Wednesday, May 7, 2014

Mysticism and the Labour Theory of Value

This statement about the labour theory of value occurs in the first volume of Marx’s Capital:
“What initially concerns producers in practice when they make an exchange is how much of some other product they get for their own; in what proportions can the products be exchanged? As soon as these proportions have attained a certain customary stability, they appear to result from the nature of the products, so that, for instance, one ton of iron and two ounces of gold appear to be equal in value, in the same way as a pound of gold and a pound of iron are equal in weight, despite their different physical and chemical properties. The value character of the products of labour becomes firmly established only when they act as magnitudes of value. These magnitudes vary continually, independently of the will, foreknowledge and actions of the exchangers.

Their own movement within society has for them the form of a movement made by things, and these things, far from being under their control, in fact control them. The production of commodities must be fully developed before the scientific conviction emerges, from experience itself, that all the different kinds of private labour (which are carried on independently of each other; and yet, as spontaneously developed branches of the social division of labour, are in a situation of all-round dependence on each other) are continually being reduced to the quantitative proportions in which society requires them. The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him. The determination of the magnitude of value by labour-time is therefore a secret hidden under the apparent movements in the relative values of commodities.” (Marx 1982: 168).
I do not claim to be well versed in all the intricacies and subtleties of Marx’s philosophy and economics, but there seems to be a serious contradiction here.

To assert that the labour theory of value is a “regulative law of nature” analogous to the law of gravity makes a bold and astonishing claim: the labour theory is like a universally true natural law that inheres in the nature of the universe itself.

But, at the same time, some expositors of Marx claim that Marx only intended the labour theory of value to be a historically contingent “law” of the capitalist mode of production.

Why, then, does Marx compare it to the law of gravity? Is it only rhetoric?

At the same time, the true nature of value is a “secret hidden” underneath the fluctuating exchange values or ratios of commodities as occurring on markets.

This would suggest that the labour theory of value is not meant to explain the actual exchange values or ratios of commodities, or the market prices of goods in a monetary economy.

But aren’t Marxists endlessly trying to solve their perplexing transformation problem? This transformation problem is an explicit attempt to “transform” the values of commodities as socially necessary labour-time into money prices on the market.

And, if the type of value as determined by socially necessary labour-time really is such an important, fundamental concept, then identifying and quantifying it ought to be a straightforward empirical exercise. Why is it a “secret hidden,” as if only the true believer can recognise it and fathom its profundity?

One rapidly comes to suspect that the labour theory of value verges on something mystical.

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


  1. I'm not versed in everything by Marx either, but as somebody who is at least partly convinced by the work of people like Andrew Kliman on the TRPF, let me offer a couple of comments.

    First, to me this historical contingency doesn't seem to be a problem. Marx clearly states at the beginning of your quoted passage that he's talking about about "producers...making an exchange", which is a key component of capitalism for him: that production is done explicitly for exchange. So he does seem to be talking about capitalist production, in capitalist societies, and yes the gravity thing is just rhetoric.

    Nevertheless, there is definitely something in the observation that labour values are unobservable. and I find this profoundly unsatisfying too - reminds me of utility. You can, however, decompose movements in the rate of profit into labour and capital and see if this accords well with Marx's proposed mechanism for the falling rate of profit, which was labour-saving technological change (see Kliman, TFCP, ch7).

    By the way, TSSI doesn't state that prices will ever converge to values. Marx's views did change a lot over his life time, so it's possible his earlier work does not recognise this.

  2. Dun dun dun... Oh, LK, you don't usually discuss Marx on here but I fear you're opening a can of worms in many ways worse than the Austrian stuff (although do take a look at Capital Volume II, it's got some interesting economics in it).

    First of all on Marx's rhetoric. There's a lot of this sort of stuff. It goes back to his strange philosophy. He starts off being a historicist and a sort of Hegelian. This is a pretty coherent philosophy. But then around the time of Capital something happens: he begins to equate the "laws" he has discovered not, as you say, as historically contingent facts, but as akin to the laws of material reality (by which he means gravity etc.). By the end of his life him and Engels are discussing all sorts of mad stuff about how the same method he uses the Capital can be applied to the natural sciences (see: Dialectics of Nature []). At this point Marx and Engels have completely gone off the deep end and it all has to do with Marx's basic inability to understand what was at the heart of idealist philosophy (i.e. it's all in your mind).

    Regarding the divergence between Marx's statements about a secret and the Transformation Problem you are spot on. But this "mystery" leads Marxists to engage in ever more bizarre interpretation of the texts. It becomes altogether very strange. While I appreciate a good textual reading of, for example, Keynes, I am not remotely bothered in pointing out errors, things overlooked or contradictions if I find them. Not so with Marxists and Marx.

    1. " By the end of his life him and Engels are discussing all sorts of mad stuff about how the same method he uses the Capital can be applied to the natural sciences"

      Yes, it seems so!

      Just look at Engel's speech at Marx's funeral:

      "Just as Darwin discovered the law of development of organic nature, so Marx discovered the law of development of human history: the simple fact, hitherto concealed by an overgrowth of ideology, that mankind must first of all eat, drink, have shelter and clothing, before it can pursue politics, science, art, religion, etc.; that therefore the production of the immediate material means of subsistence and consequently the degree of economic development attained by a given people or during a given epoch form the foundation upon which the state institutions, the legal conceptions, art, and even the ideas on religion, of the people concerned have been evolved, and in the light of which they must, therefore, be explained, instead of vice versa, as had hitherto been the case.

      "But that is not all. Marx also discovered the special law of motion governing the present-day capitalist mode of production and the bourgeois society that this mode of production has created. The discovery of surplus value suddenly threw light on the problem, in trying to solve which all previous investigations, of both bourgeois economists and socialist critics, had been groping in the dark."

    2. Although "the special law of motion governing the present-day capitalist mode of production" looks like a historically contingent principle/law, what on earth are we to make of "the law of development of human history" supposedly analogous to Darwinian evolution?

    3. Yes, this rhetoric then became ingrained in the left in all sorts of weird ways. That is, until the advent of post-structuralism which, while it has many problems of its own (usually tied up with undiagnosed Marxism) was infinitely better as it took a far more "historicist" approach to things.

      The funny thing about the Darwin metaphors is that if you read Darwin in the original his work is very humble (not so for some of his contemporary followers but I digress). If Marx had been borrowing from Darwin he wouldn't have come up with the Laws of Motion stuff. Rather he was borrowing physics metaphors. His work has a weirdly Newtonian quality to it. He gives the reader high-flown impressions that he has discovered laws and then in later works gives examples that contradict the supposed laws. Robinson noted this extremely strange literary tendency too.

      Marx is a fascinating writer in many respects. He is clearly a very competent economic theorist. But he is a desperately poor philosopher. Unfortunately he fancies himself a very grand philosopher and tries to meld his rather incoherent philosophy with his economics. The results, in my opinion, are actually rather awful. Although, again, I think that Volume II contains some quite interesting insights.

    4. "Just as Darwin discovered the law of development of organic nature, so Marx discovered the law of development of human history:"

      In that quote, Engels is referring to Marx's concept of Dialectical Materialism: That societies keep developing and becoming more and more complex, but at the same time their "internal contradictions" also grow bigger and more problematic, and societies "resolve" the contradictions by changing social relations and turning into different societies. It isn't a "law of development" of society so much as an approach or a narrative to analyze the ways societies change and develop. Engels's phrase is incredibly grandiose, but you have to keep in mind that at the time people were making a pretty big deal about Marx's materialist inversion of Hegel.

      His quote comparing the law of value to gravity in Kapital vol. I was mostly rhetoric. But when modelling the SNLT as a price attractor, thinking of the SNLT as a "center of gravity" for prices is a very neat metaphor to make when exemplifying Marx's theory of value (and iirc he does make that metaphor in vol. III) so i think he was also making an allusion to that.

  3. "Why, then, does Marx compare it to the law of gravity? Is it only rhetoric?"

    It "asserts itself as," in the sense that it's unavoidable, but it is indeed still specific to the context of a capitalist economy. It's probably fair to call it rhetoric, sure.

    "But aren’t Marxists endlessly trying to solve their perplexing transformation problem? This transformation problem is an explicit attempt to “transform” the values of commodities as socially necessary labour-time into money prices on the market."

    No, they aren't, these days. The transformation problem was something read into Marx by Dmitriev, Bortkiewicz, and others, and perpetuated through a great deal of Marxist scholarship that tried to shoehorn his work into an equilibrium system. Viewed as a non-equilibrium theorist who situated his analysis in historical time, there never was a transformation problem in the first place. (To that end, see the Andrew Kliman's "Reclaiming Marx's Capital" for an overview of the various currents within Marxist political economy and an explanation of the TSSI, or temporal single-system interpretation, which is the only one that has emerged unscathed from the various critiques of Marx's internal consistency -- and not for any ambiguity, as there is a whole literature that specifies it very clearly.)

    I'm not opposed to finding errors in Marx, but if the purported error does not even apply to the specific theory being forwarded (i.e., it applies to Bortkiewicz's transformation procedure rather than Marx's), then it's not really what it's claimed to be. And if we have two textually supportable interpretations of a theory, but only one of them is actually able to reproduce the findings of the theory's author, I would humbly submit that that is the one that should be further tested; it won't do to declare victory after poking more holes in the one already revealed to be inadequate.

    LK: I do appreciate the attention you're giving the matter, though!

  4. Oh, forgot: Could anyone explain what's odd about the "hidden" thing? Isn't figuring out the mechanisms that underpin our apparent reality sort of the whole point of science? That is, if appearances were the whole of reality, then we'd scarcely even need such an endeavor.

  5. As I understand it, the labour theory of value is a TENDENCY. Marx believed that in capitalism commodity prices are always being pushed towards the amount of socially necessary labour time it takes to produce them. However, that doesn't mean that that tendency will be realised in reality. It may or may not be, depending on other factors.

    Such things are common. Here's another example: Fish eggs have a tendency to turn into fish. Even if you took all fish eggs in the world and put them in conditions where they couldn't turn into fish, it would still be true that fish eggs have a tendency to turn into fish.

    1. And yet calling it a “regulative law of nature” seems to make a much stronger claim than calling it a mere "tendency".

      Also, the majority of prices in most modern market economies are mark-up prices, and have no tendency to gravitate to some "socially necessary labour time" value, however this is defined.

    2. LK:

      Correct on the remark on price gravitation. Considering SNLT to be a price attractor is an equilibrium proposition, and as I said above, this creates problems that do not exist if we view Marx as a non-equilibrium theorist. For an explanation of how this makes a difference, see Alan Freeman's presentation here (videos 3-6).

      The sense in which SNLT tempers prices goes like this: the cost price (k) contains the money value of labor-power and means of production both, and this reappears exactly in the output. In other words, we're discussing cost-plus accounting, and from the get-go there's a significant element in common between the value (k+s [surplus value]) and the price (k+p [profit]) of a final commodity. While s does not necessarily equal p in a given commodity, the key is that in aggregate, total s equals total p.

      There's more to the analysis, in the way we move from value to "prices of production" to market prices, but I will spare that for now. I'll merely note that while it involves a whole bunch of different concepts (general rate of profit, the organic composition of capital, the rate of surplus value, etc), every one of these is specified so as to be measurable either in money terms or as a ratio of two money terms. I'm just mentioning this to anticipate any charges of mysticism/metaphysics/whatever.

  6. What is your opinion about this?

    1. In the latter paper, the author is trying to solve the transformation problem, which can only mean he thinks that money prices equal to socially necessary labour time are the state towards which market prices move.

      But it all seems to involve a model that has no relevance to the real world.

      The first is arguing that there is a tendency towards cost of production prices and zero profits throughout a competitive capitalist economy, and that the "cost of production" prices embody socially necessary labour-time involved in producing them.

      I have to tell you I find both theories theoretically dubious and empirically untrue.

      Prices do not gravitate towards cost of production (whether total unit costs or marginal cost), and mark-up pricing and highly imperfect competition in any real world market economy therefore badly undermine the Marxist, classical and Sraffian view that there exists a tendency towards zero or a uniform rate of profit throughout a competitive capitalist economy.

    2. It's not that prices tend towards costs of production, but rather that prices are determined by costs in part, and by SNLT in aggregate. The tendencies pertaining to the rate of profit are twofold. First, the tendency of the rate of profit to equalize is certainly beset by countertendencies and imperfections, but it's still there -- simply put, capital moves from less profitable to more profitable ventures. (Mind, it can never fully equalize; Freeman discusses this in the link I provided above.) The other tendency is that of the rate of profit to fall, which is the result of a rising organic composition of capital (basically a measure of capital intensity). It tends downward, but it cannot reach zero as long as the rate of surplus value is positive. It doesn't need to reach zero, though, as low profits don't trigger a crisis so much as increase instability, debt burdens, etc., and otherwise covering the keg in powder, meaning that over time, the spark needed to set it all off can be smaller and smaller. And Minsky's FIH, for example, further indicates that said sparks are not a matter of "if," but rather "when."

      Perfect competition is not, at any rate, some linchpin of Marx's system. Its point was to show that even if every possible assumption about the smooth functioning of the system is allowed, crisis remains inevitable. Obviously, imperfect competition can indeed complicate matters further, but by then we're only adding insult to injury.

  7. "One rapidly comes to suspect that the labour theory of value verges on something mystical."

    Yes. As does "homesteading". I can mix wine and water, but how do I "mix my labor" with a plot of land? I can perform labor on a plot of land, but to think of that as "mixing" (a mixing which imbues the land with Ken B ownership essence to the exclusion of LK ownership essence) is a straight up mystical concept.

    1. Yes, agreed!

      I have often said that Marxists and Austrians share similarities despite being ideological opponents.

      Strangely, I can't recall ever seeing a Marxist debate an Austrian.

      Would it be fascinating to watch? Or nightmarish?

    2. The most important such debate of which I am aware is Böhm-Bawerk's seminar in the first decade of the 20th century. His chief opponent was Rudolf Hilferding, though other big names like Otto Bauer also weighed in.

      Incidentally, this dustup was arguably a significant formative event in the life of a young Schumpeter, who was in attendance.

      That said, for what it's worth, you have watched me debate Austrians in the comments of this very blog! Remember back in late 2011, when that rascal Pete disappeared for months after "A" demolished Reisman's argument about the "primary" form of income, pointing out that it contradicted itself?

      Sup. :)

    3. It would be like that Star Trek episode where Spock confuses the indistinguishable androids by saying he loves one and hates the other.

      But I have coined a new term: Marxbardian.

  8. By the "transformation" Marx means that the direct regulation of the exchange of commodities by their labour-value is transformed into the regulation of exchange of commodities by their production prices (formed by cost-prices + normal profits). The production price of output is itself determined by labour-value. The law of value means that the value of a commodity is determined by the current average total labour-time required to replace the commodity. The law of value is best viewed as an economic constraint or limit. Thus, the cost structure of commodities is constrained by the total replacement cost in labour time which is involved. Marxism has only a very vague idea about what the law of value is, and frequently confuses it with "market forces" or the domination of the market. The law of value is supposed to rule the capitalist economy. In reality it does not, it applies only to capitalist production.

  9. In the reduction to dated labour time, Sraffa shows the relation between production prices and labour values, which is mediated by w and r. When using sectoral rates of profit in labour terms, prices are just proportional to labour values ("1+rate of suplus value") Prices and labour values are not anymore proportional when using a "common rate of profit" even in labour value terms. (