Paul Cockshott — 3 Bad Objections To the labour theory of value

Since various economics professors noticed that Marxists had been publishing articles showing, from empirical data, that the labour theory of value was right[ 5,3,4,6,1 7,2 ], they have felt the need to come up with objections. Whilst in the past the objections economists raised to the labour theory of value were purely abstract and theoretical, now they had a harder job. They now had Marxists producing actual figures which they had to cast doubt on. 

The objections raised by economists then get relayed in a popularised form on blogs or social media debates. It is worth my while giving a brief rundown of the 3 favourite objections along with an explanation of why these are all groundless. We have refuted them all in the open literature but since the relevant paper is not well known here is a short informal account....

Not to mention problems with the marginalist theory of value that compete with the LTV.

Paul Cockshott's Blog
3 Bad Objections To the labour theory of value
Paul Cockshott

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited — Yair Kaldor

Value theory in economics.

Economic Sociology and Political Economy

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited

Yair Kaldor | PhD candidate in the sociology department at the University of Wisconsin-Madison, and a member of Koah LaOvdim (“Power to the Workers”), an Israeli labor union.

Labor Complexity in Relation to Aggregate Marxian Value — Peter Cooper

Classical economics, including Marx, focused on economic value in real terms, i.e., a non-monetary ground for economic value expressed in markets in nominal terms as prices. That recognized that value is based on some "good" that is actual rather than nominal.

One way to do this is through a numéraire, such as gold or silver. A problem here is that monetary metals don't have actual economic value in real terms that isa determinative in production. Rather, their nominal value is depending on the cost of production. 

Marx choose labor time, following Smith and Ricardo. He expanded on their ideas, which he regarded as inadequate to the task. This is now called "the labor theory of value" (LTV), although Marx never labeled it that way. This is a bit confusing now, since "the labor theory of value" is almost automatically associated with Marx's version of it, even though it was a concept of classical economics, to which Marx was a late comer. Incidentally, while Smith and Ricardo are credited with it in the West, an LTV was first proposed by Tunisian Ibn Khaldun in the 14 century.

Neoclassical economics explains economic value in terms of marginal utility and price theory.  "Utility" purported to account for the good at the basis of value. Economic  value is determined based on opportunity cost, what has to be sacrificed in an environment where scarcity prevails to access a particular good. In nominal terms, the economic value of a good is not the market price, but rather the maximum that one is willing to pay to obtain it rather than choosing something else.

Both the labor theory of value and the marginal theory have been criticized for various reasons. And there are some other theories of economic value as well. See also Theories of Value.

The major issue now is modeling and formalization. The neoclassical theory of value based on marginalism can be formalized, although not without issues. The classical economists did not go this route, which is somewhat surprising in that Newton's work had become the paradigm of doing science. So they are not considered to be doing "economic science."

So a challenge for the labor theory of value is "doing the math."

Since value is so fundamental to economics, getting the theory right is a big deal. So far there is no universal agreement on this issue.

heteconomist

Labor Complexity in Relation to Aggregate Marxian Value
Peter Cooper

Peter Cooper — Currency Value in Terms of Socially Necessary Labor

An economy’s minimum wage equates a unit of the currency to an amount of labor time. For instance, in marxist terms, a minimum wage of $15/hour sets a dollar equal to 4 minutes of simple labor power. At a macro level, this enables currency value to be defined in terms of simple labor. There are, however, at least two ways in which this connection between currency value and labor could be drawn. One way would be to adopt a labor command theory of currency value. In effect, modern monetary theory (MMT) takes this approach. A second way would be to link the value of the currency to the commodity labor power. Adopting the second approach leads to a definition of currency value that is distinct from the MMT definition but closely (and simply) related to it. So far as policy implications go, especially in relation to MMT’s proposed job guarantee and prescriptions for price stability, there appear to be no important differences between the two approaches.

To be clear, the purpose of the post is not to promote one approach over the other. So far as I can tell, on the question of currency value they are equally valid and fully compatible. The purpose is simply to consider, for readers who might be more inclined toward a commodity theory of money, how some form of commodity theory (though not a metalist one) might be reconcilable with MMT’s depiction of institutional realities and the opportunities open to monetarily sovereign societies, this understanding seeming, to me at least, both unassailable and fundamental to any worthwhile macroeconomics....

Important now that we are getting into the nitty gritty stage of public debate on MMT.

Peter Cooper is the preeminent authority on the relationship of Marx and MMT, and MMT JG opts for a labor theory of value by anchoring the value of the currency to an hour of unskilled labor. Peter explains this in terms of Marx's analysis. There is no comparable analysis in economics. Marx dug deep  while marginalism — "vulgar economics" is Marx's terminology — takes only the surface into account.

heteconomist
Currency Value in Terms of Socially Necessary Labor
Peter Cooper

Related

It is why class (in Marx’s terms) has to be at the forefront of the analysis. Nothing in MMT denies that status!

Another way of thinking about this is that Marx lifted the veil of free market ideology to expose what is actually going on in the capital-labour exchange.

We should always being aware that these veils are often used to disguise power relations or other things that the elites do not want to be made transparent....

Bill Mitchell – billy blog
Marxists getting all tied up on MMT
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Peter Cooper — Developments in Value Theory

Previously I have discussed how Marx’s well known aggregate equalities have been shown to hold under single-system interpretations of his theory of value. In the July 2018 edition of the Cambridge Journal of Economics, there is a noteworthy paper by Ian Wright that reconciles the classical labor theory of value with Marx’s prices of production within a dual-system framework. As with single-system interpretations, Marx’s equalities also hold under Wright’s approach. However, they do so in a different way. Here, I want to offer some thoughts on the difference.

Why is this important now other than as a matter of historical interest? British classical economists Smith and Ricardo raise the issue of economics rent and rent extraction, which would have been obvious to all in a recently post-feudal society and nascent capitalism. Marx noticed the similarity and attempted to show how in a capitalist system, economic rent is extracted chiefly from labor rather than land rent as it had been in feudalism, although the basis of rent under feudalism was also the making of land productive through labor. The factory became the new manor or landed estate.

A major thrust in the development of neoclassical economics was discrediting this idea based on marginalism, which purported to show that both capital and labor received their marginal productivity in terms of "just deserts" based on contribution. This is key because economic rent is unearned and simply a privilege of ownership.

Almost entire economic issue being debated now, which is of course constituted of many related issues, inequality in particular, reduces to economic rent and the many ways it is extracted as a privilege of ownership and control, control resulting in market power. The entire rationale for capitalism is assuming that free markets, free trade, and free flow of capital are based on symmetric power as long as government does not influence the market, together with assuming that ownership of the means of production is financially and economically neutral (no privilege involved if the state stays out of the picture). Thus, the attempt on the right to drown the state in the bathtub (Grover Norquist).

This is the basis of economic liberalism that is really bourgeois liberalism, the "bourgeoisie" being the owners of the means of production under capitalism, comparable to the aristocracy and landed gentry under feudalism.

Marx argued that just as land ownership as ownership of the means of production conveyed privilege under feudalism; so too, ownership of the means of production under capitalism also conveys privilege. There is therefore no "naturally" free market under capitalism, and this is especially evident in the labor market, as Marx sought to show. Thus, replacement of the labor theory of value with the neoclassical theory of marginalism became a high priority. Marx and his followers were excluded and supporters of marginalism were supported by directing a (small) portion of the economic rent extracted to them, along with social benefits for their political contributions.

We need to stop arguing over whether Marx was "right," or "wrong," and instead look at his work (along with his close collaborator Engels) in terms of useful contributions for the present impasse humanity faces. Nor should this be limited to Marx and Engels, but also should include subsequent Marxists and Marxians. It is rich field and needs to be mined intellectually. To dismiss it out of hand is simply bias based on propaganda.

This post requires some previous knowledge of the debate. Peter Cooper has quite a few posts on Marxism, and Marxism and MMT.

heteconomist
Developments in Value Theory
Peter Cooper

Steve Keen — Karl Marx sacrificed logic on the altar of his desire for revolution

Karl Marx, the committed revolutionary, once proved that the revolution need not happen. What did he do next?

Marx was a committed revolutionary, so much so that when reflecting on his life, he said that if he had it all to do over again, he would still be a revolutionary but would not marry, to save his wife from having to suffer the privations of life with him.

There were, of course, many committed revolutionaries in the 19th century. What set Marx apart from them all was that he had proven that revolution not only would happen, but had to happen. It was inevitable.

And then, one day, he proved, using a significant advance in his own economics, that revolution did not have to happen: that the inexorable force he had believed pushed in that direction was the outcome of a flaw in his own theory. When the flaw was corrected, the force was gone, and not only was revolution not inevitable, it might not even be necessary.

How do you think he reacted?

He fudged, of course....

First, it is significant that Steve Keen is writing for RT, given the demonization that it is being subjected to and by implication all that are connected to it in any way. Good on Steve for going out on a limb.

Secondly, Steve illuminates the apparent contradiction between Marx the economic sociologist and Marx the political activist and revolutionary. But I think he get the reason wrong. See #3 below.

The actual contradiction is between Marx as economic sociologist and Marx the revolutionary political activist. As economic sociologist Marx realized that the relations of production (superstructure) are consequent on the mode of production (infrastructure) and change in the relations in production do not occur without the potential of the mode of production being exhausted. As revolutionary political activist, Marx thought that the change could be forced by political action leading to revolution.

While these are not necessarily incompatible, Marx's political activism doesn't follow necessarily from his economic sociology and his economic sociology suggests that it's a matter of time. As a matter of fact the revolutions of 1846 failed in industrial Europe while revolution succeeded in feudal Russia and China, which his theory seemed to rule out.

Thirdly, I don't think that SK gets this right, but I am not a Marx scholar.  He has received pushback from scholars of Marx against this objection. See Matthijs Krul, Steve Keen’s critique of Marx’s Theory of Value: A rejoinder.

Fourthly, Sk doesn't help his case by asserting that Marx's PhD dissertation was on Hegel. The title was The Difference Between the Democritean and Epicurean Philosophy of Nature. It is about ancient Greek atomism and materialism.

RT
Karl Marx sacrificed logic on the altar of his desire for revolution

Steve Keen, | Professor and Head of the School of Economics, History and Politics at Kingston University in London

Marx Today

As the 200th anniversary of Marx’s birth gets closer, a host of conferences, articles and books on the legacy of Marx and his relevance today are emerging – including my own contribution. The most interesting was a speech last week by the governor of the Bank of England, Mark Carney in his homeland of Canada....

Michael Roberts Blog
Marx 200: Carney, Bowles and Varoufakis
Michael Roberts

See also

The Guardian — The Long Read
Yanis Varoufakis: Marx predicted our present crisis – and points the way out

also

Naked Keynesianism
On the blogs - Labor Theory of Value (LTV) Edition
Matias Vernengo | Associate Professor of Economics, Bucknell University

Robert Vienneau — Marx Versus Classical Economics — and more

Robert Vienneau approaches thinking about Marx in relation to previous economists from the perspective of the different distinctions that Marx drew. This is entirely consistent with Marx's training in philosophy, since a cardinal principle of philosophical method is overcoming apparent difficulties in expression by drawing distinctions. This involves changing the grain of the model. A grainy model has the advantage of simplicity but risks the disadvantage of being too simplistic an account.

Importantly, Vienneau notices the purpose for which classical economics was constructed.

The spokesmen for the emerging and progressive capitalist class sought for a theory justifying their opposition to aristocrats and the and the ancien régime. And classical economics was that theory.

The result was what Marx viewed as "bourgeois liberalism," in which capitalists replaced the landed gentry as the beneficiaries of economic rent.

Some argue that neoclassical economics played a similar part as classical economics aimed at the ancien régime in being aimed at rising socialism, e.g., Marx and Engels, and Henry George.

Thoughts On Economics
Marx Versus Classical Economics
Robert Vienneau

See also

Short review of Tim Rogen's The Moral Economists.

The Enlightened Economist
Morals and economics
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporationlso

See also

Marginal Revolution
*Enlightenment Now*, the new Steven Pinker book
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center
also

Real-World Economics Review Blog
Polanyi’s six points

Zaman Assad

also

J. W. Mason's
The Class Struggle on Wall Street: A Footnote
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Robert Vienneau — Labor Values Taken As Given

Robert Vienneau has a question for Marxists/Marxians/Marx scholars.

Thoughts On Economics
Labor Values Taken As Given
Robert Vienneau

Peter Cooper — On Estimating the Monetary Expression of Labor Time in a Temporal Framework

When Marx’s theory of value is interpreted in a simultaneist way, it is relatively easy to calculate the ‘monetary expression of labor time’ (or MELT).... 

There is an additional complication when it comes to measuring the temporal MELT. The temporal MELT is the appropriate measure if Marx’s theory of value is interpreted in a temporal way (as in the ‘temporal single-system interpretation’ or TSSI)....

Wonkish.

heteconomist
On Estimating the Monetary Expression of Labor Time in a Temporal Framework
Peter Cooper

Michael Roberts — William Baumol and the transformation problem

Roberts explains how Baumol showed that there is no transformation problem in Marx. Marx's critics did not understand Marx's argument correctly and attacked a straw man.

It is no accident that it is the Keynesians and post-Keynesians like Joan Robinson that were (and are) the most vehement against Marxist economic theory – because Marxism is the main opponent of Keynesian influence in the labour movement.

William Baumol may have been as mainstream an economist that you could find – an exponent of the neoclassical equilibrium and marginalism. But he was also a surprisingly acute observer of Marx’s exploitation theory of capitalism. As a result, he could show the Keynesian (and neo-Ricardian) claim that Marx’s value theory was an ‘irrelevant and unnecessary detour’ was wrong. For that, we can thank him.

Michael Roberts Blog
William Baumol and the transformation problem

Michael Roberts

Robert Paul Wolff — The Connection Between Expropriation and Exploitations, Part Two

… “Clearly,” I said to myself, “workers in a capitalist economy are getting the short end of the stick, but Marx’s explanation, invoking the distinction between labor and labor-power and all the rest, is wrong. So what is the explanation? What is more, how can we capture in our explanation the central feature of capitalism to which Marx devotes so much time in the opening chapters of Capital, namely its mystification of what is going on?”

So I went back to Marx’s text and looked again. And there it was, as plain as day. The workers in a capitalist economy get only a portion of what they produce by their skill and labor, because by a long historical process of expropriation, they have been denied ownership of their own means of production – of their tools, of their machinery, even of their skills – until all they have left is their labor, which if they wish to live they are compelled to sell in the marketplace as though it were a commodity whose natural price is the cost of its reproduction. Why don’t farmers get to eat all the food they grow, after setting aside what is needed for seed? Because they do not own the land and the farm tools. Why don’t factory workers get to wear the clothing they make or to sell it to buy the food they need? Because they do not own the wool or the cotton or the thread or the machinery with which they turn these materials into clothing.

How, I asked, can we capture this situation in a set of formal equations that explains exactly how the workers are getting screwed and simultaneously explains why in a capitalist economy it seems as though the workers are getting a fair return for their labor? Here is what I came up with:

The Philosopher's Stone
The Connection Between Expropriation and Exploitations, Part Two
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Robert Paul Wolff — Marx Without Marx, or He Who Must Not Be Named

Good one from Robert Paul Wolff today. Professor Wolff looks at primitive acquisition as the basis of expropriation of the commons, which led subsequently to further levels of expropriation based on class power.

The regular commentator who goes by the internet handle TheDudeDiogenes writes: “I have been wrestling with the concept of exploitation/surplus labor for a while now; my issue is, if the Labor Theory of Value is false (as you hold, and I think so do I, though perhaps based on misunderstanding), then what, precisely, does exploitation consist in? How can surplus labor be extracted from the laborer if the LTV is false?”

When I replied by referring to a paper in which I answer the question mathematically, he said, “I am neither good at nor fond of maths (though I value highly those who do understand them), and my intellectual interests are often more "big picture", but if you could write a post for a humanities semi-expert but mathematical novice, I would surely appreciate it!”

This request was seconded by two other readers, which in my rather parochial world constitutes a tsunami of demand, so I shall make an attempt. There are two ways in which I can respond. 

The first way, which is most natural to me, is to render my mathematical treatment of this question in plain English, leaving the formal proofs for the cognoscenti. This way has the great virtue of preserving one of Marx’s deepest insights, the mystified character of capitalist relations of production, which in my judgment is one of the greatest intellectual achievements of modern social theory. 

The second way is to justify the use of the concept of exploitation to characterize capitalism without referring either to Marx or to the Labor theory of Value. This way has the virtue of circumventing the sectarian squabbles that have absorbed so much of the energy and time of those who proclaim themselves Marxists – no labor/labor power distinction, no tendency of the rate of profit to fall, no negative labor values with positive prices [pace Ian Steedman], and all rest. [I say this, of course, as one who wrote an entire book offering my take on these urgent issues.]

After some reflection [not aided by a morning walk – rain today], I have decided to adopt the second course first. If, when I have finished, anyone has the stomach for more Marx shtick, I will attempt the first. With that said, let me begin.

[I have broken up the paragraphing for online readability.]

The Philosopher's Stone
Marx Without Marx, or He Who Must Not Be Named
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Fred Moseley — Comments on Milankovic on Marx

Clarification of Marx's labor theory of value that equates profit with surplus value.

Econospeak
Comments on Milankovic on Marx

Fred Moseley | Professor of Economics, Mount Holyoke College

See also

I would encourage all of you to read Fred Moseley’s case for the labor theory of value and the problems he has with Branko Milanovic’s interpretation of it. This may seem like an exercise in Marxist antiquarianism, but the underlying questions are important....

As both Marx and Proudhon [to whom Marx was reacting] would have understood, the theory of profit-making is at the core of figuring out how capitalism works and envisioning pathways beyond it.

Econospeak
It's Red Friday and Time to Discuss the Role of Exploitation in Profit
Peter Dorman | Professor of Political Economy, The Evergreen State College

Branko Milanovic — Labor theory of value: a primer

This is a different post from my normal posts. It is a primer and I must ask indulgence from many readers for whom this is all too well-known and obvious. Why do I write it then? Because recently I was several times surprised by the casualness with which people talk of “labor theory of value” apparently implying thereby that it is some weird concoction where the price of a good should simply be proportional to the number of hours one has put in producing it. I have heard it from non-economists and it has not truly surprised me; but I have heard it from economists too and thought it was odd. So I decided to write this 1200-word primer.…

Global Inequality
Labor theory of value: a primer
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Steve Keen — The Unnatural Rate Of Interest - Ultra Wonkish

Steve takes on Marx's labor theory of value, too. (It's not all that wonkish either.)

Forbes
The Unnatural Rate Of Interest -Ultra Wonkish

Steve Keen

Lord Keynes — Fiat Money Destroys the Labour Theory of Value

Simple reflection on how Marx understood the nature of money as embedded in his labour theory of value in Part 1 of volume 1 of Capital leads to this conclusion. 

Marx’s whole explanation of the emergence of money in Chapter 2 of Capital assumes that money must be a commodity. For Marx, as commodity exchange becomes developed and people produce things specifically for exchange, socially necessary labour time comes to determine exchange values (Marx 1990: 183–184), and the real value of commodity money arises not in the process of exchange but in the human labour expended in producing it (Marx 1990: 184–185). 

In Chapter 3 of Capital Marx argues that money can only be a commodity that is the product of labour with an abstract socially necessary labour value so that it can be equated with labour values of other commodities in exchange:

Social Democracy For The 21St Century: A Post Keynesian Perspective
Fiat Money Destroys the Labour Theory of Value
Lord Keynes

Peter Cooper — Significance of MMT’s Definition of ‘Value of the Currency’

It was suggested in the previous post that the notion of ‘value of the currency’ adopted in Modern Monetary Theory (MMT) seems compatible with Marx’s theoretical framework, provided it is acceptable in that framework to consider a state currency, and not only gold or some other commodity, as “true” money. As was explained in the post, currency value in MMT can be defined as the amount of labor time a worker must perform in order to obtain a unit of the currency. An advantage of this definition, if applied in Marx’s framework, is that it offers an explanation for the value of fiat currency that can be expressed in terms of socially necessary labor time.

heteconomist
Significance of MMT’s Definition of ‘Value of the Currency’

Peter Cooper

Peter Cooper — Value of Fiat Money on the Basis of Marx in Light of MMT

In Marx’s theory, formulated in terms of the gold standard of his day, the value of commodity money is taken to be the amount of simple, socially necessary labor time required to produce gold. This treatment of the value of commodity money is consistent with Marx’s treatment of commodity value in general, which always represents amounts of socially necessary labor time. Since the value of the currency under a gold standard depends not only on the labor time required to produce gold but the rate at which gold is exchanged for currency, the question arises as to whether it is gold that is actually “real money” in such a system, or, rather, state currency, issued and exchanged at a fixed rate for gold, that is real money.…

heteconomist
Value of Fiat Money on the Basis of Marx in Light of MMT
Peter Cooper

Magpie — Does Wray Accept the Labour Theory of Value?

Well, I don't know if things have changed for L. Randall Wray (professor of Economics at the University of Missouri-Kansas City, and Research Director of the Center for Full Employment and Price Stability, and Senior Scholar at the Levy Economics Institute of Bard College), but back in 1999 (my emphasis):

Magpie's Asymmetric Warfare

Does Wray Accept the Labour Theory of Value?
Magpie

I would say that Randy's position has not changed on this and it is one of the reasons for government using it's monopoly power over the currency to set a price anchor in terms of the money value of an hour of unskilled labor.