This is a draft of my script for the 8th video in my Law of Value series (see link to the right). All comments and criticisms are extremely welcome… that’s why I post these scripts before going into production.
One of the more common objections raised to Marx’s theory of value, at least here in the theoretical void of cyberspace, is the objection posed by subjective value theory. Though these modern objections often take quite a crude, simplistic tone, they are echoes of a rather old debate, one that dates back to debates between Marxists and Austrian economists that took place in the late 1800’s and early 1900’s. Austrian thinkers like Bohn-Bawerk and Mises were staunch defenders of free markets and private property, seeing capitalism as the ultimate expression of human freedom. In response to the revolutionary challenge of Marx’s economic ideas they advanced an alternative view of economics in which economic value was not determined by human labor but by the subjective valuations of individuals.
The Austrians called their theory Subjective Value Theory (STV) and they called Marx’s theory an Objective value theory. Marx himself never used this sort of language to describe his theory because such a simplistic dichotomy would have robbed his theory of much of its nuance and depth. Nevertheless, Marx’s defenders often accepted this dichotomy, advancing a staunch defense of Marx’s supposed “objective” theory of value. If we really want to understand Marx’s theory of value we need to dig a little deeper.
At first it may seem that this debate over value theory is purely an academic one, not so urgent an issue in these times of crisis and political upheaval. But value theory actually sits at the center of any theory of capitalism and is therefore extremely relevant if we are to understand this crisis of capitalism. The Subjective-objective debate is more than just an academic feud about how to theorize prices. It is a debate about two rival visions of the world, one deeply apologetic of capitalism and one radically critiquing it.
Though mainstream neo-classical econ has sought to distance itself from the the particularly extreme capitalist apologetics of the Austrian school, both share a common origin in the theory of Marginal Utility. This economic crisis has brought to light the utter bankruptcy of mainstream economics as its ideologues stutter and stumble in the face of an economic depression that doesn’t fit into their models. An economic crisis is also a time of political and ideological crisis. In an ideological crisis it is important to understand the failures of the dominant ideology so that we know what we are fighting and how not to replicate those mistakes in our own movements. Therefore we will need to spend some time in this video laying out some of the fundamental failures of the subjective approach to economics.
If economic value is subjective, as the theory of Marginal Utility argues, then the marketplace is just a clearinghouse for our desires. It serves as a vast, unconscious, democratic network, adjusting needs and production with scarcity to provide the best possible organization of our competing subjectivities. The outcome of this market process can’t be critiqued because it is just the spontaneous result of our desires. There is nobody to blame if something goes wrong. Responsibility is dispersed between millions of individuals. The only thing we can critique, from the Austrian perspective, is those who try to interfere with this market process.
If value is entirely subjective then we can have no theory of exploitation. The division of the social product into wages of workers, profit of capitalists and rent to landlords is not explained by the power of these social classes. Instead it is seen as the result of purely technical factors, like the scarcity of inputs relative to the subjective decisions made by workers and capitalists as they enter into free contracts. Rather than a theory of classes, we have a theory of pure individuals, all seen as equals in the market.
And since individuals have always had subjective values the subjectivists can argue that capitalism is the expression of universal human characteristics and not a particular historical form subject to change.
Marx would not disagree with the obvious fact that individuals make subjective choices in the market. But he would not be very interested by this fact since these choices happen within the context of larger institutional arrangements which we have no choices at all over. It is these larger structures which we don’t have choices over that Marx is interested in: Private Property, wage-labor, commodity exchange, and the law of value.
Individuals may have the power to choose coke over pepsi but this pales in comparison to our lack of freedom to chose what sort of world we want to live in, to chose meaningful occupations, to live in a world without poverty, injustice war or exploitation. In a capitalist society economic laws have power over people and governments and there is nothing we can do about it. We are all hyper-aware of this fact today as we watch the most powerful people and states in the world flounder helplessly in the face of this economic crisis. The Law of Value commands, people obey. For Marx the market is a place where blind economic laws dominate over us, where subjects are powerless and where objects like money and commodities are imbued with social powers.
a point of clarification:
The argument for a subjective theory of value may appear self-evident at first when we consider the obvious fact that everyone makes subjective value judgements when they go shopping, deciding which commodities we prefer over others. But the personal value judgements we make in our heads are not the same as the exchange values of commodities. Commodities have exchange values, the values they possess in relation to other commodities. Exchange value is most often expressed in money prices.
The discussion can get confusing if we forget that we are using the word “value” in two different ways. In the first sense we are talking about personal, subjective, psychological value judgements that are immeasurable and unquantifiable. In the second case we are talking about quantitative, measurable exchange ratios between commodities (so many apples exchange for so many pencils). Just because we use the word “value” for both things doesn’t mean they are the same.
STV argues that we can understand exchange-ratios solely through a theory of the subjective, psychological motives of consumers. It’s attempt to do so is fatally flawed, shot through with unwarranted assumptions, shoddy abstractions and circular logic. Let’s take a look at some of these problems
The Subjectivist Vacuum, or, Pay No Attention to the Man Behind the Curtain
Welcome to Subjectivist Island. Here lives Eugene, our happy island barbarian. Everyday Eugene makes choices. He decides to spend his time building his teepee, catching fish, practicing his backstroke. He likes the backstroke most of all, but after so many laps around the island he gets tired of it and starts to prefer catching fish or teepee building. Intent on maximizing his utility, Eugene gets out some paper and a pencil and makes himself a preference scale so that he can figure out the exact proportions to devote to all 3 activities each day. He cherishes this preference scale because it is the source of his freedom. It’s just like the preference scale you carry around in your pocket everyday….. you carry one don’t you?
Ok, now setting aside the fact that most of us don’t carry around a preference scale in our pockets, there is a bigger problem: Subjectivist want you to believe that this little story about Eugene and Subjectivist Island is all that you need to know in order to understand the functioning of modern capitalist society. Funny then, that we had to abstract away all of capitalism, all society in fact, in order to arrive at our theory of preferences. Were we to think critically we might begin to suspect that there is something fishy going on with this abstraction.
That fishy something is the stink of an ideological abstraction. We discussed such ideological abstractions in the last video, Law of Value 7, but let’s review a few points here. The point of a dominant ideology is to make it seem like the present order of things is a universal order; that the status quo is the natural expression of things, unchangeable. How convenient then, for our bourgeois theorists, that our natural, universal man, Eugene, happens to contain the seed of modern capitalist society in all of his preferenc-ing and acting. It’s as if every choice made by every human since the dawn of time was just an expression of capitalist instincts, waiting to come into being in our modern society. (footnote re Hayek)
But it’s not enough just to point out the obvious ideological basis of subjectivist theory. We must also prove that this ideological abstraction is illegitimate. Let’s do that. It should only take a few minutes.
The parable of Subjectivist Island leads one to think that human desires are formed privately, independent of society. But this has never been the case. Desires are taught, socially constructed, and can’t be understood independently of society. How do subjectivists respond? They say “Yes desires may be constructed but this is out of the scope of economic so we don’t have to consider it.” In fact, this is how modern economics deals with all criticism- it ignores it and says it’s the topic of another discipline. How convenient! It’s like saying that we don’t have to consider the fact that the earth is round because that’s beyond the scope of flat-earth theory.
We can’t understand desire without also understanding the ways in which we go about attaining our desires. Here’s where the abstraction of Subjectivist Island breaks down. On the island Eugene attains his desires by directly acting to get the things he wants. But these are not the sort of choices we make in a capitalist society. Subjective value theory has to prove that it can move this abstract model of choice from Subjectivist Island to a full-scale capitalist economy.
It does this through the fantasy of barter. Let’s say Eugene, while back-stroking one day, discovers another island called Barter Island. Here lives Ludwig who cracks coconut all day. They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish.
“Now,” says the subjectivist, “we have shown that our abstraction was legit and that we can explain exchange ratios purely through the science of preference scales.” If only it were that simple.
The first thing we might notice is that the exchanges on Barter Island can only take place because Eugene and Ludwig have different resource endowments. If they both had access to coconut and fish then there would be no reason to trade. In order for trade to continue in a sustained way, trade must reproduce these differences. This means that in order for a capitalist market to work there must be the constant reproduction of a certain type of property relations in which people have to enter the market in order to get what they need to live. Specifically people must be deprived of their own means of production, forced to enter the market to sell their labor in order to buy the things they need. This property relation must be continually reproduced through exchange so that there is always scarcity and people are always dependent on the market.
Thus, we can see that something very sneaky has been done. Hmmm… what is it? We were trying to form a theory of barter based solely on subjective preferences when all the sudden we realized we needed to assume a certain type of property relation in order to make any sense of it. Thus, abstracting away property relations and forming a theory of exchange without them is impossible and illegitimate.
Even more damning is the fact that capitalist societies don’t have anything to do with barter. People don’t produce to directly exchange products for other products. We produce in order to exchange things for money. Money is an intermediary in all economic activity. So it makes no sense to say we measure our subjective utility for coconuts against fish when exchanging. We measure everything against money. When you are in the supermarket calculating your preference scales with the Preference App on your iPhone you aren’t just considering your preferences for fish and coconuts in the abstract, as if on a desert island. You are also considering the market prices of these commodities. This market price already exists before you make your subjective value judgements. But this is problematic. Subjective valuations were supposed to explain price, but now we have to assume the prior existence of prices in order to explain subjective value judgements. It seems we are stuck in a big messy circle.
And if we are exchanging everything for money then we must have a utility for money right? But money has no direct utility. It’s not even good for blowing your nose on. The value of money is what it will buy. And this not set by our preferences but instead reflects the relation of money to all other commodities, reflecting the vast interpenetration of millions of markets all over the world. There is no such thing as a personal utility for money because money’s value is already established by forces beyond our control. (footnote on how weak Mises’s response to this is).
And there are more difficulties presented to subjective value theory by the presence of money. On Barter Island Eugene and Ludwig had direct knowledge of what they were getting from each exchange. But in our world we don’t know exactly how much everything is going to exchange for ahead of time. When we sell a product in the market we don’t know exactly what products we will be able to buy with that income. There is a high degree of uncertainty. But with so much uncertainty how are we ever to form those nice, rational preference scales where we’ve perfectly calculated the exact utility relations of all commodities to each other? Well, we can’t!
[The neo-Austrian response to this problem is to distance themselves from the neo-classical idea of the rational consumer and to stress the imperfect information of the consumer. Rather than consumers being super-rational beings that can calculate the relations between the objects of desire, the fallibility of human understanding is stressed and the market is seen as the ultimate informational clearing house which adjusts the imperfect desires of the multitude, smoothing them out, allocating resources in the most efficient and democratic way. Their language often takes on religious overtones here, stressing the inherent insufficiency of human judgement against the omnipotent, mysterious power of the market. The problem is that these magic moves of the hidden hand of the market are just asserted and never proven. Rather than actually proving that the market can do this Austrians prefer to stress that the only alternative is the State-Communist BogeyMan.]
It seems that every time we try to abstract away property relations and production relations they end up sneaking back into the picture. This is because it is absolutely illegitimate to try to explain capitalism without a theory of the social relations between people as they actively produce the world we are living in. Luckily we have a better theory, that of Karl Marx.
Real Abstraction, or Why Karl Marx is Still Relevant
In case you were wondering Subjectivist Island and Barter Island don’t exist. They are abstractions. Now every theory needs abstractions- we must sift through a world of data and identify the broad contours and important categories that define reality. Subjectivist and Barter Islands are “ideal abstractions”, that is, abstractions that exist only in the minds of philosophers. [footnote on praxeology] Marx makes a different kind of abstraction, a “real abstraction”. A real abstraction is not made by philosophers arbitrarily leaving out parts of social reality. A real abstractions is made by reality itself.
In a capitalist society human labor becomes abstract. In the caste system of feudalism where people were born into certain types of work and there were strict divisions between castes there was no such thing as labor in general, or a worker in general. But in a capitalist society labor loses all of these specific features. People aren’t peasants, soldiers or guildsmen. They are just workers. We have “a job”. Our education prepares us for “work”, and we move between multiple jobs in a lifetime. Most of all, economic value is not tied to this work or that work but to labor in general. It is labor in the abstract that creates value, regardless of the specific nature of this work. We will discuss this more in Law of Value 9: Abstract Labor.
Outside of the ideal abstractions of philosophers, in the real world, subjects and objects have no meaning apart from their relations to each other. There is no such thing as a subjective individual floating in a vacuum. Subjects form their sense of self, their meaning, in relation to an objective world. While the objective world can surely exist without subjects, it has no meaning for social theory except the meaning that people give it. If people decide that gold is valuable then it is valuable. Subjects and objects derive their meanings from each other.
Furthermore, subjects and objects don’t derive these meanings by coexisting side-by-side. There is an active process of by which subjects engage with the objective world, transforming it. In other words, people work on nature. We chop trees and make houses. We build cars and dig up oil to power them. In so doing we transform the objective world and also transform ourselves. The subject-object relation is an active one. In different times and places the way we as subjects transform and relate to the objective world has varied. These different modes of relating to and transforming the world Marx calls “modes of production”. Modes of production are inherently social, defining the way large groups of people transform and relate to the material world. The capitalist mode of production is his primary topic of interest to Marx.
Notice that the subject-object relation, as we are talking about it here, is not just an ideal relation, based on our ideas about the world. It is based in real, concrete working activity of people actively transforming the world. This is what is meant when Marx talks about “materialism.” He wants to stress this real-world process of human activity as opposed to theories that dwell in ideas and psychology, like that of the subjectivist school that think we can understand capitalism just by an examination of the psychology of consumers. Often people think that “materialism” means that individuals are unimportant, or history is predestined, but this is not what Marx means. He wants us to understand the specific ways in which subjects and objects relate through the real activity of people in their day-to-day activity, in their mode of production.
A curious thing happens in the capitalist mode of production: the subject-object relation gets inverted. Objects take on social power and individuals are left powerless. Blind economic laws rule and people obey. All along subjects are still the active participants, the ones working and transforming nature into objects for human use. But somehow people cease to act for themselves and instead act for objects. Money becomes more powerful than people. Corporations become people and exert more power in society than individuals or even social movements. While people run around in the street with signs begging the system to take notice of them, the cold-logic of capital becomes the active agent in society, using the body of the worker like a passive expendable commodity, subordinating societies, governments and even nature itself to the impersonal motives of profit. Capital appears as the subject and the worker as its object. The subject-object relation is inverted.
Economic laws are another name for this subject-object inversion. Economic laws cause people to do things they don’t want to do. When capitalism crashes due to its inherent cycles of instability it compels capitalists to lay off workers and compels governments to impose austerity.
But crises are also a time of instability in the system, a time when the economic laws of capitalism are exposed not as eternal, universal laws as the bourgeois economists would want us to think, but as the particular laws of this time, laws that we might be able to overthrow. In a crisis, the order of the market breaks down and political will must move into the picture to assert some semblance of order. When the law of value breaks down the politics begin. Subjects must become active. This can be the politics of the ruling class as it scrambles to reassert the status quo or it can be the politics of radical movements that posit the possibility for new social orders.
[diagram of capitalist society, with all property relations, production relations, etc.]
This is a capitalist society in all of its complexity, all social relations subordinated to the imperative of profit.
[zoom into image of exchange within picture]
This is capitalism as depicted by subjective value theory, all social context abstracted from the picture. Bourgeois economists, sitting in their offices, playing idle mental exercises argue that we can abstract away all of this, and still explain a capitalist society. But in doing so they run into all sorts of problems because their theory can’t explain any of the things it wants to explain without bringing questions of class, property, and exploitation back into the picture. It’s original abstraction is illegitimate. Yet this abstraction is understandable. After all, we live in a world of fetishized social relations. The relations between people appear as relations between individuals and commodities. It is the perspective of the isolated individual interacting with a world of commodities, not of commodities coordinating the relations between people.
But this fetishized perspective is not just a lie. It represents a particular vantage point within the larger phenomenon that is commodity fetishism. It’s not that the world of commodity exchange is all an illusion. The illusion is real. Commodities really do have social power. Corporations really are people in the sense that they have more social power than social movements. Capital becomes the subject and society its object. There is a real subject-object inversion. But the other side of the coin is that capital’s power only comes from us, not from some divine, natural eternal essence. It rests only on a particular configuration of production relations. That means that capitalism is only sustainable to the extent to which we are willing to sustain it. Were the political will sufficient we could reconfigure our social relations in a more human way where people actively, consciously control our working activity as we shape the world in conscious ways. This is the task of radical politics, and this is the time for it.