Lire le Capital: Mail Call

From: "XXXX" XXXX@berkeley.edu
To: delong@econ.Berkeley.EDU
Subject: Communism
Date: Mon, 4 Apr 2005 14:22:30 -0700
Thread-Index: AcU5XGg0e/rUmG6pRfqAi7kFYayhrA==

I was wondering if I could borrow some of your insights on Economics.... I have taken Transitional Economics and have a healthy background (for an undergrad) of the “Economics of Shortage” and decision making under socialist constraints.

However, reading Das Kapital and other things, I am seeing a different interpretation of how an item is valued, and the value of labor verses what I have been taught in traditional classes and I need more understanding. What is the “value” of a product, or of labor? Marx argues that exploitation in capitalism is structural, because the basis of making a “good deal” is paying someone four dollars for something worth five. To be a capitalist means you have to exploit the true value of their labor for what you’re willing to pay them for it.

I was hoping to get your insights into how products and labor are valued, and what you think of exploitation in capitalism. Any help you can provide would be greatly appreciated, even if it is a referral to other books or anything. Thank you in advance.

XXXX

---

Let's run through Marx's labor-theory-of-value argument in a simple finger-exercise model:

Start with 100 identical farm families on 100 identical farms, each of which produces 3000 pounds of wheat (and other crops, but let's assimilate them all into wheat) each year.

Now suppose that ten of these families starve themselves for a decade--living on little more than half-rations--to raise the cash to buy farm machinery, irrigation systems, fruit trees, et cetera from the cities. As a result of their sacrifice, saving, and investment, thereafter their farms require four times as much labor each year to operate, but also produce crops worth eight times as much because of the capital investment. They then hire thirty additional families' worth of workers, leaving the remaining ninety original farmsteads to be worked by sixty families.

If diminishing returns do not set in and if the sixty families that remain in the family-farm sector expand their crops to take over the now-idle land, each of them can now produce 4500 wheat-pound equivalents of product each year: their standard of living has gone up by 50%. The owners of the capital-intensive farms have to pay each of the 30 families they hire 4500 wheat-pound equivalents to get them to work in the capital-intensive farm sector. Each of the proprietor families is then left with 24000 - 13500 = 10500 wheat-pound equivalents in income--4500 wheat-pound equivalents of which is the "wages" of the proprietor family, and 6000 wheat-pound equivalents is profit.

Now in Marx's schema, the first situation--where average labor productivity is 3000 pounds of wheat per family, and each family receives 3000 pounds of wheat in income--is one of no exploitation: labor is paid its average product:

---

Average Labor Product:	3000
Real Wage:	3000
_____	_____
Surplus Value per Worker:	0
Total Exploitation:	0

---

And in Marx's schema, the second situation--where average labor productivity is 5100 wheat-pound equivalents, and each non-proprietor family earns or is paid 4500 wheat-pound equivalents--is a situation of exploitation in which the proprietor class extracts surplus value from the workers by using their market position to pay those that they hire less than the true value of their labor.

---

Average Labor Product:	5100
Real Wage:	4500
_____	_____
Surplus Value per Worker:	600
Total Exploitation:	60000

---

Now it should be clear that this labor-theory-of-value-based analysis makes no sense at all. The proprietor families starve themselves for a decade, and yet Marx views them as exploiters? The heavy investments of the proprietor class and their resulting demand for labor raises the real wage by 50%, and yet the working class is oppressed? Something is very wrong here.

Now at this point the standard response is that the example is rigged: that in the real world those who own property and hire labor and live richly gained their wealth not through sacrifice but through a combination of luck and theft and having chosen the right parents. Thus it is unfair to set forth an example in which the proprietors' moral claim to their higher income is so clear and strong.

And the rebuttal is that, yes, this example is rigged: that's the point. The aim is to construct useful analytical categories that will help one identify and assess injustice. The aim is not to construct analytical categories--like the labor theory of value--that claim to find injustice whether there is in fact injustice or not. The fact that the labor theory of value finds injustice whether it is there or not is a sign that it is not the brightest light on the tree of good ideas.

Marx's labor-theory-of-value-schema makes no distinctions between profits on capital that have their origins in luck, theft, and choosing the right parents on the one hand; and profits on capital that have their origins in sacrifice, industriousness, or flashes of genius on the other. They are all, to Marx, "exploitation," "unjust enrichment," "extraction of surplus value." They are all, to Marx, signs of evil. But in this particular example the proprietors are, in reality, not evil. The proprietors are, in reality, public benefactors. The effect of their savings and investment is to raise not just their own incomes (after an extended period of sacrifice) but everyone else's incomes as well.

Thus the labor theory of value category of "exploitation" does not map onto what either ordinary language or our moral intuitions call "exploitation." There are social and economic changes that are good that are, in Marx's schema, increases in the rate of exploitation. There are social and economic changes that are bad that are, in Marx's schema, increases in the rate of exploitation. It's simply not a useful tool for either moral philosophy or political action.

Moreover, the labor theory of value is of little help in predicting what average market prices will be. It's not a useful tool for economic analysis either. In my view, the labor theory of value is pretty much useless.

If you want to make a compelling criticism of economic and social relationships, you cannot do so by saying that there is Marxian "exploitation"--which exists wherever workers are paid less than the average product of labor. You have to, instead, inquire into the origins of the wealth and property rights on which the proprietor class's income is based. The labor theory of value is simply a red herring.

---

UPDATE: Matthew Yglesias and many others enter the lists and couch their lances in defense of German Charlie from Trier. Matthew writes:

Matthew Yglesias: Some Marxian Musings: Brad Delong offers a critique of the labor theory of value that is, I think, helpful as an exercise in understanding economics but not a very useful contribution to Marxiania. Brad suggests that Marx would have us prefer the situation in which there's zero exploitation and real wages of 3,000 wage-units to the one where there's 60,000 units of aggregate exploitation but real wages of 4,500. This, however, is wrong. What Brad describes here is essentially the transformation from a pastoralist economy to a capitalist one. Marx emphatically does not condemn the tranformation to a capitalist economy and certainly does not suggest that we ought to move backward to a world of subsistence farming. Rather, he looks at the exploitative capitalist economy where average labor product is 5,100 and real wages are only 4,500 and suggests that, though the collective ownership of the means of production, we could move forward to a world where the real wage is pushed up to the average labor product (i.e., 5,100) and the element of profit/exploitation is reduced to zero...

I would not disagree. Marx approved of the transition from petty-bourgeois agricultural commodity production to capital-intensive agricultural commodity production even though the rate of exploitation rose. His key labor-theory-of-value-model measure--the "rate of surplus value"--increased across this change. Yet Marx saw this change as good. I think that this is my point: The labor-theory-of-value model is simply not a good or useful model. Marx's measures of "exploitation" and "rates of surplus value" don't tell you very much about what is really going on. It's a swamp you really don't want to enter.

Comments

[paul]

Brad:

Explanations of the LTV are esp. bad locations for typos. You wrote 'thereafter their farms require four as much labor'. An update would be useful.

[c.]

Well done, Brad! It's often frustrating and fruitless to take the time to disarm bad ideas, but yet vital.

[Colin Danby]

I agree with the last paragraph here, and with the general proposition that you can't reach ethical conclusions through simple deductive economic models.

I would hate, though, for us to leave the impression that that's all there is to Marx, and I sometimes suggest students look at the first few chapters of Schumpeter's _Capitalism, Socialism, and Democracy_ to see an assessment by someone who had even less patience than Brad with the labor theory of value.

Marx *did* do the kind of specific inquiry that Brad calls for in the last paragraph, his moral critique of capitalism (whether you buy it or not) is not reducible to the simple argument that Brad lays out, and that model is in any case an early analytical heuristic, which is then complicated and critiqued in later volumes of _Capital_. Any simple model is insight-producing only for a narrow range of questions.

I might also ask the student to go back to "how products and labor are valued" and think more about what the question means. If we turn the passive-voiced "are valued" into an active-voice "____ values products and labor" what fills the blank? What knowledge are we getting about the world by introducing the term "value"? There are good and interesting ways to answer the question, but because "value" has so many meanings in everyday speech, we risk confusing ourrselves if we're not clear. (Another dangerously polysemic term is "capitalism," which is sometimes used to denote a simple model, sometimes to denote historical realities.)

[paul]

A couple of other comments.

1) You write: Moreover, the labor theory of value is of little help in predicting what average market prices will be. It's not a useful tool for economic analysis either. In my view, the labor theory of value is pretty much useless.

For those skeptical of a moderate Democrat's take on Marx, you might want to refer them to RP Wolff's 'Understanding Marx.' He is certainly a sympathetic reader of Marx (His Moneybags book delights in, and is a delightful take on, the style/rhetoric of Capital); he carefully and clearly walks the reader through the purely logical problems with the LTV, providing strong support for the substantive comment in your statement above.

Citing Robinson's comment (Doug Henwood's online version of her take on exploitation: 'that under capitalism, the only thing worse than being exploited is not being exploited at all') also makes your outlook more credible to skeptics.

2) It wouldn't hurt to emphasize that Marx accepted the LTV lock, stock and barrel from Smith and Ricardo, and to the extent that he did anything new with it, he was extending (esp.) Ricardo. He was wrong (we can now see and for perhaps the last century), but he wasn't stupid, and identifying the source of the idea makes that more evident, esp. since he was in pretty good company in this mistake.

[Oskar Shapley]

P.R.Sullivan said: ""labor often exploits capital""

When you make such categoric statements you could at least try to give a hint at an example.

And BTW, just to have a full picture of your Weltanschauung, do you agree/disagree with the following statement?: ""capital seldom exploits labour""

[Auros]

It seems that your example implicitly assumes two important things:

a) The amount you have to pay one of the 90 families who originally work a non-improved farm, to come work on one of the 10 improved farms, is however much they would be able to make if they stayed in the non-improved-farm sector.

b) The non-improved farms left fallow by having a family go work on an improved farm, can simply be taken over by the remaining non-improved-farm sector families, adding to their product.

I guess (b) is what's implied by the offhand remark about diminishing returns not kicking in, but it seems entirely unreasonable.

Rather, I would expect that the production of a farm family on an unimproved farm would remain at 3000 or not much more. A non-improved-sector family could rent out its farm at 3000-x to an entirely new family, and go work for the improved-sector for 3000+x. "x" would be determined by how much of a margin is necessary for the new family to survive.

The trick here, of course, is that it's the NEW family that's exploited. If the world consists only of those 100 farms, and the new family has to eat SOMETHING, then they are bound to accept the absolute minimum value of "x", because the family renting the farm to them could always survive on the 3000 units of production themselves if it stopped being profitable to instead work the improved farm.

This of course goes back to the "Royal Libertarian vs Real Libertarian" article that gets cited here from time to time.

[donmaj]

Wonderful writing and critique. I recall reading Thorstein Veblen's "Theory of the Leisure Class" as a college sophomore about 50 years ago. His writing was difficult to understand and I was too young and inexperienced for worldly economic debates. Congratulations to Dr. DeLong for explaining combative philosophical realities.

As I recall Marx and Veblen differed on their predictions of the effects of exploitation ... Marx predicted revolution by exploited labor. Veblen posited that exploitation was the incentive given to labor to acces the "Leisure Class". IMHO

[Tracy]

I'm with Paul here. What Marx was trying to do with the LTV was provide an explanation for profits, just like Ricardo and Smith. While it is pretty clear what side Marx was on - see the chapter on the working day - you can get rid of all the moral posturing and still have a pretty standard (and pretty advanced) classical account of how capitalist economies worked. Brad's remarks about how the capitalists have increased wages and thus aren't exploiting the proles are much to the point. Marx would have said, "Well, duh. My point was that there was an inherent mechanism in capitalism that creates greater economic inequality by concentrating capital. Sure, real wages go up. BUT, the social and economic power of the capitalists and their ability to extract surplus value goes up at a higher rate. That means that the volume of exploitation as I defined it goes up too. Get with the program, young man!"

There might be more here than meets the eye. The TSS Marxism people have shown pretty conclusively that the "logical errors" in the scheme don't exist. Whether the predictions are right is another story.

[Tracy]

Oops. Should have said rate of exploitation instead of volume. My bad.

[dsquared]

Colin, Paul and Tracy are right. This example draws its force from the implicit claim that Karl Marx's view was that a positive rate of surplus-value is in and of itself evidence of evil, and this claim is false.

Look, it's _historical_materialism_. It's a theory about the development of human life under material conditions, _in_history_. The development of "useful analytical categories" Brad talks about have to be useful analytical categories of human beings, as they develop, in history. Not in abstract, ahistorical non-time. The point being, that continuing positive surplus-value, over historical time, piles up surpluses in the capital-owning class.

Brad, mate, you've come up with a version of Marx here with no dialectic. Do you not think that all those endless paras. about Hegel might be there for a reason?

[Carlos]

Sorry, but the example is wrong. First, ¿why should the new capitalists pay 4500 to their workers? At first it would be enough to pay them anything above 3000 to get them to leave their farms. Of course, as the remaining farmers acquire more land and their wealth increases, you would have to pay more, but only the last ones would expect to earn 4500 by remaining in their farms. And once you sell your farm, buying it back again it's not so easy, so the probability of workers returning to their former farms (and pushing salaries higher) is slim. And it's not clear why the capitalists don't buy the farms of their new employees themselves (that's what usually happens, after all). In fact, simply buying the land of the other farmers would increase their profit significatively, without any investment. The probable result of such a technological improvement would likely be that the 10 capitalist families would end up buying all the other farms and having the other 90 families as employees (and supply/demand would make sure that the salaries of the employees would be much lower than 4500). I'm not especially high on the LTV or Marx, but the example seems forced, even admitting the point about the origin of the initial capital.

[victor]

Damn, you're good.

[Julian Elson]

What I don't get about Marxism is his theory of diminishing capitalist profits. As I understand it, Marx's story is:

1. Capitalists invest in labor-saving machinery.
2. Production increases, but profits do not: the equilibrium price of labor-saving machinery is precisely the value of the production that machinery will supply.
3. Profits come only from the exploitation of labor, so the change in the "organic composition of capital" from labor to capital intensivity dictates a decline in profits/production.

Okay. Fine. Where does the money to manufacturers of labor-saving machinery go, though? Marx seems to apply a utility theory of value to labor-saving machinery, and a labor theory of value to everything else. Well, okay, but that means that there IS a supply of profit not limited to exploitation of labor among manufacturers of capital equipment themselves. Or, if the manufacturers of capital equipment price their wares with the labor theory of value, they should sell it to capitalists cheap enough to make their profits rise above the level simply determined by labor exploitation.

There is a solution: that the amount of labor put into labor-saving machinery in its manufacturing is precisely equal to the amount of labor it displaces. This makes the entire enterprise of capital accumulation rather pointless, except as a way of storing labor, rather than actually increasing its power. Moreover, It think that it's pretty clearly false, and Marx would have recognized this.

[Hershblogger]

Regarding labor exploiting capital.

Examples abound. Here's one that's almost too obvious.

The UAW has exploited General Motors to the point that it threatens to destroy current GM jobs, wreck GM pensions and impoverish GM investors.

See http://otherclub.blogspot.com/2005/03/generous-motors.html

[david]

Yeah, it's no good blaming the labor theory of value on Marx -- Marx didn't think surplus value was evil, he thought alienation was bad. But it's no good talking about exploitation without the labor theory of value, for Marx. Everybody's right! Except for somebody on the Kotsko thread who implied that economists, unlike philosophers, deal with real empirical problems. Check out Prof. Delong's example, you somebody.

Maybe we could work up a different example, about somebody who manages a large boxlike structure built by the essence of capital and pays three-quarter time low wages to people they lock in at night, and let your right-leaning commenters explain why it's not exploitation. There are many dim lights on that tree, and Marx brings a lot more light than most.

[Randolph Fritz]

In industrial capitalism, the proprietors historically cut the non-proprietor's wages to subsistence level. Marx argued this was a market outcome of industrial capitalism and, barring powerful non-proprietor organizations, he appears to have been correct.

There's a whole long analysis of the difference of social relations between feudal and industrial economies that has to be incorporated to make sense of Marx's arguments. Marx (who you, ironically, have probably read more carefully than I) was analyzing situations in context, rather than in abstract relations.

[Dan Kervick]

Brad,

I will not defend the labor theory of value, which I think is incorrect, or argue about its usefulness in making predictions about pricing and exchange behavior. But some of the criticisms you make seem off the mark. However, I'm not an economist, just a philosopher - and not a philosopher of economics or an expert on Marx either. So perhaps I am missing something.

Not all uses of the term "exploitation" carry moral opprobrium. The claim that explotation is evil or bad is an additional moral claim that is certainly suggested by many things Marx and his followers have said, and is blended in side-by-side with the more purely analytic part of Marxian economics, but is not part of the analysis proper. If you don't like the term "exploitation", use "extraction" or "derivation" or some other more neutral-sounding term.

My understanding is that Marx is basically trying to explain where profits come from or what makes them possible. If the proprietors in the hypothetical situation you describe are able to receive profits, it must be because the value added to the original productive inputs by the labor done on them is not entirely returned to the laborers in wages, but some is kept by the proprietors (in addition to what they get as wages for their own labor). That's what exploitation is. Whether this is a good thing or bad thing, justified or unjustified, is another question.

It seems entirely consistent with a Marxian analysis that the investing proprietors be seen as benefactors. Both the proprietors and the laborers they hire are better off than they would have been if the investing proprietors had not made their investment. But what is also true is that that the hired laborers have not been benefitted as much as they would have benefited had all of the added value generated by their labor been returned to them as wages. Again, whether this is deplorable or appropriate is a question for moral judgment, not part of the positive Marxian economic analysis itself.

In some sense, it seems misleading to describe the period during which the investing families eat half as much wheat while they buy machines (or exchange wheat for money that they will then later use to purchase those machines) as a period of "sacrifice". They are still receiving wages of comparable value, but the wages come in different form: wheat+money or wheat+machines. It is arguable that they are in fact doing better during that period than they were before, since the machines are ultimately going to increase the productivity of their labor, and produce a long run benefit, whether they hire additional workers and expolit their labor or not. Since they clearly have a self-interested incentive to do it, it cannot be a sacrifice. We can say, though, that they trade off immediate term benefits for long-term benefits, and requires discipline and intelligence. But it seems misleading to call an intelligent, disciplined series of trade-offs a "sacrifice".

What also seems clear from the hypothetical example you describe is that the investing families have an incentive to make their investments whether or not they ultimately extract profits from product of their more productive farms. Forget, for now, all the stuff about hiring other families. Suppose after purchasing the machines, the farms could be operated with the same amount of labor and were twice as productive. Then the average productivity and wages double once the machines go into use. The 1500 lbs per annum, over 10 years, of foregone wheat are recouped in five years, and after that period they are operating at a net gain. The possibility of extracting profits increases the incentive, but would still be an incentive without the possibility of profit.

One thing that seems to be left out of the analysis is that the hired families are apparently being "given" the use of the machines for free (rather than having them rented to them for example) and this is certainly of value to them because the machines make their labor more productive - and that more productive labor results in higher wages even if some surplus value is extracted. There seems to be a basis in this for the claim that the workers have already been compensated in a way that goes beyond the wages they receive. The proprietors buy machines, whose value lies in a certain finite lifespan of usefulness. The proprietors then give some of that lifespan to the laborers, who employ it as a further input in their labor. The proprietors are entiled to something in return for the use of the machines. But whether the profits they reap are appropriate compensation is debatable, since presumably they exceed the value of the depreciation on the machines.

[JK]

I find Brad's reading so superficial I hardly know where to start. Certainly I'm with dsquared that you could do with thinking more about what all that dialectics was about - I'm guessing you reckon his openning chapter on the form of value is not so much wrong as meaningless?

As I understand it Marx's point, at the most abstract level, was that the study of historical development is first of all a study of human activity, or human labour in its widest sense. Marx saw labour productivity as the key to historical progress. Increasing labour productivity is what ultimately sets the terms of human happiness and progress.

But there is a problem. As we know, labour productivity is not so easy to measure. The point of Marx's labour theory of value is to extract an understanding of increasing productivity from the behind the chaos of fluctuating market prices. In this sense he saw what he was doing as the opposite of what Smith and Ricardo had done. Ricardo wanted to explain prices by labour. Marx wanted to abolish prices. He worked with the category labour because he saw that it was common to all human societies, and would persist into a future communist society. He wanted to understand the transience of capitalism: how it had transformed the old society and what could be left behind by future progress. If you want to do that it makes no sense to start with the categories of capitalist society. (All this is also connected to his objection to splitting off economics from the other social sciences, but I can't get into that here.)

This is what he was getting at when he wrote:

"Political Economy has indeed analysed, however incompletely, value and its magnitude, and has discovered what lies beneath these forms. But it has never once asked the question why labour is represented by the value of its product and labour time by the magnitude of that value." (Capital I, Chapter 1, Section 4)

Also recommended is Marx's 1868 letter to Kugelmann
http://www.marxists.org/archive/marx/works/1868/letters/68_07_11-abs.htm

OK, obviously whole books have been written about this. Before shutting up I'll just mention I I Rubin's Essays on Marx's Theory of Value which you should all read if you want to understand what Marx was going on about.

[Lance Murdoch]

DeLong has long ago proved himself to be a complete hack, I'm just commenting here for anyone who isn't some worm hoping to be some bigshot in Washington DC.

If one was going by Marx, historically, this situation never arose at all. DeLong is assuming, making an ass of you and me, that everyone in say England was equal a few centuries ago, owned their own farm and sacrificed themselves to get ahead. The reality is there were lords and serfs, an enclose of the commons and so forth. In the US it was by means of scalping Indian villages (although Ward Churchill's detractors are busy rewriting history about that). Instead of the material and historical reality, DeLong is inventing some nonsense story about some families who are all equal, but some "starve themselves for a decade" to get ahead and some don't. In his world, there has to be a recent sacrifice by the people getting the surplus. People like Paris Hilton, who live the high life off the surplus she expropriates from young undocumented Mexican girls cleaning hotel rooms - hotels she is inheriting from parents who themselves inherited them - people like her don't fit into his "model" as well so they have to be thrown out as well. Of course, there is sometimes the need for abstraction in studying political economy, but the "families starve themselves for a decade" are not an abstraction, they're propaganda, and a historical invention.

"in Marx's schema, the second situation--where average labor productivity is 5100 wheat-pound equivalents, and each non-proprietor family earns or is paid 4500 wheat-pound equivalents--is a situation of exploitation in which the proprietor class extracts surplus value from the workers by using their market position to pay those that they hire less than the true value of their labor.

Now it should be clear that this labor-theory-of-value-based analysis makes no sense at all. The proprietor families starve themselves for a decade, and yet Marx views them as exploiters? The heavy investments of the proprietor class and their resulting demand for labor raises the real wage by 50%, and yet the working class is oppressed? Something is very wrong here."

DeLong once again sounds more like Pat Robertson than someone studying political economy. There are plenty of socialists who wrote moralizing tracts about oppression and wrongs, but Marx was not one of them in terms of his more serious works. This is a perfect example of DeLong completely ignoring anything Marx said, inventing the idea that he said something, and then castigating Marx for something Marx said. And he's castigating them for a completely made up situation! He invents non-existent and ahistorical farm families and then makes a moral drama over it.

"this example is rigged: that's the point...The aim is not to construct analytical categories--like the labor theory of value--that claim to find injustice whether there is in fact injustice or not. The fact that the labor theory of value finds injustice whether it is there or not is a sign that it is not the brightest light on the tree of good ideas."

It continues. DeLong is not making an economic argument against the LTV,. he's making a moral argument against it. And he's making it as if the LTV is a moral argument, when the whole point of LTV is it's not a moral argument. Marx's LTV was based heavily on Ricardo's LTV - was Ricardo's LTV a "construct[ed] analytical categor[y]--like the labor theory of value--that claim[s] to find injustice whether there is in fact injustice or not."? Jesus, I mean how empty-headed can you be and still be a John M. Olin fellow at NBER? Well, that's a bad question to ask actually...

"Marx's labor-theory-of-value-schema makes no distinctions between profits on capital that have their origins in luck, theft, and choosing the right parents on the one hand; and profits on capital that have their origins in sacrifice, industriousness, or flashes of genius on the other."

I guess DeLong never got to the chapter on the difference between absolute and relative surplus value. Which has nothing to do with the "economic" moralistic bullshit he's talking about. Also, Marx goes into great detail about economic history and its importance, while the type of economics DeLong does completely ignores it. Marx's economics is historical, DeLong's economics is ahistorical, yet DeLong through ignorance (I would guess, why would he bother ever reading Marx?) claims Marx's economics are ahistorical and condemns ahistorical economics, which is exactly the type of economics he practices and which Marx's doesn't. Where in modern economics does what DeLong implies should come into play in these questions come into play? Nowhere of course, DeLong is through his ignorance torpedoing his own work.

"Moreover, the labor theory of value is of little help in predicting what average market prices will be."

Alleluia!
Alleluia!
DeLong finally makes an allusion that there are arguments out there that LTV might not predict prices. After all this BS, DeLong finally makes an actual point, directed at the LTV idea. Let's see what he says next.

"It's not a useful tool for economic analysis either. In my view, the labor theory of value is pretty much useless."

Ah, he doesn't go into it. I guess he recalled hearing a long time ago by some old economics professor, maybe dack in the days of the Cold War when professors would spend a week attacking the USSR's economic structure, and maybe five minutes dismissing Marx, that there was some kind of thing about prices and values.

Actually, if Marx was considered some kind of biblical canon instead of a social scientist, there would definitely be a problem because Marx died while writing Volume III of Capital which deals with the price/values thing somewhat. Anyhow, for anyone interested, this allusion to something DeLong probably knows little about is the only arrow pointing to (fools?) gold under this heaping stack of moralistic bullshit.

Like so many other political economists, DeLong knows next to nothing about Marx - I've only read halfway through Capital v.1 and some brief summaries of Marxian political economy, yet I already know much more about this than DeLong. I could say that about Paul Krugman as well. One may ask oneself why they do not know more about this, since Marx based his work on the political economists before him - Adam Smith, David Ricardo and so forth, who held more to the labor value theory than the subjective theory invented later. They're not only unfamiliar with Marx, they're unfamiliar with what Smith, Ricado, Malthus, Mill, Quesnay and so forth on many of these topics. I don't just mean they disagree with them, but people like DeLong are completely unaware of these theories, which becomes obvious once you read through someone like DeLong's fumbled explanation of Marxian political economy.

[piotr]

An anegdote: during my red youth, I knew a math grad student who had to work on Marxist econometrics. His group investigated if "labor theory of value" makes mathematical sense -- capital input would have to be priced in units of labor, and can you consistently price everything in that manner. The answer was yes, it is mathematically consistent but the solution is not unique.

The conclusion is that labor theory of value does not by itself imply what this value is, so it is not particularly useful.

Dan Kervick: why do you presume that the owners of the machines collect less that depreciation on the machines in the form of profits? Would it imply that they will never recoup their investment, so they scapped and scringed in vain?

Assuming the numbers from the example, the investment was at most 30 k, and the pre-depratiation profit 6 k, so there is quite a bit of room for the net profit. By the way, the investment also represents labor input, so the proprietors deserve wages for the previous 10 years, and I guess that there is also time component in the value. Promising to work next year is worth less than working right now, so the past work should be worth more.

[Ottoe]

Hmm, hate to be posting this after this Murdoch (!) rant, but ...

Prof. DeLong, my take on the problem with your discussion is this. You write as if Marx believed that his contribution to the analysis of exploitation was the Labor Theory of Value. But there's not much in your account of the LTV here that's not simply a restatement of classical economics, and Marx's aim in isolating the LTV was not to simply restate classical economics, while suggesting that a different distribution of resources would solve the problem of laborers. It was to *critique* classical economics for its very conception of the *category* of labor.

It is because he aims to attack the capitalist *conception* of labor that Marx starts Das Kapital with the analysis of the commodity form. Through that analysis we learn that labor, in capitalism, bears value in terms of abstract time--in terms of an inhuman category imposed by machines / rationalization / modernization (insert further anachronistic bugbear here).

As those terms suggest, what I'm trying to summon up here from my graduate school memory bank is a Weberian / Bourdieuvian / Foucauldian recuperation of Marx worked out by one Moishe Postone of the University of Chicago. My suspicion then was that Postone's argument was a piece of revisionist theology, but on looking at the Grundrisse and Capital from that POV, I came to believe that the argument held water. It certainly helped explain the relevance of the "early" Marx and his take on alienation etc for the late.

If what I said makes no sense, do (if you haven't already) check out Postone. His book "Time, Labor, and Social Domination" was published by Cambridge UP in the mid 1990s. Nicely blubed by Martin Jay fwiw.

[Kieran]

"An anegdote: during my red youth, I knew a math grad student who had to work on Marxist econometrics. His group investigated if "labor theory of value" makes mathematical sense -- capital input would have to be priced in units of labor, and can you consistently price everything in that manner. The answer was yes, it is mathematically consistent but the solution is not unique."

This finding is in the literature: an issue with formalisms underlying the LTV is that they can also apply to other inputs. E.g., you can have a steel theory of value, or a wheat theory of value, etc, that's equivalent. I think Robert Paul Wolff has a nice discussion of this problem.

Dsquared/Colin/Tracy et al's point remains, though. For Marx, it's not surplus value per se that's bad, it's the way that -- for historical reasons Marx lays out in detail -- the proletariat are systematically vulnerable to the capitalists, who exploit them accordingly. And Marx did do just what Brad calls for, viz, "inquire into the origins of the wealth and property rights on which the proprietor class's income is based." Much of his critique of capitalism rests on that inquiry, as was summed up by Joan Robinson in the phrase "_owning_ capital is not a productive activity."

[Dan Kervick]

Dan Kervick: why do you presume that the owners of the machines collect less that depreciation on the machines in the form of profits? Would it imply that they will never recoup their investment, so they scapped and scringed in vain?

No..the opposite. I assume that they collect more in profits than they lose due to the depreciation on the machines.

[tarheelian]

piotr raises an interesting point about modeling Marx: What happens when you formalize his arguments? I'm aware that some marxists think that formalization is inherently antithetical to Marx's project, but I confess that I've never understood that argument. In Capital and related texts Marx seemed to like to construct little numerical examples to make his points, so I have trouble believing that he would be put off by a more ambitious application of math.
In the 1970s and '80s there were a number of attempts to formalize Marx. Two that I remember are Michio Morishima's, who attempted to assimilate it to a variant on a growth model a la John Von Neumann, and John Roemer's, who developed a variety of models, one of which was rooted in n-person game theory. We wouldn't evaluate marginalist economics by pointing out errors in nineteenth century texts, so why should we even pretend that we are being fair to Marx when we play this game with his ideas?

[JR]

What XXX@Berkely needs to understand is that Marx did not know or accept the concept of marginal utility, which lies at the heart of all modern explanations of exchange. Marx was a member of an earlier school, now called the classical school of economics (Smith, Ricardo, Mill), which explained the exchange of goods in terms of their objective _value_. He did most of his work just before the revolution in economics that arose from the replacement of theories of objective value with the concept of subjective _utility_. These concepts were developed by the neo-classical school (Bohm-Bawerk, Pareto, Marshall), and they are the basis of modern economics.

XXX@Berkely has correctly concluded that what he's been taught in Eco 101 is very different from what he's been reading in Capital (please, not Das Kapital unless you're reading it in German)-- but no-one has put it in historical context for him.

So, XXX, you'll need to do the work on your own. For a start, take a look at http://cepa.newschool.edu/het/essays/margrev/ncintro.htm#basic, it should help.

[Kieran]

"please, not Das Kapital unless you're reading it in German"

But DAS KAPITAL sounds so much more intimidating! Wooo! "In class today we read ... Das ... KapitALLLL. Rraaarr!"

[Sean Warren]

Wow! Thanks for a terrific article!

I majored in the wrong stuff back during college (Journalism), but I'm pretty sure I actually understood what you're talking about here. It's always a treat to come to understand something that I only had a glimmer of before, and stuff like this is so much fun. (Okay, it's pretty geeky to call economics "fun", but I like it anyway.)

[Les Brunswick]

Marx wanted to change the world, so the real question is a practical one. In either capitalism or socialism you have to extract excess value so you will have money for investment. The practical question is in which system the results are better for the well-being of the average person.

Marx focuses on two sorts of criteria for well-being, namely material needs and the freedom of people's control over their production. The results so far of the various capitalist and socialist economies seems to be that capitalism, while far from perfect, generally works better.

[Mandos]

I think to sum of the criticism of the professor's criticism:

It isn't that the extracted surplus is in itself bad, it's what it does over time to history. It makes one group more vulnerable to another group, even if in a given instant it makes them both better off.

Is that a fair summary?

[klaus]

The purpose of this article was not to explicate/refute the labor theory of value, but to make a performance, as a noted economics blogger, which can be referenced as a refutation of the labor theory of value by other bloggers who have neither read the original blog entry or Marx.

[Barry P.]

Marx suffers from the same defect of every other economist who came before the marginalists: they all tried to explain prices as some function of the value of the inputs.

They all overlooked the interaction between cost of supply, and *demand*.

"Value" in the market, as expressed by the price, is defined by the interaction between the willingness of sellers to accepts some price, and willingness of buyers to pay it. Trying to assign price-setting to one or the other is like asking which blade of a pair of scissors cuts the paper.

Any reading of pre-marginalist economic writing must be done with this knowledge in mind: they were missing a BIG IDEA that seems implicitly obvious to us all now. It wasn't then.

[Kieran]

"Trying to assign price-setting to one or the other is like asking which blade of a pair of scissors cuts the paper."

Be a good fella and attribute your metaphors, Barry. ;-)

[Bysshe]

I think most of the critics of the original post miss one essential point. Economics is a science albeit a social science. As such, economic theories, like all scientific theories, need to have (at least)one of two virtures. Either they need to make some nice empirical predictions or they need to have some sort of theoretical nicity to them in providing us a conceptual framework for understanding whatever it is we're interested in. As I understand it, the point of the post is that LTV fails at the former. If it is to succeed at the latter, then it needs to provide a useful framework for explaining not only real historical examples, but also reasonable but simplified examples like the one in the original post. What hope does LTV have in explaining the real world if it can be "broken" by such a simple example?

[Brad DeLong]

Lance Murdoch hangs himself very effectively, but I cannot help but comment on his claim that: "There are plenty of socialists who wrote moral tracts upon oppressions and wrongs, but Marx is not one of them..."

Karl Marx. _Capital_. Chapter 27: "The stoical peace of mind with which the political economist regards the most shameless violation of the 'sacred rights of property' and the grossest acts of violence to persons, as soon as they are necessary to lay the foundations of the capitalistic mode of production, is shown by Sir F. M. Eden, philanthropist and tory.... The whole series of thefts, outrages, and popular misery, that accompanied the forcible expropriation... lead him merely to the comfortable conclusion: 'The due proportion between arable land and pasture had to be established....'

"[H]ave the agricultural population received a farthing of compensation for the 3,511,770 acres of common land which between 1801 and 1831 were stolen from them and by parliamentary devices presented to the landlords by the landlords? The last process of wholesale expropriation of the agricultural population from the soil is, finally, the so-called clearing of estates, i.e., the sweeping men off them.... [W]here there are no more independent peasants to get rid of, the 'clearing' of cottages begins; so that the agricultural labourers do not find on the soil cultivated by them even the spot necessary for their own housing. But what 'clearing of estates' really and properly signifies, we learn only in the promised land of modern romance, the Highlands of Scotland. There the process is distinguished by its systematic character, by the magnitude of the scale on which it is carried out at one blow... finally by the peculiar form of property, under which the embezzled lands were held....

"The Highland Celts were organised in clans, each of which was the owner of the land on which it was settled. The representative of the clan, its chief or "great man," was only the titular owner of this property.... On their own authority they transformed their nominal right into a right of private property, and as this brought them into collision with their clansmen, resolved to drive them out by open force.... [T]he Duchess of Sutherland... well instructed in economy, resolved... to turn the whole country... into a sheep-walk. From 1814 to 1820... 3,000 families... systematically hunted and rooted out... villages were destroyed and burnt... British soldiers.... Thus this fine lady appropriated 794,000 acres of land that had from time immemorial belonged to the clan. She assigned to the expelled inhabitants about 6,000 acres on the sea-shore — 2 acres per family.... The whole of the stolen clanland she divided into 29 great sheep farms, each inhabited by a single family, for the most part imported English farm-servants. In the year 1835 the 15,000 Gaels were already replaced by 131,000 sheep. The remnant of the aborigines flung on the sea-shore tried to live by catching fish. They became amphibious and lived, as an English author says, half on land and half on water, and withal only half on both.

"But the brave Gaels must expiate yet more bitterly their idolatry, romantic and of the mountains.... The smell of their fish rose to the noses of the great men. They scented some profit in it, and let the sea-shore to the great fishmongers of London. For the second time the Gaels were hunted out....

"The spoliation of the church's property, the fraudulent alienation of the State domains, the robbery of the common lands, the usurpation of feudal and clan property, and its transformation into modern private property under circumstances of reckless terrorism, were just so many idyllic methods of primitive accumulation. They conquered the field for capitalistic agriculture, made the soil part and parcel of capital, and created for the town industries the necessary supply of a 'free' and outlawed proletariat."

If this is not a moral tract about oppression and wrong, I confess I cannot imagine what a moral tract about oppression and wrong would be.

[mrkmyr]

Brad only partially answered the question asked by the emailer.

The emailer asked about how we value things. Brad discounted the usefulness of Marxist terminology, but he did not address how we put prices on things today. The short answer might be supply and demand, but it is important to note that each person has a different spending power, and this affects prices. Those with more money have a disproportionate effect on prices, and therefore, what is considered highly valued.

A world with every person making the same amount of money would value luxuary yatchs very differently than our current world.

Additionally, you could discuss the interplay between economic power and political power, where people with wealth have greater control in determining property, contract, tort, and other legal rights. The ability to define property can be the ability to acquire value.

(You could also consider a world where the dead or the unborn (and I don't mean fetuses) have political rights, or an ability to influence the "value" of goods and services. Currently we are giving more power to the dead through trusts without the rule against perpetuities.)

[Lance Murdoch]

It's ironic you pick enclosure of the commons as the subject, the kind of historical frame your imaginary example of farmers who starve themselves to get ahead lacks.

The enclosure of the commons was oppressive and wrong, but this is a historical tract, not a moral one or even an economic one. As far as Marx's writing style, it is quite light on moralistic whining like many lefty tracts and heavy on sarcasm and irony like the above. Marx also isn't afraid to call a robbery a robbery. Compared to the socialists preceding him, Marx never sees sanctimonious to me, and is often quite humorous, although these things are more subjective. There was a lot more historical (of economic interest as well) data in your Marx quotes than an economic/historical context in your moralistic and ahistorical example. But this is subjective, where some see moral sanctimoniousness, others see sarcasm and wit.

"In the beginning of June, 1836, information reached the magistrates of Dewsbury (Yorkshire) that the owners of 8 large mills in the neighbourhood of Batley had violated the Factory Acts. Some of these gentlemen were accused of having kept at work 5 boys between 12 and 15 years of age, from 6 a.m. on Friday to 4 p.m. on the following Saturday, not allowing them any respite except for meals and one hour for sleep at midnight. And these children had to do this ceaseless labour of 30 hours in the "shoddyhole," as the hole is called, in which the woollen rags are pulled in pieces, and where a dense atmosphere of dust, shreds, &c., forces even the adult workman to cover his mouth continually with handkerchiefs for the protection of his lungs! The accused gentlemen affirm in lieu of taking an oath — as quakers they were too scrupulously religious to take an oath — that they had, in their great compassion for the unhappy children, allowed them four hours for sleep, but the obstinate children absolutely would not go to bed. The quaker gentlemen were mulcted in £20. Dryden anticipated these gentry:

'Fox full fraught in seeming sanctity,
That feared an oath, but like the devil would lie,
That look'd like Lent, and had the holy leer,
And durst not sin! before he said his prayer!"

[tante aime]

Dr. D has obviously never worked as a US manual farm laborer, or studied Middle Ages serfdom or Colonial Slavery, understood "Pella the Conqueror," or visited the sweat shop ghettoes of ASEAN where everyone "freely barters and trades for the value of their labor".

It's such oversimplistic, Sesame Street finger-counting, nursery rhyme examples which lulled the American middle class into signing away their own "surplus value per worker" for crumbs of minimum wage against wrenching fees and taxes, usurous banking swindles, outrageous pyramids of corporate capital, for what? An abbreviated life with no medical care and no retirement pension.
Even a dairy farmer feeds and cares for his cows...

If you want simplistic labor theory, take 300,000,000 Chinese manufacturing workers earning 35c an hour, and apply the "surplus value of their labor" extracted in America to the purchase of strategic commodities in Australia and the global markets, then divide by the remaining number of 125,000,000 working Americans who now no longer have any surplus value, but are trapped in a society where everything costs twice the world market.

Capital no longer derives solely from labor, anyway, so Brad's example is antiquarian. Much of corporate profits are "virtual", capital chasing capital with no real asset or labor value attached. Look at real estate, or the Net bubble was the classic example. Faux capital growth then acts to raise the cost of living for labor, still trapped down at their "surplus value" in a global glut of overproduction, raising the bar beyond reach from those who would live at "half-ration" in order to eke out a meager living as a small business owner.

Judge only by the results, not by abstract cherry-picked math examples, that's their New Neology. If you want to understand just how insidious Neo Think-Speak is, here:

vheadline.com/readnews.asp?id=29375

Compare this story to this one from the
rabid ultra-right Heritage Foundation:

nypost.com/postopinion/opedcolumnists/42151.htm

Article IV, Section 4, US Constitution: "Section 4. The United States shall guarantee to every state in this union a Republican form of government." Ha,ha,ha,ha,ha.

And apparently, a NeoCon way of thinking.

[tante aime]

http://vheadline.com/readnews.asp?id=29367

[tante aime]

http://vheadline.com/readnews.asp?id=29337

[john c. halasz]

Well, Prof. DeLong's last citation is not a moralistic tract. It's sardonic and literary, a thoroughly disabused version of the mock-epic tradition. Its rhetoric is of a piece with its conceptual point, that such occurrences are at once the real and the "logical" conditions of possibility of the historical systematization of industrial capitalist commodity production: viz. the production of "free" labor. (It doesn't pay to underestimate how mean a customer Marx actually was.)

Just to add on a bit to some of the excellect comments above, the LTV is not, was not intended as, an empirical-analytic theory of prices. "Das Kapital" is a torso, only the first volume of which was published in Marx' lifetime, and, among the remaining papers, there is an outline of the "transformation problem", though not a clear solution. But that means that the old grey-beard recognized the problem: that, because of the variability of capital intensities between industries and the effects of technological developments, what counts for the determination of prices in long-run equilibrium are production costs or prices and not labor-values. But then "Das Kapital" was not exactly a treatise on economics: its subtitle is "Critique of Bourgeois Political Economy". As well as attempting to outline the general tendencies of the genesis, functioning, and long-run development of industrial capitalist societies, the work was intended to demonstrate a conception of ideology and a critique of ideology, as well as, a diagnosis of the conditioning of social relations and thereby social conceptions by the constraining force of their material infrastructure, with a view to the organization of a socially transformative praxis from within the very developmental dynamics outlined. (Which is to say, it's a very ambitious and complex work and it's small wonder that it was never completed. And, yes, there's some considerable overlaying of Hegelian identities involved.) The "motor" of that projected transformation was, of course, to be "class struggle", which is to say, the wage-labor/capital relation,- (which Marx emphasized, with a philosophical-historical rigor taken over from Hegel, was historically unique and distinctive to modern industrial capitalism),- and that is why the LTV occupies such a central place in his schema. The point about "value", as opposed to "price", in classical political economy is that it is an "internal" systemic relation, which can not be gotten at by atomistically disaggregating into components independent of their systemic relations, and Marx wishes to keep constantly in view the dynamics of those constrained relations, with respect to their impact upon both the material conditions and the social awareness that their developmental tendencies enjoin. So, without considering the accuracy of Marx' prognoses, a couple of commenters above were correct that the primary normative criterion from which Marx' analyses proceed is not "exploitation",- (since, given the perverse consequences of his technical notion of exploitation, he would have been silly to ground his case there),- but rather "alienation", since it is the growing concentration of capital, and the corresponding displacement of increasing proportions of the population that abets the inversion of means over ends and the inability to recognize the social relations that are at the root of the fatal "necessities" to which they/we are all subject, to the point where that "contradiction" "must" reverse itself into a different form of the socialized appropriation of the means of production. (It is not "exploitation" but the misrecognition of social relations or the inability to recognize social relations as such, fetishizing mere means as ends-in-themselves, echoing a distant parody of the Kantian imperative, that constitutes the occluded ethical moment of the overall analysis.)

To reply to Julian Elson's comment above, I'm not sure whether or not Marx failed to recognize that the same tendency toward the reduction of prices that the competitive dynamics of capitalism induces in comsumption goods also applied to capital goods. That would be a crude error. But the basic idea of the tendential "law of the falling rate of profit" was that competitive pressures would result in lowered profits, even as the accumulation of profits would require further outlets for reinvestment, leading to an increased concentration of capital, as larger capitals would succeed by increasing the capital to labor ratio, thereby increasing the capital requirements relative to the "exploitation" of labor. Hence, on the one hand, the increased capital requirement would lower the *rate* of profit, while, on the other, there would be recurrent crises of overproduction and underconsumption. Empirically speaking, most of recorded price history prior to the Great Depression was, in fact, deflationary, but, on the other hand, the rate of profit has not historically fallen in the main, so the supposed "law" must have encountered countervailing tendencies, were it at all valid.

Just to obviate any vituperative attacks ,I think that Marx is an enduring classic, which is to say, a dead horse, but one whose heuristic value places him on the bookshelf with the others, Vico, Hobbes, Rousseau, Kant, Hegel, Weber, etc., not just because of the fundamental truths they uncovered, but because of the dictum of Nietzsche that one can learn infinitely more from the errors of great minds than the truths of small minds.

[Arjun]

I agree with a lot of what is said in these posts-clearly many people have many good ideas. I'm a little surprised with the summary dismissal of the LTV as being either a) too moralistic or b) a swamp you dont want to enter.

The first because if you abandon LTV, and take up a standard neoclassical framework, you often implicitly accept a classical liberal morality ( as a very cursory example, no making interpersonal comparisons of utility)

The second because I rarely hear the accusation of metaphysical swampiness hurled at utility analysis- except perhaps by Joan Robinson. Yet, its hard for me not to see an easy slippage into tautology with utility as a concept (much like value) ("What causes something to have utility-it is bought, why is something bought- it has utility). There are as many inconstencies in the building blocks of marginal analysis as there are in marxian ( or LTV ) analysis. For each transformation problem, there is a cambridge controversy, etc. I think that the overtly political nature of LTV makes it an easier target.

[Robert]

I'm with Lance, though Dsquared puts point less offensively to Brad. I assume Lance's point about Marx rejecting moralization is to contrast Marx with the so-called Ricardian socialists. The Ricardian socialists used the LTV to condemn capitalism. Marx used neither the LTV nor his theory of exploitation in that way. This point is made, for example, in the preface to The Poverty of Philosophy. (I think this was Engels.) I agree with the comment above about Brad's post being performative.

Many seem to like my FAQ on the LTV, available off my home page in the URL. I also have an essay entitled "A Sraffian Interpretation of Marx" which is relevant. (I don't think the TSS is a good reading of Marx.)

[Barry P.]

Kieran:

You're right. The whole "scissors" analogy has become so ingrained, so obvious, that I had utterly forgotton that it came straight outta Marshall.

Mea culpa.

Marx's LTV was a decent attempt to explain something at a given point in time with a certain amount of accumulated knowledge. It sounded good at the time. We now know enough to understand why it is utterly flawed. I mean, explaining thunderstorms as a manifestation of the anger of the gods was, at one time, the most sensible answer. But now we know more, and that explanation no longer suffices.

[Jim]

Perhaps what Brad meant to say, was ceteris paribus “… suppose that ten of these families starve themselves for a decade--living on little more than half-rations--to raise the cash to buy farm machinery, irrigation systems, fruit trees, et cetera from the cities. As a result of their sacrifice, saving, and investment, thereafter their farms require four times as much labor each year to operate…” That old “everything being equal” was a killer and made me squirm through my economics classes.

It’s been a while, but a have pretty vivid recollection of Ernest Mandel’s description of how very large stocks of capital were first accumulated, and it was more about the little farmer starving at the end of a sword than self restraint. Early mercantile states were quite rapacious in their habits of capital accumulation, and one could argue that modern nation states and their individual actors are hardly any different.

While I was squirming, Mandel was barred from entry to the US on a teaching tour by Attorney General Mitchell. The thing that I loved about economic history was that it couldn’t be reduced to a mathematical certainty.

[Tim H]

Forgive me, but it was always my understanding that Marx did not (in this instance) mean "exploit" in the pejorative sense of the word, but merely in the sense that one exploits natural resources.

[rjw]

I tend to side with the debunkers here... Marx' LTV makes no sense as a theory of price, as Sraffa showed, and how can labour values affect behaviour directly if they are not easily linked to prices. So what's the explanatory power?

For a pretty devastating analysis see the chapter in Jon Elster's magnificant "Making sense of Marx".

On the other hand, it took mainstream neoclassical economists a long time to realise that workers productivity is not a fixed, technical characteristic and may depend very much on wage rates, incentive systems, and the like.

So Marx knew about "efficiency wages" nearly 150 years ago. He knew very well that buying labour power is not the same as buying labour effort. Indeed - the whole notion of surplus extraction is built around this distinction.

So - he may have been wrong on the LTV - but not all of his insights were misplaced. Economics took a long time to catch on that labour markets are not like markets for fish.

[paul]

Mrkmyr wrote (April 5, 2005 09:45 PM):

"A world with every person making the same amount of money would value luxury yatchs very differently than our current world."

Consumption does not rise (even approximately) in proportion to wealth (in math-econ jargon, consumption as a function of wealth is not homogeneous of degree one -- I think that's right). There are systematic differences in asset holdings as wealth rises, which likely result from the same underlying causes. As a result, asset prices - stock prices, e.g. - would also be quite different in a more egalitarian world.

Another way of looking at this is that the fraction of income that is saved rises with wealth, and this saving then needs to be parked somewhere. This raises asset prices, and through various channels reduces the cost of investment, presumably stimulating it. If the world were more egalitarian (if wishes were horses?), it would look different in many dimensions.

john c. halasz wrote (April 6, 2005 12:59 AM)
"Just to add on a bit to some of the excellect comments above, the LTV is not, was not intended as, an empirical-analytic theory of prices."

Certainly Smith and Ricardo intended the LTV as "an empirical-analytic theory of prices." I cannot imagine why else they would have been interested in it. But then, my imagination may be more earth bound than most.

[The Sandwichman]

Brad DeLong wrote,

>If you want to make a compelling criticism of economic and
>social relationships, you cannot do so by saying that there is Marxian
>'exploitation' --which exists wherever workers are paid less than the
>average product of labor. You have to, instead, inquire into the
>origins of the wealth and property rights on which the proprietor
>class's income is based. The labor theory of value is simply a red
>herring.

This fragment is technically correct but contextually misleading. An ahistorical LTV, such as the idyll Brad constructed, IS a red herring, which is why Marx DID inquire into the historical origins of wealth and property rights. Marx's surplus value concept embraces both that historical context and the abstract analysis.

At the risk of repeating myself, I would refer Brad and anyone else to the text that, according to Engels, inspired Marx's concept of surplus value: The Source and Remedy of the National Difficulties. The author of that text didn't object to surplus value, per se, arguing that if things proceeded according to some ethereal natural course of things such a surplus would eventually decompose into shorter working days. Capital would be its own abolition. What the pamphlet's author argued was unjust was that this ideal state is never permitted to evolve precisely due to the intervention of power, in the form of the state.

Going back to Brad's silly example, the question I would pose to Brad is how would your abstemious farmers SUSTAIN their rate of exploitation surplus value without the intervention of the state? If you can't answer that question, your example is not only rigged, it is fatuous.

[Daniel Hatch]

It seems that Brad's appreciation of Marx is on a par with his appreciation of potatoes.

[a different chris]

Some shotgun comments:

1- Whether "the basis of making a “good deal” is paying someone four dollars for something worth five." is some terrible exploitation or not, the real question is, given that state, if the nation as a whole sees widely distributed prosperity as a part of that deal, then the trick is to make sure that the pressures on it are equal and opposite. That is, that the pressure to push the labor cost below 4 dollars is no greater or less than the pressure to push the labor cost above 4 dollars. A job for government, I'm sorry to inform you. Tariffs are one good tool for this... (ducks!).

2- This, from an otherwise well-written comment, is a little iffy: "They are still receiving wages of comparable value, but the wages come in different form: wheat+money or wheat+machines." Maybe calling it "a period of sacrifice" is not quite right, but it is a period of risk - as any farm boy could tell you, the machines are likely to not work as advertised, not work at all, or tease you by working well and then breaking down just when needed most. Food doesn't sit there in the field patiently waiting for tractor parts, it commences to rot.

3- The real-world story is that almost *all* the families figure out how to go mechanical. At this point we have an insane surplus of a non-storeable product, and prices go into the ditch. What is unfortunate is that this product is the Happy Meals themselves, not the Happy Meal "widget" so beloved by economists, so the farmers have no cash to purchase inputs for the next planting season. And suddenly everybody's gonna be hungry. And I have realized you guys have no interest in hearing this, but again this is why a government must have a domestic ag policy and it must sit outside of "market economics". This is not a defense of US Ag policy, which is screwed up, but all I hear from the neo-libs is that we shouldn't do it at all. And that is so, sadly wrong it scares me that educated people would think it.

3- I luuvvvv potatoes.

[john c. halasz]

Paul:

The point was that Marx was engaged in rewriting Smith and Ricardo for peculiar purposes of his own, rather than in an extention of conventional economics. The work of Smith and Ricardo is, in fact, the object of his "critique" in "Das Kapital", in the peculiar Germanic philosophical sense of the delimitation and the specification of the conditions of possibility of an empirical matter. He is not just criticizing their works as theories on a par with his own. Rather he takes their work as valid, in a sense, but treats it as a kind of emblematic description/expression of the very social reality that produced it, a symptomatic half-understanding that is at once true and false, and that affords him access to the material basis of that reality itself. (Yeah, I know that sounds odd, but I am just trying to describe, in effect, the sort of move he is making.) And, as others have pointed out here, he's not really trying to explain prices, though such topics inevitably come up, but is rather interested in the relation of value to surplus-value, not just to explain the nature of profits as the extraction of surplus-value, but to attempt to understand the systematic dynamics and implications of the organization of production on the basis of the extraction and reproduction of surplus-value on the organization of the society as a whole. It would perhaps be better not to consider "Das Kapital" as a work of conventional economics at all, but rather as a peculiar kind of work of sociology, or better, socio-logic. (Notoriously, Marx based the method and categorial presentation of "Das Kapital" on Hegel's "Science of Logic"). In considering Marx revolutionary zeal, its Janus-faced quality should be noted: for Marx what was to be posthumously dubbed capitalism was already a revolutionary force. It is the immense dislocating and transformative effects on society that capitalism did and would have that was the object of his concern, not the day-to-day equilibriation of transactions. And however flawed his conception, I don't think that concern was insufficiently earthbound.

Just to add on a bit to The Sandwichman's comment, it should be noted just how much, in the murky philosophical commitments that underlay his work, Marx was an Aristotelian of sorts. The utility preference functions, the discovery of which began the marginalist turn in economics, originally applied to consumption demand, and then were systematized across the board. But Marx' "economics" is deliberately and emphatically productivist, for better or for worse. Part of the reason for that is that he considers the ultimate object of consumption productive activity itself, in line with the Aristotelian notion that self-activity is the proper end of human life. And that is part of why he focuses on "value", including the discrepancies between use-value and exchange-value. The "fetishism of commodities" as the predominant form determining the organization of social relations represents for Marx an inversion of means/ends relationships, whereby the accumulation of means comes to dominate the determination of ends, with an increasingly "false" necessity. The emancipation of the "proletariat", that is, the productive activity of the work force, from the constraints imposed by private capital accumulation, which would not necessarily mean the cessation of the production and improvement of real capital goods, and the re-organization of society as the "free association of the producers" would amount to a restoration of the socialized capacity for the choosing of ends as the proper vocation of human life. That would be the occluded ethical moment behind the satirical epic of "Das Kapital" and, again, that is why the notion of alienation/reification rather than that of exploitation is the implicit normative core of the work. I'm not saying that there are no problems or difficulties, philosophical, economic or political, with Marx' conception, that there is nothing wrong with it, but only that one has to attempt to understand the underlying intention or orientation of a work, with all its far-flung indirection, if one wants to criticize it.

[Tracy]

Lots of strum and drang here. Maybe a little data anlysis would help. See:

www.wfu.edu/~cottrell/eea97.pdf

This is Cockschott and Cotrell's "The Scientific Status of the Labor Theory of Value", one of the few treatments to consider all the main schools on the subject and to actually test their assertions empirically using their own premises. The results will give anybody who thinks Marx was way off base (Brad?) a second thought on the matter.

[Daniel Hatch]

And lest it go unsaid (in simple terms at least):

Marx's main concern was how the vast majority of society could free itself from the social relations imposed by capitalism, in which the needs of the small minority who owns the wealth of world determines the conditions of existence for everyone else -- conditions that, in his time, were terribly inhuman in almost every respect and that, in our time, continue to be inhuman in far too many dimensions.

[arlet]

As others said, to dissect Marx from history and his philosophy and turn it into a mathematical exercise, with the benefit of retrospect and a century of neo-classical liberal conditioning, seems to do a disservice to history. My understanding is that Marx accepted "capitalism" as a means to a teleological end, which was the revolutionary rise of the proletariat and the whithering of the state, as society passed linearly from agrarian to capitalism to socialism.
Marx posited that the rise of technology would increasingly replace variable (wage) capital input with fixed (investment) capital input. Production would become increasingly centralized- in that day via factories in cities. As centralization increasingly alienated workers from products and means of production, so did specialization. You were no longer a cabinet maker, you were a factory worker who made the right front leg of a chair- he saw this as a source of psychological and social strife. I thought he predicted that the surplus generated would lead to an underconsumption crisis of capitalism, clearly not, whereas it seems that the example assumes the neo-classical model to disprove. More clearly, he said that worker's psychological alienation as a result of specialization and centralization would lead to class conflict as workers developed a common class consciousness and rose up against capitalist classes.

With the marginal revolution and neo-classical economics, the idea of the labor theory of value diminished. As well, increasingly economics was dissassociated from philosophy and increasingly used
mathematical analysis to prove/disprove theories. In retrospect, it's quite easy to criticize his theories and his economics, you don't necessarily need math to do it, though it may be fun. But importantly, he and others (even more so and very interestingly) questioned and criticized an important kernel from Smith--the commoditization(sp?) of labor (and land) and the resultant subjugation of all parts of society to supply and demand. We tend to take this fundamental paradigm shift for granted now.

[spencer]

The Sullivan & Hershbogger comments about labor exploiting capital, and using GM as an example is interesting. But maybe they are looking at the wrong villian. The GM problem may be much one more of management expoiting capital. Capital hires management to earn profits and watch out for the interest of the owners. But they give them an incentive payment that makes it to the interest of management to give in to labor. If you are the GM CEO and you take a strike to
keep from giving labor more you lose your bonus. So it is in you your interest to side with labor not capital.

On this basis, the GM example may be more of an example that capital has an "agent " problem. Not that labor exploited capital.

Moreover, your example is based on the premise that GM should continue to be a viable company forever. Maybe the markets are saying that becuase of "poor management" and changes in the world wide economy GM should be going under. The fact that GM may not compete in the modern world as well as it did in a closed economy says nothing about if labor exploited capital at some point in the past.

[Padraig]

Dammit Brad, that's a terrible explication of the Labour theory of value, not just because Marx was all for capitalist development and against retaining the pastoralist economy (I mean, what was the split between the communists and the anarchists in spain about, if not how to run the land?) but because you never corrected the undergrad on his assertion that Marx thought that capitalist exploitation was based on trickery: paying the worker less than his value. Marx is EXPLICIT that there is no trickery in the sale of labour-power because the capitalist pays for the value of labour-power (ie, the rent of the worker's productive capacity) and not Labour itself (the value added through work). The exploitation comes in through the worker's reduction from land-holder to member of the proletariat: owner of nothing but his own strong back. It's a political-economic problem, not theft. And in your model, how the hell can the virtuous farmers afford to hire other laborers when those laborers have their own farms to tend? Capitalist farming depends on a ready source of cheap labor, which means that farmers (or serfs or peasants, etc.) have to have already been reduced to the level of semi-proletariat: they cannot get along without selling their labor power. I mean, what the hell was the enclosure movement if not the cause and necessary condition for capitalist-style farming? And where does the virtuous farmer get his capital improvements from in the first place? Do tractors spring fully-formed from the proto-capitalist's self-induced head-ache, like Athena? The point of the labor theory of value is not that laborers are being cheated by selling their labor power, but that the condition of being in the proletariat restricts a person's economic power to a bare minimum, allowing wages to shrink to the point that labor power is cheap enough to hire. That wages can grow later on through the increase in productive capacities is NOT to say that they will, since the proletariat does not necessarily have the economic and political power to actively claim that full slice of the pie. You don't have to agree with Marx, but for God's sake, at least disagree with him honestly!

All that said, I love the sight. :)

[andres]

Damn. I read Brad's posting for the first time and already there are 55 comments to wade through. I'll try not to repeat points others have made before me.

1) The LTV is _not_ a theory of market prices, and if it was ever intended to be, Marx gave up on the idea after writing vol. 3 of capital (which was in fact, written before vol. 1 was published). In modern terms, Marx had no interest in coming up with a theory of microeconomics. So Barry P.'s comments, and most Austrian-style critiques of the LTV, are in effect knocking down a straw man.

2) piotr's comment about the empirical modeling of the LTV applies only if a) you follow some sort of algorithm for obtaining prices given an equal profit rate, and more importantly b) if one assumes that the gross product in the economy is proportional to the amount of labor _embodied_ in production. Finding the amount of embodied labor in the economy is like trying to find the last decimal of e or pi, and neither did it interest Marx, who was trying to use the LTV to explain exploitation/accumulation rather than to come up with some quantitative relationship between gross output in money terms and total labor hours.

3) One of the commenters mentioned the tendency of the rate of profit to fall. If Marx intended this to be the smoking gun that killed capitalism, he was mistaken, but the tendency is there and is one of the many circumstances feeding the individual capitalist's need to contanstly engage in product innovation.

Now to Brad, who, notwithstanding his sympathetic but skeptical overall view of Marx (which is as far as he _can_ go, given that to call himself a Marxist would morally chain him to the evil commies and get him kicked off the ivory proffesoriate) gets some important things wrong, IMHO:

4) _Capital_ is both an attempt (not completely successful) at a scientific explanation of exploitation and capitalist dynamics _and_ a moral polemic against the broad but ever-changing social formation known as capitalism. But the two can be treated as separate. And begging your pardon, Brad, you hang yourself pretty well with your citation from Marx, which is wholly a polemic against the type of primitive accumulation and expropriation which led to the rise of the landless proletariat in Britain, and _not_ a polemic against capitalist exploitation in the factory or capitalist farm as such. There are much fewer polemics of the latter type in _Capital_.

Have to run, but more comments after I log back in...

[Bysshe]

I don't think there is a ton left unsaid that is really interesting to add, but I think I'll throw in a couple more things. Several people have said that Marx didn't intend LTV to be an empirical tool, but that still ignores the point that LTV has to be good for something if it is to be valuable. So in the interest of avoiding the political connotations that seem to be associated with this issue, why not do the following: Assume that there actually exists real exploitation in some cases of the working class by capital owners. Now ask, is the LTV the best tool for identifying, understanding, and eliminating this exploitation? I think in some sense THAT is the real point here. The original example is a simple counterpoint to anyone who would claim that paying workers less than their value is THE source of exploitation. For here we have a theoretical example of paying workers less than their value and not exploiting them. If you want to understand exploitation, you need a better and more informative tool (like modern economics).

[andres]

4) Turning to capitalist exploitation per se, Brad's example, though numerically correct insofar as it goes, completely misses the point in that brilliant manner only conventional economists can achieve. This is because Brad conflates the capitalist's role as innovator/agent of thrift with his role as appropriator of surplus value. That is, capitalist exploitation is unjust--a form of social theft-- _whether or not_ the capitalist as innovator succeeds in increasing total productivity and improving the real wage of workers.

The "test" of whether exploitation exists does not hinge on whether or not workers are materially oppressed in the sense of having a lower standard of living after the capitalist transformation takes place. Exploitation exists by the very nature of the "hiring" process whereby the worker is entitled only to a productivity-determined real wage that is less than his or her average productivity. By contrast, in a non-exploitative, morally defensible arrangement, workers would appropriate the entire value-added of the modernized farm, and a collective decision would also acknowledge the entrepreneurial role of individual workers by rewarding them with a larger share of the value added.

To paraphrase Marx, a capitalist is a capitalist because he is legally and traditionally entitled to appropriate the whole of the produced surplus value, regardless of how effective he is in the role of innovator, a role which is incidental to exploitation, though necessary to fulfill capitalism's historically progressive role.

5) All of the classical economists used the LTV in one way or another (Ricardo thought it could actually determine invidivual market prices). It is at best misleading to criticize Marx's LTV without mentioning that it is a natural consequence of the reliance of his predecessors on the LTV for different uses. In that narrow sense, to criticize Marx is also to criticize Ricardo, Mill, and even Adam Smith.

6) Every once in a while Brad seems compelled to prove his centrist credentials by blasting communism in general (justified) and Marx specifically (he did so previously six months ago). However, Marx IMHO remains, for all his mistakes (and the LTV isn't one of them), the most thorough and deepest critic of the social formation that is still prevalent today and which is the one which puts men such as Bush, Cheney, and Putin at the helm of political power. Such a social formation is not morally defensible, and one necessary way of criticizing it is through class theory. If Brad or anyone else can come up with a coherent theory of classes that does not depend on the LTV, I (and others) are willing to give it a full consideration.

[boing!!!!]

The GM-as-exploited-capital is an adorable looking glass view at what GM is. GM is a moneylending organization with an automaking hobby, isn't it? Ditech anyone? GMAC? The robots are making the vehicles, the remaining people fix the robots and clean up, pretty much.
I do like the Hobsbawm narrative of the period in history in which these events transpired, but I think that the excruciatingly simple model put forth by the good professor is utterly inadequate in an almost Biblical sense, e.g. Noah's sons, or the sons of Adam-suddenly there is an outside world? Is there a government? An SEC, or an IRS? I see the same issues when rationality arguments are made int he context of market worship-markets are as rational as people are, and that is pretty much not rational. Dutch Tulips? Pet Rocks?
It is an illuminating discussion however. Thanks to those who contributed.

[JK]

For what it's worth, another log for the fire:

Brad claims that 'Marxian "exploitation"--[...] exists wherever workers are paid less than the average product of labor'.

He may wish to re-examine Marx's Critique of the Gotha Programme, in particular his response to Lasselle's slogans

"Labor is the source of wealth and all culture, and since useful labor is possible only in society and through society, the proceeds of labor belong undiminished with equal right to all members of society."

and

"The emancipation of labor demands the promotion of the instruments of labor to the common property of society and the co-operative regulation of the total labor, with a fair distribution of the proceeds of labor.":

Marx responds (in part):

What is "a fair distribution"?

Do not the bourgeois assert that the present-day distribution is "fair"? And is it not, in fact, the only "fair" distribution on the basis of the present-day mode of production? Are economic relations regulated by legal conceptions, or do not, on the contrary, legal relations arise out of economic ones? Have not also the socialist sectarians the most varied notions about "fair" distribution?

To understand what is implied in this connection by the phrase "fair distribution", we must take the first paragraph and this one together. The latter presupposes a society wherein the instruments of labor are common property and the total labor is co-operatively regulated, and from the first paragraph we learn that "the proceeds of labor belong undiminished with equal right to all members of society."

"To all members of society"? To those who do not work as well? What remains then of the "undiminished" proceeds of labor? Only to those members of society who work? What remains then of the "equal right" of all members of society?

But "all members of society" and "equal right" are obviously mere phrases. The kernel consists in this, that in this communist society every worker must receive the "undiminished" Lassallean "proceeds of labor".

Let us take, first of all, the words "proceeds of labor" in the sense of the product of labor; then the co-operative proceeds of labor are the total social product.

From this must now be deducted: First, cover for replacement of the means of production used up. Second, additional portion for expansion of production. Third, reserve or insurance funds to provide against accidents, dislocations caused by natural calamities, etc.

These deductions from the "undiminished" proceeds of labor are an economic necessity, and their magnitude is to be determined according to available means and forces, and partly by computation of probabilities, but they are in no way calculable by equity.

There remains the other part of the total product, intended to serve as means of consumption.

Before this is divided among the individuals, there has to be deducted again, from it: First, the general costs of administration not belonging to production. This part will, from the outset, be very considerably restricted in comparison with present-day society, and it diminishes in proportion as the new society develops. Second, that which is intended for the common satisfaction of needs, such as schools, health services, etc. From the outset, this part grows considerably in comparison with present-day society, and it grows in proportion as the new society develops. Third, funds for those unable to work, etc., in short, for what is included under so-called official poor relief today.

Only now do we come to the "distribution" which the program, under Lassallean influence, alone has in view in its narrow fashion -- namely, to that part of the means of consumption which is divided among the individual producers of the co-operative society.

The "undiminished" proceeds of labor have already unnoticeably become converted into the "diminished" proceeds, although what the producer is deprived of in his capacity as a private individual benefits him directly or indirectly in his capacity as a member of society.

Just as the phrase of the "undiminished" proceeds of labor has disappeared, so now does the phrase of the "proceeds of labor" disappear altogether.

Within the co-operative society based on common ownership of the means of production, the producers do not exchange their products; just as little does the labor employed on the products appear here as the value of these products, as a material quality possessed by them, since now, in contrast to capitalist society, individual labor no longer exists in an indirect fashion but directly as a component part of total labor. The phrase "proceeds of labor", objectionable also today on account of its ambiguity, thus loses all meaning.

More at http://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm

[George Colpitts]

As quoted above, Nietzsche: one can learn infinitely more from the errors of great minds than the truths of small minds. Keynes: in the long run we are all dead. Thus since our time is finite, why not learn from the great minds who have corrected, demolished or made irrelevant many of the thoughts of the precedding great minds of the past. This may not be possible or true in philosophy but it certainly is true in math and science. I suspect it is true in economics. Isn't this what makes education possible, that we can learn from what is now accepted as the best theory, that a year of high school physics gives a diligent student a better understanding of motion than what Aristotle had even though the student is not nearly as smart as Aristotle. As Wordsworth should have written: "The past is too much with us". This is not to deny the value of history and even the value of historical knowledge of science and math to improve and deepen our understanding of them but to point out that the priority must be to build on hard won knowledge not to explore all the dead ends of past thinkers. So my question is: why study Marx ? The mere connection of his name to much sorry history of the twentieth century certainly does not make it appealing to me.

[john c. halasz]

George Colpitts:

There is that Hegel line about truth being a dionysian revel, in which no member is not drunk, but each member detaches itself from the chain and falls into oblivion. If one wants to understand modern physics and astronomy, there is no need to read Aristotle. But if one wants to understand the nature and limits of natural intelligence and the origins of its project of inquiry, of which the former are distant derivatives, then reading Aristotle is of value, both for his great distance and strange proximity to the modern understanding of the universe. No doubt, Hegel and, with him, Marx were far too sanguine about the march of history as a progress toward an inclusive synthesis. But the holding on to the perspectives of historical tradition, both for their enduring insights and important errors, is of value because perhaps they are not available anywhere else, and their forgetting in the name of the self-constituted autonomy of modernity risks the self-overestimation of our knowledge and our power in view of their situatedness in the world. In the case of Marx, the attribution of the ins and outs of subsequent history to him because of the hubris of his claims is something of a fallacy. But his principal error, to put it in too crude and short-circuited a form, was his reduction of the political to the economic and his failure to appreciate the distinctiveness of the political and the role that it plays even in the constitution of economic affairs, which error is part of his legacy and worth remembering. But equally his work remains of heuristic value in casting light on the alienation, immiseration and devaluation of masses of people through the mechanisms of economic reproduction allied to the maintenance of political domination and on the social and material conditioning by means of which such states of affairs are rationalized. The irony here is that it was Marx himself who emphasized how a body of thought could be paradoxically at once true and false. The upshot then is that "hard won" knowledge is perhaps more widely distributed than "the authorities" would wish to acknowledge, and as readily betrayed as it is won. And if the work of demolition is to be matched by that of reconstruction, it is by no means clear that the past can be declared an irrelevant "dead end".

[Rakesh Bhandari]

I don't understand this example at all. I'm sure this has already been pointed out, but I think we need to know what happens to the unit values as a result of the capitalization of
those 10 farms. If we are assuming a commodity economy, the sixty other families do not themselves consume their product--they have to sell it. But won't they be undercut by the new capital intensive farms? That will then increase the number of families that will need to be hire themselves out to the capitalist farmers. At any rate, the example seems to be a strange mixture of capitalist economy and subsistence peasant farming. The assumption that the capital for the purchase of all that equipment for large scale mechanized farming came from the patient savings of small men is quaint!

[Gareth]

A few questions for the Marxists out there.

Marx did not think the labour theory of value was a normative theory of why exploitation is bad (Poverty of Philosophy; Critique of the Gotha Program) and he did not think it was a theory of relative prices (Capital III).

But if it is neither normative nor descriptive, what good is it?

What determines the value of labour power? The embodied labour time in the worker's consumption bundle. But what determines that. Biology? Class struggle? Supply and demand?

Doesn't Marx's theory of the declining rate of profit depend on a failure to recognize that increased productivity of labour would reduce the value of capital goods? If so, isn't this a basic error?

Some people here seem to be saying that Marx's normative criticisms of capitalism derive from the badness of primitive capital accumulation. Does that mean he would approve of capitalism if primitive capital accumulation had all been accomplished without force or fraud? This interpretation seems odd to me because it is the early stages of capitalism that Marx generally approves of, and its "senility" that he thinks justifies revolution.

[john c. halasz]

It seems apparent that Prof. DeLong does not much understand Marx' "moral philosophy", (though he dislikes it), so, while "generously" attributing to Marx a moralistic, egalitarian intention with respect to the sufferings of the exploited, inspite of Marx' consideraable "amoralism", he proffers instead a technical-empirical criticism of LTV, with respect to the notion of exploitation. Others, myself included, have responded 1)that LTV is not an empirical theory of prices, and 2)alienation, not exploitation, is the concept that grounds the normative basis of Marx' criticism. But I think there is evidence for the latter point precisely in the consequence the good professor draws from Marx' concept of exploitation, as well as, in the contention of a troll that workers can exploit capitalists. But that's just the point: a society in which everybody exploits everybody else on an equal basis is still very much an alienated society. For all that Marx branded himself a materialist, he was not just interested in material well-being, but, as well, in the "materialization" of moral life. And his "moral" attitude proceeds from the basically Hegelian premise of rejecting a dichotomy or bifurcation of the "is" and the "ought", the descriptive and the normative. (Note how readily he derided the "transcendental" pretentions of Kantian morality, of which his father was a fully paid-up member.) The basic point is that any normative claim must be actualized and sustained within a social order, if it is to have any "force", while, on the other hand, the integration of a social order depends on its anchoring in normative claims, which the reality of that order routinely belies. And that is the locus where his critique of ideology hooks up with his deployment of LTV to outline the "value realization" process. Homogenous, average labor time as the source of value might be an empty abstraction, but, at the same time, it is a real, "material" process of abstraction, brought about by and integral to certain social/institutional arrangements, namely, the competitive pressures of production for commodity markets and the institution of "free" labor, whereby labor-power itself becomes a commodity. And that pressure of abstracted time, reified into the value-form of the commodity, drives and functionalizes, willy-nilly, the social relations of everybody in the whole society. The really shocking thing, however, is that Marx opposes not just commodity production qua alienated labor, but- and this is the banned utopian moment- commodity exhange itself. The reduction of incommensurable use-values, of intrinsic ends and irreducible qualities, to the forced equivalence and "identity" of exchange-values in the commodity-form is not just the inversion of the relation between means and ends and the conversion of means into ends-in-themselves, but also the subordination of freedom in the name of "formal" equality, at the expense of solidarity. And that is partly why Marx is not just concerned with "mere" exploitation, since he conceives of the reconciliation of moral values as virtually impossible within the structure and organization of "bourgeois" society. At the same time, he recognized the overwhelming force and inevitability of the capitalist transformation of society, which is futile to oppose morally, while, by the same token, that transformation brings about the accumulation of unprecedented levels of material wealth and know-how in society as a whole, promising not just real amelioration of material conditions of living, but an enhanced scope in which to realize the social instantiation of morality. Hence what underwrites the peculiar "amorality" of Marx' attitude is his immense historical optimism, as well as, his "dialectical-materialist" transformation of the traditional Augustinian antinomy of "free will" vs. "necessity". There is, to be sure, much to criticize in Marx' conception, starting with the grounding of his concept of alienation in the conceptual matrix of the traditional philosophy of consciousness that he inherited from his idealist predecessors, and, not least of all, the chiliastic paradox, by which he "elects" the most impoverished, least educated, most alienated and fragmented members of society, who are most crushed beneath the burden of societal reification, to develop the collective "class consciousness", by which not just to progressively emancipate themselves, but bring about the tranformation to a new form of society as a whole. But, in one of his more lucid than normal moments, Marx once wrote that, if the revolution failed, as it were, to materialize, then society would enter into a state of "civilized barbarism". The clear allusion was to Vico, who was rediscovered and introduced into the European mainstream by the liberal historian of the French Revolution Michelet. No talk of the revolution being "inevitable" there...

[andres]

"Marx did not think the labour theory of value was a normative theory of why exploitation is bad (Poverty of Philosophy; Critique of the Gotha Program) and he did not think it was a theory of relative prices (Capital III)."

"But if it is neither normative nor descriptive, what good is it?"

Gareth: you would have to indicate which passages of Pov.Philosophy and Cr.Gotha you have in mind, but there are quite a few passages in _Capital_ that indicate the normative implications of the LTV, including most of the chapter on the working day. It's one thing to say that Marx thought capitalism would be overthrown because exploitation was immoral--that would be naive. But it's quite clear that he did think that exploitation was immoral.

As for the descriptive element in the LTV, it attempts to describe _how_ exploitation takes place, but of course, _how_ is not a question which can be answered entirely with quantities, and it is thus not surprising that the LTV can't be used as a theory of relative prices.

[Max]

Moreover, the labor theory of value is of little help in predicting what average market prices will be.

Righto, because neo-classical micro is so good at predicting average market prices.

[Wallis Griffin]

As I began writing, I realized that others have already commented on the topics I wished to cover.. Typical, beaten to the punch again ;)

For those interested, I've reprinted an essay, with the permission of the author of course, that analyzes the logical issues surrounding typical criticism on the labor theory of value by focusing on one particular argument:

http://www.hick.org/~soap/reprint.html

[Online dating service]

Thank you very much. This was very well explained article.

[juan]

wish that I'd come across this much earlier but am content to suggest that brad take the time to read - and actually think about - what's written in the Grundrisse, the three vols of Capital, and TSV,, and in the original, not some 'this is what was meant'. This might move his consideration from the flatlands of neoclassic theory.

[Louis Berenguer]

What is the value of a product - The value of a product is the combination of Indirect and Direct capital investment plus the marginal return. The value of a product never can be less than the combined Indirect and Direct capital investment unless the product become obsolete. If the marginal return is too high, you may price your product out of the market's needs.
The study of the market and the availability of similar products will give you a point in which to base the marginal return. If your product is the best in the market, your marginal return will be higher. If there is not other product available like yours and there is a need for that product, then the sky will be the limit to your marginal return until competition level it off.
What is the value of labor - Labor produces everything, increasing the business capital and the nation's wealth. According to John Locke and Adam Smith's Property Rights principle, the product brought to the market place is the sum of Indirect and Direct capital investment, plus a marginal return. Therefore, the profits earned from the sales of a product that have been produced by the combination of Indirect and Direct capital investment, should be distributed according to each one contributions.
Ex.: A product that sales for $27 -which cost $24 to produce- ($21 for production cost-Indirect Capital investment, and $3 wages advanced to labor-Direct Capital Investment)which yield $3 profit, such profit should be distributed between stockholders and employees based on the CLP (Capital, Labor,Profit) ratio:
Capital contributed by Indirect Labor
$21/$24=87.5%
Capital contributed by Direct labor
$3/$24=12.5%
Distribution of Profit -
Profit share by investors of Indirect Capital Investment-(stockholders)
87.5%x$3=$2.625.
Profit share by investors of Direct Capital Investment (Labor) 12.5%x$3=.375 cents.
Labor cannot be pay 100% for what they have produced because management dos not know if they can sale everything labor has produced (The variable)However, when the break-even-point has been reach, and profit earned, the labor salary are not adjusted accordingly.
The CLP distribution of income formula will change the Rule of the game forever, and will create a dynamic in the work place never seeing it before.
This universal economic system can be applied to capitalism, socialism and communism economic system, and it will spread the seed of freedom because man is as free as the money he comand.
From 'The Labor-value theory' by Louis Berenguer. cybermia@msn.com Publisher Xlibris.com (888)785-4294-coming soon.
XXX@berk, as a retired accountant, hope it answers your questions.

[Rakesh Bhandari]

Two people work. One saves his income; the other expends it.
Eventually the former is able to buy a marvelous piece of equipment and pay the other to work for him. This second worker actually works fewer hours than before for the same level of consumption or works the same number of hours for a higher income; he is now sufficientlly productive to produce enough for both.

The saver therefore need not work at all for the same level of
consumption. Now Marx's point is that after time the second worker is not being paid out of the savings of the first worker. The first worker now idle, that putatively hard won sum of savings will have been expended after some time through his annual consumption. If we consider the situation from the point of view of economic reproduction--and this is exactly what Brad DeLong does not do in his interesting example --the
second worker actually comes to be paid with the fruits of his own labor.

Moreover, having lost in the meantime his land and ordinary
equipment, the second worker will find that he can only live if he
agrees to buy back the fruits of his own labor in the form of the
wage through the performance of even more labor gratis from the now permanently idle saver. What kind of justice is that?

What was a voluntary and perhaps just transaction has now become an unjust appropriation of labor though there has been no violation of the laws of property which were meant to protect one's claim to one's own labor.

The key here is to examine the situation from the point of view of production in its uninterrupted flow, in its constant renewal. . Brad DeLong does not actually work through chapters 23 and 24 of Capital I.

To seal the case Marx argues in Part VIII of Capital I that the savings with which the first 'worker' purchased capital and paid wages did not have its origins in thrift but plunder and despoilation.

Capital cannot be shown to be just either in its origin or its
reproduction from a certain point of view.

But as I have argued elsewhere Marx is quite skeptical that the concept of justice will allow us to have that point of view, so Marx does not condemn capitalism for its injustice.

But Marx also insists that capitalism be justified on grounds other than its putative justice. In that sense to the extent that Brad's example captures the dynamics of accumulation--for example that it tends to raise wages overall--it could be said to justify capitalism, though this kind of materialism (a materialism of narrow self seeking, a materialism devoid of noble aspiration, the materialism of the Benthamite shopkeeper) tends to miss the actual social relation, which is again for Marx has become over the course of economic reproduction a kind of veiled slavery, be the pay high or low.

Marx is not that kind of materialist. Believe it or not!