Law of Value- I. Introduction (draft)

This is a draft of a script from my upcoming video series “Law of Value”.


Why you should care about the labor theory of value.

Some historians claim Ben Franklin was the first to articulate a labor theory of value though the idea found its first full expression in the hands of the famous economist Adam Smith. For Adam Smith, David Ricardo and all of the classical political economists this theory meant that in some form or another economic value was based around human labor. Smith, Ricardo and the classicals were proponents of capitalism and radical critics of landed-property and feudal traditions. They thought that the law of value was a law of equality between people in the market, of the fullest expression of human freedom, and fullest satisfaction of human desires through the hidden hand of the market.

But nowadays we most often associate the labor theory of value with Karl Marx, the great critic of capitalism. In the hands of Marx the labor theory of value became a tool for the analysis of the antagonistic social of relations of a capitalist society. Marx said that in addition to many of the positive aspects of capitalism like its explosive technological progress and the creation of legal equality between people, there were also inherent social antagonisms that led to inequality, crisis, exploitation, and violence. These were inescapable, inevitable features internal to the basic concept of value. If people really wanted to change the world, Marx said, they first really needed to understand how value worked.

After Marx had taken the labor theory of value to such radical conclusions no economist could touch the theory without implicating themselves in its radical implications. In an effort to create some sort of alternative to Marx there was a flurry of interest in subjective theories of value that abstracted away all property relations, all production relations, and all temporal motion to redefine economics as the study of individuals’ psychological evaluations of consumer preferences. Eventually this new theory of “marginalism”, or what we nowadays call neoclassical economics abandoned the notion of value altogether, its focus turning more and more to abstract mathematics, and away from social questions.

[Marxists continued to develop the theory of value throughout the 20th century, but they were marginalized in academic economics. (Many contemporary Marxists economists actually teach neoclassical economics in universities for their day job.) In the left-movements of the 60s and the economic crisis of the 70’s there was a resurgence of interest in marxist economic theory, especially as people sought explanations for the economic crisis of the 70’s. This resurgent interest sought to recover the original intent and emphasis of Marx’s theory, separating it from the political distortions of Stalinism and Maoism….]

So… why should you be interested in this somewhat old and marginalized theory of value? We are entering a period of profound economic, political and cultural crisis and the theoretical foundations of mainstream economics are not capable of providing us with the tools we need to make sense of the world. A society without ideas, without the ability to critique itself, is a dangerous society. Such a society can only explain its failures by blaming outside forces- the FED, socialists, terrorists, chinese, jews, aliens…

Mainstream economics has become a stagnant discipline, chasing its own tail in an endless frenzy of equations which don’t have any relevance to the real world. Economists abstract away all of the important elements of society like production relations and time, basing their theories on baseless assumptions. Then, when the real world fails to live up to their predictions they blame the world, not themselves. Whereas students in other social sciences learn about a wide variety of theoretical approaches to the problems of their field, economics departments typically have no diversity of opinion at all in their curriculum.

But the history of the last 30 years can not be explained by the theories of mainstream economists. While markets were unleashed, trade was freed from its national boundaries, and credit markets were allowed to coordinate investment at unprecedented levels this did not create a world of “general equilibrium” that improved the conditions of the majority. Instead the neoliberal era has been one of unprecedented levels of global inequality, of concentration of enormous wealth in fewer and fewer hands, and now global economic crisis.

The failure of mainstream economics to explain any of these social problems except by blaming the world for not living up to its theories is leading a growing number of people to look for alternative economic ideas. From the “post-autistic economics” movement amongst university students for more diversity in economic departments, to the growing number of thinkers challenging the orthodoxy, to the rise in sales of Das Kapital, there is a growing interest in alternative ways of thinking about the world.

Marx has one of these alternatives. That doesn’t mean that Marx is the only alternative theory or that it explains everything about the world. But it does offer a lot of powerful insights from a perspective that no other economic theory has. For that reason it is important that more people take it upon themselves to educate themselves about Marx. The place to start is with his theory of value.

Many people, supporters and opponents of Marx, think that they already know all there is to know about Marx’s theory of value. Let’s take a brief quiz to find out how much you know. Here are 10 True or False questions. Take out a paper and pencil and keep track of your answers. I’ll give the answers at the end.

True False Quiz:

1. Marx’s theory of value holds that any human labor creates value.

2. Marx’s theory of value is intended to be a theory of market prices.

3. Marx’s theory of value is the same as his predecessor David Ricardo.

4. Marx didn’t believe the forces of supply and demand were relevant to explaining value.

5. Marx’s theory of value is a theory of what workers should get paid.

6. Marx’s theory of value was a theory about how a communist society should be run.

7. Marx didn’t think consumer demand played a role in prices, value or other economic phenomena.

8. Marx’s theory of value doesn’t work in free markets.

9. Marx’s theory of value can’t explain why useless things like mudpies don’t have value.

10. Marx hated babies.

The answer to all of these questions is “FALSE”! If you answered “True” to any of them then perhaps you don’t know enough about Marx’s theory of value to actually make an informed judgement about it. If you are interested in understanding one of the most thorough theoretical critiques of capitalism ever created then perhaps this video series might be a good starting point. If you already know that you are going to hate Marx’s analysis then perhaps watching this video series would be a good starting point in educating yourself so that you don’t sound like a total idiot when you go mouthing-off all over the internet.

How you should watch these videos

The internet has given us access to more information than any generation before us. It has allowed for a great leveling of our access to information, allowing everyone to contribute to the sharing of information. But this hasn’t necessarily made our culture better informed, more intelligent, or better at critical thinking. In our rush for instant information we are losing our ability to properly contextualize information, to synthesize ideas, and to discern what sources of information we can trust.

You can’t learn everything you need to know about capitalism from a YouTube video. On the internet any fool can and will explain their inarticulate and half-formed personal theories into a web cam. These videos are not meant to be like that. They don’t represent my ideas at all. I am trying, to the best of my ability, to explain a complex body of intellectual work that spans a long history of debates as people grappled with these ideas. By acquainting ourselves with the history of ideas we can make sure that we don’t repeat the mistakes of the past, and that we are aware of the implications of our arguments. This is a level of intellectual responsibility that more of us should aspire to online.

But a video or a blog cannot substitute for the real thing. These videos are my own attempt at represent Marx’s ideas to the best of my ability. But these are complex, difficult ideas and I am not perfect. I may make mistakes. I may leave things out. If you really want to understand Marx you must go to the source.

We should also be aware of the ability of video to manipulate us on an emotional level.  Images, tone of voice and background music can all be helpful in helping us understand things. But they can also evoke emotional responses that are not necessarily rational. We should be aware of the way media effects our understanding of material and not let this get in the way of rational intellectual thinking.

There are a lot of ideas in each of these videos. One viewing may not be sufficient to absorb everything. That’s why I post the full text on my blog. The blog sometimes also contains tangents and side-arguments that were cut from the video as well as references and suggestions for future reading. I hope that the references on my blog might be a good starting point for people who are interested in learning more.


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8 Responses to Law of Value- I. Introduction (draft)

  1. Pingback: Law of Value- drafts for the upcoming video series « Kapitalism101

  2. contra imperialismo says:

    This is going to sound really pedantic but talking about the “distortions” of Maoism etc doesnt really seem relevant, and especially seems oddly out of place considering the generally positive view of Mao held by Joan Robinson, Paul Sweezy etc.

  3. Giorgio says:

    In the third paragraph you say that marginalism was created as an alternative to Marx’s
    I have found some criticism to this thesis, e.g.
    Section “The Marginal Revolution and Marxism”.
    That section also points out that, even though “the first volume of Das Kapital was not published until July 1867, after the works of Jevons, Menger, and Walras were written or well under way”, “it is not unreasonable to suggest that part of what contributed to the success of the generation who followed the preceptors of the Revolution was their ability to formulate straight-forward responses to Marxist economic theory”.

    IMHO, if you mention the relation between Marx theories and marginalism, it might be useful
    to discuss this point a bit more in detail, so that your statement (marginalism is a reaction to Marx’s theories) is more difficult to attack.

  4. James says:

    First I think disassociating Marx from the failures of 20th century Communism (or state Capitalism) is vitally important if his thesis is to hold any water. This is because his entire analysis is dependant upon an alternative (and more desirable) mode of production being theoretically plausible. For example the concept that workers produce all the wealth while capitalists just police and manage production, circulation and distribution is only valid if we argue that this capitalist input is non-essential for these processes to function.
    Brendan I know I recommended to you ‘Economic theory of the leisure class’ by Bukharin but If you want a more academically rigorous assault on marginality then Maurice Dobb is excellent, see ‘requirements of a theory of value’ and ‘theories of value and distribution since adam smith’.
    Can I add that what I’ve read so far is excellent and really important. If you wanted to do a video on what a socialist society could look like I really recommend Michael Albert’s Political Economy of Parecon and Pat Devine’s’Democracy and economic planning: the political economy of a self-governing society’ (but it’s out of print so if you can’t get it some of his journal articles summarise the model quite well.) Both models are really compelling.

  5. ZeroNowhere says:

    Hm, I’m not sure about the ‘market prices’ one. Value certainly does have relevance to Marx’s writing on prices, given that price of production is equal to cost-price plus average rate of profit. As profit originates from surplus-value, one could say that value sets the general price level and general rate of profit, rather than particular prices. Or, alternatively, total value = total price, and total surplus-value = total profit (‘aggregate equalities’). So yeah, it’s a bit vague, though I suppose I can see what you’re getting at (the theory of value is not a theory to explain individual prices, I think?).

    Still, quite a few of those are common and rather annoying misunderstandings, so the quiz is a good idea.

    • My intention was to challenge the idea that the GOAL of value theory is to explain prices. Prices are a special form of value. Value as a social relation is the focus.

      • ZeroNowhere says:

        Fair enough. Perhaps it would make sense to put ‘The goal of the theory of value is to explain prices’ or some such to be clear? Because Marx certainly did intend his theory of value to have a relation with market price, at least, in the aggregate, and derives value from exchange-value.

      • This is a good point.

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