[OPE-L:3432] Re: "Debunking Economics" and Marx's value theory

From: Steve Keen (stevekeen10@hotmail.com)
Date: Mon Jun 05 2000 - 00:04:25 EDT

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Dear Andrew,

I believe neither of us will ever convince the other, but nevertheless I
will make one more attempt to convey my interpretation. I'll make my case
with comments interspersed amid yours. I hope you don't object, but since
this discussion is relevant to the OPE list, I have cross-posted it there as
well as replying on PKT. I apologise to members of both lists for the
length, but I don't think it can be made any shorter.

Steve Keen wrote:

As it happens, I thoroughly agree with Andrew's principle: "the real test of
the opposing interpretations, in this case as in general, is which can best
make coherent sense of the text(s) as a whole. Does the interpretation
yield a coherent value theory, or one beset by logical errors?" However,
this leads to me the opposite conclusion to Andrew--since I don't believe my
approach is beset with logical problems.

AK: Steve, you have misunderstood. I did not suggest that your APPROACH is
beset with logical problems. Your INTERPRETATION of Marx's value theory is
beset with logical problems. You yourself concede that when interpreted as
you interpet it, "Marx's" theory becomes logically incoherent. Now whose
fault is that? Marx's? Or yours?

Andrew, firstly let me refer you to an observation by Marx, that a
philosopher need not entirely appreciate his own philosophy. Marx was of
course referring to Hegel in this statement, but I argue that the same can
be said of Marx himself:

"It is conceivable that a philosopher should be guilty of this or that
inconsistency because of this or that compromise; he may himself be
conscious of it. But what he is not conscious of is that in the last
analysis this apparent compromise is made possible by the deficiency of his
principles or an inadequate grasp of them. So if a philosopher really has
compromised it is the job of his followers to use the inner core of his
thought to illuminate his own superficial expression of it. In this way,
what is a progress in conscience is also a progress in knowledge. This does
not involve putting the conscience of the philosopher under suspicion, but
rather construing the essential characteristics of his views, giving them a
definite form and meaning, and thus at the same time going beyond them."
(Karl Marx 1839: notes to his doctoral dissertation, reprinted in McLellan

In summary, Marx was quite willing to accept that a philosopher may develop
sound general principles which he nevertheless applied improperly himself.
So there is a possibility that the "logical incoherence" to which I refer is
"Marx's fault", and that in correcting it I am behaving as he would wish me
to, and as he saw himself doing with respect to Hegel: "it is the job of his
followers to use the inner core of his thought to illuminate his own
superficial expression of it".

AK: Unless you can *demonstrate* that it is Marx's own fault, you are not
entitled to claim that his actual theory, rather than your interpretation of
his theory, his theory as *you* interpret it, is logically incoherent. But
the only way you could demonstrate that it is Marx's own fault would be to
demonstrate that THERE CANNOT EXIST ANOTHER INTERPRETATION under which his
theory is coherent. I suggest that you will not be able to demonstrate
this. In any case, you certainly haven't done so yet, so you are not
entitled to claim that the incoherence arises from Marx's own texts, rather
than from the manner in which you have construed these texts.

As I have argued in the Journal of the History of Economic Thought in 1993,
and in "Debunking", there are in my opinion TWO distinct phases in Marx's
proof of the source of surplus value. The first runs from 1844 till 1857,
when he accepted as a premise that labor/-power was the only source of
surplus, on the basis of the unique characteristics of the commodity
labor-power. The second runs from late 1857 on, when he instead derived the
source of surplus value on the basis of the common properties of all
commodities, which however he argued led to the same conclusion, that
labor/-power was the only source of surplus-value.

So I assert that it is not a case of whether Marx's theory was logically
coherent, but whether Marx's two independent theories were logically
consistent. The first takes labor/-power as the source of value as a
premise, the latter attempts to derive that premise from a prior logic. I
have argued, and will repeat the argument below, that these two arguments
are not logically consistent, and that Marx's apparent demonstration that
they were consistent in Capital I was in fact an instance of when he was
"guilty of this or that inconsistency because of this or that compromise".

AK: I suggest that the fault lies in your interpretation. Drop the premise
that Marx was out to "prove" that value is determined by labor-time in Ch. 8
of _Capital_. I have shown that this premise of yours is contradicted by
his letter to Kugelmann written shortly after _Capital_ first appeared.
Once you drop it, and instead consider Ch. 8 as a working-out of how value
is transferred and added on the BASIS of his theory that value is determined
by labor-time, then what you regard as "Marx's" logical errors simply

I have read the letter, and I acknowledge that it can be read in the fashion
in which you read it. However, it is just one letter in a mass of
correspondence and writings which also include statements that are quite
strongly at odds with it. It is therefore feasible to argue that Marx was
expressing exasperation with people not accepting his proof of the source of
surplus value--an exasperation which I regard as quite unjustified, of
course. But as I said, it is quite feasible to read the letter the way you
have read it. So let me present some of the many other statements by Marx
which put quite a contrary position: that he was trying to derive a proof
"from first principles" that labor was the only source of surplus value.

A key facet of this is the extent to which Marx argued that the concept of
"use-value" was essential to his analysis, since it was by a dialectic
between use-value and exchange-value that Marx derived from first principles
that labor was *a* source of surplus-value (I emphasise *a* because this
part of the proof was quite accurate. What was not accurate, as I argue
again below, was the "proof" that non-labor inputs were not a source of
surplus value). What then does Marx have to say about interpretations of his
theory which ignore the role of use-value, and instead effectively presume
that he started--as you believe Marxists should--with the premise that
labor/-power was the only source of surplus?

The best such reference is his commentary on Wagner's commentary on
Capital--which also, like the letter to Kugelmann, appeared of course after
the publication of Capital (and I expect after the letter to Kugelmann too).

The strongest statement on Wagner was the following. Some sentences are
ellipsed out, but they don't change the meaning of the original (check them
if you like):

All this is ‘driveling’... [O]nly an obscurantist, who has not understood a
word of Capital, can conclude: Because Marx, in a note to the first edition
of Capital, overthrows all the German professorial twaddle on ‘use-value’ in
general, and refers readers who want to know something about actual
use-value to ‘commercial guides’,—therefore, use-value does not play any
role in his work... [T]he obscurantist has overlooked that my analysis of
the commodity does not stop at the dual mode in which the commodity is
presented, [but] presses forward [so] that ... **surplus value itself is
derived from a ‘specific’ use-value of labour-power which belongs to it
exclusively** etc etc., that hence with me use value plays an important role
completely different than [it did] in previous [political] economy. (Marx
1879; emphasis added.)

Summarising, Marx is emphatic that he derived the result that surplus value
emanates from labor from an analysis in which use-value plays an intrinsic
role. That is not the "premise" approach, which you argue is the only valid
way to interpret Marx, but the "derivation" approach, which as I said first
occurred to Marx in 1857.

We can also get guidance on this issue by seeing how Marx evaluated the work
of other economists who apparently did what you say Marx did, and started
with a premise as to the source of surplus-value, rather than deriving the
source from a more general logic.

"Ricardo starts out from the actual fact of capitalist production. The value
of labour is smaller than the value of the product which it creates... The
excess of the value of the product over the value of the wages is the
surplus-value... For him, it is a fact, that the value of the product is
greater than the value of the wages. How this fact arises, remains unclear.
The total working-day is greater than that part of the working day which is
required for the production of wages. Why? That does not emerge." (Marx 1861
II: 405-06.)

I find it impossible to read this in any other way than to say that Marx is
criticising Ricardo for starting with the *premise* that there is a
difference between these two values, rather than deriving it from some
higher logic. Now it is possible that the logic Marx put forward was the
distinction between labor-power and labor, something which is unique to
labor. But it wasn't. Consider this critique of Ricardo from the Grundrisse,
which is clearly the precursor to the excerpt above from TSV II:

"Ricardo, by contrast, avoids this fallacy, but how? `The *value* of labour,
and the quantity of commodities which a specific quantity of labour can buy,
are not identical.' Why not? `*Because* the worker's product ... is not = to
the worker's pay.' I.e. the identify does not exist, *because* a difference
exists... Value of labour is not identical with wages of labour. *Because*
they are different. *Therefore* they are not identical. This is a strange
logic. There is basically no reason for this other than it is *not* so in
practice." (p. 561.)

Marx contrasts his easy ability to derive the source of surplus value with
Ricardo's struggles to do the same: "What the capitalist acquires through
exchange is *labour capacity*; this is the exchange value which he pays for.
Living labour is the use-value which this exchange value has for him, and
out of this use-value springs the surplus value and the suspension of
exchange as such." (pp. 561-62.)

Similarly, a throw away reference to Proudhon shows implicitly the
importance Marx placed on deriving a logical basis for
surplus: "the surplus value which causes all Ricardians and anti-Ricardians
so much worry is solved by this fearless thinker
simply by mystifying it, 'all work leaves a surplus', 'I posit it as an
axiom'.. The fact that *work goes on beyond* necessary
labour is transformed by Proudhon into a mystical quality of labour." (p.

He then emphasises that it is vital to properly identify what is the
exchange value of a commodity and what is its use-value, at least in the
case of the commodity labour power:

"Labour capacity is not = to the living labour which it can do, = to the
quantity of labour which it can get done - this is its *use-value*. It is
equal to the quantity of labour by means of which *it must itself be
produced*. The product is thus in fact exchanged not for living labour, but
for objectified labour, labour objectified in labour capacity. Living labour
itself is a use-value possessed by the exchange value [,labour capacity,]
which the possessor of the product [,the capitalist,] has acquired in
trade". (p. 576.)

The same emphasis on deriving the source of surplus value from the dialectic
between use-value and exchange-value can be seen in Marx's commentary on

Marx derides his attempt to explain the wage relationship as simply the
capitalist advancing the worker for his input into production, thus buying
the worker's share in the output. He takes this interpretation, says Marx,
to overcome "the difficulty of the Ricardian system according to which the
worker sells his *labour* directly (not his labour power)."

"The [difficulty can be expressed as follows:] the value of a commodity is
determined by the labour-time required for its production; how does it
happen that this law of value does not hold good in the greatest of all
exchanges, ... the exchange between capitalist and labourer? Why is the
quantity of materialised labour received by the worker as wages not equal to
the quantity of immediate labour which he gives in exchange for his wages?"

His comment on this dilemma makes perhaps the best published statement of
his derivation of surplus value (prior to the publication of the
Grundrisse): "Mill's artifice concerning wages has increased the difficulty
of understanding the relationship between capitalist and worker" (and hence
the source of surplus value) "because the peculiarity of the result is no
longer comprehensible in terms of the peculiarity of the commodity which the
worker sells (and **the specific feature of this commodity is that its
use-value is itself a factor of exchange value, its use therefore creates a
greater exchange value than it contains**)."

I could give numerous other instances where, when Marx criticises a previous
writer for not explaining the source of surplus-value, the explanation Marx
proffers is in terms of the dialectic between use-value and exchange-value.
In all of these, it is clear that Marx not only believes that an economist
*should* derive the source of surplus-value from first principles, but that
he is proud of how he himself achieved this, and regards it as one of the
most important contributions he made to political economy--possibly *the*
most important.

So I will not, as you suggest, "Drop the premise that Marx was out to
"prove" that value is determined by labor-time in Ch. 8 of _Capital_." In my
opinion, if you drop that, you drop much of what Marx contributed to
political economy since 1857. I would become, as Marx put it, "an
obscurantist, who has not understood a word of Capital".

The point then arises, is Marx correct in Capital that the dialectic between
use-value and exchange-value results in the same conclusion as to the source
of surplus-value as his previous premise-based approach? I argue that it
does not.

Now you threw an interpretation of the use-value/exchange-value logic at me
during my talk at the New School which makes it seem that they are
consistent, and I didn't make any comment. The reason was not that I had
never thought of it before--let alone that I hadn't heard it before. I just
didn't see the point in trying to argue the point with you. But I will do so

Your comment was something like (my recollection could be wrong) that the
use-value of labor-power was the ability to produce surplus commodities for
sale, and its exchange-value was a subsistence bundle of commodities. Since
the two are incommensurable in Marx's schema ("Exchange-value and use-value
[are] intrinsically incommensurable magnitudes" [Capital I p. 506]), there
will be a difference between them, and this is the source of surplus-value.
In the case of machinery, its exchange-value was its cost of production, and
its use-value was its ability to work with labor to produce surplus-value.

I'm sure I've messed up your statement to some extent, but the gist of it
was that the use-value of machinery was something qualitative. However, this
commits a sin of logic which you yourself attempt to criticise the general
surplus approach for in your next paragraph [see below]. This is that a
consistent measure is needed in order to be able to aggregate. Equally, in
the case of applying this exchange-value/use-value logic, consistent units
must be used when applying it to every input to production. Your way of
interpreting it, on the other hand, applies a quantitative measure when
labor/-power is considered, but a qualitative "measure" when capital is
considered. This is invalid.

Instead you must take Marx at his word, as excerpted above from Capital:
"Exchange-value and use-value [are] intrinsically incommensurable
magnitudes" *where we are considering any input in the circuit of capital*
(it is quite different in C--M--C, where the former is quantitative and the
latter qualitative). In that case, magnitudes must be used for both labor
and capital, and the same unit of measure.

The "unit of measure" Marx uses in the case of both the exchange-value and
use-value of labor was value. With exchange-value and use-value being
incommensurable, surplus-value was produced. Since the incommensurability of
exchange-value and use-value is a common property of commodities, the same
applies to capital. It will therefore also produce a value surplus.

As I noted in my talk and in "Debunking", Marx himself reaches this
conclusion once in the Grundrisse, but then retreats from it (because
otherwise, there goes the labor theory of value): "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." (Marx 1857: p. 383)

This statement by Marx makes it easy to identify the essence of the labor
theory of value: it is that a machine contributes no more to production than
it loses in depreciation. This proposition was quite sustainable by Marx
when he was working from the premise that labor/-power was the only source
of surplus on the basis of the unique attributes of labor/-power. But it
becomes unsustainable in his new logic because it requires, in its terms,
that the exchange-value of a machine is precisely equal to its use-value.

[Incidentally, this is how Desai interprets the labor theory of value in his
"Marxian Economics" (check it out). However, I argue that this requires
abandoning almost all of Marx's general concepts of exchange under

AK: Although my original point had nothing to do with your own approach, it
is indeed the case that your approach, and the "surplus approach" in
general, is completely incoherent. There simply is no such thing as a
physical surplus. There are positive surpluses of some things and negative
surpluses of others. Which outweighs which? How do you know?

Andrew, you'd better read Sraffa again. If we leave technical change out of
the picture (which is valid at this level of analysis, though it has to be
part of a general theory of capitalism), then if there are "negative
surpluses" of some commodities, eventually those commodities will cease to
be part of the input-output matrix. If the IO matrix is dependent upon those
commodities, then the "economy" will collapse.

If it is not dependent upon them--if they are non-basics, in Sraffa's
terminology--then they will simply disappear with time and the original
system with them will reduce to a new, sustainable system without them.

In other words, if a commodity is an essential part of the input-output
system of capitalism, then it *must* be that its net output is at the
minimum zero. If the system is one of expanded reproduction, then there must
be a net non-zero output of that commodity.

There therefore *is* such a thing as a physical surplus. Measuring it, and
comparing it to the inputs, may be difficult. But it does exist.

AK: You need a unitary measure of value to see which outweighs which and
thus to see whether there's a surplus in the aggregate. But money cannot do
the trick, not as long as you recognize the existence of inflation. Given
one "price level," your aggregate surplus may be positive, while given
another "price level," it would be negative. You could, of course, just
accept whatever the data say, but that is tantamount to rejecting the
possibility of inflation. The data tell you that there's a surplus"
(property-type income), but is that a real surplus or only a nominal one?

Any guesses as to the way out?

Yes: it's both physical and monetary, and value is a reasonable measure of
the former, but where the source of the value is not necessarily
attributable to any one input to production. Alternately, Sraffa's composite
commodity, but that is only completely relevant in a static framework.

Steve again: "I don't believe my approach is beset with logical problems.
Certainly it has nothing to rival those of the labor theory of value."

AK: To whose "labor theory of value" do you refer? What are the logical
problems with which the temporal single-system interpretation of Marx's
value theory is best?

This is something which, if I had the time, I might provide an analysis. But
I don't have the time, and since I believe I have disproved the premise on
which the TSS is based (that labor is the only source of value), I don't
also need to show that the TSS has its own conumdrums.

But to elucidate what I expect these are, I anticipate that when you solve
for what the TSS would describe as the equilibrium of its system, you would
find that it is not an equilibrium. The contradiction would be very similar
to that given by John and I over the neoclassical theory of perfect

I realise that TSS is a dynamic model, and that therefore it doesn't exist
in equilibrium. Nonetheless, the system itself still has to have an
equilibrium, and I suspect you will find it is not one consistent with labor
being the only source of value, but one consistent with the input-output
system in general producing a surplus.

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