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USE-VALUE, EXCHANGE VALUE,
AND THE DEMISE OF
MARX'S LABOR THEORY OF VALUE
BY
STEVE KEEN
I. INTRODUCTION
Karl Marx was the greatest champion of the labor theory of value.
The logical problems of this theory have, however, split scholars of
Marx into two factions: those who regard it as an indivisible compo-
nent of Marxism, and those who wish to continue the spirit of analysis
begun by Marx without the labor theory of value. In the debate be-
tween these two camps, the former has attempted to draw support
from Marx's concepts of value, while the latter has ignored them,
taking instead as their starting point the truism that production gener-
ates a surplus. Nevertheless, a careful examination of the development
of Marx's logic uncovers the profound irony that, after a chance re-
reading of Hegel, Marx made a crucial advance which should have led
him to replace the labor theory of value with the theory that commodi-
ties in general are the source of surplus. Marx's value analysis is thus
consistent, not with those who would defend the labor theory of value,
but with those who would transcend it.
Marx did not properly apply this analysis to non-labor inputs, while
the cornerstone of Capital was his correct application of the same
analysis to labor. This unjustified asymmetrical treatment of the labor
and non-labor inputs to production is therefore the actual and unsound
foundation of Marx's labor theory of value. Once that treatment has
been corrected, the labor theory of value collapses.
II.
EARLY MARX
The labor theory of value. Marx did not immediately adopt the
labor theory of value. As Mandel observes, his process of conversion
University of New South Wales, Australia. The author wishes to thank J. E.
King, Geoff Fishburn, Craig Freedman, Peter Kriesler, and three anonymous ref-
erees for their helpful comments and criticisms of earlier drafts of
this
article.
Journal of
the
History of Economic Thought, 15, Spring 1993.
°1993 by the History of Economics Society.
107
108 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
began with his study of the English classical political economists, and
the concept did not come easily to him (Mandel 1971, p. 40). This is
evident early on in The Economic and Philosophic Manuscripts of 1844,
where Marx makes the comment that "the capitalist thus makes a profit,
first, on the wages, and secondly, on the raw materials advanced to
him" (Marx 1844, p. 79). However, he shortly afterwards says that "the
greater the human share in a commodity, the greater the profit of dead
capital" (ibid., p. 81), which is an assertion that labor is at least the ma-
jor source of profit.
Further on in The Manuscripts, Marx develops an acceptance of the
idea that labor is the only source of wealth. Subsequently he took the
labor measure of value approach one stage further than had Ricardo, to
explain the source of surplus. By the time of Wage Labor and Capi-
tal, Marx gave the explanation that labor is paid its cost of subsistence,
yet its work extends beyond the time required to reproduce those
means of subsistence. He later formalized this using the distinction
between labor power, the ability to perform work, and labor
itself.
1
Capitalists purchase labor power by paying for its cost of production,
and receive the far greater quantity of its ability to produce value:
"The worker receives means of subsistence in exchange for his labor-
power, but the capitalist receives in exchange for his means of sub-
sistence labor, the productive activity of the worker, the creative
power whereby the worker not only replaces what he consumes but
gives to the accumulated labor a greater value than it previously pos-
sessed"
{Marx 1847, p. 85).
The concept of use-value. The concept of use-value was also un-
dergoing development at the early stage of Marx's introduction to
political economy. As with the labor theory of value, Marx's initial
understanding of use-value was quite different to his final. In the
course of a powerful insight into the conflict between Ricardo and
Malthus, Marx expressed, in dialectical garb, the opinion that use de-
termines value—which is hardly consistent with a labor theory of val-
ue.
Having criticized Ricardo and Say for forgetting in the debate
over thrift versus luxury that "there would be no production without
consumption," he continues "that it is use that determines a thing's
value, and that fashion determines use" (Marx 1844, p. 151). Howev-
er, by the time he came to part company with Proudhon, Marx had im-
bibed the classical attitude that use-value plays no role in determin-
1.
This terminology was not part of Marx's method at the time of
Wage
Labor
and
Capital,
but Engels edited that work to include those terms in a re-issue intend-
ed to educate workers.
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 109
ing value. Marx's critique of Proudhon's reasoning is an interesting
portent of his later, developed approach to the distinction between use-
value and exchange-value. While he rightly dismisses Proudhon's at-
tempt at dialectics, it could well be that Proudhon lay the seed which
later germinated in the Grundrisse.
According to Marx, the gist of Proudhon's attempt at a dialectic was
that things of the lowest utility have the highest value, while those with
the highest utility have the lowest value, and labor value provides a rec-
onciliation between these two extremes. Marx dismissed this firstly as
ignoring the role of demand in determining scarcity, and secondly as
dressing up in complicated terms the "precise, clear, and simple lan-
guage of Ricardo...in order to arrive at the determination of relative
value by labor-time. The determination of value by labor-time is for
Ricardo the law of exchange-value; for M. Proudhon it is the synthesis
of use-value and exchange-value" (Marx 1846, pp. 52-53). Thus at this
stage Marx admits that use-value is a determinant of demand, but the
concept plays no active role in his logic. He is firmly of the opinion
that everything necessary to form the foundation of political economy
can be found in Ricardo's analysis of exchange-value.
III.
THE DIALECTIC OF THE COMMODITY
The development. Several authors have observed that a chance re-
reading of Hegel had a profound effect on Marx while he was drafting
the Grundrisse (Oakley 1983, pp. 58-59, 63; Mandel 1971, p. 103).
Mandel observes that Hegelian dialectics evidently lay behind many of
the '"dialectical pairs' such as 'commodity and money,' 'use-value and
exchange-value,' 'capital and wage-labor,' 'labor time and leisure,'
'labor and wealth,' in which the Grundrisse abound." The most potent
of these was the dialectic between use-value and exchange-value, and
the realization of the role it could play in political economy was first
expressed in a footnote spanning two pages of the Grundrisse. Here
Marx first realized that the classical treatment of the commodity pro-
vided the means by which he could unite his German dialectical phi-
losophy with English classical political economy:
Is not value to be conceived as the unity of use-value and
exchange-value? In and for
itself,
is value as such the general
form, in opposition to usevalue and exchange-value as partic-
ular forms of it? Does this have significance in economics?
Use-value presupposed even in simple exchange or barter. But
here,
where exchange takes place only for the reciprocal use of
110 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
the commodity, the use-value, i.e., the content, the natural
particularity of the commodity has no such standing as an
economic form. Its form, rather, is exchange-value. The con-
tent apart from this form is irrelevant; is not a content of the
relation as a social relation. But does this content as such not
develop into a system of needs and production? Does not use-
value as such enter into the form
itself,
as a determinant of the
form
itself,
e.g. in the relation of capital and labor? If only
exchange-value as such plays a role in economics, then how
could elements later enter which relate purely to use-value....
The price appears as a merely formal aspect of it. This is not
in the slightest contradicted by the fact that exchange-value is
the predominant aspect. But of course use does not come to a
halt because it is determined only by exchange; although of
course it obtains its direction thereby. In any case, this is to
be examined with exactitude in the examination of value, and
not, as Ricardo does, to be entirely abstracted from, nor like
the dull Say, who puffs himself up with the mere presupposi-
tion of the word "utility." Above all it will and must become
clear in the development of the individual sections to what
extent use-value exists not only as presupposed matter, outside
economics and its forms, but to what extent it enters into it.
Proudhon's nonsense, see the "Misere"... (Marx 1857, pp.
267-68,
n.).
Ricardo and Smith had distinguished between use-value and ex-
change-value simply to dismiss the former as of no economic signifi-
cance (Smith 1776, p. 13; Ricardo 1821, pp. 5-6). However, from
Marx's Hegelian perspective, use-value and exchange-value were in-
separable dialectical aspects of the social unity the commodity, which
itself is central to the analysis of capitalism. Far from being an eco-
nomic irrelevance, use-value, in dialectical union with exchange-value,
could actually be the key to a proper understanding of political econo-
my. Having discovered this dialectic so late in the development of his
economics, Marx felt compelled to return to issues which he had pre-
viously considered solely in labor theory of value terms, and to use the
dialectic of commodities to provide a firmer foundation for his earlier
views.
This process of reconsideration dominates the Grundrisse and
the Theories of Surplus Value? The crucial use to which Marx put the
2.
See Groll 1980 for a coverage of Marx's many-faceted application of the
concept of use-value in the
Grundrisse,
Theories of Surplus Value and Capital.
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 111
"dialectic of the commodity" was to uncover the source of surplus
value, without having to begin with the premise that labor was the
only source of value, and without prior consideration of the distinction
between labor power and labor. The best expression of this divination
occurs, not in the obscure and for-so-long-unpublished Grundrisse, but
in Capital
itself.
The application. Marx began Capital by clearing intellectual cob-
webs on the route to uncovering the source of surplus, criticizing ex-
planations based upon unequal exchange (Marx 1867, p. 154) or in-
creasing utility through exchange (ibid., pp. 155-58), then restating the
classical axiom that exchange involves the transfer of equivalents
(ibid., pp. 155-56), and the conclusion that therefore exchange of itself
cannot provide the answer. Yet at the same time circulation based on
the exchange of equivalents must be the starting point from which the
source of surplus value is deduced. Marx put the dilemma superbly:
The conversion of money into capital has to be explained
on the basis of the laws that regulate the exchange of com-
modities, in such a way that the starting point is the exchange
of equivalents. Our friend, Moneybags, who as yet is only an
embryo capitalist, must buy his commodities at their value,
must sell them at their value, and yet at the end of the process
must withdraw more value from circulation than he threw into
it at starting. His development into a fullgrown capitalist must
take place, both within the sphere of circulation and without it.
These are the conditions of the problem (ibid., pp. 163).
He began the solution of this dilemma with a direct and powerful
application of the dialectic of the commodity. If the exchange-value
of the commodity cannot be the source of surplus, then the dialectical
opposite of value, use-value, is the only possible source:
The change of value that occurs in the case of money
intended to be converted into capital...must...take place in the
commodity bought by the first act, M-C, but not in its value,
for equivalents are exchanged, and the commodity is paid for
at its full value. We are, therefore, forced to the conclusion
that the change originates in the use-value, as such, of the
commodity, i.e. its consumption. In order to be able to extract
value from the consumption of a commodity, our friend, Mon-
eybags, must be so lucky as to find, within the sphere of circu-
lation, in the market, a commodity, whose usevalue possesses
the peculiar property of being a source of value (ibid., pp.
164;
emphases added).
112 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
Marx then used the quantitative difference between the exchange-
value of labor-power and its use-value to uncover the source of surplus
value in the transaction between worker and capitalist:
The past labor that is embodied in the labor power, and
the living labor that it can call into action; the daily cost of
maintaining it, and its daily expenditure in work, are two total-
ly different things.
The
former determines the exchange-value
of the labor power, the latter is its use-value. The fact that
half a [working] day's labor is necessary to keep the laborer
alive during 24 hours, does not in any way prevent him from
working a whole day. Therefore, the value of labor power,
and the value which that labor power creates in the labor pro-
cess,
are two entirely different magnitudes; and this difference
of the two values was what the capitalist had in view, when he
was purchasing the labor power.... What really influenced him
was the specific use-value which this commodity possesses of
being a source not only of value, but of more value than it has
itself.
This is the special service that the capitalist expects
from labor power, and in this transaction he acts in accordance
with the "eternal laws" of the exchange of commodities. The
seller of labor power, like the seller of any other commodity,
realizes its exchange-value, and parts with its use-value (ibid.,
p.
188).
At this point, Marx is triumphant. He has established the source of
surplus value, and has done so without any initial presumption that
labor was the only source of value, an achievement which had eluded
his classical antecedents. But at this stage, all he had established was
that labor was a source of value. To prove that it is the only source of
value, he had to apply the same conceptual framework to the means of
production, and find that the presumption of the strict labor theory of
value, that the means of production only transfer their value to the
product, is confirmed. In this second endeavor, he failed.
The contradiction. In volume I of Capital Marx appeared to suc-
cessfully reach the conclusion that the means of production could not
be a source of surplus value. However, he could only do so by con-
tradicting a basic premise, that the use-value and the exchange-value
of a commodity are unrelated. In the course of this attempt he ad-
vanced three propositions which fundamentally contravene his general
approach to commodities: that, in the case of the means of production,
the purchaser makes use of their exchange-value, not their use-value;
that their use-value cannot exceed their exchange-value; and that their
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 113
use-value somehow reappears in the use-value of the commodities they
help create.
Marx began with the simple assertion that the means of production
can transfer no more than their exchange-value to the product (ibid., p.
193).
He next attempted to forge an equality between the exchange-
value and the use-value of the means of production, by equating the
depreciation of a machine to its productive capacity:
Value exists only in articles of utility.... If therefore an
article loses its utility, it also loses its value. The reason why
means of production do not lose their value, at the same time
that they lose their use-value, is this: they lose in the labor
process the original form of their use-value, only to assume in
the product the form of a new use-value.... Hence it follows
that in the labor process the means of production transfer their
value to the product only so far as along with their use-value
they lose also their exchange-value. They give up to the prod-
uct that value alone which they themselves lose as means of
production (ibid., p. 196).
There are two erroneous propositions in this paragraph, while anoth-
er is ambiguous. Firstly, the two final sentences which appear to link
the transfer of value by the machine to its depreciation are incorrect
(see below). Secondly, the statement that the use-value of a machine
reappears in the use-value of the product equates the use-value of the
machine to the utility enjoyed by the "consumers" who purchase the
goods the machine produces. But the use-value of a machine is spe-
cific to the capitalist purchaser of the machine only. By arguing that
the use-value of the machine reappears in the product, Marx is in fact
contemplating the existence of abstract utility, with the "usefulness" of
the machinery being transmuted into the "usefulness" of the commodi-
ties it produces. The ambiguous statement concerns the transfer of
value by the means of production. Which of their two "values" do
machines transfer, their exchange-value or their use-value? If Marx
meant that they transfer their use-value, then this sentence would be
correct in terms of his analysis of commodities. But later he makes it
clear that by this expression he meant that the means of production
transfer not their use-value (which is the case with a worker) but their
exchange-value. In the clearest illustration of the flaw in his logic, he
states that over the life of a machine, "its use-value has been com-
pletely consumed, and therefore its exchange-value completely trans-
ferred to the product" (ibid., p. 197). This amounts to the assertion
that in the case of machinery and raw materials, what is consumed by
114 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
the purchaser is not their use-value, as with all other commodities, but
their exchange-value.
This ambiguity reappears as Marx discusses the example of a ma-
chine which only lasts six days. He first states the correct proposition
that the machine transfers its use-value to the product, but then equates
this to its exchange-value. He says that if a machine lasts six days
"Then, on the average, it loses each day one sixth of its use-value, and
therefore parts with one-sixth of its value to the daily product." Ini-
tially he draws the correct if poorly stated inference that "means of
production never transfer more value to the product than they them-
selves lose during the labor-process by the destruction of their own
use-value" (ibid., p. 197; see also p. 199). However the ambiguity
between exchange-value and use-value is strong, and his conclusion
takes the incorrect fork. Stating his conclusion rather more succinctly
than his reasoning, he says, "The maximum loss of value that they
[machines] can suffer in the process, is plainly limited by the amount
of the original value with which they came into the process, or in
other words, by the labor-time necessary for their production.... How-
ever useful a given kind of raw material, or a machine, or other means
of production may be, though it may cost £150...yet it cannot, under
any circumstances, add to the value of the product more than £150"
(ibid., p. 199).
Essentially, Marx reached the result that the means of production
cannot generate surplus value by confusing depreciation, or the loss of
value by a machine, with value creation. The truisms that the maxi-
mum amount of value that a machine can lose is its exchange-value,
and that a machine's exchange-value will fall to zero only when its
use-value has been completely exhausted, were combined to conclude
that the value a machine adds in production is equivalent to the ex-
change-value it loses in depreciation. With the value added by a ma-
chine equated to value lost, no net value is transferred to the product,
and therefore only labor can be a source of surplus value.
While the argument may appear plausible, in reality it involves a
confusion of two distinct attributes of a machine: its cost (exchange-
value) and its usefulness (use-value). From a Marxian perspective,
depreciation is the writing-off of the original exchange-value of a ma-
chine over its productive life. Consequently, the maximum deprecia-
tion that a machine can suffer is its exchange-value. As it wears out,
both its residual value and its usefulness will diminish, and both will
terminate at the same time. However it does not follow that the use-
fulness (the value creating capacity) of the machine is equal to its cost
(its depreciation). Though a capitalist will "write-off the latter com-
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 115
pletely only when the former has been extinguished, the two aspects
are nonetheless completely different and unrelated. There is no reason
why the value lost by the machine should be equivalent to the value
added. An analogy with labor highlights the fallacy involved in equat-
ing these two magnitudes. If workers receive a subsistence wage, and
if the working day exhausts the capacity to labor, then it could be
argued that in a day a worker "depreciates" by an amount equivalent
to the subsistence wage—the exchange-value of labor power. Howev-
er this depreciation is not the limit of the amount of value that can be
added by a worker in a day's labor—the use-value of labor. Value
added is unrelated to and greater than value lost; if it were not, there
could be no surplus.
Marx's dialectic provides the axiomatic basis on which to discern
between value added and depreciation, and thus reject the identifica-
tion of value creating capacity with value lost. As discussed above,
depreciation can be equated to exchange-value, while a machine's
contribution to production is its use-value. According to Marx's anal-
ysis of commodities, these should be two different magnitudes, since
for all commodities "the two aspects in no way enter into relation with
each other" (Marx 1857, pp. 267-68, n.). Marx did in fact reach this
conclusion at one point in the Grundrisse. In the midst of a mass of
arithmetic exploring how machinery could reduce the price of a prod-
uct (thus giving an advantage to the capitalist who introduces it and
yet resulting in a lowering of the rate of profit), Marx suggested pre-
cisely the method that he should have used to apply his dialectic of
commodities to the question of the value productivity of machinery:
"It also has to be postulated (which was not done above) that the use-
value of the machine significantly [sic] greater than its value; i.e. that
its devaluation in the service of production is not proportional to its
increasing effect on production" (ibid., p. 383; emphasis added).
Here Marx specifically referred to the use-value of a machine being
greater than its value, and in contrast to his discussion of depreciation
in Capital, dissociated the productivity of a machine from its deprecia-
tion. The use-value of a machine will differ from its exchange-value
and, as with labor, we can assume that its use-value will be "signifi-
cantly greater than its value." In practice this will mean that the
amount it loses in depreciation will be significantly less than the
amount it contributes to the value of output, and it will, with labor, be
a source of surplus value. Unfortunately, Marx never developed this
postulate. His later developments of his dialectic as it relates to value-
creation tarnished rather than polished the tool, obscuring the funda-
mental contradiction it uncovered in his labor theory of value.
116 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
The quantification of use-value. In his algebraic and numerical ex-
plorations of value creation, Marx compounded his previous logical
errors by using the same magnitude for the exchange-value and the
use-value of the means of production, while using different magnitudes
for the exchange-value and use-value of labor power.
The inputs to a productive process are heterogeneous labor and a
heterogeneous collection of goods. Given the input side of the pro-
ductive process as C=c+v, c is clearly the exchange-value of the
means of production, and v is the exchange-value of labor power. The
output is a commodity (plus depreciated capital equipment), and the
value equation C'=c+v+s quantifies this gross output. This equation
is of itself unproblematic, since all it states is that production generates
a surplus. The difficulties arise when portions of that net output are
attributed to the labor power and the commodity inputs. Marx's claim
that the surplus s is proportional to v and unrelated to c describes v+s
as the use-value of labor, and c as the use-value of the means of pro-
duction.
Marx made the former identification explicitly on numerous occa-
sions,
including the passage in Capital where he first reveals the
source of surplus value (Marx 1867, p. 188; see also 1861a, p. 400
and 1857, p. 576). There are numerous other passages where the use-
value of labor is identified with similar concepts such as surplus value,
productive consumption, etc. While his characterization of c as the
use-value of the means of production was never so definitive, Marx
nonetheless was explicit that the quantitative measure of a machine's
contribution to production was its use-value, not its exchange-value:
"So far as constant capital enters into the production of commodities,
it is not its exchange-value, but its use-value alone, which matters....
[T]he assistance rendered by a machine to, say, three laborers does not
depend on its value, but on its use-value as a machine" (Marx 1894, p.
80).
Thus the contribution of the means of production to the value of
output is their use-value. However the quantity which Marx gave for
the use-value of a machine was c—which is also its exchange-value.
The identification of c as both the exchange-value and the use-value of
the means of production was a feature of every numeric example giv-
en by Marx, in all of his economic works. In attributing a quantity to
this use-value, Marx essentially continued Ricardo's implicit practice
of treating capital's contribution to output as identical to its input (Ric-
ardo 1981, p. 28). The following table summarizes Marx's arguments
in volume I on the source of surplus value and the use-value/ex-
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 117
change-value dialectic:
Exchange-value
Use-value
Different?
Surplus generated?
Consistent with Ricardo?
Consistent with dialectic?
Labor Power
V
v+s
Yes
Yes
Yes
Yes
Commodity Inputs
c
c
No
No
Yes
No
The problem with this customary quantification is that it contradicts
Marx's fundamental and oft-repeated proposition that use-value and
exchange-value are unrelated. The central point of this paper is that,
in the Grundrisse, Marx transformed the classical distinction between
exchange-value and use-value, and the classical proposition that use-
value plays no role in determining exchange-value, into a dialectical
foundation for his economics. Prior to this pivotal logical advance,
there was no problem with Marx continuing to follow Ricardo on the
issue of the value productivity of machinery. Marx simply made ex-
plicit in his theory a concept which was arguably implicit in Ricardo.
The assertion that labor is the only source of value could be main-
tained, albeit with all the technical problems of a labor theory of val-
ue.
Marx's development of the dialectic between exchange-value and
use-value makes this claim logically untenable. The axiom that use-
value plays no role in determining exchange-value means that, in the
sphere of consumption, use-value and exchange-value are incommen-
surable (in contrast to the neoclassical schema, which makes utility
and price commensurable through the devices of marginal utility and
marginal cost). In the sphere of production, where both exchange-val-
ue and use-value are quantitative, it means that they are normally
(though not necessarily) different. Yet to argue that the quantified
use-value of the means of production is the same as their quantified
exchange-value is to argue that, in the case of the means of produc-
tion, exchange-value and use-value are identical.
IV. CONCLUSION
The conclusion that labor cannot be the only source of value has
long ceased to be novel. As well as being fundamental to neoclassical
economics, that conclusion has been asserted explicitly or implicitly
by, among others, Sraffa 1960, Steedman 1977, Bose 1980, Hodgson
118 JOURNAL OF THE HISTORY OF ECONOMIC THOUGHT
1980,
Roemer 1983, Wolff 1981, Bandyopadhyay 1984, and Carling
1984.
What is novel about this proof is that it has been reached using
Marx's fundamental logic. It is thus more difficult for those who wish
to maintain a labor theory of value to oppose, since in the past the last
refuge of defenders of the labor theory has been that Marx said it was
so.
I have shown that if Marx had properly applied his own logic, he
would have said that it was not.
Another difference is that, since these conclusions flow naturally
from Marx's own reasoning, those parts of his analysis which do not
depend on labor being the only source of value remain intact. Other
critics of the labor theory of value would abandon Marx's historical
analysis, his use of the dialectic, and the concept of value
itself:
clear-
ly these foundations are in fact strengthened by these results. Similar-
ly his comments on the reproduction process, the circuits of capital
and the cyclical nature of capitalism are in no way affected. Con-
versely, his conclusions which depend upon labor being the only
source of value are in general overturned. Chief amongst these are the
transformation of value into prices, and the tendency for the rate of
profit to fall.
The transformation problem is derived from the propositions that
labor is the only source of surplus value, and that the rate of surplus
value is uniform across industries whereas profit is proportional to the
capital expended on both labor power and commodity inputs. Were
these premises valid, then there would be a divergence between rates
of surplus value and rates of profit when the ratio of commodity inputs
to labor inputs varied between industries. However, the proof that
every input to production can be a source of surplus value establishes
that the rate of surplus value should tend towards uniformity across
industries for the same reason that rates of profit should tend to be
uniform: capitalist competition. Therefore there is no a priori reason
why issues pertaining exclusively to production itself—such as the
ratio of capital to labor—should cause a divergence between rates of
surplus value and rates of profit. There is thus no reason why a higher
capital/labor ratio than average should be associated with a lower rate
of surplus value than average, no technical problem in converting
values into prices of production, and no reason why prices should
systematically diverge from values (or rates of surplus value from
rates of profit) solely on the basis of differences in capital intensity.
3
3.
There are reasons why price will diverge from value, but they lie outside
the scope of this paper.
THE DEMISE OF MARX'S LABOR THEORY OF VALUE 119
The tendency of the rate of profit to fall suffers a similar fate. This
"tendency," like the transformation problem
itself,
was founded on the
proposition that labor was the only source of value, and that there was
a tendency over time for the ratio of capital to labor (measured in val-
ue terms) to rise. Since surplus can be garnered from all inputs to
production, there is no reason why an increase in the ratio of commod-
ity to labor inputs should lead to a decline in the overall rate of sur-
plus.
Using Marx's own logic, this confirms Steedman's judgment
from a Sraffian perspective that the transformation problem is a
"pseudo-problem, a chimera" (Steedman 1977, pp. 14-15). Indeed the
entire dispute between Marxians and Sraffians can itself be judged a
chimera, since Marx's theory of value in fact provides the philosophi-
cal foundation for an absolute theory of value, consonant with Sraffian
analysis, in which commodities in general in a system of commodity
production are regarded as the source of surplus value.
Further development of the method discussed in this paper should
provide many worthwhile additions to the intellectual weaponry of
Marxian analysis. In this new tradition, which can exist cooperatively
with Sraffian and Kaleckian economics while containing the superior
concepts of dialectics and value, it should be to Marx's credit that he
provided the analysis by which the labor theory of value could be
transcended, and labor and commodities together regarded as the joint
sources of value.
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