[OPE-L:2327] value theory

From: riccardo bellofiore (bellofio@cisi.unito.it)
Date: Wed Feb 09 2000 - 03:28:28 EST

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Value Theory

        Value has been described as the "principle" from which economic
theory develops (Napoleoni 1976). A review of the different approaches to
the issue, together with SCHUMPETER's divide between "real" and "monetary"
analysis, allows us to arrange in a meaningful way orthodox and heterodox
streams in economic thought, clarifying their opposition. The scope of
value theory cannot, however, be taken for granted. Though it has been
usually identified with the inquiry into the cause(s) of exchange ratios,
and value has in the end become coterminous with price, a quick look at the
history of economic analysis shows how value theory covered broader and
more fundamental features.

        In CLASSICAL POLITICAL ECONOMY commodities' value is traced back to
labour as the original source that supplies "the necessaries, conveniences
and amusements of human life". According to Smith, wealth grows as labour,
the active element in production, is applied to nature, the passive
element. The value of any commodity is given by the labour of other people
it can purchase in exchange - namely, labour "commanded". In that "rude and
early stage" prior to the accumulation of capital and the appropriation of
land, when the product of labour belongs entirely to the worker, the labour
commanded by a commodity reduces to the labour needed to produce it -
namely, labour "embodied". But in capitalist exchange, where there are
profits and rents over wages, labour commanded exceeds labour embodied: on
the one hand, the share of price that gets the wage bill back permits the
renewal of the initial employment; on the other hand, the very presence of
the "deductions from the produce of labour" making up the net product means
that, if the latter were fully expended in PRODUCTIVE LABOUR, an additional
amount of employment would be created, giving way to a progressive increase
in value and in the wealth of the nation.

        Note that, for capitalism, Smith no longer defines labour commanded
as the labour objectified in the commodities bought on the market. Rather,
he now fluctuates between two other, non-identical, meanings: the
labour-power that can be purchased by a given social product; and the
living labour that can be subsequently set in motion, starting new
production processes. That is: labour "commanded" in the initial exchange
on the labour market, and labour "commanded" within capitalist production.
Smith's value as labour commanded does not make a good price theory,
because of logical circularity. The labour commanded by a commodity varies
with the wage, and hence with the price of subsistence goods; similarly,
Smith's natural price is determined by wages, profit and rent at their
average level. Prices depend on prices. Nevertheless, it is clear that
Smith relates value to labour commanded for a reason unaffected by its
failure as determinant of prices, labour commanded being a legitimate index
for the contribution of the surplus, if entirely devoted to the
ACCUMULATION of capital, to the growth of employment. By means of value
theory, Smith assesses the nature of, and provides the measure for,
capitalist development, seen as the process that transforms beggars into a
growing employed work force whose real income improves with the rate of
accumulation (Pietranera 1963).

        Ricardo goes back to Smith's first definition, the one relative to
precapitalist exchange where labour commanded is equal to objectified
labour, and extends it to govern also capitalist exchange: therefore, his
is a labour embodied value theory. The exchange ratio between a pair of
commodities is regulated by the ratio between their respective
"difficulties of production". The value of a commodity is given by the sum
of current and past labour needed to produce it. Because of his
differential rent theory, Ricardo does not include rent as determinant of
exchange value; because he resolves capital into indirect labour, he also
gets rid of the influence of "capital". Exchange ratios derive only from a
material element, labour embodied, and not, as in Smith's vicious
reasoning, from other values. Ricardo's approach, however, encounters a
decisive stumbling block. The ratios between the relative difficulties of
production should immediately express commodities' exchange ratios. But the
time structure of labour embodied - the proportions of indirect to direct
labour - is non-uniform across various industries. Ergo, relative prices
proportional to labour embodied goes against the competitive condition of
an equal rate of profit. The late Ricardo tried to overcome this problem
with an INVARIABLE STANDARD OF VALUE establishing an "absolute value", but
without success. Absolute value is nothing other than a peculiar kind of
relative value: it is the exchange ratio of the commodity when compared
with a standard requiring in each period an "invariable" amount of labour
to be performed; but the general difficulty raised above is still present
also in this fictitious exchange.

        Whereas for Smith, POLITICAL ECONOMY is the inquiry into the causes
of the wealth of nations, for Ricardo it deals rather with the distribution
of social product. The social product is known before its distribution:
given the real wage, rent and profits are inversely related. On this
outlook, the reference to embodied labour plays a crucial role, allowing
Ricardo to fix the profit rate - namely, the determining factor for the
intensity and the destiny of capitalist accumulation - independently from
prices. With his value theory Ricardo builds up a dynamic DISTRIBUTION
THEORY. SRAFFA gives a formally indisputable solution to Ricardo's
contradictions. Taking as given in physical terms the technical conditions
of production, the size and composition of social product, and the wage, he
simultaneously sets prices and the (gross) rate of profit: the reference to
labour is implicitly shown to be redundant. In Sraffa, however, the same
problematic of value - that is, the idea of something "behind" the
proportions by which commodities are exchanged on the market - is lost. The
dissolution of value into price means cutting the originary link of value
theory with the theories of economic development and of dynamic
distribution. For these reasons, among others (above all, the
inessentiality of money for the model), it is controversial what Sraffa's
positive contribution is to the study of the capitalist economy.

        A similar trajectory affects NEOCLASSICAL ECONOMICS. The pioneers
of the marginalist revolution distinguish price, as the "objective"
phenomenon, from "subjective" value, grounded in the (decreasing) marginal
degree of satisfaction provided by the last unit of the good the individual
comes to possess. The distinction is explicit in Menger and in the AUSTRIAN
SCHOOL, where utility is the only cause of value. It is implicit in Jevons
and, more clearly, in Marshall, who puts cost together with utility as the
second leg moving exchange ratios; it is similarly implicit in Walras, who
states that utility gives value when coupled with raretÚ (scarcity).
B÷hm-Bawerk, following Senior's footsteps, looks at postponement of
consumption as another source, originary to the same extent as labour,
adding to the value of the product. The disutility of "abstinence" (or
"waiting") justifies the saver's claim to interest, while the increased
productivity resulting from the higher "roundaboutness" in production
actually allows that reward to be given. Here again, subjectivist value
theory turns the search for the cause(s) of exchange value into an
explanation of what lies behind the ECONOMIC SURPLUS - with capital
(saving) singled out as the factor that originates the latter.

        Value, reflecting scarcity, governs rational choice not only in
exchange economies but also in the individual or in PLANNING (Robbins).
Cardinal ranking of utility was soon disputed and displaced by ordinalism
(Pareto, Hicks and Allen) The utility itself was then superseded by the
more neutral preferences as what is maximized by optimizing individuals.
With "revealed" preferences, choice is accounted for by agents' behaviour -
precisely what needs to be explained (Samuelson) - thus confirming
Cassell's early insight about the irrelevance of value theory as distinct
from PRICE THEORY, which he saw as exhausting economic theory. The
redundancy of neoclassical value theory is also clear in the Arrow-Debreu
general economic equilibrium model. Another analogy with Sraffa lies in the
questionable usefulness of the model for the study of the capitalist
economy, both because it describes a great multilateral barter where money
is not needed, and because the unicity and stability of the equilibrium are
reached only under very special circumstances. In Arrow-Debreu agents
initial endowments are given in physical terms, bypassing the NeoRicardian
criticism of "capital" as a factor of production, but allowing for a
plurality of rates of return and for rapid changes in the size and
composition of capital stock.

        The Neoclassical picture of the economic process, where DEMAND AND
SUPPLY are interdependent, and the Classical-Ricardian one, where
simultaneous determination of prices and distribution comes after
production (reduced to a technical dimension), are the two halves
constituting "real" analysis in the Schumpeterian sense, which claims that
"all essential features of economic life can be represented by a
barter-economy model". The only value theory within a "monetary" analysis,
which "introduces the element of money on the very ground floor of our
analytic structure", is MARX's. Marx's novelty (Napoleoni 1972, Bellofiore
1989) may be better appreciated by comparison with Smith and Ricardo.
According to the Classicals, exchange-value is regulated by labour, as this
is always and everywhere the "real cost" of production (a naturalistic
notion). On the contrary, for Marx, value is labour only in capitalism, as
"abstract" labour - that is, alienated and other-directed labour (a
historically determined notion). "Alienated" labour, because it produces
generic wealth: in capitalism, as an instance of general exchange, labour
is immediately private and becomes social through the external link of the
market, where it takes the value form in the metamorphosis into money,
which, against Ricardo, is identified as the necessary, but intrinsically
"variable", external measure of value. The true output of capitalist labour
is money rather than concrete use-values. "Other-directed" labour, because
it is determined by processes that are the end-result of a consciousness
and a will separated from the workers: labour alienated in exchange is the
objectification of wage earners' living labour; the social product becomes
capital producing SURPLUS VALUE if, in the shape of money-capital, it
"commands" on the labour market the special commodity, labour-power, and
compels it to work more than the time needed to reproduce the equivalent of
the wage. Final exchange actualizes the EXPLOITATION of a labour whose
indirect sociality has been anticipated in the valorization process by
capitalists (Reuten-Williams 1989).

        Despite his errors, Smith was thus on the right track. Value as
objectified labour, dead in the commodity, is the end-result of an
activity, the living labour "commanded" by productive-capital in
production, extracted after money-capital has bought labour-power in the
initial exchange on the labour market. Since what (variable) capital buys
is not labour but rather the ability to work, the labour embodied in a
given (variable) capital is usually less than the labour commanded by the
same capital - namely, less than the living labour objectifying itself in
(more) abstract wealth. The reason is that the capitalist, like any buyer,
can do whatever s/he wishes with the use-value alienated by the seller,
i.e. the worker: though the bearer of the labour-power, the worker can no
longer claim any "right" to it (Rowthorn 1974). The use value of
labour-power is labour in motion, the substance of value, which can be
prolonged beyond the labour embodied in the exchange value of labour-power,
i.e. beyond the labour needed to produce the wage goods made available on
the market to the workers.

        Marx's LABOUR THEORY OF VALUE is above all a theory of the origin
of the capitalist surplus, and hence an inquiry into the nature and the
laws of movement of capitalism reconstructed as a cycle opened by the
advance of money-capital on the labour market, proceeding with the creation
of (potential) value and surplus value in production, and closing with
their "realisation" on the commodity market (Bellofiore-Finelli 1997). To
this end, abstract labour is a notion "in progress", merging and
superseding Smith's labour commanded and Ricardo's labour embodied: Marx's
is a "successivist" monetary view of the pumping out of labour and surplus
labour and of their actualization in exchange within the time-interval,
which is the essential, and sequential, process hidden behind the
simultaneous determination of prices and the rate of profit. The view of
capitalism as a monetary sequence will be taken up by other authors
(Wicksell, Schumpeter, KEYNES; the theorists of the MONETARY CIRCUIT),
without any overt reference to value theory and exploitation. If, following
this tradition, money-capital is seen as essentially sign-money, abstinence
cannot be detected as the source of surplus value, as in the Neoclassical
tradition, since savings are a share of the income coming from capitalist
output: the latter depends on the decisions of those who control money
(banks and firms) and on class struggle in production. It is still an open
question whether or not Marx's value theory succeeds in escaping Ricardo's
contradictions when it deduces, through a chain of mediations, the prices
of production (Steedman 1977, Mohun 1994, Carchedi-Freeman 1996).

See also: alienation; capital theory debates; competition; labour and
labour power; surplus approach to economics; transformation problem; value
foundation of price; use value and exchange value.

Selected References

Bellofiore, R. (1989). "A Monetary Labor Theory of Value." Review of
Radical Political Economics, vol 21, no 1-2: 1-25.

Bellofiore, R. and R. Finelli (1997). "Capital, Labour and Time. The
Marxian Monetary Labour Theory of Value as a Theory of Exploitation."
Marxian Economics: A Reappraisal Ed. R. Bellofiore. London, Macmillan.

Carchedi, G. and A. Freeman. (eds.) (1996). Marx and Non-Equilibrium
Economics. Aldershot, Edward Elgar.

Mohun, S. (1994). "A Re(in)statement of the Labour Theory of Value."
Cambridge Journal of Economics vol 18, no 4: 391-412.

Napoleoni, C. (1972). Lezioni sul capitolo sesto inedito di Marx. Turin,

Napoleoni, C. (1976). Valore. Milan, Isedi.

Pietranera, G. (1963). La teoria del valore e dello sviluppo capitalistico
in Adam Smith. Milan, Feltrinelli.

Reuten, G. and M. Williams (1989). Value-Form and the State: The Tendencies
of Accumulation and the Determination of Economic Policy in Capitalist
Society. London, Routledge.

Rowthorn, B. (1974). "Neo-Classicism, Neo-Ricardianism and Marxism." New
Left Review, no 86: 63-87.

Steedman, I. (1977). Marx after Sraffa. London, Verso.

Riccardo Bellofiore, Department of Economics, Bergamo University, Italy
[2nd version] [4 September 1996] [2384 words]

        Riccardo Bellofiore
Office: Department of Economics
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