At time of writing, an ounce of gold costs $1,863.25. Bottled water costs 70 cents. If you had 2,661 bottles of water, you could trade them for 1 ounce of gold—if you were good at haggling.
But why would you ever do that? You might wear gold as decoration, or shape gold to fill a cavity, or thread gold through a microchip. Water, meanwhile, keeps you alive. You can go maybe three days without it. Why is it that practically-useless gold is worth so much more than life-sustaining water? How can we even measure one by the other?
Use-Value and Exchange-Value
The answer lies in the distinction between use-value and exchange-value. Every commodity—every useful thing made to be traded away—has both, but the two are totally unrelated.
Use-value is a commodity’s ability to satisfy some need or desire. A gallon of water maintains your homeostasis, but also puts out fires or cleans things off. A sandwich satiates you, a game entertains you, a coat warms you. This changes with context; you don’t need a coat on a summer day, and you might care more about a coat’s looks than its thermodynamics.
Use-values are qualitative, not quantitative, and they’re largely incommensurable. Some object or service satisfies you or doesn’t, and makes no difference to your other needs. Both a sandwich and a steak can sate your hunger, and you could measure how many calories each provides, but no number of sandwiches substitutes for a glass of water, or a breath of air, or pair of shoes, or a good book.
Nevertheless, everything mentioned has some exchange-value, some number of other things that someone is willing to swap it for. Gold and water fulfill totally different needs, but you can trade a mass of water for a speck of gold. Twelve or thirteen sandwiches could yield one a video game. You wouldn’t trade any number of coats for a breath of air—not until climate change gets really bad, anyway.
Where do these exchange-values come from? Gold and water have practically nothing in common, but there’s some factor that lets us compare them mathematically, or compare either to a toothbrush, or compare that toothbrush to a car. Unlike use-values, exchange-values are quantitative—they’re measuring some scaling, linear parameter that all commodities share. Maybe not perfectly—people bargain—but there’s something telling us that one car is worth more than one toothbrush.
The Labor Theory of Value
That something is value—the socially necessary labor time required for production. This definition originates in the writings of liberal economists like Smith and Ricardo; Marx just takes it to its logical conclusion.
Basically, a thing’s “value” is how hard it is to make or find. It’s trickier to make a phone than a boot, so it’d be unfair to offer someone boots for their phone. If they’re barefoot in the snow, they might take the deal, but they’ll still know it’s a bad deal because boots are more common than phones. But what does “socially necessary” mean?
Socially Necessary Labor
First, “socially necessary” assumes a worker of average productivity. Of course, not all labor is equal. You might work harder than I do or be better trained. Switching a surgeon and electrician will cause problems in both the hospital and the breaker room. However, there is such a thing as an average surgeon or an average electrician, and we can use either as our standard where appropriate. It might take me a week to weave a basket and you just a day, but our buyer doesn’t care; they just need something to carry stuff in.
Second, “socially necessary” varies with context. It’s quicker to fell a tree with a chainsaw than with an axe. It’s quicker to find a tree in the Rockies than in the Sahara. A change in the conditions of production means a change in the value of what’s produced, like it or not. Once chainsaws get popular, wood loses value, and sticking with an axe earns you no sympathies; you’ll find that everyone’s lumber trades for less, and that, unlike people with chainsaws, you haven’t got any more to offer.
Third, socially is a crucial part of “socially necessary”. Value arises from society’s aggregate ability to find or make something, not any individual’s luck. If you trip over a diamond in your backyard, you did a couple seconds’ labor. Compare that to the total time all humanity has spent searching, panning, and mining for diamonds, divided by the number of diamonds actually found. The socially necessary labor time in one diamond is enormous! You’re suddenly rich precisely because the value of any diamond is based on the human average, not your experience.
Finally, a commodity needs to be necessary, socially. If no one wants a mud pie, a mud pie you spent hours on has no value. If there’s a glut of baskets across society, weaving another basket wastes everyone’s time.
The Law of Value
So, why is gold more valuable than water? Only because it’s harder to find gold than water. Some things have no value because they don’t take labor to procure—air, for instance.
To Marx, the value of a commodity is the center of gravity around which exchange-value fluctuates. Things won’t necessarily be traded exactly at their values, but, generally, how hard something is to get determines how much of it’s available and how dearly people pay for it.
Price is just something’s exchange-value measured in whatever commodity counts as money. This is often gold, since gold is valuable (hard to find), imperishable, and malleable. Nowadays, money is more abstract, but the principle’s the same; price immediately measures how much one owner wants for one commodity, but flows from how time-consuming that commodity is to make or find.
Value becomes exchange-value which becomes price… and use-value sits on the sidelines. A commodity has to have a use-value to have a value, sure, but that’s the only connection. Value’s a quantity, use-value a quality. Something might have enormous value but trivial use-value, or tiny value but life-defining use-value.
Trade and Alienation
When you trade a commodity away, you’re alienating—giving up—its use-value. Simultaneously, you’re realizing its exchange value. If you start with yarn that took an hour to make, then spend four hours knitting a hat, you’ve now got the means to keep your ears warm, but also five total hours of materialized labor. You could wear the hat yourself, but you’ll never get paid for it. You could trade the hat for something also worth five hours, but you’d never get to wear it. Maybe you swap two hats for one ten-hour basket, or maybe you sell hats for $5 each. Assuming $1 represents one hour, it all adds up: $1 of yarn plus 4 hours’ time makes a $5 commodity.
This is the free market ideal: trading commodity for commodity, swapping use-values around while ensuring that exchange-values match. Weave two hats, wear one, sell the other for $5, buy a $5 book – now both you and the printer have warm ears and fresh reading material. Everybody wins! And, the whole way through, value’s preserved: a $5 commodity became 5 actual dollars, which became another $5 commodity.
But, mysteriously, some people start with money, buy commodities, then sell commodities for more money than before. A capitalist might buy $2 worth of yarn, pay $6 to hire you for the day, have you weave two hats, and sell those hats for $10. Somehow, they bought commodities worth $8, then sold some commodities for $10. What happened? Where did the $2 extra come from? Were you underpaid? To answer that, we need to figure out what, exactly, the capitalist bought from you.
Labor and Labor-Power
The commodity that makes capitalism go is labor-power, the human capacity to work. This is your health, your stamina, your life-force; the muscle, brain, and nerve that gets worn down by work and recharged by rest. Shoes and cars and so on come out of production, but social reproduction regenerates your labor-power from day to day. This involves things like food, rest, and shelter, but also self-expression, socialization, and care work.
The value of a day’s labor-power is, of course, the hours of socially necessary labor required to (re)produce it. We can add up the value of three meals, half a gallon of water, one thirtieth of a shirt that wears out after a month, one three-sixty-fifth of a house that needs repairs after a year, and so on. This is the “basket of goods” that keeps a worker alive and fit to work for a day.
As usual, the value of a day’s labor-power is context-dependent. A highly productive society might easily make food, housing, and the rest of the basket. However, the living standards of that society might be high, such that the basket is bigger than it used to be. Either way, all this combines to produce some definite number of hours required to regenerate one worker for one day.
The use-value of labor-power is simply doing labor—and labor creates value. When you consume labor-power, you get work, just like you get nutrition when you consume an apple. That work, itself, generates new value. It doesn’t have to; you might spend the day goofing off or screwing up, just like you might drop an apple into mud before you even take a bite. But labor-power can be consumed to create value; in fact, it can create more value than it had to start with. That’s the basis of human progress; if it took more than a day to produce a day’s necessities, you couldn’t possibly survive, and if it took exactly a day to produce a day’s necessities, you’d be stuck in a loop.
The distinction between labor and labor-power is very important. You can’t sell someone labor any more than you can sell someone the taste of an apple. But you can sell someone your labor-power, just like you can sell someone a physical apple. It’s then up to them what to do with it.
Freedom, Equality, Property and Bentham
So, suppose that it takes six hours to make the stuff that keeps you healthy for a day. That means a day’s labor-power is worth $6. That means that when a capitalist hires you for $6, they’re paying you the full value of your commodity, just as if they paid you $5 for one of your hats. You could demand $8 for your labor-power, but it’d be like asking $7 for your hat; the buyer would just look elsewhere, knowing that what they want comes cheaper.
Selling your hat yields its $5 exchange-value, but your buyer gets the use-value of wearing the hat. Selling your labor-power gets you $6, but your buyer gets the value your labor creates. You’ve been alienated from your labor. Why are you selling labor-power, not hats? You’ve got nothing else to sell; you’ve got no yarn to start with, and need those $6 today if you want to stay alive.
So, you work an eight-hour day and produce eight hours of value, exceeding the six-hour value of the labor-power you sold. A capitalist buys $2 of yarn, combines it with $6 of your labor-power, and gets $10 of hats. They consume your labor, so they capture the surplus it produces.
Were you underpaid? No, you were paid the full value of the labor-power. Were you cheated? No, you saw the contract ahead of time. Were you coerced? No, you could have found some other buyer, or not traded at all. You and the capitalist dealt as legal equals, exchanging commodity for commodity for mutual advantage. Nevertheless, the capitalist’s profit came out of your exploitation. Surplus comes exclusively from the difference between the value and use-value of labor-power, and since only the capitalist gets that surplus, you’re left right where you started. Until and unless we seize the means of production for ourselves, we’ll be stuck in that loop, selling off our lives one day at a time.