Schrödinger’s Capital: How David Harvey borrowed from Austrian theory to criticize Marx

Note 24(a): How Harvey channels Bohm-Bawerk

In David Harvey’s introduction to Capital, Harvey makes the startling allegation that Marx never demonstrated that labor was the source of value; he simply made an a priori assertion that labor was the source of value by relying on the readers familiarity with Ricardo’s argument.

“One reason Marx could get away with this cryptic presentation of use-value, exchange-value and value was because anybody who had read Ricardo would say, yes, this is Ricardo.”

A surprisingly similar argument to Harvey can be found in, of all places, the Austrian economist Bohm-Bawerk’s 1890 book, Capital and Interest, where he levels the criticism Marx simply relies on Smith and Ricardo’s authority to make his case for the labor theory of value. But neither writer really proved labor was the source of value, argues Bohm-Bawerk. Smith and Ricardo only asserted “that labour is the principle of the value of goods simply as an axiom, and without giving any evidence for it.”

Harvey applies Bohm-Bawerk’s criticism of Smith and Ricardo into his own criticism of Marx, stating the latter did not offer proof for his a priori assertion that labor is the source of value because “we cannot isolate and conduct controlled experiments in a laboratory, so we have to use the power of abstraction instead in order to arrive at similar scientific forms of understanding.”

Thus, we arrive at the persistent myth story that Marx could not demonstrate labor is the source of all value in a commodity producing society. According to Bohm-Bawerk’s telling of this bizarre myth story, lacking evidence for his proposition, Marx simply asserted that labor power was the source of value. Marx thus ignored situations where the specific use value of a commodity plays a significant, even decisive, role in determining the price of the commodity. These situations include examples where the use value of a good and direct imbalances in the supply of, and demand for the use value must influence the price of a commodity.

The case against labor

While each writer has a different aim, they both have to take on the idea that labor is the source of value. Harvey suggests Marx should have begun with money not value itself, while Bohm-Bawerk focuses on the premise of Marx’s thesis, which, he asserts, ignores the critical part played in the formation of price by use value. Marx’s case, says Bohm-Bawerk, “is the negative one, that the use value, thus happily disregarded and out of the way, is not the principle of exchange value.”

Moreover, writes Bohm-Bawerk how does Marx explain the fact that some object that are clearly not a product of human labor are regularly bought and sold:

“Is it even true that in all goods possessing exchange value there is this common property of being the product of labour? Is virgin soil a product of labour? Or a gold mine? Or a natural seam of coal? And yet, as every one knows, these often have a very high exchange value. But how can an element that does not enter at all into one class of goods possessing exchange value be put forward as the common universal principle of exchange value?”

The argument Bohm-Bawerk makes against Marx’s theory is surprisingly sloppy enough to make me wonder if he had even diligently read Capital, or simply half-glanced at the book for a few moments before writing his so-called refutation. In first place, where does Marx ever argue labor is the sole determinant of the exchange value of commodities? Marx argued labor time (specifically socially necessary labor time) is the sole determinant of the value of commodities, not their exchange values. This is an error Bohm-Bawerk makes in many places in his criticism.

Bohm-Bawerk, (like Harvey and the value-form school), often doesn’t appear to even know whether his controversy with Marx is over the values of commodities, their exchange values or their market prices. While Bohm-Bawerk wishes to make secondary influences like scarcity, supply and demand, and any number of imbalances in the market the determinants of the value of commodities, Marx assigns these secondary influences to the realm of exchange value and price formation, not to the determination of the value of the commodity itself.

Incongruity between value and price

The distinction between value, exchange value and prices leads Marx to make an assertion that might appear at first to completely contradict his central thesis: Although the exchange value of a commodity is an expression of the value of that commodity, the exchange value actually paid for a commodity (the realized price of an object offered for sale in the market) may have no relation at all to the labor contained in it.

Marx explains the problem this way:

“Magnitude of value expresses a relation of social production, it expresses the connexion that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it. As soon as magnitude of value is converted into price, the above necessary relation takes the shape of a more or less accidental exchange-ratio between a single commodity and another, the money-commodity. But this exchange-ratio may express either the real magnitude of that commodity’s value, or the quantity of gold deviating from that value, for which, according to circumstances, it may be parted with. The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another.

“The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e., between the former and its expression in money, but it may also conceal a qualitative inconsistency, so much so, that, although money is nothing but the value-form of commodities, price ceases altogether to express value. Objects that in themselves are no commodities, such as conscience, honour, &c., are capable of being offered for sale by their holders, and of thus acquiring, through their price, the form of commodities. Hence an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics. On the other hand, the imaginary price-form may sometimes conceal either a direct or indirect real value-relation; for instance, the price of uncultivated land, which is without value, because no human labour has been incorporated in it. “

To clarify this point Marx states use values like virgin land having no labor value incorporated in their production may indeed have a price in the market; which means the quantity of socially necessary labor time incorporated in a product sold in the market is not the only determinant of its actual price. Moreover, a use value, even if it is also a product of some definite quantity of socially necessary labor time, nevertheless may go unsold in the market, meaning its owner finds that commodity has no exchange value at all — as would be the case where too many of one commodity have been produced.

As Marx put it, “Price, like relative value in general, expresses the value of a commodity (e.g., a ton of iron), by stating that a given quantity of the equivalent (e.g., an ounce of gold), is directly exchangeable for iron. But it by no means states the converse, that iron is directly exchangeable for gold.” A ton of iron that cannot be sold has an exchange value of zero ounces of gold, no matter how much labor has been expended on its production. Thus, there is always a range of prices at which any commodity might be sold in the market, while the value of the commodity is always some definite quantity of socially necessary labor time. Whether these two quantities actually equal one another is a matter of probability or chance.

Since the value of any commodity expresses a material relation of production within a community of commodity producers and not the actual labor time they have expended producing their various commodities, contrary to the mechanical view of the value-price relationship often ascribed to him, Marx’s theory actually predicts the prices of commodities will almost always diverge from their labor values. Absent any means of directly determining the values of their commodities, it is almost impossible for buyers and sellers to correctly guesstimate the relative values of their respective commodities.

Labor is not the sole determinant of exchange value

Second, the expenditure of labor power is the source of value, but the exchange value (the price) of any commodity is only the expression (or visible manifestation) of the values of commodities. Nowhere in Capital does Marx ever claim labor is the source (or ‘principle’) of exchange value as Bohm-Bawerk alleges.

Marx argues the value of a commodity is determined by the labor time required for its production. The exchange value of the commodity, however, is not its value; it is a specific quantity of another commodity that is exchanged for the first commodity. The exchange value paid out for a commodity, (i.e., the substance of money and indirectly of prices), is itself the expression or manifestation of the value of the first commodity in the form of some definite quantity of material use value of a second commodity. It follows that since value and exchange value refer to two distinct objects having no obvious material connection between one another in an exchange, labor cannot be the only determinant of exchange value and therefore of money and prices generally.

To put this another way, neither party to any exchange of commodities knows the value of his own commodity nor the value of the commodity he wishes to receive in exchange. The value of a commodity and its actual exchange value are far more likely to be unequal than they are to coincide.

The theoretical ineptitude of the Austrian school

Despite his reputation among Austrians as having been the first to dispose of Marx’s labor theory of value, Bohm-Bawerk show a level of theoretical ineptness that is quite staggering. While very dissatisfied with Marx’s treatment of the distinction between exchange value and use value, he seems to be completely unaware that Marx also made a distinction between value, exchange value and prices; seeking to explain each of these categories in detail, rather than simply collapsing them all into a single category as is done by neoclassical theory. The result is that Bohm-Bawerk never examines why and under what circumstances exchange value comes to dominate production of a commodity producing community.

The secret of this domination is indeed to be found in the use values of commodities, but not in use value as Bohm-Bawerk conceived it in his critique of Marx’s labor theory. I will turn to this secret in another note.