Imagine, as a thought experiment, a scientific theory of capitalism which made the following claims:
- Exchange is the source of value, and subsequently determines the labor and costs involved in production.
- There is no way to quantify the labor used in production in a way to make it determine quantities of exchange, as the quantity of labor used in production is determined by what is sold and not sold.
- While labor explains precisely what value is, it can only be measured in money.
- Prices and value are therefore determined by unseen abstractions which are realized in human behavior
- Money is the prime want of actors in a capitalist society, money is power and its acquisition is the purpose of exchange.
What might we call this theory? Some call it “Value Form Theory” which purports to be the cutting edge in a Marxist analysis of capitalism. Others, however, might also identify the leftover cobwebs of long dead and obscure bourgeois economic theories: mercantilism, the writings of Adam Smith, David Ricardo, and the subjective value theorists such as Mises. Something rather odd for a theory which begins by identifying itself first and foremost as a critique /of/ political economy.
Let’s begin with the first few claims. While Value Form theorists insist that they agree that value is determined by abstract labor, they also insist that abstract labor itself is only realized in the process of exchange, by what is sold and not sold. See the insert below by Heinrich[1]:
But this emphasis on the unconscious nature of value, born from human action through exchange, is not new or even alien to political economy. It is well established in the Austrian school and Mises in particular. Mises equally finds it absurd to quantify value, noting that while one can add up the prices of production, values are qualitatively different. The only difference here being that to Mises, value is preference, and exchange is the revealed preference (whether conscious or unconscious), whereas for Heinrich and the value form theorists value is abstract labor and exchange reveals the precise amount of abstract labor.
There are several reasons that Heinrich and Mises both decide to place value on this abstract pedestal, one is that it allows them to handwave away discussions of equilibrium. Indeed, just as Mises suggests that the market is an expression of the given preferences of its participants at any given time, value form theorists suggest that the labor theory of value of political economy is mistaken because it is possible for socially necessary labor time to not be realized in exchange. For example, in a market of coats, if all the coats were produced with the normal level of labor but there was not sufficient monetary demand for them according to their value, then the following would by implied: the amount of labor time put towards this division of social labor was too great even though they were all produced with the amount of labor time which was previously equivalent to its value.
What we have just described may be a divergence of prices from value, though both Heinrich and Mises would not see it that way. Since abstract labor/preferences are value and also unquantifiable to them, there need not be any particular relationship between them and prices.
But a theory of value, for classical political economists as well as Marx, is a theory of equilibrium, ordinarily, this is a theory of equilibrium prices. However, Marx believed there was a contradiction between his theory of value and average (equilibrium) prices, as the price mechanism that classical political economy was based around assumed equal rates of profit across the economy, while classic LTV suggests that profits (surplus value) should correlate to capital intensity. If this seems odd, recall that Marx’s theory of exploitation would suggest that the more living labor in a commodity, assuming an equal rate of exploitation (similar levels of intensity, wage rates), the greater the rate of profit for a commodity.
It would be a hundred odd years for Laws of Chaos by Farjourn and Machover to be published, showing just how the classical understanding of equilibrium was mistaken, and empirical studies would confirm that profit rates do correlate with capital intensity. Rather than dealing with this empirical problem, value form theorists would prefer to have us abandon all the mentions of quantities of hours which make up the majority of examples in Capital.
Now that we understand that the labor value of a commodity will determine its average exchange ratios with other commodities, we can understand precisely what happens when a commodity goes unsold as per Heinrich and Marx’s example. We know, per the laws of supply and demand, that the price falls when the quantity supplied is greater than the quantity demanded. It is clear that this is a system out of equilibrium. How then does a capitalist respond? Simple, by reducing the amount of labor employed to produce these commodities, and thus reducing the supply of commodities themselves.
We may also consider the case of markets where there is a permanent excess of commodities which go unsold. In this case, the total socially necessary labor time used in the industry, both for the commodities sold and unsold, will be expressed in the commodities sold. We may therefore consider the labor cost of the unsold commodities as a cost of circulation. Examples include picking more apples than can be consumed, as a certain percent will be expected to be bruised and lost in transport. Retailers make similar allowances for shoplifting. It is also true that, in many industries where there is cyclical and unpredictable demand, they must expect a certain number of commodities to go unsold on average in order to prepare for the rough times. The concrete labor which produces that unsold commodity is still transformed into abstract labor, as Marx notes, it is accounted for in the general prices of that industry in order that it may reproduce itself.
The reduction of concrete labor to abstract labor is not a reduction in magnitude decided by exchange, rather (even though there always exists more instances of concrete labor than abstract labor since concrete labor includes labor outside the direct process of commodity production) the social division of labor as determined by the capitalist system of commodity production and wages creates always the same amount of abstract and concrete labor at any given time. What is reduced is not quantity, but rather the various unique qualities of concrete labor are conceptually reduced to abstract, homogenous human labor by the act of exchange on the market. Even if a worker’s concrete labor is not consumed, so long as they participate in the social division of labor through commodity production, their labor is still transformed into abstract labor.
The value form theorists, having arrived at money, describe the categorical insights of Marx into this sparkling value form as the main departure of his from classical political economy, that it is far from natural, and not the product of a conscious estimation and calculation, as Smith so thought. This breaking of the myth of barter via the explanation of commodity fetishism is unique, even if the quantitative theory of the exchange relation of money is not. But at the same time, it is not really so different from the early classical thought. Smith after all did see labor as the “true” value of things in labor less as an empirical fact and more of a metaphysical truism whereas gold being the more practical measure, much like how the value form theorists treat abstract labor versus money. So too did the mercantilists produce similar attitudes about money as the object of exchange. Notably, all without much empirical justification.
Indeed, Marx was among the first serious empiricists in economics, only rivaled by J.S. Mill. Those who came before, whether it be Ricardo, Smith, or Senior all approached economics with a mind for deductive logic and abstract, categorical thought. Malthus could be counted as an empiricist, but his empiricist observations were largely based around speculation and back of the envelope calculations.
The value form theorists who claim, as Heinrich does, that Marx discovered that empiricism could not form the basis of establishing economic causality[2], may be surprised that this is exactly what Ricardo observes when he begins his quest for understanding value. After all, when the price of chips goes from 1 to 2 dollars per bag, how are we to know whether the chips have increased in value or if everything else has simply decreased in value? Hence the quest for an invariable measure.
What is the chief difference between the Value Form theorists and the political economists? Of course, their self proclaimed critical approach. But this critical approach does not change the substance of their writing, just as much as the critical moral and ontological philosophy of the enlightenment remained moral and ontological philosophy as that which came before. So they are critical political economists (a mouthful for sure), if it quacks like a duck it’s a duck.
Returning to the substance of their understanding of money, it is plainly obvious that the naïve early classical understanding of money is incorrect, that money hardly arose out of simple barter or is the result of a conscious estimation of value. Money does represent a social relationship, that is, the social division of labor as a whole. But as Marx goes to show in his examination of surplus value, this relationship, though represented in money, does have a quantitative aspect which is outside of the circular logic of understanding prices via other prices (as costs of production theories and marginal productivity theories do).
How does Marx prove his theory of exploitation, that it is living labor which adds value in production? He begins by imagining a capitalist who has bought all his inputs, fixed capital and labor, at their values, and, by an odd coincidence, has worked his employees an amount of time equal to the value of their subsistence plus the cost of the fixed capital, he has generated no profit as the wages of the workers are always equal to their cost of subsistence. However, if the capitalist forces the workers to work either longer or harder than this level, he will have a surplus. Let us assume for a moment that the capitalist is paying his workers a fixed hourly wage, the capitalist can generate surplus value by simply pushing the workers to produce more commodities per hour, that is increasing their intensity.
This drive to maximize labor productivity is also expressed in the drive to innovate, to acquire more and more machinery which modifies the labor of the workers and increase the amount of output per hour. Innovation, however, doesn’t produce value in the aggregate, as competition will force the socially necessary labor time down to this new minimum.
In this way Marx shows that the value of commodities is reducible to a quantity of socially necessary labor time by shutting down all other theories of income to capital, and revealing a better more scientific one. The logic of capital, and the labor theory of value, is chiefly expressed in real, non-monetary relations – that is the relationship of abstract labor to quantities of use values, labor productivity. As Marx says “Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.”
In revealing the nature of value, he also reveals many of the key historical tendencies of capitalism (considering that tendencies are necessarily expressed over a time-scale, logical tendencies of capitalism are also necessarily historical tendencies) such as the constant desire to innovate, disrupt, for increasing the organic composition of capital, for a falling rate of profit, for the domination of economies of scale, and overaccumulation.
The value form theorists reject the necessity for the rate of profit to fall in the long term, suggesting that should surplus value rise fast enough and variable capital fall fast enough, through an increasing rate of exploitation. However, this misses both empirical facts and the essence of Marx’s critique, which is that constant capital will expand relative to both surplus value and variable capital.
In a production cycle there is a fixed amount of labor which can be used. Some of it must be used as subsistence for workers and capitalists, that is what is consumed. The subsistence of workers is equal to V, variable capital.
Surplus value, S, includes capitalist consumption, but is also includes investment/accumulation, which will go on to increase constant capital in the next production cycle. Constant capital is also included in the labor used up in a given production cycle, even though it may seem to be an accumulated stock. Rather, the cost of constant capital appears in the commodity sold as the cost of depreciation, that amount of the stock used up via wear and tear. Those firms which produce the means of production, which creates the amount of constant capital in a given period, must produce C equivalent to the latest investment by capitalists as we as replace the stock of capital lost to depreciation. In modern capitalist national accounts we look at the total fixed capital produced in a year, subtract depreciation in order to get net investment. What Marx’s analysis posits is that a positive net investment is the normal consequence of the capitalist production cycle of M-C-M’, which demands a constant expansion of the sector which produces the means of production. Given that value form theorists accept the validity of Marx’s production cycle, and the necessity of capitalists to constantly accumulate and invest or cease to be as capitalists, they cannot accept that increasing the rate of exploitation can theoretically undermine the tendency as such even if it can temporarily halt it. So long as there as positive net investment into fixed capital, this entails a decreasing share of abstract labor represented as living labor, which is the source of both surplus and worker subsistence. The only thing which can undermine the tendency is therefore a vast destruction of the stock of constant capital, the cheapening of the means of production, or greater automation in those sectors which produce the means of production relative to final good sectors. The historical record confirms this, with the rate of profit skyrocketing during the World Wars, and slightly increasing during the 90s/00s when computer technology become fully integrated into production and globalization reduce costs[3] [4].
Instead of relying on all the empirically sound aspects of Marx’s theory, value form theorists have opted to rely on the most dubious: the immiseration hypothesis. That is, that the immiseration of the working class increases with the development of capitalism. The value form theorists interpret this as a literal form of misery, a torture to the humanist soul of the proletariat. But even this kind of abstract immiseration hypothesis is demonstrably false. The toil and drudgery of the working class has in fact decreased from Marx’s day, as is plainly observable in the existence of our shorter working day and the guarantee of the weekend.
So what does all this hullabaloo amount to? Why is value form theory so popular despite its obvious problems?
Perhaps our dear friend von Mises can lend us another hand, for his project is not so different. It is an attempt to present a moral system as a scientific one, in a way that avoids all the troubles of attempting to formulate predictions and factual, concrete descriptions of reality. Rather than attempting to understand the historical tendencies of capitalism, the clever value form theorists have figured how to condemn capitalism without having to do any further work of understanding it. It is enough to say, capitalism will fall because it creates misery, that it tortures the soul, and this will eventually allow people to wake up and realize precisely what the act of exchange is, and suddenly decide to change the basis for coordinating the social division of labor, or eliminate it entirely.
Needless to say, this is both an idealist and utopian understanding of capitalism.
[1] https://libcom.org/files/Michael_Heinrich,_Alex_Locascio-An_Introduction_to_the_Three_Volumes_of_Karl_Marx_s_Capital-Monthly_Review_Press,U.S.(2012).pdf
[2] https://libcom.org/files/Michael_Heinrich,_Alex_Locascio-An_Introduction_to_the_Three_Volumes_of_Karl_Marx_s_Capital-Monthly_Review_Press,U.S.(2012).pdf “Empiricism and the problem of ‘measurability’ of value”
[3] https://nicolasdvillarreal.wordpress.com/2020/06/17/rate-of-profit-and-the-business-cycle/
[4] https://thenextrecession.files.wordpress.com/2014/04/maito-esteban-the-historical-transience-of-capital-the-downward-tren-in-the-rate-of-profit-since-xix-century.pdf
Nicolas D Villarreal 