It appears that Paul Cockshott defends the Labour Theory of Value (LTV) found in volume 1 of Capital, albeit in a grossly simplified way.
He defines the LTV in three senses, as follows:
(1) The average price of a good will be proportional to the average amount of labour used to make it;Unfortunately, this is not an accurate representation of Marx’s actual “law of value” in volume 1 of Capital, where Marx defended in his text a “law of value” in which homogeneous, socially-necessary labour time units were the anchor for the price system in modern capitalism. That is to say, individual commodity prices are supposed to gravitate towards their labour values (even though volume 1 contained two footnotes hinting at the different theory of price determination in Marx’s draft of volume 3, so that volume 1 was not even internally consistent).
(2) The value added in an industry will thus be roughly proportional to the labour it uses.
(3) Price quantities are thus the indirect representation of underlying quantities of human time.
By volume 3 of Capital, Marx thought this only happened in the pre-modern world of commodity exchange, but he describes the process as follows:
“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).We must remember that Marx had no single, consistent Labour Theory of Value. The “law of value” (a phrase which Marx used to refer to the LTV) in volume 1 of Capital contradicts the “law of value” in volume 3. For Marx’s LTV in volume 1 of Capital to work and be empirically proved, all human labour of different kinds must be measurable in a homogenous unit of basic socially-necessary labour time and then compared, and actual real-world prices must tend to move towards their true labour values.
But Paul Cockshott is apparently not even concerned to defend this authentic version of the LTV in volume 1 of Capital. Instead, in a sleight of hand, he has substituted a much weaker version of the LTV whose main definition is that the “average price of a good will be proportional to the average amount of labour used to make it.”
I will discuss this video in the two sections below.
(1). Neoclassical Price Theory
When Cockshott responds to critiques of the Labour Theory of Value (LTV), he begins with the Neoclassical/Austrian theory of flexible prices determined by dynamics of supply and demand. Bizarrely, Cockshott dismisses this by arguing that it is “unfalsifiable,” but this is manifestly not true.
The fundamental prediction of Neoclassical/Austrian price theory is that prices are flexible and will be highly responsive to changes in supply and demand. We can test this empirically. We can easily look at empirical studies of real-world price determination as I have done here and here and see that the vast majority of prices are not highly flexible and determined by dynamics of supply and demand, as in Neoclassical theory.
Instead, most prices are cost-based mark-up prices, which are set on average unit costs plus a profit markup. This theory, however, is inconsistent with Marx’s “prices of production” because there is no real-world tendency towards a uniform, average rate of profit.
So, first of all, Cockshott fails to engage with the Post Keynesian theory of cost-based mark-up prices, which actually is the empirically correct explanation of most prices in modern capitalism. Under the Post Keynesian theory of cost-based mark-up prices, it is entirely normal to find that labour costs are a substantial component of prices, and where labour costs in a particular industry are high, there will be a strong correlation of labour costs with prices. But none of this proves Marx’s Labour Theory of Value.
(2). Correlation of Labour Costs with Money Prices
Next, Paul Cockshott cites this article to prove his definition of the LTV:
Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” Indian Development Review 4: 1–20.I have already refuted this article here.
Cockshott seems blissfully unaware that the empirical finding that monetary labour costs are strongly correlated with money prices of output commodities is, as we have already seen above, actually one of many strong proofs of the Post Keynesian cost-based mark-up theory of pricing, and indeed of any non-Marxist cost-based mark-up theory of price determination, which have no need for a Labour Theory of Value at all.
So, once again, Cockshott has not proved the LTV, and apparently does even understand that his “proof” is, at the very least, perfectly compatible with the Post Keynesian cost-based mark-up theory of prices.
And Marxists like Cockshott are essentially incapable of defending the actual, authentic definitions of the LTV that Karl Marx used in volume 1 of Capital, and reduce it to a weak claim that does not vindicate Marx or his LTV.
A final point is that Cockshott relies on the data of Zachariah (2006), which admits that the empirical data do not support an equalisation of profit rates, but that is a necessary condition for the existence Marx’s prices of production as used in volume 3 of Capital! It follows logically that, if the existence of prices of production as long-run centres of gravity for real-world prices are refuted by the empirical evidence, then Marx’s economic theory in volume 3 of Capital – which relies on prices of production – is also refuted.
BIBLIOGRAPHY
Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.
Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” Indian Development Review 4: 1–20.
This morning, I set a program to copy this website because it had been 3 years since Lord Keynes had posted and I have already lost one invaluable website due to my lack of drive to copy it. After about 9 hours, it was finished. I opened it to check the integrity and I see "TUESDAY, JULY 9, 2024". I was a bit surprised.
ReplyDeleteHope you are well, Lord Keynes
P.S - 3.6 GB of website
“For Marx’s LTV in volume 1 of Capital to work and be empirically proved, all human labour of different kinds must be measurable in a homogenous unit of basic socially-necessary labour time and then compared, and actual real-world prices must tend to move towards their true labour values.”
ReplyDeleteMarx gave four solutions to the problem of heterogeneous labour: (1) Custom (in German and some English translations, tradition), (2) education costs, (3) measured by the labour producing gold and (4) “American solution”. The key argument is that since all humans are equal our time is equally much worth, and since all of us are able to do most professions given the appropriate opportunities for education, training, socialisation there is no fundamental reason why wages should be different. Even if you have a special talent for doing somehting – why should you get extra paid – it does not cost you any extra effort. Marx’ concept of “abstract labour” – his arguments for the validity of this concept – as can bee seen from the “American solution” is entirely in line with this egalitarian instinct. The heterogeneity problems with capital are surely much greater than those encountered in the case of labor. (Dobb 1945)
While Joan Robinson (generally) rejected the importance of the LTV (Hunt 1983 examines Robinson’s “ambivalence” regarding the LTV, arguing that she really was an “ally”), she noted in her “letter to a Marxist” that in response to “the idea that constant capital is an embodiment of labour power expended in the past..I say (though I do not use such pompous terminology): ‘Naturally–what else do you think it could be?’” (Robinson CW 4 p. 265) She goes on to answer the question, what unit of value could be adopted in Keynes’s system?: “A man hour of labour time. It is the most handy and sensible measure of value, so naturally you take it. You do not have to prove anything, you just do it.” (Robinson CW 4 p. 268)
The results obtained by Victor A. Beker and Esteban Albisu (2010) using the Wage Indicator data for Argentina, Brazil and U.K. favor the hypothesis of homogeneous innate abilities. If so, it means that, on a basis of an essentially homogeneous raw labor, heterogeneities are mainly built through the education process and the accumulation of experience.
“…most prices are cost-based mark-up prices, which are set on average unit costs plus a profit markup. This theory, however, is inconsistent with Marx’s “prices of production” because there is no real-world tendency towards a uniform, average rate of profit.”
Like Marx (and the Classicals), Keynes wanted to find a rational basis for the determination of prices in production–this is quite different from most modern approaches, whether orthodox or nonorthodox. Keynes argued: “I sympathise, therefore, with the pre-classical doctrine that everything is produced by labour, aided by…technique, by natural resources…, and by the results of past labour…. It is preferable to regard labour, including, of course, the personal services of the entrepreneur and his assistants, as the sole factor of production…. This partly explains why we have been able to take the unit of labour as the sole physical unit which we require in our economic system, apart from units of money and of time.” (Keynes 1964, pp. 213-4) The LTV is consistent with Keynes’s analysis (L. Randall Wray 1999).
You say:
Delete"The key argument is that since all humans are equal our time is equally much worth, and since all of us are able to do most professions given the appropriate opportunities for education, training, socialisation there is no fundamental reason why wages should be different."
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This is utterly WRONG. You cannot retrain cleaners to be expert doctors or surgeons. IQ is largely genetic, and this is the conclusion even of Liberal scientists if you bother to look into the real scientific literature.
As for your comments on Keynes at the end, so what? Prices of productions are NOT anchors for the price system: Marx's economic theory in volume 3 is empirically wrong.
“You cannot retrain cleaners to be expert doctors or surgeons. IQ is largely genetic, and this is the conclusion even of Liberal scientists if you bother to look into the real scientific literature.”
DeleteIn the long run workers can be retrained, and the ‘democratic’ assumption of socialists is that, apart from certain extremely demanding tasks and certain impaired individuals, almost everyone can do almost anything.
“One man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right. Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only – for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal.” (Marx, Critique of the Gotha Programme)
“Prices of productions are NOT anchors for the price system: Marx's economic theory in volume 3 is empirically wrong.”
Why should prices of production function reasonably well as predictors of prices? This is comprehensible in terms of the fact that the rate of profit is considerably less than 1. Since profits make up only about 20 percent of prices, a 50 percent variation in the rate of profit will produce a variation of prices of about 10 percent. Thus we would expect the coefficient of variation of φ to be about 1/5 that of r. This is in fact what Paul Cockshott and Allin Cottrell observe from Table 2 in the article “Does Marx Need to Transform?” (1998).
“A final point is that Cockshott relies on the data of Zachariah (2006), which admits that the empirical data do not support an equalisation of profit rates, but that is a necessary condition for the existence Marx’s prices of production as used in volume 3 of Capital!”
ReplyDeleteContrary to Zachariah (2006), Maldonado-Filho (1998) founds Marx’s theory of value and competition is consistent with the empirical evidences on inter-industry profit rates for the Brazilian manufacturing industry during the 1973-85 period. Ajit Zacharias (2001) provided estimates which show that during the period under study in the U.S. manufacturing sector: 1947–1998, the group of industries with statistically insignificant competitive differentials accounted for 72 percent of manufacturing profits and 75 percent of manufacturing capital stock, which is interpreted as lending support to the theories of competition advanced by the classical economists and their modern followers. These results suggest that profit rate equalization may be considered as a dominant, long-run tendency in the U.S. manufacturing sector. Andrea Vaona (2011) in Table 3 presents empirical studies on the tendential equalization of industry return rates.
You are citing a selective tiny number of studies NOT supported by the best empirical studies.
DeleteThere is a huge literature even in Neoclassical literature showing that profits are NOT competing away to an average rate.
E.g., Gschwandtner (2005) below focuses on 85 US companies surviving from 1950 to 1999 and finds that profits were not eroded by competitive forces even after a period of 50 years.
See:
Glick, Mark and Hans Ehrbar. 1988. “Profit Rate Equalization in the U.S. and Europe: An Econometric Investigation,” European Journal of Political Economy 4.1: 179–201.
Glick, Mark and Ehrbar, Hans. 1990. “Long-Run Equilibrium in the Empirical Study of Monopoly and Competition,” Economic Inquiry 28.1: 151– 162.
Mueller, Dennis C. (ed.). 1990. The Dynamics of Company Profits: An International Comparison. Cambridge University Press, Cambridge and New York.
Gschwandtner, Adelina and Michael A. Hauser. 2008. “Modelling Profit Series: Nonstationarity and Long Memory,” Applied Economics 40.11: 1475–1482.
Gschwandtner, Adelina. 2005. “Profit Persistence in the ‘very’ Long Run: Evidence from Survivors and Exiters,” Applied Economics 37.7: 793–806.
Gschwandtner (2005) focuses on 85 US companies surviving from 1950 to 1999 and finds that profits were not eroded by competitive forces even after a period of 50 years.
Cable, John R. and Richard H. G. Jackson. 2008. “The Persistence of Profits in the Long Run: A New Approach,” International Journal of the Economics of Business 15.2: 229–244.
Goddard, J. A. and J. O. S. Wilson. 1999. “The Persistence of Profit: A New Empirical Interpretation,” International Journal of Industrial Organization 17.5: 663–687.
“…profits are NOT competing away to an average rate.”
DeleteIn the real world, however, profit rates tend to equalize. Assuming a general or average profit rate of 20 percent, the value received by each industry would equal the total capital advanced, 100, plus the 20 percent mark-up, or 120 units of value. Industry B would therefore receive less value than it produces, whereas industry A would receive more value than it produces.
LOL. I just gave you a sample of the vast literature showing you that profits are NOT competed away or to an average in modern capitalist nations.
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