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Engels once said of certain critics of Marx’s Capital, Volume I that they “took more trouble to understand it wrongly than was necessary to understand it correctly” (Engels, “Supplement”). So it is with those who claim that Marx’s Labor Theory of Value (LTOV) cannot account for the way demand affects the price of a commodity. Theirs is not a critique of Marxist economics, but a critique of a misunderstanding of Marxist economics, though admittedly a misunderstanding that is defended by plenty of so-called Marxists. In this essay I will argue that use-value is in fact central to the LTOV without creating any irresolvable contradiction in it, as some have claimed (Keen, “Use­Value, Exchange Value, and the Demise of Marx’s Labor Theory of Value” 107). Instead, we must recognize a dialectical relation between use-value and exchange-value, while maintaining that socially necessary labor time is the source of all exchange-value.

We do not need to look hard in Marx’s writings to find that he assigned a great importance to use-value in his theory. Early on in Capital, Volume I, he tells us: “Nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value” (308). In case we did not understand it the first time, Engels repeats it for us: “If someone makes a thing which has no use-value for other people, his whole energy does not produce an atom of value” (Anti-Duhring). That is, we cannot account for (exchange)-value without accounting first for use-value. In his Marginal Notes on A. Wagner, Marx ridicules Wagner for failing to recognize this, and says “only an obscurantist, who has not understood a word of Capital, can conclude…therefore, use-value does not play any role in his work…with me use-value plays an important role completely different than in previous [political] economy” (qtd. In Keen, “The Misinterpretation of Marx’s Theory of Value” 298).

So, where does the confusion arise? It is perhaps from this quote: “We have seen that when commodities are exchanged, their exchange-value manifests itself as something totally independent of their use-value” (Capital, Volume I 305). Here Marx makes it sound as if use-value were irrelevant in the determination of exchange-value. And in even stronger terms: “We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or labour-time socially necessary for its production” (306). It is labour time, and not use-value, which determines the exchange-value of a commodity.

It looks as if Marx is contradicting himself. If exchange-value is independent of use-value, use-value cannot have anything to do with exchange-value. But there is no paradox here: when commodities are exchanged, their exchange-value manifests itself as something totally independent of their use-value. But in order for something to be exchangeable in the first place, it must have some use-value. This is the definition of a commodity: “an object outside us, a thing that by its properties satisfies human wants of some sort or another” (303).

Here, Marx suffers from not having a way to quantify use-value. For it is possible for everyone in the world to want a diamond, but for no one to want it enough to pay its price, in which case it would be just as useless as if no one wanted it. Unfortunately, he passed away before he fully developed the dialectic between use-value and exchange-value, but he hints at it in the Grundrisse, where he asks: “Is not value to be conceived as the unity of use-value and exchange-value? In and for itself, is value as such the general form, in opposition to use-value and exchange-value as particular forms of it? ” (qtd. In Keen, “Use­ Value, Exchange Value, and the Demise of Marx’s Labor Theory of Value” 298).

But this does not mean that Marx must abandon the LTOV. In order to understand this, let us use an analogy. Take any method to quantify a given society’s demand for a particular product, and equate this quantity to the volume of a glass. The exchange-value is the water that fills the glass. In the equilibrium situation, the glass is filled with the maximum amount of water it can hold: if there is more of a commodity being produced than society’s demand, the spillover is useless; if there is not enough to fill the glass, there is still a profit to be made from producing more of it. Commodities must fill a void of use-value, but the source of their exchange-value, Marx would claim, is still be the socially-necessary labor time required to fill that void.

But how do we make sense of cases where it appears that a change in demand for a good makes its price change, without any change in the labor input? For example, what happens if the sudden onset of an ice age leads to a rise in demand for winter coats, which in turn causes a rise in the price of winter coats? How would a Labor Theory of Value account for such a change?

The answer lies in the fact that the LTOV is not meant to account for such deviations from the equilibrium situation. Marx is quite happy to admit that supply and demand do determine fluctuations in the price of a commodity: “Nothing is easier than to realise the inconsistencies of demand and supply, and the resulting deviation of market-prices from market-values” (Capital, Volume III). If demand for winter coats is greater than the supply of winter coats, the price of winter coats will rise, if the opposite is true, their price will fall. But this does not concern him, for price fluctuations are not the subject of his study. The supply will soon expand to meet the new demand, and we will be back at the situation Marx is talking about.

To understand why we are not concerned with this case, we must recall that Marx did not write Capital to help capitalists better understand how to price the commodities they were selling, it is not a guide for business owners or politicians (like most political economy is today). Marx is concerned only with the case in which supply equals demand. One might think that it is arbitrary for him to choose to do so, but he has very good reason. The question Marx is trying to answer here is not “at what price will this commodity be sold?” but “what is the source of the value of commodities in general?” And the answer to this question cannot be supply and demand. For Marx tells us:

If supply equals demand, they cease to act, and for this very reason commodities are sold at their market-values. Whenever two forces operate equally in opposite directions, they balance one another, exert no outside influence, and any phenomena taking place in these circumstances must be explained by causes other than the effect of these two forces. If supply and demand balance one another, they cease to explain anything, do not affect market-values, and therefore leave us so much more in the dark about the reasons why the market-value is expressed in just this sum of money and no other. (Capital, Volume III)

Marginal theories of value, which have been popular for the past century, will say that what determines prices is the intersection of the curves which tell us how much each actor in the whole economy is willing to sell or buy a given commodity at a given price. A materialist would reject such “subjective” theories of value, for the subjective desires of those coming to the market cannot stand on their own, but must be based real material conditions. Nikolai Bukharin, defending Marx from early marginalist critic Eugen Böhm-Bawerk, said

this view […] is fallacious; it does not consider the fundamental fact of the social relation between men, a relation given at the outset and determining the individual psyche of each person concerned, by informing it with social content. Whenever the Böhm-Bawerk theory, it appears, resorts to individual motives as a basis for the derivation of social phenomena, he is actually smuggling in the social content in a more or less disguised form in advance, so that the entire construction becomes a vicious circle, a continuous logical fallacy, a fallacy that can serve only specious ends, and demonstrating in reality nothing more than the complete barrenness of modern bourgeois theory.

We may say it is just the “subjective” desire of the bourgeois to provide so many coats at such price, but his desire is determined by the cost of producing each coat, and, a Marxist would say, this cost is based on the socially-necessary labor time required to produce it. As for the demand side, it is clear that we must account for the use-value of the commodities produced, but this cannot be by doing away with labor altogether and claiming that the use-value itself is what provides the exchange-value of the commodity. My desire for a diamond does not cause it to spring up from the Earth and fly to my hands, and while it rests in the bottom of the mine, it is useless. It is the labor required to mine, refine, and transport said diamond that makes it valuable to me.

In conclusion, we do not need to say that use-value has nothing to do with exchange-value to defend Marx; in fact, doing so would be defending a Marx that never existed. Marx recognizes that it is necessary for something to have use-value for it to be exchangeable, and there are hints that the later Marx may have recognized a quantitative aspect to this use-value. But it is not the use-value alone that makes the commodity exchangeable—many things have use-value and yet cannot be sold, such as air. It is the crystallized labor contained in a commodity that provides it with its objective value. It is true, we have not provided here any empirical proof for this claim, but such proofs would be beyond the scope for this essay, which meant only give an account of how a Marxist might respond to subjectivist criticism.

Works cited

• Bukharin, Nikolai. Economic Theory of the Leisure Class. New York City: International, 1927. N. pag. Economic Theory of the Leisure Class by Nikolai Bukharin 1927. Marxists.org Web. 22 Oct. 2012.
• Keen, Steve. “Use-Value, Exchange Value, and the Demise of Marx’s Labor Theory of Value.” Journal of the History of Economic Thought 15.01 (1993): 107. Web.
• Keen, Steve. “The Misinterpretation of Marx’s Theory of Value.” Journal of the History of Economic Thought 15.02 (1993): 282. Web.
• Engels, Friedrich. “V. Theory of Value.” Anti-Duhring: Herr Eugen Dühring’s Revolution in Science. N.p.: Progress, 1947. N. pag. 1877: Anti-Duhring. Marxists.org. Web. 22 Oct. 2012. <http://www.marxists.org/archive/marx/works/1877/anti-duhring/index.htm>
• Engels, Friedrich. “Supplement by Frederick Engels.” Capital. Vol. III. New York City: International, 1959. N. pag. Economic Manuscripts: Frederick Engels: Supplement to Capital Volume 3. Marxists.org. Web. 22 Oct. 2012.<http://www.marxists.org/archive/marx/works/1894-c3/supp.htm>
• Marx, Karl. Capital, Volume I. The Marx-Engels Reader. Ed. Robert C. Tucker. New York: Norton, 1978. 294-438. Print.
• Marx, Karl and Friedrich Engels. “Chapter 10. Equalisation of the General Rate of Profit Through Competition. Market-Prices and Market-Values. Surplus-Profit.” Capital. Vol. III. New York City: International, 1959. N. pag. Economic Manuscripts: Capital, Vol.3, Chapter 10. Marxists.org. Web. 22 Oct. 2012. <http://www.marxists.org/archive/marx/works/1894-c3/ch10.htm>