As all educated people know — the labour theory of value is false. Indeed, a hallmark of a university education, whether in economics or not, is a belief in the certainty of this proposition.
And yet, if you ask an educated person “the value question”:
What does one dollar, or one pound, measure or represent?
then you are likely to be met with a good few minutes of rambling and mumbling.
Everyone knows that the marks on a ruler measure distance, or a thermometer’s mercury column measures temperature, or a clock’s hands represent time. And inquisitive minds, before they are socialised to stop worrying about such things, naturally ask the value question and enquire about the nature of the numbers they find stamped upon the goods they buy, and the tokens they carry in their pockets. But unlike rulers, thermometers or clocks, few adults have a clear and distinct idea of the semantics of monetary phenomena, including economists.
Possible answers to the value question include “some specific thing”, “many things” or “nothing”. The history of economic thought has explored all these options.
However, the predominant attitude among economists today is value nihilism. “There is only price” and to seek something behind prices, to dig deeper, is simply a kind of confused essentialism. In consequence, to ask a modern economist the value question is akin to raising the issue of phlogiston with a modern physicist. It is anachronistic. Economic science once grappled with the value question but has subsequently educated itself to stop asking it.
The academy, at least within capitalist societies, turned against the classical labour theory of value during the 19th Century’s marginal revolution in economics. Subsequently, the labour theory has eked out a threadbare existence on the periphery of the academy, while enjoying robust and continued support from a small minority of intellectuals associated with the socialist tradition within civil society.
But even a resolutely pro capitalist academy, like we experience today, must appear to conform to scientific norms. So what reasons are normally given for rejecting the labour theory of value?
Simplifying, the academy normally offers two main reasons: one exoteric, and the other esoteric.
The exoteric reason is that market prices are determined by the Marshallian scissors of supply and demand. So prices are indices of scarcity, and therefore cannot represent the amount of labour time supplied to produce commodities. This kind of argument frequently appears in popular or “folk” rejections of the labour theory of value.
The esoteric reason is that Marx’s theory of the transformation doesn’t work. What is that theory? Marx understood that equilibrium (as opposed to market) prices of commodities systematically diverge from the labour time supplied to produce them. So the labour theory of value appears false on the empirical surface of capitalist society. Yet Marx argued that this divergence is merely apparent and caused by the distorting effect of capitalist property relations. In his unfinished notes, published as Volume III of Capital, he proposed that prices are conservative transforms of labour time (i.e., prices are “transformed” expressions of labour time). So although the prices of individual commodities and labour times diverge, there is a one-to-one relationship between prices and labour times in the aggregate.
The father of neo-classical economics, Paul Samuelson, published articles in the 1950s and 70s that, although not original, demonstrated in mathematical terms that Marx’s theory of the transformation cannot work, and therefore there isn’t a systematic one-to-one relationship between equilibrium prices and labour time.
Unsophisticated critics of the labour theory will offer the exoteric reason, but more sophisticated critics know the scarcity objection doesn’t hold water. So sophisticated critics ultimately defer to Marx’s transformation problem.
But here’s the rub. The critics have a point. Marx’s theory of the transformation is indeed incomplete and does have its problems — a feature that Marx first pointed out himself in his own notes.
From a sociological point of view, and simplifying greatly, we have, on the one hand, a pro capitalist academy eager to excise the labour theory of value, and all its radical implications, from academic discourse; and, on the other hand, a pro Marxist periphery motivated to defend the theory against the ideological attacks of the ruling elites. The environment for pursuing the science of the theory of value is decidedly unhealthy. But it could not be otherwise.
An unfortunate trend in Marxist circles, which represents a real obstacle to material progress, is to “wiggle out” of the transformation problem via creative reinterpretation of the meaning of Marx’s texts. Many reinterpretations attempt to save Marx only by dismantling the scientific content of Capital. For example, a large family of reinterpretations end up denying that labour time is a market-independent property of reality. So much for materialism.
So why is the labour theory of value true? I give a brief, technical answer in this new position paper:
Some of the main points are:
- The classical labour theory of value is a special case of a more general theory.
- The general theory:
- dissolves the transformation problem in a natural and transparent manner,
- preserves Marx’s theory of exploitation and surplus value,
- demonstrates that equilibrium prices and labour times are dual to each other (this is a theorem), and
- reveals how the dynamics of capitalist competition instantiate a lawful relationship between scarcity prices and labour time (i.e., it reconstructs Marx’s “law of value”).
- In consequence, the general theory establishes the logical basis for answering “labour time” to the value question.
The modern nihilist attitude does not represent a sophisticated rejection of naive substance theories of value but instead signifies the continued existence of unresolved and fundamental theoretical problems that first manifested at the birth of modern economic science in the eighteenth and nineteenth centuries.
There is no royal road to science. And the unfortunate truth for the pro capitalist academy is that the road to a scientific understanding of the economy passes through Marx. There’s no way around him, because, of all the economic thinkers, he got the fundamentals of the theory of value right. And every modern school of economic thought, whether orthodox or heterodox, is woefully ignorant of what the unit of account actually signifies. We are like blind ants who obsess, suck and exchange the Queen substance, yet know nothing of its true function. Marx stands on the road ahead, pointing in the direction of a truly scientific understanding of the kind of society we live in. That’s why this post has a picture of a coin with Marx’s head on it.