Saturday, February 17, 2018

Marx Versus Classical Economics

Marx can be read as both a continuation and a critique of classical economics. A not-too-radical reading might emphasize his claim to find distinctions in economic theory glossed over by classical economists such as Adam Smith and David Ricardo. According to Marx, classical economists (as opposed to vulgar economists such as Frédéric Bastiat, Jean-Baptiste Say, and and Nassau William Senior) penetrated beneath surface phenomena to reveal the anatomy of capitalism. A more radical reading questions the soundness of the classical theory, while historicizing its emergence as a necessary illusion. The spokesmen for the emerging and progressive capitalist class sought for a theory justifying their opposition to aristocrats and the ancien régime. And classical economics was that theory.

This post presents three distinctions offered in the first, less radical reading. Marx had great respect for classical economists. I do not think he was always fair to them, insofar as he accused them of error by reading muddle into them for not seeing his new ideas. In this post, I do not document this charge by citing specific passages in, for example, Theories of Surplus Value. So more work would need to be done to extend this from a mere blog post. (This 8 January 1868 letter from Marx to Friedrich Engels is apposite here.) I also put aside the transformation problem here.

First distinction: between labor and labor power. Marx distinguishes between the capability of a member of the proletariat to work under the direction or control of a capitalist and the work done under that direction. The former is a commodity, labor power. The latter is the use value of that commodity, that is, labor. Both Marx and Ricardo treated labor power, like all commodities, as representing a certain quantity of embodied labor, namely, the labor value of the commodities necessarily consumed by the laborers, taking as given certain conventions about the hours and severity of work, the standard of living of the workers, the size of their families, which members were expected to work, and so on.

Without this distinction, Ricardo writes about such nonsense as the labor value of labor. (I need a direct quote here.) Marx argues that Ricardo is also unable to explain why capitalists are able to regularly generate profits. I suppose one could expand on this to analyze some of the evident difficulties in understanding Ricardo.

Second distinction: Between surplus value and profits, rent, and interest. Surplus value, for Marx, is the value added by labor not paid out in wages. It is an abstraction, akin to (some of) Ricardo's profits before his chapter on rent. Marx focuses on surplus value in the first volume of Capital. Surplus value is manifested at a more concrete level in the form of profits, rent, and interest on financial instruments. Would Ricardo's work be better if he had a separate label for surplus value?

Third distinction: Between prices of production and labor values. William Petty, Adam Smith, and David Ricardo all have a theoretical conception of market prices and natural prices. Natural prices are centers of gravity, in some sense, around which market prices fluctuate. Marx offered a trichotomy of market prices, prices of production, and labor values. The price of production, sometimes called the cost price, is Marx's equivalent for Smith and Ricardo's natural value. Marx can criticize passages in the classical economists for confusing prices of production and labor values. (A further confusion is that between the labor commanded by and the labor embodied in a commodity.)

I conclude with noting some complications not to be found in the above schematic divisions. In speaking of the labor value of labor power, I am implicitly assuming that all wages are consumed, and that wages are paid in commodities. But some workers, especially those deemed skilled, are able to save, even over and above what they need for a conventional retirement. And wages are paid in money, with the general level of prices of wage goods only determined after a bargain with workers has been struck.

In talking about surplus value, I have ignored the possibility of profits on alienation. This case has to be considered in a complete taxonomy of capital. Traders and speculators look for the possibility of bargains, of buying low and selling high. Both classical economists and Marx were aware of this possibility.

In speaking of labor values and prices of production, I seem to be assuming that all firms in an industry use the same processes and have the same costs. But Marx looks at variations in such processes. (I am never sure whether the processes that Sraffa takes as given should be the best practice or an average process. Perhaps, which is correct might vary among industries.) Finally, one might add a fourth distinction in Marx's theory of absolute rent, which is not to be found in the classical economists.


Anonymous said...

there is a slight distinction between price of production and cost-price; the latter is merely the money price for c+v (later notated K) to the capitalist, before realization of profit in the market

Robert Vienneau said...

Thanks. I think I recall variation in terminology in Marx's manuscripts unpublished in his lifetime, but I guess I do not recall details.

Emil Bakkum said...

Hello Robert, your comments are precise, as always. However, I think that the heritage of Marx is a mess. For instance, The Capital is partly written by Engels, who lacks the quality of Marx. I am not certain who really wrote "Theories of surplus value". Moreover, the LTV is perhaps less important than the phase model of Marx (historical materialism), at least with respect to politics. And the phase model reminds of the German Historical School. Moreover, the theory of Marx is merely a narrative. He does not supply a validation by means of statistical data. Anyway, I guess that his entire theory (including the LTV) can not be verified. Perhaps our time is better spent on the works of other economists.