This post resulted from a thread on the p2presearch mailing list. The discussion started when a remark by Joseph Jackson’s “forced” me to clear up some frequent misunderstandings about the meaning of the labor theory of value, as formulated by Karl Marx. The thread then turned to Marx’ criticism of capitalism and I tried to explain why (according to Marx) the root cause of raising inequality and other detrimental effects of capitalism isn’t “unequal exchange,” but rather exchange per se, regardless of whether or not it’s equal.
Quotes from Joseph Jackson are indented and printed in italics:
Economics has no coherent Theory of Value and we must solve this problem if we are to establish the field of Abundance. The Labor Theory of Value has advantages in that it is objective and normative—it states that price should tend toward the cost of production; it also allows us to determine what constitutes equitable exchange.
Actually, the Labor Theory of Value, as first formulated by Adam Smith and Ricardo and later refined by Marx, is not normative, but descriptive: it describes the basics of price formation in capitalism. Of course, the value of goods is only their average price—actual prices will usually be somewhat below or above the average because of fluctuations in supply and demand etc.