UNDERSTANDING CAPITALISM
A socioeconomic system where social relations are primarily based on commodities for exchange, specifically through private ownership of the means of production and distribution of said commodities and its use for the competitive maximization of capital (i.e. any form of profit) ultimately through the exploitation of wage labor.
The underlying assumption that this definition has, that is, that capitalism is fundamentally based on the exploitation of wage labor, comes from the premise that the labor theory of value is true, in particular, Karl Marx’s. There are, however, competing theories of value in economics. One being the more classical labor theory of value, and the other being the neoclassical mainstream marginal utility theory of value. The “capital debates” or the “Cambridge capital controversy” is a memory-holed event in economic history where debates between both camps settled how marginalist views were divorced from economic reality in trying to deny that surplus labor is the basis of all profit in contrast to the Marxian/Post-Keynesian perspective.
“As the exchangeable values of commodities are only social functions of those things, and have nothing at all to do with the natural qualities, we must first ask: What is the common social substance of all commodities? It is labour. To produce a commodity a certain amount of labour must be bestowed upon it, or worked up in it. And I say not only labour, but social labour. A man who produces an article for his own immediate use, to consume it himself, creates a product, but not a commodity. As a self-sustaining producer he has nothing to do with society. But to produce a commodity, a man must not only produce an article satisfying some social want, but his labour itself must form part and parcel of the total sum of labour expended by society. It must be subordinate to the division of labour within society. It is nothing without the other divisions of labour, and on its part is required to integrate them.” Value, Price, and Profit by Karl Marx Chapter VI*
“The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it (the commodity) can impose upon other people.” - Wealth of Nations by Adam Smith Book 1, chapter V
“The value of any commodity, […] to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities” - Wealth of Nations by Adam Smith Book 1, chapter V
“Trade in general being nothing else but the Exchange of Labour for Labour, the Value of All Things is… most justly measured by Labour.” -The Nature and Necessity of a Paper-Currency by Benjamin Franklin
“As Silver itself is of no certain permanent Value, being worth more or less according to its Scarcity or Plenty, therefore it seems requisite to fix upon Something else, more proper to be made a Measure of Values, and this I take to be Labour”- -The Nature and Necessity of a Paper-Currency by Benjamin Franklin
A labor theory of value is a theory of economic value used to determine what would be the common unit of measurement to explain what common/social intrinsic value would be the base of economic exchange. Labor theories of value were thought out by various historical thinkers independently throughout many centuries such as Thomas Aquinas in his Summa Theologiae, Ibn Khaldun in his Muqaddimah, Sir William Petty in his Treatise of Taxes of 1662, John Locke’s labor theory of property, and in Benjamin Franklin’s “The Nature and Necessity of a Paper-Currency”, that which Karl Marx credits for his inspiration for his value theory. Most notably however, it is used by classical economists such as Adam Smith in his Wealth of Nations, David Ricardo in his Principles of Political Economy and Taxation, and of course in Karl Marx’s various works such as in Capital. Marx, however, is the only one to both follow the labor theory of value and formulate one to its logical conclusion, that in order for capitalists to make a profit, they would have to exploit wage-labor for it being the sole source of intrinsic value within any commodity.
The labour theory of value according to Karl Marx’s “law of value” holds that the common unit of measurement to determine the intrinsic value within commodities for their exchange, is determined by the socially necessary labor time required to produce it. Socially necessary labor time is the average amount of labor time needed to produce or obtain something which is socially demanded for in the market, making it “necessary”.
WIP
There is very strong empirical evidence confirming the validity of the labor theory of value over that of the mainstream marginal utility theory of value.
https://academic.oup.com/cje/article-abstract/37/5/1107/1679189