another reply to Anthony

Louis Proyect lnp3 at
Thu Aug 24 16:59:59 MDT 2000

Anthony writes:

>Looking for help with Vol. 3 of Capital and research
>I'm looking for some help.
>I am working on a little piece about the primitive accumulation of
>capital, which I will post here when it is ready.
>However, I keep running into various problems related to the theory of
>value and Marx's theory of ground rent.
>Can someone explain this things to me in a clear and succint way? Or even
>in an obscure and lenghthy manner?

See the attached file. I've inserted a version without notes at the end of
this this message.

>In particular I can not find a discussion by Marx of the price of land.
>Does anyone know where Marx addreses this issue. Please refer me to Marx'
>work on the subject - preferably someting I can find on the internet.

Frankly, I can't remember where Marx discusses this, though someone like
David Harvey (THE LIMITS TO CAPITAL) would know. My feeling (as explained
below) is that the price of land is simply set by supply and demand (as
modified by the existence of monopoly and other "imperfections"). Land
isn't a newly-produced commodity and so lacks a value. (Labor doesn't
produce the gifts of nature.) But its owner can claim part of society's
total money revenue and total surplus-value because it's necessary to the
production process. The owner can receive a user-fee from anyone who uses
it (beyond maintenance costs), a fee which reflects both absolute and
differential rent. (I made up the phrase "user-fee" to avoid calling it
"rent.") There's also the price of land as  _an asset_, which Marx refers
to as "capitalized rent." This means that the asset-price of land would be
"present discounted value" of future user-fees earned now and the future.
(This means that future user-fees would be treated as less worthy (more
discounted) than present user-fees are, since the land-owner can put
present fees into the bank and earn interest.)

>This issue is important to me, because as far as I can tell from my first
>reading of the section on ground rent in Vol. 3 of Capital, Marx implies
>that the price of land is determined by differential rent, i.e. that it is
>not a commodity in the sense of being a product
>of social labor with an exchange value determined by the socially
>necessary labor required to produce it.

Land isn't a product of social labor, since it's a gift of nature. It thus
has no value. On the other hand, it has a price, as explained above.


Is Marx's "Labor Theory of Value" true? What's LoV Got to Do with It?

by Jim Devine

Brad deLong of U.C.-Berkeley economics writes that: >The LTV ["labor theory
of value"] is not true: average market prices are not labor values, and the
deviations of the average prices of particular commodities from their labor
values are not simple redistributions of "surplus value" from boss to boss…. <

It's hard to say that Marx's "labor theory of value" is "not true" if one
doesn't understand it, just as it's hard to say that it's "true" if one
doesn't understand it. In fact, I think there's a lot of questions about
what "it" is.

In fact, it's unclear what to call "it." The "labor theory of value" is too
easy to telescope into David Ricardo's "labor theory of price," in which
amounts of labor that were needed to produce a commodity determines its
price (98 percent of the time). This in turn gets us into writing complex
mathematical equations for the determination of prices and endless debates
about how to mathematically "transform" values into prices, all of the time
assuming that values and prices are totally independent phenomena, so that
one (values) can be used to derive the other (prices). On top of that, we
get into emphasizing market equilibrium conditions (such as the
equalization of profit rates between industries), even though markets are
seldom, if ever, in equilibrium. That is, we often see monopolies, profit
rates that aren't equalized between industries, working conditions and
wages that aren't equalized, etc.

That road is a dead end, as indicated by the long and generally fruitless
debate over the so-called "transformation problem." So we need to start
from scratch. Since Marx himself never used the phrase "labor theory of
value" except to describe others' theories, I'll use his phrase, "the law
of value" (LoV) instead.

One thing that should be clear from the start is that the "LoV" does not
assert is that "average market prices" for each market equal "labor
values." Quite the contrary: deviations of prices from values are just as
important as their connection with each other. Marx was quite conscious
before he started Capital that values and prices deviated from each
other.  In fact, each commodity has both a value and a price. They should
be seen as two different characteristics of each commodity. The price
represents how a commodity is "valued" by individuals in the market. The
value, on the other hand, represents how that commodity is "valued" by
capitalist society as a whole. It represents the contribution of the labor
that went into producing that commodity to the total societal labor process.

Marx's "law of value" is first and foremost not a theory of prices.
Economists have typically approached Capital assuming that it's about
prices and pricing, but that seems more a symptom of commodity fetishism
than a product of a serious reading. That assumption gets in the way of a
serious understanding. If Marx had wanted to study pricing, he would have
started with supply and demand  or a Ricardian general equilibrium parable.
Rather, the LoV is a theory of social relations between people. He sees
prices as obscuring these social relations (that's his theory of commodity
fetishism in a nutshell), so he uses values instead. If prices actually
equaled values, then much of the social relations of capitalism would be
more obvious to the casual observer within the system and to the economist.
But they don't so, Marx needed the "acid of abstraction" to cut through
surface appearances. That's what the law of value is for.

Whereas NC economists start their analysis with the isolated individual
person coping with scarcity and then move on to trying to understand the
common-sense but superficial world of markets. Marx, on the other hand,
starts with society, the society that limits, shapes, and sets the context
for the operations of individuals and markets.

As many observers have observed, Marx starts with the abstract and moves to
the concrete. In volume I, he starts with an abstract commodity-producing
society, one without labor-power, capital, or exploitation. Under these
weird conditions, on average, prices equal values, because of the zero
degree of exploitation. Even then, there are lots of deviations due to the
constant fluctuations of supply and demand. This analysis also provides
some insights into commodity exchange in general and sort of a moral
yardstick (from the capitalists' own point of view) for judging capitalism,
i.e., equal exchange under which prices equal value.

It turns out that capitalism fails according to its own moral yardstick,
since capitals are able to exploit labor despite equal exchange -- and in
the end such equal exchange does not prevail. That's the subject of Capital
volume I after chapter 3: he deals with capitalism, bringing in
labor-power, capital, and exploitation (while showing that profits cannot
be created simply via buying and selling but must be produced by labor).
However, it's a very abstract capitalism, since he abstracts from the
differences amongst the various capitals. So we can talk about volume I
describing a "representative capital" -- or alternatively, about a
"societal factory" in which capital in general faces labor-power in general
in an abstract class conflict.

In this story of abstract capital, one of the key differences between
capitals that's abstracted from is differences in the "organic composition
of capital" (differences in technology). Nor are there any land or scarcity
rents. So, just as in the first three chapters, values = prices. It's much
more intelligent that the common orthodox economist's assumption that an
aggregate production function exists, since Marx is talking about the
shared characteristics of diverse capitals, i.e., the exploitation of labor
and the accumulation of capital. But it's an aggregate theory, a
macrofoundation for the microeconomics of volumes II and III. Here, he
developed the central conservation principle that I think defines the "LoV"
more than anything else except the theory of commodity fetishism: as any
point in time, the total of all surplus-value produced in the exploitation
process of capitalism as a whole equals the total of all property income
(profits, interest, rent, some of taxes) in that society, just as the total
labor done in capitalist society equals the total price of the commodity

It's only in volume II that Marx gets to microeconomics of the sort that
economists like to talk about (and typically talk about exclusively). He
brings in the role of time -- metamorphoses of capital, the circuits of
capital, turnover time, introducing the differences amongst capitals. He
turns to discussions of the relations between different types of industries
(in the famous but often-misinterpreted reproduction schemes) while being
very explicit that he is assuming that values = prices.

In volume III, he not only brings up the differences among capitals but
looks at how they interact with each other. At this point what was obvious
all along to Marx comes out: prices don't equal value, while individual
profits don't equal the surplus-value that each individual capitalist
organized the production of (since in reality, organic compositions aren't
equal between industries). Supply and demand work to make sure that some
capitalists are rewarded more than indicated by their workers' contribution
to the societal surplus-value. suppose that an enterprise has extremely
"capital intensive," having a high organic composition of capital. If this
firm were to be rewarded according to its workers' contribution of
surplus-value, then its rate of profit would be below average for society.
Thus, the capitalist running the business would like to leave this sector
post-haste. But this exit from the industry reduces the supply of the
commodity being produced, raising its price. This makes the enterprise's
operations more profitable, keeping most firms from leaving. In sum, prices
(and supply and demand) work here to allocate profits in a way that tends
to equalize the rates of profit between sectors.

In fact, someone can earn revenues and profits without actually
contributing to total value or total surplus-value, as with those
unproductive folks in the FIRE (finance, insurance, & real estate) sector
who simply gain from the redistribution of surplus-value from other
sectors. They receive revenues and profits because people within the system
find that they have little choice but to deal with financiers, insurance
companies, and real estate agents. "Supply and demand" redistribute
surplus-value to that sector. And a redistribution it is, since the
conservation principle referred to above applies. The FIRE sector is able
to capture a piece of the aggregate surplus-value pie even though they
don't contribute to it.

The theory of land rent is very similar. The ownership of land does not
contribute to the total surplus-value produced in society. However, land is
a necessary input to production, so that those who own it can deny its use
to others. Thus, they can and do receive a chunk of society's
surplus-value. (This, in short, is the theory of "absolute rent.") Further,
some land is better than other land, so its owners can get more than this
basic amount of rent ("differential rent").

To summarize, Marx's "LoV" is a societal theory (seeing the "economy" as
implicitly embedded in society), emphasizing the way in which commodity
fetishism -- volume III's illusions created by competition -- obscures the
reality of capitalist society, using values as a conceptual tool for prying
out that reality, while seeing that society as a unified totality involving
the exploitation of labor, so that those who receive profits, interest, or
land-rent benefit from exploitation even if they don't exploit labor

Is the LoV "true"? What are the criteria used to answer such questions?
Using the standard ones, this theory is logically consistent and hardly
contradicts empirical reality (though the discussion above was still at a
high level of abstraction). It hardly contradicts supply and demand theory.
Further, this theory, unlike the orthodox economists' one, does not leave
out important issues of societal relations and exploitation. That is, it is
not one-sided, incomplete. All of these issues can be discussed more, but
I'll stop here for now.


James Devine, "The Utility of Value: the 'New Solution,' Unequal Exchange,
and Crisis," Research in Political Economy (Paul Zarembka, ed.), vol. 12,
1990: pp. 21-39.

_____, "The Law of Value and Marxian Political Ecology" In Jesse Vorst,
Ross Dobson, and Ron Fletcher, eds., Green on Red: Evolving Ecological
Socialism (Socialist Studies/Études Socialistes, vol. 9, 1993),
Winnepeg/Halifax, Canada: Society for Socialist Studies/Fernwood
Publishing, pp. 133-54.

_____, "What is 'Simple Labor'? A Re-Examination of the Value-Creating
Capacity of Skilled Labor," Capital and Class (U.K.), issue 39, Winter
1989: pp. 113-131.

Jim Devine jdevine at &

Louis Proyect
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