Browsing the web for good criticisms of the labor theory of value (LTV) to ponder as I plan my upcoming video series on the LTV I came across this stunning piece by Brad DeLong, (DeLong is a rather well-respected mainstream economist.):
I know it’s 4 years old, but I couldn’t help but comment on it seeing as how it’s such a stunning example of the ignorance of mainstream economics. What is most stunning about DeLong’s explanation and critique of the LTV is that he actually explains and critiques Marx’s theory of exploitation, not the LTV. That such a well respected, credentialed economist can make such an obvious mistake- could be so profoundly ignorant of Marx yet so eager to offer a critique- is a damning comment on the pathetic state of mainstream academic economics. (Readers may recall DeLong’s embarrassing attempt to criticize David Harvey earlier this year in which his criticism of Harvey mostly consisted of the fact that DeLong couldn’t understand anything Harvey had written.)
Yes the LTV is an essential part of Marx’s theory of exploitation, but that doesn’t excuse conflating the two. Gravity is an important part of a theory of friction, but that doesn’t mean they are the same thing. Still, since DeLong has gone to the trouble of writing a critique of Marx’s theory of exploitation, let’s see what he has to offer.
Brad DeLong sets up an intentionally “rigged” example in which some farmers intentionally starve themselves for 10 years to save up money which they invest in capital, hire employees, and become capitalists. In the course of doing so they also raise productivity. The wages of the workers they hire are higher than they were when they were poor, independent producers. DeLong then asks what is so bad about this- why is it exploitation?
Of course his example is asinine, and he admits this: “yes, this example is rigged: that’s the point. The aim is to construct useful analytical categories that will help one identify and assess injustice. The aim is not to construct analytical categories–like the labor theory of value–that claim to find injustice whether there is in fact injustice or not. The fact that the labor theory of value finds injustice whether it is there or not is a sign that it is not the brightest light on the tree of good ideas.”
But actually his asinine example is only the beginning of his problem. DeLong seems to think that the entire point of the theory of exploitation is just to make a moral point that profits through wage-labor are “evil” (though he doesn’t even get specific enough to mention wage-labor). To think that this is Marx’s main thesis is an irresponsible simplification. Marx is interested in describing the laws of motion of a capitalist society. This requires looking at individuals in terms of their relation to economic structures. Where there is wage-labor there is one class that extracts surplus value form another. Marx is very clear that this raises social productivity, that is\t allows wage-earners to buy more use-values, and that the income of wage-earners is often higher than unskilled self-employed workers (the 3 points DeLong supposedly thinks refutes Marx’s notion of exploitation). Because surplus value exists a certain social relation exists. This social relation has certain tendencies and internal contradictions that Marx is interested in analyzing. It may take different historical forms of appearance depending on different mediating historical circumstances (It may be more or less antagonistic, it may be more or less degrading to those exploited, it may be more or less easy to draw moral claims against it…). But the basic contradiction of the wage-relation is always there: the inherent antagonism between capital and labor. This means that wherever we see the labor-capital relation there are certain inherent tendencies we can observe. These tendencies are the primary issues that concern Marx, not some a priori moral critique based on hypothetical scenarios that don’t exist in the real world.
If we were to set DeLong’s model into motion we would observe tendencies that closely track Marx’s theory of capital. In fact, already in DeLong’s example we see centralization of the means of production, proletarianization of independent producers and rising productivity. If we continued in time we might also see class struggle, polarization of wealth, and crisis. All along the way we could ask the question, “Is individual x better off or worse off than they were last week?” The answer would vary according to the state of class struggle, the place in the accumulation cycle, and plenty of other mediating factors. But the basic laws of motion of capital would always be there. If DeLong wants to refute Marx’s theory of exploitation he needs to offer a critique of these laws of motion, not a critique of the moral relevance of the theory based on asinine examples.
In DeLong’s argument about rising productivity we see the germ of an idea which is often used as a moral justification for exploitation. I like to call it the “cellphones in the ghetto” argument. Let me explain: The rising productivity of labor associated with exploitation means that though workers are more exploited, the amount of use-values they can afford to own often increases. For instance, “poor” people living in the ghetto drive fancier cars, use-cell phones, own computers, and have access to all other sorts of consumer goods that poor people in Marx’s time had no access to. Wealth measured in use-value has increased. Yet in value terms (Marx’s main concern) exploitation has increased as has the polarization of classes. In other words, poor people in the ghetto are still poor people and the ghetto is still a ghetto even though there are cellphones. Marx would say that as long as we have capitalism we will have poor people and ghettos, even if they all have cellphones. This is because capital and value are social relations, not bundles of use-values (or, more specifically, social relations expressed through use-values.) Perhaps if DeLong knew anything about Marx’s theory of value (which puts the idea of fetishism at its core) he wouldn’t make such a tacky error as to conflate use-value with value. But, as we’ve seen, DeLong seems perfectly content to form his opinions prior to understanding the objects of his critique.
Again, in case I didn’t make it clear enough, DeLong does not actually refute the idea of surplus value in his example, rather he asks why surplus value should be considered “evil” in an example where capitalists have to starve themselves for 10 years to become a capitalist. That a modern economist could make such a pathetically vulgar allusion to the theory of “abstinence”, 150 years after Marx bashed J.B. Say to pieces over his theory of abstinence, shows a profound ignorance of the history of economic ideas.
Now, I should exercise more responsibility than DeLong here and admit that I am not an expert in economic history and that there are plenty of things I don’t know about the history of abstinence, time-preference and all of the historical inheritors of these theories. My remarks here represent the best of my own incomplete understanding. Abstinence theory was a thin justification for the exploitation of the British working class during the early years of the Industrial Revolution. It argued that capitalists deserved profits because profits were a reward for their own deferred consumption- that they invested in production rather than in their own consumption. But abstinence theory merely provided a moral justification for profit, not an explanation of its source. This was Marx’s starting point- the investigation of the source of profit, not a moral claim to who deserves the fruits of labor. He does make the moral claim, but it follows from an analysis of the nature of profit.
One of Marx’s main points in this argument was that profit can’t originate in exchange. Value can only be moved around in exchange- the aggregate amount of value doesn’t expand merely by exchanging products. (If this doesn’t make any sense to you, you must realize that Marx was not talking about subjective utility when he talked about value, but rather a social substance created by social labor.) Yet profit is clearly a phenomenon where the capitalist buys inputs for one sum of money and sells outputs for a greater sum. From where does this surplus value originate if not in exchange? It originates from the one commodity that is unique from all others in that its use-value is that it creates value: human labor. Of course the productive powers of social labor appear as powers of capital. This is because capital, spurred on by its own self-expansion, centralizes the means of production which, in turn, lead to increased cooperation amongst laborers leading to increased productivity. Thus it appears that capital itself has increased physical output. But it hasn’t. The cooperative power of labor has. This is proven by the fact that cooperative workplaces can be just as productive as privately owned workplaces (see Mondragon). Of course, just because labor is more physically productive doesn’t mean it’s more productive of value. This last point, of course, leads us to Marx’s theory of crisis- but now I am getting off-topic…
The problem with the theory of abstinence is that is was just a thinly disguised moral justification for exploitation. The theory needed to replace bourgeois-moralism with an alternative account of the existence of surplus value. This is what “time-preference” did. It explained the existence of profit by referencing the newly emerging theories of marginal utility: it was the difference in subjective valuations of goods over time that explains the emergence of more valuable goods at the end of the production period than at the beginning. But this new version of abstinence theory made the same mistake as the old: ascribing the social powers of labor to capital. Production takes time. Capitalists own the means of production. They can afford to wait. Workers don’t own the means of production. They must work for capitalists. Workers work for capitalists and create profit. Work takes time. This is why Marx said value was created by “socially necessary labor TIME.”
There may be all sorts of modern versions of abstinence theory that I am not familiar with, so I won’t pretend to be able to critique what I don’t yet understand. But nothing in DeLong’s “rigged” example seems to distance him from the most crude theories of abstinence.
Now, in a time in which the models of general equilibrium and Pareto Optimality of the neoclassical tradition are more hollow and irrelevant than ever, the ideas of Marx are more relevant than ever. People need to be able to read and think about Marx’s ideas on their own terms, without the interference of ignorant interpreters like DeLong. For too long we have relied on “experts” to tell us what Marx said and look what that has gotten us…