Occasionally, /u/musicotic and I argue about the labour-theory-of-value (LTV) and Marxism

Recently, musicotic wrote: "I think your point about 'time-preference' isn't a very convincing one, nor does it contradict most Marxists interpretation of the LoV."

Musicotic pointed to a post on a blog called kapitalism101. Here I'm RIing that blog and Musicotic's post. I'll try to sharpen the criticisms I've given before, or at least put them in a different way.

The Classical Economists concentrated on one form of fundamental scarcity - the scarcity of labour. Though many classical economists (including Smith and Ricardo) admitted to some doubts about this. The Marginalist changed things. They began thinking in terms of several fundamental scarcities - labour, land and time.

The material I quote below was quoted by Musicotic. I believe it was from the kapitalism101 site, though I can't find it there.

Marx's theory of value is not an assumption. It is a theory which he supports with painstakingly detailed logic. Providing examples of prices diverging from embodied labor time does not falsify/refute Marx’s theory because he does not claim that empirical prices always reflect embodied labor time or that prices empirically gravitate around a center of gravity based on value in the manner that neoclassical theory theorizes equilibrium price. He is making an entirely different sort of theory with his theory of value, not to be confused with his theory of price. All prices are sums of value. See my previous post on Intrinsic Value.

So, the LTV is right and even when it's wrong that proves that it's still right? Or alternatively, it's something very complicated that none of us non-Marxists really understand. Despite the fact that Marx himself explains it in a few paragraphs.

I'll refer to the kapitalism101 blog post mentioned on intrinsic value. The blog post describes the Marxist LTV where prices are given by socially-necessary labour time. In the view of Marxists labour value explains what's really going on in the economy. Prices are a surface phenomenon. The blog post enthusiastically explains this view.

A system of economic theory must be able to explain prices. Even if you believe that prices are a surface phenomenon of some sort it's still necessary to explain them. Indeed, if prices really are a symptom of something deeper then explaining them should be simple to those who understand that deeper thing. And, explaining prices should be harder for those who don't understand it.

The excuses begin in the section "Unequal Exchange".

Sometimes critics of Marx point to price-value divergences as if such divergences prove that value is being created by something other than the labor that created the commodity. But, as we have seen from the simple example of unequal exchange in the previous paragraph, labor has created the value of A and B. Whatever social forces have caused the exchange to be unequal (monopoly, imbalance in supply and demand, dishonesty, etc.) are not creating value. They are merely causing an unequal exchange to take place. This unequal exchange is still an exchange of two sums of value value created by labor.

In this paragraph the word "value" by itself means labour-value.

Notice the sophistry here. When the labour theory of value works then we have "equal exchange". When the LTV doesn't work we have "unequal exchange". That's allegedly consistent with the LTV too. This is supposedly because the causes of this unequal exchange don't involve creating labour value. But, nobody said that they were. This is a circular argument. The blogger assumes that nothing but labour value matters. Then writes off unequal exchange as an uninteresting case on the basis that the unequalness doesn't involve labour value.

Some suggest that the inequalities all balance out. So, that when one good is sold for less than it's labour-value that means another good must be sold for more than it's labour-value. This leads to an aggregate theory where all final income is proportional to all labour-value across the economy. (I can put this in a mathematical form if anyone is interested.) This is a view Marx leans towards in the end. This theory has the benefit that it's a proper theory. The idea that labour values determine prices except when they don't isn't really a theory. However, careful thought shows the problems with this aggregate theory.

Now, my example was actually about wine having different values at different times. Musicotic quotes an argument about prices in different places. I don't know if Musicotic has quoted the wrong thing here. I agree, of course, that place is one of aspects of a good. Water in the desert isn't the same good as water next to a well.

One of the interesting things about marginalism is that many of the basic problems can be understood without reference to anything modern like capitalism. The experience of someone like Robinson Crusoe on his island tell us a great deal.

Let's say that Robinson Crusoe plants some vines to make wine. He pressed the grape juice and stores the wine in barrels that have washed up on his island. Then, some years after he has laid down the first barrels he opens them up and starts drinking.

In this process Crusoe has sacrificed three things. Firstly, he has sacrificed the land for vines. His island only has a finite amount of land and he has taken a portion of it an used it for this purpose. Of course, if land is plentiful this may not be a large sacrifice. Secondly, he has sacrificed his labour in planting the vines and making the wine. Lastly, he has sacrificed his time in waiting for the wine to mature. He could have done something else with his labour that provided an immediate return.

A market economy with many participants cannot remove any of these sacrifices. Labour is still required. Vines still consume land. Wine still takes time to mature. The people involved in each step may be different. The person owning the land may be different to the person doing the labour. Another person may own a financial asset of some sort. But, those changes can't remove the underlying sacrifices that must be made. All of these sacrifices contribute to the state of supply for each good, and from there to the price paid. The ethical rights or wrongs of this aren't important because the theory is about what happens, not what should happen.

An aggregate LTV can't solve this problem. That's because these things don't cancel out. A bunch of asparagus may take more land to grow than a cabbage, but both take more than zero. Similarly, a bottle of wine may take more investment time than a kettle. But, no good can be produced instantly from it's inputs.