Friday, December 11, 2015

“Imaginary” Prices and Marx’s Labour Theory of Value

This is one of the many problems with Marx’s bizarre and incoherent labour theory of value.

In essence, for Marx, factors of production that have no embodied labour value transfer no value into the output commodity:
“It is thus strikingly clear, that means of production never transfer more value to the product than they themselves lose during the labour-process by the destruction of their own use-value. If such an instrument has no value to lose, if, in other words, it is not the product of human labour, it transfers no value to the product. It helps to create use-value without contributing to the formation of exchange value. In this class are included all means of production supplied by Nature without human assistance, such as land, wind, water, metals in situ, and timber in virgin forests.” (Marx 1906: 227).
This is a development of Marx’s idea in Chapter 1 of volume 1 of Capital, as follows:
“A thing can be a use-value, without having value. This is the case whenever its utility to man is not due to labour. Such are air, virgin soil, natural meadows, &c. A thing can be useful, and the product of human labour, without being a commodity.” (Marx 1906: 47–48).
That is to say, things that are not produced by human labour have no real labour value (e.g., air, uncultivated soil, natural meadows) and only fetch an “imaginary” money price (Marx 1906: 115).

But, since a large number of capital goods bought by capitalists must be included in the list of things that Marx thinks have no labour value, we have a severe problem here. Many such goods used in production processes that, for Marx, have only “imaginary” money prices and no labour values still from part of the monetary costs of production for capitalists and are used to calculate cost-based mark-up prices.

Therefore the whole theory of exchange value in volume 1 of Capital is undermined, for goods cannot tend to exchange at pure or true labour values when many of them have prices that include mere “imaginary” money prices of factor inputs with no labour values (such as land, metals in situ, and timber in virgin forests, etc.). For example, purchase of land is by itself for many industries a major cost of production and one that needs to be recouped in the eventual money price of the output good that the business sells.

This is yet another terrible problem for Marx’s labour theory of value.

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

13 comments:

  1. This is getting worse. If you read, say, Ricardo you would see that the aim of the "Labour Theory of Value" was to understand the dynamics of easily reproducible commodities -- those whose supply can be increased by human labour.

    This means that for, say, works of art it does not apply. They have a price determined by supply and demand. The supply cannot be increased as competitors cannot enter the market.

    So, in the short term, price is determined by supply and demand for all commodities. If the commodity is easily reproducible by labour then competitors get attracted to a market where there are super-profits. The increased supply changes market prices, etc. and in the longer term prices tend towards cost (plus profit to get prices of production).

    In this sense, labour (value) regulates the market price -- hence "the law of value" to use Proudhon's term which Marx appropriated.

    All this is irrelevant to the price of natural goods -- there is no "value" because there is not labour costs. The land is simply appropriated and the owner can then sell it to others. Its price is determined by supply and demand.

    So there is no "yet another terrible problem" here -- it is simply a case of ignorance of classical economics. I would really recommend reading Ricardo's "Principles" as he explains this far better than Marx.

    I'm not a Marxist and Marx and Marxism should be critiqued but a better quality is needed! Ironically, these posts on Marx remind me of Marx himself, namely his hatchet-job on Proudhon in "The Poverty of Philosophy".

    Iain
    An Anarchist FAQ
    http://www.anarchistfaq.org.uk

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    1. (1) "If you read, say, Ricardo you would see that the aim of the "Labour Theory of Value" was to understand the dynamics of easily reproducible commodities ..."

      I am well aware of this, but is does not refute anything I have said above.

      (2) "So, in the short term, price is determined by supply and demand for all commodities. If the commodity is easily reproducible by labour then competitors get attracted to a market where there are super-profits. The increased supply changes market prices, etc. and in the longer term prices tend towards cost (plus profit to get prices of production)."

      No. This is a lazy assumption and there is much evidence against it:

      http://socialdemocracy21stcentury.blogspot.com/2015/04/sraffian-long-run-equilibrium-prices-of.html

      (3) "In this sense, labour (value) regulates the market price -- hence "the law of value" to use Proudhon's term which Marx appropriated."

      Labour is not the only cost of production. To say that mark-up prices are strongly influences by labour costs is true, but this reduces the LTV to an utterly trivial idea and doesn't vindicate the central idea of Marxism.

      (4) "The land is simply appropriated and the owner can then sell it to others. Its price is determined by supply and demand. "

      But that is a terrible blow to the law of value in vol. 1 of Capital, which is, as Marx says, "The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210). This is my point above. You've clearly missed it.

      (5) So, wait, you are not a Marxist but you write comments that sound like you are defending the LTV, the core of Marxism ?

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    2. Also, you seem unaware that modern Post Keynesianism has long dispensed with the neo-Ricardian views of Sraffa and the Classical prices of production and Classical long-run equilibrium.

      Try reading Frederic S. Lee and Tae-Hee Jo. 2011. “Social Surplus Approach and Heterodox Economics,” Journal of Economic Issues 45.4: 857–875.

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    3. See also here:

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

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    4. (5) So, wait, you are not a Marxist but you write comments that sound like you are defending the LTV, the core of Marxism ?

      Anarchists generally operate from a similar Classical foundation. Most agree with Marx's ultimate formulation of it, though many argue the same system can be understood in other theorists in their own tradition. I don't have a horse in this race, so I won't comment further on it.

      Also, the law of value isn't the core of Marxism; materialist/realist philosophy is. Marxian perspectives on economics (such as the law of value), or history (such as historical materialism) or politics or what-have-you operate on the basis of real factors such as who or which class performs the work, who benefits, etc.

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    5. Therefore the whole theory of exchange value in volume 1 of Capital is undermined, for goods cannot tend to exchange at pure or true labour values when many of them have prices that include mere “imaginary” money prices of factor inputs with no labour values (such as land, metals in situ, and timber in virgin forests, etc.).

      You're describing rent. He abstracts away from this in Volume I, but addresses it later on.

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    6. "Also, the law of value isn't the core of Marxism;"

      So the "law of value" could be totally removed and exorcised from Marxism and there would be no problem at all?

      lol... Tell us some more B.S., heldlund.

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    7. Can you show how you took "the "law of value" could be totally removed and exorcised from Marxism and there would be no problem at all" from "the law of value isn't the core of Marxism"?

      Please show all work.

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    8. You claimed that the law of value is not part of "the core of Marxism", as if it is just some passing and redundant observation that Marx made that was peripheral to his economic theories. This is 100% B.S. and you know it.

      If so, then the LTV should be capable of being removed from Marxism, without Marxism ceasing to be Marxism.

      You fail. Time and again.

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    9. You claimed that the law of value is not part of "the core of Marxism", as if it is just some passing and redundant observation that Marx made that was peripheral to his economic theories. This is 100% B.S. and you know it.

      No, no. No "as if." Don't do "as ifs," since your inferences have, historically speaking, had no place in my meaning.

      I did not call it peripheral, let alone redundant; merely that it was not the "core" of Marxism. It is a theory based on an examination of evidence through the lens of the core ideas I mentioned. If this were a network diagram, materialist philosophy would be the central point, and the law of value would trunk off of it and form the basis of much in the "economics" quadrant.

      So it's of central importance to "Marxian economics," but not "Marxism" -- the broader category to which Marxian economics belongs.

      Clear now?

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  2. "You're describing rent. He abstracts away from this in Volume I, but addresses it later on."

    No, I am not. When a business buys land, say, as fixed capital and includes it in the cost of production, it will also be used to calculate mark-up prices of the output product.

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    1. To classical economists, the costs associated with undeveloped land, etc., fall under the category of rent -- costs that are incurred on the basis not of labor but the legal abstraction of ownership alone.

      Yes, these do reappear in output prices. Yes, this is discussed later. Just be patient; you'll get there. I know it's a pain, but think of it this way: If patience were easy, it wouldn't be a virtue.

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    2. Actually, so far as I can tell, Marx doesn't successfully 'abstract away' the most important forms of rent. He only does so in a very limited way to certain kinds of rent, such as in regards to land rent.

      Certainly he doesn't manage to isolate and then analytically bracket the element of prices that has to do with the power of legal exclusion from the element of prices that has to do with labor power.

      When the copyrights and patents on a drug produced by a pharmaceutical company expire, for example, commonly the company (think a firm like, say, Pfizer) lowers the price of the drug significantly, even before other companies produce generics to compete with it. (though these new competitors will 'cement' the lower price) These drops in price occur even though nothing has changed in terms of the labor or raw materials deployed in the production process. And these changes in price are just as if not far more influential in determining how the company conducts business (and thus the 'laws of motion' of capitalism) than changes in prices related to rising or falling labor costs.

      What accounts for the change is, of course, not a change of labor power, but a change in the ability of the pharmaceutical company to use forms of legal exclusion like copyright and patent law to secure a monopoly rent on an existing technological development.

      So it's understandable why Marx isn't able to abstract this element of the prices of commodities away in his theory: they are not an accidental aspect of the formation of commodity prices--of value--but an essential aspect of them. Every bit as essential as labor. This is why Marx's theory is simply an incomplete theory of value, no matter what 'interpretation' of it we're talking about. That doesn't mean that there aren't aspects of it that can't be made useful in economic analysis, though--it just means that it is not an all-encompassing explanation of capitalism's 'laws of motion', as Marx and many Marxists want it to be.

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