Thursday, May 14, 2015

Engels’ Letter to Werner Sombart on the Labour Theory of Value in 1895

On March 11, 1895, Friedrich Engels – only a few months before his death on August 5, 1895 – wrote a letter to the German Historical School economist Werner Sombart (1863–1941) concerning the labour theory of value. Sombart had written the following critical review of Marx’s economic theories:
Sombart, Werner. 1894. “Zur Kritik des ökonomischen Systems von Karl Marx” [Toward a Critique of the Economic System of Karl Marx], Archiv für soziale Gesetzgebung und Statistik 7: 555–594.
In this essay, Sombart had said that the labour theory of value as presented in volume 1 of Capital had no place in real life and was not an empirical concept but a purely “mental” one (Boudin 1920: 134).

Engels’ letter is an astonishing insight into what Engels thought in private about the labour value theory in 1895:
“Dear Sir,

Replying to your note of the 14th of last month, may I thank you for your kindness in sending me your work on Marx; I had already read it with great interest in the issue of the Archiv which Dr. H. Braun was good enough to send me, and was pleased for once to find such understanding of Capital at a German University. Naturally I can’t altogether agree with the wording in which you render Marx’s exposition. Especially the definitions of the concept of value which you give on pages 576 and 577 seem to me to be rather all-embracing: I would first limit them historically by explicitly restricting them to the economic phase in which alone value has up to now been known, and could only have been known, namely, the forms of society in which commodity exchange, or commodity production, exists; in primitive communism value was unknown. And secondly it seems to me that the concept could also be defined in a narrower sense. But this would lead too far, in the main you are quite right.

Then, however, on page 586, you appeal directly to me, and the jovial manner with which you hold a pistol to my head made me laugh. But you need not worry, I shall “not assure you of the contrary.” The logical sequence by which Marx deduces the general and equal rate of profit from the different values of s / C = s / (c + v) produced in various capitalist enterprises is completely foreign to the mind of the individual capitalist. Inasmuch as it has a historical parallel, that is to say, as far as it exists in reality outside our heads, it manifests itself for instance in the fact that certain parts of the surplus value produced by capitalist A over and above the rate of profit, or above his share of the total surplus value, are transferred to the pocket of capitalist B whose output of surplus value remains as a rule below the customary dividend. But this process takes place objectively, in the things, unconsciously, and we can only now estimate how much work was required in order to achieve a proper understanding of these matters. If the conscious co-operation of the individual capitalists had been necessary to establish the average rate of profit, if the individual capitalist had known that he produces surplus value and how much of it, and that frequently he has to hand over part of his surplus value, then the relationship between surplus value and profit would have been fairly obvious from the outset and would presumably have already been described by Adam Smith, if not Petty.

According to Marx’s views all history up to now, in the case of big events, has come about unconsciously, that is, the events and their further consequences have not been intended; the ordinary actors in history have either wanted to achieve something different, or else what they achieved has led to quite different unforeseeable consequences. Applied to the economic sphere: the individual capitalists, each on his own, chase after the biggest profit. Bourgeois economy discovers that this race in which every one chases after the bigger profit results in the general and equal rate of profit, the approximately equal ratio of profit for each one. Neither the capitalists nor the bourgeois economists, however, realise that the goal of this race is the uniform proportional distribution of the total surplus value calculated on the total capital.

But how has the equalisation been brought about in reality? This is a very interesting point, about which Marx himself does not say much. But his way of viewing things is not a doctrine but a method. It does not provide ready-made dogmas, but criteria for further research and the method for this research. Here therefore a certain amount of work has to be carried out, since Marx did not elaborate it himself in his first draft. First of all we have here the statements on pages 153-156, III, I, which are also important for your rendering of the concept of value and which prove that the concept has or had more reality than you ascribe to it. When commodity exchange began, when products gradually turned into commodities, they were exchanged approximately according to their value. It was the amount of labour expended on two objects which provided the only standard for their quantitative comparison. Thus value had a direct and real existence at that time. We know that this direct realisation of value in exchange ceased and that now it no longer happens. And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence. A genuinely historical exposition of these processes, which does indeed require thorough research but in return promises amply rewarding results, would be a very valuable supplement to Capital.

Finally, I must also thank you for the high opinion which you have formed of me if you consider that I could have made something better of volume III. I cannot share your opinion, and believe I have done my duty by presenting Marx in Marx’s words, even at the risk of requiring the reader to do a bit more thinking for himself. ...”
Letter, Engels to W. Sombart, from London, March 11, 1895
https://www.marxists.org/archive/marx/works/1895/letters/95_03_11.htm
Let us look at that crucial passage again below:
“When commodity exchange began, when products gradually turned into commodities, they were exchanged approximately according to their value. It was the amount of labour expended on two objects which provided the only standard for their quantitative comparison. Thus value had a direct and real existence at that time. We know that this direct realisation of value in exchange ceased and that now it no longer happens. And I believe that it won’t be particularly difficult for you to trace the intermediate links, at least in general outline, that lead from directly real value to the value of the capitalist mode of production, which is so thoroughly hidden that our economists can calmly deny its existence. A genuinely historical exposition of these processes, which does indeed require thorough research but in return promises amply rewarding results, would be a very valuable supplement to Capital.”
According to Engels, it was only in the distant past when commodity exchanges actually started to begin that labour time was used as a method by which to fix exchange values: it was only then that “value had a direct and real existence.” But then “direct realisation of value in exchange ceased and ... now it no longer happens.” It is remarkable that Engels doesn’t even attempt to defend the idea that abstract socially-necessary labour time determines exchange values in modern capitalism either.

Engels was giving the whole game away in this letter – and admitting that the exposition of the labour theory of value in volume 1 of Capital is a fiction.

Either that or Marx was one of the most incompetent economic writers of all time, for in Chapter 1 of volume 1 of Capital Marx should have carefully qualified his whole account with exactly the type of qualifications that Engels makes in this letter: that only in the ancient world when human beings first started to exchange goods did labour time supposedly determine exchange value. But in that case Marx’s exposition of the labour theory would have been essentially the same as that of Adam Smith:
“In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days’ or two hours’ labour, should be worth double of what is usually the produce of one day’s or one hour’s labour.

If the one species of labour should be more severe than the other, some allowance will naturally be made for this superior hardship; and the produce of one hour’s labour in the one way may frequently exchange for that of two hours’ labour in the other.

Or if the one species of labour requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents will naturally give a value to their produce, superior to what would be due to the time employed about it. Such talents can seldom be acquired but in consequence of long application, and the superior value of their produce may frequently be no more than a reasonable compensation for the time and labour which must be spent in acquiring them. In the advanced state of society, allowances of this kind, for superior hardship and superior skill, are commonly made in the wages of labour; and something of the same kind must probably have taken place in its earliest and rudest period.

In this state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity is the only circumstance which can regulate the quantity exchange for which it ought commonly to purchase, command, or exchange for.” (Smith 1845: 20).
So here we see that the view Engels communicated to Sombart was, more or less, one that could be found in Adam Smith.

How credible is it? Not very. As a matter of fact, Piero Sraffa examined this question in the late 1920s by studying the anthropological and historical literature of his day, such as F. R. Eldridge’s Oriental Trade Methods (1923), Karl Bücher’s Industrial Evolution, Raymond Firth’s Primitive Economics of the New Zealand Maori (1929), and E. E. Hoyt’s Primitive Trade. Its Psychology and Economics (1926) and other works (Kurz and Salvadori 2010: 200–202). Sraffa found no evidence that time and labour played the fundamental role in determining exchange value in non-Western and less economically-developed societies (Kurz and Salvadori 2010: 200–201).

Now the modern reader will no doubt complain that 1920s anthropology was tainted by a certain Western bigotry, prejudice and ignorance and I would not doubt this, but certain facts do still stand out. Bücher (1907: 19), for example, noted that in the absence of modern time-keeping methods, tribal societies seem to face severe difficulties even properly measuring time. How, then, can they have relied on labour time as the fundamental determinant of exchange value in the distant past?

Admittedly, I have not done a detailed survey of the most recent anthropological and historical literature on this question, but a quick look suggests that modern anthropology seems to confirm what Sraffa found, and that subjective utility, reciprocal satisfaction, ceremonial exchange, and fairness play the fundamental role in ancient and non-Western exchange of commodities, not labour time (e.g., Sahlins 1972; Firth 1965: 342; Gregory 2002). Indeed, the non-Western practice of “silent trade” in commodities where the parties do not even meet directly (Dale 2010: 91) appears to make a nonsense of the idea that ancient people determined exchange values in real commodity (and not ceremonial or social) exchange by labour time.

If the modern literature upholds what Sraffa found, then not even Engels’ weak version of the labour theory of value can be taken seriously.

BIBLIOGRAPHY
Boudin, Louis Boudianoff. 1920. The Theoretical System of Karl Marx in the Light of Recent Criticism. Charles H. Kerr, Chicago.

Bücher, Karl. 1907. Industrial Evolution (trans. S Morley Wickett from 3rd German edn.). Henry Holt and Company, New York.

Dale, Gareth. 2010. Karl Polanyi: The Limits of the Market. Polity, Cambridge.

Firth, Raymond. 1929. Primitive Economics of the New Zealand Maori. G. Routledge & Sons, London.

Firth, Raymond. 1965. Primitive Polynesian Economy (2nd edn.). Routledge & K. Paul, London.

Gregory, C. A. 2002. “Exchange and Reciprocity,” in Tim Ingold (ed.), Companion Encyclopedia of Anthropology. Routledge, London and New York. 911–930.

Kurz, Heinz D. and Neri Salvadori. 2010. “Sraffa and the Labour Theory of Value: A Few Observations,” in John Vint et al. (eds.), Economic Theory and Economic Thought: Essays in Honour of Ian Steedman. Routledge, London and New York. 189–215.

Sahlins, Marshall David. 1972. Stone Age Economics. Aldine-Atherton, Chicago.

Smith, Adam. 1845. An Inquiry Into the Nature and Causes of the Wealth of Nations, Thomas Nelson, Edinburgh.

Sombart, Werner. 1894. “Zur Kritik des ökonomischen Systems von Karl Marx” [Toward a Critique of the Economic System of Karl Marx], Archiv für soziale Gesetzgebung und Statistik 7: 555–594.

93 comments:

  1. Marx, 'Value, Price and Profit' (1865), Chapter 6: Value and Labour:

    "It suffices to say the if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say with their values, as determined by the respective quantities of labour required for their production. But supply and demand must constantly tend to equilibrate each other, although they do so only by compensating one fluctuation by another, a rise by a fall, and vice versa. If instead of considering only the daily fluctuations you analyze the movement of market prices for longer periods, as Mr. Tooke, for example, has done in his History of Prices, you will find that the fluctuations of market prices, their deviations from values, their ups and downs, paralyze and compensate each other; so that apart from the effect of monopolies and some other modifications I must now pass by, all descriptions of commodities are, on average, sold at their respective values or natural prices. The average periods during which the fluctuations of market prices compensate each other are different for different kinds of commodities, because with one kind it is easier to adapt supply to demand than with the other."

    (paragraph 20) https://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm

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    1. Yes, that reflects Marx's older thinking:

      http://socialdemocracy21stcentury.blogspot.com/2015/04/marxs-wage-labour-and-capital.html

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    2. This comment left by Ian (Anarchist FAQ author) on the page you linked to seems to me to explain things clearly:

      "So, yes, a good needs to have a use-value in order to be exchanged -- and this is a subjective thing (a utility). However, for goods which can be reproduced then the costs of production regulate its market price in the medium/long term. Short term changes in price increase/decrease market price, increasing/decreasing profit levels which in turn lead to investment/disinvestment decisions which, in turn, increases/decreases the supply of goods. This drives the market price back towards the price of production.

      Marx in "Capital" does not make this remotely easy to understand -- Ricardo in his "Principles" explains it far better and far clearer, as does Smith."

      http://socialdemocracy21stcentury.blogspot.co.uk/2015/04/marxs-wage-labour-and-capital.html?showComment=1428658855222#c1954299916411398309

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    3. LK,

      I don't think you're correct to say that the quote I posted above from 'Value, Price and Profit' reflects Marx's 'older thinking', as if this is no longer what he thinks in 'Capital'.

      The introduction to 'Value, Price and Profit' on the Marxists.org site says the following:

      "In the second part of [Value, Price and Profit] Marx give popular exposition of the fundamental theses of the theories of value and surplus value and of the conclusions derived from these theories. As is mentioned by Marx in his letter to Engels, this part contains an exposition of several theses from his book Capital on which he was working at the time. Although it is so condensed, this part of the work nevertheless constitutes a model of lucid exposition and a consummate popularization of the economic theory of Marx. A study of this pamphlet is still the best introduction to Marx’s Capital."

      https://www.marxists.org/archive/marx/works/1865/value-price-profit/introduction.htm

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    4. If by "natural price" Marx means what he later calls “average price” (= cost of production price plus a uniform long-run rate of profit) , then, no, the essay you describe is not what he later thought in vol. 1 of Capital:

      " The continual oscillation in prices, their rising and falling, compensate each other, and reduce themselves to an average price, which is their hidden regulator. It forms the guiding star of the merchant or the manufacturer in every undertaking that requires time. He knows that when a long period of time is taken, commodities are sold neither over nor under, but at their average price. If therefore he thought about the matter at all, he would formulate the problem of the formation of capital as follows: How can we account for the origin of capital on the supposition that prices are regulated by the average price, i.e., ultimately by the value of the commodities? I say ‘ultimately,’ because average prices do not directly coincide with the values of commodities, as Adam Smith, Ricardo, and others believe.” (Marx 1906: 184–185, n. 1).

      So here "average prices" do not directly coincide with the values of commodities, but in the essay "Value, Price and Profit" (1865) you cite he seems to say the opposite of this:

      "It suffices to say the if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say with their values, as determined by the respective quantities of labour required for their production."

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    5. I think that's maybe because, according to Marx, this 'regulation' of market prices by values only really happens on average through offsetting fluctuations in prices, rather than the market directly settling, at the end of a process, on an equilibrium price which is equal to value.

      As Marx says in the quote I posted:

      "But supply and demand must constantly tend to equilibrate each other, although they do so only by compensating one fluctuation by another, a rise by a fall, and vice versa. If instead of considering only the daily fluctuations you analyze the movement of market prices for longer periods, as Mr. Tooke, for example, has done in his History of Prices, you will find that the fluctuations of market prices, their deviations from values, their ups and downs, paralyze and compensate each other; so that apart from the effect of monopolies and some other modifications I must now pass by, all descriptions of commodities are, on average, sold at their respective values or natural prices."

      (I don't know enough about it to be sure though).

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  2. Engels was giving the whole game away in this letter – and admitting that the exposition of the labour theory of value in volume 1 of Capital is a fiction.

    See my most recent comment under your May 12th post. It is nowhere claimed that it is actually the case that commodities exchange at their value under capitalism; it's an assumption for explanatory purposes.

    (And yes, obviously anthropology et al have improved significantly since the late 19th century, though one should be careful not to conflate "commodity" with "good." A commodity is created specifically for exchange, and does indeed predate capitalism. Merchantry is incredibly ancient.)

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    1. " It is nowhere claimed that it is actually the case that commodities exchange at their value under capitalism; it's an assumption for explanatory purposes."

      Famous last words:

      “We have assumed that the coat is worth twice as much as the linen. But this is merely a quantitative difference, and does not concern us at the moment. We shall therefore simply bear in mind that if the value of a coat is twice that of 10 yards of linen, 20 yards of linen will have the same value as a coat. As values, the coat and the linen have the same substance, they are the objective expressions of homogeneous labour.” (Marx 1982: 124).

      If only Marx had added: "oh, by the way, this NEVER actually happens in capitalism!"

      hahaha

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    2. Uh, LK, you may want to read the quote you just shared a bit more carefully.

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    3. Hedlund,

      am I right in thinking that Marx's argument that market prices are regulated by labour values only applies in the case of reproducible commodities? i.e. that there is no reason why this should occur in the case of goods which are strictly limited in supply?

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    4. Yes, it only applies to **reproducible commodities**, not (1) goods produced merely for use value or home use or (2) as in volume 3 of Capital, Marx admits that the prices of things which “cannot be reproduced by labour, such as antiques, works of art by certain masters, etc. … may be determined by quite fortuitous combinations of circumstances” (Marx, Karl. 1991. Capital. A Critique of Political Economy. Volume Three. (trans. David Fembach). Penguin Books, London. p. 772).

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    5. Also excluded presumably are goods produced in pre-modern or tribal societies for ceremonial purposes or gift exchange.

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    6. Philippe: LK's got the right of it there, though I'm still not sure what he thought he was illustrating amid the nefarious cackling and mustache twirling just beforehand.

      Near as I could tell, he was rebutting a claim that "X is an assumption rather than a tenet of the theory" with a passage that starts off describing an explicit assumption, using the word itself, and tries to use (bolded) passage stating that both commodities possess value to argue that Marx was saying they therefore exchange exactly at it.

      It's puzzling.

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  3. Hi,

    Engels and Marx were no fools so they would hardly "give the game away" ... this should have given you pause, I think. The main problem with your article is that it misses the elephant in the room: which is Marx's theory of the transformation of values to prices of production in Volume 3 of Capital.

    Marx claimed that capitalist property relations cause prices to systematically deviate from their values (which is why both Marx and Engels are happy to state that "We know that this direct realisation of value in exchange ceased and that now it no longer happens"). However, Marx claims that the deviation or distortion caused by the establishment of a general profit-rate is *conservative* in the following sense: (i) the money profit-rate equals the value profit-rate, (ii) the total profit is proportional to the total surplus-value, and (iii) the price of the gross output is proportional to its value.

    Hence, Marx claims that values continue to explain and regulate production-prices in spite of the deviation, which he therefore claims is merely apparent -- and due to the distorting effect of capitalist property relations.

    No matter what one thinks of this theory it clearly differentiates Marx from Smith and Ricardo. Smith restricted the labour theory to an early and rude state. Ricardo claimed it explained a significant component of capitalist prices (which empirical studies confirm) but nonetheless admitted there was "another less powerful cause", other than values, of the determination of natural prices (e.g., reward for waiting). Marx, in contrast, claims that all this is mere surface appearance. Underneath, it's still labour values.

    And, of course, Marx explicitly assumes in Volume 1 of Capital that (contrary to empirical reality) prices = values. He says he will postpone discussion of this issue when he considers the competition of many capitals.

    So the "astonishment" you find in Engels' letter about what he thought of the labour theory "in private" is way off the mark. This is their public position. So your blog post is based on a misunderstanding of M&E's theory.

    Best wishes,
    -Ian.

    P.S. For those interested in a fuller explanation of Marx's transformation, and the problems with it, and possible resolutions, see:
    http://ejpe.org/pdf/7-1-art-2.pdf

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    1. (1) "And, of course, Marx explicitly assumes in Volume 1 of Capital that (contrary to empirical reality) prices = values. "

      And where in vol. 1 does he explicitly say this?
      I am willing to bet you won't be able to say where.

      (2) Marx never explains how SNLT creates a market price directly corresponding to it. To do so would need strict criteria:

      (i) demonstrate how to reduce all heterogeneous human wage labour to a common, meaningful homogeneous quantitative unit and assign a consistent money unit to 1 unit of SNLT, e.g., 1 labour money unit equals one unit of homogeneous labour time, and

      (ii) ensure that in real world capitalism wage labourers are paid exactly in accordance with the socially necessary labour time appropriate for their labour,

      (iii) price all non-labour factor inputs in terms of socially necessary labour time required to produce them.

      (iv) price all output goods in accordance with SNLT values.

      This is not what happens in capitalism and everyone who isn't a Marxist cultist knows this.

      (3) And the aggregate identity in vol. 3 where value = price is empirically worthless and has no explanatory power.
      ----
      All in all, the LTV is untrue, empirically irrelevant if formulated as an analytic concept and explains nothing that cannot be explained already perfectly well by Post Keynesian economics.

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    2. LK,

      "ensure that in real world capitalism wage labourers are paid exactly in accordance with the socially necessary labour time appropriate for their labour"

      If that happened then there would be no profit, as far as I understand it.

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    3. Right.

      And at certain points in his writings Marx does seem to think that a cost of production price (with no profit) equals labour value:

      “The determination of price by cost of production is tantamount to the determination of price by the labortime requisite to the production of a commodity, for the cost of production consists, first, of raw materials and wear and tear of tools, etc., i. e., of industrial products whose production has cost a certain number of work-days, which therefore represent a certain amount of labor-time, and, secondly, of direct labor, which is also measured by its duration.” (Marx, Karl. 1902. Wage-Labor and Capital. New York Labor News Company, New York. p. 34).

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    4. Yes. Because, overall, profit comes from the fact that workers are not paid the full value of their labour. Supposedly.

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    5. Though apparently this is only holds in the case of reproducible commodities.

      If, on the other hand, a worker produces a commodity which is in fixed supply (and the worker owns that commodity), then the worker can receive more than the value of their labour when they sell it. This would be profit.

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    6. "If, on the other hand, a worker produces a commodity which is in fixed supply (and the worker owns that commodity), then the worker can receive more than the value of their labour when they sell it. This would be profit."

      Yes, say, a great or popular painter or artist. Good point.

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  4. (1) "The calculations given in the text are intended merely as illustrations. We have in fact. assumed that
    prices = values. We shall, however, see, in Book III., that even in the case of average prices the assumption cannot be made in this very simple manner." Chapter 9, Capital, Volume 1.

    I'll respond to your other points (2) and (3), which go beyond what you state in your blog post, as soon as I can.

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    1. "The calculations given in the text are intended merely as illustrations. We have in fact assumed that prices = values. We shall, however, see in Volume 3 that even in the case of average prices the assumption cannot be
      made in this very simple manner."


      That refers to the examples given in Chapter 9 in the section "The degree of exploitation of Labour power". Marx is NOT saying in this footnote that in all examples throughout vol. 1 he is merely assuming that price = value. Try again.

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    2. Ian: Not to mention it's the whole conclusion of chapter 5, expressed both in body and footnote, which has been pointed out to LK a number of times.

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    3. And even if we take your interpretations seriously, it also has damning consequences: if you are going to tell me that Marx NEVER thought that in real world capitalism price = SNLT value, then his whole proof of labour value in Chapter 1 collapses like a house of cards: for the proof consists in saying that in a commodity exchange, there is an equality but it cannot be equal use values, so it must be equal SNLT.

      So, basically, you're saying that Marx tried to prove labour value is a true explanation of exchange value based on something that NEVER happens in real world capitalism?! hahahaha.

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    4. I'm still not sure what point you're trying to make here, LK. You've expressly disavowed interpreting him as meaning price = value in all cases, so you agree with us on that much. Is it that Marx didn't make it clear enough that it was an assumption? I guess we can agree to disagree on that point, since that's a question of presentation, rather than the content of the theory ("de gustibus...").

      So, if we're in agreement on the substance of the theory, why keep harping on this? At the very least, if it's just a question of aesthetics, then I'll be happy to stop debating it.

      Marx NEVER thought that in real world capitalism price = SNLT value

      Well, no, he said they can be equal. I've taken pains to spell out the epistemological status of inserting a "never" here.

      the proof consists in saying that in a commodity exchange, there is an equality but it cannot be equal use values, so it must be equal SNLT.

      Sigh. No. Locating the quantitative aspect of exchange in a common commensurability is not the same thing as stating that "price = SNLT value" — an interpretation of Marx that, if we're keeping count, neither Marx, nor Engels, nor I, nor Ian, nor any Marx scholar, and nor yourself agree with.

      What side of whose table are you taking up, here, exactly?

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    5. "Well, no, he said they can be equal."

      Explain to me exactly when and how a real world market price equals or directly corresponds to the SNLT value.

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    6. Also, if you are now admitting that there ARE some instances when individual market prices equal SNLT, then your attempt here to deny that very point collapses:

      (1) It's clear from my examples that "vol 1" does not give this impression — or at least certainly not uniformly, and those statements made in unequivocal terms say otherwise (e.g., ch 3).
      http://socialdemocracy21stcentury.blogspot.com/2015/05/duhrings-review-of-capital-and-marxs.html?showComment=1431682239977#c1915731669478469630

      Here you have the gall to accuse me getting Marx's theory wrong, when I already said that I think Marx's view is that

      (1) there are exchange values/real prices in capitalism that directly correspond to SNLT;
      http://socialdemocracy21stcentury.blogspot.com/2015/05/duhrings-review-of-capital-and-marxs.html?showComment=1431674663092#c1551607685477465326

      Now you agree with me! You are confused and incoherent, Hedlund. Your views keep changing within minutes.

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    7. Okay, that's easy enough. (But would it kill you to say "please" once in a while?)

      When: Randomly.

      How: By pure accident.

      Elaboration: Start with market prices. Then figure out prices of production via average profit. Then correct for its divergence from the average organic composition of capital. This yields a value, in money terms. If that value equals, say, $10, and the market prices happen to vary from $8 to $15, but somewhere in that spread one of them happens to equal $10, then that is how a real world market price equals value: By sheer coincidence.

      Reminder: Since the K is constant in both price and value, only the difference or equality between s (surplus value) and p (profit) determines the difference or equality between value and price.

      Marx: "It is then only an accident if the surplus-value, and thus the profit, actually produced in any particular sphere of production, coincides with the profit contained in the selling price of a commodity."

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    8. So you think that occasionally by sheer accident some market prices correspond to SNLT?

      But since that could only happen if one unit of SNLT was assigned a consistent money unit (say, 1 SNLT unit = 1 unit of money or 5, or 10, 20) and one assumed that wages were strictly paid in accordance with SNLT and this money value, it is such a grossly underdetermined explanation as to be laughable.

      As I said above, in order to rigorously define and prove the LTV, you need to:

      (i) demonstrate how to reduce all heterogeneous human wage labour to a common, meaningful homogeneous quantitative unit of abstract labour time and assign a consistent money unit to 1 unit of SNLT, e.g., 1, or 2, 3 or 4 etc. labour money unit equals one unit of homogeneous labour time, and

      (ii) ensure that in real world capitalism wage labourers are paid exactly in accordance with the socially necessary labour time appropriate for their labour,

      (iii) price all non-labour factor inputs in terms of socially necessary labour time required to produce them.

      (iv) price all output goods in accordance with SNLT values need to produce them.
      ---
      But at different money rates corresponding to one unit of SNLT (say, 1, 2, 3, 4 , 5, 6, 7 etc.) you can potentially have any number of given prices corresponding to SNLT, and any number of accidental instances where price = SNLT.

      Your whole explanation is laughable, incoherent and a worthless analytic and non-empirical concept.

      It also makes complete nonsense of Marx's view:

      "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).

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    9. "Gall"? It's no gall to suspect someone of not getting a theory that they have spent two solid months of inquiry (more if we travel back to your very first post on Marx in 2009) not getting, and continue to illustrate all the ways it continues to elude them in ongoing discussions.

      My views have remained completely consistent. The way I explain the theory today is the same way I explained it in March. The only thing that varies is the extent to which I am able to follow your own shifts in argumentation, which of late have been making my head spin.

      You've misread something for weeks on end ("Marx says price = value"), and then abruptly changed positions ("Marx doesn't state clearly enough that price != value") while not doing much to advertise this — which is ironic considering the latter criticism. The result is that when you say "there are exchange values in capitalism that directly correspond to SNLT," I mistakenly take that to indicate you're still saying the first thing.

      It doesn't help that "there are exchange values/real prices in capitalism that directly correspond to SNLT" does not actually get at any of the substance of the theory; it's sheer trivia, on par with "there are people who make in a year the average gdp per capita of their country."

      So sure, I'll cop to confusion on this point.

      On an unrelated note: Could you please try to be less confusing?

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    10. So in short you admit I am right:

      (1) I say Marx says in vol. 1 that there some prices in capitalism that equal or directly correspond SNLT value.

      (2) you say, yes, there are, even though they happen by sheer accident.
      -----
      Correct?

      I am not interested in rambling comments like the one above.

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    11. But since that could only happen if one unit of SNLT was assigned a consistent money unit (say, 1 SNLT unit = 1 unit of money or 5, or 10, 20) and one assumed that wages were strictly paid in accordance with SNLT and this money value

      Where on earth are you getting any of this nonsense? I just gave an example of value = price that made no assumptions about wage rates. And yes, since both are in money terms, the units are consistent. One could, as I've said any number of times, now, find the MELT to place it in terms of SNLT.

      As I said above, in order to rigorously define and prove the LTV, you need to:

      Again, where are you getting any of this? You're all over the place. What specific hypothesis are you seeking to "prove"? The analytical lens itself? That value = SNLT? How do you prove a definition?

      (i) this is easily done, and has been explained to you.
      (ii) this is not at all necessary, and I don't even know why you included it
      (iii) this shows a poor understanding of the theory, since input prices are part of output values ex post
      (iv) this is also not a requirement of the theory, and the fact that you think it is poses a real problem to your claims to having understood it!

      you can potentially have any number of given prices corresponding to SNLT

      Right. If the same commodity sells for a range of prices, and the value happens to fall within that range, it's not at all unrealistic to believe one of them may be exactly equal, but it doesn't particularly matter one way or another.

      Your whole explanation is laughable, incoherent and a worthless analytic and non-empirical concept.

      Rude. Let's get you to the point where you're not confusing ex post and ex ante before you start throwing around fighting words, champ.

      It also makes complete nonsense of Marx's view:

      No, I've already explained this in perfectly sensible terms. Considering you bill yourself a "realist," the notion of systemic constraint should be second nature to you, since it's at the core of any stratified model of reality — e.g., the laws of chemistry constrain the laws of biology such that they cannot violate the former, but they otherwise operate independently of it.

      This is just another case of LK plugging his ears and saying "la la la" instead of actually putting even the slightest effort into understanding something he decided in advance he didn't like. Zzzz.

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    12. "Again, where are you getting any of this? "

      It comes right from Capital or follows logically from the way Marx defines SNLT. But I wouldn't expect an incoherent ramming Marxist cultist like you to appreciate what Marx plainly says and clear inferences from what Marx says.

      " If the same commodity sells for a range of prices, and the value happens to fall within that range, it's not at all unrealistic to believe one of them may be exactly equal, but it doesn't particularly matter one way or another."

      So a price equalling labour value could be anything you want it to be?? hahahaha

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    13. "Detailed," you mean?

      For crying out loud. Is that why you've spent two whole months not getting anything I've said? I put no small effort into giving you the most thorough explanations I can. Don't be a dick.

      As I originally said about two months ago: Yes, they can be equal. It's rare, but there's no reason to think it impossible.

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    14. It comes right from Capital or follows logically from the way Marx defines SNLT. But I wouldn't expect an incoherent ramming Marxist cultist like you to appreciate what Marx plainly says and clear inferences from what Marx says.

      Don't. Be. A. Dick.

      I can see how you might have missed that first word, so I bolded it this time. You are carving out new niches in Rude Theory, and not much else.

      Either back up your claim or just admit that you can't. No skin off my back either way.

      So a price equalling labour value could be anything you want it to be?? hahahaha

      ...Again, where are you getting that from?

      Are you a bot? That's a "bot"-level non sequitur, there. Maybe we should take a break from value theory and instead peek at a Turing test. Or, failing that, English, because I don't see how what you said maps in any way to the quoted remark.

      Get a grip, LK.

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    15. The evidence for how Marx defines SNLT and an analysis of what would be logically required to make price = value true has already been laid out here:

      http://socialdemocracy21stcentury.blogspot.com/2015/05/marxs-abstract-socially-necessary.html

      This thread is closed.

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  5. All Marx's examples in Volume 1 assume prices = values, which Marx, as a scholar of Smith and Ricardo, understood cannot hold for natural prices with a uniform profit-rate. That is why he states that he will address this issue in Volume 3. There are may quotes, throughout the three volumes of Capital, of this nature. For example, in Volume 3, Ch. 8, where Marx begins to discuss the deviation of prices from values, he states: "These
    statements hold good on the assumption which has been the basis of *all* our analyses so far, namely that the commodities are sold at their values" (my emphasis). He then drops that assumption and presents his theory of the transformation.

    Here I am not concerned with the correctness or incorrectness of Marx's theory of value. But I do think that if one wishes to critique Marx's labour theory of value -- which you clearly wish to do -- then it is important to first understand that theory -- which you clearly have yet to do.

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    1. Just as above, if we take your interpretations seriously, it has damning consequences: if you are going to tell me that Marx NEVER thought that in real world capitalism price = SNLT value, then his whole proof of labour value in Chapter 1 collapses like a house of cards: for the proof consists in saying that in a commodity exchange, there is an equality but it cannot be equal use values, so it must be equal SNLT.

      So, basically, you're saying that Marx tried to prove labour value is a true explanation of exchange value based on something that NEVER happens in real world capitalism?

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    2. "All Marx's examples in Volume 1 assume prices = values, which Marx, as a scholar of Smith and Ricardo, understood cannot hold for natural prices with a uniform profit-rate. "

      So you are saying that a cost of production price (with zero profit) would in Marx's view be equal SNLT value? Is that correct?

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    3. Marx seems to be saying that the deviations of prices from values will cancel each other out on average over the medium-long term...

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    4. (assuming reproducible commodities and no monopoly)

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  6. This is not my interpretation. It is the standard interpretation, shared by supporters and critics alike. Even Paul Samuelson, the arch critic, understands this structure of Marx's theory.

    As I pointed out, Marx's theory of the transformation attempts to explain that production prices cannot equal values, in virtue of capitalist property relations, but nonetheless are *conservative* transforms of them, and therefore prices continue to be explained by values (and are their ultimate regulator). Hence, Marx does offer a theory of what happens in capitalism.

    By all means, critique Marx's theory of value. But don't critique a straw man. For example, Engels drew attention to the contradiction between the law of value (prices = values) and capitalist competition in his forward to Volume 2 of Capital, and informed readers that Marx's solution would be revealed in Volume 3. He encouraged readers, in the meantime, to offer their own resolution of the contradiction (this is known as Engel's prize essay competition).

    This is hardly "thoughts in private"!

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    1. I repeat: are you saying that a cost of production price (with zero profit) would in Marx's view be equal SNLT value? Is that correct?

      Delete
  7. Marx would never say that empirical prices are proportional to value, since he is working within the classical framework of the gravitation of market prices to natural prices. Marx states that the deviation of prices from values, due to imbalances between supply and demand, is the mechanism by which social labour is allocated to different sectors of production according to demand.

    So simple relationships between prices and value only hold in natural price equilibrium.

    Marx would agree that in a natural price equilibrium, with zero profit, that prices are proportional to values. (This is Smith's case).

    Marx also states that in a natural price equilibrium, with a positive, uniform profit-rate and equal organic compositions of capital (OCC), then prices are proportional to values.

    Marx further states that in natural price equilibrium, with a positive profit-rate and unequal OCC, then prices are not proportional to values, but are conservative transforms of them.

    We also know, from Sraffa's work, that natural prices are proportional to labour-values if the net product is in standard proportions.

    Finally, natural prices can be proportional to labour-values in certain kinds of balanced growth models.

    I hope this answers your question.

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    1. "So simple relationships between prices and value only hold in natural price equilibrium.

      Marx would agree that in a natural price equilibrium, with zero profit, that prices are proportional to values. (This is Smith's case)."


      Bingo. But it is nonsense. Ayone who isn't a Marxist cultist can see this is untrue.

      As I said above, in order to rigorously define and prove the LTV and show that a cost of production price would equal SNLT, you need to:

      (i) demonstrate how to reduce all heterogeneous human wage labour to a common, meaningful homogeneous quantitative unit of abstract labour time and assign a consistent money unit to 1 unit of SNLT, e.g., 1 labour money unit equals one unit of homogeneous labour time, and

      (ii) ensure that in real world capitalism wage labourers are paid exactly in accordance with the socially necessary labour time appropriate for their labour,

      (iii) price all non-labour factor inputs in terms of socially necessary labour time required to produce them.

      (iv) price all output goods in accordance with SNLT values need to produce them.
      -----------
      Only then would a cost of production price with zero profit equal SNLT.

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    2. But the money value you might assign to 1 unit of SNLT is ultimately arbitrary, so there could be in theory any number of sets of prices that would correspond to each assigned money unit to 1 unit of SNLT.

      But as we know capitalism does not price wages or commodities in this way. Above all, wages are actually set – though to varying degrees in different sectors – by (1) social and institutional factors, (2) supply and demand and (3) to some extent by how people subjectively value labour, not by reckoning Marx's nebulous and ill-defined abstract socially-necessary labour time required by the worker to produce whatever commodities he creates.

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  8. A natural price equilibrium pretty much meets your conditions (i) to (iv) by definition. So you won't understand what the classical authors are getting at if you evaluate this as a directly empirical claim. You essentially enumerate some of the assumptions necessary for Smith's beaver and deer example to manifest empirically. The more important question, is whether this natural price equilibrium is an attractor for market prices.

    I should also point out that even neoclassical critics of the labour theory, such as, say, Samuelson or Roemer, accept that natural prices are proportional to values in the case of zero profit. Standard economic models will give you the same answer. It's simply not controversial.

    Furthermore, it's fairly easy to demonstrate Smith's case under very mild assumptions, since it's pretty much identical to the law of supply and demand. For example, I prove that values are attractors for market prices in this ROPE article:
    https://app.box.com/shared/bloqt2dh2i
    Of course, further assumptions should be relaxed to increase the robustness of the conclusion etc.

    Clearly you have an axe-to-grind with the classical labour theory of value. But the classical economists were not stupid, far from it. So perhaps you might actually learn something new and interesting by adopting a little more humility when engaging with these texts.

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    1. "A natural price equilibrium pretty much meets your conditions (i) to (iv) by definition. "

      What when prices equal cost of production plus a long run uniform rate of profit, when wages are set by supply and demand and subjective valuation of labour?

      No, it does not. The very idea is laughable.

      For prices to equal value defined as Marx's SNLT as defined in vol. 1 of Capital would require precisely the conditions I have described above.

      A long run Classical equilibrium position does not meet those conditions. Even Marx admitted that labour value in Ricardo's theory is left under-determined:

      Dear Fred,

      With regard to Dühring. It is a great deal from this man that he almost positively receives the section on Primitive Accumulation. He is still young. As a follower of Carey, he is in direct opposition to the free-traders. Added to this he is a university lecturer and therefore not grieved that Professor Roscher, who blocks the way for all of them, should get some kicks. One thing in his appraisal has struck me very much. Namely, so long as the determination of value by working time is left ‘vague’, as it is with Ricardo, it does not make people shaky. But as soon as it is brought into exact connection with the working day and its variations, a very unpleasant new light dawns upon them.

      Letter of Karl Marx to Friedrich Engels in Manchester, 8 January 1868
      https://www.marxists.org/archive/marx/works/1868/letters/68_01_08.htm

      Even worse Marx denies that long run Classical equilibrium natural/average prices equal labour value:

      " The continual oscillation in prices, their rising and falling, compensate each other, and reduce themselves to an average price, which is their hidden regulator. It forms the guiding star of the merchant or the manufacturer in every undertaking that requires time. He knows that when a long period of time is taken, commodities are sold neither over nor under, but at their average price. If therefore he thought about the matter at all, he would formulate the problem of the formation of capital as follows: How can we account for the origin of capital on the supposition that prices are regulated by the average price, i.e., ultimately by the value of the commodities? I say ‘ultimately,’ because average prices do not directly coincide with the values of commodities, as Adam Smith, Ricardo, and others believe.” (Marx 1906: 184–185, n. 1).

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    2. "Even worse Marx denies that long run Classical equilibrium natural/average prices equal labour value"

      He doesn't do that in the quote above.

      What Marx seems to be saying is that whereas Smith and Ricardo saw price as converging to a equilibrium natural price which is equal to value, in reality market prices are regulated by values on average, such that deviations of prices from values cancel each other out on average over the long-term, rather than converging to a single equilibrium price.

      This seems to be what he is saying in this quote from Value, Price and Profit:

      "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 cannot now sift this matter. It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say with their values, as determined by the respective quantities of labour required for their production. But supply and demand must constantly tend to equilibrate each other, although they do so only by compensating one fluctuation by another, a rise by a fall, and vice versa. If instead of considering only the daily fluctuations you analyze the movement of market prices for longer periods, as Mr. Tooke, for example, has done in his History of Prices, you will find that the fluctuations of market prices, their deviations from values, their ups and downs, paralyze and compensate each other; so that apart from the effect of monopolies and some other modifications I must now pass by, all descriptions of commodities are, on average, sold at their respective values or natural prices. The average periods during which the fluctuations of market prices compensate each other are different for different kinds of commodities, because with one kind it is easier to adapt supply to demand than with the other."

      https://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c6

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    3. Marx, Capital vol.3 chapter 9:

      '[…] the average daily wage is indeed always equal to the value produced in the number of hours the labourer must work to produce the necessities of life. But this number of hours is in its turn obscured by the deviation of the prices of production of the necessities of life from their values. However, this always resolves itself to one commodity receiving too little of the surplus-value while another receives too much, so that the deviations from the values which are embodied in the prices of production compensate one another. Under capitalist production, the general law acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.'

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  9. Ian,

    I've been at this for two stinkin' months, now. There is no explanation, however clear or rigorous, that will satisfy him on basic points that even anti-Marxist economists grasp. He nitpicks any detail insufficiently elaborated, but when you go into detail, he dismisses your "rambling." He has no compunctions with making sweeping, authoritative, and epistemically unfounded statements from a place of ignorance, no qualms with taking quotes out of context to score cheap points. Rather than to comprehend, the only goal of our gracious host is to be Right And Also The Winner.

    At this point, I've basically surrendered any hope that we'll see any intellectual honesty come from this. As you also noticed right away, this smacks of axe-grindery. Andrew Kliman also appeared at one point and made one or two posts before catching on and abandoning this site. I don't blame him; it's really gone downhill, lately.

    I'll understand if you want to similarly save yourself this Sisyphean hell. If it weren't for the fact that unwary and unfamiliar readers might be misled, I'd have walked away long ago.

    I appreciate your work, btw! I especially liked your "emergence of the law of value" simulation paper. :)

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    1. " If it weren't for the fact that unwary and unfamiliar readers might be misled, I'd have walked away long ago."

      That says it all. You're terrified criticism will prevent more converts to the Marxist cult-like faith?

      Attempts to implement Marxism have utterly discredited it for any humane and rational person and shown that Enegls' vision of it here is all too true, and its incoherent theories find hardly any support outside the cult, for good reasons that existed long before I wrote anything about it on this blog.

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    2. That says it all. You're terrified criticism will prevent more converts to the Marxist cult-like faith?

      No, quite the opposite. The fact that you view it as a moral imperative to prevaricate in order to discredit a scientific theory actually puts the shoe precisely on the other foot, and places you in the same league as Murray Rothbard.

      I don't make any of my charges against you lightly, and have two months of examples behind them. I think you need to undertake a careful examination of self, and figure out why it is that you're so irrationally dedicated to making a balls of the theory; if it's indeed as incoherent (or even morally repugnant, apparently!) as you say, then you should be able to show as much simply by stating it correctly. And I've stated numerous times that I'd love for Marx to have been wrong, in much the same way it'd be a real relief for climatologists to have been wrong about global warming (if only the facts could be so reassuring.)

      Thus the real question, revealed in your projection, is "why are you so afraid of giving Marx's theory an honest airing?"

      Attempts to implement Marxism have utterly discredited it for any humane and rational person

      If you say so; you make all the facts, after all.

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    3. (1) When you demand that I state it "correctly", all this reduces to is that you demand I state as interpreted in your specific Marxist subcult, the Temporal Single-system Interpretation, which lots of other Marxists disagree with and reject.

      I suppose no other Marxists in human history apart from you and your subcult have ever understood Marx either? lol

      (2) ">Attempts to implement Marxism have
      > utterly discredited it for any humane and rational
      >person

      If you say so; you make all the facts, after all."


      Yes, hedlund, I just made up the millions of victims of Leninism, Stalinism and other communist torture chambers all over the world.

      I expect you are going to tell us next that Marxism has no relationship to even one real world Communist regime in human history?

      That this is not a horrifying vision of what happened in the 20th century when people tried to put Marxism into effect?:

      “A revolution is certainly the most authoritarian thing there is; it is the act whereby one part of the population imposes its will upon the other part by means of rifles, bayonets and cannon — authoritarian means, if such there be at all; and if the victorious party does not want to have fought in vain, it must maintain this rule by means of the terror which its arms inspire in the reactionists. Would the Paris Commune have lasted a single day if it had not made use of this authority of the armed people against the bourgeois? Should we not, on the contrary, reproach it for not having used it freely enough?"
      Friedrich Engels, “On Authority,” 1874
      https://www.marxists.org/archive/marx/works/1872/10/authority.htm

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    4. (1) Yes, when debating someone it is good manners to get their positions correct. Including in Marx's case.

      (2) I always find it interesting that when people starve under communism, it's because of communism; people who starve under capitalism are probably just lazy. Never mind that the USSR and China demonstrated some of the most marked improvements in general standards of living in world history.

      Do you recognize that you are here falling victim to something you yourself have criticized: economic determinism. You're saying that the difference of an economic system (i.e.,replacing competition with coordination) suffices to guarantee an authoritarian dystopia, irrespective of cultural, political, and other considerations. Seriously, interrogate your premises and I bet you'll smell the bullshit in there yourself.

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    5. "Never mind that the USSR and China demonstrated some of the most marked improvements in general standards of living in world history."

      And Nazi Germany cured mass unemployment in the 1930s Germany, but that hardly justifies Nazism, anymore than real output rises in the Soviet Union justified communist tyranny. And in point of fact, by the early 1970s growth in the Soviet Union pretty much came to an end. The communist command economy experienced severe economic problems after that.

      Essentially, it sounds to me like you really are an apologist for Communist authoritarian states. If so, you are sick, delusional and an embarrassment to the left.

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    6. Never compare Nazism with Communism. Never. The blood of millions of Red Army soldiers is the reason you don't live under Nazism right now. Equating Auschwitz with its liberators is among the most disgusting things I've ever seen you do. I'm speechless.

      And yes, the USSR's growth slowed down to "just" 2+% per year in the 70's (still without any economic crisis, of course). The reason why may interest you. (No, wait, scratch that, no it won't; too many words. Rambling.)

      Communist authoritarian states.

      One would think that, the way you use these words, this would be a pleonasm.

      If so, you are sick, delusional and an embarrassment to the left.

      Or, you are so in the dark about history that you'll take to credulously spouting fascist propaganda about "communist tyranny" to discredit any hope for an alternative to capitalism. Typical liberal. You're in no position to judge me as a leftist, because you're not one in any meaningful sense.

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    7. The comparison between Nazism with Communism is entirely just and reasonable. They were both authoritarian systems with an utterly callous disregard for human life. Stalin's number of victims is estimated between 34 to 49 million.

      That you think one can't even make a comparison just shows how sick and twisted you are, and how Marxism corrupts the mind.

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    8. Communism is supposed to be a 'stateless society', i.e. a form of anarchism. According to Marx the communist society would eventually come about after a prior period of state socialism and what he called 'the dictatorship of the proletariat' (rule by the proletariat class).

      The soviet regime referred to its system as socialism rather than as communism proper.

      In communism, distribution is supposedly based on the principle of 'from each according to ability, to each according to his need', whereas under the soviet socialist system the principle was distribution according to work.

      http://en.wikipedia.org/wiki/To_each_according_to_his_contribution

      http://en.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_need

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    9. Also, see non-Marxist, anarchist conceptions of communism and how to get to it:

      http://en.wikipedia.org/wiki/Anarchist_communism

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    10. Philippe,

      The Soviet system was and Marx's dictatorship of the proletariat was intended to be an authoritarian system stripped of all the best features of classical liberalism. Engels tells us how he conceived it in the passage above: as an authoritarian terror state.

      Why otherwise intelligent people on left insist in making excuses for communism, given its bloodsoaked record, is beyond me.

      Delete
    11. I wrote a brief response with the names of some scholars and some concrete figures. Was it lost in the shuffle?

      Delete
    12. As I said, communism is supposed to be a stateless, classless society, i.e. a form of anarchism. It's not an authoritarian state or dictatorship.

      A major disagreement between anarchist communists and Marxist communists was over how to bring about a communist society. Marx claimed that it would necessarily be preceded by a form of state socialism, and the 'dictatorship of the proletariat', whereas anarchists argued that you could and should transition directly to communism by immediately dismantling the state.

      The 'dictatorship of the proletariat' means rule by the proletariat class, in opposition to the existing 'dictatorship of the bourgeoisie'. However this isn't supposed to be a dictatorship by a single dictator, or by an unelected 'inner party', but based on a form of democracy within the proletariat class. However, it would be revolutionary and this would entail violence and authoritarianism in order to overthrow the existing regime.

      Marx and Engels both referred to the Paris Commune as an example of 'dictatorship of the proletariat'.

      Marx also argued that communism would only finally come about in a highly technologically advanced society, with a high degree of automation of labour (where the 'productive forces' are developed to such an extent that you have a situation of abundance), whereas anarchist communists argue that you can have a communist society with any level of technology.

      Also, although the soviets referred to their system as socialist, with the end goal being communism, some marxists and many anarchist communists argue that it was actually a form of 'state capitalism'.

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    13. "The 'dictatorship of the proletariat' means rule by the proletariat class, in opposition to the existing 'dictatorship of the bourgeoisie'. However this isn't supposed to be a dictatorship by a single dictator, or by an unelected 'inner party', but based on a form of democracy within the proletariat class."

      I see no evidence for this.

      How do you explain this vision of the dictatorship of the proletariat by Engels:

      “A revolution is certainly the most authoritarian thing there is; it is the act whereby one part of the population imposes its will upon the other part by means of rifles, bayonets and cannon — authoritarian means, if such there be at all; and if the victorious party does not want to have fought in vain, it must maintain this rule by means of the terror which its arms inspire in the reactionists. Would the Paris Commune have lasted a single day if it had not made use of this authority of the armed people against the bourgeois? Should we not, on the contrary, reproach it for not having used it freely enough?"
      Friedrich Engels, “On Authority,” 1874
      https://www.marxists.org/archive/marx/works/1872/10/authority.htm


      Delete
    14. yeah, in the revolution the enemy is the existing regime and the ruling bourgeois class. So those people wouldn't get a say, obviously. The proletariat class would impose its will, through revolution, on the ruling bourgeois class in order to overthrow the existing regime (the 'dictatorship of the bourgeoisie').

      However, within the proletariat class there would be a form of democracy, not rule by a single dictator or party.

      "In the 1891 postscript to The Civil War in France (1872) pamphlet, Friedrich Engels said: "Well and good, gentlemen, do you want to know what this dictatorship looks like? Look at the Paris Commune. That was the Dictatorship of the Proletariat"; to avoid bourgeois political corruption:

      'the Commune made use of two infallible expedients. In this first place, it filled all posts—administrative, judicial, and educational—by election on the basis of universal suffrage of all concerned, with the right of the same electors to recall their delegate at any time. And, in the second place, all officials, high or low, were paid only the wages received by other workers. The highest salary paid by the Commune to anyone was 6,000 francs. In this way an effective barrier to place-hunting and careerism was set up, even apart from the binding mandates to delegates [and] to representative bodies, which were also added in profusion'.

      http://en.wikipedia.org/wiki/Dictatorship_of_the_proletariat

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  10. I must admit to also being confused now.

    Classical "long-period" equilibrium (in the absence of rent) depends on a large number of counterfactual conditions, including complete fungibility of labour such that wage-rates equalize.

    So you are partially right: some (not all) of your conditions are necessary to demonstrate that prices = value. And the classical authors, including Marx, would agree. These classical ideas have been translated into well-known theorems in linear production theory.

    The key question, which I think you have missed, is whether such natural price equilibria are attractors for market prices in empirical reality. We can discuss this empirical issue if you wish.

    On your last point. Please note there are different kinds of natural price equilibrium. Smith's example is one without capitalist profits. In this case, prices = values in the natural price equilibrium.

    Your quote from Marx about "average prices" applies to a natural price equilibrium with capitalist profits. That's why Marx says they "do not directly coincide with the values".

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    1. (1) "Classical "long-period" equilibrium (in the absence of rent) depends on a large number of counterfactual conditions, including complete fungibility of labour such that wage-rates equalize."

      Once again: bingo. You're saying that if we define a long period position totally abstract and true by definition and in accordance with the necessary conditions, the theory is true?

      This is proof positive that the LTV has no empirical relevance to the real world: it is as irrelevant as the neoclassical natural rate of interest or Milton Friedman's natural rate of unemployment, which you can defend as true by exactly the same legerdemain.

      If you have spent your life trying to defend an utterly abstract theory divorced from empirical content, you Marxists are in the same category as any neoclassical economist.

      (2) regarding the point whether long period Classical or Sraffian prices are empirically relevant, the answer is a clear "no":

      http://socialdemocracy21stcentury.blogspot.com/2015/04/matias-vernengo-on-marxs-labour-theory.html

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    2. Ian,

      "Your quote from Marx about "average prices" applies to a natural price equilibrium with capitalist profits. That's why Marx says they "do not directly coincide with the values"."

      You said above that:

      "Marx also states that in a natural price equilibrium, with a positive, uniform profit-rate and equal organic compositions of capital (OCC), then prices are proportional to values."

      Did you mean that, according to Marx, in a 'natural price equilibrium, with a positive, uniform profit-rate and equal organic compositions of capital', prices are equal to values?

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  11. I'd be happy to discuss the empirical strength of the labour theory of value. There's is a great deal of published work in this area. However, perhaps a new thread/blog-post would be better for this topic.

    For what it's worth, I think you have failed to properly acknowledge the clear evidence against the specific thesis you propose in your initial blog post.

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    1. It is unclear to me what you even mean by the LTV. If you mean only that labour costs form a big part of many total average costs and therefore have a strong relation to mark-up prices, Post Keynesianism already accepts this.

      None of this vindicates the classical LTV.

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    2. Also to return to one point above:

      "Classical "long-period" equilibrium (in the absence of rent) depends on a large number of counterfactual conditions, including complete fungibility of labour such that wage-rates equalize."

      Yes, Classical long-run equilibrium assumes an equalisation of the wage across sectors, and a uniform wage emerges, as fungible labour moves between sectors to higher wage sectors.

      But not even this assumption validates Marx's idea that SNLT can directly determine prices and wages, because it is not an uniform wage Marx needs but wages paid in direct correspondence to the abstract socially necessary labour time required to produce each different commodity.

      Classical long-run equilibrium does not assume that all goods through the economy come to have the same SNLT or all jobs involve the same SNLT either.

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  12. A theory of value is not merely an explanation of the determinants of a structure of relative prices. A theory of value also attempts to answer the following question: What does the unit of account, e.g., 1 pound, represent or measure?

    Possible answers might be some specific thing, nothing, anything etc.

    Neoclassical economic theory answers nothing: prices are merely relative exchange-ratios. They do not denote any non-price substance.

    The LTV answers differently. It claims that natural prices represent, or measure, real costs of production measured in labour time.

    What has the PK literature to say on this matter? Not a lot, as far as I can tell. The PK literature lacks a theory of value in the sense described.

    Yes, the PK literature of course accepts that labour costs are the major determinant of prices. That's because it's true. But the following empirical findings should also give you pause: we find that -- not only are labour-values and aggregate input-output prices highly correlated -- they also outperform any other real cost bases (e.g., real costs measured in units of oil, or corn, or steel etc.)

    Why is that?

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    1. The theory of value problem that you what to solve is a pseudo-problem. The LTV doesn't explain prices of

      (1) non-reproducible commodities, whether antiques, works of art by certain masters, etc,

      (2) second hand goods

      (3) financial assets, etc.

      That is a massive swath of prices in modern capitalism not explained by the LTV.

      Labour costs form a big part of costs of reproducible commodities in industrial and service production, yes, and mark-up prices will reflect average unit labour costs, but doesn't mean that profits only stem from surplus value or that some mysterious SNLT is the price anchor for modern prices.

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  13. I didn't state a problem (not even a pseudo-problem). I asked a question. What does the unit of account represent?

    You may not personally be interested in that question. That's OK. You don't have to be interested in the theory of economic value. There are, of course, lots of other issues in economics to busy oneself with, and which might even be more important and pressing.

    However, you have blogged on Marx's theory of value. So I presume you have some interest.

    I note you did not respond to my question about the meaning of the empirical studies. That is also OK.

    You introduce some new issues. I'd suggest the answers to (1), (2) and (3), in terms of the classical labour theory of value, are already to be found in how the classical authors understand the relationship between market and natural prices, and also their theories of rent. Remember, supply and demand, and therefore scarcity prices, are included within the classical theory. Arguably, marginalism grew out of this aspect of the classical theory. Ricardo, for example, specifically introduced marginal concepts in his theory of rent to explain how such scarcity prices did not invalidate his prior labour theory of value. But this takes us far from your original post.

    I should also state, for clarity, that I also do not think that classical labour-values uniquely determine "modern" prices. Of course they don't. Distributional issues, at the very least, affect prices. You seem to think this invalidates the LTV. But, if I may suggest, that's because you don't yet fully understand it, or are not willing to engage with it as an ongoing scientific research programme.

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    1. (1) Monetary units do not ultimately represent any specific commodity: they are homogeneous counting units that have developed historically from different commodities in different times and places, as diverse as metals to foodstuffs, to cows or even beads. Monetary units are obviously connected historically with divisible fungible goods divided into homogeneous units or by counting numbers.

      But with fiat money these connections to commodities have long since been severed. I see no great mystery here. This is an attempt to bring mysticism into economics where there is no mystery.

      (2) "Distributional issues, at the very least, affect prices. You seem to think this invalidates the LTV. "

      Since it is unclear again how you even define the LTV and it can defined in multiple conflicting senses, so this argument is getting to the point where we are talking past one another.

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    2. "I see no great mystery here"

      So why is a car worth more than a pin?

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    3. An obsolete old banger that cannot run on unleaded petrol isn't worth more than a pin. I had to pay the local council to take it off my hands!

      Next question: Why is the kohinoor diamond worth more than a car?

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  14. Well you have provided an answer to my question. You answer that the unit of account represents "nothing". That is your theory of value. A very popular answer!

    What kind of experiment could you propose to verify your theory?

    Actually, these are very subtle and interesting questions. If you are interested in the theory of value I encourage you to think about them.

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    1. (1) "What kind of experiment could you propose to verify your theory?"

      Holy Christ, the empirical evidence is there for anybody to see:

      (i) consult any good history of the emergence of money from commodities or as created by the state, e.g., Graber's recent book Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y., 2011. Or look through my bibliography here:
      http://socialdemocracy21stcentury.blogspot.com/2012/01/bibliography-on-origins-of-money.html

      (ii) it is matter of historical fact that commodity money in the form of the gold standard was abolished in the 1930s. Our fiat money does not ultimately represent any commodity. It is an abstract unit of account and medium of exchange divorced from any particular commodity, even labour.
      -------
      (2) Your real problem here is not that I haven't given a good answer with evidence to back it up: your problem is you refuse to believe me and want to be stick with a pseudo-problem.

      This is just like those Austrians who wasted their time trying to solve the problem of how money came to have only indirect utility and no direct utility, when that is a a pseudo-problem: in fact, money does have direct utility, and there is no mystery to be solved.

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    2. Finally, even if you want to tell me that money units are really ultimately units of labour time, that doesn't explain the prices of many goods in modern capitalism or profits in many sectors:

      http://socialdemocracy21stcentury.blogspot.com/2015/05/what-labour-theory-of-value-does-not.html





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    3. "Our fiat money does not ultimately represent any commodity. It is an abstract unit of account and medium of exchange divorced from any particular commodity, even labour."

      It must have some value in terms of commodities, otherwise you wouldn't be able to buy anything with it. Why does it have value and why does it buy less of one thing than of another?

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    4. It's value arises from the belief that it will be accepted by others as payment for goods and services. And those who accept it as payment today only do so because of their belief that others will accept it as payment tomorrow. Without this belief, buttressed by past experience and legal tender laws, a fiat currency has no value.

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  15. I didn't ask for empirical evidence regarding the genesis of money! I asked for empirical evidence, or some sort of explanation, for your statement that the unit of account represents "nothing".

    Also, it is irrelevant what the medium for the unit of account is. It can be cows, gold, bytes, or whatever. You are mixing up the representation with its vehicle. A weather vane measures the direction of wind. Clearly, it does not matter what materials were used in making it!

    I mentioned the empirical studies earlier that show that labour is especially explanatory, compared to other real cost bases. You did not respond. But this is the place to look if you want to start thinking about the kinds of evidence that may support, or invalidate, any particular claims regarding a theory of value.

    Currently, your answer of "nothing" is mere assertion. There's a richer tradition you could draw on here, but I'm beginning to suspect that you're not really interested in the theory of value, but probably have a political, rather than scholarly, agenda here.

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    1. (1) That units of our modern fiat money do not properly or ultimately represent any specific commodity is an empirical statement with a huge amount of evidence to support it. Governments do not promise to convert your fiat money to any specific commodity nor does the money unit correspond to any individual commodity.

      (2) that real labour costs form a big part in calculation of cost-based mark-up pricing does not prove that money units are just labour time value, either raw labour hours or Marx's SNLT.

      (3) furthermore, as I mentioned above there is a vast swathe of prices throughout modern capitalist economies NOT explained by nor correlated with labour costs:

      http://socialdemocracy21stcentury.blogspot.com/2015/05/what-labour-theory-of-value-does-not.html

      If money is ultimately labour value, why are many prices not based on costs of production? e.g., second goods are detached from costs of production.

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  16. "Finally, even if you want to tell me that money units are really ultimately units of labour time, that doesn't explain the prices of many goods in modern capitalism or profits in many sectors"

    Aha! We may be getting somewhere. What I've been suggesting is that these two propositions are relatively independent. Once can claim that money units represent labour costs (i.e. hold a labour theory of value), while also maintaining that labour costs are not the sole cause of the structure of relative prices (i.e. acknowledge that many other factors cause this structure).

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    1. The choice of labour is ultimately arbitrary. Why should labour be the "ultimate" value here? Why not energy?

      I could pick energy expended in production and make all monetary units represent energy (whether human labour energy expended or animal labour or natural energy sources used or machine energy), and then hold an energy theory of money.

      In fact, as production becomes more and more automated by machines, robots and AI and human labour falls towards zero an energy theory money would be more empirically relative than a labour theory.

      Or we could pick corn (= wheat) as Ricardo first wanted to do, etc.

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    2. And in fact a labour theory that includes animal labour or natural energy used in production (e..g, wind power) would make a lot more sense empirically since all over the developing capitalist world animal labour is very important, just as it was in the 19th century, where horse labour was vitally important.

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    3. "The choice of labour is ultimately arbitrary"

      No, it isn't. Labour is what is required to produce goods. As such it is a logical place to look to explain basic differences in value.

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    4. "all over the developing capitalist world animal labour is very important"

      Animal labour on its own is useless to us without human labour. Animals can dig holes and eat grass and kill each other as much as they want, but we need human labour to produce or obtain things used by humans.

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  17. "in fact a labour theory that includes animal labour or natural energy used in production (e..g, wind power) would make a lot more sense empirically"

    Well, rather than asserting what you think makes sense empirically, why not examine the (unfortunately limited) literature that examines this question? As I mentioned, many posts earlier, that literature demonstratse that other real cost bases (such as oil, corn, energy etc.), do *not* correlate with aggregate input-output prices like labour costs do. Labour costs are especially explanatory in a statistically significant manner.

    Why is that, I wonder?

    Anyhow, I'm glad you're considering that answers other than "nothing" might be worth thinking about.

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    1. And I've already answered you: labour is indeed a major factor of production influencing the prices of many newly produced goods.

      That does not vindicate Marx's LTV, which would require special conditions as stated above to work.

      And you still haven't explained to me how you define the LTV as you want to defend it.

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  18. http://existentialcomics.com/comic/77

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