Towards the Free Machine - Postcapitalism: A Guide to Our Future - Paul Mason

Postcapitalism: A Guide to Our Future - Paul Mason (2015)

Part II

Chapter 6. Towards the Free Machine

There was a tent camp, a noisy crowd, the drift of tear gas and a small pile of free stuff: this was Gezi Park during the 2013 protest in Istanbul. The tent camp allowed people to live for a few days just how they wanted to; the free stuff was the ultimate gesture of hope.

On the first day the pile was small: packets of salami, cartons of juice, some cigarettes and aspirins. By the last day it had become a toppling pyramid of everything: food, clothes, medicines and tobacco. Young people would pick up armfuls of it and walk round the park in groups, insisting you take some. Of course none of the stuff was really free. It had been bought and donated. But it symbolized a desire to live in a society where some basic things are shared.

And that’s an old desire. During the first decades of the nineteenth century, surrounded by a system determined to put a price on everything, the left formed utopian communities based on sharing, cooperation and collaborative work. They were mostly failures, for the ultimate reason that everything was scarce.

Today, not so many things are scarce. The ability of people in a city like Istanbul to build a mountain of free food testifies to that. The recycling dumps in European cities show it too: as well as outright rubbish, you will find people dumping wearable clothes, spotless books, usable electronics - items that once had value now have no selling price and are given away to be recycled or shared. Energy, of course, remains scarce - or rather the carbon-based energy we’re addicted to does. But the most critical commodity of twenty-first-century life is not scarce at all. Information is abundant.

This advance from scarcity towards abundance is a significant development in the history of humanity, and the great achievement of fourth-wave capitalism. But it’s a major challenge for economic theory. Capitalism made us see the price mechanism as the most organic, spontaneous, granular thing in economic life. Now we need a theory of its disappearance.

We need to start by getting past the issue of supply and demand. Supply-and-demand clearly works: if more garment factories open in Bangladesh, cheap clothes get cheaper. And if the cops arrest drug dealers just before the clubs open, ecstasy becomes more expensive. But supply and demand explains only why prices fluctuate. When supply and demand are equal, why isn’t the price zero? Obviously it can’t be. In a normal capitalist economy, based on scarce goods and labour, there has to be a more intrinsic price around which the selling price moves up or down. So what determines that?

Over the past 200 years, two completely different answers have been put forward. Only one of them can be right. Unfortunately it is not the one taught in economics courses.

In this chapter I am going to mount a sustained defence of something called the ‘labour theory of value’. It’s not popular because it’s not very useful for calculating and predicting movements within a functioning and stable market system. But faced with the rise of info-capitalism, which is corroding price mechanisms, ownership and the connection between work and wages, the labour-theory is the only explanation that does not collapse. It is the only theory that allows us to properly model where value is created in a knowledge economy, and where it ends up. The labour-theory tells us how to measure value in an economy where machines can be built for free and last for ever.


Amid the empty shops in the run-down high street of Kirkcaldy, Scotland, there is a branch of Gregg’s. Gregg’s sells high-fat food at low prices and is one of the few places busy at lunchtime. A glance at Scotland’s poverty map gives the context: the town is dotted with areas of extreme deprivation and ill health.1

On the wall outside Gregg’s is a plaque marking the house where Adam Smith wrote The Wealth of Nations. Nobody takes much notice. But this is where, in 1776, the economic principles of capitalism were first laid out. I’m not sure Smith would like the look of his home town today, blighted by de-industrialization, low pay and chronic sickness. But he would have understood the cause. The source of all wealth, said Smith, is work.

‘It was not by gold or by silver but by labour that all the wealth of the world was originally purchased,’ Smith wrote; ‘and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.’2 This is the classic labour theory of value: it says the work needed to make something determines how much it’s worth.

There is a raw logic to this. If you watch a water-wheel long enough, it helps you understand physics. If you witness workers sweating thirteen hours a day in a machine workshop, as Smith did, you will understand that it is the workers, not the machines, that produce the added value.3

Standard textbooks will tell you Smith thought the labour-theory was valid only for primitive societies, and that when it came to capitalism, ‘value’ was the combined product of wages, capital and land. This is incorrect.4 Smith’s labour theory of value was inconsistent, but on a detailed reading of The Wealth of Nations the argument is clear: labour is the source of value but the market can only reflect this roughly, through what Smith calls ‘higgling and bargaining’. So the law operates beneath the surface in a full capitalist economy. Profits and rents are deductions from the value produced by labour.5

David Ricardo, the most influential economist of the early nineteenth century, created a more developed model. Published in 1817, it established the labour-theory as firmly in the public mind as supply and demand is now. Ricardo, who had witnessed the great upsurge of the factory system, ridiculed the idea that machines were the source of increased wealth. Machines merely transfer their value to the product; only labour adds new value, he said.

The magic of machinery lay in increased productivity.6 If you can use less labour in making something, it should be cheaper and more profitable. If you cut the amount of labour needed to produce hats, he wrote, ‘their price will ultimately fall to their new natural price, although demand should be doubled, trebled, or quadrupled’.7

After Ricardo, the labour-theory became the signature idea of industrial capitalism. It was used to justify profits, which rewarded the work of the mill owner; it was used to attack the landed aristocracy, who were living off rents instead of working; and it was used to resist workers’ demands for shorter hours and union rights, which would hike the price of labour to ‘artificial’ levels, i.e. above the minimum needed to feed, clothe and house a working family.

However, despite its ultra-capitalist rationale, the labour-theory proved subversive. It created an argument about who gets what, which the factory owners immediately started to lose. Amid the candlelight of the pubs where the early trade unions met, David Ricardo suddenly had a whole new set of followers.

The worker-intellectuals of the 1820s understood the revolutionary implication of the labour-theory: if the source of all wealth is work, then there’s a legitimate question about how that wealth should be distributed. Just as a rent-seeking aristocracy can be shown to be parasites on the productive economy, so too can capitalists be seen as parasites on the work of others. Their work is needed - but the factory system looks as if it is structured to deliver them excess rewards.

‘There is nothing more than the knowledge, skill and labour requisite [to set up a factory] on which the capitalist can found a claim to any share of the produce,’ wrote Thomas Hodgskin, a naval lieutenant turned socialist, in 1825.8

As illegal trade unions spread the doctrine of ‘Ricardian socialism’, the factory owners’ enthusiasm for the labour-theory waned. By the time the British middle classes won the vote, in 1832, their need to justify capitalism with any kind of theory had vanished. Wages, prices and profits were no longer things to be investigated by social science, they were just there, to be described and counted. Ricardo was out, but all that replaced him was theoretical confusion.9

If, as a result, mid-nineteenth-century economics was reduced to ‘describing and counting’, there is a parallel with natural science. Charles Darwin formulated the theory of natural selection in 1844 and Alfred Russel Wallace three years later. Yet such were its implications - chiefly, rubbishing the Creation myth - that both men resorted to a routine of ‘collecting, naming and categorizing’ their specimens until 1858, when they both suddenly rushed to publication with an earth-shaking theory.

In economics, the earth-shaking theory arrives with Marx. It’s often claimed that Marx built on the theories of Smith and Ricardo. In fact he demolished them. He described his project as a critique of political economy: of Smith, Ricardo, the Ricardian socialists, the liberal moralists and the bean counters. He said - long before mainstream economists did so in the 1870s - that Ricardo’s version of the labour-theory was a mess. It would have to be rewritten from scratch.

Marx recognized in the labour-theory, despite all its flaws, something that could explain both how capitalism worked and why it might one day cease to work. The version he produced is coherent and has stood the test of time. There are thousands of tenured academics - including some of the world’s most cited scholars - who teach that it is correct. The problem is, very few of them are allowed to teach economics.


When a buyer from Primark signs a contract for 100,000 T-shirts with a factory in Bangladesh, that is a transaction. When a Bangladeshi worker arrives at the factory each morning, expecting the equivalent of $68 a month in return, that is also a transaction.10 When she spends a fifth of her daily wage to buy 1kg of rice, that too is a transaction.11

When we make transactions, we have in our minds a rough idea of what the thing we’re buying is worth. If the labour-theory is right, we are unconsciously judging its value against the amount of other people’s work that thing, or service, contains.

What follows is a brief, simple explanation of the labour theory of value. Long, complicated versions are available but for the purpose of understanding how postcapitalism might work, only the basics are needed.

A commodity’s value is determined by the average amount of labour hours needed to produce it.12 It is not the actual number of hours worked that sets the value but the ‘socially necessary’ hours of work established across each industry or economy. So the basic unit of account here can be summed up as ‘hours of socially necessary labour time’. If we know what an hour of basic labour costs - in Bangladesh the minimum wage pays about 28 US cents an hour - we can express it in money. Here I will just stick to hours.

Two things contribute to the value of a commodity: (a) the work done in the production process (which includes marketing, research, design, etc.) and (b) everything else (machinery, plant, raw materials, etc.). Both can be measured in terms of the amount of labour time they contain.

The labour-theory treats machines, energy and raw materials as ‘finished labour’ - transferring their value to the new product. So if the cotton for one garment took altogether thirty minutes average labour to grow, spin, weave and transport, it will transfer that value to the final shirt. But with machines and other big capital goods the process takes time; they transfer their value in small chunks. So if a machine took a million hours’ worth of labour to make, and over its lifetime it makes one million objects, each object will carry a single hour of the machine’s value into its final value.

Meanwhile, we treat the actual labour expended within the firm’s production process as new value, added by what Marx called ‘living labour’.

This underlying process - labour time determines the amount of new value - operates at a deep level, behind the backs of workers, managers, wholesale buyers and Primark shoppers. When we negotiate a price, it can be influenced by many other things - supply, demand, short-term usefulness, the lost opportunity if we don’t buy, the cost of spending instead of saving - everything Adam Smith summed up in the evocative word ‘higgling’. But at an aggregate level, the price of all the goods and services sold in a given economy is just a monetary expression of how much labour it took to produce them.

The problem is, we only know if we paid the right price after the event. The market acts like a giant calculating machine, rewarding those who guessed correctly what the socially necessary cost was, and penalizing those who used too much labour.

So prices always diverge from the underlying value of things, but they are ultimately determined by it. And value is determined by the amount of necessary labour it took to make the commodity.

But what determines the value of labour? Consistent with everything else, the answer is: other people’s labour - the average amount of labour it takes to present each worker at the factory gate, ready for work. This includes the work that went into producing the food they consume, the electricity they use, the clothes a worker wears and - as society develops - the average amount of education, training, healthcare and leisure consumption needed for the worker to do their job.

Of course, the average cost of an hour’s labour changes from one country to another. These differences are one of the reasons firms move production offshore. Childcare at a subsidized workplace nursery in Bangladesh costs the equivalent of 38 US cents a day, while in New York City a nanny costs $15 an hour.13 In the past decade, global production chains have moved work from China to Bangladesh as workers in China achieved better pay rates, even though Bangladeshi productivity is lower. Bangladeshi labour was so cheap for a time that it offset the inefficiencies.14

So where does profit come from? In the labour-theory, profit is not theft - as in a rip-off. On average, a worker’s monthly salary will reflect the amount of labour by others needed to produce their food, their energy needs, their clothes, etc. But the employer comes away with something more. My boss can pay me the true value of the eight hours work I just did. But that true value might be just four hours.

This mismatch between the inputs and outputs of human labour is the kernel of the theory, so let’s look at an example.

Nazma at the Bangladeshi shirt factory agrees to work for a wage that seems roughly enough to pay for a month’s food, rent, leisure, transport, energy and so on, plus a bit on top to put by as savings. She would like to earn more, but there’s a relatively narrow range of wages for factory work, so she has a very clear implicit grasp of the average hourly wage possible with her skills.

But her employer is not buying her work per se: he is buying her ability to work.

If we forget money and measure everything in ‘hours of necessary work’, we can see how profit is generated. If the cost of putting Nazma at the factory gate six days a week is thirty hours work by other people spread across the whole of society (to produce her food, clothing, energy, childcare, housing and so on), and she then works sixty hours a week, her work is providing double the amount of output for the inputs. All the upside goes to the employer. Out of an entirely fair transaction comes an unfair result. This is what Marx calls ‘surplus value’, and is the ultimate source of profit.

Another way of putting this is to say: labour is unique. Of all the things we buy and sell, labour alone has the ability to add value. Work is not just the measure of value but the motherlode from which profit is mined.

One clue as to the truth of this is that wherever they can get labour for free - as in the American prison system or Nazi death camps - capitalists immediately take advantage of it. Another clue lies in the fact that, wherever they need to pay labour below its average value, as during the rise of the Chinese export industry, managers resort to providing the inputs collectively: dorms, uniforms and canteens. The labour of a dormitory workforce is much cheaper than the social average, which is based on the living costs of a family in a home - and of course dormitory workers can be disciplined more easily.

But why, if the real weekly value of my labour is thirty hours of other people’s work, would I ever work sixty hours? The answer is: the labour market is never free. It was created through coercion and is re-created every day by laws, regulations, prohibitions, fines and the fear of unemployment.

At the dawn of capitalism, average working days of fourteen hours or more were imposed - not just on adults but on children as young as eight. A rigid system of timekeeping was implemented: rationed toilet time, fines for lateness, product defects or talking, enforced start times; and immovable deadlines. Wherever we see the factory system created afresh - whether in Lancashire in the 1790s or Bangladesh in the last twenty years - we see these rules enforced.

Even in advanced countries the labour market is built overtly on coercion. Just listen to any politician make a speech about welfare: cutting unemployment and disability benefits is designed to force people to take jobs at wages they can’t live on. In no other aspect of the market does the government coerce us to take part; nobody says ‘You must go ice skating or society will collapse.’

Work for a salary is the bedrock of the system. We accept it because, as our ancestors learned the hard way, if you don’t obey, you don’t eat.

So our work is precious. If you ever doubt this, study what happens in the fulfilment centre of an e-commerce retailer, or a call centre, or in the work schedule of a home-care worker. You will see work timed and targeted as if the minutes were gold dust. Which, to the employer, they are. Of course at the high-skill, high-wage end of the labour market it is not time or discipline, but targets and quality control that are the instruments of coercion.

There is more to explore about the labour theory of value but let’s pause. We already know enough to start attacking it with the tools that are to hand in every economics department.


Here’s why I like the labour theory of value. It treats profit as if it were made somewhere central within capitalism: the workplace, not the marketplace. And it treats one of the most basic things we do every day - work - as if it were important to economics. But there is also a long list of valid objections to the labour-theory:

Q: Why do we need a ‘theory’ at all? Why not just the facts - as in the GDP figures, company accounts, the stock markets, etc.?

A: Because we want to explain change. In science we want to go beyond a neat row of butterflies pinned under glass; we need a theory of why each sub-species looks slightly different. We want to know why, during a million repetitions of their normal lifecycles, small variations can emerge and then, suddenly, massive change.

Theories allow us to describe the reality we can’t see. And they allow us to predict. All forms of economics accept the need for theory. But the difficulty of finding one, and confronting its implications, led economics in the late nineteenth century to retreat from the scientific method.

Q: Why can’t I ‘see’ value, surplus value and labour time? If they don’t show up in the accounts of companies, and professional economists don’t acknowledge them, aren’t they just a mental construct?

A: A more sophisticated way of putting it would be to say, as the Cambridge economist Joan Robinson did in the 1960s, that the labour-theory is ‘metaphysical’ - a mental construct whose existence could never be disproved. For good measure she said the same about ‘utility’ - the key idea in mainstream economics - but accepted that metaphysics was better than nothing.15

Yet the labour-theory is more than metaphysics. Of course it works at a certain level of abstraction: that is, parts of reality are filtered out. For example, it is a model of a pure capitalism, in which everybody works for wages; there are no slaves, peasants, mobsters or beggars. It describes a process that works ‘behind the backs’ of economic agents: nobody can calculate whether they are spending more or less than the necessary labour time - though making a decent guess at it has become crucial to productivity management.

In the labour-theory, the market is the transmission mechanism between this deep, unknowable process and the surface outcome. Only the market can mediate the individual choices into an aggregate effect; only the market can tell us what the socially necessary labour time is. In this sense, the labour-theory is the greatest theory of the market ever written. It ascribes to the market, and only the market, the mechanism of making concrete the reality beneath.

So, yes, it is abstract - but no more abstract than Adam Smith’s concept of the ‘hidden hand’ or Einstein’s general theory of relativity, proposed in 1916 but not proved empirically until the 1960s.

The question remains: is it provable? Would it be possible to challenge the labour-theory in its own terms with evidence? Does it pass the test, laid down by philosopher Karl Popper, that if a single contrary fact were true, the theory would be false?

The answer is yes - once we understand the full theory. If you could say ‘capitalism is crisis-free’, the labour-theory would be false. If you could demonstrate that capitalism lasts for ever, it would also be false. Because, as we’re about to see, the labour-theory describes at the same time both a regular cyclical process and one that leads eventually to long-term breakdown.

Q: Why do we need this level of abstraction? Why can’t the theory be constructed by collecting data and crunching it? Why leave the concrete world to mainstream economics?

A: In answer to the last of these, you shouldn’t. Marx recognized that to be rigorous the labour-theory should explain reality at the concrete level. He set about trying to build out the abstract model into a more concrete description of the real economy. This involved introducing a two-sector model of the economy (consumption and production) in the second volume of Capital, and a banking system in the third. Alongside this, he tried to show how the underlying values get transformed into prices at the concrete level.

There are inconsistencies in the way he worked out this so-called ‘transformation problem’, which led to a 100-year-long debate over whether the theory is inconsistent. Since this is an attempt to apply the whole theory to a specific issue, not a textbook on Marxism, I will avoid that debate here, saying simply that the ‘transformation debate’ has been resolved (to my satisfaction) by a group of academics known as the ‘temporal single system’ school.*

The point is that, even in its most consistent form, the labour-theory is not going to be a practical tool for measuring and predicting price movements. It is a mental tool for understanding what price movements are. It belongs to a class of ideas that Einstein described as ‘principle theories’: theories whose aim is to capture the essence of reality in a simple proposition, which may be removed from everyday experience. Einstein wrote that the aim of science is to capture the connection between all experiential data ‘in their totality’ - and to do this ‘by use of a minimum of primary concepts and relations’. He pointed out that the more clear and logically unified these primary concepts were, the more divorced they would be from data.16

Einstein believed the truth of a theory is, for certain, borne out by whether it successfully predicts experience. But the relationship between the theory and the experience can only be grasped intuitively.

For reasons we discuss below mainstream economics evolved into a pseudo-science that can only allow for statements obtained through crunching the data. The result is a neat set of textbooks, which are internally coherent but which continually fail to predict and describe reality.

Q: Isn’t this too ideological? Isn’t the labour-theory too tainted with hostility to capitalism to be of any use?

A: Yes, this is a problem. As a result of the ideological battles in economics since the 1870s, there’s been a dialogue of the deaf. The outcomes, which we have to overcome today, were the inconsistency of mainstream economics and Marxism’s lack of concreteness.

You’ll often hear left-wing economists decry mainstream economics as ‘useless’ - but it is not. In fact, once you understand its limitations, most of mainstream price theory maps very well on to the surface end of the labour-theory.

The problem is, mainstream economics does not understand its own limitations. The more complete it became as an academic discipline describing an abstract, static and immutable reality, the less it understood change. To see why, we will now consider the main source of change in capitalism - the force that makes expensive things cheaper and which has now begun to make some things free: productivity.


According to the labour-theory, there are two kinds of productivity gain possible. First, the workers become more skilled. So the work of a trained metal press operator has more value than the work of someone who just arrived off the dole queue; either because they make an ordinary thing faster and with fewer defects, or because of their ability to make an extraordinary thing that the less well-trained worker could not.

But the cost of training skilled workers is usually higher by a proportional amount: their labour is worth more because it took more labour to produce and maintain. For example, the average earnings of graduates across the OECD countries are more than double those of people with only a basic education, and 60 per cent higher than of those who completed only ‘upper secondary’ education.17

The second kind of productivity gain is driven by new machinery, or a reorganization of the production process, or a new invention. This is the most common case and Marx deals with it as follows.

One hour of labour always adds one hour’s worth of value to the products made. So the impact of rising productivity is to reduce the amount of value embodied in each product.

Suppose a factory produces 10,000 garments a day. Let’s say the workforce is 1,000 people with average ability working ten hours each. So 10,000 hours of ‘living’ labour are going into the daily output. Let’s assume that on top of that there are 10,000 hours of ‘finished’ labour going into each day’s output as well - in the form of wear and tear to machinery, energy used, fabrics and other raw materials, transport costs, etc. The total daily output of the factory, as measured in labour time, therefore consumes 20,000 hours of labour, half living and half finished. So each garment contains two hours of labour time. On the market, it should exchange for the money equivalent of two hours’ labour time.

Now, suppose a process is introduced that doubles labour productivity. For each batch of 10,000 garments you’ve still got roughly the same amount of finished labour going in (10,000 hours in this example). But the living labour component is cut to 5,000 hours. Now each garment contains ninety minutes’ labour time.

Here’s how the market rewards you. If your factory is the first to make the change, the garments go into a market where socially necessary labour time to make them is still 20,000 hours. That’s the price you should get in the market. But you only needed 15,000 hours. So the factory reaps the productivity gain in the form of increased profit. The factory boss can cut prices and increase market share or take the above-average profit represented by the difference between two hours and ninety minutes. Eventually the whole industry will copy the innovation and the new normal price per garment will be ninety minutes’ labour time.*

This brings us to the main point. To increase productivity, we increase the proportion of ‘machine value’ to the living human labour employed. We drive human beings out of the production process and in the short term - at the level of the firm or sector -profits rise. But since labour is the only source of extra value, once an innovation has been rolled out across the whole sector, and a new, lower social average set, there’s less labour and more machine; the part of the operation producing the added value has got smaller; and if unchecked that would place downward pressure on the profit rate of the sector.

Innovation, which is driven by the need to minimize costs, maximize output and utilize resources, does bring rising material wealth. And it can lead to a rise in profits. But once it has been rolled out, it creates an inbuilt and perennial ‘tendency for the rate of profit to fall’ - if not offset by other factors.

Despite the doom-laden aura of this Marxist phrase ‘tendency of the profit rate to fall’, it is no real catastrophe for capitalism. As we saw in chapter 3, these offsetting factors are usually strong enough to balance out the effects of the falling labour content - above all, through the creation of new sectors which require higher-value inputs - either in the form of higher-value physical commodities or by the creation of service sectors.

So in the classic model of capitalism outlined by Marx, the pursuit of productivity drives material wealth higher but causes repeated short-term crises and then forces big mutations, whereby the system has to voluntarily raise the cost of labour. If it can’t make workers rich enough to buy all the goods, or it can’t find new consumers in new markets, this piling up of machine value versus labour value leads to a fall in the rate of profit.

And that was how all crises looked in the era of scarcity: mass unemployment and idle plant caused by a collapse in profitability, and all explicable using the labour theory of value.

But the labour-theory can also be used to explain something else, namely what happens when products and new processes can be made without any labour going into them at all.

Before we explore that, however, we have to deal with the alternative theory of price proposed by mainstream economics, known as ‘marginal utility’.


Like Marx, the founders of mainstream economics started by tearing holes in Ricardo. His explanation of profit was inconsistent, they said; nothing could be done to make it work. Their response was to move economics on to different terrain - that of observable movements in prices, supply and demand, rent, taxation and interest rates.

What they produced was the theory of marginal utility: that there is no intrinsic value to anything, except what a buyer will pay for it at a given moment. Léon Walras, one of the founders of marginalism, insisted: ‘The selling prices of products are determined in the market … by reason of their utility and their quantity. There are no other conditions to consider for these are the necessary and sufficient conditions.’18

This ‘usefulness theory’ of value had been deemed archaic since the days of Adam Smith. The crucial factor in its revival was the addition of the concept of marginality. ‘The amount of value is determined not by average but by final or marginal utility,’ wrote William Smart, an English popularizer of the theory.19 Marginal simply means all the value is in the ‘extra bit’ you want to buy, not in the whole product. So the value of the last ecstasy tablet in the nightclub is higher than all the others.

For marginalists, the key psychological judgements we make when we buy things are reducible to the following question: ‘Do I need to buy this next thing - glass of beer, cigarette, condom, lipstick, minicab ride - more than I need to keep this last €10 note in my pocket?’

William Stanley Jevons, the English pioneer of marginalism, demonstrated that in principle these fine judgements about utility - which he understood as choices between pleasure and pain - could be modelled using calculus. This sliding scale of momentary prices was the only thing needed to calibrate supply and demand. The only consistent meaning to value was ‘ratio of exchange’; he proposed scrapping the term ‘value’ altogether.

On the face of it, the marginalists were trying to free economics from philosophy. You can’t defend capitalism on the grounds that it is ‘natural’, said Walras, the only justification should be that it is efficient and increases wealth.

But there is a crucial piece of ideology built into marginalism: the assertion that the market is ‘rational’. Walras was revolted by the idea that economic laws work independently of human willpower. This amounted to treating economics like zoology and the human race as animals. ‘Alongside the many blind and ineluctable forces of the universe,’ he wrote, ‘there exists a force which is self conscious and independent, namely the will of man.’20 The new science of economics should assume the market is an expression of our collective rational will, Walras argued. But it should be mathematical, making a one-time leap out of its ethical and philosophical roots by using abstract models and considering all cases in idealized form.

The achievement of marginalism was to show that markets governed by free and perfect competition must achieve ‘equilibrium’. It was Walras who worked this into a demonstrable law: since all prices are the result of a choice by a rational individual (buy the lipstick or keep the €10 bill?), once the supply runs out the rational choice is to stop trying to buy it. Conversely, if the supply of something increases, it becomes rational for people to start wanting it, and to decide what price they will pay for it. Supply creates its own demand, says the theory; a freely operating market will ‘clear’ until demand matches supply, with prices changing in response.

Like Marx, Walras was working at a high level of abstraction. His model assumes that all agents have perfect information, that there is no uncertainty about the future and no extraneous factors influencing the market (such as monopolies, trade unions, import tariffs, etc.). These abstractions are not invalid, as long as we do not suggest that they represent reality. The question is: was marginal utility the right abstraction?

An early hint that it was not came in the marginalists’ attitude to crisis. They were so convinced of capitalism’s inner tendency towards equilibrium that they assumed crises must be produced by non-economic factors. Jevons, in all seriousness, suggested the Long Depression, beginning in 1873, was simply the latest in a series of regular fluctuations caused by ‘some great and wide-spread meteorological influence recurring at like periods’ - that is, by sun-spots.21

Textbook economics is today built on marginalism’s discoveries. But in the pursuit of maths over ‘political economy’, the marginalists created a discipline which ignored the production process; reduced the psychology of the deal to a two-dimensional balance between pleasure and pain; saw no special role for labour;* discounted the possibility of economic laws acting at a deep, unobservable level, independent of the rational will of human beings; and reduced all economic agents to traders, abstracting away from class and other power relationships.

In its purest form, marginalism denied not only the possibility of exploitation, but of profit as a specific phenomenon. Profit was just the reward for the utility of something the capitalist was selling: their expertise or, in later forms of the theory, their abstinence - that is, the ‘pain’ they suffered during the act of accumulating their capital. Marginalism was, in short, highly ideological. It introduced a blindness to the problems of distribution and class that still blights professional economics, and a profound lack of interest in what goes on in a workplace.

Marginalism emerged because managers and policymakers alike needed a form of economics that was bigger than accountancy but smaller than a theory of history; it had to describe in detail the way the price system worked - and in a way that took no interest in class dynamics or social justice.

Carl Menger, the Austrian economist, summed up the inner psychological motivation for marginalism in a famous attack on Smith and Ricardo. They were obsessed with ‘the welfare of man in the abstract, about remote things, about things which did not yet exist, about future things. In this effort [they] … overlooked the living, justified interests of the present.’ The aim of economics, according to Menger, should be to study the reality that capitalism produces spontaneously, and to defend it against the ‘one-sidedly rationalistic mania for innovation’ which ‘contrary to the intention of its representatives inexorably leads to socialism’.22

Marginalism’s obsession with the continuous present, its hostility to future things, made it a brilliant model for understanding forms of capitalism that do not change, mutate or die.

Unfortunately these do not exist.


Why, in the era of big data, Spotify and high-frequency trading, should we be raking over a debate from the mid-nineteenth century?

For one thing, because it explains the pig-headedness of present-day economics in the face of systemic risk. Economics professor Steve Keen points out that present-day marginalism - by reducing everything to the doctrine of ‘efficient markets’ - actually contributed to the collapse. Mainstream economists made ‘an already troubled society worse: more unequal, more unstable and less ‘efficient’.23

But there is a second reason, to do with how we describe the dynamics of info-capitalism. The rise of information goods challenges marginalism at its very foundations because its basic assumption was scarcity, and information is abundant. Walras, for example, was categoric: ‘There are no products that can be multiplied without limit. All things which form part of social wealth … exist only in limited quantities.’24

Tell that to the makers of Game of Thrones: the pirated version of Episode 2 of its 2014 series was illegally downloaded by 1.5 million people in the first twenty-four hours.25

Information goods exist in potentially unlimited quantities and, when that is the case, their true marginal production cost is zero. On top of this, the marginal cost of some physical info-tech (memory storage and wireless bandwidth) is also collapsing towards zero. Meanwhile, the information content of other physical goods is rising, exposing more commodities to the possibility that their production costs begin to plummet too. All this is eroding the very price mechanism that marginalism describes so perfectly.

The economy at present, consists both of scarce and abundant goods; our behaviour is a mixture of the old pleasure-vs-pain choices, made in our own self-interest, alongside sharing and cooperation, which seem to the marginalists like sabotage.

But in a full information economy - where much of the utility was provided through information and physical goods were relatively abundant - the price mechanism as described by marginalism would fall apart. Because marginalism was a theory of prices and prices only, it cannot comprehend a world of zero-priced goods, shared economic space, non-market organizations and non-ownable products.

But the labour-theory can. The labour-theory actually predicts and calibrates its own demise. That is, it predicts a clash between the social forms driving productivity and productivity itself.

The labour-theory, as outlined by Marx, predicts that automation can reduce necessary labour to amounts so small that work would become optional. Useful stuff that can be made with tiny amounts of human labour is probably going to end up being free, shared and commonly owned, says the theory. And it is right.


Let’s restate what Marx called the ‘law of value’. The price of everything in the economy reflects the total amount of labour used to make it. Productivity gains derive from new processes, machines, reorganizations - and each of these comes at a cost, in terms of the amount of labour it took to create it. In practice, capitalism escapes the tendency of innovation to shrink the labour content of the economy, and thus shrink the ultimate source of profit, because it creates new needs, new markets and new industries where labour costs are high, so there are more wages to drive consumption.

Info-tech is just the latest outcome of an innovation process lasting 250 years. But information injects a new dynamic. Because with info-tech you can have machines that cost nothing, last for ever and do not break down.

If somebody tried to sell the Bangladeshi factory boss a sewing machine that lasts for ever he would probably choke on his breakfast. However, he is quite happy to buy software. Software is a machine that, once built, will last for ever. Sure, it can be made obsolete by newer software, but the world is full of old software that - if the right hardware could be found to run it - could run for ever.

Once the design cost is incurred, the cost of producing software is reduced to the cost of the media it is stored on or flows through: the hard drive or the fibre network. That, plus upgrading it and maintaining it.

And these costs are plummeting exponentially. The cost of printing one million transistors on to a piece of silicon has fallen from a dollar to 6 cents in ten years. Over roughly the same period, the cost of one gigabyte of storage has fallen from a dollar to 3 cents; and the cost of a one megabit broadband connection has fallen from $1,000 in the year 2000 to $23 today. Deloitte, who did these calculations, describes the falling price of basic info-tech as exponential: ‘The current pace of technological advance is unprecedented in history and shows no signs of stabilizing as other historical technological innovations, such as electricity, eventually did.’26

It has become commonplace to think of information as ‘immaterial’. Norbert Wiener, one of the founders of information theory once claimed: ‘Information is information, not matter or energy. No materialism which does not admit this can survive at the present day.’27

But this is a fallacy. In 1961, IBM physicist Rolf Landauer proved, logically, that information is physical.28 He wrote: ‘Information is not a disembodied abstract entity; it is always tied to a physical representation. This ties the handling of information to all the possibilities and restrictions of our real physical world, its laws of physics and its storehouse of available parts.’29

Specifically, he showed that information processing consumes energy and it should be possible to measure the amount of energy used in deleting one ‘bit’ of information. In 2012 a team of scientists built a tiny physical model demonstrating ‘Landauer’s Rule’.30

So information is a product that costs energy to produce and exists as matter. Bits take up room in reality: they consume electricity, give off heat and have to be stored somewhere. Google’s famous Cloud is in fact acres of air-conditioned server farm space.

But Wiener was right to understand that the product of a computing process is qualitatively different from other physical products.

The real wonder of information is not that it is immaterial but that it eradicates the need for labour on an incalculable scale. It does all the things a machine does: it substitutes cheap labour for skilled labour; it eradicates labour altogether for some operations, and it makes new operations possible that no previous forms of labour could have achieved. The new information produced by a computer has a use value, or utility, massively in excess of its component parts.

But the amounts of labour value embodied in information products can be negligible. And once knowledge becomes truly social - as Marx imagined with the concept of the ‘general intellect’ - some of the value is contributed for free, as follows:

· Information goods naturally leverage general scientific knowledge

· Their users feed back, in realtime, data that allows them to be improved, for free

· Any improvement in knowledge somewhere can be implemented in every machine deployed everywhere, immediately.

For example, the internet protocol, invented in 1974 and published for free, is a ‘standard’, not a product. But it is not the same as, say, the safety standard the garment factory is supposed to adhere to. It is more like the electricity grid a factory draws power from: it is materially useful. And it is free.

What happens if you insert some of this free machinery into the labour theory of value? Marx, it turns out, had actually thought this through.

In the Grundrisse, Marx says: if a machine costs 100 days’ worth of labour power to make, and wears out in 100 days, it’s not improving productivity. Much better to have a machine that costs 100 days but wears out over 1,000. The more durable the machine, the smaller the amount of its value chipped off into each product. Taking this to its logical extreme, what you ideally want is a machine that never wears out, or one that costs nothing to replace. Marx understood that, in economic terms, they are the same thing: ‘If capital could obtain the instrument of production at no cost, for 0, what would be the consequence? Surplus value [would be increased], without the slightest cost to capital.’ He lists two ways in which, even in the nineteenth century, capitalism was getting just such a free hit: from the reorganization of workflow, and through scientific advances. Marx then writes: ‘If machinery lasted for ever, if it did not itself consist of transitory material which must be reproduced … then it would most completely correspond to its concept.’31

We should shudder in awe at this incredible insight, written by gaslight in 1858: that the ideal form of a machine is one made of material that does not wear out, and which costs nothing. Marx is not here speaking about the immaterial but of non-transitory material: that is, something that does not degrade.

Machines where parts of the value are input for free by social knowledge and public science are not alien concepts for the labour-theory. They are central to it. But Marx thought that if they existed in large numbers they would explode the system based on labour values - ‘blow it sky high’, as he says in the Fragment on Machines.

The worked example Marx uses in the Grundrisse makes it clear: a machine that lasts for ever, or can be made with no labour, cannot add any labour hours to the value of the products it makes. If a machine lasts for ever, it transfers a near-zero amount of labour value to the product, from here to eternity, and the value of each product is thus reduced.*

Of course, in reality, physical machines do not yet last for ever; but what we’ve seen in the past fifteen years are machines whose utility derives from the information used to run them, design them or make them. And only the labour-theory can properly comprehend what it means economically, if the world of physical objects becomes alive with information.


In 1981 I worked for a few months as a press operator in a small engineering factory next to the River Mersey. The stamping press worked on a mixture of electricity and compressed air: when you pulled a lever, it hammered a machine tool down on to a metal disc, bending it into shape. My job was to put the disc on the die, pull the lever and get my fingers out of the way before the guard came down. It was unskilled work, about ten repetitions per minute, and there were always a huge number of defective discs. There was no information feedback mechanism in the stamping press at all; and nothing was automated bar its single physical hammering motion.

Above me were two tool setters, semi-skilled men who fixed the tool in the machine and realigned it every few hours. In the next room were the skilled metalworkers who made the tools. They never spoke to us. However, what we all shared was this: without the skill of our fingers and a keen eye for defects, inherent danger and faulty processes, nothing in the factory worked.

Today, metal stamping is almost completely automated. The operation is first simulated on a computer, with thousands of datapoints on the metal modelled mathematically to understand the stress placed on the metal. Then a 3D design is fed directly into a computer, which controls the machine. The die and the machine tool are often much more intricate than the one I used in 1981; and now they are positioned by laser beams, allowing far greater accuracy. If something goes wrong, the computer controlling the machine knows about it. When the part comes out of the machine, it is picked up by a robot, analysed and placed precisely where it should go next. And when the tool needs changing, a robot arm does it.

Such machines can finish in an hour what we finished in a day, free of defects and with no fingertips accidentally left on the floor - because there are no workers. What makes this possible is numerous applications of IT: computerized analysis and 3D design in the preparation; realtime feedback and analytics during the process; and data retention to aid future refinements of the process. Researchers are now focusing on ways to automate the production of the tools themselves and even de-skill their design using computer models.

So the whole machine is alive with information and so is the product: automated factories require even small parts to be identifiable individually, through tags and numbers. The press can add these as well.

We have lived through a revolution in one of the most basic operations in industrial capitalism: metal bashing. But nobody has bothered to theorize it - the academic literature on the automated metal press belongs in the engineering department, not in economics.32

And that’s because, as we’ve already seen, nobody knows how to measure the value of information economically. You can see the impact of buying an automated press on the company’s bottom line; you can value the 3D designs and bespoke computer programs as assets, but as the SAS Institute research showed, you are basically guessing.

The labour-theory enables us to do something better than guess. It allows us to think of software as a machine; the information (3D designs, programs, monitoring reports) as finished labour in the same way the tools and metal dies are. And it allows us to trace the process by which the ‘zero marginal cost’ effect of pure information goods spills over into the world of physical products and the machines that make them.

My press shop in the early 1980s was staffed by maybe twenty-five workers. For a similar-sized operation today you would need fewer than five. The crucial difference is made by software, laser sensors and robotics.

The value of this industrial software is entirely reliant on the patent law that prevents it being used and replicated for free. Though it’s harder to pirate than, say, the DVD of a feature film, the principle remains the same: the reproduction cost of industrial software is zero; the value added is contained in the work done to attach it to specific machines and processes.

Though a machine shop smells and sounds the same as it did thirty years ago, it is as different from the one I worked in as an iTunes track is from a vinyl record.


We’ve seen what happens if you inject zero marginal cost products into the price model: it breaks down. We must now model what happens if you inject free machines into the cycle of capital investment.

For the sake of clarity I’m using an ultra-basic model here with all its attendant dangers of oversimplification.

Let’s say there are four lines on a spreadsheet modelling the inputs to an economy in terms of labour value. The units could be millions of hours of labour time. Let’s say the labour transferred to the final product in Period #1 looks like this:

· Capital: 200

· Energy: 200

· Raw materials: 200

· Labour: 200

The capital line of the spreadsheet is always different in the labour-theory, because machines transfer their value into the product over several years, while in the other three lines the value is consumed in the current period. So that capital line might represent machinery etc. costing 1000, chipping off 200 units of value each year into the total output over a five-year lifespan.

Now let’s do something drastic to the capital line: let’s assume it represents a single machine that lasts for ever. In the labour-theory that immediately slashes the labour transferred from the capital line to zero, for ever. No matter what the initial outlay was (in terms of hours spent to make the machine), if it lasts for ever it transfers almost no value - because even a billion divided by ‘for ever’ is zero.

The total labour hours transferred by all factors of production to the final output now fall to 600 hours (keen-eyed Marxists will spot I am not including profit in this model, but see below).

Now we run the spreadsheet over time: in Period #2, the zero-effect in the capital line spills over and reduces the number of labour hours transferred to the final product - because the hours needed to reproduce labour are reduced. If you keep on running this model, without doing anything to counteract the downward pressure on labour inputs, pretty soon it is not just capital costs that are zero, but labour/raw material costs fall rapidly. Of course, in a real economy machines don’t last for ever. But insofar as they are pervaded by information, a part of the labour expended to make them ceases to circulate in the old way. The value vanishes.

Let’s run this spreadsheet down to an end-state, over several time periods where capital and labour get shrunk towards zero marginal reproduction costs. Now the labour expended is mainly focused on providing energy and physical raw materials. If this happened in real life, because the law of value operates beneath the surface, it would be possible for the price system to carry on as normal, trying to calculate the marginal utility of things. As prices fell, corporations might react by trying to impose monopoly pricing - to stop the value embodied in the machine and its product falling towards zero. But mainstream economics would be puzzled. It would seem like whole swathes of economic activity were being ‘stolen’ from the normal market framework.

And even though we are far away from the pure information economy modelled crudely here, we can already feel these effects in reality: monopolies are arising to prevent software or information goods becoming free; accounting standards are becoming garbled as companies resort to valuation guesswork. There are attempts to stimulate wage growth, while most of the inputs to labour can now be produced with less labour.

In its first major macro-economic study of the internet, in 2013, the OECD admitted: ‘While the internet’s impact on market transactions and value added has been undoubtedly far-reaching, its effect on non-market interactions … is even more profound. Non-market interactions on the internet are broadly characterised by the absence of a price and market-clearing mechanism.’ Marginalism supplies no metric, no model to understand how a price economy becomes a substantially non-price economy. As the OECD team put it: ‘Little attention has been paid to non-market interactions since few, if any, well-defined and well-grounded measurements have been commonly adopted.’33

Let’s admit, then, that only marginalism enables us to build price models in a capitalist society where everything is scarce. In return, let us insist: only the labour-theory allows us to build models whereby zero-cost effects begin to cascade over from information into the sphere of machines and products, and from there into labour costs.

Once you introduce free machines and products into a model of capitalism that runs over time, even a crude one like this, it is as electrifying as introducing the figure zero into mathematics.

The four-line spreadsheet outlined above should really have an extra row for profit and instead of simply declining, each value should grow by perhaps 3 per cent a year, representing GDP growth. But suppose you did add profit and growth? Once the zero marginal cost effect kicks in, there would have to be tremendous profits and growth to offset the eventual impact on labour costs. In other words, there would have to be new industrial revolutions every fifteen years, very rapid nominal growth and ever bigger monopoly firms.

But that can’t happen.

Capitalism worked as long as capital could move, when technological innovation brought lower costs in one sector, to sectors with higher wages, higher profits and higher-cost inputs. Capitalism does not self-reproduce in this way when the outcome is zero costs.

This simplified model also allows us to see really clearly how economics in a zero production cost society quickly comes to centre on energy and raw materials: they become the sector where scarcity still rules. Later we’ll explore how modelling the disappearance of labour value like this could translate into the actual design of strategies for transition; and how issues around energy fit in. For now, however, let’s look at how capitalism might evolve to meet these economic challenges.


The rise of free information and free machines is new. But the cheapening of inputs through productivity is as old as capitalism itself. What stops capitalism from becoming a systemic race to the bottom is the creation of new markets, new needs, and raising the amount of socially necessary labour time used to meet these needs (fashion instead of rags, TVs instead of magazines); this in turn raises the amount of labour time embodied in each machine, product or service.

If this inbuilt reflex could work properly, faced with the information revolution, what we’d get is a fully fledged info-capitalism. But here’s how it would have to work.

It would have to stop the price of information goods falling, by using monopoly pricing: think Apple, Microsoft and Nikon/Canon on steroids. It would have to maximize the capture of externalities by corporations. Every interaction - between producer and consumer, consumer and consumer, friend and friend - would need to be mined for value. (In labour-theory terms, our non-work activity has to be turned into work contributed to the corporation for free.) A thriving info-capitalism might seek to maintain artificially high prices for energy and physical raw materials, through hoarding and other monopolistic behaviour, so their cost fed through into higher average necessary labour time to reproduce labour. Crucially, it would have to create new markets beyond production, in the field of services. The 250-year history of capitalism has been about pushing market forces into sectors where they did not exist before. Info-capitalism would have to take this to its extremes, creating new forms of person-to-person micro-services, paid for using micro-payments, and mainly in the private sector.

And finally, for info-capitalism to succeed it would have to find work for the millions of people whose jobs are automated. These could not be in the majority low-paid jobs because the traditional escape mechanism needs labour costs to rise: human life has to become more complex, needing more labour inputs, not fewer, as in the four cyclical upswings described by long-cycle theory.

If all these things could happen, info-capitalism could take off. The elements of such a solution are there in modern economies: Apple is the classic price monopolist, Amazon’s business model the classic strategy for capturing externalities; commodity speculation the classic driver of energy and raw material costs above their value; while the rise of personal micro-services - dog minding, nail salons, personal concierges and the like - shows capitalism commercializing activities we used to provide through friendship or informality.

But there are clear structural obstacles to making this work.

First, the normal escape route - innovation creates expensive new technologies that replace info-tech - is blocked. Information is not some random technology that just came along and can be left behind like the steam engine. It invests all future innovation with the zero-price dynamic: biotech, space travel, brain reconfiguration or nanotechnology, and things we cannot even imagine. The only way you could remove the information effect from these coming technologies would be, as in Frank Herbert’s sci-fi novel Dune, to ban computers and replace them with expensive human experts in calculation.

The second obstacle is the scale of workforce redesign. In Marx’s time, there were 82,000 clerical workers in the USA, 0.6 per cent of the workforce. By 1970, on the eve of the info-tech revolution, there were 14 million - almost one in five workers.34 Today, despite the automation and disappearance of all kinds of brainwork jobs - such as bank teller, shorthand typist, comptometer operator and the like - ‘office and admin support’ remains the biggest job category in America, with 16 per cent of the workforce.35 The second category is ‘sales’, with 11 per cent.

In 2013, a study by the Oxford Martin School suggested 47 per cent of all jobs in the US were susceptible to automation. Of these, it was admin and sales that stood the highest risk. They predicted two waves of computerization over the next twenty years: ‘In the first wave, we find that most workers in transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are likely to be substituted by computer capital.’36

In the second wave, it is everything relying on finger dexterity, observation, feedback, or working in a cramped space that gets robotized. They concluded the jobs safest from automation were service jobs where a high understanding of human interaction was needed - for example, nursing - and jobs requiring creativity.

The study provoked an outcry along familiar under-consumptionist lines: robots will kill capitalism because they will create mass underemployment and consumption will collapse. That is a real danger. To overcome it, capitalism would have to greatly expand the human services sector. We would have to turn much of what we currently do for free, socially, into paid work. Alongside sex work we might have ‘affection work’: you can see the beginnings of it now in the hired girlfriend, the commercial dog-walker, the house cleaner, the gardener, the caterer and the personal concierge. Rich people are already surrounded by such post-modern servants, but to replace 47 per cent of all jobs this way would require the mass commercialization of ordinary human life.

And here’s where you hit the third obstacle - what philosopher André Gorz called the ‘limits of economic rationality’.37 At a certain level, human life and interaction resist commercialization. An economy in which large numbers of people perform micro-services for each other can exist, but as a form of capitalism it would be highly inefficient and intrinsically low-value.

You could pay wages for housework, turn all sexual relationships into paid work, mums with their toddlers in the park could charge each other a penny each time they took turns to push the swings. But it would be an economy in revolt against technological progress.

Early capitalism, when it forced people into factories, had to turn large parts of the non-market lifestyle into a serious crime: if you lost your job you were arrested as a vagrant; if you poached game, as your ancestors had always done, it became a hanging offence. The equivalent today would be not just to push commercialism into the deep pores of everyday life, but to make resisting it a crime. You would have to treat people kissing each other for free the way they treated poachers in the nineteenth century. It is impossible.

Therefore the real danger inherent in robotization is something bigger than mass unemployment, it is the exhaustion of capitalism’s 250-year-old tendency to create new markets where old ones are worn out.

And there’s yet another obstacle: property rights. To capture the externalities in an information-heavy economy, capital has to extend its ownership rights into new areas; it has to own our selfies, our playlists, not just our published academic papers but the research we did to write them. Yet the technology itself gives us the means to resist this, and makes it long-term impossible.

So what we have in reality is an info-capitalism struggling to exist.

We should be going through a third industrial revolution but it has stalled. Those who blame its failure on weak policy, poor investment strategy and overweening finance are mistaking symptoms for the disease. Those who continually try to impose collaborative legal norms on top of market structures are missing the point.

An economy based on information, with its tendency to zero-cost products and weak property rights, cannot be a capitalist economy.

The usefulness of the labour-theory is that it accounts for this: it allows us to use the same metric for market and non-market production in a way that the OECD’s economists could not. Crucially it enables us to design the transition process so that we know what we are trying to achieve: a world of free machines, zero-priced basic goods and minimum necessary labour time.

The next question is: who is going to make it happen?