Over the course of the history of socialism, Marxists have repeatedly been accused of defending the “flawed” Labour Theory of Value which critics allege has been proved to be invalid, albeit, different writers explain by offering different reasons. The Areo online magazine is the latest to take aim at Marx and the Labour Theory of Value with an article by Shaun Cammack.
Members of the Socialist Party have been quick of the mark to correct his article in the comments.
Firstly, this overlooks that my subjective valuation of a commodity in capitalism means nothing unless I have the means to purchase it – money. Though money is essentially a social relationship it, nevertheless, objectively constrains what I can consume. And the objective distribution of money incomes therefore shapes the overall pattern of consumption itself.
Secondly, the theory asserts that ‘prices are entirely determined by the value judgments of men’ but fails to grasp that these ‘value judgements’ can conversely be influenced by prices themselves. Thus, if the price of a commodity falls it becomes more ‘desirable’. So there is two-way interaction between prices and ‘value judgements’ – not one-way as the theory implies.
Thirdly, as Ernest Mandel notes, the ‘Marginalist school was never able to solve the problem of the “marginal value of money”, and that for this reason it remained dualistic, combining a subjective theory of value with an objective theory of money (e.g. the quantity theory)… The dualism of the theory is seen if one imagines an increase in the stock of currency suddenly causing a rise in wages, without any change in the marginal value of the commodities concerned’ (1962, Marxist Economic Theory). One might say this is – ironically – a case of the ‘law of diminishing marginal returns’ being used to refute Marginalism itself!
Nevertheless, it is quite true, as Marx himself acknowledged, that ‘nothing can have value, without being an object of utility’ (Capital Vol 1, Ch. 1). The question is – what determines the exchange value of that object? Why should a suit be worth three pairs of shoes and not four?
‘Supply and demand’ can only ever serve as a secondary explanation. The tendency in capitalism is for the supply of a commodity to increase should the demand for it grow – meaning supply and demand tend, in the long run, to equilibrate. However:
‘If supply equals demand, they cease to act, and for this very reason, commodities are sold at their market-values. Whenever two forces operate equally in opposite directions, they balance one another, exert no outside influence, and any phenomena taking place in these circumstances must be explained by causes other than the effect of these two’ (Capital Vol 3, part 2, ch. 10)
Since supply and demand ultimately cancel each other out something else must then account for differences in prices. Why does a Berlingo van cost so much more than a bicycle? This has to be because they share something in common but differ in the magnitudes of this common attribute.
Drawing on Aristotle’s observation that ‘exchange cannot take place without equality, and equality not without commensurability’, Marx reasoned that this effectively ruled out ‘utility’ as the basis on which commodities exchanged. How can you measure the ‘utility’ of chalk against cheese? You can’t since utility is subjective. Commodities can only exchange on the basis of something they have in common and by means of which they can be made commensurable. Without commensurability there is no way of telling whether one commodity was objectively equivalent to another, thus allowing you to make an exchange. After all, you wouldn’t buy a bicycle for the price of a Berlingo van, would you?
Money enables us to measure the exchange value of different commodities but what explains the difference in their prices? What is it that commodities have in common that enables them to be measured against each other and sold in proportions that ensured equivalence? The answer is labour. This is why, roughly speaking, one suit equals three pairs of shoes, and not four, in money terms. They involve approximately the same amount of labour. Labour acting on Nature-given resources is, after all, the source of all wealth.
Then there is the question of exploitation. Marxists have technical explanation for this which amount to saying that workers must produce a greater value in their output than the value of their wages they receive. This is not just a claim but an established fact. In the US manufacturing sector for example workers receive in wages about one third of the value of their hourly output – meaning two thirds of what they produce represents unpaid labour. Capitalism’s supporters like to argue that this ignores that capitalists have to pay for other things like machinery. But what they overlook is that the machinery is paid for ultimately out the two thirds unpaid labour provided by the workers and that the machinery on being purchased is the property of the capitalist not the workers. So is the luxurious lifestyles of the super-rich paid for out of surplus value
Market competition imposes on capitalist businesses the need to maximise the economic surplus they extract from the workers. Without that they cannot accumulate capital and hence will not be able to beat off the competition. They will go bust in no time at all.
Might I suggest this for further information https://www.worldsocialism.org/spgb/pamphlet/marxian-economics/
Tim Kilgallon adds his voice. “You state “I suspect very few people who consider capitalism exploitative to have necessarily read Karl Marx or have a functional understanding of the labor theory of value.” strangely enough I have the same suspicion about your good self.
Just one example of this: “This theory hinges on a single flawed premise: objective value. In reality, value is subjective, as products are valued differently by different people with different needs. The value of an umbrella goes up in the eyes of a person caught in the rain and down when the forecast predicts sun. The value of any product goes up if few are available, and down if there are plenty in every store.”
Even to anyone with a scant knowledge of the Labour Theory of Value, this statement demonstrates a lack of even the faintest idea of Marx’s theory, let alone a functioning understanding of it. In terms of the Labour Theory of Value, value is not related to the utility of the object, therefore the absence of rain or otherwise does not impact on the value of the object (in fact to be pedantic the utility does not depend, as you suggest, on the weather forecast, but on the actual weather!).
Even within your own terms, the value of the object does not alter because of a surfeit of the object, if as you wrongly suggest the value of the object is linked to the utility of the object, umbrellas don’t become less useful because there are more of them!
Your article suggests that you have completely relied on undergraduate lecture notes on the LTV, notes prepared by lecturers who have relied on their undergraduate lecture notes on the LTV, which relied on notes prepared by lecturers who have relied on their undergraduate lecture notes on the LTV, which relied…
If you are going to critique the Labour Theory of Value, you may find it useful to actually find out what Marx’s theory states. I do not mean to imply by this contribution that Marx’s theory is beyond criticism, it is not. However I do think that if you are going to critique a theory and then you should have the intellectual integrity to actually examine the source material of the theory you are critiquing.
Robin Cox has suggested a link which provides a very clear and concise exposition of the Labour Theory of Value, you may even wish to make the big leap and read Marx’s actual work (Wages, price and profit is a fairly straightforward start point), if you are interested in genuine discussion about Marx’s ideas, rather than lazy critiques of parodies of Marx’s work. If you are genuine in your enquiries about the Labour Theory of Value, then I look forward to any comments you wish to make about Marx’s work
Some other links you might find useful:
you could even listen to the following links .