There are three main theses I’d like to develop in my notes. They are:

1) The idea, so prevalent nowadays, that Marx’s labor theory of value and the market theory of value are utterly incommensurable is in fact a total myth–bourgeois mystification, if you will. As I mentioned in my previous post, Marx never denied that the classical supply/demand model was a valid one, at least for tracking the “real appearance” of capitalist market activity.* And in fact, Marx himself, in Vol.III of Capital, employed his own version of the supply/demand model to explain the operations of the “law of value” that he contended governed the capitalist economy on macro-level. Moreover, as Ernest Mandel pointed out, in a gloss of Chapter 10 of Vol.III of Capital, Marx’s concept of “socially necessary labor” presupposes an essential dialectic between production and exchange, whereby it is the confrontation between the level of social need (aggregate demand) and the level of productivity (aggregate supply, under given social conditions of production [size of workforce, level of labor skill, technical division of labor, state of productive technology, etc.]), not just production alone, that determines what, at any given moment, counts as “socially necessary labor.”

*It’s often forgotten that Marx’s notion of commodity fetishism, in its original formulation, simply refers to the mistaken belief that the never-ending fluctuations in market price (the empirical bread-and-butter of neo-classical economics) in themselves adequately explain value-formation in a capitalist economy (Capital, Vol.I [Penguin edition], pp.168-169)

2) That said, Marx nevertheless held that certain presuppositions of the market theory were fundamentally unsound. For instance:

a) the assumption that markets, even under “favorable” conditions, tend naturally towards perfect equilibrium, thus resulting in the optimal distribution of resources, labor, and goods in a society (e.g. Smith’s notion of the high-level equilibrium trap). It is true that, for Marx, equilibrium exchange constitutes the “center of gravity” of market price, but in the blind, anarchic system of private production that is capitalist production, capital is constantly either under- or over-producing relative to demand, as a result creating price fluctuations ever in deviance of market value. Moreover, as rates of profit in different sectors of production tend, in the long-run, to settle at market value, so must capital ceaselessly disrupts the resultant equilibria, shifting investment from sectors with lower rates of profit to those with higher rates, utterly indifferent to the use-values actually produced in those sectors. I.e. for Marx, capitalism is characterized by a basic disconnect between the logic of production and the logic of exchange, and the end result is not stability, as the free-market theory would have it, but precisely its opposite, endless instability, which capital must constantly generate in order to perpetuate itself.

b) the assumption that markets can be understood in their essence by abstracting them from the social and political relations of capitalist society as a whole. For Marx, social (i.e. class) inequality is not a factor “exogenous” to the capitalist market, but on the contrary both what constitutes it in the first place, and what it continually reproduces. A capitalist economy, understood as an system of general commodity production oriented exclusively toward the market, cannot exist without the historically prior divestment of workers from their means of production and the enforcement of this class separation through state-guarded private property rights. In this arrangement, labor itself is forced to become a commodity, sold for the money that then constitutes the “purchasing power” of the mass of market participants whom the pristine free-market theory presupposes but never sufficiently accounts for.

3) Finally, it’s my intention to argue that only on the basis of a recovery of the labor theory of value, which was the foundation of Marx’s indictment of capitalism, will it become possible again to “understand the system in order to change it.” While the left continues to wage vital struggles on the cultural and political front, more and more debates in the public sphere are turning on fundamental economic issues, and a basic literacy on the part of the left in “political economy” and its critique, I believe, is necessary now more than ever.

That said, there are few things I do not intend to pursue here. As much as I sympathize with the project of establishing a “scientific socialism,” I’m not really interested in parsing the technicalities of Marxian economics, debating the relative merits of SDSI and TSSI, crunching MELP figures, etc. It’s not like I’m really qualified to do that anyway. My objective is much simpler–to sketch out an argument, as accessibly and cogently as possible, reaffirming the basic validity of Marx’s critique of political economy, and then move on.

That said, it is also true that, as Alan Freeman has noted, Marx himself never employed the term “labor theory of value”; and only on a few, carefully circumscribed occasions, and strictly for purposes of general illustration, did he assume that commodities actually exchange at value. He certainly didn’t propose his ideas about the essential connection between labor and value as a simple and discrete theory of purely market behavior, which is what they are often taken as, both by Marxists and non-Marxists alike. Nevertheless, the “labor theory of value,” vulgarly understood, continues to be seen as the Achilles’ heel of Marxian theory, especially now that the “Marginalist Revolution” has achieved ideological hegemony, and it has become “self-evident” to everyone, including many of those on the left, that the only real determination of “value” is equilibrium market price, understood as whatever amount of money, at any given moment, people are “willing” to pay for a particular use-value, given the full range of available use-values on the market and their own subjective threshold of satisfaction for any one of them. And there seems no point in denying that, in comparison to such a “self-evident,” “empirical” approach, Marx’s discussions of labor, value, and exchange value, especially in the notoriously difficult Chapter 1 of Volume I of Capital, do seem more like the abstract, metaphysical ramblings of a medieval scholastic than the cogent arguments of a modern social scientist.

In fact, however, long before the marginalists, Marx himself argued that use-values are, in the ultimate instance, subjectively determined, and that the continuous dynamic between supply and demand at least superficially explains the short-term fluctuations of the market price of goods. But Marx also–rightly–saw that these determinants were themselves insufficient to properly account for capitalism as a total system of economic and social production and reproduction, and this is what his “labor theory of value,” understood as the foundation of an immanent critique of modern political economy, was formulated–successfully, I believe–to correct.

Unfortunately, most of the defenses I have come across of Marx’s “labor theory of value”–or whatever you want to call it–have been disappointing, for two reasons: a) because they simply paraphrase Marx’s highly abstract and counter-intuitive arguments in Chapter 1 of Volume I of Capital, and thus fail to reveal the very “common-sense” presuppositions subtending those arguments; and b) they fail to explicitly engage the reigning economic orthodoxy, i.e. the neo-classical or marginalist position, and thus fail to show why, in the face of Marx’s model, the former is ultimately untenable.

In a series of posts, then, I’ll be presenting notes from my ongoing researches into Marx’s labor theory of value, in an attempt to “recover” it, both from “vulgar” Marxist accounts of it, and from the neo-classical opposition.

I happen to think that it is a worthwhile endeavor. The stakes are high. A piece in the latest issue of the left-liberal journal Dissent “reappraising” the legacy of Austrian-school economist Friedrich Hayek concludes not only that any “thoughtful leftist” must recognize the essential rightness of Hayek’s free market model, but even that socialism and free-market capitalism are ultimately compatible with one another (!). Such disheartening “concessions” on the part of the left to the fundamental tenets of bourgeois economics seem to daily proliferate. If the left (understood as ecumenically as possible) ever hopes to break out of the defeatist cycle of “dissent” and accommodation, it needs to return to a critical understanding of capitalist political economy, and its ultimate incompatibility with democracy. And that means resuscitating Marxism.

First and foremost, such a riposte would have to begin with the fact that capitalism is a system of general commodity production. I.e., owners of the means of production employ their capital to produce goods not for their own immediate private consumption, but exclusively for sale on the market. For that reason, they require the flexibility to expand or contract production (or even to disinvest in one sector of production and reinvest in another) in order to maximize the value they can realize on the market at any given moment. Essentially, this means the flexibility to expand or contract the size of their labor force as responsively as possible to the opportunities of the market.

That kind of flexibility is virtually impossible in a slave economy, since masters in such a system actually own their workers as property. Only a system where labor is “free,” i.e. can be bought or sold (traded) freely on the market, affords capitalist owners of the means of production that kind of flexibility.

Moreover, unlike in capitalism, masters in a slave economy, since they own their workers outright as property, are directly responsible for their subsistence. That means that either a) masters must convert part of the surplus they extract from their slaves into the direct means of subsistence, or b) allow slaves valuable labor time to directly produce their means of subsistence themselves. Either way, such a system inhibits the maximization of value extraction.

In capitalism, in contrast, workers do not receive their means of subsistence directly from their employers, but rather are offered, as compensation for their labor, a monetary equivalent for it (which, however, as Marx demonstrated, in the long-run inevitably amounts to less than the exchange value of what they actually produce). I.e. in capitalism workers are individually responsible for furnishing (through consumption on the market) their own means of subsistence–a system which, naturally, perpetuates the centrality of the market and the private determination of how social labor is distributed. If capitalists were, like slave-masters, forced to convert part of the value they extract directly into means of subsistence to offer as compensation for labor, then the maximization of value-extraction through exchange on the market would be substantially curtailed, and the reproduction of the system be put in jeopardy.

Finally, an economic system where workers are putatively “free,” i.e. where they technically, legally “own” their own labor-power and are thus free to dispose of it as they wish, provides a powerful ideological support to the system, which nevertheless still rests on exploitation. The immediate result of the fiction of the worker as self-responsible free agent, Marx argued, was a boost in worker morale and thus a boost in productivity:

“The consciousness…of free self-determination, of liberty, makes a much better worker of the [wage laborer] than of the [slave], as does the related feeling (sense) of responsibility; since he, like any seller of wares, is responsible for the goods he delivers and for the quality which he must provide, he must strive to ensure that he is not driven from the field by other sellers of the same type as himself” (Capital, Vol.I [Penguin edition], pg.1031).

Granted, these explanations don’t account for the historical transition from one mode of surplus extraction (the “feudal” or “tributary” mode) to another (the “capitalist” mode), a transition which obviously has much to do with the establishment, through regional and inter-territorial trade and competition, of a general European commodities market; colonialism and state-expansion; new practices of primitive accumulation (e.g. privatization of the commons); and not least of all the vicissitudes of the class struggle (lords/peasants, masters/artisans). Nevertheless, if we’re simply taking capitalism as our given coordinates, I think the above arguments sufficiently and satisfactorily account for why slavery proper is, in general, antithetical to the needs of capitalist production, and why it ops for wage-slavery instead.