After the publication of Volume I of Capital, Kugelmann told Marx that in the opinion of many readers, Marx had not proved the concept of value. In the previously cited letter of July 11, 1868, Marx responded quite angrily to this objection: "Every child knows that a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs require different and quantitatively determined masses of the total labor of society. That this necessity of the distribution of social labor in definite proportions cannot possibly be done away with by a particular form of social production but can only change the form in which it appears, is self-evident. No natural laws can be done away with. What can change, in historically different circumstances, is only the form in which these laws operate. And the form in which this proportional distribution of labor operates, in a state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products." [1]
Here Marx mentioned one of the basic foundations of his theory of value. In the commodity economy, no one consciously supports or regulates the distribution of social labor among the various industrial branches to correspond with the given state of productive forces. Since individual commodity producers are autonomous in the management of production, the exact repetition and reproduction of an already given process of social production is completely impossible. Furthermore, proportional expansion of the process is impossible. Since the actions of the separate commodity producers are not connected or constant, daily deviations in the direction of excessive expansion or contraction of production are inevitable. If every deviation tended to develop uninterruptedly, then the continuation of production would not be possible; the social economy, based on a division of labor, would break down. In reality every deviation of production, whether up or down, provokes forces which put a stop to the deviation in the given direction, and give birth to movements in the opposite direction. Excessive expansion of production leads to a fall of prices on the market. This leads to a reduction of production, even below the necessary level. The further reduction of production stops the fall of prices. Economic life is a sea of fluctuating motion. It is not possible to observe the state of equilibrium in the distribution of labor among the various branches of production at any one moment. But without such a theoretically conceived state of equilibrium, the character and direction of the fluctuating movement cannot be explained.
The state of equilibrium between two branches of production corresponds to the exchange of products on the basis of their values. In other words, this state of equilibrium corresponds to the average level of prices. This average level is a theoretical conception. The average prices do not correspond to the actual movements of concrete market prices, but explain them. This theoretical, abstract formula of the movement of prices is, in fact, the "law of value." From this it can be seen that every objection to the theory of value which is based on the fact that concrete market prices do not coincide with theoretical "values," is nothing more than a misunderstanding. Total agreement between market price and value would mean the elimination of the unique regulator which prevents different branches of the social economy from moving in opposite directions. This would lead to a breakdown of the economy. "The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another" (C., I, p. 102).
A given level of market prices, regulated by the law of value, presupposes a given distribution of social labor among the individual branches of production, and modifies this distribution in a given direction. In one section, Marx speaks of the "barometrical fluctuations of the market prices" (C., I, p. 356). This phenomenon must be supplemented. The fluctuations of market prices are in reality a barometer, an indicator of the process of distribution of social labor which takes place in the depths of the social economy. But it is a very unusual barometer; a barometer which not only indicates the weather, but also corrects it. One climate can replace another without an indication on a barometer. But one phase of the distribution of social labor replaces another only through the fluctuation of market prices and under their pressure. If the movement of market prices connects two phases of the distribution of labor in the social economy, we are right if we assume a tight internal relation between the working activity of economic agents and value. We will look for the explanation of these relations in the process of social production, i.e., in the working activity of people, and not in phenomena which lie outside the sphere of production or which are not related to it by a permanent functional connection. For example, we will not look for an explanation in the subjective evaluations of individuals or in mathematical interrelations of prices and quantities of goods if these interrelations are treated as given and isolated from the process of production. The phenomena related to value can only be grasped in close relation with the working activity of society. The explanation of value must be sought in social "labor." This is our first and most general conclusion.
The role of value as the regulator of the distribution of labor in society was explained by Marx not only in his letter to Kugelmann, but also in various sections of Capital. Perhaps these observations are presented in their most developed form in Chapter 12, section 4 of the first volume of Capital [Chapter 14, section 4, in the English translation] (the section on the "Division of Labor and Manufacture"): "While within the workshop, the iron law of proportionality subjects definite numbers of workmen to definite functions, in the society outside the workshop, chance and caprice have full play in distributing the producers and their means of production among the various branches of industry. The different spheres of production, it is true, constantly tend to an equilibrium: for, on the one hand, while each producer of a commodity is bound to produce a use-value, to satisfy a particular social want, and while the extent of these wants differs quantitatively, still there exists an inner relation which settles their proportions into a regular system, and that system one of spontaneous growth; and, on the other hand, the law of the value of commodities ultimately determines how much of its disposable working-time society can expend on each particular class of commodities. But this constant tendency to equilibrium, of the various spheres of production, is exercised only in the shape of a reaction against the constant upsetting of this equilibrium. The a priori system on which the division of labor, within the workshop, is regularly carried out, becomes in the division of labor within the society, an a posteriori, nature-imposed necessity, controlling the lawless caprice of the producers, and perceptible in the barometrical fluctuations of the market-prices" (C, I, pp. 355-356).
The same idea is presented by Marx in Volume III: "The distribution of this social labor and the mutual supplementing and interchanging of its products, the subordination under, and introduction into, the social mechanism, are left to the accidental and mutually nullifying motives of individual capitalists... Only as an inner law, vis-a-vis the individual agents, as a blind law of nature, does the law of value exert its influence here and maintain the social equilibrium of production amidst its accidental fluctuations" (C., III, p. 880).
Thus without a proportional distribution of labor among the various branches of the economy, the commodity economy cannot exist. But this proportional distribution of labor can only be realized if the profound internal contradictions which lie at the very basis of the commodity society are overcome. On one hand, the commodity society is unified into a single social economy by means of the division of labor. Individual parts of this economy are closely related to each other and influence each other. On the other hand, private ownership and autonomous economic activity of individual commodity producers shatter the society into a series of single, independent economic units. This shattered commodity society "becomes a society only through exchange, which is the single economic process known to the economy of this society." [2]The commodity producer is formally autonomous. He acts according to his own one-sided judgment, guided by his own interest as he conceives it. But due to the process of exchange he is related to his co-negotiator (buyer or seller) and through him he is indirectly connected to the entire market, i.e., with the totality of buyers and sellers, in conditions of competition which tend to reduce market terms to the same level. The production connection between individual commodity producers in the same branch of production is created through exchange, through the value of the product of labor. Such a connection is also created between different branches of production, between different places in the country, and between different countries. This connection does not only mean that commodity producers exchange with one another, but also that they become socially related to each other. Since they are connected in exchange through the products of labor, they also become connected in their productive processes, in their working activity, because in the process of direct production they mUst take into account the presumed conditions on the market. Through exchange and the value of commodities, the working activity of some commodity producers affects the working activity of others, and causes determined modifications. On the other hand, these modifications influence the working activity itself. Individual parts of the social economy adjust to each other. But this adjustment is only possible if one part influences another through the movement of prices on the market, a movement which is determined by the "law of value." In other words, it is only through the "value" of commodities that the working activity of separate independent producers leads to the productive unity which is called a social economy, to the interconnections and mutual conditioning of the labor of individual members of society. Value is the transmission belt which transfers the movement of working processes from one part of society to another, making that society a functioning whole.
Thus we face the following dilemma: in a commodity economy where the working activity of individuals is not regulated and is not subjected to direct mutual adjustment, the productive-working connection between individual commodity producers can either be realized through the process of exchange, in which the products of labor are equalized as values, or it cannot be realized at all. But the interconnection between the individual parts of the social economy is an obvious fact. This means that the explanation of this fact must be sought in the movement of the values of commodities. Behind the movement of value, we must uncover the interrelations between the working activities of individuals. Thus we confirm the connection between the phenomena related to value and the working activity of people. We confirm the general connection between "value" and "labor." Here our starting point is not value, but labor. It is erroneous to represent the matter as if Marx had started with the phenomena related to value in their material expression and, analyzing them, had come to the conclusion that the common property of exchanged and evaluated things can only be labor. Marx's train of thought moves precisely in the opposite direction. In the commodity economy, the labor of individual commodity producers, which directly has the form of private labor, can acquire the character of social labor, i.e., can be subjected to the process of mutual connection and coordination, only through the "value" of the products of labor. Labor as a social phenomenon can only be expressed in "value." The specific character of Marx's labor theory of value lies in the fact that Marx does not base his theory on the properties of value, i.e., on the acts of equalization and evaluation of things, but on the properties of labor in the commodity economy, i.e., on the analysis of the working structure and production relations of labor. Marx himself noted this specific character of his theory when he said: "Political Economy has indeed analyzed, however incompletely, value and its magnitude, and has discovered what lies beneath these forms. But it has never once asked the question why labor is represented by the value of its product and labor-time by the magnitude of that value" (C., I, p. 801 italics by I.R.). Starting with the working activity of people, Marx showed that in a commodity economy this activity inevitably has the form of the value of products of labor.
Critics of Marx's theory of value are particularly opposed to the "privileged" position which is given to labor in this theory. They cite a long list of factors and conditions which are modified when the prices of commodities on the market change. They question the basis according to which labor is isolated from this list and placed in a separate category. To this we must answer that the theory of value does not deal with labor as a technical factor of production, but with the working activity of people as the basis of the life of society, and with the social forms within which that labor is carried out. Without the analysis of the productive-working relations of society, there is no political economy. This analysis shows that, in a commodity economy, the productive-working connection between commodity producers can only be expressed in a material form, in the form of the value of products of labor.
One may object that our view of the internal causal connection between value and labor (a causal connection which necessarily follows from the very structure of the commodity economy) is too general and undoubtedly will be questioned by critics of Marx's theory of value. We will see below that the formulation of the labor theory of value which we give now in its most general form will later acquire a more concrete character. But in this general formulation, the presentation of the problem of value excludes, in advance, a whole series of theories and condemns to failure an entire series of attempts. Concretely, theories seeking the causes which determine value and its changes in phenomena which are not directly connected with the working activity of people, with the process of production, are excluded in advance (for example, the theory of the Austrian school, which starts with the subjective evaluations of individual subjects isolated from the productive process and from the concrete social forms in which this process is carried out). No matter how keen an explanation was given by such a theory, no matter how successfully it discovered certain phenomena in the change of prices, it suffers from the basic error which assures all its special successes in advance: it does not explain the productive mechanism of contemporary society nor the conditions for its normal functioning and development. By pulling value, the transmission belt, out of the productive mechanism of the commodity economy, this theory deprives itself of any possibility of grasping the structure and motion of this mechanism. We must determine the connection between valueand labor not only to understand the phenomena related to "value," but in order to understand the phenomenon "labor" in contemporary society, i.e., the possibility of unity of the productive process in a society which consists of individual commodity producers.
[1] Marx's letter to L. Kugelmann, July 11, 1868, in Karl Marx and Frederick Engels, Selected Works in Two Volumes, Volume II, Moscow: Foreign Languages Publishing House, 1962, p. 461.
[2] Rudolf Hilferding, Finanzkapital (Russian edition, 1923, p. 6).