Marxian Economics for Dummies

Capitalists and Marxists are both understandably confused about Karl Marx’s position on the Labour Theory of Value. This might seem like mission impossible, but I’m going to attempt to explain the complete works of Karl Marx in just a few paragraphs, using mostly layman’s terms ([may God help me]. This is likely going to offend almost everyone, so stick on some popcorn.

While the LTV is indeed Marxist dogma, it is not actually supported by Dialectical Marxian Economics. Most people are unaware that such a distinction even exists, especially Marxists.

The LTV originated with Adam Smith (he of the invisible hand). Smith thought that all value originated from labour. This was later developed and expanded by Ricardo, who also conceptualised the capital good. Ricardo agreed that value arose from labour, but put forward that the use of a capital good (which was of course originally fashioned by labour) added to that value. He formulated that the value imparted by the capital good was equivalent to its own operation and maintenance costs, and subsequent depreciation.

Marx took this a step further by explaining how profit was derived. He correctly perceived that exchange value was wholly subjective (I shit you not capitalists), and that since those providing the labour were being reimbursed less than the exchange value after all other costs had been deducted, that the resulting “profit” had evidently being stolen from them. For example, let’s imagine that a chair is made by a combination of MOP and labour. The chair exchanges for a subjective value of $200, this consists the sum of:

$C the cost of materials;

$D the value imparted by the MOP, which essentially equates to its operation upkeep and subsequent depreciation;

$L the labour.

What the capitalist does is pay the workers $L/x (a fraction of $L), keeping $L – $L/x (the difference) for himself. The capitalist does this because $C and $D are both fixed costs. The capitalist is thereby extracting his cut out of margin, rather than from an uplift as is often misconstrued. This explains the mechanics of why profit is exploitative, and must therefore be considered as theft.

However, it doesn’t end there. Dialectical Marxism goes on to explain the underlying mechanics of value in far more detail, and ultimately contradicts the very basis of the Labour Theory of Value.

A value judgement can be made of things as diverse as a can of beans and a degree in bionics, yet not all valuations can necessarily be quantified in money: how much do you value the love of your child? Any credible theory of value must account for this reality. Value is a philosophical issue with economic implications, not the other way round. For example, take sexual attraction. According to the Subjective Theory of Value how attractive you find someone, is entirely dependent on a table in your subconscious that systematically weighs up the pros & cons of:

paying a prostitute


a lamppost

a drunken fumble

balanced off against:

how horny you are

time elapsed since last engaging in sex

scarcity of partners

In other words: supply and demand/marginal utility… or in this instance potential conquests vs desperation. While most of us would wryly agree there is more than a grain of truth in that (consider what reputedly befalls those intoxicated or worse still incarcerated), it’s also bereft of a crucial factor: aspects relating to the potential partner in question. On encountering someone, and subjectively determining whether they are attractive, any evaluation will be based on various attributes the person possesses: their looks, height, weight, complexion, smell, colouring, sex, ethnicity, personality, intelligence, sexual orientation, humour, age, level of intoxication, whatever… This process is subjective, because different people will evaluate each of those traits differently… but (and here it comes), each actor bases their evaluation on factors drawn from the same set of attributes (albeit not necessarily the with the same factors or weightings applied).

Likewise when a buyer evaluates a good, they are determining what they are prepared to pay for it. The seller has already undergone much the same process in reverse. The good itself is what forms the common objective basis for both those valuations, else both parties would effectively be pissing in the wind. To arrive at such value judgements, each party assesses a range of material aspects relating to the good, alongside weighing up external issues such as scarcity. This enables an objective comparison between various similar items on offer:

“Is it made from tin or platinum? If it’s platinum then I’ll pay more. How well crafted is it? Is it ripe? How durable is it? How good is the finish? How nice does it smell/taste? How long will it last? Which of these attributes are most important to me?”

The appeal of each aspect is objectively indeterminable, yet a formula can be subjectively derived from them, which encompasses the theoretical latent value intrinsic to the good, and therefore the potential exchange value of it. This is what Dialectical Marxism terms the “use value”.

“Use value” isn’t quantifiable as such, but rather a mathematical expression that those involved in an exchange jointly strive to resolve. The essence of this expression being inherent in the good itself. “Exchange value” is not randomly generated in the mind of the beholder, but is realised from the “use value”. It is important to appreciate that the “use value” is in itself an abstract mathematical concept, a system of equations from which “exchange value” arises, prior to being honed by marginal utility.

It simply cannot be any other way. Subjective evaluations, must have a material objective basis, else the resulting valuation is being randomly generated. Dialectical Marxism goes on to explain that both commodities and labour posses this “use value”, and that it somehow gives rise to “surplus value” when labour and commodities are combined in production. That the whole of a product is actually greater than the sum of it’s parts. This in turn directly contradicts any notion that value arises exclusively from labour. Thus the notion of “surplus value”, misunderstood by almost everyone, actually invalidates the Labour Theory of Value, and nukes Marx’s prior claim around the scientific inevitability of socialism. This is a key logical aspect of Dialectical Marxism that Marxists (including even Marx himself) choose to ignore.

Is this a bad thing? Yes, if you’re looking for a mathematical proof that capitalism will dissolve into socialism. No, if you’re happy to settle for a very insightful explanation of how capitalism functions. Hence ancoms respect the Marxian critique of capitalism, yet eschew his theories on communism.

While Dialectical Marixism invalidates the LTV, and creates scope for surplus value arising entirely from automated production, this does nothing to refute Kropotkin’s assertion that capitalists profit from the sum effort of all prior labour.

Even if the capitalist were to somehow accurately quantify surplus value in relation to a workers productivity, why should this reward go to the capitalist? The fact remains that if this increases the price of a good, then the worker will have to labour longer to be able to purchase said good than it took them to produce it in the first instance, even taking all other associated costs into account.

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