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Marx’s labour theory of value and the analysis of the falling rate of profit receive a robust defence in Murray Smith’s Invisible Leviathan, finds Dominic Alexander

Murray E. G. Smith, Invisible Leviathan: Marx’s Law of Value in the Twilight of Capitalism (Haymarket Books 2019), xxv, 369pp.

‘It is not consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness,’ wrote Marx in the preface to A Contribution to the Critique of Political Economy in 1859. This foundational observation in his analysis of society turns out to be key to the intellectual reception of Marx’s great work on the economics of capitalism in Capital and associated texts. The prevalent and pervasive misunderstanding of Marx’s purposes, procedures and above all methodology is not simply wilful (although it can be that), but down to received expectations.

It is important that Marx, throughout the preface of the Contribution, modified the central terms with the word ‘social’. Hence it is in ‘the social production of their existence’ that ‘men inevitably enter into definite relations,’ and that within the ‘totality of these relations of production’ there is ‘a legal and political superstructure’ to which ‘correspond definite forms of social consciousness.’[1] Marx was not claiming that an individual’s particular consciousness is mechanically determined by their particular existence, but that social being determines social consciousness.

Intellectual activity is itself, in fact, a collective endeavour, despite the individualist mentality its practitioners may develop while sitting alone at their desks. The solitary nature of much of the work hides the social context in which scholars’ assumptions, techniques and methodologies are formed, and the way in which their work is accredited and disseminated. In the same way, the capitalist market is profoundly social in its working, despite the way it encourages an individualist consciousness among its participants. The contradiction here between the appearance of things for an individual experience and the hidden reality has had a profound impact on the study of economics in general, and the reception of Marx’s analysis of capital in particular.

Contradictions are in reality

Murray Smith’s Invisible Leviathan provides a comprehensive defence of the labour theory of value, its corollary in the tendency for the rate of profit to fall, alongside a thorough debunking of the so-called transformation problem. In the course of all this, he observes that many commentators on Marx have criticised apparent contradictions in his economic theory, not understanding that the problem lay not within Marx’s logic, but in the contradictions of capitalism itself. One example that has been used to challenge the labour theory of value is the apparent difficulty of reconciling that theory with the tendency for the equalisation of rates of profit (p.85). If labour is the source of surplus-value, and one firm uses more labour than another, it must therefore produce more surplus-value. Yet, significant conclusions in Marx proceed from the tendency for profit-rates to converge across the whole economy.

The difficulty here lies in the failure of economists working from a bourgeois perspective to understand that Marx’s analysis proceeds from the point of view of the social totality, and not the perspective of the individual firm. Individual firms do not necessarily realise all the surplus value they have created, and on average, over time, profit rates tend to converge (note that this does not mean that they are always equal, as some mistakenly conclude). Once it is understood that different and conflicting tendencies exist within the system taken as a whole, then there is no logical problem in Marx’s theory. The contradictory nature of capitalist reality remains, such that: ‘within capitalist society, capital simultaneously expresses an exploitative relation between the social classes and an equalitarian relation between competing individual capitals’ (p.85).

The distinctions in this analysis are particularly important as they refute one of the original influential attacks on Marx’s Capital by the economist Böhm-Bawerk in 1898. The mistakes made by Böhm-Bawerk, and others following him, in their understanding of the arguments and methodology in Capital, are not simply polemical in origin, although again that can be the case, but are born of the deeply ingrained assumptions acquired in acculturating to the collective enterprise of mainstream academic economics. It is very rarely understood, for example, that ‘capital is not a thing, it is a social relation,’ (p.75) and so accordingly, critics make a nonsense of Capital. Indeed, Smith quotes the Second-International Marxist, Rudolf Hilferding on this particular contribution, writing that:

‘His entire train of reasoning is utterly beside the point. Marx is inquiring about the total value, and his critic complains because he is not inquiring about the value of the individual commodity’ (quoted on p.86).

Hilferding himself suffered from some limitations in his understanding of Marx’s analysis (p.90), but this instance certainly illustrates the fact that there has been something of an impasse in the grasp mainstream economics has had of Marx’s system.

In particular, it seems that it has remained very hard for most economists to understand that Marx was not analysing economic phenomena with a view towards understanding the determination of particular prices. This has led to the massive overestimation of the importance of the so-called ‘transformation problem’, where Marx’s value analysis is expected to be translated into production prices. Invisible Leviathan, originally published in 1994, gives the reader an intellectual history of this whole debate from the start to the present in this significantly revised new edition. There are a variety of Marxist answers to this debate, but Smith here puts it into the context of the whole history of the debate, and the various different approaches to Capital on the part of the different schools of Marxism.

Value as a social relation

Marx’s concept of value is complex, involving both the idea that labour is materialised into objects, that is to say ‘reified’, and that it concerns the ‘expression of production relations among people’ (p.62, original emphasis). From an individualist perspective, these definitions may seem to be incompatible, but if it is social labour that is considered, then, as Smith argues, quoting Isaac Rubin, they complement each other. Value is a measure that has a real existence on the social level.

Moreover, Smith is able to show that the concepts involved here are very real indeed, not merely being formal abstractions, as even some Marxists take them to be (p.136). Thus, the ways in which the law of value operate do mean that in practice, and in all our experience:

‘The mediation between private labours and the aggregate labour of society is provided by the exchange of privately produced commodities; and consequently, persons do in fact relate to one another through the medium afforded by “things”’ (p.72).

This is one aspect of what Marxists refer to as ‘alienation’, whereby capitalism turns what should be human relationships into relationships between things.

Thus, the pressures through which labour and production are regulated within capitalism are not merely abstractions, but tangible experiences of working life. The production of commodities is not given any overall planning according to social need, but is organised with a view towards making a profit. As a result, there is an average of socially necessary labour time for the production of a certain quantity of value, of which capitalists are very well aware, and discipline workers accordingly: ‘these production processes are “informed” and animated by the knowledge that their commodities must “measure up” to certain social standards if they are to be sold at a profit’ (p.126). Marx’s social level of analysis is thereby able to illuminate the capitalist system far more effectively than the individual-capitalist eye view of standard economic theory.

Grasping the reality of Marx’s concepts of value and social labour is crucial so as not to turn up blind alleys such as Piero Sraffa’s (1898-1983) unfortunately influential analysis. Sraffa critiqued neo-classical marginalist economic theory, but returned to the conceptual approach of classical economics before Marx, particularly that of David Ricardo (1772-1823). Sraffa effectively founded a school of ‘neo-Ricardians’. Marx’s understanding of value as a social phenomenon is entirely abandoned by this approach (pp.101-3). Sraffa’s system has been taken by some Marxists as usefully resolving some of the supposed problems arising from Capital. However, in forcing Marx’s analysis onto the procrustean bed of Sraffa’s assumptions, then much is lost. Perhaps most importantly, the exploitative relation between capital and labour disappears in ‘treating price as a direct and immediate external form of “physical products” rather than as the money-form of the social labour that enters into their production’ (p.104).

In this as well as many other areas, the tendency of even left-wing economists to adopt positivist understandings of Marx’s concepts, rather than seeing them through the frame of social relations, results in the misunderstanding of Capital. The positivist insists on treating as a tangible object what is in fact a relationship, and cannot therefore perceive the hidden realm of processes that exist below appearances within the capitalist market.

Far from being an empty abstraction, as some left critics like Joan Robinson would have it, Marx’s concept of value involves the objective reality of social relations. This is in fact a total contrast to marginalism, which is based entirely on a subjective concept of individual use value. Marx’s analysis remains more firmly rooted in objective phenomena than that of any of his mainstream critics, or those like the Marxist followers of Sraffa who effectively sought to reconcile his system to standard neo-classical economics.

Crisis or equilibrium

A related tendency is for left-wing economists to adopt the analytical assumption that capitalist cycles tend towards equilibrium. This is one of the more transparently ideological elements of both classical and neoclassical economics, where the possibility of crisis is assumed to be alien to capitalism’s inner functioning. If it is assumed that the system always tends towards equilibrium, then crisis can only occur through some form of external distortion of its perfect workings. The case against capitalism is ruled out of court before the discussion has begun.

The methodological corollary of this assumption is to take all economic transactions as occurring simultaneously, so that they can all be shown to reconcile at equilibrium. An economically naïve approach might assume that economic transactions and cycles happen in historical time, and that therefore a crisis could occur simply due to a temporary imbalance of supply and demand. Taking such a temporal approach is, however, a sign of the kind of unsophisticated thinking of which only a rank socialist could conceive.

In contrast to bourgeois economics, Marx’s approach was an historical or temporal one.His project was an exploration of the ubiquity of capitalist crises, rather than an exercise in apologetics for the system. Yet, as noted, many leading Marxists can be shown to have imported assumptions from classical economics, particularly from Marx’s predecessor David Ricardo. Ricardo was one of the greatest of the classical economists, and argued for a version of the labour theory of value, but was also a notable apologist for the interests of capital. Some important early socialists were inspired by his theory of value to investigate economics from a working-class perspective, but Marx’s theory of value made important developments away from the limitations of Ricardo’s theory, even though the two are very frequently conflated.

A consequence of insisting on a simultaneous analysis of economic activity is that many of Marx’s ‘laws’ appear to be contradictory to each other, as they cannot be fully evident at the same time. For example, a uniform rate of profit across the economy cannot exist at the same time that one branch of industry gains a competitive advantage over another. Further, it is not possible simultaneously for ‘a new technique of production in a particular industry’ to be able ‘to raise that industry’s profit rate while also lowering the average or “general” rate of profit’ (p.133).

The whole conundrum, upon which much ink has been spilt, disappears if the analysis can be put into a historical frame. Then such phenomena as a ‘general rate of profit’ exist as tendencies with which particular capitals might be forced to converge, without any ‘equilibrium’ ever being reached in practice. For a pure positivist, this might seem like another unreal abstraction, but to anyone with an acquaintance with biological systems, for example, it might seem quite familiar, and organically real.

The transformation debate was therefore affected by this theoretical problem, as ‘most of the attempts to develop a “correct” scheme for transforming values into prices of production have sought to do so without violating the “equilibrium” conditions of reproduction’ (p.129). Smith concludes a critique of one example of the neo-Ricardian school of Marxist economists with the observation that:

‘hidden theoretical and methodological assumptions can come to be disguised by apparently rigorous mathematical equations and superficially “reasonable” models. As Shaikh puts it, Steedman “takes refuge in algebra in order to obscure the profound silence on the question of method”’ (p.136).

Ruling thoughts

Further examples of the many departures from Marx’s own methods and his distinctive oppositions to bourgeois economics could be multiplied from across the hundred-odd years of debates on Capital that Smith covers. However, it is worth returning to the question of why so many serious thinkers on the left have fallen into such traps. Partly there really are institutional and ideological pressures that act on academics and intellectuals. Nonetheless, to adopt an ostensibly Marxist position is already to be acting in the teeth of such pressures, so they are not sufficient to explain the frequency with which mainstream assumptions are re-imported back into Marxist debate.

Early in the book, Smith makes a highly suggestive observation on the connection between economic structure and intellectual endeavour which highlights the dialectical relation of social being and social consciousness. The capitalist division of use value from exchange value is connected to a whole series of antinomies, or unbridgeable oppositions, in thinking. This is even reflected in the epistemology of Kant, with his separation of knowledge derived from reason, and knowledge derived from the senses.This ‘could only have occurred to a philosopher living in an era’ where ‘the commodity-exchange abstraction’ separates mental and physical labour, and abstract social labour from use values (p.325).

This develops an observation towards the beginning of the book, that the contradiction between the appearance of social relationships to individuals, and their real workings has a profound effect on thinking:

‘the division of exchange and use as contrasting types of activity, together with the division of intellectual and manual labour that has been profoundly ramified by the generalisation of commodity relations, must promote an “abstract intellect” prone to a profoundly dualistic worldview, one which habitually views the relations between fact and value, “is” and “ought”, freedom and necessity, theory and practice, as “external” and eternally problematic’ (p.43).

The ability to perceive phenomena as unfolding in a genuinely historical dimension, and being expressed through social relations, is deeply compromised through this worldview. It is nevertheless derived directly from the everyday, normal experience of capitalist reality. Its tenets therefore appear as natural, even though they are assumptions which made no sense before capitalism, and one can only hope, will make no sense after it.

Indeed, a classic work of anthropology highlights the difficulty the western intellectual may have in thinking beyond capitalist rationality. Living with the profoundly egalitarian and co-operative society of the Dobe !Kung in the 1960s, Richard Lee was unable to understand how a prevalent system of exchange worked, since he could not find any sense of a need for equivalences. The impasse of understanding was broken not by the trained anthropologist, but by his !Kung interlocutor:

‘!Xoma broke into a broad smile. “I see what your problem is! /Tontah, you don’t understand our way. One string, five strings, any return would be all right. You see, we don’t trade with things, we trade with people!”’[2]

Marx’s analysis of capitalism was able to leap over the difficulties in thinking caused by the system itself, and others were able to follow him, because there are countervailing factors in social experience which encourage anti-capitalist ideas to flourish in opposition. The result, however, is always an uneven development of consciousness among workers, combining both prevailing notions and oppositional ideas in unstable combinations. The same is just as true of intellectuals on the left.

Contradictions of consciousness

There will never be a point where capitalism develops to the point that either it is able to extinguish all opposition, or in reverse, where the working class develops to the point where it is united in revolutionary consciousness. The contradictory development of consciousness is deeply related always to the contradictory development of the class relations of capitalism. Thus, on the one hand, the proportion of wage workers in society has increased enormously as the system has developed, and yet equally, it is possible to claim that the proletariat, in the sense of the workers who directly produce surplus value for capitalist profits, has contracted in size.

The decline in magnitude of productive workers, in the technical sense of those who create surplus value, is a consequence of capitalism’s competitive drive, and the consequent search for new technology which replaces workers with machines. Each company that does this gains a temporary competitive advantage, before the technology generalises across industry (see above in relation to the importance of seeing economics through the temporal lens). The result, however, since labour is the source of surplus value, and thence profit, is a decline in the overall rate of profit.

An important thread of Smith’s argument is a defence of the importance of Marx’s law of the falling rate of profit, to which he has contributed significantly elsewhere also. However, there is a second consequence of this for the shape of the working class.The absolute number of workers that industry has historically employed has tended to shrink. Earlier in the industrialisation process, workers unneeded due to technological advance were largely absorbed by new manufacturing industries, but now they are more likely to be taken into growing service industries, or simply to join the increasingly globalised reserve army of labour.

The consequence is that at the very time that capitalism suffers from increasingly intractable crises due to the falling rate of profit, the actual proletariat in a narrow sense tends to shrink relative to the rest of the population. Smith’s analysis of this is connected to his calculations regarding the rate of profit in the modern era, arguing that non-productive workers should be included within the allocation of ‘constant capital’.The latter is Marx’s term for the fixed costs of capitalists particularly in terms of machinery and raw materials. This differs from other solutions suggested by Marxist economists, and leads Smith not only to his particular approach to the rate of profit, but to an important observation regarding ‘non-productive’ workers.

This sector of workers, which can include everyone from retail, cleaners, through transport and other infrastructure workers, to health workers and teachers, are in effect exploited just as are the ‘core’ of productive workers. Even if they are not directly producing surplus-value carrying commodities, they are subject to the law of value, nonetheless. Their tasks are socially necessary, and therefore counted as part of constant capital, but subject to the same pressures to reduce labour costs, and raise labour productivity. It is possible to see that the result of the increasing importance of these kinds of workers is an emergence of a new social logic that challenges the market logic of the profit seekers. Certainly, the potential power of the working class is not any less given capital’s dependence upon infrastructure of many kinds to continue to reproduce itself. However that may be, Smith advocates a wide definition of the working class as a potentially revolutionary class, which is surely the right conclusion.

Smith draws from his whole analysis, the conclusion that the capitalist system is very much at the end of its historical road. Moreover, he argues that no reformist strategies are now workable for the system in its present state, and so previous forms of ‘Marxist-socialist practice … will need to be exposed for what they were: fundamental departures from Marx’s value-theoretic critique of capitalism and programme for human emancipation’ (p.310). Smith further argues in his conclusion that the ‘revolutionary process requires and begins with the expropriation of capitalist property by a workers’ government’ (p.328).

There is an issue here, however, in the gap between theoretically correct analysis of capitalist economics and the necessity for a political strategy that arises precisely from the contradictory tendencies in social relations and in social consciousness. A revolutionary consciousness will not develop across the working class upon an ‘exposure’ of reformism by revolutionaries. It is always a matter of building active political coalitions with those elements most prepared to engage in class struggle and demand radical changes in current state policy that would favour working people. Many, if not most, involved in such movements will still hold to many more-or-less reformist ideas, but can be drawn towards more revolutionary perspectives as a direct result of their participation.

Even if the reforms that are fought for are limited in some respects, they can be a potential challenge to capital’s political order. They are worth fighting for even more so if the latitude for capital to accept them is narrower than it was in the post-war period before neoliberalism. So long as any reform is a potentially real advance for working people, the process of struggle itself can strengthen the anti-capitalist tendencies in social consciousness. It is only in political action that the ruling thoughts of capitalist relations can be overcome in general consciousness.


[1] Karl Marx, A Contribution to the Critique of Political Economy (Moscow 1970), p.20.

[2] Richard B. Lee, The Dobe !Kung (London 1984), p.98.

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Dominic Alexander

Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire book, The Limits of Keynesianism (2018).


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