Opposing Labor Theories of Value

Karl Marx vs Adam Smith Icon

April 29, 2015

I came upon a video explaining the Marxist view of use value and exchangeable value. It was easy to see the difference between the values of Marx and those of Smith.

Idea Marx Smith
Use Value Usefulness of an object Usefulness of an object to a person
Exchangeable Value Purely relative, intrinsic value of an object"(value) expressed in terms of something common to (all commodities)" Capital 1.1 Value of an object to society “The power of purchasing other goods which the possession of that object conveys” Book 1, Chapter 4
Labour Theory of Value Value based on mechanical human labour “human labour in the abstract” Capital 1.1 Value based on pain or pleasure “toil and trouble”
Technique Materialism Psychology, Metaphysics

By reading Marx’s flow of ideas in Section 1 of Capital, Marx’ mind seems to view every economic thing from the viewpoint of matter first. He generally disregards the human mind or the perceiver of that matter.

In contrast, Smith’s mind in The Wealth of Nations sees everything from the viewpoint of the human mind first. He goes into the interests of each sector of society to see the cause of the economic actions.

Marx’s mind jumps from physical matter to physical matter, or effect to efect. Smith’s mind jumps from mind to mind, or from cause to cause. He explains this technique in The Theory of Moral Sentiments wherein he puts himself in the shoes of other people. He splits himself into two in order to view an action from different perspectives.

In a nutshell, Marx takes the materialist approach, similar to Say and Malthus, while Smith takes the metaphysical approach, similar to Hume and Socrates. The dialectical method of Socrates uses two or more people who argue about a single thing. This technique is used by Smith to split himself into different ‘spectators’ in order to have mutliple perspectives about a thing. The ultimate spectator is then the impartial spectator represented by his moral sense.

Problems Created by Materialism in Economics

So what’s so bad with the materialist approach in Economics, or with ignoring the human aspect?

1. Inherent Limitations

Matter is finite, mind is less finite.

In the lecture, Prof. Harvey correctly acknowledges that exchangeable value is the cause of the current economic problem. However, he is unable to create a clear, direct solution.

This is partly because Marx defined exchangeable value as something assignable to all objects, and this something can only be money. Whereas Smith defines exchangeable value as rooted in the purchasing power of a product or service, which is then rooted in the toil and trouble saved or pleasure created by that product or service. This toil and trouble is objectified as food, specifically as grains.

Materialism traps Marxist economics into money, which of course is the expertise of the rich or the bourgeoisie. Marx has no other way to solve this, so his ultimate solution is to eliminate exchangeable value altogether and use only use-value. However, without a means to exchange, rationing becomes the only way to circulate commodities in a society.

Rationing removes freedoms and puts immense burdens on the rationer, which is usually the government. The lack of freedom directly goes against the freedom espoused by socialism and communism. In time, this opens up possibilities of injustice, as seen in North Korea and Venezuela. This is opposite of the social justice that those systems were meant to create.

Any attempt to eliminate exchangeable value will only cause rich people to leave. The problem is that they are also usually the experts in industry or in producing goods and services. This then creates a bigger problem when the amount of goods and services decline drastically. This is also the opposite of what Socialism and Communism intended.

Harvest

Communism ends up with injustice and low production because its ideological base is matter, whereas the ideological base of humans is the metaphysical soul which is the opposite of matter.

2. Economic Justice Disappears

Without the factoring in the mind, economics becomes mechanical. This violates human nature which is non-mechanical.

By focusing on the physical aspect of labour and removing its psychological aspect, Marx inadvertently turns humans and human economics into machines and machine economics. The same problem affects Capitalism which treats employees and workers as slaves.

It’s easy to ration or budget the fuel to a fleet of cars to keep them running, but no mathematical method can be used to fairly ration food or products to a nation’s citizens since their needs and wants always change. In addition, even if a country’s whole resource allocation system were condensed into a precise formula, some people would merely play the system to get more resources. This would leave more economic injustice to those incapable of playing. In the real world, this is seen in the rise in corruption in both Communist and Capitalist countries as people play the system and court the favour of the rulers.

Work Camp
Materialist economic systems such as Communism (above) and Capitalism (below) excel in mobilizing work by focusing on objective, material results without really asking why such results are needed. Capitalism outputs more work than Communism because it has a psychological element of freedom

Burnout

Materialism caused the problem, so it cannot possibly create the solution

The whole problem of unstable and unjust exchangeable value was created by negating psychology or the toil and trouble of society, in favor of either materialist production in Communism or profitable production in Capitalism. Thus, neither system, nor any materialist system that focuses on objective products distribution or objective price mechanisms, can provide the solution.

In fact, the likely solutions of Capitalism of Modern Monetary Theory and the Communist solution of eliminating exchangeable value, will only worsen the problem. Our pantrynomy derived directly from Smith’s requirements in The Wealth of Nations, can solve the problem by focusing on the trade or agreement between the people themselves, instead of focusing on the objects that they are trading with. This system has the following components:

  • this implements Smith’s real price, and was noted by Montesquieu earlier. It allows people to value goods and services with other goods and services or even money. This solves the exchangeable value problem in Communism and price fluctuations in Capitalism
  • allows people to get their fair share of the goods and services of society. This prevents exploitation since people will be able to work only for the goods and services that they want
  • prevents monopoly by encouraging competition and lowering entry barriers

The neglect of toil and trouble is also evident in the Labor Theory of David Ricardo, which will be the next post.