Monday, July 6, 2015

Marx’s Capital, Volume 1, Chapter 5: A Critical Summary

Chapter 5 of volume 1 of Capital is called “Contradictions in the General Formula for Capital,” and is a brief chapter that describes what Marx sees as problems with the general formula M–C–M′. The primary problem is: where does surplus value come from and how is it created? (Brewer 1984: 35; Harvey 2010: 92). In essence, Marx in this chapter argues that it does not originate within the process of circulation (that is, the sphere of exchange of commodities through money).

The circuit of capital M–C–M′ contradicts Marx’s earlier laws, because the C–M′ exchange is not one of equivalent value (Marx 1990: 258). Marx also notes that the circuit of capital M–C–M′ is experienced properly only by the capitalist himself who engages in it (Marx 1990: 258).

For Marx, a “pure” commodity exchange is one where a commodity exchanges for another of equal labour value, so that the exchange is one of equivalent embodied socially-necessary labour time. If neither side gets more embodied labour value in exchange for the thing given up, then the circuit of capital M–C–M′ would be reduced to M–C–M (where all are equivalent) (Brewer 1984: 36).

Now, in terms of use values, both parties can get more in return for what they give up:
“So far as regards use-values, it is clear that both parties may gain some advantage. Both part with goods that, as use-values, are of no service to them, and receive others that they can make use of. And there may also be a further gain. A, who sells wine and buys corn, possibly produces more wine, with given labour time, than farmer B could, and B, on the other hand, more corn than wine-grower A could. A, therefore, may get, for the same exchange value, more corn, and B more wine, than each would respectively get without any exchange by producing his own corn and wine. With reference, therefore, to use-value, there is good ground for saying that ‘exchange is a transaction by which both sides gain.’ It is otherwise with exchange value.” (Marx 1906: 175).
Marx invokes the idea of comparative advantage in trade here too.

But, as we have seen, in the “pure” simple circulation of commodities C–M–C, there is no change in the quantitative labour values in each step:
“Abstractedly considered, that is, apart from circumstances not immediately flowing from the laws of the simple circulation of commodities, there is in an exchange nothing (if we except the replacing of one use-value by another) but a metamorphosis, a mere change in the form of the commodity. The same exchange value, i.e., the same quantity of incorporated social labour, remains throughout in the hands of the owner of the commodity first in the shape of his own commodity, then in the form of the money for which he exchanged it, and lastly, in the shape of the commodity he buys with that money. This change of form does not imply a change in the magnitude of the value. But the change, which the value of the commodity undergoes in this process, is limited to a change in its money form. This form exists first as the price of the commodity offered for sale, then as an actual sum of money, which, however, was already expressed in the price, and lastly, as the price of an equivalent commodity. This change of form no more implies, taken alone, a change in the quantity of value, than does the change of a £5 note into sovereigns, half sovereigns and shillings. So far therefore as the circulation of commodities effects a change in the form alone of their values, and is free from disturbing influences, it must be the exchange of equivalents. Little as Vulgar-Economy knows about the nature of value, yet whenever it wishes to consider the phenomena of circulation in their purity, it assumes that supply and demand are equal, which amounts to this, that their effect is nil. If therefore, as regards the use-values exchanged, both buyer and seller may possibly gain something, this is not the case as regards the exchange values. Here we must rather say, ‘Where equality exists there can be no gain.’ 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 is important to note here how Marx refers to “law of the exchange of commodities” that is defined as “in its normal state ... an exchange of equivalents.”

So here Marx recognises that if commodity exchanges occur at a deviation from the labour values, then one party will receive more embodied labour value in return for that embodied in the commodity he sells. Marx elaborates on this issue later in the chapter.

What follows is one of Marx’s confused polemics, when he refers to Étienne Bonnot de Condillac’s subjective utility theory. Using subjective value theory, Condillac had observed that when two individuals engage in a trade, each person will generally trade something which for him has a lower subjective value than the thing he receives (which will have a higher subjective value for him).

Marx attacks Condillac. Marx denies that in the pure exchange of commodities one party will receive a value greater than that of the commodity given up (Marx 1990: 261). But, since Marx never makes clear that subjective value is the proper concept used by Condillac, the whole passage is little more than a fallacy of equivocation. Marx cites Condillac, refuses to engage with Condillac’s own concept of subjective utility, and then simply invokes his own definition of value as “labour value” in his critique. Marx also accuses Condillac of confusing use value with exchange value (Marx 1990: 261), but Condillac was not confused. Condillac was thinking of subjective utility, not objective use values (an error made by Harvey 2010: 93 as well). Marx has not refuted Condillac, and his own economic theory is grossly deficient by not acknowledging the reality of subjective value.

Marx goes on and denies that simple commerce can produce surplus value (Marx 1990: 262).

He has an extended discussion of this:
“If commodities, or commodities and money, of equal exchange-value, and consequently equivalents, are exchanged, it is plain that no one abstracts more value from, than he throws into, circulation. There is no creation of surplus-value. And, in its normal form, the circulation of commodities demands the exchange of equivalents. But in actual practice, the process does not retain its normal form. Let us, therefore, assume an exchange of non-equivalents.

In any case the market for commodities is only frequented by owners of commodities, and the power which these persons exercise over each other, is no other than the power of their commodities. The material variety of these commodities is the material incentive to the act of exchange, and makes buyers and sellers mutually dependent, because none of them possesses
the object of his own wants, and each holds in his hand the object of another’s wants. Besides these material differences of their use-values, there is only one other difference between commodities, namely, that between their bodily form and the form into which they are converted by sale, the difference between commodities and money. And consequently the owners of commodities are distinguishable only as sellers, those who own commodities, and buyers, those who own money.

Suppose then, that by some inexplicable privilege, the seller is enabled to sell his commodities above their value, what is worth 100 for 110, in which case the price is nominally raised 10%. The seller therefore pockets a surplus value of 10. But after he has sold he becomes a buyer. A third owner of commodities comes to him now as seller, who in this capacity also enjoys the privilege of selling his commodities 10% too dear. Our friend gained 10 as a seller only to lose it again as a buyer. The net result is, that all owners of commodities sell their goods to one another at 10% above their value, which comes precisely to the same as if they sold them at their true value. Such a general and nominal rise of prices has the same effect as if the values had been expressed in weight of silver instead of in weight of gold. The nominal prices of commodities would rise, but the real relation between their values would remain unchanged.

Let us make the opposite assumption, that the buyer has the privilege of purchasing commodities under their value. In this case it is no longer necessary to bear in mind that he in his turn will become a seller. He was so before he became buyer; he had already lost 10% in selling before he gained 10% as buyer. Everything is just as it was.

The creation of surplus-value, and therefore the conversion of money into capital, can consequently be explained neither on the assumption that commodities are sold above their value, nor that they are bought below their value.” (Marx 1906: 178–179).
There are two important points here. Frist, Marx’s explanation of how nominal prices of commodities supposedly rise to correct the real relation between commodity labour values is deeply unclear and problematic.

Secondly, the upshot of this passage is that, even when a commodity exchanges for a price above its labour value, this process does not create surplus value, but merely redistributes it:
“A may be clever enough to get the advantage of B or C without their being able to retaliate. A sells wine worth £40 to B, and obtains from him in exchange corn to the value of £50. A has converted his £40 into £50, has made more money out of less, and has converted his commodities into capital. Let us examine this a little more closely. Before the exchange we had £40 worth of wine in the hands of A, and £50 worth of corn in those of B, a total value of £90. After the exchange we have still the same total value of £90. The value in circulation has not increased by one iota, it is only distributed differently between A and B. What is a loss of value to B is surplus-value to A; what is ‘minus’ to one is ‘plus’ to the other. The same change would have taken place, if A, without the formality of an exchange, had directly stolen the £10 from B. The sum of the values in circulation can clearly not be augmented by any change in their distribution, any more than the quantity of the precious metals in a country by a Jew selling a Queen Ann’s farthing for a guinea. The capitalist class, as a whole, in any country, cannot over-reach themselves.

Turn and twist then as we may, the fact remains unaltered. If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, still no surplus-value. Circulation, or the exchange of commodities, begets no value.” (Marx 1906: 181).
Marx even refers to this process when sellers sell commodities above their labour values as “swindling” (Marx 1990: 264). For Marx, as we have seen in Chapter 3, the market has a tendency to make individual commodities, via money as a produced commodity, exchange for their true labour values, since the socially necessary labour time embodied in them is an anchor for their exchange value.

Marx is now aware of a problem: if the formula M–C–M′ describes the activities of merchants/commodity speculators and moneylenders, then they can create no real surplus value if their exchanges are of equivalents. That is, they cannot be using capital in Marx’s sense of the term, which is value embodied in the capital circuit M–C–M′ increasing itself (Marx 1990: 266).

For Marx, advanced capitalism has at its heart an industrial mode of production (Harvey 2010: 97). Marx now poses a puzzle: how can merchant capital and moneylenders’ capital be derivative but at the same time appear before the “primary” industrial form of capital? (Marx 1990: 267).

Surplus value cannot be created in circulation, but happens in some process beyond circulation. A commodity owner might have created labour value embodied in the commodity but he cannot add surplus value to the commodity simply by selling above its true value (Marx 1990: 268).

Marx ends the chapter with his paradox:
“The commodity owner can, by his labour, create value, but not self-expanding value. He can increase the value of his commodity, by adding fresh labour, and therefore more value to the value in hand, by making, for instance, leather into boots. The same material has now more value, because it contains a greater quantity of labour. The boots have therefore more value than the leather, but the value of the leather remains what it was; it has not expanded itself, has not, during the making of the boots, annexed surplus value. It is therefore impossible that outside the sphere of circulation, a producer of commodities can, without coming into contact with other commodity owners, expand value, and consequently convert money or commodities into capital.

It is therefore impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation.

We have, therefore, got a double result.” (Marx 1906: 184).
This paradox is resolved in Chapter 6, and the answer lies in the sphere of production.

However, since the labour theory of value on which Marx founds his economic theory is wrong, we can now see how Marx’s Capital quickly degenerates into pseudo-problems derived from the initial foundational error.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

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


  1. Nice, you've spent a whole paragraph carefully paraphrasing and attacking the anti-Condillac paragraph, without quoting a word of it. Readers who are only just joining us may not have any reason to doubt you, but this omission should be raising red flags left and right for those who've witnessed your outright fibs over the past few months.

    I submit you did this because there was no way for you to twist his words into the shape you needed, since including even one sentence would make it clear that he's actually attacking the subjective theory of value! He even specifically calls out the fact that such an argument is "frequently used by modern economists," and moreover makes the point I've made numerous times, calling out the empty truism at the heart of it ("Would he otherwise sell it?").

    You even admit in the midst of this sleight of hand that "Marx also accuses Condillac of confusing use value with exchange value." That's not an "also"; that conflation is the crux of it.

    Now, let us end with our favorite prayer:

    However, since the labour theory of value on which Marx founds his economic theory is wrong, we can now see how Marx’s Capital quickly degenerates into pseudo-problems derived from the initial foundational error.

    ALL: "Amen."

    1. "I submit you did this because there was no way for you to twist his words into the shape you needed, since including even one sentence would make it clear that he's actually attacking the subjective theory of value! He even specifically calls out the fact that such an argument is "frequently used by modern economists," and moreover makes the point I've made numerous times, calling out the empty truism at the heart of it"

      Your comments are getting so incoherent that it beggars belief.

      You say that:

      (1) Marx is "attacking the subjective theory of value" (which can only imply it is wrong or what Condillac says about it is wrong) but then

      (2) you say Marx is actually saying it is an "empty truism"!

      You cannot assert (1) an (2) at the same time, since would mean a violation of the law of non contradiction.

      Either what Condillac said is (1) trivially true or (2) wrong. Which bloody one is it?

    2. Your comments are getting so incoherent that it beggars belief.

      You've placed your belief in capitalism; it's only natural it'd face pauperism at some point.

      Anyway, (1) contains a non-sequitur. It does not follow that the target of an attack is "wrong" per se; one could attack an idea on a number of grounds.

      Have you yourself not attacked the Austrian School's tautologies that masquerade as science? Tautologies are not "wrong" as such; yet, empirically, somehow you managed to attack it. The only contradiction here is between your past and present understandings of "attack."

      So, yeah, I'm saying the "double inequality" of subjective value theory is basically on par with praxeology. In fact, come to think of it, the former is even explicitly included in the latter. Funny how that goes.

    3. So, what, you choose (2)?

      This means that Marx should not have attacked Condillac or said that the latter was wrong, but merely said that Condillac's point is trivially true. But that is not what Marx does. In fact, Marx does even address the concept of subjective value.

    4. You have no right to criticize someone for attacking a theorist with whom they disagree. You do almost nothing but that on this blog, you hypocrite.

      And he never even used word "wrong"; since you never provided quotes, it's not even clear to what point you're referring. This is the danger of playing fast and loose with the text you're criticizing.

      He also does not use the phrase "subjective value," but nevertheless it is clear that is the theory in question, since the idea he is attacking as vacuous belongs to it. Go back and reread it, assuming you ever did in the first place.

      It's kind of funny. You get so hung up on the absence of phrases that match your exact lexicon that you miss the things that are actually being discussed. It's almost as though you pay attention to surface appearance (like, say, price) to the exclusion of the underlying phenomena (bet you see where I'm going with this). Let no one doubt your methodological consistency. However, the whole "soundness" thing still needs work.

    5. (1) just another ridiculous evasion. Marx should not have attacked Condillac or said that the latter was wrong, but merely said that Condillac's point is trivially true.

      (2) "You have no right to criticize someone for attacking a theorist with whom they disagree."

      I see. Presumably I can't criticise Mises for attacking Keynes?