A Simple Challenge to Marxists on the Theory of Wage Determination in Volume 1 of Capital

To the Marxists everywhere, my simple challenge:

Is your view that Marx’s theory of wage determination in volume 1 of Capital that real wages in capitalism can and will rise above the value of the maintenance and reproduction of labour, and in the long run will keep rising, vastly improving the living standards of workers?

If you say “yes,” then my refutation here of Marx’s view of a rising rate of exploitation in capitalism (from increasing surplus value extracted from workers) is vindicated.

If not, and you think that Marx’s view was that wages tend towards the value of the maintenance and reproduction of labour (and, yes, this was Marx’s view: see here and here), then you need to explain the data on the soaring real wage in capitalism over the past 160 years.

The data in de Zwart et al. (2014) provide a useful summary of the long-run trend in modern capitalism, but for the real wages of building labourers from the 1820s to the 2000s. They provide decadal averages of the real wage of building labourers in Western Europe but expressed in the quantity of subsistence baskets of goods that the daily wage buys.

The long-run trend can be seen in the graph below (with data from de Zwart et al. 2014: 80, Table 4.4).

As we can see and beyond any doubt, real wages for building labourers have soared in the long run. Similar trends are apparent for other skilled, semi-skilled and unskilled workers, and for the average real wage, despite short-term regressive periods such as the First World War, the Great Depression, the Second World War, and the stagnation to some extent in real wages in the neoliberal period.

Because we are dealing here with 160 years of data and the y axis has such a broad range, the graph above obscures the rising real wage in the 19th century.

We can see the 19th century trend in the graph below (with data again from de Zwart et al. 2014: 80, Table 4.4).

So even in the 19th century under gold standard capitalism the real wages of building labourers in Western Europe in terms of the number of subsistence baskets of goods was soaring.

Despite Marx’s theory, wages were not tending towards the value of the maintenance and reproduction of labour, which is clearly a type of subsistence wage.

As I argued here, under the logic of Marx’s own theory (if we accept for the sake of argument the concept of surplus labour value) but contrary to what Marx himself argued, capitalism actually has had a historical long-run tendency to reduce the rate of exploitation. One cheer for capitalism!

BIBLIOGRAPHY
de Zwart, Pim, van Leeuwen, Bas and Jieli van Leeuwen-Li. 2014. “Real Wages since 1820,” in Jan Luiten van Zanden, Joerg Baten, Marco Mira d’Ercole, Auke Rijpma, Conal Smith and Marcel Timmer (eds.), How was Life?: Global Well-Being since 1820. OECD Publishing, Paris. 73–86.

Engels’ Famous Challenge in the Preface to Volume 2 of Capital on the Transformation Problem

In the introduction to volume 2 of Capital written on May 5, 1885, Engels made this famous challenge:

“The Ricardian school failed about the year 1830, being unable to solve the riddle of surplus-value. And what was impossible for this school, remained still more insoluble for its successor, vulgar economy. The two points which caused its failure were these:

1. Labor: is the measure of value. However, actual labor in its exchange with capital has a lower value than labor embodied in the commodities for which actual labor is exchanged. Wages, the value of a definite quantity of actual labor, are always lower than the value of the commodity produced by this same quantity of labor and in which it is embodied. The question is indeed insoluble, if put in this form. It has been correctly formulated by Marx and then answered. It is not labor which has any value. As an activity which creates values it can no more have any special value in itself than gravity can have any special weight, heat any special temperature, electricity any special strength of current. It is not labor which is bought and sold as a commodity, but labor-power. As soon as labor-power becomes a commodity, its value is determined by the labor embodied in this commodity as a social product. This value is equal to the social labor required for the production and reproduction of this commodity. Hence the purchase and sale of labor-power on the basis of this value does not contradict the economic law of value.

2. According to the Ricardian law of value, two capitals employing the same and equally paid labor, all other conditions being equal, produce the same value and surplus value, or profit, in the same time. But if they employ unequal quantities of actual labor, they cannot produce equal surplus-values, or, as the Ricardians say, equal profits. Now in reality, the exact opposite takes place. As a matter of fact, equal capitals, regardless of the quantity of actual labor employed by them, produce equal average profits in equal times. Here we have, therefore, a clash with the law of value, which had been noticed by Ricardo himself, but which his school was unable to reconcile. Rodbertus likewise could not but note this contradiction. But instead of solving it, he made it a starting point of his Utopia (Zur Erkenntniss, etc.). Marx had solved this contradiction even in his manuscript for his ‘CRITIQUE OF POLITICAL ECOMONY.’ According to the plan of ‘CAPITAL,’ this solution will be made public in Volume III. Several months will pass before this can be published. Hence those economists, who claim to have discovered that Rodbertus is the secret source and the superior predecessor of Marx, have now an opportunity to demonstrate what the economics of Rodbertus can accomplish. If they can show in which way an equal average rate of profit can and must come about, not only without a violation of the law of value, but by means of it, I am willing to discuss the matter further with them. In the meantime, they had better make haste. The brilliant analyses of this Volume II and its entirely new conclusions on an almost untilled ground are but the initial statements preparing the way for the contents of Volume III, which develops the final conclusions of Marx's analysis of the social process of reproduction on a capitalist basis.” (Engels 1907 [1885]: 27–29).

By the phrase the “law of value” Engels means the assumption underlying this problem: that commodities tend to exchange at their true labour values.

The problem can be sketched as follows:

(1) in volume 1 of Capital it is assumed that commodities tend to have prices at their true labour values, so that these prices also reflect the surplus value embodied in the commodities.

(2) in turn surplus value determines profits, and it should follow that in such a system different profit rates prevail reflecting the different surplus values, e.g., an industry with much more constant capital and very little variable capital should have a lower profit rate than a labour-intensive industry with a great proportion of variable capital.

(3) yet, under capitalism, competition supposedly tends to create a uniform average rate of profit and so neither (1) or (2) can be true.

Assumption (1) is crucial.

It was later phrased by Marx in volume 3 in this way:

“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).

By volume 3, Marx tried to argue that this assumption was only an empirical reality in the pre-modern world of commodity exchange, and not in 19th century capitalism where prices of production were the anchors for the price system.

But if it were really the case that Marx in volume 1 of Capital thought that the assumption quoted above only applied to the pre-modern world of commodity exchange, then the whole challenge Engels made to the world in the preface to volume 2 of Capital becomes utterly stupid and makes no sense. For then there simply was no transformation problem. No great problem to solve.

In reality – and this is the crux – Marx left everyone with the impression that volume 1 of Capital was asserting that commodities tended to exchange at their true labour values, and that this was a “law of value” in 19th century capitalism. That is why the transformation problem was raised as a challenge for Marxist theory in the first place.

Engels edited and published volume 2 of Capital in July 1885 (Wheen 2001: 385), but volume 3 of Capital did not appear until November 1894 (Wheen 2001: 385) – nearly ten years later. One wonders whether Engels – as he read the catastrophe that was Marx’s draft of volume 3 – delayed publication when he realised that when it was published it would cause derision and prove that Marx’s law of value in volume 1 was bankrupt. Engels also vehemently refused to relate Marx’s solution to the transformation problem to any private correspondents (even Marxists) or to have it printed separately before the publication of volume 3 (Howard and King 1989: 24–25).

At any rate, when volume 3 was published that is essentially what happened, as reviewers like Achille Loria, Werner Sombart, Conrad Schmidt and Eugen von Böhm-Bawerk pointed to the terrible contradictions.

In his Supplement to volume 3, Engels’ last ditch defence of the “law of value” in volume 1 was to retreat into the idea that commodities only ever tended to exchange for their true labour values in the pre-modern world of commodity exchange and that this had ended between about the 15th and early 19th centuries. But, then, why, if that had been his and Marx’s view all along, had there been any need to make such a big deal of the transformation problem in the first place?

Why did Marx never give a clear and explicit statement in volume 1 of Capital to the effect that the law of value there was not meant to apply to 19th century capitalism? Why did he give example after example implying that 19th century capitalism was subject to the law of value?

BIBLIOGRAPHY
Engels, Friedrich. 1907 [1885]. “Preface,” in Karl Marx, Capital. A Critique of Political Economy. The Process of the Circulation of Capital (vol. 2; trans. by Ernst Untermann from 2nd German edn.). Charles H. Kerr & Co., Chicago, and Swan Sonnenschein & Co., London. 7–29.

Howard, Michael Charles and John E. King. 1989. A History of Marxian Economics. Volume I, 1883–1929. Princeton University Press, Princeton, NJ.

Wheen, Francis. 2001. Karl Marx: A Life. W. W. Norton & Company, New York and London.

A Challenge to Truth Relativists

People on the Left who deny objective truth are a plague these days.

I should also point out that I am firmly a person of the Left, and the Right holds no serious attraction for me at all, so my criticisms below do not stem from political Conservatism.

Truth relativism on the Left mostly stems from the fashionable French Poststructuralist and Postmodernist philosophies, from which we get other such comical nonsense, including the following:

(1) the idea that no text can have a fixed meaning intended by its author (from Roland Barthes and endorsed by Michel Foucault);

(2) that language can only refer to itself and not to objects or to reality (from Structuralism and that master charlatan and disgusting fraud Jacques Derrida), and

(3) extreme hostility to the natural sciences (from assorted Postmodernist buffoons).

But there are powerful arguments against the truth relativists.

We have overwhelming empirical evidence that we inhabit a world in which there are objects independent of our feelings, wishes and desires: any people in the same room can sense and describe the world they see and their testimony can be compared, and we can see they describe the same world with the same objects. Likewise, we can all see and experience the same events, processes and actions in this world.

It actually doesn’t matter whether there is an external world of physical matter that is the causal origin of our sensations (although that is the best explanation of the evidence), because even under an idealist ontology we already have overwhelming empirical evidence that there is a reality that objectively exists independently of our own subjective feelings or wishes or desires with a high degree of regularity, consistency and order.

Once we admit that there is an ordered reality independent of our thoughts about it, and that language and propositions can refer to this reality, then it is but a short step to objective truth under the correspondence theory of truth.

Moreover, there is another reason why any sensible, decent left-wing person should vehemently oppose truth relativism – and all its disgusting supporters and apologists on our own side of the political spectrum amongst Poststructuralists and Postmodernists. This is that truth relativism has consequences that quickly lead to plain moral degradation and moral nihilism.

If there is no objective truth and no objective truth about what happened in the past, then why and how does any left-wing person believing this truth relativist nonsense oppose, say, Holocaust denial or Armenian genocide denial? And come to think of it, is it an objective historical fact that adults have been persecuted for same-sex sexual activity in many societies down through history, or not? (As an aside, incidentally, if you are gay, I cannot think of anything more disgustingly insulting than a Postmodernist calmly telling you that objective truth does not exist. If so, then it follows that it is not even objectively true that persecution of gay people is a reality of history!)

As for the consequences of truth relativism, they can quickly be seen. If it is not an objective historical fact that the Holocaust happened, then why is there so much evidence that it happened? Why the numerous eyewitnesses and survivors and their testimony that we can still read today? Why the huge physical evidence? (e.g., the death camps, gas chambers, etc.)

Either (1) the Holocaust happened or (2) it did not as an objective fact, and any left-wing person who denies objective truth has got no business opposing, criticising and condemning the disgusting, shameful and ignorant fringe of Holocaust deniers we see today.

If you seriously deny objective truth and take your insane Postmodernist truth relativism seriously, then you have no business attacking or opposing Holocaust deniers as being wrong. In fact, you have no business opposing neoclassical economics, libertarianism, or Austrian economics as false and untrue economic theories either.

Rather, you should be saying that “all truth is made by power,” no objective truths exist, and our “truths” are invented and not determined by some objective reality.

By this point, however, you have – without a doubt – just proven to everyone else on the decent Left that you are a disgustingly, intellectually and morally bankrupt fool who has no business even being on the Left at all.

So for all you deniers of objective truth out there, answer me these questions:

(1) Is the proposition that “the Holocaust happened” just a truth made by power? If “yes,” what power system “made” it and why?

(2) If you think it is not an objective truth that “the Holocaust happened,” then explain why we have overwhelming evidence that it did.

(3) if you accept the overwhelming evidence that the Holocaust happened, then explain why you would persist in denying the reality of objective truth.

Please do enlighten me, because your truth relativism, frankly, is an absurdity and a shame and disgrace to the decent Left, and I know from experience that there are a lot of people on the Left like me who think so too.

Schuller’s Challenge to Misesian Apriorists has never been answered

Many years ago, George J. Schuller reviewed the first edition of Mises’s Human Action (1949). Murray Rothbard (1951) wrote a reply to this review, and in turn Schuller (1951) answered Rothbard’s criticisms.

In his reply, George Schuller provided a devastating epistemological critique of Human Action, and then a challenge to Austrian praxeologists that has never been answered:

“2. Mises uses the methods of introspection, deduction, and (incidentally) reference to fact. He fails to distinguish between the ideal use of these, which perhaps would result in a perfect praxeology consisting of incontrovertible truths, and the use of them by a fallible mortal like himself. Introspection is a valuable scientific tool, but its very immediacy, which enables the user to avoid errors of more roundabout methods, may lead him to subjective bias, inaccurate generalization from himself to all others, and overconfidence in the soundness of his conclusions. The conclusions should be checked carefully by other methods, such as observation of the behavior of persons unlike one’s self and questioning of them concerning their motives. ….

In Mises’ uncritical usage introspection becomes not a scientific method but the basis of a creed. The words which he attributes to the worshippers of collectivism may with equal appropriateness be attributed to the worshippers of introspectivism: ‘We are right because an inner voice tells us that we are right and you are wrong’ (p. 152).

Are the praxeological axioms universally and incontestably true in the same sense as the laws of logic? The denial of the laws (or rules) of logic results in absurdity. The denial of Mises’ laws does not. From the rules of logic alone no substantive propositions can be deduced. Idealists and materialists, atheists and Thomists, capitalists and communists all may use the rules of logic with equal facility to arrive at or support their opposed positions.

But Mises attempts to deduce substantive propositions from his laws—e.g., that governmental curbs on the drug traffic, or alcoholic ‘prohibition,’ lead to socialism (pp. 728–29). That Mises’ use of logic as a scientific instrument falls short of perfect rigor may be readily demonstrated. (a) After telling us that ‘it is nonsensical to reckon national income or wealth’ or other aggregates (pp. 218-29), he insists that the free market ‘raised the average standard of living to an unprecedented height’ whereas intervention’s ‘inexorable final consequences’ include a ‘drop in the quantity of goods produced’ (pp. 741–51).1 (b) His example of choice on page 201 (operas) does not lead to his inferences.

The higher a deductive edifice is built, the more numerous are the syllogistic steps required in its construction and the more numerous are the assumptions (stated or implied) on which the structure rests. The probability of error (except for supermen) increases with both.

So far as empiricism is concerned, Mises tells us his axioms are logically prior to fact and therefore cannot be tested by fact. Yet he often (and Rothbard: e.g. 6, d) cites facts as if they provided support for his conclusions and for the axioms, postulates, and logical procedures from which the conclusions have been derived. Mises thus disarms his critics of a weapon which he renounces in principle but uses in practice. And such phrases as Rothbard’s ‘universally recognized’ (points 2 and 4) or ‘everyone will consider’ (point 5) surely are not meant as empirical assertions, since ‘the vast majority’ cannot ‘grasp complex chains of abstract reasoning’ (point 6, e).” (Schuller 1951: 186–187).

“6. Acceptance of Mises’ stated axioms does not necessarily imply acceptance of the ‘principles’ or ‘applications to reality’ which he has drawn from them, even though his logic may be impeccable. When a logical chain grows beyond the limits set by stated assumptions, it uses unstated assumptions. The number of unstated assumptions (axioms, postulates, or other) in Human Action is enormous. If Mises denies this, let him try to rewrite his book as a set of numbered axioms, postulates, and syllogistic inferences using, say, Russell’s Principia or, closer home, Von Neumann’s Theory of Games as a model.” (Schuller 1951: 188).

If the economic theories of Mises’s book Human Action really are derived by painstaking and valid deductive argument, then it should be possible to set the book out in a formal symbolic form in which all axioms, premisses, and deductions are shown formally and proven.

No Austrian has ever done this, and anyone who has read the first few chapters critically will quickly discover the reason why: there is no formal deduction going on by which Mises’s inferences are carefully and painstakingly deduced from the human action axiom.

Even after inspecting Mises’s own informal method of “verbal deduction” does not help in identifying how inferences are formally “deduced” from the action axiom either.

It seems impossible that the conclusions and theories even of the first few chapters can be deduced from the action axiom and the few others Mises starts with.

Even by Chapter XI (on “Uncertainty”), I am willing to bet that Mises’s whole apriorist project has collapsed, as I show here.

Just to establish the existence of a world where humans face an uncertain future in the sense of (1) being unable to perfectly predict the future, and (2) being unable to provide objective probability scores for future outcomes or events in certain processes requires many inductive arguments and a great deal of empirical evidence, from the natural and social sciences and the relative frequency theory of probability.

The only attempt I am aware of to write out some of Mises’s arguments formally is the paper I discussed in the last post. But the paper deals with but two of Mises’s axioms and no derived economic theory whatsoever, and, fundamentally, rejects Mises’s use of synthetic a priori knowledge and argues that praxeology is only analytic a priori.

But this means that even if you write out the arguments of Human Action formally, you have proven nothing necessarily true of the real world, because the instant analytic a priori theories are applied to the real world, they would be given an empirical hearing and tested by experience.

And that leaves Mises’s claims about praxeology – that no experience can ever refute his economic laws – in utter ruins.


BIBLIOGRAPHY
Mises, L. von. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala.

Rothbard, Murray N. 1951. “Mises’ ‘Human Action’: Comment,” The American Economic Review 41.1: 181–185.

Schuller, George J. 1950. Review of Human Action: A Treatise on Economics, by Ludwig von Mises, The American Economic Review 40.3: 418–422.

Schuller, George J. 1951. “Mises’ ‘Human Action’: Rejoinder,” The American Economic Review 41.1: 185–190.