Karl Marx’s Law of Value in the Twilight of Capitalism

Author’s Note: The following is an abridged and edited passage from the first chapter of my Invisible Leviathan: Marx’s Law of Value in the Twilight of Capitalism, published by Haymarket Books in 2019 as part of the Historical Materialism Book Series.

Global capitalism, with humanity in tow, is now facing a triple crisis: a deepening structural contradiction of the capitalist mode of production, one manifested as a multi-dimensional crisis of ‘valorisation’ – that is to say, a crisis in the production of ‘surplus-value’, the very lifeblood of the profit system; an acute crisis in international relations stemming from the fact that the global productive forces are bursting the confines of the nation-state system, whose individual units continue to address their gravest problems in primarily ‘national’ ways; and a growing ‘metabolic rift’ between human civilisation and the ‘natural conditions of production’ – the ecological foundations of human sustainability. Together, these interrelated crises suggest that we have now entered a ‘twilight era’ of capitalism – one in which humanity will either find the means to create a higher and more rational order of social and economic organisation, or in which decaying capitalism will bring about the destruction of human civilisation.

Very few on what passes for today’s ‘left’ wish to consider, much less accept, this assessment. To the contrary, most would-be progressives cling desperately to the notion that ‘neoliberal capitalism’ is but the ugly mutation of a set of short-sighted policies that the capitalist ruling class may prefer but might also be pressured to abandon in favour of a more humane, just, and equitable species of capitalism. For this reason, the established, reform-oriented left is loath to characterise neoliberalism for what it is: a predictable and inevitable strategic response on the part of capital and the state to a deepening crisis of the capitalist profit system – a crisis that has been unfolding now for several decades. Oddly, even many who describe themselves as Marxist socialists often deny – or at least downplay – the extent to which economic trends have served to confirm Marx’s major predictions regarding capital’s ‘laws of motion’, above all ‘the law of the falling rate of profit’, and his related observation that ‘the real barrier to capital is capital itself’.

In the last analysis, such attitudes reflect the still hegemonic view that capitalism is – or can be made to be – a ‘rational’ system. To be sure, given the power of the capitalist class to shape the dominant ideology of capitalist society, this view has always been difficult to combat, despite the growing weight of evidence against it. All the same, it has only gathered renewed strength with the virtual disappearance of Soviet style ‘actually existing socialism’, as well as the turn toward a ‘socialist market economy’ (with pronounced ‘capitalist characteristics’) in China. Rational or not, most have concluded, capitalism is here to stay, and escaping from it simply impossible.

This fatalistic outlook has a clear elective affinity with the fading hope that capitalism might still be reformed in progressive ways – and that it may not be as irredeemably irrational as Marx thought. For the more complacent segments of the left intelligentsia, Marx’s analysis of capitalism’s ‘economic laws of motion’ strikes an inconvenient blow to that hope, and is, in any case, too uncompromisingly radical in what it calls for by way of remedial action. On those grounds alone, according to the reformist argument, it must be dismissed! Not exactly a scientific attitude, to be sure, but one that is plainly comforting to many would-be progressives, especially if reassurances are forthcoming from a host of left intellectuals that the status of Marx’s own ‘science’ is suspect.

Yet, more than blind faith in capitalist rationality has been involved in deterring interest in Marx’s scientific critique of capitalism and its relevance to explaining our contemporary troubles. Undoubtedly, some specific features of the financial crisis that erupted in 2007–08 have encouraged a revival of interest in non-Marxist (and certain ‘neo-Marxist’) theories that emphasise the long-term impact of growing inequality, stagnant or declining real wages, and consumer indebtedness as the ‘fundamental cause’ of capitalist crisis. Many avowed liberals and non-socialist ‘progressives’ have called for a return to classical Keynesian policy nostrums to stimulate aggregate demand, along with measures to rein in financial capital. High-profile academics and journalists like Paul Krugman, Thomas Piketty, Robert Reich, Joseph Stiglitz, and Martin Wolf have been especially prominent in this chorus. And among those supporting a turn toward left-Keynesian policies we can also find many supposed Marxists associated with the view that capitalist crises stem from ‘underconsumption’ or ‘problems in realising surplus-value’ – and not, as Marx insisted, from inadequate production of surplus-value.

It should be well noted that the policies supported by this ‘popular front’ of liberal progressives and (less than orthodox) Marxists have found scant support in ruling-class circles and political elites. Their main function, it seems, has been to keep alive the hope that ‘capitalism with a human face’ is at least a theoretical possibility, the better to discourage interest in socialism as an alternative amongst workers, youth, and left-leaning intellectuals.

Against the current of all such ostensibly ‘progressive’ thought, the aim of my book is to uphold Marx’s original analysis of capitalism, not only as the most fruitfully scientific framework for understanding contemporary economic problems and trends, but also as the indispensable basis for sustaining a revolutionary socialist political project in our time. It does so by examining the crisis-inducing dynamics and deepening irrationality of the capitalist system through the lens of Marx’s ‘value theory’ – which, despite the unfounded claims of its detractors, has never been effectively ‘refuted’ and which continues to generate insights into the pathologies of capitalism unmatched by any other critical theory.

Capitalism, Marx insisted, is above all a class-antagonistic mode of production involving several characteristics that are peculiar to it. But as with all previous modes of production founded on class exploitation, it faces definite historical limits rooted in a conflict of material interests between its major social classes: the wage-earning working class and the capitalist class. ‘At a certain stage of development’, Marx wrote, ‘the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution’.

To assert that capitalism has reached its twilight phase is to say that it has long since reached a stage where the conflict between its forces and its relations of production has become acute. The relations of production are constraining the development of the creative and productive capacities of humankind in crisis-inducing ways, and those already well-developed capacities are in turn disrupting the social imperatives and ‘logic’ of a society that remains divided into antagonistic classes. The result is a historical-structural crisis that only Marxism can illuminate: for only Marxism offers the necessary theoretical framework for grasping the contradictory, irrational, and increasingly dangerous trajectory of the capitalist mode of production – an ensemble of social relations and human capacities, of technology and societal organisation that, no less than in the past, remains in the grip of a law that its own property relations and institutional forms imperiously necessitate: the capitalist law of labour value.

Ardent believers in capitalist ‘free market economics’ have long contended that, in principle, the crisis tendencies bred by capitalism can be significantly mitigated and eventually fully contained, once the right ‘mix’ of state economic policies is formulated. The history of ‘actually existing capitalism’ suggests otherwise. Despite the confidence expressed by mainstream economists during the 1950s and 1960s that world capitalism would never again experience a severe depression, the period from 1974 to 2009 saw four of the most severe global recessions/ depressions of the last century, and the world economy remains today in the grip of a malaise that shows little sign of lifting. (Indeed, we are likely on the verge of another global slump of historic proportions.)

Marx’s theory of labour-value is the indispensable foundation for explaining precisely those economic phenomena that non-Marxist economic thought (whether in its classical, neoclassical, Keynesian, post-Keynesian, monetarist/ neoliberal or institutionalist variants) has manifestly failed to explain or even to anticipate. Why has capitalism been unable to ‘outgrow’ its tendencies toward severe economic crisis? Why is capitalism so capable on the one hand of stimulating progress in science, technology, and labour productivity and so incapable on the other of translating this progress into enduring gains in living standards for the great majority of the working population? Why are positive rates of growth in productivity on a world scale accompanied by declining average rates of profit for productive capital? And why has capitalism, as a world system, ceased to contribute to the progressive development of the ‘productive forces’ of humankind – most obviously by chronically underutilising the talents and energies of billions of people around the world now relegated to the status of ‘precariat’ or, more accurately, ‘surplus population’?

For those who grasp the essential theses of Marx’s theory of value, surplus-value and capital, the answers to these questions are in clear focus. The anomalies and the irrationalities of capitalist reality are to be explained fundamentally by the fact that this reality encompasses four interpenetrated yet distinguishable ‘relations of production and reproduction’: the relation of formal equality existing between economic actors and the products of labour within capitalist markets; the exploitative relation existing between those who monopolise the ownership of the means of production and those who must sell their labour power for wages or salaries in order to secure a livelihood; the competitive relation existing between all economic actors in markets but above all between the owners of capital; and the co-operative (objectively socialised) relation existing between producers in a global division of labour that has become ever-more detailed, elaborate and interdependent. While the co-existence of these social relations would seem to be quite problematic, historically their interaction within the totality that is the capitalist socio-economic system has been a source of great dynamism in extending human productive capacities. All the same, Marx insisted that this dynamism was destined to become ever more one-sided and that, in due course, capitalism would substantially exhaust its (always contradictory) role in promoting human progress. Accordingly, Marx rested his indictment against capitalism not simply on the claim that the system was ‘unjust’, but centrally on its growing tendency to generate waste, to block the development of human capacities, and to divert human energies into non-productive and increasingly destructive pursuits.

Marx’s theory of labour value is at the very core of this indictment against capitalism. At bottom it is an account of what might be described (with apologies to neither Thomas Hobbes nor Adam Smith) as an Invisible Leviathan – a structure of socio-economic relations that has usurped from conscious humanity effective control over the socio-economic life process and imposed a set of socially grounded laws that are both very powerful and deeply hidden from view. Its crowning law, the capitalist law of value, compels humanity to apply a single yardstick in the measurement of ‘wealth’: the yardstick of ‘value’, of abstract socially necessary labour time.

Within a society founded upon capitalist social relations of production/reproduction, the measurement of social wealth in these terms is ‘unconscious’, in that it is conducted through impersonal market mechanisms, and yet decisive to the developmental trajectory of the economy and the division of labour as a whole. Accordingly, certain forms of activity are recognised as ‘wealth-generating’ (regardless of how socially destructive they may be – for instance, the production of armaments or supermarket tabloids), while other, more socially valuable activities never enter the economic calculus at all (for example, voluntary care-giving of children and the elderly). As capitalist production as a whole meets the demand generated by aggregate purchasing power with a range of goods requiring less and less labour input, the wealth of society in physical terms can expand, even as its measurement in terms of labour-time suggests, rather perversely, that society is becoming ‘poorer’. This is because the measurement of wealth in terms of social labour-time (whose phenomenal economic expression is money) means that, under conditions of labour-displacing technical innovation, capitalist society tends toward a zero-sum situation in which any gains in income or real wealth must come at the expense of other economic agents, and in which it’s quite possible for aggregate purchasing power to decline (as it does under conditions of economic contraction). In other words, social ‘wealth’ is measured by criteria informed by the socially antagonistic (exploitative and competitive) character of capitalist production and exchange.

At bottom, Marx’s theory of labour value holds that the sole source of ‘value’ within a capitalist society is living human labour and that the sole source of ‘surplus-value’ (the social substance of profit) is the surplus labour performed by workers in excess of the necessary labour required to produce the value represented by their wages. To the great majority of the population who rely for their livelihood on the sale of their labour power (for a wage or a salary) these propositions should require little proof, a point underscored in my 2010 book, Global Capitalism in Crisis:

“In a capitalist society, the material output of the economy-wide division of labour is distributed and consumed in accordance with people’s ability to purchase it with money – which serves not only as a means of exchange but, above all, as a claim on abstract social labour. Marx’s proposition that money is the necessary ‘form of appearance’ of abstract social labour may not seem immediately obvious. But consider this: apart from those who subsist on state-funded social assistance or private charity, people possess money for two basic reasons – they either earn it through the performance of labour or they obtain it by virtue of their ownership of property. The vast majority of the population immediately sees the connection between their labour and the value represented by the money in their possession. At the same time, however, the origin of the money income of those who do not labour and have never laboured for a living seems more obscure. Even so, it’s not difficult to understand that those few who hold significant property assets ‘earn’ their money primarily by getting others to perform labour on their behalf. There can be no money profit, money rents, money dividends or any other form of money income for those who own factories, mines, land, apartment blocks, retail stores or banks unless there are people labouring to create the value that finds expression in corporate profits, ground rent, interest and wages. To put the matter starkly, the class of big capitalist property owners can earn income only by exploiting those who labour for a living – that is to say, by paying workers far less than the total ‘new value’ created through the performance of their labour and by appropriating the difference as ‘surplus-value’.”

The point of Marx’s theory is precisely to establish that the economic category of ‘value’ – together with those of wages, profit, interest, and so on – is bound up with the existence of the social relations of production/reproduction characteristic of capitalism. Value and wealth are therefore by no means synonymous. Indeed, implicit in Marx’s theory is the notion that the measurement of wealth in terms of ‘value’ (abstract, socially necessary labour-time) at first stimulates but eventually impedes the production of wealth (useful physical output to satisfy human needs, aspirations and desires). This is the burden of Marx’s ‘law of the tendency of the rate of profit to fall’: capitalism simultaneously promotes improvements in the productivity of labour, through labour-saving and labour-displacing technological innovation, while continuously measuring material wealth (‘use-values’) in terms of money representing abstract social labour. A diminishing volume of newly created ‘value’ relative to the money capital invested means lower profitability, in spite of rising productivity!

This absurd state of affairs – falling profit rates associated with rising labour productivity – points to the fundamental irrationality of capitalism and reveals starkly why profit must always be inimical to the satisfaction of human needs. But this irrationality is not at all inherent in the human condition, for ‘the productive forces developing within bourgeois society create also the material conditions for the solution of this antagonism’ (Marx) – highly advanced technology, very high levels of labour productivity, and a workforce capable of reorganising society along socialist lines. The final fruition of those conditions, achievable through world socialist revolution, means that real wealth can then be generalized to the whole of humanity. Under socialism, wealth will cease to be understood as ‘value’ or measured as ‘abstract labour’ (money) – i.e. in alienated and socially antagonistic ways. Unlike ‘capitalist wealth’, the wealth of global socialism will not involve human misery as an opposite pole. Instead, it will have as a defining component an abundance of ‘free time’ (servicing all-round development of human individuals).

This is a revolutionary suggestion. Yet it flows quite logically from a theory with an excellent track record in forecasting the course of capitalist development. As such it deserves to be considered with the utmost seriousness, particularly when it is appreciated that, decade over decade, the rate of growth of the global economy has actually fallen since the 1960s. Moreover, if Marx’s forecasts are indeed confirmed for our time, if the capitalist law of value has exhausted its potential to contribute to the creation of real wealth and to meeting human needs on a global scale, then it becomes incumbent upon us to seek out a new form of socio-economic organisation, one that can transcend this obsolescent law while also subsuming under itself the tremendous developmental potential of the science, technology, and world division of labour that capital has fashioned over the past few centuries.

I’m well aware that the objection will be made that Marx’s ‘prescription’ for this new social form has been found wanting in practice. However, Marx’s actual view on the transition to a socialist society presupposes several conditions that have been largely absent from all the ‘experiments in socialist construction’ over the past century: a revolutionary working-class movement, pursuing its emancipatory project on a global scale; a functioning democracy of the associated producers and consumers; a highly developed level of productivity; the availability of ample ‘free time’ permitting the full involvement of working people in political, cultural, and civic activities; and a well-articulated socialist international division of labour. Lacking in these conditions, the transitional, bureaucratically ruled countries of ‘actually existing socialism’ registered many impressive accomplishments – though at a human cost exceeded only by Western capitalism in its era of industrialisation and worldwide expansion. Yet, none was able to reach the critical threshold of truly socialist relations of production. In my opinion, the responsibility for this failure is one that ultimately falls most heavily on those ostensibly socialist forces in the advanced capitalist West who retreated from Marx’s program of social transformation and who justified this in good part by rejecting his ‘value-theoretic’ critique of capitalism – almost always without ever having tried to understand it.

Let me speak bluntly by way of conclusion. The rhetoric of ‘free market economics’ is merely the euphemistic ideological mantle of a despotism that has most of humanity in its grip, capitalists and workers alike: the despotism of Adam Smith’s ‘invisible hand’, of market forces operating behind the back of the human collectivity whose destiny they shape. This despotism has decreed that the economic life of human beings, the basis upon which all modes of life depend, is to be governed by the capitalist law of labour value, whether or not its subjects consciously understand this, and whether or not it serves the collective needs of humanity. To defeat this despotic power will require an uncompromising revolutionary will to break free from the fetters imposed by capitalist social relations and to subject the processes of economic production and reproduction to the conscious decision-making of working people collectively organised. Such revolutionary resolve, however, must be nurtured by a hard-won prior recognition – that the capitalist law of value is by no means an eternal feature of human society, and that it can be, and indeed must be, transcended.

Murray Smith is Professor of Sociology at Brock University, St. Catharines, Canada. Many of his writings can be found at https://murraysmith.org.