Capital, Commodities and Value | Marxism 101 | Briefing #3

“Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks.” – Karl Marx

NOTE: This is part of our series of briefings on Marxism 101. Check out the Introduction if you haven’t already, and the second entry on how Marxists understand socioeconomic classes.

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THE QUICK AND DIRTY

• Capitalism involves private control of the means of production, or private property.  Americans often denounce the idea of abolishing private property. Yet they define the term differently from how anti-capitalists use it.  Private productive property is anything of value that we use to create more value. In other words, it’s capital. Personal property is different. Marxist economics has no problem with personal property ownership.

• Commodities are products produced to be bought or sold. Each commodity has use value and exchange value. Plenty of useful things aren’t commodities. We are alienated from the commodities we create, but we’re also dependent on them. Use value is how an item is used to serve a want, need or purpose by human beings. What use an item has is a subjective question and changes depending on time, place, and the beholder.

• We’re all consumers and/or producers of commodities that are sold for their exchange value. Use value and exchange value don’t always bear a clear relationship to one another. Capitalists tend to believe supply and demand govern the exchange value of goods. Marx didn’t believe value is determined by supply and demand alone, although they play a crucial role.

• Commodity prices are determined, in part, through competition between & among buyers and sellers. Through selling commodities, capitalists get money to recoup their costs and make profit. Labor is a crucial commodity, and its value affects the price of goods as well. Its value can also fluctuate over time.

• Because capital is anything valuable we can use to create more value, it is exchangeable & takes many forms. It is employed in a system of labor relations. There have been several distinct ones across history, including capitalism and feudalism. Capitalists use both capital and labor to create goods and services. In doing so, they generate more value than what existed before the production took place. Capitalists sell these goods and services on the market for a profit. Karl Marx believed this mode of production exploited workers.

KEYWORDS

Click each term to learn more. Also, search any of these terms on Prole Academy to find more on that topic.

INTRODUCTION

Communism is often described with a single phrase: the abolition of private property. This line leads to an obvious question: what is private property? How is it used now, and why would socialists or communists want to abolish it? The explanations I heard growing up were based on a few commonly repeated lines. One of them was based around greed. “Leftists want to control everyone and everything,” they might say. “Socialists want all private property and goods for themselves.” Other arguments called out some kind of flawed moral reasoning. “Communists want everyone to have equal amounts of everything.” Also, “socialists don’t think it’s fair that some people get so much and others get so little.” Somehow, these supposedly explained the essence of Marxism’s call to abolish private property. Yet after reading up on Marxism, I concluded some of these are completely inaccurate. Others are misleading or incomplete. We must understand how capitalism works, which parts Marx admired, and which he condemned.

This briefing will help you understand why Marxists seek to abolish private property. It will help explain how private property is used to produce goods and generate value.The goal: to be able to recognize what Karl Marx, Friedrich Engels and others meant when they talked about the role capital plays in our economy, how our system is based around commodity production, and what determines which items have value and how much. All of this is essential to understanding not only how capitalists gain wealth under capitalism, but also why Marxists believe the working class that performs labor under this system is exploited.

If you’re inclined to learn more, check out a few books that might help.  I read the ones listed below:

BACKGROUND – WHAT IS PRIVATE PROPERTY?

Capitalism means an economy with private control of the means of production, or private property.   An individual, or a small group of individuals, owns this property. Under forms of socialism or communism, we would abolish private property. This property would instead be controlled by the people at large, by the workers who use it, or by the state. All forms of this idea are abhorrent to capitalists and their supporters.  

Americans often denounce the idea of abolishing private property. Still, they define the term differently from how anti-capitalists use it.  We use the term private property to mean any valuable thing owned individually, not by the public. We use this term this way whether the property is capital or not. I get why this leads to confusion.  Want a more accurate way of describing what socialists are getting at? Make a distinction between private productive property and personal property on the other.     

Private productive property is anything of value that we use to create more value – in other words, it’s capital. Think of the factories, farms, warehouses, machines & tools we use to make goods and services. All these and more are capital – they’re all productive property.  Even offices, storefronts, server farms, big-rig trucks and computer terminals count. When they’re in private hands rather than controlled by their workers or the public, they are privately owned.

Marxist economics has no problem with personal property ownership. The distinction is critical.  Marx distinguished personal property because it isn’t meant for large scale production. If It’s personal, it’s not used by more than one person or household.  Your home, your car, your prized Gundam action figure collection: none of it is productive. It’s yours, and meant for you and your household to use.

WHAT ARE COMMODITIES?

Commodities are products produced to be bought or sold.  A commodity is anything made through labor, in demand, useful, and produced for exchange (sold or traded).  As Hadas Thier puts it in A People’s Guide to Capitalism, “if I bake a loaf of bread to eat, then it’s just bread.  But if I bake it in order to sell it, then the loaf becomes a commodity.”  And that’s how goods used to be.  You made it, you used it – or, if you traded it, you were often the one who did the making and the trading.  Hadas Thier notes that “A vast distance now exists between the maker and the user of a particular good.  Each is anonymous to the other.” There are exceptions, like farmer’s markets where you meet the lady who grew your apples. But otherwise, this is usually right.

Each commodity has use-value and exchange value.  The exchange-value of a good is what price it will fetch if sold on the market. Use-Value is how an item serves a want, need or purpose for human beings.  A comb’s use-value is that it helps you keep your hair styled and orderly.  A stapler keeps my papers together.  A computer is for games, shopping and porn (and, I’m told, occasional writing).  And remember – if it doesn’t have use-value to anyone, it can’t be a commodity.  

Your kid’s mud pies aren’t commodities, no matter how many hours they put into the effort.  No one’s buying them, sorry. Be sure to tell your kid you like the mud pies anyway.

What use an item has is a subjective question and a moving target. An abacus covered in beads had a lot of use-value a couple thousand years ago. It has minimal value now in our age of smartphone calculators and supercomputers.  Whether something is useful is often not a reliable indicator of what it will cost you to buy one.  Bread and water are much more useful to people on a day-to-day basis than a yacht or a Rolex. Still, no one’s selling bread and water for more than a gold watch. They’re not more expensive than either of those luxury items. If they are, your neighborhood is in a lot of trouble.   Anyway, for a capitalist, what matters is whether a product has use value and whether it can be sold to someone else.

We’re all consumers and/or producers of commodities.  By producing commodities, we relate to each other in society by exchanging goods. Some of us are producers, and some of us are purchasers. Many of us are both producer and purchaser in different times and contexts.  If we have an excess of the product we make and we have no use for it, it may have exchange value for us, and use value for others.

Use value and exchange value don’t always bear a clear relationship to each other.  So how do we determine the exchange-value of a commodity? How do we figure out how much of one thing is worth how much of another?  It’s clear that this is a most important question for capitalists.  Whether they can sell a product for a profit is what determines whether making it is worth their time.  It’s not really about what people need.  That’s why we see excess products like milk dumped to keep prices high instead of being sold.  Hungry people could sure use it, but what’s most important here is the capitalist can’t sell that milk for a profit. If they brought too much milk to market, prices would go down, and it wouldn’t sell profitably enough, so it has to go.  

Marx didn’t believe value comes just from what people are willing to pay for it.  Part of the Marxist answer to the question is that labor gives things exchange-value. The common denominator of all commodities is that human labor produced them. All had some worker involved in finding, extracting, producing or transporting it.  The economic concept of the Labor Theory of Value springs from this idea.  It’s a central part of Marxist economics, although you gotta recognize that its genesis is not in Marxism.  Classical economists like David Ricardo and Adam Smith developed it. Marx added to it and refined it.  It’s also the subject of the next briefing in this series.

Capitalists believe that supply and demand govern the exchange value of goods.  What’s the mainstream economist’s answer to this question of how we price things? Supply and demand, meaning how much of a product is available, versus how many people want it (and how badly). Marx considered it reductive to say this was the only thing that influenced prices. He believed this was an attempt to obscure how labor actually drives the value of products.  

Plenty of useful things aren’t commodities.   Consider the food a farmer grows for their own family. Think of the soup we make for dinner. or any other product made in the home for home use (or to be given away in some other way than on the market).  These things are essential to our daily lives, and making them requires real labor.  But because they’re not made to be bought and sold, they aren’t commodities.

Selling commodities under capitalism alienates us from what we create, but we also depend on them. 

Through division of labor, bosses broke down the production process into small, repetitive tasks. Things once made by a master craftsman are now made by a few dozen quickly trained workers on an assembly line. This process is efficient, but leeches artistic and creative energy from our work. We don’t use what we create to fulfill our own wants and needs but instead put them to work in service of profit. Because of this, we don’t feel connected to what we produce.  And yet, if we eliminated commodity production, we’d feel the loss pretty acutely.  Socialists admit that despite the waste and knockoffs, we also produce wondrous things.  iPhones are pretty great, and so are nachos, comic books and Carhartt jeans.  Commodities do make our lives richer in many ways – a society without them tends to be poor in one form or another.
We’d lose all our shit, and then we’d all lose our shit. 

HOW IS THE PRICE OF A COMMODITY DETERMINED?

Commodity prices are determined in part by competition.  Marx outlines three axes on which this competition takes place:

• Between sellers who compete to sell the most, sell the cheapest, and gain market share.
• Between buyers; this is also known as high consumer demand.
• Between buyers and sellers. Buyers want a deal on price, sellers want to sell the most at the highest price for the greatest profit.

Capitalists measure profit against what costs they paid to create that commodity.

When a commodity rises in price, investment capital will flow toward that industry. They understand that’s where the money is. They will keep producing more of that commodity until they can no longer sell it at the inflated price. Soon, they may not be able to sell it even at the normal price.  This is because they’ve now made too much of the commodity, and now supply is greater than demand.  The opposite happens if prices dip below the normal price, i.e. the cost of production.  Capital will flee until production matches reduced demand.

Prices will bob up and down around the real value of a good, according to Marx.  This ebbing and flowing of prices up and down based on supply and demand tends to reach an equilibrium. Over time, if you average it out, prices tend to be equal to the cost of production.  

Labor gets more and less demand over time, too, and so wages go up, and they go down.  Remember that labor is a commodity. The baseline Marx is talking about? That’s supply and demand equalizing around the cost of production.  For labor, the cost of production is also the cost of subsistence.  

The price that labor power fetches on the market has to be enough to ensure more labor is available the next day.  But the cost of subsistence for a worker includes more than what it takes for a worker to get through the day.  It includes the cost of reproduction of labor.  In other words, workers get old and worn out, and have to be able to raise families that can provide future workers.  Marx admits your particular job might not be paying you even enough to scrape by. But for the economy to work as a whole, most employers have to pay most workers enough to get by. If they don’t, sooner or later they won’t have any workers, new or old.

WHAT IS CAPITAL?

Remember: anything of value that we can use to create more value is capital. Raw materials like iron, rubber, silicon, wood, wheat, sugar, tin, and diamonds are capital. So are tools & machinery, buildings, and anything else we use to produce goods and services. Capital includes land as well as tools of labor (machinery, etc).  It even includes labor itself, provided by workers.

Capital can take the form of commodities.  Whatever form that capital takes (steamships, wheat, XBox consoles, office towers) can change. But that doesn’t always change the amount or social relations of that capital.  It’s still capital, regardless of what form it takes.

Capital has exchange value.  Because of this, we can exchange different forms of capital for other forms on the market.  We can swap so many sprockets for so many stembolts, and so on.  A capitalist can sell a factory to buy new raw materials, or land, or a new computing system. They usually do this through the medium of currency or money.  The ratios by which we exchange them are what we call their price.

Thinking of goods as having inherent exchange value is, according to Marx, a form of fetishism.  Because our capitalist system is so big and influential, the products we buy and sell seem to have inherent exchange value. They don’t, though. This is a social construction we put upon them.  Humans made it up – we gave them that power, and they only have it because we all agree it exists.  That’s the “fetishism” Marx is talking about. We imbue the things we make with almost mystical power that dictates how we use them and distribute them. And remember: we relate to each other by buying and selling goods. Because of this, commodity fetishism affects how we treat and relate to one another.  Our behavior, relationships and ultimate destinies are ruled by things. We are subject to the power they have over our lives.

Capital is made, or made available, through labor and a system of labor relations.  Because we create products through labor, Marx refers to capital as accumulated labor.  Think of a car as the sum of all the labor that went into assembling it. Labor also created all the individual parts that went into it. Someone even worked to gather the raw materials themselves (steel, copper, glass, rubber).  Even the labor that went into training workers to do this counts as labor. It is “accumulated” into the finished product.   

Systems of labor relations change and differ from time to time and place to place.  We’ve had different systems of social relations throughout history. Each revolved around how society owned capital, produced goods, and treated laborers involved. In ancient societies the master/slave relationship was unfortunately common.  In feudal times, it was the dynamic between peasant and lord that ruled the day.  In capitalism, workers answer to the capitalist class.

Capitalists have, more control of capital than workers.  The accumulated labor of capital wields and directs the labor power of the working class. The needs of the factory or office determines what labor workers have to perform. It doesn’t go the other way around.

Capitalists buy labor power from workers.  Workers labor to make up the value of what they consume in wages. In doing so, they create more value than the capital that existed before. We go into this in more detail in the next briefing on the Labor Theory of Value.  In exchange, workers get a wage. But workers spend most of what they earn right away.  They tend to live paycheck to paycheck, unable to save up any capital of their own.

Reinvested capital is essential to capitalism’s success.  Capitalists accumulate enough to reinvesting some of their earnings back into their business.  They reinvest in new facilities, tools, machines, raw materials and more workers. This allows them expand production.

Capitalists say their relationship with workers is symbiotic. Workers (and Marxists) may believe it’s more parasitic.  Marx says capital and labor reinforce and rely on each other. But he insists it’s a relationship where only the owners of capital tend to get ahead.  Other economists may say they both need each other, the capitalist and the worker. To some extent, that’s true, but Marx believes this relationship is exploitative. 

Marx identifies commodities, money, and capital as the forms value takes in capitalism.  Commodities, you remember, are anything we make to buy and sell.  Marx called money the “universal equivalent” by which we can exchange anything for anything else.    Capitalism, revolves around the acquisition of these forms of value.  There are many other things worth valuing in our lives. Among these are the strength of our communities, and the health of our environment. Many individual capitalists even value these things, too. But they don’t get prioritized by this system unless doing so is profitable.   

How did we move away from the age of craftsmen and artisans? How did we come to workers making commodities while bosses sell them & pocket the profits? 

CIRCULATION – WHAT GOES AROUND COMES AROUND

Before capitalism, circulation was typically simple: we traded what we had for what we needed.  Ask yourself this – why do we trade things?  We have more than we need of something, and less than we need (or want) of something else.  Trade is an attempt to offload our excess to get something we don’t have.  When we do this, money and commodities circulate around between us and others in a market.  

Marx outlined this basic form of circulation as C-M-C:

    Commodities ─ Money ─ Commodities

We start with goods we have, exchange them for money, and then use that money to get other commodities we want or need.  You exchange the value of the chicken you bring into the market for an outfit, tool or other item of the same value.  Because of this, Karl Marx says no value has been gained or lost in this kind of transaction.  It just changes form.  

Traders for a living, or merchants, change this equation. They use the process to generate more money for themselves.  Merchants use their money to buy commodities. They then sell those commodities elsewhere for more money.  Instead of the end-goal of the trade being getting a commodity they need or want, the end goal is to make a profit.  They find places where a good is cheap, buy it, then sell it in a market where the goods aren’t as well known or available. Because of this, they can sell it for more than they paid for it.

A merchant’s method of exchange, then, looks like this:

Money ─ Commodities ─ Money‘ 

In other words, it’s the inverse of basic exchanges (like bartering) done to get something you want or need, but don’t have. If you add up the value that exists at the beginning to what exists after this equation is complete, it will be equal. What all the participants involved started with is equal to what they ended up with. It’s just changed hands; nothing new has been created. No new value has been added. The clever merchant has just ended up with a larger share of that same set of value.

Capitalism changes the game again by creating a method of exchange where new value gets made.  A businessman will start with some capital (money, factories, machinery and tools, etc). Through the production process they are able to create new value that wasn’t there before.  When they sell the end product for more than it cost to produce, they profit.  This new value, leading to profits, can get reinvested in the production process. This lets them make more and more products, even more quickly and efficiently than before.

Here’s the Capitalist Mode of Exchange, where MP is the Means of Production, 

and L stands for Labor Power (we’ll talk about why this is essential in the next briefing):

M ─ C (MP+L)…P… C’ ─ M’

In other words, an initial sum of money (M) is used to buy commodities (raw materials) that can be multiplied by the capitalist’s means of production (MP) and hired labor (The capitalist uses an initial sum of money (M) to buy commodities (raw materials). They can multiply this by the capitalist’s means of production (MP) and hired labor (L) through the production process (P). This creates more commodities of greater value (C‘). The capitalist sells these for more money (M‘) than the capitalist started with after accounting for his costs. As a result, profit is made.

That’s a lot, I know.  Here’s the simple version. Capitalists use this process to make products more valuable than what they had at the start.  Then they sell them for profit.

WRAPPING UP

Karl Marx and Friedrich Engels wanted to understand how capital creates commodities. They also described how our economy organizes around that mode of production. Communism was their alternative to a system they saw as destructive and exploitative. The abolition of private property was central to building that system.

“Private property” refers only to the productive property used in modern industry. With it, capitalists produce goods on a scale that dwarfs anything from previous eras. Private property does not refer to property you have for your own personal use. Karl Marx and Engels’ supporters aren’t coming to confiscate your PS5 in the middle of the night. They’re coming after a larger system they believe is unjust, unstable, and doomed to fail.

This doesn’t mean that they don’t respect capitalism’s accomplishments. Capitalism can’t be beat at building economic capacity and generating masses of wealth. Per Marx, capitalism may have been a necessary step. It had to have its day. Only then could socialism say to it, “you’ve done well but outlived your usefulness. We’ll take it from here.” Nor do Marx and Engels think we shouldn’t be able to work, produce goods or enjoy the fruits of what we create. However, this current system involves a kind of theft from workers. In that injustice lies the seed of capitalism’s ultimate end. In my next briefing on the labor theory of value, you’ll learn more about why they believe this.

TIRED OF READING?

The Youtuber Marxist Paul gives a well-produced, seven-minute summary of most of this – what private property is and isn’t, how commodities are central to capitalism, the differences between use-value and exchange-value, and even a discussion of the equations behind commodity exchange.

Cover Photo: Gamer holding a black Playstation controller. Photo by Agata Bertolini via Scopio

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