Can capital create value?

[Brenc]

Hello everybody, I have always believed that capitalism exploited the worker because all wealth is from labor, and therefore capitalist profit is theft. However I was researching the Marginal Product of Labor and apparently labor can be paid its marginal product and the capitalist can still profit. Also I read something Milton Friedman said, "to each according to what he and the instruments he owns produces." Do machines create value? They have a marginal product, if you have one laborer and no machines, nothing will happen, but if you add one machine, the marginal product of the machine would be all of the output? Basically what value is the labor in a product and how is it determined?

[The Garbage Disposal Unit]

OK! So - this is a complicated question, and I'm not sure I have the space to really do it justice. I will attempt a brief sketch, but I would like to highly recommend George Caffentzis' In Letters of Blood and Fire. It is available online in full here or from PM Press for $20, here.

First, I think we have to return to Marx's notion of commodity fetishism, in which "[T]he definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things." Taking this further, we need to look at the totality of human social relations, and not just the individual capital and the commodities that are, in appearance, produced by it. So, what we actually need to see in machines is not generative powers, but the "storage" of human capacity - machines "contain" within them, in the final analysis, human labour, in their invention, their design, their raw material, their building, their transportation, the maintenance of the electrical grids that power the machine, the mining of the coal that generates the power, etc. ad infinitum. Insofar as "value" concerns relationships between human beings, and the organization of social reproduction in its totality, we come to understand that the appearance of "the machine", as a singular thing that has emerged ex nihilo by the necromancy of capital (as in your example where one simply "adds one machine") is actually a product of labour, and that the value it therefore "creates" is actually created by the labour invested in it, and the total labour of the society in which it operates.

[RedMaterialist]

However I was researching the Marginal Product of Labor and apparently labor can be paid its marginal product and the capitalist can still profit. Also I read something Milton Friedman said, "to each according to what he and the instruments he owns produces." Do machines create value?

A machine can't do or produce anything without human supervision or operation. The machine contains value which has been created by human labor; that value can be then be transferred to another product, but only by human labor.

Friedman, without realizing it, describes pretty well the capitalist system: The worker produces value by operating the instruments the capitalist owns. That's the whole point. The worker owns nothing but his/her labor, while the capitalist owns the means of production. Because of this arrangement the capitalist "owns" what comes off the assembly line, the capitalist then appropriates what he owns and sells it for a profit.

The "marginal product of labor" is just another way of saying wages, but wages paid are only a portion of the value of what labor produces. The full value of the product is made up of wages, raw materials, rent, etc. and unpaid labor. It's the unpaid labor which is the profit that the capitalist appropriates. This appropriation is not theft because the owner of the means of production legally has the right to take the product. Under socialism the working class, or society in general, will own the means of production and therefore will own the profit or surplus value generated by production. And after that there will be no production at all for profit, only for human use.

The evidence for unpaid labor exists in the economic statistics produced by the capitalists themselves. The GDP of the US is about 15 trillion a year. Wages don't come anywhere near accounting for that value. Economists like Friedman who make a living apologizing for capitalism used to say that the rent paid by serfs to landlords was due to the natural, god-given rights of the land owning landlords. Nobody believes that anymore, but it is exactly the same argument Friedman makes, with the exception that the religious justification is replaced with the magic of the free market.

Another reason that machines don't produce value is that as machinery makes up more and more of the cost of production, the things produced become cheaper and cheaper. And the rate of profit realized on that cheaper value becomes lower and lower. Finally the rate becomes so low that only gigantic, multi-national corporations can operate on the razor thin profit margins. And don't confuse the gross amount of profit with the rate of profit. They are two different things.

Anyway, none of this is taught in any but a tiny number of economics courses. I've only heard Richard Wolff from UMass Amherst discuss it on youtube. Also, there is a blog by Michael Roberts. Others are Andrew Kliman, Alan Freeman (?). Too bad there aren't more videos.

[RedMaterialist]

if you have one laborer and no machines, nothing will happen, but if you add one machine, the marginal product of the machine would be all of the output? Basically what value is the labor in a product and how is it determined?

Suppose you have a capitalist who is in the business of producing gold. He has one laborer. Does nothing happen? I would say no. The capitalist demands the laborer dig with his hands. Ok. so one cent of gold is produced in one hour. The laborer is paid one-tenth of a cent. Then the capitalist decides to have the worker dig with a shovel. Now, in one hour, one dollar of gold is produced. Are we supposed to believe that the shovel produced an extra 99 cents of gold? Suppose it's a backhoe and the worker produces 10 dollars of gold in an hour. Did the backhoe produce the extra 9 dollars worth of gold?

And now suppose many millions of workers get together and say, "All of this equipment is now owned by us, and we intend to keep what we and the machines produced?"

Ownership doesn't produce anything.

[Murray_Rothbard]

If the capitalist is bringing literally nothing to the equation, no equipment, training, resources, refinement of the gold, sale of the gold, and the worker is accepting 1/10th of the price of the gold that he mines with his own hands, then it's the fault of the worker for doing that. If you are mining the gold, with your bare hands, and give that gold to someone else, be it a capitalist or whatever, and only accept 1/10th of the sale price, that's your fault. Why not go out and sell it on your own if the capitalist is truly not bringing anything to the table? Is he exploiting the worker or is the working allowing himself to be "exploited"? I am all for individual enterprise, but it is not the worker who refines the gold and prepares it for sale, it is not him who markets the company and brings customers in the storefront, it is not him who pays for the upkeep and maintenance of the store that the gold is sold in, it is not him who engages with the customers in such a way that the customer is willing to buy the gold. In this instance, I ask, how does the worker assert that it is he to whom the full value of the sale price of the gold is due? I understand different stages of production merit their own part of the final profit, but what is owed to the man who coordinates and facilitates this entire system (the capitalist)? The man who hires the workers, salesmen, refiners, and coordinates their efforts in a way to efficiently bring about profit. Yes, the laborers and workers are due their share, but what of the man who created the entire value chain? Is he really just a parasite?

I do not mean to flame or patronize you. I want an honest, civil discussion. I am very open to new ideas and am in no way set upon one set of beliefs. I love to learn and am more than happy to be proved wrong if I am indeed in the wrong.

[Murray_Rothbard]

Let's break it down to an equation. Let's say labor alone produces 1 cent. So labor = 1 cent of value. Value = 1 cent = only labor. Let's say Labor + backhoe = 10 dollars (value). If the labor alone produces one cent in value, and you add to that equation the capital goods (backhoe) and you get 10 dollars of final value, mathematically it becomes that the capital input has created 9.99 dollars worth of value more than what the labor alone could have produced. Where is the flaw in this reasoning?

[The Garbage Disposal Unit]

Let's break it down to an equation. Let's say labor alone produces 1 cent. So labor = 1 cent of value. Value = 1 cent = only labor. Let's say Labor + backhoe = 10 dollars (value). If the labor alone produces one cent in value, and you add to that equation the capital goods (backhoe) and you get 10 dollars of final value, mathematically it becomes that the capital input has created 9.99 dollars worth of value more than what the labor alone could have produced. Where is the flaw in this reasoning?

1. Who made the backhoe?
2. The backhoe alone doesn't produce $9.99 does it?

[LionofTepelenë]

Hello, its nice to see an Austrian in this forum (it will shake things up quite a bit for the conversations here haha)

If the capitalist is bringing literally nothing to the equation, no equipment, training, resources, refinement of the gold, sale of the gold, and the worker is accepting 1/10th of the price of the gold that he mines with his own hands, then it's the fault of the worker for doing that.

Ok, so I'll start with your position on this. Essentially the issue I have here is that what you are saying is very much in a vacuum. If a capitalist only gives 1/10th of the price of gold to the worker, then there must be a reason or conditions to this. Either there is little to no union activity, or the unions that exist are corrupt or are under the spear of the capitalists. There is always a degree of force that the capitalist applies to his profit, he/she wants maximal profits for his own benefit in the market, and will use any way to have this happen. Do not forget that workers can't just be demand higher wages.

If you are mining the gold, with your bare hands, and give that gold to someone else, be it a capitalist or whatever, and only accept 1/10th of the sale price, that's your fault. Why not go out and sell it on your own if the capitalist is truly not bringing anything to the table? Is he exploiting the worker or is the working allowing himself to be "exploited"?

Then why is the person mining in the first place? A worker usually has too little money to buy any relevant assets to make a business from. Your simulation obviously sounds like it is in some third world country, where government interference Mr. Friedman insists being the destruction of capitalism is minimal. The worker is indeed allowing himself to be exploited, but the worker also is being exploited by the capitalists.

I am all for individual enterprise,

Me too, just that there is no market and that the worker in that enterprise gets to have what he produces.

but it is not the worker who refines the gold and prepares it for sale, it is not him who markets the company and brings customers in the storefront, it is not him who pays for the upkeep and maintenance of the store that the gold is sold in, it is not him who engages with the customers in such a way that the customer is willing to buy the gold.

You think the capitalist does all that? No, the capitalist hires marketers and other underlings to work all that out. The capitalist also hires consultants and markets and other types of workers to get his product to market. The same thing applies, there is a degree of profit being made by that capitalist, who has contributed less labor than his underlings to the business. Capitalist still did the labor to start all of this off mind you, but it is minimal and is in a position where he is still in a privileged position.

The only time I see this argument being a valid approach is in an entrepreneur, who will look to marketing websites to help in his small business. This however ignores that those websites don't partake in the exploitation of their own IT workers, and the big computer companies which exploit others for their products.

In this instance, I ask, how does the worker assert that it is he to whom the full value of the sale price of the gold is due? I understand different stages of production merit their own part of the final profit, but what is owed to the man who coordinates and facilitates this entire system (the capitalist)? The man who hires the workers, salesmen, refiners, and coordinates their efforts in a way to efficiently bring about profit. Yes, the laborers and workers are due their share, but what of the man who created the entire value chain? Is he really just a parasite?

The workers in their totality have contributed astronomically compared to the fatcat on top. Why does this need to occur? Why does most of the profit have to go the person who technically has done the least. Essentially it similar to the highest grade on a school assignment being given to the person who only bossed people around and did the least labor to create the thing. The capitalist did not create any meaningful value, he only owns the means of production to realize value on spooky assertions like "property rights" and "natural citizen" that right-libertarians love so much.

Let's break it down to an equation. Let's say labor alone produces 1 cent. So labor = 1 cent of value. Value = 1 cent = only labor. Let's say Labor + backhoe = 10 dollars (value). If the labor alone produces one cent in value, and you add to that equation the capital goods (backhoe) and you get 10 dollars of final value, mathematically it becomes that the capital input has created 9.99 dollars worth of value more than what the labor alone could have produced. Where is the flaw in this reasoning?

Assuming that labor is worth only 1 cent as compared to the backhoe, and the hoe is $10 compared to the labor. The main flaw in your argument is that is a classic Texas sharpshooter fallacy. You're creating a vacuum to verify your point.

[Fellow_Human]

it is not the worker who refines the gold and prepares it for sale

Not the same worker, but other workers; still not the owners.

it is not him who markets the company and brings customers in the storefront

Other workers.

it is not him who pays for the upkeep and maintenance of the store that the gold is sold in

Right, it may be paid by the owners of the stores, but where do they get the purchasing power to pay for it? From the value produced by the workers.

it is not him who engages with the customers in such a way that the customer is willing to buy the gold.

Neither is it the owner.

but what is owed to the man who coordinates and facilitates this entire system (the capitalist)?

The "man" does not coordinate it, per se. It's coordinated by largely owner-appointed management (or elected, as to the board of directors), which may or may not be headed by an owner, as CEO, who before the 1990s used to be paid 20 times what an average worker used to be paid but today is paid 300 times more.

The man who hires the workers, salesmen, refiners, and coordinates their efforts in a way to efficiently bring about profit.

The hiring process isn't done by "men," not in the larger corporations; it's done by the human resources department.

Yes, the laborers and workers are due their share, but what of the man who created the entire value chain?

What value? The "man" neither built nor operated the means of production; he merely purchased them (if not inherited them), for funds that he was able to obtain mostly thanks to the luck of being in the right place at the right time, such as being born into a privileged family and getting all the social connections that come with it.


A founder or small business owner may be a different story, but founders often do work on the means of production before they can afford to leave it to hired workers, and their businesses rarely grow to the size of multinationals in their lifetime, instead having to battle constant competition from the big businesses, which are taken care of by their nanny state -- subsidies, bailouts, quantitative easing to devalue our currency, free passes to contaminate our environment, whatever they want.

A small business may cost less than a house. It's not out of reach for an average Westerner, though they will still have to work many years for hire before they can afford it, to say nothing of the skills required to run the business (which a proletarian would not have been taught in their family home). At any rate, for us it's not really about social mobility; for us, the employer-employee relationship is itself an exploitative relationship, creating hierarchical cut-throat environments where people are rewarded not for cooperation and friendliness but for aggression, deception and selfishness.

- - - Updated - - -

Under socialism the working class, or society in general, will own the means of production and therefore will own the profit or surplus value generated by production. And after that there will be no production at all for profit, only for human use.

If you have a planned economy. With social ownership but without central planning, the profit motive remains.

[Wessex Way Monster]

The term "dead labour" comes to mind when discussing tooling and machinery.

Idk who first coined the term but as far as I understand it it describes how the labour put into tooling is what makes the tooling+live labour able to create value.

The real question it'd seem to me is why would it matter to proletarians if the tooling can create value independently of any labour that was used to create it? Who does it really matter to? Not those who are actively under attack from capital, but those who profit from that attack. To the insurgent, the only thing that matters is that the insurgent is under attack. Anything else is trivial.

[RedMaterialist]

Let's break it down to an equation. Let's say labor alone produces 1 cent. So labor = 1 cent of value. Value = 1 cent = only labor. Let's say Labor + backhoe = 10 dollars (value). If the labor alone produces one cent in value, and you add to that equation the capital goods (backhoe) and you get 10 dollars of final value, mathematically it becomes that the capital input has created 9.99 dollars worth of value more than what the labor alone could have produced. Where is the flaw in this reasoning?

The capitalist paid 1 cent for the labor and 9.99 for the machinery. The capitalist now owns something for which he paid $10. If he sells it for 10 he doesnt make a profit. Without resorting to magic (of the marketplace), explain how the capitalist makes a profit.