 The content of volume 1 of capital which we are going to now study is to understand the notion of capital. How does capital get generated? Now, we know that the generation of capital or the process of production of capital can be broken up into the processes of generation and accumulation of surplus value. So, to understand capital we really need to understand the notion of surplus value. What is surplus value? Surplus value is something which is an excess of value and therefore, to understand surplus value we first need to understand the concept of value itself. Now, we will see that to understand the concept of value we actually need to understand the concept of the commodity. So, that is why the beginning of volume 1 of capital is an analysis of the commodity because with an analysis of the commodity we will be able to understand the notion of value. With the notion of value we will be then able to understand the notion of surplus value and with the notion of surplus value in place we will then be able to understand capital. So, therefore, we are going to start our study of the political economy of capitalism as laid out by Marx in the three volumes of capital with an analysis of the commodity. What is a commodity? A commodity is anything which is produced for exchange. Now, roughly I can say that we whatever we consume we either get it from somebody through the process of exchange or we produce it ourselves. Oversely we can say that anything that we produce we either produce for direct use or for exchange. So, anything which is produced with the intention of being exchanged is a commodity. Let us look at some example. Let us say I am growing vegetables in my kitchen garden for my own consumption or the consumption of my family members. That vegetable is not a commodity because it is not produced for exchange. Now, let us think of a farm which is owned by a capitalist farmer who employs lot of wage labor to produce vegetables for the market. That vegetable is a commodity. So, therefore, what is important is not what we are looking at whether it is vegetable, whether it is a car, whether it is a computer or whether it is a service. What is important is the intention with which it is produced. So, commodity is anything which is produced for exchange. Now, a commodity if we think about it will have two important aspects. One aspect of the commodity is that it is useful. It is useful to somebody. So, the aspect of the commodity whereby it is useful to somebody is known as use value. But that is just one aspect of the commodity. There is another aspect of the commodity. What is that? That aspect is that the commodity can be exchanged with other commodities. So, the aspect of exchangeability of commodities whereby one commodity can be exchanged with any other is called by Marx as exchange value. So, let me summarize. A commodity is anything which is produced for exchange and it has these two aspects. It is useful to somebody and we say that therefore, it has use value and it is it can be exchanged with other commodities and therefore, it has exchange values. Now, let us think a little bit about exchange value. Exchange value has both a qualitative and a quantitative aspect. What is the qualitative aspect? The qualitative aspect is that a commodity can be exchanged with every other commodity. What is the quantitative aspect? The quantitative aspect is that a commodity when it is exchanged with other commodities does so in a definite ratio. For instance, one bag of rice will exchange with two tables. One table will exchange with 10 pencils. So, whenever we think of commodity exchange, there are these two aspects. Any commodity can be exchanged with every other and when a commodity exchanges with other commodities, it always does so in a specific ratio. Now, once we have understood this, we need to ask a question which Marx asks in the very beginning of Capital. What can account for the exchange value of commodities? Meaning, what is it that can account for the fact that a commodity exchanges with other commodities and does so in a specific ratio? Now, this is a very important and deep question and the discipline of economics broadly provides two answers. One answer which is what we are going to explore in this class emerges from the classical tradition which was worked out by Adams Smith, David Ricardo, and taken over by Marx and refined further. This tradition answered this question by saying what can account for the exchange values of commodities is the labor that has gone into its production. Every commodity is the product of labor and this classical tradition understands labor as being the key aspect of the commodity which can account for its exchange value. But let us pause and also think that there is another tradition which is the neoclassical tradition which emerged in the late 19th century which provides a different answer to the same question. The neoclassical tradition says that what provides or what can account for the two aspects of exchange value is the utility that people derive from the consumption of commodities. Now, if you contrast these two different ways of answering that same question, you can see that the neoclassical tradition which relies on the notion of utility to explain the two aspects of exchange value is really a subjective theory of value because the utility that is derived by a person from consuming a commodity varies from person to person. The same shirt worn by different persons will give different types of utility, different magnitudes of utility. On the other hand, the amount of labor that has gone into producing a commodity in this case, the shirt is an objective fact which does not depend on the subjective notions of individuals. If we can therefore build our theory of value on the notion of labor that goes into producing a commodity, we will have developed an objective theory of value. In this course, we are going to develop this tradition and we are not going to engage in any detail into this other tradition. So, let me summarize what we have understood is that the classical tradition, the tradition that comes from Adams made David Ricardo which was taken by Marx and further developed answers the question as to what can account for the two aspects of exchange value by pointing to the amount of, by pointing to the labor that has gone into producing a commodity. Now, notice that this answers both questions accounts for both aspects of exchange value. When we say that it is the labor that has gone into producing a commodity which accounts for its exchange value, we are able to account for the qualitative aspect. Why? Because we are then going to say that commodities exchange one with the other because all of them have this common property, that common property is that they have been produced by human labor. So, that accounts for the qualitative aspect of exchange value. This also allows us to address the quantitative aspect. What does the quantitative aspect say? It says it points to the fact that commodities exchange one with the other in definite ratios. When we say that it is labor which accounts for this quantitative ratio, we are in effect saying that two commodities exchange one with the other in the ratio that is necessary to maintain equality of the amount of labor on both sides of the exchange. Let us take an example. Let us say one bushel of wheat exchanges for one shirt. What does this say? This is saying that the amount of labor that has gone to producing one bushel of wheat is exactly equal to the amount of labor that has gone to producing one shirt. That is why one bushel of wheat exchanges for one shirt. If we for instance looked at another example, let us say one bushel of wheat exchanges for 10 kilograms of tea. If that were the case, then we would be saying that the amount of labor that is necessary to produce 10 kgs of tea is exactly equal to the amount of labor that is necessary to produce one bushel of wheat and that is why they exchange in the ratio 1 is to 10. Let me now propose one important concept which arises from the discussion we have just been having and that is the notion of value. What we have said so far is that the aspect that can account for exchange value is the fact that commodities are the products of labor. Classical economists summarize this by saying that commodities have value. By this we only mean the following. A commodity has value to the extent that it has absorbed some of the productive labor of society. Through an analysis of the commodity, we therefore come to this important concept of value. A commodity has value only because and to the extent that it has absorbed a part of the labor, the productive labor of that society. Now, before moving on let us just remind ourselves that the notion of value should only be used in a specific historical and social context and that context is the context of commodity production. So, the notion of value cannot be used in societies where most of the items are not produced for exchange. A commodity producing system is one where most of production is organized through exchange meaning most of what is produced by human labor is for the purpose of exchange. It is only in such a system that the notion of value makes sense. So, we should always tether our concepts to a particular historical and social situation. So, what we have understood so far can be summarized in the following way. We have understood the concept of value by looking at the commodity. We have understood that the content of value is the labor that has gone into its production. Marx also calls this as the substance of value. So, we can say that the substance of value is the labor that has gone into its production and what is the measure of value? The measure of value is the labor time because the amount of labor that has gone into producing a commodity can be measured by the amount of time that that labor has been put into producing that commodity. So, the value of a commodity comes from the fact that it has absorbed some labor. So, therefore, the substance of value is labor and how do we measure how much value a commodity has? We measure it by the amount of labor time that is necessary for its production. So, we have understood this important concept of value. Now, let me caution you that the idea of value, the term value we use in different senses. We often use the term value in a normative sense. We say that something is valuable when we want to emphasize that that is good. When we say something is not valuable, we want to emphasize that that is bad. In the context of classical political economy, in the context of Marxist political economy, the notion of value is different. The notion of value is different from these normative judgments. By value, we will only mean the fact that a commodity has absorbed a part of the labor of society. That is what we mean by the notion of value. So, when you use this notion or term value, you should try to be specific. You should not try to say that something has value means that it is good. Because what we want to emphasize, what we want to study is the relations that emerge in a system where most of the things are produced for exchange. It is for that context, it is for that purpose that this notion of value has been enunciated and that is why we will use it. Now, this gives us a quick introduction to the notion of value, but we have to probe further. So, there are two different angles that we want to look at. One angle will relate to a qualitative question and another angle will relate to a quantitative question. What is the qualitative question? What we will want to explore further with respect to the notion of value is the question of what kind of labor creates value. And the quantitative aspect that we will like to probe further with respect to the notion of value is how can we compare the value created by different kinds of labor? So, these are the two aspects that we need to explore before we can finish our discussion of value. So, let us start with the qualitative question. The qualitative question we want to ask is how do you or what kind of labor creates value? Now, let us start with some examples. Let us say there is a tailor who produces a coat and there is a carpenter who produces a table. There is a farmer who grows rice. All of this is produced for exchange. So, all of these are commodities and there is a baker who bakes a bread. Now, the type of labor that is involved in making a coat is very different from the type of labor that is required to produce a table. To emphasize this, we distinguish between the notion of concrete and abstract labor. So, when we look at the commodities created by different types of labor, the labor of the tailor, the labor of the carpenter, the labor of the farmer, the labor of the baker, what we get is different commodities with different use values. The usefulness of a coat is different from the usefulness of a table, which is different from the usefulness of rice, which itself is different from the usefulness of bread. Now, when we take any commodity, we know that it has these two aspects. It has the aspect of use value, usefulness and it has the aspect of value or the fact that it can be exchanged. So, when we therefore look at the labor that has gone into creating the commodity, we can therefore also distinguish the two aspects of the labor that has gone into creating the commodity. One aspect of that labor is what we can call concrete labor. Concrete labor refers to the specific form of labor that is necessary to produce a different commodity that we are looking at. So, concrete labor of a coat is going to be different from the concrete labor of the rice. The concrete labor of the bread in turn will be different from the concrete labor that goes into making the table. Now, how do we distinguish that from the notion of abstract labor? Well, we will say that each of these commodities have value because a coat being a commodity can be exchanged with bread, a rice being a commodity can be exchanged with table, the rice can be exchanged with the coat. Therefore, each of the commodities can be exchanged with every other commodity. Therefore, every commodity has value. Now, when we look at any of all of those commodities, therefore, we can find that there is something in the labor that has gone to producing that commodity which remains after we have abstracted from the concrete form of labor that has gone into producing the commodity. So, if we consider the labor that produces the coat and try to understand what is it that is in common with the labor that produces the bread, what we get as an answer to that question is what Marx calls abstract labor. So, abstract labor is what remains of human labor after we have abstracted from the concrete form that let labor takes. Now, since every commodity has value, we would need to say that what creates value is not the concrete form of labor, but what is common to all these forms of labor. So, we can summarize by saying that the answer to the question what kind of labor creates value is the notion of abstract labor. So, what creates value, what type of labor creates value is abstract labor rather than concrete labor. Now, let us come to the second question which is the qualitative question. How do we compare the value created by different types of labor? Now, to answer that question, we want to make three distinctions. The first distinction we want to make is between complex labor and simple labor. So, let us take an example. Let us say there is a person who maintains cash registers in Walmart. Now, the type of tasks that are needed to maintain a cash register does not require a lot of training, does not require a lot of experience. A person can be given the basic training to do the works required to maintain a cash register very quickly. On the other hand, if we look at a neurosurgeon who does very complicated surgeries of the brain, we know that the amount of skills that need to be imparted to make a person able to carry out those tasks is enormous. So, to distinguish between these two types of labor, the labor of maintaining a cash register and the labor of a neurosurgeon, we would like to distinguish between simple and complex labor. So, simple labor is the labor that can be done by a human being without getting a lot of experience and without having a lot of skills. Complex labor, on the other hand, is highly skilled labor which comes from a lot of training and education and also a lot of experience. The importance of distinguishing these two is the following. If we take one hour of labor of a neurosurgeon and compare it to one hour of labor of a person who is maintaining a cash register, we would say that the value created by one hour of labor of a neurosurgeon is several multiples of the value created by one hour of a person who is maintaining a cash register. So, we will say that when we are trying to compare the value created by different types of labor, we would say that one unit or one hour of labor of a complex labor creates many times more value than one hour of simple labor. So, that is the first important distinction. The second distinction is the distinction between socially necessary labor and socially wasted labor. Now, what is the distinction here that we are making? Well, what we are trying to emphasize is that when we count or when we take account of the value created by labor, we always have two things in mind. The average technology that is being used and the average intensity of labor. The average technology that is being used and the average intensity of labor give us the average socially necessary labor to produce a commodity. So, why do we say that value is created or why do we refer to socially necessary labor? Because we want to rule out cases where a worker or a person produces a commodity using more labor than is this socially necessary average amount of labor. In that case, we would not like to say that the value of the commodity created by this other person who uses more labor than is socially necessary, that person has created more value. So, to prevent our theory from saying so, we always refer to the amount of socially necessary labor needed to produce a commodity by referring to the average level of the technology and the average intensity of labor. So, any person, any worker, any commodity producer who takes more time than is necessary on average is going to be using or wasting some of his labor. So, when we want to take account of the amount of labor that is creating value, we will not count labor that is more than what is socially necessary. To emphasize that, we distinguish between socially necessary and socially wasted labor. The third distinction that we want to make here is the distinction between private labor and social labor. So, let us go back to an example we looked at earlier. Private labor is the labor that is used to produce a commodity, to produce a use value not for exchange. So, if I put in some time to grow vegetables in my kitchen garden that is private labor, that labor will not be counted as producing value. On the other hand, any labor which is producing output for exchange for the market to be sold produces value. Therefore, to distinguish between labor which creates items for direct consumption versus labor which creates items for exchange, we distinguish between private labor and social labor with the understanding that value is only created by social labor. So, now, we are ready to summarize our discussion. Value is created by S N A L T. What is that? S stands for socially, N stands for necessary. So, socially necessary abstract labor time. The socially necessary abstract labor time that is needed to produce a commodity is the value of that commodity. There is one more issue we want to think about before we close our discussion of value and that is important to prevent some misunderstandings. Many people think of the theory of value that we have developed, what is also known as the labor theory of value as claiming that the ratio in which commodities exchange that is the price of commodities is exactly equal to their values. We will see when we come to our discussion of volume 3 of capital that that is not true. So, therefore, whenever we think of the labor theory of value, it is necessary to think of value at the aggregate level. One way to do so is to think of two things. Let us think of the total labor time of society. So, the total labor that has been used to produce all commodities. On the other side, let us look at all the commodities that has been produced. The labor theory of value tells us that there is a equivalence between the total labor that has gone into producing items for exchange and the value of all the commodities together. So, the equivalence that is asserted by the labor theory of value is at the aggregate level between the total labor of society and all the newly produced commodities. What that implies is that for any particular commodity, the price and the value might not be equal. They might diverge from each other. In fact, when we go to our discussion of volume 3 of capital, we will see that there are reasons to believe why for each particular commodity, the price and value will necessarily diverge. That is why it is necessary from the very beginning to realize and to keep in mind that the labor theory of value is a equivalence between total labor of society and the total value of everything produced at the aggregate level. This leaves open the possibility that at the individual level, at the level of each commodity, the price and the value might diverge. With that, we have now understood the notion of value. We started with probing the commodity. We looked at use value and exchange value. From there, we came to the notion of value and we probed further into various dimensions of value to understand that the value of a commodity is created by the socially necessary abstract labor time. Next, we will take up the notion of money.