by The Marxist Paul Cockshott presents his defence of the Labour Theory of Value in this video:[embedded content]It appears that Paul Cockshott defends the Labour Theory of Value (LTV) found in volume 1 of Capital, albeit in a grossly simplified way.He defines the LTV in three senses, as follows:(1) The average price of a good will be proportional to the average amount of labour used to make it;(2) The value added in an industry will thus be roughly proportional to the labour it uses.(3) Price quantities are thus the indirect representation of underlying quantities of human time. Unfortunately, this is not an accurate representation of Marx’s actual “law of value” in volume 1 of Capital, where Marx defended in his text a “law of value” in which homogeneous, socially-necessary labour time
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It appears that Paul Cockshott defends the Labour Theory of Value (LTV) found in volume 1 of Capital, albeit in a grossly simplified way.
He defines the LTV in three senses, as follows:
(1) The average price of a good will be proportional to the average amount of labour used to make it;Unfortunately, this is not an accurate representation of Marx’s actual “law of value” in volume 1 of Capital, where Marx defended in his text a “law of value” in which homogeneous, socially-necessary labour time units were the anchor for the price system in modern capitalism. That is to say, individual commodity prices are supposed to gravitate towards their labour values (even though volume 1 contained two footnotes hinting at the different theory of price determination in Marx’s draft of volume 3, so that volume 1 was not even internally consistent).(2) The value added in an industry will thus be roughly proportional to the labour it uses.
(3) Price quantities are thus the indirect representation of underlying quantities of human time.
By volume 3 of Capital, Marx thought this only happened in the pre-modern world of commodity exchange, but he describes the process as follows:
“The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).We must remember that Marx had no single, consistent Labour Theory of Value. The “law of value” (a phrase which Marx used to refer to the LTV) in volume 1 of Capital contradicts the “law of value” in volume 3. For Marx’s LTV in volume 1 of Capital to work and be empirically proved, all human labour of different kinds must be measurable in a homogenous unit of basic socially-necessary labour time and then compared, and actual real-world prices must tend to move towards their true labour values.
But Paul Cockshott is apparently not even concerned to defend this authentic version of the LTV in volume 1 of Capital. Instead, in a sleight of hand, he has substituted a much weaker version of the LTV whose main definition is that the “average price of a good will be proportional to the average amount of labour used to make it.”
I will discuss this video in the two sections below.
(1). Neoclassical Price Theory
When Cockshott responds to critiques of the Labour Theory of Value (LTV), he begins with the Neoclassical/Austrian theory of flexible prices determined by dynamics of supply and demand. Bizarrely, Cockshott dismisses this by arguing that it is “unfalsifiable,” but this is manifestly not true.
The fundamental prediction of Neoclassical/Austrian price theory is that prices are flexible and will be highly responsive to changes in supply and demand. We can test this empirically. We can easily look at empirical studies of real-world price determination as I have done here and here and see that the vast majority of prices are not highly flexible and determined by dynamics of supply and demand, as in Neoclassical theory.
Instead, most prices are cost-based mark-up prices, which are set on average unit costs plus a profit markup. This theory, however, is inconsistent with Marx’s “prices of production” because there is no real-world tendency towards a uniform, average rate of profit.
So, first of all, Cockshott fails to engage with the Post Keynesian theory of cost-based mark-up prices, which actually is the empirically correct explanation of most prices in modern capitalism. Under the Post Keynesian theory of cost-based mark-up prices, it is entirely normal to find that labour costs are a substantial component of prices, and where labour costs in a particular industry are high, there will be a strong correlation of labour costs with prices. But none of this proves Marx’s Labour Theory of Value.
(2). Correlation of Labour Costs with Money Prices
Next, Paul Cockshott cites this article to prove his definition of the LTV:
Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” Indian Development Review 4: 1–20.I have already refuted this article here.
Cockshott seems blissfully unaware that the empirical finding that monetary labour costs are strongly correlated with money prices of output commodities is, as we have already seen above, actually one of many strong proofs of the Post Keynesian cost-based mark-up theory of pricing, and indeed of any non-Marxist cost-based mark-up theory of price determination, which have no need for a Labour Theory of Value at all.
So, once again, Cockshott has not proved the LTV, and apparently does even understand that his “proof” is, at the very least, perfectly compatible with the Post Keynesian cost-based mark-up theory of prices.
And Marxists like Cockshott are essentially incapable of defending the actual, authentic definitions of the LTV that Karl Marx used in volume 1 of Capital, and reduce it to a weak claim that does not vindicate Marx or his LTV.
A final point is that Cockshott relies on the data of Zachariah (2006), which admits that the empirical data do not support an equalisation of profit rates, but that is a necessary condition for the existence Marx’s prices of production as used in volume 3 of Capital! It follows logically that, if the existence of prices of production as long-run centres of gravity for real-world prices are refuted by the empirical evidence, then Marx’s economic theory in volume 3 of Capital – which relies on prices of production – is also refuted.
BIBLIOGRAPHY
Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.
Zachariah, Dave. 2006. “Labour Value and Equalisation of Profit Rates: A Multi-Country Study,” Indian Development Review 4: 1–20.