Proudhon’s notion that the social value of labor depended on its aggregation, the assemblage of workers and their energies at a single point, also informed his understanding of factory production. In his eyes the factory system was significant because it gave a new form and impetus to collective labor; machines were at best accessories to it. When Proudhon discussed Adam Smith’s theory of the division of labor as the basis of factory organization, he insisted that “the division of labor is synonymous with multiplying the number of workers. The division of labor and the collective force, or cooperative action, are two correlative facets of the same law.”27 Whatever one may think of the solution Proudhon offered for capitalist injustice, his image of how work was organized corresponded better to the actual condition of work and manufacturing in his time than have many subsequent accounts. Not only was labor in groups or gangs still of central importance in the economy before 1850, even in England, as Raphael Samuel’s studies cited above make clear, but factory work took its place inside a system still dominated by traditional methods, just what Richard Price highlighted by calling it an “economy of manufacture.” One reason Proudhon’s analysis could make a strong appeal in France during his lifetime and after (he died in 1865) was that these traditional methods were still dominant there. But the obverse of this virtue was that his thinking offered little guidance for understanding how production relations might be transformed by modern industry. That machinery driven by non-human power sources might produce a product still greater than the sum of the efforts of workers who labored without it, and thus raise more complex issues of distribution, was a possibility of little concern to Proudhon’s theory.
It was of much greater concern to Marx, but in ways that left him closer to Proudhon than is usually recognized. Despite the strong connection Marx made between the proletariat as a source of historical transformation and the development of the factory system, his understanding of value and surplus value was no less grounded in pre-industrial relations fundamentally independent of machine industry than was his French rival’s. Indeed he believed that modern factory production would prove to be incompatible with capitalism, and this conviction, combined with the limited experience of advanced industrial techniques available to him in the 1840s and 1850s meant that his theory of capitalism had its own way of remaining closely tied to pre-modern conditions of production.
Well aware that Proudhon had preceded him in arguing that a hidden aspect of capitalist production relations allowed employers to derive more value from their workers than they paid for (the manuscripts later published as the Grundrisse, containing the first working-out of what would be Capital’s basic theories, began with a critique of one of Proudhon’s followers), Marx sought a different and deeper way to grasp the relationship. He found the answer not in the aggregation of workers, but in the nature of labor as a commodity; by focusing on it, moreover, he believed he could uncover the seeds of capitalism’s demise in the fundamental relations that made the system work. Capitalism’s insistence on providing people with use values (things that fulfill needs) only by way of exchange values (goods bought and sold in the market) was its fatal flaw, one that would eventually make it unable to fulfill needs and sustain life, so that it must eventually collapse. Adam Smith (and others before him) recognized that goods are valuable to us both because of what we can do with them (write with a pencil, wear a coat) and because they can be exchanged for others, so that we do not have to produce everything we need by ourselves. This distinction made the social division of labor possible. But Marx began by tracing the distinction between the use-value and the exchange-value of goods back to a more basic one between concrete and abstract labor. The labor that made a particular product have a specific use was the concrete labor that marked it as the work of a tailor or a miner or a writer, each of which produced an object of a certain sort, endowed with a specific utility. But the labor that made any product exchangeable with any other was abstract labor, the active effort that every form of human toil has in common with every other. It was this second kind of labor that gave any commodity a certain quantity of exchange value, and which allowed it to be traded against others in proportion to the relative amounts of labor embodied in each. Looked at globally, any society (that is, any group of people engaged in mutual exchanges) produced at once a quantity of goods based on concrete labor and a quantity of exchange values based on abstract labor; the use value of particular goods to different individuals might differ with their situation and preferences, but the exchange value of goods in the market depended on the quantity of abstract labor they embodied. In practice many subsidiary factors entered in: if different kinds of labor required differing quantities of training and preparation, then this affected the valuation in each case; raw materials, together with tools and implements of labor, also transferred to every commodity some proportion of the value that went into their production (I will return to this point in a moment). For these reasons (and others that must be left aside here) market prices were never exactly equivalent to values, but ultimately the latter grew out of and depended on the former, prices were regulated by the relative proportion of the total abstract labor produced in society that particular goods contained.28
Marx used this analysis to understand many things about capitalism. To capitalists use-values mattered only to the degree that they were the bearers of exchange values, since only the latter produced money income and profit. If for whatever reason conditions made it impossible to realize exchange value by selling goods (for instance if too many things had been turned out in the hope of raising profits and incomes, causing a glut and a crisis), the whole complex system would come to a halt, with painful consequences all round. But Marx’s analysis of use-values and exchange-values, and of concrete and abstract labor, had its most important application in connection with the commodity that made capitalism function as a system, namely labor itself.
As a commodity labor appeared in the same dual guise as every other, that is as the bearer of both exchange value and use value. Its exchange value depended on the same calculus as every other good, namely the amount of labor necessary to reproduce it under given conditions; in other words workers would be paid for their labor at a rate that allowed them to support and reproduce themselves (in the manner and at the level assumed or expected in a particular time and place). But labor had a use value too, albeit of a particular kind. Its use value to the person who purchased it was its ability to produce goods in a system where they were offered for exchange. It was thus simultaneously concrete labor, the labor of particular workers that issued in ribbons or shirts, and abstract labor or labor-power, the labor of abstract “hands” who individually and together produced the values that were exchanged in the market. Although the bargain between worker and capitalist involved both kinds of labor, it was the first, concrete kind that mattered most to the worker, since it was labor as a spinner or weaver, miner or tailor, that he or she offered for sale, and that allowed him or her to survive. But it was the second, abstract kind that mattered most to the capitalist, and that he bought, because it was the abstract labor-power all goods embodied that made them exchangeable against others.
In addition, crucially, this abstract labor had a higher value than the concrete labor that mattered to the worker. The reason went back to the condition recognized by classical economists, namely that human labor is capable of producing more goods than human beings need in order to survive; thus workers could add more value to the products they manufactured than their own subsistence required. They would be paid what their labor was worth to them, that is what their survival required under given conditions. But the value the capitalist received was that of their “labor-power,” that is, the amount it contributed to the expanding mass of values on the basis of which goods circulated in the market. As long as society produced more goods than it required for the mere survival of its members, the value of the labor-power set to work in it was bound to be greater than the sum of the individual v
alues of the concrete labor for which workers were paid. The difference was surplus value, and except in certain cases where some particular group of workers produced at a level well below the social average, every instance of labor power bought in this fashion yielded a certain quantity of it. It was this surplus value that allowed capitalism as a system to work.
This analysis involved many complications which we can only briefly mention here. From one point of view what allowed capitalists to extract more value from workers than they paid them for was that the working day was long in the nineteenth century, sometimes twelve or fourteen hours in England before the legislation of 1847 that reduced it to ten (the higher figures often obtained until much later on the continent). This meant that workers were forced to toil for more hours than would have been required to produce the value of goods necessary for their subsistence, and in one sense it was out of the extra working hours that capitalist profits arose. Marx discussed this situation at length in Capital. But in another and deeper sense it was not the length of the working day itself but the nature of the production process, the hidden difference between the value of concrete labor and the value of abstract labor-power that really marked the labor market as the engine of capitalism as a system. The analysis of the work day was only a way of making the mysterious transaction at the center of capitalism concrete and visible. From the perspective that highlighted the length of the working day, it appeared that in order for workers to receive the full value of their labor power, only reforms, such as those already begun in England in the 1840s, were required. But such measures would still not put an end to capitalism as a system; wages might rise and hours be reduced, but workers would still be employed by capitalists, who would retain the advantage that flowed to them from the distinction between concrete and abstract labor. Only a transformation that did away with treating labor as a commodity could abolish this difference and remove workers from the inferior position that prevented them from rightfully receiving the full value of their labor.
The similarity between Marx’s understanding of surplus value and Proudhon’s should not be over-stressed. Proudhon’s vision of the power of aggregated labor was just that, a visual representation of concrete groups of workers combining their labor at a given point; it gave no way to understand how capitalists might profit from employing workers in scattered situations, such as in the putting-out system. Marx’s more theoretically sophisticated approach could do this, and of the two only his issued in a quantifiable analysis of the connections between prices and revenues in the market. Whether that analysis could successfully show how actual prices were set and profits arose is a different question, but the debates about it indicate that Marxian economics can at least make claims to account for the chief phenomena of modern economies, whereas it would be very difficult to argue that Proudhon’s could do so. All the same, what Marx’s theory shared with Proudhon’s was the view that the source of surplus value lay in the difference between the sum of the individual values produced by the concrete labor of individual workers and the quantity of value produced by labor as a social aggregate. At this stage in the analysis, machines and the modern factory system have no more place in Marx’s theory than in his rival’s. Both traced the production of surplus value and of capitalist profits to a situation in which only workers and capitalists, not machines, were involved.
Marx of course understood that as the mechanization to which industrialists were turning proceeded it would transform productive life and with it social relations, but his conviction that this transformation would bring the end of capitalism encouraged him to give a peculiar slant to his analysis. Starting from the classical notion that labor was the source of all value, he regarded tools and machines as able to contribute value to the final product only in very limited ways, by transferring the value already congealed in them to the products. This they did over the period of their usefulness, so that a machine worth, say, £100 (Marx used the English currency of the day in his writings) would only add that amount to the value of all the goods to which it contributed over the period of its productive life. Machines were incapable of adding any new value to the product, and raw materials operated in the production process in the same way. Only living workers, creating the labor power that flowed through markets in the form of exchange value, could add new value, and thus contribute to profits. Marx therefore referred to the capital invested in machines, plant, and raw materials as “constant capital,” because its value persisted unchanged as it passed into new products, whereas the capital devoted to paying workers was “variable capital,” because its value expanded inside the production process it set in motion. The proportion between “constant capital” and “variable capital” he called “the organic composition of capital,” the relation by which it acted as the animating agent of capitalist production. But since surplus value could arise only from the employment of the variable capital invested in living labor, it followed that the conditions for the production of surplus value and thus of profit grew narrower as the proportion of investment in constant capital, that is of machines and materials, rose relative to the value of the labor employed. And since the movement of modern industry was toward ever-larger investments in machines and plants, the historical tendency was for the quantity of surplus value, and with it the rate of return on capitalist investment, to fall as industry progressed. Marx referred to this crucial element of is theory as “the law of the falling rate of profit.” Eventually the operation of this law would so deeply undermine the conditions of capitalist production that the system would collapse.
Like others of Marx’s discussions, this one was subject to various complications. Marx understood that machinery allowed factories to turn out a much greater mass of goods than a given number of workers could produce without it, and that machines driven by non-human power sources raised the productivity of workers. Since this meant that capitalists would be able to bring more goods to market as industry developed and the organic composition of capital rose, there were clearly tendencies in capitalist development that went counter to the analysis that predicted a progressive decline in the rate of profit as capitalist industry advanced. Marx was much concerned about the relationship between these contradictory tendencies. When he first formulated the law of the falling rate of profit, in the manuscripts of the late 1850s that were later published as the Grundrisse, he saw many of its difficulties right away, but he remained convinced that his analysis grasped something essential about the historical tendency of capitalists development. Despite the complications, he asked himself, “is there not after all something correct in these figures? Does not absolute new value decrease despite an increase in the relative [i.e., in the quantity of goods produced], as soon as relatively more material and instrument than labor is introduced into the component parts of capital?” Here Marx’s answer was still positive, and he saw his analysis of the falling rate of profit as the lynchpin of his economic theory, referring to it as “in every respect the most important law of political economy.” But, as I argued a number of years ago in a much more detailed account of Marx’s theory, his conviction on this score did not always remain so strong. His original doubts festered, the question continued to trouble him to the end of his life, and his inability to find a definitive demonstration of the principle that defined the historical limitations of capitalism as a productive system was an important factor in his never finishing his great work on economics.29
What matters most about this in our present context is not Marx’s problems in finishing his book, but the place that the law of the falling rate of profit assigned to machine industry. Not only was machinery absent from the original analysis of surplus value, Marx actually regarded the advance of mechanization as incompatible with the historical survival of capitalism as a system. His account of what would eventually establish a limit to capitalist production assumed that capitalist profits in the age of machine industry were ultimately just as dependent on the proportion of living labor emp
loyed in factories as in the period when the latter were simply aggregations of workers. This should not be taken to mean that such a perspective was somehow inescapable for people whose mental framework was formed before the mid century. Engels, for instance, had many doubts about the law of the falling rate of profit, as he made evident in the editing he did for the unfinished second and third volumes of Capital he published after Marx’s death, rearranging sections within Marx’s chapters so as to highlight the presence of “counteracting influences” and even “internal contradictions” of the law. Engels recognized that the revolution in transport effected by railroads meant that industrialists could bring goods to market more quickly and reinvest the capital realized by sales at shorter intervals; this meant that the rate of turnover on capital would rise and with it the effective rate of profit per year. In addition, he noted that some advances in factory technology recommended themselves to capitalists because they cheapened the cost of investment in machines and plant rather than saving labor, making the notion that the organic composition of capital necessarily rose as industry progressed far less certain than Marx thought. Together with modern industry’s ability to raise labor productivity, these features greatly clouded the vision of capitalism’s future Marx sought to preserve in his book.30 It is well known that in his later life (he survived Marx by a dozen years) Engels became more sympathetic to reformist versions of socialism than the two friends had been earlier, and the spread of such ideas in the working-class movement itself reminds us that the conditions of political thinking and action in the latter part of the nineteenth century differed in significant ways from those of the “hungry forties” in which The Communist Manifesto had been written and Marx began his analysis of economics.
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