Scrutinizing the Foundations of Marx’s Labour Value-Based Reasoning - PowerPoint Presentation

Scrutinizing the Foundations of Marx’s Labour Value-Based ReasoningFrom Aristotle to Piero SraffaPaper given at the XIXth International Conference on Economic and Social Development, National Research University Higher School of Economics, Moscow, April 10-13, 2018 Heinz D. KurzDepartment of Economics andGraz Schumpeter CentreUniversity of Grazheinz.kurz@uni-graz.at

ContentsIntroductionMarx’s achievements and failuresThe ‘law of value’ Marx’s starting point: the value relation in AristotleA first criticism: use-values and multiple common thirdsA second criticism: ‘abstract’ labour’ – a meaningful and useful concept?Sraffa on the common third and the labour theory of valueThe Standard commodity: a sort of artificial common third?Concluding observations

Some literatureFaccarello, G., Gehrke, Ch. and Kurz, H. D. (2016). Karl Heinrich Marx (1818-1883). In G. Faccarello and H.D. Kurz (eds), Handbook on the History of Economic Analysis, vol. II, Cheltenham and Northampton: Edward Elgar, pp. 211-233.Gehrke, Ch. and Kurz, H.D. (2006). Sraffa on von Bortkiewicz: Reconstructing the Classical theory of value and distribution, History of Political Economy, 38(1): 91-149.Gehrke, Ch. and Kurz, H.D. (2018). Sraffa’s constructive and interpretive work, and Marx. Review of Political Economy, 30, to be published. Kurz, H.D. and Salvadori, N. (1995). Theory of Production. A Long-Period Analysis, Cambridge: Cambridge University Press.Kurz, H.D. (2010). Technical change, capital accumulation and income distribution in Classical economics: Adam Smith, David Ricardo and Karl Marx, European Journal of the History of Economic Thought, 11: 1183-1222. Kurz, H.D. (2012). Don’t treat too ill to my Piero! Interpreting Sraffa’s papers, Cambridge Journal of Economics, 36(6): 1535-1569.Kurz, H.D. (2016). Economic Thought: A Brief History, New York: Columbia University Press.

I welcomeall scientific criticism.(Marx, Capital I)

1. IntroductionMarx was very well read in Greek pilosophy . Aristotle is referred to inPhD thesis: On the Difference between the Democritean and Epicurean Philosophy of Nature Notebooks on Epicurean PhilosophyGrundrisse der Politischen OekonomieA Contribution to a Critique of Political Economy CapitalHe called Aristotle the ‘ great thinker’ and the ‘greatest thinker of antiquity ’

Capital, vol. I:Chap. I: critical discussion of Aristotle’s investigation of the value formChap. II: adopts Aristotle’s distinction between use-vale and exchange-valueChap. III: discusses the role of money and Aristotle’s distinction between ‘natural’ and ‘unnatural’ economyThe substantive ‘law of value’ – the foundation of Marx’s political economy.

Piero Sraffa was a most attentive student of the classical economists and Marx.He was the editor of The Works and Correspondence of David Ricardo, 11 volumes (Cambridge University Press 1951-1973)He was the author of Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (CUP 1960), in which he advocated a return to ‘the standpoint of the old classical economists from Adam Smith to Ricardo’ He was a book collector and has assembled one of the largest libraries of socialist writings

2. Marx’s achievements and failuresAchievementsAn analysis of the economic system as a whole (e.g. schemes of reproduction) – theory and history Its static properties at a given place and time and its dynamic properties or ‘law of motion’A general (and not a partial) analysis that focuses on the interplay of the parts that constitute the wholeDistinction between the material, the monetary and the value sphere and how they are interrelatedA particular interpretation of the unintended consequences of human action (‘invisible hand’)

Analysis of systems characterized by a ‘circular process of production’. (Role of ‘constant capital’) The maximum rate of profits of the system is finite, not infinite: even with zero wages, the rate of profits would tend to a finite maximum which equals the inverse of the organic composition of capital, L/C. The productivity of the system as a whole depends on C/L (the dominant eigenvalue of the input matrix)Explanation of why the wage rate is smaller than average labour productivity in terms of the specificity of the labour contract (‘exploitation’) and the properties of the system as a whole, in particular the generation of a ‘reserve army of the unemployed’

Productive role of the labour-value based reasoning for the development of political economyEmphasis on the constraint binding changes in the distributive variables, especially the share of wages (or rate of surplus value) and the rate of profits.r = f( w), where ∂r/∂w < 0This flew in the face of harmonious views of society

Analysis of alienation, commodity fetishism and the ‘manufacture of consent’ (Gramsci)Understanding of the co-evolution of the economic, social, cultural, political systemsEmphasis on the endogenous self-transformation of economy and societyEschatological aim: the salvation of mankind. Humanist approach; concerned with justice and fairness

FailuresIn the theory of value and distribution his “successi-vist” approach (Bortkiewicz) – from values to rate of profits to prices of production – is generally misleading The ‘price rate of profits’ generally deviates from the ‘value rate’The ‘law of the tendency of the rate of profits to fall’ is logically flawedWhile Marx managed to spot several shortcomings in Ricardo’s analysis, in important respects he missed its strengths, especially as regards the two opposite powers at work: the ‘niggardliness of nature’ and the ‘creativity of man’

In Marx we find relatively little about what constitutes a ‘good society’, and which institutions, laws, regulations and incentives are necessary.The socialist paradise remains pale and shapeless.Smith, Hume etc. formulated on the basis of a philosophical anthropology principles upon which to base institutions, laws etc. Was there any role for the market in socialism?Apparently Marx could not imagine that a society might jump ‘out of the frying pan into the fire’. A big bang vision of social change Had Marx put forward a code of conduct for really existing rulers in ‘really existing socialism’, ...

3. The ‘law of value’The ‘law of value’ holds not only in the ‘state of nature’ (John Locke) or in the ‘early and rude’ state of society (Adam Smith), but also in capitalist society.By establishing the law of value, Marx sought to show that capitalism, no less than former modes of production, was based on the exploitation of one class of society by another class. Labour is the source, substance and measure of value. Labour generates value, but is itself not part of the exploitative mechanism at work: it is the capital-labour relationship that is the source of social domination, control and exploitation. (Exc.: ‘workers’ aristocracy’)

The commodity is the ‘cell’ of modern society. It has a use-vale and an exchange value.Historically, in non-capitalist modes of production, men assessed commodities first and foremost in terms of their intrinsic use-value – their objective capacity to satisfy certain needs and wants.While there was exchange in ancient Greece, it had not yet taken full possession of the economy, and exchange-value therefore was accidental rather than reflecting some fundamental forces at work. For this reason the focus of Aristotle’s analysis was on use-value.

In capitalist society exchange is well established through interdependent markets: it is the ruling coordination mechanism of numerous processes of production and consumption and of the corresponding social division of labour.Exchange value is now regulated by economic law and no longer reflects accident and caprice. Exchange value, Marx was convinced, expresses the ‘true’ value of commodities.

When two things are exchanged for one another in a given proportion, there must exist, Marx insisted, ‘in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange-value, must therefore be reducible to this third.’ Doctrine of tertium comparationis‘As use-values, commodities are, above all, of different qualities, but as exchange-values they are merely different quantities, and consequently do not contain an atom of use-value.’

‘If then we leave out of consideration the use-value of commodities, they have only one common property left, that of being products of labour. ... Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labour embodied in them, and the concrete forms of labour; there is nothing left but what is common to them all; all are reduced to one and the same sort of labour, human labour in the abstract.’

However, Marx’s concept of ‘abstract labour’and of ‘value’ reflect different phases of Marx’s work and the different influences he was exposed to (Hegel, the classical economists, the French utopian socialists and so on).We may distinguish between a physiological (‘human brains, nerves, muscles and hands’), a historical (reflecting the trend of de-qualification of workers), a sociological (value as a ‘social hieroglyph’) and a purely conceptual definition of abstract labour.These are not consistent with one another and account for contradictions and incoherencies in Marx’s analysis

And there is the problem of how to treat the labour performed by animals (horses, oxen) and machines. The classical economists treated them on a par with human labour and focused on what it costs to use them. Ricardo: ‘horses and cattle … come under the denomination of labourers, for they are substituted for them, and are supported by provisions like them.’ Marx strictly rejected this view

4. Marx’s starting point:the value relation in AristotleAristotle – ‘the first to analyse so many forms, whether of thought, society, or Nature, and amongst them also the form of value.’He failed to see that labour is the ‘substance of value’. In the fifth book of the Nicomachean Ethics, Aristotle ‘clearly enunciates that the money-form of commodities is only the further development of the simple form of value – i.e., of the expression of the value of one commodity in some other commodity taken at random ...’

‘He further sees that the value-relation which gives rise to this expression makes it necessary that the house should qualitatively be made the equal of the bed …. “Exchange,” he says, “cannot take place without equality, and equality not without commensurability” (...). Here, however, he comes to a stop, and gives up the further analysis of the form of value. “ It is, however, in reality, impossible (...) that such unlike things can be commensurable” – i.e., qualitatively equal. Such an equalisation can only be something foreign to their real nature, consequently only “a makeshift for practical purposes.”’

Why Aristotle’s sudden “stop”?‘Greek society was founded upon slavery, and had, therefore, for its natural basis, the inequality of men and of their labour-powers. The secret of the expression of value, namely, that all kinds of labour are equal and equivalent, because, and so far as they are human labour in general, cannot be deciphered, until the notion of human equality has already acquired the fixity of popular prejudice. This, however, is possible only in a society in which the great mass of the produce of labour takes the form of commodities, in which, consequently, the dominant relation between man and man, is that of owners of commodities.’

‘The brilliancy of Aristotle’s genius is shown by this alone, that he discovered, in the expression of the value of commodities, a relation of equality. The peculiar conditions of the society in which he lived, alone prevented him from discovering what, “in truth,” was at the bottom of this equality .’In such a society ‘the [human] labour-time socially necessary for [the production of various commodities] forcibly asserts itself like an over-riding law of Nature’ Marx prided himself with having discovered what ‘is at the bottom of this equality’.

The brilliancy of Marx(as ‘Old Moor’ himself saw it) consisted precisely in establishing this ‘truth’.

5. A first criticism: use-valuesand multiple common thirdsThe classical economists search for an ‘ultimate measure of value’. Petty: ‘bread’; Smith: ‘corn’Marx apodictically ruled out the possibility that atoms of use-value could be a common thirdSraffa in 1927-28: systems without and with a surplus product.Without a surplus product: all products are necessaries (later: basic products), that is, they are needed directly or indirectly in the production of all commodities.

Without a surplus

Piero Sraffa (1927-1928):‘For the first equations (without surplus) it is obviously true that the amount of b that a unit of a fetches in exchange is equal to the amount of b that directly or indirectly has been used up, in successive stages, in the production of a unit of a. The method would be that, if in 1a enter 3b + 2c, we would put aside the 3b; find that in 2c enter 1b + 2d ..., put aside the 1b and find how many b enter into 2d etc. etc. The series is infinite but the sum is finite.’ Reduction of the values of all commodities to some commodity. Fixing a standard of value, e.g. vb = 1, singles out the respective commodity b as the tertium comparationis.

Anti-RicardoConclusion:Had Aristotle been interested in conditions that guarantee the reproduction of the Greek economy, then he was wrong in rejecting the idea that such unlike things as olives, wheat and muttons are commensurable: they definitely are – each one of them can be reduced to a quantity of any of the other.Also Marx was wrong in contending that the common third can never be an atom of use-value. In fact, there is not only a common third, but a common fourth, fifth and so on, depending on the overall number of products in the system.

Is the quest for a single common third therefore a search for a will-o’-the-wisp? Yes, if it is meant to perform the role Marx attributed to it (‘substance of value’).No, if it serves as an analytical device designed to simplify the theory of value and distribution (‘Standard commodity ’).

With a surplus

Distinction between basic and non-basic products: basics enter directly or indirectly in the production of all products, non-basics don’t; still possibly several common productsA single common third could be a compositum mixtum of all basics, which is typically unique and simplifies the theory of value and distribution, because the proportion of labour to means of production in its production is ‘medium’ by construction (see below)

6. A second criticism: ‘abstract labour’ – a meaningful and useful concept?‘The [human] labour ... that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power’ and thus ‘a productive expenditure of human brains, nerves, and muscles.’Adding up hours of [human] labour. This gets some support from Marx’s view that the kind of technical progress congenial to capitalism tends to render skilled labour superfluous and reduce it to simple labour that can, in principle, be performed even by children.Necessary: solving a system of simultaneous equations.

However, different kinds of [human] labour typically do not fetch the same wage and therefore are not of equal worth. Since in the determination of exchange-values of commodities the actual wages paid to different workers matter, one has to take into account the structure of wages.This the classical economists did, and Marx followed them in some of his deliberations. For example: ‘If the wage of a goldsmith is paid at a higher rate than that of a day labourer, … the former’s surplus labour also produces a correspondingly greater surplus-value than does that of the latter’ ( Capital III).Clearly, in order for this to hold true, labours must be aggregated via the structure of wages.

Take for simplicity the no-surplus case. Assume that each one of the three commodities in equations (1) is produced by a different kind of concrete labour and each kind of labour is paid a different real wage per year. Assume that the real wage in the first industry is given by vector wa and the corresponding number of workers employed in order to produce gross output A is given by L a; the corresponding vectors and scalars with respect to the other two industries are wb and Lb and wc and Lc, respectively.

How much do the three kinds of labour ‘contribute’ to the values of the gross outputs of the three commodities? Select the kind (or bundle) of labour(s) in terms of which you wish to express abstract labour. Solve equations (1) for va and vb, taking commodity c as standard of value (vc = 1).Then calculate the values of real wages of heterogeneous labour in terms of this standard.Lk(wkava + wkbvb + wkc) (k = a, b, c)These quantities could then be aggregated in order to get labour’s total contribution in terms of commdity c.

It follows that the quantities of ‘abstract labour’ calculated are merely derivatives of the given physical data. They do not provide any new information that was not already contained in the latter. Therefore they cannot possibly provide a foundation, let alone an independent foundation, of value analysis.Steedman (1977)

7. Sraffa on the problem of the common third and the labour theory of value‘All things are exchanged for fire, and fire for all things, as goods for gold and gold for goods.’ (Cited by Marx)Sraffa commented on the interpretation of Zeller: ‘Zeller’s entire dilemma that follows is contradicted if one substitutes electricity for fire.’Electricity!Max Planck, The Universe in the Light of Modern Physics, 1931: ‘According to the modern view there are no more than two ultimate substances, namely positive and negative electricity.’

Sraffa criticizes Gustav Cassel, who questioned the existence of a common third (neither labour nor utility), and defended the concept somewhat:‘Now if a measurement is made, and two things are found to be equal, it is said that they have the same length, or weight, or force etc. This may be a mere restatement of the result of measurement in other words – which merely gives the illusion that there is a substance (length, force, etc.) which is behind the measurement. But it may be not. If the length, force etc. can be also measured (and therefore defined) in an independent way, then the statement is a real one, not an illusion.’

Sraffa on the labour theor of valueThe fatal error of Smith, Ricardo, Marx has been to regard ‘ labour’ as a quantity, to be measured in hours or in kilowatts of human energy, and thus commensurate to value. … All trouble seems to have been caused by small initial errors, which have cumulated in deductions (e.g. food of worker = quantity of labour, is nearly true). Petty had foreseen the possibility of being misunderstood.(D3/12/11, p. 36)

It is the whole process of production that must be called ‘human labour’, and thus causes all product and all value. Marx and Ricardo used ‘labour’ in two different senses: the above, and that of one of the factors of production (‘hours of labour ’ or ‘quantity of labour’ has a meaning only in the latter sense). It is by confusing the two senses that they got mixed up and said that value is proportional to quantity of labour (in second sense) whereas they ought to have said that it is due to human labour (in first sense: a non measurable quantity, or rather not a quantity at all).(D3/12/11: 64; emphasis added)

In his copy of the eight volumes of the Histoire des doctrines économiques (Marx 1924-25), which he read in the summer of 1927, Sraffa noted carefully all passages in which Marx distanced himself explicitly from an approach that proceeds exclusively in terms of commodities or ‘use values’.Right at the beginning of the Histoire Marx took issue with Petty who had singled out food, not labour, as the measure of value. In the margin Sraffa placed a wrinkled line along the passage in which Marx contended that any such physical input ‘n’est pas la mesure immanente des valeurs’. On the fly-leave at the end of vol. VI: ‘Marx against physical costs 122’.

Sraffa:‘The difference between the ‘physical real costs’ and the Ricardo-Marxian theory of ‘labour costs’ is that the first does, and the latter does not, include in them the natural resources that are used up in the course of production (such as coal, iron, exhaustion of land) – [Air, water, etc. are not used up: as there is an unlimited supply, no subtraction can be made from ∞]. This {is} fundamental because it does away with “human energy” and such metaphysical things .’

Sraffa, criticizing Marx and Alfred Marshall alike:‘There appears to be no objective difference between the labour of a wage earner and that of a slave; of a slave and of a horse; of a horse and of a machine; … It is a purely mystical conception that attributes to human labour a special gift of determining value. Does the capitalist entrepreneur, who is the real ‘subject’ of valuation and exchange, make a great difference whether he employs men or animals? Does the slave owner?’(D3/12/9, p. 89)

‘Historical’ labour theory of valueBücher (1910): ‘labour among primitive peoples is something very ill-defined’.Eldridge (1923): ‘in India waiting is a rule’, ‘time is immaterial where price is concerned’ and ‘not labour-saving but material-saving devices of modern industry have the greatest vogue in China’Hoyt (1926): ‘striking examples’ of a ‘failure to accord value to time and labour even when exchange is well-developed’).This confirmed Sraffa’s view that what matters for the determination of values are physical real costs.

8. The Standard commodity: a sort of artificial common third?When income distribution changes, prices change and so do the social capital and the social productIn early 1931 Sraffa contemplated the special case in which a change in prices has no impact on the value of the social capital relative to that of the social product (K/Y remains constant):‘It may be said that the value of total capital in terms of total goods produced cannot vary, since the goods are composed in exactly the same proportions as the capitals which have produced them.’

The proposition was ‘false’, but ‘may contain an element of truth’. In November 1943 Sraffa clarified that his proposition was based on the ‘statistical compensation of large numbers’ and henceforth called it ‘My Hypothesis’.Sraffa saw in the early 1940s that precisely this hypothesis underlay Marx’s concept of a given organic composition of that can be known independently of the distribution of the product and relative prices.However, at that time he had already convinced himself that the ‘element of truth’ referred to resided neither in the statistical compensation of large numbers nor in the labour-based evaluation of the social product and capital.

It was clear to him that no actual economic system ever strictly satisfied the ‘hypothesis’. Could an artificial system be constructed that did so? This system had to possess all the properties of that part of the actual system out of which it was constructed and express one of these properties: the inverse relationship between the actual rate of profits, r, and the share of wages, w.This Sraffa accomplished in January 1944 in terms of the Standard system and Standard commodity. With wages paid post factum, we haver = R(1 – w)

9. Concluding observationsAristotle’s rejection of a common third and Marx’s substantivistic ‘law of value’ cannot generally be sustained.The search for a tertium comparationis was not completely futile: it led to an investigation of the circular flow of commodities in production.This increased our understanding of the features of modern industrial systems, in which commodities are produced by means of commodities.Labour values cannot be attributed the central role in the theory of value as Marx had thought.

Sraffa’s theory contains some implicit criticisms of Marx’s approach, but it also shows that the classical surplus approach can be given a logically consistent form.It does not provide support for the marginalist/neoclassical theory, which explains income distribution in terms of the relative scarcities of factor services. It rather shows that this approach is difficult to sustain.

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