 Today we want to continue to develop our Marxian value theory that Marx presented in one of his greatest contributions of capital, of volume one. Recall that Marx treats the realm of exchange, the market, as a place in which there is only a redistribution of value from seller to buyer and buyer to seller. In other words, and most important for his surplus value theory, value is not created in exchange, it's merely redistributed from one party to another. So taking our example, we have a person who has four dollars, and four dollars in value terms, that is an abstract labor terms, that's what value means, is four dollars, is eight hours, why? Because it takes two hours to produce a dollar as money. So if we, as a person, hold four dollars, we're holding eight hours. So we take our, let me put that on the board, the white board person then has four dollars, that's worth eight hours of abstract labor. So the person goes out and buys, let's say in our example, an apple. So the person goes out and buys, you know, one apple. What is the person acquiring then? The person is acquiring obviously the commodity and apple, but that's worth eight hours. Why? Because that's what it took to produce an apple. Well, from before the apple contains within it body labor plus living labor, the total labor, which was eight hours. Four hours of living labor, four hours of body labor, eight hours to produce the apple, that's the cost of the apple. So the person who has money, has bought an apple, has given up eight hours, but has gained eight hours materialized in that apple. By the same logic, the producer and seller of the apple required eight hours to produce that apple, four hours of inputs, four hours of living labor, eight hours. So that person, that producer and seller is giving up eight hours, that's what it cost to produce the apple, and gaining what? Four dollars, which is precisely eight hours equal to what he, she gives up in selling the apple. So to make a long story short, the realm of exchange is the realm in which there is merely a redistribution of value from one agent to another, from one party to the other, from one party to another. No new value, no new surplus labor is created in exchange. So if that's the case, where does surplus value come from? You know, that's Marx's question. It can't come in exchange, and hence it must come outside exchange, outside the market. So Marx creates, literally, concocts, invents a new commodity to deal with this problem of the creation of value, which doesn't take place in exchange, must take place outside of exchange, which is the realm of consumption. He calls the commodity that's going to create new value, or have the potential of creating new value, labor power. So labor power is a commodity that is bought and sold in capitalism in contrast to feudalism and slavery and so forth. And like any commodity, this new commodity, labor power, has a use and an exchange value, just like any commodity. Remember, all commodities have a use and exchange value and are produced by labor. So labor power, this new commodity that he invents, has a use and exchange value, and I want to examine them carefully, since they're at the core of volume one, and indeed Marx, I don't remember if I told you or not, but Marx once writes a letter to Engels saying, Marx, he thinks this is his greatest contribution. The difference between the use and exchange value of this commodity, labor power, that he's invented. And the reason again is because this is the source of surplus value. So let me then examine this carefully. Suppose then we have a society, capitalism, in which we have individuals who can sell this commodity, labor power. And what again, again, this labor power commodity, this is the capacity of a human being to work, to use his or her brain tissue and muscle tissue to engage in this physical activity of laboring work. Labor power. And it took centuries for people to have the freedom to sell this capacity to work, and other people have the freedom to buy it. You didn't have this freedom and serve them. One did not have this freedom and slavery. It's capitalism in which this freedom exists. So we have then the seller of this commodity, or sellers of this commodity, labor power. And like all commodities it has, I'm going to split it now. This is Marx's invention, this splitting here. The use value and exchange value of this particular commodity. So the sellers sell labor power to buyers. So I'll put the buyers over here. Those are the capitalists. The buyers acquire the labor power. They give up its value in exchange. They give up, since we're getting closer and closer to it, a value of the labor power. That's the same as the exchange value of labor power, the wage. That's what the buyers give to the sellers, and therefore the sellers acquire a value of the labor power that they have sold. Where do the buyers get? Well, the buyers get the use value of the labor power, which is, in this case, the actual labor performed. Very important. So I'm going to write it out here. The buyers get the use value of labor power, which is the actual labor performed in production. The buyers give up the exchange value, the value of labor power. They give up a wage to the sellers of labor power, and they give it up in the market. The buyers get the use value, which is the actual labor performed in production. They give up exchange value in the labor market. Notice something. The market, once again, this is a few lectures ago, is a sphere, a social arena. It's a sphere in which people can understand and can see what the heck is going on. So the wage is determined in the labor, or over determined in the labor market. This one, the use value, again, is not in the social arena. This is private. This is a relationship between the buyer of labor power and the commodity labor power, and its particular use value to the buyer and that private domain. So people are not aware of this. They don't conceive of it. So what Marx is saying is that the workers have alienated their use value, opposed to the buyer, and that's a private relationship between the buyers of labor power and that which they acquire, the use value, and Marxian theory, in a sense, is a way to reveal what's going on inside this private domain, the factories and offices of the capitalist. And what goes on there, the next step, is the following. Suppose the buyers get, which is the actual labor performed in production, suppose the buyers get four hours of living labor. That's what they acquire. So in a sense, that's the length of the workday. And suppose they give up in the labor market over here, the value of labor power and the labor power, they give up two hours. You can see it's not a complicated arithmetic here. If the buyers are getting four in production, giving up two in the market, the difference then is two hours. I'm going to erase this, so bear with me, and do the same thing again to make sure that this is as clear as I can possibly make it because it's a crucial part of the value theory and the surplus value theory that Marx is developing. So I'm going to write it again. Here's labor power, use value, exchange value. So what the buyer gets, use value of labor power is four hours of living labor. Those people go to work for four hours. It could be more, it could be less, I'm assuming four. If the exchange value is two hours of labor, then we have the difference of a surplus labor which goes to the buyer because he, she is getting four and giving up two. The surplus, the extra labor, the surplus goes to the buyer as a source of new value. And we have an answer to that question. The new value arises, the extra labor arises by this difference between the use and exchange value of labor power. Let me put money, dollars on this. If the use value of labor power is four hours, and if that creates, say, two dollars of new value in dollars, and if the exchange value is two hours of labor, and this costs one dollar, creates costs, then we have a surplus value of a dollar which goes to the, again, to the buyer of the labor power. So what Marx is arguing here is that the buyer of labor power is getting more in value from what the workers create, two dollars, than what those workers cost in the market, a dollar. So I'm going to do the same thing again. It's so important. The same thing, but yet in a different way to make sure that we all understand what is going on in this simple example. So here's Marx's famous equation. The equation is C plus V plus S is equal to W, the worth of a commodity. The capitalist wants to produce, in my trivial example, apples sell them on the market, make money. The capitalist needs two inputs to do that. Needs means of production, raw materials, fertilizers, ladders, and so forth, and he needs labor power to produce and sell apples. Marx calls the means of production C, constant capital. This is the value of the inputs, the non-labor inputs, to produce the particular product, in this case apples. Now I'm going to do it in two ways. In terms of dollars and hours. So I think in the trivial example I gave you some time ago, I said to produce an apple you need a shirt, to make a silly example, but what I meant was to produce an apple you need these other physical non-labor inputs. Suppose the cost of them, I'm trying to use the same numbers we did before, was two dollars. So this is the total cost of all the means of production, and very important now, used up to produce this particular commodity, apples. So this would be the value used up to produce apples of all your fixed capital and all the other inputs, raw materials to produce apples, and that had a value of four hours. What does that mean again? So in the background, I don't have it on the board, there's a means of production industry, if you want industries, and they have an output price of two dollars, which is the input price of this particular apple industry, or it takes four hours to produce that stuff, and that's why I remember equivalent exchange, it sells precisely what it's worth, which is four hours, which is the cost of this particular industry. But you can't produce apples with just these inputs.