Socially Necessary Labour Time - Simplified Explanation of The Concept

Simplified Explanation of The Concept

In a market economy, labour expenditures producing outputs and the market demand for those outputs are constantly adjusting to each other. This is a complex process, in which enterprises operating at varying levels of productivity and unit-costs compete with each other in responding to the expansion and contraction of total market demand for their output. In the third volume of Das Kapital, Marx discusses how the market value (or "regulating price") of a commodity may be determined under different conditions of demand and productivity.

A given mass of new value is produced in a given time, but if and how this new value is realised in money terms and distributed as income and reinvestment is finally established only after products are sold at specific market prices. If the market for a commodity is oversupplied, then labour-time has been expended in excess of what was socially necessary, and exchange value falls. If the market for a commodity is undersupplied, then the labour-time expended on its production has been less than what is socially necessary, and exchange value rises.

The simplest definition of socially necessary labour time is the amount of labour time performed by a worker of average skill and productivity, working with tools of the average productive potential, to produce a given commodity. This is an "average unit labour-cost", measured in working hours.

If the average productivity is that of a worker who produces a commodity in one hour, while a less skilled worker produces the same commodity in four hours, then in these four hours the less skilled worker will have only contributed one hour's worth of value in terms of socially necessary labour time. Each hour worked by the unskilled worker will only produce a quarter of the social value produced by the average worker.

But the production of any commodity generally requires both labour and some previously produced means of production (or capital goods), like tools and materials. The amount of labour so required is called the direct labour input into the commodity. Yet the required capital goods have in their turn been produced (in the past) by labour and other capital goods; and so on for these other capital goods, and so on. The sum of all the amounts of labour, that were direct inputs into this backwards-stretching series of capital goods produced in the past, is called the indirect labour input into the commodity. Putting together the direct and indirect labour inputs, one finally gets the total labour input into the commodity, which may also be called the total embodied labour in it, or its direct and indirect labour contents.

However, it ought to be said that by "socially necessary labour" Marx refers specifically to the total labour-time which on average is currently required to produce an output. It is this current labour cost which determines the value of output. So in a developed market Marx's exchange value refers to the average quantity of living labour which must be performed under currently prevailing conditions to produce a commodity. It is obvious that these conditions are incessantly changing, both in relation to quality of labour, quality of machinery, quality of distribution, and volumes of labour, machinery, sales in the branch, so estimating 'current' requirements is very much an exercise in approximation and dependent on the scales involved.