Some notes on value and crisis

On the newly created mailing list (see, a hot debate on money and value started. As it went along, I thought it would be helpful to differentiate separate notions of value. This might refine our understanding of both the crisis and the way out of it: demonetization. The linguistic field of value as it appears in everyday language could be differentiated into four distinct concepts which are interrelated:

1. value
2. exchange value
3. use value
4. price

Exchange value is the form in which value is expressed. We need to presuppose value to be able to talk and think about exchange value. (Marx dwells on this question on the beginning of “Capital”, vol. I). Marx took the categories of use value and exchange value from Adam Smith (and Ricardo), and introduced the category of value (that underlies exchange value).

Value is a complex category in itself, comprising three aspects:

1. form
2. content or substance
3. dimension

Value and “values”

Value is first of all a social form. Under the regime of value use values exist in the form of commodities, i.e. things and services with abstract economic value attached to them. The substance of value is labour time – a very peculiar sort of labour (time), namely abstract labour (time). Abstract it is because as value creating labour, it exhibits no concrete specifications at all. The dimension of value of a specific commodity is determined by the socially necessary labour time that is required on a certain level of productivity of labour.

Analyzing the dynamics that appear on the market surface, capital is the movement of the expansion of abstract economic value. Taking into account production we find that value is embodied labour time and capital is accumulated surplus value or surplus labour time (surplus labour time being that part of the social labour day that goes beyond what is required to reproduce the standard of living of wage labourers).

Interestingly enough, Joseph Schumpeter came close to a concept of capital as abstract value in motion, as Hans-Georg Backhaus explains. Schumpeter had discovered that within the framework of standard economics, capital cannot be understood, because on the empirical level, it appears merely as a multitude of things with completely different qualities. The category of capital then becomes a mystery. We need the concept of abstract value in order to understand the logic of capital and commodity production. Certainly, to understand how value arises from social relations is a further task, and a quite difficult one.

The confusion over value that frequently haunts debates on money and demonetization arises from the diffusion of the term “value” into everyday language. Franz Schandl, editor of the magazine “Streifzüge” turns our attention to the fact, that value had not been a philosophical or ethical category before the advent of capitalism. So capitalism deeply influenced the way we think of the motivations and directions of human behaviour and to such an extent, that we transfer the notion of value from the realm of the money economy to the realm of both everyday life and philosophical inquiry. Capital even penetrates our thinking on alternatives, so we tend to see “value” as a “neutral category”, we believe that value has no inherent connection to the capitalist mode of production.

This is the reason why many people try to use the discourse on “values” to promote a society where social relations count again, as they say. Yet value is already a social relation, and a very destructive one. “Alternative values”, which are often seen to be the values of respect, fairness and so on, might be helpful in turning around the developmental direction of our society, but they arise from social relations and will not persist and gain strength as long as value as an abstract economic category remains in place, together with its “values” of competition, growth and isolation. Value and “values” arise from our social relations, so that is what is to change in the first instance. (To promote to go the other way round is the job of religion.) Though perspectives on value different from the one presented here have their merits (take Massimo de Angelis “value struggles” in his book “The beginning of history” as a case in point, which combines the Marxian critique of economic value with the notion of value as an ethical category), and should be seen as alternative paradigms that can enrich debates on value.

Use value is the concrete “value in use” in the sense of satisfaction of practical needs by a certain product. The categories of the life we want to change to a more fruitful social net by demonetization are hardly ever transhistorical. This is also true for the use value, which ignores the context of any product, such as in automobiles, which might be a mobility use value for the capitalist consumer, yet are often more an obstacle to movement than its enabler. Anyway, for the reasons of practical communication, we might still talk about use values as an unhistorical term.

Use value is a completely different logical category than exchange value (which is the expression of value). Neoclassical economists regularly confuse use value with exchange value, for instance when they talk about the relation between costs and utility (Kosten-Nutzen-Relation, in German). Utility is a logically completely different from costs, so this phrase is nonsense. Additionally, neoclassical economists have no notion of value, which is a theoretical category (and not empirically visible one such as costs).

Price again is a different category than value. Value is a theoretical category we need in order to understand empirical phenomena such as money, price, profit etc. Value is the inner tie of those empirical categories. In bourgeois society, individuals behave in a way as there would be a thing like value. So value is a construct that allows us to understand individual actions in a society that is governed by capitalist relations of production. And that’s pretty important, when it comes to demonetization.

The use value of value theory: an example

We can put this concept of value in use by analyzing the current crisis, which was triggered by high oil prices and will be further aggravated by raw material scarcities of different sorts.

Let’s start with the basics. The value of oil is determined by the abstract labour time expanded in its production (including exploration, distribution and chemical treatment as well as all the technical gears necessary to do this), according to both the social average of necessary labour time for this specific task and the social demand (a factor that Marx already stressed).

The price of oil (which is not the same as its value) is determined by costs of production (wages, the price of capital goods), the social average of the profit rate (the “mark up”) and rent. Rent exists in two variants: (1) political monopoly rent, (2) differential ground rent. For oil both are important. The first one is simply market power: “you have to pay me a premium if you want to get the stuff”, the second is determined by demand and differential conditions of production. If Canadian tar sands have to be exploited in order to satisfy market demand for oil, the price goes up, because this oil is much more costly to produce. Canadian tar sand oil then becomes the price setting oil on the world market – Saudi oil will be sold for the same

price, but since it is produced more cheaply, Saudi Aramco will get a rent, differential rent in this case. In the long run, the oil price will go up simply because production costs will rise. In the short run, speculation plays a certain role. According to (check out also for German papers), Peak Oil was reached 2008, prices fell due to recession, they are on the rise again because production capacities cannot be expanded and because production costs increase steadily (the latter tendency is crucial in the long run).

Using Marxian categories, we did this paper on Peak Oil, capital and crisis which I think is still valid and goes into more detail:

Capital produces for itself, not for consumption

So how does the value and price of oil relate to the long term crisis we are about to enter, the crisis that follows Peak Oil (and other resource scarcities). First of all, we have to realize that the goal of capital is not to produce for consumption, but for non-consumption, surplus value. Surplus value is not spent on consumption but accumulated, it is embodied by means of further production.

Hence capitalist crisis result from overproduction of capital that cannot be invested into additional means of production at a rate of profit that is deemed necessary by capitalists. Investment arises out of expectations of capitalists for profitable investment – this is the destructive tautology of capital. To the extent that capitalists think consumer demand is necessary for the realization of surplus value in terms of profits – which includes corporate profits, rent, dividends and interest –, consumer demand has an indirect effect on investment demand. However, the more wage labourers consume in terms of the value product of society, the less is available for surplus value, empirically spoken: profits. That’s the basic equation and it precludes theories of crisis that see underconsumption at the root of it.

When oil, gas and coal get scarce and costly, and the provision of fossil resources volatile, productivity increase will slow down and finally turns into reverse. Surplus value than can no longer be expanded by lowering the costs of the production of labour by increasing productivity of labour using machinery fuelled by fossil resources, but only by suppressing the standard of living of the working class. Much of capitals infrastructure will be devalued, capital costs will rise and the rate of profit fall. Unlike conventional capitalist crisis, the crisis induced by the resource peaks will not help accumulation to renew its course, simply because part of the infrastructure not only looses its value but also its use value. In any case, further accumulation will be limited due to social unrest that will arise under the attacks of capital. Renewable energies are a fine thing, but they depend on a system fuelled by fossil resources for its finance and construction. And they are of lower quality than fossil fuels – this will put a break on productivity increase even in a renewable energy regime.

So what is the upshot of this short exercise in value theory?

For practical reasons, a consensus on value theory is not necessary. We just have to agree that a society without money and exchange is necessary and possible. That’s the bottom line of the demonetization approach. However, for clarifications in our discourse and thinking, value theory would be helpful as it supports our efforts to get rid of the current form of society and avoid the traps of the old.

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