In Capital Vol 1, Marx build’s on Ricardo’s theory of value, stating that the value of commodity is proportional to the “socially necessary labor time” required for its production.

Value theory (Vol 1) A commodity’s value = c + v + s c = constant capital (machines, raw material) v = variable capital s = surplus value

Variable capital is important here, because it corresponds to the monetary expression of the value of labor power. Labor power is the worker’s *capacity* to work, which is sold as a commodity for a wage.

The value of labor power corresponds to the *socially necessary labor time required to reproduce the worker*. Marx is very loose in what constitutes the statement in *, since it includes the price of subsistence commodities, class struggle, social standards. Any observed v can be

In Vol III of Capital, Marx acknowledges that in competitive capitalist economy, capital flows between industries to equalize profit rates. This means industries w/ higher capital intensity cannot sell goods merely at “labor-embodied” values; if different industries use different

Marx wanted his theory to have empirical content, namely, for value theory in Vol I to be used to explain prices and profits that we can actually observe.

So he proposed a “transformation” of values into prices of production (PP) so that: Total value = total price Total surplus value= total profit But profits across industries equalize.

But it can easily be shown that this transformation has a logical flaw. Imagine two industries A and B (see table). A is capital intensive and B is labor intensive. Using value theory, A’s rate of profit is 20/100 (20%) and B’s is 60/100 (60%). Unequal, but Marx says in

Let’s start the transformation. First, calculate the following: Total profit = total surplus = 80 Total capital= 200 Average/uniform profit rate=80/200=40%.

Each industry should earn 40% profit on 100 capital, or 40 profit. Let’s transform labor values into prices of production (PP). Rule: each industry’s price = its cost price (c+v) + average profit (40%) A’s PP = 80 + 20 + 40 = 140 B’s PP = 40 + 60 + 40 = 140

The total PP = 280, which matches total value. Sounds nice, except that now industry A sells for profit above its value of labor power and industry B sells for below. The “transformation” breaks the mapping between labor value and the profits you would actually observe in the

So you can't have it both ways. Either: 1. Stick with labor values, but then profit rates differ, contradicting competition, and the theory won't be testable or match any observables. 2. Stick with equalized profit rates, but then the link between labor power and profit is

This is a simple example. Paul Samuelson’s 1971 paper “Understanding the Marxian Notion of Exploitation: A summary of the So-Called Transformation Problem Between Marxian Values and Competitive Prices” does a much more thorough job, and addresses many potential alternative

To sum: The labor theory of value as given has no empirical content. Its inputs are not observable (what is the “socially necessary labor time”, how can we measure it if it includes everything from class struggle to the current price of toilet paper), and neither are its outputs

At the same time, as Sam Bowles, Herb Gintis, and many others have shown (e.g., here https://cepr.org/voxeu/columns... Marx’s framework is useful conceptually to think about the dynamics of power in an exchange economy. The idea that capitalists buy worker’s *capacity* to work and not

@alexolegimas This seems fairly similar to the post-Keynesian turn: Keeping the class conflict (here, worker-capitalist conflict) but dropping the LTV.

@SocDoneLeft And this makes a lot of sense to me. Why keep outdated LTV when even Marx made clear this wasn’t what he was actually interested in (he just needed some microeconomics to develop the dynamics of conflict).

@alexolegimas Have you ever read this? https://www.jwood.faculty.unlv...

@glenweyl No I haven't. I've read Kuhn and commentary on Popper, but not this. I'll take a look, thanks! Is this in reference to when a theory has empirical content or not?

@alexolegimas say a tech is invented which doubles the number of rooms a cleaner can clean in a given amount of time. what happens to their wages in the long-run? the marxist gets this right, a lot of econ 101 guys probably get it wrong.

@baazaa9 Ok tell me what would happen?

@alexolegimas This is excellent, I’m going to post this for my intermediate micro class so I have a summary of what I mean when I talk about LTV being a discredited & abandoned model in economics

@alexolegimas i am begging those for and against marx to simply read. oh how many problems we could solve if the masses were capable of picking up a book

@alexolegimas Adressing the LTV without adressing the work of marxists like farjoun/machover, cockshott, tsoulfidis, etc should be a nonstarter by now. It's about as empirical as anything in economics, which in its mainstream form is, curiously enough, quite lacking in empirical models