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Wednesday, April 28, 2021


Prompted by a comment from Jerry Brown, I should like to return to the subject of the Labor Theory of Value. To many people who identify themselves as Marxists, the Labor Theory of Value plays somewhat the same role in their belief structure as is played by the doctrine of the Incarnation for Christians – if you give it up, you can no longer really claim to be one of the faithful. It is obvious from what I said in my recent series of posts on Marx that I do not share this view and although I have written about this before, I think it is important enough to return to the subject and spell out my views at greater length.


As I explained in my series of posts, what came to be called the Labor Theory of Value started life in the writings of Adam Smith as his attempt to explain what determined the customary or usual prices at which commodities sold in the marketplace. Smith was well aware that fluctuations in supply and demand would cause daily prices in the market to vary, but he noted that experienced buyers and sellers would learn that there was a usual or customary price for corn or cloth on which they could rely. He called this price the natural price of the commodity, or, using an 18th-century synonym, its value. He was here introducing an idea that much later on came to be called the equilibrium price for a commodity. Smith then offered a very primitive explanation for the determination of the natural price or value of a commodity, namely the amount of labor it cost its producer. Smith had thus given birth to the idea of a labor theory of equilibrium price or, as he referred to it, a Labor Theory of Value.


Smith was aware of, but not able to come up with a solution for, several serious problems with this primitive theory. It fell to David Ricardo to solve the problem of rent or the price paid for the use of land and also to propose a brilliant solution for the problem of the accumulation of stock, what today we call capital. His notion of embodied labor enabled him for the first time to put forward a full-scale labor theory of equilibrium price or Labor Theory of Value. But there was a problem with this idea, brilliant as it was, and Ricardo knew it. The problem was that if different lines of industry exhibited varying proportions of capital and labor, then equilibrium prices would deviate from the quantities of labor embodied in the outputs.


It was at this point that Marx began his theoretical work. He believed he had a solution tgo Ricardo’s problem, but he chose to postpone discussion of it until volume 3 of Capital because he believed he had found a deeper problem in the traditional theory whose solution would reveal the mystified and ideologically concealed truth that capitalism rests on exploitation, not on free and equal exchange in the marketplace.  The problem, to put it quite simply, was that the classical political economists had no explanation for the emergence of profit. The key to Marx’s solution of this problem was his distinction between labor and labor – power, and with it the introduction of the category of surplus labor value, which, Marx claimed, is the real source of profit and the demonstration of the fundamental fact that capitalism rests on the exploitation of the working class.


No sooner had Marx put forward this dramatic critique and transformation of the classical theory of the political economists than economics as a discipline underwent a triple revolution. More or less simultaneously but independently of one another, Stanley Jevons in England, Carl Menger in Switzerland, and Leon Walras in France introduced the notion of marginal productivity, on the basis of which they undertook to explain equilibrium prices solely by referring to the relationship between demand and supply, putting entirely to one side any question of the quantity of labor directly or indirectly required for the production of commodities.


Smith and Ricardo became, in effect, curiosities put in a museum of outmoded ideas. Marx did not suffer the same fate. Quite to the contrary, he developed an intellectual following and then, mirabile dictu, a political following of revolutionaries who succeeded in taking over two of the largest countries in the world. The Labor Theory of Value ceased to be a brilliant but problematic explanation of the determination of equilibrium price in a capitalist market system, and became the esoteric doctrine of the Priesthood of the Temple. In some parts of the world, questioning the Labor Theory of Value got you stigmatized as a heretic, an unbeliever, even – God forbid – a liberal. In other places, it could get you killed.


Now I am, as I observed on the front page of this blog, an atheist. I do not believe in the Jewish God. I do not believe in the Christian God. I do not believe in the Muslim God. And I also do not believe in the divine revelation of the Labor Theory of Value. I do believe that capitalism rests on the exploitation of the working class, not as an article of faith but as the conclusion of a lifetime of study and consideration. I call myself a Marxist simply to express in a single word my admiration for the student of society who first articulated and defended this simple but fundamental fact of the modern world.


One might be tempted to say dismissively or disparagingly, “oh well, if that is all you mean when you call yourself a Marxist, all manner of people could say that without calling themselves Marxists.” They could, I suppose, but they don’t. It is quite remarkable how hard the world’s greatest Nobel laureate economists work to avoid acknowledging that capitalism rests on the exploitation of the working class, and if I were an old-fashioned Marxist, I might even say that it is no accident that the same people cannot bring themselves in their writings to utter the word “Marx.”


Brian said...

Dear Professor Wolff,

This is not a response to your latest post, but rather something I thought might amuse you, if you haven't already seen it. It's from Brian Leiter, written about five years ago:

The first five laws of cyber-dynamics

First Law of Cyber-dynamics: any unmoderated comment thread will reduce the total amount of knowledge and understanding in the world in proportion to its length.

Second Law of Cyber-dynamics: any unmoderated comment thread on a post touching on politics, race or gender will degenerate into vile idiocy within the first ten comments.

Third Law of Cyber-dynamics: no off-hand comment is too trivial to not generate thousands of words of cyber-commentary.

Fourth Law of Cyber-dynamics: no off-hand comment is too benign to fail to generate offense somewhere else in cyberspace.

Fifth Law of Cyber-dynamics: any comment thread on a blog with an ideological identity will give expression to the most extreme version of that identity within the first ten comments.

Tom Hickey said...

I think you may fall into the Marxian category rather than Marxist.

Marxian economics at Wikipedia.

I generally use "Marxist" to refer to a 19th c. socio-economic theory based on the writings of Marx and Engels, as well as to contemporary adherents who insist on a literal interpretation as the definitive one.

I use "Marxian" to refer to those who agree in general with Marx's critique but are not bound by rigid interpretations of 19th c. theory and believe that Marx himself adopted a historical approach rather than a categorical one, so he would agree that what he wrote then was representative of historical conditions at that time and stands in need of updating in terms of subsequent history.

One could say, I guess, that "Marxist" has a connotation of being rigid and dogmatic ("fundamentalist" in religious terms), while Marxian has a "liberal" connotation in the sense of freely interpreting Marx and Engels and adapting them to the present day and present condition in light of what has transpired since.

Both have the problem, as well as all who write about Marx for and against, of interpreting what he wrote, when there are many interpretations and no one has produced an account that compels general assent.

Achim Kriechel (A.K.) said...

Many do not say it because they are afraid to be put in a drawer from which they can not get out again. This fear is particularly widespread in the scientific faculties of universities. Others say to themselves: "What is the use of recognizing that the working class is being exploited, if I don't see ways and means to interrupt this process permanently, without falling into the trap of totalitarianism, as was often the case in the 20th century." Sociologists deconstruct social models until they have completely theorized out the existence of a working class. Then they think about how a society could look like that distributes income so "fairly" that exploitation is no longer perceived as such. This is then called "Social Capitalism" (Paul Collier).

All the while, capitalism is mutating to the next stage of its evolution. With huge global companies like Alphabet, Amazon, Facebook and Co., structures have been established that generate capital without the added value being generated by a working class. They have managed that simply EVERYONE works for them. The next increase is already in sight. With blockchain and digital currency, they are currently building a kind of space station in orbit around the globe from which they can manage the earth beneath them and the people living on it day and night, without any state control.

John E Rap said...

100 years ago Lukács in History and Class Consciousness argued that one could be not just a Marxist, but an orthodox Marxist, if one "dismiss[ed] all of Marx's theses in toto", so long as one adhered to the 'method' of 'dialectical materialism'. Adherence to this 'method' involves (a) acknowledging that the central problem for theoreticians of society is "to change reality"; (b) all metaphysics is contemplative and so missed the problem; (c) the 'method' "insists on the concrete unity of the whole" (Marx: "the relations of production in every society form a whole"). In its application this 'method' "destroys the fiction of the immortality of the categories [of social and especially economic life]" and "it also destroys their reified character and clears the way to a knowledge of reality."--So Lukács implies that a Marxist, rightly so called, might reject not just the labor theory of value but even the 'thesis' that capitalism exploits laborers (!)--Outside of the field of academic economics, it's hard to see how it greatly matters intellectually whether one calls oneself a Marxist, but it does seem to matter greatly in terms of social status and whether one is taken seriously. I've found that all that it takes in many situations for social death is to make a single non-hostile reference to Marx, Lenin, or Trotsky.--A different and perhaps more fruitful way of reflecting on the point is to follow Raymond Geuss in saying that there are four great intellectual and cultural events in 19th century Europe, each of which is associated with a name: Marx, Nietzsche, Freud, and Rimbaud. It's a sign then of intellectual seriousness that one's thought is in some way responsive to these events.

T.J. said...

I still don't understand the argument against Marx's labor theory of value. This is almost certainly because I don't understand the linear algebra that shows it. When looking for a structural difference between labor and other commodities, why not say that the difference lies in the fact that when I (the capitalist) buy 8 hours of labor, I get more labor than is required to produce 8 hours of labor. So I get more than I pay for. But when I buy 8 bushels of corn, I only get 8 bushels of corn. Is it just that the algebra (which again, I don't understand) shows that when I buy 8 bushels of corn, I get more corn than is required to produce 8 bushels of corn? Maybe my hangup is that it just seems obvious that when I work for 8 hours, my boss makes more money from my labor than I'm going to spend housing and feeding myself, but it doesn't seem at all obvious that when I buy 8 bushels of corn, I could reproduce more than 8 bushels of corn from that input.

s. wallerstein said...

John E Rap,

Question for Raymond Geuss,

Darwin wasn't a great intellectual and cultural event?

John Rapko said...

Surely Darwin was such an event, and later Marx publicly counted himself among Darwin's admirers. Perhaps an orthodox member of the church of Geuss (but not me) would argue that Darwin's intellectual and cultural after-effects didn't really blossom until the 20th century, first of all with Dewey's The Influence of Darwin on Philosophy. But one could make a similar (pseudo-)argument for Freud . . . So Darwin makes 5.

s. wallerstein said...

Darwin's influence on Nietzsche (and hence, on a philosopy) is evident. Nietzsche is constantly arguing with Darwin: struggle of the fittest to reproduce vs the will to power.
In addition, Nietzsche mentions several times that we are primates, having evolved from monkeys. Nietzsche tried to keep up with the science of his day.

John Rapko said...

Fair enough about Nietzsche and Darwin. I guess I thought or assumed that Nietzsche was arguing not against Darwin but against Darwin-derived accounts, like Huxley's. My understanding is that scholars consider it highly unlikely that Nietzsche read Darwin.--Not that it greatly matters. Nietzsche managed some piercing criticisms of Kant while having read little of him.

s. wallerstein said...

Isn't a great intellectual and cultural event someone or something that's in the air, that you don't have to read to be influenced by?

For example, Einstein in the first half of the 20th century or Proust or Joyce. How many people have actually read In Search of Lost Time, yet all of us with some literary culture have been influenced by it in some way.

So it little matters if Nietzsche actually read Darwin or read accounts of it, Darwin was a great intellectual and cultural event in Nietzsche's world.

Jerry Brown said...

Thanks Professor. I have to confess I had an ulterior motive involved in the request that you return to explaining Marx. I recently realized that I have just a vague idea of what the term 'capital' is supposed to mean even after many years of at least thinking about economics. I figure Marx wrote the book on Capital and since he isn't around you are a great proxy and might actually be able to translate it in a way I can understand. And you have definitely increased my understanding of Marx (I hope).

Well anyways, the event that brought on my recent crisis of realizing I know nothing is a blog post about the 'Cambridge Capital Controversy' by Bill Mitchell which, while I had heard of it, I had no idea anything Marx was involved. Little do I know about anything. In my own defense I would always have said I never understood this thing to begin with. Seriously thinking I was happier before trying to learn about it.

If you are interested, part 1 of his discussion is here-
I would not recommend reading my comments unless you are also very confused.

Anonymous said...

Dear Professor Wolff,

In part vii (What Marx got wrong) you mention a mathematical essay by Bowles and Gintis where they apparently demonstrate that relative exploitation has replaced absolute exploitation, so that that not only capital exploits its high paid employees, but those employees relatively exploit employees further down the pecking order.

I am interested in that topic and to have a precise reference would make my life a lot easier. In fact, you may consider it a fun exercise to sum up their demonstration in your blog. You know, popular demand?

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