1. The argument that a free labor market is part and parcel of the economist's imagination has credence for the reason that labor in the classical model is more or less a structural component of the real core of the classical economist's interest: the competition of capital. The labor factor of economic activity inevitably imposes a moral content on the relationship between labor and capital, and the classical description of economic operations does not admit of moral content. That is, it is not normative but descriptive, and as such it cannot particularly take account of the needs and wants and intentions and psychology of the persons who make up the labor force. But the fact is that the adversarial psychology of labor and management impose an extra element of social reality on labor relations for which classical economics cannot account. For the social reality about labor is that it is persistently under the control of management, or the institution whereby labor is valued and paid for.
It is true that Adam Smith's Wealth of Nations held that the labor force comprised such wealth. But Marcuse's discussion of Marx suggests that Marx understood the implication of objectifying the discussion of labor as if it had the same constituents as other elements of economics, such as supply, demand, competition, innovation, capital, etc. The core of Marx's argument is a distinction between "concrete" and "abstract" labor:
The classical economists designated 'labor' as the sole source of
all social wealth,and overlooked the fact that it is only
abstract, universal labor that creates value in a commodity
producing society, while concrete particular labor merely
preserves and transfers already existing values (4:299).
From this it must follow that classical economics does not account for the increased efficiency and skill of the labor force,
which inevitably increases the value of...