Re: [OPE] classical macrodynamics and the labor theory of value

From: D. Göçmen <>
Date: Thu Feb 03 2011 - 06:33:36 EST

Smith's theory of value is an complicated issue. He employs indeed different criteria, sometimes just V+S and sometimes C+V+S. This led Ricardo to criticise Smith for being not consistent. My point was not Smith's theory of value in general. Rather, I was trying to give an input to show that Smith is aware of the fact that there is a difference between value and price. After having established or rather claimed that labour is the universal measure of value he tries to account for the fact the prices vary. His conceptions of market price and natural price are supposed to explain this. Whether Smith is consistent or in what degree consistent is another matter. He seems however to have initiated an investigation which culminates in Marx. Any further claim was not in my intention and would bring me far away from my current research.



Doğan Göçmen



-----Original Message-----
From: Jurriaan Bendien <>
To: Outline on Political Economy mailing list <>
Sent: Thu, Feb 3, 2011 11:50 am
Subject: [OPE] classical macrodynamics and the labor theory of value


Marx's initial criticism of Smith is, that Smith thinks the the value of a

commodity is V+S instead of C+V+S, or more precisely, Cfc+CCc+V+S.

Smith's idea would imply, that the value of a commodity (or an output) is

equal to the net factor incomes it generates.

In fact this is not so, since fixed capital is consumed and intermediate

goods are used up as well - these items are necessarily part of the

production cost. In modern national accounts, this difference is resolved

via the distinction between gross output and net output. Smith, like the

physiocrats, ran into trouble when he tried to find a consistent procedure

for grossing and netting the national product.

Marx thinks, that because Smith defines the concept wrongly, Smith cannot

theorize the difference between value (C+V+S) and the production price

(C+V+P) and show how they are related. The classical economists kept

confusing surplus value with profit, and the rate of surplus value with the

rate of profit. This leads to inconsistencies, and in the end, only a vulgar

theory of "factor rewards" remains.

However most economists have also confused the modern distinction between

gross and net output.

Namely, they think the net output of an industry is equal to the net value

of the goods or services it produces, so that, e.g., the GDP of the car

industry equals the value of the cars it produces.

This is also a mistake, because the value of the cars produced also includes

intermediate costs. The net output refers only to the "gross value added" of

the car industry. The total output sales of cars is the gross output.

So really economic science hasn't advanced much since Adam Smith on this

issue - the same errors continue to be propagandized. The recent revisions

of national accounts aim to bury the concept of product-value altogether,

and mystify the sources of new wealth.

There is a good essay to be written on the concept of production prices,

which rips the shit out of the nonsense of Marxist academics and the

post-Sraffians, but I haven't written it up yet.

When the New Zealander Ronald Meek originally defined the issue for New Left

Marxists in his Studies in the Labour Theory of Value, Meek was very much

influenced by Maurice Dobb and Piero Sraffa, because, after all, he studied

under them. The whole postwar tendency was to assimilate Marx to Ricardo,

Smith and Sraffa. But in so doing, Meek actually misrepresents the real

theoretical development of the classical theory, as well as Marx's critique

of it. Towards the end of his life, Meek made it quite clear that he could

not understand anymore "what you needed value theory for". This was many

years before Ian Steedman's "Marx after Sraffa" repeated the vulgar theory

that, since all we need is prices, the concept of value is redundant.

Mathematical equations cannot substitute for conceptual precision in the

definition of measuring units; they can only reveal the logical and

quantitative implications of concepts and measurement units. That is why we

should never be baffled by mathematical bullshit from academics whose only

intellectual rigour consists in their ability to formalize their preferred

abstractions - while smuggling in a causal theory of the operative forces at

work which is never defended. It is just "hot air", to borrow Ian Wright's


Most Marxists (and neo-Ricardians) know almost nothing about social

accounting, even when they use social accounting concepts. Therefore, their

"mathematics" cannot be taken very seriously, they don't even know what they

are counting. In fact they don't even have a scientific understanding of the

concept of "price", nevermind "value".



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