Kliman (2006: 19) states that “Marx’s value theory is not a general explanation of why goods and services have prices, nor of why they have one price rather than another.” This seems like an odd statement, but Kliman apparently means that the labour theory is strictly limited to certain goods only: that is, Marx’s value theory applies only to commodities, which are goods or services intended for market exchange (Kliman 2006: 19–20). Therefore when we find things produced but not for market exchange, Marx’s theory doesn’t explain these, is inapplicable to them, and doesn’t explain how their prices are determined (Kliman 2006: 20).
When production produces commodities for the purpose of exchange, then
“… workers’ labor acquires the same dual character. As an activity that produces a specific useful good or service, it is what Marx calls concrete labor. As an activity that produces value—abstract wealth, wealth as such, considered without regard to its specific physical form—it is what he calls abstract labor.” (Kliman 2006: 20–21).The value of a commodity is “determined by the average amount of labor currently needed to produce it” (Kliman 2006: 21).
In Marx, this is called abstract socially necessary labour time (SNLT), and Kliman explains this as follows:
“The phrase ‘average amount of labor’ is also significant. Marx (1990a: 129) holds that labor creates value only to the extent that it ‘is necessary on an average, or in other words is socially necessary’; any labor spent on the production of a commodity in excess of what he calls the socially necessary labor-time does not count as value-creating labor. This is his way of expressing the idea that less efficient producers cannot get higher prices for their products simply because their costs of production are above average, nor must more efficient producers charge less than others simply because their costs of production are below average.” (Kliman 2006: 21).The total SNLT is a sum of two components, as follows:
(1) the value transferred from the SNLT embodied in non-labour factors both used up in production and the durable capital goods used in production (whose value is transferred as the capital goods depreciate in value, though how you properly calculate this is left unexplained), andEven more than this, the value of the most recently newly-produced commodities of a particular type will determine the value of ones that already exist (Kliman 2006: 21). But already we have a problem in Kliman’s analysis. He speaks of abstract labour value, but then talks of money prices on this point:
(2) the SNLT added by living labour, or the human beings labouring in production (Kliman 2006: 22).
“If wheat harvested last year had a value of $4/bushel, while wheat harvested today has a value of $3/bushel, then any wheat that remains from last year likewise has a value of $3/bushel today.” (Kliman 2006: 21).Kliman has switched to talking of money values. He hasn’t explained at all how abstract SNLT determines such prices. The idea here, which I examined in this post, doesn’t make any sense. Agricultural good prices, both old and newly-produced goods as sold in flexprice markets, are plainly determined by supply and demand, not some nebulous SNLT. The Marxists haven’t explained how the SNLT determines the price.
Matters are no better when we get a truly confused passage attempting to explain the difference between value and price:
“Marx (1990a: 188) holds that value has two measures, money and labor-time. He generally measures commodities’ values in terms of money, but he sometimes measures them in terms of labor-time, and occasionally he compares the two (see, e.g., Marx 1991a: 266). When measuring a commodity’s value in money terms, he often calls it simply the ‘value,’ while at other times he calls it the ‘monetary expression of value’ or, equivalently, the price. ‘Price, taken by itself, is only the monetary expression of value’ (Marx 1971: 35, emphasis omitted; cf. Marx 1990b: 1068). In this sense, then, “price” refers to value measured in terms of money rather than in terms of labor-time.So does SNLT determine individual “natural prices” or not?
The other distinction between ‘value’ and ‘price’ is quantitative. In this context, if we are speaking of a firm’s or industry’s output, ‘value’ refers to the sum of value produced within a firm or industry—the value transferred plus the new value added—while ‘price’ refers to the sum of value received by the firm or industry. Similarly, if we are speaking of a single commodity, ‘value’ refers to the commodity’s actual value, determined by the labor-time needed to produce it, while ‘price’ refers to the sum of money that the commodity’s owner can receive in exchange for it.
Note that we can meaningfully discuss these quantitative differences only if we are measuring price and value in the same units. It makes no sense, for example, to say that the $5400 a firm receives for its output is greater or less than the 100 hours of labor needed to produce that output. This shows that the two value-price distinctions are indeed wholly independent of one another.” (Kliman 2006: 24–25).
At one point, Kliman (2006: 32–33) discusses the so-called “dual-system interpretations” of Marx in which labour values and prices are actually “determined independently of one another” (Kliman 2006: 32). But he does not seem to support this, but the simultaneous single-system interpretation (SSSI).
But then Kliman states that there is a “conversion factor” between labour time and price called the “monetary expression of labor-time” (MELT), which can translate one hour of socially necessary labor time directly into a monetary value (Kliman 2006: 25). How we calculate this MELT is left unexplained.
Kliman (2006: 23) notes how in the production process capitalists advance “sums of value” to buy non-labour factor inputs (or “constant capital”) and “sums of value” to buy labour (or “variable capital”). The value in the final produced commodity above the total original value is “surplus value” (Kliman 2006: 23). Because workers are the only source of this “surplus value” it follows, according to Marx, that workers are robbed of this surplus value by capitalists. The “rate of surplus-value or rate of exploitation” is simply the ratio of the surplus-value to variable capital (Kliman 2006: 24).
There is also a difference between (1) “value rate of profit” (total surplus value produced in a year as a measure of SNLT) and (2) the “price rate of profit” (the mere total monetary price of profits) (Kliman 2006: 26). The rates of profit tend to equalise throughout an economy (Kliman 2006: 27), because of free competition.
The value total in an industry consists of cost price (or sum of labour value from constant capital and variable capital) and surplus-value, and the “price of production” is equal to cost price plus average profit (Kliman 2006: 27).
Here we see how the Marxist theory of prices and profits is really just another species of the false Classical and neoclassical view:
“In the hypothetical case in which rates of profit were exactly equal—that is, in which all industries realized the general rate of profit—they would each receive what Marx calls average profit and each industry’s output would sell for what he calls its price of production (Marx 1991a, chap. 9). He stressed that this situation never occurs in reality. Instead, he argued, actual market prices fluctuate around prices of production, and thus actual profits fluctuate around average profit, given a sufficiently competitive (non-monopolistic) environment.” (Kliman 2006: 27).In fact, most prices do not fluctuate around prices of production, and the reason for this is not monopoly, but the fact that the real world contains widespread use of mark-up pricing and strong barriers to entry through capacity utilisation and other factors.
However, Kliman holds that Marx’s theory does not imply that “the rate of profit will actually display a falling trend in the long run” (Kliman 2006: 30).
It is only in the aggregate in a situation in which the rate of profit has equalised throughout the economy that (1) price and value rates of profit are equal, (2) total profit and total surplus-value are equal, and (3) total price of production and total value are equal (Kliman 2006: 28). But profit rates do not equalise in real world capitalism and if Marxists cannot even justify the LTV in the first place there is no reason to believe any of the subsequent propositions of Marxist value theory.
Kliman makes a crucial epistemological point about how to understand the LTV:
“Marx’s theory that a commodity’s value is determined by the amount of labor needed to produce it has often been construed as a definition of the commodity’s value (see, e.g., Mongiovi 2002: 397–98), but this is incorrect for two reasons. First, Marx usually expressed commodities’ values in monetary terms, which would not be possible if values were defined as amounts of labor. Values in that case would have to be expressed exclusively in terms of labortime. Second, the theory can in principle be falsified, while definitions cannot.” (Kliman 2006: 21).It would appear that Kliman is saying that Marx’s LTV is an empirical proposition. If this is so, then there are a number of empirical tests that the LTV must pass to be taken seriously. On this interpretation, Marxists cannot retreat into a defence of the LTV as mere analytic definition to defend it. They must face the hard test of empirical reality.
Quite simply, as an empirical proposition, there is no convincing reasons why I should believe that LTV, for the following reasons:
(1) the LTV is concerned with establishing the labour value of commodities expressed in SNLT. But why is human labour special, as Sraffa noted? Animal labour is still important in many countries even to this day. It should be possible to measure animal labour in terms of SLNT, since in many cases human labour could even be substituted for animal labour. It is no good for Marxists to fall back on an analytic definition of the LTV, where it is just true by definition. I have no reason to accept an analytic definition I think is incoherent and not empirically relevant.I have no reason to accept anything deduced or developed from an assumption of the LTV in Marxism if you cannot convince me that it is a real phenomenon with causal power observable in a capitalist economy.
(2) Marx already admits that “nothing can be a value without being an object of utility” (Marx 1982: 131). If labour value is totally worthless and cannot confer exchange value when the object has no utility (“use value”), then the whole labour theory of value is undermined. For labour is not even a sufficient condition for economic value or exchange value. Clearly use value is also a necessary condition for economic value or exchange value.
(3) it is still never explained how to define and calculate SNLT. How is heterogeneous labour reduced to a common measure?
How to define “simple labour-power, i.e. of the labour-power possessed in … [sc. the] bodily organism by every ordinary man, on the average, without being developed in any special way” (Marx 1982: 135).
(4) it is still unexplained how the SNLT determines individual natural prices. How, for example, do equal labour quantities determine equal natural prices when there are, and have always been, such radical differences in wage rates by sector, profession, skill, experience, privilege or competence? For if, at the natural price, equal labour quantities do not cause equal prices, how can anyone take the labour theory seriously? And worse than this, we need extensive empirical evidence of real world prices where SNLT has been independently defined and found to be equivalent and the prices are the same.
(5) finally, we have the overwhelming empirical truth that prices are not determined by abstract SNLT. Businesses do not price products in terms of SNLT. Businesses do not even calculate it. Instead, we know the nature of price determination. In any given capitalist economy, commodity markets (defined as those for newly-produced goods and services) are divided into (1) flexprice and (2) fixprice markets. Flexprice markets are prevalent in primary commodities and asset markets, while newly produced goods and services tend to be fixprices. A “flexprice” market – as the name suggests – indicates that prices are generally flexible and are determined by the dynamics of supply and demand, either in (1) competitive auction-like markets or (2) markets where a buyer and seller haggle and negotiate an individual price for an individual exchange (as in the oriental bazaar). The labour hours are not relevant for price determination here, nor necessarily are wages. In fixprice markets, mark-up prices are the major form of prices. And here SNLT just isn’t what determines prices.
The utter failure of the Marxist program can be seen in the fundamentally incompatible and endless schools and heresies: dual-system interpretations, simultaneous single-system interpretation (SSSI), physicalist interpretations, or social paradigm/abstract labor approaches.
Finally, if Marxists want to defend value in some labour–defined form, then the “physicalist” interpretation is about the only sensible view: this holds that the physical factors of technology and real wages determine concepts like “value, surplus-value, prices of production, average profit, and rates of profit” (Kliman 2006: 35). But this is just a type of Sraffianism, and there are serious problems with Sraffianism as described here and here.
Kliman, Andrew. 2006. Reclaiming Marx’s ‘Capital’: A Refutation of the Myth of Inconsistency. Lexington Books, Lanham.
Freeman, Alan. “Price, Value and Profit – A Continuous, General, Treatment,” MPRA Paper No. 1290, April 1996
Kliman, Andrew. 2012. Failure of Capitalist Production: Underlying Causes of the Great Recession. Pluto Press, London.