Open Letter to David Harvey: “Um, about that alternative you said you had …”

“Revolutionary transformations cannot be accomplished without at the very minimum changing our ideas, abandoning cherished beliefs and prejudices, giving up various daily comforts and rights, submitting to some new daily life regimen, changing our social and political roles, reassigning our rights, duties and responsibilities and altering our behaviors to better conform to collective needs and a common will. The world around us – our geographies – must be radically re-shaped as must our social relations, the relation to nature and all of the other moments in the co-revolutionary process. It is understandable, to some degree, that many prefer a politics of denial to a politics of active confrontation with all of this.”

 David Harvey, Organizing for the Anti-Capitalist Transition

As I was re-reading this essay by Harvey it occurred to me how full of shit the radical Keynesians are. I thought I would direct my reservations to one of the preeminent Marxists in the United States, David Harvey, who wrote of the need for an alternative to the present system almost a decade ago..

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

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.

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.”

Schrödinger’s Capital: Heinrich’s hilarious ‘refutation’ of Marx on the falling rate of profit

NOTE 22: The falling rate of profit and the collapse of production on the basis of exchange value

In part 2 of his 2013 essay, Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s, Heinrich argues Marx  makes a far-reaching assertion that is impossible to demonstrate empirically: in the long term the rate of profit must fall.  As Heinrich points out the very nature of the law — that it only points to a tendency — implies past historical data cannot simply be projected indefinitely into the future. The rate of profit may well have fallen in the past or it may have risen, but this does not mean a given historical trend will continue in the future.

The argument Heinrich makes in this section appears to challenge a long-standing Marxist assumption that there is at least an indirect link between capitalist crisis and social revolution. For some Marxists — notably, Andrew Kliman and company — the crisis produced by the falling rate of profit is a theoretically necessary assumption, because such a crisis is thought to be the material force that ultimately triggers a working class social revolution. Without the crisis, and the deepening poverty and political discontent it creates, many Marxists have no ready explanation for why the working class would overthrow capital. Thus, if we accept Heinrich’s argument about the falling rate of profit, what are we left with as a trigger for the social revolution?

“Schrödinger’s Capital”: How Michael Heinrich deliberately twisted Marx’s Grundrisse argument

NOTE 21: The collapse of production on the basis of exchange value

In my previous note, I argued the exchange value paid out as currency wages since the collapse of Bretton Woods in 1971 has been zero. My assertion is based on the consensus among scholars within both the value-form and MELT schools. This consensus among Marxist scholars assumes that, since 1971 and the collapse of the Bretton Woods agreement, the money we use to purchase commodities has no value of its own.

However, although both the MELT school and the value-form school generally agree the dollar does not represent any exchange value after 1971, both schools deny this change has any material impact on labor theory analysis.

Both the value-form school’s argument and the MELT school’s argument that nothing changed after 1971 should, in all honesty, require empirical evidence prices behave the same irrespective of the labor content of money. Yet neither school has ever once produced any evidence for this view. Despite the fact neither school has ever shown prices behave the same even if the labor content of the object serving as money is zero, this, it seems, has no effect on the discussion, for the simple reason that, surprisingly, no Marxist has ever demanded empirical proof from either school of their claims. You really have to wonder how Marxists can see one of the fundamental assumptions of their theory simply dismissed out of hand and not demand empirical proof.

Schrödinger’s Capital: Wherein Heinrich explains profit as a price markup over costs

NOTE 20: The fiction of wages

In an excerpt from his book, The Science of Value, Michael Heinrich argues, “the independent existence of exchange value is only expressed adequately as self-valorizing value”.

I have no idea what Heinrich means by this nonsense statement, so let’s see if we can parse it.

In the first place, what is meant by “the independent existence of exchange value”? For exchange to have an independent existence can only mean that money, in the form of some particular commodity, has emerged as the universal equivalent of all other commodities. The problem with this view for the value-form school is that, according to the value-form school, no commodity has value, the latter being only an artifact of the exchange of commodities for money. If no commodity has value, including the commodity serving in the function of money, how can exchange value exist?

According to Arthur in his 2003 essay on the subject, we “posit the presupposition” use values have value by measuring their worth in units of a money. Money, says Arthur, creates the dimension of value and is the measure of value. The value of a commodity is nothing more than its money price.

Schrödinger’s Capital: What is not forbidden by labor theory is compulsory

NOTE 19: The monetary expression of labor time (M.E.L.T.)

If we state the total product of labor produced in a given period of time in terms of the commodity money prices of those commodities, we are, at the same time, stating the aggregate socially necessary labor time of society in so many units of the socially necessary labor time required to produce a unit of the commodity money. If it takes one hour to produce an ounce of the commodity money, the total socially necessary labor time of society is equal to so many units of money.

The problem with MELT theory, however, is that it uses a unit of measure, fiat money, that has no socially necessary labor time. Its employment as a tool to measure the labor time of society is at least problematic.

This is one way to interpret the validity of the MELT function: nothing about fiat currency tells us anything about the socially necessary labor times of the commodities for which it is exchanged, because it does not share the common characteristic of being a product of labor. However, another more interesting and far more fruitful way to interpret the results of the MELT function is that a fiat currency always states the duration of socially necessary labor time as zero.

Schrödinger’s Capital: All labor is necessary so long as someone pays for it?

NOTE 18: Is there a material limit to socially necessary labor time?

The charts I introduced in my last note on the value-form school raises an interesting question. If the charts provide two different measures of value — one drawn from Marx’s labor theory of value, the other drawn from value-form theory — they also provide two different measures of socially necessary labor time. If this is true, which measure of necessary labor time is accurate?

Let me restate Arthur’s argument this way: What we today call value is a mental abstraction that only develops after the emergence of money. Commodities do not have a common attribute called value; rather, our practice of attaching prices to commodities creates the notion they have value. We act on commodities as if they have value and thus “posit the presupposition” they are values.

Since value is a manifestation of the socially necessary labor times required for production of commodities, does money also determined social production times as well?

Schrödinger’s Capital: A not very ‘useful’ definition of value

NOTE 17: Do trident nuclear missiles have value in the value-form argument?

The charts I published in my last post present a puzzle for any analysis rooted in historical materialism. This is because the two definitions of value offered by Marx and the value-form school result in two different pictures of the history of the US economy.

We have to ask ourselves which of these two definitions of value produces a valid picture of the actual history of the US economy?

Schrödinger’s Capital: Is the US dollar world money or the end of money?

It is important to say I want to preserve the science of historical materialism. To be clear, the outcome of this debate has nothing whatsoever to do with the outcome of the class struggle. Despite claims to the contrary by various vanguardist parties, no class in history ever made a revolution based on its theoretically accurate grasp of the society it was seeking to overthrow. The proletariat will not break that pattern. We can thus safely separate the issue of the scientific veracity of historical materialism from the social implications of its conclusions to answer the troubling questions raised by the value-form school argument.

I say this to emphasize I do not think Chris Arthur is “being revisionist” or some such nonsense. Instead, the science itself is being challenged by the appearance of something many people assume labor theory never predicted, a fiat currency filling the role of ‘world money’. Historical materialism has a big problem of explaining whether this fiat ‘world money’ is in fact money, and, if so, how it works.

NOTE 12: The end of exchange value?

According to Marx, a use value has value only if it is the product of human labor. The quantity of value contained in any product of human labor is the duration of socially necessary labor time required to produce the commodity. The value of a commodity is expressed as exchange value in a transaction in which the value of the first commodity is expressed in the use value of the second commodity. According to Marx the value of a commodity can only be expressed in the use value of another commodity also having value. The commodity socially recognized as playing the role of money is simply the one whose use value serves to express the values of all other commodities in the community.

This definition of money is commonly recognized by almost all Marxists. But if Marx is correct about this, the dollar, a valueless state issued inconvertible fiat paper currency, cannot be world money. The problem with the dollar serving in the role is that, as bitcoin shows, it can be produced with no expenditure of human labor whatsoever. And, it can be produced in whatever quantity is required almost instantaneously. This means the dollar is not a product of human labor and thus contains no value at all.

Which bring Marxists face to face with a paradox: If the dollar is world money, Marx must be wrong by his own definition. If Marxists recognize dollars as world money, they are — by the same definition — no longer Marxists.