Why labour theory of value is right

Paul Cockshott
21 Mar 201815:12
EducationalLearning
32 Likes 10 Comments

TLDRThe script delves into the necessity of a scientific foundation for socialism's success, highlighting Marx's exploration of capitalism's underlying laws. It emphasizes the labor theory of value, tracing its development and its critique from subjective value theory and the transformation problem. The speaker challenges the supply and demand model's scientific validity and presents empirical evidence supporting the labor theory, using input-output tables to demonstrate a strong correlation between labor content and industry output values.

Takeaways
  • 📚 The importance of scientific theory in the success of socialism is emphasized, with a focus on understanding the laws of motion of capitalism.
  • 🔍 Karl Marx dedicated his life to uncovering the laws of motion of capitalism to reveal the basis of class division and the limitations of societal reforms.
  • 🏭 The labor theory of value is central to Marx's analysis, suggesting that the average price of a good is proportional to the labor used to make it.
  • 🛠 Developed by Adam Smith and refined by David Ricardo, the labor theory of value was used by socialists to argue that profits and rent are forms of exploitation.
  • 📉 The theory faced criticism and was largely abandoned by mainstream economists in favor of subjective theories of value and marginalism by the late 19th century.
  • 📊 Conservative economists argue that prices represent subjective valuations and are determined by the intersection of supply and demand curves.
  • ❌ The supply and demand model is criticized for being unfalsifiable due to the introduction of more unknown entities than observables, violating Occam's razor.
  • 🔧 The transformation problem critiques the labor theory of value for being inconsistent, challenging its scientific validity.
  • 📈 The labor theory of value can be tested by comparing the money value of industry outputs with their labor content, with strong correlations supporting the theory.
  • 📊 Input-output tables from various countries provide empirical data to test the labor theory of value, showing a strong correlation between labor content and output value.
  • 🛑 Outliers like the oil industry, which sell their output at prices above their labor value, are explained by the Ricardian theory of rent, fitting the predictions of the labor theory of value.
Q & A

  • What does the transcript emphasize about socialism's success?

    -The transcript emphasizes that socialism can only succeed politically and economically if it is based on sound scientific theory, including an understanding of the laws that will govern any future society.

  • Why did Marx devote years to uncovering the laws of motion of capitalism?

    -Marx wanted to show the underlying basis for the class division of society and to demonstrate the limitations of reforms that didn't change the fundamental structure of society.

  • What is the labor theory of value?

    -The labor theory of value is the idea that the average price of a good is proportional to the average labor used to make it, with price quantities seen as an indirect representation of underlying quantities of human time.

  • How has the labor theory of value been historically received by economists?

    -Initially accepted widely in the early 19th century, by the mid-century it was criticized as politically risky, and by the late 19th century, most orthodox economists had moved to alternative theories, leaving only socialists to support it.

  • What are the two main criticisms of the labor theory of value from conservative economists?

    -The two main criticisms are that prices represent subjective valuations of commodities and that the price is determined by the intersection of supply and demand curves.

  • Why is the supply and demand model considered unscientific according to the transcript?

    -The supply and demand model is considered unscientific because it has more unknown entities (parameters of the curves) than observables, making it unfalsifiable and unable to be tested against observations.

  • What is the transformation problem in the context of the labor theory of value?

    -The transformation problem refers to the critique that the labor theory of value is inconsistent because it doesn't adequately explain how labor values are transformed into exchange values in market prices.

  • How can the labor theory of value be tested for its correctness?

    -The labor theory of value can be tested by comparing the money value of the output of various industries with their labor content. If the money value is closely correlated with the labor content, the predictions of the labor theory of value are confirmed.

  • What are input-output tables, and how are they used to test the labor theory of value?

    -Input-output tables are published by countries to show how much of one industry's output is used by another industry. They can be used to calculate the amount of labor used directly and indirectly to produce the output of each industry and compare it with the actual price of the industry's output.

  • What does the data from input-output tables indicate about the labor theory of value?

    -The data from input-output tables, when graphed, generally lies close to a straight line, indicating a strong correlation between labor content and the value of industrial output, which supports the labor theory of value.

  • Why are there outliers in the data graphed from input-output tables?

    -Outliers, such as the oil and oil refining industries, can be attributed to these industries being natural monopolies, where the output is sold at prices above their labor value due to the ownership of land or natural resources.

Outlines
00:00
📚 The Foundation of Scientific Socialism

This paragraph emphasizes the necessity for socialism to be grounded in sound scientific theory to succeed both politically and economically. It discusses Karl Marx's dedication to uncovering the laws of motion of capitalism, which he believed were essential for understanding class division and the limitations of societal reforms. The labor theory of value, developed by Marx and previous economists, is highlighted as a key analytical tool for understanding exploitation and is contrasted with alternative theories of value that have gained prominence in mainstream economics.

05:01
🔍 Critiques and Falsifiability of Economic Theories

The second paragraph delves into the critiques of the labor theory of value, particularly from conservative economists who argue for the subjective theory of value and the supply and demand model. It addresses the issue of falsifiability in scientific theories and argues that the supply and demand model is unfalsifiable due to the excessive number of unknown entities it introduces. The paragraph also discusses the transformation problem as a critique of the labor theory of value, which questions the theory's consistency in the context of pricing and value transformation.

10:02
📈 Empirical Evidence for the Labor Theory of Value

This paragraph presents empirical evidence supporting the labor theory of value by examining input-output tables from various countries. It explains how these tables can be used to calculate the labor content and money value of industrial outputs, and how a strong correlation between these two metrics supports the labor theory of value. The paragraph also discusses outliers, such as the oil industry, and how they fit within the classical economists' understanding of natural monopolies and the Ricardian theory of rent. The data from different countries shows a high degree of correlation, reinforcing the validity of the labor theory of value.

Mindmap
Keywords
💡Socialism
Socialism is an economic and political system where the means of production, distribution, and exchange are owned or regulated by the community as a whole. In the context of the video, socialism is presented as a system that can only succeed if it is grounded in scientific theory, particularly the understanding of societal laws and the class division that arises from the economic structure.
💡Scientific Theory
Scientific theory refers to a well-substantiated explanation of some aspect of the natural world, based on empirical evidence and tested over time. The video emphasizes that for socialism to be successful, it must be based on a sound scientific understanding of both present and future societal structures, as explored by Marx in his analysis of capitalism.
💡Labor Theory of Value
The Labor Theory of Value is an economic theory that states the value of a good or service is determined by the amount of socially necessary labor required to produce it. In the video, this theory is highlighted as central to Marx's analysis, used to explain exploitation and the class division in capitalist societies.
💡Exploitation
Exploitation, in an economic context, refers to the practice of extracting surplus value from workers without providing an equivalent return. The video discusses how the Labor Theory of Value is important for understanding exploitation, particularly how profits and rent are derived from the labor of others.
💡Class Division
Class division refers to the social stratification of people into different levels based on factors such as wealth, power, and social status. The script mentions that Marx's uncovering of the laws of motion of capitalism was aimed at demonstrating the underlying basis for class division in society.
💡Reforms
Reforms are changes made to improve or amend existing practices or institutions. The video discusses how Marx believed that reforms that did not change the fundamental structure of society had limitations, implying that only a transformation based on scientific understanding could address the root causes of class division.
💡Subjective Theory of Value
The Subjective Theory of Value posits that the value of a commodity is determined by the consumer's subjective estimation of its worth. The video mentions this as one of the criticisms against the Labor Theory of Value, suggesting that prices represent subjective valuations rather than the labor required to produce the goods.
💡Transformation Problem
The Transformation Problem refers to the critique that the Labor Theory of Value cannot adequately explain the transformation of values into prices of production. The video discusses this as a significant challenge to the theory, with orthodox economists like Samuelson questioning its consistency.
💡Input-Output Tables
Input-Output Tables are economic tools that detail the interdependencies between different sectors of an economy, showing how the output of one industry serves as the input for others. The video describes how these tables, along with computer programs, can be used to test the Labor Theory of Value by comparing labor content with money value of industry outputs.
💡Natural Monopolies
A natural monopoly occurs when a single company can provide a product or service more efficiently and at a lower cost than any potential competitor due to its control over a unique resource. The video mentions natural monopolies, such as the oil industry, as exceptions to the Labor Theory of Value, where the value of output can be higher than predicted by labor content.
💡Ricardian Theory of Rent
The Ricardian Theory of Rent is an economic concept that explains how the rent of land is determined by its productivity and scarcity rather than by the amount of labor used. The video refers to this theory to explain why natural monopolies, which depend on land ownership, can sell their output at prices above their labor value.
Highlights

Socialism's success is predicated on a sound scientific theory that applies to understanding both present and future societies.

Marx dedicated his life to uncovering the laws of motion of capitalism to demonstrate the basis of class division and the limitations of societal reforms.

The labor theory of value is central to Marx's analysis, building upon previous economists' work to its final development.

The labor theory of value posits that the average price of a good is proportional to the average labor used to produce it.

Critiques of the labor theory of value argue that prices represent subjective valuations rather than labor input.

The supply and demand model is criticized for being unfalsifiable due to the invention of more unknown entities than observables.

The transformation problem challenges the labor theory of value's consistency, an issue recognized by Ricardo and Marx.

A scientific theory must make testable predictions; the labor theory of value's predictions can be verified through industry data.

Input-output tables published by countries provide the necessary data to test the labor theory of value.

The UK input/output table example demonstrates how labor used directly and indirectly can be calculated for each industry.

Data from the UK industry shows a strong correlation between labor content and the actual price of industry output.

Outliers in the data, such as the oil industry, can be explained by the classical economists' concept of natural monopolies.

The correlation between labor content and value of industrial output is exceptionally strong in various countries.

The labor theory of value's predictions are largely confirmed by the data, with some minor deviations accounted for by natural monopolies.

The supply and demand model is contrasted with the labor theory of value, with the latter providing a more testable and falsifiable framework.

The labor theory of value's validation through empirical data supports its scientific credibility and its role in understanding exploitation.

The discussion of the labor theory of value and its critiques provides a foundation for understanding the dynamics of capitalism and socialism.

Transcripts

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Related Tags
SocialismEconomicsLabor TheoryValue AnalysisCapitalism CritiqueClass DivisionMarxist TheoryEconomic ReformsInput-Output TablesSupply Demand Critique