Jon wrote:
I am having troble deciding between two theories of value: scarcity
need and labor cost of production. I found by accident a long, long thread on this list about the labor theory of value where B. DeLong said "a commodity has (exchange) value if it's scarce regardless of whether there is wage labor. M Perelman replied "a commodity has value if it embodies labor even if it is not scarce". <<
Gil wrote: >"Labor cost of production" theory is most coherently understood as a (very) special case of a scarcity-based theory of value. < Gil should note that this is true only for _one_ interpretation of political economy (or what Schumpeter termed a "vision"), i.e., that dominated by the scarcity-based paradigm (dominated by neoclassical economics, especially its Walrasian-utopian form), which sees "value" and "price" as well-nigh synonymous. There exist other visions or paradigms, to say the least, unless economics has entered the Thatcherian era of "there is no alternative." Perhaps I am here and below misrepresenting what Gil's scarcity-driven vision is exactly. But this is only because he does not clearly specify which scarcity-driven theory he is advocating. He might be a follower of Henry George, for example.
One way to see this is to note three significant caveats to Michael
P's reply to Brad DeLong. First, as Marx himself insists, a necessary condition for a commodity to have value is that it have use-value (that is, people "need" it) [Capital V.I p. 131,]. So as Marx says, even if a commodity contains labor, it doesn't have value if there isn't demand for it. ...< That's right. Marx never denied the role of demand. In fact, his big book starts with it: "A commodity is ... a thing that by its properties satisfies human wants of one sort or another ... whether they spring from the stomach or from fancy...." The old history-of-economic- ideas view that Marx's theory of value and price is totally "objective" is wrong. He _does_ abstract from the specific use-value of specific commodities soon thereafter in CAPITAL, but abstract use-value (and thus demand) still plays a role in the theory. It then is reintroduced step by step as the book progresses. BTW, I think it's a mistake to conflate wants and needs (as Gil does and Marx sometimes does). Wants are subjective, while (at least as I understand them) needs are objective. I may or may not want something (e.g., television shows, water, heroin) subjectively, but it may or may not be something I need objectively; that is, it may or may not contribute to my physical or societal health and survival. Because it's no big deal, and because the theory of need is complex (calling Mike Lebowitz!), I'll leave this issue aside. (I don't see the definition of needs as "especially intense wants" to be very useful. That just refers to wants that encourage inelasticity of demand.) In a slightly reformatted form, Gil writes: >Second and more generally, Michael's response obscures the point that the labor embodied in a commodity is itself a reflection of scarcity, that is, of expenditure of a resource that has alternative economic uses. Marx makes just this point in his 11 July 1868 letter to Dr. Kugelmann defending his formulation of value theory in _Capital_:
"Every child knows too that the mass of products corresponding to the
different needs [of a country] require different and quantitatively determined masses of the total labor of society. That this necessity of distributing social labor in definite proportions cannot be done away with by the particular form of social production, but can only change the form it assumes is self evident."
Thus, to withdraw a portion of the "total labor of society" away from
some line of production in order to devote it to another is deny some form of "needs" being met. Labor allocation matters because labor is economically scarce, and couldn't possibly matter if labor weren't ultimately scarce in this way.< Labor-power isn't always scarce (nor is anything else). In cases of recession and depression, where Dr. Keynes replaces Dr. Walras, the "factors of production" are no longer scarce. To use Leijonhufvud & Clower's terminology, scarcity is only notional (and not effective). The economy is inside the textbook production possibilities frontier, so that the Walrasian scarcity-driven vision does not apply. Further, to Marx, the dynamics of capital accumulation imply that labor-power cannot be scarce for long. If it is scarce, this squeezes profits, slowing accumulation and the demand for labor-power (cf. CAPITAL, volume I, ch. 25). The reserve army of labor -- i.e., non-scarce labor-power -- is thus reproduced over time. Labor-power is non-scarce in the Walrasian sense because its price (the wage) does not equal either the marginal disutility of submitting to an employer's authority for a specific time-period and the marginal productivity of the capitalist's use of labor-power. (Obviously, Marx did not write in these terms. But it's a mistake to assume _a priori_ that he thought in terms of the scarcity-driven vision.) Third, right before the quote above, Marx says "Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish." This is not in tune with the scarcity-driven paradigm. It fits more with Luxemburg's later ideas about the "mass strike." Even ignoring this societal element, Marx is referring not to the microeconomic kinds of issues that drive the scarcity vision. Instead, it's a macroeconomic phenomenon -- "any nation that stopped working," with "the mass of products" being a notion akin to that of GDP. Above, Gil referred to "withdraw[ing] a portion of the 'total labor of society' away from some line of production in order to devote it to another" but it's clear _in context_ that Marx was talking about withdrawing _all_ of the labor of society from _all_ lines of production. If only some sectors of the working class were to stop working, so that the phenomenon is microeconomic, the result would be different (an example of the fallacy of composition) unless of course the percentage of the working class on strike is pretty large.
Marx's statement above gives away quite a lot to a scarcity-based
conception of value, but even so it is based on some very restrictive assumptions, in particular 1) that the "total labor of society" is given ... and thus invariant to relative prices; < In terms of his CAPITAL, volume I, Marx's discussion is of _abstract_ labor (and thus abstract labor-power). That is, he abstracts from the specific use-values produced by labor and specific skills -- in order to focus on the class relationship between abstract labor and abstract capital (i.e., M-C-M'). The way I interpret this is in terms of the _shared characteristics_ of all labor and those of all labor-power. In that case, the aggregation problem does not apply. Of course, it must then be remembered that the abstract labor/abstract capital story of volume I is clearly NOT the same as the more concrete story of volume III or the even more concrete reality we encounter. (As Paul Sweezy noted early on in his THEORY OF CAPITALIST DEVELOPMENT, it's a mistake to ignore the importance of different degrees of abstraction in Marx. It's crucial to put all of Marx in context.)
2) that the "different needs" of a society are invariant (and thus
invariant to relative prices); < In terms of my definition, needs _are_ invariant (for a given size and mix of population). Biological needs are given by the nature of human bodies, while socially-created needs are constant in any given historical era. The second part of this formulation is a bit doubtful, since people are always creating new needs for themselves or for each other. But in context it makes sense. A mass strike would clearly cramp the ability to fulfil needs whether they were changing or not. Some day, we'll have a more complete vision of political economy that involves the endogenous change in needs (though Mike Lebowitz has done a lot of work on this, drawing out Marx's theory). Some day, neoclassical theory will also drop its silly assumption that wants (preference sets) are given exogenously. Unfortunately, even experimental/behavioral economics doesn't seem to want to deal with endogenous tastes. It smacks of the dreaded sociology, which everyone knows is inherently fuzzy and unscientific and therefore anathema. (Economists want to forget that economics is nothing but a type of sociology.)
and (3) that meeting a given configuration of social "needs" for
consumption goods implies a specific allocation of social labor "in definite proportions," denying the possibility of varying embodied labor requirements through changes in production technique. < This seems a quibble. Marx is talking about a specific time-period (and _ex post_ results rather than _ex ante_ decision-making), not the dynamics of capitalist accumulation and the changes in technology.
It's at best not obvious that any of these conditions hold in
general. And if they don't, the "labor cost of production" theory of value becomes problematic at best, and typically incoherent.< The "labor cost of production" theory of value is not what Marx was talking about. If by this Gil means a "labor cost of production" theory of _price_, then it fits more with Ricardo's economics (at least 93 percent of the time according to Stigler) or the theory presented by some neo-Ricardians. (The whole "transformation problem" cul-de-sac talks about the possibility of developing a complex (but still very static) labor-cost theory of price, in which the vector of prices of production (long-run equilibrium prices or centers of gravitation for market prices) is related in a simple mathematical way to the vector of values, which are assumed, by this school, to be given beforehand.) Marx did not develop a theory of price as much as (A) a labor theory of societal exploitation and (B) a theory of the deviation between societal reality (represented by values) and the empirical microeconomic reality encountered by individuals (represented by prices), i.e., the theory of commodity fetishism or (in volume III) that of the illusions created by competition. In volume I, in step with his abstraction from the specific use-values of commodities, he assumed that values and prices corresponded, so that the fetishism of commodities could be cut through. (Of course, most readers skip the last part of chapter 1 of volume I, and thus ignore the role of commodity fetishism and its importance in Marx's vision.) Of course, Gil (like many others), disagree with this interpretation of Marx's law of value. But I don't see how the "Marx developed a complex version of Ricardian price theory" vision fits with the totality of the structure of the three volumes of CAPITAL. Why, for example, did Marx leave price theory to volume III?
More specifically, as Jon's comment affirms, labor value theory is a
*production*-based theory of value, i.e. it abstracts from *levels* of commodity demand. < In Marx's "theory of market value" (chapter 10 of volume III), market-values depend on demand. This differs from the abstract values of previous books and chapters. With high demand for corn, for example, poor land is drawn into production, lowering productivity and thus raising market-value. This concept is only a difficulty if we assume that Marx's major concern was to derive a theory of cost-determined prices. I don't make that assumption, so Marx's CAPITAL makes sense to me.
However, a *necessary* condition for commodity values--let alone
prices--to be invariant to the pattern of demand is that the stringent conditions of some form of "nonsubstitution theorem" obtain.... This type of theorem requires in general three conditions: .... < This whole theory assumes that Marx was a minor post-Ricardian, who aimed at adding a gloss or two to Ricardo's labor theory of price. But Marx, in my reading, was not a Ricardian except as a first approximation for pedagogical reasons (as in his _Value, Price and Profit_, 1865), where he used the _lingua franca_ of economists of his day.
... Bottom line: to the extent that commodity labor values matter, they are an index of economic scarcity, but as such they are incomplete and inessential under general and arguably "real-world" conditions. Thus, the "labor theory of production" is at best understood as a very special case of a scarcity-based theory of value. <
The interpretation I'm developing of Marx's law of value is quite different. First of all, I see prices of production as mostly being a distraction, because the real world of capitalism involves a constantly-changing disequilibrium process, with the disequilibrium process feeding back to help determine the "technical coefficients" and thus the values. (However, they aren't _totally_ irrelevant; it's a mistake, in my book, to rule out abstraction. The "Temporal Single System" school of Freeman and Kliman make a mistake by ignoring them. The price of production/value nexus does reveal some answers to some abstract questions. If you can't find any relationship between POPs and values, then there's a problem. A recent article by Jean-Guy Loranger presents a clear relationship here. See ttp://www.sceco.umontreal.ca/liste_personnel/jgloranger/C&Cjuly02.pdf.) Second, the contrast between market prices and values is akin to a generally accepted contrast in NC economics, that between opportunity cost from an individual's point of view and social opportunity cost. Selling a commodity at price X allows an individual to claim (or "command") a certain amount of society's abstract labor. This X typically differs from Y, the amount of abstract labor that it actually takes to produce the commodity. But people act according to X, not Y. For example, as Marx argues, the profit received from investing in fixed means of production (a price category) exceeds the surplus-value actually produced in "capital intensive" or "roundabout" processes (a value category). This deviation encourages over-accumlation of fixed capital. NB: this is not over-investment from the point of view of individual capitalists but from that of society as a whole. Of course, that links up with my dissertation, so I'll stop there. -- Jim Devine / "The crippling of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as a preparation for his future career." -- Albert Einstein. This email was cleaned by emailStripper, available for free from http://www.papercut.biz/emailStripper.htm
