Common misconceptions regarding Marx's Labour Theory of Value

Economics Economics Questions
1

Hi

This is my first post here and I would like to start a conversation regarding Marx’s value theory. I am not myself a Marxist, but have an interest in political economy in general and as such have been reading up on Marx recently.

It strikes me that there are often a lot of arguments put forward against the LTV that are applicable to the classical LTV but not for Marx’s. In the spirit of intellectual honesty, it seems that Marx should be critiqued on his own terms, and not with straw-man arguments.

I provide a quote from another thread on this forum as a starting point;

Smiling Dave replied on Fri, Mar 5 2010 8:50 PM

The arguments that convinced me: 1. Valuable paintings of dead artists go up and down in price. Why? Did the painter do more or less painting in the grave? 2. The house I live in is a small mansion, finely upkept, in a neighborhood gone seedy. I can’t get back the labor expenses I put into it. Why not? 3. Walking down the beach today, I found a tin can and a diamond thrown up from the depths of the sea. I put the same effort into getting them both, bending down. And yet I can get much more for the diamond. Why? 4. Say a car company builds a model [The Grande Lemon] that nobody wants. It’s been known to happen. They wind up having to sell it for less than their more popular models even though more labor was put into the Lemon. In fact it is technically superior in every way to every existing car. 5. Last years clothing fashions are suddenly cheaper this year, cause styles have changed. Why? The answer to all these is, of course, that their price is set by how much people, for whatever reason, are willing to pay for it. How much labor went into it is totally irrelevant.

Point 1: Prices go up/down because of supply and demand. It is not the specific (what marx calls ‘concrete’) labours of the artist that contributes to the value of the painting, it is the average amount of labour necessary under current productive conditions to (re)produce the painting that sets it’s value.

The mechanism of supply and demand is the very process by which prices are seen to converge on value (note this distinction between ‘value’ and ‘price’), and so when Marx talks of value, it is comparable to the notion of ‘equilibrium’ price, not specific prices at a given instance.

Point 2: This is answered by Marx with his two-fold understanding of the nature of value. Simply put, there is ‘use-value’ (i.e. the usefulness of an object) and ‘exchange-value’ (which is the price of the commodity). ‘Value’ in Marx’s terms is a unitary concept consisting of both these things, so if a commodity has no use-value then it also has no ‘value’. i.e. if no-one wants it then the labour embodied in it contributes not one bit to it’s value, the labour is wasted.

So, in your example, the fact that not many people want to live in that area means that your labour has been wasted. It takes the interaction of seller and buyer for value to emerge. In a sense, this makes Marx’s value theory subjective.

Point 3: Once again, it is not the concrete labour that forms value, it is the average, socially-necessary labour that does. The diamond, being that it is rare, takes on average a lot of labour to locate and mine. So even if in one specific situation not much labour is expended, this does not change the fact that a higher price can be demanded.

Point 4: This also ignores Marx’s caveat that the object must be useful to the consumer. This goes for point 5 as well.

The final point that value is set by how much people are willing to pay for it is half correct. Yes, people need to be willing to pay for an item, but they also need to be able to pay for it, and this takes us back to the importance of labour in the value forming process – if everyone stopped labouring then no-one could buy or sell anything.

As an aside, I would like to add that Marx’s concept of value is not an objective thing that exists in all places at all times. Value (as a bearer of socially necessary labour-time) emerges out of a system of widespread commodity production and exchange. It does not exist objectively outside of the capitalist mode of production.

Anyway, that is my initial thoughts on the debate over the LTV. I do not pretend to be an expert on Marx, and so some of my understandings regarding his theory may be incorrect. To the best of my knowledge this is what he was saying.

2

I admit that my knowledge of Marx is lacking, but I have some observations/questions:

1: “the average amount of labour necessary under current productive conditions to (re)produce the painting that sets it’s value.” How could anyone possibly know what that “average amount of labour” is? Also how do you average labour as an ‘amount’? In terms of time or in terms of productivity, or some combination of both? It seems to me that the average amount of labour must be an abstract concept, and so I fail to see how it can have a concrete influence on the real world. I don’t understand how the concept of equilibrium price is meaningful or useful in saying anything about economics, there is an actual price by which two goods exchange, that is all.

2: By using the terms ‘use value’ and ‘exchange value’ he appears to be agreeing with the Austrian position that an aggregation of subjective values can result in an objective value(price).

3: Any time two objects are exchanged there is a valuation involved, regardless of whether the overall ‘mode’ is capitalistic or not. If two naughty communists in their barracks/commune/ditch decided to swap an apple for an orange that would be a subjective valuation of the two objects.

3

Yup! Praxeology highlights the obvious flaws with Marx’s theories.

4

A few months ago I had a very enlightening conversation with a Marxist where I learned quite a bit about Marx’s Law of Value and all that jazz.

The thing he was never able to address was that, in Marx’s definition, only labor that is “socially nessecary” is counted in an object’s value. But how do you determine what “socially nessecary”? You have to take into account every individual’s unique and subjective valuation of thier own labor, and how much of the product of thier labor they are willing to trade for a specific product of another’s labor. It’s utlimately the third-party’s perception of the utility of an individual’s labor that gives labor itself worth.

This of course completely invalidates Marx’s concept of “exploitation”.

5

Welcome to the forum!

I am flattered indeed at your choosing a post of mine to analyze, and am not surprised to hear it may be full of holes. It won’t be the first time. Of course, that won’t stop me from attempting to patch the thing up.

Case 1. The Rembrandt that he himself sold for a dime, and is now worth millions. You seem to be saying we should not look at how much effort Rembrandt put into the painting, but how much effort it takes nowadays to make such a painting. In which case that Rembrandt should not be worth millions at all, surely. They can be pumped out by counterfeiters by the truckload and will differ by only the most trivial details from the original. Stuff like the oils used not being as poorly made as in Rembrandt’s time.

I deny the existence of an “equlibrium price”. Prices change constantly, up and down. They do not “converge” to anything. Now maybe Marx is smarter than me and knows they do converge to an equlibrium, but I am not convinced of it. I am in fact convinced of the opposite, and what helped me see that is the ups and downs in prices of artwork.

Case 2. My expensive mansion, once worth millions and into which millions was invested, is now worthless because the neighborhood turned slum.

You tell me that the house has no “use value”. Why not? People can live in it exactly like they did in the neighborhood’s heyday. Why was my labor not wasted ten years ago, but today is retroactively declared “wasted”? And if the neighborhood flourishes in a few years, does my first unwasted then wasted labor suddenly become unwasted again? Was the price of the house converging to something during all this?

You seem to be saying “The labor determines the price, but only the unwasted labor, the stuff that pumped in use value.” Sounds simple, no? But a theory that has to relabel labor constantly from wasted to unwasted to wasted to half wasted half unwasted [if the price recovers a little bit] sounds wacky to me.

I imagine some poor Soviet laborer getting alternately smacked down and rewarded as the years go by, all for the same little act.

“Comrade Boris, we award you the 1922 Usefull Labor Prize for your valuable contribution.”

[Next day] “Well actually, we take it back. You are going to Siberia for being the most wastefull fool of all 1922.”

[ A year later] “Take that back. An order of Lenin for you comrade, for your mighty efforts in 1922”

Etc etc.

BTW, once Marx is forced to admit that value is subjective, he should have gone to Occam’s Barber Shop to borrow his razor and cut off the whole useless appendage, the labor theory part. Or would he look less impressive without the beard?

Case 3. The diamond I find in the sand. The value of my diamond is determined not by my diamond, but by the average socially usefull amount of labor needed to mine the average diamond.

This one I have to, kicking and screaming, agree with. I have been rebutted.

But this kinda blows up the whole Capitalism is Exploitation thing, doesn’t it? In a typical case of an average, fully HALF of the things involved are below average. So that fully half of the workers are whining about being exploited for not getting the full value for their labor, when they have put in LESS then what they “should” be. But they want full price. Who is exploiting whom?

Case 4 and 5. The unfashionable car and clothes. Interesting use of the word useful. Because those cars will get them to where they want to go, and those clothes will warm them in the cold Russian nights. To the exact same degree as the fashionable ones. In fact better, in the case of the car. So “usefull” is either a poor choice of words by Marx, or a poor translation of his writings. Better is “wanted”. And again, once we admit price is determined by the subjective wants of the consumer, Occam will shave off the rest.

I totally agree with your final point, that if nobody works there won’t be anything to buy. In fact it is the single most important economic fact that Obama and friends are ignoring. When there are no jobs and people are poor the solution is not to hand them money, but to let them get to work making things.

Summing up, I certainly learned a lot from your post. The world is better off from it having been written.

6

Thinking about this sentence a little more..

“it is the average amount of labour necessary under current productive conditions to (re)produce the painting that sets it’s value.”

The point made was that the artist is dead. So the question is, how can the painting be reproduced? Even if the artist was still alive, I find it highly unlikely that he/she would be able to produce an identical copy.

Furthermore what if the artist were using a material that simply runs out, resources are scare on this planet. What if he was using Dodo semen to paint with and then the Dodo became extinct, how can that be reproduced in order to set its value?

The idea of reproduction at the current time is not possible in the real world in all cases, and if it is not possible in all cases it has no claim to be a theory describing the world. At best it can claim to be a theory that describes particular situations that would need to be specified. Does Marx qualify his theory here or does he claim universality?

7

Smiling Dave:

  • Case 4 and 5. The unfashionable car and clothes. Interesting use of the word useful. Because those cars will get them to where they want to go, and those clothes will warm them in the cold Russian nights. To the exact same degree as the fashionable ones. In fact better, in the case of the car. So “usefull” is either a poor choice of words by Marx, or a poor translation of his writings. Better is “wanted”. And again, once we admit price is determined by the subjective wants of the consumer, Occam will shave off the rest.

Ah come on now, you shouldn’t make that mistake for being a regular poster on an Austrian forum. The more fashionable clothes have a use-value in satisfying the consumer’s desire to impress thier fellow humans. This is indeed legitimate utilty, so if you have an “ugly” coat and “fashionable” coat that both warm you equally well, the fashionable one has more overall use-value because it satisfies more desires. Still doesn’t solve the problem of retro-actively valuing labor in the past due to ever-fluctuating present wants and needs, but “useful” is a legitimate term in the way Marx uses it. It just has fatal implications for his theory.

8

“The mechanism of supply and demand is the very process by which prices are seen to converge on value (note this distinction between ‘value’ and ‘price’), and so when Marx talks of value, it is comparable to the notion of ‘equilibrium’ price, not specific prices at a given instance.”

Yes, Marx’s LTV can only explain long run equilibrium price but not the short run prices that actually form on the market. The error (well, one error) is that because production costs are sunk at the point of sale they are completely irrelevant to price formation. Price and cost occur at different times. After a price has formed entrepeneurs then retrospectively judge whether a project is going to make money or not and expand or contract production accordingly. In the process they change the quantity of labour demanded, making it more “socially necessary” if you will, and bid the price up or down. Therefore what actually happens, if you accept the rest of the theory, is labour-value is made to converge on price. Marxists have causality backwards.

An general point on marxist LTV would be that the whole notion of abstract labour is bizarre. That labour is heterogeneous is just common sense and there is no way of grounding the whole “skilled labour is just multiplied common labour” idea in premises more initially plausible than this. As such no rational person should be convinced of it, enter marxists…

9

“After a price has formed entrepeneurs then retrospectively judge whether a project is going to make money or not”

I’m sorry, that made no sense. I wrote and re-wrote that sentance a couple of times :stuck_out_tongue:

What I meant to say is that after selling a good the entrepeneur can, in retrospect, compare price and cost and use this as a guideline for what future prices might look like. Whether a project is profitable and the decision to expand or contract production are obviously not retrospective. However the rest of the argument still follows.

10

Marx runs into a couple of problems when trying to articulate his garbled theory of value. If you want to learn how to refute Marx on his own terms, then just read Das Kapital. Basically, his theory of value, as formulated in volume 1, contradicts his theory of production in volume 3. Chapter 9, in volume 3, (I think this is the one) is where Marx’s theory of value meets the rigors of the market head on. He can’t explain how commodity prices translate into labor. He labored his entire life, albeit unsuccessfully, to try to solve this problem.

Additionally, Marx ignores the dimension of time in production. I don’t want to get into a hefty critique of this aspect because Bohm-Bawerk did it masterfully over 100 years ago. It would be easier to read his short critique.

11

FunkedUp, it is my understanding that Marx realized that the theory in Volume One couldn’t be reconciled with the theory from Volume Three and that is precisely the reason why he was never able to complete it to his satisfaction (and ultimately why Engels had to finish it for him; Engels was less troubled by the apparent inconsistency).

12

Smiling Dave, why concede this?

"Case 3. The diamond I find in the sand. The value of my diamond is determined not by my diamond, but by the average socially usefull amount of labor needed to mine the average diamond.

This one I have to, kicking and screaming, agree with. I have been rebutted."

The value of your diamond on the market is determined by supply and demand which is in turn determined by subjective value judgement. It has no connection with “social labour time” primarily because “social labour time” is an empty concept!

13

Yes. That’s true. Marx published the first volume in 1867. Volumes 2 and 3 were published by Engels after his death some 20 and 30 years later. The marginal revolution, which occurred in the early 1870’s, really put a wrench in his plans.

14

‘Prices go up/down because of supply and demand. It is not the specific (what marx calls ‘concrete’) labours of the artist that contributes to the value of the painting, it is the average amount of labour necessary under current productive conditions to (re)produce the painting that sets it’s value.’

Concrete labor according to Marx is labor carried out by capital machines, not by humans. Human labor is abstract labor which supposedly produces exchange value.

‘The mechanism of supply and demand is the very process by which prices are seen to converge on value (note this distinction between ‘value’ and ‘price’), and so when Marx talks of value, it is comparable to the notion of ‘equilibrium’ price, not specific prices at a given instance.’

Not according to Marx, or at least not according to Marx a la Capital vol. 1. Use value have no objective standard since it is obviously subjective to each individual. According to Marx, exchange can only take place when there is an equality. Labor represented that equality, not supply/demand. How many apples you have and how many oranges he had is immaterial

This is answered by Marx with his two-fold understanding of the nature of value. Simply put, there is ‘use-value’ (i.e. the usefulness of an object) and ‘exchange-value’ (which is the price of the commodity). ‘Value’ in Marx’s terms is a unitary concept consisting of both these things, so if a commodity has no use-value then it also has no ‘value’. i.e. if no-one wants it then the labour embodied in it contributes not one bit to it’s value, the labour is wasted.’

If value is on unitary concept then why did Marx make the distinction between use and exchange?

Once again, it is not the concrete labour that forms value, it is the average, socially-necessary labour that does.

Abstract labor is what composes the socially-necessary amount.

The diamond, being that it is rare, takes on average a lot of labour to locate and mine. So even if in one specific situation not much labour is expended, this does not change the fact that a higher price can be demanded.

So then socially-necessary labor is no longer the determining factor in exchange value if abstract labor is not expended.

‘The final point that value is set by how much people are willing to pay for it is half correct. Yes, people need to be willing to pay for an item, but they also need to be able to pay for it, and this takes us back to the importance of labour in the value forming process – if everyone stopped labouring then no-one could buy or sell anything.’

Well that is true only in the sense that if everyone stopped laboring then no one would be doing anything in the first place.

‘As an aside, I would like to add that Marx’s concept of value is not an objective thing that exists in all places at all times. Value (as a bearer of socially necessary labour-time) emerges out of a system of widespread commodity production and exchange. It does not exist objectively outside of the capitalist mode of production.’

Then Marx loses his scientific approach and the whole of Marxism is based largely upon that viewpoint. He becomes just another utopian socialist who is trying to weave socialism into the fabric of the future. If value is subjective then the Austrians, and those who follow subjective value theory, have been right all along.