The Class War is Back

In a manner of speaking. See this splendid piece here by Paul Embery:

Paul Embery, “The Demonisation of the Working-Class Shames Our Nation,” HuffPost Politics, 1 July, 2016.

Except the new class war is being waged against the working class by an arrogant, metropolitan, snobbish, middle-class leftist elite that rules the left at the moment, with hordes of young university-educated leftists in tow.

The elite is, to a great extent, influenced by economic neoliberalism (think: New Labour).

The mass of supporters and especially the young are steeped in Postmodernism and all its rotten ideas (cultural relativism, truth relativism, moral relativism, identity politics, etc.). Their core beliefs stand in stark contrast to an older generation of leftists like Noam Chomsky, who in his heyday had utter contempt for their ideology. The worst elements of them are what can be called the regressive left.

A core element of this leftism is its quasi-religious faith in open borders and mass immigration, which is becoming politically toxic all over the Western world, for its deleterious economic and social consequences. Nor can you ignore the cultural problems caused by mass immigration either (though, admittedly, it does tend to bring out the far right and so-called “Alt Right” bigots and needs a diplomatic and light touch in discussion).

Even self-identified, university-educated Marxists are mostly part of the regressive left these days, because – let’s face it – Marxism seems to have been taken over by cultural leftism and to have succumbed to the cult of open borders as well.

Ask yourself: when was the last time a middle-class, university-educated Marxist made the principled, socialist case against mass immigration?

Of course, there are people who have an irrational view of immigration per se or an irrationally bigoted attitude to foreigners. But the correct response here is to quietly and even politely but strongly disagree with such people, and carefully and respectfully point out why they are wrong, rather than simply scream abuse at the top of one’s lungs.

The issue of such people shouldn’t be allowed to dominate the discussion and the best tactic of the left is to boldly seize the issue of mass immigration, take it away from the right, and urge sensible policies that will satisfy voters while crippling support for the right on this issue.

Ricardo on Utility and Non-Reproducible Goods

From David Ricardo’s On the Principles of Political Economy and Taxation (3rd edn.; 1821), Chapter 1, “On Value”:

“It has been observed by Adam Smith, that ‘the word Value has two different meanings, and sometimes expresses the Utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use ; the other value in exchange. The things,’ he continues, ‘which have the greatest value in use, have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange, have little or no value in use.’ Water and air are abundantly useful; they are indeed indispensable to existence, yet, under ordinary circumstances, nothing can be obtained in exchange for them. Gold, on the contrary, though of little use compared with air or water, will exchange for a great quantity of other goods.

Utility then is not the measure of exchangeable value, although it is absolutely essential to it. If a commodity were in no way useful,—in other words, if it could in no way contribute to our gratification,—it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labour might be necessary to procure it.

Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them.

There are some commodities, the value of which is determined by their scarcity alone. No labour can increase the quantity of such goods, and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality, which can be made only from grapes grown on a particular soil, of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labour originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them.” (Ricardo 1821: 1–2).

There are three points here:

(1) Ricardo in paragraph two seems to be on the point of understanding subjective utility, but doesn’t quite get there, because he cannot seem to extend the word “gratification” to include subjective value.

(2) in Ricardo, exchange values of commodities with utility are determined by two factors: (1) scarcity and (2) the quantity of labour required to obtain them.

(3) when Ricardo discusses non-reproducible goods like antiques, pictures, scarce books, coins, and wines, he sees that the “inclinations of those who are desirous to possess them” have a major role in price determination. Again, he is grasping at the concept of subjective utility.

It seems to me that Marx’s labour theory of value (LTV) was a regression from Ricardo, because at least Ricardo allowed a fundamental role for scarcity in determining exchange value. In volume 1 of Capital, Marx dispensed even with scarcity as a fundamental determinant of exchange value, when clearly scarcity plays a major part in determining the prices of, say, primary commodities sold in flexprice markets.

And it is clear that Marx’s labour theory of value requires another limitation: it is limited not only to commodities produced for exchange but also to those that are readily reproducible commodities that can be considered fungible.

In volume 3 of Capital, Marx admits that the prices of things which “cannot be reproduced by labour, such as antiques, works of art by certain masters, etc. … may be determined by quite fortuitous combinations of circumstances” (Marx 1991: 772). So this eliminates another category of goods from those that supposedly can be explained by Marx’s LTV.

When we also consider that, for Marx, land, since it is not a product of labour, has no labour value, and hence its price is not explained by abstract labour time, we have increasingly more and more goods whose prices cannot be explained by LTV.

BIBLIOGRAPHY
Marx, Karl. 1991. Capital. A Critique of Political Economy. Volume Three. (trans. David Fembach). Penguin Books, London.

Ricardo, David. 1821. On the Principles of Political Economy and Taxation (3rd edn.). John Murray, London.

Piero Sraffa’s Damning Verdict on the Labour Theory of Value

Kurz (2002: 184) notes the debates and confusion over whether Piero Sraffa accepted the classical or Marxist labour theory of value and used it as a starting point for his theories.

Kurz (2002: 184–185) and Kurz and Salvadori (2010) prove that this is not the case, even if some Post Keynesians sympathetic to Marxism argue that Sraffa showed how to determine the rate of profit independently of prices as a share of a particular composite commodity (akin to Smith’s idea of labour commanded).

But with respect to the classical and orthodox Marxist labour theory of value, Sraffa in fact thought that it was a “corruption” of an earlier and better “physical real cost theory” (Kurz 2002: 185).

In an unpublished note of 1928, Sraffa gave his damning verdict on the labour theory of value:

“There appears to be no objective difference between the labour of a wage earner and that of a slave; of a slave and of a horse; of a horse and of a machine, of a machine and of an element of nature (?this does not eat). It is a purely mystical conception that attributes to human labour a special gift of determining value. Does the capitalist entrepreneur, who is the real ‘subject’ of valuation and exchange, make a great difference whether he employs men or animals? Does the slave-owner?” (Sraffa, unpublished note, D3/12/9: 89, quoted in Kurz and Salvadori 2010: 199).

Bravo, Piero. Michał Kalecki had a similarly negative view and rejected the labour theory as utterly metaphysical. So did Joan Robinson, whose rejection of it was scathing (Robinson 1964: 28–46).

The point Sraffa made is a profound one too. Why should human labour have a special status when animal labour has been – and in some countries still is – a fundamental factor of production? (as a kind of special category of capital good). What about natural forces like winds driving windmills? All these things produce labour power too, and if Marx’s abstract socially-necessary labour time (SNLT) units were meaningful measures of every type of heterogeneous, concrete human labour, then the labour power done by animals or nature ought to be measurable in terms of SNLT units too.

So why is human labour the sole source of value? Why not animal labour time too, but translated into abstract SNLT? Why not wind power translated into abstract SNLT?

BIBLIOGRAPHY
Kurz, Heinz D. 2002. “Sraffa’s Contributions to Economics. Some Notes on his unpublished Papers,” in Sergio Nistico and Domenico Tosato (eds.), Competing Economic Theories. Essays in Memory of Giovanni Caravale. Routledge, London. 177–195.

Kurz, Heinz D. and Neri Salvadori. 2010. “Sraffa and the Labour Theory of Value: A Few Observations,” in John Vint et al. (eds.), Economic Theory and Economic Thought: Essays in Honour of Ian Steedman. Routledge, London and New York. 189–215.

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

Vernengo, Matias. 2012. “Sraffa and Marxism or the Labor Theory of Value, what is it good for?,” Naked Keynesianism, August 14
http://nakedkeynesianism.blogspot.com/2012/08/sraffa-and-marxism-or-labor-theory-of.html

More Mystical Labour Theory of Value Nonsense

It can be found in volume 1 of Marx’s Capital:

“The value of a commodity is certainly determined by the quantity of labour contained in it, but this quantity is itself socially determined. If the amount of labour-time socially necessary for the production of any commodity alters – and a given weight of cotton represents more labour after a bad harvest than after a good one – this reacts back on all the old commodities of the same type, because they are only individuals of the same species, and their value at any given time is measured by the labour socially necessary to produce them, i.e. by the labour necessary under the social conditions existing at the time.” (Marx 1982: 318).

In other words, what Marx is saying here is that when, say, 1000 abstract labour hours produce 1000 units of cotton, then the labour value of 1 unit of cotton would equal 1 abstract labour hour (how this labour value is mapped onto the “natural price” is never adequately explained by Marxists).

But if 1000 labour hours are expended on production but some natural disaster means only 200 units of cotton can be produced, then the labour value of 1 unit of cotton would now equal 5 abstract labour hours. The “natural price” corresponding to the labour value would rise too. Older and previously produced units of cotton would now fetch a price at this new labour value. This, for comrade Marx, explains why prices of agricultural goods rise when floods, droughts or other crop failures occur. Clearly, this is how Heinrich (2012: 43) interprets Marx.

As an explanation or even as a coherent theory, it is so patently absurd.

Why? The reason is that such an interpretation requires that abstract labour-power or abstract socially necessary labour time used in producing cotton has been magically or mystically transferred from the cotton crops that died or were destroyed into the ones that survived. It is even worse than the mystical nonsense about labour being objectified or materialised in commodities described here.

It is quite obvious that the labour expended in planting and maintaining crops that spoilt or were destroyed in some natural disaster was in vain. In retrospect, it was simply wasted labour. Wasted labour – whether concrete or abstract – cannot be some magical quantity that flows into the crops that survive.

Knut Wicksell, in an 1886 debate with the Marxist Atterdag Wermelin, made another criticism of this aspect of Marx: Wicksell pointed out that, when the price of cotton soars after bad harvests, it is the case that the amount of labour required to harvest the smaller crop can actually fall below that needed for a full crop, but this blatantly contradicts the labour theory of value (Lönnroth 1995: 104).

That is undoubtedly another devastating problem: just as Wicksell suggested, what if total abstract labour time for an industry-wide crop falls dramatically after a natural disaster early in the season such that unit labour values fall in relation to a good harvest, since considerably less labour is now needed to bring it to market (e.g., we know that for many crops picking and harvesting is very labour intensive). The labour theory of value requires that the natural price falls. We all know this doesn’t happen. In flexprice markets for agricultural goods not affected by commodity stabilisation programs, we all know the price would soar. It soars even though total labour time – whether concrete or abstract socially necessary labour time – would have fallen.

We see time and again the insuperable difficulties with and absurdities of the labour theory of value. I expect some Marxists in the comments section will tell me that no price ever corresponds to its labour value (in which case what is the use or explanatory power of this stupid theory at all?). Or I need to consult the right Marxist interpreting priest to understand the writings of the Master (though I did consult Heinrich 2012, but maybe he is just a plain heretic and doesn’t understand the Master’s work after all!!). Or maybe I need to read it in the original German. Or maybe I just need to take it on faith.

BIBLIOGRAPHY
Heinrich, Michael. 2012. An Introduction to the Three Volumes of Karl Marx’s Capital (trans. Alexander Locascio). Monthly Review Press, New York.

Lönnroth, Johan. 1995. “Swedish Model Market Socialism,” in Ian Steedman (ed.), Socialism and Marginalism in Economics 1870–1930. Routledge, London. 102–115.

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

Marx on the Labour Theory of Value in Volume 1 of Capital

I refer to Chapter 1, Section 1 of volume one of Capital (Marx 1982).

Here Marx gives his definition of a commodity:

“The commodity is first of all, an external object, a thing which through its qualities satisfies human needs of whatever kind. The nature of these needs, whether they arise, for example, from the stomach, or the imagination, makes no difference. Nor does it matter here how the thing satisfies man’s need, whether directly as a means of subsistence, i.e. an object of consumption, or indirectly as a means of production” (Marx 1982: 125).

This is already somewhat problematic: does it include and encompass what neoclassicals call subjective value too? If so, Marx’s economics badly neglects the reality of subjective value, and how it is just as much a source of price determination as labour expended in the production of the good.

When Marx speaks of the “use value” of commodities, he seems to have in mind the physical usefulness of goods, and does not include subjective pleasure or, for example, delusional “use value” in his definition:

“The usefulness of a thing makes it a use-value. But this usefulness does not dangle in mid-air. It is conditioned by the physical properties of the commodity, and has no existence apart from the latter. It is therefore the physical body of the commodity itself, for instance iron, corn, a diamond, which is the use-value or useful thing. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When examining use-values, we always assume we are dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use-values of commodities provide the material for a special branch of knowledge, namely the commercial knowledge of commodities. Use-values are only realized [verwirklicht] in use or in consumption.” (Marx 1982: 126).

But the usefulness of a commodity need not be limited to the “physical properties of the commodity.” People can buy things like magic charms or magic potions (and certainly people in the past did this in large numbers) or psychic readings. Some small numbers of people today probably think these things can give some kind of magic effect, but clearly there is no rational reason to think any such thing. The value or usefulness of such goods doesn’t lie in the “physical properties of the commodity.” People just mistakenly think the goods do certain things. But let us put all these points aside.

Marx further defines “exchange-value” as something that “appears first of all as the quantitative relation, the proportion, in which use-values of one kind exchange for use-values of another kind” (Marx 1982: 126). Marx admits readily that exchange values constantly change and are not fixed (Marx 1982: 126). But the exchange value is a “form of appearance” (Marx 1982: 127) concealing something deeper.

Marx sees exchange values in barter trades as being equivalent values (Marx 1982: 127). But this does not necessarily follow at all. In fact, when one person exchanges one good for another, it seems likely that in many cases he values the good he receives more highly than the good he gives up in the trade, and vice versa. Marx never considers this.

Marx assumes that, since goods must be equivalent in value during barter exchanges, therefore they must be reducible to some common value:

“… the exchange values of commodities must be reduced to a common element, of which they represent a greater or a lesser quantity.” (Marx 1982: 127).

We can quote his argument at length:

“This common element cannot be a geometrical, physical, chemical or other natural property of commodities. Such properties come into consideration only to the extent that they make the commodities useful, i.e. turn them into use-values. But clearly, the exchange relation of commodities is characterized precisely by its abstraction from their use-values. Within the exchange relation one use-value is worth just as much as another, provided only that it is present in the appropriate quantity. Or, as old Barbon say: ‘One sort of wares are as good as another, if the value be equal. There is no difference or distinction in things of equal value … One hundred pounds worth of lead or iron, is of as great a value as one hundred pounds worth of silver and gold.’

As use-values, commodities differ above all in quality, while as exchange-values they can only differ in quantity, and therefore do not contain an atom of use-value.

If then we disregard the use-value of commodities, only one property remains, that of being products of labour. But even the product of labour has already been transformed in our hands. If we make abstraction from its use-value, we abstract also from the material constituents and forms which make it a use-value. It is no longer a table, a house, a piece of yarn or any other useful thing. All its sensuous characteristics are extinguished. Nor is it any longer the product of the labour of the joiner, the mason or the spinner, or of any other particular kind of productive labour. With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour. They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.”

Let us now look at the residue of the products of labour. There is nothing left of them in each case but the same phantom-like objectivity; they are merely congealed quantities of homogeneous human labour, i.e. of human labour-power expended without regard to the form of its expenditure. All these things now tell us is that human labour-power has been expended to produce them, human labour is accumulated in them. As crystals of this social substance, which is common to them all, they are values – commodity values [Warenwerte].” (Marx 1982: 127–128).

As a defence of the labour theory of value, this argument is a non sequitur. It simply does not necessarily follow. There is no necessary reason to think there must be an underlying universal, single objective value to all commodities. In fact, we need not even assume that in all trades the people value the goods exchanged equally at all, as we have seen.

Even worse, it is also very clear how Marx must ignore the reality of different types of labour, whether of different professions but more generally of differences in skilled, professional, or unskilled labour, even though Marx himself understands that there are “heterogeneous forms of useful labour, which differ in order; genus, species and variety” (Marx 1982: 132).

Nevertheless, Marx is forced to reduce all labour to a homogeneous abstract unit.

Marx is adamant that labour time is the quantitative measure of labour value:

“A use-value, or useful article, therefore, has value only because abstract human labour is objectified [vergegenständlicht] or materialized in it. How, then, is the magnitude of this value to be measured? By means of the quantity of the ‘value-forming substance’, the labour, contained in the article. This quantity is measured by its duration, and the labour-time is itself measured on the particular scale of hours, days etc.” (Marx 1982: 129).

But immediately Marx hits up against the problem of why heterogeneous human labour can be meaningfully reduced to mere labour time as an objective measure of economic value. Why is this homogenous unit a truly accurate measure of labour value when everyone knows that workers work at different professions, speeds, levels of competence, and have different skills and expertise?

Quite frankly, Marx’s answer does not solve this devastating problem, but mostly just evades it:

“It might seem that if the value of a commodity is determined by the quantity of labour expended to produce it, it would be the more valuable the more unskilful and lazy the worker who produced it, because he would need more time to complete the article. However, the labour that forms the substance of value is equal human labour, the expenditure of identical human labour-power. The total labour power of society, which is manifested in the values of the world of commodities, counts here as one homogeneous mass of human labour-power, although composed of innumerable individual units of labour-power. Each of these units is the same as any other, to the extent that it has the character of a socially average unit of labour-power and acts as such; i.e. only needs, in order to produce a commodity, the labour time which is necessary on an average, or in other words is socially necessary. Socially necessary labour-time is the labour-time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labour prevalent in that society. ….

What exclusively determines the magnitude of the value of any article is therefore the amount of labour socially necessary, or the labour-time socially necessary for its production. The individual commodity counts here only as an average sample of its kind. Commodities which contain equal quantities of labour, or which can be produced in the same time, have therefore the same value. The value of a commodity is related to the value of any other commodity as the labour-time necessary for the production of the one is related to the labour-time necessary for the production of the other. ‘As exchange-values, all commodities are merely definite quantities of congealed labour-time.’” (Marx 1982: 129–130).

Marx evades the severe problem of heterogeneous human labour by simply reducing all labour time to an abstract, homogenous unit: socially-necessary labour time. But this doesn’t solve the problem. It attempts to ignore the issue by means of wishful thinking.

Marx assumes that total labour power of a nation can be aggregated by reducing all labour to a “socially average unit of labour-power.” This won’t do. Labour is too heterogeneous and too radically different in terms of profession, skill, competence, experience, and skills to be aggregated in such a crude manner. Highly skilled labour (e.g., a professional surgeon) produces more subjective value and to most people more objective value than unskilled manual labour (e.g., a person who mops floors). That is why a surgeon is paid more than a janitor. What Marx calls “labour-power” can be very different in different cases, and Marx’s attempts to reduce labour to an abstract unit is as unconvincing as any neoclassical who reduces real capital to a homogeneous putty.

And matters are no better when Marx later argues that the value of a commodity made by “complicated labour” can be reduced to quantities of “simple labour,” which seems to be defined as “simple labour-power, i.e. of the labour-power possessed in … [sc. the] bodily organism by every ordinary man, on the average, without being developed in any special way” (Marx 1982: 135). Here once again heterogeneous labour has to be reduced to a common measure, but what is it? It sounds rather like energy expended by human beings in their labour, but I see no reason why this should be an eternal source of economic value and the price determination of goods.

Neither the abstract “socially-necessary labour time” solution nor the “simple labour” unit reductionism can really solve the problem of heterogeneous human labour. On these grounds alone, the labour theory of value is unsound and unconvincing.

Finally, we have another utterly devastating problem with the labour theory of value:

“A thing can be a use-value without being a value. This is the case whenever its utility to man is not mediated through labour. Air, virgin soil, natural meadows, unplanted forests, etc. fall into this category. A thing can be useful, and a product of human labour, without being a commodity. He who satisfies his own need with the product of his own labour admittedly creates use value, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values. (And not merely for others. The medieval peasant produced a corn-rent for the feudal lord and a corn-tithe for the priest; but neither the corn-rent nor the corn-tithe became commodities simply by being produced for others. In order to become a commodity, the product must be transferred to the other person, for whom it serves as a use-value, through the medium of exchange.) Finally, nothing can be a value without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.” (Marx 1982: 131).

If labour value is totally worthless and cannot confer exchange value when the object has no utility (“use value”), then the whole labour theory of value is undermined.

For labour is not even a sufficient condition for economic value or exchange value. Clearly utility is also a necessary condition for economic value or exchange value, along with (1) labour time and (2) use value. And once we add subjective value into the mix, the Marxist labour theory of value becomes even more unsound. For now it is not even necessary for a commodity to have use value for it to command exchange value. Plenty of goods have no use value, e.g., pet rocks, but fetch an exchange value.

If Marxists want to argue that the Marx’s definition of “use value” includes “subjective value” as well, matters are no better. We are still left with the same devastating problem: labour time is not the only necessary condition for economic value or exchange value.

So Marx’s “labour theory of value” is obviously a blatantly one-sided and incomplete theory of both value and price.

And, finally, notice how all these issues are so devastating even before we get to yet another damning point, which I have made time and again, but which Marxists can never answer.

Most prices in modern economies are mark-up prices. It is not labour time per se but average unit cost of labour along with the average unit cost of all other non-labour factors at a given quantity of output that is used to calculate most prices. Given differing economies of scale, if you change the given quantity of output, then total average unit costs radically change, regardless of the total number of labour hours. After they calculate total average unit costs, businesses add a profit mark-up to this, nearly always. The profit mark-up can vary and is not related to labour.

Once again, on straightforward empirical grounds, we have no rational reason to accept the Marxist mystical dogma that “socially-necessary labour time” determines exchange value or prices in modern capitalism.

Further Reading
“Marx’s ‘Socially Necessary Labour Time’: A Quick Overview and Critique,” March 26, 2015.

“Progress in Marxism on the Labour Theory of Value?,” March 18, 2015.

“Mysticism and the Labour Theory of Value,” May 7, 2014.

“Lavoie on ‘Should Sraffian Economics be dropped out of the Post-Keynesian School?,’” June 19, 2014.

“Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

“Did Kalecki Accept the Labour Theory of Value?,” April 18, 2014.

“Automation and Robots in the News,” February 23, 2015.

“Adam Smith on the Labour Theory of Value,” April 20, 2014.

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