Wednesday, March 18, 2015

Progress in Marxism on the Labour Theory of Value?

Well, yes, but only if Marxists throw the mystical labour theory of value aside and abandon it.

I point readers to this article by Ernesto Screpanti:
Ernesto Screpanti, “The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’: A Recap Note,” n. 708, March 2015.
David Fields on the Naked Keynesian blog also refers to it here.

Screpanti wishes to show the following:
“Marx’s theory of labour value is flawed. This note summarizes the main reasons why this is so. At the same time, it claims that the theory of exploitation does not depend on a labour embodied valuation and can be expounded by resorting to the theory of production prices. Almost all Marxists have now accepted this truth. Most of them have been convinced by a ‘new interpretation’ which has been able to translate the price of net output into an amount of ‘living labour’ and the rate of exploitation into a ratio between unpaid and paid labour. What produced such a surprising result is the use of labour productivity as a numeraire.” (Screpanti 2015: 1).
He then expounds a corn model economy in which he analyses the relationship between labour and output (Screpanti 2015: 2–4). Screpanti also notes that many Marxists have abandoned Marx’s theory of value for Piero Sraffa’s theory of production prices, yet the so-called “new interpreters” also distance themselves from Sraffa too, even though Screpanti apparently thinks they can be reconciled (Screpanti 2015: 7, 9).

Let Marxists argue over the merits of this paper, because ultimately I wonder why they even bother to continue calling themselves Marxist at all. If you repudiate major defining aspects of your Marxist economic theory (such as the labour theory of value or historical materialism), then why even cling to the name “Marxist”? Could it have something to do with the fact that what you belong to is actually a cult and you have profound difficulties escaping from your cult?

For I have no doubt that the central aspect of classical Marxism – the labour theory of value – is a mystical and metaphysical dogma that requires faith to believe in.

For Marx, money prices/exchange values are determined by the socially necessary labour-time occurring in production:
“The production of commodities must be fully developed before the scientific conviction emerges, from experience itself, that all the different kinds of private labour (which are carried on independently of each other; and yet, as spontaneously developed branches of the social division of labour, are in a situation of all-round dependence on each other) are continually being reduced to the quantitative proportions in which society requires them. 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).
So money prices are determined and driven by a “magnitude of value by labour-time” and this is a type of anchor around which money prices might fluctuate, even though they are supposed to be driven back to the socially necessary labour-time anchor when they deviate from it.

Yet Marxists have devoted decades and dozens of books to attempting to solve their notorious transformation problem, and they have never solved it, because it is a complete pseudo-problem.

Missing in modern Marxism is hard empirical study of how most prices are actually determined in capitalist economies and the willingness to formulate theories based on the empirical evidence, not on a prior quasi-religious belief in the labour theory of value.

Nor will basing modern Marxism on Sraffian economics save Marxism, because Sraffian economics has serious problems, as outlined here and here.

Human labour has historically been required and is still required to engage in production and creation of output (though we will probably reach a time in the next 100 years when only minimal human labour is required to run an advanced capitalist economy). In this utilitarian sense, of course labour has value. Obviously it is a necessary factor of production, but then so are non-labour factor inputs too.

But the trouble is: this doesn’t take you very far. It is almost a trivial truth.

For example, without the sun and the energy it provides, there wouldn’t be any production either. Maybe we could even invent an economic cult based on a “sun theory of value”: we could argue that all commodities are just embodiments of the “physically-necessary sun energy” required to produce them. Therefore all prices must really just be reducible to and determined by “physically-necessary sun energy.” We could waste our lives desperately trying to solve our “transformation problem”: how is the quantity of “physically-necessary sun energy” transformed into money prices of goods on the market? We could also argue that we are all – workers and capitalists – ruthlessly exploiting the poor, oppressed and innocent sun!, and so on and so forth. The trouble is, it would all be a lot of nonsense.

Let us now return to the real world. Why is the labour theory of value wrong? Most prices in modern economies are mark-up prices. Fundamentally, there is no reason to think that some mystical “socially necessary labour-time” determines prices in modern capitalism. First, 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. Then businesses add a profit mark-up to this, nearly always.

There is no universal tendency towards cost of production prices and zero profits throughout a competitive capitalist economy. Even if there was, there is no reason to think that “cost of production” prices would embody socially necessary labour-time involved in producing them. Most mark-up prices do not gravitate towards cost of production (whether based on total average unit costs or marginal cost), and mark-up pricing and highly imperfect competition in any real world market economy therefore badly undermine the Marxist, Classical and Sraffian view that there exists a tendency towards zero or a uniform rate of profit throughout a competitive capitalist economy.

The labour theory of value is mystical nonsense and the whole Marxist project is just another example of how people on the Left have wasted their lives and careers on an utterly embarrassing cult, when they could have been doing constructive things with their time.

It is good news that economic Marxism has become a fringe movement. It is bad news, however, that the Left is still ridden with lots of other outrageous nonsense too, and large numbers of other modern left-wing people have also wasted their lives on cultural Marxism, Poststructuralism, and Postmodernism.

Further Reading
“Mysticism and the Labour Theory of Value,” May 7, 2014.

“Lavoie on ‘Should Sraffian Economics be dropped out of the Post-Keynesian School?,’” June 19, 2014.

“Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

“Did Kalecki Accept the Labour Theory of Value?,” April 18, 2014.

“Automation and Robots in the News,” February 23, 2015.

“Adam Smith on the Labour Theory of Value,” April 20, 2014.

Marx, Karl. 1982. Capital. Volume One. A Critique of Political Economy (trans. Ben Fowkes). Penguin Books, Harmondsworth, England.

Screpanti, Ernesto. 2015. “The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’: A Recap Note,” n. 708.


  1. Ayres, Robert U; Warr, Benjamin (2009), The Economic Growth Engine: How Energy and Work Drive Material Prosperity, Cheltenham, UK & Northampton, Massachusetts: Edward Elgar Publishing, ISBN 978-1-84844-182-8, retrieved 22 November 2010 <- there is a good defense of the sun theory of value!!?

  2. Unless it is arguing that all prices must really just be reducible to and determined by “physically-necessary sun energy", then, no, it isn't and I'll take this as a joke.

  3. As an aside, watch out using the term "cultural Marxism" with actual cultural Marxists, considering that the first users of the term were anti-fascist conspiracy theorists (Lyndon LaRouche) and anti-semitic / racist guys on the right. It's unfortunate because there needs to be a Marxism-oriented term to describe this broad philosophy, and you don't want to get bogged down in a debate defending the use of the term from these people. Perhaps "Social Marxist" or "Social Theory Marxist"?

    1. So, whatever the term used, the both of you agree that there is some substantial set of ideas or thinkers that are being referred to when we say 'cultural marxism'. But who, or which ideas are they?

      One hears the term thrown around a lot, but often by mendacious people who are more than happy to malign it or use it simply as a term of abuse.

    2. The way the term "cultural Marxism" is used by the crazy, barking-mad right is outlined here:

      Needless to say, that is NOT what I mean by "cultural Marxism".

      What I mean by "cultural Marxism" is basically the Frankfurt School:

      I disagree with them on scientific and philosophical grounds, and frankly I think any well educated person on the left should as well!

      E.g., Freudian psychoanalysis was taken up by the Frankfurt School and used quite extensively in it, and I regard Freudian psychoanalysis as pseudoscience.

    3. And, more broadly, the kind of social theories that emerged from the New Left, following the work of "The Father of the New Left" Herbert Marcuse:

      perhaps others too like:

      Which includes the general approach to identity-politics based on gender, race and sexuality and their themes of "oppression" and "liberation", including heavy injections of Maoist "Cultural Revolution" strains of thought (See: Black Panthers). And, eventually you could associate political correctness with these strains of thought, though like Milton Friedman and the modern Libertarian movement, these linkages may sometimes be less direct and more diffuse and evolutionary.

    4. I agree the influence of the Frankfurt School is overrated -- certainly by the unhinged right, for whom it becomes a central element in their conspiracy theories about the left.

      Also, I think over-obsession with identity politics on the left is mostly the result of Postmodernism and actually just the mainstream left parties having nothing else left to fight over once they sold out and became neoliberal on economics.

    5. Thanks, guys.

  4. Good. I've a question: did Keynes write any thing about Marxian theory of value? Thanks.

    1. Keynes didn't accept the labour theory of value, nor did he accept Marxism:

      It is true that in the General Theory there are some sympathetic comments on the labour theory of value by Keynes, but they don't constitute any endorsement of labour theory of value, in my view.

  5. I wouldn't dispute that the New Interpretation is flawed, but the New Interpretation has been critiqued to death by now, and these flaws are not news.

    However, I take issue with your reading of it as in any way "mystical"; quite the contrary, Marx took great pains to lay out a system based solely on objective quantities measurable in accounting terms, and there exists at least one interpretation of the system without the flaws in question (see below).

    If anything, it seems to me that the arc of Post-Keynesianism is long, but by and large it bends towards Marx (even if it sometimes has to reinvent the wheel along the way). The lenses are similar from the get-go, even. Both PK and Marxist economists tend to adopt an "accountant" lens in their work, rather than the behaviorist one of the neoclassicals, and both tend philosophically toward realism; in fact, Tony Lawson's Critical Realist perspective traces its pedigree quite explicitly to Marx & Engels's version of materialism via Bhaskar (who just passed away in November).

    My hope is that these and other fundamental harmonies will encourage you to investigate these matters more fully, rather than merely casting aspersions based on misunderstandings. I know you're an endlessly driven and curious person, so I imagine you'll take the time to look if you believe there's something of worth there.

    ...That said, I'm not sure where to begin insofar as convincing you there is. Once, a long time ago, I suggested that you take a peek at Keen's "A Marx for Post-Keynesians," and then I could respond to his specific criticisms re: parts we could throw away. We could still try that. I could also point out that Marx's whole law of value is quite explicitly not a theory of prices, but rather a theory of the laws of motion of capitalist production on the whole. In fact, price and value are almost never equal, and this is not a bug but a feature, since this is a big part of what yields the whole dynamism of the system. (A Marxist theory of price, ironically, would probably look a lot more like the PK price theory.)

    However, I do not consider myself a very good rhetorician, and nor do I have any particular insight in how to convince someone to reconsider something they've got priors against. These days, my primary goal in discussions like these is just to make sure people can actually restate the theory they aim to criticize. (They seldom can, and this is a real problem.)

    Anyway, if you would like to dip into some recent Marxist scholarship that I think is extremely fruitful both for Marxist econ narrowly and economics generally, then I'd recommend the following three sources: For a theoretical overview and response to extant criticisms, read this; for an example of how one might go about building a coherent non-equilibrium model from these principles, read this (which you may enjoy sheerly for its criticism of equilibrium theory on the whole); and lastly, for a recent empirical macroeconomic study using the above principles that supports the falling-rate-of-profit hypothesis, among others, read this (using the NIPAs, chiefly).

    If you have any particular questions, I can help -- but preferably as a supplement rather than a substitute to the above, as I don't have as much free time as I used to.

    1. I glanced over my comment again and felt I should clarify that "it" in the beginning of paragraph 2 refers to Marxian econ in general, rather than the NI in particular. As stated above it, I have no particular affinity for the NI. Incidentally, the first link I included is also highly critical of that interpretation.

      (Of course, I realize those working in the tradition of Keynes also understand all too well the problem of interpretations that butcher or even ignore the source material -- not to mention cases in which said misreadings achieve wide popularity/acceptance.)

  6. I am not sure I understand the gist of your post.

    Are you a "new interpreter"? Is your intention to defend Screpanti's new interpretation?

    1. "I am not sure I understand the gist of your post."

      Really? Did you even read it?

      My purpose is to draw attention to the paper out of interest in trends in modern Marxist theory, but also to show why I do not accept the labour theory of value in any form and why it is absurd and contradicted by empirical evidence.

      And, no, I am not a Marxist and never have been.

  7. Former Neo LiberalMarch 25, 2015 at 11:01 AM

    “First, 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. Then businesses add a profit mark-up to this, nearly always.”

    You honestly think this a an acceptable level of explanation for value and price formation in a capitalist system?

    I am glad you are marking clear distance between Marxism and this sort of illiterate drivel.

    Incidentally, and I know this wounds radical, but don’t you think it might be a good idea to actually read Marx before taking it upon yourself to trash him? And don’t tell me you have because I am telling you that you most certainly haven’t!

    Though I am not denying the issues you so clumsily allude to.

    1. I have read what Marx says about the LTV. It is cited in this very post above.

      As for the citation of mine you quote, yes, that is how mark-up prices (the majority of prices in modern capitalist economies) are determined. That is the right explanation for price formation of mark-up prices.

      If you think it is wrong, then presumably you can tell me why.

    2. Former Neo LiberalMarch 26, 2015 at 10:32 AM

      "If you think it is wrong, then presumably you can tell me why."

      That requires a whole book!

      BTW no one says businesses don't mark up prices, Engels pointed this out 150 years ago, as he owned a business! The point is that just because this happens doesn't mean that is how a capitalist economy reproduces itself over time. A business cannot simply mark up at will, with no constraints.

      I would accuse you of looking at the surface appearance and taking that as the truth of the matter (though you are still very selective even when looking at surface appearance). As Marx himself said, if surface appearance gave you the truth there would be no need for science!

      Your view on prices seems to equate prices with prices. Something like this:

      Cost of labour (price of labour) plus cost of non labour (price of raw materials, buildings, machines etc) = price plus mark up on price.

      or in other words:

      Price = Price + Mark up on Price.

      Which can be broken down as:

      Price = Price

    3. (1) "Engels pointed this out 150 years ago, as he owned a business!"

      Give me a citation for this.

      (2) "A business cannot simply mark up at will, with no constraints."

      And nobody said they can. So it seems you have thrown up a ridiculous straw man.

      (3) that prices are used to calculate other prices is a straightforward truth. Your attempt to say that it in one way it boils down to price = price is a trivial and correct point, but doesn't refute anything I said nor constitute any serious objection -- because all you have done is identify a non-vicious circularity.

      Subjective value, objective value, scarcity, demand, and supply all explain why things can have prices but still this refutes nothing I said.

    4. Former Neo LiberalMarch 26, 2015 at 11:10 AM

      "that prices are used to calculate other prices is a straightforward truth."

      Yes, this is standard accountancy and calculation practice that we start to learn from about the age of 3 or so but when you are explaining price and value formation you have to go beyond that, no?

      Engels made this point in a letter, which are held on the website. I would advise you make a visit and take the radical option of actually reading him.

      PS I am not actually criticisng neo classical economics here, just what you have said.

    5. What gives things value depends on how one defines value. E.g., one can distinguish:

      (1) subjective utility,
      (2) use value (objective usefulness of a good),
      (3) exchange value (for most purposes = price)
      (4) extrinsic (= instrumental) value (the value of something as its worth for the sake of something else)
      (5) intrinsic value (worth of something for its own sake).

      It is imprecision in language that causes a lot of problems in the sciences and philosophy. But while we could have a long philosophical distinction on what causes value, it is clear that labour is not fundamental cause of value as an economic concept. There are too many other types of value. Nor can you reduce all value to labour.

      Finally, what is quite clear from the evidence of the real world is this: human labour time is not some fundamental determinant of prices. This is an empirical fact. Get over it. Move on.

    6. "philosophical distinction" should be "philosophical **discussion**"

  8. @Lord Keynes
    Here is a counter to Steve Keen's debunking of LTV. It's quite a patient and polite response as to why Keen is in error; unlike other behavior I've seen from other marxists who use ad-hominems against Keen and don't bother to read any other part of his work. The author in the link below explains the PK misrepresentation of LTV, the transformation problem et all

    PS: I'm not a marxist, and I don't see (even if LTV is correct) how the theory is of any help in the practical sense; but maybe I'm just too thick and can't understand it. I consider it something akin to String theory, sure, the math has internal logic - but if you had to invent by pencil several other physical dimensions in order for the math to work - then you'll have a very hard time applying String theory to the real world.
    Love your blog - it's an absolute treasure of knowledge.

  9. Here's what a marxist on twitter proposed. He proposed to abolish wage labor. I asked him, so what are you going to use instead of wages? His reply "Planning, in general".
    My replied with a "LoL, even the technocracy movement of the '30s proposed to abolish money (the price system) with a system of energy accounting. You're gonna have to do a lot better than that."
    He didn't even agree that present economic problem of deflation is weak demand. I pointed out that it's not a supply side problem - since the economy is working at depressed levels of employment and output.
    Guess they don't know that aggregate demand is income + the change in private debt.

    1. Many Marxists strike me as being as irrational and ignorant as Rothbardians.

  10. Marx still has value even his labor theory has none!

    Marx is a great writer, observer of history, and he took Monopoly seriously in all it's ramifications. Cournot could have invented Monopoly theory, but it was just a few boring equations. Smith warned of it, but still did not advocate laws against it.

    The assumption of monopoly is really the driving force of excess profits, business cycles, class consciousness, bankruptcies, even the initiator of revolt.

  11. This is just a rant If the writer had done more than study academic marxism he might have read the refutations in marx of his nonsense about mark up values. The point of Marx is that Capitalism is a natural development and that it works in accordance with law governed processes that it is a system governed by the pursuit of maximum profit that all this resolves around averages and the science of absolutes and relativists. That the inevitable separation of money capital (capital in money form) separates and the possessors of this money form dominate those capitalists who operate in the other forms. This is the era of Capital we live in, Life moves on and if we have as a species not advanced our social system to allow the further development of the production of life without meeting the contradictions imposed by this system then what we see emerging of zero interest rates and cash actually being offset by negative interest rates still has a reality that unless it actually relates to real production capital will dissipate in its other forms. That is if the motion stops then the decay sets in.