The Wrong Way to Critique The Law of Value

There's a lot of confusion about what the labor theory of value or the law of value is. This, in turn, leads to even more confusion about the arguments against it.

First, its important to clear up a couple of things about the law of value that, in my opinion, help elucidate what its supposed to be.

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To start off, the law of value as described by Marx is not the exact same as the labor theory of value. Although he varied on his acceptance of labor as a source of value, the issue in his more seminal works is how labor manifests itself into the prices of commodities mass-produced under capitalism. Marx soon leads us down this logic:

0. All commodities have a use-value and an exchange-value; the important part is use-value, which represents demand; something that all commodities need.

1. As commodity production becomes more generalized, labor becomes a common source of all commodities; more specifically, people start to recognize labor time.

2. Although we're able to recognize when something has a lot of work put into it, when we only see a finished product we're unable to determine what type of labor was used; thus, this labor is abstract.

3. We know, however, that there's a certain amount of labor that society expects is necessary in order to make a commodity; thus, this abstract labor time is socially necessary.

Our final word combination is socially necessary abstract labor time, or SNAL(T) for short; this is what is generally referred to when people say Marx believed in a labor theory of value. In order to account for more skilled laborers, its taken to be a multiple of simple labor (with the coefficient at a reasonable number).

An example of SNAL in action can be given by Ernest Mandel:

Let us give a rather commonplace example: toward the end of the nineteenth and beginning of the twentieth century, a city like Paris had a coach-building industry, which together with associated harness trades employed thousands or even tens of thousands of workers.

In the same period the automobile industry was emerging and although still quite small it already numbered some scores of manufacturers employing several thousands of workers.

Now what is the process taking place during this period? On the one hand, the number of carriages begins to decline and on the other, the number of automobiles begins to increase. The production of carriages and carriage equipment therefore shows a trend toward exceeding social needs, as these are reflected in the manner in which the inhabitants of Paris are dividing their buying power; on the other side of the picture, the production of automobiles is below social needs, for from the time the industry was launched until the advent of mass production, a climate of scarcity existed in this industry. The supply of automobiles on the market was never equal to the demand.

How do we express these phenomena in terms of the labor theory of value? We can say that in the carriage industry more labor is expended than is socially necessary, that a part of the labor expended by the sum total of companies in the carriage industry is socially wasted labor, which no longer finds an equivalent on the marketplace and is consequently producing unsaleable goods. In capitalist society, when goods are unsaleable it means that an investment of human labor has been made in a specific industrial branch which turns out to be socially unnecessary labor, that is to say, it is labor which finds no equivalent in buying power in the marketplace. Labor which is not socially necessary is wasted labor; it is labor which produces no value.

This understanding of SNAL also explains the Marxist notion of falling profits; because of a drive to constantly innovate and automatize the production process, less of this SNALT is needed and thus is seen as worth less than before, which leads to less profits.

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Although there are ways to critique the law of value, there's always one group of people that always do it terribly: American libertarians.

Austrian/Chicago economists are of the opinion that the value really lies on the person's preferences or the marginal utility of a commodity. The issue is that, generally speaking, these economists have a horrible time justifying the subjective theory of value in the face of other heterodox economists. They also have a horrible time trying to justify it when compared to the law of value.

Its the goal of this post to review two of these articles from libertarians, and to try and refute the criticisms made.

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We start with We're Still Haunted by the Labor Theory of Value, published from the Foundation for Economic Education by Steven Horwitz. The first actual criticisms levied at the law of value is with supposed "obvious contradictions":

What about the value of land or other natural resources? What about great works of art that were produced with a small amount of labor but fetched extremely high prices? What about differences in individuals’ skill levels, which meant that there would be different amounts of time required to produce the same good?

Lets remember, first off, that the law of value is meant to be one of generalized, mass-produced commodities; thus, its not meant to tackle the value of natural resources or rare pieces of art. Along with this, Marx also abstracts from the idea of different skilled jobs, since we're unable to comprehend the exact labor necessary to produce it; this answers the question of differences in skill.

Horwitz then makes this claim:

...labor gets rewarded according to its ability to produce things that others value. When you then consider the ways in which labor combining with capital enables that labor to produce goods that humans value even more, which in turn increases labor’s remuneration, Marx’s whole worldview is suddenly turned on its head. Capital does not exploit labor. Instead, it enhances labor’s value by giving labor the tools it needs to make even more of the things that humans value.

The issue with this is that by this logic, profits would not be a common thing within capitalism, as people would get paid accordingly and equilibrium would be achieved in the labor market. But the problem is that we're never in equilibrium, and thus a value theory must be able to account for disequilibrium. As demonstrated before, profits under the framework of SNALT are made by overworking above the time needed; the purpose of capitalism, then, is to balance out the SNALT.

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The next article we'll look at is Three Arguments Debunking Marx’s Labor Theory of Value, published from the Mises Institute by Bradley Thomas. Its meant to be a summary of Wicksteed's Das Kapital: A Critique, so I guess by this point I'm fighting against Wicksteed.

We start with a statement of the subjectivity of value:

Commodities exchange for like amounts not because they contain the same amount of labor, but because the users value the ends they satisfy with similar intensity.

This is then restated in a proper way, using marginal utility:

A key insight of Austrian economics is the use of marginal analysis and the concept of diminishing marginal utility. In other words, goods are evaluated by the needs-satisfaction of the next unit of that good, not by the value of all existing units of the good. In other words, the more of a good you already possess, the less important the need that the next unit of that good will satisfy.

The key issue is that this presupposes the idea of market prices; by doing so, it leaves out the idea of people's subjectivity being influenced by prices or other external conditions. As elaborated by Bukharin:

For any “housewife,” in her daily “practice,” begins both with the existing prices and with the sum of money at her disposal. It is only within these limits that a certain evaluation based on utility can be practiced. If for a certain sum of money, x, we may obtain commodity A, or, for the sum of money y, commodity B, or, for money z, commodity C, each purchaser will prefer the commodity having the greater utility for him. Yet such an evaluation presupposes the existence of market prices. Furthermore, the evaluation of each individual commodity is by no means conditioned by its utility. A plain example is that afforded by objects in daily use; no housewife who must shop in the market estimates the value of bread by its immense subjective worth, on the contrary, her evaluation fluctuates about the market prices already established; the same holds good for any other commodity.

And as elaborated by Albert & Hahnel:

Use-values, or what we desire, come about as a result of  our interactions with our environments as well as due to our genetically inherited characteristics. As we discussed earlier, any change in our activities can also modify our  personalities, skills, and consciousness, thereby changing our derived needs and what has use-value for us. What is and what is not a use-value therefore depends upon historical and also economic events. For example, if the process of meeting survival needs via economic activity isolates us or compels competition, this will affect our personalities and also the social needs expressed in other parts of our lives.

Thus, use-values/marginal utility become(s) an increasingly insufficient measure for prices as they interact with one-another more.

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Another short post, but I hadn't posted in 3 days and I thought I'd make the silence a little less bearable.

Either way, that's the general arguments I can make against two "debunks" of the law of value, using a proper understanding of what Marx had illustrated before. Note that I, personally, am not in favor of the law of value, but its important to understand your enemy before attacking it.