Thursday, 9 July 2009

Historical Proofs and Origins of Value Theory

The following is largely a summary of information provided by Ernest Mandel in his book, "Marxist Economic Theory".

The emergence of Exchange Value is synonymous with the emergence of trade. In primitive societies trade rarely took place because there was usually little or no social surplus to trade, and these societies were run as co-operative societies like large families where land was owned and farmed collectively so there was no concept of trade within the society. Where trade did take place, it was between different tribes or villages as a result of an unexpected surplus, or crisis requiring certain goods to be obtained from outside the tribe. It was under these circumstances that trade began and was commonly a trade of people as part of ceremonies. For example, the daughter of a tribal elder may be married to someone from another tribe. Even then, this trade had some element of labour content. If a woman from one tribe was married into another the other tribe was considered to owe a woman back to the first tribe. The question then arose as to what the basis of exchange would be.

The idea of labour being the only measure by which commodities could be valued relative to each other goes back to Plato who referred to it in “The Republic”. Plato also identified the dual nature of commodities as having a Use Value and an Exchange Value. There is considerable documented evidence to show that labour time has been used from the beginning of trade as the measure of Exchange Value. References for this documentation are given below. The list is far from a complete one.

1. Ruth Bunzel in Frank Boaz “General Anthropology” p346 says primitive people consider only labour “scarce”.

2. The economy of the Indonesian village community is based on calculation of hours of labour expended. (J.H. Boeke – ‘De Theorie der Indische Economie’ p39.)

3. The same was true of Japan. “the principle of exchange is people and days. Thus if household A has two people at work on household B’s field for two days, household B is expected to provide its equivalent on A’s fields…” (John Embree – “Mura, A Japanese Village” pp100-1.)

4. In Africa Ralph Piddington tells us that a peasant from the Heh tribe who orders a spear from the smith works on the smith’s land while he is making the spear. “An Introduction to Social Anthropology” p275.

5. Kautilya’s ‘Arthashastra’ p147 says that "in Ancient India during the Maurya epoch labour and products of labour governed the rules of economic life.”

6. Amongst the Incas “tribute was to consist of labour, time and skill as a workman, artisan or soldier.John Collier “The Indians of the Americas pp 61-2.

7. The same was true of Europe in the early Middle Ages. Villagers were expected to work three days on the Lord’s land and three on their own. (See Polyptique of Saint Germain-des-Pres and the descriptio villarum of the Abbey of Lobbes.

8. “Should a Dadaga wish more of these utensils, he would have to work in the field of the Kota iron worker of whom he requested them while they were being forged.” David Mandelbaum “Notes on Fieldwork in India” in Herskovits “Economic Life of Primiitive Peoples” pp 136-7

9. Moreover, since the dawn of petty commodity production about 3000 B.C. all labour has been considered equivalent, regardless of its special character. On the tablets, inscribed in a Semitic language, found at Susa, the wages in the household of a prince are fixed uniformly at 60 qua of barley for the cook, the barber, the engraver of stones, the carpenter, the smith, the cobbler, the cultivator, the shepherd and the donkey man.Clement Huart and Louis Delaporte “L’Iran antique” p83.

10. “He (the medieval artisan) has to produce, in accordance with fixed conditions, cloth which is ‘not personal but official, municipal’; his labour, one might say is expressly objective not subjective.” Georges Espinas “Les Origines du Capitalisme” Vol 1. p40.

11. In a study of the Guatemala Indians of Panajachel Professor Sol Tax tells us that exchanges and equivalences are strictly calculated and a woman who could not read or write was able to state within a penny the exact cost of production of a carpet on which she had worked the whole of one day. Sol Tax “Penny Capitalism” pp 18, 15, 80

12. The corporations of Antiquity and in those of China and Byzantium and in the European and Arab Middle Ages fixed rules, known to all, laid down alike the labour time to be devoted to the making of each object, the length of apprenticeship, its cost and the equivalent normally to be asked for each commodity. Georges Espinas “Les Origines du Capitalisme” pp 118, 140-2.

Although initially all labour was valued equally later with the division of labour and increased specialisation some highly skilled labour was recognised as more highly valuable or compound labour and adjustments of equivalent labour time to be exchanged with it was made in calculation.

I have already mentioned Plato as one of the first to recognise Labour as the measure of Exchange Value, but the fact that calculation of labour time was so embodied in the act of exchange is illustrated by its continued reference by philosophers down the ages. For example, the idea was later taken up by Thomas Aquinas, and Albertus Magnus. Others such as Duns Scotus and Ibn-Khaldun also used it. For example,

“Everything that constitutes acquisition and funds (of goods) and wealth proceeds only from man’s labour… Without labour, these occupations (crafts, agriculture, mining) would yield no profit or advantage.”

Ibn-Khaldum – ‘Prolegemenes’ Vol 1 p311.

With the advantage of a wealth of empirical data demonstrating that labour was the measure of exchange value William Petty gave the theory its more modern basis. It was also expounded by Benjamin Franklin. Franklin wrote extensively and clearly on the subject.

“By labour may the value of silver be measured as well as other things. As, suppose one man is employed to raise corn, while another is digging and refining silver; at the year’s end, or at any other period of time, the complete produce of corn, and that of silver, are the natural price of each other; and if one be twenty bushels, and the other be twenty ounces, then an ounce of that silver is worth the labour of raising a bushel of that corn. (I have pointed out elsewhere that what we are talking about here is not individual acts of labour but the average socially necessary labour AB) Now if by the discovery of some nearer, more easy or more plentiful mines, a man may get forty ounces of silver as easily as formerly he did twenty, and the same labour is still required to raise twenty bushels of corn, then two ounces of silver will be worth no more than the same labour of raising one bushel of corn, and that bushel of corn will be as cheap at two ounces, as it was before at one ceteris paribus. Thus the riches of a country are to be valued by the quantity of labour its inhabitants are able to purchase.”

And

“trade in general being nothing else but the exchange of labour for labour, the value of all things is, as I have said before, most justly measured by labour.”

Ben Franklin, “A Modest Inquiry into the Nature and Necessity of a Paper Currency pp 265 and 267.

Not surprisingly then, Adam Smith also advocated the Labour Theory of Value.

“The real price of everything (Smith however confused value with price on occasion), what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose on other people…. It is natural that what is usually the produce of two days’, or two hours’ labour, should be worth double of what is usually the produce of one day’s or one hour’s labour.”

(Adam Smith – The Wealth of Nations Book 1 Chapter 5)

Indeed all Classical Economists accepted the theory. Marx merely refined it the theory and made it more precise which is why it is wrong to describe it as ‘Marxist’ Theory. There are a number of reasons why serious students of economics should read these original texts carefully. Firstly, they are rarely taught as part of modern economics and if so are glossed over as many modern teachers have a poor understanding of them themselves. Secondly, because of the first point most people uncritically accept modern economic teaching as gospel. Thirdly, we ignore the voices of dead people at our peril, and I for one would prefer to listen to the voices of dead people going back thousands of years (and people who were intellectual giants compared to the minnows of modern economic theory) than the academic scribblings of a few professors with a political agenda.

Finally, another reason is given by two opponents of the theory and particularly of Marx. Joseph Schumpeter wrote in his monumental ‘History of Economic Analysis’ of Marx,

“the totality of his his vision, as a totality, asserts its right in every detail and is precisely the source of intellectual fascination experienced by everyone, friend as well as foe, who makes a study of him’; and elsewhere “at the time when his first volume appeared there was nobody in Germany who could have measured himself against him either in vigour of thought or in theoretical knowledge.”

And from the original Austrian theorist Bohm-Bawerk we read,

“Marx has become the apostle of a wide circle of readers, including many who are not as a rule given to the reading of difficult books."

“Karl Marx and the Close of his System”

Unfortunately, the experience of Stalinism for much of the last century and the effects of Cold War propaganda for fifty years have meant that many people have thrown the intellectual baby out with the bath water, and shun reading these original texts for fear of being seen a communist. Any serious student of economics or of life cannot afford to worry about what others might think of them. They just have to approach their study honestly and with an open mind.

5 comments:

Lord Keynes said...

Hi, an interesting post.

I also have a blog, but write from a post-Keynesian/social democratic perspective.

I have my own post on what I call the myth of the labour theory of value here:

http://socialdemocracy21stcentury.blogspot.com/

In particular, I think Steve Keen
(Debunking Economics: The Naked Emperor of the Social Sciences, Zed Books, New York. 2001. pp. 269-300) has shown that its false.

Marxism would be better if it moved on from the labour theory of value.

Arthur Bough said...

(J.M.),

I have limited time on line at a cyber Cafe so I do not have time to read and respond in one go. I've copied some of your posts, and will respond as soon as I can.

However, Capitalism has spent literally millions of dollars over the last century and a half, and employed its brightest minds trying to disprove Marx's theory. The fact that despite that it is still trying, I think demonstrates the veracity of the theory.

Arthur Bough said...

Lord Keynes,

I have now read your post. Unfortunately, I found it very disappointing. I take it that you are still quite young, which is the kindest interpretation I can put on the fact that you simply repeat the same old arguments, based on a misrepresentation of the LTV that have been advanced over and again since Marx’s times. I will deal with the main errors and misrepresentations. I am not going to deal with your arguments in favour of the idea of “Subjective Value”, because I have dealt with them extensively here in the series on “Reclaiming Economics”.

1. Origins of the Theory. The theory does not originate in Classical Economy as you state. In fact, as I have set out above the basic idea that commodities have a dual character comprising Use value, and Exchange Value dates back to Plate and Aristotle in Greece, and to Mang-Tzse and other Chinese Philosophers at around the same time. Necessarily, these ideas were undeveloped at the time, and Aristotle himself attempted to develop a subjectivist theory of value that led him down a dead-end. But, it was basically a theory of exchange value based on the expenditure of labour-time that dominated intellectual debate as the locus of development moved from Europe to the Middle east, and found expression in the ideas of the great Islamic scholar Ibn-Khaldun. It continued to be so in the ideas of the Scholastics, and of thinkers such as Thomas Aquinas. The first thinkers who can be thought of as precursors to Economic Science – The Physiocrats – also based their concept of Value on the expenditure of Labour-Time, though again necessarily given the time in which they were writing they saw only agricultural Labour as productive of Value. In fact, as the above examples demonstrate that this should be the basis on which a theory of Value should develop is not at all difficult to understand, because in the real world throughout the globe, the basis on which real human beings throughout history DID determine the ratios in which commodities should exchange WAS the amount of Labour-time required for their production.

My only qualification to that would be that made in my post Labour Power v Horse Power , which is that it is what is “necessary” from the standpoint of those engaging in actual exchange that counts. So, from the standpoint of a peasant producer the necessary labour time required to produce a 100 units of X is the 10 hours of actual time he spends in production, whereas from the standpoint of a slave owner, the necessary labour-time is only say the 5 hours required to produce the subsistence of the slave who then spends 10 hours producing the 100 units of X. That is why, as Marx states slaves produce surplus USE Values, but do not produce Surplus Exchange Value, and why Exchange Value itself only comes to dominate economic relations in place of Use Value, when workers – as non-owners of Means of Production, participate in the process of determining those Exchange Values by forming the majority of consumers.

2. You say, “In Marxist thought, Use Value is the objective usefulness of a good and depends on the way in which the good is used by the buyer.” This is wrong. Marxists are not at all concerned how buyers use USE Values. For a Marxist a Use Value is simply something that Buyer’s want because it is useful to them.

Cont'd

Arthur Bough said...

3. Your argument in relation to the wine producers is facile, and a misrepresentation of the LTV. You confuse Value with Price. If all the statements you make about the same soil, same level of skill etc. are true then both wines have the same value. They have different prices. But, let’s pursue the example. If we accept all of the conditions you have set out, then the COSTS of production in both cases will be the same. In that case, the profits made in Bordeaux where prices are ten times higher will be considerably more than for the producer in the South of France. But, in that case, Capital will necessarily move away from the South of France to Bordeaux in order to obtain these much higher profits! The consequence will be a large increase in production of Bordeaux wine with a consequent fall in Bordeaux prices, and a corresponding fall in South of France production and rise in prices and profits. The only limitation to that will be the availability of land in Bordeaux, but in that case what we have is a modification of the Labour Theory of Value, as set out by Marx, which results in the establishment of Absolute and Differential Rent. It is not in any way a refutation of the LTV, on the contrary it is an application of it!

In passing it should be noted that Marx does not say that Labour is the only source of Value. In the Critique of the Gotha Programme, Marx says,

” Labor is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists!) as labour, which itself is only the manifestation of a force of nature, human labour power. the above phrase is to be found in all children's primers and is correct insofar as it is implied that labor is performed with the appurtenant subjects and instruments.”

See: Critique of the Gotha Programme

Cont'd

Arthur Bough said...

4. Your example in respect of diamonds is no better, indeed its worse. Again you confuse Value with price. The LTV is a theory about determining the exchange Value of Commodities i.e. goods produced specifically to be sold at a profit. Let’s break your example down. On the one hand you have someone digging a diamond mine. It takes them 200 hours to produce a diamond. So the “individual Value” of this diamond is equal to 200 hours. If all diamond mines work at this same level of efficiency then not just the “individual” Value of each diamond will be equal to 200 hours, but the Exchange Value of “Diamonds” per se will also be 200 hours, because Exchange Value is nothing more than the socialised aggregate of these individual values.

Commodities do not Exchange at their individual values, but at their Exchange Values. The fact that someone stumbles across a diamond, therefore, does not change that fact! In reality, all commodities demonstrate this inevitability. At any one time some commodities will be produced in more favourable conditions, some enterprises will be more efficient than others, some commodities will be produced later in the day when workers are tired, and so on. So, yes, the individual values of commodities will vary one from another, but it is the aggregate of these individual values, socially determined through exchange that establishes their collective Exchange Value.

But, let us then take this stumbled upon diamond, and extend its logic to see the implications for your argument. If we assume that it is no mere accident that results in this diamond being stumbled upon, but is the result of this individual finding themselves in an area rich in diamond deposits, what will be the consequence? It will be precisely that the aggregate of all these individual values will necessarily fall! The average, socially necessary Labour-time required to produce a diamond will fall from 200 hours to say 10 hours, and the Exchange Value of a diamond will fall along with it. That, of course, is exactly what happened when Gold Fields were found in California, and Australia, and Alaska – and as the LTV predicts the Exchange Value of Gold fell dramatically.

But, how does that in any way tally with your concept of “Subjective Value”. If the Exchange Value of commodities is determined not by the average socially necessary labour-time required for production, but is as you claim “determined by subjective values (e.g., people desiring diamonds for beauty and people needing diamonds for industrial purposes” then such discoveries which reduce the required Labour-time should have no impact on Exchange Value! We have to assume that these subjective values as set out by you here have not in any way changed, the diamonds remain as beautiful and desirable as before, they remain as hard and suited to industrial purposes as before, so their subjective value, and Exchange Value in your model should not have changed. But, a simple glance at reality shows that they do!!!

In fact, the idea that individual values diverge from Exchange Values not only does not contradict the LTV, but is fundamental to it, certainly in Marx’s version. It is what enables some Capitals to operate more efficiently, and thereby to make more than the average profit, and thereby to accumulate capital more rapidly, thereby driving the process of concentration of Capital. It is what enables the establishment of Differential Rent in many different guises.

5. As for the argument about – different types of Labour being valued differently again that is a basic element of Marx’s theory – the difference between simple and complex labour. For a discourse on that I would suggest reading my Reply To Dr. Paul Cockshott .