Monday, March 14, 2005

It's the Labour Theory of Value, stupid

In Libertarian Dialectics and in other comments I have made on my blogs I have challenged what I call the price, distribution, production economic model of the Austrian School of Economics, Von Mises and Hayek, and their heirs at the Chicago School of Economics, Friedman et al. It is also called neo-classical economics, what could also be called liberal economics.

This is why I refer to the majority of right wing Libertarians, as liberaltarians, those who embrace the supply side economics of these schools. These characters are masques of capitalism as Marx once described their subjective function.

They reject out of hand the Labour Theory of Value, based on a flawed critique of Capital by the Eugen von Böhm-Bawerk, Austrian Minister of Finance, 1889-1904, professor and leader, along with Carl Menger and Friedrich von Weiser, of the Austrian school of economists. Böhm-Bawerk, had a special interest in the theory of capital and interest. Author of several books, including his 1896 work, Karl Marx and the Close of His System, a classic attack on Marxist economics.

The German Marxist economist Rudolf Hilferding, challenged the Austrian school’s dismissal of Capital and of Marx, in his critique of Böhm-Bawerk, In his preface to his critique Hilferding writes:

“The publication of the third volume of Capital has made hardly any impression upon bourgeois economic science. We have seen nothing of the "jubilant hue and cry" anticipated by Sombart. [1] No struggle of intellects has taken place; there was no contest in majorem scientiae gloriam. For in the theoretical field bourgeois economics no longer engages in blithe and joyous fights. As spokesman for the bourgeoisie, it enters the lists only where the bourgeoisie has practical interests to defend. In the economico-political struggles of the day it faithfully reflects the conflict of interests of the dominant cliques, but it shuns the attempt to consider the totality of social relationships, for it rightly feels that any such consideration would be incompatible with its continued existence as bourgeois economics.

The only exception is the psychological school of political economy. The adherents of this school resemble the classical economists and the Marxists in that they endeavor to apprehend economic phenomena from a unitary outlook. Opposing Marxism with a circumscribed theory, their criticism is systematic in character, and their critical attitude is forced upon them because they have started from totally different premises. As early as 1884, in his Capital and Interest, Böhm-Bawerk joined issue with the first volume of Capital, and soon after the publication of the third volume of that work he issued a detailed criticism the substance of which was reproduced in the second edition of his Capital and Interest [German edition 1900]. [2] He believes he has proved the untenability of economic Marxism, and confidently announces that "the beginning of the end of the labor theory of value" has been inaugurated by the publication of the third volume of Capital.”

Hilferding refers to the Austrian School as the ‘psychological” school, which is the correct appellation for the heirs of Böhm-Bawerk; Von Mises, Hayek, Freidman, Rothbard, Rand etc. By merging Randism with Austrian Economics, the Libertarian Right moved beyond Benjamin Tucker, who had accepted the Labour Theory of Value, as had Kropotkin in their Proudhonist fashion. While paying lip service to Tucker as an American Anarchist and father of American Libertarianism, they reject his acceptance of the Labour Theory of Value and instead embrace the anti-Prussian State Socialism straw dog of the Austrian School of Economics.

Ayn Rand’s so called “Objectivism” is NOT, it is subjectivism and her work in philosophy is subjectivist psychology, as Von Mises is in economics. They and their followers embrace the Böhm-Bawerk dismissal of the Labour Theory of Value. As Hilferding says in his chapter on the Austrian Schools Subjectivist Outlook:

“The phenomenon of variations in the price of production has shown us that the phenomena of capitalist society can never be understood if the commodity or capital be considered in isolation. It is the social relationship which these occupy, and changes in that relationship, which control and elucidate the movements of individual capitals, themselves no more than portions of the total social capital. But the representative of the psychological school of political economy fails to see this social nexus, and he therefore necessarily misunderstands a theory which definitely aims at disclosing the social determinism of economic phenomena, a theory whose starting point therefore is society and not the individual. In apprehending and expounding this theory he is ever influenced by his own individualistic mentality, and he thus arrives at contradictions which he ascribes to the theory, while they are in truth ascribable solely to his interpretations of the theory.

This confusion may be traced in all the stages of Böhm-Bawerk's polemic. Even the fundamental concept of the Marxist system, the concept of value-creating labor, is apprehended in a purely subjective manner. To him "labor" is identical with "trouble" or "effort" ["Mühe"].To make this individual feeling of distaste the cause of value naturally leads us to see in value a purely psychological fact, and to deduce the value of commodities from our evaluation of the labor they have cost. As is well known, this is the foundation which Adam Smith adopts for his theory of value, for he is ever inclined to abandon the objective standpoint for a subjective. Smith writes: "Equal quantities of labor must at all times and places be of equal value to the laborer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness." [1] If labor regarded as "trouble" be the basis of our personal estimate of value, then the "value of the labor" is a constituent, or a "determinant" as Böhm-Bawerk puts it, of the value of commodities. But it need not be the only one, for a number of other factors which influence the subjective estimates made by individuals take their places beside labor and have an equal right to be regarded as determinants of value. If, therefore, we identify the value of commodities with the personal estimate of the value of these commodities made by this or that individual, it seems quite arbitrary to select labor as the sole basis for such an estimate.

From the subjectivist standpoint, therefore, the standpoint from which Böhm-Bawerk levels his criticism, the labor theory of value appears untenable from the very outset. And it is because he adopts this standpoint that Böhm-Bawerk is unable to perceive that Marx's concept of labor is totally opposed to his own. Already in A Contribution to the Critique of Political Economy Marx had emphasized his opposition to Adam Smith's subjectivist outlook by writing "[Smith] fails to see the objective equalization of different kinds of labor which the social process forcibly carries out, mistaking it for the subjective equality of the labors of individuals." [2] In truth, Marx is entirely unconcerned with the individual motivation of the estimate of value. In capitalist society it would be absurd to make "trouble" the measure of value, for speaking generally the owners of the products have taken no trouble at all, whereas the trouble has been taken by those who have produced but do not own them. With Marx, in fact, every individual relationship is excluded from the conception of value-creating labor; labor is regarded, not as something which arouses feelings of pleasure or its opposite, but as an objective magnitude, inherent in the commodities, and determined by the degree of development of social productivity. Whereas for Böhm-Bawerk, labor seems merely one of the determinants in personal estimates of value, in Marx's view labor is the basis and connective tissue of human society, and in Marx's view the degree of productivity of labor and the method of organization of labor determine the character of social life. Since labor, viewed in its social function as the total labor of society of which each individual labor forms merely an aliquot part, is made the principle of value, economic phenomena are subordinated to objective laws independent of the individual will and controlled by social relationships. Beneath the husk of economic categories we discover social relationships, relationships of production, wherein commodities play the part of intermediaries, the social relationships being reproduced by these intermediate processes, or undergoing a gradual transformation until they demand a new type of inter-mediation.

Thus the law of value becomes a law of motion for a definite type of social organization based upon the production of commodities, for in the last resort all change in social structure can be referred to changes in the relationships of production, that is to say to changes in the evolution of productive power and in the organization of [productive] labor. We are thereby led, in the most striking contrast to the outlook of the psychological school, to regard political economy as a part of sociology, and sociology itself as a historical science. Böhm-Bawerk has never become aware of this contrast of outlooks. The question whether the "subjectivist method" or the "objectivist method" is the sound method in economics he decides in a controversy with Sombart by saying that each method must supplement the other—whereas in truth we are not concerned at all with two different methods, but with contrasted and mutually exclusive outlooks upon the whole of social life. Thus it happens that Böhm-Bawerk, unfailingly carrying on the controversy from his subjectivist and psychological standpoint, discovers contradictions in the Marxist theory which seem to him to be contradictions solely because of his own subjectivist interpretation of the theory.”

It is this subjectivity, misrepresented as being classical liberal invidualism that underlies the Right Wing Libertarians economic reason de’ etre of reducing capitalism to the economics of prices/distribution/production. It is also their misinterpretation of the market place of capitalism that makes them idealize some sort of laissez-faire utopia without the state. They fail to understand that there is a difference between government and the state.

The state is the judiciary and military power of the old aristocracy adapted by capitalism for its own functioning. Governance, government, is the function of associations of producers and always has been. Even Kropotkin realized this with his analysis of the State, and saw the free association of producers existing in the city state economies independent of any particular feudalist state; in fact it was their crushing that led to the creation of the modern capitalist state. But these associations still governed the market place, by workers control.

“On the other hand the State has also been confused with Government. Since there can be no State without government, it has sometimes been said that what one must aim at is the absence of government and not the abolition of the State. However, it seems to me that State and government are two concepts of a different order. The State idea means something quite different from the idea of government. It not only includes the existence of a power situated above society, but also of a territorial concentration as well as the concentration in the hands of a few of many functions in the life of societies. It implies some new relationships between members of society which did not exist before the formation of the State. A whole mechanism of legislation and of policing has to be developed in order to subject some classes to the domination of others.” The State: Its Historic Role, Peter Kropotkin

Under modern capitalism right wing libertarian “psychological economics” ends up not with a nation of “hewers of wood and drawers of water”, one which produces, but a nation of Fuller brush Salesmen, multilevel marketers and pyramid ponzi schemers. That is the ultimate ideal of supply side economics which sees America evolving into service/distributive based capitalism.

Who is John Galt? Who Cares!

He is not the Scottish author, rather he is a character in the Ayn Rand Novel Atlas Shrugged who declares Rand’s idealist principles of individualism within modern capitalism:
”The world will change when you are ready to pronounce this oath:
I swear by my life and my love of it that I will never live for the sake of another man,
nor ask another man to live for the sake of mine.”

The Austrian School of ‘psychological’ subjectivist economics, or the ‘what’s in it for me’ school of political economy, deliberately obfusticates the differences between themselves and the Marxist school of political economy, because they have thrown out the Labour Theory of Value, while caring only about the arithmetic of distribution, the supply and demand of the current existing capitalist system. Even in their most radical form of the free marketers or anarcho-capitalists like Bryan Caplan, they still view the world through the eyes of Ayn Rand and her capitalist heroes in Atlas Shrugged and The Fountainhead.

In her work The Fountainhead, which was also made into a movie, her capitalist hero is an architect who builds a monument to himself and escapes society by hiding from it. This is Rand’s individualist politics, the cruel but beautiful isolation of the individual. By embracing capitalisms alienation Rand makes this alienation her banner of individualism. It’s lonely at the top is the sine que non of this ideology.

Toohey's values are totally wrong, from Rand's point of view, but his analysis is almost always correct. "Every loneliness is a pinnacle," he says, like a true Randian individualist [277], and he is one of the few people able to recognize Roark's lonely genius for what it is. Toohey analyzes, in Randian fashion, the indebtedness of the many to the genius of the few, and the inspiration given to the collectivist spirit by the envy that results from that indebtedness [281-82].

The Literary Achievement of The Fountainhead By Stephen Cox

In the end, despite their protests to the contrary, the so called anarcho-capitalists heroes are Enron, WorldCom, and Martha Stewart, while their ideal of themselves is the freebooter pirate like Robert Anton Wilson’s caricature of them; Hagbard Celine in his Illuminatus Trilogy.

In order to avoid seriously confronting their differences with Marxism, Böhm-Bawerk and all his followers since have set up the straw dog of State Socialism, as their definition of Socialism, in particular Bismarck’s Prussian State Socialism which they were familiar with. Even after the successful Bolshevik revolution they still define socialism as any form of state intervention in the economy. In this case they failed to historically understand that Keynesianism was the natural outcome of Fordist capitalisms changing nature once confronted with workers revolution. In their steady state economics of capitalism workers revolution plays no part. They can only define capitalism as a market place separate from the state while capitalism has moved into an epoch of State Capitalism as Marxist Humanist Raya Dunavevskaya describes it.

Overall with few exceptions, such as Murray Rothbard, the Libertarian Right and its Austrian and Randian allies care not one wit for class struggle, since to them it can only lead to state socialism. And here is the rub, to be a radical subjectivist you must understand that the subjects of capitalism are the workers who produce it. As Marx said, both the workers and the capitalists are the subjects and objects of capitalism.

Production does not simply produce man as a commodity, the human commodity, man in the role of commodity; it produces him in keeping with this role as a mentally and physically dehumanized being. — Immorality, deformity, and dulling of the workers and the capitalists. — Its product is the self-conscious and self-acting commodity ... the human commodity.

Karl Marx, Economic and Philosophical Manuscripts of 1844

Capitalism is a system, one that goes beyond its subjects, which is why it must be overcome since the result of its existence is alienation of the subjects who create it through the commodity fetishism it demands of us not as subjects but as ‘consumers’.

The Libertarian Right, the Austrian School and the Randites philosophical economics are restricted to understanding the subject as commodity fetish, they can never go beyond this. In effect their economics and the economics of the commodity fetish is well captured in the phrase; “Those with the most toys wins.”

As I.I. Rubin the Russian Economist writes in his introduction to Essays on Marx's Theory of Value

There is a tight conceptual relationship between Marx's economic theory and his sociological theory, the theory of historical materialism. Years ago Hilferding pointed out that the theory of historical materialism and the labor theory of value have the same starting point, specifically labor as the basic element of human society, an element whose development ultimately determines the entire development of society.[1]

The working activity of people is constantly in a process of change, sometimes faster, sometimes slower, and in different historical periods it has a different character. The process of change and development of the working activity of people involves changes of two types: first, there are changes in means of production and technical methods by which man affects nature, in other words, there are changes in society's productive forces; secondly, corresponding to these changes there are changes in the entire pattern of production relations among people, the participants in the social process of production. Economic formations or types of economy (for example, ancient slave economy, feudal, or capitalist economy) differ according to the character of the production relations among people. Theoretical political economy deals with a definite social-economic formation, specifically with commodity-capitalist economy.

The capitalist economy represents a union of the material-technological process and its social forms, i.e. the totality of production relations among people. The concrete activities of people in the material-technical production process presuppose concrete production relations among them, and vice versa. The ultimate goal of science is to understand the capitalist economy as a whole, as a specific system of productive forces and production relations among people. But to approach this ultimate goal, science must first of all separate, by means of abstraction, two different aspects of the capitalist economy: the technical and the social-economic, the material-technical process of production and its social form, the material productive forces and the social production relations. Each of these two aspects of the economic process is the subject of a separate science. The science of social engineering-still in embryonic state-must make the subject of its analysis the productive forces of society as they interact with the production relations. On the other hand, theoretical political economy deals with production relations specific to the capitalist economy as they interact with the productive forces of society. Each of these two sciences, dealing only with one aspect of the whole process of production, presupposes the presence of the other aspect of the production process in the form of an assumption which underlies its research. In other words, even though political economy deals with production relations, it always presupposes their unbreakable connection with the material-technical process of production, and in its research assumes a concrete stage and process of change of the material-productive forces.

Marx's theory of historical materialism and his economic theory revolve around one and the same basic problem: the relationship between productive forces and production relations. The subject of both sciences is the same: the changes of production relations which depend on the development of productive forces. The adjustment of production relations to changes of productive forces-a process which takes the form of increasing contradictions between the production relations and the productive forces, and the form of social cataclysms caused by these contradictions-is the basic theme of the theory of historical materialism.[2] By applying this general methodological approach to commodity-capitalist society we obtain Marx's economic theory. This theory analyzes the production relations of capitalist society, the process of their change as caused by changes of productive forces, and the growth of contradictions which are generally expressed in crises.

Political economy does not analyze the material-technical aspect of the capitalist process of production, but its social form, i.e., the totality of production relations which make up the "economic structure" of capitalism. Production technology (or productive forces) is included in the field of research of Marx's economic theory only as an assumption, as a starting point, which is taken into consideration only in so far as it is indispensable for the explanation of the genuine subject of our analysis, namely production relations. Marx's consistently applied distinction between the material-technical process of production and its social forms puts in our hands the key for understanding his economic system. This distinction at the same time defines the method of political economy as a social and historical science. In the variegated and diversified chaos of economic life which represents a combination of social relations and technical methods, this distinction also directs our attention precisely to those social relations among people in the process of production, to those production relations, for which the production technology serves as an assumption or basis. Political economy is not a science of the relations of things to things, as was thought by vulgar economists, nor of the relations of people to things, as was asserted by the theory of marginal utility, but of the relations of people to people in the process of production.

Political economy, which deals with the production 'relations among people in the commodity-capitalist society, presupposes a concrete social form of economy, a concrete economic formation of society. We cannot correctly understand a single statement in Marx's Capital if we overlook the fact that we are dealing with events which take place in a particular society. "In the study of economic categories, as in the case of every historical and social science, it must be borne in mind that as in reality so in our mind the subject, in this case modern bourgeois society, is given and that the categories are therefore but forms of expression, manifestations of existence, and frequently but one-sided aspects of this subject, this definite society." ". . .In the employment of the theoretical method [of Political Economy], the subject, society, must constantly be kept in mind as the premise from which we start." [3] Starting from a concrete sociological assumption, namely from the concrete social structure of an economy, Political Economy must first of all give us the characteristics of this social form of economy and the production relations which are specific to it. Marx gives us these general characteristics in his "theory of commodity fetishism," which could more accurately be called a general theory of production relations of the commodity capitalist economy.

Between these two Libertarianisms, there can never be a rapprochement, as those on the right reject the Labour Theory of Value and those of us on the Left (including some mutualists and some free-marketeers) accept the Labour Theory of Value.

Compared to the Labour Theory of Value, all other economics are simply the arithmetic of the market and the calculations of supply and demand distribution of currently existing capitalism. They offer no historical understanding of how we got here or where we are going, they only offer us the steady state of capitalism as it is, as it was, as it ever will be.

This is the contradiction of the free trade argument, since no trade in goods is truly free, each nation of producers restricts access to trade in its own capitalist interests, but in a world of commodity producers (off shore overseas, out of sight out of mind) and a world of commodity consumers (North Americans) then Free Trade is the right wing liberaltarian ideal. With that in mind all we can look forward to sweat shops in space ala Outland, with the lone sheriff being the Randian hero, if John Galt liberaltarians get their way.

The real Libertarian calls for smashing capitalism and its State. For ending the market domination of society and for the free association of producers.


Anonymous said...

Between you and Kevin Carson, the vulgar libertarians are getting a real (and deserved) thrashing. One of my writing projects that I never got around to was to do a critique of libertarian politics, the essence of which was that their refusal to orient themselves to the 80% of us who have to work for a living severely limits any political future. Sure, we are pleased that they attack the stupid drug laws and a lot of the repressive regulatory garbage of state capitalism, and their opposition to militarism, but they don't and cannot ultimately speak to the worker.

As for the subjective aspect of Austrian Economics, Carson does his own version of this in STUDIES IN MUTUALIST POLITICAL ECONOMY. Put crudely, it is precisely that we workers suffer in labor that creates value in labor. The other supposed aspects of the equation, land and capital don't have to endure this suffering. The alleged restraint of the capitalist in saving wealth for investment, has nothing in common with the bone-grinding effort of the worker.

Anonymous said...

Labor is correlated to value, but it is not value. It I choose to work on something that others do not want, it will have little value, regardless of how many hours I work on it. This is the difference between work and play. Work is effort that is an attempt to produce value, regardless of how fun the work is. Play can be labor, but it is done with far less regard to what others think.

Marx was correct in that labor frequently gets underpaid. Capital is heavily subsidized in most countries. Deficit spending is a subsidy to Capital at the expense of Labor.

Land is tricky. Unlike capital, it is fixed. Thus, those who have extra income can increase that income by buying more of it and then raising the price. Over time, this can produce great disparities of wealth in agrarian societies. Until not that long ago, major landowners were addressed as m'Lord and the like, because of this phenomenon.

Adam Smith recognized this and recommended a tax on land as a means of keeping landlords in check. This was followed up by such left libertarians as Tom Paine, Henry George and modern Geolibertarians. However, the concenpt is ancient; it can be found in the Bible (Leviticus 25).

See for free market based ideas that raise the pay of labor WRT to Land and Capital.


Land was held in common, hence the term commons. It was the privatization of the commons in England that allowed for the development of capitalism specifically in England. In other European countries land relations were different. Capitalism arises out of the property relations based on agriculture, that is making a profit from property, as in land improvement.
This is described quite clearly in Brenners Agrarian Reform and the birth of Capitalism and Ellen Mienkis Woods The Origins of Capitalism.
A commons or commonwealth is also refered to in the bible, and dissenters in England, diggers and ranters in their proto-cpommunist proto libertarian movements always refered to the biblical right to commonwealth.