Why is it so hard for Economists to make a substantial critique of the LTV?

Brad DeLong takes a swipe at the Marxian Labour Theory of Value and falls hopelessly off target and wrong to boot.

From a drawing of André Castaigne. The starvin...
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Or: Brad DeLong tries and fails to refute the (Marxian) LTV.

I won’t go into the details on why Brad didn’t attempt to argue against the LTV but rather against the moral basis of Marx’s theory of exploitation as Kapitalism101 already skewered that particular misunderstanding. What I would like to do is to point out why even then example chosen, in all it’s rigged splendor is misguided in providing us even with clear moral insights into the ethics of capitalist production.

First, lets start deconstructing the example put forth. One might wonder why we should be doing that of course and the reason is that there is a fine line between rigged examples and unrealistic examples which are so goddamn popular within economic circles. It’s quite important to expose the unrealistic expectations and ignored inconsistencies which make up so much of such scenarios so as to point out why they can’t be used to describe reality in any meaningful sense.

In fact, I’m going to digress towards a small rant on this particular subject as it annoys the hell out of me when I see it. Dear Economists please stop doing that! Stop imagining scenarios, perfect, clear cut scenarios, with no ambiguity at all, which can fit into perfect mathematical models and then try to describe reality from those conclusions! It is not reality. It has nothing to do with reality. It’s as absurd as a physicist trying to explain reality by positing a scenario starting with “Imagine a man flying by flapping his arms”. You can’t model reality in your heads and then use those fantastical examples to describe the real world. As such, your examples have as much accuracy to the reality of economics as Democritus Atomic Theory has to the reality of chemistry. It sounds alike and seem on the surface to approximate reality, but is nevertheless quite wrong.

Marx, for all his errors at least started the right scientific way by looking at how the capitalist mode of production worked and then writing a theory to describe it. You know, like a proper scientific theory. That doesn’t necessarily mean that his initial theory was perfect any more than Darwin’s initial theory of evolution was perfect. It was nevertheless based on empiricism rather scholasticism. /rant

So from the get-go, Brad’s example starts on the unrealistic foot.

Now suppose that ten of these families starve themselves for a decade–living on little more than half-rations–to raise the cash to buy farm machinery, irrigation systems, fruit trees, et cetera from the cities.

Which automatically means that A) Those farms were not subsistence and they were producing already more than they could consume as nobody can keep on starving for 10 years and B) There is already a working industrial production which provided them with the research and capital to buy. Under what circumstances this was bought it is not said as that production might be based on exploitation as well. But lets for the sake of the example assume that people starving for 10 years instead put their labour in researching and building all that capital and see where it leads us.

As a result of their sacrifice, saving, and investment, thereafter their farms require four times as much labor each year to operate, but also produce crops worth eight times as much because of the capital investment.

Now we see that all those abstained consumption of those families was used to create capital which can only be used by more than their current manpower. This is weird to put it mildly as one would expect them to simply improve their own processes rather than build capital requiring more manpower. It points in fact to the idea that those starving families had a plan to hire other workers or to put it shortly, to rent out their capital rather then selling it or using it themselves. Keep this in mind as we proceed.

They then hire thirty additional families’ worth of workers, leaving the remaining ninety original farmsteads to be worked by sixty families.

And this is the sticking point for me. What Brad casually assumes would happen easily and without much fuss is, in fact quite complex, when one looks at things realistically and with an anthropological perspective. Why would 30 families of workers agree to be hired as wage-workers?

This may not sound as much of an issue for someone who takes the current world as given and the current human mentality of passively accepting wage-labour but it is quite important to analyze. Lets take the things we know. Those 30 families currently can produce enough food to fill their current needs and then some extra to sell and buy luxuries (otherwise, those entrepreneurs wouldn’t be able to “starve” themselves). Those 10 families that “starved” themselves for 10 years on half-rations, we can assume that they consumed only half as much of their product right? So if they produced 3000 pounds of wheat per year, this means that they saved 1500 per year. So 10 x 10 x 1500 = 150.000 pounds of wheat, or 75 tons, in order to buy/build the capital right? Right.

At this point one might ask, why didn’t those families pool their resources together and buy capital that is small enough that they can work themselves? Lets assume that the smallest unit of capital they could buy was this, requiring a minimum of 40 families. Again this raises questions on why this is the minimum unit of capital and this is not a neutral question. Kevin Carson would have a lot to say about the purpose of capitalist technology and which interest it represents.

So we have unit of capital which was bought by 10 families who can’t currently use it. At this point, one starts to question their sanity. It’s like a blind man buying a truck. “Why did you just do that?”, one expects everyone else to ask. “You just starved for 10 years in order to buy something you can’t use? What’s the point”. At which point those brilliant entrepreneurs say “Ah but my plan is to hire you guys to work in it and give you a share of the profits while I keep something for myself for all our starvation.” At which point general laughter occurs. For you see, there’s no reason for anyone to accept such a plan. And I’m going to explain why:

  1. The Entrepreneurs are now left with something they cannot use. They are at a severe bargaining disadvantage to everyone else, having wasted 5 years of money’s worth on machinery which will degrade if not used and maintained. As such, they are now at a pressure to use it. It is not in anyone else’s interests to hire themselves out as wage workers when they can instead buy the capital at the far lower second-hand price.
  2. It is not explained what the bargain is for everyone else to hire themselves out as wage-workers. It is assumed that the extra money (an increase of 1500 pounds of wheat-per-year, per family) would be enough to make them take this job. But this is counteracted by the loss of freedom. Whereas those 30 families had control over their own work hours, they will now lose it and will have to work under a boss. This may not sound as much but looking at historical examples of where such scenarios played out, we can see that almost nobody (and I use “almost” only because I can’t speak with absolute certainty, not because I’m aware of any counter-examples) during the migration from farming/artisan production to industrial production, chose to leave their own self-controlled work in favour of factory wage-work. Quite the opposite in fact. People preferred to spill blood rather than choose this.

It is therefore highly unlikely that those 10 families with the capital would find anyone to hire as wage-worker when people had the alternatives to either keep working self-employed which was both traditional (and we know how hard that is to change) and trouble-less, or to buy the capital second-hand or new buy banding 40 families together and amassing the same amount of capital in “2.5” years by starving or 3.3 years by “tightening the belt”. Then, they would both get the increased production AND keep their freedom AND keep all the profits at equal shares.

So in the end, the only way that Brad’s scenario could play out would be for one or more of these reasons

  • The 30 other families are stupid: This is the only way they would not realize that the “entepreneurs” have put themselves at a disadvantage and they can now buy the decaying capital at bargain price.
  • The 30 other families are terminally lazy: They’re not willing to abstain from even one pound of their current lifestyle, even if it means 50% increase in wealth 4-5 years down the line.
  • The 30 other families are made up of submissives: Only those would enjoy all loss of freedom during work hours that they enjoyed until now.
  • There is something else in play which took the previous means of subsistence from those 30 families, leaving them with no other option than hiring themselves out to those 10 entrepreneurs as wage-workers.

Brad, and most mainstream economists and economic examples such as the above, quite strongly imply that the poor and working class are lazy, while the truth is that historically (even continuing to this day) it’s the last option that has happened. Those 10 families bought the capital and then put their friends in the state to enclose on all the property of the 30 other families so that they have ample wage worker who “volunteer” to hire their labour out.

This example thus is no different. It simply posits a reality and assumes away all those embarrassing natural reactions humans would have. No, let’s just assume that 30 families agreed to hire their labour out with not a lot of fuss. It’s the voluntaryist fallacy all over again where the argument assumes a scenario where a bad situation is accepted voluntary from one party and then wonders where all the moral condemnation comes from.

Let me exemplify this by taking Brads example and using slavery rather than wage-slavery.

Lets take the same scenario with the 10 families starving and whatnot to build/buy capital that can only be worked by 40 families. Now lets assume that those 10 families  take 30 of the other families as voluntary slaves in the new plantations to work them for 4800 pounds of wheat per year instead (an increase of 300 over wage-work). As voluntary slaves it means that they get to live and work whenever their masters tell them and get beaten if they do not follow orders. According to Brad’s logic, there’s nothing wrong with that is there? After all, they slaves now get more money than before and everyone is better off. Aren’t they?

What? You object to the assumption that people would just like that voluntarily sell themselves into slavery for more money given other alternatives? If so then you understand why I object to the assumption that people would voluntarily sell themselves into wage-slavery for more money, given other alternatives.

This is the flaw in Brad’s scenario. This is the flaw in all economic scenario. They are unrealistic and suffer from hoards of inconsistencies. They only work as long as we play along with the author and avoid thinking too much about what they’re really implying. It can justify wage-slavery. It can justify slavery. It can justify goddamn Cannibalism if we really want it to. As long as we’re assuming, we might as well assume anything voluntary we want.

I can take my above example with wage-work and make it worse for the slaves. I can make it better for the slaves as well. Since it’s a rigged example I can do whatever the hell I want! I can make a scenario where someone would be offered 10 times more money if they accepted to be a slave. I can make a scenario where someone accepted to be a slave for a meager 1% increase. It’s my assumptions and I can do what I want. And this is precisely what Brad is doing. He’s simply built a scenario where it looks like an improvement for the wage-workers and assumed nobody would be willing to look close enough to challenge wage-work itself. It bases itself on people already having a mentality which accepts wage-work and thus going along with it without too much fuss or thought.

As soon as someone asks “Why did those people accept to be hired as wage-workers?” his whole scenario tumbles down like a house of cards.

As for his “critique” of Marx’s theory of exploitation, it could be just as well surmised in one sentence: “It’s voluntary so it’s not exploitation. Therefore the LTV is false.” And it’s as convincing as that.

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10 thoughts on “Why is it so hard for Economists to make a substantial critique of the LTV?”

  1. That makes me crazy too. I'm trying to learn more economics, but it is soooo hard to get past the bs. I love how they have disclaimers like

    "As usual, we assume rational and forward-looking individuals who can perfectly assess the effects of choices in each stage."

    Which is

    A. ridiculous and
    B. not at all what they assume


    1. There's an excellent book exposing the fallacies and inconsistencies of Neo-Classical economics by the Post-Keynesian economist Steve Keen called "Debunking Economics" which attacks a lot of these kind of assumptions about everyone being rational hedonists. His site is also pretty good.

    2. There's an excellent book exposing the fallacies and inconsistencies of Neo-Classical economics by the Post-Keynesian economist Steve Keen called "Debunking Economics" which attacks a lot of these kind of assumptions about everyone being rational hedonists. His site is also pretty good.

  2. I guess it depends on your assessment of what constitutes a "ridiculous" assumption. Physicists often make approximating assumptions that seem silly or invalid, like assuming away friction in a mechanics problem or assuming there is no terminal velocity in analyzing the trajectory of a baseball. Other times they assume integrals exist that are infinite or that a certain series works as an approximation even if it diverges.

    1. The difference is that physicists use such scenarios as exercises, not as descriptions of reality. They didn't assume away friction in order to figure out the gravitational acceleration of earth. They simply observed how it worked and figured it out.

      So while fantastical scenarios have their place in learning physics, it has no place in describing reality.

  3. I think it's pretty unfair to take one piss poor critique of Marx and then blanketly assert that no one can make a substantial critique of the LTV. Several critiques of Marx's value theory have been made at various points. Although I'm not economically literate enough to fully evaluate the tangled mess that surrounds classical theories of value and I will admit that quite a few critiques are simply attempts to apologise for neo-liberal orthodoxy and the status quo I wouldn't really be willing to put any substantial faith in it just yet.

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