1. In this idealized society Marx envisions in the first few chapters of Capital, we are all atomized, independent producers pursuing our own private self-interest. We each decide what we produce and how much we produce of it without consulting anyone else. This division of labor develops spontaneously in history. And this is the foundation upon which capitalism is built.
Marx has not yet introduced the idea of class society. Classes do not appear until Chapter 6. But everything he is saying now is leading up to an explanation of how classes arise in capitalist society.
2. One factor influencing the labor theory of value that Marx only makes fleeting references to in Capital is the effect of supply and demand on how the labor theory of value operates. He develops its effect more fully in WAGE LABOR AND CAPITAL. Here is how supply and demand impact the labor theory of value:
Suppose commodities are pretty much exchanged according to how much labor time is required to produce them. So if one coat takes two hours to produce while one loaf of bread takes one hour to produce, then one coat will exchange for two loaves of bread. But suppose, for some reason, the demand for a particular commodity – we will call it commodity A – suddenly shoots up so there is not enough supply to meet the new demand. In this situation the seller of commodity A has the upper hand and can demand a higher exchange rate for commodity A than the labor time embodied in it would warrant. Other producers notice this fact and decide to start producing commodity A as well. Soon the number of commodity A’s entering the market begins to outnumber the people who want to buy it. Then the exchange rate of commodity A drops because there are not enough buyers. The supply exceeds demand. And when it drops so far that it is being exchanged for other articles with less labor time embodied in them, people will stop producing commodity A and look for another commodity to produce.
Marx describes this process in WAGE LABOR AND CAPITAL in dramatic terms:
“But it is precisely these fluctuations [caused by supply and demand] which, viewed more closely, carry the most frightful devastation in their train, and, like an earthquake, cause bourgeois society to shake to its very foundations – it is precisely these fluctuations that force the price [i.e., its exchange value] to conform to the cost of production [i.e. labor time]. In the totality of this disorderly movement is to be found its order. In the total course of this industrial anarchy, in this circular movement, competition balances, as it were, the one extravagance by the other.”
All of this is to say that capitalism has this perverted logic. People do not gather together and plan out how much to produce of each commodity in order to meet everyone’s needs. Instead, all individuals operate in isolation and try to maximize their individual, private interests. If it turns out by chance that too many individuals decide to produce a particular commodity so that supply exceeds demand, then its exchange value will drop below its labor time. If too few people decide to produce a commodity, then demand exceeds supply, so the exchange rate will rise above the labor time and more people will decide to produce it.
Far from distorting the labor time theory of value, supply and demand are actually how it gets enforced.
3. In Chapter 2 Marx makes this comment: “The persons exist for one another merely as representatives of, and, therefore, as owners of, commodities. In the course of our investigation we shall find, in general, that the characters who appear on the economic stage are but the personifications of the economic relations that exist between them.”
This observation is important since it indicates that Marx is arguing that the problems that capitalism creates are not due to the greed or selfishness of individuals. Rather the greed and selfishness of individuals is a product of capitalism. As will become clearer the further we get, capitalism does not encourage people to look out for one another. It encourages people to take advantage of one another.
4. Throughout Volume 1 of CAPITAL Marx is giving us the bare essence or the kernel of capitalism. All the complexities and monstrosities of modern capitalism grow organically from this core. But what this means is that capitalism cannot be reformed by just attacking the later developments by, for example, just cutting back on the big corporations. These corporations are the logical result of this inner core. We might reduce the size of the corporations temporarily, but they will grow back even stronger than before. The core must be destroyed and be replaced by an entirely new system where we do not operate like atomized, egoistic, selfish individuals but we act as a community mutually supporting one another, where, as Marx says in the COMMUNIST MANIFESTO: “… the free development of each is the condition for the free development of all.” We come to the realization that in order for each one of us to thrive everyone must thrive. So we all come to desire the good of all.
Summary of Capital, Chapters 1 and 2
The exchange of commodities dominates the capitalist economy where a commodity is specifically defined as something that is created in order to exchange it for something else.
What is it that determines the ratio in which the commodities are exchanged? There is nothing that they have in common with respect to their use or their particular physical properties. The only thing they have in common is that they all require an expenditure of human energy for a certain amount of time for their production. Some involve more time than others. It is the amount of time required to produce something that determines its Value, which then determines the ratio in which it will exchange with other commodities. [“…it is the magnitude of their value which controls their exchange proportions.”] [“We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production.”]
Marx describes how money came into existence in four steps:
STEP #1: (A) The Elementary Form of Value
Marx starts with a single equation: x commodity A = y commodity B.
Here the value of commodity A is being expressed in terms of commodity B: How much is A worth? It is worth y commodity B. So commodity B, in a very primitive way, is playing the role of money. [“The simple commodity form is therefore the germ of the money form.”]
Commodity A has the role of the “Relative Form” of value in this equation since its value is being expressed relative to commodity B.
Commodity B plays the role of the “Equivalent Form” since it is expressing the value of commodity A by saying that it is equivalent to commodity A.
This form comes into existence when the exchange of commodities is very infrequent. It occurs when two separate communities infrequently trade with one another.
STEP #2: (B) The Expanded Relative Form of Value
X commodity A = y commodity B or z commodity C, or f commodity D or g commodity E, etc. etc.
Here it is clear that the kind of labor involved (weaving, baking, mining, etc.) is irrelevant to the value of a commodity since all kinds of commodities involving different kinds of labor are being equated to commodity A.
This form comes into existence when a particular commodity, such as cattle, is regularly exchanged for a variety of other commodities. Nomadic communities with large herds of cattle would come into contact with other communities and engage in trade. So a cow could be exchanged for a variety of other things.
But this form clearly has defects. For example, it involves an endless series, and there are many competing equivalent forms. It’s like having many different currencies.
When the exchange of commodities becomes widespread, then the reverse of the expanded form begins to occur: many different kinds of commodities in specific quantities get equated to x commodity A. And this is basically the money form.
STEP #3: (C) The General Form of Value
Here all commodities express their value in a single commodity that has been separated out.
X commodity A, and y commodity B, and z commodity C, etc., etc. = n commodity D.
Here, the value of all commodities is expressed in a single commodity. Accordingly, it is easy to ascertain the relative value of each commodity with all the others since their value is being expressed in a single commodity. In this example, commodity D becomes the universal equivalent. It expresses the value of all other commodities. Commodity D, then, is basically playing the role of money. Because the precious metals have physical qualities that make them particularly appropriate to function as money, they soon became the money commodity.
STEP #4: (D) The Money Form
This last step is the same as step #3 except that gold (or some other precious metal) plays the role of the equivalent. All commodities then express their value in gold.
Gold is itself a commodity. This becomes clear by seeing how it evolved. Historically, other commodities (like cattle) played the role of money, but gold is far more suited to playing this role than cattle. [“That money is a commodity is therefore a new discovery only for those who, when they analyze it, start from its fully developed shape.”] Like all other commodities, the value of gold is determined by the amount of labor time required to produce it. So the value of gold is not some arbitrary fabrication as some argued. It has its basis in the labor theory of value.