Sunday, August 29, 2010

Random Labor theory of value rant

the labor theory of value states that the only source of value is labor, by which is meant that it alone can add more value than it had itself. Marx called that difference between the value embodied in labor and the value that labor added to production 'surplus value', and saw it as the only way profit is made.

He gave two proofs of this, one "negative" proof by process of elimination of the unique characteristics of labor, and one" positive" based on a general theory of commodities; the negative proof is by far the most widely known and used, and it's the one I'm going to talk about.

It follows that labor is unique among commodities, in that what's sold isn't the laborers themsleves (excepting the case of slavery, obviously), but their capacity to work, a commodity Marx referred to as "labor-power", the value of which was the means of subsistence (what's required to reproduce labor power), ie it might take four hours of labor a day to produce the goods needed to keep a worker alive.

What a factory owner, for example, receives in exchange for paying for that labor-power isn't the labor-power itself, however, but actual work. If you produce the means of subsistence in four hours and you work an eight-hour shift, you've worked twice as long as it takes to produce the value of your labor-power and the extra four hours of work is "surplus labor", which accrues to the factory owner and provides the basis for his profits. Since there isn't any commodity other than labor where you can distinguish the commodity itself from its "commodity power", every other commodity consumed in production transfers its value to the product, and labor is the only source of profit.

This also means that the rate of profit is directly related to the rate of surplus value, where the rate of surplus value is defined by the ratio of the labor time required to secure the means of subsistence to the labor time actually performed, eg in my factory example the ratio is 1:1, four hours of necessary labor to four hours of surplus labor. The rate of profit is defined as the ratio of surplus (hereafter "s") to the sum of the inputs required to generate a surplus, those inputs being necessary labor and the means of production. Necessary labor he called "variable capital" (hereafter "v") because it could increase value, and the means of production he called constant capital (hereafter "c") because it couldn't.

The rate of surplus value (s/v) is assumed to be constant across time and industries, as well as that the competitive forces of markets will lead to the replacement of labor with machinery (c). So for any production process c becomes larger with time, thereby decreasing the ratio of s to c+v, thus reducing the rate of profit. This means that, regardless of the efforts of capitalists, the rate of profit inevitably falls; to which their response would be to lower wages, eventually leading to revolution and a communist society.

That's the theory, anyway, but if you look a little closer you see some major inconsistencies. For one thing, there's no reason in practice that a rise in c couldn't result in an increase in s/v so that the rate of profit doesn't fall over time.

Another is what's called the "transformation problem", which arises from the fact that it's the rate of profit rather than the rate of surplus that motivates capitalists: if labor is the only source of surplus value and rates surplus value are constant across industries, industries with a higher than average ratio of labor to capital should have a higher rate of profit. But in a competitive capitalist economy, this can't apply in equilibrium since lower rates of profit in capital-intensive industries should lead to companies moving out of them and into labor intensive ones in order to maximize their rate of profit. His solution was to assume that capitalism is a "joint enterprise", such that capitalists earned profits proportional to their investments regardless of what industry they invested in. However, he never explained why perhaps the most competitive social system ever developed should wind up behaving so cooperatively, with capitalists sharing a uniform amount of profit.

There's also the fact that all non-labor inputs have to have been produced at some time in the past: even raw materials have been extracted using a combination direct labor as well as commodity inputs, and those inputs also reduce to a combination of direct labor and commodity inputs. You can do this indefinitely, but no matter how far back you go you can never eliminate commodities entirely, except maybe if you allow for the possibility of magic. Therefore, if value is in some sense the essence of a commodity, it can't be derived from labor alone. Both labor and commodities are the source of value.

So even though it's used as an attack on capitalism as well as a prediction of its downfall, it fails to even provide a coherent model of capitalism, much less any reason why it will inevitably fail and be replaced by communism. What's so bad about the labor theory of value is that it's a failure, basically.

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