Marx identifies three values that exist under commodity production: labor value, a quantitative measure of how much work is expended to create a commodity; use value, a qualitative measure of the properties of a commodity and what it is used for (food for eating, coats for wearing, and so on); and exchange value, a quantitative measure of how much money one can obtain by selling a commodity.
In a properly functioning market, without interference from outside forces, governments, monopolies, and so on, the labor value of a commodity is equivalent to its exchange value so long as the commodity has a socially-required use value. This is because, in a world where two people are exchanging goods and have perfect knowledge, they will not knowingly choose to be “cheated” of any value. The minimum “break-even” amount that an item can be exchanged for is the amount of (socially average) labor time imbued in it. Of course, the socially-required use value is necessary because it is perfectly possible to spend time making something that no one wants.
There are many exceptions to this simple scenario and, as a matter of fact, markets are very rarely “properly functioning.” They are subject to numerous stresses, regulations, overproduction, underproduction, monopolies, and so forth. However, we must set out the above as the axiomatic or ideal circumstance to establish the law from which we can then comprehend all actual, material, deviations.
Every aspect of commodity production can be broken up into a discrete unit of labor. We should keep in mind that Marxism is a social science that studies large groups, however, and thus this value is actually arrived at from the total calculation of all production across a society. What does this mean? That there is a socially average labor value, despite the fact that individual firms and factories deviate from it. It is the socially average labor value that concerns us now.
In order to transform the natural world into objects and things which are beneficial to humankind, we must exert labor upon it. This labor, as a measure of time, is the only truly valuable thing in the world. Things which are scarce and difficult to find are valuable not because of their scarcity, but because of the socially average labor time required to obtain them.
In its simplest form, we could reduce all work into the equivalent amount of bread produced by that same labor time. Instead of working in a factory or a workshop, we should imagine that our fictitious worker were able to turn to the soil and grow grain and make bread from the proceeds. Let’s give some numbers for illustration only; let’s say the minimum wage is $1/hour. Let’s say a loaf of bread costs $5. If, in one hour’s labor, expending the same amount of effort, a worker can make 1 loaf of bread but in a factory where they are required to expend the same amount of effort and energy they would be paid the minimum wage ($1) for that hour, they would be under no incentive to work in the factory; they would rather make their own food than to work the same amount and be paid five times less. Indeed, they could make 1 loaf of bread in that hour and sell it to a factory worker for $5, thus making $4 in profit over working in the factory.
In reality, it is not possible to simply get land to work and choose to do that instead of laboring, although that pattern was the foundational one in U.S. history, in which settlers and homesteaders chose to settle “new” (stolen, through direct accumulation) land rather than work for others.
Ok, so far so good. But now let us restrict the land – it costs money. Let us say that our worker requires 1 loaf of bread a day in order to survive and their rent costs another $2 per day. They now must make $7 every day; that is, they must work for 7 hours at a minimum wage job, otherwise they will starve or be thrown out on the street.
Let’s say they work for 8 hours a day, receiving a wage of $8 (leaving them with a meager $1 savings at the day’s end). The factory in which they work is getting the labor of 8 loaves of bread from our imaginary laborer. We know this because if they worked on the farm, that’s what they would produce. Thus, the worker benefits the factory owner to the tune of $4/hour – they are paid $1, and they produce the equivalent of one loaf of bread ($5). At the end of the day, for every worker the factory owner employs, the owner makes $4 dollars x 8 hours – or $32 dollars. The worker makes $1 and gets to feed themselves and live in a house (value $7).
But surely the machines and tools must have something to do with this, no? Yes, except the machines and tools are also products of human labor. They are labor multipliers, which means they make labor more efficient. They degrade little by little, with each commodity made. After so many uses a hammer (or an industrial press) must be repaired or replaced, again using up human labor. A machine or tool used to produce a commodity imparts some of its value into that commodity to the tune of how many commodities it can make on average before it is not usable anymore. Thus, an industrial press that costs $1,000 and can make 1,000 cars before it is used up imparts to each car the additional value of $1. That is, in order to replace the press, the boss must sell each car it can make for $1 over the cost of wages and material.
What about raw material? It is the same as a machine; however much is used up is imparted to the cost of the final commodity. The aluminum in the car costs $5,000 (the wages of the workers used to extract, mold, and process it + the degradation of the machinery used in its processing + the transportation costs = $5,000 per car). Thus, the car, which must absorb let’s say 10 man-hours of labor, costs in total $1 (press degradation) + $5,000 (raw materials) + $10 (wages).
So where does profit come from?
Profit is the difference between wages ($10) and production ($5 x 10 = $50). The laborer who makes the car is actually selling short their labor by a factor of 5 because they work for $1/hour when they actually produce $5/hour worth of commodity. The car sells for $5,061, but the worker is shorted $40.
Marx lays out this diagram so we can see it clearly:
M -> C -> M’
That is, money is advanced to put labor, raw material, and machines into motion -> that money becomes a commodity -> the commodity is sold for more than the initial money advanced. Because merchants and capitalists always bargain so as not to lose money with one another, the source of the money prime, the increased money, must be coming not from raw material or machines (these are purchased from other cut-throat capitalists, who cannot afford to sell anything for less than its value). Thus, the increase is the value capitalists do not pay to their workers.
Profits are the unpaid wages of the worker. They are whatever the worker produces above and beyond the bargained-for wage price, which is the socially average cost of reproduction. In the case of the U.S. empire, the socially average cost of reproduction is very high, because U.S. workers in the imperial center demand certain standards and quality of life.
We can therefore divide the value of any given commodity into the following:
subjects of labor (see below) + instruments of labor (see below) + labor time
Labor time breaks down further into socially-necessary labor time and surplus value. It is surplus value that represents profit.
THE PEOPLE NEED A PRESS!