# The Theoretical System of Karl Marx/Chapter 4

As was already pointed out, the Marxian theoretical system is one solid structure and cannot be properly understood unless viewed as a whole from foundation-stone to roof-coping. To criticize any of its parts as if it were a complete structure in itself is, therefore, a mistake which must necessarily lead to all sorts of fallacious conclusions; and to accept any one of its parts and reject the others, as many of the latter-day critics do, simply betrays ignorance of the parts which are accepted and rejected alike. The Marxian theoretical system must be examined as a whole, and accepted or rejected in its entirety, at least as far as its structural parts are concerned.
It is rather the fashion among Marx-critics to treat the Marxian "philosophy" and "economics" as if they had absolutely nothing whatever to do with each other, and to accept one and reject the other according to the critic's fancy. As a matter of fact, however, Marx's "philosophy" is nothing more than a generalization deducted from the study of the economic conditions of the human race during its entire course of historical progress, and his "economics" is merely an application of his general historical theory to the particular economic structure known as the capitalist system.
How Marx came to take up the studies which resulted in the formulation by him of the theoretical system which bears his name, and the course which those studies took, is very illuminating in this respect, and his own account of ​it, given in the preface to his "Critique of Political Economy," is of more than passing interest, and we shall therefore place it before our readers.
In 1842–43, Marx says, he found himself, as editor of the "Rheinische Zeitung," the leading German radical paper of the time, embarrassed when he had to take part in discussions concerning so-called material interests, such as forest thefts, subdivision of landed property, free trade, and the like, as his previous studies had been only in the domains of philosophy, history, and jurisprudence. At the same time he had to express an opinion on the French schools of socialism of those days, with which he was also unfamiliar. He therefore took advantage of his publishers' desire to pursue a less aggressive course than his, and retired to his "study-room," there to get the needed information.
"The first work undertaken for the solution of the questions that troubled me," he says, "was a critical revision of Hegel's 'Philosophy of Law;' the introduction to that work appeared in the 'Deutsch Franzöisische Jahrbücher,' published in Paris in 1844. I was led by my studies to the conclusion that legal relations as well as forms of state could neither be understood by themselves, nor explained by the so-called general progress of the human mind, but that they are rooted in the material conditions of life, which are summed up by Hegel after the fashion of the English and French of the eighteenth century under the name 'civic society;' the anatomy of the civic society is to be sought in political economy. The study of the latter which I had taken up in Paris, I continued at Brussels whither I emigrated on account of an order of expulsion issued by Mr. Guizot. The general conclusions at which I arrived and which, once reached, continued to serve as a leading thread in my studies, may be briefly summed up as follows:"
Here follows the famous passage, already quoted by us in the first chapter of this book, giving the whole Marxian sys​tem in a nut shell, and containing Marx's own formulation of the Materialistic Conception of History.
It is amusing to see the evident surprise of some Marx-critics at the fact that Marx, instead of writing an elaborate treatise on the Materialistic Conception of History, relegated its formulation to a short preface of a purely politicoeconomic work. As a matter of fact, this is very significant, but not surprising at all. This passage contains an epitome of the whole Marxian system: Historical foundation, economic structure and socialist result. The book itself was to treat the economic structure of the capitalist system exhaustively and in detail. The Socialistic conclusions were not elaborated for the reason that Marx did not believe in any Socialism that did not flow directly from an examination of the capitalist system, and therefore it had to be merely indicated, leaving it to the reader to deduce his Socialism from the examination of the capitalist system contained in the book itself. If that examination did not lead to Socialism such an elaboration would be either useless or unjustifiable or both. The historical point of view, however, from which the capitalist system was to be examined had to be formulated, as without a clear understanding thereof the examination of the laws governing the capitalist system of production and distribution would remain a book sealed with seven seals. Marx, therefore, formulated his historical theory in the preface, and then settled down to the examination of the economic structure of our present society and the laws governing its particular course of evolution.
The opinions of the critics about Marx as an economist are just as many and as divergent as are their opinions of him as a philosopher. Slonimski and other critics think that Marx has done absolutely nothing for the science of economics; not only are his theories false but they have not even any historical importance. From this view to that of enthusiastic eulogy the opinions run all the way. He has, of course, been denied originality. He is accused by some ​critics of being a blind follower of the classical English School of political economy, and particularly of Ricardo, and again by others that he understood neither that school in general nor Ricardo in particular. We shall not go into that, for the reasons given before, except to say that while many parts of his economic theory had been worked out before him, particularly by the English Classical school, the system as such, the combination of the parts into a systematic structure, the point of view from which the structure was built, as well as the corner-stone of the structure, the theory of surplus value, are all his own. We also wish to say right here that Marx had to construct an economic theory of his own for the reason that his historical point of view placed him in opposition to the reigning classical school which accepted our economic system as "natural," that is to say: independent of historical development in its origin, and final in its application. This offended Marx's better historical understanding, his philosophy. The classical school considering the capitalist system eternal, analyzed only the relations of its parts to one another, whereas Marx, because of his peculiar point of view, looked not only into the workings of its parts and their relations to each other, but also into the changes effected by the relations of the different parts of the capitalist system in each of those parts and the changes in the whole system flowing therefrom. In other words, Marx examined the dynamics of the capitalist system as a whole, and in the light so gained re-examined its statics, already examined by the classical school. His philosophy which placed him in opposition to the classical English school of political economy, also prevented him from drifting into any so-called psychological theory. The underlying principle of all of these theories, the attempt to explain social phenomena by individual motives, is entirely repugnant to his historico-sociological point of view, requiring as that does, that social phenomena should be explained in such a manner as to account for their origin, ​growth, and decline, something which no psychologico-individualistic motivation of social phenomena can do.
When Marx came to examine the economic structure of our social system, his problem consisted in finding answers to the following questions: What are the sources of our society's wealth, that is, of the means of subsistence and comfort of the individuals composing it? How and in what manner is it produced: what factors, circumstances and conditions are necessary for its production, preservation and accumulation? How, in what manner, and in accordance with what principles, is it divided among the different groups and individuals composing our society? How does this division affect the relations of the groups and individuals participating in it, and how do these relations, and the social phenomena which they produce, react upon the production and distribution of wealth in this society? What are the resulting laws governing the direction and manner of its general movement? What are the historical limits of this economic organization?
A careful examination of our wealth discloses the remarkable fact that, whereas, it consists, like all wealth, of articles ministering to the wants of the individuals of the society wherein it is produced, of whatever nature or character those wants may be, the amount of that wealth, from our social point of view, does not depend on the amount or number of those articles possessed by the individuals separately or society as a whole; that any individual member of our society may be possessed of great wealth without possessing any appreciable quantity of articles that would or could minister either to his own wants or to those of any other member of our society; that, as a rule, a man's wealth under our social system does not consist of articles which minister to his own wants, but to those of other people, if at all; and, furthermore, that a man's wealth may grow or shrink without any addition to or diminution from the articles or substances of which his wealth is composed.
This is an entirely novel phenomenon historically consid​ered and one showing our wealth to be radically different, and possessed of attributes and qualities entirely unknown, to wealth under former forms. Besides, these novel attributes and qualities of our wealth are apparently in contravention of the "natural" order of things. At no time prior to our capitalistic era was the subjective relation between a man and his wealth—that is the means of his subsistence and comfort—so entirely severed as it is now. At no time prior to this era did a man and his wealth stand in such absolutely objective, non-sympathetic, relations as they stand now. At no time prior to our era was a man's wealth so thoroughly non-individual, so absolutely dependent on social circumstances, so entirely a matter of social force, as it is under capitalism.
What is the distinctive feature, the distinguishing mark or characteristic of the capitalist system of production and distribution of the means of subsistence and comfort which wrought such changes in the attributes and qualities of wealth and how were those changes brought about?
The distinctive feature of capitalist production, that which gives it its character, is that under this system man does not produce goods but commodities, that is "wares and merchandise." In other words he does not produce things which he wants to use himself, and because he wants to use them to satisfy some want of his, but things which he does not want to use himself but which can be disposed of by him to others, caring nothing whether and in what manner the others will use them. Instead of producing goods for his own use, as people used to do in former days, under other systems of production, he produces commodities for the market. Marx, therefore, begins his great investigation of the capitalist mode of production with the following words: "The wealth of those societies in which the capitalist mode of production prevails, presents itself as 'an immense accumulation of commodities,' its unit being a single commodity. Our investigation must therefore begin with the analysis of the commodity." It is the analysis of the com​modity that must furnish us the key to all the peculiarities of character which we have noticed in our wealth under the capitalist system of production, showing changes which have placed our wealth in a purely objective relation to man and given it purely social attributes and properties.
The distinctive property, again, of a commodity, that quality of the thing which makes an ordinary good an article of merchandise, is its exchange-value. That is to say, the fact that in addition to the quality which it possesses of being useful for consumption to the one who wants to use it that way, it has the further quality of being exchangeable, that is it can be useful for the purpose of exchange by one who has no use for it as an article of consumption. The exchange-value of an article therefore, while based on the property of the article of being ultimately useful for consumption, is something entirely different and apart from this use-value and independent of it in its variations. Indeed, the two qualities might be said to be antagonistic as they exclude each other: a thing is exchange-value only to the person who has no use-value in it, and it loses its exchange-value when its use-value asserts itself. It is its exchange-value that makes a thing a commodity, it remains therefore a commodity only as long as it is intended for exchange and loses that character when appropriated for use in consumption. The use-value of a thing is, on the one hand, something inherent in its nature, in the very mode of its existence, and does not depend on the social form of its production; it remains the same use-value no matter how produced. On the other hand, the use-value of a thing is a purely subjective relation between the thing and the person who uses it, and therefore any difference in the use-value of a thing when used by different persons is purely subjective with those persons. In neither of these aspects does it come within the sphere of political economy, whose object is the explanation of the peculiar phenomena of wealth under the capitalist system of production, phenomena which, as we have seen, are purely social in their nature. ​Both, the natural attributes of things and the individual uses to which they are being put, have existed long before the capitalist system of production without giving wealth those properties of the capitalist-produced wealth which we have noted above. These qualities are the qualities of the good, and these uses are the uses to which the good is being put. They are not the qualities nor the uses of the commodity. They do not, therefore, an any way affect the exchange-value of the thing, that attribute which makes out of the simple good the mysterious commodity with all its peculiar faculties and attributes. Except that the good is the substratum, the material substance, of the commodity; and use-value is the substratum, the material substance, of exchange-value. Historically, therefore, the good preceded the commodity, and use-value preceded exchange-value.
Marx says, therefore: "Whatever the social form of wealth may be, use-values always have a substance of their own, independent of that form. One can not tell by the taste of wheat whether it has been raised by a Russian serf, a French peasant, or an English capitalist. Although the subject of social wants, and, therefore, mutually connected in society, use-values do not bear any marks of the relations of social production. Suppose we have a commodity whose use-value is that of a diamond. We can not tell by looking at the diamond that it is a commodity. When it serves as a use-value, æsthetic or mechanical, on the breast of a harlot or in the hand of a glasscutter, it is a diamond and not a commodity. It is the necessary pre-requisite of a commodity to be a use-value, but it is immaterial to the use-value whether it is a commodity or not. Use-value in this indifference to the nature of its economic destination, i. e. use-value as such, lies outside the sphere of investigation of political economy. . . . But it forms the material basis which directly underlies a definite economic relation which we call exchange-value."
Our wealth, then, in those respects in which it is different from the forms of wealth which preceded it, and which ​distinguish it as capitalistic wealth, is an aggregation of exchange-values. In other words: our wealth, in so far as it is not merely used for consumption, but retains its capitalistic properties, is capital, is an aggregation of exchange-values. We have already seen that exchange-value is not something inherent in the thing itself as an element or condition of its natural existence. We have also seen that it bears no subjective relation to the person who uses it as such, that it does not depend on anything he does or omits to do, but is an objective attribute derived from some social relation of the individuals within the society in which it is produced. We must therefore conclude that capital, which is an aggregation of exchange-values, is nothing more than a social relation of individuals, and that its properties, which it can only possess by virtue of its being such an aggregation of exchange-values, are merely the result of the social relations of which it is the expression.
What are the social relations represented by exchange-value, and its composite—capital? What are the properties of exchange-value and capital and the laws governing their existence, and how are they derived from and governed by those social relations? The answering of these questions is, according to Marx, the object of political economy, and to their critical examination his life-work was devoted.
Before entering, however, upon this examination we must put before ourselves clearly the problem which confronts us, and define clearly the questions which we are called upon to answer. We have already pointed out some characteristics of our wealth which make it different from the wealth possessed under any previous social system and which show clearly that our form of wealth is the product of our peculiar social relations. These characteristics are, however, not the only ones which require explanation. Even a cursory examination of our economic system will reveal the fact that our value-wealth is full of mysteries ​which, if considered by themselves, defy all attempts at explanation.
The mystery surrounding the origin of our wealth was already indicated above in showing the peculiar property of our wealth to grow and shrink irrespective of any addition to, or diminution from, the material substances of which it consists. This mystery deepens the further we go into the examination of the production of wealth in our society, and even more so when we come to consider its distribution. Only some of the more characteristic phenomena which puzzle the inquirer into the nature of the wealth of capitalistic nations need be mentioned here in order to show the nature of our problem.
While, as we have already stated, the amount of our wealth may grow or diminish irrespective of the growth or diminution of the articles of which it consists, thus showing clearly that our value-wealth is something extrinsic and independent of the nature and uses of those articles, yet there is something in the very independence of value-wealth from its material substance which shows a close connection between them. It is true that this connection is rather in the nature of a hostility, partaking of the antagonism already pointed out between use-value and exchange-value, but the connection is nevertheless clearly defined and resembles in its character the connection of polarity, to borrow an example from another field of scientific research. It has, namely, been observed that there is a constantly growing difference between the accumulation of use-value and exchange-value, a constantly growing difference between the amounts of our value-wealth and the material substances of which it consists. That is to say, it has been observed that with the increase of the production of goods commodities diminish in value, so that the larger the increase in our "natural" wealth, that is in useful articles which go to make up the stores of our social or value-wealth, the smaller the increase of the latter. In other words the growth of our value-wealth constantly and systematically falls behind the growth ​of the material substances of which it consists. This shows clearly that while the value of a thing does not depend on its natural qualities or the uses to which it may be put, so that exchange-value is entirely independent of use-value, there is a certain well-defined relation existing in their production, at least. What is that relation?
While this question of our wealth-production is merely mysterious, the questions of its distribution are puzzling and perplexing in the extreme. A cursory survey of our social system will show that there are very many persons in our society who evidently do not produce any wealth and yet have it in abundance. In fact, most of our wealth is found in the possession of persons who have not produced it. Where did they get it? The answer which suggests itself to this query is, that they got it from the persons who did produce it. But then the question arises: How did they get it? They did not take it by force, nor was it given to them for love. How did they get it?
Ever since man has kept written records of his doings there have been social classes composed of people who have neither toiled nor labored and still managed to live on the fat of the land. But the actions of these people have always been plain and above board. Everybody could see just how they managed it. There was never any mystery as to where their fat came from, nor how they got hold of it. The division of the wealth between those who produced it and those who didn't was done in the light of day and by a very simple process, so that each article produced could be traced into the hands of its ultimate possessor and each article possessed could be traced back to its original source. A child could tell the sources of wealth of an ancient slave-holder or medieval feudal baron. Not so with our non-producing classes. The sources of the wealth of our merchant-princes are shrouded in mystery. An honest merchant is supposed to, and usually does, pay for his wares what they are worth and sells them again for what they are worth. Wherefrom, then, does he get his profit? Two ​men make a bargain and exchange equal values, for they are honest and would not cheat each other, and yet both make a profit! Where does their profit come from? Some foolish people think that merchants make their profits by buying in the cheapest market and selling in the dearest. In other words, by cheating or taking advantage of each other. This is evidently a mistake. A merchant may, of course, make an extra profit by taking advantage of his neighbor. In that event his neighbor loses as much as he has made. But the regular profits of the merchant are realized when he buys and sells goods at their fair prices. That is why all hands are making money. Otherwise the capitalists would be preying on each other and one would gain just as much as the other would lose. Wealth would merely circulate among the different members of the class but there would be no net gain. What would the merchant class live on? They could no more live on each other's losses than they could by taking in each other's washing. But the capitalist class does manage to live and thrive and even accumulate and amass large stores of wealth. Where, then, does the capitalist class get it?
Other explanations offered are that the merchant by buying and selling enhances the value of the article sold and that the enhanced value is the merchant's profit; or that the merchant's profit is a reward for services as middle-man between producer and consumer. This last proposition is beside the point for the reason that it is not a question of ethics with which we are concerned, as to whether the merchant deserves what he gets, but a pure question of mechanics: how, and wherefrom, he gets it. Nor does the explanation that the merchant "enhances" the value of an article, that is creates new value, by selling it, answer the question: Where and how did he get it? How is the value of a thing "enhanced" by a mere change of hands? Its natural qualities remain the same. The uses to which it can be put remain the same. Where was this value before the merchant got it? Who produced it, and why did its producer ​part with it? If a mere change of hands creates value, why do some people foolishly toil in the sweat of their brows to produce new articles in order to get values, when value can be got by the much easier process of sending the articles already on hand around the circuit? This brings us back to the question: What is exchange-value, and how is it produced or got?
We will see later in the course of the discussion how Marx's theory of value and surplus-value answers all these questions and unravels all these mysteries, and that it is the only theory that answers the problem of political economy satisfactorily, thus making political economy a real science. We will also see the place of our economic system in the string of economies which go to make up the history of the human race until now, and what its further development must or is likely to lead to. We will see, incidentally, how entirely puerile is the talk of Bernstein and his followers who, not understanding the essence of the Marxian theory of value, and overawed therefore by the volume of criticism levelled against it by the very learned economists, attempt to hide behind the contention that this theory is not an essential element of Marx's socialist system. We will see, lastly, how utterly absurd is most of the criticism of these learned critics from Boehm-Bawerk down or up.
True to his method of "no philosophy," Marx set about his task of finding the true laws of exchange-value in the most "unphilosophic," matter-of-fact way. He argued that, while the laws of value furnish the key to the understanding of our economic system, those laws themselves can only be derived from the observation of the actual every-day facts of our production and distribution. In order, however, that these facts may be properly understood and appreciated they must be examined in their historical connection and in their proper historical setting.
​The production and distribution of the capitalist system can be best studied by an examination of a typical capitalistic commodity: a Factory Product. While the capitalist system has impressed itself upon every phase of life of every society in which it prevails, so that nothing can escape it, whether properly belonging within its domain or not, its characteristic features, its vital elements, are contained in their purity and simplicity only in its historic embodiment,—the factory product. The factory product is not only the historic form of capitalist production, accompanying its appearance on the historical arena as its technical embodiment, but it represents the vast majority of all the commodities of capitalist society. The factory product bears the imprint of capitalism so deeply emblazoned upon it, and is so free from entangling alliances with any forms of production other than capitalistic, that there can be absolutely no mistaking its origin and virtues. Not so with other products. Take, for instance, a farm product. You can not, by the mere fact of its production as a farm product tell whether it was produced under the capitalistic regime or not. This is due to the fact that our form of ownership and cultivation of land have to a great extent remained far behind the general progress of our economy. We cannot, therefore, by examining a farm product tell the characteristics of capitalist production, for we cannot tell which of the properties of the farm product are the result of capitalism and which are the survival of some prior mode of production. After we shall have learned to know the characteristics of capitalist production, we shall see that these characteristics are to be found also in the capitalistically produced farm product. The examination of the farm product may, therefore, serve to find the limits of the laws of capitalistic production, but not these laws themselves. For that purpose we must study the factory product.
It is well to remember in this connection that historically the capitalist system has built its foundation on the ruins of farming, and that their progress is usually in the inverse ra​tio to each other. It is one of the contradictions of capitalist society, that while it needs farm products in order to sustain itself, farming does not fit into its scheme. In such typically capitalistic countries as England, for instance, this contradiction was solved by practically eliminating farming, and drawing its food supply from abroad. But as this is an obviously impossible solution for the whole capitalistic world, attempts have been made to capitalize farming. So far, this has met with only indifferent success. That is why the "agrarian question" is now uppermost in all economic discussions. From all this it is perfectly plain that if we want to understand the capitalistic system we must study the factory product.
The most characteristic feature of the factory product as a natural phenomenon, that which marks its contrast to the farm product, is its comparative independence of climatic and other natural phenomena—an independence which makes it practically reproducible at will. Unlike the farm product, which depends for its successful production on the varying conditions of soil and climate (conditions usually not subject to change at the hands of man) and is therefore limited in its production by a force to which all men must bow, the factory product knows no other superior but man who reproduces it at will. The limits of the production of the factory product are not given by nature, but imposed by man; production of the factory product increases or slackens in accordance with the demands of the "market;" that is to say, its limits are set by the relations of the members of society in the distribution of the manufactured product among themselves. In this it typifies the capitalist system. With the advent of the capitalist system poverty and riches have ceased to be a natural condition; they have become a social relation.
Let us, then, take the factory product and follow its natural course in life; let us examine the manner of its production, the course it takes in the circulation of goods to the point of its ultimate destination,—consumption; let ​us see who are the persons participating in its production, instrumental in its circulation and sharing in its distribution.
In thus writing the biography of any factory product we will find that its life history will read as follows:
It was produced in a large factory building owned or hired by the manufacturer. It was made by a large number of workingmen hired by the same manufacturer, who paid them for their labor, out of materials provided for by the manufacturer, and by means of machinery owned by him. After our factory product was ready for use it was shipped to a wholesale dealer, who bought it from the manufacturer, and who, in turn, sold it to a retail dealer. From the retail dealer it went to the consumer, who purchased it from him. This is the usual course. There are, however, variations of this course. The wholesale dealer may, for instance, have been omitted, if the manufacturer sells direct to the retailer; or, there may have been a good deal more of buying and selling done in it before it finally reached the consumer. One thing is sure, however, its life-course led through these three stages: manufacture, trade, consumption.
The persons whom it met in this, its life-course, who affected its existence and its different changes, and who participated in its distribution in one way or another, besides those who participated in the production and distribution of the raw material from which it was made, which may itself have been a factory product, are: The laborer who produced it and was paid for it; the manufacturer who caused it to be produced, paid the cost of its production and received the purchase price from the trader who bought it from him; the merchant who bought it at one price and re-sold it at another, pocketing the difference; and, finally, the consumer, who paid for it and kept it for consumption, either personal, non-productive, or impersonal, productive consumption in the manufacture of some other factory product. There may have been others: the manufacturer may have paid rent for his premises to the landlord or interest ​for his capital to the banker; the trader may have paid rent, interest, or for help; there may have been a lot of time and labor spent in transporting it from place to place until it finally reached its place of ultimate destination, the consumer—and all of this had to be paid for.
All these persons who participated in the production or circulation of our factory product, and all those with whom they must "divvy up," must share in our factory product, that is to say, in the price which the ultimate consumer paid for it. Let us see how it is done.
We must, of course, as already pointed out above, assume that each gets what is due him, under our present system, as they are all presumed to be honest, the cases of one getting advantage of the other are exceptional, and they are all free agents working without compulsion. The workingman is "free" to work or not to work, so is the manufacturer and merchant to hire, buy and sell. The capitalist system needs for its proper development, and we therefore assume, absolute freedom, personal and commercial. How, then, is the share of each determined, when is it produced and when paid over?
It must always be remembered that none of those interested in the production, circulation and distribution of the factory product, have any interest whatever in its existence, or desire for its possession. None of them gets any share of it physically. Their distributive share comes out of the purchase price paid for it by its ultimate consumer, who takes it out of the "market," converts it from a commodity into an ordinary good possessing only its natural qualities of a use-value. In other words, each of their distributive shares comes of the exchange-value of the commodity which is turned into the universal medium of exchange—money—by its sale to the ultimate consumer.
This exchange-value first manifests itself when the manufacturer has the commodity ready for sale and places it on the market for which it was produced. The manufacturer produced it not for its use-value,—he never had any per​sonal use for it and never intended to use it,—but for its exchange-value, and as soon as it is ready in exchangeable form he offers it for sale or exchange. He sells it, again, to somebody who has absolutely no personal use for it and does not intend to use it himself, but buys it just as the manufacturer manufactured it, because of the exchange-value there is in it, and which, by the way, for some reason or other, he expects to be more than what he pays for it.
On this first manifestation of the exchange-value of the factory-produced commodity the manufacturer gets in exchange for it a certain sum of money or other commodities, the price obtained on its sale or exchange. The exchange value of the commodity has realized itself in his hands in the form of its price.
We must not, however, confound price with value. Value is something which the commodity possesses when placed upon the market and before any price is paid for it, and it is because of this value that the price is paid for it. The value is the cause of the price. Furthermore, value and price do not always coincide in amount. The price of an article may be greater or less than its value, according to circumstances. The proof of this is the fact that things may be bought-"cheap" or "dear," that is to say, for a price above or below their value. If the price of a thing and its value were the same, nothing could be bought either cheap or dear, because the price paid would be its value. The fact that we speak of things as being bought or sold "cheap" or "dear" proves that our valuation of the thing is something outside of the price, and therefore something with which the price may be compared and proved either too high or too low. It is, therefore, manifest that value and price are not only not identical in their nature, but that they do not always even coincide in amount. And this, notwithstanding the fact that value is the cause of price. The reason for it is easily discovered. Value is a social relation and is therefore determined by social conditions, whereas price is an individual valuation and is therefore ​determined by individual motivation. Value being the cause of price, the chief motive of the individual making the price, will, of course, be the value of the thing priced. This does not mean, however, the actual value of the thing, but his opinion of its value. Whether this opinion will be a correct estimate of the actual value of the thing depends, of course, on a number of individual circumstances and conditions. Besides this chief motive, again, there may be a number of subsidiary motives, all being either directly individual in their character, or individual estimates of social conditions or relations. All this produces what is called the "haggling of the market." As a result of this haggling comes the price actually paid for the article, and the average of the prices paid makes the market price.
This price is purely accidental within certain limits, being the result of individual volitions based on individual estimation. It is so within certain limits only, for it is controlled by its primary cause—value—which sets the standard by which it is measured and to which it naturally tends to conform, and will conform the more the nearer to the truth are the individual estimates of the social relations and conditions, and the freer the individual motivations are from purely personal considerations. Value is the norm about which the "haggling" of the market takes place, and the price which results from this "haggling" naturally gravitates towards its norm-value. Price will be "cheap" or "dear" according to whether it is, in the estimation of the person making the valuation, below or above the actual value of the thing.
What is this social element, this social relation, which gives a commodity its value? A careful search will reveal only one element common to all commodities, which is social in its character and is capable of giving commodities the value which will express the social relations of production, and that is—Human Labor. The production of the typically capitalist commodity, the factory product, is wholly a question of the application of human labor, physical ​or mental, and its results merely a question of the quantity and quality of the human labor expended. It is this labor which gives the product its value. It is by the expenditure of this labor that its value is measured. It is as the embodiment of a certain quantity-quality of human labor that the finished product is placed upon the market for sale, and it is as such that it is exchanged for another commodity, or the universal commodity—money. In making a sale or exchange the parties knowingly or unknowingly estimate the respective quantities of labor contained in the articles exchanged or in the articles sold and the price given, and if one finds them to be equal or to preponderate in his own favor he makes the bargain. The question of quality is also regarded as a question of quantity, labor of a higher nature being reduced to its simple form of ordinary average labor of which it represents a larger quantity.
It must be borne in mind, however, that, value being a social phenomenon based on social conditions and relations, it is not the labor which happens to be accidentally contained in any given commodity, as the result of some individual conditions or circumstances under which its producer worked, that gives the commodity its value, but the socially necessary labor therein contained. In other words, the value of a commodity is not derived from the particular labor actually put into its production, nor from the amount of labor actually expended upon its production, but from the amount of average human labor which it is necessary for society to expend for its production. The mere expenditure of labor on the production of any article does not make that article a commodity having exchange value. It is social expenditure of the labor, that is, its expenditure for the purposes of social production, of the production for society of things which are useful for it, that makes the article produced a commodity having exchange-value. The expenditure, therefore, in order to create value must be necessary in accordance with the social relations and conditions existing at the time the valuation is made. This in​cludes a variety of considerations, only the most important of which can be noted here.
To begin with, "socially necessary" labor must not be confused with "average" labor. The average labor only comes into play when the productive power of individual producers working with the same tools is under consideration. Otherwise, "socially necessary" and "average" may, and very often do, represent different things. For instance, the labor expended on the production of an article, in order to create new value, must, in addition to having been productive according to the average expenditure for the production of such articles, have created something which was necessary for society. In determining whether an article is "necessary" for society or not, it is not merely the general usefulness of the article and its actual' necessity for some of the members of society that is to be considered, but also whether, in the state of the society's economy, the need for such articles has not already been provided for sufficiently when compared with other needs, and having due regard to the general conditions of production and distribution in society. If too much of a certain commodity is produced, too much not absolutely, but according to existing social conditions and relations, such production does not create any additional value. It is so much labor wasted. Of course, that does not mean that any particular labor thus expended will create no value, or that any particular article thus produced will have no value. But, value being a social relation, all the labor expended in the production of this class of articles in society will produce less value proportionately, each article will have so much less value, so that the aggregate of such articles produced will have no more value than if that labor were not expended and the additional article were not produced.
Again,—the tools of production in a certain industry may be undergoing a change by which the amount of labor necessary to be expended in the production of a certain ​article is reduced. During the period of transition the "average" amount of labor expended in the production of the article will be considerably above the amount necessary for its production by means of the new tools and considerably below that of the old, for the average is made up of the articles produced by means of both the old and the new tools in so far as they are being used. The value of the commodities produced, however, will not be measured by the average expenditure of labor, but either by that of the old or that of the new method. If the new method has not yet been sufficiently perfected, so that it can not as yet supply the needs of society, or is the subject of a monopoly, then the valuation will be in accordance with the old method; if it has been so perfected, and is free for use, then in accordance with the new method. If, between the time of the production of an article and its valuation in the market, the new tools have attained the required degree of efficiency, or the monopoly has been broken, the value of this article, whether produced by the old or the new method, will change from the valuation in accordance with the old method, which was socially necessary at the time of production, to that in accordance with the new method, which is that now socially necessary.
In other words, the value of a commodity is determined by the amount of labor which society will necessarily have to expend for its production when it requires it; that is to say, by the amount of labor socially necessary for its reproduction.
We have seen before that the value of a commodity is determined by the amount of labor which society will necessarily have to expend for its reproduction. This applies to all commodities, including that peculiar commodity upon which the whole capitalist system rests—labor power. All the mystery surrounding the production and distribution of the capitalist system, which we have noted above, ​is due to the presence of this peculiar commodity which was absolutely unknown to any former system of society. In no social system before the advent of capitalism was human labor power an independent commodity which could be trafficked in in the market. A man's labor-power was deemed such an intimately personal attribute that it could not be considered apart from the man himself. The man himself might be free or unfree. If he was free his labor power was his own, used by himself for himself. If he was unfree, he, including his labor-power and his other personal attributes, belonged to his master. But in either case his labor power was inseparable from his body, was part and parcel of his personality as much as his personal appearance, and went with it.
It was only with the advent of capitalism that a man's labor power became separated from his body and person, when his labor power was "abstracted" from his personality and gained an independent existence. Then human labor power "as such," human labor power in the abstract, human labor power unidentified by an individual characteristic and severed from any personal relation, became an independent commodity to be trafficked in in the open market. It is the appearance of this commodity historically that ma1e capitalism possible, and it is due to its peculiar nature that so much mystery surrounds the workings of that system, upon which it has indelibly stamped its own characteristics.
The new commodity of abstract human labor, bought ani! sold in the open market, independent and irrespective of any individual or personal relation, is, at the same time, part and parcel of the commodities which constitute the stock-on-hand of the capitalist world as well as the source of all the other commodities on hand. It is also its own source and creator, being the means of its own reproduction. As the general source and creator of capitalistic commodities, this abstract human labor is the source, and therefore, the measure of the exchange value of those commodities. As its own source and reproducer it is its own source and ​measure of value. That is to say, the measure of the value of the capitalist commodity "general human labor power" is the amount of this labor power necessary for its reproduction under the social conditions of production existing at the time when it is dealt in on the market. This dual position of the commodity general human labor power is what has mystified and baffled the investigators into the laws of production and distribution of wealth in capitalist society. When this dual position is properly understood the mystery vanishes, and the anatomy and physiology, as well as the psychology of capitalist society are revealed to the mind's eye, so that their construction and modus operandi can be studied in detail.
We have seen already that the value of a commodity is determined by the amount of labor which will necessarily have to be expended in its reproduction. This amount of labor will have to be bought in the open market by the producer in the shape of labor power, potential labor, and he will have to pay for it, barring accidents, its value. That is to say, he will have to pay the value of the labor necessary to produce this labor power, or, in other words, he will have to pay, in the form of wages, the amount of goods which the laborer consumes while exerting his labor power. This amount will vary, of course, with the productivity of labor in general, and with the standard of living of the workingmen. But it will invariably be less than the amount of goods produced by the laborer in this exertion of his labor power. This is a prerequisite not only of capitalist production, but of any social form of production wherein a part only of the members of society are actively engaged in the work of production. In other words, in our capitalist system, when a man sells his labor power to another man for a certain number of hours every day in consideration of a certain wage, the amount of labor necessary in order to produce the product represented by his wage is always smaller than the total amount of labor which he sold to his employer. As general human labor can only be ​measured by the time during which the labor power was exerted, it is the same thing as saying that the time required to produce a man's wages is always shorter than the time for which he was hired by the payment of these wages.
The amount of labor spent in reproducing the product which goes to the laborer as his wages may be called "necessary labor," for the reason that it is absolutely necessary in order to make further production or even existence itself on the same plane possible. The amount of labor, on the other hand, which the laborer puts in above the "necessary labor" we may call "surplus labor," for the reason that it is an overplus or addition to the amount of "necessary labor" which the laborer has already put in. The product which is produced in the "necessary labor" time, may for the same reasons be called "necessary" product, and its value—"necessary" value; and the product produced in the "surplus labor" time, and its value—"surplus" product and value. In using the words "necessary" and "surplus" in characterizing the different parts of labor, product, or value, we do not intend to convey any meaning of praise or justification in the case of the one, nor of condemnation or derogation in the case of the other. We use them in their purely technical sense, with absolutely no "ethical" or "appreciative" significance.
This surplus value being constantly produced by the commodity labor power which the capitalists engaged in production constantly employ in their business, is the secret and mysterious source of all the wealth and revenue which fall to the share of those classes of capitalist society, which, without producing themselves, and without either by force or cunning appropriating to themselves what others produced, are still found in possession of quite a considerable share of the worldly goods of our society. Because of the peculiar faculty of the commodity labor power to produce a surplus-product representing surplus-value, the capitalist class is enabled to obtain a part of the annual product of society without taking it from the producers.
​When, at the end of a day, week, month, or year, the manufacturer is in possession of the finished product, that product contains the "necessary" as well as the "surplus" value. In the "necessary" value is included not only the wages paid to the workingmen but also the "capital" that went into the product, or rather, that part of capital which Marx calls "constant," that is to say, raw material, machinery charges, etc. Of course, all these things at one time, when they were produced, represented "necessary" as well as "surplus" value; when they are used, however, in production, that part of the product which simply reproduces their value is "necessary" for the same reason that the part representing the wages is "necessary." The "surplus" which he finds himself thus possessed of is therefore a clear surplus over and above all his expenditures and investment. It is pure revenue or profit. The amount of the surplus-value produced, and therefore of the revenue or profit derived by the manufacturer, depends, aside from the mere length of the working day, as already stated, on the state of the productivity of labor in general and the mode of living of the workingmen; that is to say, on the proportion of the "necessary" to the "surplus" in the labor performed by the laborer during the period of his employment. The length of the work day given, the productivity of labor and the mode of living of the workingmen affect this proportion in opposite directions: a higher mode of living increases the "necessary" part of the labor, and higher productivity its "surplus" part.
After the surplus value is produced by the laborer in the surplus time that he works, the fund from which the capitalist class as a class derives its revenue and "saves" its wealth is ready for its use, and it becomes merely a question of its distribution among the different members of the class. This distribution is no simple matter, as it is done for the most part without the participants meeting each other, often without their knowledge, and always without their consent. This distribution is accomplished by the laws ​governing capitalist production, and automatically. In so far, of course, as such distribution is according to rule, normal. There is always, however, the possibility of one capitalist getting the better of the other, and the individual capitalist invariably attempts to do so. Whether or not these attempts are successful makes, however, no difference in this connection, as was already shown at length above. It is the rule of capitalist society that we are concerned with. The problem that confronts us, therefore, is: how does part of the surplus value which, after its production by the workingmen, is in the possession of the manufacturer, find its way into the hands of the other members of the capitalist class?
As was already indicated above, all value, and therefore also surplus value, is not realized until the product which is the embodiment of the value reaches its ultimate destination, the consumer, who takes it out of the market, disregards its exchange-value and enjoys its use-value. Before it has reached this, its ultimate destination, a commodity, while possessing exchange value possesses it only potentially. Exchange value, not being something intrinsically inherent in the commodity, but expressing merely a social relation of production and distribution, may at any time before its final realization, when it ceases to be exchange value, be adversely affected by some social change. We have already seen that the exchange value of a thing is the amount of labor necessary for the reproduction, at the time when it is needed, that is to say, when it reaches the consumer. Before it has reached the consumer its exchange value is always liable to change. There is therefore really no telling what the surplus value contained in a commodity is until it has reached the consumer. It cannot reach the consumer, however, before it has gone through the process of circulation in which it is being bought and sold, that is, exchanged. In all these transactions its exchange value, as the same expresses itself in the price which it fetches, ​is estimated upon the basis of its exchange value when it finally reaches its economic goal.
In this process of circulation the surplus value contained in the product, as far as the persons interested in its division are concerned, is realized by piecemeal. Each party concerned in the production and circulation of the commodity until it fulfills its social mission gets his share of the surplus value therein contained when it leaves his hands, on a sale by him, and the purchase price which he receives represents the "necessary" part of the value of the commodity together with the share of the surplus value thereof to which he and those who preceded him in the process are entitled. In this way the surplus product contained in a commodity when it is produced is gradually converted into surplus value as it "circulates" along, and the surplus value is taken up gradually as it is being realized, share by share, along its course. The division of the surplus value takes place in the circulation process, and expresses itself in the different prices at which the commodity is sold at the different stages of this process.
These different prices at which a commodity is sold at different stages of the circulation process seemed to us inexplicable before, and vexed us not a little. But they will be readily understood when we know that the sharing up of the surplus value takes place in this process. As each stage of the process is passed a share of the surplus value is realized and is added to the price. When the exchange value of a commodity is first realized, when the manufacturer sells it, it is only that part of its exchange value that is realized and is expressed in the price which the manufacturer obtains for it, which represents the "necessary" value of the commodity and that part of its surplus value which the manufacturer receives as his profit. The merchant pays his price to the manufacturer and enters into the transaction because the full surplus value contained in the commodity has not yet been realized and he expects to realize a further share thereof for his own benefit upon a ​re-sale of the commodity to the retailer or consumer. This does actually happen in the usual course of business. This operation is repeated until the commodity passes the necessary stages of its circulation and reaches its social destination—the consumer—when the full surplus value contained in the commodity is realized in the purchase price paid by the consumer. This price represents the full value of the commodity, "necessary" as well as "surplus."
The rules in accordance with which the different "interests" share in the surplus-value, and in accordance with which the different prices are paid for the commodity at the successive stages of the circulation process are themselves the result of the peculiar commodity of the capitalist system, stamped upon it by the peculiar commodity which lies at its foundation—labor power. The profit-sharing of the capitalist class is therefore absolutely impersonal. It also requires absolute freedom of movement for the different elements which go into the process of production and distribution. Wherever there is no absolute freedom of movement the laws governing the division of the surplus-value among the different capitalists are interfered with arbitrarily and may even be abrogated. This is a necessary corollary to the observation already made that all the laws of value and consequently the production and realization of the surplus-value require absolute freedom of movement.
The presence in the market of the laborer offering for sale his labor power presupposes the presence in the same market of the capitalist seeking employment for his capital. Labor power as a commodity presupposes that the laborer who has this power for sale is not in possession of the tools of production necessary in order to exercise this power in the process of production. It presupposes a high state of technical development of production; such a state of development that the productivity of labor is considerably above that stage where it can merely reproduce itself; it must yield a surplus-value, and a portion of the surplus value must have been "saved" for the purpose of being ​used as a means of future production. It also presupposes that the "saved" portions of the surplus-value produced in the past are not in the hands of the laborers who offer for sale their labor-power. The possessors of these "saved" portions of past surplus-values, the capitalists, use these "savings," capital, in the production of further surplus-value, by the aid of the labor power which they purchase for part of it, in order to take it all to themselves. It is not, however, the capitalist personally who acquires the surplus-value. Capital, congealed and concentrated surplus-profit, produced by labor power, is just as impersonal, just as abstract, as its parent, labor power. It is capital as such, irrespective of the capitalist who owns it, that gobbles up all the surplus-value. The capitalist personally may sometimes by his ingenuity cause his capital to produce some extra surplus-value which other, less ingenious, capitalists could not do. In that event it goes to him personally as an extra profit. The ordinary, regular profits, however, of capitalist production and trade go to the credit of the capital employed, not the capitalist personally.
In order to produce a certain commodity and realize its -value, that is bring it to the ultimate consumer and obtain from him its price, a certain amount of capital must necessarily be employed for a certain length of time. The amount of capital necessary to be employed therein at the different stages of the processes of production and circulation, and the length of time for which it will have to be employed at each stage will vary, of course, with the state of development of the means of production and exchange, including the means of transportation and communication and other facilities for the circulation of commodities. But under given conditions of production and circulation the amounts of, and lengths of time for which, capital is necessarily employed in order to produce a commodity and bring it to the consumer remain the same.
We have already seen before that while all the surplus-value contained in a commodity is produced in the process ​of the commodity's production while it is in the possession of the manufacturer, this surplus-value is divided among all the capitalists who are concerned in the production and circulation of the commodity, while the same remains in the circulation process. Strictly speaking, however, as has been already observed, the surplus-value is not divided among the different capitalists concerned in the production and circulation of the commodity, but among the different capitals employed in these two processes through which the life-course of each commodity runs. The distributive share of each of these capitals in the surplus-value is proportionate to its own size and the length of time it was necessarily employed in either the production or the circulation of the commodity. That is to say, the total amount of capital, measured by a given unit, say a dollar, employed during all the time, measured by a given unit, say a day, that the commodity was necessarily in the process of production and circulation, is footed up, and the amount of surplus-value contained in the commodity is divided by that total, giving a certain amount of surplus-value per unit of capital per unit of time, which we will call the rate of profit. The distributive share of each capital is, then, the product of its own size × the time it was employed × the rate of profit.
When the manufacturer sells the commodity, at its first appearance as a commodity and the first realization of its value, the price which he receives and in which the value is realized, is not its final price expressing its actual value when it is ready to perform its full social function in the hands of the consumer. It is merely an intermediate price; Marx calls it "Price of Production." This intermediary price is based on the ultimate price of the commodity to be received from the consumer in accordance with its value. It is by this expected ultimate price representing its full value that the amount of surplus-value contained in it is ascertained. When the surplus-value of the commodity is given, the Price of Production is determined by the "necessary" value contained in it plus the distributive share of ​the manufacturer's capital in the surplus-value. The "necessary" value contained in the commodity represents the cost of its production to the manufacturer. That does not mean, however, that the manufacturer simply gets a return of what he has expended in the production of the commodity. It is not the actual expense of production that is represented in its "necessary" value, but the socially necessary expense of producing the commodity at the time the manufacturer sells it. If the actual cost of production is above that the manufacturer loses the difference; if it is below he pockets the difference as an extra profit.
The prices paid at any succeeding stage of the circulating process are fixed in the same way. Each succeeding seller gets in the price which he receives the necessary value of the commodity plus the distributive share of the surplus-value to which he and his predecessors in the process are entitled in accordance with the rules formulated above. Each of them gets his own distributive share of the surplus-value in addition to what he has paid or laid out. Provided, of course, he bought and sold at its fair price. Otherwise, one of them may get more than his due share and another less. But all of the capitalists concerned, together, get all the surplus-value produced in the process of production, and no more. Unless, indeed, the workingmen did not get their fair pay or the consumer was compelled to pay an unfair price, in which event the capitalists immediately concerned reaped an extra profit. Or the workingmen were paid too much or the consumer paid too little, in which event the capitalists immediately concerned suffered a loss.
It was assumed all through this discussion that each capitalist worked with his own capital. If any one of them did not, he had to give up all or part of his share of the surplus-value, which he received in the form of profit, to the person from whom he borrowed his capital, in the shape of interest. This does not change the matter, however, and we are not concerned with it here. We also left out of the discussion the question of rent, and the question of ad​ditional work which may have to be performed on the commodity in the circulation process, as these questions in no wise affect the subject-matter of our investigation—the laws governing the production of wealth in the capitalist system and the manner of its distribution among the different classes of capitalist society.