[This is video 10 in my ongoing Law of Value series. It’s a controversial topic… so, let’s see what folks think of my attempt…]
Here’s a yo-yo. Let’s say it took an hour to make, parts and everything. And here’s a bag of high-fructose jelly beans. Let’s say they took 20 minutes to make. What if they both sold for $5, despite having different labor contents? Wouldn’t this be a big problem for Marx’s value theory?
When people get their panties in a bunch about price/value it’s over this issue of price and value not being the same all the time. Ack! Is this non-identity of value and price the end of Marx and the end of all radical politics?
I hope not. After all, the reason we have two concepts, value and price, is because they are not the same. It is the relation between them that counts. It is the relation between them that explains the inner mechanisms of capitalist production and exchange. If value and price were the same we would automatically know how much labor went into a commodity and what level of output we needed to meet societies demand. But if we already knew all of these things then there would be no need to have value or price or even a market for that matter. We could just plan everything on a computer.
But we don’t have a planned economy. How many yo-yos and jelly beans should society produce? How much of society’s labor time should go in to each? Nobody knows! And when the capitalist buys plastic and string and hires yo-yo makers she doesn’t know how much profit she’ll make. And when we go to the store we can’t see how much work went into our yo-yos and jelly beans! These decisions all must happen through the fluctuation of price signals. These fluctuations reflect back upon production to discipline and apportion labor.
Discipline and Apportion
When we say that labor is ‘disciplined’ we mean that Joe Shmoe on the jellybean assembly line is pushed to work at the average level of productivity. On the shop floor he is pushed by the speed of the machine and his boss. But the machine and his boss are being pushed by competition in the market to lower the Socially Necessary Labor Time it takes to make jellybeans. (see my video ‘Socially Necessary Labor Time’)
When we say that labor is ‘apportioned’ we are talking about how many people work at the jelly bean factory and how many work at the yo-yo factory, and so on. In other words, we are talking about the division of labor.
The division of labor and the SNLT determine what is produced, how much is produced and what the values between these commodities are.
But the unique thing about capitalism is that these decisions about disciplining and apportioning labor only happen after the labor has been performed. Price signals are judgements on past labor which then influence future labor (see my video Production and Exchange). As the products of labor leave production, enter circulation and then become inputs into future production we have a continual feedback loop of information.
Production and Exchange
This feedback loop could be confusing unless we remember this important principle:
‘value cannot be created in exchange’
Once you understand this almost everything else falls into place. Value is created in production by human labor. It takes the form of commodities with definite values. Commodities enter the market place where they acquire prices. Sometimes these prices are above their values. Sometimes below. These signals act back upon production to discipline and apportion labor. Thus the enormous, complex division of labor in a capitalist society is coordinated through the value relations between the commodities.
Because value cannot be created in exchange this means that the exchange of commodities is a zero-sum game. If some commodities sell above values then others must sell below. There can be no aggregate increase in value merely through the process of commodities changing owners. To have new value there must be new labor.
Unlike neoclassical theory where prices arise merely from the collision of subjective motivations of individuals bartering, totally abstracting away from the production process, the Marxist theory of of value and price directly links these phenomenon to the need for society to reproduce itself through a capitalist division of labor.
Value, Price and Money
Yo-yo’s don’t walk around with “1 hour of labor” written all over them. We only know the social value of a Yo-Yo through its money price. This is what we mean when we say that price is the ‘form of appearance’ of value. It is the visible, tangible form that value takes in the world. We only see the relations between laborers through the exchange ratios of commodities. Money is the god of all commodities. It is the one commodity that all other commodities measure their value in. Thus price is a very special type of exchange value. Prices represent values in the abstract. They are measures of abstract labor (See my video on Abstract Labor).
Thus when the price of a jellybean rises above its value this means that the jellybean commands more money than its value, that it commands more abstract labor in exchange than it required in production.
If value can’t be created in exchange this means that the total amount of value produced is always equal to the total prices of these commodities. But individual values and prices can and must diverge in order for the price mechanism to discipline and apportion labor.
Demand and Supply
One of the main reasons that prices deviate from values is the constant fluctuations of demand and supply. As capital revolutionizes the productivity of labor, values change, output and prices change, and demand and supply fluctuate. If demand for jellybeans is higher than supply then the prices of jellybeans rise above their values, they command more abstract labor in exchange, and this triggers a reapportioning of labor to bring supply in line with demand.
In the case of a monopoly or oligopoly supply is kept artificially low so that prices rise and the monopolists get extra profit.
If the supply and demand of yo-yos, jellybeans and all other commodities magically balanced, then prices would equal values. (That is, if we are abstracting from prices of production.) But if this was the case we wouldn’t have much need for price. We’d automatically know how much labor input went into anything we demanded and we could just organize everything on a computer without a market.
Side Note on Marx’s Method
Sometimes people think that profit comes from unequal exchange. This can be true for individuals but not for society as a whole because value cannot be created in exchange. One person’s loss is another’s gain. In order for there to be an aggregate increase in society’s profit there must be exploitation of workers for surplus value. In order to not confuse the individual profits than can occur from unequal exchange with the surplus value generate from exploiting workers Marx often suggests that we imagine that values=prices. This allows us to more easily see the origin of surplus value.
This does not mean that Marx actually thinks that prices always equal value, or even that they gravitate toward that state over the long run. In fact he says just the opposite: that demand and supply rarely meet and that prices and values are rarely the same.
Marx’s argument about surplus value, and all of his other conclusions as well, are totally valid whether or not values equal price. Sometimes people think that by pointing to value-price divergences they have somehow undermined the theory of surplus value. This is an error.
Review:
Before we move on we should review the main points thus far: Value can’t be created in exchange, only moved around. Money is the measure of value. If a commodity sells above its value this is the same as saying that it commands more labor in exchange than the labor that went into it.
Component Parts of Value
I haven’t been to a yo-yo factory but I picture an assembly line of people wrapping string around yo-yos. There’s probably another room where plastic gets poured into molds. But this isn’t all of the labor that goes into a yo-yo. Before any of this labor can commence materials much be purchased: string, plastic, molds, paint. And all of those inputs come from past labor processes elsewhere in the world. Every labor process has new active labor, which Marx calls “living labor”, and inputs from past labor, which Marx calls “dead labor”.
Dead labor cannot create value. The cost of purchasing inputs like string and plastic is passed onto the output prices of yo-yos, but no new value comes from this labor because it is already done laboring!
Living labor creates the new value. The worker creates the value of their wage so that the capitalist makes back their investment. The worker also performs surplus labor for the capitalist. This is surplus value.
At the beginning of the day the capitalist lays out money for inputs and wages. This is her cost of production. If she wants to continue to make yo-yos tomorrow she will need to make back enough money to buy inputs and wages tomorrow. Thus prices are inherently tied to the need for the system to reproduce itself. She also needs an incentive to invest: this is profit. Thus prices are inherently tied to the need for the capital to exploit labor.
The capitalist doesn’t lay out anything for surplus value. This she acquires from the worker for free. That’s why it’s called exploitation. But the profit capitalists get from selling their commodities is not always equal to the surplus value they produce. If the price of yo-yos rise above their value then when they are sold the capitalist’s profit is higher than the surplus value contained in the product! Surplus value has been transferred in exchange.
I started by saying that price and value were not equal because they were different concepts. Now we can add that surplus value and profit are not always equal because they represent different concepts as well. Surplus value can only be created in production but it can be redistributed in exchange.
If a capitalist’s profit is higher than the surplus value they create in production we call this “super-profit”. As we discussed in the video on SNLT, super-profits are the prime motivating force of a capitalist economy. They drive innovation and attract investment. They are a necessary part of capitalist competition.
Prices of Production
Now if you really want to talk about surplus value being redistributed in exchange then you have to talk about Prices of Production.
It starts with a puzzle:
Let’s say jellybeans take just a tiny bit of living labor compared to all the dead labor that goes into the inputs. You basically buy a lot of sugar, corn syrup and die, and and then you hire someone to push some buttons in factory while machines turn that sugar into bean shaped sugar. But let’s say that yo-yos take a lot more labor in comparison. You buy some plastic and string and then you have to hire people to make plastic molds, paint the yo-yos, and then let’s not forget how long it takes to wind up a yo-yo…. So the two industries have different proportions of living to dead labor.
Since the yo-yo factory has a higher proportion of living labor we can assume (assuming equal rates of exploitation) that the yo-yo factory must produce more surplus value than the jellybean factory. More workers means more value means more surplus value. We’d expect the yo-yo factory to be more profitable.
But there’s also this phenomenon called Average Profits.This is where the puzzle comes in. If capital is free to invest in any industry, free to move in search of the highest profits, this causes a tendency for profit rates to equalize. Jellybean makers start to invest in the yo-yo industry, cutting into their profit margins. Capital flows from one industry to the other. Supply and demand change. Prices change. Eventually, assuming the free flow of capital, jellybean makers and yo-yo makers enjoy the same rate of profit.
Now you see the puzzle. One industry produces more surplus value than the other, but they have the same rate of profit. HOW CAN THIS BE?
If we remember that value cannot be created in exchange, and that surplus value cannot be created in exchange, then we can easily solve the puzzle. First we note the following two principles:
1. Total prices equal total values.
2. Total surplus value equals total profit.
And the answer to our riddle is this: Surplus value is redistributed between capitalists to form an average rate of profit. That should seem simple enough since we’ve already discussed the redistribution of value in exchange.
How do capitalist’s redistribute surplus value? Do they send it to each other in the mail? No. Prices do this work of redistribution. The prices for some commodities fall, others rise, and thus capitalists gain and lose surplus value in exchange in a way that equalizes profit rates. In this way surplus value becomes less of the property of the individual capitalist and more the property of the capitalist class as whole, uniting the class in their common interest in the exploitation of labor. These new prices, the prices which redistribute surplus value to form an average rate of profit, Marx calls “Prices of Production”.
Prices of production systematically deviate from values yet they are directly related to values. The total level of surplus value created determines the amount of value that can be redistributed to form these new prices of production. In addition, the tendency towards an average rate of profit is merely a tendency. Just as supply and demand fluctuate, never balancing, so do profit rates.
Another note on method.
So we see several different factors to keep in mind when discussing price.
If there is no equalization of profit rates and demand and supply are in balance then we can say that price=value.
If we assume a perfect equalization of profit rates and supply and demand are in balance then we can say that price=prices of production.
If we then let supply and demand fluctuate around these prices of production we get market prices.
Sometimes Marx just talks about value, sometime he talks about prices of production, and sometimes he talks about market price. These are three different levels of abstraction. Many mistakes have been make by people not paying attention to what level of abstraction is currently being discussed. Bohm-Bawerk, for instance, complained that in one place Marx said that value=price but in another place said that prices of production=price. He thought Marx was contradicting himself. But had Bohm-Bawerk been interested in actually reading Max a little more closely he might have realized that Marx’s analysis takes place on many levels of abstraction and that we must keep these levels in mind at all times if we want to understand what is going on.
We should also keep in mind that Marx’s central conclusions about exploitation, crisis and all of the other antagonisms of a capitalist society still hold whether we are talking about value, price of production or market price. Regardless of the level of abstraction, value cannot be created in exchange, and surplus value can only come from the exploitation of the working class.
Conclusion
We can only conclude that Marx gives a a quite robust and practical explanation of the way that commodity exchange regulates the reproduction of a capitalist division of labor and class relations. There is definitely a lot more to say on the topic, and a number of controversies to examine. On my WordPress blog you can find footnotes and references pointing you to more information and resources on this topic.
And now we can see how radically different Marx’s theory of price is from his Neoclassical critics. For neoclassical economics price is a reflection of equilibrium, of a state rest where all utilities are maximized. For Marx price formation is a ceaseless process of fluctuation that is part of a much larger process of value formation and distribution as capitalists compete to exploit workers better than their competitors, thus constantly revolutionizing the technological basis of society.
From Marx’s theory of price we can immediately move to a theory of capitalist crisis. Because the tendency toward an average profit rate redistributes value between industries there is no way to keep firms from investing more and more in machines and less and less in workers. In fact the race for super-profit compels capitalists to decrease socially necessary labor time by spending more on machines to make workers more efficient. This means while individual capitalists race to increase their own super-profit, that over time the average profit rate of the economy as a whole falls. The worker finds herself confronted with a greater and greater mass of machinery, while the capitalist class finds itself getting a lower and lower rate of return on larger and larger investments. The time is right for a crisis!
Footnotes: Actually this is more like a glossary of terms and topics:
Value: Marx’s terms have an elastic quality. In different places they stretch or constrict to contain more or less content. This is because Marx understands things (and processes) only relationally. Things only have meaning in how they relate to other things. Value is a particularly elastic term because it sits at the very center of capitalist social relations. Sometimes when Marx says “value” he is talking about the exchange value of commodities, sometimes he is talking about the labor that goes into a commodity, sometimes he is talking about the form of social relations unique to a capitalist society. Understanding value theory requires that we are aware of what particular aspect of value is being referred to in a specific context. See Bertell Ollman’s “Dance of the Dialectic” for more on the elasticity of Marx’s terms.
Quality-Quantity: Value theory has both qualitative and quantitative dimensions. It’s a theory of social relations. In contrast to predecessors who treated categories like capital and labor only at the level of content, Marx was concerned with the form of these things took in a market society. In such a society they take the form of value relations and these involve certain laws, imply certain social relations, fetishism, etc…. These are all the qualitative aspects of value theory, in many ways the most crucial aspects of his theory to understand for formulating an understanding of the radical challenges of anti-capitalist politics.
But value theory also has a quantitative dimension, which comes to the foreground when we look at the value-price dimension. At times in the 20th century, due to the persistent myth that there was something internally inconsistent with the quantitative side of Marx’s value theory, Marxists have attempted to distance themselves from the quantitative aspects of value theory, instead developing approaches which attempted to side-step these quantitative aspects by focusing only on the qualitative aspects of the theory. This is no longer necessary, see my vid on TRansformation Problem.
Indirectly Social: Marx calls this unique way of organizing labor “indirectly social”. Rather than operating on some sort of plan where we decide how much labor should go into the production of various things our labor is distributed indirectly through the price signals of the market. We perform private labor. This labor is not social labor when we are performing it. It only becomes social after we finish working when the products of our labor meet in the market. Here in the market we find out if our labor has been socially useful and if it has been performed at the average level of efficiency. Isaac Rubin has a good discussion of Indirectly Social labor here.
Appropriation of Value: Bourgeois theory often confuses the appropriation of value with the creation of value in its idea of returns to factors of production. A bourgeois economist might argue that because the owner of land gets rent from their land that this means that the land has produced value. But in Marx’s system only human labor can produce value. The rent a landlord gets is an appropriation of value. The value is created elsewhere and the landlord appropriates it. (There’s a much more complex theory of rent, but that’s another topic.) Or we might hear that risk creates value. It could be that risky ventures require a greater potential reward to encourage risk. But there is a difference between making a big monetary reward on an investment (appropriating value) and actually creating value.
Money: Marx sees money as the embodiment of labor time in the abstract. He builds this theory directly from his theory of the commodity. Commodities have both a use-value and an exchange-value. The use-value is a specific dimension of the commodity particular to each object and their various uses. Exchange-value is a universal, abstract dimension of the commodity. It is the empty quantitative relations between a commodity and all other commodities. It is numbers, not qualities. This leads to the separation of use and exchange value. Use-value stays in the bodily form of the commodity while exchange-value separates itself from the commodity in the form of money. Money becomes the commodity that all other commodities measure themselves against. As such it is the universal measure of value and the universal measure of abstract labor. While Marx’s theory of money is robust and historical enough to allow for the evolution of non-commodity forms of money, at the abstract level he roots his analysis of Money in the money commodity (usually gold). Money gets its value from the fact that it is a product of labor. Money itself is a commodity with a use-value and an exchange value. But because its use as money becomes its purpose in measuring the value of other commodities this leads money to have some rather unique qualities. I will delve more deeply into the topic of money in a future video in this series. The best thing to read on Money is Marx’s “Critique of Political Economy“.
Equalities: Marx famously held three equalities to be true for the economy as a whole: 1. total value equals total price; 2. total surplus value equals total profit; 3. total value rate of profit equals total money rate of profit. This is discussed in vol. 3 of Marx’s Capital Part 2.
Organic Composition: the ratio of constant to variable capital is called the organic composition of capital and is drawn as c/v. The higher the organic composition in society as a whole, the lower the rate of profit. This is discussed in vol. 3 of Marx’s Capital, chapter 8.
Prices of Production: If capitalists receive an average rate of profit regardless of the ratio of constant to variable capital, how do prices of production still regulate the division of labor? Prices of Production still allocate labor because wages and surplus value are still involved in the prices of commodities. But, yes this allocation doesn’t happen as smoothly as it would in a world with no average rate of profit. In fact we already know that there is a systematic tendency in capitalism for capitalists to replace workers with machines. This increases the productivity of the remaining workers, allowing capitalists to produce below the SNLT and thus gain super-profits in exchange. Prices of production allow capitalists to continue to automate production without being punished for producing at a lower individual rate of profit. But if firms are replacing more and more workers with machines then less and less surplus value is being produced relative to the cost of all those machines. This leads to a Falling Rate of Profit in the economy as a whole. This is why in vol. 3 of Kapital Marx immediately moves from the discussion of Prices of Production to the theory of the Falling Rate of Profit. The tendency of the rate of profit to fall can lead to crisis, like the one we are in now. The rate of profit is only restored once enough capital value (ie the costs of production: workers, inputs) has been destroyed or devalued. See my video on the Falling Rate of Profit or any of my coverage of Kliman.
Input and Outputs prices: There is debate amongst Marxists as to the proper way to theorize input and output prices under Prices of Production. In short, many argue that input prices should not be valued at their original actual cost to the capitalist, but instead by the price it would cost to replace those inputs. This is called the ‘reproduction price’ of inputs. The logic behind this is that if prices of inputs rise I need to sell my product for more if I am going to repeat production tomorrow. This leads to a static equilibrium procedure in which input prices are retroactively revalued to meet output prices. But this process of holding input and output prices equal leads to the transformation problem and the various partial solutions to this problem. In response the Temporal Single System Interpretation (TSSI) holds that input prices should not be revalued to equal output prices, but that, instead there should be a temporal process in which output prices become the input prices of the next period, not the one that has already passed. Rather than valuing inputs at their ‘reproduction prices’ the TSSI folk value them at their ‘pre-production reproduction price’. That is the reproduction price of the input before it enters production. (See Kliman’s ‘Reclaiming Marx’s Capital’ for more on this.)
Transformation Problem: In short: Marx showed how value is redistributed in exchange to form prices of production. To do this he set up a simple numerical example where inputs purchased at their values are transformed into prices of production. But in the real world, his critics cried, inputs would be purchased at prices of production, not values! Since input prices and output prices must be the same in equilibrium theory (see above Inputs and Output prices) then there was some fancy math involved in figuring this all out. The upshot: total prices and total values don’t equal each other anymore. Furthermore value and production price were severed into two separate systems and it wasn’t clear what the relation was between them. The Temporal Single System (TSSI) response is to say that output prices of production are the input production prices of the next period, not the previous one. This eliminates the mathematical inconsistency in the transformation and also keeps values and prices of production as part of the same system, rather than two separate systems whose relation is only metaphysically related. The book to read on this topic is Andrew Kliman’s “Reclaiming Marx’s Capital; Refuting the Myth of Inconsistency”.
In my own awkward way I made a video on the subject several years back.
Levels of Abstraction: Marxists treat the levels of abstraction in value theory differently. This is often because of the strange way in which the transformation problem developed. The traditional interpretation of the transformation problem severs value and price of production into two separate systems whose relation has to be arbitrarily imposed mathematically. Value is seen as somehow determining prices of production, and then market prices are seen as fluctuations around these prices of production. The Temporal Single System Interpretation (TSSI) takes a different stance on the issue. It seems values being created in exchange but being sold at market prices. These market prices form the inputs into production and the outputs. Prices of production are tendential prices that market prices gravitate toward. Critics claim that the TSSI has erased important theoretical distinctions between value and price and just explained prices through past prices. But the TSSI claims that it has cut through the bullshit metaphysics and mapped out the practical way in which inputs and outputs relate in a temporal, fluctuating economy. Central to the TSSI’s understanding of these levels of abstraction is Marx’s statement that price is the form of appearance of value (or more specifically in chapter 3 of Vol 1 “Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.”). Thus value cannot exist in some separate metaphysical system, whispering into the ears of prices. Instead if appears as price and is transformed in exchange through the ways described above.
NeoClassical Economics: There are plenty of things to read if you are looking for a good critique of the neoclassical orthodoxy. The reason there are so many things to read is that orthodox economics is a huge religion, all smoke and mirrors, with little relevance to the real world. Viewers who know too much to be watching my videos in the first place will notice that in this video I throw Pierro Sraffa’s face into some of the group shots of bourgeois economists. Sraffa is not a neoclassical economist and is actually responsible for a number of quite useful critiques of the neoclassical orthodoxy (See Steve Keen’s “Debunking Economics” for a good synopsis of the Sraffian critique”. So it is technically wrong for me to group Sraffa in this category. On the other hand the Sraffians still maintain that there is an internal inconsistency in Marx’s transformation procedure because they insist on modelling value and price through general equilibrium analysis. Many 20th century Marxists also have been influenced by the Sraffian critique of Marx. For a good critique of some of the problems with this approach see Alan Freeman’s great essay “The Psychopathology of Walrasian Marxism”. That Freeman paper appeared in an excellent, and prohibitively expensive, volume of essays, many of which contain good critiques of equilibrium economics. I also enjoy Mark Linder’s “Anti-Samuelson” as well as Simon Clarke’s “Marx, Marginalism and Sociology” which I’ve written about here.
Suggested Reading on Value and Price:
Kapital. vol. 3 Karl Marx. specifically chapter 10
Value, Price of Production and Market Price by Alan Freeman- a very short paper that lays out the main issues quite well and succinctly
Frontiers of Political Economy by Guglielmo Carchedi is a pretty solid exposition of the value price relation from a TSSI perspective.
Marx’s Theory of Price and Its Modern Rivals by Nicholas Howard is a recently published book on the topic which takes an alternative position than the one I’ve put forward here (at least on a few points). Howard takes a different view of input prices and the transformation problem than the TSSI folk and the TSSI and ‘New Interpretation’ are the subject of critique in the book. The book also has a fairly thorough critique of neoclassical, Keynesian, and Sraffian price theories.
Essays in Marx’s Theory of Value by II Rubin, though much of the book is devoted to more qualitative aspects of value theory, does get into the issues of price of production and market price. Rubin’s approach still seems mired in an equilibrium framework to me, though I think the book is great on the whole.
Nice,
Neo classical economy is very pretentious. It presumes that its models are universal. The following new book is the perfect example of this logical fallacy:
http://press.princeton.edu/TOCs/c9896.html
Just reading the first couple of pages of this book, it appears to be not only pretentious, but horribly edited and stupid. Have the neo-classicals finally begun to die off?
what if capitalism determine socially necessary labor time by stabilizing productivity? then we have no tendency of rate of profit to fall and crisis?
why? what force(s) would cause capitalism to arrive at a balance of production and investment? And what force would counter the tendency toward lowering the SNLT?
awareness of capitalist class that raising productivity (constant capital) is against their class in long-term.
Well, I would say they try to stabilize production but sooner or later the drive for accumulation of profit leads to over-production and thus to crisis.
No, they compete with each other and price setting after meeting etc. is illegal. The coercive laws of competition prevent this. Awareness isnt enough. SNLT wouldnt exist if they werent competing with each other amongst other things.
Is there really any more competition in today’s modern monopoly market? Who does Wal-Mart, Microsoft and Exxon compete with? There doesn’t even have to be any more meetings to set prices. The only people who still compete with each other are the working class.
Wouldn’t it make sense to find out the real, specific numbers on wages, material costs, and other input costs, and then the time for production for one yo-yo and one, say, 6 oz pack of jelly beans. It seems with the oceans of economic data someone could get these numbers. Then compare the numbers for 5 or 6 yo-yo and jelly bean manufacturers over a one yr period, and then see what the relations are.
As to the yo-yo and jelly bean example, obviously if one hour of socially necessary labor is used to produce a yo-yo and one-third hour is needed to produce a bag of jelly beans, then the value of the yo-yo is three times that of the jelly beans, and the price should reflect this difference. However, as Adam Smith noted, there is a market price (in this case $5) and the “natural” price (in this case $5 for the yo-yos and $1.67 for the jelly beans. The market price oscillates around the real, “natural”, price of the two commodities. The market prices always flucuate around a central, average price.
But really, this price analysis is more appropriate for a classical, free market system, not a monopoly system in which prices are set by gigantic, world-wide corporations. So when Wal-mart (on its web site) offers 10 yo-yos ranging in price from $3-20,
what does this mean? Is it really the case that a $20 yo-yo takes 6x more socially necessary labor to produce? This can’t be possible. It is more likely that Wal-Mart creates, through advertising, different levels of demand and markets the yo-yos to different levels of effective demand. One person believes that he can afford the higher quality (he believes) yo-yo. This, I think, is why advertising is so important, and why the marginalists believe that different consumer demand for different products determines price. On the other hand, total demand is supposed to equal total production, regardless of individual demand. And Walmart therefore tries to control production so that it doesn’t exceed demand, and vice-versa. Of course this goes out of whack every 7-10 yrs.
I guess part of what I am trying to say is that it is not just yo-yos and jelly beans, but yo-yos and everything else, Toyotas, Cheetos, Levis, etc., etc.
We still live in a society, the wealth of which presents itself as an “immense accumulation of commodities.”
Just some idle thoughts.
Dont prices have to diverge from value?
In one hour
Living labor of 5 and dead labor (materials) of 5
the full value then is 10
wouldn’t the price have to diverge in order to make a profit
You couldn’t exploit workers because you already paid them 5
Ed I think you are missing a fundamental distinction here between “labor power” and the value labor creates. “Labor power”, or the ability to work, is what the capitalist buys. This is the wage. The wage must be less than the value the worker creates. So in your example, the worker produces 5 hours of value, but is only paid for 3. Thus the profit (or surplus value to be precise) is 2 hours of unpaid labor. This is not a deviation between value and price. Exploitation and profit do not depend on a price-value discrepancy.
I was talking about the value in the individual commodity produced in one hour with a wage of 5 and materials of 5
And was thinking how couldn’t competition expose the real wage in a commodity? with a price fall to represent the real wage?
I have no idea what you mean by either question. Are you clear that the wage is not the same as the value created by a worker?
Alright ill try to clarify
I’m talking about an individual commodity…
I’m figuring a single commodities value is x+y
X being labor time, and Y being materials.
Therefore the commodity is (X+Y)
But that is not profitable because there is no piece for the capitalist
Therefore I see that the price must rise above the real labor value’s artificially to get profit.
Overall the workers are producing more value for the capitalist, but only because the price is at a given point above the real value.
Are you reading my responses carefully? What you call “X”, the labor time that it takes to make a commodity, IS NOT THE SAME AS THE WAGE! What you call X Marx divides into two portions: variable capital or the wage and surplus value, the profit of the capitalist. In a given work day the worker produces value equivalent to his/her wage and then works further producing surplus labor for the capitalist’s profit. The value of an individual commodity reflects this division. Marx calls it C+V+S, where C is constant capital (the value of dead labor inputs), V is variable capital (the value of labor power, or wages) and S is surplus value (profit).
Your confusion lies in conflating V+S with V. You are confusing the value created by labor (V+S) with the wages paid to workers (V).
So I see that you are putting the framework on the working day, which I understand. I know how the worker may work half the day for themselves and half the day for the capitalist. Then this is a rate of exploitation or surplus value creation of %100.
But this is what I was getting at
“”The value of an individual commodity reflects this division. Marx calls it C+V+S, where C is constant capital (the value of dead labor inputs), V is variable capital (the value of labor power, or wages) and S is surplus value (profit)””
I imagine a capitalist lurking over the worker with a stopwatch…
The capitalist times EXACTLY how much he spends on the worker. As well as price of materials. For the single commodity, and since the capitalist wants profit the price is above what is spent on wages and materials.
So isn’t “X” like V and “Y” like C.
Then S would be the space between the value and price. No?
OK I have been thinking about this and I think It just hit me.
The Individual vale of the commodity does not need any surplus in it whatsoever.
Anything is possible when you don’t pay the worker for a given amount of his time.
So While I think what I put above was good in the realm of selling commodities above their value. It is not needed when you literally don’t pay the worker full compensation.
Ed. I think you are still not correct. Imagine you divide the working day into paid labor time (wage) and unpaid labor time (surplus value). This is the same as dividing the component parts of each commodity into paid labor time and unpaid labor time. It doesn’t matter whether you are looking at all of the commodities produced in a day or looking at individual commodities. The make-up of the component parts of the social product are the same.
Are you clear on the difference between cost of production and value of the commodity? The cost of production is below the final value of a commodity. The difference of profit. Hence c+v+s.
Interesting.
Brendan. So I am seeing two things.
If we were to look at the individual commodity for the division of value to the worker and capitalist, it might be a bit confusing.
1) My first statement were I imagined a capitalist with a stop watch over the worker sounds like something that probably happens. ( In fact I have had it happen to me personally)
In that case the capitalist, who doesn’t know Marx, thinks he needs to find out the price of an individual commodity and charge more.
The capitalist would time the worker to find out what exactly he pays per commodity. Then adds the price of materials… And then, to make a profit off of each commodity, the capitalist demands additional value and raises the price a bit. Then, in this circumstance, surplus for the individual commodity is the space between the real value and the price. Which would be determend competitively.
2) But, the capitalist does not need to artificially raise the prices. If they employ a worker and find out the value of labor in an individual commodity. He could charge the real value, but then have the, lets say, last four hours of the workers shift working unpaid. Then yes the commodity can be sold at its real value and the capitalist can still make a profit. Then like you are saying, the working day would be split into paid and unpaid labor.
So I’m sort of split between these two ways of looking at it. It seems like scenario #2 is less likely because it would need pay per day, and not hourly wage. ( When Marx was writing was there hourly wage or pay per day?)
So I think that scenario #1 is more likely to happen.
And I still see that all of Marx’s laws of value still stand. These are just things I think of when I think of the relationship between price and value.
What do you think?
Ed,
The final price of a commodity is not the same as the price of inputs. A capitalist buys inputs (raw materials and labor power; or constant and variable capital). This constitutes the cost-price of the commodity. The final price is cost-price plus profit. This is a universally accepted fact.
The question is what is the source of the profit. Is it a return for the capitalist’s risk? Is it the product of time preference, as the Austrian’s claim? There are many theories for the origin of profit. For Marx profit is surplus labor time.
I think when you are saying “price is higher than the real value” you mean that the output price of a commodity, after production, is higher than the prices of inputs. This is the true. But you are confusing things if you think that the prices of inputs are the sole constituents of a commodity’s value and than profit is something added on artificially above the commodity’s actual value. The commodities value is a product of the entire amount of labor that is expended on its production, including the labor-time to produce inputs, the labor time that recreates the value of the wage, and the surplus-labor time that forms profit. This total labor time is the value of the commodity and this value is the same as price. Surplus labor is included in the commodity’s final value.
Brendan,
I know that value expands in the production process when it comes into contact with labor. It must because, it is combining commodity X with commodity Y. ( New labor/past labor)
But how then does a individual commodity Have additional value for the capitalist inside of it?
If a single commodity has C=5 And V=5 total value is 10 Then were is S?
You already made an agreement to pay your worker 5 you cant send them home with 3!
And if you do only pay 3 then that changes things to C=5 And V=3 So total value is now 8. To sell at 10 you make 2 in profit. So distance between the real value and selling price was your profit of S=2.
I don’t see this as “unpaid labor” I see the surplus as the distance between real values and price.
The cost of production is not the ‘real value of the commodity’. The real value of the commodity is the total amount of living and dead labor, which contains the surplus labor.
In your example, V=5 C=5, and at a rate of exploitation of 100%, S=5. Hence the total value of the commodity is 15. The capitalist has paid for 10, sold the commodity for 15 and profited 5. 15 is both the value of the product and the price of the product.
then there is a fuzzy distinction between price and value if you mark the object at a full value and price of 15
But really it only requires 10 the extra 5 is profit, and then it is vulnerable to a competitive change in the profit from, 5 to 4 or even 3,2, or 1.
My understanding of why a theory of value is needed is so you know a commodity has a REAL value inside of it.
You cannot just look at a supply demand graph and understand prices.
The supply demand graph fails because it doesn’t take into account that a commodity can have a value BEFORE the price diverges from the value in high or low demand.
A real value would need to be theoretically competition proof.
Actually there is no distinction between price and value in your model
If you were on the market and charging 15 for this unit. I could come along and give honest deal of 12 per unit. Then I am threatening your business.
I can charge 12 because I am realistically only spending 10 per unit. Therefore the real value per unit is 10. The surplus is the distance between price and value.
The labor theory of value is why competition exists.
This concludes a defiant necessity that daily pay size itself down to hourly wage, which is a kinder way of saying, pay per second of the working day.
And with this understanding the falling rate of profit, socially necessary labor time, and all the rest of Marx’s laws still stand.
It is merely just a small difference in that the rate of exploitation is like surplus, the distance between price and value . And, the exploitation is passed onto the consumer by demanding more labor than produced for the commodity.
Ed,
In the example I gave above of v=5, c=5, s=5, I assumed that the rate of exploitation of 100% was an average social rate of exploitation, already established through the process of capitalist competition. As Marx conceptualizes it, if the rate of exploitation rose so that v=4 and s=6 then the total value of the commodity is not effected at all.
In your model a capitalist reduces the price of a commodity by asking for less profit. Since the goal of capitalist is to increase profit, and since increases in profit allow capitalists to further compete in the market (by lowering the SNLT for instance) this is not a very good strategy (leaving aside, for now the strategies of some modern retail chains which intentionally lower their profit margins to lower prices until they starve out local businesses… this is a temporary strategy.)
In order for a capitalist to charge less for a commodity they have to produce it at under the SNLT. This is not the same as reducing the rate of exploitation. Lowering the SNLt reduces the total time spent making a commodity, not necessarily changing the rate of exploitation.
You keep saying “real value inside of it” in reference to the cost of C and V. This is really frustrating to me because it shows that you are not really reading my responses carefully. What is your justification for calling the cost of inputs (C and V) the real value and completely disregarding the labor process that is necessary to turn these inputs into a final product? If you come to my factory to buy a watch and I offer you a box full of springs and gears for $10 or a finished new watch for $15 wouldn’t you buy the watch? Would you really say to me “Look the box of springs and gears is worth $10 so the watch should be worth $10 as well!” The box of springs and gears is worth nothing until a labor process transforms it into something.
Yes, the capitalist does not pay for the surplus value that the worker performs. But this does not mean that the surplus value is less real. It is real labor time and the capitalist had to make the worker do that labor. (If the workers organized for better wages they could change the rate of exploitation and then it would be v=6 and s=4…. or v=9 and s=1!) Labor time is the source of value and so we count this time as just as real as the rest of the labor inputs in a commodity, regardless of where the division is between the labor time going to the capitalist and the labor time going to the worker. The fact that capitalists calculate prices in regard to an industry-wide average rate of profit, rather than by an actual analysis of surplus labor time does not stop the fact that it is this surplus labor time that conditions the industry-wide profit rate in the first place. The law of value asserts itself behind the backs of the producers and does not require their conscious intervention.
Furthermore, if profit was a matter of price and value diverging then there would be no possible way for their to be profit in the aggregate or for the total value of the economy to grow. Profit could only be made by ripping people off. It would only be a transfer of value between parties rather than an aggregate increase in value. But this is not the essence of capitalist profit. Capitalist grows in the aggregate through the creation of new value in production.
Supply and Demand do cause deviations of price from value. But this has nothing at all to do with exploitation or profit. They are different issues.
No theory of price, in any tradition, treats the cost of inputs as the “real value” and profit as an artificial divergence above this real value. All theories of price have a role for profit within the total component parts that make up the value of the commodity. The only debate is to the source of this profit.
The total surplus is the distance between price and value. Times the number of commodities sold in a given reproduction period.
The total final value is the rate of exploitation for the worker but also the consumer. The capitalist leeches off both.
Each time the commodity undergoes a production, by original production, distribution or retail. The value expands because more labor is added to the commodity.
And again the total surplus for each capitalist is the distance between value and price. Times the number of commodities sold in a given reproduction period.
Brendan,
>>> If you come to my factory to buy a watch and I offer you a box full of springs and gears for $10 or a finished new watch for $15 wouldn’t you buy the watch? Would you really say to me “Look the box of springs and gears is worth $10 so the watch should be worth $10 as well!” The box of springs and gears is worth nothing until a labor process transforms it into something.<<<>>In your model a capitalist reduces the price of a commodity by asking for less profit. Since the goal of capitalist is to increase profit, and since increases in profit allow capitalists to further compete in the market (by lowering the SNLT for instance) this is not a very good strategy (leaving aside, for now the strategies of some modern retail chains which intentionally lower their profit margins to lower prices until they starve out local businesses… this is a temporary strategy.)<<<<>In order for a capitalist to charge less for a commodity they have to produce it at under the SNLT. This is not the same as reducing the rate of exploitation. Lowering the SNLt reduces the total time spent making a commodity, not necessarily changing the rate of exploitation.
Yes this fits into my understanding as well.
Here is a model where I am a firm competing with you….
We start out with a unit of C=5 V=5 And S=5 Therefore total value is 10! and price is 15!
I can, with technology, lower my individual labor time per unit so I would now have C=5 and V=3 Therefore total value is now 8. If I continue to sell at 15 like you are, my surplus per unit is 7!!!
But I can make more overall profits by increasing overall unit sales and outselling you by charging 13 per unit. Now my surplus per unit is still 5.
And I am probably going to take your customers and sell more units because I charge less and have higher productivity.
But are you just going to stand there and take that??
You have a couple choices to get your customers back
1) You are really only spending C=5 and V=5. So you can meet my new price by lowering your price from 15 to 13 but that is only a surplus of 3 per unit
2) You can get the technology I have giving you C=5 V=3 And meet my price of 13 and still surplus 5 per unit.
3) You get the technology and can drop the price to 12 or 11 and try to outsell me
I think it is totally logical to assume the commodity has a REAL value and the surplus per unit is the distance between real value and price.
And total surplus is the distance between price and value times number of units sold in a turnover period.
With this understanding I can still work with all of Marx’s laws. Even better I think. The value still expands in the production process. You can still have a falling rate of profit and all the rest.
The only thing his comes into conflict with in your teachings is. Commodities have to be sold above their true values for profit.
And when labor is employed they still expand value in the aggregate.
OK that last comment was messed up
It was supposed to be
>>In your model a capitalist reduces the price of a commodity by asking for less profit. Since the goal of capitalist is to increase profit, and since increases in profit allow capitalists to further compete in the market (by lowering the SNLT for instance) this is not a very good strategy (leaving aside, for now the strategies of some modern retail chains which intentionally lower their profit margins to lower prices until they starve out local businesses… this is a temporary strategy.)<>You keep saying “real value inside of it” in reference to the cost of C and V. This is really frustrating to me because it shows that you are not really reading my responses carefully. What is your justification for calling the cost of inputs (C and V) the real value and completely disregarding the labor process that is necessary to turn these inputs into a final product? If you come to my factory to buy a watch and I offer you a box full of springs and gears for $10 or a finished new watch for $15 wouldn’t you buy the watch? Would you really say to me “Look the box of springs and gears is worth $10 so the watch should be worth $10 as well!” The box of springs and gears is worth nothing until a labor process transforms it into something.<<<
YES I FULLY understand the value of commodities expand in the production process
The value of the springs is 10 and the extra 5 was for labor to assemble the watch.
But now what do you charge? You just paid 10 for old labor 5 for new labor! And you still need to make a profit off the sale of the watch.
In order for a capitalist to charge less for a commodity they have to produce it at under the SNLT. <<<
Yes this fits into my understanding as well.
Here is a model where I am a firm competing with you….
We start out with a unit of C=5 V=5 And S=5 Therefore total value is 10! and price is 15!
I can, with technology, lower my individual labor time per unit so I would now have C=5 and V=3 Therefore total value is now 8. If I continue to sell at 15 like you are, my surplus per unit is 7!!!
But I can make more overall profits by increasing overall unit sales and outselling you by charging 13 per unit. Now my surplus per unit is still 5.
And I am probably going to take your customers and sell more units because I charge less and have higher productivity.
But are you just going to stand there and take that??
You have a couple choices to get your customers back
1) You are really only spending C=5 and V=5. So you can meet my new price by lowering your price from 15 to 13 but that is only a surplus of 3 per unit
2) You can get the technology I have giving you C=5 V=3 And meet my price of 13 and still surplus 5 per unit.
3) You get the technology and can drop the price to 12 or 11 and try to outsell me
I think it is totally logical to assume the commodity has a REAL value and the surplus per unit is the distance between real value and price.
And total surplus is the distance between price and value times number of units sold in a turnover period.
With this understanding I can still work with all of Marx’s laws. Even better I think. The value still expands in the production process. You can still have a falling rate of profit and all the rest.
The only thing his comes into conflict with in your teachings is. Commodities have to be sold above their true values for profit.
And when labor is employed they still expand value in the aggregate.
“YES I FULLY understand the value of commodities expand in the production process ”
Ed with all due respect this is exactly what you do not understand. You think that the “real value” of the commodity corresponds to what the capitalist spent on inputs, not the amount of labor performed in the process of production. This concept of “real value” is something you have made up and continue to use even though I have continued to try to explain why it is leading you in the wrong direction.
Your numerical example reflects the misunderstanding.
If c=5 v=5 and s=5 then the value of the commodity is 15, not 10.
If a competitor produces below the SNLT by half so that the worker can produce twice as many commodities in the same amount of time, while the rate of profit remains unchanged, then the value components could be c=5, v=2.5, s=2.5 with a total value of 10.
The competitor could then sell their widgets at the former SNLT of 15 and therefore appropriate 5 units of surplus value in exchange. (NOTE: Appropriating value in exchange is not the same as exploitation, as I’ve explained in the SNLT video and other places.) The total profit to this capitalist would be 5 units appropriated in exchange plus 2.5 surplus value created in their own firm, for a total of 7.5 units of profit. We call the 2.5 profit and the 5 super-profit to designate the different social processes of obtaining these different component parts of the surplus.
Under your model, which is nobody argues for because it assumes capitalists don’t need profit to invest, there could be no aggregate profit, only the profit made by filching profit from other capitalists. If surplus just comes from raising prices above values then this means that the consumer is the source of profit. But if all capitalists and consumers are buying from eachother then everyone is the source of everyone else’s profit. There is not way for the total pie to expand. This is the flaw in your thinking.
HI kinda on the side from what you were talking about but you said that, “If a competitor produces below the SNLT by half so that the worker can produce twice as many commodities in the same amount of time, while the rate of profit remains unchanged, then the value components could be c=5, v=2.5, s=2.5 with a total value of 10.” What I take issue with is that you say that the rate of profit remains unchanged but this simply isnt true. If the constant capital investment remains 5 whilst the variable capital investment drops to 2.5 then the organic composition of capital has changed from 5cci/5vci=1:1 to 5cci/2.5cci=2:1 and therefore the rate of profit, presuming this is at the social scale for the SNLT, drops from 5sv/(5cci+5vci)=50% to 2.5sv/(5cci+2.5vci)=33% causing a decline in the average rate of profit. Even if we are only talking about the individual firms individual LT then the rate of profit still changes becoming (2.5sv+5sp)/(5cci+2.5vci)=100%. In fact to maintain the rate of profit you need to alter the rate of exploitation making it 3.33sv/1.66vci=200% so that the rate of profit is 3.33sv/(5cci+1.55vci)=50%. So I think you might have meant to say that the rate of exploitation remains unchanged because 5sv/5vci=100% and 2.5sv/2.5c=100% which is obviously a minor mistake but I just wanted to point that out and honestly its more of a mental exercise for me.
Kat,
Thank you for your comment.
In the example above I was merely using the figures to illustrate a point about how individual capitalists make a surplus profit by producing under the SNLT. I really didn’t need to to mention the rate of profit at all at that level of abstraction so I should probably have just left that out for simplicity sake. But I think it is entirely permissible to assume a constant rate of profit in my example. In my example above I was referring to an individual capital increasing its productive efficiency, not the total social capital. Since the rate of profit is effected by many factors it is perfectly reasonable to abstract away from changes in the rate of profit. Yes one firm’s change in organic composition could theoretically change the rate of profit, but it could also not change the rate of profit, depending on the size of the capital vs the total social capital, and depending on other factors. Regardless, it’s not really relevant the the point I was making.
Brendan, This is what I find problematic
If we look at the working day we see the worker creating a total amount of value. Only a smaller portion of that value is given to them. Therefore the view can be taken that, the worker is being exploited because she creates the value but is only receiving a portion.
And this is true
But then it looks different when you analyze the individual commodity .
And in the production of the individual commodity 2 things are needed. Raw materials and labor to get those materials in a different form. Since labor is a commodity and the materials are commodities we have two things combining with each-other to form a whole. The new commodity.
So this new commodity only REALLY contains two things, new labor and old labor. Or, labor and materials. And we can also notice that the materials VALUE EXPANDED and changed form in the new commodity. So I am taking into consideration that more value is being created. It happens when labor comes in contact with materials to form a new commodity.
The capitalist producing said commodity cannot do anything about this “real value” it is individually and/or socially necessary requirements in producing the particular commodity.(assuming a new technology has not been invented yet) This is my main point.
This is why I say it has a REAL value, because it is out of the control of the capitalist. (again, a new technology changes that fact)
So if the commodity is FUNDAMENTALLY a combination of two things materials and labor, (C+V) ( living+dead labor) Then it has no piece for the capitalist.
Being that selling commodities and ONLY the selling of commodities is the one method in which the capitalist obtains her surplus. Then, the surplus MUST come from the commodities themselves.
Therefore it cannot be just C+V per commodity it must be C+V+S
So in your watch argument, you have a watch factory and you sell watches. You have calculated the watches cost for yourself. The value prices of the materials C=10 per watch and the value price of the labor is V=5 per watch
And, the ACTUAL value of the labor is 5, not 3, you have already agreed to pay 5!
So the true value nature of the watch in total is, a value price of 15 for you
Now what are you going to price your watches at?
Ed,
What is your basis for saying that the working day can be divided into c+v+s but the time it takes to make an individual commodity cannot? There is no difference. Take all of the commodities made in a day (C+v+s) and divide their total value by the amount of commodities produced and you will get the c+v+s for the individual commodity. It is simple math.
YES! true but only because there is a separation between price and value! per commodity sold in a given reproduction period
But answer my question 1st
What is the price of your watch?
If c=10 and v=5, and the rate of exploitation was 100% then I would sell my watch for 20. How many times must I repeat myself?
Well I can sell it for 16 then
I can undercut you because the watch is really worth 15
I’m not saying that’s a good idea but it can happen
So the surplus per commodity is FAKE that’s why I can widdle it’s/ your price down
what if a worker produced one commodity per day? would that make more sense to you?
My models have not made any differentiation in weather it was a hour or a day you can imagine whatever you want and it is still true
Like I have also not made any distinction if the means of production were robotic arms or wooden sticks and stones, because technology does not create value.
The entire working day is divided into necessary labor (labor required to reproduce the value of the wage) and surplus labor. If surplus labor is not performed then there is not incentive for the capitalist to invest in production. You can divide the working day into 4 hours of necessary labor and 4 hours of surplus labor. Or you can divide it by the hour (half an hour of necessary, half of surplus) or you can divide it by the commodity… c+5, v+5, s+5. Any way you look at it the same proportions hold.
You keep saying that the surplus labor time is fake or made up. It is real labor time that is being performed. It’s duration is the total working day minus the labor time required to reproduce the value of the wage. This is not a made up quantity of labor time or a made up quantity of money.
Please think carefully before replying. I am truly trying to be helpful but I feel like you are not actually listening or thinking before you write. I am not a grade-school teacher. It is not my job to sit by a computer and fix your mistakes over and over again. You have to actually think for yourself and some point and try to make sense of the material.
Ok BUT, notice how the price becomes the “value” but not really
For instance. Your watch parts are valued at 10. And you obviously bought them at price-value. But not value.
it becomes the price-value of inputs and consumer goods.
i have no idea what you mean by this because you are inventing your own terms.
If it was real then why could I erode it away when I am competing with you?
you couldn’t because then you would have no profit. If you make less profit than the industry average you will go out of business. Or just be less profitable. You are perfectly welcome to set any price you want. Sell below your cost of production if you like. But good luck reproducing your production the next day.
I have tired of this conversation. I have to bow out. If I cannot explain the concept to you by now I never will. You will have to try somewhere else with someone with more patients than I. Good luck.
Brendan
Here is what is confusing, I think, about value and price.
So the labor process itself is something organic. Price on the other-hand is something determend, Price is a product of value. When we look at the labor process in a clear un-interupted way we are looking at an organic relationship.
If you then talk about price you are talking about a value relationship.
So Brendan, I dont think it makes sense to say that price can be below value. Because we are speaking of 1, price, and 2, value. Both 1 & 2 are value relationships. So in value can we say that some value can be exchanged for less than what it is? No, that would be a loss for a capitalist on every exchange.
But can we say that the price as a determend value can be exchanged for less than the organic labor process? Well yes, but it doesnt make any sense, we would be comparing a value relationship with an organic relationship.
So when we talk about price we need to stay in the realm of value determinations and compare it to the price of labor and materials in prices of production. Then V is the price of the wage in time in the commodity, C is the price of materials in the commodity, then the distance between price and the VALUE DETERMEND values is S.
If we are going to determen the organic relationship to get price, then we have to go all the way, the middle doesnt make any sense, A wage can be the expression of the labor.
In this paper Ed George can get prices by putting the annual value composition divided by the units produced and it works well.
http://edgeorgesotherblog.files.wordpress.com/2013/08/but-still-it-falls.pdf
(pasted from my comment on the video)
Whenever I delve too far into Marxist theory, I just end up thinking “so what”. One can argue that the entire basis of Marxism is to brush up Ricardo’s labor theory of value into a form that isn’t explicitly false. In doing so I sometimes wonder if the true way that Marx achieved this was by making his version of the labor theory nearly impossible to understand.
Back to my point, however, I think it’s representative of Marxist theory that after afew hours of video, relying on hardcore Marxist theory can’t even give us a coherent theory of prices in equilibrium. Here are some of my complaints with what is brought up in the video:
Is it true that in equilibrium (where profits are equal and supply and demand meet) that prices will equal the amount of dead labor and living labor put into it? This is to say, will prices of consumer goods equal the total amount of labor put into it at different stages (thus including capital that was created to eventually produce the consumer good)? The answer in the video is yes, but the real answer is clearly no.
Why is this? Simply put, that there is an entire original factor of production that is left out in the discussion of the labor theory of value: land (in the economic sense, which just means all things we do not create but which are used in the productive process such as unmined iron, oil, and yes, ground land). How egregious an error this is can only be understood from one who understands economic history, but the long and short of the history is that the physiocrats up through Ricardo basically had the same idea that that ultimately wages would head towards zero because labor would breed itself into subsistence and land would remain scarce relative to land. The physiocrats drew the logical conclusion from this and then pegged land as the master resource.
In the Marxian model we appear to neglect land entirely and focus only on labor. It is clear that the amount of labor time put into something will not determine its price, because scarce land is used as well to produce it. Thus one process may use a massive amount of labor and not use very much land in the process, while at the same time another process might use a lot of land and not very much labor. It is not inconceivable that in equilibrium they will cost the same amount, because the amount paid for to use the extra scarce land will be the same for the amount that pays for the extra scarce labor.
There is only one analytic reason I can think of to focus on the labor theory of value, and that is that the amount of labor available to us acts as an upper bound to how much we can produce. This is not without analytic merit, but any system of analytic economics which looks ONLY at labor, when labor is not the the sole determinant, even at a set technological level, is just plain false, and is inferior to the best neoclassical economics of our own day which takes this into account.
What, then, is the more likely reason of making labor the absolute center of analysis rather than land? What is the point of making terms like “exploitation” central parts of the system, focusing almost entirely upon production rather than consumption, and dealing primarily with the whole economy instead of any individual firm? I doubt that there is any sensible reason to do this that is not ideological in nature. I can’t see the sense in it from a pure analytic standpoint.
Just as devastating is the fact that, despite the fact that the video tried to throw it in there as much as possible, Marx and Marxism don’t focus primarily upon the behavior of entrepreneurs and the role of shifting prices in production. So for instance what happens if people lose their jobs as the result of machines and prices adjust upward to their actual productivity? Well prices throughout the economy adjust downward and the influx of available labor allows for production in expanded areas, production continues and wages rise to greater heights than before, there is no crisis.
This is all particularly irrelevant in that, with a stock of fixed labor and a continuously rising capital stock, wages are bid up, not down, as the video supposes. Indeed, this essential aspect of the Marxist system: long term falling wages with a fixed stock, is something I have never been able to understand or even find a compelling reason to. The marginalist subjectivists showed a long time ago that with rising productivity wages must rise. I have never heard a compelling argument against this from a Marxist viewpoint.
Therefore I am just a loss for why Marxist analysis is superior or even relevant, when it seems like an irrelevant and disingenuous version of the best of neoclassical economics. I would like to be wrong about this on a lot of levels, so any posts or arguments to the contrary are appreciated.
Marx has a theory of rent and he was aware that rent makes up a part of the price of a commodity. However he theorizes rent differently than other theories. The theory of rent is subsumed within the theory of value because that is how rent functions in a capitalist society, that is, relations of the land are subsumed within commodity relations. Marx theorizes value prior to theorizing rent. While rent may be important to understanding the division of surplus value between capitalists and differences in prices it is not essential for understanding the more fundamental category of value. See my recent posts “Intrinsic VAlue” and “Labor as Substance of Value”. It has nothing to do with just enumerating all of the factors that go into price formation and then selecting some at random to be the fundamental ones. It has to do with the social relations represented by all of these factors and how they fit together, which ones subsume others, etc.
Re your comments about wages, automation, profits, etc. If I understand you are saying that rising productivity shouldn’t cause profits to fall or wages to fall. First, it is important to distinguish explanation from prediction. Like any other economic theory Marx builds theories around certain certeris paribus conditions. It is of course possible that profits or wages can rise with productivity given certain other conditions. But if wages are set by the cost of the means of subsistence and rising productivity causes wage goods to fall then wages, in value terms, will fall, ceteris paribus. If capital is simultaneously in an expansionary phase and the demand for labor is growing faster than the supply then wages rise above their value, which eventually checks the expansion of accumulation, etc. If the displacement of labor due to innovation expands the ranks of the unemployed then wages can fall below their value. It’s more nuanced than you make it out to be.
The movement of the profit rate is also governed by multiple inter=related factors. Marx doesn’t theorize a mono-directional fall under all circumstances. He explains why rising productivity causes profits to fall in the long run.
Regarding Ricardo, Marx makes many advances over Ricardo that make his theory quite unique:
the dual character of labor (concrete and abstract)
the difference between price and value
socially necessary labor time
his theory of rent
his theory of money
These are wrapped into a theory of history and society and philosophy that go way beyond the narrow bounds of previous political economy.
Kapitalism,
Thank you for your reply. As you’ll see I’ve left a rather long comment to your “labor as substance of value” post, which I hope you’ll respond to. One thing that you bring up here, which I would like to, and need to discuss here before I can go on to deal with the one relevant point brought up here that I didn’t take to the other post. Your entire analysis above starts with the claim that:
“wages are set by the cost of the means of subsistence”
Can you explain to me why this is? I can understand why wages have a rock bottom level that can be found at subsistence, since if wages fall below subsistence the stock of laborers soon thins to the point where wages are bid to this point, but why would it have to be in this point. This is what I’ve never understood about this essential quote from the communist manifesto:
“The average price of wage-labour is the minimum wage, i.e., that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer.”
Which seems to indicate that the normal person is always living at subsistence wages. Now this makes perfect sense in the classical model where whenever wages rise above subsistence workers happily procreate to drive wages down to subsistence, but as I recall Marx explicitly rejects the iron law of wages. If this is the case, then what in the world causes wages to fall? As productivity rises, why doesn’t the demand for labor rise? To me this is one of the mysteries of Marxism.
Yes. Thanks for the long comment on the other post. I will have to answer that later when time allows. This one though is easier. Wages are theorized by Marx via the same way he theorizes other commodities: the cost of production. Labor-power is a commodity and commodities values are determined by their cost of production. The cost of reproducing the worker is the means of subsistence. What is the means of subsistence specifically? It is a socially determined level of subsistence which evolves as productivity and social standards of consumption evolve. Of course just as prices diverge from values, an actual wage can be above or below the value of the means of subsistence. Mostly, for Marx, the forces which cause wages to move away from this base level are class struggle and cycles of accumulation. When the rate of profit is rising and capital is expanding and hiring more workers then workers have more ability, via class struggle, to demand more wages. When the profit rate is falling there is less surplus value available to fight over.
Why does Marx theorize labor-power at its cost of reproduction? Because he wants to prove that surplus value is created through the exploitation of workers without breaking the law of equal exchange. Previous thinkers had to tried to argue that workers were exploited in exchange. This came from the confusion of labor (which creates value) with labor-power (the ability to work.) Previous thinkers thought that I paid a worker $10 then this is the amount of value they created, thus the only way to exploit workers was to pay wages that were below the value of the wage… ripping them off in exchange. The law of equal exchange had to be violated. (This allows for theories that suggest that exploitation would disappear if markets were more fair.) Marx theorizes exploitation without breaking this theoretical rule. This he does by distinguishing labor-power, the value of reproducing the worker (a commodity), with the value created by labor. Labor-power is bought at its value but still produces surplus value.
So you see it is not a prediction but a theory of the wage based on certain theoretical restrictions which allow him to identify certain essential social relations. We could make predictions based on this, and indeed a great deal of the commodities we use everyday are made by workers living on subsistence wages, but the main point of the argument is to identify the source of surplus value and to not theorize exploitation through exchange.
“Why does Marx theorize labor-power at its cost of reproduction? Because he wants to prove that surplus value is created through the exploitation of workers without breaking the law of equal exchange.”
“So you see it is not a prediction but a theory of the wage based on certain theoretical restrictions which allow him to identify certain essential social relations.”
So are you saying that it was a theoretical condition that he worked under? He didn’t think that there was anything actually pushing wages to this minimum? As the capital stock stock increases in size, don’t wages have to increase because productivity is increasing, even if we begin at subsistence?
Take your time on the other post. I can see how busy you must be.
“Take your time on the other post. I can see how busy you must be.” Is this some sort of sarcastic macho insult? I find discussions which go down this road quickly deteriorate.
Marx’s economic laws are not predictions. They can be used to make predictions. They are identities.
Marx theorizes wages like all other commodities, at their values. Just like any other commodity there are forces that move wages above or below their value. I have, in my last comment, outlined quite briefly what some of those forces are.
You ask if the expansion of capital can cause wages to rise while productivity rises. This can happen but there are other factors at play as well, specifically the expulsion of labor from production, which cheapens the means of subsistence, and the effect of this on the reserve army of labor, which raises the supply of labor relative to demand. The ability of the rise in the mass of capital looking to be validated through hiring workers to check the fall in wages caused by rising productivity depends, obviously, on the relative strengths of these two forces.
“Is this some sort of sarcastic macho insult? I find discussions which go down this road quickly deteriorate”
No. I can see from your work that you have to put a lot of time into what your studies and writing, and I’m perfectly aware that some guy commenting from the internet isn’t going to be your first priority. From someone who tried (and failed) to get through Capital I have to have some respect for any serious Marxist scholar.
“Marx’s economic laws are not predictions. They can be used to make predictions. They are identities. Marx theorizes wages like all other commodities, at their values.”
But wages equaling their values is not an identity, it is clearly not true by its definition, if that’s what you are saying, so could you please clarify this point? What is, then, the purpose of assuming subsistence wages? If it’s not something the market is tending towards, then presumably it must have some analytic value in the Marxist model, just as, say, assuming perfect information, is important for the neoclassical conception of perfect competition.
“You ask if the expansion of capital can cause wages to rise while productivity rises. This can happen but there are other factors at play as well, specifically the expulsion of labor from production, which cheapens the means of subsistence, and the effect of this on the reserve army of labor, which raises the supply of labor relative to demand. The ability of the rise in the mass of capital looking to be validated through hiring workers to check the fall in wages caused by rising productivity depends, obviously, on the relative strengths of these two forces.”
I suppose it’s the assumption of a reserve army at all that I don’t understand. In the event that capital replaces labor in a given industry, then the result is going to be either A. To reintegrate the displaced labor in the production of that capital or B. To permanently increase the productivity of land relative to labor. By this measure, however, the reverse possibility is also likely, that capital equipment may replace land, in which case the same happens to land. Finally, capital may in fact be complementary to labor.
Regardless of any of this, however I don’t see why we would ever expect a reserve army for two reasons. First, even if we assume that the increase in the quantity of capital directly replaces laborers without a more productive entry point for them, I see no reason why wages wouldn’t be bid down to a new lower level. Second of all, since Marx imagines that we start off at the point of subsistence, if one loses one’s job, why doesn’t one just starve and die? If we’re at the point of subsistence and people choose to work, then we either assume away the disutility of labor, or there’s a social safety net (public or private) that keeps them alive when they’re not working. So what is the answer here?
Finally, I don’t understand how the Marxian model can really claim to tell us about what wages would do at all, as you state in your other comment, it doesn’t seem to focus on something so mundane as such, it doesn’t seem to focus on listing the precise determinants of price. Since this is the case, wouldn’t neoclassical theories of wages be more accurate? And if the two contradict, the Marxist model must point to the specific flaws in the neoclassical model.
An identity, in the sense I use the term, is a relational law. It shows a relation between two phenomenon. In this case the relation is between the cost of producing the means of subsistence and the value of labor power. The value of labor-power is determined like any other commodity, by its cost of production. Like any commodity the price can deviate from its value. There are many forces which drive wages below their value. There are other forces which can raise wages above their value. It is not clear to me what the problem is with this formulation. If it were a predictive law it would have to do more than explain a relation between two things. It would also need to predict that other factors would never influence the price of labor power. But this is impossible to predict as these other factors are contingent and change over time. To the extent that we can use the relation to predict we can only do so ceteris paribus. Ceteris paribus conditions are prevalent in all economic paradigms, not just Marx.
Regarding the ‘analytic value’, I have already explained that: it theorizes labor-power via the same logic as any other commodity, thus not allowing profit to arise from exchange. This stays true to the notion that exchange is merely a change of form, a metamorphosis of value but never a means of producing value.
The reserve army of labor isn’t an assumption. It’s an historic fact. Unemployment has always existed in capitalism. So it’s absurd to say “I don’t se why we would ever expect a reserve army.: Why do you say that the expulsion of labor from industry due to increased productivity would cause capital reintegrate labor into the same capital? That makes no sense. And how would it cause the productivity of land to increase? I don’t follow.
Yes the growth of a reserve army does cause wages to fall. If wages fall low enough they can make capital choose to increase employment of workers instead of investing in labor-saving technology. This is all in Marx. It’s a major part of Capital vol 1.
“Second of all, since Marx imagines that we start off at the point of subsistence, if one loses one’s job, why doesn’t one just starve and die? If we’re at the point of subsistence and people choose to work, then we either assume away the disutility of labor, or there’s a social safety net (public or private) that keeps them alive when they’re not working. So what is the answer here?”
What precisely is your question here?
Re your last question: Marx lays out all of the relations of production that stand behind the wage: the relation between capital and labor, between machines and humans, between productivity and value, and between the reserve army of labor and the employed. These relations allow us to understand the forces that determine wages. More importantly they allow us understand the social relations of capitalism. What more do you want from a theory?
“In this case the relation is between the cost of producing the means of subsistence and the value of labor power. ”
Well first of all is there a need why this needs to b demonstrated? It’s true by definition. If you define the value of something as the socially necessary labor time required for its production, then of course the value of labor itself is the amount of labor required to put in to its subsistence. You can also show that this is the rock-bottom level that wages can reach for any period of time, which can be demonstrated. Nevertheless, I see no reason why beginning here as an analytic starting point is in any way helpful. Maybe as one example, fine, but as the starting point for all analysis I don’t see the point, since it’s unrealistic and just one more thing to assume that can confuse the analysis. This is particularly true because in nearly all developed countries where capitalism as an institution has been practiced the longest wages are in nearly all cases far above subsistence levels. As productivity rises it is the productivity of labor, not the subsistence floor that starts to play a more important role.
As for it not being a predictive law. Marx writes in the communist manifesto:
“The average price of wage-labour is the minimum wage, i.e., that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer.”
Unless the manifesto was meant to be some sort of in-depth economic explanation, just as Capital is, then this was meant to be a predictive and descriptive statement.
You can argue that: Marx rescinded this in his later works, he meant it in some way other than how it is written, he was lying, or that he is wrong. Nevertheless, he clearly stated that wages on average are at subsistence.
“The reserve army of labor isn’t an assumption. It’s an historic fact. Unemployment has always existed in capitalism. So it’s absurd to say “I don’t se why we would ever expect a reserve army”
Because I assumed that we were talking about equilibrium conditions. Unemployment is a inherent, important, and even valuable part of a market economy in which uncertainty, but in equilibrium unemployment doesn’t exist. There’s also my point that if wage are really at subsistence the reserve army simply DIES in short order.
“Why do you say that the expulsion of labor from industry due to increased productivity would cause capital reintegrate labor into the same capital? That makes no sense. And how would it cause the productivity of land to increase? I don’t follow.”
In order to be in equilibrium prices of outputs must equal total prices of inputs, barring the rate of interest. This means that any increase in total productivity must eventually rest on an increase in the value of land, labor, or both, because these are the original non-reproducible factors of production. So, for instance, say that the tractor is introduced, immediately replacing many workers in the agricultural sector and those making plows. Well initially this results in a fall in wages and an increase in profits for the producers of plows, However, eventually capitalist investment results in a combination of an increase in general agricultural production, driving down prices and driving up costs of production. So if we look at “real terms” and the production of wheat increases from 100 to 200, now the total payout to the original factors has to be 200 (barring interest). If this is not true, and if an owner of a farm is making more than the rate of interest by paying his workers less wheat, then someone can make a profit by investing in that industry and closing the gap.
All this culminates into the fact that any increase in total productivity has to lead to an increase in the payouts of the original factors in their respective equilibrium conditions. My point about land is that there is one possibility that land absorbs the whole of this increase in productivity, because say that in the new tractor-producing/agricultural process it is used more. This is a possibility, in which case the price of labor could theoretically fall. The opposite example is also possible, however, with labor being used more heavily than it was before. More likely, however, is that the price of both rises.
“Yes the growth of a reserve army does cause wages to fall. If wages fall low enough they can make capital choose to increase employment of workers instead of investing in labor-saving technology. This is all in Marx. ”
But I’ve displayed it to be (probably) incorrect above. Certainly this has tended to be the case. Classically there has been a very strong correlation between productivity and wages. All this comes down to the fact that an increasing productivity of labor-saving machinery leads to an increasing demand for the production of labor-saving machinery. A slightly different process occurs if the demand curves for goods in that industry are generally inelastic, but it results in the same thing.
My question where you asked for it is this: if we are at subsistence wages and some people become unemployed, how can there be an industrial reserve army? Why don’t they die off since they are below subsistence living.
“Marx lays out all of the relations of production that stand behind the wage: the relation between capital and labor, between machines and humans, between productivity and value, and between the reserve army of labor and the employed. These relations allow us to understand the forces that determine wages. More importantly they allow us understand the social relations of capitalism. What more do you want from a theory?”
The purpose of economics has usually been viewed as one of two things: the study of wealth, or the study of prices and production. Either of these are nicely answered by modern economic theory. If Marx provides answers for these things, then good for him, but as I understand it his model of the economy doesn’t focus very much on prices and production of particular goods, and when he does he comes to very different conclusions than modern economics. This is fine, but if he did, then one must be able to explain why modern economics is wrong and what it is overlooking. I don’t see what that is which makes the Marxist approach to economics the superior one.
“Well first of all is there a need why this needs to b demonstrated? It’s true by definition. If you define the value of something as the socially necessary labor time required for its production, then of course the value of labor itself is the amount of labor required to put in to its subsistence.”
Exactly. It is a fairly uncontroversial aspect of Marx’s theory and I think you are barking up the wrong tree here thinking you have found some glaring error.
Re. your claim that in most places wages are above subsistence and thus MArx’s theory definition doesn’t seem to describe empirical reality very well. I think this depends on how one defines ‘subsistence’. Does subsistence mean biological survival or does it mean living in a society with a given base-line standard of living. Marx’s concept of substance is social and not biological. I suspect you may reply that with this Marx’s ‘subsistence’ could too easily explain anything. But, again, I think you began this conversation wanting Marx to make arguments and to wield theory in a way that is completely different to the way he actually develops ideas. If you are only interested in feeling smug about your brilliant critique of Marx then please don’t let me stop you. But if you want to actually understand Marx you have to drop your starting assumptions.
Re. the quote from the Manifesto. I think this quote is nothing more than a restatement that the value of labor is set like ANY OTHER COMMODITY: by the cost of its production (the means of subsistence) In this, the theory of the value of labor is completely unremarkable. It follows in the tradition of all prior political economy that saw the value of a commodity set by the labor time required for its production, abstracting away from fluctuations in supply and demand. This abstraction from supply and demand fluctuations is just a ceteris paribus condition, a condition required for any scientific inquiry. The neoclassical concept of equilibrium price is built around a similar ceteris paribus condition. So in this regard Marx’s procedure is completely scientific and unremarkable. While we are mentioning neoclassical equilibrium price one might point out that these prices certainly do not exist empirically most of the time but this does not stop neoclassical theorists from seeing some explanatory benefit in them.
No Marx is not theorizing equilibrium conditions. You say “but in equilibrium unemployment doesn’t exist.” this is true in neoclassical theory. But this is not neoclassical theory. Marx is not theorizing a hypostatized formal system. He is drawing his abstractions straight from reality. In Marx’s theory input and output prices are not held to be the same. Value is created in production. This is a temporal process of change and transformation. This leads to very different theoretical conclusions.
Why don’t the unemployed die off? Is this a serious question? I don’t think you need Marx to answer this for you.
“The purpose of economics has usually been viewed as one of two things: the study of wealth, or the study of prices and production.”
Read the first sentence of Das Kapital (“The wealth of all capitalist societies…etc.) The read the rest of it. I’m not going to type out a thorough point-by-point critique of the entire devolution of modern economics and a complete synopsis of Marx’s superior method and brilliant, revolutionary insights. For a good summary of the devolution of economics I recommend Fine and Milonakis’ “From Political Economy to Economics.” For a good intro to Marx I suggest Das Kapital.
“Exactly. It is a fairly uncontroversial aspect of Marx’s theory and I think you are barking up the wrong tree here thinking you have found some glaring error.”
Well but what I thought was straightforward, and the process that I was demonstrating in the quoted section, is entirely eradicated once we define subsistence as we do later in the post. If we define subsistence wages as the wage at which one can just afford those things required to stay alive, and very little or nothing more, then the relationship that I described holds strong. This is because wages CANNOT fall below subsistence for an extended period of time or else people just die, thus it sets a kind of “real minimum wage”. However, if we change this definition to a social definition of subsistence, then the whole matter changes. If by social you mean that “in this society you must make X to survive”, then it’s not really any different to what I explained above, fine, but if you define, for instance, that to be at subsistence you must, along with surviving, be able to afford a car, a television, and a refrigerator, then the entire concept loses ANY economic significance. No longer do subsistence wages constitute a true floor for wages.
Indeed, depending upon how luxurious a societies’ definition of subsistence was, wages could fall far, far below this, and I see no economic significance of this, theorizing around it, or even having it as a concept. Once again, sociologically this might be quite an important thing, but not economically. The reason why the concept of subsistence wages was so popular and in vogue in Marx’s time was exactly because of what I have explained in combination with Malthus and the Iron Law of Wages. At this time subsistence was always being used in a biological, not a social manner, if I understand your meaning.
I’m not trying to be smug about anything, for once. I want you to smash my every criticism into the dirt. I find that proposition far, far more pleasing than the alternative. I’m happy to drop my assumptions once they have been shown to be assumptions that don’t hold. For instance, I did not think that defining subsistence wages as the wages needed to subsist, when the closest synonym to this word is to survive, and when it had been classically used in this manner, was an unfair assumption. If it’s not how Marx was using the word then all well and good, but then you need to show the relevance of the concept in analysis.
As to your note on the manifesto, if wages are not at biological subsistence level, it no longer remains true, unless you define subsistence as “the average wage”, in which case the statement “The average price of wage-labour is the minimum wage, i.e., that quantum of the means of subsistence” is the grossest of tautologies, since you’re saying that the average wage is equal to the average wage, otherwise on average wages could be above or below the social level of subsistence. Also, I don’t understand how your explanation accounts for the second part of the quote:
“that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer”
This certainly sounds as though Marx is definition subsistence as biological subsistence, since if we define subsistence wages purely socially and not biologically, the amount needed to keep labourers in bare subsistence as labourers has nothing to do with subsistence.
“No Marx is not theorizing equilibrium conditions. You say “but in equilibrium unemployment doesn’t exist.” this is true in neoclassical theory. But this is not neoclassical theory. Marx is not theorizing a hypostatized formal system. He is drawing his abstractions straight from reality. In Marx’s theory input and output prices are not held to be the same. Value is created in production. This is a temporal process of change and transformation. This leads to very different theoretical conclusions.”
But in order to envision the economy in any state that it is not presently in you must use imaginary counterfactual models of the economy which show us what the economy would look like under these conditions Marx most certainly does this. The neoclassicals do this to and perform the very same sort of analysis you say that Marx is doing (at least the good ones do, but you can say that the bad neoclassicals fail just as the bad Marxists fail). In this way we know that under conditions of certainty and stable prices unemployment will tend towards zero, and we can show the causal mechanisms at work. In the real world you have changing prices and uncertainty, which retain unemployment as a permanent presence in the market economy; this does not mean that there are not factors always pushing to lower the unemployment rate. Moreover, the conclusions from this analysis show that within an expanding economy there are always pressures to raise wages, but for the possible exceptions I have outlined. In order to show why this is false the Marxists need to show what part of this analysis is incorrect.
As for the unemployed dying off, if Marx seems to be claiming that the subsistence wage is just enough for the labourer to survive off of, then yes, it is an important question. Do they have savings to live off of until they get a job? Probably not if average wages are always at biological subsistence, unless you get weird variations in that average which Marx hasn’t described. Is there a government-provided social safety net? I was under the impression Marx was talking about a perfectly free market. Are there charities and the like that are giving out food? This seems most likely, but the fact is that if wages are at biological subsistence, I don’t see how this is sustainable since there is no longer an incentive to work, which in turn influences the analysis.
“Read the first sentence of Das Kapital (“The wealth of all capitalist societies…etc.) Then read the rest of it. I’m not going to type out a thorough point-by-point critique of the entire devolution of modern economics and a complete synopsis of Marx’s superior method and brilliant, revolutionary insights. For a good summary of the devolution of economics I recommend Fine and Milonakis’ “From Political Economy to Economics.” For a good intro to Marx I suggest Das Kapital.”
Thank you for the recommendations. I’m afraid that as I stated earlier I tried my hand at Das Kapital without any luck, it confused me far more than anything else. I’ve talked to socialists who had similar opinions. The other book looks interesting, and if I have the chance I’ll read it. I’m afraid that I don’t understand why a short explanation of why Marx’s theory is superior would be so difficult.
“communist manifesto”
-> this was a political pamphlet. I do not care much for this text. It’s very strong emotionally though.
“The purpose of economics has usually been viewed as one of two things: the study of wealth, or the study of prices and production.”
Marx his work isn’t economics. It is a critique of political economy that is still valid. It destroys everything that is economic science in its fundaments from the very first page of Capital until the very last page.
I will show this in future works myself.
“this was a political pamphlet. I do not care much for this text. It’s very strong emotionally though.”
I agree, but are you saying Marx was indeed lying for the sake of dramatic effect?
“Marx his work isn’t economics. It is a critique of political economy that is still valid. It destroys everything that is economic science in its fundamentals from the very first page of Capital until the very last page.
I will show this in future works myself.”
This is one of the difficulties that I have when looking into Marxism is that it seems that many self-proclaimed Marxists state that Marxism is a set of fundamentally contradictory things (not just in terms of its sociology, political philosophy, and so on). Is Marxism economics or is it not? I have to say that from my little knowledge of Marx he certainly thought that in Capital works he was doing economics, as, to my knowledge, do most Marxist scholars. In Capital he seemed to go into excruciating detail writing about his own economic model and terms that I would think are not needed to critique political economy. Certainly he went to great lengths to establish economic relationships which had scarcely been considered before his work.
Good luck in your endeavor..
The Communist Manifesto, is Marx “lying for the sake of dramatic effect?”
There should be a distinction made between young and old Marx. The Manifesto was written well before the ideas in Capital were developed, so quoting him there and then in Capital and calling what you find a contradiction is not quite true. The ideas in the Manifesto probably weren’t lies, but the conclusions that he draws there are very underdeveloped. Many Marxists don’t buy, for example, the inevitability of revolution.
Is he “doing economics?” Marx’s theory is often called a “theory of everything” in that he created a way of understanding many aspects of society. If you are interested in his framework, check out Richard Wolff’s introduction to Marxian economics, or any of his books on Marxism (Economics: Marxian versus Neoclassical would be a good one). The Marxian perspective, dialectics or “overdeterminism,” looks at all aspects of society constantly causing and effecting each other. From this view you could analyze not only the economy, but also the government, culture, and so on. A Marxist might say “capitalism survives with the help of the government, which enforces property relations, and culture, which keeps its people from criticizing it.” One of the most powerful criticisms of neoclassical theory is that it ignores everything deemed to be “outside the field of economics,” which keeps individual preferences a natural occurrence. Marketing, which is as much a cultural as economic aspect of society, can be examined by Marxian theory in much more detail.
@ Will Chaney:
Yes, I think that the general contours (and epistemology/ontology) was already present. The best proof for this is his book The Poverty of Philosophy. The first chapter is essential if you want to understand why he did not start with the “individual” in his later political economy writings. I thought that reading the three volumes and the more recent writings before capital (let’s say from the so called grundrisse to capital volume 1) was enough to make a coherent story. I was incorrect. Another example are the pamphlets for 1865 on profit etc.. In that book he gives a little bit more detailed rationale for the supply equal demand story in volume 1.
“Marx his work isn’t economics. It is a critique of political economy that is still valid. It destroys everything that is economic science in its fundaments from the very first page of Capital until the very last page.”
Yes, what I meant is that Marx his work cannot be classified as economics in the current meaning. There are a lot of divergences. It is a completely different paradigm but they criticize each other. It is fascinating.