected Works. Volume 31. Marx: 1861–1863. Lawrence & Wishart, London.