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Cartoon of the day

Special mention

Cartoon of the day

Special mention

Marxian value theory for beginners

There seems to be a lot of confusion these days concerning Marxian value theory.

First, there’s Mark Thoma, who blithely asserts that the Marxian labor theory of value is wrong. And then there’s Fred Moseley, who responds to Thoma by  claiming that Marx’s theory of value “is not mainly a micro theory of prices, but is instead primarily a macro theory of profit.”

Uh, no and no.

I’ve already responded to Thoma: he may not like either the assumptions or the conclusions of the Marxian theory of value (for reasons he has not explained), and he may prefer (for reasons he also hasn’t explained) the neoclassical theory of value (and its attendant marginal productivity theory of distribution). But that doesn’t make one right and the other wrong.

As for Moseley, I have no idea why he’d make that assertion. When Marx first articulated the critique of political economy, he was taking up and then criticizing the claims of classical political economy on a variety of topics, including the classical theory of prices and the classical theory of profit—at what we would recognize today were the microeconomic and macroeconomic levels (even though such a distinction wasn’t made at the time).*

The point is, from a Marxian perspective, each commodity has attached to it two different numbers (as Bruce Roberts has so eloquently put it): value and exchange-value. The former is the amount of socially necessary abstract labor-time embodied in the commodity during the course of production, while the latter is the amount of socially necessary abstract labor-time for which the commodity exchanges. Tracking those two numbers (which Marx assumes to be quantitatively equal in volume 1 of Capital, in order to move the argument forward, and then shows won’t generally be equal in volume 3) allows us to analyze both the prices of commodities at the micro level and the existence of profit at the macro level—as both a critique of and an alternative to the neoclassical theory of price and the distribution of income (and, for that matter, the Keynesian theory of macroeconomic fluctuations).

I’m all in favor of extending the debate about prices and profits, at both the microeconomic and macroeconomic levels. But it might help to start with a little Marxian value theory for beginners.

*Such a distinction only comes into existence in the twentieth century, with the publication of Keynes’s General Theory of Employment, Interest, and Money, and it’s been a problem for mainstream economists ever since.

Update

In reply to Scott M., a good place to begin is Roberts’s “The Value of Values,” published in Rethinking Marxism 23 (2): 180-85.

Here are some other references for his work:

• “Marx after Steedman: Separating marxism from ‘surplus theory’.’’ Capital & Class, no. 32: 84-103.
• “What is profit?” Rethinking Marxism 1 (1): 136-51.
• “Value, abstract labor, and exchange equivalence.” In The new value controversy and the foundations of economics, ed. A Freeman, A. Kliman, and J. Wells, 107-33. (Cheltenham, UK: Edward Elgar)
• “Quantifying abstract labor: ‘Aliquot part’ reasoning in Marx’s value theory.” Research in Political Economy 22: 133-65.

Profits, wages, and prices

It is strange, especially at this moment, for an otherwise open-minded economist like Mark Thoma to simply brush aside a Marxian theory of value and to embrace the neoclassical story about profits, wages, and prices.

Right now, wages are declining as a share of national income, and corporate profits are soaring. Just today, another mainstream economist, Joseph Stiglitz, has focused attention on the role of “skyrocketing inequality” in prolonging “the long malaise into which the economy seems to be settling.”

The neoclassical theory of value, based as it is on a marginal productivity theory of distribution, provides no convincing explanation of why inequality continues to grow. And Marxian concepts—especially the relationship between the appropriation and distribution of surplus-value and prices—do in fact give us one way of making sense of how more surplus-value is being pumped out of the direct producers, some of which is retained by corporations as gross profits while other parts are distributed to corporate executives and shareholders and captured by the financial sector.

But Thoma, without any evidence or argument, simply reasserts his allegiance to the neoclassical theory and his rejection of the Marxian theory of value.

However, there is a broader point here I want to discuss. The comment below says (about inequality), “One does not have to use the very dubious marginal productivity theory to explain these important phenomena. Marx’s theory provides a perfectly adequate explanation without the extremely problematic concepts of marginal products of labor and capital.” My problem is that the exploitation theory in Marx is based upon the labor theory of value (LTV), and the LTV is wrong. It does not provide a coherent theory of prices. How can we believe the conclusions of a theory with incorrect foundations? For this reason, I believe the theory of exploitation needs to be updated to incorporate modern value theory, and nothing beats the utility theory of value that came out of the fight between the Marxists and the neoclassical economists in the 1800s.

Simply wrong? Not a coherent theory of prices? Incorrect foundations? Are these comments Thoma heard along the way—in graduate school or at some meeting of the American Economic Association—because they certainly don’t come from even a cursory exposure to the Marxian labor theory of value (such as one might get in an undergraduate class in Marxian economic theory) much less a reading of the rich scholarly literature that has developed in recent years.

Otherwise, why would Thoma dismiss out of hand a labor theory of value and declare fealty to a utility theory of value, which serves to paper over and otherwise justify the grotesque levels of inequality that first produced the financial crash and now serves to prolong the Second Great Depression?

This is, to borrow a phrase, “vulgar economics” at its worst.

Cartoon of the day

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Chart of the day

I know: it’s actually a table not a chart. But I don’t want to create a new category. . .

Marlon G. Boarnet et al. [pdf] show that, in the Bay Area, average grocery wages are about 60 percent higher than Wal-Mart wages. Moreover, converting the benefit packages into hourly wage equivalents, total compensation at unionized Bay Area grocery firms rises to about double that typical for Wal-Mart.

The conclusion: low wages and benefits are the high cost for Wal-Mart’s low prices.

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Fair is fair

Let’s give Mark Thoma credit for raising the issue of fairness. But, fair is fair, he gets a lot wrong in the process.*

Thoma’s basic premise is that, while from a neoclassical perspective the distribution of income is fair under the assumption of perfect competition, “when there are important deviations from the purely competitive markets” government intervention may be warranted.

That’s right as far as it goes. Within neoclassical theory, the only reason for intervention into markets is if there are market imperfections. Conservative neoclassical economists argue that market imperfections are few and far between and markets should be allowed to operate freely, while liberal neoclassical economics argue market imperfections are more significant and governments should intervene to fix the problems. That’s the essence of the debate between conservative and liberal neoclassical economists.

But Thoma gets a great deal else wrong. First, he asserts that neoclassical economists provide “a much better explanation of prices” than do Marxists. But he provides no evidence or argument for this claim; not even a reference to anyone who’s made that claim. I’ll grant him that neoclassical economists have a different explanation of prices, based on a given concept of human nature (defined by preferences, technology, and resources), but there’s nothing better about that explanation over a Marxist theory of prices, based on the amount of labor value for which a commodity exchanges even at the point where the quantity supplied equals the quantity demanded. As Marx himself wrote (Value, Price and Profit, written in 1865 and first published in 1898),

You would be altogether mistaken in fancying that the value of labour power or any other commodity whatever is ultimately fixed by supply and demand. Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value, but they can never account for the value itself. Suppose supply and demand to equilibrate, or, as the economists call it, to cover each other. Why, the very moment these opposite forces become equal they paralyze each other, and cease to work in the one or other direction. At the moment when supply and demand equilibrate each other, and therefore cease to act, the market price of a commodity coincides with its real value, with the standard price round which its market prices oscillate. In inquiring into the nature of that VALUE, we have therefore nothing at all to do with the temporary effects on market prices of supply and demand. The same holds true of wages and of the prices of all other commodities.

Second, Thoma accepts the neoclassical fantasy that there’s a strict divide between positive and normative economics, and thus that the neoclassical theory of prices is divorced from any notion of fairness. Every economic theory is based on some notion of fairness, and neoclassical economics is no exception. When neoclassical economists conclude that the factors of production receive, in the form of income, their marginal contributions to production, and when individuals or households receive incomes equal to the factor services they sell to firms, that’s an argument that the distribution of income within capitalism—based on private property and free markets—is such that everyone gets what they deserve. The capitalist distribution of income is, in other words, fair.

Economists do not have a way of judging fairness. Such judgments involve moral questions that are best left to society as a whole. But if we adopt the simple notion that every person has a right to a share of output equivalent to their contribution to it (net of costs such as taxes for the roads, bridges, schools and the like needed to support these activities), then a competitive economic system does produce a justifiable outcome, at least in theory.

Now, the Marxist argument about the unfairness of the capitalist distribution of income is actually stronger than Thoma’s. While his argument relies on exceptions to perfect competition, Marx, in criticizing the classicals, started by allowing them their strongest case: private property, free markets, perfect competition, market equilibrium, and so on. On that basis, Marx showed that capitalist commodity exchange was such that, even when all commodities were bought and sold at their values, there would be an extra value, a surplus-value, that capitalist were able to appropriate for doing nothing. That’s the essence of Marx’s notion of class exploitation, a ripping-off of the laborers who produce the surplus.

In other words, Marx showed that capitalist production, under the best of circumstances—under the ideal assumptions of classical political economy (which are continued within contemporary neoclassical theory)—violates the bourgeois notion of fairness, the idea that everyone gets what they deserve. Assuming that everyone gets what they deserve within capitalist commodity exchange—when all commodities, including the commodity labor power, exchange at their values, and thus there is no “cheating”—the conclusion is that not everyone gets what they deserve—since, within capitalist commodity production, capitalists exploit the direct producers and thus appropriate the surplus-value they played no role in creating.

Once that conclusion is reached, it’s possible then to consider all the various extensions and exceptions to a system of equal exchange, including imperfect competition. But that’s a very different approach from the one adopted by Thoma, who is willing to accept the neoclassical notion of fairness but then raises an objection about the assumption of perfect competition.

Fair is fair, especially when debating the fundamental unfairness of the capitalist distribution of income.

* And have we descended so far that he has to to provide a warning that “Marx is mentioned” in his essay?

Chart of the day

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