[Gothmog]

-An interesting topic for discussion. Here is the link for the article.


http://reality.gn.apc.org/econ/

Testing the labor theory of value in Sweden, Dave Zacharaih
This study aims to investigate the empirical strength of the labor theory of value. Using
input-output data and labor hour statistics for Sweden it replicates tests done by Cockshott and
Cottrell (1998) for the British economy. Its results are broadly consistent: labor values are closely
correlated with market prices. When it comes to reality, the labor theory of value works at least as
well as the theory of production prices.

The article is in *.pdf. I will be studying it as soon as possible.

[Schrödinger's Kitty]

I was wanting to read it, but "The page cannot be found."

[Potemkin]

Same problem here: the dreaded '404'.

But the fact that the labour theory of value is empirically borne out would be no surprise; after all, Adam Smith believed in it as well as Karl Marx; it's only the post-Marxist neo-liberals who tried to deny it in order to undercut (as they saw it) Marx's economic analysis.

[Sans Salvador]

There are a number of studies for different countries empirically testin the LTV. It should come as no surprise that those studies conducted by people who previously believed in it confirmed the LTV, and those conducted by people who previously did not believe in it (generally Sraffians and neo-ricardians, as well as some neoclassicals) did not confirm it.

Some of the pro- LTV studies are

Anwar Shaikh, "The Transformation from Marx to Sraffa," Ricardo, Marx, Sraffa: The Langston Memorial Volume, eds Ernest Mandel and Alan Freeman, Verso, 1984

W. P. Cockshott and A. F. Cottrell, "Labour Time versus Alternative Value Bases: A Research Note," Cambridge Journal of Economics, Volume 21, Number 4, 1997

Eduardo M. Ochoa, "Values, Prices, and Wage-Profit Curves in the U. S. Economy" Cambridge Journal of Economics, V. 13, No. 3, 1989

Pavle Petrovic, "The Deviation of Production Prices from Labour Values: Some Methodology and Empirical Evidence," Cambridge Journal of Economics, V. 11, No. 3, 1987

A study against the LTV is

Ian Steedman and Judith Tomkins, "On Measuring the Deviation of Prices from Values," Cambridge Journal of Economics, V. 22, No. 3, 1998

In my view, Steedman's study is more sound. Steedman has also, in my view, theoretically refuted the LTV in "Marx After Sraffa and the subsequent debate.

Another interesting empirical defense of the LTV, and one of the more recent ones is Th. Maniatis and L. Tsoulfidis "Values, prices of production and market prices: some more evidence from the Greek economy" Cambridge Journal of Economics Vol 26, 3, 2002.

It purports to support the LTV, and criticizes Sraffian value theories (such as Steedman advocates) on the empirical evidence.

But the fact that the labour theory of value is empirically borne out would be no surprise; after all, Adam Smith believed in it as well as Karl Marx; it's only the post-Marxist neo-liberals who tried to deny it in order to undercut (as they saw it) Marx's economic analysis.

This is incorrect. The spanish scholastic economists of the 16th and 17 century, as well as some of the French Physiocrats of the 18th, supported subjective value theories.

And the marginal revolution is much more than an attempt to refute Marx.

It happened when it did because of the progress in physics. Walras and Jevons wanted to use the models of physics in economics, and substituted "utility" for potential energy. A fallacious hting to do, of course, but not done with the main purpose of refuting Marx.

Menger likely simply read the old Spanish and French economists and added some more rigor to them.

It's also absurd to expect the LTV to be correct based on an argument from authority.

[Sans Salvador]

Here is a workable verion of Gothmog's article

http://tinyurl.com/br2by

[Potemkin]

In my view, Steedman's study is more sound. Steedman has also, in my view, theoretically refuted the LTV in "Marx After Sraffa and the subsequent debate.

Interesting. Could you explain more about Steedman's argument?

It happened when it did because of the progress in physics. Walras and Jevons wanted to use the models of physics in economics, and substituted "utility" for potential energy. A fallacious hting to do, of course, but not done with the main purpose of refuting Marx.

So it was done because of an attempt to separate economics from politics and reduce it to a pseudo-science? That explains a lot.

It's also absurd to expect the LTV to be correct based on an argument from authority.

That's correct, which is why I didn't use the argument from authority.

[Sans Salvador]

Interesting. Could you explain more about Steedman's argument?

Its a very complex argument that requires a prior knowledge of Sraffian economics. It really can't be explained here, although Sraffa's opus Production of commodities by Means of Commodities which can be read in a day. Basically, Steedman demonstrated that there can be positive profits with negative surplus value in the aggregate. Further, the labor vlaue of a commodity can not be given without reference to the prices ofp roduction which cannot be given without reference to the labor vlaue of the commodity. Thus, the LTV is circular. This is a result of Sraffa's "Reswitching" theory which is, in my view, the strongest critique of the capitalist economy. Sraffian economics also shows that workers are exploited under capitalism. However, most Sraffians have accepted the Okishio theorem which purports to show that Marx is wrong about hte decreasing rate of profit. However, I believe the Okishio theorem is wrong on its own terms. Thus, Sraffian economics produces the same conclusion as Marxian, but without the leaps in logic and slavish methodological devotion.

Here are a few summaries of the Sraffian acocunt of the LTV (written by someone far more sympathetic to the LTV than me) which are online. You should read Steedman's book anyway.

http://www.dreamscape.com/rvien/Economi ... V-FAQ.html
http://www.dreamscape.com/rvien/Economi ... raffa.html

Marxists have written hundreds of critiques of Steedman, and I haven't read them all, but most of the ones I am familair with are quite wrongheaded.

[Gothmog]

-Thank you for your remarks, Sexabert, I will take a look at your sources. Btw, the article I mentioned has too much mathematics to be understood by me. Could you help us by pointing to their weak (or strong) points?

[Sans Salvador]

I am in the same boat as you. I can understand mathematical economics when I am looking at a math book to see how to do things usually. The math in that article actually seems pretty simple - he just found the correlation between a few different variables, as well as distributions. I could walk you through it from my statistics text if need be. His calculation of certain values that he finds correlations ofr I am not so sure of, but it may become clear what he is doing if oyu look at his original sources (this usually helps).

[Wellsy]

Its a very complex argument that requires a prior knowledge of Sraffian economics. It really can't be explained here, although Sraffa's opus Production of commodities by Means of Commodities which can be read in a day. Basically, Steedman demonstrated that there can be positive profits with negative surplus value in the aggregate. Further, the labor vlaue of a commodity can not be given without reference to the prices ofp roduction which cannot be given without reference to the labor vlaue of the commodity. Thus, the LTV is circular. This is a result of Sraffa's "Reswitching" theory which is, in my view, the strongest critique of the capitalist economy. Sraffian economics also shows that workers are exploited under capitalism. However, most Sraffians have accepted the Okishio theorem which purports to show that Marx is wrong about hte decreasing rate of profit. However, I believe the Okishio theorem is wrong on its own terms. Thus, Sraffian economics produces the same conclusion as Marxian, but without the leaps in logic and slavish methodological devotion.

Here are a few summaries of the Sraffian acocunt of the LTV (written by someone far more sympathetic to the LTV than me) which are online. You should read Steedman's book anyway.

http://www.dreamscape.com/rvien/Economi ... V-FAQ.html
http://www.dreamscape.com/rvien/Economi ... raffa.html

Marxists have written hundreds of critiques of Steedman, and I haven't read them all, but most of the ones I am familair with are quite wrongheaded.

Do you take Sam Williams summary here to be an example of the wrongheaded?
https://critiqueofcrisistheory.wordpress.com/responses-to-readers-austrian-economics-versus-marxism/value-theory-the-transformation-problem-and-crisis-theory/

The British socialist economist Ian Steedman, now an emeritus economics professor at the University of Manchester, answered in the affirmative. In his 1977 book “Marx After Sraffa,” Steedman endorsed the claim of bourgeois Marx critics that Marx’s method of transforming direct prices into prices of production was incorrect. Once luxury and military commodities were taken into account, Steedman pointed out, the absolute equality of the mass and rate of profit in terms of direct prices and in terms of prices of production prices breaks down. What matters to the capitalists and thus explains the operations of the real economy, Steedman argued, is not the values of commodities, labor values that the capitalists are unaware of anyway, but the real-world system of prices of production.

Steedman came down firmly on the side of the “vulgar economists,” who begin with the uniform rate of profit and prices of production. Starting with values, Steedman claimed, is redundant and leads to serious errors in analysis. Therefore, Steedman urged the socialist movement to abandon the now “refuted” law of labor value in all its forms, classical as well as Marxist, once and for all.

According to Steedman, Sraffa showed how it is possible to calculate prices of production without labor values and all the problems they bring. Sraffa, Steedman held, was the worthy successor to Marx.

...

Mandel versus Shaikh

Realizing the high stakes that were involved, the American Marxist Robert Langston was profoundly upset by the claims of Steedman and his so-called “neo-Ricardians” that they had finally located a fatal flaw in Marx’s economic theory of value. Langston brought together some of the leading Marxist economists of the day, including Ernest Mandel and the young Anwar Shaikh. He moved to Europe to work with Mandel and others on the problem. Unfortunately, Langston died of a heart attack at the age of 45 before the project could bear fruit. However, Langston’s project did lead to the book “Ricardo, Marx, Sraffa,” published by Verso in 1984.

Though all the contributors to this book, which included Ernest Mandel and Anwar Shaikh, supported the Marxist law of labor value, to the extent that they themselves understood it, against Steedman, they were unable to come to complete agreement.

Ernest Mandel states in his introduction that although the various contributors attempted to harmonize their views, they were unable to do so completely. “Pierre Salama and I argue,” Mandel explained, “that the main theoretical purpose of Marx’s solution of the transformation problem in the third volume of Capital was to uphold a combined identity ,,, the identity of both the sum of values [direct prices—SW] equalling the sum of prices of production, and the sum of surplus value [in terms of direct prices—SW] equaling the sum of profits [calculated in terms of prices of production—SW].”

‘Anwar Shaikh’s contribution to the present volume,” Mandel goes on, “while sharing the position that value and surplus value can only be created by living labor in the process of production, and that profit originates in surplus-value, nevertheless concludes that the sum of profit can and generally does differ from the sum of surplus-value.”

Mandel’s friendly criticism of Shaikh here seems to be firmly on the ground of “orthodox” Marxism, but here Mandel is being, in my opinion, more “Marxist” than Marx himself. It turns out that Marx was well aware of the problems raised by Steedman, though this most certainly did not lead Marx—or his friend Frederick Engels—to dump the law of labor value as urged by the present day “neo-Ricardians.” “This phenomenon of the conversion of capital into revenue should be noted, because it creates the illusion [Marx’s emphasis]that the amount of profits grows (or in the opposite decreases) independently of the amount of surplus value.”

Here Marx anticipates the entire “neo-Ricardian” criticism of his theory of labor value. Interestingly enough, Marx points to the ultimate solution to the transformation problem that lies along the lines indicated by Anwar Shaikh, and not the more strictly “orthodox” approach of Mandel.

In this book, neither Mandel nor any of the other contributors could actually deny that the mass and rate of profit is somewhat transformed during the transition from a system of direct prices to a system of prices of production. On this terrain, they were unable to refute the points raised by Steedman.



Shaikh’s solution to the transformation problem

As long as we are dealing with commodities that enter into reproduction, there is in fact no transformation of the mass and rate of profit when we move from the sphere of calculating in terms of values (where the calculations are in terms of hours of abstract labor) to direct prices (where the calculations are in terms of weights of gold bullion) and from direct prices to prices of production (where the calculation remains in terms of weights of gold bullion). If one industrial capitalist gains by selling a machine tool above its value, the industrial capitalists who purchase the machine tools are losers to exactly the same degree that the producer of the machine tool is a winner. The capitalists as a whole neither gain nor lose. It is a zero-sum game.

The same is true of the means of consumption consumed by the (productive-of-surplus value) workers. The labor power that the industrial capitalists purchase from the workers is not, strictly speaking, a capitalistically produced commodity and therefore has no price of production. But we can assume that the workers purchase the means of subsistence necessary to reproduce their labor power at their prices of production, not their direct prices.

Suppose the prices of production of the means of subsistence purchased by the workers is above the direct prices of these same means of subsistence. The industrial capitalists will suffer a loss when they purchase the labor power of the workers above its value—or more precisely above the sum of the direct prices of the means of subsistence—but they gain back what they lose when they sell the means of subsistence to the workers at prices of production in excess of their direct prices. What they lose with their right hand they regain with their left hand.

Or we could make the converse assumption that the workers purchase their means of subsistence at prices of production that are below the direct prices. The result will still be the same zero-sum game. What the industrial capitalists gain by buying the workers’ labor power at a price below the direct prices of the means of subsistence, they give up when they sell the means of subsistence to the same workers at prices of production below the direct prices of the means of subsistence. So far there is no problem. The rate of profit in terms of direct prices will always exactly equal the rate of profit in terms of prices of production.

But what about the luxury commodities that only the capitalists get to purchase? Suppose the luxury commodities that the industrial capitalists produce are sold back to the collective class of capitalists at production prices that happen to be on average above the direct prices of these same luxury commodities. The capitalists will in terms of money realize an extra profit above the profit that they would realize in terms of money if they sold the luxury goods at their direct prices. It seems as if the capitalists are realizing a profit a part of which at least is being produced by something other than the unpaid labor of the working class.

Happy capitalists!

Unfortunately for the capitalists and their Marx-refuting economists—as well as for their socialist supporters such as Ian Steedman—there is a catch.

Shaikh showed—and Marx as we saw above was already aware of the fact—that what the capitalist class gains in terms of profit when they sell the luxury commodities in production prices above their direct prices they will lose in terms of revenue when they buy back these same luxury items at “inflated” prices—that is, at production prices in excess of the direct prices. The extra profit that the capitalists realized in terms of money that did not reflect any actual unpaid labor performed by the working class is pure money illusion!

The same is true in the converse case. Suppose the capitalists sell to themselves luxury commodities at prices of production that are below the direct prices of these commodities. They will realize in money terms a lower mass and rate of profit than they would have if they had sold these items at their direct prices. Therefore, isn’t a certain amount of the surplus value disappearing in the sphere of circulation?

Unhappy capitalists!

But before we feel too sorry for our capitalists, we should realize that what they lose when they sell luxury commodities to each other at prices of production below the direct prices, they gain back as consumers, when they buy back these same luxury items at “bargain” production prices that are below direct prices. The apparent loss our capitalists suffer is again pure money illusion!



Steedman’s real error

At bottom, Steedman’s critique of Marx’s value theory is based on his failure to understand the relationship between value and the form of value, or what comes to exactly the same thing, the Marxist theory of prices and money! This is the same mistake that so many Marxists make who accept Marx’s law of labor value—without fully understanding it—when it comes to crisis theory.

A tell-tale sign that a given Marxist writer has not really fully grasped Marx’s theory of value comes when they try to explain the nature of paper money that is no longer convertible into gold at a fixed rate. They explain that modern “non-commodity” money somehow represents value directly or reflects the values of the commodities that it circulates rather than simply representing the value of a money commodity such as gold that acts as the universal equivalent—that is, acts as the measure of the value of commodities in terms of its own use value.

Isn’t this the same mistake Steedman and the other “neo-Ricardians” make? The only difference is that Steedman and his “neo-Ricardian” supporters have thought out their mistake to its logical conclusion—and then based on their mistake draw conclude that Marx’s entire theory of value, including surplus value, is invalid.

In my posts, we met a group of Marxists who see the problem of the production of surplus value but don’t understand the problem of realization. Other Marxists such as the Monthly Review School—which I will examine in my next reply—fall into the trap of “underconsumption,” thinking that the problem of realizing surplus value arises because the rate of surplus value is too high. If only the capitalists were less greedy, capitalist crises could be avoided.



The practical implications

What we have seen is that even as prices of production deviate from direct prices they continue to be ruled by the law of labor value. And to the extent that prices of production deviate from direct prices in luxury and weapons industries, the rate and mass of profit in terms of direct prices will be somewhat transformed as a result of the transition to prices of production. In the real world, it is highly probable that some of the production prices in some of the industries engaged in luxury and/or weapons production will have prices of production in excess of their direct prices and some will have production prices that are below their direct prices.

Therefore, the rate and mass of profit in the system of prices of production should be seen as a slightly displaced image of the mass and the rate of profit that exist in the system of direct prices. As Shaikh emphases, this no more changes the fact that prices are in the final analysis ruled by labor values than the deviation of production prices from direct prices or for that matter the fact that market prices deviate from direct prices do. If market prices always corresponded to values, then economic science would be a lot simpler, but then there would hardly be any need for economic science at all.

And what explains this deviation of the mass and rate of profit in the system of production prices from the mass and the rate of profit in the system of direct prices that has bedeviled economists in one form or another for the last couple of centuries? It is the relationship between value and the form of value, between the value of a commodity and its independent value form. And what is the solution to the “transformation problem”?

Why it is Marx’s full theory of value including his theory of exchange value as the necessary form of value and money as the independent form of exchange value. So the stumbling block that generations of Marxists have stumbled over when it comes to answering attacks on Marx’s labor theory theory based on the transformation problem turns out to be the same stumbling block generations of Marxists have stumbled over when it comes to crisis theory.

[Wellsy]

I think I understand Sam’s point a bit further in the transformation problem with emphasizing that gold is a commodity which is used as money but a gap can emerge in forgetting that gold is a commodity as distinct from its function as weighted price.
https://critiqueofcrisistheory.wordpress.com/responses-to-readers-austrian-economics-versus-marxism/andrew-kliman-and-the-neo-ricardian-attack-on-marxism-pt-1/

Marx’s greatly improved theory of value helped clarify how this could occur without invalidating the law of labor value. In a commodity producing economy, the values of commodities inevitably take the form of rates of exchange between different commodities—that is, exchange values.

Therefore, the value of a commodity is not expressed directly in terms of quantities of abstract labor measured in some unit of time but in terms of the use value of another commodity. Except in the most primitive stages of commodity production, the commodity that measures the values of commodities in terms of its own use value is a special money commodity. For thousands of years, the main money commodity has been the precious metal gold.

Assuming gold bullion is the money commodity, exchange values are measured in terms of the quantities of gold bullion as a material use value. The unit of measure of gold bullion is weight. Exchange value expressed in terms of quantities of the money commodity—weights of gold—is nothing other than price. This is true not only of concrete market prices but also of the abstractions that we call prices of production.

It is perfectly possible for the value of a commodity to express itself in a weight of gold—price—that has a different value than the value of the commodity whose value the gold is measuring. Indeed, Marx makes clear not only is this possible, it is the rule.
...
When we talk about the prices of all commodities, we are by definition leaving one commodity out—the one commodity in the capitalist economy that does not have a price. And what commodity by definition has no price? The money commodity. Since the money commodity serves as the standard of price, it itself cannot have a price. Only if we imagine that money is not a commodity can we talk about the prices of all commodities. Let N equal the total quantity of commodities. The total sum of commodity prices will always leave one commodity out. We can add up the prices only of N – 1 commodities.
...

Therefore, when we calculate in terms of prices of production, value seems to be produced or destroyed in the process of circulation, because we are leaving out the value of the money commodity. Throwing up their arms, the “neo-Ricardians” give up on value at this point and return to dealing only with physical use values.

But once we take into account the value of the money commodity—the one commodity that has no price—the apparent creation or destruction of value in circulation disappears. It is a mere money illusion. Therefore, at the end of the day the value the capitalists get to consume, whether unproductively as items of personal consumption or productively as means of production, is nothing else but the surplus value produced by the working class minus the surplus product embodied in the gold that is used as money, since strictly speaking money is not consumed.

Not understanding that they are dealing with a money illusion, Ian Steedman imagines that he and his fellow “neo-Ricardians” have finally overthrown the whole concept of labor value and surplus value as the unpaid labor of the working class.

Why didn’t Marx complete his solution to the transformation problem, though in the text he indicates that he was aware of all the problems raised by the “neo-Ricardians” over the last 100 years? This is, of course, a matter of speculation. Remember, Marx was working in the days before those marvelous devices we use today both to write and carry out complex arithmetic calculations, when we have to, called computers. And remember, Volume III of “Capital” is only a draft. Perhaps Marx would have gone through the laborious—in those pre-computer days—arithmetical calculations if he had lived long enough to complete his work.

But I think there is a more fundamental reason why Marx left his work as it was. Once we bring in the role of luxury commodities—the non-basic goods in “neo-Ricadian” terminology—we further obscure the fact that only variable capital—living labor—creates surplus value. Once luxury commodities are brought in, the appearance that constant capital—dead labor—can also produces surplus value—the appearance that the “neo-Ricardians” fall hook, line and sinker for—is deepened.

As part of his fundamental method, Marx generally brings in the complicating factors—beyond indicating to the careful reader that he is aware of them—only as needed. This is why he left the entire subject of the prices of production and the “transformation problem” to Volume III of “Capital.” There he had to deal with it, if only because the theory of ground rent required it.

And what does Steedman—and other “neo-Ricardians”—put in the place of Marx’s theory of value and surplus value, which they first failed too understand and then abandoned? Simply the “commonsense” (11) observation that the rate of profit is determined by the physical conditions of production and the real wage. The “physicalism” that Kliman so correctly criticizes in the “neo-Ricardians” arises therefore in my opinion not from their simultaneously determining input and output prices of production but rather from their failure to understand the relationship between value, exchange value, money and price.

Like Kliman, they first amputated Marx’s theory of value. The “neo-Ricardians” then proceeded to refute the amputated theory of value that they have put in place of Marx’s real theory of value. Kliman’s mistake is that he attempts to defend the falsified amputated theory of value that the “neo-Ricardians” have put in place of Marx’s full, genuine theory of value.

In reality, profits are measured in a physical unit but not in the physical units of commodities as a whole—imagine trying to perform such a calculation in the real world as opposed to the corn worlds of the “neo-Ricardian” dreamscape—but in the physical units of the money commodity—weights of gold.
...

According to Marx, money is a counter-value to the value of the commodity it is measuring and circulating. It must have a value of its own that is separate from the commodity whose value it is both measuring and circulating. This is why money must always be a commodity.

Therefore, there is always the possibility that the counter-value might differ from the value of the commodity that is circulating in any given case. Indeed, Marx in many places makes clear not only that this might be so, it almost certainly will be so in every real world case.

If we apply Marx’s concept of money and token money to a dollar bill, the apparent value of the dollar bill stems not from the commodities it purchases like our commonsense economists proclaim, but rather from the value of the amount of gold it actually exchanges for on the world market at this particular moment in time.

Still a bit vague but interesting.

[Truth To Power]

]When it comes to reality, the labor theory of value works at least as
well as the theory of production prices.

Because both are anti-economic nonscience. Value (what something would trade for) is determined by the intersection of scarcity (supply) and utility (demand). THAT'S ALL.

[Puffer Fish]

I wish the first post had done a better job of explaining the significance or point of the finding in that study.

That prices would mainly be determined by the labour theory of value is no surprise, since the economy is dominated by the service sector. And especially in country where there is less spread in income variation among various occupations.