Saturday, March 28, 2015

Marx’s Labour Theory of Value and Rothbard’s Homesteading Property-Rights Theory: Peas in a Pod

Marx in the first volume of Capital makes it quite clear that human labour is the sole, fundamental source of value:
“But the value of a commodity represents human labour pure and simple, the expenditure of human labour in general. And just as, in civil society, a general or a banker plays a great part but man as such plays a very mean part, so, here too, the same is true of human labour. It is the expenditure of simple labour-power, i.e. of the labour-power possessed in his bodily organism by every ordinary man, on the average, without being developed in any special way. Simple average labour, it is true, varies in character in different countries and at different cultural epochs, but in a particular society it is given; More complex labour counts only as intensified, or rather multiplied simple labour, so that a smaller quantity of complex labour is considered equal to a larger quantity of simple labour. Experience shows that this reduction is constantly being made. A commodity may be the outcome of the most complicated labour, but through its value it is posited as equal to the product of simple labour, hence it represents only a specific quantity of simple labour.” (Marx 1982: 135).

“Let us now look at the residue of the products of labour. There is nothing left of them in each case but the same phantom-like objectivity; they are merely congealed quantities of homogeneous human labour, i.e. of human labour-power expended without regard to the form of its expenditure.” (Marx 1982: 128).

Human labour-power in its fluid state, or human labour, creates value, but is not itself value.” (Marx 1982: 142).

“We know that the value of each commodity is determined by the quantity of labour materialized in its use-value, by the labour-time socially necessary to produce it.” (Marx 1982: 293).
This is how Marx is conventionally interpreted too: that economic value is created only and solely by human labour.

Also, for Marx, there is a mystical element to labour value that manifests itself in the goods produced:
“A use-value, or useful article, therefore, has value only because abstract human labour is objectified [vergegenst√§ndlicht] or materialized in it.” (Marx 1982: 129).
Elsewhere, Marx speaks of the value of all goods as “merely congealed quantities of homogeneous labour” (Marx 1982: 135–136).

Since workers have created the value in commodities and indeed the commodities themselves appear to be materialised human labour, capitalists exploit them by robbing them of it. Everyone is familiar with this Marxist idea.

But look at how absurd its foundation is. It makes sense to say that labour produces commodities that are useful or that create subjective utility. Labour is an act or activity. Commodities are the product of labour. It makes no sense to say that labour is somehow magically transferred into commodities and “objectified” or “materialised” in them. This is so blatantly like a religious statement, it’s embarrassing. It’s like the opening of the Gospel of John: “In the beginning was the Word , and …. The Word became flesh” (John 1:1, 1:14). In Marx, human labour is “incarnated” in commodities. We are dealing with mysticism here.

Next, let us look at Rothbard’s justification for absolute ownership of external objects or external property rights by homesteading:
“Let us take, as our first example, a sculptor fashioning a work of art out of clay and other materials; and let us waive, for the moment, the question of original property rights in the clay and the sculptor’s tools. The question then becomes: Who owns the work of art as it emerges from the sculptor’s fashioning? It is, in fact, the sculptor’s ‘creation,’ not in the sense that he has created matter, but in the sense that he has transformed nature-given matter—the clay—into another form dictated by his own ideas and fashioned by his own hands and energy. Surely, it is a rare person who, with the case put thus, would say that the sculptor does not have the property right in his own product. Surely, if every man has the right to own his own body, and if he must grapple with the material objects of the world in order to survive, then the sculptor has the right to own the product he has made, by his energy and effort, a veritable extension of his own personality. He has placed the stamp of his person upon the raw material, by ‘mixing his labor’ with the clay, in the phrase of the great property theorist John Locke.” (Rothbard 2006 [1973]: 36–39).

“Put this starkly, there are very few people who would deny the monstrous injustice in either a group or the world community seizing ownership of the sculpture. For the sculptor has in fact ‘created’ this work of art — not of course in the sense that he has created matter, but that he has produced it by transforming nature-given matter (the clay) into another form in accordance with his own ideas and his own labor and energy. Surely, if every man has the right to own his own body and if he must use and transform material natural objects in order to survive, then he has the right to own the product that he has made, by his energy and effort, into a veritable extension of his own personality. Such is the case of the sculptor, who has placed the stamp of his own person on the raw material, by ‘mixing his labor’ with the clay. But if the sculptor has done so, then so has every producer who has ‘homesteaded’ or mixed his labor with the objects of nature.” (Rothbard 2002: 48).
The mysticism in Rothbard’s homesteading property rights argument lies in the idea that homesteading involves “mixing your labour” with some materials or land and the result is a “veritable extension” of your “own personality” such that some mysterious, universal, absolute cosmic right to property is created. This argument is plainly unsound, untrue and reeks of mysticism.

For Rothbard, labour on materials by a person involves “mixing of labour” with objects and makes the goods produced “a veritable extension of his own personality,” while for Marx the “abstract human labour [sc. by workers] is objectified or materialized” in commodities produced. In both cases, the people who produce goods have some kind of mystical or natural right to the goods produced or their value.

The Marxist labour theory of value and of worker exploitation is the mirror image of the Rothbardian notion of absolute property rights by homesteading. They are two sides of the same coin, but the coin is the same quasi-religious nonsense.

Perhaps Marxists and Rothbardians should put aside their differences and join together in one economic school. After all, the classical Marxists’ ultimate aim is a stateless, utopian paradise, and Rothbardians want the same thing. They just have to put aside their differences on how to get there.

We could call the new faith “Marxbardianism” – and at the same time it would save us all the trouble of having to refute the Marxists and Rothbardians separately in their two mirror image schools.

Marx, Karl. 1982. Capital. Volume One. A Critique of Political Economy (trans. Ben Fowkes). Penguin Books, Harmondsworth, England.

Rothbard, M. N. 2002. The Ethics of Liberty. New York University Press, New York, N.Y. and London.

Rothbard, M. N. 2006 [1973]. For a New Liberty: The Libertarian Manifesto (rev. edn), Ludwig von Mises Institute.

Friday, March 27, 2015

Marx on the Labour Theory of Value in Volume 1 of Capital

I refer to Chapter 1, Section 1 of volume one of Capital (Marx 1982).

Here Marx gives his definition of a commodity:
“The commodity is first of all, an external object, a thing which through its qualities satisfies human needs of whatever kind. The nature of these needs, whether they arise, for example, from the stomach, or the imagination, makes no difference. Nor does it matter here how the thing satisfies man’s need, whether directly as a means of subsistence, i.e. an object of consumption, or indirectly as a means of production” (Marx 1982: 125).
This is already somewhat problematic: does it include and encompass what neoclassicals call subjective value too? If so, Marx’s economics badly neglects the reality of subjective value, and how it is just as much a source of price determination as labour expended in the production of the good.

When Marx speaks of the “use value” of commodities, he seems to have in mind the physical usefulness of goods, and does not include subjective pleasure or, for example, delusional “use value” in his definition:
“The usefulness of a thing makes it a use-value. But this usefulness does not dangle in mid-air. It is conditioned by the physical properties of the commodity, and has no existence apart from the latter. It is therefore the physical body of the commodity itself, for instance iron, corn, a diamond, which is the use-value or useful thing. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When examining use-values, we always assume we are dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use-values of commodities provide the material for a special branch of knowledge, namely the commercial knowledge of commodities. Use-values are only realized [verwirklicht] in use or in consumption.” (Marx 1982: 126).
But the usefulness of a commodity need not be limited to the “physical properties of the commodity.” People can buy things like magic charms or magic potions (and certainly people in the past did this in large numbers) or psychic readings. Some small numbers of people today probably think these things can give some kind of magic effect, but clearly there is no rational reason to think any such thing. The value or usefulness of such goods doesn’t lie in the “physical properties of the commodity.” People just mistakenly think the goods do certain things. But let us put all these points aside.

Marx further defines “exchange-value” as something that “appears first of all as the quantitative relation, the proportion, in which use-values of one kind exchange for use-values of another kind” (Marx 1982: 126). Marx admits readily that exchange values constantly change and are not fixed (Marx 1982: 126). But the exchange value is a “form of appearance” (Marx 1982: 127) concealing something deeper.

Marx sees exchange values in barter trades as being equivalent values (Marx 1982: 127). But this does not necessarily follow at all. In fact, when one person exchanges one good for another, it seems likely that in many cases he values the good he receives more highly than the good he gives up in the trade, and vice versa. Marx never considers this.

Marx assumes that, since goods must be equivalent in value during barter exchanges, therefore they must be reducible to some common value:
“… the exchange values of commodities must be reduced to a common element, of which they represent a greater or a lesser quantity.” (Marx 1982: 127).
We can quote his argument at length:
“This common element cannot be a geometrical, physical, chemical or other natural property of commodities. Such properties come into consideration only to the extent that they make the commodities useful, i.e. turn them into use-values. But clearly, the exchange relation of commodities is characterized precisely by its abstraction from their use-values. Within the exchange relation one use-value is worth just as much as another, provided only that it is present in the appropriate quantity. Or, as old Barbon say: ‘One sort of wares are as good as another, if the value be equal. There is no difference or distinction in things of equal value … One hundred pounds worth of lead or iron, is of as great a value as one hundred pounds worth of silver and gold.’

As use-values, commodities differ above all in quality, while as exchange-values they can only differ in quantity, and therefore do not contain an atom of use-value.

If then we disregard the use-value of commodities, only one property remains, that of being products of labour. But even the product of labour has already been transformed in our hands. If we make abstraction from its use-value, we abstract also from the material constituents and forms which make it a use-value. It is no longer a table, a house, a piece of yarn or any other useful thing. All its sensuous characteristics are extinguished. Nor is it any longer the product of the labour of the joiner, the mason or the spinner, or of any other particular kind of productive labour. With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour. They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.”

Let us now look at the residue of the products of labour. There is nothing left of them in each case but the same phantom-like objectivity; they are merely congealed quantities of homogeneous human labour, i.e. of human labour-power expended without regard to the form of its expenditure. All these things now tell us is that human labour-power has been expended to produce them, human labour is accumulated in them. As crystals of this social substance, which is common to them all, they are values – commodity values [Warenwerte].” (Marx 1982: 127–128).
As a defence of the labour theory of value, this argument is a non sequitur. It simply does not necessarily follow. There is no necessary reason to think there must be an underlying universal, single objective value to all commodities. In fact, we need not even assume that in all trades the people value the goods exchanged equally at all, as we have seen.

Even worse, it is also very clear how Marx must ignore the reality of different types of labour, whether of different professions but more generally of differences in skilled, professional, or unskilled labour, even though Marx himself understands that there are “heterogeneous forms of useful labour, which differ in order; genus, species and variety” (Marx 1982: 132).

Nevertheless, Marx is forced to reduce all labour to a homogeneous abstract unit.

Marx is adamant that labour time is the quantitative measure of labour value:
“A use-value, or useful article, therefore, has value only because abstract human labour is objectified [vergegenst√§ndlicht] or materialized in it. How, then, is the magnitude of this value to be measured? By means of the quantity of the ‘value-forming substance’, the labour, contained in the article. This quantity is measured by its duration, and the labour-time is itself measured on the particular scale of hours, days etc.” (Marx 1982: 129).
But immediately Marx hits up against the problem of why heterogeneous human labour can be meaningfully reduced to mere labour time as an objective measure of economic value. Why is this homogenous unit a truly accurate measure of labour value when everyone knows that workers work at different professions, speeds, levels of competence, and have different skills and expertise?

Quite frankly, Marx’s answer does not solve this devastating problem, but mostly just evades it:
“It might seem that if the value of a commodity is determined by the quantity of labour expended to produce it, it would be the more valuable the more unskilful and lazy the worker who produced it, because he would need more time to complete the article. However, the labour that forms the substance of value is equal human labour, the expenditure of identical human labour-power. The total labour power of society, which is manifested in the values of the world of commodities, counts here as one homogeneous mass of human labour-power, although composed of innumerable individual units of labour-power. Each of these units is the same as any other, to the extent that it has the character of a socially average unit of labour-power and acts as such; i.e. only needs, in order to produce a commodity, the labour time which is necessary on an average, or in other words is socially necessary. Socially necessary labour-time is the labour-time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labour prevalent in that society. ….

What exclusively determines the magnitude of the value of any article is therefore the amount of labour socially necessary, or the labour-time socially necessary for its production. The individual commodity counts here only as an average sample of its kind. Commodities which contain equal quantities of labour, or which can be produced in the same time, have therefore the same value. The value of a commodity is related to the value of any other commodity as the labour-time necessary for the production of the one is related to the labour-time necessary for the production of the other. ‘As exchange-values, all commodities are merely definite quantities of congealed labour-time.’” (Marx 1982: 129–130).
Marx evades the severe problem of heterogeneous human labour by simply reducing all labour time to an abstract, homogenous unit: socially-necessary labour time. But this doesn’t solve the problem. It attempts to ignore the issue by means of wishful thinking.

Marx assumes that total labour power of a nation can be aggregated by reducing all labour to a “socially average unit of labour-power.” This won’t do. Labour is too heterogeneous and too radically different in terms of profession, skill, competence, experience, and skills to be aggregated in such a crude manner. Highly skilled labour (e.g., a professional surgeon) produces more subjective value and to most people more objective value than unskilled manual labour (e.g., a person who mops floors). That is why a surgeon is paid more than a janitor. What Marx calls “labour-power” can be very different in different cases, and Marx’s attempts to reduce labour to an abstract unit is as unconvincing as any neoclassical who reduces real capital to a homogeneous putty.

And matters are no better when Marx later argues that the value of a commodity made by “complicated labour” can be reduced to quantities of “simple labour,” which seems to be defined as “simple labour-power, i.e. of the labour-power possessed in … [sc. the] bodily organism by every ordinary man, on the average, without being developed in any special way” (Marx 1982: 135). Here once again heterogeneous labour has to be reduced to a common measure, but what is it? It sounds rather like energy expended by human beings in their labour, but I see no reason why this should be an eternal source of economic value and the price determination of goods.

Neither the abstract “socially-necessary labour time” solution nor the “simple labour” unit reductionism can really solve the problem of heterogeneous human labour. On these grounds alone, the labour theory of value is unsound and unconvincing.

Finally, we have another utterly devastating problem with the labour theory of value:
“A thing can be a use-value without being a value. This is the case whenever its utility to man is not mediated through labour. Air, virgin soil, natural meadows, unplanted forests, etc. fall into this category. A thing can be useful, and a product of human labour, without being a commodity. He who satisfies his own need with the product of his own labour admittedly creates use value, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values. (And not merely for others. The medieval peasant produced a corn-rent for the feudal lord and a corn-tithe for the priest; but neither the corn-rent nor the corn-tithe became commodities simply by being produced for others. In order to become a commodity, the product must be transferred to the other person, for whom it serves as a use-value, through the medium of exchange.) Finally, nothing can be a value without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.” (Marx 1982: 131).
If labour value is totally worthless and cannot confer exchange value when the object has no utility (“use value”), then the whole labour theory of value is undermined.

For labour is not even a sufficient condition for economic value or exchange value. Clearly utility is also a necessary condition for economic value or exchange value, along with (1) labour time and (2) use value. And once we add subjective value into the mix, the Marxist labour theory of value becomes even more unsound. For now it is not even necessary for a commodity to have use value for it to command exchange value. Plenty of goods have no use value, e.g., pet rocks, but fetch an exchange value.

If Marxists want to argue that the Marx’s definition of “use value” includes “subjective value” as well, matters are no better. We are still left with the same devastating problem: labour time is not the only necessary condition for economic value or exchange value.

So Marx’s “labour theory of value” is obviously a blatantly one-sided and incomplete theory of both value and price.

And, finally, notice how all these issues are so devastating even before we get to yet another damning point, which I have made time and again, but which Marxists can never answer.

Most prices in modern economies are mark-up prices. It is not labour time per se but average unit cost of labour along with the average unit cost of all other non-labour factors at a given quantity of output that is used to calculate most prices. Given differing economies of scale, if you change the given quantity of output, then total average unit costs radically change, regardless of the total number of labour hours. After they calculate total average unit costs, businesses add a profit mark-up to this, nearly always. The profit mark-up can vary and is not related to labour.

Once again, on straightforward empirical grounds, we have no rational reason to accept the Marxist mystical dogma that “socially-necessary labour time” determines exchange value or prices in modern capitalism.

Further Reading
“Marx’s ‘Socially Necessary Labour Time’: A Quick Overview and Critique,” March 26, 2015.

“Progress in Marxism on the Labour Theory of Value?,” March 18, 2015.

“Mysticism and the Labour Theory of Value,” May 7, 2014.

“Lavoie on ‘Should Sraffian Economics be dropped out of the Post-Keynesian School?,’” June 19, 2014.

“Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

“Did Kalecki Accept the Labour Theory of Value?,” April 18, 2014.

“Automation and Robots in the News,” February 23, 2015.

“Adam Smith on the Labour Theory of Value,” April 20, 2014.

Marx, Karl. 1982. Capital. Volume One. A Critique of Political Economy (trans. Ben Fowkes). Penguin Books, Harmondsworth, England.