 |
| Source |
Michael Roberts, a formidable Marxist economist, is interviewed by Left Voice's Jason Koslowski in a post entitled Is a Major Slump on the Way? He is asked some basic questions about the tenets of Marxist economics, which makes for a useful read.
The first question asks about the labor theory of value, and why it is important today. Mr. Roberts responds:
Mainstream theories deny that the value/price of commodities is due to human labour. Instead, some argue that the value or price of a commodity depends on the individual demand for it, its degree of utility. You might pay $1 for an ice cream but somebody else might pay $2, depending on the ‘marginal utility’ of an ice cream to each person. So the price is dependent on the desire of each individual, averaged in some way.
This is nonsense; first, because how can you add up each individual’s desire for an ice cream to reach its average value? Second, the question that is not answered is: why does an ice cream cost only $1-2 while a motor vehicle is priced at $30,000? What decides that is the cost of producing each in terms of the labour time involved, not the individual demand for cars over ice creams.
You can count me among the "mainstream economists" here, who believe that it's consumers who assign values to products. A consumer will spend $30,000 on a car only if a car is worth that much money to her--and preferable to spending the same money on a fancy vacation or for the down payment on a house. Her calculation of value has nothing to do with what the workers think their time is worth.
Mr. Roberts asks how the capitalist can determine that "average value" for an ice cream cone? He can't, of course, but what he can do is find the revenue maximizing price. If the price is higher than that, then too few people will buy ice cream. If the price is lower, then he's just leaving money sitting on the table. There is a price--known as the market price--that maximizes revenue. In theory that happens to be where the red and green curves in the above diagram intersect. Prices convey information about how much consumers want a given product. It is consumers who set prices--not the capitalist or the workers.
Though Mr. Roberts isn't entirely wrong--he asks why a car can't be sold of one or two dollars, like an ice cream cone. This is, of course, because the cost of production--including labor--is much higher to produce a car than it is to produce an ice cream cone. So the price of a car must be higher than the cost of production, including labor. If consumers aren't willing to pay at least that much, then no cars will be produced. Neither capitalists nor workers will be willing to manufacture cars that can only fetch a couple bucks in the marketplace. Or, put another way, the price has to clear the market.
Of course some consumers are willing to pay much more than the market price. Only cheap cars will sell for $30K--these days one can easily find cars that are priced well over $100K! It seems that enough people are willing to spend that kind of money on a car. The production costs to make expensive cars are not that much higher than for the cheap, commodity cars, and so the luxury brands are very profitable for the capitalist. Not because the workers are exploited, but only because some consumers value brand, fashion, fancy electronics and leather seats more than most. In other words, automakers discriminate and they find customers who are willing to pay well above the market price for their cars.
It's the same with airline tickets. Basic economy tickets are a commodity product and are sold as cheaply as the cost of production allows. I use the word commodity here in the narrow sense, meaning products that compete primarily on price. But business class and first class seats sell for a lot more, and substantially add to the airline's profit margin. Unlike what Mr. Roberts implicitly claims, branded and/or luxury products are not commodities and are sold at (often substantially) higher prices. This is only because consumers are willing to pay for them, even if the additional labor cost is negligible.
Quoting again from Mr. Roberts:
Value in things and services produced as commodities for sale by capitalists has a dual basis: 1) it must be useful to somebody so that it will be bought, i.e. it has a “use-value”; but 2) it must be sold for money, i.e. it has exchange value. The great discovery by Marx was to show that the value or wages paid to workers for their labour time is less than the value of the goods or services sold by the capitalist. The worker works eight hours in a day but gets paid the equivalent of just four hours labour time. The capitalist appropriates the remaining four hours on the sale of the product. This is “surplus value” free to the capitalist.
What he calls "use-value" is, in fact, the value that the consumer puts on the product. Some consumers are willing to pay more and others less. Capitalists try to get consumers to pay more by upselling them to, say, business class. Consumers try to pay less by shopping around for sales and/or discounts. At the end of the day, the so-called "exchange value," aka price, is the result of bargaining between the consumer and the capitalist. This negotiation has nothing to do with the cost of labor.
Mr. Roberts posits yet a third value--determined by neither what the consumer wants nor by what the negotiated price eventually is. It is instead a spiritual quantity that Mr. Roberts calls "surplus value." I call it spiritual because there is no way this quantity can be measured--Mr. Roberts' offers the imaginary approximation that it accounts for 50% of the "exchange value" price. It is this spiritual, "surplus value" that is supposedly being stolen from the worker and pocketed by the capitalist as profit.
Wages are also the result of market competition. The capitalist needs to pay enough to convince the employee to come to work--and also not to work for another firm. The worker wants not only more money, but also benefits and leisure time. None of this has anything to do with what consumers are willing to pay.
Finally, Mr. Roberts completely misunderstands the role of "profit." There are two ways to measure profit: one as a fraction of all operating expenses, ie, operating profit. This is the measure that Marxists use (though they have a very weird and completely impractical way of estimating it). They posit a "law of economics" that global operating profits are declining. There is no empirical way to test this result.
While it is true that the operating profit has to be positive in order for there to be any profit of any kind, it doesn't have to be big. Walmart, for example, sets its operating profit to be 3%--if it's higher they lower prices; if it's lower, they eventually close the store. While low operating profits may be bad for the capitalist, the trend is excellent for consumers, since it means lower prices overall. Thus what Marxists interpret as being bad for the economy is actually good--assuming the trend of declining profits exists at all.
The way capitalists calculate "profit" is completely different: they calculate it as earnings per share, usually expressed in reciprocal form as the price/earnings ratio (PE ratio). Thus the relevant measure doesn't depend on operating profit at all (as long as it's positive), but instead as a percent of the total market capitalization of the company. By this measure there can never be any systematic decline in profits, since if operating profits go down, then share prices will go down in proportion.
The successful capitalist combines various resources--labor, capital, natural resources, expertise--into a company that creates something new that is of greater value to consumers than the constituent parts. Creating value for consumers is known as creating social utility, ie, making us all richer. Modern America is vastly richer than 18th Century Britain because capitalists, by imaginative recombinations of resources have been able to generate huge amounts of social utility.
The Marxists have economics all wrong--but if you want a concise and clear exposition of Marxist economics, then Michael Roberts is a good place to start.
Further Reading:
- Left Voice Demands 5 Things of UAW's Shawn Fain
- Three Militant Articles on the Economy
- Workers' Voice Doesn't Understand Deficits or Taxes
