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Explaining Economics Part 2- Labour Theory of Value and Commodities

The labour theory of value

The labour theory of value is the very basis and foundation upon which economics can be understood. It is the key that Marx and Engels found through their studies and is the basis of understanding exploitation in capitalist society.

The scientific method of studying economics begins with the manner in which all things are created. Marx and Engels continued the study of classical economists by starting their analysis at the beginning, how we produce everything.
What creates everything around us? What gives value to otherwise useless matter? Labour, work, creates all value. The apple on the tree comes from nature but as a valuable object it is useless until picked from the tree by someone’s labour. Labour alone creates value. It is the application of our strength, tools, know how to material that creates food, objects, art, culture, etc. etc.

What is the common social substance of all commodities? It is labour. To produce a commodity a certain amount of labour must be bestowed upon it, or worked upon on it.    —Karl Marx, “Value, Price and Profit” (1865)                                                                                             
If labour produces all value, then it is only those who labour that create worth. It is those who work that create what we need. It is workers who grow the food we eat, it is bus drivers who provide the service we need, etc. Those bosses, capitalists, who employ us, who pay for our labour through wages, don’t actually create value themselves. They just own us who do.
. . . The working class alone produce all values.    -F. Engels, “Introduction to Wage-Labour and Capital” (1891)

Commodities and labour

We have said above that labour creates all value. It is only through labour that we can create commodities. What, then, are commodities? Commodities are anything that can be bought and sold to create more wealth, more capital. Commodities, as such, have not always existed, just as capital as we know it has not always existed. It is the capitalist method of ownership, production and exchange that creates commodities, and the production and sale of commodities expands the system.

The labour theory of value not only says that labour creates value, it also shows how labour is the measure of value. That is when we ask the question, how much does something cost, we could be asking how much labour went into the production. The more labour that goes into creating something the more it costs.

The value of a commodity is determined by the total quantity of labour contained in it.-K. Marx, “Value, Price and Profit” (1865)

Compare that of an apple and gold. Which one is more expensive, which one requires more labour? In forthcoming editions we will have to look at “prices” of commodities, because other factors of course play a role too. But labour is the dominant determining factor in the cost of commodities. It is the comparison of labour time spent in the creation of commodities that is reflected in their differing prices.

A commodity has a value, because it is a crystallisation of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it . . . The relative values of commodities are, therefore, determined by their respective quantities or amounts of labour, worked up, realised, fixed in them. –K. Marx, “Value, Price and Profit” (1865)

Labour too, however, is a commodity. It is the vital ingredient in the production of goods and services, and ultimately capital. Labour is the vital commodity.

Labour-power, then, is a commodity, no more, no less so than is the sugar. The first is measured by the clock, the other by the scales.-K. Marx, “Wage-Labour and Capital” (1847)

Labour is used by those who own capital to create more capital. Those who do not have the resources to buy and pay for the factory or office, the material resources, the training and education and most importantly the labour have only their labour to sell. They are forced by circumstances to sell their labour-power to the boss.

What they [workers] actually sell to the capitalist for money is their labour-power.-K. Marx, “Wage-Labour and Capital” (1847) …Precisely from the fact that labour depends on nature it follows that the man who possesses no other property than his labour power must, in all conditions of society and culture, be the slave of other men who have made themselves the owners of the objective conditions of labour. He can work only with their permission, hence live only with their permission.-K. Marx, “Critique of the Gotha Programme” (1875)

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Interview with Hans Heinz Holts

From Issue 10 of Forward

For our readers who might not know you would you mind telling us a little about yourself?

After the 2nd world war I started with being a journalist because it was then absolutely impossible for a Marxist to make a career in the university. I first worked for our party newspapers until the prohibition of the party in 1956 and afterwards as a free lance journalist first in Germany and after 1960 in Switzerland. When the student movement at the end of the 60’s developed there came the demand for Marxism at the university’s and with the support of the student movement and student unions in Germany I was nominated as a professor of philosophy at the University of Malburg and later on at the University of Honing. I stayed 8 years in Malburg and 18 in Honing years teaching philosophy but always engaged and involved with politics, naturally. After the re-foundation of the Communist Party in Western Germany I was engaged in politics there. I would say the main point of my work is Marxist theory though in the last 15 years after the collapse of socialism in Eastern Europe I have done much base work in the party with the committee for a new party program.

When did you first get involved in politics?

When I was 16, that was in 1943, we were already in the fascist era in Germany I formed a little resistance movement in my school. This was not for political reasons but for moral reasons, against the immorality of the fascist system. I was imprisoned in 1943 and it was there I met in the same cell a young communist worker. It was he who introduced me to Marxism, the elementary points of Marxism. That was my first commitment in politics.

How long did you spend in prison?

Until the end of the war, 2 years.

That must have been extremely hard for a 16 year old?

Yes, well it was a fascist era. Fascism is a very hard thing!

Immediately after the war I began to study the texts of the classic Marxism. Especially I was influenced by works like ‘State and Revolution’ by Lenin and I would say also by the Hegel texts of Lenin, and also by the small works of Stalin in dialectical and historical Marxism. And naturally the text of ‘State and Revolution’ brought in the question of the October Revolution. I immediately understood this was the change of an era, change of the world going over to a new formation of society. Then followed an intense study of Marx and Lenin and the question of revolution at that time was being actualized by the Chinese Revolution in 1949 and the Cuban Revolution in 1959. Revolution accompanied my life!

What were the challenges that faced building socialism after the October Revolution?

The special situation of the Russian revolution was that it was not prepared by a long development of capitalism. The transition of feudalism to capitalism in the French Revolution was prepared by 200 years of early capitalism that was not the case in the Soviet Union. That means the revolution was not just a transition of power but it had to build that what capitalist society should have built up before. That was one of the situations. The second was, a great part of the population in Russia was still illiterate and you can’t develop participatory democracy without an educated people. There was an immense and huge education program for the first decades of the Soviet Union. This was the first step to build up a socialist democracy it was not possible to have this social democracy in the first stage and this brought forth special contradictions in the first phase, that socialism could not be build up by the broad masses but had to be built up by the minority of the working class which was a very small minority compared to the peasants and also by the party. The party had to be a leading power in developing ideas but also administratively and that naturally had the consequence of developing a special form of party bureaucracy. This was not due to any bad will of persons but was from objective conditions.

What were the achievements of the early soviet state?

First the educational problems, second the social problems that meant a better provision of medical treatment, the overcoming of unemployment, there was no unemployment in the Soviet Union and I would stress the development of all cultural potentiality of man. I was in the soviet union in the 50’s and 60’s and it was stupendous the the worker in the plants were engaged in cultural activities like the fine arts, sociology and philosophy that they were really engaged in these subjects and all this stuff that we have not in western world. And a great freedom in conditions of doing what they did in the plants, the worker in the soviet union and the socialist countries had much more personal rights than any worker here in the western world. It is a legend that there was no freedom. There were other structures in the decision making and administration with problems but in daily life the freedom of the worker was much greater than here.

Why did you write your book ‘Downfall and Future of Socialism’ in 1992?

It appeared in 1991 in German and 1992 in English. It was a situation when all leftists were depressed by the collapse. I felt it necessary at that moment to say that the defeat did not mean that there was no future for socialism. I needed to say what was the theoretical background, what were the achievements and also the faults which were done so they wont be repeated next time.

You listed 3 main reasons for the collapse they were the immaturity of economic conditions to begin with, the subsequent development of the corrupt bureaucracy, and finally the impoverishment of theory. Can you comment on these 15 years later?

I would say for the checklist of reasons all three reasons are still very decisive but after 15 years of study I would add many more. I think even more than I stressed in the book the impoverishment of theory was one of the main points because it made an open gate for the infiltration of western ideas, the revisionism as we say. And with the 20th party congress of the Soviet Union, not so much with the moralistic incrimination of Stalinism that was not the right historical view point, but the decisive thing was Khrushchev made as criteria for the development of the Soviet Union the living standards of the United States. The living standards of the United States is the living standard of a capitalist country with imperialist expansion, and a living standard that only touches half of the population the other half live in poverty. This should not be an aim. It set a target for all those who were still coming out of the old society with its old ideas and America was a symbol for them. This was the decisive break in of a non-socialist idea. This expanded because the theory was so poor. And the theory began to become poor I would say after Stalin. During the period of Stalin’s power there were a lot of intense theoretical discussion in the scientific magazines and it is not true that Stalin was the cause of the impoverishment of theory. It was after him.

Do you think this made way for Gorbachev’s reforms?

It was I would say a straight consequential line from Khrushchev to Gorbachev. At any moment at this time it had been possible to counter act but it wasn’t done.

You wrote, ‘Whoever would learn from history must reflect upon it, what must we reflect upon now?

We need to reflect upon the contradictory development of each historical process and we need to reflect upon the specificity of each contradiction in itself, a contradiction of Russia. So today we need to reflect upon the specific contradiction in China and as our Cuban comrade said yesterday we need to reflect upon the contradiction which are in the development of Cuba. That is the point of reflection so we can learn from history what reasons are for the generation of these contradictions for the solutions of these so we can learn how not to do it again. I think we can realize that there are certain features and constant traits in history. If you read some of the ancient historians, Thucydides, you find very similar structures even in quite other social formations and if you are keeping in mind that history has only a certain range of possibilities because there are anthropological traits that are in mankind than you can learn from history. I think it is a strategy of late capitalism and even of the social democrats to destroy our relation with history, to be anti-historical or a-historical. We Marxists have the task to develop the historical understanding.

What do you draw inspiration from today?

I think for me socialism, or better to say communism, is the logical as well as the historically only alternative to the capitalist system, for reasons of dialectical logic. I would say one state of time of society can only be overcome by its determinate negation. It is not that we have capitalism or a utopian idea of society. We have to ask what are the main characteristics of capitalism? Private property in the production means and the accumulation of capital profit of surplus an alternative society must overcome these main traits of capitalism and therefore socialism is the logical result. The historical reason is within in the capitalist system as a necessary moment in the system developed the working class and the working class is the only class which is not part of the profits of the surplus in so far as the working class and the revolutionary movement of the working class is the historical reason why communism is the only alternative to capitalist system. But that does not mean that it comes of itself we can also have the negative chance of barbarism even of the end of humanity. Therefore we must develop the consciousness of the working class. The working class now has other structures than of the 19th century class therefore we must analyze these latest developments not on the question of whether there is no working class but upon the changes within the working class and we must have ideas of how to mobilize the working class and develop political insight and class consciousness and therefore the impulse to change society. That is my hope and my life work. I am 60 years in the communist movement. It is my whole life to work in this direction to help prepare the minds of men. As Lenin always said, without consciousness we will have no revolutionary moment. It is an important part of the movement to develop and spread the theory among the people. It is no only a question of academic development, but you must have that to have a good popularization. But the popularization is always necessary that is why I always write for newspapers and not only am writing academic pieces or books. In my academic work I have written 3 volumes on the history of dialectics since the renaissance and 3 volumes on aesthetic problems. That is the academic level upon which you elaborate ideas but then they must be brought and adopted by the masses. That is a large question for trade unions, the educational work of trade unions.

Would you comment on Venezuela today?

Venezuela is not yet socialism and if you look back to the Cuban revolution it was not socialism in the beginning but it developed out of its internal reasons. I see one danger in the development of Venezuela there is much influence of utopian socialism, that Marxism for the 21st century, the books of Diderik I don’t know if you have heard of him. Well he is an advisor of Chavez otherwise he would just be an intellectual. In this function he has a lot of ‘queer’ ideas influenced by American human rights ideas and if Chavez follows this counsel, he is not the only one, that might be a dubious thing. I spoke with Cuban comrades who were disquieted by the influence Diderik has in Latin America.

Who is this Diderik?

He is a German who taught at the University of Mexico. He visited Chavez in jail and had interviews with him and from then he has had contact with him and know he is traveling the world propagating his ideas.

In this respect it is absolutely necessary to elaborate theory and strengthen theoretical discourse.

What about the positives of Venezuela?

I think there are very many positives from the fact that this country resists American Imperialism and this has huge influence even in the bourgeois leftist circles, for example in Argentine, Brazil although Lula is a separate question, also in Ecuador in Bolivia. It is a positive influence and I hope that under the influence of the real situation in the country Chavez will develop more and more in the socialist direction and as I understand he has great respect for Fidel Castro and Fidel will be of great good I think. I admire Castro. He is one of the very great men of the last century.

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Explaining Economics Part 1

From Issue 11 of Forward
The Production Process

Modern economics, what is taught in schools or presented on the news, is less an actual study of economics, the way in which society creates, as much as an ideological and politically biased presentation. That is, what poses as economics today is in fact ‘bourgeois economics’. It is by and large the study of supply and demand and not the manner in which everything around us is produced. It is not a study of the production process.

One example of this would be at the end of each news bulletin the reader calls out the latest figures on the ‘dow jones’ or the ‘isec index’. These represent an indication of a regions market performance based upon the top 100 companies in that region, determined by finance speculators and corporate giants. As a piece of news it is determined by and effects far less of us than say and industrial bulletin of union negotiations. The point being, the economics we are presented with are not really economics and are purposely made meaningless to our lives. This political management of our knowledge and education serves to distance us from the crucial study of economics and its everyday impact upon us.

The actual scientific study of the production process is where Marx found his philosophical progress took him. However, he certainly was not the first to approach it. Ancient Athenian scientists had tackled the question of production and more recently the political economists of Ricardo and Smith in 18th century England had examined it. Marx, with the invaluable help of Engels, was able to draw upon their analysis and experience to further the scientific study of our economic reality.

From this lengthy study and practice Marx was able to draw some certain conclusions:

We thus see that the social relations within which individuals produce, the social relations of production, are altered, transformed, with the change and development of the material means of production, of the forces of production. The relations of production in their totality constitute what is called the social relations, society, and, moreover, a society at a definite stage of historical development.
K. Marx, 1847 ‘Wage-Labour and Capital’

It is from the production process, how we produce, the technology available, the division of labour, and most importantly the ownership of the means to produce, society has its distinct forms, whether slave, feudal or capitalist.

The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of non-workers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labour-power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically.
K. Marx. 1875 ‘Critique of Gotha Program’

The mass of landless labourers were produced by the growth of capitalism and the disintegration of feudalism. The advancement in technology left many peasants and farm hands useless they were forces to the cities to look for work off the growing number of bosses. These workers have nothing to offer but their bodies and minds to be used where and when necessary by those who own land, factories, companies, business’s, natural resources or capital resources. These facts of life develop the world around us. They ultimately shape and form our family relations from ancient forms of communal reproduction to our current form of monogamous marriage. They dictate the type education we receive or if we receive a formal one at all. The list does go on. And as noted by Marx above and most importantly they create the consumption and wealth patterns of inequality we see all around us.

Class Definitions

Before we examine the most basic class definitions a note on capital and labour is necessary.

Capital therefore presupposes wage-labour; wage-labour presupposes capital. They condition each other; each brings the other into existence.
K. Marx. 1847 ‘Wage-Labour and Capital’

In physical science Newton declared, ‘For every action there is an equal and opposite reaction.’ This is true, by and large, across the sciences. Capital and wage-labour are each other’s opposite. They could not exist without the other, as Marx puts it they presuppose each other. Ones creation brought the other into existence. It is the exploitation of wage-labour by capital that recreates capital. The increase in relative strength of one is the weakness of the other.

When labour was strongest in Europe, through unions, communist parties, and the existence of the USSR, we won broad social reform and a social democratic system. Now, however, when labour is at an incredible low in Europe we have constant attacks and rolling back of these reforms, our health system, our education, our 5 day week, our retirement age, our pension schemes etc. Capital is clearly dominating wage-labour. The bosses are clearly dominating the workers.

Engels definition below is the simplest expression of who the bosses are and who the workers are:
By bourgeoisie is meant the class of modern Capitalist, owners of the means of social production and employers of wage labour. By proletariat, the class of modern wage-labourers who, having no means of production of their own, are reduced to selling their labour power in order to live. F. Engels. 1848 ‘Manifesto of the Communist Party’

It should be very clear now that the working class is by far the vast majority of people on this planet. Most people do not employ others. Most people (if lucky enough!) are employed. We live in a world where there are two obvious classes, and they are antagonistic, they are in conflict.

There are of course great disparity and difference within classes. There is the CEO of Nike and the man who owns the local corner shop, both capitalists. There is also the man on 200,000 a year wage and the man on 20,000 a year, both workers. This difference within wage-labourers is not like the conflict between classes, as this difference is not due to exploitation of one worker over another. We will examine this further in future editions of Forward. It is the struggle between classes that makes history and it is the victory of the majority class of workers over the minority of bosses that will ensure our futures.

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