Yves here. Richard Murphy recaps the Karl Marx’s argument about the propensity of capitalism to increase income and wealth concentration and generate crises, and concludes that history has borne Marx out and that argues for strong controls on commerce and labor relations.
However, in a process that parallels Minsky, it is the crises themselves that generate reforms, and as the new status quo seems to operate well, corporate interests then lobby for deregulation of other weakening of controls. The revolutions of 1848 are popularly treated as failures but in fact in many states they did quietly generate policies more friendly to workers and the poor. The Great Depression and the two generations in the US of unquestioned support for New Deal reforms are a much more clear-cut example.
However, students of Karl Polanyi’s Great Transformation might have a less cheery take. A 50,000 summary of his classic would be that the workings of capitalism were destructive to society. That generated pushbacks and reforms. However, those reforms only blunted as opposed to halting or reversing the relentless operation of capitalism at the expense of workers and communities.
Note that Murphy starts with Marx’s labor theory of value and does not point out that it has been debunked. However, the criticisms of the labor theory of value fail to acknowledge the power dynamics that Marx was driving at: that the capitalist’s profit was a function of his ability to exploit labor. In the days of enclosure, “dark Satanic mills,” poorhouses, and no organized labor, business operators had great power over workers and could drive extractive deals.
In addition, productivity gains would increase the profit pie, allowing for business owners to do better while still sharing what would otherwise be a pure profit rise with employees. So the system does not have to be exploitative even though it has that propensity.
Social values also play a large role. In Japan, entrepreneurs are revered for creating employment, not for getting rich. And the Japanese billionaires I encountered were not into display. One even made a point of buying clothes at discount even though he also collected Goyas.
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future
Karl Marx was not the first to critique capitalism, but he remains the most enduring. Writing in the 19th century, he saw in industrialisation both extraordinary productive capacity and extraordinary human cost. His central claim was stark: capitalism contains within it contradictions so deep that it is fated to crisis.
The essence of Marx’s analysis was simple. Capitalists make profits by paying workers less than the value they produce. But if wages are held down, workers cannot afford to buy what they produce. Capitalism, therefore, undermines its own market. It grows by exploiting labour, but in doing so, it weakens demand.
This contradiction leads directly to the Marx Question: if capitalism’s natural tendency is to concentrate wealth in a few hands, impoverish the many, and generate recurrent crises, why do we still treat it as an inevitable and permanent system?
1. Exploitation as the engine of profit
Marx’s labour theory of value argued that all profit ultimately comes from labour. Machines may assist, but it is human labour that creates surplus value. Capitalists appropriate that surplus by paying workers less than the value they add.
This exploitation is not an accident; it is the system. Employers compete by squeezing wages, intensifying work, and cutting costs. The result is a structural bias towards inequality. Capital accumulates, labour is dispossessed.
2. Crisis as a recurring feature
Capitalism is not only unequal; it is unstable. By suppressing wages, it undermines its own demand base. Profits rise in the short term, but long-term markets falter. To bridge the gap, credit expands. Workers borrow to sustain consumption; firms borrow to expand production. Eventually, debt becomes unsustainable, bubbles burst, and crisis ensues.
This cycle — boom, credit expansion, bust — has repeated ever since Marx wrote. From the crash of 1873 to the Great Depression, from 2008’s global financial crisis to today’s looming debt crises, Marx’s diagnosis looks disturbingly accurate.
3. The concentration of capital
Marx also foresaw the centralisation of wealth and power. Competition drives weaker firms out, leaving monopolies and oligopolies. Today, global corporations dominate markets, supply chains, and even governments. Tech giants command more data than states. Finance capital dominates politics. Wealth inequality has returned to levels not seen since the 19th century.
This concentration is not incidental. It is the logical endpoint of unregulated accumulation.
4. The politics of denial
Despite repeated crises and ever-widening inequality, capitalism is still presented as the natural, inevitable order of things. Alternatives are dismissed as utopian or dangerous. “There is no alternative,” Margaret Thatcher declared, and neoliberalism turned it into dogma.
Why this denial? Because capitalism serves the interests of those who benefit from it — the wealthy, the asset-owning, the powerful. They use their influence to control narratives, fund think tanks, capture politics, and shape media. Capitalism is not just an economic system; it is a political and ideological project sustained by those it enriches.
5. Marx’s unfinished revolution
Marx believed capitalism would collapse under the weight of its contradictions, giving way to socialism. That has not happened. Capitalism has proved more adaptable than he foresaw. Welfare states, trade unions, and regulation mitigated its worst excesses in the mid-20th century, ensuring its survival at that time, especially when the 1930s had questioned that likelihood. But since the 1980s, those protections have been progressively dismantled. Neoliberalism has restored capitalism in a purer, harsher form — global, financialised, and extractive.
We now face the consequences Marx anticipated: unstable economies, grotesque inequality, and democratic erosion. His revolution never came, but his critique remains potent.
6. What answering the Marx question might mean today
To respond to the Marx Question, we need not replicate his prescriptions, but we cannot ignore his insights. If capitalism naturally concentrates wealth and generates crises, then stability and justice require countervailing power. That means:
- Redistribution. We need progressive taxation of income, wealth, inheritance, and capital gains to rebalance shares between labour and capital.
- Labour empowerment. Strong unions are essential, as is sectoral bargaining (for which I argued in my books The Courageous State and The Joy of Tax), workplace democracy, and minimum standards (including livable wages) that prevent exploitation.
- Public ownership and planning. Key sectors like energy, water, housing, and transport should serve public purpose, not profit.
- Democratic regulation of capital. Finance must be controlled, speculation curtailed, and credit directed into productive, sustainable uses.
- Global cooperation. Tax havens, secrecy jurisdictions, and unregulated global capital flows must be dismantled if nation-states are to reclaim democracy.
Inference
The Marx Question asks whether a system that thrives on exploitation and crisis can ever be sustainable. The evidence of history suggests not. Unless constrained by democratic power, capitalism eats itself: it devours labour, erodes communities, destroys the environment, and destabilises politics. The evidence for that hypothesis is now seen all around us.
Marx’s insight was not that collapse was inevitable, but that contradictions are inescapable. Capitalism cannot be left to itself. Either it is rebalanced by deliberate, democratic intervention, or it will implode under its own weight.
The choice is stark: civilise capitalism, or let it destroy the very foundations on which it rests. Marx’s question, left unanswered, is not about economics alone. It is about survival.
Labor theory of value debunked?
A search engine is your friend. This is widely accepted, back to when I took basic economics more than 50 years ago. The arguments are a bit weedy so I did not include them in the post. The simplest is that nature is also part of value creation. Another surrounds value in production (cost) versus value in use (what buyers will pay). Marx waffled on that.
I just wrote some long response but it might have gone into the void or maybe just moderation. Short summary— I have no personal opinion, can’t follow the debate but there has been a tremendous amount of it between Marxist economists in the past several decades. Google Andrew Kliman and read some of his arguments with others. The whole thing is hard for laypeople to follow— I tried briefly.
I hate to tell you but “between Marxist economists” strongly suggests that even neoclassical agnostic to opposed heterodox economists have not been persuaded.
I (as a non-economist) would welcome a longer-form post on this. I know, not really newsworthy, but I’d read it. Trying to understand the arguments, it seems Marx’s use of value (which seemed to generally refer to use-value) does not really align with more modern conceptions of value (which seem to more generally refer to exchange-value). I’m probably missing something simple here but seeing as how many of the world’s major economies at least seem to visibly profess the accuracy of Marxist political economy, I’d imagine that something as core as LTV isn’t totally debunked?
I’d say the best rebuttal to Marx labor theory of value is David Ellerman’s labor theory of property. He regained the copyright and posted his full book with the dry title “Property and Contract in Economics” here:
https://ellerman.org/wp-content/uploads/2012/12/Ellerman-Property-and-Contract-Book.pdf
He does a through debunking of the labor theory of value. However some of the conclusions, especially regarding the employment contract, go a bit beyond conventional economic theory.
My understanding is that the supply and demand curve plus willingness to pay is the most concise summary of why LTV doesn’t explain price. Like Yves said, it’s still a very useful tool to demonstrate how capital manipulates and exploits labor into adding production value while skimming off the additional productivity curve in the value chain.
A big point against LVT is marginal analysis in economics. Marx generally rejected marginal analysis, as at the time it Marginalism wasn’t a mainstream economic theory. Jevons, Menger, and Walras might have been the only economists whose works would have been accessible to him, but even then marginalism didn’t get adopted until the 20th century when expected utility started to rely on marginal utility explanations for decision making, long after Marx died and other Marxists continued to reject marginalism.
The way Marxists have traditionally answered “What should be considered socially necessary labor and how do you determine its fair compensation?” was to base it on the average wage via total compensation for all workers divided by total hours worked by all workers in a firm. The idea was that managers and executives for an operation might be doing some socially necessary work in order to maintain production for a firm, but that such work was originally, and still could be, ordinarily done by the workers themselves. In this case, the structure of the firm and vast difference in compensation to managers and executives was part of exerting control and maintaining the unequal extraction of surplus value of labor.
This analysis however, runs into problems when you try to apply it across firms that have adopted different technologies in the production of the same product, or are trying to determine whether it’s economically beneficial to adopt a certain capital expenses or labor saving technology or not. Marginal economics provides better predictions / correct answers to those questions, by being able to model non-linearity in demand based on pricing, and non-linearity in cost by separating fixed and marginal costs.
There are some economists who are trying to synthesize or prove LVT using marginal economics, like Hiroshi Onishi but these are very much heterodox economists, and even less “accepted” than other heterodox economists like MMT academics.
IMHO, the Labor Theory of Value would be more applicable and sound if it was understood as “The Labor Stoichiometry of Production:” The long term stability of a society requires that the lowest possible wage of an individual doing socially necessary work (housing, food, childcare, medicine, etc) must meet or exceed the market costs of the minimum viable product of those social necessities (housing, food, childcare, medicine, etc) and that such a wage can be defined and determined by solving a recurrence relation of the sum of labor productivity in those individual sectors (food, housing, childcare, medicine, etc). If such a wage cannot meet these needs, or a sector cannot raise the wages of its least compensated workers to meet those needs, then instability will follow as workers either die off, or refuse to do the honest work, cascading into increasing costs in other sectors, leading to crises.
But Marx is not interested in offering a “just wage” theory. Still less one of optimal pricing or utilization of labor or capital within capitalism.
You’re correct, Marx wanted to abolish the immiseration of the wage system, as he describes in the 2nd chapter of the communist manifesto:
But then in the end of the same chapter, Marx informs the reader that the process will be transitory, as the elimination of class distinctions will take time:
All of those things are part of a transitory state from Capitalism to Social Democracy to Democratic Socialism. The Manifesto was written in 1848, but most of his focus on using LTV to show worker exploitation came in later works where he was trying to show that the main sources of immiseration were twofold. First, psychological in a worker becoming alienated from the product that they produced with their labor, where someone on a factory floor could assemble hundreds pieces of furniture in a day but never actually receive one or be able to buy one later, compared to a craft worker who historically could assemble their own chair in their own time and enjoy it. Second, material, in that workers received significantly less in their compensation than what was feasible in the operation of the firm they worked in. Marx describes this in his address at the First International in 1865, later called Value, Price, and Profit, in part VIII: Production of Surplus Value –
So Marx here is highlighting “Hey, workers don’t get the full value of their wages when they work longer than they historically have. That surplus labor must have some value because it’s the same work they did before, but workers aren’t getting it.”
However as Frank Dean has pointed out in another comment, LTV has several issues that reduce it’s analytical power. Labor analysis is still useful however, because it can help identify what is being extracted as an economic rent instead of compensation for labor-derived utility. The point with my comment about “Labor Stoichiometry of Production” is a system neutral point about trying to determine what a viable minimum wage would be, whether establishing a minimum wage guideline in a transitioning capitalist system, or using a linear program in a centrally planned economy to determine resource allocation for an individual doing the least amount of the easiest, most accessible work in the system. The recurrence relation is how you get the three pence wage Marx walked about in Value, Price, and Profit, so you can have a better idea of where deficiencies are in purchasing power for labor, not an endorsement of the results of that methodology.
I’m familiar with arguments, personally I would not say the LTV has been “debunked”, but rather mainstream economics has simply changed the definition of what “value” means from how it was understood by Marx and other classical economists.
Here are the first words from the Critique of the Gotha Programme, refuting the claim by socialists that labor is the source of “all wealth and all culture”: Labor is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists!) as labor, which itself is only the manifestation of a force of nature, human labor power.
Also, there is currently a serious debate among Marx scholars about how much he believed in the labor theory of value anyway. It seems clear from volume 1 that Marx wanted to critique the explanatory power of mainstream (bourgeois) economics, which at that time still professed the labor theory. In essence, he believed that the difference between labor power (which is paid for in wages) and labor as activity (its productive capacity, i.e. ability to generate value) was the source of *surplus value*, which expresses itself only indirectly as profit. People get this mixed up because they believe that Marx was trying to critique a system of exploitation, but that is not correct. He assumes workers are paid the value needed to reproduce their labor power (to be paid less was a special case, “immiseration”). Rather, Marx is critiquing a system of mystification, where the source and cause of profit and the system of accumulation is hidden within the circuits of capital, and where formal and apparent “freedom” belies a system where capital (or property) dominates labor.
The reality that Marx counterposes to the wage relation is not non-exploitation but class struggle, which capitalist society hides or mystifies. This is why a communist revolution is often laid out as stages. First the system of wage labor must be overthrown, then the mystification, or commodity fetishism, of the cash nexus.
Even though Marx is now famed as an economist, he was a hell of a journalist. The conditions in factories were abusive and those practices were close to pervasive. So at its core, his theories were to explain how these conditions came about and could endure (or not in the very long run).
““ … starts with Marx’s labor theory of value and does not point out that it has been debunked. The arguments are a bit weedy… The simplest is that nature is also part of value creation““
Marx definitely considered nature as part of value creation.
“Labor is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists) as labor, which itself is only the manifestation of a force of nature, human labor power.” – [Marx – Critique of the Gotha Programme, Part I]
“The degree to which some economists are misled by the fetishism attached to the world of commodities, or by the objective appearance of the social characteristics of labor, is shown, among other things, by the dull and tedious dispute over the part played by nature in the formation of exchange-value. Since exchange-value is a definite social manner [gesellschaftliche Manier] of expressing the labor bestowed on a thing, it can have no more natural content than has, for example, the rate of exchange“
[Marx – Capital Vol I, p. 176]
Marx says that nature is a source of use value – as it is, after all, material stuff. Nature is a matter which provide uses for humans without the intervention of human labour power. But while nature may have use value but it does not have exchange value under the capitalist mode of production. Value is created when nature is modified by human labour power to create a commodity owned by capital that can be sold on the market. This turns a loss of use values into accumulation of exchange value for capital.
Ecological Marxists uphold Marx’s theory that only labor can create value, arguing that any attempt to assign value creation to nature within the capitalist system merely extends the logic of commodification to the natural world. They see the role of nature in Marxist theory as passive and subordinate to the dynamics of labor and capital.
““Another surrounds value in production (cost) versus value in use (what buyers will pay)““
Production cost is not total value, prices of production is total (exchange) value.
If that does mean that the propensity to spend is price setting it would imply that consumers are thus creating and/or adding exchange value. Prices are just the monetary expression of value. Market prices may deviate from what Adam Smith called ‚natural prices‘, which basically means exchange value based upon wages rent and profit. The deviation stems from factors like supply and demand.
The three classical economisty Adam Smith, Ricardo and Marx are thus debunked just like that, since all of them built their theories on the labor theory of value, but according to bourgeois economists and advocates of capitalism they obviously missed the point that the subjective rationality of buyers (marginal utility) is adding value. In all modesty, I seriously do not think that holds and has any solid foundation
Please look at Richard Murphy’s summary. That is not what he says Marx said.
Perhaps Marx, like the Bible and the Koran, is not internally consistent?
Steve Keen:
Labor is energy
We started with human labor (energized by food), we then added animal labor (horsepower) also energized by food. The energy was from the sun (see the Physiocrats).
We had wind mills and water driven mills. We burned wood and peat.
With the industrial revolution we added coal, then petroleum and natural gas, electricity, electronics, related engineering, nuclear. All with increasing energy density (except for humans).
All of these augmented human labor, which was directing the output.
1 Barrel of Oil = 23,200 Hours of Human Work Output (by calculating the BTUs involved).
Finally we have digital engineering producing mechanical labor that replaces humans altogether (except the humans that make the machines or direct them, AI might even replace them).
Marx only lived through the era of coal.
As you correctly stated: Human labor is the decisive force. All the sources of energy humans tap into are just raw materials (sources being shaped into wealth by human labor). That is what the Labor Theory of Value holds.
Human labor is the directive force, but without additional energy we are back to the stone age. The Labor Theory of Value is missing the energy component.
No, it is not. Energy input is part of constant capital, i.e. the part of capital laid out in the means of production like machinery, tools, raw materials, energy etc.
Alright, if you put it that way, but first you said labor is energy, then you say it isn’t. We’re going in circles.
Energy manifests in a variety of natural forms as different material forces, one of which is labor
Very interesting point- and made me think about the uses of the ‘collective we’ versus the shared experience ‘we’.
I didn’t realize there was a ‘we’– the ‘collective we’ seems conspicuously absent these days- past-tense is spot-on.
“Marx only lived in the era or coal.” And too early to have anything but a spiritual grasp of the quantum world. We still find good advice in Marx. His sense of injustice was based on an economics as coarse, clunky and toxic as coal itself. But here we are in the 21st century on the verge of synthetic artificial sun fusion energy. What a wild ride, no? Point being that with sufficient energy we can probably clean up the whole damned mess, from piles of toxic pollution to a restored natural world, to genuine prosperity and equality for all of us. Those seem to be our goals, so that’s the good news. We’ll probably come up with a better description of finance than “capitalism” because the whole paradigm of extraction will be replaced. Maybe.
With respect to fusion I’ve wondered about heat getting past the containing magnetic field. It shouldn’t have been much of a surprise, but just now two AIs differed hugely when I suggested this heat escape was usually why brakes had to be applied to whatever reaction. I could have read conventional sources about the nature of the difficulty in containing it by this means, but my curiosity about time limits on the reactions so far got the better of me. Neither source of course should be trusted much; I’m biased toward an [oldish] article findable when you add the following to your search: bulletin atomic not what cracked up to be.
I had the same question and looked up some critiques, so here’s my attempt at an explanation. In simple form, it’s pretty obvious that there is no wealth without labor. But as Yves notes, nature creates value, ie trees don’t need our help to grow, so it’s not purely labor that creates value. But if you want a house, you’re going to need to expend some energy to alter the position of matter relative to the earth’s surface – in other words you’re going to need to do some work to turn a tree into a house.
You can see the “debunking” more clearly if you compare the value of a diamond to that of a lump of coal. While I’m not an expert on mining, I’d imagine it takes about the same amount of labor to get each of these substances out of the ground, yet one is considered much more valuable than the other. Some of the value of diamonds is due to nature’s extra work of compressing the coal, but a lot is also clearly in the eye of the beholder.
In general, I’d say the labor theory of value holds in that there is no wealth without labor, but it’s not a simple equation where you can say x amount of labor always creates y amount of value.
But Marc never disputed that nature creates value.
Exchange value derived from “ownership” of nature is covered in Capital inder the theory of ground rent.
Exchange value is an abstract concept and a social convention. Nature does not create abstractions but only use values. The growing of a tree or its fruits are simply ‘a manifestation of the forces of nature’ just like human labor power is, as Marx said. Even if you want the use value out of the fruit of a tree you have to pluck it, i.e. put up labor
That’s not to mention that fruit from cultivated plants is often more flavorful than wild plants. To make good cherries or apples is the work of centuries of labor and human intention.
The value of things which nature creates is expended in the use of those things. A system of prices may arise by any number of means and many arbitrary conditions/relationships might arise from that system. I feel like that’s part of what Marx is trying to get at with his treatment of money in the first chapter of Capital.
It seems to me that the relationship between cost and price is actually a pretty tenuous one in general. Whether a product has a a high or low gross margin, the proceeds held by capitalist represent a share of labor to which he only committed a small portion, if any at all. This is exploitation. This, to me, is a problem about how the benefits of all social labor is apportioned to the whole of society. The apportionment of capital.
If we want to say that nature is also exploited and that we need to account for that, then I don’t see a problem with it. Nature’s exploitation seems not to be problem of apportionment but one of the accumulation of capital over time. Nature’s exploitation can be seen more readily in the growing legions of uber wealthy who, though their ranks swell almost as fast as their bank balances, still represent an infinitesimally small proportion of human labor. Couple with this the idea that the same value can be enshrined as the distinct privilege of a microscopically small, self-serving elite for all time– that it’s not just theirs but theirs forever This idea that value can perpetually grow, where value can be held in stasis until doomsday and that it’s status is sacrosanct, that there is no limit, that it is a nature unto itself- this idea of the capitalist is where the exploitation of nature can be surveyed most fully. To me this is a flaw in human thinking perhaps based in a more fundamental human cupidity.
In any case, I think that if you want to solve the accumulation problem (i.e. address nature’s exploitation), it would politically be a very good to start with the apportionment issue (i.e. address labor’s exploitation). Nothing happens without labor and labor needs to get on the same side if we’re going to do anything about natural exploitation. The whole point of socialism is to figure out how to produce the right amount of stuff to satisfy human wants and needs. The point of capitalism is to produce profit for capitalists forever.
Every problem has a solution(?).
What can be voted in, can be voted out.
I’m waiting for the Galactic Council to put in an appearance, maybe they can sort things out.
Politicians who listen to voters more than lobbyists should help make voter lives better, not worse. Without more responsive pols, not the current grifters, there isn’t a decent path forward for voters.
Except we’d pretty much have to throw out the US Constitution created by what were basically corporate or municipal states, to not be based on private ownership of land and resources. An utterly revolutionary ‘vote’ for sure but I doubt it would happen that way.
Marx’s law of value: a debate between David Harvey and Michael Roberts
This is going to be a long post, so bear with me. First, you will have to read a paper (attached below) by Professor David Harvey, then a critique by me below – and finally a reply to my critique by Professor Harvey. And then it’s up to you readers to see what you make of it: is this like a medieval religious debate about how many angels there are on the head of a pin; or is it a debate that leads to something really worth knowing?
For more on the nature of Marx’s law of value and its relation to crises, see my new book, Marx 200
https://thenextrecession.wordpress.com/2018/04/02/marxs-law-of-value-a-debate-between-david-harvey-and-michael-roberts/
p.s.
Of Prussians and Traders
Noam Chomsky interviewed by an anonymous interviewer
Multinational Monitor, November, 1988
https://chomsky.info/198811__/
A Note on Ronald Meek’s ‘Studies in the Labour Theory of Value’
Hagendorf, Klaus (2006): A Note on Ronald Meek’s ‘Studies in the Labour Theory of Value’.
https://mpra.ub.uni-muenchen.de/11759/
Abstract
Ronald Meek has (deliberately) ignored a very important discovery of Jevons. When labour is measured in terms of marginal labour values prices are proportional to these values and commodities exchange accordingly. This has been rediscovered by Soviet economists and that has been published in the JEL in the 70ies. Furthermore it is shown that under neoclassical assumptions the vector of marginal labour values is equal to the Sraffian vector of quantities of dated labour.
References:
CHIPMAN, JOHN S. (1952). The Consistency of the Marxian Economic System, Economia Internazionale, 5, 3, pp. 527-58.
JEVONS, W. STANLEY. (1871). The Theory of Political Economy. 5th edition, London: Macmillan; 1957.
LETICHE, J. M. (1971). Soviet Views on Keynes: A Review Article Surveying the Literature. Journal of Economic Literature, Vol. 9, No. 2 (Jun., 1971), pp. 442-458.
LUR’E, A. L. (1966). An Abstract Model of an Optimal Economic Process and Objectively Determined Valuations. Mathematical Studies in Economics and Statistics in the USSR and Eastern Europe, Vol. III, No. 2, 1966-1967. pp. 3-35.
MARX, KARL (1867). Das Kapital. Kritik der politischen Ökonomie. Volume I. Volume III (1894). Hamburg: O. Meissner. Reprint of 4. edition: Berlin: Dietz; 1987.
MEEK, RONALD L. (1973). Studies in the Labour Theory of Value. 2nd edition, London: Lawrence and Wishart. 1st edition 1956.
SMITH, ADAM. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: Strahan and Cadell. Edited by Campbell and Skinner. Oxford: Clarendon Press; 1976.
STIGLER, GEORGE J. (1941). Production and Distribution Theories. The Formative Period. New York: Macmillan.
Re “So the system does not have to be exploitative even though it has that propensity.” The “system” causes nothing, it is people who do. And capitalism offers no counter to human greed, none, in fact it is a flammable liquid thrown on the fire of greed. And there will always be some bad actors in any population so, capitalism’s flaws are overt, not covert. That “system” can only work when government (aka the collective action of the people) muzzle it and confine it within somewhat safe bounds. It doesn’t have controls built in.
And the price of prosperity is eternal vigilance.
The Labour Theory of Value has aggregation problems, composition problems, non-uniformity problems, and so on that cannot be overcome.
However, it’s actually quite useful conceptually when listening to people discuss economic matters. Because as a rough approximation, the LTV has to be true (almost tautologically), unless economic rents are involved. So it’s a good tool for identifying economic rents.
Marx’s general insistence on analyzing material reality rather than getting caught up in layers of financial obscurity is also very useful. What’s physically possible is something to bear in mind rather than worrying only about what is financially possible under capitalism as it is operated where you live.
That’s exactly how I look at it too.
Everything above Marx’s LTV is Economic Rent.
Wouldn’t Michael Hudson disagree with Yves here?
I thought Hudson liked Marx’s LTV?
Thanks for the big picture clarity of the above. If one is allowed to speculate then perhaps the reason Marxism hasn’t taken hold is because it assumes reason (including “elightened self interest”) is at the bottom of human behavior and that other great 19th century figure, Darwin, hadn’t yet come into play. If we are creatures of nature then there are other factors and models to consider. Therefore the capitalist desire to control the masses through poverty can be less about riches and luxury and profit and more about power in general. All that poverty is a feature not a bug.
Or to put it another way “self interest” is rarely enlightened and those like Ayn Rand who pretend that it is are selling currently popular snake oil. The notion of a social contract that would be best for society is up against the logic of power that says that power must be absolute to keep competitors at bay. If you are Rome Carthage must be destroyed or if you are a certain ME nation then regional dominance must be established. Marx had his 19th century examples. The power theorists have history.
At any rate Patrick Lawrence here presents his own views on our current age of unreason. He asks if “freedom,” per Kant, produces reason and whether most people prefer dominance.
https://consortiumnews.com/2025/09/22/patrick-lawrence-our-age-of-unreason/
In the orthodox Marxist view, productivity gains do not necessarily increase the profit pie; this is central to what Marx called the tendency of the rate of profit to decline. It explains much, from neoliberalism to globalization to artificial intelligence. The idea is that capital’s “organic composition”, i.e. the amount of fixed or constant capital, machines and plant and so forth, increases over time; this is what gains in productivity can reflect, that machines are doing more of the work. There are two parts here, constant and variable capital (variable is wages), and the greater the constant capital, the lower the rate of profit. Here’s a bit of Marx on the subject of profit; for those interested, the law is laid down in Capital vol. 3, part 3, chapter 13.
As an economy develops, and the organic composition of capital in the home country increases, capital then stretches over the globe in search of a higher rate of profit.
Private ownership of the economy is incompatible with public ownership of its political life, or democracy. The reforms suggested would be subsumed like they have been in the past. One of the things capitalism does best is capture institutions.
Different angle — not part of this – Antiques Roadshow featured a kid who’s relative had a ton of WW2 propaganda, including a series of posters from the Office of Price Administration.
They were fascinating! Exhorting folks to THINK about the impacts of their economic choices on their fellow citizens, in this case their Patriotism to the Nation-State, in the war effort.
Have a gander at the collection from Bill Gates’ BING (!) : a bit of a moral compass, and leadership asking folks to act morally… What A Concept! Buncha farking pinko commies… don’t tread on ME! Freedumb!
https://www.bing.com/images/search?q=ww2+office+of+price+administration+posters+slogans+&form=HDRSC3&first=1
I cannot resist copying this quotation from Ricardo about how it is RENT that polarizes society between the rentier class and labor. Marx generalized this, but it already was in play. (This is from the book I’m writing now.)
The driving force in increasing land rent, Ricardo claimed, was population growth forcing recourse to less fertile soils. If the Corn Laws continued to block lower-priced food imports, the cost of living would rise, increasing the subsistence wage that employers had to pay. That would eat into their profits and discourage new investment, while landowners would obtain a rising proportion of national income as a result of rents accruing to owners of better-situated farmland as food prices would be set at the high-cost margin of cultivation. “The natural tendency of profits then is to fall,” he wrote, “for, in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labor” on less fertile soils as their population increased. That would bring
“an end of accumulation; for no capital can then yield any profit whatever, and no additional labour can be demanded, and consequently population will have reached its highest point. Long indeed before this period the very low rate of profits will have arrested all accumulation, and almost the whole produce of the country, after paying the labourers, will be the property of the owners of land and the receivers of tithes and taxes.”
HUDSON HAWK STRIKES AGAIN!
Thanks, Doc, for chiming in!
I posted a response to Yves up above before I saw your reply!
Ahhh the impatience of youth.
When I read Capital Vol 1, it became pretty apparent that an internal contradiction in capitalism is that the value of supply is greater than the value of demand. Another way of saying this is that the price of production was higher than the cost of production – something pretty necessary when an entrepreneur is making a profit. This brought on the periodic crashes where prices and production dropped, people got thrown out of work – that sort of thing. They system often fought back by dominating other countries, what we call Imperialism, using them as markets for production and cheap raw materials – exports seemed to be a great way to deal selling off production. This is just a displacement of that internal contradiction where the dominated country would get into debt and either experience a collapse or need to develop its own production so it could pay its debts by selling off its surplus.
Now a days we see the system fighting back, especially in the US, by governments running large budget deficits. This helps use up the surplus, but at the same time the debt accumulates; and since it doesn’t solve the contradiction it takes larger and larger deficits to get the desired result.
As for the labor theory of value, all of the classical economists used it. The big change was in the 1830s when goods started to come into Britain at a lower price than the British could compete with. I remember W. S. Jevons saying that using labor as a value led to over-valuing, using utility to value led to under-valuing and using marginal utility led to the correct value. To someone like Jevons, it was scientific that British labor was over paid.
Have you read CH Douglas? He was careful to describe the problem as “not enough purchasing power is distributed” rather than the employer extracting surplus value. In either case, the capitalist system is inherently unstable because it doesn’t balance out. It’s not a barter system.
I know about social credit it is an interesting way of looking at the economy. The classical economists talked about profit as something normal, Ricardo broke things down to profit and wages. Then with the marginalists, the concept of profit was replaced by “normal economic profits” which put a veil over the concept of profits when studying the economy.
I don’t think the problem is solely purchasing power by workers. When I look at production I see a supply side (price times quantity supplied) and on the demand side there are all the factors like labor, raw material, capital and depreciation, and profit. We can observe all these from the financial statements of companies. For demand to equal supply the two sides have to be equal so that means all profits, depreciation and payments to labor would need to be spent domestically. An economy grows when a sufficient amount of that spending goes toward productive investments to expand plant and equipment. When there isn’t enough spending, supply exceeds demand, inventory grows and the economy can head toward what Keynes would call the low level equilibrium trap.
Yay. Happy to see this post.
I am nearing page 300. The first few chapters are brutal. I had to read primers and a reading guide for it to start to click.
I just found the paragraph where he starts to talk about overproduction in a chapter on machinery. A strange place to him to insert that key idea.
Perhaps it will make sense in a few more pages.
The Revolution can’t come soon enough. It’s going to rough riding the storm. Current time line is pointing to that. Hoping that we can save the planet at the same time. Wishful thinking, I know.
Karl Marx portrayed workers as slaves destined to be exploited by capitalists. In reality, however, workers have the freedom to choose their profession and can work for employers who offer higher wages based on their skill level.
Is your sarc tag missing?
Not in the 19th century with little to no public education and families that had been able to engage in subsistence farming via use of shared pastureland and hunting losing the latter two due to enclosures and restrictions on access. Even children worked in the Victorian mills.
The bottom of the Inferno is where the deliberate confuser resides, the parasite that feeds on ignorance and confusion.
It is elementary that capitalism cannot have a central bank controlling the money supply.
It is elementary that capitalism is decentralized, where today’s economies are centralized.
It is elementary that capitalism doesn’t bailout predatory risktakers.
It is elementary that capitalism doesn’t pick winners and losers.
Yet the paid sophist cares not about truth but feeds the rabble with the red meat of envy.
It’s just disgusting.
“Theory of Value” – “Value” is a concept, so its unclear what a “theory” of a concept looks like, or how it gets falsified. How would we debunk someone’s “Theory of Trademark”? Further, Marx didn’t advance a “theory of value”–the labor theory of value goes back to Locke and was a working assumption of classical economics. Locke was used to justify expropriation of land from indigenous peoples to great avail, whereas Marxists use of the theory to expropriate property from the wealthy did not go over as well.
That being said, the price of commodities is pegged to the cost of production, the greatest portion of which is generally labor (and perhaps the one most vulnerable to political manipulation). If commodity prices falls below the cost of production, production declines unless or until there is a sustained price shock making it worthwhile to invest capital in more commodity production. As a descriptive model, cost of production driven by cost of labor is a good heuristic for modeling commodity prices over the long term, and Marx was the first to really examine the effects of the monopoly, which would be the exception to cost of production/cost of labor.
The current AI race reinforces the Labor Theory of Value, whether or not that book has been closed by mainstream economists. Embodied AGI, a robot body with a human mind, eliminates the distinction between capital and labor. Neoclassical theory offers nothing here. If AI can supply unlimited labor at negligible cost, marginal utility predicts prices spiraling toward zero, and with them, profit. But profits are not vanishing. They are tantalizingly explosive with AI-driven labor.
It is just as Marx foresaw: the key to value, exploitation, and domination lies in the control of labor-power, human or otherwise.
Marx’s labour theory of value centred on how surplus value was generated, in how it originated from the unpaid productive labour time appropriated by the employer. If anyone cared to read it, the main point of Marx’s Critique of the Gotha Program was to stress that labour was not the only source of value, that nature was also a source.
Marx showed in excruciating detail how productive labour (ie, labour involved in the production of actual commodities) was the source of surplus value, not value as such. Surplus value then is distributed into rent, interest, taxes, investments, unproductive labour, etc, and what remains is profit for the firm. When economics textbooks and tracts were more honest 150-200 years ago, forms of surplus value like profit, interest and rent were termed ‘unearned income’.
If enough pressure is applied by organised labour, then some of the surplus value may be re-distributed to wages above subsistence level — ie, if labour wins its campaigns. Industrial action like strikes, etc have been the main weapon used by workers to win any improvements in their existence, and capital has always pushed back with its state machine to smash industrial action, and does everything possible in the longterm to strangle workers’ ability to engage in struggling for their interests.
We have all witnessed in sharp relief, since the 1980s, the decline in workers’ ability to maintain, let alone improve, working conditions, wages, and so on. As Warren Buffett (in)famously stated, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”. He was absolutely right. To this day, Buffett and his ilk continue to be aided and abetted by union misleaders who only want to strike deals with the bosses to avoid any class conflict. Otherwise all the claims about capital somehow sharing its profits with workers out of the goodness of its heart is just the dishonest tripe that has filled the mainstream economics textbooks of 50-70 years ago (eg, Samuelson).
The claim that capitalism is only ‘exploitative’ when there’s obvious and widespread poverty in the working classes is false. Workers aren’t employed if the can’t be ‘gainfully employed’, and the amount of that ‘gain’ depends on the balance of class forces. Here are a couple of synonyms for ’employer’: user, exploiter. Can it be any clearer?
In short, one should never confuse the source of value with the source of surplus value.
Any attempt to link value/surplus value to a single source is doomed to fail, in my opinion. Marx in Capital Vol.1 Ch. 1 pointed out that a product that no one would buy would not have any value even though someone expended labor to make it. Marx also made an effort to distinguish between value-in-use and value-in exchange.
The physiocrats proposed nature as the original source of value, but if there is no conscious mind to value the natural object, no value exists. Or as one commenter above put it, someone still has to pick the apple. Natural resources may not exist in a form that people can use, so these have to be transformed using labor. And if we are talking about value-in exchange, that someone needs to bring it to market and sell it. So someone else needs to buy it.
That leaves utility as the source of value, except not. This may not be the best example, but if I find an object to be useful, or saleable, can I just conjure it out of thin air using magic? No. It has to be built or made.
There are many implications that follow from this, or that are important in addition to this, but I want to keep this post as short as possible. It seems to me that one important thing that follows, and several people above mentioned this, was the role of power in determining, for example, the wages of labor, and other incomes in a capitalist society.
Then there’s the question of “information.”
A lot of “value” is created and destroyed, in ever complex manner, in financial instruments. Without delving into rhetoric, these exist because of “information,” broadly defined: risk, uncertainty, “expectations” in myriad forms. Without information, not only would exchanges be trivial, all markets would collapse under the weight of its own contradiction–all possible trades would already have taken at the beginning of time, to paraphrase late Ken Arrow himself.
In a sense, all economists who knows anything (which limits the sample a bit) have known this for at least 80 years. Markets don’t work without limits on information. While billion things have been written on the implication of limited information, nothing has really been satisfactory, because epistemology is fundamentally hard, though.
Deja Vu !!
Reads just like early 20th Century (1910’s and 20’s) Social Democracy tracts !!
…….
Social Democracy: Always recommends using the very means that got us into The Predicament to get us out of The Predicament !! (Einstein ?)…
So much so that why he bothers to drag Marx into it is unclear.
The comments are as illuminating as the article itself. I don’t want to plow over already tilled ground but will add something that I see has not been touched upon: the disutility of labour itself as the source of labour value – i.e. capital that reduces such disutility, has a corresponding utility. Kevin Carson has long contested with other Anglo-American/Free-Market libertarians on this very point, taking seriously both their critiques of traditional Marxist labour value, and their ideas about the subjective origins of value. He does as fine a job of critiquing Marginalism (and how it hides structural inequalities of power in actually-existing capitalism) as say the Georgists and Rent-value critics; and his idea of the disutility of labour seems not only compatible with such but reinforces it (e.g. the classic axiom that given two options human beings will choose the one with less work to achieve the same result).
‘Studies in Mutualist Political Economy’ – https://www.scribd.com/document/821115512/Kevin-Carson-Studies-in-Mutualist-Political-Economy
… and in particular: Chapter Two: A subjective recasting of the Labour Theory of Value – https://www.scribd.com/document/821115512/Kevin-Carson-Studies-in-Mutualist-Political-Economy#content=query:a%20subjective%20recasting,pageNum:45,indexOnPage:0,bestMatch:false
I’ve read not only Carson’s Studies in Mutualist Political Economy, but also Organization Theory: A Libertarian Perspective. As you mentioned, I found his arguments about utility/disutility in labor compelling, although I think he’s a bit optimistic about the ability of low-overhead individualized tools and technology to provide all the necessities and amenities of modern life to everyone living on the planet today.
The biggest gap in his analysis is that he asserts that all monopolies are the result of state privileges granted to industries, but doesn’t provide a comprehensive rebuttal to how and why natural monopolies can exist and form independent of state power, and that such monopolies can leverage their market power to distort pricing and fairness in the market. Part of his analysis claims steam power was favored over water or wind mills for its centralizing power in the shop and ability to create monopsony power in combination with the patent system. Perhaps there’s credence there, but there’s a more modern example of a natural monopoly that I found deficient in his analysis: radio telecommunications and cell phone service.
Because radio communications are limited by the physical constraints of available electromagnetic spectrum, there can only be so many channels or bands of communication before towers and devices start interfering with each other and become unable to communicate. Thus there will be a first-move/first-user advantage to whomever builds, develops, and deploys the standards and systems for using those bands. Otherwise, Carson doesn’t investigate what types of dispute mechanisms or resolutions there might be for two different users of similar radio bands using two different protocols move into proximity to one-another.
The libertarian Non-Aggression Principle doesn’t provide a satisfactory answer to this, because both users of spectrum could be obeying the principle beforehand, and then by moving within range of each other, or some other geological condition out of the control of both people, end up violating it against eachother. This is apparent to anyone who’s lived in a dense apartment building, and has to wait several minutes for their wi-fi SSID to show up among a list of dozens of others, only to have a crappy connection despite having line of sight between their laptop and router.
Not that anyone cares, least of all me, but, strictly speaking there is no such thing as the ‘Marxist Theory of Value’, and Marx never used that phrase when talking about his own ideas. Instead he talked about the Law of Value, which is not precisely the same thing.
Another thing that is important is that when Marx uses his Law, he is only talking about the value of manufactured commodities (i.e. manufactured on an assembly line, not bespoke): e.g. mobile phones, cars, furniture etc.
So this law, in the abstract, is very simple: ‘Simply put, if product A takes 100 hours of human work to produce in total, and product B takes 5 hours to produce, the normal trading-ratio of A and B will gravitate to a rate of around 1:20 (one of A is worth 20 of B), because A is worth much more than B’.
(It’s also not pointed out enough that Marx didn’t try and prove this Law (which, as other commentators have pointed out, was accepted by almost all of his peers) by comparing things to prices in dollars or pounds, but, instead, to gold.)
https://en.wikipedia.org/wiki/Law_of_value
One final point: Marginalists and Austrians haven’t refuted or even attempted to refute Marxist (or anyone’s) Law of Value because mainstream economists don’t accept that the relevant data is anything that anyone can infer any sort of law from. In the opinion of the marginalists and Austrians, people like stuff for whatever reason, if they do, they will pay a lot for it, if they don’t, they won’t. It’s all just subjective (innit). Prices of commodities go up, prices of commodities go down and in both cases the movement can’t be predicted (at least long term) because the mechanism of causation is essentially psychological and lies outside the domain of the economist.
And so Marxist economic theory is a theory of production, and marginalist/Austrian theories are theories of consumption. They don’t really ‘interfere’ with each other because they have radical differences, non-commensurable differences, about just what economics is, to what extent it is, or ever could be, a natural science, what the task of the economist is, and so on.
Please do not straw man what we wrote. We very clearly said “labor theory of value” which is undeniably a Marx construct.
Dear Yves no, not Marx construct. Look at this.
https://en.wikipedia.org/wiki/Labor_theory_of_value#Karl_Marx
Marx (imo unfinished, value multi layers hardest problem of pol eco) construct is this.
https://en.wikipedia.org/wiki/Law_of_value
Deep respect, much love from TR.
Interesting article. I’ve long puzzled over Marx who seems to have got so many things right but also many things wrong. To me he seems like an emissary of his time which was the beginning of the Age of Science as the Industrial Revolution picked up. Which means he was a thought leader of Materialism, the kind which believes that only the physical is real. To oversimplify perhaps, his analysis of society strips things down to materialist elements – production, labour, capital etc – whilst ignoring the many, and vitally important, intangibles including governance, ethos, civilizational phase (early, flourishing, decadent etc.), traditions and such.
This is like discussing the nature of a human being by only looking at tissue, bones, nerves and organs, usually studied after the person has died and is stretched out on a mortuary slab, whilst ignoring their character, beliefs, life story, passions, defeats and victories. Thee is a lot that can be learned by only examining the physical – a limitless amount – but also there is a huge amount that gets overlooked and, in our case after almost 200 years of this, dangerously diminished. Our civilization sorely needs a revival, though whether it is of the Christian Evangelist ilk as demonstrated two days ago in Arizona remains to be seen.
since it was upped two days ago by Glenn Diesen
Yanis Varoufakis: Technofeudalism and the Death of Capitalism
46 min.
https://glenndiesen.substack.com/p/yanis-varoufakis-technofeudalism
Exchange value in a monetised society is the money value irrespective of utility. Use/utility value is unrelated to exchange value and is ascribed to something due to its perceived value in use to an acquirer. Use value can vary markedly between individuals at any one time. Exchange value says this is the price that you have to pay to acquire the thing at present – it can also vary over time but is fixed at a particular time.
Marx was wrong. The “labour” he referenced was workers as people whereas the labour that operates in the production of an output is an engineering definition of labour = work. An economic output derives from an energy input through a work process, irrespective of the number of workers involved in the process. It’s not about the workers but it is about the energy exploited. All is becoming plain to see in this era of attempts to employ so-called AI.
It’s energy that ties economics to the natural world of reality and it’s neoclassical economists who are energy blind.
Sorry, for the delay on this comment, I was away, and only today made my annual contrib!
Rather than having been debunked, LTV has produced a long very boring literature on exactly what it is :)
I put a link below to one of the more readable and concise discussions of the subject by Jane Collins.
Yves, you run the best website on the web. If I was to make two suggestions 1) lose the links to the worthless Tiabbi and 2) if u have some spare time, read some Marxists. At a meetup in SF, u suggested Marx didn’t deal w finance adequately, to which I pointed out that that was the entire subject of Capital II. Several Marxists have also dealt extensively with fiance, Giovanni Arrighi, who’s quite readable, is my personal favorite. first half of Chaos and Governance in the Modern World System is quite good. Here:
Oops
here’s the link
https://dces.webhosting.cals.wisc.edu/wp-content/uploads/sites/128/2013/08/collins-expanding-labor.pdf
Again, keep up the good work