This got overly long even for me, apologies. But I think cutting it down would actually make it more difficult to read. This is post 3/3 so best start at the bottom.
Conclusion
Personally, I find the focus of levels 1-2 essential and incredibly useful, especially from an ethical and activist standpoint; while level 3 (and perhaps the weakest possible version of 4) is merely an important reminder of just how brutal capitalism is (for everyone, really) precisely when operating under idealized conditions where markets aren't hopelessly rigged.
I am unsure of the value ;-) of entering into empirical debates at all in relation to the LTV; I do think that debates for and against the LTV are first and foremost about commitment to an analytical perspective, and rather far removed from datasets. Historically, economists certainly haven't shunned the LTV for problems with accommodating empirical findings.
I tried to tease apart the 4 levels mostly to clarify this for myself. In practice, empirical discussions in economics quickly get into the weeds and smell of argument from authority; hence may turn people off. Consequently I would actually prefer talking of a weaker cousin of the LTV, a LPV - Labor Perspective to Value.
This is enough for me, I tend to be turned off when Marxists still traffic in historical necessities - which are, to be fair, present in the text. But that is subjective and likely I am missing a lot of points of historical significance ;-)
Hi Andrea. Thanks for the comment. The LTV stands up mathematically in a way many people denied it did, in part because of Marx’s faulty efforts to prove it. Prices are ultimately proportion to all the direct and indirect labour time required to make them. Additionally, human labour is the only “input” that can always increase surplus value. Now what do we do with that in practical terms ? I am still chewing on that question. It gets even more complex in a capitalist-run world
Levels of what we mean by the Labor Theory of Value
LTV level (1): A commitment to a *perspective* on the circular process behind commodity markets where consumers chase low prices and producers look to make a cut, both adjusting their behavior constantly. The LTV clearly foregrounds "supply": where a product is coming from and what its production entailed - really what making an equivalent product would generically entail under average conditions. Within production, the LTV has a sub-focus on human labor [especially wages and working hours] over other aspects ("inputs") such as energy and land use. [Note that pollution and hogging of resources such as water also have obvious impacts on human (and animal) welfare more generally].
It is already at this basic level that the LTV is the mirror image of the prevailing perspective in "mainstream" economic "science" which foregrounds demand - to the point that "market fundamentalists" insist that whatever the market "says" is the "true" price of a commodity: who are you to question the will of the market?
I think we can rightly insist on foregrounding the human element in production/supply in effectively any and all discussions related to (political) economy. To skip over this is almost a deliberate act of putting on blinders to un-see inhumane practices. It is on this basic level here the ethical commitment is strongest. Note that this perspective - any perspective really - is valid quite irrespective of the empirical record of mechanics underlying commodity prices.
LTV (2) An explanatory principle of how commodity prices come about and the class war they reflect.
The insistence on labor as the linchpin of analysis makes possible to define the surplus created at each step of production - and crucially to then ask how the surplus is distributed between workers (wages) and owners (profit to be re-invested or extracted).
[We can expand this perspective to include more classes by looking more closely into how wages are distributed, including wages for workers who do the actual work compared to those who do related organizational work, those who merely keep the workers in line, oversee the extraction of profits, salaries of senior management, etc.]
I think this is the heart of Marx' general project in Kapital. In my experience it is primarily this question of distribution of surpluses where Marxian economics shines - and which is behind its detractors instinctive dismissal of the whole package. To be fair, the concept of "surplus" is somewhat arcane in a world where "profit margin" is front and center in trade magazines and popular culture.
Note that a strong explanatory principle such as the LTV can in principle explain anything - we can express any sentence in any sufficiently complex language. This is the very strength of explanatory principles. As a corollary, also market fundamentalists can explain absolutely anything in terms of market demand if they put their mind to it. Outside of the theoretical focus the explanation becomes merely more and more awkward ;-):
We can explain the lack of eggs on the market due to the number of hens that had to be culled due to bird flu - we can in principle also insist that hens themselves hatch from eggs so "ultimately" we needed to reserve eggs to replenish the stock of laying hens. (Both perspectives have the same claim on truth and certainly cannot be distinguished empirically).
I commend Joe for his beautifully awkward illustration quoted above: collapsing prices for violins merely correlating with lack of demand for violins while "really" "ultimately" due to collapsing working hours spent making violins. This shows that the LTV is working and can indeed correctly explain anything.
Personally I would prefer to be pluralistic in such edge cases and couch our explanation in terms of demand directly whenever convenient - while insisting on making explicit the impact of lack of consumer buying power on people making and maintaining violins - as well as musicians, conductors, teachers, art critics, etc.
LTV level (3) Commodity prices do in fact tend to get determined by the cost of human labor (keeping in mind that multiple factors play a role) - at least under certain conditions such as competitive markets with low barriers of entry etc.
The way I read Marx (please correct me if I am wrong), there is a general principle at work: if a capitalists sells a commodity with a high profit margin, other capitalists will notice this business opportunity and get into production themselves. This will drive down profit margins. Eventually commodity prices will come to reflect the price of production [and within production, the cost of human labor] plus a much reduced profit margin.
This is an empirical claim - really a theoretical framework for making models that make testable claims. As such it is mostly for practitioners to evaluate the usefulness of this construction. Note that theoretical frameworks cannot really be directly tested and the devil is in the details.
Also note that it will depend on what a modeler wants to achieve with a model, what data are available and so on. For example, quite often modelers are interested in explaining the difference between particular prices rather than in their ultimate nature; they may well find that variations in prices are mostly "explained" e.g. by differences in climatic conditions. This would still have little bearing on the LTV as there may well not have been any variation in "human capital" i.e. wages and working hours are fixed through minimum wage legislation or union contracts generally followed in the industry. So from this particular dataset we would have no way of knowing whether changes in relative wages would drive changes in commodity prices.
It probably has become clear that I am deficient in that I am just not very much invested in the nitty-gritty of making and testing such models - I am not an economist or trader.
My own sense is that the empirical project of looking at whether particular prices are actually strongly determined by wage levels (Ian Wright referenced by Joe here) is less a test "of the LTV" but rather an evaluation of whether a particular segment of "the market" is somewhat "competitive". As such it is really interesting and useful, don't get me wrong. However it is hardly specific to the LTV, also e.g. neo-classical economists can evaluate whether a market is "functioning"; unless of course they are market fundamentalists in which case the market is always functioning perfectly: who are you to question the will of the market?
Generally I also find a (perhaps overly reflexive) defense of level (3) of the LTV a bit ironic given recent history:
The neo-classicals famously have (had?) a fetish: the mathematical notion of market equilibrium that - no matter what - is guaranteed to drive prices "in the long run". They were equally famously lambasted by Keynes: "In the long run we are all dead".
Similarly, I think there are many decisions to be made or debates to be had that in practice cannot wait for (distorted) prices to come to reflect more regular price mechanisms - even if it were possible to demonstrate that general price mechanics are fully captured by the LTV, and by the LTV alone, for actually existing markets from the 19th to the 21th century.
LTV (4) Long term trends, in particular the tendency of profits to fall, at least in mature industries
This is the most tenuous level of application of the LTV. The way I see it is perfectly possible to subscribe to levels 1-3 of the LTV without a commitment to diagnosing long term systemic trends.
It is both the strength and the limitation of Marx' works that already his introduction kind of fractally embodies his whole theoretical construction, which is why I am making this explicit here as an (optional) level (even though we are probably getting ahead of ourselves in terms of chapters in the book).
I must say I am not quite clear on whether falling rates of profits were an empirical finding first - in need of theoretical explanation; or whether Marx' theorizing was an impetus for following those rates over time - which would count as evidence in favor of his theories (to the extent that this is really a general phenomenon).
Generally prediction is difficult, especially about the future, and I think we now have a much more modest view of the predictive power of theories and models in systems sciences.
Even if we relax the scope of "historical necessity" etc., if nothing else Marx beautifully highlight the seeds of chaos inherent in capitalism, crucial again in a time well after the beast had been superficially tamed in selected places for a few decades.
Thanks to Joe for these extensive discussion notes. This is doubly helpful for me as I have also recently started delving into Das Kapital. Since I am reading Marx in the original (and very colorful) German, this helps with translating to the now dominant language.
What I am most struggling with is the epistemological status of the Labor Theory of Value.
I appreciate that Joe here has a pragmatic attitude (to the point of attempting to sidestep "metaphysics" - a laudable goal that tends to quickly drive one right into the metaphysical morass ;-).
Marx mentions the "discovery" of the Labor Theory of Value, talks about its empirical truth, and generally presents the LTV as akin to a theory in physics or biology. At the same time he effectively speaks of its truth by necessity.
Even though I have read a lot of 19th century science, all of this still sounds rather alien to me;
especially his apparent fixation on some kind of material reality underlying the notion of labor at the root of (exchange) value. Meanwhile Marx is clearly perfectly aware that the concept of value itself is an analytical tool of abstraction (he even is aware of being aware of this as he ridicules British economists for their lack of reflection).
[To be fair, prices, wages, and working hours are real enough and can be measured precisely. Also Charles Darwin, whose work Marx followed closely, lacked any notion of material basis of inheritance].
Still, there clearly is a lot of 19th century conceptual baggage here - which unfortunately continues in the reception of Marx (and pre-neoclassical economists more generally) to this day:
Echoes of this baggage can even be found in Joe's nuanced notes: Joe first largely bases his defense of the LTV on the moral commitment of putting people over profit. Still, even Joe quickly gets sucked down into a commitment to empirical validity (referencing Ian Wright); and, alas, even a (dare I say metaphysical ;-) insistence on causal explanation: "that would drive down the exchange value of violins to zero *because* society would deploy zero labour time to making violins" [emphasis mine].
[I briefly looked into Ian Wright and he also has a very nuanced discussion based on a technical notion of category mistake - after going very deep into the weeds, though]
I tried to appreciate the LTV in Marx' Kapital as a contribution on several levels. I think clarifying which level(s) we reference can help solve conceptual muddles - and get a better sense of the limitations of of the LTV which in turn makes it harder for detractors to conveniently dismiss the whole package.
This discussion gets overly long so I'm putting the actual presentation of the 4 levels in a separate comment.
This got overly long even for me, apologies. But I think cutting it down would actually make it more difficult to read. This is post 3/3 so best start at the bottom.
Conclusion
Personally, I find the focus of levels 1-2 essential and incredibly useful, especially from an ethical and activist standpoint; while level 3 (and perhaps the weakest possible version of 4) is merely an important reminder of just how brutal capitalism is (for everyone, really) precisely when operating under idealized conditions where markets aren't hopelessly rigged.
I am unsure of the value ;-) of entering into empirical debates at all in relation to the LTV; I do think that debates for and against the LTV are first and foremost about commitment to an analytical perspective, and rather far removed from datasets. Historically, economists certainly haven't shunned the LTV for problems with accommodating empirical findings.
I tried to tease apart the 4 levels mostly to clarify this for myself. In practice, empirical discussions in economics quickly get into the weeds and smell of argument from authority; hence may turn people off. Consequently I would actually prefer talking of a weaker cousin of the LTV, a LPV - Labor Perspective to Value.
This is enough for me, I tend to be turned off when Marxists still traffic in historical necessities - which are, to be fair, present in the text. But that is subjective and likely I am missing a lot of points of historical significance ;-)
Hi Andrea. Thanks for the comment. The LTV stands up mathematically in a way many people denied it did, in part because of Marx’s faulty efforts to prove it. Prices are ultimately proportion to all the direct and indirect labour time required to make them. Additionally, human labour is the only “input” that can always increase surplus value. Now what do we do with that in practical terms ? I am still chewing on that question. It gets even more complex in a capitalist-run world
Levels of what we mean by the Labor Theory of Value
LTV level (1): A commitment to a *perspective* on the circular process behind commodity markets where consumers chase low prices and producers look to make a cut, both adjusting their behavior constantly. The LTV clearly foregrounds "supply": where a product is coming from and what its production entailed - really what making an equivalent product would generically entail under average conditions. Within production, the LTV has a sub-focus on human labor [especially wages and working hours] over other aspects ("inputs") such as energy and land use. [Note that pollution and hogging of resources such as water also have obvious impacts on human (and animal) welfare more generally].
It is already at this basic level that the LTV is the mirror image of the prevailing perspective in "mainstream" economic "science" which foregrounds demand - to the point that "market fundamentalists" insist that whatever the market "says" is the "true" price of a commodity: who are you to question the will of the market?
I think we can rightly insist on foregrounding the human element in production/supply in effectively any and all discussions related to (political) economy. To skip over this is almost a deliberate act of putting on blinders to un-see inhumane practices. It is on this basic level here the ethical commitment is strongest. Note that this perspective - any perspective really - is valid quite irrespective of the empirical record of mechanics underlying commodity prices.
LTV (2) An explanatory principle of how commodity prices come about and the class war they reflect.
The insistence on labor as the linchpin of analysis makes possible to define the surplus created at each step of production - and crucially to then ask how the surplus is distributed between workers (wages) and owners (profit to be re-invested or extracted).
[We can expand this perspective to include more classes by looking more closely into how wages are distributed, including wages for workers who do the actual work compared to those who do related organizational work, those who merely keep the workers in line, oversee the extraction of profits, salaries of senior management, etc.]
I think this is the heart of Marx' general project in Kapital. In my experience it is primarily this question of distribution of surpluses where Marxian economics shines - and which is behind its detractors instinctive dismissal of the whole package. To be fair, the concept of "surplus" is somewhat arcane in a world where "profit margin" is front and center in trade magazines and popular culture.
Note that a strong explanatory principle such as the LTV can in principle explain anything - we can express any sentence in any sufficiently complex language. This is the very strength of explanatory principles. As a corollary, also market fundamentalists can explain absolutely anything in terms of market demand if they put their mind to it. Outside of the theoretical focus the explanation becomes merely more and more awkward ;-):
We can explain the lack of eggs on the market due to the number of hens that had to be culled due to bird flu - we can in principle also insist that hens themselves hatch from eggs so "ultimately" we needed to reserve eggs to replenish the stock of laying hens. (Both perspectives have the same claim on truth and certainly cannot be distinguished empirically).
I commend Joe for his beautifully awkward illustration quoted above: collapsing prices for violins merely correlating with lack of demand for violins while "really" "ultimately" due to collapsing working hours spent making violins. This shows that the LTV is working and can indeed correctly explain anything.
Personally I would prefer to be pluralistic in such edge cases and couch our explanation in terms of demand directly whenever convenient - while insisting on making explicit the impact of lack of consumer buying power on people making and maintaining violins - as well as musicians, conductors, teachers, art critics, etc.
LTV level (3) Commodity prices do in fact tend to get determined by the cost of human labor (keeping in mind that multiple factors play a role) - at least under certain conditions such as competitive markets with low barriers of entry etc.
The way I read Marx (please correct me if I am wrong), there is a general principle at work: if a capitalists sells a commodity with a high profit margin, other capitalists will notice this business opportunity and get into production themselves. This will drive down profit margins. Eventually commodity prices will come to reflect the price of production [and within production, the cost of human labor] plus a much reduced profit margin.
This is an empirical claim - really a theoretical framework for making models that make testable claims. As such it is mostly for practitioners to evaluate the usefulness of this construction. Note that theoretical frameworks cannot really be directly tested and the devil is in the details.
Also note that it will depend on what a modeler wants to achieve with a model, what data are available and so on. For example, quite often modelers are interested in explaining the difference between particular prices rather than in their ultimate nature; they may well find that variations in prices are mostly "explained" e.g. by differences in climatic conditions. This would still have little bearing on the LTV as there may well not have been any variation in "human capital" i.e. wages and working hours are fixed through minimum wage legislation or union contracts generally followed in the industry. So from this particular dataset we would have no way of knowing whether changes in relative wages would drive changes in commodity prices.
It probably has become clear that I am deficient in that I am just not very much invested in the nitty-gritty of making and testing such models - I am not an economist or trader.
My own sense is that the empirical project of looking at whether particular prices are actually strongly determined by wage levels (Ian Wright referenced by Joe here) is less a test "of the LTV" but rather an evaluation of whether a particular segment of "the market" is somewhat "competitive". As such it is really interesting and useful, don't get me wrong. However it is hardly specific to the LTV, also e.g. neo-classical economists can evaluate whether a market is "functioning"; unless of course they are market fundamentalists in which case the market is always functioning perfectly: who are you to question the will of the market?
Generally I also find a (perhaps overly reflexive) defense of level (3) of the LTV a bit ironic given recent history:
The neo-classicals famously have (had?) a fetish: the mathematical notion of market equilibrium that - no matter what - is guaranteed to drive prices "in the long run". They were equally famously lambasted by Keynes: "In the long run we are all dead".
Similarly, I think there are many decisions to be made or debates to be had that in practice cannot wait for (distorted) prices to come to reflect more regular price mechanisms - even if it were possible to demonstrate that general price mechanics are fully captured by the LTV, and by the LTV alone, for actually existing markets from the 19th to the 21th century.
LTV (4) Long term trends, in particular the tendency of profits to fall, at least in mature industries
This is the most tenuous level of application of the LTV. The way I see it is perfectly possible to subscribe to levels 1-3 of the LTV without a commitment to diagnosing long term systemic trends.
It is both the strength and the limitation of Marx' works that already his introduction kind of fractally embodies his whole theoretical construction, which is why I am making this explicit here as an (optional) level (even though we are probably getting ahead of ourselves in terms of chapters in the book).
I must say I am not quite clear on whether falling rates of profits were an empirical finding first - in need of theoretical explanation; or whether Marx' theorizing was an impetus for following those rates over time - which would count as evidence in favor of his theories (to the extent that this is really a general phenomenon).
Generally prediction is difficult, especially about the future, and I think we now have a much more modest view of the predictive power of theories and models in systems sciences.
Even if we relax the scope of "historical necessity" etc., if nothing else Marx beautifully highlight the seeds of chaos inherent in capitalism, crucial again in a time well after the beast had been superficially tamed in selected places for a few decades.
I am thrilled that you published this. I have always wanted to study Marx's Capital and this looks like a very approachable summary!
Thanks so much. I hope you find it useful
Seriously looking forward to this. I’m rewriting the Manifesto for a modern audience. Hope all is well comrade.
No. Nothing to do with Dante.
Thanks to Joe for these extensive discussion notes. This is doubly helpful for me as I have also recently started delving into Das Kapital. Since I am reading Marx in the original (and very colorful) German, this helps with translating to the now dominant language.
What I am most struggling with is the epistemological status of the Labor Theory of Value.
I appreciate that Joe here has a pragmatic attitude (to the point of attempting to sidestep "metaphysics" - a laudable goal that tends to quickly drive one right into the metaphysical morass ;-).
Marx mentions the "discovery" of the Labor Theory of Value, talks about its empirical truth, and generally presents the LTV as akin to a theory in physics or biology. At the same time he effectively speaks of its truth by necessity.
Even though I have read a lot of 19th century science, all of this still sounds rather alien to me;
especially his apparent fixation on some kind of material reality underlying the notion of labor at the root of (exchange) value. Meanwhile Marx is clearly perfectly aware that the concept of value itself is an analytical tool of abstraction (he even is aware of being aware of this as he ridicules British economists for their lack of reflection).
[To be fair, prices, wages, and working hours are real enough and can be measured precisely. Also Charles Darwin, whose work Marx followed closely, lacked any notion of material basis of inheritance].
Still, there clearly is a lot of 19th century conceptual baggage here - which unfortunately continues in the reception of Marx (and pre-neoclassical economists more generally) to this day:
Echoes of this baggage can even be found in Joe's nuanced notes: Joe first largely bases his defense of the LTV on the moral commitment of putting people over profit. Still, even Joe quickly gets sucked down into a commitment to empirical validity (referencing Ian Wright); and, alas, even a (dare I say metaphysical ;-) insistence on causal explanation: "that would drive down the exchange value of violins to zero *because* society would deploy zero labour time to making violins" [emphasis mine].
[I briefly looked into Ian Wright and he also has a very nuanced discussion based on a technical notion of category mistake - after going very deep into the weeds, though]
I tried to appreciate the LTV in Marx' Kapital as a contribution on several levels. I think clarifying which level(s) we reference can help solve conceptual muddles - and get a better sense of the limitations of of the LTV which in turn makes it harder for detractors to conveniently dismiss the whole package.
This discussion gets overly long so I'm putting the actual presentation of the 4 levels in a separate comment.