The Widespread Misconception Of Marx’s Labour Theory Of Value

by heavilyarmedsovietspacemonkey

I found a nice piece about the most common misconceptions about Marxism written by Unlearning Economics. Especially the part about Marx’s Labour Theory of Value is worth reading:

>>The Labour Theory of Value (LTV) states that the “value” of a commodity is determined by the “socially necessary labour time” embodied in it (“socially necessary” to avoid the nonsensical idea that somebody who makes something slowly will contribute more value than somebody who makes the same thing, but faster). To the extent that ‘capital’ (machines, raw materials etc) contribute toward this value, it is only in the necessary labour time required to produce that capital. Hence, only labour can ‘add’ value, and therefore surplus is produced by workers, while capitalists are parasitic, receiving profit only because they pay their workers less than the workers produce.

Now, contrary to what many – including some Marxists – insist, the LTV is not a theory of price. Sure, thinkers from Adam Smith to David Ricardo, and to a certain extent Marx himself (at least initially), tried to work it out as such. But the finished product, as espoused by Marx and Engels, had nothing to do with price. Instead, it was a theory of the total value in capitalist economies: where the surplus came from (exploitation) and how the changes in the production of this surplus would manifest themselves (periodic crises). Marx made this much clear in a response to critic, who charged that his theory of value was erroneous because prices are also a function of demand:

“What has this to do with my theory of value? To the degree that corn is sold above its value, other commodities…are, to the same degree, sold below their value. The sum of values remains the same.”

Hence, the theory can only predict the total value produced in a capitalist economy, while individual prices can vary based on monopoly, demand or whatever else. This is what led Eugene Bohm-Bahwerk to call Marx’s theory “tautological”; similarly, philosopher Karl Popper famously argued that such statements made Marxism unfalsifiable.

However, there is a clear criterion for testing Marx’s theory: the declining rate of profit. If there is observed a short term tendency of the rate of profit to fall – due to capitalists substituting capital for labour, hence reducing their surplus per unit of cost – manifesting itself in periodic crises, this is consistent with Marx’s theory. If not; if, say, the rate of profit increases before recessions, this would falsify the theory.* To paraphrase commenter Hedlund, if we cut through the nonsense and merely ask the question “is what Marx called value, itself a function of necessary labour time, the major parameter underlying the motion of the economy?” then we have an empirical inquiry, and can dispense with the metaphysical confusion, at least for the purposes of science. For those interested, the Marxist economist Andrew Kliman has taken up this challenge.<<