Thursday, May 21, 2015

Wicksteed on the Contradiction in Chapter 1 of Volume 1 of Capital on the Labour Theory of Value

I point to this contradiction here.

But it is nice to see that the Victorian economist Philip Henry Wicksteed (1844–1927), as early as 1884, identified the same contradiction:
“With reference to the theory of value, it will be convenient to follow Marx in his fundamental analysis of the process of exchange.

He begins by pointing out that the fact of two wares being exchangeable (no matter in what proportion) implies of necessity both Verschiedenheit and Gleichheit; i.e. that they are not identical (else the exchange would leave things exactly where it found them), and that they are different manifestations or forms of a common something (else they could not be equated against each other). In other words, things which are exchangeable must be dissimilar in quality, but yet they must have some common measure, by reduction to which the equivalent portions of each will be seen to be identical in quantity.

Now with regard to the qualitative dissimilarity, I do not see that there is any room for difference of opinion. It consists in the divergent nature of the services rendered by the respective wares. Cast-iron nails and new-laid eggs differ in respect to their ‘value in use.’ They serve different purposes. Even a red and a blue ribbon, though they both serve purposes of adornment, are capable each of rendering some particular services of adornment under circumstances which would make the other a mere disfigurement. I agree with Marx, then, that the Verschiedenheit of the wares is to be found in the respective Gebrauchswerth of each, or, as I should express it, commodities differ one from another in their specific utilities.

But in what does the Gleichheit consist? What is the common something of which each ware is a more or less? Marx replies that to get at this something, whatever it is, we must obviously set on one side all geometrical, physical, chemical and other natural properties of the several wares, for it is precisely in these that they differ from one another, and we are seeking that in which they are all identical. Now in setting aside all these natural properties, we are setting aside all that gives the wares a value in use, and there is nothing left them but the single property of being products of labour. But the wares, as they stand, are the products of many different kinds of labour, each of which was engaged in conferring upon them the special physical properties in virtue of which they possess specific utilities. Now to get at that in which all wares are identical we have been obliged to strip off all these physical properties in which they differ, so that if we still regard them as products of labour, it must be labour that has no specific character or direction, mere ‘abstract and indifferent human labour,’ the expenditure of so much human brain and muscle, etc. The Gleichheit, then, of the several wares consists in the fact that they are all products of abstract human labour, and the equation x of ware A = y of ware B, holds in virtue of the fact that it requires the same amount of abstract human labour to produce x of ware A or y of ware B … .

Now the leap by which this reasoning lands us in labour as the sole constituent element of value appears to me so surprising that I am prepared to learn that the yet unpublished portions of Das Kapital contain supplementary or elucidatory matter which may set it in a new light. Meanwhile the analysis appears to be given as complete and adequate, so far as it goes, and I can, therefore, only take it as I find it and try to test its validity. But instead of directly confronting it with what seems to be the true analysis of the phenomenon of exchange, I will follow it out a little further, and we shall see that Marx himself introduces a modification into his result (or develops a half-latent implication in it), in such a way as to vitiate the very analysis on which that result is founded, and to lead us, if we work it out, to what I regard as the true solution of the problem.

A few pages, then, after we have been told that wares regarded as ‘valuables’ must be stripped of all their physical attributes, i.e. of everything that gives them their value in use, and reduced to one identical spectral objectivity, as mere jellies of undistinguishable abstract human labour, and that it is this abstract human labour which constitutes them valuables, we find the important statement that the labour does not count unless it is useful (pp. 15, 16, 64 [16a, 35a]). Simple and obvious as this seems, it in reality surrenders the whole of the previous analysis, for if it is only useful labour that counts, then in stripping the wares of all the specific properties conferred upon them by specific kinds of useful work, we must not be supposed to have stripped them of the abstract utility, conferred upon them by abstractly useful work. If only useful labour counts, then when the wares are reduced to mere indifferent products of such labour in the abstract, they are still useful in the abstract, and therefore it is not true that ‘nothing remains to them but the one attribute of being products of labour’ (p. 12 [146]), for the attribute of being useful also remains to them. In this all wares are alike.” (Wicksteed 1933: 710–712 = Wicksteed 1884).
We can see here that Marx’s flawed argument attempting to prove the labour theory of value was spotted by Wicksteed early on.

Moreover, Wicksteed’s criticism of Marx’s argument for the labour theory and his broader critique was so influential that George Bernard Shaw (1856–1950) abandoned his early flirtation with Marxism (Shaw 1885 = Shaw 1933), and was one of the many factors that caused the emerging British socialist movement to largely free itself from Marxist dogma.

Furthermore, as Wicksteed points out, under Marx’s initial argument, we could just as easily argue that there is indeed a common basis for a commodity exchange, and this is that both goods exchanged have subjective utility to the people receiving them in the trade:
“The exchange of two wares implies a heterogeneity (Verschiedenheit) and a homogeneity (Gleichheit). This is implied in the fact that they are exchangeable. And here I must challenge the attention of students of Das Kapital to the fact that the analysis by which ‘labour’ is reached as the ultimate constituent element of (exchange) value, starts from the naked fact of exchangeability and is said to be involved in that fact. It is true that in the instances given by Marx the articles exchanged are wares (i.e. commodities which have been produced for the express purpose of exchange), and moreover wares which can practically be produced in almost unlimited quantities. It is true also that Marx elsewhere virtually defines value so as to make it essentially dependent upon human labour (p. 81 [43a]). But for all that his analysis is based on the bare fact of exchangeability. This fact alone establishes Verschiedenkeit and Gleichheit, heterogeneity and homogeneity. Any two things which normally exchange for each other, whether products of labour or not, whether they have, or have not, what we choose to call value, must have that ‘common something’ in virtue of which things exchange and can be equated with each other; and all legitimate inferences as to wares which are drawn from the bare fact of exchange must be equally legitimate when applied to other exchangeable things.

Now the ‘common something,’ which all exchangeable things contain, is neither more nor less than abstract utility, i.e. power of satisfying human desires.” (Wicksteed 1933: 710–712 = Wicksteed 1884).
Although Wicksteed is wrong to go on from this to Jevonian marginal utility analysis with a quantitative measure of utility, he is still correct in one respect: you could just as easily conclude, contrary to Marx, that some kind of subjective utility is the common, underlying and necessary element of the exchange of commodities, though there does not need to be an equality of subjective utility. Rather, when one person exchanges one good for another, it seems likely that in most cases he values the good he receives more highly than the good he gives up in the trade, and the same thing can be said of the other person in the trade.

Indeed Marx’s argument in Capital here as it stands is badly flawed:
“Let us take two commodities, e. g., corn and iron. The proportions in which they are exchangeable, whatever those proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron: e. g., 1 quarter corn=x cwt. iron. What does this equation tell us? It tells us that in two different things—in 1 quarter of corn and x cwt. of iron, there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange value, must therefore be reducible to this third.” (Marx 1906: 43–44).
Now in a barter exchange, there is an equality in the sense in which, say, 2 sheep might exchange for 1 cow, and only two sheep and nothing more are exchanged, and vice versa. But this is trivial sense of equality. There is no further and obvious logical or empirical sense that the exchange is an equality of some third quantity, such as abstract socially-necessary labour time.

Marx’s leap to the conclusion that there must be an additional, fundamental unit in which both commodities can be measured quantitatively and by which they can both be shown to be equivalent simply does not follow. It is a non sequitur. Marx’s argument was shoddy and commits a straightforward logical fallacy.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Shaw, George Bernard. 1885. “The Jevonian Criticism of Marx,” To-day n.s. 3 (January): 22–26.

Shaw, George Bernard. 1933. “The Jevonian Criticism of Marx,” in Philip H. Wicksteed, The Common Sense of Political Economy and Selected Papers and Reviews on Economic Theory. Routledge & Kegan Paul Ltd, London. 724–730.

Wicksteed, Philip H. 1884. “The Marxian Theory of Value. Das Kapital: A Criticism,” To-Day n.s. 2 (October): 388–409.

Wicksteed, Philip H. 1933. The Common Sense of Political Economy and Selected Papers and Reviews on Economic Theory. Routledge & Kegan Paul Ltd, London.

Wednesday, May 20, 2015

Steve Keen on Neoclassical Economics and an Alternative Monetary Macroeconomics

Steve Keen gives a talk below on neoclassical economics and an alternative monetary macroeconomics, held in Tel Aviv, Israel at the invitation of the Rethinking Economics Student Forum. More details here.