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[ox-en] Marx’ Theory of Value and Why Exchange Can Be “Equal” and Still Bad

Repost from

by Christian Siefkes

This post resulted from a thread on the p2presearch mailing list. The 
discussion started when a remark by Joseph Jackson’s “forced” me to 
clear up some frequent misunderstandings about the meaning of the labor 
theory of value, as formulated by Karl Marx. The thread then turned to 
Marx’ criticism of capitalism and I tried to explain why (according to 
Marx) the root cause of raising inequality and other detrimental 
effects of capitalism isn’t “unequal exchange,” but rather exchange per 
se, regardless of whether or not it’s equal.

Quotes from Joseph Jackson are indented and printed in italics:

    Economics has no coherent Theory of Value and we must solve this
    problem if we are to establish the field of Abundance. The Labor
    Theory of Value has advantages in that it is objective and normative
    —it states that price should tend toward the cost of production; it
    also allows us to determine what constitutes equitable exchange.

Actually, the Labor Theory of Value, as first formulated by Adam Smith 
and Ricardo and later refined by Marx, is not normative, but 
descriptive: it describes the basics of price formation in capitalism. 
Of course, the value of goods is only their average price—actual prices 
will usually be somewhat below or above the average because of 
fluctuations in supply and demand etc.

Also, what Smith and Ricardo didn’t know but Marx found out (described 
in vol. 3 of Capital) that there is a further systematic distortion 
between value and average price that assures that the average rate of 
profit will be about the same in all sectors (assuming free 
competition). However, that’s only a modification (which follows from 
the fact that the ratio between present, living labor—performed by 
workers—, and past labor—embodied in machines and such—differs from 
sector to sector) of the price building mechanism, which is still 
basically derived from the labor required to produce different goods.

    Unfortunately, the LTV does not acknowledge that the amount of labor
    embodied in products is constantly diminishing with the advance of
    automation and improvements in capital.

On the contrary, the main reason that drives capitalistic competition is 
that you (as a capitalist/company) can outperform your competitors by 
reducing the value of your products, which allows you to sell at a 
lower price (thus enlarging your market share) and still make a higher 
(or equally high) profit per product. The LTV explains why capitalism 
relies so strongly on automation and technical innovations that reduce 
the necessary labor.

This seems to be a useful, very detailed discussion of the LTV:

    [Joseph Jackson replied:] I agree with most of the LTV and
    by “normative” I meant that the LTV provides an objective notion
    of “fair price” (if price exceeds the average cost of production it
    is a sign that some barrier prevents competitors from entering).

That’s true, but if that’s your ideal, it’s not much different from what 
things are now, since in most areas, the barriers of entry are 
sufficiently weak to make the actual prices quite similar to the “fair 
price,” as you call it.

The problem with capitalism isn’t that prices are “unfair”—most prices 
aren’t. There are other problems. First, production only takes place if 
there is profit. The goal of all capitalist production is to make 
profit, i.e. to turn money into more money. So, in order to get the 
things you need, you have to convince some capitalist that they need 
you, i.e. that employing you allows them to make more profit than they 
would make otherwise. But capitalists only need a limited number of 
personnel, much less than there are people on Earth, so that’s the big 
hurdle which most people fail to overcome (when speaking on a global 

A second problem is that, as a worker, you don’t sell the results of 
your labor, you sell your labor power (workers, or would-be workers, 
are people who don’t have anything to sell than their labor power—most 
people haven’t). The deal by selling your labor power is: you get paid 
the value of your labor power (NOT the value of your labor—labor 
doesn’t have value, it produces values), and the value of your labor 
power is what you need in order to survive (according to your local 
community standard of living). In return, you have to give your full 
labor power (according to the local standard for the length of the work 
day/week, say, 8 hours a day/40 hours a week). If the production of the 
goods you need for your standard of living takes 20 hours a week, you 
still have to work 40 hours—the other 20 hours are the “surplus”—they 
go to the capitalist, become their profit and are, in fact, the only 
reason why they employed you in the first place.

So the problem isn’t unfair prices, it’s the fact that people have to 
sell their labor power, because they don’t have anything else to sell. 
And this situation will necessarily arise in a market system (even in a 
fictitious scenario where initially everybody had some means to 
production—inevitable, some people would go bankrupt and again have 
only their labor power to sell).

    In contrast, after classical economics was abandoned economists have
    simply said that subjective preference rules supreme—price is
    whatever consumers are willing to pay. (nothing wrong whatsoever
    with charging anything I can for a bottle of water in a desert
    regardless of what it actually cost me to produce and transport that
    good). The only problem I have with LTV is making labor the most
    important “source” of value. To me, capitalism would be great if we
    actually had univeral ownership of capital. Pretty much everybody
    would love to receive income without laboring!

Capital doesn’t  create value, only labor does. Money doesn’t turn 
itself into more money by itself (you could send a dollar to the moon 
and leave it there for 100 years to find out whether money can multiply 
by itself).

Rather, capital only allows you to get “income without laboring” because 
it gives you the means to employ other people’s work. It’s their 
surplus labor which pays your income.

    I find the theory of Binary Economics interesting in this respect
    because it emphasizes the ever increasing power of technology to
    actually “do work.” If we instead emphasize the role of technology
    as primary it leads to new perspectives. What happens with the
    advent of true personal manufacturing? There is no more average
    price when everything is a custom order. Do we have one theory of
    value for standardized commodities and another for custom goods? I
    don’t have answers to any of this now, I’m just not sure the
    classical LTV can function for these situations.

LTV is only meant to work for situations where people trade their work, 
or the results of their work. If everybody had a personal manufacturing 
device catering for all her/his needs, trade would no longer be 
necessary, and value would no longer exist. That’s a rather fancy 
scenario, but there are other, more realistic scenarios that make 
value, and trading, superfluous. For example, when people employ 
commons-based peer production 
[] to jointly 
produce what they need, so they don’t have to trade and sell their 
labor power. I’ve written about that in my book, “From Exchange to 
Contributions” [].

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