Marxianity and the Believing Brain
Good day to you, and welcome to Fascinating! I am your host Rik, from Planet Vulcan. My ongoing mission on Planet Earth: to plant seeds of a way of thinking, a way that is based on an understanding of evolutionary processes, with the ultimate aim of helping to sustain and increase the momentum of Earth’s long arc towards prosperous and happy societies, founded on ideals of liberty and justice.
In this essay, contributing editor Otto Didact takes us on a deeper dive into the problems with the labor theory of value. This essay supplements the earlier essay from Season 2 about the development of the concept of value in general.
Otto writes:
My colleague Prego de Nada wrote in a Season 2 essay about the replacement of the labor theory of value by the subjective theory of value, as a result of the marginal revolution in economic thought pioneered by William Stanley Jevons in England, Carl Menger in Austria and Leon Walras in Switzerland.
The final nails were put into the coffin of the labor theory of value by the Austrian economist Eugen von Boehm-Bawerk and by the American economist Paul Samuelson.
Today the near-universal opinion among scientific economists is that the labor theory of value is not just merely dead, but really quite sincerely dead. And yet the labor theory of value persists as an undead idea, and still wanders to land eating peoples’ brains, clearly not because it is logically compelling but for other reasons we can only speculate about.
The problem Marx and his disciples have wrestled with, unsuccessfully, was how to reconcile the fundamental tenets of the labor theory of value with the value of the man-made inputs to the productive process, e.g. machines, tools, buildings etc., referred to as physical capital or real capital.
Prego stated in his essay that the numbers just don’t add up. Let’s look at the rescue attempts in more detail to demonstrate why this is so.
Marx’s basic premise, which he put forth as axiomatic rather than as a proposition that might conceivably be falsified, was that the value of any good, including a capital good, is the sum total of embodied labor - both direct and indirect - contained in its components and production. Marx got around the first obvious problem with his formulation, which is that some things clearly have no value even though lots of labor went into their production, by introducing the concept of socially necessary value.
Since Marx presented the idea that only labor can create value as axiomatic, he asserted on this basis that even though a worker with capital inputs can produce way more value than a worker without these inputs, that the only part of the total value created that can be attributed to capital is the labor that is embodied in the production of the capital good.
This assertion has to be true in order to support the desired conclusion, which is that the workers are producing all of the surplus value, and that the owners of capital are taking what rightly belongs to the workers when they receive profits over and above the value of the labor embodied in the capital.
Marx’s epic work, Das Kapital, consisted of three volumes. In the first volume, he laid out the basis of what we now call the labor theory of value. His thesis was that commodities have value because of socially necessary labor time, and for no other reason.
He asserted therefore that labor is the only source of surplus value, and that the owners of capital make profits by paying workers less than the value of what they produce.
Surplus value is defined as the difference between what the business owner receives from selling the goods or services, minus other deductions, and the wages paid to the workers.
In volumes two and three, Marx tried, and by almost all accounts, even by Marxist “economists” such as Joan Robinson, failed, to reconcile his theory of value with empirical observations.
If his theory of value is correct, capitalists in different industries ought to receive profits in proportion to the amount of labor embodied in their outputs. But in practice, no such thing happens.
For example:
Industry A is labor-intensive, i.e., it uses lots of labor but little machinery.
Industry B is capital-intensive, i.e., it uses lots of machinery, little labor.
Under the labor theory of value, Industry A should create more surplus value (and hence profit) because it contains more labor. But in reality, business owners in both labor-intensive sectors and capital-intensive sectors tend to get roughly equal rates of return on capital investment.
This failure came to be known as the “transformation problem”. The Austrian economist Eugen von Boehm-Bawerk was among the first to point out the unresolvable contradiction, and later economists such as the American Paul Samuelson demonstrated mathematically that Marx’s transformation does not work under Marx’s own assumptions.
Marx had argued that 1) total price = total value; and 2) total profit = total surplus value.
Samuel demonstrated that both of these propositions cannot be true, except in the trivial case where labor and capital intensities are the same in all industries.
If you fix prices so that total prices = total values, then profits ≠ surplus value.
If you fix them so that total profits = total surplus value, then prices ≠ values.
Samuelson called Marx’s attempt an “algebraic illusion.” Later he even remarked that Marx’s economics was a “swan song” of an outdated paradigm, because marginalist economics could generate consistent value/price relationships while Marx’s could not.
The point where Marxism begins to segue from political and economic inquiry into the doctrine of Marxianity is the point where adherents clung to the conclusion of the invalid argument in spite of the fact that the argument itself was fatally flawed.
Marx and his disciples have simply refused to concede that the labor theory of value is unscientific, and that is how it has come to be a quasi-religious dogma. Without the labor theory of value, all of Marxist theory collapses – there just has to be exploitation of labor going on in order for the theory to get traction and go anywhere.
The conclusion that capitalism is inherently exploitative is the moral and political bedrock of a theory of class struggle, capitalist injustice, and the promise of a classless communist society; and disciples of Marxianity cling to it with a tenacity of the same sort that disciples of Christianity cling to creation myths and the promise of eternal life in paradise.
As my colleague Prego de Nada pointed out in a previous podcast essay, the attempts to rescue the labor theory of value are a parallel to earlier attempts by medievalist astronomers to rescue the geocentric model of the solar system when observations of retrograde planetary motion were not in line with predictions.
Medieval astronomers added epicycles, deferents, and equants - increasingly complex geometric fixes to explain observed planetary motion without abandoning Earth’s central place in God’s universe.
For medieval astronomers and theologians, the Earth at the center of the universe fit with religious and philosophical beliefs about humanity’s special status.
Marxist economist have produced pretzel logic in a variety of forms, some of them even going so far as to acknowledge the flaws in the original labor theory of value, all the while keeping the conclusions about the evils of capitalism at the center of their efforts.
The proposed fixes for both of these failed theories grew more technical, more intricate, and further removed from intuitive or elegant explanation. Occam’s razor has eliminated from scientific discourse the labor theory of value in favor of the subjective theory of value, just as it has eliminated from scientific discourse the geocentric model of the solar system in favor of the heliocentric model.
We can gain insight into the way Marxianity has developed, and into its ongoing appeal, from the writings of American author Michael Shermer, whose work “The Mind of the Market” has previously been favorably reviewed in this podcast series, and who argues in his book “The Believing Brain”, that the same mental processes underlie such things as conspiracy theories, religious beliefs, grand social theories and political ideologies.
Shermer points out that the human brain is pattern-seeking. We’re hard-wired to find order, structure, or causality, and we “find” these things even in data and anecdotes that are actually random. And we tend to assume that intentional actors lie behind the imagined patterns.
These evolved tendencies might have improved our odds of survival in earlier times, but they can misfire in modern settings, and lead to all sorts of mischief.
Marxist ideologues who retain the labor theory of value do so, not because it is compelling, but because it supports a normative critique of capitalism. Abandoning the theory would fatally undermine their analysis of exploitation, surplus value, and class conflict.
We should also note the many attempts by later theorists to maintain Marx’s conclusions about the evils of capitalism while jettisoning a strict interpretation of the labor theory of value. But these apologists uniformly still fall prey to pattern-seeking and agency attribution, exactly as Shermer described. Just listen to all the current chatter about “oligarchs” and “Wall Street billionaires”, and the way they have “set things up”.
And as with religion or conspiracy theory, the appeal lies not so much in the explanation, but in the emotional certainty it provides, and in the sense of membership in a community where everyone sees things as they “really are”.
Marxianity continues to inspire, in spite of having no intellectual foundation, precisely because of how our brains have evolved to form beliefs.
Fascinating!
Thanks to Otto for this essay.
We sometimes feel surprised at how well things are actually going on your planet in spite of the intentional dissemination of all sorts of ecnarongi for unworthy purposes.
I invite you to have a listen to the next Fascinating! podcast and a look at the next video on our YouTube channel. You can find access to all podcasts and videos on our web page, fascinatingpodcast.com.
Please recommend Fascinating! to your friends if you find the lessons from nature in these essays personally valuable.
Theme music: Helium, with thanks to TrackTribe.
Live long and prosper.
Practice the art of winning without defeating anyone.
Savor your experiences.
Treasure your memories.
Anticipate a happy and rewarding future.
And respect nature’s wisdom.
