The Condition of Alienation and the Transformation of Value into Price in Karl Marx

Abstract

Using the philosophies of Louis Althusser and István Mészáros, this article seeks to interpret Marx’s theory of the transformation of value into price based on a philosophical view that emphasizes both the base/superstructure dialectic (Althusser) and alienation under capitalism (Mészáros). According to the logic of dialectical materialism, the economic base of the capitalist mode of production is determined by a historical dialectic (alienated labor) that produces an unsolvable contradiction with the capitalist imperatives of the superstructure. The alienation of the workers is perpetuated through their active subordination to the ideal and material power of the capitalist superstructure (including its ideal “law of value” which postulates the domination of exchange value over use value). They are led to believe that the profit-embedded prices of the commodities they produce have nothing to do with them. The illusion is that these prices are decided by an abstract “free market.” In reality, the laborers, due to their alienation, contribute directly to the formation of these prices by allowing the capitalists to freely compete with each other by lowering their respective “price of production.” There can be no profitable prices under capitalism without the contradictory condition of alienation perpetuated by the ideal power of the superstructure.

Main article text

Introduction

This article aims to make the “transformation theory” accessible and understandable to individuals in the social sciences who do not have a strong background in political economy or economics. It also seeks to reassert the philosophical essence of the “transformation theory” which has gone through scrupulous debates in the field of economics. Marx was always primarily a philosopher due to the centrality of both the concept of “alienation” and the logic of “dialectical materialism” (a unity of dialectics and materialism) throughout his career. Through the Marxian theories of philosophers Louis Althusser and István Mészáros, the article shows that the transformation of value into price happens only through the labor of the concrete laborers embodying the totality of capitalist relations. Indeed, under capitalism, capital (the generalized relation of the private appropriation of surplus value or surplus labor time) has overwhelming ideological and material power over labor due to the latter’s historical state of alienation. In Marxism, “labor” is a category that represents both abstract labor and concrete labor; although abstract labor truly leads history (meaning the “totality of the relations of production” embodied by concrete labor).

Alienation is the general social condition of the human being under capitalism that is caused by the separation of the laborers from the means of production. This separation, which is completely specific to the capitalist mode of production, trickles into every aspect of life, alienating the human being from everything and everyone.

Under slavery and feudalism, the relation between use value and exchange value is not one of subordination. Although both the slave and the serf are exploited, they are not alienated from the means of production. The slave is part of the means of production (he lives on the fields or properties of the master) and the serf lives, works, and eats on the land of the lord. Both the slave and the serf are fully conscious of their own exploitation, as they are personally (or intimately) and politically forced to work hours beyond the required amount of work that they need to produce their own basic needs. Only with capitalism, is the relation between use value and exchange value flipped upside down in a way where use value becomes subordinated to exchange value. Due to the impersonal and apparently “fair” alienation of the laborers from the means of production (since private property appears as the foundation of freedom in bourgeois society), individuals become alienated from everything and everyone which makes commodities gain a self-sustaining power: commodities appear to have agency, meaning, and value outside of the laborers’ role in their production. Indeed, under capitalism, the laborers are considered “free” men with civil rights, but to survive they must find a wage labor contract with a capitalist. Their propertyless condition, combined with a generalized sense of self-responsibility, leads them to believe that their labor time is properly compensated by the capitalists through wages. They do not see a direct and personal relationship between each other as laborers or between them and the final commodities they produce (or whatever thing or service of value they offer) that are owned by the capitalist. With the fetishism of commodities, money, the representation of all commodities, becomes the ultimate mediator in all relationships, determining interactions among individuals, between individuals and objects or ideals, ultimately leading laborers to overlook their foundational role in creating and transforming themselves and all values in society. Moreover, because of the power of money and the fetishism of commodities, the alienated laborers (who have false consciousness) are unable to realize that the extra unpaid labor time of the laboring class, is at the root of capitalist profit.

Marxists David Yaffe (1974), Paul Mattick (1983), Fred Moseley (2017), Ben Fine, Costas Lapavitsas, and Alfred Saad-Filho (2004) have successfully solved the “transformation problem” first put forth by Bortkiewicz (1952). They each reiterated the precepts of the transformation theory as explained by Marx in Volume III of Capital (and in other economic works). These precepts are based on both dialectical materialism and the assumptions of classical political economy. That said, because of these Marxists’ overall focus on Marx’s economic works, they did not emphasize Marx’s philosophy of human nature (his ontology) or the fundamental philosophical opposition between Marx and classical economists.

This article seeks to advance the debate on “transformation theory” by demonstrating that Marx’s philosophical aim was to argue that the inherent irrationality of the capitalist price system stems from the unnatural human condition that ontologically precedes it: alienation. Nothing is natural about the capitalist price system. It is due to the historically imposed condition of alienation—an essentially social/abstract condition with concrete consequences—that surplus value was made available to be snatched from labor in the production sphere by capital through a free market defined by average “equilibrium” prices. Surplus value, as unpaid labor time, acquires quantitative significance primarily through the subjugation of total social labor to capital and secondarily through coercive capitalist competition in the sphere of circulation. That said, in its essence, surplus value is a purely qualitative element meant to be directly enjoyed by social labor. It is the “disposable time” that labor possesses beyond the “necessary labor time” needed to produce socially determined “needs” (which under capitalism include private luxury, warfare, useless needs, and waste). For Marx the philosopher, the transformation theory is not a contribution to classical economics at all; it is a theory meant to destroy the perfect image of economics through politics founded on dialectical materialism and geared toward the dismantling of both alienation—the unnatural human condition—and its ensued capitalist price system. It is in his earlier work (Thesis on Feuerbach, The German Ideology, The Poverty of Philosophy, The Eighteenth Brumaire of Louis Bonaparte, and The Critique of Hegel’s Philosophy, etc.) that Marx affirmed the political role of philosophy and condemned the alienating and dehumanizing rule of the capitalist law of exchange value.

The article is divided into four sections. The first section presents Marx’s logic of dialectical materialism with an emphasis on alienation as the historically specific “mediation” defining the economic base in the era of capitalism. István Mészáros’s notion of the “mediation” as well as Louis Althusser’s explanation of the base/superstructure dialectic, are emphasized. The second section delves further into the meaning of alienation in relation to the “law of value,” a crucial law for the transformation theory of value into price. According to this law, the values of commodities depend on the average socially necessary labor time for their production. The third section presents the “equilibrium” theory of classical political economists. This is the theory Marx wanted to dismantle through the development of his “transformation theory.” The fourth section deals directly with the Marxian transformation theory and how it is possible to explain this theory through dialectical materialism and the concept of alienation. Marx showed that although the law of value is socially dominant, there is an inalienable contradiction between value and price that directly reflects the unsolvable contradiction (alienated labor) present within the base and between the base and the superstructure in the era of capitalism. Average prices result from the superstructure’s power of social control, which robs the workers in the sphere of production (equivalent to the economic base) of the value of their surplus labor time (surplus value). The social irrationality of this robbery is apparent (no matter how hard the bourgeois economists try to hide it) through the structural and permanent tendency of the falling rate of profit under capitalism.

1. The Constituents of Dialectical Materialism: The Central “Mediation” (Dialectic) and the “Base/Superstructure” Dialectic

The logic of dialectical materialism is originally inspired by Hegelian dialectics and Feuerbachian materialism. Marx did not fully ascribe to Hegel due to the latter’s idealist view centered on individual consciousness. Marx explained:

My dialectic method is not only different from the Hegelian, but is its direct opposite. To Hegel, the life-process of the human brain, i.e., the process of thinking, which, under the name of “the Idea,” he even transforms into an independent subject, is the demiurgos of the real world, and the real world is only the external, phenomenal form of “the Idea.” With me, on the contrary, the ideal is nothing else than the material world reflected by the human mind, and translated into forms of thought. (Marx 1873)

Feuerbach also was subjected to Marx’s criticism. Although Feuerbach had the right political motives advocating for the working classes by showing the importance of nature and material needs, he could not properly articulate those political motives philosophically. He fell into “contemplative materialism”: a sort of materialism where the individual gains consciousness by contemplating nature. For Marx, individual consciousness could not exist without the “totality of the social relations of production” (Marx 1845). This totality would be the bridge between Hegel and Feuerbach that would allow Marx to create the logic of dialectical materialism.

For this article, the philosophies of both István Mészáros and Louis Althusser will be employed for analysis. Both philosophers emphasized the significance of philosophy—and its central field, ontology (the study of man)—within the framework of dialectical materialism. They demonstrated the importance of considering the central dialectic (the dialectic of dialectics, also called the central contradiction or mediation), equivalent to the “totality of the relations of production,” when applying a Marxist perspective. As Marx explained, the foundation of society is the economic base, which is determined by the totality of the relations of production embodied by labor (Marx 1859). This article places special emphasis on Mészáros’s theory of alienation and Althusser’s concept of “overdetermination” by the economic base. While other theories in their works are relevant, these two combined provide a robust understanding of dialectical materialism grounded in the ontological foundation of capitalism which is social labor.

According to Mészáros, Marx was the first to achieve true philosophical “monism” (the unity between the subject and the object). His category of the “totality of the relations of production,” which is equivalent to his category of “labor” (both abstract and concrete labor), unites both the subject and the object or the individual and the material reality through historical relations of production. Previous idealist philosophy (including Hegelian and Feuerbachian philosophies) could not move beyond the dualism between the subject and the object. Through this meaningful category of “labor,” Marx sees that human beings integrate into society and absorb ideals that socialize them to become conscious subjects who can work and participate in the historically defined material reproduction of society. Mészáros admits that Marx’s category of labor is very similar to that of Hegel; it represents the “mediation” with the “totality” or the central “dialectic” that unites all dialectics to produce an absolute and final “totality.” However, Marx’s ultimate totality is not the same as Hegel’s: for Hegel, this totality is a spiritual whole (the absolute spirit), and for Marx, it is the concrete totality (nature, organic bodies, and all concrete things) since the final goal of the “totality of the relations of production” is the reproduction of life and nature. Moreover, Marx’s mediation of labor unites both abstract and concrete labor; in Hegel, labor is purely a mental activity (Mészáros 1970, 87).

Marx’s mediation of “labor” has both a transhistorical side and a historical side because although it represents the ontological (and fixed) meaning of human history, it can only thrive through a historically specific ensemble of relations of production (which is essentially abstract but with concrete consequences). Human beings are living beings dependent on their organic bodies and nature, but in contrast to animals that rely on their instincts, human beings make history based on inherited relations of production that have nothing to do with organic bodies or instinctive needs. The dominant ideologies of society, absorbed by the social individuals born within this society, allow the continuous production and reproduction of the historically specific relations of production determining this society (Mészáros 1970, 124). Throughout human history, political revolutions, wars, and significant events such as the beginning of Western colonialism have led to the replacement of dominant relations of production, resulting in various historical modes of production across history. While multiple modes could coexist within a society, only one mode typically dominates due to social interconnectedness. The historically dominant mediation since the Industrial Revolution is “capital,” the private appropriation of surplus value which requires the generalized alienation of labor from the means of production (as we see in the next section, capital and alienated labor are two sides of the same coin).

Under capitalism, the Marxist category of “labor” includes not only the paid wage laborers, but all the individuals that are part of the material reproduction of society whether explicitly (through wage labor) or implicitly (through unemployment, domestic work, forced labor, etc.) (Mészáros 1995, 686).

Complementary to the idea of the Marxian “mediation” being alienated labor or the ensemble of the relations of production, is the base/superstructure dialectic as explained by Althusser. The base includes the laborers, their means of production, their forms of consciousnesses, their relations of production, and nature. The superstructure includes the dominant ideologies and institutions of society that aim to perpetuate the relations of production within the base. Broadly speaking, for Althusser, this dialectic depends on two components: (1) the dialectical unity between the base and the superstructure; albeit with a relative autonomy between the two which allows potential structural change; (2) the determination of the superstructure by the economic base “in the last instance” (the overdetermination by the base) which means that all superstructural ideologies are rooted within the base (although because of the “relative autonomy,” ideologies can be used against the imperatives of the base). This overdetermination exists because the base contains the primary “contradiction”: the socially controlled laborers who adopt the dominant ideologies and act according to the relations of production, thus perpetuating them (Althusser 1970). From Mészáros’s perspective, it could be added that the primary contradiction is truly alienated labor, the historical “mediation” under capitalism.

The central point for Althusser is that “labor” is the primary dialectic uniting the base and the superstructure and is contained within the base. The ensemble of laborers in the economic base, through their relations of production which are imposed through the superstructure, are the makers of history: they transform nature and, in the process, transform themselves. This is why Althusser completely rejects the idea that “man [the singular man] makes history” (Althusser 1964). Without the theoretical determination in the last instance by the base (the overdetermination), all ideas, subjects, and objects become disconnected from one another, losing any real practical or material purpose. Everything and everyone becomes a tautology with its meaning contained within itself, which is absurd from a Marxist viewpoint founded on the social nature of the human being.

Althusser explains that the “index of effectivity” of a dialectic is the dominance of the economic base in the last instance. He explains:

It is possible to say that the floors of the superstructure are not determinant in the last instance, but that they are determined by the effectivity of the base; that if they are determinant in their own (as yet undefined) ways, this is true only insofar as they are determined by the base. (Althusser 1970)

The Marxian dialectic between the base and the superstructure implies that all ideologies will ultimately have a material “effectivity” and affect the real concrete world. The totality of the relations of production defining the base, although essentially abstract, has concrete consequences that transform both humanity and nature (as explained: the laborers, through their relations of production, transform themselves and nature). Hegelianism, just like liberalism and humanism, is ineffective, because of the lack of overdetermination and the disregard of social human nature and nature. In Marxism, due to the determination by the base in the last instance, the “structure” of society is always a “structure in dominance” where the relations of production within the economic base are determinant in the last instance (Althusser 1970).

That said, Althusser cautions that the domination of the base in the last instance “never comes” in reality (Althusser 1962). Indeed, social labor—the most significative Marxist category that reflects a totality of relations of production—is always led by abstract labor, never concrete labor. The Marxist theoretician must keep in mind that human beings organize their society primarily based on ideals; whether those ideals are aligned with inequality or with equality, basic needs, and respect for nature, is a matter of politics and class struggle. Marxist science is the only science that strives to harmonize dominant ideals with the concrete realities of society by asserting labor as the foundation of life and exposing the inherent unfairness of bourgeois ideals. The underlying idea of Marxism is that a healthy society—one that prioritizes basic human rights and the protection of nature—admits, through its dominant abstractions, the importance of concreteness above all other ideals.

2. Alienated Labor and the “Law of Value”

Based on Marx’s philosophy, the “transformation of value into price” happens in the broader historical context of the capitalist system defined by the mediation of “alienated labor” and its dialectical and internal opposite, “capital.” With the triumph of the capitalist superstructure, the ontological category of “labor” which represents all the concrete laborers embodying the “ensemble of the relations of production,” becomes subsumed under the historical category of alienated labor; a category that is followed by the exploitation of labor time for the private accumulation of surplus value. Marx’s philosophical standpoint of labor alienation fundamentally differentiates him from the classical political economists, Adam Smith and David Ricardo. While Marx observes the same capitalist processes as Smith and Ricardo, he interprets them in a completely different light. This section illustrates how Marx’s philosophy of alienation leads him to theorize the law of value in a way that diverges from traditional political economists. He views it not as a natural fact, but as a historical and dominant form of consciousness (a social ideology external to individual consciousnesses) that can and should be superseded for the sake of humanity.

To reassert Marx’s concept of alienation: it is the generalized human condition particular to the capitalist mode of production. Capitalism posits exchange value (and its main representation, money), as the main social mediator between men, leading to generalized labor estrangement. Commodities, money, and all things appear external to human labor; however, the truth of the matter is that all value under capitalism is the necessary consequence of alienated labor (Mészáros 1970, 147). Alienation has two sides: it is first socially mental (since it arises out of the “relations of production”) and then physical. There is mental self-alienation because the laborers are socialized to think that their alienation is human nature (they have false consciousness), and then there is physical alienation due to the concrete separation of the laborers from the means of production (and the products of labor). Through the generalized power of capital (the private appropriation of surplus value), the dialectical subject–object unity present in Hegel is transformed into a violent contradiction between the subject and the object where the subject of history (the ensemble of laborers) is mentally and physically crushed—and doomed to alienation—through the mediation (equivalent to the totality of the relations of production) within the concrete totality. The real subjects of history are condemned by the social totality to exist as replaceable laborers dependent on wage contracts.

Mészáros explains that Marx’s concept of alienation is key to understanding the latter’s political economy which is based on the supersession of capitalism. Indeed, the concept of alienation is inseparable from “the idea that the social determinate form of the productive activity which obtains the ‘increasing value of the world of things’ at the price of the ‘devaluation of the world of men’ is one that can be superseded” (Mészáros 1970, 125). For Marx, in contrast to all of the bourgeois economists, it is possible to transition from alienated labor to unalienated labor—a truly free type of labor. He explains the logic of this unalienated labor:

Let us suppose that we had carried out production as human beings. Each of us would have in two ways affirmed himself and the other person. 1) In my production I would have objectified my individuality, its specific character, and therefore enjoyed not only an individual manifestation of my life during the activity, but also when looking at the object I would have the individual pleasure of knowing my personality to be objective, visible to the senses and hence a power beyond all doubt. 2) In your enjoyment or use of my product I would have the direct enjoyment both of being conscious of having satisfied a human need by my work, that is, of having objectified man’s essential nature, and of having thus created an object corresponding to the need of another man’s essential nature … Our products would be so many mirrors in which we saw reflected our essential nature. (Marx 1844a; italics in the original)

Capital’s central and totalizing “form of consciousness” that allows it to thrive socially and control the whole economic base, is the “law of value.” According to this law, commodities are exchanged based on their exchange value (represented by money) rather than their use value (linked to the real basic needs of laborers). A commodity’s exchange value is determined by the “socially necessary labor time” required for its production under normal conditions at a specific moment. A capitalist who owns some means of production, observes the market (driven by competition) and assesses how much “necessary social labor time” (compensated by the wages) is required on average to produce a commodity. Marx explains the law of value:

That which determines the magnitude of the value of any article is … the labour time socially necessary for its production. Each individual commodity, in this connexion, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value. The value of one commodity is to the value of any other, as the labour time necessary for the production of the one is to that necessary for the production of the other. “As values, all commodities are only definite masses of congealed labour time.” (Marx 1867, chapter 1)

Marx’s “law of value” is essentially a historical “form of consciousness” rather than a relation of production (which has a practical and concrete aspect), since it is the capitalist mediation, or the alienated labor/capital contradiction, that concretely allows it to prosper socially. Indeed, in Volume I of Capital, Marx defines the form of value in general as “purely ideal” because its essence is social and distinct from the palpable, corporeal form of a commodity (Ilyenkov 1977). Value is equal to the “socially necessary labor time” which is essentially abstract and mainly determined by the coercive competition between capitalists—not by the laborers because of their false consciousness (although they are truly the source of all value). The ideal power of the law of value leads laborers who ultimately produce all value to believe that the “free market” (and the law of value determining it) functions in mystical ways unrelated to their say or efforts. Marx based himself on both Adam Smith and David Ricardo to conceptualize his law of value from a critical perspective founded on dialectical materialism.

Adam Smith, the bourgeois founder of classical political economy, was the first to introduce the law of value as the fundamental law of capitalism. He believed that labor was the key factor in determining value, although he was unable to sustain this assertion within his “natural price” theory, as explained in section 3 of this article. Along with the law of value, he considered the dominance of exchange value to be a normal phenomenon:

The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called “value in use”; the other, “value in exchange.” The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. (Smith 1776, book I, chapter 4)

According to Smith, the law of value, to properly function, depends on the free market and the forces of supply and demand. Through the free market, the values of commodities are expressed through natural prices, allowing individuals to assess their values. Marx, while considering the social power of capital, agrees with Smith on that idea and says:

It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say with their values, as determined by the respective quantities of labour required for their production. (Marx 1865; italics in the original)

That said, when it came to his critical conceptualization of the law of value under capitalism, Marx was more inspired by David Ricardo, the second major (bourgeois) figure in the history of political economy. In Ricardo’s version of the law of value, the quantity of labor was the only source of value and surplus value, whereas in Smith’s, surplus value was the result of the total inputs of a capitalist (explained in section 3 of this article). Marx declared that “Ricardo’s theory of values is the scientific interpretation of actual economic life” (Marx 1847, chapter 1, part 2). He quotes Ricardo in Theories of Surplus Value to show that labor is the only source of value: “Not only the labour applied immediately to commodities affect their value, but the labour also which is bestowed on the complements, tools, and buildings, with which such labour is assisted” (Ricardo 1817a).

For the classical economists who consider the private property of the means of production as a fair right, alienation is natural, and “labor” is a physiological thing that is salable and quantifiable. Whereas for Marx, alienation is unnatural, and labor is equivalent to an ensemble of relations of production uniting all laborers to regulate their limited time on earth and produce use values that can fulfill everyone’s needs. Only the laborers, by uniting together, can work and produce/reproduce themselves and things of value, using the gifts of nature. Their social unity is the root of it all—nothing else. Marx explains that, under the alienating system of capitalism, laborers unknowingly reproduce themselves as commodities: “Labor produces not only commodities; it produces itself and the worker as a commodity—and does so in the proportion in which it produces commodities generally” (Marx 1844b; italics in the original). The notion that laborers are ultimately in control of themselves and all things is central to Marx’s understanding of the supersession of capitalism, as seen in section 4 of this article. Mészáros notes that Marx characterizes the position of political economy as one based on a “fictitious primordial condition.” This fictitious primordial condition treats humans as things to be bought; not as social living beings who are the root of all values. Marx expresses that the classical political economist:

assumes in the form of fact, of an event, what he is supposed to deduce—namely the necessary relationship between two things, between, for example, division of labor and exchange. Theology in the same way explains the origin of evil by the fall of man, that is, it assumes as a fact, in historical form, what it has to be explained. (quoted in Mészáros 1970, 124)

Unlike the law of value in either Smith or Ricardo, Marx’s law of value does not depict a natural and healthy economic phenomenon. Instead, it is seen as a profoundly deceptive and unjust historical form of consciousness that shapes the dynamics of social production for the benefit of the few. The historical contradiction between alienated labor and capital within the base, allows the law of value to thrive and subsume all use values under the one abstract category of “exchange value.” The alienated laborers are enchanted by the fetishism of commodities, perceiving exchange value as independent of them. Money takes on the role of an all-powerful god, and wages seem “fair” in exchange for their time. However, they do not realize that the “socially necessary labor time” or value of a commodity contains both the “necessary labor time” represented by the wages and the “surplus labor time” that is unpaid. The classical economists presuppose that alienation is a natural state of being and that the law of value allocates all values fairly in society, including surplus value. Marx explains the deception of the capitalist wage system: “The wage form thus extinguishes every trace of the division of the working-day into necessary labour and surplus labour, into paid and unpaid labour. All labour appears as paid labour” (Marx 1867, chapter 19).

The law of value in Marx appears as an all-quantifying ideal form of consciousness, quantitively allocating social labor time according to the needs of the capitalists driven by competition. To make a profit, the capitalists do not need to sell the commodities above or below the overall value embedded in them, since the alienated laborers have already been exploited in the production sphere and have embedded the commodities with both necessary labor time (cost of the wages) and surplus labor time. Marx explains:

The value of a commodity is determined by the total quantity of labour contained in it. But part of that quantity of labour is realized in a value for which an equivalent has been paid in the form of wages; part of it is realized in a value for which NO equivalent has been paid. Part of the labour contained in the commodity is paid labour; part is unpaid labour. By selling, therefore, the commodity at its value, that is, as the crystallization of the total quantity of labour bestowed upon it, the capitalist must necessarily sell it at a profit. He sells not only what has cost him an equivalent, but he sells also what has cost him nothing, although it has cost his workman labour. The cost of the commodity to the capitalist and its real cost are different things. (Marx 1865; italics in the original)

The capitalists, before coming to the market to sell their commodities for a profit, have already (collectively as a class even if without their knowledge) successfully exploited labor time in the production sphere (where the alienated laborers have infused the commodities with the source of profit, surplus value). All that’s left for capitalists is to claim their share of surplus value in the market.

For the classics, profit is a natural component of the labor time spent in production, whereas, for Marx, it is the class theft of the “disposable time” of society (the time beyond the “necessary labor time” for the reproduction of life). Marx’s law of value functions to obscure the distinction between necessary labor time and surplus labor time, merging both categories under the concept of “socially necessary labor time,” which is primarily dictated by capitalists through market competition (due to the laborers having false consciousness). The aspect of labor “time” in Marx’s concept of the law of value, is fundamental because it relates to the qualitative side of humanity, meaning the life span of humans. The time aspect of the law of value was subsumed by Ricardo under a “general rate of profit” which was for him, fair (further explained in section 4 of this article).

For Marx, individuals are not meant to be cogs in the capitalist machine where capitalists compete for the bigger share of the pie. They are, first and foremost, concrete laborers who have a limited time on earth to explore their needs and desires. Marx explains in the Grundrisse:

Economy of time, to this all economy ultimately reduces itself. Society likewise has to distribute its time in a purposeful way, in order to achieve a production adequate to its overall needs; just as the individual has to distribute his time correctly in order to achieve knowledge in proper proportions or in order to satisfy the various demands on his activity. (Marx 1857a)

From the standpoint of all bourgeois economists and capital in general, the finite time humans spend on earth is irrelevant; what matters is minimizing “necessary labor time” to maximize “surplus labor time,” which implies cheaper labor and a growing surplus population that exerts downward pressure on wages. Mészáros explains the link between society and the “economy of time”:

As Marx rightly argues, no society can function without giving proper consideration to the “economy of time.” However, it makes a world of difference whether such consideration is imposed upon the society in question by a mechanism that asserts itself behind the backs of the producers (like the objective imperatives of the capitalist exchange relation), or whether the social individuals active in the communal system of production and distribution determine for themselves how they allocate the total disposable time of their society in fulfillment of their own needs and aspirations. (Mészáros 1995, 765)

The following quote, which Marx quotes in the Grundrisse from an anonymous pamphlet entitled The Source and Remedy of the National Difficulties (1821), further elucidates the source of “true wealth” for Marx beyond the language of political economy and the restrictions of capitalism, disposable labor time:

Truly wealthy a nation, when the working day is 6 rather than 12 hours. Wealth is not command over surplus labour time (real wealth), but rather, disposable time outside that needed in direct production, for every individual and the whole society. (Marx 1857b; italics in the original)

With the generalized domination of capital’s law of value, which posits exchange value as the only form of value, disposable time is redirected from the producers of value toward the creation of poverty, a useless unemployed population, private wealth, usury, and waste. Marx explains how capitalism is synonymous with the exponential increase of the “superfluous” form (or disposable time) of labor:

Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition—question of life or death—for the necessary. (Marx 1857b)

Marx’s concept of “surplus value” which depends on the concrete lifetime of the totality of the concrete workers, cannot fit perfect economic theories, models, or equilibriums. It is a social category representing the theft of people’s basic needs, ambitions, cultural heritage, and dreams. Although Ricardo came close to figuring it out (as explained in section 4 of this article), neither he nor Smith ever considered surplus value to be unpaid labor time. Both economists believed that the laborers received all their rights through the wage system. They also believed in unlimited surplus value, which they thought could lead to a prosperous society characterized by limitless wealth and growth. Mészáros explains how the Marxist concept of surplus value is incompatible with classical political economy (and bourgeois, free-market economics in general):

The measure of real wealth—the total disposable time (not to be confused with idle “leisure”) available to a given society in its qualitative potentiality and richness—cannot fit into capital’s accountancy, whether the senselessly wasteful “economic rationality” used in its control processes is double-entry book-keeping or the computerized mathematical sophistication of linear programming and simultaneous equations. (Mészáros 1995, 818)

Marx showed through his conception of the law of value that the “socially necessary labor time” dictated by capital does not explicitly and transparently account for the source of profit which ultimately leads to an unsolvable contradiction in seemingly perfect economic theories. General capital accumulation entails the private expropriation of surplus labor time through the minimization of socially necessary labor time, ultimately expelling labor time—the only source of value and surplus value—from the sphere of production. This inherent contradiction is inescapable and infinitely threatens capital accumulation (further explored in section 4 of this article).

It is also important to note that the Marxian concept of surplus value distinguishes Marx from anarchism, which is rooted in the writings of the anarchist Pierre-Joseph Proudhon. In the Poverty of Philosophy and the Grundrisse, Marx criticizes Proudhon’s perspective which is essentially based on idealism (specifically an individualist perspective in Proudhon). This perspective is devoid of dialectics, which means that Proudhon fails to recognize the dominant historical contradiction between capital and labor that started with primitive accumulation in the colonies and settled through bourgeois revolutions across Europe. It is also devoid of materialism, in the sense that it does not see the foundation of the mode of production: the historical (and impersonal) relations of production perpetuated by the superstructure which pre-exists individuals born within capitalism. In Marxism, these relations transform the material world (nature, objects, and organic bodies). Proudhon sees individuals as inherently autonomous beings with innate consciousness, rather than as social beings shaped by pre-existing relations of production. Marx criticizes Proudhon for his lack of a historical materialist perspective:

The worthy Proudhon would not only be able to, but would have to, accuse capital and wage labour—as forms of property—of having an extra-economic origin. For the encounter with the objective conditions of labour as separate from him, as capital from the worker’s side, and the encounter with the worker as propertyless, as an abstract worker from the capitalist’s side—the exchange such as takes place between value and living labour, presupposes a historic process, no matter how much capital and labour themselves reproduce this relation and work out its objective scope, as well as its depth—a historic process, which, as we saw, forms the history of the origins of capital and wage labour. (Marx 1857c; italics in the original)

Proudhon, due to his idealist perspective, is unable to grasp any historical dialectic in his conception of the law of value (such as the contradiction between necessary labor time and disposable time; or that between exchange value and use value) that could lead him to see the true—social—source of private profit. As such, he hastily equates surplus value to private property and things such as silver and gold. Capitalist profit appears as the result of the unilateral theft of a singular wage laborer by a singular capitalist (a process that is multiplied by the number of laborers and capitalists). Surplus value is then a thing-in-itself to lose or to gain, rather than the result of a class relation that pre-exists all objects, subjects, and spontaneous actions in society. From a dialectical materialist perspective, personal theft of things such as money and other objects has existed across the history of humanity; it is not what characterizes capitalism. By mechanically tying surplus value to the private property of things, Proudhon did not go beyond the classical political economists who saw everything and everyone as atomized exchangeable objects (Marx 1847, chapter 1, part 3).

The historicity (or contingent nature) of the law of value is fundamental in Marx’s theory. For classical political economy, this law is a force of nature determining the course of history; but for Marx, it does not make history—the totality of the laborers embodying this law make history even if they are alienated and have false consciousness. Being an ideal form of consciousness located in the superstructure, the law of value can only be an abstract (historically specific) tool for labor exploitation by capital. In a letter to Ludwig Kugelmann, Marx asserts that while there are natural “laws,” they are always historically and socially asserted in specific ways: “No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves” (Marx 1868; italics in the original). The law of value is the social law under capitalism—it is not ingrained in the DNA of society and can be superseded.

The root of the problem is not with the law of value itself—since it is an ideology that has no power by itself—but with the historical alienation (both mental and physical) of labor which begins with the private appropriation of the means of production. Alienated labor allows the law of value to thrive, historically and concretely. Total social labor has been exploited under slavery and feudalism; but the particularity of the capitalist mode of production is that it generally blinds the laborers when it comes to their true position in society, especially through the wage system and the impersonal power of money–capital (M–C–M’ or M–M’). Money has existed throughout history, but it is only with the generalization of private capitals (starting with Western colonialism) that it becomes the generalized equivalent of exchange value. It becomes the form of exchange value that is exchanged for more exchange value containing surplus value. The source of wealth through this exchange stays disposable time; but with the dominance of exponential private exchange value, this disposable time is synonymous with uselessness, poverty, and misery.

Relating to his concept of “unalienated labor,” Marx distinguishes between the self-imposing law of value and the law we give ourselves as a human society. In a communal society determined by communal needs and communal purposes, the economic law regulating the labor process would be a conscious one where all the laborers consciously participate to produce value that is firstly qualitative in nature, not quantitative. Furthermore, the “disposable time” of society would be redirected toward the social needs and desires of humanity. Marx explains:

In a future society, in which class antagonism will have ceased, in which there will no longer be any classes, use will no longer be determined by the minimum time of production; but the time of production devoted to different articles will be determined by the degree of their social utility. (Marx 1847, Abstracts from chapter 1)

The current law of value quantifies all use values and takes no notice of the needs and desires of all human beings; only the profitable exchange of exchange values matters. The social obsession with money, the fetishism of commodities, and the wage system are ideological instruments by which the law of value blinds the laborers and reduces them to the “carcass of time”; with their time regulated for the private and exponential extraction of surplus value—no matter the real-life consequences.

3. The Perfect Equality between Value and Price according to Smith and Ricardo

Marx developed his transformation theory as a critique of the classical theory of “natural price” (or “equilibrium price”). The classics Adam Smith and David Ricardo conceptualized that value is created in the process of production, thanks to the application of labor. Prices were representations of values in the market and were formed through free-market competition and the forces of supply and demand. We explain and compare Smith and Ricardo’s theories of natural/equilibrium price.

Adam Smith was the first to conceptualize the theory of the “natural price.” He explains in The Wealth of Nations:

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it. (Smith 1776, book 1, chapter 7)

The natural price is calculated as such:

When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price. (Smith 1776, book 1, chapter 7)

The natural prices of commodities are the “equilibrium” prices that allow both the capitalists and the laborers to receive their due earnings, thereby ensuring the continued supply and demand of those commodities. Since each individual acts based on self-interest, a harmonious society is ultimately created where everyone benefits at the end of the day. The laborers receive their wages, and the capitalists receive a “natural rate of profit” through the equalization of the rates of profit in the free market. Smith describes the harmony between wage labor and capitalist profit in the nation: “The demand for those who live by wages, therefore, naturally increases with the increase of national wealth, and cannot possibly increase without it” (Smith 1776, book 1, chapter 8). Smith thought that labor was the initial source of all values, but he had difficulties articulating this idea within his natural price theory. For him, profit (and hence, surplus value) did not have a unique connection with labor; it arose from the overall cost of production, encompassing labor, rent, land, and capital. He explains:

The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced. (Smith 1776, book 1, chapter 6)

In Smith’s theory of natural price, capitalist profit emerges as a natural residual from the entire capital spent on production, and it is not exclusively tied to the amount spent on wages (making the relation between profit and wage labor almost meaningless).

David Ricardo was critical of Smith’s natural price theory, particularly regarding the subordinate position of the labor theory of value within it. He argued that Smith did not properly use the labor theory of value:

Adam Smith, therefore, cannot be correct in supposing that the original rule which regulated the exchangeable value of commodities, namely, the comparative quantity of labour by which they were produced, can be at all altered by the appropriation of land and the payment of rent. (Ricardo 1817b)

The cost of labor was the determining regulator of market-prices for Ricardo, not the price of rent (or other fixed capital such as machines in the case of industrial capital). For example, he demonstrated that high food prices in England were not caused by high rents for prime land; rather, it was high food prices, driven by a growing population, that increased rents. Consequently, even “bad lands” became valuable, making “good lands” more expensive. Ricardo attempted to establish “labor” as the cornerstone of his theory of natural price while making it clear that labor was not synonymous with the amount spent on wages:

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or lesser compensation which is paid for that labour. (Ricardo 1817a)

For Ricardo, the natural price of a commodity depends on the entire capital (wages, rent, and fixed capital) spent on production, plus a natural rate of profit. He explains: “Diminish the cost of production of hats, and their price will ultimately fall to their new natural price, although the demand should be doubled, trebled, or quadrupled” (Ricardo 1817c). Additionally, Ricardo supposes an equalization of the rates of profit, where each capitalist receives his due right at the end of the production cycle. That said, he emphasizes that surplus value is a residual only produced by labor. It is not a residual that could be produced by anything else such as fixed objects or money. This is why he thought that the more money capitalists spend on wages, the greater the likelihood of a decline in the general rate of profit (since the laborers would have taken a bigger share of the surplus value they produced). He expresses: “There can be no rise in the value of labour without a fall of profits” (Ricardo 1817a). In Ricardo’s framework centered on the private interests of capitalists, there is a mechanical relationship between wages and profit: for capitalists to maximize profit, wages should not increase; rather, they should be kept at a minimum. Whereas for Marx, as seen in the next section, the relationship between wages and profit is one of class exploitation. This dynamic means that the continuous reduction of wages, driven by capitalist competition, leads to a tendency for the rate of profit to fall, thereby threatening market stability and creating permanent issues of overproduction and underconsumption.

The difference between Smith and Ricardo regarding the natural price theory is subtle but holds significant relevance for Marx, as explained in the next section. For both Smith and Ricardo, the natural price is defined as wages plus fixed capital (rent, land, and other capital) plus the natural rate of profit. In this equation, everyone is content: capitalists receive their profits to pursue their businesses, and laborers are compensated through wages, ensuring continuous demand in the market. The general equilibrium between supply and demand thrives. Furthermore, in addition to the conception of a harmonious market, both Smith and Ricardo conceptualize an equalization of profit rates through competition, guaranteeing that capitalists obtain their rightful “natural” rate of profit. The difference is that for Smith, profit is a residual over the whole capital spent by a capitalist, whereas for Ricardo, profit is intricately linked to the amount spent on wages (it is a residual of wage labor).

4. The Transformation Theory Explored through the Alienating Base/Superstructure Dialectic

In Volume III of Capital, Marx sets out to fully present his “transformation of value into price” theory. His theory is based on three components: the “natural price” theory of the classics, the law of value according to which socially necessary labor time is the pivot of all exchanges, and dialectical materialism according to which the category of “labor” (defined by the totality of the relations of production) is the foundation of human history.

Marx begins his reasoning by assuming perfect competition between capitalists; meaning there are no monopolies, and capitalism is taken in its “pure” state, as in classical political economy. He then develops the concepts of “cost-price” and “price of production.” The cost-price, which allows the production of value, includes the expenses of a capitalist: variable capital and constant capital (both forming a capitalist’s capital). The price of production is formed at the end of the cycle of production and includes the cost-price and the average rate of profit. The price of production is the equivalent of the classical concept of “natural price” in the equilibrium theory of the classics Smith and Ricardo. For Marx, similar to the classic economists, the market-prices of a single commodity all tend towards the average “price of production” of this commodity. Even if a specific market-price deviates from the value of a commodity, its average market-price will gravitate toward its price of production. The “average rate of profit” reflects the rate of profit of the capitals that have an “average composition of capital” (with average inputs on labor and constant capital). The “average rate of profit” is formed through the process of the “equalization of the rate of profit” (across all sectors) which is accomplished through competition in the sphere of circulation where commodities are exchanged and sold (Marx 1894).

For Marx, the profit of an individual capitalist depends on the social productivity of the labor he employs or on the “organic composition” of his capital (the ratio of variable capital to constant capital in the initial cost-price), not on the quantitative amount of labor-power he employs as Ricardo theorized. As postulated by the law of value, surplus value can only be extracted socially, never individually. It is through the coercive competition between capitalists in the free market that surplus value is redistributed as profit to private capitals, proportionally to the organic composition of each capital. Marx explains the nature of capitalist competition in Volume I of Capital: “Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist” (Marx 1867, chapter 10, section 5). A general (average) rate of profit is established alongside the process of the equalization of the rates of profit. Indeed, all capitalists, due to coercive competition, strive to maximize their profit rates, which enforces a tendency toward the equalization of profit rates, resulting in a general rate of profit. At the end of the cycle of production: total values = total prices of production, and total surplus values = total profits.

In the competitive process, a singular capitalist is forced to reduce his price of production by increasing productivity to grab a bigger profit than his competitors. He must either overwork his laborers without increasing their pay or employ fewer laborers by replacing them with machines. This way, he can remain competitive and produce his commodities below their market-value (below the average amount of socially necessary labor time during a specific time). If he does not do so, he risks failing in his business, as his share of surplus value could be snatched by other capitalists with faster and more efficient production processes. Marx explains:

If the ordinary demand is satisfied by the supply of commodities of average value, hence of a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, or surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them. (Marx 1894, chapter 10)

When all the individual capitalists simultaneously act to increase their productivity by raising the organic composition of their capital and squeezing their inputs on variable capital (the wages of living labor), the capitalist class will reach a point where there is no more labor that is employed and exploited. If all the laborers are out of the wage system, capitalism fails and the rate of profit collapses. This is how Marx put forward a general “tendency of the falling rate of profit” that is inherent to “pure” capitalism defined by perfect competition and the tendency of the equalization of the rates of profit across all sectors. The “ideal” conditions of capitalism necessarily entail a tendency for the rate of profit to fall. Furthermore, the equalization of the rates of profit never truly arises in the perfect and competitive economic model since all capitalists are fighting for a bigger share of the pie, disrupting the chance of a fair redistribution of the total surplus value. The general rate of profit of the capitalist class is not threatened by high wages, as Ricardo theorized, but by the “general law of capital accumulation.” This law compels all capitalists to cheapen labor by reducing wages, ultimately endangering effective demand by increasing the number of poor people.

Bortkiewicz, in his critique of Marx’s transformation theory, explained that for the two major equalities to stand true at the same time in the free market, the individual rate of profit of a capitalist should be calculated based on the price of production at the end of the production cycle, rather than on the initial cost-price representing labor productivity (variable capital + constant capital). The main issue for Bortkiewicz was that Marx did not transform the initial cost-price into a price in his schema; he left it as a “value” unaddressed by the free market (which was not “realistic” enough for him) (Bortkiewicz 1952, 6). He noted that if the inputs of a capitalist (his cost-price) were bought at the same price as the outputs (the price after profit has been realized), then his rate of profit would not proportionally match his inputs. This went against the idea of a coherent and embedded free market where profit is always realized. To remedy this error in Marx, all inputs and outputs should be founded on equilibrium prices or prices of production where the rate of profit is equalized across the different sectors of the economy. Bortkiewicz’s thesis undermines Marx’s specific law of value by removing the organic composition of capital (or the productivity of variable capital in the production sphere) as the gravitational point for the redistribution of private profit; replacing it with the average rate of profit. For Bortkiewicz, similar to the classics, profits are redistributed based on prices of production, competition, and the average rate of profit.

Marxist economists David Yaffe (1974), Paul Mattick (1983), Fred Moseley (2017), Ben Fine, and Costas Lapavitsas, and Alfred Saad-Filho (2004) addressed the transformation problem by adopting a macroeconomic approach inspired by dialectical materialism, a logic that relates every part of the economy to the social totality. Although their respective explanations vary, they all emphasize the macroeconomic nature of both “value” and “surplus value.” The value of a commodity does not depend on the individual inputs of a specific capitalist but on the macroeconomic “socially necessary labor time”—a social category epistemologically (not mathematically) equivalent to the sum of ALL the wages/variable capital spent on a cycle of production—required for its production. Similarly, the rate of surplus value of a capitalist is not dependent on the amount of value he personally produces but rather on his position within the capitalist class and his ability to secure a larger share of the profit by being more efficient than others in his class. Seen from this perspective, the two initial equalities posited by Marx hold true.

According to Mattick, Marx’s transformation theory’s “two equalities” are not meant to represent mathematical equalities. Due to the qualitative nature of “variable capital” within the initial cost-price, there are contradictions everywhere (within the cost-price, between value and price, between value and surplus value, between profit and surplus value, within the price of production, etc.). There is also a major contradiction between the first equality (all values = all prices) and the second (all surplus value = all profit). The law of value which posits social labor as the source of value, does not exist harmoniously with the general rate of profit at the end of the production cycle. Bortkiewicz considered both equalities as unilateral truths and criticized Marx for not having established a price equilibrium theory where all market-prices of a commodity tend towards an average price of production (which includes an average rate of profit). Mattick explains: “The injection of the notion of equilibrium into the value-price problem is due to the equilibrium concept of bourgeois economics and is not a requirement of Marxian theory” (Mattick 1983). Indeed, such an equilibrium requires a bourgeois stance that considers variable capital as a commodity and surplus value as the rightful claim of the capitalist.

Under capitalism, value and price become equalized due to certain socioeconomic conditions—created by the law of value—that force them to almost converge. Those socioeconomic conditions include:

—The “value” produced by a specific capital (variable and constant capital), is not produced by this capital alone but by the average “socially necessary labor time” (the ensemble of wage laborers in the production sphere) required to produce a commodity. In other words, capitalists do not sell their commodities according to the value that their inputs have “personally” produced, but according to the “socially necessary labor time” required for their production. Bortkiewicz followed Ricardo’s concept of value, but for Marx, value is not a thing to be bought but a social force dependent on social labor time.

—A capitalist that squeezes/decreases his “variable capital” (the cost of labor) in different ways within his price of production can yield more surplus value than other capitalists. This seems paradoxical from a bourgeois view because the less a capitalist spends on production, the higher his rate of profit. How does his profit increase when he spends less? For Marx, it is not about mathematical logic: it is firstly about class exploitation, which is not something that cannot be quantified in its essence. A capitalist who lowers his price of production can sell his commodities at the same market-price as other identical ones in the market, allowing him to grab a bigger share of the pie. The rate of exploitation of his specific variable capital, along with the overall extraction of surplus value by the capitalist class, will determine his specific rate of profit. The class exploitation of total social labor precedes the redistribution of surplus value in the circulation sphere through competition (Bortkiewicz completely ignored the former and only cared about the latter).

—Although socially, due to the ideal power of the law of value, value = price and surplus value = profit, it is impossible to truly put a numerical price on “value” or “surplus value,” since their existence is dependent on the will of total social labor in the production sphere. Market-prices are only apparent representations of values imposed via the law of value and the fetishism of commodities. Similarly, profit only appears as a representation of surplus value in the circulation sphere. As Mattick explains, it is only through the overall capitalist class system (fueled by the alienation of labor due to the superstructure and its law of value) that value and price are forced to “tendentially coincide” on the quantitative side through the free market. Since the laborers are not “aware” of how the system of use values truly functions, the capitalist price system functions as a “substitute for this awareness” (Mattick 1983).

The overall (correct) solution given by the Marxist economists cited above is summed up as such: if Bortkiewicz had looked from a macroeconomic perspective that relates everything to the whole society divided into classes, he would have realized that the profit of a capitalist is not dependent on the market-prices of his inputs but on the social control of labor in general (which allows the constant rise in the organic composition of capitals or the lowering of the wages) and on his ability to grab a bigger share of the total surplus value extracted by his class (by being competitive). The solution is summed by Marx himself here:

Profit as we still regard it here, i.e., as the profit of capital as such, not of an individual capital at the expense of another, but rather as the profit of the capitalist class, concretely expressed, can never be greater than the sum of the surplus value. As a sum, it is the sum of the surplus value, but it is this same sum of values as a proportion relative to the total value of the capital, instead of to that part of it whose value really grows, i.e., is exchanged for living labour. In its immediate form, profit is nothing but the sum of the surplus value expressed as a proportion of the total value of the capital. (Marx 1857d; italics in the original)

Looking at things from a more philosophical angle, by quantifying the inputs of a capitalist at the same price as the outputs after profit is realized, Bortkiewicz hides the qualitative side of variable capital, as if labor was a thing to be bought on the market, or as if there was no contradictory relation between variable capital (within the initial cost-price) and the realization of profit (within the price of production). He does not see the central contradictory mediation of society that is alienated labor (and its internal opposite, capital accumulation), which also reflects—to another degree—the contradiction between the sphere of production (where value and surplus value are produced) and the sphere of circulation (where value and surplus value are privately redistributed). For Bortkiewicz, in a Ricardian fashion, labor is fully equated with wages, and capitalist profit becomes a residual over the wages, which is considered the right of the capitalist due to his private property. However, for Marx, this position distorts reality since labor is not a commodity but the active maker of reality. In Marx’s words, trying to impose the Ricardian “general rate of profit” by completely quantifying labor at the beginning of the cycle of production proves “much more difficult to solve than the problem of squaring the circle” (Marx cited in Pilling 1980). If wage labor is considered the root of all value from Ricardo’s perspective, it seems paradoxical that the less a capitalist spends on wages, the higher the rate of profit. Ricardo’s main philosophical mistake, which is repeated by Bortkiewicz, is explained further in the article.

By imposing equilibrium prices at the beginning of the cycle of production, bourgeois economists such as Bortkiewicz can hide the social contradiction between labor and capital that exists within the sphere of production which is equivalent to the economic base (in the Grundrisse Marx explains that the “sphere of production” is the foundation of society—the other spheres are subordinated to it). There then appears that in the market, there is no contradiction between market-price and value (which includes surplus value). The formation of market-prices appears fair and natural, as it seems that everyone receives their rightful share at the end of the day. The presupposition of a harmony between value (produced in the sphere of production) and price (formed in the sphere of circulation) allows the visualization of a stable and peaceful capitalist market system where everyone is satisfied. With everything fully quantified, the equality of all surplus values = all profits can mathematically follow the equality of all values = all prices. That said, from a more realistic point of view that matches Marx’s concept of human nature, the general “equality” between value and price hides a dark reality where variable capital is progressively more exploited and excluded from the production sphere. In the concrete reality where alienation is the human condition, the contradiction between the production of all value in the production sphere and the accumulation of private surplus value in the circulation sphere is undeniable. This contradiction threatens the general rate of profit because under the perfect conditions of capitalism—characterized by perfect competition—there will come a point when no wage laborers are employed in production. At that stage, individual capitalists will struggle to comprehend the causes of an overproduction or underconsumption crisis, as they operate within a framework of blind and coercive competition.

This historically specific contradictory mediation, present within the initial “cost-price” of every capitalist, has two sides: alienated labor available for exploitation on the market and capital as an impersonal and uncontrollable relation where surplus value is privately appropriated.

When it comes to the “alienated labor” side of the mediation, its overdetermination in the making of history is the clearest in the importance Marx gives to “variable capital” (or “socially necessary labor time”) in his “transformation of value into price” theory (by making it the determinant of profit for an individual capitalist). Without the ontological alienation of labor in the economic base, it would be impossible for any capitalist to have access to variable capital or wage slaves to exploit. The fetishistic power of the superstructural law of value ensures that alienated wage labor is available in the market for the exploitation of labor time in capitalist production.

When it comes to the “capital” side of the mediation, “capital” appears impersonal and uncontrollable from the standpoint of any isolated individual. The impersonality of capital accumulation is due to the ideal power of the law of value, which makes it so that the relation between people appears as a relation between things. The totality of society is under the spell of exchange value represented by money. Laborers believe wages are fair. Capitalists do not have direct control over their rate of profit and are forced to abide by society’s standards defined by both class struggle and coercive competition (a single capitalist cannot for sure predict his rate of profit, and cannot guarantee on his own, through his own risk and will, the rate of exploitation of society). The uncontrollability of capital is due to its essence being abstract (exponential surplus value) which is itself dependent on the plurality of capital being the main “motor” of capitalism. Blind coercive competition is the driving force of capitalism, not the capitalists themselves since surplus value is not something that can be physically grabbed. Marx calls the capitalists, the “guardians” of capital who are responsible for exchanging goods because commodities cannot exchange themselves. They are holders and representatives of the exchange relationships that precede their existence. Marx says:

It is plain that commodities cannot go to market and make exchanges of their own account. We must, therefore, have recourse to their guardians, who are also their owners. Commodities are things, and therefore without power of resistance against man. If they are wanting in docility he can use force; in other words, he can take possession of them. (Marx 1867, chapter 2)

Capital, being an impersonal and uncontrollable process of surplus value extraction, must increase surplus labor or disposable labor by reducing the price of production through the reduction of the “socially necessary labor time.” In other words, the logic of capital is to increase private profit by constantly expulsing social labor from the production process, which slowly leads capitalism toward its doom. The final goal of capital is to be accumulated at the top, by a few individuals, without the need to employ or pay any workers at all, all while making the unemployed workers pay for commodities (which is non-sensical). This goal would end capitalism itself because it would result in a sort of fascist/slave society that does not pay any wages. There would be no more purely monetary profit (M–C–M’ or M–M’) either since there would be no free-market competition that sustains the law of value and drives capital accumulation.

Marx demonstrates the contradiction between the law of value (in the production sphere) and the general rate of profit (in the circulation sphere) through a critique of Ricardo in his Essays on Surplus Value. This contradiction also reflects that of the first equality and the second equality seen above with Bortkiewicz. Ricardo considered that labor (as a quantitative force) was the source of all value. From his perspective, “profit” was a residual over wages; it was also the right of the capitalist. Logically for Ricardo, based on the quantitative law of value, different capitals with different amounts of labor inputs will lead to different rates of profit. Labor-intensive industries gain more profit than capital-intensive industries. However, Ricardo also assumed that the rates of profit were equalized (as free competition would imply). A capital that did not employ as much labor as another, would still receive “just compensation” through the free market. Ricardo states: “The difference in value arises in both cases from the profits being accumulated as capital, and is only a just compensation for the time that the profits were withheld” (Ricardo 1817a).

As noticed by Ilyenkov, Marx criticized Ricardo for imposing a general rate of profit without making sure that it aligned correctly with the law of value (Ilyenkov 1960). For Ricardo, capitals with unequal inputs of labor receive the same rate of profit. However, the issue then arises that labor inputs play no role in the determination of surplus value; meaning, that the law of value has no more role in the formation of the general rate of profit. Why would the average rate of profit of a capitalist, in a period of a year, be limited, to say, 10%? Marx asks. In classical economics, nothing truly determines the limit of the surplus value (or the “residual” above the wages) extracted by the capitalist class. Marx explains:

If one did not take the definition of value as the basis, the average profit, and therefore also the cost-prices, would be purely imaginary and untenable. The equalisation of the surplus-values in different spheres of production does not affect the absolute size of this total surplus-value; but merely alters its distribution among the different spheres of production. The determination of this surplus-value itself, however, only arises out of the determination of value by labor-time. Without this, the average profit is the average of nothing, pure fancy. And it could then equally well be 1,000 per cent or 10 per cent. (Marx 1861–1863a; italics in the original)

In Ricardo’s work, the centrality of the law of value is ignored when it comes to the formation of the general rate of profit. Indeed, Ricardo considers capitalist profit a right, without questioning its roots (disposable labor time) or relating it to the law of value, according to which labor produces all value and surplus value. Marx explains that Ricardo’s theory of profit is “based on the false identification of the rate of surplus-value with the rate of profit” (Marx 1861). The confusion between surplus value and profit is first found in Adam Smith. Marx expresses:

Adam Smith conceives surplus-value—that is, surplus-labour, the excess of labour performed and realised in the commodity over and above the paid labor, the labour which has received its equivalent in the wages—as the general category, of which profit in the strict sense and rent of land are merely branches. Nevertheless, he does not distinguish surplus-value as such a category on its own, distinct from the specific forms it assumes in profit and rent. This is the source of much error and inadequacy in his inquiry, and of even more in the work of Ricardo. (Marx 1861–1863b; italics in the original)

In Ricardo’s work, both economic growth and profits are undetermined and potentially infinite, as if they had no real basis or tie to concrete labor. That said, Ricardo was conscious of the great inconsistencies in his own understanding of the law of value. He explains in his letter to John Ramsay McCulloch: “The difficult subject of value has engaged my thoughts, but without my being able satisfactorily to find my way out of the labyrinth” (quoted in Whitaker 1904, 22). He also says: “I am not satisfied with the explanation I have given of the principles which regulate value” (quoted in Whitaker 1904, 22). He could not understand why the price of wine constantly increased over time, even though no additional labor was expended on it:

I cannot get over the difficulty of the wine, which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2 s. expended on it in the way of labour, and yet comes to be worth £100. (quoted in Whitaker 1904, 23)

Overall, he was troubled by the deviations between the market-prices of a commodity and the proportion of labor required to produce this commodity. It did not make sense to him that some industries received more profit than others while using less labor.

Marx solved the Ricardian dilemma by applying his logic of dialectical materialism (which embraces all contradictions and deviations) and his philosophy of human nature linked to the overdetermination by the base and the historical condition of alienation. In Marx’s work, the general rate of profit does have a certain limit (that is firstly qualitative, then quantitative): its limit is reflective of the surplus labor time extracted during the cycle of production. In more concrete terms, this surplus labor time is equal to the disposable time of labor as a whole, which represents all the wasted social potential—wasted personal fulfillments, accomplishments, and social rights—of labor encapsulated in wasteful exchange values (luxury items, usury, warfare, food waste, etc.). The more capital produces poverty and waste, the higher the general rate of profit (until the reaching of the point where there is a fall in profits). Marx explains:

Labour time as the measure of value posits wealth itself as founded on poverty, and disposable time as existing in and because of the antithesis to surplus labour time; or, the positing of an individual’s entire time as labour time, and his degradation therefore to mere worker, subsumption under labour. (Marx 1857b; italics in the original)

Although Marx posits that all values equal all prices and that total surplus values equal total profits, his initial philosophy makes it clear that these two equalities, although imposed by the dominant law of value, are deeply contradictory within themselves and with each other. This is due to their inherent unfairness and deceitfulness since they are rooted in the alienation of total social labor. Moreover, the contradictions within and between those equalities stemming from the alienation of labor, will eventually lead to capitalism’s collapse. The law of value, due to the general law of capital accumulation which expels socially necessary labor time from production, negates itself in empirical reality through the tendency of the general falling rate of profit. Marx explains how Ricardo ignored the central contradiction within the law of value (that between capital and labor, or exchange value and use value) and was unable to properly assert the qualitative prerequisite for profit:

Instead of postulating this general rate of profit, Ricardo should rather have examined in how far its existence is in fact consistent with the determination of value by labour-time, and he would have found that instead of being consistent with it, prima facie, it contradicts it, and that its existence would therefore have to be explained through a number of intermediary stages, a procedure which is very different from merely including it under the law of value. He would then have gained an altogether different insight into the nature of profit and would not have identified it directly with surplus-value. (Marx 1861–1863a)

Marx’s law of value, when correctly interpreted based on total social labor as the foundation of human history, always presupposes the unnatural alienation of labor from the means of production in the production sphere. This alienation compels the laboring class to “give up” its disposable time for free to the capitalist class. As such, the general rate of profit presupposes this alienation and the general rate of exploitation that follows it. In a capitalist world that prioritizes profit, the process of average price formation ultimately hinges on the perpetuation of alienation through class struggle and the suppression of the will of the laboring class by the capitalist class. Competition is only a secondary determinant of price formation, following alienated labor; it is not the primary determinant as postulated by bourgeois ideals. The overall stability of the capitalist system and the presupposed equality between value and price are illusions imposed by the alienating superstructure. The latter acts through states and social institutions to preserve the status quo and perpetuate the myth of an “equilibrium” between supply and demand.

To avoid the negative effects of the tendency of the falling rate of profit, mainly the threat of collapse and the perpetual issues of overproduction/underconsumption, the gap between the rich and the poor must be normalized, and useless needs must be created to fill the gap between supply and demand. Capital does not have any issue with the growth of a useless and unemployed “army of laborers” or with a rate of utilization of all values nearing zero, as long as the social control of the economic base is maintained, and the rate of exploitation is growing. From capital’s viewpoint, the global price system must be enforced and presented as an accurate representation of all values produced by the workers; however, in reality, the constant and growing theft of surplus value is always hidden behind the global price system.

The undeniable social contradiction between the law of value and the general rate of profit, as pointed out by Marx in Volume III of Capital, contributed to the rise of “neoclassical economics” at the end of the 19th century, leading to the abandonment of the law of value by many bourgeois economists. Alfred Marshall, a proponent of neoclassical economics, revived the equilibrium theory against Marxism by focusing on demand and completely ignoring the root of value (and thus ignoring the basis of material reproduction). For him, the law of value was useless since prices were ultimately dependent on personal choices.

In pure theory aligned with Marxist philosophy: when labor slightly prevails over capital (when total wages increase and total surplus value decreases), a natural price tends more toward its “real” value (its use value from the view of society) because there is less surplus value available for capitalist profit realization in the market through competition. This leaves the capitalists with limited capacity to collaborate or confront each other to influence average market-prices. However, in concrete reality, ever since the start of capitalism, capital has had an ongoing victory over labor. As labor has historically allowed capital to pursue its goal of infinite exploitation, global average prices have predominantly been determined by capitalist competition and capitalists seeking to maximize surplus value extraction (which led to monopolies). That said, although capital has generally had the upper hand politically, socially, militarily, and ideologically, it could never bypass its inner essential contradiction (the contradiction between capital and labor). The imperialist class, leading the accumulation of monopoly-financial capital since the beginning of the 20th century, has had to use multiple strategies to avoid massive crises (the exoteric manifestations of the tendency of the falling rate of profit). These strategies include the increased concentration and centralization of capital which allows some monopolies to control their prices of production to a high degree (since competition is eliminated to a high degree; but never completely because it is the motor of accumulation), the increased influence of financial capital that allows profit-making without spending on wages or the means of production at all, the use of the power of the imperialist states and other institutions to control the population despite the increased immiseration, the control of the supply of the “world currency” (the US dollar since World War II), the creation of useless needs that allow the production and consumption of value unrelated to basic human needs (hence creating a type of production that can function without labor consumption), the super-exploitation of Third World nations where labor is cheap and the rate of exploitation is high.

Today, due to the immense power of monopoly-financial capital led by the United States, it is not always necessary for this capital to hire wage laborers to gain profit. US imperialism reeks massive benefits stemming only from its military domination over the world and its control of the US dollar through the petrodollar system. Although US imperialism continues to exploit and cheapen labor across the world because of competition worldwide and the “general law of capital accumulation,” it reached a historically privileged position after the fall of the Soviet Union that permits it to pursue its most profitable capitalist endeavor: unlimited warfare in strategic areas for world trade (such as the Middle East, which is strategic due to oil and its location).

Unlimited warfare allows monopoly-financial capital to spend capital and produce commodities in a sector of the economy that does not require any consumption by laborers. Mészáros explains this logic:

The military-industrial complex allocates a massive and ever-increasing portion of society’s material and human resources to a parasitic and self-consuming form of production which is so radically divorced from, and indeed opposed to, actual human need and corresponding consumption that it can envisage as its own rationale and ultimate end even the total destruction of mankind. (Mészáros 1995, 591)

The main object sold by monopoly-financial capital through unlimited warfare, aside from arms and weapons, is the destruction of strategic Third World nations. This phenomenon cannot be computed by perfect economic models (where every supply has a demand), since the “thing” being sold here to extract profit is not something that can be consumed or used in any way; it is the negation of laborers and their social institutions in strategic countries. More generally, society cannot be explained based on perfect economic models, since value is not a thing to be seen or touched, but the result of the social subjugation of labor. In the case of unlimited warfare, this subjugation takes the form of annihilation which fixes the issue of overproduction/underconsumption for monopoly-financial capital. Unlimited warfare increases the general rate of profit by using up funds, arms, and other commodities, all while at the same time, destroying strategic nations and eliminating their say when it comes to the negotiations for the control of their means of production, national wages, and natural resources.

Because of the powerful social stance of monopoly-financial capital over total social labor today, the bulk of imperialist profit is accumulated outside of the wage system, through finance, destruction, warfare, waste, and growing unemployment. In a country destroyed by imperialism, the employed population can be near zero (and close to complete misery) and the profits of monopoly-financial capital can be astronomical, especially when it comes to the long-term profits linked to the hegemony of the US dollar and geostrategic interests in countering international competition (today, mainly China and its strategic allies). In such conditions of monopolism and warfare, the equilibrium prices of classical economists appear as authoritarian weapons of misery rather than perfect prices for both sellers and buyers.

Conclusion

This article demonstrates that the social and structural domination of the superstructure (although never in the last instance) is at the root of the formation of prices that include profit in the market. Furthermore, it is due to the social power of the superstructure over the economic base—and the totalitarian reproduction of alienated labor—that the competition between capitalists can thrive socially to overwhelmingly dictate the average prices of commodities containing surplus value. The impersonality and uncontrollability of capitalist accumulation, ensured by blind and coercive competition, allows classical economics to sound “scientific” and adequate, regardless of the immiseration of labor. The “equality” between value and price put forth by classical economists, becomes a dominant ideology that leads the laborers of the base to act against their class interests. The laborers (the makers of history), being alienated from the means of production, are easily fooled into believing in the illusions of the “law of value” which posits money as the main mediator of all relationships. They do not realize that their surplus labor or disposable time is the source of private profit within average market-prices. As such, although the determination of average prices depends on both “supply” and “demand,” the demand side is to a high degree passive (in terms of class power), allowing the “supply” side—controlled by the capitalist class—to lead in the determination of average prices (which allows the control of money and finance, the creation of useless or destructive needs such as warfare, price hikes on foodstuffs, speculation on basic needs, etc.).

The Althusserian interpretation of dialectical materialism, which emphasizes the determination of the economic base “in the last instance,” is fundamental to the qualitative understanding of transformation theory. Althusser’s interpretation accentuates the ultimate linkage of everything and everyone to the “totality of the relations of production” within the economic base, reminding us that the root of all value (across the whole world) is total social labor. Mészáros’s significant contribution to Marxism which compliments Althusser’s interpretation of dialectical materialism is the assertion that total social labor, under capitalism, is alienated. This alienation is primarily social and historical, suggesting that it can one day be superseded, as it does not possess any inherent or natural essence. Through the theoretical understanding of the overdetermining mediation of alienated labor/capital, it becomes possible to perceive the many contradictions of capitalism and to conceive strategies for superseding this social system. This includes addressing the contradictions between the base and superstructure, use value and exchange value, value and price, value and surplus value, abstract labor and concrete labor, as well as private profit and wage labor, among others.

Bourgeois economists are unable to see any of these contradictions or conceive an alternative to capitalism. They take the fetishistic ideals linked to capital (such as exchange value, wage labor, private property, equilibrium prices, and capital itself) as natural and determining facts, which leads them to believe that the equilibrium price of a commodity is rightfully equal to its “real value.” Thorstein Veblen, an influential sociologist, perfectly summed up the main issue of the bourgeois economists:

Marx’s critics commonly identify the concept of “value” with that of “exchange value,” and show that the theory of “value” does not square with the run of the facts of price under the existing system of distribution, piously hoping thereby to have refuted the Marxian doctrine; whereas, of course, they have for the most part not touched it. (Veblen 1906)

For Marx, the law of value (the domination of exchange value and its main form, money) is socially imposed, and the price system that arises from it is consistently enforced to facilitate the exploitation of labor. There is a social mismatch between the equilibrium price (or the money form/exchange value) of a good and its real use value because the rights of the laborers who produce this good are socially stripped away. The perceived equality between equilibrium prices and real use values is imposed upon society, concealing the underlying exploitation of labor.

The Althusserian concept of overdetermination clarifies that at the end of the day, only the masses embodying the totality of the relations of production can produce value and transform society, both ideally and materially. The masses are the foundation of real history. The risks taken by capitalists, through their ownership of capital, cannot produce anything. That said: because of the social control of the base by the superstructure, capital socially and historically assumes, in our historical era, the position traditionally attributed to labor. The de facto goal of society is private enrichment, regardless of the devastating consequences on humanity and nature.

Marx’s earlier works (The Critique of Hegel’s Philosophy, The German Ideology, The Eighteenth Brumaire of Louis Bonaparte, The Poverty of Philosophy, etc.) require more attention when exploring his “economic” theories. In The Poverty of Philosophy, he expresses a foundational idea that cannot be explained mathematically: “Time is everything, man is nothing; he is, at the most, time’s carcass. Quality no longer matters. Quantity alone decides everything; hour for hour, day for day” (Marx 1847, chapter 1, part 2). Capital is overbearing; it crushes all autonomies within the economic base to fit all laborers under the same category of “labor-power,” an abstract alienating conception of labor that makes the laborers dependent on wages. For Marx, there can be no question of real substantive equality in society without totally overcoming the alienation of labor (and the false consciousness of total social labor). This cannot be accomplished without the material and ideological restructuring of the mode of production from a quantitative system to a qualitative system based primarily on all people’s direct basic needs.

Overcoming this pervasive alienation necessitates, as a first step, an ideological and global revolution that could lead to a material transformation of the economic base. This material transformation would be achieved through the physical dismantling of prevailing imperialist states and other imperialist institutions. Subsequently, an ideological transformation should ensue, leading to the establishment of new dominant institutions that mirror ideals aligned with proletarian interests.

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