The commoditization of labor

The commoditization of labor is the chief contradiction of capitalism.

Labor power is the ability to perform labor, analogous to potential energy in physics. The act of working transforms labor power into commodities; per Marx, labor power is "congealed" into commodities.

Labor power is the only item that has objective use value: the use value of one hour of labor power is precisely one hour of labor (i.e. socially necessary labor time). Labor power also has a cost: one must transform labor power into food, clothing, shelter, etc. consumed by the worker and physically necessary for their survival, ability to work, and ability to reproduce the next generation of workers. In any nontrivial economy, the cost of one hour of labor power is less than one hour. The difference between the cost and the objective use-value of labor is the surplus value of labor.

In a literally free market in equilibrium, the price (exchange value) of any commodity is its cost. If I wish to trade shoes for hats, I will give the number of shoes that can be produced in one hour and receive the number of hats that can be produced in one hour. The equivalence between labor time makes the exchange fair; that the subjective use-values of the commodities increase after the exchange motivates actually exchanging the commodities rather than keeping them.

That price equals cost in a literally free market is provable. Free market economics is analogous to thermodynamics, information theory and statistical mechanics: the difference between the price and the cost defines the entropy of a commodity; a large difference corresponds to low entropy, and entropy always increases.

Which brings us to the chief contradiction of capitalism: If labor power is itself commoditized, then the price of one hour of labor power will be equal to its cost, which is less than its objective use-value. The difference between the cost and the objective use-value of labor power is the surplus value of labor.

In a literally free market where labor is commoditized, a worker will receive zero surplus value for his labor: the price of one hour of labor power will be the minimum necessary to create exactly that one hour of labor power and not a penny more. But it is patently irrational for someone to exchange something of greater value to receive something of lesser value. The only way to make someone behave "irrationally" is to employ coercion (or fraud). It's (locally) rational to give my wallet to a mugger only because I value my life more than my wallet.

Therefore, labor cannot be a commodity in a literally free market, because the presence of coercion renders the market not literally free.

The true efficiency of a commodity (the production of a commodity) is the use-value of the commodity divided by the cost (in socially necessary labor time). The capitalist efficiency of a commodity is the profit (price minus monetary cost) divided by the monetary cost. Assuming the price of the commodity is equal to the labor cost, then a commodity is efficient under capitalism only if the monetary cost comprises not the labor time necessary to produce the commodity, but rather the true cost necessary to produce the labor power, which is less than the actual production obtained.

A capitalist economy is "inefficient" precisely to the degree that workers consume more than is absolutely necessary to produce their labor power.

A similar analysis applies to capital as well. In a literally free market, if capital is a commodity, then the price of capital (constant and variable) is its cost. In a literally free market where both labor and capital are commodities, no one receives the surplus value of labor. But someone has to receive this surplus value: who?

The allocation of surplus value is a political issue: the surplus value goes to those with the guns. Tell me who commands the police and the army, and I'll tell you where the surplus value is going. The only way that labor receives any of its surplus value is in their ability and willingness to resist coercion: every class will receive surplus value only to the extent that it is cheaper to give them some of the surplus than actually fight them.

A capitalist economy differs from a socialist economy by whether labor or capital is a commodity.

In a capitalist economy, labor is a commodity; capital is not a commodity. The price of capital is equal not to its cost, but to its objective use-value: the surplus value of the labor paid for by the capital (variable capital) and that uses the equipment (constant capital). By definition, value is surplus value under capitalism and its consumption is removed from the calculation of efficiency only if that surplus value is consumed by someone other than those producing the goods. In other words, the CEO's salary is part of the monetary cost of a commodity and reduces the capitalist efficiency of its production. Only that part of the price not paid to anyone actually contributing to the production of a commodity makes the production "efficient" in capitalist terms.

In a socialist economy, capital is a commodity; labor is not a commodity. The price of labor is equal not to its cost, but its objective use-value: someone who works eight hours a day will receive commodities that took eight hours of labor time to produce. Workers receive more use-value for their labor as the true cost of commodities decreases. Since true efficiency rises exponentially, the idealistic notion, "From each according to his ability, to each according to his need," can become a practical reality in the near future.