PostCapitalism-_Paul-Mason_-_z-library.sk_-1lib.sk_-z-lib.sk_

Towards the Free Machine

There was a tent camp, a noisy crowd, the drift of tear gas and a small pile of free stuff: this was Gezi Park during the 2013 protest in Istanbul. The tent camp allowed people to live for a few days just how they wanted to; the free stuff was the ultimate gesture of hope.

On the first day the pile was small: packets of salami, cartons of juice, some cigarettes and aspirins. By the last day it had become a toppling pyramid of everything: food, clothes, medicines and tobacco. Young people would pick up armfuls of it and walk round the park in groups, insisting you take some. Of course none of the stuff was really free. It had been bought and donated. But it symbolized a desire to live in a society where some basic things are shared.

And that’s an old desire. During the first decades of the nineteenth century, surrounded by a system determined to put a price on everything, the left formed utopian communities based on sharing, cooperation and collaborative work. They were mostly failures, for the ultimate reason that everything was scarce.

Today, not so many things are scarce. The ability of people in a city like Istanbul to build a mountain of free food testifies to that. The recycling dumps in European cities show it too: as well as outright rubbish, you will find people dumping wearable clothes, spotless books, usable electronics – items that once had value now have no selling price and are given away to be recycled or shared. Energy, of course, remains scarce – or rather the carbon-based energy we’re addicted to does. But the most critical

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commodity of twenty-first-century life is not scarce at all. Information is abundant.

This advance from scarcity towards abundance is a significant development in the history of humanity, and the great achievement of fourth-wave capitalism. But it’s a major challenge for economic theory. Capitalism made us see the price mechanism as the most organic, spontaneous, granular thing in economic life. Now we need a theory of its disappearance.

We need to start by getting past the issue of supply and demand. Supplyand-demand clearly works: if more garment factories open in Bangladesh, cheap clothes get cheaper. And if the cops arrest drug dealers just before the clubs open, ecstasy becomes more expensive. But supply and demand explains only why prices fluctuate. When supply and demand are equal, why isn’t the price zero? Obviously it can’t be. In a normal capitalist economy, based on scarce goods and labour, there has to be a more intrinsic price around which the selling price moves up or down. So what determines that?

Over the past 200 years, two completely different answers have been put forward. Only one of them can be right. Unfortunately it is not the one taught in economics courses.

In this chapter I am going to mount a sustained defence of something called the ‘labour theory of value’. It’s not popular because it’s not very useful for calculating and predicting movements within a functioning and stable market system. But faced with the rise of info-capitalism, which is corroding price mechanisms, ownership and the connection between work and wages, the labour-theory is the only explanation that does not collapse. It is the only theory that allows us to properly model where value is created in a knowledge economy, and where it ends up. The labour-theory tells us how to measure value in an economy where machines can be built for free and last for ever.

WORK IS THE SOURCE OF VALUE

Amid the empty shops in the run-down high street of Kirkcaldy, Scotland, there is a branch of Gregg’s. Gregg’s sells high-fat food at low prices and is one of the few places busy at lunchtime. A glance at Scotland’s poverty map gives the context: the town is dotted with areas of extreme deprivation and ill health.¹

On the wall outside Gregg’s is a plaque marking the house where Adam Smith wrote The Wealth of Nations. Nobody takes much notice. But this is where, in 1776, the economic principles of capitalism were first laid out. I’m not sure Smith would like the look of his home town today, blighted by de-industrialization, low pay and chronic sickness. But he would have understood the cause. The source of all wealth, said Smith, is work.

‘It was not by gold or by silver but by labour that all the wealth of the world was originally purchased,’ Smith wrote; ‘and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.’² This is the classic labour theory of value: it says the work needed to make something determines how much it’s worth.

There is a raw logic to this. If you watch a water-wheel long enough, it helps you understand physics. If you witness workers sweating thirteen hours a day in a machine workshop, as Smith did, you will understand that it is the workers, not the machines, that produce the added value.³

Standard textbooks will tell you Smith thought the labour-theory was valid only for primitive societies, and that when it came to capitalism, ‘value’ was the combined product of wages, capital and land. This is incorrect.⁴ Smith’s labour theory of value was inconsistent, but on a detailed reading of The Wealth of Nations the argument is clear: labour is the source of value but the market can only reflect this roughly, through what Smith calls ‘higgling and bargaining’. So the law operates beneath the surface in a full capitalist economy. Profits and rents are deductions from the value produced by labour.⁵

David Ricardo, the most influential economist of the early nineteenth century, created a more developed model. Published in 1817, it established the labour-theory as firmly in the public mind as supply and demand is now.

Ricardo, who had witnessed the great upsurge of the factory system, ridiculed the idea that machines were the source of increased wealth. Machines merely transfer their value to the product; only labour adds new value, he said.

The magic of machinery lay in increased productivity.⁶ If you can use less labour in making something, it should be cheaper and more profitable. If you cut the amount of labour needed to produce hats, he wrote, ‘their price will ultimately fall to their new natural price, although demand should be doubled, trebled, or quadrupled’.⁷

After Ricardo, the labour-theory became the signature idea of industrial capitalism. It was used to justify profits, which rewarded the work of the mill owner; it was used to attack the landed aristocracy, who were living off rents instead of working; and it was used to resist workers’ demands for shorter hours and union rights, which would hike the price of labour to ‘artificial’ levels, i.e. above the minimum needed to feed, clothe and house a working family.

However, despite its ultra-capitalist rationale, the labour-theory proved subversive. It created an argument about who gets what, which the factory owners immediately started to lose. Amid the candlelight of the pubs where the early trade unions met, David Ricardo suddenly had a whole new set of followers.

The worker-intellectuals of the 1820s understood the revolutionary implication of the labour-theory: if the source of all wealth is work, then there’s a legitimate question about how that wealth should be distributed. Just as a rent-seeking aristocracy can be shown to be parasites on the productive economy, so too can capitalists be seen as parasites on the work of others. Their work is needed – but the factory system looks as if it is structured to deliver them excess rewards.

‘There is nothing more than the knowledge, skill and labour requisite [to set up a factory] on which the capitalist can found a claim to any share of the produce,’ wrote Thomas Hodgskin, a naval lieutenant turned socialist, in 1825.⁸

As illegal trade unions spread the doctrine of ‘Ricardian socialism’, the factory owners’ enthusiasm for the labour-theory waned. By the time the British middle classes won the vote, in 1832, their need to justify capitalism with any kind of theory had vanished. Wages, prices and profits were no longer things to be investigated by social science, they were just there, to be described and counted. Ricardo was out, but all that replaced him was theoretical confusion.⁹

If, as a result, mid-nineteenth-century economics was reduced to ‘describing and counting’, there is a parallel with natural science. Charles Darwin formulated the theory of natural selection in 1844 and Alfred Russel Wallace three years later. Yet such were its implications – chiefly, rubbishing the Creation myth – that both men resorted to a routine of ‘collecting, naming and categorizing’ their specimens until 1858, when they both suddenly rushed to publication with an earth-shaking theory.

In economics, the earth-shaking theory arrives with Marx. It’s often claimed that Marx built on the theories of Smith and Ricardo. In fact he demolished them. He described his project as a critique of political economy: of Smith, Ricardo, the Ricardian socialists, the liberal moralists and the bean counters. He said – long before mainstream economists did so in the 1870s – that Ricardo’s version of the labour-theory was a mess. It would have to be rewritten from scratch.

Marx recognized in the labour-theory, despite all its flaws, something that could explain both how capitalism worked and why it might one day cease to work. The version he produced is coherent and has stood the test of time. There are thousands of tenured academics – including some of the world’s most cited scholars – who teach that it is correct. The problem is, very few of them are allowed to teach economics.

THE LABOUR-THEORY BY NUMBERS

When a buyer from Primark signs a contract for 100,000 T-shirts with a factory in Bangladesh, that is a transaction. When a Bangladeshi worker arrives at the factory each morning, expecting the equivalent of \$68 a

month in return, that is also a transaction.¹⁰ When she spends a fifth of her daily wage to buy 1kg of rice, that too is a transaction.¹¹

When we make transactions, we have in our minds a rough idea of what the thing we’re buying is worth. If the labour-theory is right, we are unconsciously judging its value against the amount of other people’s work that thing, or service, contains.

What follows is a brief, simple explanation of the labour theory of value. Long, complicated versions are available but for the purpose of understanding how postcapitalism might work, only the basics are needed.

A commodity’s value is determined by the average amount of labour hours needed to produce it.¹² It is not the actual number of hours worked that sets the value but the ‘socially necessary’ hours of work established across each industry or economy. So the basic unit of account here can be summed up as ‘hours of socially necessary labour time’. If we know what an hour of basic labour costs – in Bangladesh the minimum wage pays about 28 US cents an hour – we can express it in money. Here I will just stick to hours.

Two things contribute to the value of a commodity: (a) the work done in the production process (which includes marketing, research, design, etc.) and (b) everything else (machinery, plant, raw materials, etc.). Both can be measured in terms of the amount of labour time they contain.

The labour-theory treats machines, energy and raw materials as ‘finished labour’ – transferring their value to the new product. So if the cotton for one garment took altogether thirty minutes average labour to grow, spin, weave and transport, it will transfer that value to the final shirt. But with machines and other big capital goods the process takes time; they transfer their value in small chunks. So if a machine took a million hours’ worth of labour to make, and over its lifetime it makes one million objects, each object will carry a single hour of the machine’s value into its final value.

Meanwhile, we treat the actual labour expended within the firm’s production process as new value, added by what Marx called ‘living labour’.

This underlying process – labour time determines the amount of new value – operates at a deep level, behind the backs of workers, managers, wholesale buyers and Primark shoppers. When we negotiate a price, it can be influenced by many other things – supply, demand, short-term usefulness, the lost opportunity if we don’t buy, the cost of spending instead of saving – everything Adam Smith summed up in the evocative word ‘higgling’. But at an aggregate level, the price of all the goods and services sold in a given economy is just a monetary expression of how much labour it took to produce them.

The problem is, we only know if we paid the right price after the event. The market acts like a giant calculating machine, rewarding those who guessed correctly what the socially necessary cost was, and penalizing those who used too much labour.

So prices always diverge from the underlying value of things, but they are ultimately determined by it. And value is determined by the amount of necessary labour it took to make the commodity.

But what determines the value of labour? Consistent with everything else, the answer is: other people’s labour – the average amount of labour it takes to present each worker at the factory gate, ready for work. This includes the work that went into producing the food they consume, the electricity they use, the clothes a worker wears and – as society develops – the average amount of education, training, healthcare and leisure consumption needed for the worker to do their job.

Of course, the average cost of an hour’s labour changes from one country to another. These differences are one of the reasons firms move production offshore. Childcare at a subsidized workplace nursery in Bangladesh costs the equivalent of 38 US cents a day, while in New York City a nanny costs \$15 an hour.¹³ In the past decade, global production chains have moved work from China to Bangladesh as workers in China achieved better pay rates, even though Bangladeshi productivity is lower. Bangladeshi labour was so cheap for a time that it offset the inefficiencies.¹⁴

So where does profit come from? In the labour-theory, profit is not theft – as in a rip-off. On average, a worker’s monthly salary will reflect the

amount of labour by others needed to produce their food, their energy needs, their clothes, etc. But the employer comes away with something more. My boss can pay me the true value of the eight hours work I just did. But that true value might be just four hours.

This mismatch between the inputs and outputs of human labour is the kernel of the theory, so let’s look at an example.

Nazma at the Bangladeshi shirt factory agrees to work for a wage that seems roughly enough to pay for a month’s food, rent, leisure, transport, energy and so on, plus a bit on top to put by as savings. She would like to earn more, but there’s a relatively narrow range of wages for factory work, so she has a very clear implicit grasp of the average hourly wage possible with her skills.

But her employer is not buying her work per se: he is buying her ability to work.

If we forget money and measure everything in ‘hours of necessary work’, we can see how profit is generated. If the cost of putting Nazma at the factory gate six days a week is thirty hours work by other people spread across the whole of society (to produce her food, clothing, energy, childcare, housing and so on), and she then works sixty hours a week, her work is providing double the amount of output for the inputs. All the upside goes to the employer. Out of an entirely fair transaction comes an unfair result. This is what Marx calls ‘surplus value’, and is the ultimate source of profit.

Another way of putting this is to say: labour is unique. Of all the things we buy and sell, labour alone has the ability to add value. Work is not just the measure of value but the motherlode from which profit is mined.

One clue as to the truth of this is that wherever they can get labour for free – as in the American prison system or Nazi death camps – capitalists immediately take advantage of it. Another clue lies in the fact that, wherever they need to pay labour below its average value, as during the rise of the Chinese export industry, managers resort to providing the inputs collectively: dorms, uniforms and canteens. The labour of a dormitory workforce is much cheaper than the social average, which is based on the

living costs of a family in a home – and of course dormitory workers can be disciplined more easily.

But why, if the real weekly value of my labour is thirty hours of other people’s work, would I ever work sixty hours? The answer is: the labour market is never free. It was created through coercion and is re-created every day by laws, regulations, prohibitions, fines and the fear of unemployment.

At the dawn of capitalism, average working days of fourteen hours or more were imposed – not just on adults but on children as young as eight. A rigid system of timekeeping was implemented: rationed toilet time, fines for lateness, product defects or talking, enforced start times; and immovable deadlines. Wherever we see the factory system created afresh – whether in Lancashire in the 1790s or Bangladesh in the last twenty years – we see these rules enforced.

Even in advanced countries the labour market is built overtly on coercion. Just listen to any politician make a speech about welfare: cutting unemployment and disability benefits is designed to force people to take jobs at wages they can’t live on. In no other aspect of the market does the government coerce us to take part; nobody says ‘You must go ice skating or society will collapse.

Work for a salary is the bedrock of the system. We accept it because, as our ancestors learned the hard way, if you don’t obey, you don’t eat.

So our work is precious. If you ever doubt this, study what happens in the fulfilment centre of an e-commerce retailer, or a call centre, or in the work schedule of a home-care worker. You will see work timed and targeted as if the minutes were gold dust. Which, to the employer, they are. Of course at the high-skill, high-wage end of the labour market it is not time or discipline, but targets and quality control that are the instruments of coercion.

There is more to explore about the labour theory of value but let’s pause. We already know enough to start attacking it with the tools that are to hand in every economics department.

SOME VALID OBJECTIONS …

Here’s why I like the labour theory of value. It treats profit as if it were made somewhere central within capitalism: the workplace, not the marketplace. And it treats one of the most basic things we do every day – work – as if it were important to economics. But there is also a long list of valid objections to the labour-theory:

Q: Why do we need a ‘theory’ at all? Why not just the facts – as in the GDP figures, company accounts, the stock markets, etc.?

A: Because we want to explain change. In science we want to go beyond a neat row of butterflies pinned under glass; we need a theory of why each sub-species looks slightly different. We want to know why, during a million repetitions of their normal lifecycles, small variations can emerge and then, suddenly, massive change.

Theories allow us to describe the reality we can’t see. And they allow us to predict. All forms of economics accept the need for theory. But the difficulty of finding one, and confronting its implications, led economics in the late nineteenth century to retreat from the scientific method.

Q: Why can’t I ‘see’ value, surplus value and labour time? If they don’t show up in the accounts of companies, and professional economists don’t acknowledge them, aren’t they just a mental construct?

A: A more sophisticated way of putting it would be to say, as the Cambridge economist Joan Robinson did in the 1960s, that the labourtheory is ‘metaphysical’ – a mental construct whose existence could never be disproved. For good measure she said the same about ‘utility’ – the key idea in mainstream economics – but accepted that metaphysics was better than nothing.¹⁵

Yet the labour-theory is more than metaphysics. Of course it works at a certain level of abstraction: that is, parts of reality are filtered out. For example, it is a model of a pure capitalism, in which everybody works for wages; there are no slaves, peasants, mobsters or beggars. It describes a process that works ‘behind the backs’ of economic agents: nobody can calculate whether they are spending more or less than the necessary labour time – though making a decent guess at it has become crucial to productivity management.