Marx’ Theory of Value and Why Exchange Can Be “Equal” and Still Bad
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.
Also, what Smith and Ricardo didn’t know but Marx found out (described in vol. 3 of Capital) is that there is a further systematic distortion between value and average price that assures that the average rate of profit will be about the same in all sectors (assuming free competition). However, that’s only a modification (which follows from the fact that the ratio between present, living labor—performed by workers—, and past labor—embodied in machines and such—differs from sector to sector) of the price building mechanism, which is still basically derived from the labor required to produce different goods.
Unfortunately, the LTV does not acknowledge that the amount of labor embodied in products is constantly diminishing with the advance of automation and improvements in capital.
On the contrary, the main reason that drives capitalistic competition is that you (as a capitalist/company) can outperform your competitors by reducing the value of your products, which allows you to sell at a lower price (thus enlarging your market share) and still make a higher (or equally high) profit per product. The LTV explains why capitalism relies so strongly on automation and technical innovations that reduce the necessary labor.
This seems to be a useful, very detailed discussion of the LTV: dreamscape.com.
[Joseph Jackson replied:] I agree with most of the LTV and by “normative” I meant that the LTV provides an objective notion of “fair price” (if price exceeds the average cost of production it is a sign that some barrier prevents competitors from entering).
That’s true, but if that’s your ideal, it’s not much different from what things are now, since in most areas, the barriers of entry are sufficiently weak to make the actual prices quite similar to the “fair price,” as you call it.
The problem with capitalism isn’t that prices are “unfair”—most prices aren’t. There are other problems. First, production only takes place if there is profit. The goal of all capitalist production is to make profit, i.e. to turn money into more money. So, in order to get the things you need, you have to convince some capitalist that they need you, i.e. that employing you allows them to make more profit than they would make otherwise. But capitalists only need a limited number of personnel, much less than there are people on Earth, so that’s the big hurdle which most people fail to overcome (when speaking on a global scale).
A second problem is that, as a worker, you don’t sell the results of your labor, you sell your labor power (workers, or would-be workers, are people who don’t have anything to sell than their labor power—most people haven’t). The deal by selling your labor power is: you get paid the value of your labor power (NOT the value of your labor—labor doesn’t have value, it produces values), and the value of your labor power is what you need in order to survive (according to your local community standard of living). In return, you have to give your full labor power (according to the local standard for the length of the work day/week, say, 8 hours a day/40 hours a week). If the production of the goods you need for your standard of living takes 20 hours a week, you still have to work 40 hours—the other 20 hours are the “surplus”—they go to the capitalist, become their profit and are, in fact, the only reason why they employed you in the first place.
So the problem isn’t unfair prices, it’s the fact that people have to sell their labor power, because they don’t have anything else to sell. And this situation will necessarily arise in a market system (even in a fictitious scenario where initially everybody had some means to production—inevitable, some people would go bankrupt and again have only their labor power to sell).
In contrast, after classical economics was abandoned economists have simply said that subjective preference rules supreme—price is whatever consumers are willing to pay. (nothing wrong whatsoever with charging anything I can for a bottle of water in a desert regardless of what it actually cost me to produce and transport that good). The only problem I have with LTV is making labor the most important “source” of value. To me, capitalism would be great if we actually had univeral ownership of capital. Pretty much everybody would love to receive income without laboring!
Capital doesn’t create value, only labor does. Money doesn’t turn itself into more money by itself (you could send a dollar to the moon and leave it there for 100 years to find out whether money can multiply by itself).
Rather, capital only allows you to get “income without laboring” because it gives you the means to employ other people’s work. It’s their surplus labor which pays your income.
I find the theory of Binary Economics interesting in this respect because it emphasizes the ever increasing power of technology to actually “do work.” If we instead emphasize the role of technology as primary it leads to new perspectives. What happens with the advent of true personal manufacturing? There is no more average price when everything is a custom order. Do we have one theory of value for standardized commodities and another for custom goods? I don’t have answers to any of this now, I’m just not sure the classical LTV can function for these situations.
LTV is only meant to work for situations where people trade their work, or the results of their work. If everybody had a personal manufacturing device catering for all her/his needs, trade would no longer be necessary, and value would no longer exist. That’s a rather fancy scenario, but there are other, more realistic scenarios that make value, and trading, superfluous. For example, when people employ commons-based peer production to jointly produce what they need, so they don’t have to trade and sell their labor power. I’ve written about that in my book, “From Exchange to Contributions”.
good observations but you missed a point.
you mentioned that prices actually are ‚fair‘, but the problem is production only takes place if there is a „profit“.
this in itself should tell us that prices aren’t „fair“. for two reasons.
one, if production only takes place if there is a profit and like you mentioned, the barriers to entry aren’t so bad and we don’t receive the „results“ of our labor but instead the „labor power“, wouldn’t there be multitudes of workers who would „produce“ independently for the results of their labor and be more competitive since they don’t require profit?
the fact that we don’t receive the „results of our labor power“, in and of itself tells us prices aren’t „fair“.
if capital was subject to the same competitive principles as labor and of course the rest of the market operated freely, there is no way that the labor wouldn’t recieve the full product without force being applied [as it is now to seperate capital from the product]. also, you might be able to go a bit resting on your laurels in a free capital society but at some point your capital would diminish in the face of product and labor.
There are indeed multitudes of such workers—freelancers, for example. Socially, they don’t make much of a difference, because in most areas, cooperation is necessary to reach meaningful/competitive results—there you can’t survive as a freelancer, but only as a company.
“The full product [of labor]” is a term that’s not well-defined: if people weren’t forced to sell their labor power, than capitalism, and indeed, commodity exchange on a large scale couldn’t exist. If you are forced to sell your labor power, then you get indeed more-or-less what you “deserve”: not the full result of your labor (since your labor alone is insufficient to produce something that can be sold–there simply is no “product”), but a salary that allows you to survive and to continue selling your labor power the next day. All’s fair, and profit still exists.
Christian, one central point that you missed to explain to Joseph is the proof why there is an obvious relation between money, value and labor. Why is labor the source of value? Marx tries a logical argument that is weak: he says commodities have nothing in common than being product of labor, of course then he has to explain that this is not the really existing single labor, but abstract labor, a social product. Boehm-Bawerk and the Austrian school have dwelled in that logical weakness, and I thinks the point has not be sufficiently been solved until today. My logical solution is a bit of the kind that Engels gave. It is the fact that if you tried to do without labor, you would not succeeed in producing value. Logically, the structure of exchange has totally eliminated the labor as source of value, but if there was not an external source of value beneath exchange the whole concept of value would be unthinkeable. Thus its very clear to understand why labor is the source of value. But its utterly difficult to understand that this comes with a series of incredible paradoxes.
The best way to explain the paradoxes was given by Mike Roth, „Kapitalanalyse als Wertformanalyse“ (capital analysis as value-form-analysis). Because value that is produced by labor needs to be confirmed and realized in the exchange act, it needs manifestation in its „opposite“, in the concrete quantity of physical things. But as a physical thing, it needs to be value again, not consumed, but representing command of exchange-power as part and proportion of social labor. That sets into action what we call the „chain of value forms“ and which is the core structure of our society.
(Those who speak German should look at http://marx101.blogspot.com/ they also have an actual dispute about commonism)
Oops? In my view, the contrary is true: Exchange is logically a precondition for labor being the »source« of value. Exchange is required because of production being done privately and separated from each other. Exchange needs comparision, and this is done by comparing the efforts to produce the commodities. From this it logically follows, that value is only a social relationship, and nothing substancial. Value is only becoming a fixed entity when it is transformed from a social relationship into a non-relational entity, and this entity is money.
Thus LTV can only be accepted in a methaphorical way. Strictly speaking a phrase like »value is the amount of labor embodied in products« is wrong, because value is only a social relationship and can not be »embodied«. Labor-relations only become socially relevant, when money comes into play: money is a mapping of social relations into an entity, money can fix and store social relations. This btw requires, that a value theory can not work without money.
Unfortunately this relation is not obvious, and often LTV is misleading.
@ Stefan Mz:
I agree with what you said about value, correct. But thats beside the point. Engels had this answer to point at the necessity of production „…would starve, every child know that….“ as a proof of the law of value. But this needs to be explained. And I think this absurd thought experiment helps a lot: If Labor was not the source of value, production would not happen. And I find this a very strong and convincing argument for people caught in the fetish..
@Franz: Ah,ok. But then the question is what »labor« is. If you don’t do the dishes, then production would not happen either 🙂
We are reffering to the exchange of commodities here, so its pretty clear. The idea is to confront Mr. Böhm Bawerks ghost and challenge him.
Hilferding has done a nice comment on this in 1904!
in relation to price and value, it seems to me that labor never really produces „surplus value“. in fact, that is impossible. something cannot be more valuable than it is!
and labor is never „underpriced“. and this is a bit of cat and mouse, but the „product“ is overpriced. if we believe that profit can only exist through rent or capital [aside from momentary occurences due to new ideas or prod. improvements,etc, that haven’t yet spread to everyone] and labor can never take more than the value of product minus resource [without loss], then profit is simply a result of monopoly on the price structure, not on labor.
in other words, it doesn’t matter what labor receives as compensation, free pricing due to complete competition would allow labor to receive the product.
for this to occur, there must also be „free“ competition on both rent and capital. since profit would be but a momentary occurence, both rent and capital would tend to labor and privilege [disregarding any state enforced privilege] would diminish or cease.
what i am hinting at, is in a „free“ economy, basing value on labor or marginal utitily is either side of the same coin. it is not until you introduce force and privilege that there is dispute and confusion. there is no argument until the value of the product is distorted [by force] between the time it is produced and the time it is consumed [other than natural distortion such spoilage, etc.].
so, while being „force“ to sell your labor power can be negative in that you may not choose „what“ you do, until monopoly price is attained and markets are no longer accessible, it cannot limit the „value“ of your labor. it is the combination of the two that is so damaging. it is all intertwined tho.
by the way, anyway to get directly on this blog? seems very interesting. gene