Thursday, March 26, 2015

Marx’s “Socially Necessary Labour Time”: A Quick Overview and Critique

I have one question for Marxists. Where in Marx’s works does Marx give us a clear, explicit, detailed, and unambiguous definition of the crucial concept of “socially necessary labour time”?

I am not even sure Marx ever did this, but I will take this passage in a letter that Marx wrote to Louis Kugelmann as my source for what follows in this post:
“Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labor of society. That this necessity of the distribution of social labor in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident. No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves. And the form in which this proportional distribution of labor asserts itself, in the state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products.”
Marx to Kugelmann, Letter, London, July 11, 1868.
https://www.marxists.org/archive/marx/works/1868/letters/68_07_11-abs.htm
Though Marx does not explicitly use the phrase “socially necessary labour time” it seems clear that he is referring to it here.

The first idea is that human labour is necessary for production and human survival, or at least for advanced industrial societies. That is true.

Then we have the crucial statement. The different types of goods that a capitalist economy produces require “different and quantitatively determined masses of the total labor of society.” So here labour is assumed to be an aggregate (admittedly of heterogeneous types of labour) and we can quantitatively measure how much of the aggregate is needed for the production of each type of good produced.

I assume Marx is thinking of labour time as the homogenous unit by which we measure the aggregate of the “total labor of society” and the parts therefore. If he is not, then what is he thinking of? Labour measured as the total number of workers?

I will continue to assume that labour time is the relevant concept. But immediately problems arise. If the car manufacturing sector takes 100,000 hours of total labour to produce 5000 cars, then is the value of an individual car 20 hours of labour time? What if this average conceals significant differences in various companies in terms of productivity and speed of the workforce? Is the average really justified as a measure of labour value?

And isn’t there a problem of aggregation of labour? If labour value is measured by labour time by means of the homogenous unit of hours worked, aren’t we faced with radically different types of labour value? Highly skilled labour (e.g., a professional surgeon) seems more valuable than unskilled manual labour (e.g., a person who mops floors). Does Marx’s labour theory of value make any allowances for this, or just regard one hour of doctor’s labour as equivalent to that of a janitor?

And, fundamentally, Marx makes it clear that he thinks his “social labour” proportions determine the exchange value (whether barter prices or money prices) of goods exchanged on the market:
And the form in which this proportional distribution of labor asserts itself, in the state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products.”
Marx to Kugelmann, Letter, London, July 11, 1868.
https://www.marxists.org/archive/marx/works/1868/letters/68_07_11-abs.htm
So here we have the “transformation problem” right before our eyes. I can’t understand Marxists who tell me that there is no transformation problem in Marx’s work or that Marx never said that labour value determines exchange value or money prices. Clearly, he did.

But how on earth do Marxists solve the problem of how labour value as measured by “socially necessary labour time” determines prices on the market, and then empirically prove the values map to real world prices in real capitalist economies?

Actually, the Marxists have never solved these problems. And they never will.

The utter failure of the classical Marxist project is in the very assumption that “socially necessary labour time” determines exchange value or prices on the market. It does not.

This is an empirical fact. Most prices in modern economies are mark-up prices. It is not labour time per se but average unit cost of labour along with the average unit cost of all other non-labour factors at a given quantity of output that is used to calculate most prices. Given differing economies of scale, if you change the given quantity of output, then total average unit costs radically change, regardless of the total number of labour hours. After they calculate total average unit costs, businesses add a profit mark-up to this, nearly always. The profit mark-up can vary and is not related to labour.

There is, on straightforward empirical grounds, no rational reason to believe the Marxist mystical dogma that “socially necessary labour-time” determines exchange value or prices in modern capitalism.

56 comments:

  1. A random smattering of points:

    > I am not even sure Marx ever did this,

    How can you claim to refute something without understanding it in the first place? Shouldn't you be sure what Marx said before you try to counter-argue against what was said?

    Marx's definition of 'socially necessary labor time' is contained in the very beginning of Capital. Chapter I, section I.

    > What if this average conceals significant differences in various companies in terms of productivity and speed of the workforce?

    This is explicitly (though not about cars) discussed, by Marx.

    > Does Marx’s labour theory of value make any allowances for this, or just regard one hour of doctor’s labour as equivalent to that of a janitor?

    If you would read it, you would know that it does.

    > I can’t understand Marxists who tell me that there is no transformation problem in Marx’s work

    Yes, the 'transformation problem' is well-known thing in Marxist theory, so I would consider this denial odd.

    > that Marx never said that labour value determines exchange value or money prices. Clearly, he did.

    it depends on how you phrase this. Certainly, labor strongly influences exchange value, which influences price, but it's not a direct determination.

    You should read more.

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    1. I've read Chapter 1, section 1 of volume 1 of Capital. Of course, it is a long account, but it doesn't particularly clarify matters.

      I see no satisfactory solution to the aggregation problem of heterogeneous labour types there. Marx even says:

      "The total labour power of society, which is manifested in the values of the world of commodities, counts here as one homogeneous mass of human labour-power, although composed of innumerable individual units of labour-power. Each of these units is the same as any other, to the extent that it has the character of a socially average unit of labour-power and acts as such;
      i.e. only needs, in order to produce a commodity, the labour time which is necessary on an average, or in other words is socially necessary."


      The mystical element is even greater too in Capital: Marx says use value is human labour "materialised" in objects (say what?). This is the Marxist mirror image of the mystical Rothbardian concept of "homesteading."

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    2. https://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c6 <- LK, take a look there.

      BTW, I've not appreciated your censorship on my comment citing RT as a good example of the shit produced by relativism.

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    3. My advice: give yourself a handle/pen name so I attach your comments to a name and can keep track of your comments, instead of just conflating you with all and every Anonymous who posts on the blog.

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  2. Quoting some content of the previous link: "So far the market price of a commodity coincides with its value. On the other hand, the oscillations of market prices, rising now over, sinking now under the value or natural price, depend upon the fluctuations of supply and demand. The deviations of market prices from values are continual, but as Adam Smith says: “The natural price is the central price to which the prices of commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it.”

    I think in summary "socially necessary labor time" is just Smith "natural price" and it's nothing innovative. What's innovative and wrong is the idea of taking what Ricardo had taken as an heuristic (labor time) as an absolute truth. Interestingly, this is not just academic debate but also has "real" implication. If LVT is true, then exploitation happens *only* in the "labor market". And this is clearly absurd because working for a wage or working for a small company can be economically equivalent.

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  3. I'm still the same "anonymous". I would like to add a remark. As you said in earlier post, Marxism is kind of cult. This means that the "true" Marxists will NEVER accept Marx has got something so basic as his price theory totally wrong. And this (combined with some unpublished notes from Marx) is the REAL source of "transformation problem" and all other attempts (TSSI) to confuse the meaning of [exchange] value.

    It's like trying to convince Rothbardians that estimating the value of negative "externalities" is pretty much the same as estimating value of positive ones. They'll never accept that the entire cult is built on wrong premises. Same goes for problem of coming up with objective laws to define what homesteading is.

    The prophet can't be logically wrong.

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  4. 'Most prices in modern economies are mark-up prices. It is not labour time per se but average unit cost of labour along with the average unit cost of all other non-labour factors at a given quantity of output that is used to calculate most prices'


    Won't a very large proportion of costs ultimately reduce down to labor costs ? If you go back far enough everything will be a mix of labor, land and raw materials, right ? I would guess (?) that land and raw materials (not including extraction costs) are quite a small proportion of total costs.

    So (ignoring the complexities of coming up with a measure of average labor time and the fact that some processes may take up the same amount of labor but involve more elapse time), the labor theory of value (at least as an equilibrium condition) has something going for it and one could make a case that 'use value is human labour "materialised" in objects' is (with a few qualifications) not totally inaccurate in a equilibrium state.

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    1. It's not a totally bad approximation. But it's an approximation. Marx seemed unaware of this in his published works (esp. Capital volume 1).

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  5. So here we have the “transformation problem” right before our eyes. I can’t understand Marxists who tell me that there is no transformation problem in Marx’s work or that Marx never said that labour value determines exchange value or money prices. Clearly, he did.

    He's saying that exchange value is the form of appearance of value as in labor time. As in, there is this thing which we will call "value," but it does not show itself to us directly; it is instead expressed in the form of "prices." On an individual basis, prices differ from values depending on market contingencies -- therefore a price can be higher or lower than a value. In the aggregate, however, total money price exactly equals total money value; it's an accounting identity. That's literally all it is. Marx was very keen on double-entry ("Italian") bookkeeping, much like many contemporary Post Keynesians inspired by Wynne Godley.

    Thought of a different way: value is labor time required for a good (production), and price is labor commanded by a good (exchange). If the latter is higher than the former, said good is highly profitable and that capital may expand. If the former is higher than the latter, the opposite. However, they cannot differ in aggregate any more than every country can be a net exporter.

    But how on earth do Marxists solve the problem of how labour value as measured by “socially necessary labour time” determines prices on the market, and then empirically prove the values map to real world prices in real capitalist economies?

    The way individual prices correspond to individual values are, as I said, contingent. They depend on a staggering array of market conditions. There's no simple formula for it, and to insist that Marxists determine one when literally no other school has done better than approximate it is a little disingenuous.

    The utter failure of the classical Marxist project is in the very assumption that “socially necessary labour time” determines exchange value or prices on the market. It does not.

    I've already explained this: It's a theory of *value*, not a theory of *price*, even though the two form a continuum. This distinction is absolutely crucial. The point of the theory is not to be able to predict market prices, but rather to explain economic phenomena and recognize the structural mechanisms that give us the "laws of motion" of a capitalist economy. As I also mentioned elsewhere, Marxists who want to predict prices for whatever reason often utilize the work of PK theorists, so just be aware of what you're knocking.

    By any chance, did you look at any of those sources I linked in my comment on your earlier post?

    I'll go take a look at your newer post in a little bit; I'm fighting off a migraine atm

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    1. I simply don't understand this. You say that the LTV is:

      "a theory of *value*, not a theory of *price*, even though the two form a continuum. This distinction is absolutely crucial. The point of the theory is not to be able to predict market prices

      So prices are NEVER determined by “socially necessary labour time”? Is that correct?

      But then you go on to say that labour values do determine prices:

      "Thought of a different way: value is labor time required for a good (production), and price is labor commanded by a good (exchange). If the latter is higher than the former, said good is highly profitable and that capital may expand."

      Anyway, that is not what happens in the real world. Businesses do not regard prices as simply "labor commanded by a good" nor do they calculate social necessary labour times for goods. Nor are profits are defined in these terms.

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    2. Hey LK. Responded to that other post, too. Quick reply here:

      So prices are NEVER determined by “socially necessary labour time”? Is that correct?

      "Never" and "always" are not really the best ways of looking at this, since price CAN equal value, but it's exceedingly rare.

      The better way to phrase it is: price equals value *in aggregate*. Further, they share a common component. For example, one way to represent price is K + p, while value is represented by K + s. The K is the same in both cases -- the "cost-price," or the amount the capitalist pays to produce the good. They differ to the extent that p (profit) differs from s (surplus value) in a given good.

      But ∑s = ∑p by identity.

      So that's the extent to which prices and values determine one another, since when a business owner buys an input (price), it becomes part of the value of the output, which may then itself be realized at a somewhat different price on the market.

      Does that make it clearer?

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    3. ""Never" and "always" are not really the best ways of looking at this, since price CAN equal value, but it's exceedingly rare,"

      So it's exceeding rare? That is an astonishing admission. Then prices do not even gravitate towards some labour value?

      If not, then why would Marx say that labour value determines exchange value as a law of nature?:

      "The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him. The determination of the magnitude of value by labour-time is therefore a secret hidden under the apparent movements in the relative values of commodities.” (Marx 1982: 168).

      It seems to me what you are describing is not even Marx's ideas at all, but some idiosyncratic, ad hoc version of Marxism largely divorced from what Marx actually says.

      Also, how precisely is labour value measured in your system? In what units? Hours worked?

      But how on earth would you know that the money price of a good equals labour value as hours worked? When the price is simply cost price with no profit? Even then, it doesn't follow that is any reflection of imagined labour value as hours worked.

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    4. Real-world prices being mark-up prices is perfectly consistent with Marx's analysis. To be honest I'm quite surprised that LK is making such a big deal of mark-up prices. In fact, Marx is very clear in saying that the individual capitals know nothing (and need know nothing) about socially necessary labor time and whatnot. From the point of view of an individual capital, what matters is that commodities are sold for a price which covers costs and brings some profit. And of course the easy way to (try to) achieve that is to take the cost price and add a markup.

      Marx goes beyond this in saying that there are certain constraints within which such prices can move, and these constraints are expressed in the two equalities (total price = total value, total profit = total surplus value). The constraints are flexible, and as pointed out by Hedlund, there is a myriad of other intervening factors. But the constraints are there, and they make themselves felt through competition and crises.

      BTW, for more on how the sociall necessary labor time in a given branch of the economy is determined, consult Chapter 10 of Volume 3: http://www.marxists.org/archive/marx/works/1894-c3/ch10.htm

      J.

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    5. And what you don't seem to understand is that the money price of a good as limited to costs of production (say, total average unit cost of a good produced) is not fundamentally caused by labour hours worked, not even by some abstract average labour hour.

      There is a fundamentally disconnect here. You're confronted with the insolvable transformation problem.

      Abstract labour hours worked do not translate into real world cost-based prices without profit markup. Simple as that.

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    6. "And what you don't seem to understand is that the money price of a good as limited to costs of production (say, total average unit cost of a good produced) is not fundamentally caused by labour hours worked, not even by some abstract average labour hour."

      I agree, and Marx would, too. On a basic level, cost price is for Marx something altoghether different, both quantitatively and qualitatively, than value. On a more fundamental level, there is, according to Marx, no determinate relationship between value and market price at the level of individual commodities. You can now quote something from Chapter 1 which says otherwise, but that's because the entire first volume operates at a completely different level of abstraction, on which the competition of capitals plays no role. As soon as that enters the game, the only determinate relationship is one of the aggregates (total value = total price). And even this equality only holds on a relatively abstract level, where there are no monopoly prices and fictitious capital. However, even such a weak determination still has, according to Marx, consequences for how the entire system operates, and functions as a basic regulative mechanism (again, through competition and crises).

      You'd do well to familiarize yourself with more than a few quotes from Capital. I enjoy reading your blog and admire most of your work here, but these attempts at criticizing Marx are just subpar.

      J.

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    7. BTW,

      "Abstract labour hours worked do not translate into real world cost-based prices without profit markup. Simple as that."

      You seem to think, for some reason, that for Marx, "abstract labour hours" are the "cost" of a commodity (i.e., the market price minus the profit). In fact, for Marx, the value of a commodity (those "abstract labour hours") includes unpaid surplus-labour, and therefore is greater then the cost (which includes, plainly, just the materials advanced and wages paid, but does not cover the unpaid labor). Not to put a too fine a point on it, but it shows how little effort you've put into trying to understand the theory before criticizing it. Not a sign of good scholarship if you ask me.

      J.

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    8. So we have established that cost price is not even a measure of labour value, according to your reading of Marx, and there is "no determinate relationship between value and market price at the level of individual commodities" (!!).

      So when and how is the price of a good EVER equal to its labour value?

      And why does Marx say:

      "The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him.” (Marx 1982: 168).

      So it is a law of nature but (according to you) never even manifests itself in a "relationship between value and market price at the level of individual commodities"?

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    9. So it's exceeding rare? That is an astonishing admission. Then prices do not even gravitate towards some labour value?

      Bingo. This is why equilibrium interpretations of Marx run into trouble.

      If not, then why would Marx say that labour value determines exchange value as a law of nature?

      It's because of the aggregate identity I described. If total price equals total value, and value precedes price (i.e., production precedes exchange), then the system of prices faces a fundamental constraint. It can be reordered and redistributed, but the final analysis nets out to the same.

      Value determines prices as a system, not as individual units; otherwise, there'd be nothing for market forces like supply, demand, monopoly, etc, to influence. And since "value" is shorthand for SNLT, "labour-time socially necessary to produce [products] asserts itself as a regulative law of nature." At the end of the day, whatever the price system does, there are definite quantities of resources, and definite techniques, that go into producing and reproducing society from period to period, etc.

      It seems to me what you are describing is not even Marx's ideas at all, but some idiosyncratic, ad hoc version of Marxism largely divorced from what Marx actually says.

      I know there are lots of debates on the question of interpretation, but I assure you the interpretation I'm forwarding is no less supported by the text than any other, and in many cases moreso. Most strikingly, the one I'm promoting here is the only one that is able to start with Marx's premises and replicate his mathematical results without any logical inconsistency. That is an extremely big deal. (For more information, I refer you again to the first link I provided earlier. It spells it all out in detail.)

      Also, how precisely is labour value measured in your system? In what units? Hours worked?

      Depends. Often money terms suffice on their own. Figuring out the relation of money to average labor is usually a separate procedure. I can point you to some papers on how to calculate a MELT, or "monetary expression of labor time," if you like.

      But how on earth would you know that the money price of a good equals labour value as hours worked? When the price is simply cost price with no profit? Even then, it doesn't follow that is any reflection of imagined labour value as hours worked.

      Again, you'd use a MELT if you want to break it down precisely. Also, if the price equals the cost price, that means no surplus value is realized. If price happens to equal value in that case, it would mean that the laborer is actually receiving the full value of their labor as a wage. This is rare, since it's not a good way for a capitalist to stay in business. More generally, the wage exists at some socially determined point between the value of the labor performed and the value of labor-power (i.e., the value of reproducing the worker's ability to work from day to day, or a subsistence wage).

      I'm not sure what you mean by "imagined labor value," also.

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    10. Marx never said that the "cost price" should be a "measure of labour value", so I'm not sure why this merits the attention of your summary, not to mention the pompous tone.

      As regards individual commodities, Marx is quite clear, in several places (for example, in the manuscript "The Results of the Immediate Process of Prodution"), that there is no way of calculation individual value from individual price, and that the relationship between the two on the individual level is equivocal (there is no direct determination).

      Theoretically, the price of a commodity would equal the value if the capital producing said commodity would have the average organic composition. Marx discusses this as a hypothetical possibility, and also as an idealized case used as a benchmark to investigate other cases.

      The way the law of value manifests itself is not by a 1:1 determination of individual prices. It is not a "law of price", after all. It works as a fundamental regulatory mechanism: it provides constraints.

      J.

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    11. "As regards individual commodities, Marx is quite clear, in several places (for example, in the manuscript "The Results of the Immediate Process of Prodution"), that there is no way of calculation individual value from individual price, and that the relationship between the two on the individual level is equivocal"

      oh, good lord, "there is no way of calculation [of?] individual value from individual price". And presumably vice versa?

      So what we have here is bizarre, unfalsifiable pseudoscience. It's on a par with saying, "I know here is an invisible teapot around Mars, but there can never be any evidence to support it. Nevertheless I know it exists."

      "Theoretically, the price of a commodity would equal the value if the capital producing said commodity would have the average organic composition."

      Meaning what? This sounds like gibberish to me. Sounds like something from Derrida or Foucault.

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    12. So what we have here is bizarre, unfalsifiable pseudoscience. It's on a par with saying, "I know here is an invisible teapot around Mars, but there can never be any evidence to support it. Nevertheless I know it exists."

      Good heavens, no. I've described the aggregate relation. What there is NOT is a simple formula for determining it without that aggregate reference.

      And Marxian econ does indeed forward falsifiable predictions just like any scientific field. The third link I provided a few days ago tests, for example, the falling aggregate rate of profit hypothesis.

      I hope this discussion is being undertaken as a more or less socratic exercise to understand a theory; too often it seems to me that people get so caught up trying to be Right And Also The Winner that they fail to really digest the concepts. It really sucks the joy out of discourse. :(

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    13. I've tried my hardest to understand this idiosyncratic interpretation of Marx.

      You're saying that on an aggregate level prices equal SNLT, but no individual price ever does?

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    14. And what is even worse, Marx says explicitly:

      “And the form in which this proportional distribution of labor asserts itself, in the state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products.”
      Marx to Kugelmann, Letter, London, July 11, 1868.
      https://www.marxists.org/archive/marx/works/1868/letters/68_07_11-abs.htm

      Marx is saying individual products of labor are determined by SNLT, but according to you Marx never said this?

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    15. oh, good lord, "there is no way of calculation [of?] individual value from individual price". And presumably vice versa?

      I'm sorry, English is not my first language. You've correctly guessed what I meant to write. You are also correct in the "vice versa" part.

      So what we have here is bizarre, unfalsifiable pseudoscience. It's on a par with saying, "I know here is an invisible teapot around Mars, but there can never be any evidence to support it. Nevertheless I know it exists."

      Feel free to make up your own opinion on Marx's theory. Now you at least have some correct information about what the theory actually says. This wasn't the case a few minutes ago. Isn't that great? I think your opinion could still benefit from some more information, which you could gather, you know, by reading the book itself. So far your approach to Marx (in terms of willingness to actually engage with the theory) is of the Mises fanboy variety, which is disappointing.

      As regards pseudoscience, you're neither the first nor the last to use that argument. It would be a much more persuasive argument if Marx didn't have such a fascinating and prescient analysis of capitalist crises, of the process of reproduction, of the role of credit, of the organization of the capitalist production process, of the role of technological progress, its relationship to unemployment etc. All of those analyses (as well as Marx's criticisms of other approaches, including the precursors of time-preference theories of profit, for example) are based on the basic theory of value. The situation where you have, on the one hand, theoretical assumptions which don't easily lend themselves to an empirical test, but, on the other hand, implications of those assumptions which are testable, is actually quite common in science. In the philosophy of science, the idea that every single statement of a theory should be independently testable was abandoned about 60 years ago.
      Meaning what? This sounds like gibberish to me. Sounds like something from Derrida or Foucault.

      I'm sorry but I won't explain the concept of organic composition and how it relates to the rate of profit and production price here. It is first mentioned in Ch25 of Volume 1, but it only really comes into play in Volume 3. If you want to understand what it means, the best approach is to actually read it.

      J.

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    16. LK, arguing from letters won't work. There's no avoiding of reading the entire corpus.

      What Marx says in the quote you provided is that:

      1. there is something which he calls a "proportional distribution of labor"

      2. this something asserts itself through some "form"

      3. this "form" is the exchange value of commodities.

      Nowhere does he say that because of this, the exchange values (the relative prices) of commodities should correspond 1:1 to values. That conclusion is simply not entailed by those premises.

      And rightly so, because Marx didn't think that was the case. Certainly not in Capital and any of the other "mature" writings related to his "critique of political economy". In fact, as early as Ch3 of Volume 1, Marx says clearly that prices and values are not identical, neither qualitatively nor quantitatively. This is a trivial factoid known to anyone who's at least tried reading Capital.

      The "form" in which the law of value (the proportional distribution of labor) asserts itself, is indeed a very "muddled" form, which precludes any direct relationship on the individual level, and only guarantees (within certain limits, e.g., monopoly prices are excluded, as are non-capitalistically produced commodities) the aggregate equality of total value and total price (production price, more precisely; again, you'd have to read the actual thing to recognize the difference between production prices and market prices).

      J.

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    17. J.,

      It is you who don't understand Marx. Marx says clearly that the exchange values of commodities even though they fluctuate and change away from SNLT -- and even when you consider commodities individually -- are determined by and driven towards socially-necessary labour time like a law of nature:

      “And the form in which this proportional distribution of labor asserts itself, in the state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products.”
      Marx to Kugelmann, Letter, London, July 11, 1868.
      https://www.marxists.org/archive/marx/works/1868/letters/68_07_11-abs.htm

      "The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him. The determination of the magnitude of value by labour-time is therefore a secret hidden under the apparent movements in the relative values of commodities.” (Marx 1982: 168).
      ---------------
      This is clearly incompatible with your clam that "there is no way of calculation [of?] individual value from individual price" or vice versa.

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    18. I've already posted this and it hasn't appeared so far (perhaps it will, later), but once again: the statement that "The price of an inidivdual commodity corresponds 1:1 to its value" is simply not entailed by any of the quotes you provided. It can't be, because Marx didn't think it works that way. The "form" in which the law of value asserts itself not a 1:1 determination of prices by values. You'd know this if you had read at least until Ch3 of Volume 1.

      The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another.

      In a TV quiz, this would be a "Marx's Theory of Value Trivia" question for $10.

      J.

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    19. I'm doing my best to understand what's unclear, LK. Can you explain what "idiosyncrasies" you detect?

      I have *explicitly* noted that price CAN equal value, but it's rare. A mere accident, when it happens.

      Even if individual goods, however, don't exchange at value, they are still expressing a portion of what has been established as the total social labor time of society, even if, due to circumstance, changing market preferences, etc, more or less than went into them.

      Marx himself states this throughout Capital. To take the assumption of vol. 1, made as I said for a particular purpose, and apply it to the theory in general is on par with assuming x=y in every equation in a math text.

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    20. J,

      Your quote is consistent with this:

      "The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him. The determination of the magnitude of value by labour-time is therefore a secret hidden under the apparent movements in the relative values of commodities.” (Marx 1982: 168).

      Marx thinks all commodities can be quantitatively measured in terms of a meaningful homogeneous unit representing socially-necessary labour time, and, even more, that the exchange value of each commodity is ultimately and fundamentally determined by this socially-necessary labour time like a law of nature, even though the exchange value are sometimes driven away from it.

      That is utterly inconsistent with your claim that "there is no way of calculation [of?] individual value from individual price" or vice versa. If that were true, there wouldn't even be the homogeneous unit called socially-necessary labour time and Maxr could never have said that " the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature."

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    21. You are wrong, LK. You'd see this if you had read beyond the first chapter. It's impossible for me to argue much further, because I can't explain Marx's entire theory in comments to an article.

      To have a meaningful interpretation of the passage you quoted, one has to understand that in Volume 1, Marx is talking about the "average exemplar" of a commodity that is understood as an aliquot part of an entire mass of commodities. He's not talking about commodities as one sees them in a shop window, with a price tag and all. It's a completely different level of abstraction. He only turns to a level of abstraction that is close to what you're wishing for in Volume 3, where he makes clear that there is no necessary correspondence, at the individual level, between the SNLT and the price (neither the market price, nor the price of production). He then shows how market prices oscillate around prices of production, and how the sum of prices of production relates to the sum of values. This (the aggregate equality) is the only link direct link between value and (production) price. The actual, empirical prices oscillate around prices of production, and in the long term, the oscillations cancel each other out, so the long-term average prices are production prices (not values!).

      J.

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    22. In fairness to J, I think they meant that "there is no way to calculate individual value from individual price [without reference to the broader system of prices and values]." If you're just looking at a football fresh off the factory line in isolation, then we can determine many details about it, but the exact deviation of price from value is not one of them, unless we have reference to details like the "general" rate of profit for the economy, the average organic composition of capital for the economy, etc.

      Also, OCC is basically the capital intensity of a good. Higher capital intensity = higher OCC. This is one of those things that translates in a more-or-less seamless fashion to contemporary terminology. (There's a little more to it, but it's not important for this discussion.)

      Basically, think of Sraffa's "standard commodity." A good with price equal to value would be similar to that (though with some minor differences; i'm just trying to find familiar points of reference).

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    23. "He's not talking about commodities as one sees them in a shop window, with a price tag and all. It's a completely different level of abstraction."

      If so, then it is obviously a level of abstraction so artificial it is like the Austrian and neoclassical "natural rate of interest": an irrelevant, non-operational concept of no interest to real world economists.

      It is more like unfalsifiable religious belief than any provable or testable empirical statement.

      Finally, I ask you: what would it take to prove to you that the LTV is unsound? What would convince you?

      I suspect the answer is: nothing could ever disprove it for you. For you, it is like a religion, an article of faith.

      If not, tell me plainly: what would convince you it's false?

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    24. Hedlund, I think there is also a more fundamental problem. If the football is never sold and rots away in a warehouse, then it does not contain any social labor (or value) at all, regardless of how much individual labor had been spent in actually producing it (as a use value). If there's more footballs than the market can stomach, then some part of the labor expended on footballs will not be validated as part of social labor.

      J.

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    25. I'd happily give up Marx's theory if there would be, say, 30 years of capitalist development without crises, with full employment, with a continuous shortening of the working-day, with declining income inequality, and with labor-replacing capital investment in cases where it's more expensive than keeping laborers around; all of this without any major political upheaval.

      J.

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    26. It is more like unfalsifiable religious belief than any provable or testable empirical statement.

      You're not even trying, man. Come on. I've even provided you with sources that lay to rest the misinterpretations you're shooting off, AND test empirical statements drawn from the Marxist research program. If you're seriously going to shoot from the hip like this, and ignore all of that, then you're clearly not participating in this discussion in good faith.

      Finally, I ask you: what would it take to prove to you that the LTV is unsound? What would convince you?

      Off the top of my head I can name four conditions that could pose serious problems for Marx's theory, though there are also others if I keep at it:

      -A secular rise in the rate of profit over a long period (decades) without attendant capital destruction.
      -The natural and permanent elimination of involuntary unemployment under capitalism (or rather, long-term unemployment, since a couple weeks for standard job search time is probably unavoidable; let's say supply > demand of jobs as the general case).
      -The natural elimination of capitalist crisis (I'd accept a single century without them as a sufficiently long sample to make the case convincingly).
      -An entirely automated and self-reproducing economy that requires no human input (not a falsifying condition, but rather a sea change such that the analysis would no longer apply).

      Note that I say "could" because obviously falsificationism is less effective when closure is impossible (which is why Popper is less useful outside of the natural sciences), but those are all things that would make a Marxist scratch his head and go "hmm" a lot and maybe also turn a little red (but weren't they already?).

      Funny thing: Here's where I'd ask you the exact same question if this were a debate. But I don't view this as a debate. I'm not interested in making you discard your favored theory. This whole discussion has been nothing more than me trying to get you to understand Marx's theory. If we get to the point where you can accurately restate it before criticizing it, I'll be satisfied.

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    27. No, J, that is not the question I asked you. This is a shoddy and dishonest evasion.

      I asked you: what would it take to prove to you that the labour theory of value is unsound? What would convince you that the labour theory of value is false? What conditions would falsify it?

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    28. Hedlund, no, that is not the question I asked J.

      Nor have you answered it.

      I asked: what would it take to prove to you that the labour theory of value is unsound? What would convince you that the labour theory of value is false? What conditions would falsify it?

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    29. You asked what would show the theory is unsound. I gave you four cases, based on actual empirical statements Marxian economists make, that would seriously challenge the theory down to its bedrock. How is that not a satisfactory answer?

      Seriously, give me an example of an answer that would have satisfied you, and I'll use that as a template.

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    30. LK, it is my answer, and I didn't mean to be dishonest. I take the negations of the conditions that I listed to be direct implications of Marx's theory. If the conditons were true, Marx's theory would really be falsified. Whether that's a good test depends on whether the negations of those conditions are also entailed by some other, rival theory to Marx's (I don't know about that).

      I know you were asking about something having to do with the "theory of value" narrowly construed (as a theory of relative prices), but as has been pointed out many times here, there simply isn't any determinate relation on that level (of individual prices) postulated by Marx's theory. So the theory can't be falsified by the situation when, even though the productivity of football-producing labor increases, the price of a football does not fall. It just doesn't work that way. It's like trying to falsify the law of falling bodies (in the v=gt formulation) by pointing out a falling feather.

      J.

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    31. Hedlund,

      I'll give you one last chance.

      I asked you: what would it take to prove to you that the labour theory of value (LTV) is false? What conditions would falsify the LTV?

      I am not talking about Marxism as a whole theory, but an individual foundational idea: the labour theory of value.

      if you can't give me answers to these questions this strongly suggests that my contention that the LTV is very much like unfalsifiable religious belief is correct.

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    32. LK, I am not talking about Marxism as a whole theory, either. Each and every one of those things depends specifically on the theory of value. Those each represent serious blows to the empirical validity of Marx's value theory. If you don't understand specifically how, I can flesh out how we get from the basic tenets of the theory to the more complicated stuff like the "law of the tendency of the rate of profit to fall." But don't mistake the fact that these are more advanced topics for any sort of disconnection from the fundamentals we've been discussing.

      And if you still don't like that answer, here's a simpler one for you: ONE (1) logical inconsistency that does not just boil down to either a misuse of a term of a misunderstanding of a concept.

      Please (pretty please?) please direct your attention to the documents I provided previously. PLEASE. The first link contained a book that specifically lays out the basics of everything we're talking about in very clear language and then debunks allegations of inconsistency that have persisted over decades, some of which I have seen you make.

      If I seem like I'm pitching around a religious belief to you (my "religious belief" that carefully specifies only measurable quantities rather than unmeasurables like cardinal utility), well, how must it look to me, then, to see you SO eager to Win The Discussion that you're not even taking the time to understand the theory you're critiquing? Like, what's your detached, impartial, scientific epistemological basis for taking that approach? I think if you pause for a moment and engage in a little self criticism, you won't find one.

      You can't launch an immanent critique without the "immanent" part, so please put down your sword and your out-of-context quotations for a minute and just try to encounter this subject as a Martian would, free of the bias instilled by a lifetime of hearing "Marx's value theory is wrong."

      And if you absolutely, positively cannot look past that the name on the founding text is Marx, then we can try something diferent: whoosh, voila, I am no longer a Marxist. Now I am a Hedlundian. All the ideas I am expressing are my own, solely my own, and derive in no way from any historical figure. If I do that, *then* can we address the ideas on their own merits?

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  6. LK, one more thing. There is not inconsistency in what I said. The fact that you can't take an individual price in money and calculate the value (in SNLT) from it (or vice versa) does not mean that there is not relation of determination between the two. Nor does it mean that the aggregate equality has no constraining, regulatory role to play.

    Simply put, the statement commodities represent amounts of social labor does not entail the statement that we can also practically measure the amount of social labor (in SNLT) expended on a given individual commodity.

    J.

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    1. "Nor does it mean that the aggregate equality has no constraining, regulatory role to play."

      Your aggregate equality seems to be just a Classical situation of prices at so-called "natural prices." Your problem is that you're struck in the bog of Classical economics, and despite your claims to the contrary don't really understand how modern capitalism works.

      In Classical economics, the “equilibrium price” (or natural price) is assumed to be the cost of production price (however this is defined), towards which all prices gravitate.

      This is false. Prices are too inflexible. Mark-ups nearly always rule. The real world is too messy and uneven for any aggregate equilibrium natural price structure or even any tendency towards it. It is just like Sraffian long period equilibrium -- another empirically false hold over from Marxism and Classical economics.

      Very different degrees of competition between industries, barriers to new entry, patents, labour issues all thwart any process of a tendency to equilibrium prices, whether we mean Classical natural prices or neoclassical marginal cost prices at market clearing values.

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    2. Marx was aware of that. In fact, he expressly mentions obstacles to the equalization of rate of profit (like monopolies, non-capitalist producers selling on capitalist markets, barriers to capital entry etc.). So the aggregate equality is a theorem that holds at a fairly high level of abstraction/idealization (i.e., presupposing that there is an average rate of profit, that capital moves freely across branches etc.). In the real world, there will be situations or entire parts of the economy which don't conform to the aggregate equalities. (It could be argued, however, that the existence of these situations or parts of the economy ultimately presupposes the domination of law of value elsewhere. I won't go into that.)

      Still, some of the implications of that theory, even though it involves such a high level of abstraction, are not only testable, but also true. Feel free to consider it a concidence; I don't.

      Moreover, Marx's theory of value is a theory of capitalism that accounts for what is historically specific to it as a mode of production. The theory answers a whole range of "qualitative" questions (i.e., ones not having to do with relative price determination) that are left unanswered or even unnoticed by classical, neoclassical, Sraffian, Keynesian and Post-Keynesian economics.

      J.

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    3. "So the aggregate equality is a theorem that holds at a fairly high level of abstraction/idealization (i.e., presupposing that there is an average rate of profit, that capital moves freely across branches etc.)."

      That is the point where such a high level of abstraction is so artificial and unrealistic it is like the Austrian and neoclassical "natural rate of interest": an irrelevant, non-operational concept of no interest to real world economists. It explains nothing in the real world. It doesn't drive business cycles. It is causally powerless and exist only in the imagination or in utterly irrelevant analytic a priori models.

      Also, the belief in equalisation of the profit rate is just another completely unrealistic holdover from Classical economics:

      http://socialdemocracy21stcentury.blogspot.com/2014/01/does-market-tend-to-drive-profits-to.html

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    4. Marx's theory of value enables the derivation of implications that are informative and testable (I also think they are true and useful for thinking about political practice). I don't think you can get rid of the theory, keep (all of) the implications and still have a meaningful whole. So I keep the theory. It probably also has to do with the fact that I want to have a theory of capitalism, not just a theory of relative prices. I think that a theory of relative prices that enables exact quantitative predictions of prices is in principle impossible (I'd be happy if further developments in orthodox or heterodox economics proved this wrong).

      BTW, like I said, I don't think the markup theory is inconsistent with Marx (it's perfectly consistent with how Marx describes what capitalists think they're doing). As an empirical description of what individual capitals do when setting prices, it's probably true. It does not answer a lot of other questions that Marx's theory does answer, though.

      Like I said above, highly abstract theories which are not directly testable (or are even known to be false) are not uncommon in science. The Bohr model of the atom fundamentally misrepresents the electron orbitals, but it's still useful in deriving explanations and predictions. The general rate of profit is like the circular orbital. In fact, Marx explicitly pointed out that the general rate of profit is not a result that exists at any point in time, but a process of equalization which is never really fully achieved. For theoretical purposes, he found it useful to treat it as a result, but I don't think he ever confused the resulting theory with reality.

      Anyway, it seems to me that terrain of the discussion has shifted, and if your last post summarizes your criticism of Marx, I'll happily leave it at that.

      J.

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    5. See the second link I provided you. Freeman's non-equilibrium formalizations do not require that the profit rates fully equalize; in fact, they never quite do. As with all laws in the social sciences, it describes a structural tendency rather than a mechanical relation.

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    6. Hedlund,

      Once again I don't think you even understand what I said.

      The empirical evidence would suggest there is not even any tendency to zero or equal profits.

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    7. I know what you're referring to. I responded to that post way back when, too.

      A tendency of the rate of profit to equalize is nothing more than the tendency of financial capital to flee from lower returns in favor of higher. I don't think anyone denies that this happens. I think a finance manager who didn't do this would not have a job for long. As a consequence, undercapitalized fields fill out and their profitability decreases. And the Marxist tendency of the rate of profit falling is very different from the one described by neoclassical perfect competition et al; in the simplest terms possible, it's a result of the growth of the capital stock relative to the labor force. (I've actually already presented you with an empirical study validating that hypothesis.)

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    8. I assume Marx is thinking of labour time as the homogenous unit by which we measure the aggregate of the “total labor of society” and the parts therefore.

      I agree.

      If the car manufacturing sector takes 100,000 hours of total labour to produce 5000 cars, then is the value of an individual car 20 hours of labour time? . . . Is the average really justified as a measure of labour value?

      No. Marx is a terrible mathematician, and doesn't understand marginalism. The average is the wrong statistic. The SNLT should be the marginal cost of production at equilibrium.

      Highly skilled labour (e.g., a professional surgeon) seems more valuable than unskilled manual labour (e.g., a person who mops floors).

      The price of highly skilled labor has to include the marginal cost of training. Furthermore, surgeons make more money (even counting their own cost of training) not because they are more skilled but because there are substantial barriers to entry, permitting monopolistic pricing. Remove the barriers to entry, and at the margin, surgeons will make no more money than janitors.

      So here we have the “transformation problem” right before our eyes.

      Well, no. At least the quoted passage has nothing to do with the transformation problem. The transformation problem has to do with the tendency of capitalists to equilibriate the rate of profit between different sectors with different organic composition of capital. AFAIK, the transformation problem has not been solved, and if it were proven unsolvable, it would be a severe blow to the LTV. However, I haven't seen a good model where the transformation problem is proven unsolvable. Some problems are that actually existing social structures inhibit free competition and economic growth can have distorting effects.

      But how on earth do Marxists solve the problem of how labour value as measured by “socially necessary labour time” determines prices on the market, and then empirically prove the values map to real world prices in real capitalist economies?

      That's not Marx's argument. Marx is analyzing a theoretical ideal of capitalism. Marx says that if prices are not equal to SNLT, then there is either some active pressure keeping them away or that some costs have been externalized.

      It is not labour time per se but average unit cost of labour along with the average unit cost of all other non-labour factors at a given quantity of output that is used to calculate most prices.

      But what determines the "average unit cost of all other non-labor factors"? Marx argues that it is the labor embedded in them.

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    9. Larry, The Barefoot Bum,

      "The SNLT should be the marginal cost of production at equilibrium."

      Say what? This makes no sense. Why should it be that?

      "Remove the barriers to entry, and at the margin, surgeons will make no more money than janitors.

      No, that is unconvincing.

      The education and cost of training a surgeon will always be highly than a janitor (whose training can be done on the job) and being a surgeon takes a level of skill and intelligence that most people can't ever attain.

      "But what determines the "average unit cost of all other non-labor factors"? Marx argues that it is the labor embedded in them."

      Marx is wrong. It is not labour time, but (1) total average unit costs (including fixed and variable costs and labour and non labour factors) at (2) a given level of output, (3) given productivity level that determines unit costs (4) on top of which is added a profit-up. Two firms might have the same labour time but different given levels of output and given productivity levels and different prices.

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  7. Hedlund@March 27, 2015 at 3:50 PM

    "A tendency of the rate of profit to equalize is nothing more than the tendency of financial capital to flee from lower returns in favor of higher

    Once again Hedlund you clearly have your own idiosyncratic definitions of concepts that just don't line up with anyone else's.

    No, financial institutions pumping money into more profitable asset classes doesn't prove that there is a universal "tendency of the rate of profit to equalize". When the latter expression is used, what people mean is that the profit rate on real capital and in non financial firms equalises. But there is no reason to believe there is any tendency to this in modern capitalism.

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    1. There's that charge of "idiosyncrasy" again. Nothing you've posted so far has indicated that you're in any way qualified to make that assessment.

      I definitely don't know where you're getting the idea that this is some notion I've invented (apart from some apparent urge to come off supercilious). Google it. I'm not some lone voice in the wilderness. It's a "weak" tendency inasmuch as it is frequently offset by other factors, but nevertheless flows from the relations analyzed and thus can be said to always be exerting a constant, if easily overcome, force.

      As Freeman put it in the paper I linked, which I still think you would rather enjoy:

      "No necessary law governs the actual profits realised in different sectors. Most important of all, when we look beneath sectoral averages we find individual profit rates realised by different producers of the same commodity. Whatever the sectoral averages, these differ vastly and are the motor of the investment mechanism. As Marx repeatedly argued, the pursuit of an above average profit rate, brought on by an exceptionally productive new technique, is the real motive for capital movements."

      (Seriously, can we talk about this source-snubbing thing for a second? How on earth can anyone be so incurious that they'd scoff at free documents held to be exemplar showings of the position they're arguing vociferously against? This is an honest question; I actually can't even imagine it.)

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    2. This is an honest question; I actually can't even imagine it.

      I just want to draw attention to this one more time, because it's important. If you don't understand your opponent's position, and they say "here, these documents explain it well and I stand by their content," how can any scientifically minded person just ignore them?

      The only answers I can think of involve laziness, dogmatism (ironic, considering the cheap charges of "mysticism" or "religiosity"), or outright contempt.

      I get enough bad-faith arguments from Austrians without Post Keynesians deciding to punch left, too.

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  8. The key here is the fundamental mistake that pretty much all economist make when they talk about how to get things done.

    Labour time is different from labour services.

    Yet things are only done with labour services.

    How you transform labour time into labour services is a complicated interaction process between the personality of the person wanting the service and the personality of the person doing the time. How much each side inputs into the process and how that results in getting anything done depends upon the entities attempting the process. There is as much variation as there are variations in human personality, which change management and process improvement people are constantly battling against.

    A contract of service (employment) is different from a contract for services (self-employment). The point at which one becomes the other is subject to constant legal argument and revision over the years as techniques and working conditions evolve. If the lawyers can't put their finger on it after centuries of cases, then it is most definitely hubris to suggest there is one universal solution.

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