What's wrong with the labor theory of value

[trivas7]

Austrian economist David Gordon understands perfectly well what is wrong with the labor theory of value.

Marx assumed that an exchange is an equality: in our earlier example, 1 house = 2 cars. In sharp contrast, in the Austrian view, an exchange takes place only if there is a double inequality: each person must value what he gains more than what he gives up. This view seems to me far-reaching in its importance. It exposes a presupposition of classical economics which, once questioned by the Austrian, appears the very reverse of obvious. Why is an exchange an equality? Neither Marx nor any other defender of the labor theory has given an explanation for this assumption.

Further, Marx assumed that an exchange involves a very strong sense of equality. In his view, the equality constituting an exchange must be explained by a common element on both sides of the equality. In other words, for Marx an exchange was an identity, in the same way that the two sides of an equation in mathematics designate the same quantity. If 1 house = 2 cars, then both '1 house' and '2 cars' share some common quantity. To those not enmeshed in the Marxist metaphysics of value, this step seems if anything even more wrongheaded than its predecessor, the postulate of equality. And if even, per absurdum, one accepted identity, Marx offers no argument for the contention that the common quantity must be labor.

Still another problem arises from the fact that, as Marx well knew, market prices differ from labor values. Marx dealt with this by trying to show that labor values could somehow be transformed into price. Those interested in the technical details of this issue should consult Bohm-Bawerk, who, pace Thomas Sowell, understood Marx perfectly well. It seems to me that one fact is often overlooked in the details of simple and expanded reproduction, Divisions I and II, and other elements of the Marxist architectonic. Suppose that Marx could show that market prices can be derived from labor values, by using a formula that gives the 'correct' results. In what way would this prove that labor values are the explanation of price? Marx's assumption that labor value was 'ultimate' would remain just that-an assumption. Given these and other difficulties, it is small wonder that most of the recent 'analytical Marxists,' a group which has attempted to revivify Marxism by applying to it the techniques of analytic philosophy and modern economics, dispense altogether with the labor theory. But what of Marx's much vaunted explanation of profit? This too fails, even if one grants Marx the labor theory of value. Sometimes, first thoughts are best; and the phrase "the labor value of labour" is indeed unmeaning. Labor is the measure of value: if so, it cannot at the same time have a value. Marx quite correctly noted that one can on his theory obtain the labor value of a laborer. But laborers are not for sale on the capitalist market: this, on the contrary, is the situation that obtains in a slave society. The laborer sells exactly what the capitalist buys-his labor power. Marx's explanation of profit through labor exploitation goes wrong at its first step.

-- from David Gordon "Requiem for Marx"

[Jimmie Higgins]

Austrian economist David Gordon understands perfectly well what is wrong with the labor theory of value.

Most of the time capitalist economists analyze the waves while ignoring the tides. In this case though, it seems to almost be a willful misreading and misrepresentation of Marx's arguments. Wikipedia explains these concepts better.

Read Capital. Marx talked about the fundamental working of the economy - the general tendencies and then he looked at specific examples and talked about how tons of other factors come into play when you look at history and the real world and consequentially it's easy to get thrown off by these factors and miss the most basic common denominators.

Why is an exchange an equality?

It often isn't in the real world and Marx was well aware of this. However, what does this have to do with the creation of wealth (as is probably the implication of this criticism of Marx)? If a group of rich people are all trading items between themselves, it's quite possible to "buy low and sell high" and end up with more or less value than you had originally - but was any new wealth created in the group? No - the same value was shifted around between a group of people.

In other words, for Marx an exchange was an identity, in the same way that the two sides of an equation in mathematics designate the same quantity. If 1 house = 2 cars, then both '1 house' and '2 cars' share some common quantity.

An object in motion tends to stay in motion - so why don't you fly when you jump up? Marx was interested in the fundamental workings of a complex and constantly-changing and shifting system - as I said above if you read Capital he spends most of the time showing how various different variables impact his formula to make them not turn play out in an exact or deterministic way but as a sort of fundamental mechanisms or dynamic.

Marx offers no argument for the contention that the common quantity must be labor.

Yes he does. All commodities have value and can add value to manufactured commodities (i.e. resources, technology, and labor, all add value to a new commodity) but only labor adds surplus value to the process - adding above an beyond it's own inherent value.

[Revolution starts with U]

Austrian economist

Stopped reading there

[citizen of industry]

Marx was well aware that price often differed from value, that supply was usually different from demand. However, he noted the trend for the two to equalize in a general rate of profit. i.e; if one industry is making profits above average, investments will increase in that industry, the demand for labor will rise in that industry, and production will increase until there is over-production, supply outweighs demand, labor is reduced and profitability falls. On the flip side of the coin, if capital is taken out of an unprofitable industry and put into another, eventually the demand will outweigh the supply in the unprofitable industry and it will become profitable again. So even though there are constant fluctuations and price almost never matches value, taken over a long period of time there is an average rate of profit and commodities, on average, are sold at their values.

So if supply and demand are equal, what determines value? The amount of labor in the commodity. You are obviously not going to trade a plastic trash can for a car. Why? It takes a lot more labor to build the car. The car is made up of many more raw materials, which took much more labor to produce and extract. Unless so many cars are produced that they can't be sold, in which case they will be devalued.

[Revolution starts with U]

It's really the difference between

Value is created by actions
or
Value is created by thoughts

it seems.

[citizen of industry]

It's really the difference between

Value is created by actions
or
Value is created by thoughts

it seems.

Well, taking a hamburger example. Maybe if there was a hamburger in front of us with no price, we would each pay a different amount based on what we think the value should be, what our budget is etc. But odds are the prices we offered wouldn't be dramatically different. Our conception of value would be based on material conditions. What we think the price should be would be based on prices we are used to, which in turn are determined by the cost of producing beef, lettuce, bread, tomatoes, etc. and the cost of wages for producing the burger, plus surplus value.

Each of those commodities may be priced based on supply and demand, but as already noted the trend is for the two to equalize over the long term. So labor is the determining value.

Maybe you receive more wages than me, so you'd be willing to pay a bit more. But that's really splitting hairs.

[citizen of industry]

But laborers are not for sale on the capitalist market: this, on the contrary, is the situation that obtains in a slave society. The laborer sells exactly what the capitalist buys-his labor power. Marx's explanation of profit through labor exploitation goes wrong at its first step.

Laborers are not for sale on the capitalist market but their labor power is: labor is a commodity just like any other. Marx's explanation of profit through labor exploitation doesn't go wrong, as it points out that the producers don't receive the value of what they produce. They create value, enough to reproduce their own labor, and enough to provide capitalists with a profit. So labor is the only value-creating component.

[Railyon]

Ah David Gordon, I remember writing a review of his book "Resurrecting Marx" from an anarchist perspective.

Dude is a total tool, Marx's value theory of labor is sound as fuck, end of story.

Also Hagendorf showed the validity of the LTV in microeconomic theory, Gordon got nothing on him.

[DinodudeEpic]

The labor theory of value is better explained like this.

Labor creates value -> the value changes, in the process of becoming the price of a good, according the consumer's desires. (As explained by 'Supply and Demand'.)

Austrian economists have their theories based on hysterical non-sense. Literally and blatantly.

[Azraella]

There really isn't anything wrong with the LTV. I like Kevin Carson's attempt to synthesize the LTV with the STV actually. I think the LTV is pretty much right, but there are plenty of things the STV gets right like oppurtunity cost.

[Railyon]

Assuming there's anything worthwhile to be had in the concept of opportunity costs.

It's a more sophisticated way (if at all) of saying you can't have a cake and eat it. No-brainer stuff in my opinion. I think its only purpose is the whole homo oeconomicus hocus pocus.

[Jimmie Higgins]

The labor theory of value is better explained like this.

Labor creates value -> the value changes, in the process of becoming the price of a good, according the consumer's desires. (As explained by 'Supply and Demand'.)

Austrian economists have their theories based on hysterical non-sense. Literally and blatantly.

While this process certainty happens, this is price, not value. An individual capitalist can get rich on just price fluctuations alone - but the system can not create new wealth in this process, it's really just shifting existing wealth around. They system as a whole can not exists by buying low and selling high.

Price goes up and down but does not create new inherent value. Oil prices fluctuate but a barrel of oil is not worth more or less than a barrel of oil in value at any given time.

[Kronsteen]

Marx assumed that an exchange is an equality: in our earlier example, 1 house = 2 cars. In sharp contrast, in the Austrian view, an exchange takes place only if there is a double inequality: each person must value what he gains more than what he gives up.

Two different senses of value. Marx's value is the labour power reqired to produce the commodity. Gordon seems to have a kind of use value in mind.

Marx offers no argument for the contention that the common quantity must be labor.

...except for the observation that commodities with nothing else in common are exchangable for quantities of cash.

market prices differ from labor values

So now Gordon's admitting that labour values exist? And therefore that labour value doesn't equal utility? Ah no, after a few sentences he's back to saying it doesn't exist.

Nevermind, he's talking about the transformation problem, which at least is a real issue. Which he doesn't address.

recent 'analytical Marxists,' a group which has attempted to revivify Marxism by applying to it the techniques of analytic philosophy and modern economics, dispense altogether with the labor theory

Some did, some didn't.

Labor is the measure of value: if so, it cannot at the same time have a value

Of course it can. Speed is defined as distance divided by time. Speed is also calculated by dividing the distance by the time.

I'm sorry - there are intelligent objections to Marx, but this man Gordon doesn't give them.

[Revolution starts with U]

Hey... am I right that in Chapter 1 of Capital 1 Marx basically addresses and refutes the subjective theory of value (as meaningless), and even uses the "what about diamonds" example to do so?

I'll do a further critique later if anyone wants, but he talks about how value ultimately comes from people wanting to fulfill their desires, but is only able to be expressed through the abstract labor power of humanity and nature; nature is the mother and labor the father of value.

[DinodudeEpic]

While this process certainty happens, this is price, not value. An individual capitalist can get rich on just price fluctuations alone - but the system can not create new wealth in this process, it's really just shifting existing wealth around. They system as a whole can not exists by buying low and selling high.

Price goes up and down but does not create new inherent value. Oil prices fluctuate but a barrel of oil is not worth more or less than a barrel of oil in value at any given time.

I know that.

I'm saying that the PRICE is basically the labor value but with supply and demand as factors.

Basically, Supply and Demand in addition to the labor value change the price.

[Luís Henrique]

Austrian economist David Gordon understands perfectly well what is wrong with the labor theory of value.

Marx assumed that an exchange is an equality: in our earlier example, 1 house = 2 cars. In sharp contrast, in the Austrian view, an exchange takes place only if there is a double inequality: each person must value what he gains more than what he gives up. This view seems to me far-reaching in its importance. It exposes a presupposition of classical economics which, once questioned by the Austrian, appears the very reverse of obvious. Why is an exchange an equality? Neither Marx nor any other defender of the labor theory has given an explanation for this assumption.

Further, Marx assumed that an exchange involves a very strong sense of equality. In his view, the equality constituting an exchange must be explained by a common element on both sides of the equality. In other words, for Marx an exchange was an identity, in the same way that the two sides of an equation in mathematics designate the same quantity. If 1 house = 2 cars, then both '1 house' and '2 cars' share some common quantity. To those not enmeshed in the Marxist metaphysics of value, this step seems if anything even more wrongheaded than its predecessor, the postulate of equality. And if even, per absurdum, one accepted identity, Marx offers no argument for the contention that the common quantity must be labor.

Still another problem arises from the fact that, as Marx well knew, market prices differ from labor values. Marx dealt with this by trying to show that labor values could somehow be transformed into price. Those interested in the technical details of this issue should consult Bohm-Bawerk, who, pace Thomas Sowell, understood Marx perfectly well. It seems to me that one fact is often overlooked in the details of simple and expanded reproduction, Divisions I and II, and other elements of the Marxist architectonic. Suppose that Marx could show that market prices can be derived from labor values, by using a formula that gives the 'correct' results. In what way would this prove that labor values are the explanation of price? Marx's assumption that labor value was 'ultimate' would remain just that-an assumption. Given these and other difficulties, it is small wonder that most of the recent 'analytical Marxists,' a group which has attempted to revivify Marxism by applying to it the techniques of analytic philosophy and modern economics, dispense altogether with the labor theory. But what of Marx's much vaunted explanation of profit? This too fails, even if one grants Marx the labor theory of value. Sometimes, first thoughts are best; and the phrase "the labor value of labour" is indeed unmeaning. Labor is the measure of value: if so, it cannot at the same time have a value. Marx quite correctly noted that one can on his theory obtain the labor value of a laborer. But laborers are not for sale on the capitalist market: this, on the contrary, is the situation that obtains in a slave society. The laborer sells exactly what the capitalist buys-his labor power. Marx's explanation of profit through labor exploitation goes wrong at its first step.

On the contrary, this quote shows exactly how David Gordon is extremely ignorant about Marxism in general, and about labour theory of value in particular. Or, alternatively, how intellectually dishonest he is in his attempts to "debunk" Marx's theory.

Let's see:

Marx assumed that an exchange is an equality: in our earlier example, 1 house = 2 cars. In sharp contrast, in the Austrian view, an exchange takes place only if there is a double inequality: each person must value what he gains more than what he gives up. This view seems to me far-reaching in its importance. It exposes a presupposition of classical economics which, once questioned by the Austrian, appears the very reverse of obvious. Why is an exchange an equality? Neither Marx nor any other defender of the labor theory has given an explanation for this assumption.

That's exactly false. Marx never "assumed that exchange is an equality". Obviously you only exchange a given commodity for a different commodity if you want to have the latter, and can give up the property of the former. Use values are different; you cannot live in a car, you cannot travel from one place to another in a house. But this is trivial; the issue of value, as opposed to use value (a distinction that "Austrians" are blind to) is, how many cars a house is worth.

If I go to a show, and I want to have a drink, I will naturally discover that drinks there are sold by $ 2, while their normal price is $ 1. So I either go thirsty through the show, or I give up watching it to the end (thus throwing away the $ 20 I paid for the ticket), or I pay the extorsive price. But even if I do so, I perfectly know that I am being robbed. How do I know that? Because I know that the value of the drink is, and I know that I am paying more than it.

So Gordon's "reasoning" is either ignorant or dishonest.

Still another problem arises from the fact that, as Marx well knew, market prices differ from labor values. Marx dealt with this by trying to show that labor values could somehow be transformed into price. Those interested in the technical details of this issue should consult Bohm-Bawerk, who, pace Thomas Sowell, understood Marx perfectly well.

Evidently, values are transformed into prices. And of course, supply and demand are involved in such transformation, both in the trivial way - in that they explain the deviation from value into prices - and in the sence that demand determines, ex-post, how much labour should be have been used in the production of a commodity. And of course Gordon dispatches us to Boehm-Bawerk, because he cannot perform the criticism himself - and I doubt he can understand Boehm-Bawerk's criticism.

It seems to me that one fact is often overlooked in the details of simple and expanded reproduction, Divisions I and II, and other elements of the Marxist architectonic. Suppose that Marx could show that market prices can be derived from labor values, by using a formula that gives the 'correct' results. In what way would this prove that labor values are the explanation of price? Marx's assumption that labor value was 'ultimate' would remain just that-an assumption.

Let's take care that we don't drown in the ignorance that oozes from such analysis. The "details of simple and expanded reproduction, Divisions I and II, and other elements of the Marxist architectonic" seem to be here merely to confuse the reader and give the impression that Gordon knows what he is talking about. But he doesn't explain what they have to do with what comes next - probably because he doesn't know it.

Now, we can't "suppose" that Marx could show a "correct" formula of transformation; for there is no "correct" price in any instance - just prices that will result in bigger or smaller profits, depending on how much of a given commodity can be sold at each price.

And Marx's "assumption" may be just an assumption, but it is the only logical assumption, for, except for labour, there is no other element that can explain the creation of value, unless we concede that magic is a real possibility, and that the production of commodities can perform what alchemists have tried in vain - to transmutate other materials into gold.

How can inanimate things, land or instruments of labour, or risk, or marginal preferences create value, unless we admit they have supernatural properties?

Given these and other difficulties, it is small wonder that most of the recent 'analytical Marxists,' a group which has attempted to revivify Marxism by applying to it the techniques of analytic philosophy and modern economics, dispense altogether with the labor theory.

Indeed, but "these and other difficulties" boil down to the difficulties both "Austrians" and "analytical" "Marxists" have understanding the subject.

But what of Marx's much vaunted explanation of profit? This too fails, even if one grants Marx the labor theory of value. Sometimes, first thoughts are best; and the phrase "the labor value of labour" is indeed unmeaning. Labor is the measure of value: if so, it cannot at the same time have a value.

And, evidently, it hasn't a value. Which is the reason Marx never talks about the value of labour, a circumstance that Gordon is too ignorant to realise. And that, even without going into the absurd of Gordon's proclamation: so if we use lead as a measure of weight, how would that mean that lead has no weight of itself?

Marx quite correctly noted that one can on his theory obtain the labor value of a laborer. But laborers are not for sale on the capitalist market: this, on the contrary, is the situation that obtains in a slave society. The laborer sells exactly what the capitalist buys-his labor power. Marx's explanation of profit through labor exploitation goes wrong at its first step.

One can almost feel pity for Gordon. He doesn't understand the distinction between labour and labour power, and bases his "rebuttal" of Marx in his own inability to understand it.

Come on, this is a poor and lame critique of Marx, even by the low standards of "Austrian" school - which by the way are already lame and poor even by the low standards of bourgeois economy in general.

Luís Henrique

[Rafiq]

Reminds me of when Austrians talked about how the LTV was wrong because no one wanted mudpies. And then, I remembered in the first fucking couple pages of Capital Marx explains only a commodity, which is a product of labor of course, that is desired (in some way) has value.

The truth is simple: Economist criticisms of Marx are done so in a fashion where they are too scared to read his works, to safeguard their ideological gibberish.

[Book O'Dead]

Austrian economist David Gordon understands perfectly well what is wrong with the labor theory of value.

"Requiem for Marx"

They've been singing that 'requiem' for 150 years and they still can't bury the bearded chap!

[Luís Henrique]

"Requiem for Marx"

They've been singing that 'requiem' for 150 years and they still can't bury the bearded chap!

People will stop talking about David Gordon much before they stop talking about Karl Marx...

Poor idiot.

Luís Henrique

[Revolution starts with U]

Reminds me of when Austrians talked about how the LTV was wrong because no one wanted mudpies. And then, I remembered in the first fucking couple pages of Capital Marx explains only a commodity, which is a product of labor of course, that is desired (in some way) has value.

The truth is simple: Economist criticisms of Marx are done so in a fashion where they are too scared to read his works, to safeguard their ideological gibberish.

I'm only about half way through chapter 1 (found it on audio book, so I decided to tackle vol 1 ), and it's painfully obvious that no austrian has actually read das Capital.