Labour Value Revalued and Re-evaluated – this post sets out some notes and comments on the Labour Theory of Value compare to the Marginal Utility approach following the joint society debate on What is Value on 16 November 2016
Congratulations to the organisers of the joint society debate held on Wednesday 16 November 2016 on What is Value. This was a bold move and a well attended session. However I would like to add a dimension to the discussion concerning the comparison of the two theoretical frameworks (marginal utility (MU) versus the Labour Theory of Value (LTV)) which we did not have time to cover. This concerns the way in which these theories underpin different perspectives of the way the capitalist economy works. By framing much of the debate in terms of value theory and price formation the focus of a lot of the discussion tended to be limited to the micro level of individuals, households and, at best, markets. These two theories however underpin much more significant and vital rival ways of understanding how capitalism functions (or not). So the discussion, as the organisers I am sure will agree, is not some remote esoteric or abstract discussion but one which gets to the heart of understanding the economy and explaining its fluctuations and crises. So a good grasp of these theories and the assumptions which underpin them is vital for anyone interested in how the economy works.
So a more demanding challenge is to ask how well these theories stack up when it comes to explaining how the capitalist economy works. From such a view point it is also much easier to question how well they address the other two themes of the debate – gender and nature. Here I will just give the bare bones of the issues with suggestions for further reading, most of which are freely accessible for download.
My perspective is from a Marxist LTV which is really the only one that counts in my view so any MU advocates may wish to post separately. At the outset, however, one good and challenging text to consult covering both perspectives is by Andy Brown in the Cambridge Journal of Economics volume 36 pp 781 – 798 (1). Brown starts from the historic 1932 essay by Lionel Robbins (2,3), considered by many as the daddy of maintream economics (or one of them anyway!) which argued that the task of economics is to develop, step by step, a realistic understanding of the economic system based on a theory of value. Brown reviews the theories and argues that MU does not meet the requirement Robbins originally envisaged for it.
MU fails as a theory of capitalism on a number of counts: its flawed conception of the economy, building on the individual (or representative agent at most restrictive) – and making use of an approach known as methodological individualism(4). Further assumptions which are flawed are rationality in behaviour (5) and expectations; the notion of maximisation and that of equilibrium. For an in depth critique of the core axioms and assumptions of mainstream economics and its neoclassical alter ego, see: Varoufakis and Arnsperger (6,7). For a critique of general equilibrium theory from inside mainstream economics see Kirman (8). For a review of the evolution of economic thought, providing a useful historical context see the article and book by Fine and Milonakis (9).
Elegant maths model building is also a characteristic of mainstream economics which can be traced back to MU theorising. However, based on flawed assumptions such as those of MU leads to flawed outcomes. For a critique of mathematical deductivist modelling – see Lawson (10).
Behavioural economics has demonstrated experimentally the flaws in some of the simplistic psychological assumptions of MU but itself remains rooted in an individualistic approach to the economy relying on such notions as ‘animal spirits’ (derived from Keynes) to explain ‘investor sentiment’ or ‘over exuberance’ in financial markets. Few mainstream economists predicted the economic crisis of 2007 and fewer have an explanation that goes much beyond the cliché of imperfect markets or the aforesaid animal spirits. LTV in fact can explain better where these sentiments come from but has generally been much attacked and vilified. However, it remains the only theory that can explain profit under capitalism and the concept of capital (a social relationship as well as ‘economic value in motion’ taking successive forms of money capital, commodity capital and productive capital). Capital then , on the one hand is a relation of production in which labour power, the products of labour, and goods and services more generally, become commodities. On the other hand, capital is a class relation of exploitation. Although LTV is largely ignored by mainstream economists, the issue of labour productivity dominates much popular economic discourse – empirical evidence of the importance of labour power for capitalism!! You don’t get many economists talking about utility maximisation in news bulletins on the economy!
LTV sees capitalism as a specifically historic formation based on historically specific social relationships, particularly the fact that labour power itself has become a commodity to be bought and sold with the unique use value that it has the capacity to create in production more value (11) than it costs in terms of the value of wage goods bought through workers’ pay. This gives exploitation a quantitative and relational character rather than simply a normative one.
It is only in passing that LTV is a theory of prices – the criticisms of the so called transformation problem miss the point that capitalist competition is predicated on prices deviating from values which provides the incentive for capitalists to move in and out of particular sectors to build profits – such competition then tending to equalising profits across circuits.
As Alfredo Saad-Filho (12), a prominent Marxist political economist puts it, the LTV helps explain important features of capitalism which other schools of thought, including the neoclassical, Keynesian and institutionalist, have difficulty analysing. For example, the necessity and origin of money, technical progress and the rising productivity of labour, conflicts over the intensity of labour and the length of the working-day, the growth of the wage-earning class, the inevitability of uneven development, cycles and crises, and pressure on incomes of workers – not because of declining living standards (although that can also happen, as recently evidenced during the economic crisis) but, rather, because of the growing distance between their ‘needs’ and what they can afford to buy, often leading to debt and overwork.
Through innovative theoretical developments like social reproduction theory Marxist feminist political economists (13) have expanded on the labour theory of value to look at the role of unpaid household labour in capitalism and the oppression of women. So how LTV connects to gender studies can be examined from this perspective and that will be the subject of a further post. Similarly, Marxist orientated scientists and political economists have developed a number of studies of ecology, as well as the development and application of science under capitalism and climate change. These enable a better orientation on how the LTV understands the treatment of nature under capitalism. For Marx, wealth consists of use values and is produced by both nature and labour. In contrast, the value/exchange value of the capitalist commodity economy is derived from the exploitation of human labour power alone. The contradiction between wealth and value lies at the core of the accumulation process and is directly associated with the degradation and disruption of natural conditions. (See Foster and Clark (14).
These issues will also be the subject of another post.
My apologies for the length of this post but I hope these comments and the resources referenced below will assist anyone interested in acquiring more knowledge of Marxist political economy in general and the LTV in particular.
18 November 2016
- The CJE can be accessed as an e journal via the University library site and the article can be downloaded as a pdf. Andy Brown also has an earlier article exploring recent developments in LTV theory also in CJE (208) vol 32 pp125 – 146. I also have a power point presentation by him on LTV v MU which is very clear.
- for overview of Robbins see: https://en.wikipedia.org/wiki/Lionel_Robbins
- to download a free copy of his famous essay which contains his famous, if widely contested, definition of economics go to here for the second and revised 1935 version of his essay https://www.scribd.com/document/14242989/An-Essay-on-the-Nature-and-Signi%EF%AC%81cance-of-Economic-Science-Lionel-Robbins
- for a historical review of the theory of Methodological Individualism see Stanford Encyclopedia of Philosophy http://plato.stanford.edu/entries/methodological-individualism/ For a critique of Methodological Individualism in economics, see: Hodgson, G Meanings of Methodological Individualism http://www.geoffrey-hodgson.info/user/image/meanmethind-free.pdf
- for critique of rational choice and marginal utility see: http://et.worldeconomicsassociation.org/files/ETHodgson_1_1.pdf
- Varoufakis Y 2012 A Most Peculiar Failure –
On the dynamic mechanism by which the inescapable theoretical failures of neoclassical economics reinforce its dominance
Accessible from: https://yanisvaroufakis.eu/2012/04/03/so-what-is-neoclassical-economics-and-what-is-not/ This paper forms the first chapter in his book: Economic Indeterminacy published by Routledge https://yanisvaroufakis.eu/books/economic-indeterminacy/
- Yanis Varoufakis was famously Greek Minister of Finance from January to July 2015, when he resigned. Varoufakis was also a Syriza He has written extensively from a political economy point of view on the euro crisis and the crisis of the Greek economy)
- Kirman A Kirman 1989 The Intrinsic Limits of Modern Economic Theory: The Emperor has No Clothes The Economic Journal, Vol. 99, No. 395,
- Fine, B and Milonakis 2011 ‘Useless but True’: Economic Crisis and the Peculiarities of Economic Science Historical Materialism 19.2 (2011) 3–31 Note this Journal and therefore this article is also available as an e journal through University of Aberdeen Library. The Fine and Milonakis book on the evolution of economic thought is: From Political Economy to Economics (2009) published by Routledge
- Lawson, T 2009 The current economic crisis: its nature and the course of academic economics Cambridge Journal of Economics 2009, 33, 759–777
- Marx distinguished between two forms of value – use value – how useful a commodity is in consumption, essentially a subjective matter and value as the socially necessary labour time required to produce a commodity. This takes the form of exchange value, which is expressed in monetary terms, the priority of which dominates the logic of capitalist development. Not every use value is a commodity – as use values like sunlight, air open spaces created naturally are not exchanged for money in the market place. The commodification of nature through business land ownership of natural forests and so on, is of course a feature of capitalism – see below.
- Saad-Filho 2002 The Value of Marx: Political Economy for Contemporary Capitalism Routledge This is an excellent guide to Marx’s LTV and is Available as a free download from: http://politicaleconomy.ie/wp-content/uploads/2012/10/Value-of-Marx.pdf For an introductory text get Marx’s Capital by Ben Fine and Alfredo Saad-Filho (Pluto, 2004) or Unravelling Capitalism by Joseph Choonara (Bookmarks, 2009)
- For a topical introduction to social reproduction theory – see a recent edition of the journal Historical Materialism Special Issue on Social Reproduction Historical Materialism issue 24.2 (2016) The introduction to this edition by Susan Ferguson et al and her article on Intersectionality and social reproduction are particularly useful.
- On Marxism and nature, there are numerous references but recent publications include: Land and Labour: Marxism, Ecology and Human History by Martin Empson published by Bookmarks;
Capitalism in the Web of Life by Jason W. Moore published by Verso
And a series of books by John Bellamy Foster on Marxism and Ecology from Monthly Review Press which can be accessed from the Monthly Review (MR) Journal site:
Foster and other co writers have numerous articles in the MR Journal –see http://monthlyreview.org/subjects/ecology/ A good theoretical article by Foster and Clark in which they offer a critique of Moore and others from within the Marxist camp is available free at: