Value theory

Louis Proyect lnp3 at
Tue Feb 27 13:10:38 MST 2001

I have to confess that I first heard about the transformation problem on
the Internet, nearly 30 years after I became a Marxist. Although I am aware
now that Ernest Mandel felt it important to answer Sraffa in a book
co-authored by Alan Freeman (who I do regard as a very sharp guy and
distinctly non-academic in his breadth of concerns), it never loomed as
large as other problems. My take on it is quite simple. It is only a
problem if you don't look at the economy dialectially. Since most of the
neo-Ricardian arguments against the labor theory of value stem from a
static approach diametrically opposed to dialectics, it seems that the real
argument is not about economics but philosophy.

BTW, we have a FAQ on "What is the labor theory of value" on the marxmail


There is a FAQ on the labor theory of value at:

In addition, this item appeared originally on the PEN-L mailing list and
was written by Jim Devine in response to a question about whether the labor
theory of value was correct:

It's hard to say that Marx's "law 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. One thing is that the "Labor Theory of Value" does _not_ assert is that
"average market prices" 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. BTW, Duncan Foley's article in
the most recent issue of the Review Of Radical Political Economics is quite
good on this subject.

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. (Hey, I've been there. I assumed that "Capital" and
the "Labor Theory of Value" was about pricing, too. Then I read the book.
The section on comm. fet. and the end of volume III are especially
revealing of what Marx's purposes were, as is the first page of volume
III.) If Marx had wanted to study pricing, he would have started with
supply and demand or a Ricardian general equilibrium system (or a Sraffian
input-output parable). Rather, the "Labor Theory of Value" is a theory of
social relations between people. (I know that this makes him look like a
mere worm in the eyes of economists, but Marx was a sociologist. He saw the
economy as part of society.) 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 Neo-Classical economists start their analysis with the isolated
individual person coping with scarcity (the Robinson Crusoe story, ignoring
all the social relations aspects of the original book, including
colonialism, as Steve Hymer pointed out years ago in Monthly Review) 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. (I wish he had written like a modern academic, explaining what
he was talking about and the progress of his presentation better. The first
page of vol. III is a notable exception.)

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 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. (He doesn't deal seriously with labor's side
of the conflict, as Mike Lebowitz stresses in his "Beyond Capital", so that
it's mostly a story of capital rampaging over labor. I guess Marx hoped
that it would arouse labor to resist and fight for something better.) 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." Nor are there any scarcity rents. So, just as in the first three
chapters, values = prices. It's much more intelligent that the common NC
assumption that an aggregate production function exists (or worse, an
aggregate Cobb-Douglas production 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's
developed the central conservation principle that I think defines the
"Labor Theory of Value" more than anything else except the theory of
commodity fetishism: 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.
(It's more complicated if we bring in the articulation with other modes of
production or the family, but Marx doesn't do so.)

It's only in volume II that Marx gets to microeconomics of the sort that
economists talk about. He talks about the role of time -- metamorphoses of
capital over time, 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). 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 redistribute
surplus-value. 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. (They do contribute in the sense that Doug
Henwood can write interesting books about them, though.)

I could go on (and many would say I've gone on too long), but I've got
other things to deal with. This is my last missive for the day. But I'll
summarize: Marx's "Labor Theory of Value" 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 themselves.

Louis Proyect
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