Schrödinger’s Capital: Why price never equals value in Marx’s labor theory of value

by Jehu

NOTE 24(b): Why Marx’s argument on value causes such controversy

A reader of this blog made this excellent statement regarding my last post:

“Yes indeed, after having to offer so many caveats about value, bourgeois economists and most ordinary people start to wonder what good the concept is in the first place. Especially if it is not directly visible, if nobody really knows the value of any commodity, and if it doesn’t directly determine prices, fretting over it starts to sound to people like a bunch of obsessive woo-woo pseudoscience, like worrying about ghosts and such.”

If the value of a commodity cannot be detected or measured by any known means, why do I spend so much time talking about it? The answer is simple: qualitatively, value, exchange value and prices are all the same thing: they are each some definite quantity of socially necessary labor time. Unless you can explain value, you cannot explain prices nor the constant, apparently random, movement of the price of a commodity in the market.

Before we can explain why prices randomly shift according to supply and demand, we have to explain why prices even exist; i.e., we have to explain what price itself is.

To approach the problem from another direction, it might help to think of it this way: In Capital Marx never needed to prove that labor lay behind the prices of commodities. Almost every economist in his own time accepted that this was true.

Folks like Bohm-Bawerk challenged the idea that labor is the source of value not because it was unproven, but because of its implications for capitalism. As Bohm-Bawerk argues in his critique:

“And this principle, entirely unfounded as it is, the socialist adherents of the Exploitation theory do not maintain as something unessential, as some innocent bit of system building; they put it in the forefront of practical claims of the most aggressive description. They maintain the law that the value of all commodities rests on the labour time incorporated in them, in order that the next moment they may attack, as “ opposed to law,” “ unnatural,” and “ unjust,” all formations of value that do not harmonise with this “ law,”—such as the difference in value that falls as surplus to the capitalist—and demand their abolition. Thus they first ignore the exceptions in order to proclaim their law of value as universal. And, after thus assuming its universality, they again draw attention to the exceptions in order to brand them as offences against the law.”

As he honestly explains, Bohm-Bawerk’s opposition to labor as the source of social wealth was based on his view that it provided a political argument for the working class against capitalist exploitation. (By contrast, Harvey and the value school have yet to explain the grounds on which their opposition to labor theory of value is based.)

However simply saying labor time is behind the prices of commodities explains almost nothing. Even if labor value lay behind the prices of commodities, Marx still had to explain a problem for which no economist in Marx’s time could offer a satisfactory explanation: If labor was behind both value and prices, why did the prices of commodities almost always diverge from their values — something that is implied by what is often called ‘the problem of the transformation of values into prices of production’. Given the roadblock Adam Smith and Ricardo ran into trying to explain how the values of commodities were transformed into the capitalist production prices of commodities, Marx first had to explain what price was and the relation of price to value.

Unlike bourgeois simpletons, Marx did not accept price as a given. He argued price was the observable manifestation of something that could not be observed: labor value. However the relation between prices and value was nowhere near as simple and straightforward as was commonly assumed.

Let’s restate the critical points of the previous discussion

To begin his explanation, Marx had to first show why value, exchange value and price are not the same thing and must be distinguished from one another.

As I stated in the previous note, although Marx is often accused of having a mechanical view of labor value, where the price of a commodity is also its value, Marx held no such theory. In Marx’s labor theory value, exchange value and price are three separate and distinct properties, each of which almost always embody a different quantity of labor time and each of which must, therefore, be explained separately.

The relation between the value, exchange value and price of a commodity can be understood this way:

  • First, a commodity may have value without having exchange value or price.
  • Second, a commodity may have exchange value, without having any value at all.
  • Third, a commodity may have a price, without having either value or exchange value.
  • Fourth, even in a transaction involving a commodity that has value, exchange value and a price, nothing in labor theory states these three quantities of abstract homogenous socially necessary labor time will be equal.

A commodity may be a product of labor and thus have value. This, however, does not mean the commodity has exchange value or a price in the market. Nor does it mean the exchange value and price of the commodity are equal quantities of socially necessary labor time as is embodied in the value of the commodity.

On the other hand, a commodity may have a price in the market, without having either value or exchange value. Even if the commodity has a price, a definite value and a definite exchange value, there is nothing to say the price of the commodity embodies a quantity of socially necessary labor time equal to either its value or its exchange value.

Finally, a commodity may have exchange value without embodying a single instant of value. Even if the commodity possesses both value and exchange value nothing in labor theory suggest the same quantity of socially necessary labor time is embodied in each.

Defining terms

Surprisingly, in labor theory, although the value of a commodity, its exchange value and its price, all refer to some quantity of socially necessary labor time, they are three different and distinct things that can contain unequal quantities of socially necessary labor time.

In first place, the value of any commodity is the socially necessary labor time required to produce the good. This value arises from the expenditure of labor power on an object of nature in the course of producing the commodity. The value contained in the commodity is nothing more than some definite expenditure of labor power in some specific form. The relation between the value (socially necessary labor time) of the commodity and the commodity itself is peculiar to the commodity.

The exchange value of the commodity is the quantity of another commodity for which the first commodity can be exchanged. This second commodity, like the first, is also nothing more than some definite expenditure of labor power in some specific form. When the two commodities are exchanged, their owners attempt to estimate their respective values and this is a problem. According to Marx neither owner knows the value of his commodity nor the value of the other commodity. It follows from this that neither owner has any idea what the proper exchange ratio is for the two commodities. They are guesstimating or approximating the proper exchange ratio for the two commodities. Depending on the knowledge of the owners and market conditions, this guess may be more or less accurate, but it is always just an approximation. The exchange value — the quantity of a second commodity given in exchange for the first — can never be anything more than a more or less educated approximation of their actual exchange values.

Finally, we have the price of the commodity — which, of course, assumes a money of some sort. The exchange value and the price of a commodity are often assumed to be the same thing, but actually they are not the same. While the exchange value of any commodity is the definite quantity of one commodity paid out for another commodity, its price, however, can simply be a certain quantity of a token of money, rather than an actual commodity money. The token is assumed to stand in the place of the money commodity that is being exchange for the first, but this is not always the case. For example, when the dollar was debased from gold after 1971, price was also, at the same time, severed from exchange value. As a result, today the price of a commodity no longer represents any definite amount of a commodity money. The debasement of the token of money actually can lead to the oddest sort of result: a good for sale in the market may have a price without having either value or exchange value.

Bourgeois economists, value and price

Contrary to most explanations of Marx’s labor theory of value, there is nothing in the labor theory of value that says the price or exchange value of any commodity is its value. The argument that the value of a commodity is its price (or that the price of a commodity is its value) is not Marx’s theory of value, it is bourgeois simpleton theory. As the argument against Marx made by Bohm-Bawerk demonstrates, in neoclassical economic theory the terms value, exchange value and price are essentially three interchangeable terms for the same thing. By contrast, In Marx’s theory these three terms do not refer to the same thing.

Thus, it is the most bizarre thing that Marx, who alone states value, exchange value and price are not the same and can never be the same except by chance, is the one person everyone else accuses of saying the value of a commodity is its price. What is even more bizarre is that when bourgeois simpletons like Bohm-Bawerk make this charge against Marx, Marxists often rush in to defend the principle that value equals price!

What accounts for the incongruity between value, exchange value and price?

The question this raises is obvious: How can we explain the persistent inequality between the magnitudes of value, exchange value and price?

Since each of these categories is simply some definite quantity of socially necessary labor time in the form of a particular product of labor, the relation between the three cannot just be determined by the socially necessary labor time each embodies. All we have here are socially necessary labor time in three different and unequal quantities, embodied in three different objects: a commodity, a second commodity for which the first is exchanged and an object serving as money. Since the socially necessary labor times of the three are all simply a definite quantity homogenous abstract labor, i.e., the expenditure of a definite quantity of labor power, nothing differentiates them as labor values but the duration of socially necessary labor time that is embodied in them.

Socially necessary labor time, since it is the “substance” the three share in common, can explain why commodities can be compared to one another, but it cannot explain why they exchange in the market in proportions that persistently diverge from their actual relative values. Yet we know this persistent inequality of labor values in exchange not only happens, it is the general rule of exchange according to Marx. Since the three quantities of socially necessary labor time — value, exchange value and price — are simply three different durations of socially necessary labor time, their persistent inequality in actual exchanges cannot be explained by the quantity of socially necessary labor time they each embody.

We are thus forced to conclude that the persistent divergence between values, exchange values and prices cannot be explained by the socially necessary labor time they each embody and which allows them to be compared as values. Rather, this persistent inequality must be explained by something else having no relation to socially necessary labor time required to produce them.

We have to look elsewhere for an explanation.

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