Sunday, April 20, 2014

Adam Smith on the Labour Theory of Value

There has been a lot of discussion of the labour theory of value in the comments section lately, a view which, I think, most Post Keynesians reject, and rightly so.

But Marx took the idea that labour is a measure of value and that labour is the cause of value from Ricardo (Robinson 1964: 36), and this idea in turn seems to stem from Adam Smith.

Adam Smith postulated that labour time was the criterion used in primitive societies to determine exchange value:
“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).
But is there any hard empirical evidence from anthropology and history that this is true?

For example, since hunters usually have different levels of skill and experience, and often success in hunting depends on luck, the hunting time for any particular animal caught could vary considerably. It is simply unclear to me why hunter-gatherers or hunter-horticulturists would have to determine exchange value in such a way, when labour time could vary to a significant degree on each occasion an animal is hunted, and it looks like Adam Smith is engaged in some speculation here that would need to be backed up with a great deal of evidence from anthropology to be taken seriously.

Perhaps that evidence exists, but perhaps not too, like many hoary old myths in economics. I have not yet had a chance to look at the anthropological literature, and so will leave the question open.

Robinson, Joan. 1964. Economic Philosophy. Penguin, Harmondsworth.

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


  1. Yeah, I'm pretty much on the same page as you, I think. Such accounts should indeed be taken with a pretty sizable grain of salt. Graeber's Debt does a very good job of calling into question Smith's "early and rude state" notions as outlines of demonstrable history; at best, they're more logical exercises.

  2. This primitive LTV also presumes that that early hunters had an adequate measure of time, otherwise comparing labour time is impossible. It seems to me that early hunters had only very rough indicators for measuring time.

    1. Which, of course, Marxians recognise when they're not talking in abstract, nonsensical terms and generally engaged in rubbish.

  3. It's garbage. Modern anthropology recognises that primitive people attribute value to things based on their SYMBOLIC worth. So, if the shaman blesses a stick it becomes worth more than a hut that took weeks to build.

    The same principle applies in so-called advanced societies. If a celebrity wears a pair of brand name shoes these become worth more (i.e. are endowed with more value) than an identical pair of shoes made in the same factory with the same labour inputs.

    This is blatantly obvious and completely refutes the labour theory of value. It is what all 20th century anthropology focuses on, starting with Mauss and coming to fruition in the work of Levi-Strauss. You can also find it clearly articulated in the work of Hegel who Levi-Strauss took influence from and who Marx clearly couldn't read because, well, let's just say that his grasp of philosophy was... tenuous.


  4. Again, this example exhibits the same problem I discussed; we've now equivocated, switching from one definition of value to quite another. If we're arguing that that the labor theory of value says that utility equals labor time, then yes, we've stumbled upon something wholly and grotesquely indefensible, but also something that was never put forth in the first place. To wit, the above example is tantamount to Samuel Johnson's attempt to "refute it thus!"

    That said, the shoe thing is also fully explicable in terms of the other definition of value, though for the sake of clarity I will continue to eschew the direct use of that word:

    If a celebrity wears a pair of brand-name shoes that require the same SNLT to produce as a pair of generics, they can indeed trade for more without experiencing a change in SNLT of production. Why is that? Simply, nothing insists that individual price = SNLT; in fact, most of the time they are not equal, as I've already explained. Thus, the difference becomes explicable in terms of the very exclusivity that bolsters the shoe's desirability: by possessing exclusive legal rights to produce the shoe with with the little swoosh on it, the manufacturer is able to use monopoly power to take advantage of the style-driven increase in demand and charge a higher price without surrendering business to its many competitors without the same star power. This can also explain the profitability of the "knockoff" industry.

    Further, Marx's aggregate identities (such as total price = total SNLT in money terms) further situate the example within a system, such that the shoes' price above SNLT implies (one or more) other goods sold below SNLT (or even unsold) in a given, discrete period of analysis.

    As for the anthropological matters, I don't think one theory stands or falls in terms of different cultures and eras of human history any more than the other. The phenomenon of decentralized-but-interlocking markets as a totalizing system of social organization is a relatively new one in terms of human history, and its organizing principles (esp. the motive for money profits) are quite different from those of, e.g., tribal societies. A discussion of the role of human nature "must first deal with human nature in general, and then with human nature as modified in each historical epoch," if we're to avoid the reductionism that would, e.g., situate all human activity in terms of biology, biology in terms of chemistry, and so on. I think everyone in this discussion is (correctly) wary of such undertakings.

    That said, before Debt, David Graeber wrote another book entitled Toward an Anthropological Theory of Value that might interest you both, examining systems of value that, largely speaking, arrange (or rearrange) the social relations of the society in question. I strongly recommend it.

    1. I assume you're beginning to see what sort of a "theory" the LTV is now, LK... Yeah, it's one of THOSE types of theories. You know, the ones that aren't falsifiable when clear evidence is presented against them? Yeah, one of those.

    2. "Simply, nothing insists that individual price = SNLT; in fact, most of the time they are not equal, as I've already explained."

      But, Hedlund, that is a pretty frank admission that the LTV is not describing or explaining price, surely?

      So it is saying that "value" in a special sense is equal to socially necessary labour time.

      And assume that "socially necessary labour time" in the end means average labour time of the average worker?

      But as I pointed out before: What if all the labour were done by machines? And what if the capital good machines were themselves made by machines?

      How would the LTV work in such an instance?

    3. Philip:

      What was your clear evidence, exactly? The mere existence of one theory no more debunks another than the existence of chopsticks debunks that of forks.

      At any rate, as much as I do think testability is crucial, falsification hinges on closure, and I'm sure you're aware that closure is impossible in the social sciences. A social scientific theory can indeed make falsifiable claims about events or experiences, but not mechanisms, as the natural sciences do. It complicates things a bit. At the very least, proffering a summary dismissal without demonstrating an ability to adequately restate the premises doesn't make for a very compelling argument.


      Indeed! Marx's theory was not, nor has ever been, a theory of short-term prices. Attempts to paint it as such are what make it seem so ludicrous.

      Anyhow, your question rather touches upon the outer limits of the theory, since the idea of all social labor being performed by machines would effectively mean a different mode of production altogether. Recall that that Marx was analyzing "the capitalist mode of production" in particular — specifically, a social relation that is characterized by wage labor under conditions of production for exchange. Such relations are the backbone of the analysis in Capital; similarly, value-as-SNLT is also a social relation, as is the commodity form itself. Without those specific relations, the analysis would lose its referent and become meaningless.

      That said, if I were to attempt to take the exercise to its logical conclusion (based only on what's been given):

      If machines perform all social labor, such that nobody ever has to lift a finger again, then the entire category of value Marx discussed would have no existence. There wouldn't even be a nominal need for production for exchange because there'd be no division of labor because there'd be no labor of which to speak. No social labor also suggests that all social needs are met; if not, then work would be required to meet them, and a notional demand would still exist so as to facilitate the labor that we've just posited as unnecessary.

      This is all wildly unrealistic, of course, but the gist of it is "goods wouldn't have values, and commodities (goods produced for exchange) as such would not exist, since exchange would become incoherent." Insofar as we'd still have matters of, e.g., distribution to analyze, we'd need a different theory to tackle them. But that's fine; as they say, a theory of everything is effectively a theory of nothing.

    4. Lord Keynes--have you checked out Bichler and Nitzan's "Capital as Power" yet?

      Their book really helps put the Labor Theory of Value in historical perspective while systematically showing that both it and classicism/neoclassicism's insistence on the 'util' as the basic unit of value don't hold water when the empirical evidence is considered. They then propose an alternative that claims prices (or, depending on how you interpret their theory, specifically the prices of financial/capital assets) are essentially a "symbolic quantification of power", or rather that the basis for the value of an asset is the social power it bestows on its owners.

      To your question above: as they point out, the LTV emerged as a product of a different era, when the Fordist industrial factory model seemed immutable and ubiquitous and automation was very limited; this in turn made the relationship between owners, laborers, and output seem simple enough to make the theory 'fit' in the absence of substantial empirical evidence. Among the theory's many other fatal flaws, however, is the simple fact that as production became (and becomes) more complex--utilizing not only human laborers but automata and engineers/designers--it also became obvious that the model for quantifying "socially necessary abstract labour time" simply couldn't be rigorously applied to new schemas of production. This speaks to the problem you consider above--namely, that there is no systematic way to distinguish between 'productive' labor time and 'unproductive' labor time. To add to your critique, even without automation to complicate the picture, how does one distinguish an hour of labor by a worker trying to be as productive as possible from an hour of labor by a worker trying to be as lethargic and unproductive as he/she can without being fired? Even if there were some precise definition set up, how could you know which hours were productive and which were not without observing each and every laborer involved with the creation of a product? (interestingly enough, this could be argued to pose a problem for standard measurements of 'productivity' as well)

      Thus, essentially, as empirical evidence began to pile up in the twentieth century, it became clear that the elementary particles of the prevailing theories of value--the classicist/neoclassicist 'util' and the Marxian 'socially necessary abstract labour hour'--could not be effectively isolated, quantified or measured. Prevailing Marxian and Neoclassical 'proofs' of these theories of value are mostly just tautologies--i.e., they take something's price, and then derive the corresponding 'units of value' by running it through some kind of theoretical equation. As Bichler and Nitzan rightfully observe, however, to really definitively 'prove' any theory of value claiming to have some kind of basic 'unit', one would need to break this tautological formulation by running the analytical process in the other direction--i.e., show that one can derive prices from the theory's units of value. It's telling that nearly all neoclassicists and Marxians have been unable to do this, and a bit theoretically embarrassing to boot.

      I don't know if you'd agree 100% with Bichler and Nitzan's proposed alternative, but I think you'll find it a formidable intellectual thesis and their book an edifying and unique work of scholarship; also, I believe you posted sometime ago that you are inclined to believe that 'coercion is the basis for all market societies,' (or was it society in general? I'll have to check...) which fits right into the idea that the value of an asset is determined by the degree of social power (that is, the extent of one's ability to control the actions of others through coercion) it confers on its owner(s).

    5. "The mere existence of one theory no more debunks another than the existence of chopsticks debunks that of forks."

      I suppose by that methodology we could still posit the phlogiston theory of heat against the energetics theory in the name of pluralism. Haha!

      Just as some metals gained mass when they were burned, some goods obtain social value (reflected in willingness to pay a higher price) when they are worn by celebrities and so forth.

      The trick to revitalise the phlogiston theory would then be to say that the burning of magnesium was a "special case" and the theory was not actually referring to weight at all (perhaps we could say that phlogiston has no weight?).

      We could do this. Seriously. We could. It is methodologically identical to your arguments for the LTV in the face of obvious evidence to the contrary. But how we would be laughed at by the scientific community for trying to revitalise a hoary old 19th century theory to replace a more robust modern theory.

      But the Marxists will continue to worship their phlogiston theory in that little academic bubble that they inhabit. And in private they will designate anyone who disagrees with them "bourgeois" (read: morally suspect) to ensure that the younger members of the group don't give them a fair hearing. Then they will dub all their activities -- hilariously, I might add -- science.

    6. Rob G@April 21, 2014 at 1:36 PM,

      I've now had a change to read some reviews of Capital as Power, and they do indeed seem to make some very interesting points against Marxism and neoclassical theory.

      I'm not sure their "power theory of value" is any better, though.

      It seems to me that any proper theory of price formation needs to be a heterogeneous one, quite simply because prices are formed in different ways in different markets.

      I think any overarching, universal theory of price formation is dubious.

    7. I'm inclined to agree with that assessment, on the same grounds 'radical' subjectivism would probably agree. That's why I think Bichler and Nitzan's theory works best as a theory of capital accumulation than prices per se, because they actually take that into some consideration; there is a key passage in the latter third of the book (and I realize with your reading load it's a book you might only be able to evaluate from the reviews you mentioned, so I'm not arguing with your analysis by any means) that seems to speak to it (I capitalize what they put in italics):

      "In our framework, capital accumulation and the changing power of capitalists are one and the same. But this 'identity' is only figurative. It consists of converting quality into quantity, of translating and reducing the heterogeneous processes of capitalist power into the universal units of differential capitalization. And this conversion obviously is NOT an objective process.

      ...The way to understand this figurative identity is speculatively. Force is nothing apart from its effect, tell us Hegel and Marcuse; it is always a correspondence between form and content, quantity and quality. Therefore, the way to give capital meaning is by contrasting these two aspects, by juxtaposing the quantitative patterns of differential accumulation, on the one hand, with the qualitative power institutions, organizations and processes that underlies this accumulation, on the other. Clearly, any such attempt to jump from qualities to quantities cannot claim the rigour of natural science. But, then, we have seen what happened to liberal and Marxist analyses when they tried to imitate this rigour. They pretended that there is a strict quantitative correspondence between prices, production and accumulation one the one hand and utility and labour values on the other, and then fell flat on their faces when they tried to demonstrate this correspondence.

      ...Capitalists constantly to try to force life into a box, to harness creativity, to convert quality into quantity. This is the nature of their power. But they can achieve this conversion only SPECULATIVELY AND INTER-SUBJECTIVELY, and there is no point in pretending otherwise. The task is to try to understand this speculative translation. And, in our opinion, the only way to do so is by telling a 'scientific story'--a systematic historical analysis that convincingly ties together the quantities and qualities of capitalist power. (312-313)

      ...that seems to me to be a much more accurate model than Marx's original conception of capital accumulation based off of the LTV. But perhaps I'm derailing the discussion at this point, so I'll shut up about B&N now. :)

    8. Haha, Philip. Glad you're happy, at least. And if that's your strongest objection, then I suppose I'm happy, too.

      The methodological points I've made (closure and the social sciences, scientific approaches as varied and mutually orthogonal transitive objects of knowledge, etc.) are nothing you wouldn't also hear from, say, Tony Lawson. And whereas I am left to assume your refuting evidence is so obvious that you don't even need to share it, I suppose I will take the truthiness of these claims "very" seriously. As many people say: Marx's critique of capitalism "must" be wrong — after all, something something Soviet Russia!

      For all your wont to throw around the word "ideology," I can think of nothing more obviously ideological in this discussion than your fervor to marginalize, mock, and dismiss a theory without understanding it. But that's why I'm not going to waste any more words trying to convince you of anything. I came here to answer questions, and that's just what I've done.

      To close, I'll merely leave a link (for any other interested parties) to recent empirical work utilizing a well-specified and internally consistent interpretation of the Marxian system that bears out his conclusions. Like anyone concerned with science, I will not claim it is some infallible truth; only that it deserves the same consideration due any serious and logically coherent attempt to make sense of the world.

      If no one here finds it interesting, so be it. Post Keynesians and Marxians are, long-term conclusions aside, essentially working on the same problems with tools ranging from similar to identical, and drawing many of the same policy prescriptions from them (e.g., job guarantee). So, as far as I'm concerned we're all fellow travelers in search of truth beyond the narrow positivism that still dominates economics today, and I have little patience for the "purity wars" that so stereotypically characterize the left.

      I don't insist that everyone find plausible the same things I do; just that we all treat one another with a modicum of respect.

      Anyhoo, sorry to get into this in your comments, LK. Cheers.

    9. It's not about "purity wars". That's a hallmark of the Marxist left more than anything. It's about trying to remove ideology from economics (as Joan Robinson and Keynes also tried to do). I'd be a rank hypocrite if I called out marginal utility theory on a regular basis for its ideological overtones and ignored the LTV which is ten times as ideological and about a fifth as scientific.

      I'm all for pluralism. But pluralism does not include veneering over emotionally driven arguments that don't stand up to scrutiny. And which, by the way, are only upheld by a very, very small group (the "fellow travelers" are politely holding their noses, in my experience).

  5. Off topic, thanks for comments at Murphy's. If Bob doesn't like the "tone" I suggest he look at a mirror. He routinely makes accusations he cannot support against unnamed government workers, Paul Krugman, or anyone who defends him. Bob routinely calls people trolls or liars. As you note I am usually much more courteous and patient, if sardonic, than he or his claque.

    1. Ken B,

      I am simply flabbergasted that Bob Murphy would ban you for 3 months.

      Would the bloody hell is going on at that blog?!

      Your comments are critical but fair, polite and reasonable. One can only conclude that Murphy just doesn't want to engage with your criticisms.

      Has this something to do with your recent critical remarks on Christianity? Or the civil war and slavery issue, or Thomas Woods?

      Frankly, my comments are fair more critical and hostile towards Bob's economics than yours ever are. I quickly lose my patience, and have little time for the idiocies of MF or Bob "I-dont-know-what-a-market-clearing price-is" Roddis, and some of the halfwits in the comments section there. But you clearly have far more patience than I do.

      I was almost expecting to be banned too along with you, when I read he’d banned you.

      That blog will be a sterile wasteland without you.

    2. Not sure what this is about but did you guys see that Murphy has starting spouting conspiracy theories on his blog?

      Those Austrian guys... sheesh!

    3. Oh, haha. That is mad stuff. People will escape to Mexico, but not to Canada? (where maybe the "socialistic" health care system scares them off?).

      I'll be generous and say: I'm not sure whether Bob Murphy fully endorsed the view he was talking about in that video, though.

      It just shows you what kind of conspiracy theory world some of the more extreme libertarians inhabit.

    4. Oh, what happened is: Bob Murphy is "cleaning up" the comments section of his blog. He began by banning Ken B -- who is a fellow libertarian who just doesn't like bad arguments.

      I was astonished I didn't get banned too.

    5. No, I think he is endorsing it. Listen to him from about 2.40 on. He says that if you think that the US government is being turned into a police state then the "last thing you want is the US government building a wall because they could keep you in!".

      Then he says that a Martian looking at the US from space would indeed think that there was a conscious effort in place to turn the country into a police state and runs through various police state policies.

      He then says (6.05) that the second last step would be the construction of a giant wall around the border so that no one could get out. Then he says (6.55) that the politicians are tricking people and telling them that they're building this wall to keep out immigrants and drug traffickers.

      Then he gives an ominous "just some food for thought" statement and signs off. I see no evidence whatsoever that he is not endorsing conspiracy theories here. Did I miss something? Can you direct me to a point in the video where he says that he is refuting the idea that the US government is building the wall to keep people in as part of a police state takeover?

    6. You may well be right there. Well watch it again just out of interest.

      As I said below, he did make this frank admission recently:

      "Probably the “craziest” thing I have written is this article from December 2009, where I speculate that the guys with the cigars are deliberately destroying the USD, in order to usher in the amero

      But I get the impression he was trying to distance himself from this earlier view, though.

      Maybe tacitly admitting: "yeah, that was sort of crazy stuff, I don't believe it anymore".

    7. Listen again and tell me what you think. I reckon the guy is completely off the deep-end. But then, so were Rothbard and Mises. I recall someone told me once that a guy an economist at Dickinson had quotes showing that Hayek believed that the US government were putting mind control substances in the water.

    8. Yeah, you're right: I can't really point to any part where he explicitly disavows it.

    9. Seems to be a rather typical conspiracy theory on the libertarian right...

  6. Thank you. Yes, I have always gotten under Bob's skin, especially on the religious threads. He has gone ballistic before.
    The most revealing reaction is Gamble's. He complains he cannot tell what I believe as I argue many sides. Indeed; I mostly attack bad arguments not conclusions I disagree with.
    Bob has trouble controlling his emotions. And he is upset when people don't implicitly say "well of course you have the moral highground but ..." I never say that, first as a matter of principle, and second because I do not believe it. Murphy is a religious rothbardian with little concern for logic and a disdain for evidence. The low ground on all counts. I largely agree with him on reducing government, bust asi i said I care less about conclusions than arguments.

    1. Exactly. The mark of someone really intellectually honest is: I call bad arguments when I see them -- even when they made by my own side.

      Also, just replied to Gamble's B.S. Check it out.

  7. Philip P
    Murphy has been spouting conspiracy theories since I started posting over there about 2 years ago. Some utterly insane, like "chem trails". He goes on about JFK occassionally too. And more. Conspiracism is baked into his mindset in a very deep and fundamental way.

    Just about the only conspiracy theory he rejects out of hand is the "Jesus Myth" conspiracy!

    1. Oh, yeah, some of the JFK stuff I remember. I mean that plagues the left too. It's such nonsense though.

      But remember this frank admission by bob (looked it up on google!):

      "Probably the “craziest” thing I have written is this article from December 2009, where I speculate that the guys with the cigars are deliberately destroying the USD, in order to usher in the amero
      Refreshingly honest and frank, huh?

    2. Google says thou art correct.

  8. I cannot reply in line, probably the browser -- older IE.
    as for the WOW chemtrails, do read my comments back and forth with Desolation Jones. Actually the whole thread is a spectacular example of the inbuilt conpiracism over there.
    And note how "methodological individualism" goes out the window!

    1. Have read through it. Though I had not read this post and the comments in detail, this is why recently I gave up reading many of bob's posts.

      Also, was struck by viciousness of M_F's comments.

    2. Especially funny if you look at the example Bob cites of my "style". MF tries one of his ridiculous moves, I must think might makes right because I think Napolitano is right that Bundy lost and therefore has to pay. I don't get want to get into it but won't leave the absurdity unanswered, so I ask MF, quite politely, to show how. Well, you can read it.

    3. The example bob gives there, if anything, would scream: ban M_F.

      >"Bundy lost, the feds own the land”

      So ownership to you is might makes right." etc.

      "I am summarizing Napolitano’s argument. Ask him."
      WTF is bob talking about? M_F is an obnoxious halfwit who is baiting you by red herring and straw man argument.

      You are polite and respectful.

      Then just look at how M_F resorts to outright obscene insults only a few comments down the thread: "You’re talking out of your ass." Why isn't bob pouncing on that?

      Whatever's going on here is just bizarre, ken b.

  9. Yep. I am sometimes quite caustic, especially on the conspiracy and god threads, although I think I manage to be politely mocking, but this example? I think it must have been the closest to hand is all. MF is doing his usual schtick, so I call him on it.
    Funnier still is Bob's complaint I only want to argue! Well debate yes, and rebut sloppy thinking yes. But like many suffering from rampant confirmation bias he is convinced that any intelligent person sees he is right and so is arguing from perversity. He has stated several times that I only disagree with his position in order to contradict him, but that I can see he is right. He actually did that the first time I showed up on his blog, to defend Landsburg from the Fluke smears.

  10. Smith's mechanism for the labor theory of value only applies, if at all, to the earliest states of society. Marx himself did not give a causal mechanism for the theory. However, modern physics (especially statistical mechanics) allows for the construction of a probabilistic mechanism for the LTV. See, for example, Farjoun and Machover's grounbreaking book "Laws of Chaos"

  11. Dear Lord Keynes,
    Yes, Smith's version of the LTV may be limited. But since the 1980s plenty of econometric evidence has been gathered that validate the predictions made by modern versions of the LTV.