Wishful, rational, and political thinking: the labor theory of value as rhetoric.
We argue that the source of the LTV's deficiency results from efforts to distinguish social-scientific reasoning from political appeal. The LTV persuaded classical economists and Marxists not because of its logical rigor, though a good bit of logical argumentation contributed to its appeal. Following James Aune (2001, pp. 22-24) and Chaim Perelman and Lucie Olbrechts-Tyteca (1969, p. 194), we call such argumentation "quasi-logical modeling." The LTV persuades because it appeals to an ideal of justice. In the predominantly rhetorical analyses to follow, we trace the LTV's origins and its three major instantiations (in the works of Adam Smith, David Ricardo, and Karl Marx), each an effort to prove that capitalist society is (or is not) just because it does (or does not) uphold every person's right to the fruits of his or her labor. This appeal to justice is, in many ways, an appeal to a deeper ethical commitment to reciprocity. Justice-as-reciprocity is integral to the Marxian charge of exploitation (Cohen, 1981, p. 207). Smith, Ricardo, and Marx, while appealing to justice, employ some degree of wishful thinking (hope that capitalism will not violate a person's right to his or her labor), or some rational thinking (models to show that capitalism does or does not uphold a person's right to his or her labor). All are political thinking, rhetorical efforts to move the audience towards participation in or condemnation of free-market capitalism. Our analysis of three labor theories of value as arguments extends the project that Aune began with Selling the Free Market--that is, analyzing economic arguments as arguments, not as social science but as "the process of justifying decisions under conditions of uncertainty" (p. 4). Judged as political thinking, the writings of Smith, Ricardo, and Marx all retain some merit, if not as proven or valid social science, then as potent and tested public argument. Judged as rational thinking, the LTV looks like a failed effort at exploring objectively the cause and measure of value. When the rational and the political appeals combine, we can see why the LTV succeeded rhetorically.
PRE-HISTORY OF THE LTV: JOHN LOCKE AND WILLIAM PETTY
Two suppositions with a classical pedigree set the pre-historical stage for the LTV: an Aristotelian dissociation between value-in-use and value-in-exchange and a medieval association of use-value with labor (Spiegel, 1991, p. 32). Separating use-value from exchange-value not only dissociates the two "independent elements," bringing about what Perelman and Olbrechts-Tyteca (1969) called a "profound change in the conceptual data that are used as the basis of an argument"; but that separation also modifies "the very structure of those elements" (p. 412). If use-value and exchange-value are both associated, then a commodity's price undoubtedly reflects its worth. But if the two are dissociated, then the price appears unjust when it seems to veer wildly and dangerously away from use-value.
The writings of two seventeenth-century political economists exhibit key suppositions about use- and exchange-value. In many regards, there is no odder couple than John Locke and William Petty. Petty supported Oliver Cromwell's republican commonwealth, yet he later worked for the Restoration-era courts of Charles II and James II. Locke remained loyal to the monarchy during the commonwealth period but plotted against Charles II and was driven into exile by his brother James II. Petty is best known among economists as a proto-statistician who justified Cromwell's and Charles II's policies in Ireland. Locke is best known as a proto-monetarist who argued for property and contract rights independent of royal prerogative. What brings the two men together, in their disparate musings on various subjects, is a set of presumptions about labor, value, markets, and exchange.
In his Second Treatise of Government (1690) John Locke insisted that in a "just" civil society the market price for any commodity should reflect the labor embodied in its production. Locke wove a labor theory of property into his labor theory of value. (1) He postulated that "every Man has a Property in his own Person," and so "The Labour of his Body, and the Work of his Hands ... are properly his" (1988, pp. 287-88). According to Locke, divine right embodied in "Justice gives every Man a Title to the product of his honest Industry" (1988, p. 170). He also speculated that, in a market-based society, "'tis Labour indeed that puts the difference of value on everything ... For whatever Bread is worth more than Acorns, Wine than Water, and Cloth or Silk, than Leaves, Skins, or Moss, that is wholly owing to labour and industry" (1988, pp. 296-97). By weaving a labor theory of property and a LTV together, Locke appealed simultaneously to a belief about justice and a belief about causality.
Locke's contemporary, William Petty, however, argued that although labor may be the cause of value, it is not always the measure. In his Treatise of Taxes (1662), published a decade before Locke began musing on matters political or economic, Petty differentiated between the "natural" price and the "political" price of grain. In so doing, Petty harkened back to the distinction between use-value (associated with labor) and exchange-value. The "natural price" is the amount of labor-embodied in production--the hours spent ploughing, tending, threshing, and chaffing. The "political price" reflects the labor-commanded by the product's sale at market-the amount of work that can be bought with the proceeds. And, explained Petty, the labor-commanded (the measure of value) can be significantly lower than the labor-embodied (the cause of value), for an oversupply of laborers will reduce production costs without diminishing the hours spent tilling, seeding, and cutting (1899, pp. 89-90).
Petty's contention that the labor-commanded in exchange may not equal the labor-embodied in production troubles Locke's easy conflation of the LTV and the labor theory of property. It may be just for a person to get rewarded for the labor he or she embodies in a commodity, but the market may not give just rewards. Any assurance that free commerce is just without further explanation comes across as wishful thinking, a mode of cognitive distortion that Elster (1983) described as "the shaping of beliefs by wants, making us think that the world in fact is how we want it to be" (p. 26). Locke wrote to support the Whiggish belief that people's "natural rights," including the right to one's labor and its fruits, precede and supersede royal decree. His wish that labor-embodied in production will be rewarded with labor-commanded at exchange fits neatly into a larger political system that opposes absolutist monarchy. Petty's and Locke's political differences explain their differing positions. Petty, the Royalist, did not need to justify a natural right to labor, since the right to property depends on the commonwealth or the crown. As a result, Petty did not claim that labor-embodied in production would be rewarded by labor commanded at the market. Locke, the Whig, relied heavily on a theory of natural law to justify his belief in a robust civil society (including free marketplace) beyond the Crown's legislative reach. So he insisted that in the free, natural state of exchange, labor-commanded at the market would equal labor-embodied in production.
A century later, when this tension between Royalists and Whigs had abated, the economic problem remained. To uphold Locke's belief in the labor theory of property and his belief in the LTV, later political economists would have to wrestle with Petty's claim that value's cause is distinct from its measure. They did so by making "quasi-logical" arguments, "formal reasoning [that] results from a process of simplification which is possible only under special conditions, within isolated and limited systems" (Perelman & Olbrechts-Tyteca, 1969, p. 194). (2) Even before mathematical modeling came to dominate the discipline, political economy relied on such quasi-logical modeling--the presentation of abstract models to explain in ratified form the messy happenings of human sociality (Poovey, 2008, p. 143). Deirdre McCloskey (1990) has called such models "stylized facts," metaphors held to the "standards of logic" rather than the "standards of fact" or the "explicit standards of metaphor" (p. 23). When these models--which appeal more explicitly to reason than to hope-appear, the history of the LTV commences.
HISTORY OF THE LTV: ADAM SMITH AND DAVID RICARDO
Adam Smith wrote a century after Locke and Petty in historical circumstances marked by mercantilism, including the belief that a nation's wealth lies in its precious metals and the willingness to impose bounties, tariffs, and penalties to ensure a positive balance of trade. Against merchants seeking monopoly and parliaments considering trade restrictions-against those who would manage the economy so that exports exceed imports, and more silver enters than leaves the nation--Smith championed free trade in a magisterial essay that also touches on a range of economic matters, including value. While he still stands as free-trade's greatest proponent, for our purposes, his economic arguments are important because, while touring the still-unexplored terrain of political economy, Smith came to the question of value and accepted many of the LTV's pre-historical suppositions.
Smith believed in a juridical right to labor, though not for Locke's reasons. (3) He also distinguished use-value from exchange-value (1981, vol. 1, p. 45). Against mercantilists who thought a nation's wealth lay in its reserves of precious metals, Smith said, the "universal opulence which extends itself to the lowest ranks of the people" derives neither from land nor gold but instead from human toil (1981, vol. 1, p. 22). But even as he believed that labor lies at the root of value, Smith questioned Locke's wishful assurance that the labor-embodied in a commodity will also be its measure at market. Among his most lasting argumentative moves is Smith's claim that capitalist society differs from pre-capitalist society. He narratively severed pre history from history by saying that labor-embodied caused and measured value in pre-capitalist society, but capitalist society heralded a new standard (labor-commanded) and a new cause (the cost of production). In the "early and rude state of society ... the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which can regulate the quantity of labour, which it ought commonly to purchase, command, or exchange for" (1981, vol. 1, p. 65). But according to Smith (1981), labor's division and commerce's expansion changed everything. In capitalist society, labor-commanded (not labor-embodied) is the measure of value: "the toil and trouble of acquiring" any item measures its value because that commodity's worth "is precisely equal to the quantity of labor which it can enable [people] to command" (vol. 1, pp. 47-48). Furthermore, the "natural price" of a commodity is caused by three factors composing the cost of production: wages, profits, and rent (Spiegel, 1991, p. 250). Profits depend upon "the value of the stock employed." Rent depends upon the landowners' avarice, a "love to reap where they never sowed" (Smith, 1981, vol. 1, pp. 66-67). Wages, the only factor related to the labor-embodied, is one factor among others. While Locke defined labor-embodied as the sole cause and the strict measure of value, Smith identified labor-commanded as value's measure and the cost-of-production as value's cause. What the Englishman had joined together, the Scotsman put asunder.
As a quasi-logical model of value's measure and cause, Smith's LTV and his cost-of-production theory of price fail. (This failure is not surprising, since Smith did not aim to write a consistent economic theory; he aimed to debunk late eighteenth-century mercantilism.) He offered inconsistent ideas about what measures and causes value. On the one hand, he posited that "the real value of all the component parts of price ... is measured by the quantity of labour which they can, each of them, purchase or command" (1981, vol. 1, p. 67). On the other hand, he explained that three factors cause natural price. And these three objectively grounding factors remain themselves subjectively determined. Smith's cost-of-production theory of natural price fails rationally because the theory places one floating theoretical structure atop three equally ungrounded notions, for wages, profit, and rent are all determined values themselves (Napoleoni, 1975, p. 41). More troubling still, as political arguments, Smith's LTV and his cost-of-production theory failed to demonstrate that commercial society is just.
Smith began his defense at a disadvantage. After making labor-commanded into value's measure, Smith had to show that the worker would be justly compensated, even though, in modern times, labor-embodied would neither measure nor cause value. A significant effort towards such a defense appears in Smith's distinction between the "real" and the "nominal" prices for labor. The nominal price is the wage, the real price the sustenance afforded in exchange for the wage: "The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not the nominal price of his labor" (1981, vol. 1, p. 51). Smith's distinction between nominal and real wages stalls the charge of injustice by telling readers to ignore the nominal wage and to focus on the real quality of life that the worker can purchase. Even if nominal wages fall, the real quality of life under capitalism improves, Smith reasoned, because increased efficiency in production allows for broader distribution of goods. (4)
Smith pursued this defense while distinguishing between a just primitive society that awarded the worker for "the whole produce of his own labour" and a potentially unjust capitalist society where capitalists "are always and every where in a sort of tacit, but constant and uniform combination not to raise wages of labor above their actual rate.... These are always conducted with the utmost silence and secrecy" (1981, vol. 1, pp. 82, 84). Smith, however, contended that two factors keep deceptive masters from starving their workers. First, laborers themselves federate in a "contrary defensive combination ... to raise the price of their labour." Second, workers must be paid enough to sustain themselves; otherwise, they will quit working altogether. As Smith put it, "there is a certain rate below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour" (1981, vol. 1, p. 85). (Marx would later turn this assumption about labor's "certain rate" against capitalism.) Moreover, as the prosperity and quality of life in the whole society increases, this "certain rate" rises (1981, vol. 1, p. 87). In a much later section of the Wealth of Nations, Smith explained that economic progress allies with custom. A wealthy society turns luxuries into necessities. The basic subsistence for workers, thereafter, mandates luxuries that workers must afford: linen shirts and leather shoes (1981, vol. 2, p. 870)--or refrigerators, in the early twentieth century, and flat-screen TVs, in our own era.
This last argument is Smith's strongest defense of the capitalist era despite tendencies to disregard labor-embodied. When discussing the distinction between nominal and real wages, Smith explained why the individual worker's life improves under capitalism. When discussing innovation, he explained how everyone's life--how the entire economy--improves under capitalism. The capitalist, chasing profit, efficiently invests stock. His temporary victory--a brief grasp at market share through low prices or a short-lived edge in production-cost due to invention--eventually lowers the market price. If the cause of low market price is disequilibrium (greater demand than supply), then the market price rises back to the natural price rather quickly. If the cause of the low market price is an innovative producer, then others adopt the innovation, and the low market price becomes the new natural price. In either case, consumers benefit. More goods are produced, life for everyone improves, all boats rise. Some portion of the price goes to the renter, some to the the capitalist. Nonetheless, as labor produces more efficiently and, hence, produces cheaper commodities, laborers receive higher real wages. In an open appeal to justice, Smith concluded, "It is equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged" (1981, vol. 1, p. 96). If as an economic model, Smith's LTV leaves much to be desired, as a political defense, Smith's argument offers a robust claim that capitalist society is just because the free market for labor and commodities most generously rewards all its participants, workers and capitalists alike.
But David Ricardo would not stand for Smith's rational shortcomings. Already a wealthy capitalist by the early nineteenth century, Ricardo spent his last two decades investigating and writing about political policy and economics in a more abstractly logical register. Furthermore, his circumstances differed from Smith's in three regards. First, the pressing practical issues of his day were currency stability and grain prices, not mercantilism. Second, Ricardo wrote at the advent of the English industrial revolution. Third, Ricardo befriended and corresponded with other Englishmen interested in political economy (such as Thomas Malthus and James Mill). In the early nineteenth century, he wrote pamphlets championing a gold standard for the English pound and denouncing the poor laws and the corn laws, both aimed at supporting the indigent by regulating prices or offering transfer payments. He later wrote about industrial manufacture as well. (5) Ultimately, Ricardo's interest in policy issues, his concerns about industrialism, and his place in an intellectual cohort of budding economists led him to write the first systematic treatise of political economy, the Principles of Political Economy and Taxation (1817/21). Though Smith's Wealth of Nations influenced every subsequent political economist, and though Smith is counted as the first writer in the "classical" tradition, Ricardo's Principles is understood by most present-day economists as the foundation of the classical school. It is also the most thorough LTV within a pro-capitalist framework.
Ricardo argued principally by offering tortuous hypothetical that abstractly depict economic factors and their effects. The first six chapters of his Principles (nearly a third of the entire work) can be read as a cost-of-production model of natural price not unlike Smith's. (6) Unlike his Scottish predecessor, however, Ricardo took pains to explore and weight the determining factors behind each of value's three component parts. Profits, he explained, derive from the opportunity cost of investment, "a just compensation for the time that the profits were withheld" from the investor (2004, p. 37). Profits also derive from the temporary advantage afforded by a spike in demand which causes the market price to deviate from the natural price, thereby attracting investors. Competition among investors "prevents the market price of commodities from continuing for any length of time either much above, or much below their natural price" (p. 91). Rent derives from the disparity between the least productive
and the next-to-least productive land in use (p. 70). (Ricardo's defense of rent as a legitimate and necessary component of price rebuts early nineteenth-century hostility towards landowners who, many believed, had inflated grain prices by exercising a monopoly privilege over the land.) Finally, wages depend upon "the price of food, necessaries, and conveniences required for the support of the labourer and his family" (p. 93).
Ricardo (2004) did not think that rent had a large effect on price; instead, he believed that higher prices affect rent because rent depends upon the expansion of production to less fertile lands, which itself depends upon increased demand: "Corn is not high because a rent is paid, but a rent is paid because corn is high" (p. 74). He argued that profits significantly contribute to price, but he also believed that they cannot continually do so for two reasons. First, as mentioned above, the profits realized by moving into an industry whose market price exceeds its natural price cannot be sustained for long. (Like Smith, Ricardo reasoned that disequilibrium between supply and demand is unsustainable in a free market. Following Smith, Ricardo maintained that in circumstances of market equilibrium, profits tend to be small or nonexistent.) Second, "a rise of wages would not raise the price of commodities, but would invariably lower profits" (p. 127). Even as the cost of their employment rises and production expands, more workers must labor harder on less productive land or in less favorable circumstances, so their productivity will fall. Since "profits depend upon the quantity of labour requisite to provide necessaries for the labourers, on the land or with the capital which yields no rent," profits tend towards zero as production expands (p. 126). Or, to put the matter more bluntly, "The natural tendency of profits is to fall; for, in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labour" (p. 120).
Since rent is causally insignificant and profits depend heavily upon the workers' pay, wages are the weightiest factor in the cost-of-production (Napoleoni, 1975, p. 79). Moreover, labor-embodied not only causes, but it also measures, value. Ricardo defined labor-embodied as "the comparative quantity of commodities which labour will produce, that determines their present or past relative value, and not the comparative quantities of commodities, which are given to the labourer in exchange for his labour" (p. 17). By making wages the principal cause of price, and by making labor-embodied the principal measure of value, Ricardo integrated his theory of price and his LTV. Furthermore, he integrated his logical and pathetic appeals by offering a quasi-logical model of price that justly rewards labor-embodied. For a principally agricultural society worried about how to allocate surplus in the form of wages, profit, and rent, Ricardo offered a neat model that explained why com laws and poor laws would only interrupt the natural and just distribution to deserving recipients.
But Ricardo did not believe that labor-embodied in a commodity would directly lead to the price at market. He insisted that capitalist production involves complexities that lead to some of the market's most confounding results. He accepted Smith's narrative about the "early stages of society" in which "the exchangeable value of these commodities ... depends almost exclusively on the comparative quantity of labour expended in each" (p. 12). Ricardo described two modern factors that mediate the simple (though altogether just) measure of value as labor-embodied: money and machinery. Money, unfortunately prone to inflation and deflation, is not an "invariable standard" and therefore prevents us from finding that "the utmost limit to which [commodities] could permanently rise ... was proportioned to the additional quantity of labour required for their production" (p. 29). Ricardo's writings on currency exhibit a lifetime effort at finding such an invariable standard for exchange. His writings on machinery demonstrate an early industrial-era attempt to explain and justify a new mode of production using classical economic theory. Machinery adds to value, argued Ricardo, as the production of machinery requires labor (p. 23). However, machinery does not add value evenly. The durability of machinery and the ratio of "fixed capital" (machines used in production) to "variable capital" (labor employed in production) will affect price. Durable machinery, purchased when labor costs less, will continue to contribute the same amount to production, even as wages increase. Furthermore, an industry requiring a higher investment in fixed over variable capital will be affected less by a rise in wages (pp. 30-34). Industries with durable fixed capital and/or high ratios of fixed to variable capitals will remain profitable or will reduce prices, even as labor costs increase. In these cases, labor-embodied does not operate as it would in simpler artisanal times, since an increase in labor costs will not lead to a proportional increase in value.
Ricardo offered both a qualified model of labor-embodied as the cause and measure of value and a strong appeal to justice in a society where workers--both agricultural and industrial--are eventually and properly compensated for the labors they invest. His Principles of Political Economy appeals both rationally and emotionally, both social-scientifically and politically, through both a quasi-logical model of production and an appeal to justice. Given the logical rigor and the rhetorical elegance of Ricardo's argument, it is no surprise that, when Karl Marx turned his critical mind towards the LTV, he focused on Ricardo's claim that labor-embodied is both the cause and the measure of value (Sperber, 2013, p. 428).
THE END OF THE HISTORY AND THE LAST LTV: KARL MARX
Karl Marx is l'enfant terrible of the classical school, the German philosopher who turned Ricardo's elegant system into a rant about the injustice of capitalist production and the unsustainable nature of capitalist political economy. Like Smith and Ricardo, Marx believed that in precapitalist society, embodied labor directly determined and measured exchange-value; however, according to Marx, industrial production separated workers from the means of production, which left laborers with nothing but their labor-power-now a commodity for sale. This separation complicated the relation between exchange-value and embodied labor. These mediating complications left embodied labor as the ultimate cause of value while allowing the price to drift from the labor-embodied in a commodity. In mapping the steps of capitalist commodity production that allowed exchange ratios to differ from labor ratios, Marx offered his own quasi-logical model of valuation (Meek, 1977, pp. 119-20, 155-56). In his critical appropriation of capitalist political economy, in the context of England's rampant industry, Marx founded a new "Marxian" school of economic thought that speaks of worker exploitation rather than just allocation, of the capitalist's cruelty rather than investor's profit, of abusive factories rather than innovative industries. He did so with quasi-logical economic models akin to those offered by David Ricardo, whom he admired though vehemently opposed. It is an historical irony that classical (pro-capitalist) economics shares so much rhetorically with its Marxian (anti-capitalist) spawn.
At the heart of Marx's model is a distinction between labor and labor-power, a distinction that, he maintained, interrupted classical political economists' ability to measure the value of the commodity. If the value of a commodity is its labor content, and labor is a commodity, we arrive at a tautology: As long as the basis of commodity A's value is another commodity (B), then one cannot avoid the question of what the value of commodity B is, a question that will always return the meaningless answer that the value of commodity B is the quantity of B-ness in it. In volume one of Capital (1867), Marx considered the example of linen: It makes no sense, he wrote, to "express the value of linen in linen. 20 yards of linen = 20 yards of linen is not an expression of value.... The value of the linen can therefore only be expressed relatively, i.e., in another commodity" (1990, p. 140). But, in the alternative, if the cost-of-production causes the natural price, and the commodity's natural price exceeds the cost of wages, profit, and rent, then the classical model asserts two non-equal values for labor. Assume, for instance, that the other (non-labor) components of production (rent, machinery, raw materials, maintenance costs) have the value of 21, and the worker is paid a wage of 3 (to work for 12 hours) but that the commodity sells for 27 (and thus has the value of 27). In that case, the work of the laborer has produced a value not of 3 but of 6. The capitalist will, of course, pocket a profit of 3, but the laborer--not the capitalist--produces this new value. Labor, thus, has two values: 3 to the laborer, 6 to the capitalist. (7) The solution to this dilemma--a tautological argument, in the first instance, and an economic contradiction, in the second--is provided by the concept of labor-power. As Friedrich Engels (1891) put it, "The rock upon which the best economists were stranded as long as they started out from the value of labour, vanishes as soon as we make our starting-point the value of labour-power" (1976, p. 12).
Marx defined labor-power in the sixth chapter of Capital, Volume I as the "capacity for labour" or "the aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being, capabilities which he sets in motion whenever he produces a use-value of any kind" (1990, p. 270). It is this capacity that the capitalist buys. What the laborer in turn sells is a commodity that varies in length (in the case of time-wages) or intensity (in the case of piece-wages); it is the only commodity the laborer has to sell, and he or she must do so in order to secure the necessary means of subsistence. That labor-power is a commodity, embodying a dual nature of use-value and exchange-value, is important for explaining how human labor could serve as the measure and cause of value for commodities in general.
Labor-power is unique, however, insofar as it alone is capable of creating new value. Marx demonstrated this surplus-generating capacity of labor in two steps. First, he showed that the only thing that makes an object a commodity-that is, an object exchangeable for other commodities-is the infusion of human labor. The common element of labor-embodied enables the measure and exchange of commodities because it allows people to recognize the comparable worth of their separate objects. Second, Marx noted that if a capitalist hires a person to perform a job, he will pay a price determined, as with all commodities, by the cost of labor's production--that is, the cost, to the laborer, of reproducing her capacity to labor. (Smith referred to something similar when positing a "certain rate below which it seems impossible to reduce" wages.) For this price, the capitalist can purchase, say, 12 hours of labor-time, but the uniqueness of labor is that the worker can, in 6 hours, produce the value expected from 12 hours' worth of labor. What does the worker do with the remaining 6 hours of time pledged to the capitalist? Continue working: "In buying the labouring power of the workman, and paying its value, the capitalist, like every other purchaser, has acquired the right to consume or use the commodity bought. You consume or use the labouring power of a man by making him work, as you consume or use a machine by making it run. By buying the daily or weekly value of the labouring power of the workman, the capitalist has, therefore, acquired the right to use or make that labouring power during the whole day or week' (Marx, 1976a, p. 40). During that surplus of time, the worker thereby increases the value accruing to the capitalist. This is the principle of surplus-labor: labor's capacity (or power) to produce value in excess of its cost.
Surplus-labor is therefore the source of profit, since surplus-value results from the extra labor that the capitalist appropriates. Marx made this argument algebraically. The capitalist advances a certain sum of capital (C), a sum that consists of two components, constant capital (c) and variable capital (v). Constant capital comprises "the value of the means of production actually consumed in the course of production" (1990, p. 321)--the non-labor costs of production (rent, machinery, raw materials, maintenance costs, etc.). Variable capital is strictly the cost of labor-power. The process of production results in a commodity whose value is the original outlay of capital (C) plus a surplus-value (s): hence, the commodity's value is simply (c + v) + s. Since c is a constant, "surplus-value is purely the result of an alteration in the value of v, of that part of the capital which was converted into labour-power." Marx thus concluded, "v + s = v + [DELTA]v (v plus an increment of v)" (1990, p. 322). In this proof, Marx's algebra exemplifies the shift from a discursive to a mathematical approach, and this shift was finally complete when marginalists--such as mathematician William Jevons-used calculus to prove a wholly new theory of value: marginal utility (Dobb, 1975, pp. 166-68; Spiegel, 1991, pp. 513-26).
Marx extended the quasi-logical proof when he claimed that the rate of surplus-value can even be measured. It is, "all other circumstances remaining the same," simply "the proportion between that part of the working day necessary to reproduce the value of the labouring power and the surplus time or surplus labour performed for the capitalist" (Marx, 1976a, p. 42). Again, in Capital, Volume I, Marx put this formula algebraically:
We take the total value of the product and posit the constant capital which merely re-appears in it as equal to zero. What remains is the only value that has actually been created in the process of producing the commodity. If the amount of surplus-value is given, we have only to deduct it from this remainder to find the variable capital. And vice versa if the latter is given and we need to find the surplus-value. If both are given, we have only to perform the concluding operation, namely calculate s/v, the ratio of the surplus-value to the variable capital. (1990, p. 327)
We can assume the value of constant capital is zero because the fixed value of machinery, raw materials, and maintenance costs are transferred directly to the commodity produced; constant capital creates no new value. Rather, the addition of variable capital to the production process generates new value, and so surplus-value is calculated using only the variables surplus labor (s) and total labor (i.e., variable capital:v), which is precisely surplus labor plus necessary labor.
Marx's famous derivation of the rate of profit in Capital, Volume III (1894) took the use of algebraic formulae one step further. Marx argued that the capitalist recognizes that he will maximize his profit if he increases surplus labor, and that he will thus attempt to do so in two ways, either by extending the working day (producing absolute surplus value) or by increasing the productivity of labor (relative surplus value). In either case, the very (surplus) value that was produced by the efforts of labor-that is, by the addition of variable capital to the production process, not by the use of constant capital--accrues not to labor but to the capitalist. This surplus-value can be stated in terms of profit, following an "investigation [that is] purely mathematical" (1991, p. 141). The rate of surplus-value (s/v or s'), when "related to the total capital instead of just the variable capital," produces the quantity of profit (p), "and the ratio between the surplus-value and the total capital C, i.e. s/C, is known as the rate of profit, p'." The resulting rate of profit (p') = s/(c+v)--or, if we manipulate the equation to substitute for surplus labor (s) the product of the rate of surplus value and variable capital (s'v), (8) p' = s'v/(c + v) (1991, p. 141). The pure mathematics of this demonstration illustrates Marx's effort not to lodge a political complaint against the expropriation of labor's produce but to show on the unassailable grounds of (quasi-)logic the inherent contradictions of such expropriation.
Marx's quasi-logical demonstration of the rate of profit also sets up an emotional appeal to justice: Labor receives none of the surplus it produces. For this reason, Marx in Capital described this ratio not only as the rate of profit but also as the rate of exploitation (1990, p. 670). In fact, in an earlier work from the 1840s, Wage-Labour and Capital, he considered whether, as "the bourgeoisie and its economists" claim, "the interest of the capitalist and of the labourer is the same." In a sense, he suggested, they are. "The worker perishes if capital does not keep him busy. Capital perishes if it does not exploit labour-power, which, in order to exploit, it must buy. The more quickly the capital destined for production--the productive capital--increases, the more prosperous industry is, the more the bourgeoisie enriches itself, the better business gets, so many more workers does the capitalist need, so much the dearer does the worker sell himself. The fastest possible growth of productive capital is, therefore, the indispensable condition for a tolerable life to the laboured' (1976b, p. 32). But because surplus-value accrues only to the capitalist, Marx concluded that "To say that 'the worker has an interest in the rapid growth of capital,' means only this; that the more speedily the worker augments the wealth of the capitalist, the larger will be the crumbs which fall to him, the greater will be the number of workers that can be called into existence, the more can the mass of slaves dependent upon capital be increased." The interests of capital and wage-labor are, in short, "diametrically opposed" (1976b, p. 39).
Marx made this last statement in the penultimate chapter of the pamphlet version of his 1847 lectures given in Brussels to the German Workingmen's Club. He published these talks as a series of articles in Neue Rheinische Zeitung in 1849, and they would be collected as the pamphlet Wage-Labour and Capital in several editions over the next four decades. When Engels edited and re translated the pamphlet in 1891, it took the form most twentieth- and twenty-first century readers have encountered. If in Capital Marx emphasized a social-scientific approach to the question of value, his Wage-Labour and Capital talks were explicitly political. If in Capital Marx made algebraic demonstrations of the rates of surplus-labor, profit, and exploitation, in Wage-Labour and Capital he judged the statement, "the most favourable condition for wage-labour is the fastest possible growth of productive capital," as but a euphemistic way of saying that "the quicker the working class multiplies and augments the power inimical to it--the wealth of another which lords it over that class--the more favourable will be the conditions under which it will be permitted to toil anew at the multiplication of bourgeois wealth, at the enlargement of the power of capital, content thus to forge for itself the golden chains by which the bourgeoisie drags it in its train" (1976b, p. 40).
Wage-Labour and Capital builds to a pathetic crescendo, a point Engels readily acknowledged in his introduction. He described the occasion of the new edition as an opportunity to circulate "at least ten thousand copies ... as a propaganda tract" (p. 5). For his part, Engels complained of the "splitting up of society into a small class, immoderately rich, and a large class of wage-labourers devoid of all property, ... scarcely, or not at all, protected from extreme want" that resulted from the capitalist process of production. The proper response to such disparity-or more particularly, to such exploitation-is revolution:
This condition becomes every day more absurd and more unnecessary. It must be gotten rid of; it can be gotten rid of. A new social order is possible, in which the class differences of today will have disappeared, and in which--perhaps after a short transition period, which, though somewhat deficient in other respects, will in any case be very useful morally-there will be the means of life, of the enjoyment of life and of the development and activity of all bodily and mental faculties, through the systematic use and further development of the enormous productive powers of society, (p. 13)
Engels's introductory call to revolution and Marx's stylistic flourishes foreground the appeal to justice in Wage-Labour and Capital.
However, the appeal to justice in Wage-Labour, and Capital depends upon Marx's quasi-logical argument. To understand the injustice involved in the scene Marx described as amounting to a new form of slavery, one has to accept the following premises: first, the value of a commodity after production is greater than the cost of constant and variable capital advanced in the process of producing the commodity; second, the possibility for this increase in value depends entirely on the unique ability of labor-power to generate, in its performance of labor, a value greater than the value of the labor-power itself; third, in performing labor, therefore, workers are solely responsible for creating surplus-value. If one accepts these premises, then one will, of necessity, accept the conclusion that capitalist's appropriation of profits, by the standards of capitalism's own estimation of private property, amounts to theft-and, by any standard, expresses a need to abolish the system of wage-labor.
The point is not that Marx's quasi-logical arguments-whether in Capital or in his explicitly political speeches and writings--are themselves valid. Marx's LTV has foundered on what is known as the "great contradiction," a problem Marx himself recognized. The nature of the problem is that his theory of labor--and hence his theory of surplus-value--would seem to predict, since labor is the component of production responsible for creating new, additional value, that labor-intensive industries (those Marx referred to as involving a high organic composition of capital) (9) must produce higher rates of profitability. In fact, what Marx recognized--and returned to in the third volume of Capital--is that the rate of profit of all industries tends, in practice, to stabilize at somewhere close to a mean. Marx's solution to this "transformation problem," as marginalists since Eugen von Bohm-Bawerk (1898) have insisted, depends upon assuming rather tenuously that the organic composition of capital either remains static across industries or is so distributed as to balance labor-intensive industries with capital-intensive industries. (10) Putting aside Marx's solution and others' objections to the "transformation problem," its existence and the efforts to address the matter with further quasi-logical modeling reveal that Marx thought of his work as participating in the production of what he called "scientific truth" (1976a, p. 37). And other twentieth-century economists have continued in this effort, seeking a quasi-logical solution to the transformation problem (Dobb, 1975, pp. 257-66.; Meek, 1977, pp. 194-97).
Despite the LTV's troubles, many Marxian economists have remained hide-bound to the theory, since it has allowed them to emphasize class conflict and a revolutionary political agenda. As an unfortunate result, Marxian economists have borne an undue portion of the chagrin that comes with the LTV. By contrast, traditional economists (Keynsian and neoclassical alike) gained much from the theory of marginal utility. Their mathematical proof is quantitatively valid (i.e., better social science). Moreover, the new quasi-logical proof suits a free-market agenda. Arguing that value and prices are based in individual preferences at the margin of choice shifts the mainstream conversation in economics away from class relations and, largely, away from macroeconomics. With the "marginal revolution," microeconomics became far more pressing as "emphasis shifted away from costs incurred in production, and hence rooted in circumstances and conditions of production, towards demand and to final consumption ... From this shift of emphasis derived a certain individualist or atomistic bias of modern economic thought" (Dobb, 1975, pp. 167-68).
Putting aside the question of the rational merit of Marx's LTV, we caution against distinguishing Marx's political from his social-scientific writing. Marx believed that his political writings were firmly grounded in science. At an important moment in Value, Price and Profit (1865), (11) a pamphlet that is far more inflammatory and far less social-scientific than Capital, Marx insisted:
To explain, therefore, the general nature of profits, you must start from the theorem that, on an average, commodities are sold at their real values, and that profits are derived from selling them at their values, that is, in proportion to the quantity of labour realized in them. If you cannot explain profit upon this supposition, you cannot explain it at all. This seems paradox and contrary to every-day observation. It is also paradox that the earth moves round the sun, and that water consists of two highly inflammable gases. Scientific truth is always paradox, if judged by every-day experience, which catches only the delusive appearance of things. (1976a, p. 37)
On one hand, one could see this move as a rather naked appeal for authority, as though Marx were claiming not only to have justice on his side but also the infallible truth of science. But there is a certain sense in which this argument works the other way round: Marx's point does not merely contain both truth and justice. The point's truth proves its justness. If profit emerges neither from the illegitimate behavior of rogue capitalists who steal from their workers, nor from the interaction of rational-choice-making buyers and sellers in the market, but from the normal, fundamental operation of capitalist production, then the conclusion begins to appear much more objective. Rather than an impassioned plea on behalf of a special group of victims, the argument appeals as a rational demonstration that the system itself creates as its essential byproduct an exploited class--not a victimized minority, but an indispensable component of economic production.
Marx's intermingling of propaganda and social science is the key to understanding the odd work that is Richard Wolff and Stephen Resnick's (1987) Economics: Marxian versus Neoclassical. Marxian economists, Wolff and Resnick present a summary, non-evaluative account of neoclassical economic theory; they then do the same for Marxian economics. In the end, the economists explicitly pose the question of which theory one should choose-and they never offer an answer. Instead, they articulate three different bases for deciding the question. One could, they say, choose social science because of politics-selecting the LTV or marginal utility theory because one prefers the political outcomes suggested by the quasi-logical argument (pp. 258-61). Or one could choose politics based on social science-deciding that one of the theories better reflects really existing conditions (Wolff and Resnick refer to this as "epistemological empiricism")-or prefer the logical operation of one of the theories (a "rationalist epistemology" [pp. 261-64]). But again--and importantly-the authors never indicate their own preference. Their indecisiveness--or refusal to decide--troubles the politics/social sciences division that runs through Marx's (and Smith's and Ricardo's) work. In our view, this sort of apparent indecisiveness in fact serves an important purpose: It destabilizes the privileged ground of empiricism and rationalism as the basis for evaluating economic theories. It moreover blends, at least in terms of (lack of) priority, the two natures of economics: Economic science becomes (once again) political economy, that is, a political enterprise.
THE POST-HISTORY OF THE LTV: A CONCLUSION, OF SORTS
Our analysis of the labor theories of value from Locke to Marx overlooks many nuances to emphasize a common pairing of quasi-logical argumentation with pathetic appeal. Like many political economists and social scientists before us, we attend principally to the quasi-logical arguments. Smith's model of value as labor-commanded left capitalism open to the charge of injustice, so he had to reassure his reader that a free-market economy would reward its denizens with greater largess than they would find in an "early and rude" society where labor-embodied measured and caused value. Ricardo developed an abstract system rewarding labor-embodied, justly though indirectly. Marx countered with his own model (complete with algebraic formulae) of commodity production that robs the worker of labor-embodied, giving it to the capitalist in the form of surplus-value. Like others, we confess that Marx's quasi-logical model has difficulties. The transformation problem, discussed above, is one. But there are others. Elster (1985) has pointed out that the LTV fails on two significant fronts: One, it cannot determine the "numerical magnitudes" of price and profit, variables independent of the amount of labor invested in a commodity. Two, it cannot explain, in an idealized fashion, "how prices and profits are at all possible" (p. 138). Nonetheless, though Elster sees little social-scientific value in the quasi-logical modeling (or the algebraic acrobatics) that the LTV has yielded, he maintains that arguments defending the LTV contain a political kernel worthy of our attention: One's "ability to tap the environment makes possible a surplus over and above any given consumption level. Whether this surplus should be used for more workers' consumption, for capitalist consumption or for investment" still deserves to be asked, regardless of what we think of as the cause and measure of value (p. 141).
Our analysis of Marx's LTV demonstrates that the scientific cannot be separated from the political, nor can the quasi-logical be separated from the pathetic. In the past, the LTV was simultaneously social science and propaganda. We also note that the typical social-scientific effort to bracket the logical from the emotional appeal will result in a failure to see the future rhetorical potential in the LTV. When separating Locke's labor theory of property from his LTV, Joseph Schumpeter (1954, p. 120) set a standard that twentieth-century economists followed. He separated politics from science, rhetoric from economics, and he did so despite the glaring fact that the LTV in all its seventeenth-, eighteenth-, and nineteenth-century forms had a political aspect. Every LTV, from Locke to Marx, harbors an appeal to justice, what Perelman and Olbrechts-Tyteca (1969) would have called an "ideal," an emotional effort to "have a specific influence on action and on the disposition toward action" (p. 74). In Capital, Marx stressed the quasi-logical aspect of his argument, but in Wage-Labor and Capital, he emphasized the emotional. Subsequent arguments regarding the LTV thereafter have emphasized one or the other.
Economists attending to the quasi-logical model tend to deride the political appeal in favor of the quasi-logical in their efforts at developing what Ronald Meek (1977) called "an essential tool for the scientific analysis of capitalist economy." Meek would have us set aside all worries about justice; he argued that "Marx's value theory has been retained not because it is believed to be good propaganda, but because it is believed to be good science" (p. 202). Alongside social scientists like Meek and Maurice Dobb (1975), the twentieth century hosted others who took up the LTV as a political-rhetorical weapon, dismissing the social-scientific effort at quasi-logical modeling as readily as economists dismissed the emotional appeal to justice. In the late nineteenth century, for example, Eduard Bernstein (1899) argued that the LTV could "claim acceptance only as a speculative formula or scientific hypothesis," and so the theory itself should be taken up not as "demonstration" but as "a means of analysis and illustration" (1961, pp. 30, 35). Bernstein turned the social scientist's attention away from the "actual exploitation of the worker by the capitalist" and towards the "whole economy of society" (1961, pp. 38-39), where labor's productivity steadily increases, yet wealth appears in the pockets of an unproductive few. Bernstein effectively asked his readers to stop looking at one capitalist and one worker and instead to consider two social classes--owners and workers. With the wider perspective, one does not need an elaborate abstract model to see injustice in a society where workers make more but earn less. Such a proof requires a few basic statistics on productivity levels and income distribution, which Bernstein could easily provide. Though in other works David Harvey has explained and defended the Marxian LTV, recently, in Bernstein's spirit, Harvey (2005) points to rising income inequality in the late twentieth century (pp. 16-18), marshaling these statistical data into a political argument that appeals to an ideal of democracy. A society empowering and enriching a set of economic elites, says Harvey, will list away from democratic sovereignty. Therefore, "the profoundly anti-democratic nature of neoliberalism ... should surely be the main focus of political struggle" (2005, p. 205).
Bernstein and Harvey have appealed to justice. Yet, to some degree, their arguments throw aside the LTV. (Bernstein tried hardest to preserve some version of Marx's LTV in his reconsidered notion of "social surplus.") Among autonomous Marxists of the late twentieth and early twenty-first century, we can find a full-throated effort at resuscitating the LTV not as social science but as a rhetorical weapon. In 1978, Antonio Negri suggested that the analysis of surplus value is always, at its core, "political," for "One can only found the theory of surplus value by beginning with the fact that exploitation structures political society" (1991, p. 61). For this reason, Negri characterized the notion of surplus value as "the red thread that should remake the same operation [of exploitation] from the workers' point of view" (1991, p. 63). Following Negri, Harry Cleaver (2000) insisted that Marx's Capital be read "politically," as rhetoric, not as social science, as "a weapon in the hands of the workers" (p. 23), not as an instrument in the hands of the economists. Cleaver has also maintained that "the labour theory of value is the indispensable core of [Marx's] theory" (p. 11). Cleaver applied the LTV in an effort at explaining how an increasingly creative and productive class of laborers prompts a leaching class of capitalists to devise new strategies of exploitation. As he put it, "the attempt to raise productivity was not simply another aspect of capitalist exploitation but was a shift in capital's strategic plan forced on it by the growth of workers' power" (p. 89). In Cleaver's work, the LTV illuminates class conflict while asking the reader to sympathize with an unjustly exploited and fundamentally innovative class.
The political version of the LTV is most elaborately presented in Negri's work with Michael Hardt, Commonwealth (2009). Like Smith, Ricardo, and Marx before them, Hardt and Negri open by positing a new economic era, but instead of a transition from an "early and rude" to a capitalist society, they attend to a shift from the production of things to the production of life, from factory labor to "biopolitical labor," which happens everywhere and involves every aspect of postmodern society. Biopolitical labor requires "social cooperation" and features "creativity as an expression of the common" (p. 315). These new circumstances call for a new theory of value, which invokes neither labor-commanded nor labor-embodied. Their new LTV is grounded in a new political project, not the emancipation of the factory worker but the liberation of every person exploited, disenfranchised, excluded, marginalized, or abused. The new LTV must free the multitude.
A new theory of value has to be based on the powers of economic, political, and social innovation that today are expressions of the multitude's desire. Value is created when resistance becomes overflowing, creative, and boundless, and thus when human activity exceeds and determines a rupture in the balance of power. Value is created, consequently, when the relations between the constituent elements of the biopolitical process and the structure of biopower are thrown out of balance, (p. 319)
Finally, Hardt and Negri eschew the appeal to quasi-logical argumentation, proposing we rescue economics from mathematics (p. 320). Their LTV, therefore, answers Negri's call for a "red" rhetorical thread by serving a political project, "a politics of freedom, equality, and democracy of the multitude" (p. 302), rather than an analytical project.
At this point in the argument, surely, our own allegiances are unmistakable. We favor the political over the analytical project, rhetoric over social science. And while we believe that the LTV stumbled as rational thinking, we judge it as having stumbled largely when social scientists have tried to isolate their quasi-logical reasoning from the very political world in which their reasoning occurs. For over 200 years, economists have treated the pathetic appeal to justice as an embarrassing and atavistic hanger-on, mawkish propaganda that interrupts scientific truth. Recent and past arguments about the LTV suggest that the pathetic appeal is the rhetorical heart of the LTV, an organ still filled with political lifeblood.
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(1) It is common for twentieth-century economists to separate Locke's view of labor into a juridical theory of right and an economic theory of value (Spiegel, 1991, 164; Schumpeter, 1954, 120). Such separation obscures Locke's argument about market justice.
(2) The "special conditions" that apply within most economic argumentation is the supposition that "all things being equal" the system will work as imagined. Aune described this as the ubiquitous "ceteris paribus" qualification of blackboard economics (p. 22).
(3) According to Smith, an emotional identification with the possessor (not a rational commitment to any divine laws about possession) led people to associate labor invested with property rights. As Smith explained in his 1762-3 lectures on jurisprudence, we sympathize with the person robbed of an apple he picked, and we resent the robber, because we have an emotional investment in property rights based on the investment of labor in an object (1982, pp. 16-17).
(4) "The real recompense of labour, the real quantity of necessaries and conveniences of life which it can procure to the labourer, has, during the course of the present century, increased perhaps in a still greater proportion than its money price" (Smith, 1981, vol. 1, p. 96).
(5) Chapter 31, "On Machinery," conspicuously absent from the 1817 edition of his Principles of Political Economy, but added to the third (1821) edition, exhibits Ricardo's interest in manufactures, as does his continual comparison of industries that require little fixed but much circulating capital (such as agriculture) to industries where the proportion of fixed to circulating capital is reversed (such as manufacturing).
(6) Admittedly, Ricardo's theory of price is not quite a true cost-of-production model, since such a model requires multifactor analysis, and Ricardo placed the greatest emphasis on one factor: labor. Nonetheless, interpreting Ricardo's theory of price as a cost-of-production model, as others have done (Spiegel, 1991, p. 321), more clearly puts him in conversation with Smith. Though we cast Ricardo's theory of price as a cost-of-production theory, we agree with Piero Sraffa (2004, pp. xxxvii-xxxix) and Ronald Meek (1977, pp. 100-110) that Ricardo, throughout his life, emphasized labor-embodied as the measure and the cause of price.
(7) This particular example is Engels's, in his introduction to Marx's Wage-Labour and Capital (1976, pp. 8-9).
(8) A perfectly legitimate algebraic substitution since if s/v = s', then s = s'v.
(9) On the organic composition of capital, see Marx, 1991, pp. 244-53.
(10) For a concise, mathematical demonstration, see Blaug, 1997, pp. 219-23.
(11) Marx delivered the addresses that would be collected as Value, Price and Profit on June 20 and 27, 1865, to the General Council of the First International.
Rodney Herring is Assistant Professor in the Department of English at the University of Colorado Denver. Mark Garrett Longaker is an Associate Professor in the Department of Rhetoric and Writing (DRW) at the University of Texas at Austin. Correspondence concerning this article should be addressed to Campus Box 175, P.O. Box 173364, Denver, Colorado 80217-3364.
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|Author:||Herring, William Rodney; Longaker, Mark Garrett|
|Publication:||Argumentation and Advocacy|
|Date:||Mar 22, 2014|
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