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'''Michael Greenberg''' (born 28 November 1914, died 19 April, 1992), a scholar of Chinese economics and history, was alleged to have provided a Soviet spy with information during the 1940s, but was never charged with espionage.
The ''law of value'' is a concept in [[Karl Marx]]'s critique of [[political economy]]. Most generally, it refers to a regulative principle of economic exchange of labour-products: the relative [[exchange-value]]s of labour-products, usually expressed by money-prices, are determined (in some way) by the average amounts of human labour-time socially necessary to produce them. The field of application of the law of value is limited to traded labour-products, although it might indirectly influence trade in other goods.
Greenberg was born as ''Michael Menahem Greenberg'' in [[Manchester]], Lancashire, [[England]], son of a Polish-born father. He attended [[Manchester Grammar School]] and won a scholarship to Cambridge University where he won first class honours.
In other words, the ''trading ratios'' of products reflect a real ''cost structure of production'', and this cost structure ultimately reduces to the average units of human labour-time currently required to produce different goods and services.
Greenberg arrived in the United States in 1939 to attend the Graduate School of [[Harvard University]] under a Joseph Hodges Choate Memorial Fellowship from [[Trinity College, Cambridge]]. He studied at Harvard from [[October]] [[1939]] to January 1941. Greenberg also became editor of the [[Institute of Pacific Relations]] publication, ''Pacific Affairs'' in 1939. In 1942 Greenberg became a China specialist at the [[Board of Economic Warfare]] and an assistant to the agency's head, [[Lauchlin Currie]]. Greenberg later worked as a Foreign Affairs Economist in the Administrative Division, Enemy Branch, of the [[Foreign Economic Administration]]. [[Elizabeth Bentley]] stated that for a brief period Greenberg supplied information concerning principally [[China]]. The information was passed through [[Mary Price]].
This abstract idea was expressed by [[David Ricardo]] at the very beginning of his ''Principles of Political Economy and Taxation'', as follows:
Civil Service Commission security officials wanted Greenberg dismissed upon learning of an alleged involvement with the [[Communist Party]]. From FBI files, this appears to have been a classic example of "guilt by association" (see Silvermaster file 2C page 18; other accusations came from the discredited FBI-paid witness Louis Budenz and an academic Karl Wittvogel who met Greenberg in Cambridge and stated that he "must have" been a Communist because of his associates). Upon appeal, the Civil Service Commission was overruled. Greenberg became a U.S. citizen in 1944 and transferred to the [[Department of State]] in 1945, resigning in 1946. Greenberg left the United States permanently in 1947 after being interviewed by the [[FBI]] so was never called before a Congressional Committee.
"The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour." (http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ricardo/prin/prin1.txt)
Greenberg's FBI file is highly redacted. A wiretap in 1945 revealed Greenbergs's co-workers discussing "the charges against him", and remarking that Greenberg would have been better off if he had worked, but that he had never turned out a piece of work in the three years he had been employed by the government.
At the most basic level, this law of value specifies "labor-content" as the substance and measure of economic value, and it suggests that trade will normally evolve ''towards the exchange of equivalents''. At the basis of the trading process is the economising of human time, and "normal" trading ratios become known to, or accepted, by economic actors.
Upon return to England, Greenberg went back to Cambridge and completed work on his Ph.D. thesis, which was eventually published as a book "British Trade and the Opening of China" (1947, Cambridge University Press, reissued in 1970 and republished in the USA in 1979). This book, based on the then recently released archives of the Jardine Matheson Company, a major player in the development of Hong Kong, describes the forceful exploitation of China by British colonial power in establishing and maintaining the colony of Hong Kong.
However, Marx's real concern is to understand and analyse ''how'' the law of value determines or regulates exchange, i.e. how the law of value would assert itself in a society based on a universal market such as capitalism. He tries to do this by starting off with simplifying assumptions and then gradually building up a complex theoretical structure. His theory specifically aims to grasp [[capital]] ''in motion'', i.e. how, through the movement and dynamics of capital, changing expenditures of social labour are reconciled with (or fail to be reconciled with) changing social needs. This is obviously an enormously complex undertaking, and Marx did not get much further than to specify the main tendencies and dynamics, and "pure cases".
Blocked from academic promotion, most likely due to his left-leaning politics, he went on to work in a number of jobs in journalism, public relations, advertising and film criticism in England, Switzerland and France. He lost his U.S. citizenship due to absence from the USA and was denied a passport by the British Home Office, even as late as the 1970s, presumably to due the McCarthy-era accusations. His British passport was never restored to him, and the accusations continued to hound him throughout the 1950s.
==Economic value as such==
In 1958, he was recruited as Economic Advisor to the [[Central Bank of Ceylon]], returning to the U.K. in 1961. Shortly thereafter, he became, as Michael Green, assistant editor and then chief editor of The Banker, a monthly professional journal published by the Financial Times of London. He later became Chief Economist at the London stockbroking company De Zoete & Bevan. He commented that in the City of London most people shared the Marxist analysis of capitalism that he had learned in Cambridge in the 1930s, but that they were, by contrast, quite content with the implicit inequalities.
Economic value exists necessarily, according to Marx, because human beings as social beings must co-operatively produce their means of life to survive, and in so doing they are subject to [[relations of production]]. This involves three kinds of relationships which are objectively and empirically verifiable, and often formalised in [[law]]:
His obituary appeared in the London Times and the Independent. He was survived by his wife and three sons.
*between people ([[social relations]]).
*between people and their products (technical relations).
*between products themselves (with or without trading prices; these are technical, economic or commercial relations).
== Sources ==
The attribution of value to labor-products, occurs within these three types of relationships interacting with each other.
*[http://foia.fbi.gov/foiaindex/silversm.htm FBI Silvermaster file]
However, because these three types of relationships co-exist and interact objectively, as a given social fact, independently of particular individuals, it may appear that economic value is an ''intrinsic'' property of products, or alternately, that it is simply a characteristic that results from negotiations between market actors with different subjective preferences.
* Michael Greenberg interview, 7 June 1947, FBI Silvermaster file, serial 2583.
*Elizabeth Bentley deposition 30 November 1945, FBI file 65-14603.
*Earl Latham, ''The Communist Controversy in Washington: From the New Deal to McCarthy'', Cambridge: Harvard University Press, (1966), 306–307.
*John Costello, ''Mask of Treachery'', New York: Morrow, (1988), 380–381, 480–481.
*John Earl Haynes and Harvey Klehr, ''Venona: Decoding Soviet Espionage in America'' (New Haven: Yale University Press, 1999), pgs. 111, 113, 114, 161, 374, 408, 409, 415, 421.
*Boughton, James M. and Sandilands, Roger J. "[http://www.cooperativeindividualism.org/sandilands_fdr_economists.html Politics and the Attack on FDR's Economists: From Grand Alliance to the Cold War]", ''Intelligence and National Security'', Spring 2002
*Michael Greenberg FBI FOIA
When more and more of human requirements are marketised, and a complex [[division of labor]] develops, the link between value
and labor-time becomes obscured or opaque, and seems to exist only as an impersonal "market force" (a given structure of priced costs and sale-values) to which all people must adjust their behaviour. Human labor becomes dominated by the economic exchange of the ''products'' of that labor, and labor itself becomes a tradeable ''abstract'' value.
[[Category:Soviet spies|Greenberg, Michael]]
The result is that value and its source itself becomes something of a mystery, and that ''how'' the attribution of value really occurs is no longer clear. The three relationships mentioned become mixed up, and are confused with each other, in commercial and economic discourse, and it appears that things and assets acquire an independent power to create value, even although value is a human attribution. Marx refers to this as [[commodity fetishism]] or thingification (''Verdinglichung'' or [[reification]]) which culminates in what he calls [[fictitious capital]]. The end result is that [[value theory]] is banished from economics as a useless [[metaphysics]], surviving only in the form of assumptions made about price behaviour. Money-prices offer convenient quantifiable units of economic value, and no further inquiry is deemed necessary.
[[Category:Venona Appendix B|Greenberg, Michael]]
To solve the riddle of economic value, Marx argues, we must investigate the real historical ''origins'' of the conditions which give rise to the riddle in the first place, i.e. the real history of [[trade]] and the way that history has been reflected in human thought.
==Is it an equilibrium theory?==
Some authors have interpreted Marx's law of value as a theory of market equilibrium. However, Marx offered no theory of market equilibrium, only a dynamic theory of economic [[reproduction]]. In reality, markets were rarely in equilibrium anyway (that was more a hypothesis used by economists), and what explained the market behaviour of individuals and groups was precisely the ''imbalances'' between supply and demand.
Under capitalist conditions, balancing output and market demand depended on [[capital accumulation]] occurring. A capitalist economy was therefore in "equilibrium" so long as it could reproduce its social [[relations of production]], permitting capital accumulation to occur, but this was compatible with all sorts of market fluctuations and disequilibria. Only when shortages or oversupply began to threaten the existence of the relations of production themselves and block the accumulation of capital in critical areas (for example, an economic depression, a political revolt against capitalist property or against mass unemployment), a "disequilibrium" occurred.
But this kind of "equilibrium" was more a condition of ''social stability'', not a hypothetical and unverifiable perfect match between supply and demand under idealised, static conditions. In any case, real social needs and their monetary expression through market demand might be two very different things. Economic equilibrium was not created by a perfect match of supply and demand, but by the social framework which permitted the balancing act to occur.
The difference between the equilibrium theories of neoclassical economists and Marx's theory of economic reproduction can be illustrated with a simple analogy. It is extraordinarily difficult to stay in balance while sitting on an ordinary bicycle, if the bicycle is stationary; but as soon as forward motion is achieved, balance is usually also achieved. That balance therefore exists as a ''motion'' involving the rider, the bike and the ground. All of these are necessary. If we just focused on the rider and the bicycle only, and ignored the ground, we would miss an important factor, to our peril.
A physicist would no doubt explain all this in terms of [[momentum]], [[mass]], [[velocity]], [[kinetic energy]], [[gyroscopic]] forces, [[torque]] and the law of [[gravity]]. The law of value performs a similar function in economic science.
By contrast, what economists often concern themselves with is a question of this type: suppose the purpose of the bicycle is to be perfectly stationary, and the rider to sit on it while perfectly stationary. Under what conditions would the balancing act then be successful? What kind of bike would we need? What skills does the rider need? Which is interesting to speculate about.
Obviously, while riding the bicycle, a potential risk exists that it will crash or collide with something. But the point is, we learn little about the possibilities or conditions for such a crash from only examining the necessary conditions of a balancing act on a stationary bicycle - except trivia such as that if balance is not achieved, the rider must fall to the ground.
==Factors counteracting the law of value==
The main factors counteracting the operation of the law of value, as a law of economic exchange, are:
*''structural'' unequal exchange - alternative or competing sources of supply or demand are absent or blocked, distorting trading ratios in favour of those in a stronger market (or bargaining) position. In that case, the true value or cost of products may deviate greatly from actual selling prices.
*other restrictions on trade and what people may do with resources (legal, technical, etc.).
*disparities in currency exchange rates.
*the large-scale use of ''credit economy'' to acquire goods and services produced, without corresponding increases in production occurring.
*non-market allocation of resources, including gifts, grants and subsidies, or countertrade (forms of barter).
*accumulation of [[fictitious capital]] (bubble economies).
All of these phenomena occur to some degree or other in any real economy. Hence the effect of the law of value would usually be ''mediated'' by them. However, there are many indications that Marx believed the future would see an increasingly "purified" capitalism. That is, obstructions to market expansion would be cleared away through [[privatisation]] and removal of legal or technical restrictions on trade, and that would in turn mean that the law of value would impose itself ''more'', not less. Thus, the socially average real production costs would then influence the trading ratios more, not less.
==Law of value in capitalism==
Marx argues that as economic exchange develops and markets expand, the law of value is ''modified'' in its operation.
Thus, [[capitalism]] is a type of economy in which both [[input]]s and [[output]]s of production have become marketed goods and services (or [[commodities]]). In such an economy, Marx argues, what regulates the exchange of labour-products is their [[prices of production]], i.e. cost-price + average profit.
Another way of saying this, is that "sale at production prices becomes the normal condition of supply" for new output produced (although in particular cases market prices might be above or below the production price). This means that the exchange values realised in trade reflect not only a true production cost, but also a "mark-up" or [[surplus-value]] in excess of that cost. Usually this is in a range of perhaps 8-15% of capital invested (net) or about 10-40% of product prices.
Capitalist economic exchange, Marx argues, is not a simple exchange of equivalents. It aims not to trade goods and services of ''equivalent'' value, but instead ''to make money from the trade'' (this is called [[capital accumulation]]). The aim is to "buy as cheaply as possible, and sell as dear as possible". The effect is that the whole cost-structure of production ''permanently includes profit as an additional impost''. In an overall sense, Marx argues the substance of this impost is the unpaid [[surplus labour]] performed by the [[working class]].
In this situation output ''values'' produced by enterprises will typically deviate from output ''prices'' realised. Market competition for a given demand will impose a ruling price-level for a type of output, but the different competing enterprises producing it will take more or less labour to produce it, depending on productivity levels and technologies they use. Consequently, output values produced by different enterprises and output prices realised by them will typically diverge (within certain limits). That divergence becomes a critical factor in capitalist competition.
If [[capital accumulation]] becomes the dominant motive for production, then producers will do everything they can to cut costs, increase sales and increase profits. Since they mostly lack control over the ruling market prices for their inputs and outputs, they try to increase [[labor productivity]] by every means at their disposal and maximise [[surplus labour]]. Because the lower the unit-costs of goods produced by an enterprise, the greater the margin will be between its own production costs and the ruling market prices for those goods, and the larger the profits that can be realised as result when goods are sold. Producers thus become very concerned with the [[value added]] in what they produce, which depends crucially on [[productivity]].
This leads to constant attempts to improve production techniques to cut costs, but ultimately also to a decline in the labor-content of [[commodities]]. Therefore, their ''values'' will also decline over time; more and more commodities are produced, for a larger and larger market, at an increasingly cheaper cost. Marx claims that this trend happens "with the necessity of a natural law"; producers had no choice about doing what they could in the battle for productivity, if they wanted to maintain or increase sales and profits. In business, if you don't go forward, you go backward. That was, in Marx's view, the "revolutionary" aspect of capitalism.
In economic crises, Marx suggests, the structure of market prices is more or less suddenly readjusted to the evolving underlying structure of production values. Another way of saying this is, that the law of value will ultimately assert itself, by forcing a change in relative prices, in conformity with real production costs. In turn, this implies that although production values and market prices can diverge significantly from each other (in particular, because there exists no "perfect competition"), there are also limits to the possible discrepancies (because ultimately competitors will bring down artificially inflated prices, and goods continually sold below value would eventually put producers out of business).
==Smith's hidden hand==
Most versions of [[neo-classical economics]] are based on the ''assumption'' that, left to themselves, markets will balance supply and demand spontaneously. If equilibrium does not exist, it will exist in the future, provided obstacles to market functioning are cleared away. This assumption is a simple faith or belief, but not really ''explained''.
In his ''Bundesbank'' speech on January 13, 2004, waxing optimistically about the benefits of global capitalism, [[Alan Greenspan]], the brilliant US Federal Reserve chairman and moderate Republican stated:
"Globalization has altered the economic frameworks of both developed and developing nations in ways that are difficult to fully comprehend. Nonetheless, the largely unregulated global markets do clear, and, with rare exceptions, appear to move effortlessly from one state of equilibrium to another. It is as though an international version of Adam Smith's "invisible hand" is at work."
This was a reference to [[Adam Smith]]'s ''Wealth of Nations'' (1776) where Smith wrote:
"Every individual intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention. By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it."
Marx's theory of how the law of value operates in capitalism aims to reveal what the "hidden hand" of markets theorised by [[Adam Smith]] really consists of. It aims to explain how it comes about, that the markets get "a life of their own", by showing ''what drives the markets'', and how the market-balancing process actually occurs.
But it can do so only by distinguishing between a ___domain of ''value-relations'' and a ___domain of ''price-relations'', and between ''potential'' values and ''actual'' prices realised; after all, a process is involved whereby products move into markets, are sold for a price, and then move out of markets; this can be rationally understood only by assuming a ''temporal continuity'' (or conservation) of product-values ''through successive exchanges''. If the value of a good is supposed to be just equal to the price somebody is prepared to pay for it, we have no rational ground for believing that its value in future would not be wildly different, other than as a probabilistic guess based on past trends.
Another "take" on the law of value, from an investor's perspective, is by [[George Soros]]:
"Every market participant is faced with the task to estimate the value in the present of a future development of events, but that development is co-determined by the value which all market participants together attribute to it in the present. That is why market participants are forced to be led partly by their subjective judgement. Characteristic of that bias is that it is not purely passive: it has influence on the course of events which it should represent. This active aspect is lacking in the concept of equilibrium such as is used in economic theory." (George Soros, "The Crisis of Global Capitalism" (1998), Chapter 3, Dutch edition, p. 83).
In the real world, investors are constantly juggling between actual market prices and hypothetical (ideal) prices, based on assumptions about what the objective value of a good (its "real worth") is likely to be, now and in the future. A difficulty here is that the majority of objects of value in a society at any time don't have any actual market price, because they are not being traded. Thus, ''value relations'' between those objects objectively exist, but at best these can only be ''approximated'' or ''estimated'' in price terms.
Marx tries to model the market outcomes macro-economically with regard to outputs from ''production'', assuming that values and prices will diverge, the argument being that this divergence will create a systematic pattern of economic behaviour by producers and investors. He is not interested in the circus-act of a clown balancing on a stationary bicycle, but in the bicycle ride.
*''Note'': In fact, Greenspan's "effortless market clearing" does not match reality, since the "market clearing" nowadays involves ''a bigger and bigger world debt'' (see [[global debt]] and [[debt levels and flows]]. Obviously, ultimately it is not possible to cut labour costs ''and'' expand markets at the same time, other than by expanding credit facilities and hoping that people will ''trade up'' in the meantime. Greenspan's hope is that, in the meantime, a sufficient number of ''new'' people and institutions will be integrated into markets (aided by credit), so that total market demand can expand, even although the average levels of real wages decline or grow only sluggishly.
==Modification of the law of value in the world market==
Marx believed that the operation of the law of value was not only modified by the [[capitalist mode of production]], but also in the world market (world trade, as contrasted with the home market or national economy). The main reason for this was the existence of different levels of the intensity and [[productivity]] of labour in different countries, creating for example a very different cost structure in different countries for all kinds of products.
Products that took 1 hour of labour to make in country A might take 10 hours to make in country B, a difference in production costs which could strongly influence the [[exchange value]]s realised in the trade between A and B. More labour could, in effect, exchange for less labour (an "unqual exchange" in value terms). In addition, the normal rate of [[surplus value]] could be different in different countries. Obviously, traders would try to use this differential to their advantage, with the motto "buy cheap, sell dear".
Among German Marxists, Marx's fragmentary remarks on the law of value in a world market setting stimulated an important theoretical debate in the 1970s and early 1980s. One aim of this debate was to move beyond crude [[Ricardo|Ricardian]] interpretations of [[comparative advantage]] or comparative costs in explaining the pattern of world trade. To some extent similar debates took place in the USA (cf. Anwar Shaikh's work) and in Japan (cf. e.g. Makoto Itoh's work available in English). In particular, when the volume of intra-industry trade (IIT) between countries grows (i.e. the same kinds of products are both imported and exported by a country, e.g. cars, wine, beer), comparative advantage theories do not apply.
The operation of the law of value in the world market might however seem rather abstract in view of the phenomena of unequal exchange, differences in accounting norms, [[protectionism]], debt-driven [[capital accumulation]] and gigantic differences in currency exchange rates between rich and poor countries. These phenomena can create very a significant distortion between market prices for goods, and the real production costs for those goods in world trade, resulting in [[superprofit]] for the beneficiaries of the trade.
For example, the 2002 [[UNCTAD]] Trade and Development Report estimated that the share of manufacturing exports produced by developing countries grew by some 150% in the 1990s, rising from 11% of total world exports (by value) of manufactured goods, to 27% in 1998. But during that period, the developing world's share of manufacturing new [[value-added]] (basically, gross profits + gross wages) only grew by 40% - from 17% to 24%. That is, the value and physical volume of manufactured exports by developing countries increased gigantically more than the actual ''income'' obtained by the producers.
The developed countries by contrast exported proportionally less manufactured goods, such that their share of total manufacturing exports decreased from from over 80% in 1980 to about 70% at the turn of the 21st century, yet, their share of the world's new value-added (net output value) in manufacturing ''increased'' from 65% to 73%. [[Third world]] exporters might have got mighty rich, but the reality is that third world nations received less and less for what they produced for sale in the world market, even as they produced more and more; this is also reflected in the international [[terms of trade]] for manufactured products.
The postulate of the law of value does however lead to the Marxian historical prediction that ''global'' [[prices of production]] will be formed by world competition among producers ''in the long term''. That is, the conditions for producing and selling products in different countries will be equalised in the long run through market integration; this will be reflected also in international accounting standards. Thus [[globalisation]] means that incipiently the "tendency of rates of profit to be equalised" through competition begins to operate ''internationally''. Trading ratios and exchange-values for products sold globally would thus become more and more similar in the long term.
==A comment by Marx on the law of value==
In his letter to Kugelmann of July 11, 1868, [[Karl Marx]] commented gruffly:
"As for the ''Centralblatt'', the man is making the greatest concession possible by admitting that, if value means anything at all, then my conclusions must be conceded. The unfortunate fellow does not see that, even if there were no chapter on ‘value’ at all in my book, the analysis I give of the real relations would contain the proof and demonstration of the real value relation. The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science. Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour. It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products. Where science comes in is to show how the law of value asserts itself. So, if one wanted to ‘explain’ from the outset all phenomena that apparently contradict the law, one would have to provide the science before the science. It is precisely Ricardo’s mistake that in his first chapter, on value, all sorts of categories that still have to be arrived at are assumed as given, in order to prove their harmony with the law of value.
On the other hand, as you correctly believe, the history of the theory of course demonstrates that the understanding of the value relation has always been the same, clearer or less clear, hedged with illusions or scientifically more precise. Since the reasoning process itself arises from the existing conditions and is itself a natural process, really comprehending thinking can always only be the same, and can vary only gradually, in accordance with the maturity of development, hence also the maturity of the organ that does the thinking. (...) The vulgar economist has not the slightest idea that the actual, everyday exchange relations and the value magnitudes cannot be directly identical. The point of [[bourgeois]] society is precisely that, a priori, no conscious social regulation of production takes place. What is reasonable and necessary by nature asserts itself only as a blindly operating average. The vulgar economist thinks he has made a great discovery when, faced with the disclosure of the intrinsic interconnection, he insists that things look different in appearance. In fact, he prides himself in his clinging to appearances and believing them to be the ultimate. Why then have science at all?
But there is also something else behind it. Once interconnection has been revealed, all theoretical belief in the perpetual necessity of the existing conditions collapses, even before the collapse takes place in practice. Here, therefore, it is completely in the interests of the ruling classes to perpetuate the unthinking confusion. And for what other reason are the sycophantic babblers paid who have no other scientific trump to play except that, in political economy, one may not think at all!"
http://www.marxists.org/archive/marx/works/1868/letters/68_07_11.htm
==A comment by Frederick Engels on the law of value==
"...the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era. But the exchange of commodities dates from a time before all written history — which in Egypt goes back to at least 2500 B.C., and perhaps 5000 B.C., and in Babylon to 4000 B.C., perhaps to 6000 B.C.; thus, the law of value has prevailed during a period of from five to seven thousand years." (source: Supplementary Afterword to [[Das Kapital]] Volume 3).
http://www.marxists.org/archive/marx/works/1894-c3/supp.htm#law
==The law of value in non-capitalist societies==
The has been a long and drawn-out debate among Marxists about whether the law of value also operates in non-capitalist societies where production is directed by the state authorities.
In his famous pamphlet ''Economic Problems of the USSR'', [[Joseph Stalin]] argued that the law of value ''did'' operate in the [[socialist]] economy of the [[USSR]]. After all, Marx had stated in [[Das Kapital]] that:
"...after the abolition of the capitalist mode of production, but still retaining social production, the determination of value continues to prevail in the sense that the regulation of labour-time and the distribution of social labour among the various production groups, ultimately the book-keeping encompassing all this, become more essential than ever."
http://www.marxists.org/archive/marx/works/1894-c3/ch49.htm
Supporters of the theory of [[state capitalism]] in the USSR and scholars such as [[Andre Gunder Frank]] likewise believed that the law of value operated in Soviet-type societies. However, it is not always clear what they mean by the law of value, beyond the vague idea that the direct producers remain dominated by their own products, or that labour costs remain important.
According to [[Ernest Mandel]], the law of value, as a law of exchange, did influence non-capitalist societies ''to some extent'', inasmuch as exchange and trade persisted, but because the state directed the bulk of economic resources, the law of value no longer ''ruled'' or ''dominated'' resource allocation. The best proof of that was, that there was mostly no clear relationship at all anymore between the exchange-value of goods traded, and what it really cost to produce them; [[accounting]] information, insofar as it was valid, might in fact be unable to show anything about the real nature of resource allocation.
[[Che Guevara]] adopted a similar view in socialist [[Cuba]]; if more resources were directly allocated to satisfy human needs instead of commercially supplied, a better life for people would result. Guevara organised an interesting conference at which the theoretical issues were debated (see Silverman 1971).
Some [[Marxist]] authors, such as John Weeks, have argued that the law of value is ''unique'' to an economy based on the [[capitalist mode of production]]. They reject the claim by Engels that the law of value is associated with the entire history of economic exchange (trade), and modified when all inputs and outputs of production have become marketed commodities.
Other Marxists (including [[Ernest Mandel]] and the Japanese scholar Kozo Uno followed Engels in believing that the law of value emerges and develops from simple exchange. Here, it is argued that, if the law of value was unique to capitalism, it becomes impossible to explain the development of precapitalist commodity exchange or the evolution of trading processes in a way consistent with [[historical materialism]] and Marx's theory of value. So a better approach, it is argued, is to regard the application of the law of value as being ''modified'' in the course of the expansion of trade and markets. In that case, a specific society must be investigated to discover the role that the law of value plays in economic exchange.
==(Post-)modern thinking about the topic==
It has become increasingly clear to intellligent economists that there is not ''one'' principle that can explain resource allocation in any real society, nor that economies allocate resources only according to ''one'' principle.
It is virtually meaningless to elevate one principle, such as [[market]]s or [[planning]], to be the ''only'' one explaining resource allocation. So-called "free" markets cannot exist without substantial social and economic regulation, enforced by the political state, and all sorts of non-market activity. Economic "planning" cannot occur without [[accounting]] for inputs and outputs in price terms. And so on.
Different methods for resource allocation are only a means or technique to achieve [[social]] goals. A society might wish to apply different criteria, such as [[justice]], [[fairness]], [[efficiency]], [[equality]], ecological [[sustainability]], and so on. But this does not mean that any technique used is ''intrinsically'' good or bad, independently of the effect it has when it is applied, within a given social framework.
[[Marxists]] have often been hostile to [[market]]s, while [[Liberals]] have been hostile to state [[planning]] or [[dirigisme]]. Behind these hostilities are social and moral philosophies about what is best for people. However, often the technique of resource allocation used has the opposite effect of what is intended. The reason is that people ignore the real [[power]] and [[property]] relationships involved. It would be wrong to think, for example, that there is only one kind of [[exploitation]] possible.
The challenge for the future is to devise methods for allocating resources which combine democracy, planning and markets in such a way, that social [[inequality]] does not become extreme (causing immorality and crime), that economic growth occurs efficiently, and that production is ecologically sustainable. This is primarily a political question; the economic techniques are known, but that does not mean necessarily that they will be applied.
In [[postmodern]] thought, the idea of a "ledger" as the arbiter of truth is questioned. In other words, who is to say what are the real "costs" of an activity? Who is to say what are the real "benefits" of an activity? In that case, there are no longer any agreed [[objective]] criteria with which to judge the gains and losses from economic activities. For business people, however, net profit and sales figures remain the "bottom line" of what they do, and the objective criterion of economic success.
==Criticism==
Traditionally, criticism of Marx's law of value has been of three kinds:
*conceptual
*logical
*empirical
The conceptual criticism concerns the concept of value itself. For Marx, value was an [[objective]] social characteristic of labour-products exchanged in an economic community, given the physical reality that products took a definite amount of society's labour-time to produce. Critics however argue that economic value is something purely [[subjective]], determined by personal preferences and [[marginal utility]]; only [[prices]] are objective. However, many prices are not objective either - they are only ''ideal'' prices used for the purpose of calculation, accounting and estimation, not actually charged or applying to anything real. Yet, these notional prices can nevertheless influence economic behaviour. In almost all cases, cars will sell for more than carrots, but why? If value is subjective, all we can say is that people value cars more than carrots, or that cars are more in demand than carrots. Marx argues by contrast that cars and carrots have different objective costs of production, reducible to different amounts of labour-time. So cars will always cost more than carrots; one car will trade for, or be worth, quite a few tonnes of carrots.
The logical criticism revolves around the idea that Marx is unable to reconcile the ___domain of value relations and the ___domain of price relations, showing exactly how value magnitudes correspond to price magnitudes. Various arguments are made to show that Marx's theory of value is ''logically'' incoherent. The most famous of these is the controversy about Marx's [[prices of production]], sometimes called the [[transformation problem]] in which it is argued that total output value must equal total output prices, so that the distribution of particular output values and output prices can be ''inferred'' from each other, via mathematical functions. However, product-values in Marx's sense themselves can only be ''expressed'' as trading ratios, prices, or quantitities of labour-time, and therefore this exercise is fruitless. As soon as we admit that prices may fluctuate above or below values for all kinds of reasons, the relation between values and prices is at best probabilistic, not a fixed function of some type. Value theory offers an interpretation, generalisation or explanation concerning relative price movements, and of economic behaviour in capitalism as a social system, but it is not possible to deduce real prices from values according to some mathematical function.
The empirical criticism is simply that there is no observable quantitative correspondence between changes in relative expenditures of labour-time and changes in relative market prices, however measured. This is undoubtedly the strongest criticism, but there exists very little research to back it up. Most critics have tried to refute Marx's theory with a mathematical model, rather than actually looking at real data to see if the economy behaves in the way Marx claims it does. Of course, Marx is not talking about ''all'' prices, only about what regulates ''production prices of new output'' (which may deviate themselves from actual market prices, and may be observable only by comparing price ''aggregates'').
These three lines of criticism lead the critics to the conclusion that Marx's law of value is [[metaphysical]] and theoretically useless. Everything he says can be restated in terms of prices, real or ideal, so what is the point then of any theory of "value"?
Clearly Marx himself thought that the concept of value was necessary to explain the historical origins, the development and mode of functioning of capitalism as a social system, under conditions where traded, priced assets were only a subset of total assets possessing a potential exchange-value. If the economy just consisted of prices, Marx's theory would be unnecessary, but it doesn't just consist of prices.
Marx asked questions like: if supply and demand are equal, what then explains the price-level? If goods trade at their real value, what explains the increase of value occurring in production? If competition settled a particular average profit rate, why that average level, and not any other? Price theory ended up in an infinite regress here, of explaining prices by other prices by other prices, and so on. But as soon as it was admitted that prices were the monetary expression of [[exchange-value]] in the trading process, one had to explain where that exchange-value came from, and how it was established. And that required a theory of economic value and [[trade]]. The economists ''assumed'' all sorts of things about an economy, in order to build models of price behaviour; Marx thought ''those assumptions themselves'' needed to be looked at and theorised consistently.
==A Californian perspective: Jim Devine on the LoV==
In an essay available on-line (see below), Prof. James Devine provides an interesting argument which suggests that critics of Marx's law of value are really barking up the wrong tree. Their arguments are based on an interpretation of Marx as a "minor post-Ricardian" who tried to deduce a "labour theory of price". But, he argues, Marx's intent was something else. Devine cites Charles Andrews's book ''From Capitalism to Equality'' as an example of a modern US analysis using the concept of the law of value (see http://www.laborrepublic.org/).
==Steve Keen and the machine==
In an important new book, ''Debunking Economics'', Steve Keen tries to pull the rug from under Marx's theory with a stunningly simple argument: machines can add more product-value over their operational lifetime than the total value of depreciation charged ''during those asset lives''. Depreciation, he implies, was really the weak point in Marx's social accounting system all along, and Keen's case will hold irrespective of whatever definition of economic, real, or tax-assessed depreciation is used.
Marx wrestled with the problem of depreciation a lot, discussing it with [[Frederick Engels]] and so on. But he remained insistent that only human labour could create net new value; machines did not create any new value by themselves; instead human beings conserved the value of machines, and transferred their value to the new products. Therefore, logically, machines could add no more value than was implied by the labour it took to make them, or perhaps more precisely, their ''current'' value in society. This raises the problem of whether Marx or Keen is correct, and how we know that. In the machine age, it certainly seems that the argument favours Keen. Marx would no doubt come back though with the argument that Keen had ''devalued'' the work effort of the man behind the machine, an instance of [[reification]] or techno-fetishism. The worker was, in truth, not an appendage of the machine, but the machine was an appendage of the worker. Thus, before saying "all power to the machine", one ought to say "all power to the working class". But Keen would think this is an instance of [[religion]]; for him, value denotes essentially a ''difficulty''.
==See also==
*[[Socially necessary labour time]]
*[[prices of production]]
*[[capital accumulation]]
*[[primitive accumulation of capital]]
*[[capitalist mode of production]]
==References==
Karl Marx, ''[[Das Kapital]]''.
Thomas T. Sekine, ''The Necessity of the Law of Value, its Demonstration and Significance''.
http://econpapers.repec.org/paper/fthyorkca/91-4.htm
Geoff Kay and James Mott, ''Public Order and the Law of Labour'' (MacMillan, 1982).
Anwar Shaikh, ""The laws of international exchange".
http://homepage.newschool.edu/~AShaikh/interexch.pdf
Anwar Shaikh, "The Law of value and foreign trade".
http://homepage.newschool.edu/~AShaikh/lawvalue1.pdf
http://homepage.newschool.edu/~AShaikh/lawvalue2.pdf
Anwar Shaikh, "Market value and Market Price" http://homepage.newschool.edu/~AShaikh/pal3.pdf
Ed Chilcote, "Classical Theories of Reproduction and Accounting"
http://www.gre.ac.uk/~fa03/iwgvt/files/97Chilcote.rtf
W. Paul Cockshott and Allin F. Cottrell, "Value's Law, Value's Metric", September, 1994
http://reality.gn.apc.org/econ/METRIC/metric.htm
Bertram Silverman, ''Man and Socialism in Cuba; The Great Debate''. New York: Atheneum, 1971.
Tilla Siegel, ''Kapitalismus als Weltsystem''.
Tilla Siegel, "Politics and Economics in the Capitalist World Market: Methodological Problems of Marxist Analysis", in: ''International Journal of
Sociology'', Vol. XIV, no. 1., Spring 1984.
Klaus Busch, ''Die Multinationale Konzerne''.
Klaus Busch, Gunther Grunert, and Walter Tobergte, ''Strukturen der Kapitalistischen Weltoekonomie''.
Guglielmo Carchedi, ''For Another Europe: A Marxist Analysis of the EU''
Branko Horvat, ''The theory of international trade; an alternative approach''.
Makoto Itoh, ''The Basic Theory of Capitalism''.
Makoto Itoh, ''Political Economy of Socialism''
John Weeks, "International Exchange and the Causes of Backwardness", in ''Latin American Perspectives VI'' (Spring 1978)
Christian Girschner, ''Politische Ökonomie und Weltmarkt; Algemeine Weltmarktdynamik in der Marxschen Kritik der politischen Ökonomie''. Cologne: Papyrossa, 1999.
James Heartfield, ''The Economy of time''
http://www.heartfield.pwp.blueyonder.co.uk/economy.pdf
Jim Devine, "Is Marx's "Labor Theory of Value" True? What's LoV Got to Do with It?"
http://myweb.lmu.edu/jdevine/notes/Law-of-Value.html
Steve Keen, ''Debunking Economics; The Naked Emperor of the Social Sciences''. London: Zed Press, 2005. http://www.debunking-economics.com/
Alfredo Saad Filho interview on value theory, ''Marx's idea of value''. http://www.socialistworker.co.uk/article.php4?article_id=6598
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