Why Ask Why – Labor as the Sole Source of Value

In the comments section of the previous post, which considered the idea of labor as the sole creator of value, a participant provided a link to an interesting lecture by Steve Keen. Although I had not seen the lecture prior to posting, broadly speaking I have been aware of Keen’s developing perspective on Marx’s theory of value since reading the first edition of Debunking Economics. It may not have been evident to most readers, but partly I had Keen’s critique in mind when writing the post. It seems to me that his analysis highlights a need for those of us who defend Marx’s theory to explain why it is correct to consider labor the sole creator of value. In entertaining one possible rationale, the previous post was not intended as a proof of anything. Otherwise, I would have titled it a proof rather than a musing. But now it might be worth backtracking a little to provide some background on the rationale for that post.

Consider two statements:

1. Labor is the sole creator of value.
2. Labor is the sole creator of surplus value.

The most effective way to establish the truth of the two statements would be simply to prove 1. If 1 is true, then obviously 2 is trivially also true.

Having established 1, and hence 2, we could then go on to consider explanations of how surplus value actually comes about. That is, the way would then be clear to explain how it is possible for labor to create more value than is required for its own reproduction.

But if instead we first try to establish the truth of 2 without having established the truth of 1, we might face a more difficult task. For instance, it would be logically possible for 2 to be true without 1 being true if, somehow, there were creators of value other than labor that, though creators of value, could not create value greater than their own value. It would then be necessary to explain why it is impossible for these other creators of value not to create surplus value.

Since Marx was arguing that only labor creates value, whereas machines merely transfer their preexisting value, he was actually trying to establish the truth of both 1 and 2 and so it would have made sense for him to start with 1. (He did do this – see below – but perhaps not satisfactorily.)

A strategy that starts with 2 could fall victim to what might be called the ‘Keen critique’.

What am I calling the Keen critique?

To the best of my understanding, there are at least a few key points in the Keen critique. These can be briefly considered in turn. Hopefully not too much violence will be done to his basic argument. According to Keen:

FIRST, the use value of labor to a capitalist is that it creates more value than it costs to reproduce the worker. But it is the same for a machine. The use value of a machine to a capitalist is that it creates more value than it costs to reproduce the machine.

At first glance, a Marxist might be inclined to say that this critique confuses value and use value. A physical surplus does not necessarily imply surplus value. While it is equally true that it takes less use values to reproduce a worker or a machine than the use values a worker or a machine can produce, this ensures only a physical surplus, not surplus value.

But the Keen critique appears to address this:

SECOND, in production, neither a worker nor a machine directly produces value. Rather, they create use values in the form of commodities, produced for exchange on the market. Both labor and machines produce commodities that capitalists can subsequently convert into value. Marx’s argument requires that the use values created by workers are greater than the value of labor power but that, in contrast, the use values created by a machine are merely equal to the value of the machine. It is this divergence between use value and value in the case of labor but not in the case of a machine that supposedly proves for Marx that labor is the sole source of surplus value. But how can this be justified? Marx does not establish this claim. He fudges that the use value and value are the same in the case of a machine but not labor.

Now, if it has not already been established, in a prior step, that labor is the sole source of value (statement 1 above), then I think Keen’s critique may well stand. If machines could create value, just not surplus value, Marx would need to show that the value created by machines cannot exceed the value represented in machines. If, instead, it has already been established that labor alone creates value, then Marx’s insight about the use value of labor exceeding the value of labor power serves as an explanation of surplus value, given the prior understanding that labor alone creates value, rather than opening up a can of worms about machines possibly being able to do the same. It will also then be clear that labor has already created value – not just use value (the new commodity) – in production, prior to exchange.

At this point, a Marxist might be inclined to say that Marx did indeed establish labor as the sole creator of value in the opening pages of volume 1 of Capital. The argument there is that it cannot be use value that all commodities have in common, because their use values are diverse and incommensurable. It must therefore be “the only property remaining” – the abstract labor that goes into producing the commodities.

To this, Keen might respond:

THIRD, it is not solely labor but a more general property, energy, that is required for the production of all commodities. Energy is expended not only through the exertion of labor power but also through the operation of a machine or the depreciation of plant. Why single out labor alone as the property common to all commodities?

All this is why, in my previous post, I started from statement 1. I think, as a prior step, the truth of this statement needs to be established, or at least given solid plausibility as a valid working assumption.

My suggestion – which I would say is really Adam Smith’s suggestion – is that in a human society organized in such a way as to reward self-interested behavior (capitalism) it will be human effort that counts. This is not because it should be all that counts. Even to the extent that it should count, it is not counted under capitalism in the way that it should be counted. Many socially destructive activities are valued positively. Many socially beneficial activities are valued at zero. Many activities that destroy the environment are valued positively. And so on.

Again, this ‘human effort’ explanation, due to Smith, is just a suggestion. I am putting it out there because I am interested like many others in ascertaining whether there is a strong reason to consider statement 1 to be true.

At this point, it may be relevant to make a passing observation about the motive for defending Marx’s theory of value.

In his lecture, Keen suggests that the commitment to Marx’s value theory of Marxists and Marx himself has been driven by ideology rather than logic. Now, no doubt ideology does play a big and sometimes excessive role for many economists across the theoretical spectrum. But I don’t think this is a necessary motive for adhering to Marx’s theory of value. In my opinion, the main benefit of Marx’s theory of value, if it is correct, is that it helps to explain capitalist behavior. It does not help us to measure living standards, for instance. We need use value measures for that. It does not help us to evaluate the true value of things. The usefulness of the theory, if correct, is in understanding what drives capitalist commodity production, to the extent that society permits this mode of activity to occur, and to enable us to work through the likely consequences of that behavior. If Marx’s theory of value happens to be false and capitalists are guided by energy requirements more generally, rather than expenditure of labor power specifically, then Marx’s theory would not serve this purpose as well as an available alternative. It would be more useful to consider an energy theory of value, instead, to understand what motivates capitalists.

But let’s suppose, even if just for the sake of argument, that the truth of statement 1 can be established as a prior step. Maybe the ‘human effort’ story suggested in the previous post is part of the answer. Maybe not. But, however it is achieved, suppose we can establish that labor is the sole creator of value, or can at least provide a convincing rationale for why this is most likely to be the case and the best working assumption.

If so, then I think the Keen critique can be answered in a fairly straightforward fashion. Not only will statements 1 and 2 be established but it will then become possible to explain why the use value of labor can exceed the value of labor power while the use value of a machine merely equals the value (or price, depending on interpretation) of the machine.

Granted statement 1, the use value of abstract, socially necessary labor is that it creates value. As the term ‘abstract labor’ makes clear, it is not just any labor that is regarded by Marx as creating value. It is labor as such. The expenditure of labor power. The expenditure, perhaps, of human effort. It is not concrete labor (melding, mining, engineering, managing, etc.) that has the use value of being value creating. It is abstract labor that has this use value. If it has already been established that labor actually is the sole source of value, then surplus value will arise to the extent that workers create more value through the expenditure of labor power than it costs to reproduce their labor power. In that case, the value created by workers will exceed the value of labor power, and we arrive at Marx’s explanation of surplus value.

The analogous argument applied to a machine would perhaps have to introduce the concepts of ‘machine power’ and ‘abstract machine’. We would be considering a machine as such, and the expenditure of machine power without regard to its diverse concrete properties. The use value of the abstract machine, according to the thrust of Marx’s argument, would be its capacity to preserve and then transfer its preexisting value (the value it possesses upon entering production) to the new commodity. In that case, the use value of the abstract machine (the value it transfers) will merely equal the value that the machine possesses upon entering the production process. The machine will represent an amount of abstract labor but itself will not perform abstract labor. It will only pass on its preexisting value to the new commodity. Since it can only pass on value it possessed prior to production, there is no need to distinguish machine power from abstract machine, or to compare quantitatively the use value of the abstract machine to the amount of preexisting value possessed by the machine. These two magnitudes will necessarily be the same.

How do we know this? We don’t, unless it can be established, as a prior step, that labor is the sole source of value. This explains the focus of the previous tentative, exploratory post.

Lastly, it should perhaps be mentioned that even if Marx’s theory can be regarded as valid (and I am of course inclined to think that it can be), that would not mean that another theory – say an energy theory of value – could not also be a valid theory. Only if statement 1 can be proved – rather than merely strongly motivated – would this render all other positive theories invalid, or at least inferior, as explanations of capitalist behavior. Even then, these other theories might be useful for explaining something else (e.g. the physical surplus) or answering a normative question about how things should be valued.

37 thoughts on “Why Ask Why – Labor as the Sole Source of Value

  1. Capital is stored labor.

    If you are digging a hole with your hands and I offer you a shovel, it increases your productivity. The charge that you pay me for using the shovel, i.e, a charge for capital, is really just paying me for the labor that went into producing the shovel.

    So yes, it’s all labor. In that respect, to deny the owners of capital their just returns is to somehow not see their labor as an input in the production process.

  2. I don’t know, I think it seems like you’re going off in a direction which has a lot to do with definitions of terms. If you want to define “value” in a rather specific way in order to get to the conclusions you want, or play terminology games with “socially necessary”, “embodied labor” from days/years/centuries ago, etc., you can certainly go down that path (as many do). You can say something trivial like ‘value must be based on human activity because there’s no pricing in nature’. Keen here seems more interested in getting at the real insights while avoiding getting entangled in any unnecessary baggage. So it’s not really about whether Marx has a complete theory which is either ‘false’ or ‘correct’, but what the most useful insights are.

    The main point focused on is the illuminating classical notion of use value vs. exchange value, which Marx improved on and cast in the dialectic framing of ‘foreground/background’ tension. And it’s compelling that surplus value comes when the use value of inputs (when combined in production) exceeds their original total exchange value. The cost to feed a human being for a day has nothing to do with how much useful work they can do in that day. The cost to make a shovel has nothing to do with the use you can get out of it.

    Marx followed the strict self-imposition that everything is sold at its fair price, and said that the fair price of labor (exchange value) is the cost of producing & reproducing human beings. But when it comes to machinery, he maintained that the fair price (exchange value) of a machine must be equal to its exact use value, or else it wouldn’t be fair (the buyer would be ripping off the seller). Keen seems to say ‘hold up, the fair price (exchange value) for a machine is just like a person: what it costs to produce & maintain, which may have nothing to do with its use value. You have to be consistent’. So you could very well have machines adding lots of surplus value as pulleys, levers, wheels, screws, etc. become easier & cheaper to produce (exchange value) but still greatly enhance output (use value). Maybe an option at that point is to say that’s just technology increasing the productivity of labor, and so its still labor generating all the surplus value. That’s a potentially internally-consistent option and can work, but it gets away from the general core insight by defining it away based on your preferred conclusion.

    At least that’s my take on Keen’s take on Marx. In some ways it reminds me of the argument about pricing where neoclassicals & austrians assumed it was all supply & demand and utility. Then 20th century economists were embarrassed when every mass survey of business showed a high majority responding that pricing was done as ‘cost-plus’, rather than by utility, and that supply/demand primarily affected quantity before price. It relates in the way that Marx is assuming that the fair price of machinery must be the same as their use value/utility, whereas Keen is saying Marx’s own earlier writings included the real truth that actually their exchange value can be unrelated.

    As for the energy/nature angle, maybe you’d say that sunlight, water, etc. have extremely high use-value, but low exchange value (because of natural abundance).

  3. @Gus

    This was from your previous comment:

    “He basically puts forth that Marx at some early points saw some flaws/inconsistencies between his treatment of human labor vs. machines for use value, but ended up pushing on with them anyway for reasons ideological or otherwise.”

    I took the liberty of emphasizing two terms.

    From that I — and I suppose other readers — conclude Keen’s critique (which you endorse, I take it) concerns Marx’s lack of logic.

    One may disagree, but you chose the ground and one can argue on that ground. Fair enough.

    Now, you write:

    “So it’s not really about whether Marx has a complete theory which is either ‘false’ or ‘correct’, but what the most useful insights are.”

    I know it is a matter of definitions, but can you please define what is the criticism exactly? Is it lack of logic, usefulness, Marx’s beard, or what?

  4. gus: Actually, I think it is Steve Keen and yourself who are going off in another direction. That is not a bad thing – new angles and new insights are good to have and Steve is an innovative thinker – but there is nothing in my basic argument that veers at all from the Marx of Capital. Now, Steve and yourself can contend that the argument, however, veers from an earlier Marx and that, for ideological reasons, the later Marx decided to fudge his work to avoid an unwanted conclusion. But, really, the onus is on Steve and yourself to establish this.

    I will note, in this respect, that in the linked video Steve is not presenting his allegation in front of colleagues actually familiar with Marx, but is presenting them to students who, if I am not mistaken, indicate en masse at the beginning of the lecture that they have never read Marx. This is not at all intended as a criticism of the students – who appear to engage quite intelligently with the lecture – or of Steve, who must take his students as they come to him. But so far as this reflects the higher education system in general, it is a fairly shoddy state of affairs that the first formal acquaintance with Marx for many students – and this is far from being specific to one university but endemic – is not an actual study of what Marx wrote but a critique of Marx.

    Steve also indicates in the lecture that when he takes this allegation out into the seminar and conference rooms, he will be attempting to convince Post Keynesians, not Marxists, who can be expected to have a predisposition toward being skeptical of Marx and to accept, without much resistance, if any, the allegation. And what is Steve’s explanation for this? That it is a waste of time debating with Marxists because they are merely concerned with ideology.

    But in the same way that Marxists strike Steve and perhaps yourself as ideologues, Post Keynesians strike Marxists as every bit as ideological, as do the various Post Keynesian theories, as well as interpretations of Marx, which, to an unsympathetic reader, can come across as special pleadings for industrial capitalists, as opposed to rentiers, or as glorifications of the “entrepreneur”.

    The cost to feed a human being for a day has nothing to do with how much useful work they can do in that day. The cost to make a shovel has nothing to do with the use you can get out of it.

    Hence the physical surplus is due both to labor and machines, as well as to nature.

    This does not necessarily explain surplus value – which, for Marx, can be expressed equivalently as a sum of money or a magnitude of labor time.

    Now, for Marx, what kind of labor creates value? I, following Marx, say that it is not concrete labor but abstract, socially necessary labor. And, for this, you claim I am going off in my own direction. But can there be much doubt that value, for Marx, is socially necessary (i.e. of average productivity) labor and that it is abstract (i.e. labor considered as such, without regard to its specific concrete properties)?

    And what is the use value of *abstract labor*? For Marx, it is its unique capacity to create, rather than merely preserve and transfer, value. Since this value can exceed the value of labor power, there can be surplus value. This is not only a physical surplus. It is a monetary or labor-time surplus. It is the monetary (value) surplus that capitalists will care about, even though the rest of the community has good reason to care more about the physical surplus.

    If we wish to apply the same reasoning to a machine, then what matters will not be the use value of a machine in its concrete properties but a machine in the abstract – the ‘abstract machine’. So, is it possible for the abstract machine to create more value than the value of ‘machine power’? Not if, as Marx attempted to argue in the opening pages of Capital, labor is the sole creator of value and a machine cannot create any value at all. Rather, the use value of the ‘abstract machine’ will be its capacity to preserve and transfer preexisting value to the new commodity. Since, in Marx’s view, a machine cannot pass on more value than it possesses when entering production, the use value of the abstract machine cannot exceed the value (or price, depending on interpretation) of the machine.

  5. Central to this issue is the concept of value. What is the definition of value?

    This involves two major issues.

    (1) What does a particular author mean by key terms like “value.” This is discernible not only from a definition the author provides (if at all) but also from the author’s use the term in context.

    (2) What is the accustomed use of the term in the larger context of debate.

    https://en.wikipedia.org/wiki/Value_(economics)

    Marx was writing in terms of the debate in which he was involved, which was classical economics. “Value” is a key term in that debate and it is used in the context of other key terms in it. Some sort of labor theory of economic value was operative in that it seemed intuitive to the participants in that Nature just is, and value is a human contribution and a construct specific to humans.

    Value is therefore not intrinsic but relational and at least partially subjectively determined. At least part of the relational aspect of value is social. Some value is a relation between a subject (individual) and an object, either a natural object like food stuffs that must be gathered, hunted or grown, or an artificial object like tools that must be fashioned

    The question for classical economics is therefore how specifically is the relation we called value is grounded in labor and what implication does that have for economics.

    It looks to me like Marx wanted to ground value in labor as an intrinsic relation. His whole approach seems to depend on it. Locke similarly grounded property rights in work, that is,by using land productively by working it and improving it. Property rights commence with invested labor and become transferable. Labor as an anchor is typically classical.

    Neoclassical economics sidesteps this inquiry by identifying value with market price iaw the “law” of supply and demand. The anchor here is “natural” market forces. This has the distinct advantage of quantifying something that is inherently qualitative in one fell swoop. Then the issue becomes whether this a tenable assumption.

    It seems to me that it is only of historical interest what Smith or Marx through about this. What matters now is a definition of economic value that is correct in the sense that the models in which it plays a key role are superior to others. For example, the collapsing of all qualitative issues into market price as a quantitative equivalent result in conclusions that are problematic, e.g., from a prosocial point of view. This is waved off by those holding a individualistic POV.

    This raises the question whether purely positive assumptions are possible in social science including economics or are the positive and normative entangled. It also raises questions about how realistic various approaches to economic modeling are.

  6. I confess that the idea of spending two hours and a quarter listening to Prof. Keen’s lecture did not appeal to me.

    Not because I doubt Keen has interesting things to say; but because of time constraints and download limits.

    I should, however, have made the effort, if not with Keen’s other lectures, at least with that particular lecture Gus recommended.

    There was a time when an important rationale behind the Real World Economics Review and similar initiatives was pluralism in economics. You know, it was terrible that mainstream economists taught economics from their particular point of view, as if it was settled, indisputable science, ignoring other schools of economic thoughts

    If memory serves, Keen, among the other founders of the movement, was an important proponent of the idea.

    No longer, it seems. Apparently, all that “poetic license” and “high-flown rhetoric” blew over.

    Either that or Prof. Keen sees no incompatibility between “pluralism in economics teaching” and the fact that his own critique of Marx is the first and probably only exposition to Marx’s ideas for his students.

    Frankly, I’m disappointed. I guess I expected better from him.

  7. And speaking of which, Asad Zaman (from WEA Pedagogy Blog and RWER), asks “Is There a Core of Heterodox Economics that we can all Believe in?” and writes

    “As Thomas Kuhn noted, conflicts and contradiction do not dislodge prevailing paradigms; only the emergence of an alternative paradigm can do that. Heterodox economists need to agree on a core set of ideas which can be used as foundations for an alternative paradigm. Currently it seems that each heterodox economist is a one-man church. We are all agreed on the idea that conventional economics is wrong, and applaud each other when mud is thrown on the naked emperor. However, we do not even agree on the critique.”
    (source: https://rwer.wordpress.com/2016/01/25/is-there-a-core-of-heterodox-economics-that-we-can-all-believe-in/)

    The problem with Zaman’s question is not that it has no pertinence: quite to the contrary, it is very pertinent. The problem is that the answer is painfully obvious, so much so that one doesn’t need to write it down.

    With “LOL” is more than enough.

  8. I watched an interesting documentary last night about the ‘Cosmic Dawn’: – the moment of birth of the first stars in the universe, the emittance of first light, the creation of the heavier elements in hypernovae (ancient recyclers), and the transformation of an opaque universe into a transparent one, within which, from the inside out, evolved galactic forms, capable of supporting and evolving life and consciousness. That’s your consciousness, my consciousness; your existence, my existence!

    We are here (at least in our present form, and no-one has scientifically proven reincarnation yet so make the best of it, just in case) – just once. It is a miracle that you exist. It took 13.7 billion years of recycling to make us. For me, I want to be able to appreciate it and have a little gratitude. Towards what doesn’t really matter – just to have it; it seems to know where to go, all by it-self. Both are a beautiful feeling to experience.

    Amazing what a few ‘fundamental particles’ can do, to form nuclei, then a few atoms of the lightest four elements, and bingo – a little bit of hyper sun explosion later – and there you have a magpie (joke alert) and all of the other birds on the wire going tweet tweet tweet!

    But anyway, thinking about peter’s post – to humans, the ‘concept of value’ IS central. And context is important. And Marx does want to ground ‘value’ in labour (in the macroeconomic context). Tom always has his finger on the pulse. But the principle to start from universals and consider the systemic factors in context is a good one – the broadest viewpoint possible. From my perspective, everyone wants to ground value in something outside of them, and very few want to ground value IN them – as a human being – (sans social definitions).

    In the context of peter’s post, I really think in this age, macroeconomic ‘value’ should be grounded in global events: – when a President of the Italian Supreme Court among other notables, a group of concerned lawyers, and 2000 architects and engineers, together state their problems with the official version of 9/11 – and go un-investigated and unreported in the mainstream – then the world is an asylum. No theory can breathe in such an atmosphere. We too need a transformation of an opaque global society into a transparent one.

    This is the problem with all written communication: – words are symbols that mask meaning; and meaning in turn, masks significance. Significance reveals Purpose and Ideals; Purpose creates Plans and Ideas; and Plans create icons (symbols). Kind of a cycle of life ….. or creativity. In that sense the whole world is a symbol, in which we try to discover meaning and significance. It is a mirror. But, when everything is lies ……

    For me, we are experiencing machines. We can also get lost in clouds of thought. Or clouds of emotion and desire. For me, thinking about the beginnings of our universe, Energy and Consciousness are synonymous terms. Spirit, Soul and Matter are synonymous terms – just signposts along a continuum. Human effort is the effort to be conscious. Of course we ‘think’ that human effort is all about something else. That is because we are conditioned creatures, and have forgotten, lost touch with our origins.

    If human beings value their civilisations, cultures and beliefs so much – why are they constantly updating them? There is an evolution. The common choke (yoke) on all ideologies on this earth today, is that they do not see a human being. This to me is ‘intellectualism’ – under which confusion and greed easily flourishes; both vision and blindness at the same time. If we really think the human being is the crown of creation, then why are we not on a pedestal, way up there, valued above all other things. Poor people in India watch rich people give rides to their dogs, in cars they could not even dream of owning. A dog prioritised over a human? A piece of shiny metal, cooked up in some supernova somewhere, prioritised over a human? Because we do not know how to value a human being: instead, we value everything else; the society which is just a play – people are just cannon fodder, or prey; entertainment, and materialism is the game everyone plays. Seeking contentment and fulfilment – ‘a few golden balls are rolled through the world’. That is what is laughable, with tears in the eyes.

    ‘People before money and machines ….’ How is sorting out a definition of value going to help? If it expands the collective consciousness, then THAT helps!

    A doctor is useless if they cannot see a human being; instead of a patient and a disease.

    And why do we have to see everything through the ‘eyes of the world’, pray tell? Why do we have to listen to experts? What is a bloody ex-Pert anyway? There is no such thing as a Pert in my dictionary – I looked it up. The world was full of problems before they arrived and will be after they are gone.

    I think we have to get back to being human, first. Understand what we are and what it is within us that actually gives us meaning and significance. Then maybe (just maybe – if we can actually become a content and happy species, just the way we are without any need to seek an identity in something outside of us, something strange) we can come up with a society that doesn’t send everyone and the planet around the twist.

    Australia Day today: some people practice exclusivity today (us and them), some black brothers mourn, a few are genuinely inclusive.

  9. peter: Yeah I’m not often trying to wade in or pick any side on Marx or Keen generally, but I do tend to find Keen’s take on him compelling (which others don’t seem to share, see Tom O’Brien in #62 comments http://fromalpha2omega.podomatic.com/ ). I tried to follow the modern explanations of Harvey, and the ‘rival’ camp of Kliman/Coony/etc., but I always still end up with a feeling more similar to Keen (making use of very insightful formulations but not bothering too much with Marx’s attempt at scientific proofs about anything, laws/tendencies/theories or otherwise). Maybe it just hasn’t clicked for me to be able to speak the same language as the classicals as Tom mentioned, but when you’re going off into ‘abstract machine’ I’m definitely losing the plot. For a good faith effort I’ll try to make one more go of a reply, for anyone to set me straight or understand the complaint better:

    “Rather, the use value of the ‘abstract machine’ will be its capacity to preserve and transfer preexisting value to the new commodity. Since, in Marx’s view, a machine cannot pass on more value than it possesses when entering production”

    The notion of ‘passing on’ value in the production process, from inputs to the output, strikes me as a euphemism and rather unclear. I’d happily drop that lest people start to think that’s actually a real thing (like the magical soul of past labor embodied in hammers, nails, and conveyor belts being partially ‘passed on’ to the output when used).

    My understanding (and please correct me where I go wrong) was that Marx was asking: how does a capitalist pay $400 for inputs, including labor, with everything bought at its “fair” value (meaning price / exchange-value here), and end up with $500 of “fair” value output after production. And the answer was that the use-value of labor could be higher than the exchange-value paid for it, leading to a surplus captured by whoever owns the output (the capitalist in industrial capitalism). The reason it was all from labor was that the fair price / “value” (exchange-value) of non-labor inputs must be equal to their use-value, or otherwise the capitalist would be ripping off the seller.

    But say there’s a technological breakthrough, and the “keyboard” is the hottest new product, guaranteed to increase your productivity. One firm buys $1000 of keyboards for their project managers & accountants and increases their firm’s output by $1500. Did they rip off the keyboard manufacturer by not paying fair price? Then another firm buys $1000 of new keyboards and replaces their hammers with them, using keyboards as blunt instruments to pound nails. Their output actually goes down by $500. Did they overpay for keyboards and the fair price should be lower? Or are both of those obviously irrelevant because the fair price / exchange-value of keyboards is based on their cost of production and has nothing to do with their use-value? And thus any firm correctly utilizing machines & technology can capture surplus value from them.

    That is the main ‘inconsistency’ point I see Keen trying to make. Of course I agree that it’s trivially obvious that it takes human activity to ‘realize’ any surplus value from getting more valuable use out of machines/materials than they cost. If we then just wrap up all that surplus under ‘labor power’ while bundling up the associated technological advance as a long-term given, then fine (I think that’s going the route of trivially defining things away, but I said it’s internally consistent and acceptable). If Marx accepted all that in his labor theory of value then ok, it’s a non-insightful theory, and I’ll move on.

    @Magpie: So you didn’t watch that video and didn’t read my post here very clearly…I laid out Keen’s ‘inconsistency’ criticism already, as I understood it. Moreover Keen is largely favorable to Marx and defending his work against poorer critics & supporters alike. Feel free to not need to whiteknight Marx here, I’m not a serious critic… Timestamp to the relevant part of the lecture we’re talking about: https://www.youtube.com/watch?v=jvBWJWFTZWY&t=1h12s

  10. @Gus,

    No, Gus, I’ve read your comments alright. I’m used to argue with your ilk (see the comment thread): http://robertvienneau.blogspot.com.au/2012/07/vocabulary-for-marxism.html

    I’ve read your first comment, where you allege, on Prof. Keen’s authority, that Marx was logically inconsistent. That was your allegation, you freely chose it. You argued shit; there was no “I laid out Keen’s ‘inconsistency’ criticism already, as I understood it”. I repeat, for those who might have difficulty understanding written English: you argued shit. You base yourself on Keen’s authority, exclusively and you drop a link to a loooooooong lecture. That’s all you did.

    Then I read you here, in your second comment (above). Once Peter provided a logical rendition of Marx, you didn’t advance counterarguments. As ignorantly as dishonestly, you (1) refused to acknowledge Peter’s argument (or like you put it):

    “you’re going off in a direction which has a lot to do with definitions of terms. If you want to define ‘value’ in a rather specific way in order to get to the conclusions you want, or play terminology games with ‘socially necessary’, ’embodied labor’ from days/years/centuries ago, etc., you can certainly go down that path (as many do). You can say something trivial like ‘value must be based on human activity because there’s no pricing in nature’.”

    (I’ll refrain from quoting from Peter’s own comment addressed to you, because he can remind you of that if he thinks it appropriate)

    And (2), unable to provide counterarguments, instead you shifted your criticism: you changed your tune, you moved the goal posts, hoping no one will notice. Now, the criticism is no longer logical inconsistency, but usefulness: “So it’s not really about whether Marx has a complete theory which is either ‘false’ or ‘correct’, but what the most useful insights are.”

    Like I said, I have experience arguing with filthy charlatans and ideologues, Gus. Believe me, it won’t be easy to bamboozle me. You ought to try harder.

    That’s why you must not think I haven’t noticed you haven’t answered my previous questions which were clearly addressed to you.

    I know you read them and you ignored them. If Marx’s conclusion that labour is the source of all value is wrong, and he only maintained it out of ideological stubbornness, how come others who didn’t share Marx’s points of view, or even liked Marx as a person, arrived at the same fucking conclusion?

    I demand an answer now.

    ———-

    Out of respect, I’ll leave Prof. Keen out of this.

  11. Wow take a breath and go outside. You asked for Keen’s problem with Marx’s logic, I repeatedly stated the inconsistency of saying the fair value of labor is the cost of production, while the fair value of non-labor inputs is supposedly their use value. I invited anyone to correct me where I went wrong. But apparently all you want to do is seize on everything random I wrote around that point which was mildly negative about marxists or marx. Sorry if any cheapshots ruffled your feathers, time to move on. I’m not trying to bamboozle you, I was trying to ignore you because you were concern trolling from the start and I wasn’t here for an internet marxist fight.

    I linked to the Keen lecture because he made it literally days before Peter’s blog post on a closely similar topic, and I figured people on this blog may have been interested. Peter’s responses seemed to say that Keen was confused about Marx thinking surplus value only meant surplus goods and not surplus monetary value, so I posted again trying to rephrase his position another way.

  12. @Gus,

    Wow take a breath and go outside. You asked for Keen’s problem with Marx’s logic, I repeatedly stated the inconsistency of saying the fair value of labor is the cost of production, while the fair value of non-labor inputs is supposedly their use value. I invited anyone to correct me where I went wrong.

    Okay. Very well. I’ll bite.

    Prof. Keen’s argument may seem a recent breakthrough in Marxdebunkology, but new it ain’t. In fact, my guess is that that argument is pretty much as old as your good self (or, at most, only a few years younger).

    As far as I am concerned, in his lecture Prof. Keen repeats the argument in his 22 yo paper “Use-Value, Exchange Value, and the Demise of Marx’s Labor Theory of Value” (hence the title of his slides: life is full of coincidences).

    A little history. That paper was published in the Journal of the History of Economic Thought — (15)1, Spring 1993, pp 107-121 ([1] paywalled). Prof. Keen makes a copy available in his (new?) website ([2]).

    He and various Marxists have long discussed that. In fact, others have commented on that paper: Fred Mosely {3], Julio Huato [4].

    I won’t repeat their arguments. Those interested are advised to go there.

    Instead, I’ll go for shorter comments directly related to the lecture. I’d like to observe two things earlier commenters, like Moseley and Huato, seem to have overlooked but which are very evident in Prof. Keen’s lecture.

    Firstly, Prof. Keen continually repeats things like this:

    “What Marx ends up doing is to identify machines’ contribution to production to its depreciation.”

    And this is not a marginal comment: this is the gist of Prof. Keen’s argument.

    I am sure neither him nor yourself see anything peculiar — let alone absurd — in that accusation. Am I mistaken?

    However, to the best of my knowledge, that practice is and has been standard in double-entry bookkeeping at least since Luca Pacioli formalised double-entry bookkeeping in 1494 (over 320 years before Marx’s birth in 1818). Marx didn’t come up with that idea under the influence of the full moon: that’s what capitalists do. In fact, even before Pacioli that practice was probably standard. You see, Pacioli only formalised double-entry bookkeeping, which was already in use at least in Italy (not to mention bookkeeping and accounting in general, which had been in use for centuries before Pacioli, as far back as Mesopotamia).

    So, should Marxists force accountants (including national accountants) and capitalists to change their practices so that Marx’s law of value is made wrong?

    A second thing other Marxists failed to mention is that for Prof. Keen it is strange that Marx treats labour power and capital differently. Why aren’t they treated the same? he wonders.

    But mainstream economists (including Keynes) do exactly the same thing: utility is measured in ordinal utils and as ordinal utils it goes into workers’ work/leisure problem constrained by time availability; while capital, revenues, prices, costs, and profits are measured in cardinal dollars. Why aren’t they treated the same?

    In both cases — and this may be just my madness speaking — I’d say that they are not treated the same, because… well… they are not the same?

    [1] http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=4325580
    [2] http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Jhet_use.PDF
    [3] http://www.driftline.org/cgi-bin/archive/archive_msg.cgi?file=spoon-archives/marxism.archive/marxism_1994/94-09-30.000&msgnum=82&start=6948
    [4] http://juliohuato.org/2012/04/06/steve-keen-and-the-labor-theory-of-value/

  13. gus: Yes, the references to ‘abstract machine’ and ‘machine power’ were not meant to imply that I think those concepts are necessary or useful. They are not needed by Marx, and so don’t occur in his work. I was simply trying to illustrate that if we wish to compare the value of a machine to its use value in an analogous way to how Marx compares the value of labor power to its use value, we would need to consider the machine without regard to its concrete properties.

    Different concrete labors (which contribute to the production of different use values in the form of commodities) are not directly commensurable. They are only made commensurable by abstracting from their concrete differences and focusing on what they have in common – the property of being “labor as such” or “the expenditure of labor power as such”. This abstraction is not necessarily natural or technical. It is social. We make this abstraction as a society whether we are conscious of it or not when labor of different concrete kinds is paid in the same, common unit (money) and when the products of different kinds of labor are exchanged in terms of this common unit.

    I think that value, for Marx, is already being directly created in production because society is already applying the abstraction when workers are paid a wage in exchange for their labor power. From this perspective, there is no need to wait until use values (commodities) have been produced so that they can subsequently be converted into values through exchange. They are already values prior to exchange, as products of abstract labor.

    But none of this proves or disproves Marx’s (or Steve Keen’s) position. The central point I was trying to make in the present post is actually that Steve appears to have a point *unless* Marxists can explain, as a prior step, why labor is the sole creator of value. If this can be explained, then it follows logically that a machine can transfer value – since it will represent a magnitude of abstract labor – but cannot create new value. But if it cannot be explained why labor is the sole creator of value, then I think all bets are off. I also indicated in the post that IMO Marx may not have established this prior point satisfactorily (although there may well be more philosophical arguments put forward by Marx on this point that I am missing). That is, Steve’s point that the expenditure of energy (and not just labor) is common to all commodities may undermine Marx’s argument of the opening pages of Capital that labor is the sole creator of value.

    Now, personally, I tend to think that the rationale for considering labor to be the sole creator of value, in Marx’s sense, may be quite a simple one that has been known at least since Adam Smith, and perhaps long before that. It is the rationale I suggested in the previous post that, when it comes to commodities, humans will tend to value the human effort that had to be expended to reproduce the output. The reason is simply that this is what determines how difficult it is for humans to reproduce the commodity. (Although I do see this as the likely, straightforward rationale for considering labor to be the sole creator of value, I am not sure how convincing others would find it, hence the title reference to the post being a “musing”.)

    If something is gifted from nature, this definitely adds to our physical bounty, but this gift is not something that costs any human effort. The gift can have a positive effect on price (as opposed to value) – due, for instance, to property relations that restrict access to it – but only through a redistribution of value from elsewhere. If, instead, the gift is freely available to all, it seems to me that it will have no effect on the price or value of a commodity.

    Once a machine has been produced, its productive contribution costs humans no further effort. The required effort to produce the machine was expended when the machine was produced. The productive contribution of a machine, from this perspective, is essentially a gift from the past, similar to a gift of nature. It is the result of past human effort.

    The buyer of the machine does not gain or lose at the expense of the seller.by the fact that the machine might be more or less productive, provided the machine was exchanged at its price of production. For a given price of the machine, a more productive machine will transfer its value over more units of output. The unit value will fall due to the higher productivity.

    In general, an increase in productivity lowers unit values and unit prices. If the mass of commodities can now be produced with half the human effort it used to take, physical output will double but total value will remain unchanged. The value of each unit of output, on average, will halve. From the perspective of Marx, a unit of output will not be valued at more than the actual effort required to produce it. The doubling of physical output, and no doubt large increase in physical surplus, will not translate into a doubling of total value (which will be unchanged) or a proportional change in surplus value. To the extent that surplus value increases, it will be at the expense of the share of workers (i.e. an increase in the rate of surplus value).

    Maybe the reason for considering labor the sole creator of value was seen almost as self-evident when Marx was writing, considering that Smith had already stated a “trouble and toil” explanation very clearly and straightforwardly? I’m not sure. But it otherwise does seem quite strange to me that Marx would not spend more time on establishing this point.

    As indicated earlier, maybe he did, and I am missing some deeper philosophical argument. Even so, I think such a key point needs to have a simple, straightforward answer. That does not mean that the answer would be easy to arrive at in the first instance. But I think to have confidence on such a central point, its rationale should be very straightforward and clear once it has been established.

  14. “Since Marx was arguing that only labor creates value, whereas machines merely transfer their preexisting value, he was actually trying to establish the truth of both 1 and 2 and so it would have made sense for him to start with 1. (He did do this – see below – but perhaps not satisfactorily.)”

    Are you sure “Marx was arguing that only labor creates value”?

    What, according to you, does “creates value” mean for Marx?

    Marx’s discussion here: https://www.marxists.org/archive/marx/works/download/Marx_Critque_of_the_Gotha_Programme.pdf

    gives me serious pause. You?

  15. gus said: “My understanding (and please correct me where I go wrong) was that Marx was asking: how does a capitalist pay $400 for inputs, including labor, with everything bought at its “fair” value (meaning price / exchange-value here), and end up with $500 of “fair” value output after production. **And the answer was that the use-value of labor could be higher than the exchange-value paid for it**, leading to a surplus captured by whoever owns the output (the capitalist in industrial capitalism). The reason it was all from labor was that the fair price / “value” (exchange-value) of non-labor inputs must be equal to their use-value, or otherwise the capitalist would be ripping off the seller.”

    The starred part is a figment of your and/or Steve Keen’s imagination at worst, or the result of a misinterpretation. The phrase “use value of X is/could be ***higher*** than exchange-value paid for X” is literally non-sense. It is logically identical to a phrase “the height (in cm) of X is/could be higher than the weight (in grams) of X”. Use-value and exchange-value are not co-measurable, not commensurate, a comparison between the use-value and exchange-value of X is literally impossible. Unless you or anyone else can provide a metric of “use-value” and demonstrate that it is (or could be) the same metric of “exchange-value”, the phrase “the use-value of X is/could be greater than the exchange-value of X” is gibberish.

  16. Stavros, what particularly do you have in mind? I am guessing, without revisiting the document, that you are referring to Marx pointing out that labor is not the sole source of material wealth? This does not cause me pause for thought. It is clear that labor, nature and machines all create physical output. The debate is over what creates value..For Marx, value is an amount of socially necessary labor time. Clearly, then, Marx does not think that anything other than labor can create value. He might have been wrong, but I think it is clear that this was his position.

  17. peterc wrote: ” the use value of the abstract machine cannot exceed the value (or price, depending on interpretation) of the machine.”

    To me, this is another meaningless sentence/phrase. It is akin to saying the beauty of X cannot exceed the flexibility of X. Classic “apples and oranges” (in fact “apples and giraffes”).

  18. “Marx’s argument requires that **the use values created by workers are greater than the value of labor power** but that, in contrast, **the use values created by a machine are merely equal to the value of the machine.** ”

    “If, instead, it has already been established that labor alone creates value, then **Marx’s insight about the use value of labor exceeding the value of labor power** serves as an explanation of surplus value, given the prior understanding that labor alone creates value, rather than opening up a can of worms about machines possibly being able to do the same. It will also then be clear that labor has already created value – not just use value (the new commodity) – in production, prior to exchange.”

    Either I am missing a crucial logical step, or the above two passages are marred by the same logical problems I claimed in earlier comments.

  19. Stavros wrote: “To me, this is another meaningless sentence/phrase. It is akin to saying the beauty of X cannot exceed the flexibility of X. Classic “apples and oranges” (in fact “apples and giraffes”).”

    Stavros, I agree with you. But I am trying to understand Steve Keen’s argument and then, if possible, address it on its own terms. It is impossible to make a quantitative comparison between the use value of concrete labor (e.g. engineering) and the value of labor power. At least with the use value of abstract labor (its capacity to create value) we are working in the same unit of measurement (value). However, the use value of abstract labor is its value creating capacity, not a quantity of value. Even so, if we ask how much value workers create through their performance of labor, this will be a magnitude of value quantitatively comparable with the value of labor power. Keen, from what I can tell, is using “use value greater than value” as a kind of shorthand for this capacity of workers to perform more labor than is necessary for their own reproduction.

    [In the middle part of this comment, I attempt to interpret Keen. This is not my viewpoint. It is my attempt to comprehend Keen’s point. I will use square brackets for any editorial remarks.]

    [Keen] Workers can produce more use values than they need to subsist. This helps to create a physical surplus (a surplus of use values). But this physical surplus is not yet value. It won’t be value until it has been converted into value through exchange. [This is emphatically not Marx’s view IMO. For him, workers directly create value – not just use values – in production.]

    [Keen] Well, machines can do the same thing as labor. A machine can produce more use values than are required to reproduce the machine. This also helps to create the physical surplus. Nature can as well.

    So, we have this physical surplus. It is partly due to labor, partly due to machines and partly due to nature. There is no way to isolate the workers’ contribution to the physical surplus from the contribution of machines and nature. And now that we have this physical output and physical surplus, they will be converted into value and surplus value through exchange. Suddenly, Marx claims that the surplus value is due entirely to labor, yet it has just been explained that the physical surplus was due not only to labor but also to machines and nature.

    How come only the part of the physical surplus attributable to labor can be converted into surplus value? In production, we couldn’t even distinguish labor’s contribution in physical terms from the contributions of machines and nature, yet now, after exchange, Marx says the entire surplus value is due solely to labor.

    Marx doesn’t justify this privileging of labor. He reasons correctly that workers can produce more use values than required for their reproduction but then refuses to apply the same logic to a machine or nature. [End of attempt to interpret Keen’s position.]

    As far as I can see, if we grant Keen the initial starting point – that labor does not directly create value in production but only directly creates use values – then his argument may well stand.

    But I don’t think the starting point should be granted – *as an interpretation of Marx* – because for Marx labor creates value directly in production. Value, for Marx, is a magnitude of socially necessary labor time. To the extent socially necessary labor is performed, new value will be created. Since machines and nature cannot perform labor, they do not create new value. The value of a machine is simply transferred to the new commodity. Etc.

    But to establish Marx’s position would seem to require explaining, in a prior step, why only labor creates value. I quoted Adam Smith in the previous post not because I am trying to conform to the views of dead economists but because personally I think his “toil and trouble” suggestion may be the most clear and straightforward rationale I’ve seen.

    Note, above, that I said Keen’s starting point (as I interpret it) should not be granted *as an interpretation of Marx*. Even so, it still might be a good starting point for a different theory, such as the one Keen is attempting to develop.

    Personally, I don’t think it is a good starting point if the aim is to understand capitalist commodity production. But the reason I don’t think so is that I find it highly plausible that only labor can create new value in capitalist commodity production. Others clearly disagree, and so they might well find Keen’s starting point a good one.

    To give a sense of why I find Marx’s view highly likely to be correct, consider three simple questions.

    Question 1. If nature provides something for free and producers incorporate it as an input into production, will this free gift of nature add to total price for the economy as a whole?

    Question 2. If nature created as a free gift a machine without any intervention by labor and this machine was used as an input into production, would the machine’s productiveness add anything to total price for the economy as a whole?

    Question 3. If that machine, which came as a free gift of nature, was able both to replicate itself and produce better versions of itself over time, would the introduction of these ever improving machines add anything to total price for the economy as a whole?

    It seems clear to me – but perhaps not to others – that the answer to each of those three questions is no. But it is equally clear that in each case there will be a positive impact on physical output and the physical surplus.

  20. “A machine can produce more use values than are required to reproduce the machine. This also helps to create the physical surplus. Nature can as well”

    If I understand this correctly, the above is Keen’s point, right?

    If so (even if Marx actually said something along those lines), it does not make much sense. A machine does not produce “more use values than are required to reproduce the machine”. Nor does human labor produce “more use values than are necessary to reproduce”. This “more” is a non-sequitur. More what? Use-VALUE. Fair enough. Use-valueS? How so? Is there a societal process whereby concrete use-value is transformed into inter-subjective, objective use-value? I don’t think so.

    It’s not even clear that “use-value” is a “subjective” category, at least not consistently. Mountain-spring water is usually capable of both satisfying human thirst and healthfully so. It has “objective” use-value for human beings.

    Anyway, I think magpie’s point regarding double-entry book-keeping is cogent. This is how “capital” is valued by actual capitalists and their agents; by its depreciation.

  21. A question to peterc or any commenters here?:

    The factors of production as I learned them are four: land, labor, capital, and enterprise (i.e., entrepreneurship). And each of these are expected to earn a return. Did Marx account for the fact that often the owner of capital is also an entrepreneur and that the returns earned for the capitalist would be for one factor or the other or a combination of both because the capitalist also played the role of entrepreneur?

    The reason I ask is my belief that the Soviet Union learned the hard way what happens without private sector allocation of capital, i.e., a centrally planned economy. And what capitalists did in their role as entrepreneurs is provide the mental labor of allocating capital to its highest and best use. So rather than exploiting workers, they were just earning a return in this case for their mental labor.

  22. Stavros, yes it was my (perhaps inaccurate) attempt to comprehend Keen’s argument. I agree with your critique of it, but perhaps it is not doing justice to Keen’s argument. It might be best to consult his 1993 paper. As mentioned by Magpie, the argument appears to be essentially the same. The recent lecture seemed to place more emphasis on establishing what Keen regards as Marx’s inconsistency in the treatment of use value, but otherwise seems to be the same argument as presented in 1993.

    Use-Value, Exchange-Value, and the Demise of Marx’s Theory of Value

    However, if I am not mistaken, he does appear to argue in the lecture (though I didn’t notice it in a quick look at the 1993 paper) that neither labor nor a machine creates value directly but via creating use values. (?)

  23. Hi Ahmed. My understanding is that if it’s labor – no matter who it is performed by – it should count as labor. Depending on the position taken on the distinction between ‘productive’ and ‘unproductive’ labor (in Marx’s sense of those terms), the labor may or may not directly create value, but the same can be said for many workers (e.g. in the public sector) who are performing socially necessary but ‘unproductive’ labor. There is no suggestion that individuals performing socially necessary but ‘unproductive’ labor should be denied remuneration for their labor. ‘Socially necessary but unproductive’, in this sense, just means that the individual’s labor is not directly creating value but rather is helping to put in place the necessary conditions that enable direct value creation to occur.

    Marx divided surplus value up into various categories (industrial profit, interest, rent, etc.).

    As you correctly point out, somebody who is doing the work to determine where to invest at the best return is performing labor. Nobody – as far as I am aware – is trying to deny that person remuneration for this effort. For example, there will be analysts running involved analyses to advise owners of money capital where to place their savings or banks where to lend.

    But there is a difference – as I think you are pointing out yourself – between income received by rights of ownership and income received as remuneration for labor. For example, a CEO of a major corporation performs labor – and, fair to say, labor of a complex kind. Part of his or her income, however, will often be due to ownership (e.g. when they own shares in the company they are running). That part of their income is due to ownership of the means of production, not labor, whereas the other part of the CEO’s income is remuneration for labor.

  24. Magpie wrote: “So, should Marxists force accountants (including national accountants) and capitalists to change their practices so that Marx’s law of value is made wrong?”

    Depreciation in accounting is just a bookkeeping tool to try to measure the exchange-value of assets somewhat more accurately, and to pay taxes properly / get the most tax writeoffs. It makes perfect sense to base exchange-value depreciation off of exchange-value. Keen is saying that still doesn’t say anything about what use-value you’re getting from the machine/input. To get at use-value, remove a machine from production and see how far the value of output declines, or see how much it boosted the value of output when added as an input to production (roughly speaking).

    Stavros: Why would exchange-value & use-value be considered apples & oranges when it comes to a comparison? Inside of production, use-value of labor or machinery is certainly quantitative and is the whole point: pay less for your inputs than the output can sell for. That’s how you get profit. No one hires labor or buys non-labor inputs for their beauty or flexibility, but for their ability to increase the output quantity/quality and therefore the revenue.

    Keen argues that Marx’s position (which he agrees with) is that use-value is mostly qualitative in C-M-C but almost entirely quantitative in M-C-M`. His response about the word ‘incommensurable’ between use-value and exchange-value was that it may be a bad english translation or some of Marx’s poetic license to underscore the point that they’re entirely unrelated. But Marx is surely able to broadly measure both in money/price terms, with the difference being the profit.

    Peterc wrote: “For a given price of the machine, a more productive machine will transfer its value over more units of output. The unit value will fall due to the higher productivity. In general, an increase in productivity lowers unit values and unit prices.”

    Ah thanks, yeah I think that’s part of what I missed. However it still seems to me that non-labor inputs can also increase the *quality* of the output, rather than only the quantity. So a new higher level of quality could command a higher price and therefore show signs of surplus value coming from non-labor input. Maybe the argument goes that when perfect competition is applied to that, everyone is now producing the higher quality output, and the price falls back down to cost. But that argument applies equally to labor. (in cost-plus terms, perfect competition drives price down to cost + 0% profit margin)

  25. @Gus,

    “To get at use-value, remove a machine from production and see how far the value of output declines, or see how much it boosted the value of output when added as an input to production (roughly speaking).”

    I see. So (roughly speaking), you say Prof. Keen invented the marginal product of capital (see below).

    Marginal product of capital
    From Wikipedia, the free encyclopedia
    The marginal product of capital (MPK) is the additional output resulting, ceteris paribus, from the use of an additional unit of physical capital.

    (source: https://en.wikipedia.org/wiki/Marginal_product_of_capital)

    Does Prof. Keen know he said what he said?

  26. But, never mind. Let’s follow your logic.

    Imagine you have a bus company. You add a new bus to your fleet. How much does the new bus boost your output? Go ahead, make a guess. Take your time, there’s no rush.

    Ready?

    This is the answer: exactly 0. Nada, zilch, rien.

    You know, empty buses have a price. But they don’t work by themselves, do they? They need drivers.

    Prof. Keen is very aware of the laws of thermodynamics: he often speaks of them. He knows perpetual motion machines are an impossibility: buses need fuel (among other things).

    You have to add at least fuel and driver: more capital and labour. How much of the additional output is due to the additional capital, how much to the additional labour and how much to the new bus?

    ———-

    Incidentally, I didn’t invent this counterexample. This is only an adaptation of a counterexample Joan Robinson used against the production function and the marginal productivity theory which you say Prof. Keen now embraced. The credit is hers.

    If memory serves, instead of buses, Robinson spoke of shovels: a single additional shovel, without a worker to yield it, will not produce any additional holes.

    You know, I enjoy ironies. 🙂

  27. What irritates me is the tendency of many to conflate capitalism with a system of ownership (or of production for others).

    It is a *political* system (or rather a class of political systems) in which the owners (or controllers) of capital (first productive, then financial) have the most political power.

    Just like feudalism was not a system of ownership, but a political system in which the titulars of fiefs (secular or temporal) had the most political power.

    There is quite a difference that matters significantly among :

    * systems of production,
    * institutional arrangements of ownership,
    * political systems,
    * institutions for exchange (like markets of various types),
    * legal systems,
    * status hierarchies,

    etc.; but of course as dear old Karl argued they tend to align.

    Our current political system is (as Minsky calls it) money-manager capitalism with limited democratic participation, in which the Paretian circulation of policy-making elites is among factions that are or represent the interests of money-manager capitalists, with middle class voters given at election time a right of veto as to which money-manager capital faction they object most.

    A pithier summary I read somewhere else, the money-manager capitalist factions nominate, and the middle class factions elect (which is mostly about vetoing than a positive choice).

    PS The supposed benefits of “capitalism” and “democracy” in first-world countries are instead the benefits given, in most important first, by:

    * bankruptcy (or more precisely a culture in which bankruptcy is a thing),
    * the industrial mode of production,
    * the adoption of cheap, energy dense mineral fuels (coal first, oil later).

    Perhaps *competitive* markets help too, but most economic activity happens wholly outside markets, and competitive ones are quite rare.

    Consider countries without bankruptcy: even with an industrial mode of production and the adoption of cheap dense mineral fuels they tend to be quite poor.

    Consider countries with bankruptcy and an industrial mode of production: without the adoption of cheap dense mineral fuels their “labour” productivity is bound to be very low.

    etc.

  28. “You know, empty buses have a price. But they don’t work by themselves, do they? They need drivers.”

    They need much more than that. You can have buses and drivers and timetables and still not have a *system* for delivering a service. The bus service does not pop into being by magic just because a bunch of stuff happens to be in the same place – any more than a bunch of organised body parts spontaneously turns into a valuable human being.

    The bit you are missing is that the entrepreneur taking the individual components and combining them in a novel way creates something that is greater than the sum of the parts. It is an emergent property. And that value is created by the entrepreneur – for which they receive a wage, called profit.

    Profit is just the wages of capitalists. Just as interest is the wages of bankers – for deciding which crazy ideas by entrepreneurs are worth allocating society’s resources and which are not. Those are both jobs and effort, which has a cost.

    The bit Marxists always miss is that capitalists and bankers do work as well, and they never talk about more than one different type of machine in combination with others, operating under a system of organisation. Nor do they talk about the risk of uncertainty and bankruptcy and destitution from failure of organisations.

    So if an entrepreneur tries ten things and nine things fail, but one succeeds then the cost of effort expended by the entrepreneur on the nine failures has to be recovered from the tenth. The value dissipated in the nine failures has to be incorporated in the one success.

    Similarly with bankers. Any failure has to be recovered from the successes.

    There is value in what capitalists and bankers do. And there is value in their failures. Profit and interest reflect that.

    Now you can argue that the reward outweighs the value, but that is the same as arguing whether a bus driver is worth more than a dustman.

  29. @Neil Wilson

    First of all, please have the courtesy of indicating that you are addressing me.

    Second, isn’t “Gus” big enough to speak for himself? Maybe I should come up with a collective name to refer to you guys.

    “The bit you are missing is that the entrepreneur taking the individual components and combining them in a novel way creates something that is greater than the sum of the parts.”

    I’m sorry, but if you have a problem with what I wrote either on 28 January 2016 at 6:36 PM or at 7:45 PM you need to discuss it with Joan Robinson, not me. That’s the bit that you are missing.

    And, frankly, I won’t discuss childish, pathetic re-definitions of dictionary terms:

    Wages and Profits
    http://aussiemagpie.blogspot.com.au/2014/08/wages-and-profits.html

    As Watto said to Qui-Gon Jinn:

    “What? You think you’re some kind of Jedi, waving your hand around like that? I’m a Toydarian. Minds tricks don’t work on me. Only money. No money, no parts, no deal!”.

    And Watto was an entrepreneur: I’m only following a good example. 🙂

  30. Yeah that’s why I said ‘roughly speaking’, because it’s not perfectly measurable by addition or subtraction to get output as a sum of all individual inputs. But it’s showing how use-value can be seen as quantitative inside of production.

    More simple than the Bus example: say a guy gets paid to dig ditches (based on quality and/or quantity, whatever). If he buys a cheap shovel he can massively increase his revenue compared to merely using his hands. If you take away the shovel, his revenue may drop 70%. If you take away the guy’s labor/effort, the revenue drops 100%. But it’s still quite clear that a change in equipment can have a significant quantitative effect on output, which has nothing to do with how expensive a shovel is, and with the exact same labor hours/effort.

    I also agree with the end of Peter’s blog post here anyway, that human effort is at least the key part of creating value (or realizing it). Keen said he agreed with that too, saying it was better to go with that earlier classical notion. The critique was on Marx’s specific attempt at a scientific proof of a LTV, where labor is some unique commodity which is the one thing that can have a greater quantifiable use-value (within production) than its fair exchange-value (social reproduction).

  31. @Gus

    “Yeah that’s why I said ‘roughly speaking’, because it’s not perfectly measurable by addition or subtraction to get output as a sum of all individual inputs.”

    Man, you are good. 🙂

    “More simple than the Bus example: say a guy gets paid to dig ditches (based on quality and/or quantity, whatever) blah, blah, blah”

    Yeah, I know. You don’t say it, but I will: Robinson was wrong, then.

    The digger can dig without a shovel; the bus driver transports people on his back (one foot firmly inserted on his ass), without a bus. Whatever.

    ————

    And I thought you couldn’t possibly bamboozle me! I was wrong: I must confess, I’m totally bamboozled.

    So that we both can save our times, I’ll advance a guess: you are also a post Keynesian Nigerian billionaire who needs to share his billions with me and that’s why you want my banking account number, password, security codes, PIN. Right?

    Ready to get my banking details? 🙂

  32. Once robots demand wages (I imagine when the singularity is reached), then you could say machines create new value.

  33. @pebird

    Indeed! If machines could have some method of denying work or choosing their own employer aka silicon humans. They would then enter into a social relation with their employer just like the rest of humanity.

    However if we reached such a state of affairs it is highly probable that “value” as outlined by Marx (Abstract wealth) would cease to exist due to very low/zero labour inputs and the majority of production being automated (Singularity etc…)

    Don’t know what would determine value at this point… Energy used in production? Utility? I don’t know…

    As an extra question for all to ponder: For machines to refuse wages and be counted among the humans in terms of social relations. Does it presuppose a certain level of free-will* or consciousness on the part of the machine? Or does this not matter at all? Would simulated consciousness/free-will be enough to form the social relation of production to count them as wage workers?

    *Question on free-will can be badly phrased, I hope this doesn’t confuse anyone. It is a difficult question either way, I don’t expect a concrete answer.

  34. “First of all, please have the courtesy of indicating that you are addressing me”

    Careful. You’ll wear that handbag out brandishing it all the time like that.

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