It’s been on my mind for a few days now. It started with a lively coffee shop conversation on monopsony and sweatshops with several other students in my cohort and it was brought to my attention again tonight as I continued reading Charles Tilly’s Durable Inequality. How prevalent is the labor theory of value in sociology today?
I don’t think it’s a totally silly idea. Smith and Ricardo both had something like a labor theory of value while Marx argued for it under the idea of “exploitation.” Of course, their theorizing took place before the marginalist revolution which put the idea to rest in economics, but it seems to have survived among sociologists (as well as our cousins in labor history). Bottomore’s Dictionary of Marxist Thought says exploitation occurs “when one section of the population produces a surplus whose use is controlled by another section.” Similarly, Tilly argues exploitation operates “when powerful, well connected people command resources from which they draw significantly increased returns by coordinating the efforts of outsiders whom they exclude from the full value added by that effort.” Both of these modern definitions are basically rewordings of the labor theory of value under the banner of “exploitation.”
For this reason, whenever someone tells me that workers are being exploited in this or that situation, I have to ask them “How?” In most situations, their answer (in my words) is that the workers in question are only receiving wages equal to the marginal productivity of their labor. They are talking about Marxian exploitation.
This leads me to a conundrum. If I believe that the labor theory of value has been thoroughly discredited (and that’s an understatement), how do I square this with my admiration for several prominent Marxists such as Tilly, Bonacich, and err, Marx? It’s an idea central to their work, so it’s hard to avoid the subject.
- Josh McCabe
“how do I square this with my admiration for several prominent Marxists such as Tilly, Bonacich, and err, Marx? It’s an idea central to their work, so it’s hard to avoid the subject.”
It’s simple – nobody’s perfect. There’s a lot in these theorists that’s interesting aside from their theory of value. I would never describe Tilly as primarily a labor theory scholar. So many of his insights can be expressed with out the labor theory of value. He even had a rational choice-y phase (the Mobilization book). Even Marx has a lot of interesting things to say that don’t rely on the LToV. For example, his theory that the state is an epiphenomena of interest groups/class groups is appealing to me.
Check out Thomas Sowell’s “Marxism.” He argues that Marx didn’t hold a labor theory of value, though I tend to agree with other interpreters (David Prychitko, Murray Rothbard, Eugen von Bohm-Bawerk) that Marx did hold a labor theory of value.
I also owe you an email, which I’ll get to ASAP.
I agree with Fab Rojas here Josh. I have nothing but admiration for Marx. He not only happens to be one of the most cited social scientists/philosophers ever. His work spanned from the humanities to every corner of the social sciences. (All without having a full-time an academic position.)
To me, Marx may be considered one of the first comparative economic systems theorists and one of the first spontaneous order theorists. He certainly followed Smith and Hume; but, he was well prior to Menger and Mises. Volume III of Capital, it seems to me, gave rise to the Austrian and neo-classical focus on business cycles.
That said, the reification of “exploitation,” by many sociologists and Marxist economists, is a little odd, though.
Hm. What does it mean to say that the LToV was discredited? LToV does not work well as a theory of prices, but Smith recognized that in the Wealth of Nations – for him (and for Marx), value was not about price. The marginalists aren’t really talking about value anymore, they moved to talking about price. There are no longer fundamentals. Something like that.
Anyway, to reiterate my question, what does it mean to say the labor of theory of value has been discredited? What precisely do you interpret the LTV to say? What has replaced it? And are those two theories commensurable, or have we instead shifted the rules of the game and started asking different questions? Is this a Mirowski problem (“[B]ehind every measurement controversy lies a deep problem of metaphoric interpretation.” from More Heat Than Light)?
I’m with the comment above from Dan on this one. The marginalists may have saved economics, but they did so through retreating from any theory of production. Marginalists are psychologists. If you want to have a theory of production, of where stuff comes from, you need to be dealing in the realm of materiality, as Smith and Marx were (or at least of social and cultural practices as Schumpeter was). This is an ontological choice, as well as a methodological one. See Simon Clarke’s Marx, Marginalism and Modern Sociology. Saying that the LTV has been entirely discredited, purely because economists are taught that, is like saying that Freud’s theory of the self is discredited because it’s not used in psychiatric wards.
Dan is right, my post was confusing. I meant to make a comment on the idea of exploitation and took a shortcut.
In my mind, marginalism implies a subjective theory of value. Although it gives us insight into the formation of prices, I would argue that marginalism is fundamentally a theory of utility or value. Values are formed in the minds of individuals and imputed to the various factors of production based on the (discounted) marginal productivity of a particular factor. Labor (or capital or a cookie) has no intrinsic value.
For example, it really wouldn’t matter how much time and effort I put into painting a picture of a dog. If at the end of the day, no one wants that picture, then it holds little or no value.
On the empirical side, if the labor theory of value did hold true then we would expect to see outrageous profits in labor-intensive industries and minimal profits in capital-intensive industries, but we don’t see those things happening.
I hope the implications for the idea of exploitation become clear now. If there is no intrinsic value to labor then there can be no surplus value and exploitation.
Will: How exactly are the marginalists just psychologists? Austrian School economists like Mises spent a whole lot of time explaining why they weren’t and arguing with anyone they thought resorted to “psychologism.”
@Will: Max Weber spoke to this issue in “The Fundamental Law of Psychophysics” where he reveals that (micro)economic theory does rest on a foundation of psychology, but rather constructs its own foundation from, as Josh mentioned, the law of subjective value. Many eminent economists have cited Weber in their claims of economics being free of psychological foundations: Hayek, Robbins, Knight, etc. If they are all wrong, then who is right on this issue?
Josh, I just wanted to weigh in on this issue of Marx and Value. As you mention Josh, value measured by labour is one of the worst possible indices of output. This is just not something that economists know, it is relevant to Marx because he emphasized “labor-saving” innovations. In fact, Marx’s value produces paradoxical results such as falling wages purchasing an abundance of commodities (Vol. I 572-573). Of course Marx (and Ricardo) had to distinguish between “quantity” and “value” in inter-temporal comparisons to remedy this. And, that makes known that the value difficulty was present and recognized by Marx (and Ricardo).
Regarding labor exploitation, to Josh and many eminent economists (including Mises, Bohm-Bawerk, Hoppe, Rothbard, etc.), this is not exploitation in the sense of under-payment of a factor of production for its contribution to output. Hence, marginal productivity did NOT obviate Marx’s theory of exploitation. Marx’s exploitation is the exploitation of man by man, not of one factor of production by another. Simply put, there is no real issue of the relative contributions of labor and capital in Marx’s economics, which argues precisely that capital is created by labor. Marx’s rhetorical style, unfortunately, gives rise to the confusion of output per unit of labor being made to appear as labor’s output. But even so, this has almost no direct effect on Marx’s economics not falling squarely within economics proper. (I continue to believe that one of the reasons for this confusion is due to economists not knowing enough sociology, and sociologists not knowing enough economics. But who really could known” enough?) I contend, as does Sowell in the work that Art Carden cites, that Marx’s argument could be recast in marginal productivity terms without vitiating the analytic content of Marx or the neo-classical system – the moral overtones may be lost, however. And of course, sociologists may lose interest in the labor theory of value too.
Brian P.
@joshmccabe: “For example, it really wouldn’t matter how much time and effort I put into painting a picture of a dog. If at the end of the day, no one wants that picture, then it holds little or no value.”
If I may continue with your example, there’s a somewhat “funny” lesson to be learned here about the labor theory of value. I’m not sure you are actually talking about value when discussing the painting; it may as well be revealed value through action, which to some is simply “price.”
However, the labor theory of value focuses primarily on input in the production process. In the example of the dog painting, the “value” in terms of labor should be higher the more labor you invest into painting it. Not considering the market price of the painting, a labor input value theory does not tell you anything about the value of the painting even to the painter.
You may invest days, weeks, or even years into finishing the painting only to find it horrible and not at all what you wanted – and you throw it away. Does this not mean that the value to the person having invested the time and effort into making this painting is zero or very close to zero? Should others have to “pay” the painter for his trouble even though the painter himself finds the result worthless? A “yes” to this question does not make much sense to me; if the painter does not find his own painting worth a nickel, then why must everybody else?
In this example the intrinsic value in the painting based on labor invested does not at all correspond to the laborer’s own view of its value. And the reverse may be as true: someone not investing much time or effort into finishing a painting may find it extremely valuable and would not voluntarily give it up unless paid much, much more. What does this tell us about the value of labor, when the value to the laborer him- or herself does not correspond to the “value” of invested labor?
John Roemer, a Marxian economist who builds models, actually defined exploitation rigorously without the LTV (you may not agree with his definition) and then showed under what circumstances a general-equilibrium model would generate it. If I recall, he found that exploitation was only well-defined if there was only one level of labor skill; with both skilled and unskilled labor the whole thing kind of broke down. The book is at
http://www.amazon.com/General-Theory-Exploitation-Class/dp/0674344405/ref=sr_1_16?ie=UTF8&s=books&qid=1
srp: Roemer is an interesting fellow. I haven’t seen his models of exploitation, but I’ve seen his models of “divide and conquor.” It reall shows that anything is possible in the neoclassical framework!