This draft chapter of my book (more on this later) actually is meant to proceed the Value chapter I posted a few days back. I am posting these here in the hopes that I get some helpful feedback. You will find it substantially different than the video-script of the same name. If you are reading please leave a comment/criticism. Also- many thanks to the couple readers who suggested these Harvey-Geras and Cohen mudpie arguments to me.
Chapter 2 Das MudPie
It is not uncommon to hear the following critique of Marx’s theory of value: Marx claims that labor is what gives commodities their value. But what if I make a mudpie? A mudpie requires labor but it has no value in the market. Thus Marx’s theory of value must be false.
The logic sounds convincing at first. But the structure of the argument makes some rather sloppy leaps that leaves out all of the key elements of Marx’s theory of value and replaces them with an awkward straw-man. It is true that Marx claims that labor and only labor can be the source of value in a capitalist society. But he does not claim that all labor, no matter what, creates value or that the products of equal labor always trade at equal ratios. Marx says that only useful labor creates value. Value is a social relation, a relation between commodity producers expressed in the exchange ratios between commodities. If a commodity is not sold, if it is not useful, then it does not stand in relation to other commodities and therefore cannot have a value. The labor that went into it is not useful labor and does not form part of the total labor of society.
While the mudpie argument is a rather primitive critique of Marx’s theory of value it does bring up an interesting topic: the relation of private labor to the rest of the labor of society in a economy organized through commodity production and exchange.
What is a society?
The key difference between humans and animals, for Marx, is in the way they create their own worlds. Humans aren’t slaves to their own evolutionary destiny, repeating the same patterns of survival over and over for millennium. Instead humans actively shape the world in which they live. There is a certain creative aspect to human labor in which we imagine the product of our work in our mind before we go about the work: “But what distinguishes the worst architect from the best of bees is this, that the architect raises his structure in imagination before he erects it in reality.”
This world which we create forms the structure of our lived experience: we live in, wear, eat and think about the products of our own creation. The structure of our social relations, from the way we relate in cultural and family groups, to the organization of production, to ideas about the world we live in, constitute a created universe powered by the creative power of human labor. Yet this world of our creation also acts back upon us. It structures both our desires and our means of attaining these desires. In much mainstream economic thinking human desires and the means of attaining them are treated as universal, timeless things. Marx says the opposite: What we desire and how we go about getting the things we desire changes as the organization of our society changes. “The point is rather that private interest is itself already a socially determined interest, which can be achieved only within the conditions laid down by society and with the means provided by society; hence it is bound to the reproduction of these conditions and means. It is the interest of private persons; but its content, as well as the form and means of its realization, is given by social conditions independent of all.”1
In different times and different places this organization of human activity has been radically different. The level of technological development, the organization of production, the organization of classes, and the shared conceptions about the world have all changed radically over time. It is the organization of these different “modes of production” and the way the organization of production effects the other aspects of a society that was of interest to Marx. In essence Marx is asking what this organization of production can tell us about a society. This mode of inquiry is called “historical materialism” because it is interested in the way the production of our own material conditions of existence has changed over time. It is different than theories of history that treat human society as a progressive evolution of disembodied ideas, or of abstract psychological states (bourgeois economics.) Ideas and psychology are important but they can’t be understood apart from the basic organizational structure of the social relations of society.
This means that Marx is not just interested in any labor. He is interested in “social labor”, labor that is part the total social labor of society. Useless labor, like that of the mudpie maker, is not social labor. In order for labor to be social it must be part of the social division of labor, contributing to the total productivity of a society. The first step then, in looking at a particular historical mode of production, is to ask how the private labor of an individual becomes social labor in that society.
If you were a medieval peasant working a plot of land with your family you would be laboring directly for your family and the feudal landlord. There would be no mystery about whether the labor you were doing had use to your social group or whether the right amount of labor was being allocated to the right tasks. The private labor you did on your land would be “directly social.“
In a capitalist society we don’t produce things in order to use them ourselves. We produce things in order to exchange them in the market. We don’t care about the usefulness of the things we are producing. We only care about receiving value, in the form of money, in exchange for our labor. We then use that money to enter the market and buy the things we need for our own personal use. The production of a commodity and the use of it are separated in space and time. They are separated by value. They are linked by value. In order for our private labors to become social they must first take the form of value. If a commodity does not sell then the labor that went into it is not connected to the other labors of society. There can be no value relation between a mudpie and an apple pie because the former is not social labor while the later is.
In a capitalist society we do no always know whether the product of our labor will be socially useful. We find this out in exchange. And if the products of our labor do sell in the market we don’t know the relation of our private labor to the total labor of society until we see the exchange ratio for which our product sells for. We only discover these social relations after production has taken place. This separation of production and exchange in time makes for an important, defining aspect of capitalism: the social signals that organize production happen after the production has taken place, but before future production. These signals try to attune the private labor of individuals to the social needs and productive norms of society but through the very process of signaling they also assure that balance is never reached. There is a constant mismatch between private labor and society’s needs, a mismatch that expresses itself in value-price divergence (see below).
This is a very different type of social labor than in pre-capitalist societies. Rather than being directly social, capitalist labor is indirectly social. People don’t directly decide what to produce and thus their labors are not directly related to each other in a conscious organized fashion. Instead these decisions are made through the fluctuations of market signals, a constant back and forth of buyers and sellers. But these market signals aren’t some autonomous power. They are composed of the aggregate individual labors of billions of separated producers. This separation of production and consumption means that the private labor that goes into a commodity may not be equal to its social value. The private labor is the amount of work that actually goes into making something. The social value is the actual amount of value the commodity sells for when it enters the market- the amount of value the commodity ‘commands in the market‘.2 Another way of saying this is that the social value is the amount of social labor that one gets in exchange.3
When we say ‘value’ we are usually talking about the amount of labor that has gone into the production of the commodity (or, as we discuss later, the socially necessary labor time). When we say ‘price’ we are talking about the amount of value that a commodity commands in exchange. If a commodity’s price is below its value this punishes a producer, encouraging them to make their labor more efficient or to move their labor to more profitable pursuits. If a commodity’s price is above its value then producers are rewarded, encouraging them to produce more of this commodity. In a society of separated producers, in the absence of a plan, these price-value mismatches are the mechanism by which society apportions and disciplines private labor. This is the nature of indirectly social labor.
We can then immediately see the larger problem with the mudpie argument. The problem with the mudpie argument is not just that Marx says that commodities must have a use to have a value. If that was the only answer to the mudpie then it would seem as if Marx was just weaseling out of the problem by posing an arbitrary stipulation.4 The larger problem with the mudpie argument is that it assumes that Marx thinks that all labor is directly social, that commodities have social value just because they are the product of human labor. But this is the opposite of Marx’s theory of value which seeks to understand indirectly social labor. In fact the MudPie argument could be reformulated into this 3 step argument:
1. Marx says labor is directly social (value determines price).
2. There are instances of price-value divergence in the world (i.e. when a product of labor isn’t sold).
3. Therefore labor can’t be the source of value.
Whereas Marx’s logic reads like this:
1. Labor is indirectly social.
2. Therefore price and value will rarely be the same (and some products of labor will even go unsold).
3. Thus private labor is coordinated through value relations between commodities in the absence of a direct social plan.
Baking Some Mud Pies
If the mudpie argument was just the tool of internet trolls and other vulgar critics of Marx then it would not be worth addressing. However mudpies can often be spotted speaking from places of authority. Sometimes we even see mudpies being thrown by so-called Marxists themselves. Nothing could be further proof of the degeneration of so-called Marxism. Let us look at a few telling examples.
In a paper entitled “Marx’s Economy and Beyond” Mark Harvey and Norman Geras argue that in order for the Marxist project of understanding capitalism to go forward it is imperative that Marxists jettison the tired, old, broken ‘labor theory of value’. One objection they raise is the fact that there are products of labor that have no value, but their objection is more nuanced than the vulgar mudpie argument:
“…labour-determined values do not uniquely determine price, because price is set by a number of factors, the labour-content of the commodity only one amongst them. Marx, as it happens, was perfectly well aware of this when he needed to be: he accepted that a produced object which is ‘useless’ (for which there is no demand) has no value at all, however much labour may be embodied in it.9 But he thought to restrict, without more ado, the influence of social utility and demand on the determination of value to that one effect. Why usefulness and effective demand may determine whether a commodity has any value at all but not, also, contribute to determining how much value it has, is a question to which he gave no persuasive answer. “5
Thus Harvey and Geras question Marx’s ‘stipulation’ that only useful labor creates value. Isn’t Marx just saying that when demand for a product reaches zero then value is not created? If so Marx should also theorize instances where demand is greater than zero but still not great enough for a commodity’s market price to be equal to its underlying labor content. In other words he should acknowledge the fact that the relation of supply and demand effect the prices of commodities just as much as their labor content.
The problem with the Geras-Harvey argument is that Marx puts pays plenty of attention to the effect of demand and supply on prices. For Marx, demand and supply are constantly moving prices away from values. But this doesn’t mean that demand and supply are creating value. Instead they are redistributing value. Value is created in production. It is redistributed in exchange when a commodity commands more value in the market than its underlying labor content. The total amount of value in society remains the same regardless of how this distribution proceeds. So no matter how much supply and demand affect the individual prices of commodities there is no aggregate effect on the total amount of value in society. Harvery and Geras confuse the redistribution of value with the creation of value and thus fall into the same mudpie that many others have fallen into before.
In a 1979 essay by G.A. Cohen entitled “The Labor Theory of Value and the Concept of Exploitation” we see another interesting mudpie argument made by a so-called Marxist. In this essay Cohen imagines a simple science fiction mudpie: Suppose that we have two commodities. Commodity A was made in the past when it requires labor but now in the future this commodity requires no labor (he asks us to imagine that it now falls from the sky for free). Let’s say I have an old commodity A sitting around. It required labor in the past so it should have value in the present according to Marx. But now that it falls from the sky it has no value! Meanwhile commodity B used to be free but now it requires labor. (He asks us to image a bottle of fresh air which is free to bottle now but perhaps in the future could be a scarce, produced commodity). If I have an old commodity B lying around it now has value even though no labor went into it. Cohen thinks he has really out-thought Marx with this little science fiction parable.
Critical readers will see the parable of Commodity-B as an inverted mudpie argument. Rather than the normal mudpie which asks why a product that required labor has no value in the market, Cohen’s Commodity-B story asks how a product which required no labor can have value. Though it is an inversion of the classic mudpie argument it has the same core argument:
1. Labor is directly social.
2. There are instances of price-value divergence in the world (like a product of labor which has no value or a non-product of labor which has value).
3. Therefore labor can’t be the source of value (or other things also create value…)
Was Marx really that stupid?
It is hard to accept that Marx could have been oblivious enough to such simple counter-factual mudpies as to advocate a theory which could not account for the existence of other factors that effect the magnitude of price. After all, Marx frequently stated that value and price were not the same concepts and that values rarely equaled prices. “In reality, supply and demand never coincide, or, if they do, it is by mere accident, hence scientifically = 0, and to be regarded as not having occurred.”6
Sometimes we hear Marxists claim that Marx’s value theory holds that on average values determine prices, or that values determine equilibrium prices, etc. Although supply and demand fluctuate the fluctuations balance each other out around a tendency for prices to equal values. In other words, value is seen as an equilibrium price. The interpretation pursued in this book distances, in-line with the temporal single system interpretation of Marx, takes a strong stand against these equilibrium interpretations of value theory. There are sometimes theoretical reasons to assume that supply equals demand and that value equals price, but this doesn’t mean that there is an actual tendency, in really existing capitalist society, toward equilibrium, or that value-price deviations are unimportant. In the same paragraph as the above quote Marx discusses why it is that it is sometimes necessary to assume that supply and demand are in balance: “If supply and demand balance one another, they cease toexplain anything, do not affect market-values, and therefore leave us so much more in the dark about thereasons why the market-value is expressed in just this sum of money and no other. It is evident that thereal inner laws of capitalist production cannot be explained by the interaction of supply and demand(quite aside from a deeper analysis of these two social motive forces, which would be out of place here),because these laws cannot be observed in their pure state, until supply and demand cease to act, i.e., areequated.”7
If we assume that supply and demand are equal then we can more easily focus on the other economic relations which determine the quantitative exchange-ratios between commodities, the origin of profit in the exploitation of workers, and other key Marxist conclusions. This is merely a matter of holding one element of an equation still so that we can explore the effects of other elements, a technique Marx uses all of the time. But this does not mean that Marx has argued that there is actually a tendency for supply and demand to actually balance, or for prices to equal values or even to fluctuate around values in a predictable way. As discussed above, a key aspect of Marx’s value theory, one that differentiates Marx from his predecessors8, is that Marx can explain the unique way in which private labor becomes social labor in a society organized through indirectly social labor. As we have seen, the deviation of price from value is the crucial mechanism through which this organization of labor takes place.
A crucial distinction to make is between the value created in production and the value commanded in exchange.9 The individual value of the commodity, the labor time that went into making a commodity, is the value created in production. If the commodity is sold then we know that the commodity has some social use and that therefore the labor that went into its creation forms part of the total social labor of society. If the commodity is not sold then the labor that produced it was not useful and therefore not part of the total social labor that makes up a society.
Useful commodities fetch a price in the market. This market price is the value they command in exchange. 10This market price tells us what the social value of the commodity is relative to other commodities. It tells us how much the labor that went into the commodity is worth relative to other labors. This market price allows the seller to command/appropriate/purchase other commodities equal to this same amount of value. The seller is entitled to an equal portion of social value.
This distinction between value produced and value commanded is crucial to the function that value plays in society. In the absence of a social plan producers do not know what the average level of efficiency is in their industry or what the level of social demand is for their product. They can only discover this in the market after production has taken place. The only way of signaling this information to producers is through the divergence of individual values and market prices. When market price is below individual value then firms lose value in exchange. They are punished by the market and these signals ricochet back on production to discipline and apportion labor. When market price is above individual value then firms are rewarded. This encourages and apportions labor. The signals sent to production by these fluctuations of prices and values are related to two main forces: Socially Necessary Labor Time and Demand and Supply, to be discussed in greater detail in future chapters.
If all market prices equaled individual values then we would have an economy in which demand and supply were perfectly in balance and all producers in an industry labored at the same level of productivity. Such a society has never existed in capitalism, not even for half a second. If such a state of equilibrium were to exist, and if society somehow knew how to reproduce this division of labor in order to maintain these proportions of production and consumption, then labor would be directly social and there would be no need for prices at all. The ideal distribution of production would be reached and society could continue to labor and consume at these proportions without change. But this would not be a capitalist society. Such a society would require a knowledge and planning of production that is antithetical to capitalism.
Given the need for price-value divergence as the basic coordinating tool of a capitalist society, why do so many critiques of Marx involve pointing to price-value divergences as proof that labor is not the only source of value? It seems there are two ways of interpreting Marx’s theory of value, one which leaves the theory open to the price-value divergence critique and another which does not.
Theory 1, Equilibrium Marx.
In this theory little if any attention is paid to the distinction between value created in production and value commanded in exchange. Instead Marx’s theory of value is seen as a theory which predicts that labor-time is the ultimate determinant of market prices (or prices of production see Chapter X). Paul Sweezy gives a brief summary of what has to become a dominant interpretation of the theory:
“As a first approximation Marx assumes that there is an exact correspondence between exchange ratios and labor-time ratios, or, in other words, that commodities which require an equal labor time to produce will exchange on a one-to-one basis. This is the simplest formula and hence a good starting point. Deviations which occur in practice can be dealt with in subsequent approximations to reality.”11
In this tradition individual value is equal to price in conditions of equilibrium. Marx’s theory is seen as describing the equilibrium conditions of capitalism. ‘Subsequent approximations to reality’ are then introduced into the picture as if we were adding new dimensions to a model. Each new dimension adds a level of complexity which complicates this simple picture of equilibrium. First socially necessary labor time shows that market price is only equal to the average individual values. Then the theory of price of production modifies the picture. Finally the introduction of supply and demand modifies the picture further.
Even though these ‘subsequent approximations’ increasingly move market price away from individual value the claim is always that individual values are always determinate of market prices in the end. For instance, it is said that demand and supply fluctuations eventually cancel each other out. Labor-time is conceived as a center-of-gravity which pulls prices towards it, always moving the economy towards this equilibrium point where individual labor equals market price. Often the neoclassical concept of “long-run” is evoked, arguing that price-value divergences cancel each other out in the long run.
This equilibrium version of the theory leaves itself wide-open to a quite vulnerable attack. Since the economy is never in equilibrium what right do so-called Marxists have to use this as a basis for their model of ‘subsequent approximations’? If market price is modified by all of these other factors why are these other factors not also determinative of value? And why do we need successive levels of approximation in order to understand price? Prices happen all at once, not by moving through multiple levels of abstraction. Labor doesn’t first become socially necessary labor time, then become prices of production, then become market price. Labor produces commodities which immediately have prices. The equilibrium theory treats value as if value is a ghost, a spectral presence moving invisibly through the background of the market, slowly pulling prices toward equilibrium.12
Theory 2, Disequilibrium Marx
This second view, distinguishes itself from the equilibrium tradition by distinguishing between value created in production and value commanded in exchange. (The most developed line of thought in the disequilibrium tradition is the Temporal Single System Interpretation developed by Freeman, Kliman, McGlone, Carchedi and others.)Through this distinction it is able to explain the way price-value divergence functions as the basic mechanism of apportioning and disciplining indirectly social labor. Rather than explaining away the fluctuations of supply and demand as deviations to be abstracted from in an ideal equilibrium model, the deviations of supply and demand are necessary parts of the theory. They are what allow the value commanded in exchange to be sometimes greater or sometimes less than the value created by individuals in production.
For Cohen it seemed completely illogical for a commodity receive a price higher than its labor content. This seemed, for him, to be proof that value is coming from something besides the private labor that went into the commodity. Indeed value is coming from elsewhere: from other value produced elsewhere in the economy (but not from some other non-labor source like utility). A commodity that sells for a higher price than its labor content is commanding more value in exchange and this is an essential part of the functioning of capitalist value relations. There are many forces that cause prices to deviate from values: productivity, changes in supply and demand, monopoly, etc. But causing a price-value deviation is not the same as creating value.
The forces that cause prices to deviate from value have their own laws and must be examined separately from the question of value creation. For instance, monopoly prices are a result of a single seller restricting supply in order to make super-profits through marked-up prices. The study of monopolies lies in the theory of the concentration of capital. The strength of a monopoly can be measured, in part, by the gap between the monopoly price and the actual value of the product.13 If we didn’t have a concept of value, if we just took prices to be the result of supply and demand with no underlying social forces behind them, then we would have no way of theorizing what a monopoly price is.
For Marx, value is created in production and redistributed in exchange. This agrees with our commonsense understanding of reality. Commodities are created in production and they are distributed in exchange. When they are sold for money these money signals then ricochet their signals to the factory floor and management offices where they effect future production.
Imagine I spend an hour making an apple pie and trade it for a loaf of bread that took Bob two hours to make. I have gained an hour of social labor through the process and Bob has lost an hour. In addition to a transfer of objects there has also been a transfer of labor time, but there has been no change in the total amount of labor time in society. Regardless of the reasons for this unequal exchange (supply and demand imbalance, cheating, etc.) value has been created in production and redistributed in exchange.
For Cohen it seems like value has come out of nowhere: I worked for one-hour but got two-hours in return! But Bob has lost an hour of labor time and thus there is no mystery as to the source of the value. Cohen’s line of thinking comes directly from an equilibrium concept where labor is directly social and commodities always sell at their prices. But we can clearly see that my extra hour of social labor came directly from Bob. The extra hour was not created by supply and demand imbalances. Supply and demand imbalances created the condition with which I could appropriate an hour of labor in exchange. The hour of labor is still an hour of labor regardless of what the forces are that cause it to be commanded in exchange.
By distinguishing between value created in production and value commanded in exchange we avoid this problem of thinking that price-value divergences are evidence of some other non-labor source of value.
Value is created in production and redistributed in exchange. The value commanded in exchange is the commodity’s price. Price-value divergence are the mechanism of apportioning and disciplining labor in a capitalist society. This is the only means of coordinating indirectly social labor.
Confusion arises when we take Marx’s claim that only labor can create value and twist this into the claim that labor determines equilibrium price. This claim takes many forms: that values determine price in equilibrium, or in the long-run, or as fundamental levels of abstraction which are then modified in later models, etc. All are variations on the theme of equilibrium. If Marx is interpreted as an equilibrium theorist then we throw out the entire purpose of price as a coordinating mechanism. In addition all instances of price not equaling value seem to be exceptions to the theory that must be explained away. We had to erect arbitrary stipulations (“Marx was only interested in useful labor”) to bracket away all the bothersome divergences. This can result in a mess of stipulations, restrictions and conditions that make Marx’ value theory seem more like a partial postulate than an explanatory theory.
Such an approach stands Marx on his head. It narrows Marx’s focus onto a claim that labor is the source of value rather than understanding his theory as one which explains the mechanisms through which the labor process is coordinated. Marx’s value theory is treated as nothing more than a preliminary stepping stool to his more important theory of exploitation. In fact, many modern ‘Marxist’ economists call his theory of exploitation the “Fundamental Marxist Theorem” (FTM), and test the validity of their value theories solely on the basis of whether or not they can maintain the ‘FTM’.
As important as the theory of exploitation is to Marx’s theory of value, his value theory is more than just a prerequisite for proving that capitalists exploit workers. It is also a dynamic theory of the temporal process of production and exchange in a society organized through the value relations between commodities. When understood in this way his value theory allows us to do more than just expose exploitation as the source of profit (as important as that is.) It also allows to understand the alienation of labor, the incessant revolutions in technology inherent to capitalism, the chronic instability of the system, and crisis.
1Marx, Grundrisse p.156
3The crucial theoretical piece, which we will explore more in future chapters, is the fact that money is the representation of value in general. Thus when price is above value the seller gets more value in exchange than the actual value of the commodity being sold. And when price is below value the seller loses value in the exchange.
5Harvey and Geras “Marx’s Economy and Beyod” p.7
7Marx, Capital vol. 3 p. 189
9Carchedi, Gulliermo. “Frontiers of Political Economy”
11Sweezy, Paul “The Theory of Capitalist Development” p.42
13Wright, Erik Olin. “Class, Crisis and the State.”