LTV (again)

Steve.Keen at unsw.EDU.AU Steve.Keen at unsw.EDU.AU
Wed Aug 10 19:44:46 MDT 1994

Dear Eugene (and Glen)

On the availability of papers, perhaps the best route is for
me to snail-mail
 your addresses and
I will do so.

As for your attempts to show that the LTV and uv/ev analysis are
consistent, yes I did (I believe) understand your argument, but
I argue that you are incorrect. I'll intersprerse my observations
with excerpts from your posting.

"Take as a point of departure the capitalist's purchase of labor-
capacity as a commodity: he parts with its exchange-value (pays a
wage), in order to use its use-value in production.  This use-
value in production *exceeds* the exchange-value paid for it, the
latter being (like that of all commodities) determined by its
cost of production.  This may sound as if use-value and exchange-
value are suddenly comparable  -- but no (as you rightly insist,
they are not): only exchange-values are quantifiable and
comparable; to say that labor's use-value exceeds its exchange-
value is short-hand for saying that the exchange-value
*eventually* realized, through the capitalist's sale of the goods
produced, on the labor-capacity used in producing those goods
exceeds the exchange-value *initially* expended on that labor-

Here we don't quite agree. What I said was that uv and ev are in general
incommensurable: I did not say that they are *never* comparable. Marx's
(dialectically inspired) genius was to see that, in the specific
circumstance of productive consumption, they were comparable. Let
me prelude an explanation with a bit of HET:

Marx inherited the tradition of Ricardo, Smith, and
before them the Canonists, of arguing that the "utility" of a
commodity did not affect its price; this contrasts with the
neoclassical, Austrian, and before them Mercantilist position
that price reflected the buyer's subjective valuation of the

Prior to the Grundrisse, this meant that Marx "did what Ricardo
did"--he repeated Smith on the proposition that cost-of-production
determines exchange-value, and that use-value, while a vital
pre-requisite for exchange, was otherwise irrelevant to political
economy. This made Marx a linear descendant of Ricardo, with the
main advance of his political economy being an explanation for the
origin of surplus in terms of the difference between necessary
labor and the length of the working day. (His advances elsewhere,
in understanding cycles, rejecting Say's Law, having an integrated
analysis, are of course legion).

While writing his Rough Draft, Marx re-read Hegel's Logic, noting
in a letter to Engels that this had been of much assistance to him.
Most commentators have focussed on a section of the Grundrisse where
Marx drafted a couple of distinctly Hegelian chapter outlines for
Capital (which were not followed in practice). I focus instead on
a footnote where the "flash of insight" about uv/ev first occurred
(and remember that this "footnote" would have been a highlighted
thought, out of sequence with the argument of the remainder of
a set of notes which were not intended for publication--it is thus
not a minor point of clarification, as footnotes are in a published
work, but... something possibly much more significant). Read on:

"Is not value to be conceived as the unity of use-value and
exchange-value? In and for itself, is value as such the general form,
in opposition to use-value and exchange-value as particular forms of
it? Does this have significance in economics? Use-value presupposed
even in simple exchange or barter. But here, where exchange takes
place only for the reciprocal use of the commodity, the use-value,
i.e., the content, the natural particularity of the commodity has
no such standing as an economic form. Its form, rather, is
exchange-value. The content apart from this form is irrelevant; is
not a content of the relation as a social relation. But does this
content as such not develop into a system of needs and production?
Does not use-value as such enter into the form itself, as a
determinant of the form itself, e.g. in the relation of capital
and labor? If only exchange-value as such plays a role in
economics, then how could elements later enter which relate purely
to use-value... The price appears as a merely formal aspect of it.
This is not in the slightest contradicted by the fact that
exchange-value is the predominant aspect. But of course use does
not come to a halt because it is determined only by exchange;
although of course it obtains its direction thereby. In any case,
this is to be examined with exactitude in the examination of
value, and not, as Ricardo does, to be entirely abstracted from,
nor like the dull Say, who puffs himself up with the mere
presupposition of the word `utility. Above all it will and must
become clear in the development of the individual sections to what
extent use-value exists not only as presupposed matter, outside
economics and its forms, but to what extent it enters into it.
Proudhons nonsense, see the `Misere..."
(Marx 1857, footnote pp. 267-68.)

I could have attempted to highlight points of significance for
my interpretation, but frankly, that would have meant highlighting
the entire statement! The basic point is that use-value matters
in Marx's economics (after the Grundrisse) as a primary economic
category, when it is concerned with productive consumption. Far
from being a convenient shorthand for saying that "the exchange-value
*eventually* realized, through the capitalist's sale of the goods
produced, on the labor-capacity used in producing those goods
exceeds the exchange-value *initially* expended on that labor-
capacity", use-value is a primary concept in its own right here. The
beauty of Marx's argument is that, while in general use-value is
qualitative, irrelevant to exchange-value and incommensurable with
it, in the specific circumstance of production, the use-value of
a commodity is still irrelevant to exchange-value (the wage paid a
worker reflects his/her cost of production, not his/her productivity)
it is quantitative; and here the fundamental incommensurability of
use-value and exchange-value in the classical/Marxian scheme of
things means that the two magnitudes will be different.

If you read Marx carefully (especially in the Grundrisse) you will
find that frequently he contrasts his easy ability to derive the
source of surplus value, armed with the dialectic between use-value
and exchange-value, with Ricardo's struggles to do the
same, armed only with a labor theory of value: "What the capitalist
acquires through exchange is *labour capacity*; this is the
exchange value which he pays for. Living labour is the use-value which
this exchange value has for him, and out of this use-value springs
the surplus value and the suspension of exchange as such."
(Grundrisse, pp. 561-62)

Similarly, a throw away reference to Proudhon shows implicitly
the importance Marx placed on deriving a logical basis for
surplus: "the surplus value which causes all Ricardians and
anti-Ricardians so much worry is solved by this fearless thinker
simply by mystifying it, 'all work leaves a surplus', 'I posit it
as an axiom'.. The fact that *work goes on beyond* necessary
labour is transformed by Proudhon into a mystical quality of
labour." (p. 641) He emphasises that it is vital to properly
identify what is the exchange value of a commodity and what is
its use-value, at least in the case of the commodity labour power:

"Labour capacity is not = to the living labour
which it can do, = to the quantity of labour which it can get
done - this is its *use-value*. It is equal to the quantity
of labour by means of which *it must itself be produced*. The
product is thus in fact exchanged not for living labour, but for
objectified labour, labour objectified in labour capacity. Living
labour itself is a use-value possessed by the exchange value
[,labour capacity,] which the possessor of the product [,the
capitalist,] has acquired in trade". (p. 576)"

If you treat use-value, as you did, as a short-hand for the
comparison of two magnitudes of exchange-value, you drop use-value
back to the status of a secondary concept, as it was to Ricardo and
Smith, thus missing the main advance in logic that Marx made
over them. You also lose the complexity of his treatment of the
dialectic between exchange-value and use-value--for instance, the
next stage of his analysis (after using uv/ev to reveal the source
of surplus) is to argue that, in trying to realise surplus-value,
uv now has primacy over ev: the commodity must satisfy a need, and
must not be produced in over-abundance. All this logic is expressed
in uv/ev terms. But the key usage--in terms of its impact on Marxian
political economy--remains the derivation of the source of surplus.

Once you treat use-value as a primary category along with exchange-
value, not just a short-hand that one can at your leisure ignore;
once you accept the dialectical consequence that what is in general
qualitative and incommensurable can in the vital specific circumstance
of production become quantitative and comparable, then you can't
make the LTV and this uv/ev analysis consonant without basically
making a nonsense of the concept of use-value when considering

You continue:

"One advantage of this dialectical LTV is that it doesn't have to
attribute to labor (or to machines, for that matter) any "occult"
power of "transferring" value to goods.  The value of any
commodity is its cost of production."

I would observe that, yes, "The value of any commodity is its cost
of production"--the LTV, however, goes on to elaborate that, in the
end, value comes only from labor--which means, in effect, that the
sole source of cost of production, as well as the sole source of
profit, is labor. The uv/ev analysis, on the other hand, concludes
that value potentially emanates from all inputs to production. The
physical and value are thus much more consonant with uv/ev analysis
than with the contrary notion of the LTV.

Statements such as:

"This is not to say that capitalist production doesn't produces
"goods" as well (nor that capitalist accounting may not have
ingenious ways of assessing the "net value" of those goods): but
that's just not the focus or the interest of Marx's critical LTV"

to me indicate just how hard LTV adherents have had to wriggle
in order to maintain the LTV in the face of technically compenent

Of course the production of goods was an interest of Marx's! Were
it possible for you to go back in time and repeat that assertion
to The Scribbler himself, I doubt that you'd survive his reply!

The problem is that his analysis of the production of goods was
fundamentally flawed by his continuing adherence to the LTV, after
he had devised a logical framework which made its transcendence
possible. The irony of his presenting his followers with this
contradiction was that this logical framework, of which he was
so justifiably proud, was almost the first thing they lost.

I'm far from the first person to argue that the LTV is logically
flawed. What sets my critique apart is that it has been developed
using Marx's fundamental logic. That has rather different
consequences for the corpus of  Marxian political economy than
the critiques of Bohm-Bawerk, Steedman, et al. On this point, I
don't think I can improve on the following statement, which is
the conclusion to the thesis that is apparently stuck in

It could be thought that acknowledgement of Marx's mistakes in
applying his system of logic would lessen his stature as an
economist, and reduce the influence of his thoughts. I would
argue otherwise. Critics of the labour theory of value have
argued for decades now that nothing of value in Marx's analysis
depends on the labour theory of value, and in so saying they have
generally been inclined to completely dismiss his analysis of
commodities and his dialectical method. I agree that the labour
theory of value contributed nothing of value to Marxian
economics; indeed it stymied the development of classical
political economy by Marx and by his followers. However I believe
that Marx's analysis of commodities, and the general dialectic
method on which this was based, was the foundation on which most
of the many valuable contributions made by Marx to economics were
made. Proper application of this method should provide many more
worthwhile additions to the intellectual weaponry of Marxian
analysis, based on an absolute theory of value. In this new
tradition, which can exist co-operatively with Sraffian and
Kaleckian economics while containing the superior concepts of
dialectics and value, it should be to Marx's credit that he
provided the dialectical analysis by which the labour theory of
value could be transcended, and labour and commodities together
regarded as the joint sources of value and determinants of
exchange value.

Steve Keen


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