Wednesday, 1 March 2017

What is Marx’s Value Theory Worth?

At a recent talk I gave on imperialism, there was an interesting question raised on what I thought about Marx’s theory of value. This seemed to be prompted by my reference to Marx’s theory, while I spent little or no time using the terminology in Capital. So the logic of the question was: what is the point of Marx’s theory if one can do without it when explaining what is going on in the world?
Partly, the question is answered by saying that one does not always have to use specialist terminology to express ideas. For example, I have found it to be simpler in presentations to avoid Marx’s term ‘fictitious capital’, because that concept would take some time to explain properly and most people are not familiar with it. Even those who are commonly misunderstand it. Instead, I usually develop the same ideas more directly through discussing the role played by equities and bonds and their relationship to what the economy produces. However, the question needs to be put in a broader context.
Marx’s value theory analyses social labour under capitalism and the increasingly odd forms that it takes as capitalism develops: from being represented in the prices of commodities, to being the source of interest, profits, dividends, rents and tax revenues, to underlying, in an even more distorted fashion, the prices of financial securities. Marx’s theory shows how the capitalist market gives the system a particular dynamic, one that leads to the monopolisation of production and the creation of a world market as capital accumulates. The labour embodied in commodities may not tally directly with the prices they command in the market, but those prices remain strongly influenced by changes in social productivity. Furthermore, we get a longer-term process by which barriers to capitalist production are set by the tendency of the rate of profit to decline. Since the logic of capitalist production is to make a profit, this is the key underlying problem for capitalism as a social system. It is one that the (sometimes) well-meaning reformers of the system do not want to contemplate, so they exclude this from their analysis or go out of their way to deny this does, or even could, happen.[1]
These fundamental features of capitalism analysed by Marx remain in place, although the system has of course developed a great deal in the 150 years since Capital was written. However, the changing forms of capitalism have led many to argue that Marx’s theory is outdated or invalid today. But a proper Marxist analysis examines the dynamic of the system and the new forms that evolve out of the old, rather than simply to judge whether contemporary capitalism fits completely with an earlier conception of it.
In Capital Volumes 1, 2 and 3, Marx did not investigate relationships between countries in the world market. Some of this was done outside the three volumes, and plans for later volumes included a more systematic coverage of the state, foreign trade and the world market. So, for example, in Capital there was no real discussion of colonies, just brief mentions, nor much on monopoly or national differences in wages.
Lenin updated aspects of Marx’s work in his 1916 pamphlet Imperialism, drawing on other analyses. He correctly put greater emphasis on the division of the world economy between oppressed/oppressor nations, the territorial division of the world between the major powers, the propensity to war, on monopolies, bank/industrial capital and a ‘financial oligarchy’. This was a key advance in the analysis, and consistent with the idea of Marx’s value theory as being a theory of the evolution of and barriers to the capitalist system – hence Lenin’s term ‘moribund capitalism’. Many aspects pointed out by Lenin remain relevant today, even though these century-old forms have, of course, also developed. There is now a largely post-colonial world, although many countries are still clearly underdogs in the imperial hierarchy. There remains a propensity to war, but now with many wars by proxy, sponsored by the major powers.
I have some differences with Lenin’s analysis, as explained in my book, The City: London and the Global Power of Finance, especially on his understanding of finance, which was taken largely from Hilferding. However, perhaps Lenin’s greatest weakness was his analysis of the ‘labour aristocracy’, the unconvincing notion of how a labour elite getting the benefits of imperial privilege influences the broader working class with their pro-imperialist views. Even in Lenin’s time it would have been more convincing to have taken into account how the mass of people in rich countries were patriotic for their own reasons, ones that had a strong basis in reality rather than a supposedly infectious ideology. They saw, and still see, their economic interests tied up with that of their own states, and benefit in their wages and welfare conditions from this imperial privilege. That is another sign of how it is important to conduct a thorough analysis.
I rely on Marxist concepts as starting points for understanding the world today because they provide the best way to explain what is going on. However, this is not to say that one can find the detailed answers in a particular volume of Capital. To think so would be almost as bad as believing in the prophecies of Nostradamus. Instead, the significance of Marx’s theory is that it so clearly spelled out the dynamic of capital accumulation that, much more than one might think plausible, his analysis provides key building blocks from which to understand major features of the world economy today.
Whether I use terms from Marx’s value theory in my analysis, and which terms, depends on the context in which I make my argument and how much time there is to do so. In any case, Marx’s work is used as just described. His concepts, like Lenin’s, might need to be amended – perhaps even rejected – according to an assessment of how the world has developed since they wrote.
The observation that capitalism in various forms has been around for several hundred years is commonly seen as an argument that it will go on forever: that it is an eternal, natural system for organising the economy. While economic crises are an undeniable reality and sometimes bring protests, there remains little understanding or acceptance of the Marxist conclusion that capitalist social relations are an increasingly dysfunctional, reactionary way in which to organise the affairs of humanity.

Tony Norfield, 1 March 2017

[1] I have little confidence in being able to track movements of the rate of profit through official statistics, although one does get indications of the underlying movements from the behaviour of major capitalist companies and reports of investment that suggest a rising organic composition of capital. Official data are focused on an individual country, and do not fully allow for international influences, something especially important for the US. Statistical conventions for counting the ‘value added’ by the financial sector make things worse, as exemplified by UK GDP income data in 2008 showing a higher operating profit for UK banks when the company reports, and Bank of England data, showed a very sharp drop, often into losses! This is apart from the multitude of accounting tricks that large corporations use to relocate the origin of their profits, including through tax havens.


  1. Thanks for this Dr Norfield.

    I was wondering if you could comment a bit on the rejection of LTV by economists like Joan Robinson, on the basis that its explication in Capital is inconsistent/contradictory.

    Further, if I am not mistaken, economists in the broader Monthly Review/Monopoly Capital tradition do not rely on the LTV=> organic composition of capital=> declining rate of profit scheme to demonstrate the dysfunctional nature of capitalism. Instead, they argue for a tendency towards secular stagnation due to a systemic failure to generate sufficient aggregate demand. How do you think this relates to the classical Marxist view as outlined in Capital?

  2. Reply to YK: A feature of most academic economics is that it fails to look at its own fundamental assumptions and so it is even less likely to understand a Marxist perspective. The ‘labour theory of value’ is not a theory of market prices, but an examination of the forms taken by social labour under capitalism. In this, among many other things, Marx discusses at some length how and why prices deviate from a direct correspondence with the labour embodied in commodities. The so-called inconsistency/contradiction arises from trying to turn Marxism into bourgeois economics, in particular through a completely inappropriate and absurd use of reproduction schemes to ‘solve’ for equilibrium market prices using matrix algebra. That was far from being Marx’s approach, and also does not make any sense. Joan Robinson, a critic of some of the more stupid aspects of economics, makes the same mistake, and accepts the standard mainstream economics critiques of Marx’s theory (deriving from Bortkiewicz and others). For coverage of these points, see Paul Mattick’s critique of Samuelson (including Joan Robinson’s views) and David Yaffe - links below:

    On the Monthly Review school, I think they have done some good reviews of contemporary imperialism and some of its empirical aspects. But their theory is based on a confused Keynesian perspective. A Marxist viewpoint would instead explain the lack of ‘aggregate demand’ as a function of the lack of investment that, in turn, is related to profitability – even if these links are tricky and remain to be spelled out, as I do for some aspects in my analysis of finance. The MR school first used the notion of ‘waste’ to explain how a boom occurred in the post-1945 period, since this waste created demand, and since then have focused on income inequality, lack of spending power, etc, undermining growth as being the main problem for capitalism. A founder of the Monthly Review school, Paul Sweezy, is responsible for popularising all the mistaken views noted here, including on the ‘transformation problem’.

    Tony Norfield

    1. Many thanks for your response. I would like to make comments (in reverse) if I may:

      1. Regarding MR, it seems to that the AD problem and secular stagnation are indeed problems for capitalism. I find these issues helpful to raise when I am discussing things with people who do have some background in economics. However, MR does not have a way to explain why this *must* be so, inevitably falling back on Keynesian views. The upshot is that they cannot provide an economic explanation of why Keynesian policies must also fail, eventually ending up with the argument that the demise of Keynesianism has political roots (ie that capitalists don't like sustained full employment because it makes workers too powerful and undermines their authority as captains of industry because of government involvement in the economy). This is again not entirely false; there is political opposition to Keynesianism. But to make this the only or even primary cause for its failure inevitably leads to the position that it is 'neo-liberalism' that is the problem.

      2. Thanks for the links. I have read the Mattick piece and it makes sense. I am not an economist and I only have passing familiarity with Capital from when I skimmed through it as a young student. Nevertheless, I have always understood the purpose of the work to be to demonstrate that the system has a particular logic, which pushes it towards monopolisation and which also has definite limits, because of the declining rate of profit. Thus, criticisms along the lines of 'LTV is false, because prices don't work like that' have always seemed a bit off the mark to me, as have rebuttals along the lines of 'but prices *do* work like that'. Ultimately, it seems that the two traditions are talking past each other. Marxism demonstrates the historical limits of capitalism, while bourgeois economics wants to provide answers to questions relevant to business and policy decision making. Bourgeois economists therefore think that Marxism is useless, because there is nothing in it for the problems they are trying to solve. That it suggests that these problems are insoluble in the long run doesn't make it all that popular either.

      In any case, my questions is the following. Given the above, what is the appropriate way of conducting Marxist economic research that is neither mere exegesis of Capital nor a reinvention of the wheel? How does one formulate meaningful research questions on the basis of Marxist theory and approach the wealth of empirical material that remains in the form of prices etc?

      Do feel free to answer 'why don't you read my book to find out?' to the above question. I fully intend to do so. I am just asking out of intellectual curiosity as to how one conducts 'critique of political economy' today, when mainstream economics has diverged so much from the conceptually more conscious classical political economy.

  3. "I have some differences with Lenin’s analysis, as explained in my book, The City: London and the Global Power of Finance, especially on his understanding of finance, which was taken largely from Hilferding."

    About differences with Hilferding's notion of finance capital, there was already a contemporaneous critique made by some Russian marxists, eg Finn-Enotaevsky, whose 1913 article (in Russian) is uploaded on the page with additional material for a forthcoming book with Marxist essays on money:

    It possible that Hilferding was influenced by an article-series by Fedor Kapelusz in Die Neue Zeit, though Kapelusz later was critical of Hilferding (see my translation of his 'Marxism and imperialism').

    But I want to draw attention to the forgotten (German-)American Marxist Herman Cahn. Cahn's book 'Capital to-day; a study of recent economic development' (1918, 2nd edition) was called by Mary Marcy 'the most momentous contribution to an analysis of capitalist society since Marx'. Online at:

    It is like an American version of Hilferding's 'Finance capital; a study of the latest phase of capitalist development'. Cahn further wrote 'The collapse of capitalism' (1919):

    (I couldn't even find the exact date of his life, but it seems he lived somewhere between 1850-1930)

    Kind regards,
    Noa Rodman

    1. Noa, thanks for the references. I had not run across these people before. There is a lot of material from the turn of the 19th-20th century, although (sadly for me) not a lot in English! I'll have a look at Herman Cahn's books.

      Regards, Tony Norfield

  4. Reply to YK, 11 March: I broadly agree with your Point 1.

    On your Point 2: The irony is that mainstream economics has no realistic theory of price formation under capitalism. It either ignores all the features that shape what happens, or puts them under ‘exceptions to the rule’ of free markets, perfect competition, etc. Even in Volume 3 of Capital, where Marx does not really analyse monopolistic features of the market or the international market, Marx had a better description of these processes. It is usually left to journalist-economists to discuss these things. But the latter focus on the striking, sometimes bizarre, details of the subject they examine, rather than to see how these features derive from the form taken by the accumulation of capital. In any event, the amount of socially necessary labour-time in a commodity (influenced by productivity, technology, etc) will ultimately be the driving force behinds its price in the market, whatever the market imperfections. As Marx put it in his pamphlet Wages, Price and Profit, when economists argue that prices are determined by ‘supply and demand’ this cannot answer the question of where the price will settle when supply equals demand.

    On your question of how to conduct Marxist economic research, I would indeed answer ‘read my book’! As a summary, though, I would argue that one has to start with analysing the evidence and thinking about the operation of the economic system. One is bound to have an implicit conceptual framework that will guide what is examined. But this should not be allowed to prevent a critical approach to these concepts. All too often among people who adopt a critical view of capitalism, there is a tendency to latch on to contemporary phenomena and try to tie them directly to a Marxist concept. At best, this misses out important stages of analysis; at worst, this can completely misunderstand what is going on.

    The most satisfying results emerge when you analyse something that appears at first to contradict your previous views, or to undermine the validity of a concept, but then your analysis discovers new relationships that have to be taken into account. The previous concept may not be rejected as invalid, but instead developed in a way that shows more concretely how the system works. An example is Marx’s theory of ‘prices of production’ in Volume 3 of Capital. This shows how commodity prices would not directly reflect socially necessary labour-time because the commodities are not exchanged as products of labour but as products of capital, and the equalisation of profit rates comes in as a modifying factor.

    I would add that I am not really interested in a critique of mainstream economics. It is largely a waste of time, although it can sometimes be productive to explain what is behind those perceptions of events.

    Tony Norfield, 12 March 2017