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RE: [ox-en] Re: Role of markets


The idea of labour being the measure of value has a long pedigree,
back to classical political economy, and there is now a large body
of econometric literature which indicates that exchange value in
a capitalist economy does correlate very closely with labour values.
Studies typically get correlation coefficients of above 95% 
between labour content and exchange value of commodity types.

Smith explained why this is when he said that labour was the original
currency with which we purchase our wants and necessities from nature.

I assume you yourself do not believe this, or labour value would be 
found in all societies

No I think Adam Smith was dead right here. One has to distinguish
between value and its form of representation. Value is socially
necessary labour time, its form of manifestation in capitalist society
is in an equivalence relation between commodities -- exchange value.
This was one of the distinctions over which Marx made great play,
accusing his predecessors of ignoring the distinction between value and
exchange value. Ironically, the majority of Marx's followers also ignore

When Smith says labour is the original currency, he is speaking of value
in itself not exchange value, he means socially necessary labour time.
This is then reflected in the quantitative exchange ratio of
commodities. Gold exchanges with silver at a stable 12 to 1 ratio
because of the different labour productivities of gold and silver mines.

Thus labour value is found in all societies, but is only made manifest
as exchange value in some societies. In others it is manifest in the
form of customary allocation of the population to social roles in the
old caste society of the Hindus, or in specific practices of computation
by quipu etc among the Incas.


The idea of labour being the basis of distribution is classic
originating with Owen, and being elaborated by Marx in the Critique of
the Gotha programme. 
'elaborated' as in 'replaced': 'from each according to his abilities, to

each according to his needs'. That is precisely not distribution based 
on labour time.

  The common response to this argument would be "that is the second 
stage,  preceded by a long period of 'to each according to his work'" 
But we have a long period of history of the previously existing 
socialist states to show that 'to each according to his work' - measure 
by labour time - never showed the slightest tendency to evolve into 'to 
each according to his needs'.

My take on this is somewhat different.

Countries like the DDR and USSR did not actually introduce the labour
voucher scheme advocated by Marx. They retained money, and they retained
state enterprises which were subjects or right. The workers were not
paid the money equivalent of 8 hours for an 8 hour day, but much less.
The difference went as profit, just as it would in a capitalist economy,
but, since the only shareholder in these enterprises was the state, the
profit went to the state not private rentiers.

The state then provided many services and commodities either free, or at
heavily subsidised prices in order to try and conform to the principle
of distribution according to need.

The effect was that workers were being exploited in state enterprises in
order to provide for distribution of many services according to need.

But this means that the ratio between the labour value of take home pay
and the working day was even lower than under capitalism -- since take
home pay understated the real wage that people consumed. But it meant
that labour was even more undervalued than it was in the west. If a West
German firm only paid for half the labour it used ( assuming an
exploitation rate of 100%, which is roughly right), an East German firm
might pay out in wages only about 30% of the labour it used.

But what is sold cheap is never valued. If labour is cheap, it is wasted
and not used efficiently. This is true for the untouchables toiling in
the quarries and brickworks of modern India for example. The wages are
so low that it does not pay to modernise and use new machinery.
Similarly in the DDR, lower wages meant that it was rational for East
German firms to be more wasteful of labour than would be the case in the

If workers in Leipzig had been paid in labour tokens not Ost Marks, then
the situation would have been different. If for each hour they worked
they got 60 mins of tokens, then it would have provided an incentive to
Robotron to have been even more efficient in their use of labour than
Siemens. Of course in a system of labour tokens you would need to have
income tax, as Marx pointed out, but a tax on income, with tax rates
democratically voted on is quite different from paying for the state out
of company profits.


It sounds like you believe it is simply not possible to have a society 
based on this principle, or that like the old Soviets, it is to be 
postponed to a distant non-time in the future when all people are

There was much of this moralism on the part of Che Guevara and Kruschov,
the new socialist man etc. My take on it is that distribution according
to need is quite different from distribution according to wants. Needs
are something that can be assessed objectively by people other than the
person in need.
An alcoholic may think that they 'need' another bottle of Gin, but that
does not mean that society will agree to provide it to them for free,
and may not even agree that they should get it at all.

Where distribution ad-libitum does become possible is with information.

Its objective is to eliminate the exploitation
of worker by employer not to solve ecological problems.
I think Marx would have been horrified by such a narrow description. The

end of class-based societies is the chance for a real human history to 
begin, a history where people can make conscious decisions about the 
truly important problems instead of having them decided by the movements

of share prices. Ecological problems are an example of the kind of issue

that simply cannot be decided sensibly within a capitalist system, but 
which we might have a chance to fix in a non-labour-time based society.

I am not saying that the ending of exploitation is the sole goal of
socialism, but it remains
a) an absolutely essential goal
b) the goal towards which the proposal of what Peter's calls the
Equivalence Economy, of payment in time, is directed

Ecological problems have to be solved, but they will not be solved by
the system of payment for work that is in place in a given society.

A secondary justification given by Marx, is that calculation of
costs in labour rather than as wage costs accelerates technical
Since wages represent only part of the labour expended, capitalism
impedes technical progress, only employing machinery if it saves wages
rather than saves labour. The cut off point for capitalist investment
in labour saving machinery is about half what it should be, as wages
are typically only about 50% of labour performed.
This is secondary to my main argument, but IIRC in the socialist 
countries this was one of the arguments against using labour value: 
attempts to use labour value would lead to lack of investment in 
labour-saving equipment as managers tried to maximise rather than 
minimize the labour value of their output to improve their apparent 
performance. Measurement in terms of goods produced (tons of steel, 
rather than man-hours of steel-workers) was supposed to avoid this 
(sorry if I've got that wrong, I know this is your specialty not mine).

If this was ever suggested in the socialist countries it was an
egregious confusion. Alex Nove makes this confusion in his book
'Economics of Feasible Socialism', which only goes to show that he
totally misunderstands the classical political economy of Smith and
The aim in classical political economy is to minimise the labour content
of goods not to maximise it.

You are right that ecological problems can not be solved by the
or maximisation of any single scalar quantity. The idea of minimising
labour input is to increase leisure and to achieve the best output for
the minimum effort.

This sparks a lot of questions:

- Suppose I want to achieve the best output for the maximum enjoyment of

my work, instead? (this would be the William Morris variant of Marxism)


Why are these conflicting goals? Would not the enjoyment of the brick
kiln workers of Kerala be improved by the introduction of modern plant
and machinery, which would also reduce labour input?


- Suppose I want to use my leisure productively, does my output get 
included in the calculations? (the free software problem, continued

Well if you want it to be leisure activity, then it does not get
included. If you want to work overtime or on a second job, then it does
get included, but during such hours you worked on a 2nd job you would be
submitting to the tasks and goals set by the collective within which you
were working.

- What is the size of the overhead used in checking on how many hours 
everyone is working?

No different from in current society.

- The classic argument against communism (in my sense) is 'who will 
collect the rubbish'? Your system will try to automate the collection as

much as possible. Minimization of a scalar will never come up with a 
different idea, or allow for people's own initiative in finding 
different methods. Hill-climbing as a method doesn't allow for 
deliberate changes in the landscape.. 'Best output' is only best for the

particular configuration you start with.

You are right here. The argument I am making is mainly directed at the
original Austrian arguments against socialism -- that no rational
calculation was possible under it. Having been defeated on this, they
then shift to talking about the role of entrepreneurship in innovation.
But innovation is a very complex matter depending on all sorts of
cultural and institutional factors other than just the system of
economic calculation. The best way of encouraging innovation is a quite
distinct debate from that relating to forms of payment.


I have a tutorial paper showing how you can use Kantorovich's method
to solve
for environmental constraints in energy production on my web page

If I'm right about which paper you mean (standalone.dvi ?) it shows an 
example of such a solution concluding "the whole calculation can be done

in PHYSICAL UNITS [my caps] without recourse to money or prices". No 
requirement for any use of labour values, then. But also no relative 
weighting in importance against labour values. So presumably the 
fundamental decisions are made using labour values, and as an 
afterthought people can then tinker with the results according to the 
ecological constraints. This sounds remarkably like the current system.


In Kantorovich's theory the plan ray is determined politically, and his
technique then shows how an arbitrary set of material conditions,
including ecological ones, can be taken into account in trying to meet
this ray.
The process of political decision making in Russia was obviously highly
centralised and undemocratic, but the idea that such goals can be
arrived at external to the system of economic computation is, I think,
valid. One would have to have a much more democratic mechanism for
setting the ray, and, I think, have limited market feedback from the
consumer goods sector, in setting it. 

This is quite different from what occurs today over the Kyoto protocol,
in that although the protocol sets physical targets for C02 emissions,
it is very hard indeed in a market economy to translate these into a
system of price modifiers which will ensure that the targets are met.
What is radically different in socialist planning is that the
calculations about resource usage and relative sizes of sectors are all
done in physical terms.
It is thus much easier to arrive at a combination of intensities of use
of production techniques that will meet the physical targets.


I notice also that this article (page 29) confirms that firms in the old

USSR tended to try to maximize, not minimize, the labour value of their 

When I say value of output on page 29 I mean value of output in roubles.
The USSR did not do calculation in labour hours.

It also doesn't help in trying to analyze free software and similar 
production, or in working out how to generalize it - one thing I'm
sure of is that as soon as you try to measure the labour time used in 
communal free software production (the Stefans' 'triply free 
production'), that production stops dead.



 I'm unfamiliar with the term 'social surplus labour'.  If it is 
substantial in relation to 'official' labour, how do you take it into 
account in planning? Is it also measurable in labour-hours? Where are 
its boundaries (teaching my children to read? Helping my elderly 
next-door neighbour? reading about a subject useful for my job? 

I would say that any labour that is not required for the reproduction of
society in its current state of development and civilisation is surplus.
This is an analytic term, having a concept of something and having the
technique to exactly measure it are two different things.

As I said in an earlier post, goods whose marginal costs of
tends to zero fall into one of the categories for which even
markets are not appropriate.

The question of markets is a bit separate from the question of use of 
labour values in planning though. How does labour-value based planning 
of production relate to production of goods with low marginal cost of 
reproduction, especially in an environment where people are also 
creating those goods for pleasure? I would suspect the labour-time 
approach can't say anything useful about it at all.

If the goods are created just for pleasure then that is not a problem.
But that is true only of a portion of informational goods. Developing a
new cancer drug is a process of information production. It is however a
very costly process of production in terms of the effort that has go to
into it. Once the drug has been developed, the information about its
formula can be distributed at minimal cost. What I am saying is that
because the marginal cost of disemminating the formula of the drug is so
low there should be not royalty charges impeding its cheap production.
But society still has to have some way of accounting for and defraying
the considerable labour cost involved in producing the information in
the first place.
Contact: projekt

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