Value and the Marxian critique of political economy

Posted: 30 November 2016 in Uncategorized
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I’m always pleased when Marx’s critique of political economy and the theory of value are topics of discussion, especially since students are rarely exposed to those ideas in their usual mainstream economics courses. Their professors generally don’t know about any theory of value other than the neoclassical economics they learned and preach—and, as a consequence, students aren’t taught that there is a fundamental critique of the neoclassical theory of value that stems from Marx’s work.

The result is, in fact, quite embarrassing. When I ask students to compare Marx’s theory of profits with the neoclassical theory of profits, they have no idea what I’m talking about. The way they learn economics from my neoclassical colleagues, profits are competed away. “So,” I ask them, “what you have is a theory of capitalism according to which there are no profits”? Then, of course, I have to start all over, teach them the neoclassical theory of profits (as the normal return to capital, rK, where r is the profit rate and K the amount of capital) and only then explain to them the Marxian critique of neoclassical profits (based on s, the amount of surplus-value that arises through exploitation). I am forced to make up for mainstream economists’ poor understanding and explanation of their own theory.

So, good, we now have a new discussion of Marx’s approach—first in the form of Branko Milanovic’s “primer” and then in Fred Moseley’s response to Milanovic. Both are well worth reading in their entirety—and I agree with many of the ideas they put forward.

But I do have a few major disagreements with their treatments. Milanovic, for example, insists that Marx develops his theory through three kinds of production: non-capitalism, “petty commodity production,” and capitalism. I read Marx differently. My view is that Marx starts with the commodity and then proceeds to develop, step by step (across volumes 1, 2, and 3 of Capital), the conditions of existence of capitalist commodity production, which is the goal of the analysis. These are not different historical stages or kinds of production but, rather, different levels of abstraction. So, conceptually, Marx starts from one proposition (that the value and exchange-value of commodities are equal to the amount of socially necessary abstract labor-time embodied in their production), then proceeds to another (where the value and exchange-value of commodities are equal to the value of capital, both variable and constant, and surplus-value embodied in the commodity during the course of production), and finally to a third level (where value and exchange-value can’t be equal, since the price of production, p, now includes an average rate of return on capital).

My other two concerns pertain to both authors. Milanovic and Moseley assert that Marx’s focus was mainly at the macro level, “the determination of the total profit (or surplus-value) produced in the capitalist economy as a whole.” I didn’t understand that idea back in 2013 and I remain unconvinced today. As I see it, Marx focused on both the micro and macro level and in fact worked to make his theory consistent at the two levels. Starting with the value of individual commodities (as I explained above), Marx concluded that, at the aggregate level, two identities needed to hold: the total value of commodities equaled the sum of their prices, and total surplus-value equalled total profits. That’s both a micro theory and a macro theory, a theory of value, price, and profit at both levels.*

The second, and perhaps most important, idea missing from Milanovic’s and Moseley’s interpretations of Marx’s approach is critique. Both authors proceed as if Marx developed his own theory of labor value, instead of seeing it as a critique of the classicals’ theory of value (which, we must remember, is the sub-title of Capital, “A Critique of Political Economy”). In my view, Marx begins where the classicals leave off (with an “immense accumulation of commodities,” Adam Smith’s wealth of nations) and then shows how the production of wealth in a capitalist society involves the performance, appropriation, and distribution of surplus labor.

That’s Marx’s class critique of political economy, which pertains as much to the mainstream economics of our time as to his.


*I don’t have the space here to explain how, for any individual commodity, the amount of value embodied during the course of its production won’t generally be equal to the amount of value for which the commodity exchanges. It is conceptually important that individual commodities have both numbers—value and exchange-value—attached to them, especially when they are not quantitatively equal at the micro level. It speaks to the fact that surplus-value is both appropriated (by capitalists from workers, through exploitation) and redistributed (among capitalists, within and across industries).

  1. I am completely agree with David, Carlos Marx’s approach to the value of commodity, value in use and value plus or surplus value in circulation aspects that are interrelated to micro and macro levels (classical and neoclassical concepts, etc.) . The difficulty of some who aspire to criticize Karl Marx lies in the lack of knowledge of Marxist Dialectics. Marx left very well structured the three volumes of Capital (his immense work), the first volume goes deeper into the value of the commodity, it is an analysis of a scientific abstraction, in other words is the essence of the capitalist phenomenon. Of the Circulation of Merchandise, is an analysis of the way in which the laws of capital are presented in the circulation of the market and thus the transformation of value in circulation. In the Third Volume, Marx brilliantly developed the “content of The Laws of Capitalism “by developing the close link between the Micro and the Macro of the theory of Value. It will be difficult to understand this approach without first understanding the Dialectic. Marx developed an integral theory about Capitalism: the essence of the mode of production through the theory of value, the way in which it develops in the circulation and the interrelationship between the form and the essence conceptualized as content, a brilliant mixture of philosophical, economics and other sciences. Now, if we succeed a make developing a model of analysis and mathematics based on the theory of value and the neoclassical approach: in the end the results coincide in the sphere of circulation in terms of accumulation of value, capital gain and market equilibrium . This disintegrates with the intervention of monopolies and market failures.

  2. Rethinking the Profit Law
    Comment on David F. Ruccio on ‘Value and the Marxian critique of political economy’

    David F. Ruccio writes: “When I ask students to compare Marx’s theory of profits with the neoclassical theory of profits, they have no idea what I’m talking about.”

    It’s worse, economists in general have NO idea about what profit is. This includes the four main sects Walrasianism, Keynesianism, Marxianism, Austrianism. The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)

    The profit theory is false since Adam Smith.#1 Economists have NO idea about the pivotal magnitude of their subject matter. This includes, of course, David F. Ruccio.#2

    There are three things that are intertwined but have to be analytically kept apart: (i) Theory of Value, (ii) Theory of Profit for the economy as a WHOLE, (iii) DISTRIBUTION of overall profit between sub-sectors (production, banking, land use, etc.) and individual firms.

    The Law of Value says that relative prices in the pure consumption economy are inverse to the productivities.#3 This Law replaces the Labour Theory of Value.

    The Profit Law for the pure consumption economy says that OVERALL profit depends on the expenditure ratio and the distributed profit ratio.#4, #5

    It holds in particular:
    • Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit maximizing behavior. These subjective factors are IRRELEVANT. Profit for the economy as a whole is OBJECTIVELY determined.
    • Profit/loss of the business sector is, in the simplest case, determined by the increase/decrease of household sector’s debt.
    • Wage income is the factor remuneration of labor input. Profit is NOT a factor income.
    • There is no relation at all between profit, capital, marginal or average productivity.
    • Profit has NO real counterpart in the form of a piece of the output cake. Profit has a monetary counterpart.
    • The existence and magnitude of overall profit does not depend on the ownership of the firms that comprise the business sector. The Profit Law is the SAME in capitalism and communism.
    • It is an elementary mistake to maintain that total income is the sum of wages and profits.

    The classical/Marxian/neoclassical and the Keynesian/Post-Keynesian theories of value/profit are provable false or, as Mirowski put it, “… one of the most convoluted and muddled areas in economic theory: the theory of profit.” One thing has always been equally distributed between the major economic sects, viz. scientific incompetence.

    Egmont Kakarot-Handtke

    #1 ‘The Profit Theory is False Since Adam Smith’
    #2 ‘Profit for Marxists’
    #3 ‘The Pure Logic of Value, Profit, Interest’
    #4 ‘Essentials of Constructive Heterodoxy: Profit’
    #5 See the Profit Law for the pure consumption economy on Wikimedia

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