Date: Sun, 07 Aug 1994 23:32:31 +1000 From: Steve.Keen-AT-unsw.EDU.AU Subject: Re: Re[2]: reply to Steve Keen (Long post: 35 paragraphs) Gene writes: My understanding has always been that the use/exchange value dialectic with respect to labor was *consonant* with the understanding of the LTV derived from the categories necessary/surplus labor (not different from or opposed to it, as Steve suggests). I confess to not seeing the advantage -- if the use/exchange and necesary/surplus versions of the LTV are indeed incompatible -- of retaining the former rather than the latter. ... I feel sure I'm in complete agreement with Steve and his quotation from Marx -- as "heirs" our business will always be to sift out what is useful within Marx's capacious writings from what is less so. We are in agreement that sifting the "wheat from the chaff" is necessary with Marx. Unfortunately, we differ in our classifications. In my opinion, abandoning the use-value/exchange-value dialectic because it conflicts with the labor theory of value would be rather like rejecting the Theory of Relativity because it conflicts with Newtonian dynamics. In what follows, I'll first attempt to illustrate why the two are in conflict, then in 2 parts, show why I regard the former as so much more powerful than the latter (even though it involves abandoning some long-held articles of Marxist faith). (A) Conflict between use-value/exchange-value dialectic and necessary/surplus labor derivation of the sources of value The use-value/exchange-value dialectic is consonant with the assertion that labor-power is *A* source of surplus; it is not consonant with the assertion that labor-power is *THE ONLY* source of surplus. This can be seen in Capital I pp. 164-188 and pp. 196-199 respectively. The first segment is an eloquent and logically valid application of the dialectic to derive the source of surplus value in labor-power; the second is a convoluted and logically flawed attempt to get the result that machinery is not a source of surplus-value. To commence with the first, Marx sets the ground by stating that: The change of value that occurs in the case of money intended to be converted into capital ... must ... take place in the commodity bought by the first act, M-C, but not in its value, for equivalents are exchanged, and the commodity is paid for at its full value. **We are, therefore, forced to the conclusion that the change originates in the use-value, as such, of the commodity**, i.e. its consumption. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, **whose use-value possesses the peculiar property of being a source of value.** (Ibid, pp. 164. Emphases added.) His finale (after the usual diversions!!) occurs 24 pages later: The past labor that is embodied in the labor power, and the living labor that it can call into action; the daily cost of maintaining it, and its daily expenditure in work, are two totally different things. ** The former determines the exchange-value of the labor power, the latter is its use-value. ** The fact that half a [working] days labor is necessary to keep the laborer alive during 24 hours, does not in any way prevent him from working a whole day. Therefore, the value of labor power, and the value which that labor power creates in the labor process, are two entirely different magnitudes; and this difference of the two values was what the capitalist had in view, when he was purchasing the labor power... ** What really influenced him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itself. ** This is the special service that the capitalist expects from labor power, and in this transaction he acts in accordance with the eternal laws of the exchange of commodities. ** The seller of labor power, like the seller of any other commodity, realizes its exchange-value, and parts with its use-value.** (Ibid, p. 188. Emphases added.) Note that 2 crucial aspects of this dialectic are (1) that in the case of the inputs to production, use-value and exchange- value are both objective and quantifiable (in the case of labor-power, they are both measured in units of hours worked). (2) The two are "entirely different magnitudes"--the dialectic of the commodity under capitalism is such that exchange-value and use-value are (in general) incommensurable, so that in this instance when they are both quantitative, they are highly unlikely to be the same magnitude. Now compare this to Marx's later attempt to use the use-value/ exchange-value dialectic to reach the same conclusion as is presumed in a simple labor theory of value, that machinery is not productive of net value (because there is no matching distinction for machinery between "necessary" and "the working day" as there is for labor-power): "Value exists only in articles of utility... If therefore an article loses its utility, it also loses its value. The reason why means of production do not lose their value, at the same time that they lose their use-value, is this: they lose in the labor process the original form of their use-value, only to assume in the product the form of a new use-value... Hence it follows that in the labor process the means of production transfer their value to the product only so far as along with their use-value they lose also their exchange-value. They give up to the product that value alone which they themselves lose as means of production." (Ibid, p. 196) There are two erroneous propositions in this paragraph, while another is ambiguous. Firstly, the two final sentences which appear to link the transfer of value by the machine to its depreciation are incorrect (see below). Secondly, the statement that the use-value of a machine reappears in the use-value of the product equates the use-value of the machine to the utility enjoyed by the "consumers" who purchase the goods the machine produces. But the use-value of a machine is specific to the capitalist purchaser of the machine only. By arguing that the use-value of the machine reappears in the product, Marx is in fact contemplating the existence of abstract utility, with the "usefulness" of the machinery being transmuted into the "usefulness" of the commodities it produces. The ambiguous statement concerns the transfer of value by the means of production. Which of their two "values" do machines transfer, their exchange-value or their use-value? If Marx meant that they transfer their use-value, then this sentence would be correct in terms of his analysis of commodities. But later he makes it clear that by this expression he meant that the means of production transfer not their use-value (which is the case with a worker) but their exchange-value. In the clearest illustration of the flaw in his logic, he states that over the life of a machine, ** "its use-value has been completely consumed, and therefore its exchange-value completely transferred to the product"** (Ibid, p. 197) This logical "sleight of hand" lets him reach the conclusion in his emphatic final paragraph on this issue: "The maximum loss of value that they [machines] can suffer in the process, is plainly limited by the amount of the original value with which they came into the process, or in other words, by the labor-time necessary for their production... However useful a given kind of raw material, or a machine, or other means of production may be, though it may cost #150 ... yet it cannot, under any circumstances, add to the value of the product more than #150." (Ibid, p. 199) What this paragraph asserts is that the exchange-value of a machine sets an upper bound to its use-value; yet, earlier, Marx used the proposition that under the "eternal laws" of exchange in capitalism, the two are "completely different magnitudes": "The past labor that is embodied in the labor power, and the living labor that it can call into action; the daily cost of maintaining it, and its daily expenditure in work, are two totally different things..." "The daily cost of maintaining" a machine is its depreciation, and this is--over its lifetime--equivalent to its exchange-value. "its daily expenditure in work" is its value contribution, and in Marx's dialectic, this is its use-value. If the rules which apply to the commodity labor-power are indeed general ("The seller of labor power, like the seller of any other commodity, realizes its exchange-value, and parts with its use-value"), then in the case of machinery too, there should be a difference. Marx did in fact make this association only once, in the Grundrisse. But he pulled back from ever developing it: "It also has to be postulated (which was not done above) that **the use-value of the machine significantly (sic) greater than its value**; i.e. that its devaluation in the service of production is not proportional to its increasing effect on production." (p. 383. Emphasis added.) I believe that at this moment Marx realised the possibility of conflict between the LTV and the new means of analysis that he had developed only that month, of the dialectic between use-value and exchange-value (Grundrisse, footnote pp. 267-68). But the new tool was too powerful for Marx to abandon it; so instead, he contorted its application to the question of the value productivity of machinery until he convinced himself that there was no conflict. (B) Superiority of the use-value/exchange-value approach Gene suggests that we do what Marx did not: that since the two conflict, let's throw out the new and stick with the old. What then are Marxists left with as a proof that labor-power is the only source of net value--that ultimately, all profit derives solely from living labor? Fundamentally, no matter how fancy the footwork, all such attempts boil down to what Bohm-Bawerk characterised so long ago as "a negative proof". In his view, Marx arrived at the opinion that use-value plays no role in the determination of value, and the conclusion that labor power is the only source of value, via a method of exclusion. Bohm-Bawerk observes that this procedure is "somewhat singular... It strikes one as strange that instead of submitting the supposed characteristic property to a positive test ... Marx tries to convince us that he has found the sought-for property, by a purely negative proof, by showing that it is not any of the other properties. (BB in Sweezy (ed.), 1949. Karl Marx and the Close of his System, Orion, New York, p. 69) As illustrated above, Marx did have a positive methodology by which he derived the source of surplus-value, and Bohm-Bawerk missed this because of the substantive differences between Marx's concept of use-value and the neoclassical/Austrian concept of utility. But Marx's followers (apart from Engels and Hilferding) also missed this difference, and instead were left only with a "negative proof" means to dismiss the value productivity of machinery. Sweezy's attempt is typical (though far less complicated than some modern day variants): "It is clear that surplus-value cannot arise from the mere process of circulation of commodities... It seems equally obvious that the materials entering into the productive process cannot be a source of surplus-value. The value which the materials have at the outset is transferred to the product at the conclusion, but there is no reason to assume that they possess an occult power to expand their value... From the standpoint of value there is no reason to assume that either materials or machinery can ultimately transfer to the product more than they themselves contain. This leaves only one possibility, namely that labour-power must be the source of surplus-value." (Sweezy, Theory of Capitalist Development, pp. 60-61.) Fundamentally, all attempts to show that machinery is not productive of net value boil down to attributing "occult" powers to labor-power--in the sense that value becomes something peculiarly pertaining to labor, but at the same time not physical (since to be physically linked brings in the Sraffian critique of the transformation problem)--or reduce to the kind of negative methodology presumed above by Sweezy, and criticised by Bohm-Bawerk. (B1) Use-value/exchange-value dialectic vs the LTV The most direct consequences of the LTV which are contradicted by the uv/ev analysis are the transformation problem, the tendency of the rate of profit to fall (TRPF), the prediction of a terminal crisis for capitalism, and the inevitability of socialism. I doubt that anyone would disagree that the transformation problem has been a highly negative aspect of marxism. The uv/ev analysis above, which contradicts the assertion that labor-power is the sole source of surplus, also contradicts the transformation problem: it is, as Steedman put it in _Marx after Sraffa_, a "pseudo-problem, a chimera" (Steedman 1977, pp. 14-15) The TRPF has positive aspects to some. But it directs the attention of Marxists to issues of production--and the generation of surplus-- alone to explain the crises of capitalism, and puts the focus on secular rather than cyclical issues. The consequent relative neglect of issues of distribution--and the realisation of surplus--, and cyclical crises, have left those fields to non-marxist critics of capitalism. Marxism, in this sense, has been marginalised, even within the radical critique of capitalism. There is one aspect of the TRPF which has also been taken for granted, but which Elias Khalil has recently raised in a paper which I expect will eventually be published by the JHET, "Is Marx's Theory of the Falling Rate of Profit Differentia Specifica of Capitalist Production? An excursion into the logic of Marx's argument". That is that while many Marxists have assumed that the TRPF will eventually sound the death-knell of capitalism (in that it will bring on the final crisis), there is nothing about the TRPF which restricts it to capitalist production. If a TRPF exists, then it should apply to socialism as much as to capitalism. That is, unless socialism somehow transcends necessary and surplus labor, unless under socialism, an increasing organic composition does not cause a falling ratio of s/(c+v), then the relative size of investible surplus under socialism will fall, and with it should fall the rate of growth. The TRPF predicts, not just the collapse of capitalism, but the inevitability of a stationary state as the level of technology rises, regardless of the social system in place. As for terminal crises--and the inevitability of socialism-- capitalism has had plenty of crises since Marx died, but none of them has proved terminal. Meek, when he began the first edition of the _Studies in the Labor Theory of Value_, explained the need for the book because in part he had a desire to prove that the Labour Theory of Value was still "good science today ... because we have tended to be over-optimistic about the probable duration of the monopoly capitalist period." (p. 8.) How much longer can that optimism last before marxists accept that, however flawed it may be, capitalism does not have a built-in self-destruct mechanism? And that however much socialism may be desired, it is much more difficult to keep such a society "on track" than it is to bring it about in the first place? (B2) Advantages of the uv/ev dialectic over the LTV The uv/ev dialectic had many more uses to Marx than the crucial one I outlined above of establishing the sources of surplus value. It also featured in his attempts to explain the cyclical crises of capitalism, and in his analysis of money (though this was poorly developed). Hilferding also used it to explain the reduction of skilled labor to unskilled (on this, see my JHET piece, Vol. 15 No. 2). I will restrict myself to considering Marx's use of the concept in the Grundrisse to analyse the "realisation problem": "Inside the production process, realisation appeared totally identical with the production of surplus labour ... and hence appeared to have no **bounds** other than those ... posited within this process itself... There now appear barriers to it which lie **outside** it. To begin with, ... the commodity is an exchange value only in so far as it is at the same time a **use value**, i.e. and object of consumption... As **new value** and as **value** as such, however, it seems to encounter a barrier in the magnitude of **available equivalents**, primarily money... The surplus value now requires a surplus equivalent. This now appears as a second barrier." (pp. 404-05) [Other segments of Marx's writings where these issues are discussed include the Grundrisse, Notebook IV pp. 404-24, Notebook VI pp. 678-80, and "Capital as Fructiferous" in Notebook VII, p. 745-60. These early discussions are partially developed in Chapter 15 of Volume III of Capital. Groll's 1980 "The active role of use-value in Marx's economics", HOPE, Vol 12 No. 3, pp. 336-371 gives quite a thorough account.] It should be obvious that the realisation problem is specific to capitalism (though socialism in practice can certainly have its own problems on this front), unlike the TRPF. There are many other instances where the uv/ev dialectic was used as a major analytical tool by Marx, and in fact he asserted that the best things in Ricardo emanated from an unconscious appreciation of this dialectic: "In its reproduction as commodity, capital is fixated in a particular form of use value, and is thus not **general exchange value**, even less realised **value**, as it is supposed to be. The fact that it has posited itself as such in the act of reproduction, the production phase, is proved only through circulation... The **particular nature of use value**, in which the value exists, or which now appears as capital's body, here appears as itself a **determinant** of the **form** and of the action of capital... ## As we have seen in several instances, nothing is therefore more erroneous to assert that the distinction between use value and exchange value, which falls outside the characteristic economic form in simple circulation, to the extent that it is **realised** there, falls outside it in general... Use value itself plays a role as an economic category. Ricardo ... derives the most important determinations of exchange value precisely from use value, from the relation between the two of them: for instance, **ground rent, wage minimum, distinction between fixed capital and circulating capital**, to which he imputes precisely the most significant influence on the determination of prices...## One and the same relation appears sometimes in the form of use value and sometimes in that of exchange value, but at different stages and with different meaning. To use is to consume, whether for production or consumption... From the standpoint of capital, exchange appears as the positing of its use value, while on the other side its use (in the act of production) appears as positing for exchange, as positing its exchange value. Likewise with production and consumption. In the bourgeois economy, they are posited in specific distinctions and specific unities. The point is to understand precisely these specific, distinguishing characteristics." (pp. 646-47. My emphases are marked by ##.) Conclusion The above is only part of the baby that would be throw out were the uv/ev dialectic dispensed with in order to preserve the LTV bathwater. It is the aspect of Capital which Marx regarded as his greatest advance over his classical forebears, and it is a foundation on which a new and vigorous marxian analysis could be based--but at the expense of the LTV. Cheers, Steve Keen ------------------
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