Defending the Theory of Value

[cantwealljustgetalong]

an analytic philosopher and social scientist friend of mine and I got into a debate about the theory of value. he seemed to suggest that Marx held that the prices in currency would more or less gravitate around the objective exchange value; he claims that this claim, when tested, is objectively false.

I was under the impression that Marx adopted a Ricardian economic framework for the purposes of exposing the internal contradictions of classical economics, and not that market prices would more-or-less resemble the objective value. what is the nature of the relationship between cost and exchange value in the theory of value?

can someone help clear up my confusion?
also, are there any modern writers (other than Richard Wolff and obviously reading Marx) I should look into for more on this subject?

[Lucretia]

Your friend doesn't have an argument; he has a claim with no evidence. Like so many other millions of Marx's critics.

The best writers on Marx's value theory today are writing from the perspective of the TSSI (temporal single system interpretation of the conversion of values into prices) - Guglielmo Carchedi is the best IMO, followed by Alan Freeman and Andrew Kliman.

[Blake's Baby]

Yeah, the original premise of the question is flawed.

Marx wanted to look at what was the source of value. Obviously, if there is disequilibrium between supply and demand, these can affect price. More than are needed - things are cheap. Fewer than are needed - things are expensive. Production can overshoot supply either direction.

So if production can be greater or less than demand, these can't be fundamental to profits. Marx eliminates them from the equation, and starts by assuming a situation where supply and demand match. The economy is managing to produce enough for effective demand, but not so much that there's a market glut. Then he analyses where the profit comes from.

If profit is only a question of supply and demand, no company could make a profit if it got the balance right - it could only make money by being an inefficient producer. This would make capitalism a really ridiculous sytem, I think.

So if companies can make money even when there isn't a shortfall of goods, it must mean that profit comes from somewhere else, and that's why Marx ascribes it to labour. 'Added value' in popular parlance, though Marx tends to refer to it merely as 'value'.

Yes, Marx assumes an almost unreal position where demand and supply are balanced. This doesn't however invalidate Marx's theory (any more than the existence of more than two bodies in the universe invalidates the theory of gravity), it just means that capitalism is less efficient than he supposed, for the sake of demonstrating the source of profit without getting bogged down in supply and demand.

My advice is, agree with them that capitalism is a much less efficient system than the one Marx describes. Thank them for pointing out how flawed it is.

[RedMaterialist]

The idea that prices gravitate toward a "natural" value appears to have come from Adam Smith. Some days the prices are above, some days the prices below the natural value, but over time the average price will be what the actual value of a commodity is. (This is what Marx meant when he said that exchange value is intrinsic to a commodity, Capital, Chapter One.) Both Smith and Ricardo recognized that profit, or value, is created by labor, but they both believed that it was in the natural order of things that the capitalist or entrepreneur take the profit. Marx showed that not only does labor create value, but that labor is entitled to all of that value. Hence the violent hatred of capitalists for Marx.

Marx also remarked that price or cost is simply the monetary expression of value. How value is translated into price, I suppose, is the so-called transformation problem.

The Bureau of Economic Analysis (which produces the GDP figures) has a table in the national accounts (I think, 1.16 or so) which essentially says that price is equal to non-labor costs plus labor costs plus profit. The entire point of the labor theory of value is that all value (cost plus profit) is created during the production process. The capitalist then sells the product at its real value and takes the profit for himself, exactly as Adam Smith, Ricardo and Marx all said. The profit is not somehow created in the market, in the exchange of buying and selling. The exact value of the product may not be realized in any particular sale, but, over time, the average selling price will equal the average value. The capitalist may be able to sell the product for more than its value, thus cheating his customers, he may have to sell it for less than its value, but he will never sell it below what he actually paid in labor costs.

The answer of the neo-classic economists is that profit is added to the value of a commodity after it goes onto the market. According to this theory the capitalist pays full value to the worker for his production, and then somehow extracts a profit from the competition in the market. However, as Marx pointed out, the capitalist is not only a seller of commodities, but also a buyer of commodities in the market. The capitalist must buy raw materials, machinery, buildings, etc from other capitalists. If he cheats on his first sale, he will then be cheated in his purchase. Thus all sales and purchases will be cancelled out.

To answer this the neo-classic economists came up with the theory of marginal utility value.
In my opinion this theory is based on the idea that there are only two classes of sellers and buyers, capitalists who sell and workers who buy to consume. All of the marginal utility theories are based on an analysis of consumers who go to a store and buy two products, like milk and sugar. If the consumers wants the milk marginally more than the sugar, then they will spend marginally more of their income on the milk. This marginal difference is supposed to fix the price and provide the sellers with their profit.

However, as Marx showed, the capitalist who produces and sells the milk and sugar is then forced to go onto the market and purchase the raw materials for the production. He then becomes the consumer and his decision on what to buy and how much to spend results in a profit for his seller, thus cancelling out his profit.

The only solution to all this is to recognize that value, and ultimately price, is derived from and originates in the process of the production performed by labor.

I agree with another poster that your social scientist friend (or any economist) has never been able to prove that the labor theory of value is "objectively false." If anybody had proved that, Marx would long ago have become irrelevant. Marx endures because, as Lenin said, Marxism is true.

[cantwealljustgetalong]

thanks so much to everyone who has answered so far. still getting my head around this. admittedly, of all the topics within Marxism, economics is my least strong (although I imagine that's common).

I still have three lingering questions:

1) Is there a substantive difference between the Ricardian Labor Theory of Value and the Marxian Law of Value?

2) Is the Marxian Law of Value empirically testable, or is it unfalsifable?

3) If it is testable, what evidence
a) do neoclassicists use against it?
b) do Marxians use for it?

Bonus Question:
Is Roemer's reconstruction of exploitation and class in neoclassical terms compatible with Keynesian assumptions about market regulation? Or does it still necessitate the overthrow of capitalism to end?

keep in mind that the other participant in this debate is not some capitalist ideologue, but rather a very thoughtful ex-socialist who seems to want to "believe" and needs some evidence.

[Let's Get Free]

The "Theory of Value" actually came from the classical economists like Smith and Ricardo. Marx just used it to explain where profits come from.

Raw materials, if left to themselves, cannot produce anything of value. Diamonds deep in the ground have no value until a worker's labor brings them up to the surface. For a house to be produced, these components must be acted upon by human labor power. Indeed, the machinery and raw materials which are needed to produce the house are themselves merely the results of some prior expenditure of human labor power.

If we want to exchange two commodities, say a chair and a sweater, we need to decide what makes them have "equal" value first. The chair and the sweater have differing use-values, they have a different size, weight, composition etc. There would at first seem to be no way of comparing them, of making them in any way "equal" to each other.

Yet there is one thing that these commodities share with all other commodities--each is the product of human labor, and each requires a definite amount of work, measured in hours. And if all commodities can be compared according to the necessary amount of labor needed to produce them, exchange values can be directly related to this "labor value". A product requiring ten hours of labor to produce would be worth twice as much as one requiring only five hours.

[Lowtech]

marx's theory of value is often the point of attack by those wishing to falsify his work.

there's a guy on youtube that maintains he can easily debunk the LTV, and his argument basically follows that "use value" reflects utility and therefore is irrelevant and that the entrepreneur can arbitrarily decide what his contribution was to producing a commodity, therefore, he believes, this simultaneously debunks "use value" and exploitation.

this is absolutely stupid being that firstly, how the capitalist feels about economics does not dictate it's physical processes. secondly, use value does not simply reflect utility, use value means a commodity has a value based on it's usefulness, and usefulness is also dependent on the commodity's viability in meeting a specific social need. this is in direct contrast to why commodities are produced in a market economy; where commodities are produced only for exchange value.

now, an advocate of capitalism may attempt to falsify marx and the LTV by making arguments concerning price, value, supply and demand, etc, but all that is irrelevant because an economic system does not require a market. market dynamics are problems of market based systems.

it only makes sense to look at the production of commodities from the point of view of

1. what social need is being fulfilled?
2. what resources would be best utilized for this purpose?
3. does the effort expended in the use of such resources negate the benefit?

whereas in a market based economy you have instead:

1. is the production cost low enough to generate profit?
2. is the cost of labor low enough to generate profit?
3. is the exchange value stimulated enough by commercialism to generate profit?

this is the difference between use value and exchange value

also, this shows mathematically why something as detrimental as tobacco products are mass produced and tolerated. it has no use value but has so much exchange value that it is extremely lucrative; the market based economy and artificial scarcity makes producing such a useless and harmful product economically viable, essentially those subject to artificial scarcity (the worker) and the greedy plutocratic class (the rich) are economically compelled to produce this garbage.

exactly the reason the 'war on drugs' will never succeed because you cannot 'shoot' or 'arrest' the exchange value out of drugs. artificial scarcity will force people into producing any commodity having exchange value, including illegal drugs.

capitalism produces artificial scarcity, in-turn produces poverty and in-turn produces nearly all crime.

[Blake's Baby]

Most of this stuff Marx explicitly deals with anyway - as I said above, he assumes that capitalism is functioning efficiently for suuply/demand purposes; also, he specifically says several times that for something to have exchange-value it must also have use-value; under capitalism that means someone must want to buy it. The market is built into how he analyses capitalism, so all those cretins who think that they can de-bunk Marx by saying 'but you can't make dirt more valuable by putting it piles' or 'prices change because of supply and demand', just haven't even begun to grapple with what they're supposed to be talking about.

Of course; if there is no market for something (no use value in capitalism, no customer) then it's worthless, even if you spend a billion years doing it. If something is not valued it has no value - tautology.

Of course; if producers or consumers can influence prices, prices will change. Market prices can be changed by changing market prices - tautology.

They're pretty rubbish arguments, really.

[Ocean Seal]

an analytic philosopher and social scientist friend of mine and I got into a debate about the theory of value. he seemed to suggest that Marx held that the prices in currency would more or less gravitate around the objective exchange value; he claims that this claim, when tested, is objectively false.
What the fuck is this supposed to mean? :confused:


I was under the impression that Marx adopted a Ricardian economic framework for the purposes of exposing the internal contradictions of classical economics, and not that market prices would more-or-less resemble the objective value. what is the nature of the relationship between cost and exchange value in the theory of value?
Obviously they don't. Value and price are different things.


can someone help clear up my confusion?
also, are there any modern writers (other than Richard Wolff and obviously reading Marx) I should look into for more on this subject?

[RedMaterialist]

It seems to me the real issue of the labor theory of value boils down to what is the origin of profit. Marx held that "profit" originates in the process of production, as the surplus value created by labor but not paid for by the capitalist. The bourgeois economist contends that profit originates in the market, in the buying and selling of commodities, thus the marginal utility theory of value, i.e., value depends on the use the commodity has for the consumer in the market.

Recently some of the economists (Mankiw, for example) have admitted that there must be another "cost" in the production process which accounts for profit. This is the so-called "opportunity cost." However, this new cost cannot be accounted for, therefore, it is called an economic cost but not an accounting cost. (You can check it on wikipedia or google.) What they are saying is that value (at least the portion counted as profit) comes from an imaginary cost.

I have seen figures from the OECD which purportedly demonstrate the labor value of a commodity as it exits production, and the wages paid to the worker per commodity (usually based on an hour of labor.) Needless to say, the two figures are not the same. And this, IMO, proves that Marx was right: the capitalist makes a profit by not paying the worker the full value of his labor.

[Blake's Baby]

It becomes blindingly obvious if you look at it from the point of view of 'anarcho-capitalists' and their incoherent ilk.

Their argument is that 'wages' are a form of direct sale between equal actors. 'The worker' sells his product (not his labour) to the capitalist in return for wages (the worker makes 50 of something in a day and makes $50 in wages so he has sold the things at $1 each), and the capitalist sells the things for $1.50, making $25 dollars profit. 'No exploitation takes place: the capitalist takes a risk and it pays off this is good'.

This would of course make sense, if the worker could, instead of 'selling' his product to the capitalist, take it to the market himself and make $1.50 for each of the things, pocket the $75 and cut out the capitalist. Because the 'worker' in this case is not a worker for the capitalist, but an independent producer in their own right.

What happens of course is that the worker has no choice in the matter, because the product belongs to the capitalist. The labourer doesn't sell the product, he sells his labour. So it is the labourer's labour that allows the capitalist to make a profit in the market. Therefore, the capitalist's profits must come not from the market but from the labourer, and a Marxist concept of value is restored.

[Luís Henrique]

he seemed to suggest that Marx held that the prices in currency would more or less gravitate around the objective exchange value;

He is right, though I am not sure what the adjective "objective" does in such a sentence.


he claims that this claim, when tested, is objectively false.

In which case he should be able to provide evidence of that. When have the prices of a considerable set of commodities, forming considerable time series, been measured against their corresponding "objective" exchange values, and what were the results, that might classify as a refutation of the hypothesis?


I was under the impression that Marx adopted a Ricardian economic framework for the purposes of exposing the internal contradictions of classical economics, and not that market prices would more-or-less resemble the objective value.

His criticism of classical economics relies in the discussion of Ricardo's theory of value; in the process, the theory is transformed and expanded (and in my opinion, improved). But in the end, it still means that market prices are strongly (though not linearly) related to the "objective" value (ie, to the unadjectivated value) of commodities.


what is the nature of the relationship between cost and exchange value in the theory of value?

Now cost is a third different thing, not market price and not value.

Market price is the value of a commodity, distorted by supply and demand considerations, by different composition of capitals in different trades, expressed in monetary units.

Cost is the total price of everything that enters into the manufacturing of a commodity (wages, taxes, rents, depreciation of capital, raw materials, unproductive services, etc.)

Value is the amount of labour embodied in a commodity.

The three are evidently related, and I don't see how your friend would be able to demonstrate that such relation has been empirically falsified (which I would suggest should be your main questions - when, how, by whom?)

(It surprises me that an analytic philosopher would take such a line of thought, instead of arguing that the concept of "value" is meaningless in itself, as it does not give itself to empirical testing that easily, thus constituting something "metaphysical"...)

Luís Henrique