View source for Finance:Law of value

{{Short description|Concept in Karl Marx's critique of political economy}}
{{Marxian economics}}
{{Marxism}}
The '''law of the value of commodities''' (German: ''Wertgesetz der Waren''),<ref name="vol1de">{{Citation|last=Karl|first=Marx|title= Das Kapital. Erster Band. Buch I: Der Produktionsprozeß des Kapitals|language=de|trans-title=Capital. Volume I: The Process of Production of Capital|year=1962|orig-year=1867|publisher=Dietz Verlag|location=Berlin|quote="...indem andrerseits das Wertgesetz der Waren bestimmt, wieviel die Gesellschaft von ihrer ganzen disponiblen Arbeitszeit auf die Produktion jeder besondren Warenart verausgaben kann."|chapter=Zwölftes Kapitel: Teilung der Arbeit und Manufaktur, 4. Teilung der Arbeit innerhalb der Manufaktur und Teilung der Arbeit innerhalb der Gesellschaft|chapter-url=http://www.mlwerke.de/me/me23/me23_356.htm#Kap_12_4}}</ref> known simply as the '''law of value''', is a central concept in [[Biography:Karl Marx|Karl Marx]]'s [[Philosophy:Critique of political economy|critique of political economy]] first expounded in his polemic ''[[Philosophy:The Poverty of Philosophy|The Poverty of Philosophy]]'' (1847) against [[Biography:Pierre-Joseph Proudhon|Pierre-Joseph Proudhon]] with reference to David Ricardo's economics.<ref>Takahisi Oishi, ''The unknown Marx: reconstructing a unified perspective.'' Foreword by Terrell Carver. London: Pluto Press, 2001</ref><ref group="note">See Marx, ''[[Philosophy:The Poverty of Philosophy|The Poverty of Philosophy]]'', chapter 1 part 2 [http://www.marxists.org/archive/marx/works/1847/poverty-philosophy/ch01b.htm] where Marx refers to Proudhon's own "law of value" and chapter 3, titled "Application of the Law of the Proportionality of Value".[http://www.marxists.org/archive/marx/works/1847/poverty-philosophy/ch01c.htm]</ref> Most generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are currently socially necessary to produce them within the capitalist [[Social:Mode of production|mode of production]].<ref>John Eaton, ''Political Economy: A Marxist Textbook''. Rev ed. 1963 reprinted 1970. p. 29.</ref><ref group="note">Karl Marx, ''Capital, Volume I'', Penguin, pp. 676–77; Marx, ''Capital, Volume III'', Penguin ed., p. 522.</ref>

Thus, the fluctuating [[Finance:Exchange value|exchange value]] of [[Finance:Commodity (Marxism)|commodities]] (exchangeable products) is regulated by their value, where the magnitude of their value is determined by the average quantity of human labour which is currently socially necessary to produce them (see [[Finance:Labor theory of value|labor theory of value]] and [[Finance:Value-form|value-form]]). In itself, this theorem is fairly simple to understand and intuitively it makes sense to many working people. However, theorizing its implications is a much more complex task as it kept Marx busy across more than two decades.

When Marx talked about "value relationships" or "value proportions" (German: ''Wertverhältnisse''), he did not mean "the money" or "the price". Instead, he meant the ratio of value (or 'worth') that exist between products of human labour. These relationships can be expressed by the relative replacement costs of products as labour hours worked. The more labour it costs to make a product, the more it is worth and inversely the less labour it costs to make a product, the less it is worth. Money-prices are at best only an expression or reflection of Marx's value relationships—accurately or very inaccurately. Products can be traded above or below their value in market trade and some prices have nothing to do with product-values at all (in Marx's sense) because they refer to tradeable objects which are not regularly produced and reproduced by human labour, or because they refer only to claims on financial assets.

== Theorizing the value of labour-products ==
The "law of value" is often equated with the "labour theory of value", but this is strictly speaking an error, for five reasons.<ref>Peter C. Dooley, ''The Labour Theory of Value''. New York: Routledge, 2005.</ref>
*The law of value only states a general regulative principle about the necessary and inevitable relationship between the trading values of commodities, and the socially average labour-time required to supply them. It is simply a law governing commodity exchange.
*The labour {{em|theory}} of value in economics aims to explain {{em|how}} that determination actually works, what kinds of causal relationships are involved, how the law of value interacts with other economic laws, etc.
*For Marx himself, the "labour theory of value" referred only to the theory of value upheld by some of the classical political economists from William Petty to David Ricardo, who regarded human labour as the real substance of product value.
*Marx's own value theory is not a theory of {{em|all}} value, but only of the value-system involved in commodity production and commodity trade.
*Marx never referred to his own theory as a "labour theory of value";<ref>Mike Beggs, "Zombie Marx and Modern Economics, or How I Learned  to Stop Worrying and Forget the Transformation Problem." ''Journal of Australian Political Economy'', issue 70, Summer 2012/13, p. 16.[http://australianpe.wix.com/japehome#!current/c1cok] Gary Mongiovi, "Vulgar economy in Marxian garb: a critique of Temporal Single System Marxism." In: ''Review of Radical Political Economics'', Vol. 34, Issue 4, December 2002, pp. 393-416, at p. 398.</ref> his own critique of the political economists was, that they all failed to explain satisfactorily {{em|how}} the determination of product-value by labour-time actually worked—they assumed it, but they did not explain it consistently (see below). Thus, Marx often regarded himself as perfecting a theory which had already existed for a long time, but which had never been consistently presented before.<ref>See for example Letter of Marx to Engels, 9 August 1862. in: Marx/Engels Selected Correspondence. Moscow: Progress, 1975, p. 125.</ref>

Nevertheless, in the Marxist tradition, Marx's theory of product-value is conventionally labeled "the labour theory of value"—while controversy persists about how much Marx's theory actually differs from that of the classical political economists.<ref>[[Biography:Isaak Illich Rubin|Isaak Illich Rubin]], ''A History of Economic Thought''. London: Ink Links, 1979.</ref>

=== Gold referent ===
In ''Das Kapital'' Marx normally thinks of the quantity of labour that determines product-value as the ratio between the average total amount of labour-time required to produce a reproducible good, and the corresponding average amount of labour required to produce a unit of [[Chemistry:Gold|gold]] (see also [[Chemistry:Gold standard|gold standard]]).<ref>Ian Steedman, "Marx and Ricardo", in: Ian Bradley and Michael Howard, ''Classical and Marxian Political Economy: Essays in honour of Ronald L. Meek''. London: Macmillan, 1982, p. 120.</ref>{{refn|group="note"|"Throughout this work I assume that gold is the money commodity, for the sake of simplicity." – Karl Marx<ref name=vol1>Karl Marx, ''Capital, Volume I'', Penguin edition, 1976</ref>{{rp|188}} }} Already in 1844, long before he wrote ''Das Kapital'', Marx was very aware of credit money.{{refn|group="note"|"The nations which are still dazzled by the sensuous glitter of precious metals, and are therefore still fetish-worshippers of metal money, are not yet fully developed money-nations. Contrast of France and England."<ref>Karl Marx, ''Economic and Philosophic Manuscripts of 1844'', in ''Marx-Engels Collected Works'', Vol. 3. Moscow: Progress, 1975, p. 312.</ref>}}{{refn|group="note"|"In developed capitalist production, the money-economy appears only as the basis of the credit-economy. The money-economy and credit-economy thus correspond only to different stages in the development of capitalist production..."<ref name=vol2>Karl Marx, ''Capital, Volume II''.  Penguin, 1978</ref>{{rp|chapter 4}} }} Whereas "commodity money" (coinage or bullion) played an important role in the earlier stages of capitalist development, the growth of integrated capital markets meant increased use of credit money. Marx felt that the initial assumption of gold-money as a standard of value was justified, in analysing the capitalist relations of production and distribution. Thus, as follows:
{{center|1=X quantity of product = Y quantity of average labour hours = Z quantity of gold-money}}

For Marx, the value of a commodity is determined by socially necessary labor time, or the amount of time "required to produce an article under the normal conditions of production, and with the average degree of skill
and intensity".<ref>{{cite book |last1=Marx |first1=Karl |title=Capital: Volume 1: A Critique of Political Economy |date=1887 |publisher=Progress Publishers |location=Moscow, USSR |page=29 |url=https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf |access-date=1 July 2021}}</ref> It is important to note that Marx rejects, contra-classical political economy, any notions of the "value of labor" or "price of labor". Instead, it is labor itself (more specifically, abstract labor or general human labor) which is constitutive of value, the substance of value. Consequently, it is not labor, but labor-power (the general human capacity for labor) which has value <ref>{{cite book |last1=Marx |first1=Karl |title=Capital: Volume 1: A Critique of Political Economy |date=1887 |publisher=Progress Publishers |location=Moscow, USSR |pages=379–380 |url=https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf |access-date=1 July 2021}}</ref>—a value determined, as in the case of every other commodity, by the labour time necessary for the production, and consequently also the reproduction, of this special article."<ref>{{cite book |last1=Marx |first1=Karl |title=Capital: Volume 1: A Critique of Political Economy |date=1887 |publisher=Progress Publishers |location=Moscow, USSR |page=120 |url=https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf |access-date=1 July 2021}}</ref>  The importance of labour is its ability to preserve capital value, increase already existing value, and create wholly new value. How any individual happens to regard a particular product normally cannot change that social valuation at all; it's simply a "social fact" in the same way as "the state of the market" is a social fact, even though particular products can at any time trade at prices above or below their socially established value.

Marx realized very well, that the assumption of gold-money was a simplification—there might not be such a stable relationship between price-levels, average commodity values, and gold quantities — but he regarded the assumption as helpful, in explaining the basic laws of motion [''Bewegungsgesetze''] of the [[Finance:Capitalist mode of production (Marxist theory)|capitalist mode of production]] "in its ideal average".{{refn|group="note"|"...we are only out to present the internal organization of the capitalist mode of production, its ideal average, as it were." – Karl Marx<ref name=vol3>Karl Marx, ''Capital, Volume III'', Penguin ed. 1981</ref>{{rp|970}} }}

=== Formalization ===
While Marx used the concept of the law of value in his works ''[[Philosophy:Grundrisse|Grundrisse]]'', ''A Contribution to the Critique of Political Economy'', ''[[Finance:Theories of Surplus Value|Theories of Surplus Value]]'' and ''Das Kapital'', he did not explicitly formalise its full meaning in a mathematical sense, and therefore how it should be exactly defined remains to some extent a controversial topic in [[Finance:Marxian economics|Marxian economics]]. Different economists dispute how the proportionality between exchange-value and labour-time should be mathematically understood or modeled, and about the measures which are relevant.<ref>See e.g. Ian Steedman et al., ''The Value Controversy''. London: Verso, 1981; John Weeks, ''Capital and exploitation''. Edward Arnold, 1981; [[Biography:Ernest Mandel|Ernest Mandel]], and Alan Freeman (eds.), ''Ricardo, Marx, Sraffa, The Langston Memorial Volume'', London: Verso, 1984 [http://www.iwgvt.org/MarxRicardoSraffa/index.html] {{Webarchive|url=https://web.archive.org/web/20110607045152/http://www.iwgvt.org/MarxRicardoSraffa/index.html |date=2011-06-07 }}; [[Biography:Makoto Itoh|Makoto Itoh]], ''The Basic Theory of Capitalism''; Ulrich Krause, ''Money and Abstract Labour: On the Analytical Foundations of Political Economy''. Translated by Peter Burgess. Edited by Jon Rothschild. London: Verso 1982; Alan Freeman, Andrew Kliman, Julian Wells (eds.), ''The new value controversy and the foundations of economics''. Cheltenham: Edward Elgar, 2004; Simon Mohun (ed.), ''Debates in Value Theory''. Macmillan: London, 1994; Richard Westra & Alan Zuege (eds.), ''Value and the world economy today – Production, Finance and Globalization''. Houndmills: Palgrave Macmillan, 2003. Alfredo Saad-Filho, ''The value of Marx: political economy for contemporary capitalism''. London: Routledge, 2002; Ajit Sinha, ''Theories of Value from Adam Smith to Piero Sraffa''. London: Routledge, 2010; Gerard Dumenil & Dominique Levy online archive [http://www.jourdan.ens.fr/levy/biblioa.htm] {{Webarchive|url=https://web.archive.org/web/20120219114418/http://www.jourdan.ens.fr/levy/biblioa.htm |date=2012-02-19 }}</ref>

Underlying this debate are difficult conceptual questions about how the causal relationships in the economy between price relativities and time worked should be understood. Marx's analysis of value was dialectical, in the sense that he thought value phenomena could only be understood dynamically, holistically and relationally, but he did not spell out all the conceptual, quantitative and logical implications of his position with great exactitude. The scholarly debate about those implications continues even today.<ref>See e.g. Alan Freeman & Guglielmo Carchedi, ''Marx and non-equilibrium economics''. Cheltenham: Edward Elgar, 1996; Andrew Kliman, ''Reclaiming Marx's 'Capital': a refutation of the myth of inconsistency''. Lanham: Lexington Books, 2007; Anwar Shaikh papers {{cite web |url=http://homepage.newschool.edu/~AShaikh/ |title=Anwar Shaikh – Economics Department, New School for Social Research |access-date=2010-04-24 |url-status=dead |archive-url=https://web.archive.org/web/20100421170313/http://homepage.newschool.edu/~AShaikh/ |archive-date=2010-04-21 }}; Gerard Duménil & Dominique Lévy papers {{cite web |url=http://www.jourdan.ens.fr/~levy/ |title=Archived copy |access-date=2011-08-06 |url-status=dead |archive-url=https://web.archive.org/web/20110806050911/http://www.jourdan.ens.fr/~levy/ |archive-date=2011-08-06 }}; [[Biography:Paul Cockshott|Paul Cockshott]], Ian Wright et al. ''Information, Money and Value'' [http://www.dcs.gla.ac.uk/~wpc/reports/info_book.pdf]; Samir Amin, ''The Law of Value and Historical Materialism''. New York: Monthly Review Press, 1978; Ian Wright, "The Emergence of the law of value in a dynamic simple commodity economy". ''Review of Political Economy'', Vol. 20, No. 3, pages 367–91. {{cite web |url=http://65.254.51.50/~wright/sce.pdf |title=Archived copy |access-date=2005-09-11 |url-status=dead |archive-url=https://web.archive.org/web/20051105080343/http://65.254.51.50/~wright/sce.pdf |archive-date=2005-11-05 }}; Patrick Julian Wells, ''The rate of profit as a random variable''. Phd dissertation, School of management, Open University, London 2007; Alfredo Saad Filho interview on value theory, ''Marx's idea of value''. [http://www.socialistworker.co.uk/article.php4?article_id=6598]; Andrew J. Kliman, "The law of value and laws of statistics: sectoral values and prices in the US economy, 1977–97". Cambridge Journal of Economics, 2002, vol. 26, issue 3, pp. 299- ; Thomas T. Sekine, ''The Necessity of the Law of Value, its Demonstration and Significance''[http://econpapers.repec.org/paper/fthyorkca/91-4.htm]; Enrique Dussel, ''Towards an unknown Marx: a commentary on the manuscripts of 1861–63''. London: Routledge, 2001. In recent years, the Italian Marxist scholar Riccardo Bellofiore and other members of the ''International Symposium on Marxian Theory'' (ISMT)[http://chrisarthur.net/ismt.html] {{Webarchive|url=https://web.archive.org/web/20091114060150/http://chrisarthur.net/ismt.html |date=2009-11-14 }} [http://marxdialecticalstudies.jimdo.com/international-symposium-on-marxian-theory/] have edited a number of volumes of scholarly commentaries on Marx's ''Capital'', which benefit from the definitive ''MEGA II'' edition of Marx's works. Alan Freeman has provided IWGVT papers online.[http://www.iwgvt.org/] The ''Outline of Political Economy'' (OPE-L) archives are available online on two sites: [http://greenhouse.economics.utah.edu/archives/ope-l/]{{dead link|date=February 2020 |bot=InternetArchiveBot |fix-attempted=yes }} [http://ricardo.ecn.wfu.edu/~cottrell/ope/archive/]. Professor Ben Fine and a group of academic colleagues coordinate the conferences of the International Initiative for Promoting Political Economy (IIPPE)[http://www.iippe.org/wiki/Main_Page] {{Webarchive|url=https://web.archive.org/web/20130125050807/http://www.iippe.org/wiki/Main_Page |date=2013-01-25 }}</ref>

== Basic definition of the concept ==
=== Supply and demand ===
Excess demand can raise the prices of products traded, and excess supply can lower them; but if supply and demand are relatively balanced, the question arises of what regulates the settled exchange-ratios (or average price-levels) of products traded in that case, and this is what the law of value is intended to explain.<ref>{{Cite book|last=Marx|first=Karl|url=https://www.marxists.org/archive/marx/works/1865/value-price-profit/ch01.htm|title=Value, Price and Profit|publisher=1865}}</ref> According to the law of value, the ''trading ratios'' of different types of products reflect a real ''cost structure of production'', and this cost structure ultimately reduces to the socially average amounts of human labor-time required to produce different goods and services.{{citation needed|date=April 2013}}

=== Cost structures and price structures ===
Simply put, if product A takes 100 hours of human work to produce in total, and product B takes 5 hours to produce, the normal trading-ratio of A and B will gravitate to a rate of around 1:20 (one of A is worth 20 of B), because A is worth much more than B. Moreover, if A and B are combined and used up to make product C in 40 hours, then product C is likely to be worth the equivalent of around 145 hours of human work in total, including the work of actually making product C.<ref>[[Biography:Luigi Pasinetti|Luigi Pasinetti]], "The notion of vertical integration in economic analysis", in L. L. Pasinetti (ed.), ''Essays on the theory of joint production''. New York: Cambridge University Press, 1980. Pasinetti, "Growing subsystems, vertically hyperintegrated sectors and the labour theory of value." In: ''Cambridge Journal of Economics'', Vol. 12, No. 1,1988, pp. 125–34.</ref> For that reason, most market trade in products is regular and largely predictable as far as price levels are concerned, rather than chaotic and arbitrary. According to Marx, price movements were not simply random, arbitrary or chaotic, but governed by causal laws that limited price variability.{{citation needed|date=April 2013}}

The concept of a ''cost structure'' refers to the (direct and indirect) current labour inputs required to make a product, reflected in its price level. The concept of a ''price structure'' refers to the fact that prices rarely exist, or change, in isolation; instead, price-levels are interdependent on other price-levels, so that, if some prices would change, a lot of other prices would start to change as well—transmitting a change in valuation across the economy. A ''structure'' exists if there is a fairly stable relationship across time between price-levels which are interdependent. Marx argues that the cost structures and price structures for products are, in general, determined by the law of value.

=== Terms of exchange ===
The law of value originates in the "terms of exchange" established for different products.{{citation needed|date=April 2013}} If a producer has to supply too much of his own product to get a different product, this has direct consequences for the additional time he has to work to sustain himself and the trading of his product. Over time, and with more market integration, relatively stable values for products are established in accordance with production norms which exist independently of the productivity of individual producers. In that situation, each producer has to adapt his own production to those socially accepted values, the average terms of trade for products vary only within fairly narrow margins, and thus producers' activities fall under the sway of the law of value, which links "the economy of labour-time" with "the economy of trade". Paradoxically, as Marx says, the more that the producers become dependent on exchange, the more exchange appears to become independent of them.<ref>Karl Marx, ''Economic Manuscripts of 1857–58'', in ''Karl Marx Frederick Engels Collected Works'', Vol. 28 (New York: International Publishers, 1986), p. 834.</ref> {{psc|date=April 2013}} Product-markets begin to operate according to their own laws, to which the producers can only adjust themselves. If some prices go up, many other prices will go up as well because people have to cover their increased costs. If some prices go down, many other prices will go down as well since products otherwise fail to sell when cheaper alternatives become available, but no individual is in control of these price fluctuations, or in control of how all the price changes will impact on each other. All they can really do to influence the market is to raise or lower their own prices, but even so they can do that only within certain limits. Ordinarily, people have to accept and work with many given cost-price levels and given sale-price levels which they cannot do anything about. If a product cannot be produced at a certain cost, or if it cannot be sold at a certain price-level, it is unlikely that it will be available much at all.

In this way, Marx argues, production activities actually become dominated by the values of the products being produced and exchanged (so-called "market forces"), often quite irrespective of what human needs might be, because these product-values will determine whether and how it is "economic" or "uneconomic" to produce and trade particular products.<ref>{{Cite web|url=https://www.marxist.com/marx-marxist-labour-theory-value.htm|title=An introduction to Marx's Labour Theory of Value|last=Brooks|first=Mick|website=In Defence of Marxism|language=en-gb|access-date=2019-09-19}}</ref>

=== Field of application ===
According to Marx, "economic value" is a purely social category.{{citation needed|date=April 2013}} It is only and exclusively a characteristic of things which are really produced and reproduced by human labour. Thus, things have an "economic value" simply and only because it takes human labour-time to make them. This value exists and persists quite independently of fluctuating prices in markets. Although they are connected, the value relationships between labour-products and price relationships can vary independently of each other, within certain limits. A price can be attached to almost any object, but this does not automatically mean that the object also has a value in Marx's sense of being the product of labour.{{refn|group="note"|"Things which in and for themselves are not commodities, things such as conscience, honour, etc., can be offered for sale by their holders, and thus acquire the form of commodities through their price. Hence a thing can, formally speaking, have a price without having a value." – Karl Marx<ref name="vol1" />{{rp|97}} }}

The field of application of the law of value is limited to ''new output by producers of traded, reproducible labour-products'',<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume I'', Penguin ed., p. 131. A comment by I.I. Rubin, ''Essays on Marx's theory of value'' (Montreal: Black Rose Books, 1990), chapter 15, note 15, p. 166: "Marx's goal was not to subsume the price of unreproducible objects under the law of value. He did not do this because of the simple reason that the law of value has to explain precisely the laws of human productive activities. In his theory of value, Marx does not treat the value of products which 'cannot be reproduced by labor, such as antiques and works of art by certain masters, etc.'"</ref> although it might indirectly influence trade in other goods or assets (for example, the value of a second-hand good may be related to a newly produced good of the same type). Thus, the law does not apply to all goods, services or assets in an economy, and it does not rule the whole economy. In modern Marxism, the law of value is often equated with "market economy", but that was not Marx's own idea.{{citation needed|date=April 2013}} Rather, it limits, regulates and constrains the trade in products. Simply put, the socially necessary labour requirements set limits for the movements of product prices. {{citation needed|date=April 2013}} Primary products are a special case, which Marx discusses in his theory of [[Finance:Differential and absolute ground rent|differential and absolute ground rent]].<ref name="vol3" />{{rp|751–1026}}{{psc|date=April 2013}} World market prices for primary products can at any time be strongly influenced by the yield of harvests and mines in different countries, regardless of labour effort.<ref>Ernest Mandel, ''The second slump: a Marxist analysis of recession in the seventies''. London: Verso, 1978.</ref>{{Page needed|date=April 2013}} There are, besides, various kinds of products which, for one reason or another, are not subject to the law of value (see below).

== Origins of the concept ==
According to Marx, the knowledge that the law of value existed, expressed in one form or another, sometimes more clearly and sometimes less, was very ancient—it reached right back to the first nomadic traders in food, crafts, services and minerals. People knew very well that there was a definite relationship between time worked and the value of products traded; in itself that was not a very difficult insight to grasp.{{refn|group="note"|"When you are poor, you are willing to trade your time to earn money. When you are rich, you trade your money to get more time." Scott Adams<ref>Scott Adams, "How to tax the rich", ''Wall Street Journal'', 29 January 2011.</ref>}} In fact, three hundred years before the Scottish and English political economists, [[Biography:Ibn Khaldun|Ibn Khaldun]] had already formally presented a fairly sophisticated understanding of the law of value.<ref>{{cite web|last=OWEISS|first=IBRAHIM M.|title=Ibn Khaldun, the Father of Economics|url=http://www9.georgetown.edu/faculty/imo3/ibn.htm|work=Faculty pages|publisher=Georgetown University|access-date=4 April 2013}}</ref> The economic effects of the availability or lack of labour—already reckoned with some precision in ancient Sumer more than four thousand years ago<ref>Michael Hudson & Cornelia Wunsch, ''Creating economic order. Record-keeping, standardization, and the development of accounting in the ancient Near East''. Bethesda, Maryland: CDL Press, 2004, pp. 10+</ref>—were rather self-evident in practical life. Nevertheless, different thinkers in history failed to ''conceptualize'' the law of value with any adequacy.{{citation needed|date=April 2013}}

The basic idea of the law of value was expressed by [[Biography:Adam Smith|Adam Smith]] in ''The Wealth of Nations''.<ref>"Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared’ – Adam Smith, ''The Wealth of Nations'', Harmondsworth: Penguin, 1974, p. 136.</ref><ref>Lopes, Tiago Camarinha. ''Law of Value and Theories of Value: Symmetrical Critique of Classical and Neoclassical Political Economy''. Leiden: Brill, 2022, p. 10</ref><ref>Utz-Peter Reich, ''National Accounts and Economic Value: A Study in Concepts''. London: Palgrave/Macmillan, 2001, p. 1.</ref> Neoclassical economist Paul A. Samuelson (1971) famously argued that "the beaver-deer exchange ratio can range anywhere from 4/3 to 2/1 depending upon whether tastes are strong for deer or for beaver" and, therefore, it seems that trading ratios are regulated only by the volume and intensity of consumer demand, as expressed by consumer preferences, rather than by labour-time.<ref>Paul A. Samuelson, 'Understanding the Marxian notion of exploitation: a summary of the so-called transformation problem between Marxian values and competitive prices', ''Journal of Economic Literature'', 9, 1971: 399–431.</ref> According to the classical economists, however, such shifts in trading ratios would quickly cause a switch from beaver-hunting to deer-hunting or vice versa; short-term fluctuations in demand could not usually change the labour-costs of hunting as such, except if new technologies suddenly made it possible to capture more game in less labour-time, or if the herds of animals had become seriously depleted.<ref>Ronald L. Meek, ''Studies in the Labour Theory of Value''. Monthly Review Press, 2nd ed., 1976, p. 70.</ref>

The concept of the law of value was also stated by David Ricardo at the very beginning of his ''Principles of Political Economy and Taxation'', as follows:
{{Quotation|The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour.<ref>David Ricardo, ''Principles of Political Economy and Taxation'', chapter 1. [http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ricardo/prin/prin1.txt]</ref>}}
At the most basic level, this Ricardian law of value specified "labor-content" as the substance and measure of economic value, and it suggests that trade will—other things being equal—evolve ''towards the exchange of equivalents'' (insofar as all trading partners try to "get their money's worth"). At the basis of the trading process is the economising of human time, and normal trading ratios become known to, or accepted, by economic actors. This leads naturally to the idea that the law of value will "balance out" the trading process.<ref group="note">See further Geoffrey Pilling, "The law of value in Ricardo and Marx", ''Economy & Society'', Vol 1, issue 3, 1972, pp. 281–307. Marx, ''Capital, Volume I'', Penguin, p. 168.</ref> The corollary is that market trade is regarded as intrinsically ''self-regulating'' through the mutual adjustments of supply and demand: market trade spontaneously tends towards an equilibrium state.

Marx's real concern was to understand and analyze how the law of value determines or regulates exchange, i.e. how the balancing of the production of outputs and the demand for them could be accomplished, in a society based on a universal market such as capitalism, and how this was regulated by labour-time.{{citation needed|date=April 2013}} Marx's theory specifically aims to grasp [[Finance:Capital (economics)|capital]] ''in motion'', i.e. how, through the circulation and competitive dynamics of capital, changing expenditures of social labor are reconciled with (or fail to be reconciled with) changing social needs.{{citation needed|date=April 2013}} In the third volume of ''Das Kapital'', he aims to show how the competition for profits from production is constrained by the law of value and how this shapes the developmental pattern of capitalist production.{{citation needed|date=April 2013}} He concludes that the law of value cannot directly regulate commodity prices in capitalist production, but only indirectly ([[Finance:Prices of production|prices of production]] are constrained by comparative costs in labour time).{{citation needed|date=April 2013}}

Marx praised Adam Smith for already recognizing that in the transition "from simple commodity exchange and its law of value to... exchange between capital and wage-labour... ''something new'' occurs, [so that] apparently (and actually, in the result) the law of value changes into its opposite."<ref>[http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch03.htm Karl Marx, ''Theories of surplus-value'', chapter 3, section 4]</ref> However, Marx noted both [[Biography:Adam Smith|Adam Smith]] and David Ricardo were unable to explain consistently how product-values were regulated by labour-time within ''capitalist'' production.{{citation needed|date=April 2013}} Both Smith and Ricardo deeply believed that price structures for products were determined by the law of value; but, Marx argued, neither of them could explain how that value-price relationship operated, without contradicting themselves.<ref name="vol1" />{{rp|421}}{{psc|date=April 2013}} They could not theoretically reconcile the regulation of commodity trade by law of value, with profit-receipts ''in proportion to capital employed'' (rather than in proportion to labour-time worked).<ref>[[Biography:Friedrich Engels|Friedrich Engels]], ''Preface'' to ''Capital, Volume II'', Penguin edition, p. 101.</ref>{{psc|date=April 2013}} Smith and Ricardo mooted the concept of "natural prices" instead, to postulate a "natural" (intrinsic) self-balancing tendency of markets—at the point where demand and supply were balanced, the "natural" price (the "true" value) had been reached. The effect was that their "labour theory of value" was disconnected from their theory of capital distributions. In Marx's theory, a true supply/demand balance in the capitalist economy—which, if it existed at all, would occur only incidentally—would mean that goods sold at their normal production price, but this did not automatically or necessarily mean that they sold at their ''value''. The production prices could be persistently above or below product-values.{{citation needed|date=April 2013}}

== Economic value ==
Economic value exists necessarily, according to Marx, because human beings as ''social beings'' and moral subjects must co-operatively produce and economize their means of life to survive. Humans have to value things, and each other, in order to survive. In so doing they are subject to relations of production. They know that their products have a socially accepted value, even if no trade occurs yet. Three main kinds of relationships are involved which are objectively and empirically verifiable, and often formalised in law:
*Between people (social relations).
*Between people and their economic products (technical relations).
*Between economic products themselves (with or without trading prices; these are technical, economic or commercial relations, or, in general, value proportions).

The attribution of value to labor-products, and therefore the economising of their use, occurs within these three types of relationships interacting with each other. The value of one product then depends on the value of many other products, and, in a community of independent private producers, their economic relations are then necessarily expressed through the product-values of what they trade. This expression involves [[Social:Character mask|character mask]]s. Over time, most products acquire a normal exchange-value, meaning that what a product costs relative to other products remains fairly stable. However, because these three types of relationships co-exist and interact objectively independent of individuals, it may appear that economic value is an intrinsic property of products, or alternately, that it is simply a characteristic that results from negotiations between market actors with different subjective preferences. Marx recognised that value has both objective and subjective aspects,<ref>Michael Perelman, "The Qualitative Side of Marx's Value Theory". ''Rethinking Marxism: A Journal of Economics, Culture & Society'', Volume 6, Issue 1, 1993.</ref> but he was primarily concerned with the objectification of value through market trade, where objectified (reified) value relations rule human affairs (see [[Finance:Value-form|value-form]]).<ref>Marc Linder, ''Reification and the consciousness of the critics of political economy''. Copenhagen: Rhodos, 1975.</ref>{{Page needed|date=April 2013}} Paradoxically, he argues, this phenomenon meant that human lives became "ruled and dominated" by the products which people themselves had produced, and more specifically by the trading values of those products.

When more and more of human requirements are marketised, and a complex division of labor develops, the link between value and labor-time becomes obscured or opaque, and economic value seems to exist only as an impersonal "market force" (a given structure of priced costs and sale-values) to which all people must adjust their behaviour. Human labor becomes dominated by the economic exchange of the products of that labor, and labor itself becomes a tradeable abstract value (see [[Philosophy:Abstract labour and concrete labour|Abstract labour and concrete labour]]).

The result of the difficulties in explaining economic value and its sources is that value becomes something of a mystery, and that ''how'' the attribution of value really occurs is no longer clear.{{Original research inline|date=April 2013}}{{refn|group="note"|"The value-form, whose fully developed shape is the money-form, is very simple and slight in content. Nevertheless, the human mind has sought in vain for more than 2,000 years to get to the bottom of it, while on the other hand there has been at least an approximation to a successful analysis of forms which are much richer in content and more complex." – Karl Marx<ref name="vol1" />{{rp|90}} }} The three relationships mentioned become mixed up, and are confused with each other, in commercial and economic discourse, and it appears that things and assets acquire an independent power to create value, even although value is a human attribution. Marx refers to this as [[Finance:Commodity fetishism|commodity fetishism]] or thingification (''Verdinglichung'' or reification) which culminates in what he calls [[Finance:Fictitious capital|fictitious capital]]. Value then seems to appear spontaneously out of trading activity. He regards this perception as an inevitable effect of commercial practice, since it involves the circumstance that objects acquire a value which exists independently of the valuer, a value "set by the state of the market" which individuals normally cannot change and must adjust to. The end result is that [[Philosophy:Value theory|value theory]] is banished from economics as a useless [[Philosophy:Metaphysics|metaphysics]], surviving only in the form of assumptions made about price behaviour. Because money-prices offer convenient quantifiable and generally applicable units of economic value, no further inquiry into value is deemed necessary.<ref group="note">Ian Steedman thus argued value theory was unnecessary, since everything can be stated in terms of prices. See: Ian Steedman, ''Marx after Sraffa''. London: NLB, 1977.</ref>

To solve the riddle of economic value, Marx argues, we must investigate the real historical origins of the conditions which give rise to the riddle in the first place, i.e. the real economic history of trade and the way that history has been reflected in human thought.{{citation needed|date=April 2013}} Once we do this, value is no longer defined simply an attribute of products and assets, but as a relation between objects and subjects.<ref group="note">See Karl Marx, ''Theories of Surplus Value'' (3 Vols.) and the ''[[Philosophy:Grundrisse|Grundrisse]]'' manuscript.</ref>

== Is it an equilibrium theory? ==
[[Biography:Thomas T. Sekine|Thomas T. Sekine]] has interpreted Marx's law of value as a purely theoretical principle of market equilibrium which has no application to empirical reality.<ref>See [[Biography:Thomas T. Sekine|Thomas T. Sekine]], "Marxian theory of value, what we might learn from it", in: ''Korean Journal of Political Economy'', Volume 2, 2004, pp. 1–35.</ref> This raises the question of how we verify that it is a "law" at all. [[Biography:Paul Mattick|Paul Mattick]] argued that Marx offered no theory of market equilibrium, only a dynamic theory of enlarged economic [[Finance:Reproduction (economics)|reproduction]].<ref name=marxists.org>{{cite web|last=Mattick|first=Paul|title=Chapter 5: The Law of Value as "Equilibrium Mechanism"|url=http://www.marxists.org/archive/mattick-paul/1969/marx-keynes/ch05.htm|work=Marx and Keynes: The Limits of the Mixed Economy|publisher=Marxists.org|access-date=6 April 2013}}</ref> {{psc|date=April 2013}} In reality, markets were rarely in equilibrium anyway (that was more a hypothesis used by economists, or a euphemism for "price stability"), and what explained the market behaviour of individuals and groups was precisely the imbalances between supply and demand propelling them into action. On this interpretation, capitalist development is always imbalanced development which, typically, the state tries to mitigate or compensate for.{{Original research inline|date=April 2013}}<ref name="vol1" />{{rp|476}}

Under capitalist conditions, balancing output and market demand depended on [[Finance:Capital accumulation|capital accumulation]] occurring.<ref name="vol2" />{{psc|date=April 2013}} If profits were not made, production would stop sooner or later. A capitalist economy was therefore in "equilibrium" ''so long as it could reproduce its social relations of production, permitting profit-making and capital accumulation to occur'', but this was compatible with all sorts of market fluctuations and disequilibria. So long as workers were "back to work" each working day, maintaining the value of assets and creating new value, it was "business as usual". Only when shortages or oversupply began to threaten the existence of the relations of production themselves, and block the accumulation of capital in critical areas (for example, an economic depression, a political revolt against capitalist property or against mass unemployment), a genuine "disequilibrium" occurred; all the rest was just ordinary market fluctuations.{{citation needed|date=April 2013}}

Real social needs and their monetary expression through market demand might be two very different things. A demand might exist without any buying power, and it might be that more could technically be supplied, but isn't (see [[Finance:Capacity utilization|Capacity utilization]]). Economic equilibrium was not created by any perfect match of supply and demand, but by the social framework which permitted the balancing act to occur. The role of the political [[Earth:State (polity)|state]] was essential in this, to provide an enforced legal framework for fair trade, currency stability and secure property rights<ref>Geoff Kay and James Mott, ''Public Order and the Law of Labour;''. London: Macmillan, 1982.</ref>{{Page needed|date=April 2013}}

Marx himself regarded the idea that society was somehow balanced out by market trade as a typical figment of "bourgeois ideology" and he was a strong critic of Jean-Baptiste Say.<ref>Bernice Shoul, "Karl Marx and Say's Law." ''The Quarterly Journal of Economics'', Vol. 71 No. 4, 1957, pp. 611–29.</ref> In the real world, there was only a more or less haphazard adjustment of supply and demand through incessant price fluctuations. In reality, a lot of non-market activity was necessary to keep market activity going,{{Original research inline|date=April 2013}}{{refn|group=note|"The maintenance and reproduction of the working-class is, and must ever be, a necessary condition to the reproduction of capital. But the capitalist may safely leave its fulfilment to the labourer's instincts of self-preservation and of propagation. All the capitalist cares for, is to reduce the labourer's individual consumption as far as possible to what is strictly necessary, and he is far away from imitating those brutal South Americans, who force their labourers to take the more substantial, rather than the less substantial, kind of food." – Karl Marx<ref name="vol1" />{{rp|chapter 23}} }} and the role of the state was indispensable (for the security of private property, currency stability and the enforcement of trading obligations).<ref name="vol1" />{{rp|chapter 3}}

== Factors counteracting the law of value ==
The law of value can interact with other phenomena which modify its effects. The 15 main factors counteracting the operation of the law of value, as a law governing the economic exchange of products, are the following:
*The non-existence of regular trade or an established, stable market for products, so that a dominant social valuation and generally accepted trading norms do not rule the terms of trade for products; in this case, there is no consensus on what products are worth, or it is unknown, and products will trade on all kinds of different terms which could vary greatly.
*Structural [[Finance:Unequal exchange|unequal exchange]] – alternative or competing sources of supply or demand are absent or blocked, distorting trading ratios in favour of those in a stronger market (or bargaining) position. In that case, the true value or cost of products may deviate greatly from actual selling prices for a prolonged time.
*Other restrictions on trade and what people may do with resources (legal, technical, [[Finance:Protectionism|protectionism]] etc.).
*[[Engineering:Tax|Tax]]ation and subsidies to producers by government (subsidies less indirect taxes paid can be a significant addition to the value of gross product).
*Disparities in currency [[Finance:Exchange rate|exchange rate]]s.
*[[Monopoly]] pricing where firms drive up prices because they control the supply of most of the market demand (perhaps because they own brands or patents), or temporarily lower prices to increase market share.
*Large-scale speculation driving up prices.
*[[Finance:Administered prices|Administered prices]] set by a state authority or a monopolist.
*The large-scale use of credit economy to acquire goods and services produced elsewhere, without corresponding increases in local production occurring.
*Non-market allocation of resources, including gifts and grants.
*Countertrade (forms of [[Finance:Barter|barter]]).
*Accumulation of [[Finance:Fictitious capital|fictitious capital]] (bubble economies).
*[[Social:Dumping (pricing policy)|Dumping]] of surplus goods at dumping prices.<ref group="note">See for example the Australian Brumby Anti-Dumping Review of 27 November 2012. http://antidumpingreview.gov.au/ {{Webarchive|url=https://web.archive.org/web/20121025030222/http://antidumpingreview.gov.au/ |date=2012-10-25 }}</ref>
*Wars and disasters which create abnormal scarcities and demands for goods and services.
*Illegal (criminal) or "grey" transactions (including pirated and counterfeited goods).

All of these phenomena occur to some degree or other in any real economy. Hence the effect of the law of value would usually be mediated by them, and would manifest itself only as a tendency, or as a law of "grand averages".

Nevertheless, price-value divergences are typically quantitatively limited. Although the real cost structure of production can be distorted by all kinds of extraneous factors, the law of value places limits on the amount of the distortion. Even if goods sell at an abnormally low or high prices, that abnormality relates to a "normal" referent price, and it is precisely that price which, according to Marx, is constrained by the law of value, i.e. by the proportionalities of human labour-time reflected in the cost structure of products.{{citation needed|date=April 2013}}

== In capitalism ==
Marx argues that, as economic exchange develops and markets expand while traditional methods of production are destroyed and replaced by commercial practices, the law of value is modified in its operation.{{citation needed|date=April 2013}}

=== Production prices ===
{{Main|Finance:Prices of production}}
Thus, the [[Finance:Capitalist mode of production (Marxist theory)|capitalist mode of production]] is a type of economy, in which both inputs and outputs of production have become marketed goods and services (or [[Finance:Commodity (Marxism)|commodities]]) which are bought and sold freely. Here, capitalists do not make money simply from trading or renting, but from the capitalization of production itself. Products and labour are purchased to manufacture new products which have a higher value in the market than their cost price, resulting in a profit from the added value. In such an economy, Marx argues, what directly regulates the economic exchange of new labour-products is not the law of value, but their [[Finance:Prices of production|prices of production]].{{citation needed|date=April 2013}} The theoretical problem which Marx then tries to tackle is how the movements of production prices across time are nevertheless regulated by the law of value. That was the problem which classical political economy failed to solve.{{citation needed|date=April 2013}}

The production price is the price at which output would have to sell, in order to realize the average, normal rate of profit on the capital invested in producing that output. That is largely a matter of cost-prices, profit margins and sales turnover. If we find that the distribution of sale-prices for a given type of commodity converges on a particular normal price-level, then, Marx argues, the real reason is, that only at that price-level the commodity can be supplied at an acceptable or normal profit.{{citation needed|date=April 2013}}

In pre-capitalist societies, where many inputs and outputs often weren't priced goods, but allocated "by right" or according to custom, the concept of an ''average production price'' would be rather meaningless. Large price differences existed even between towns, provinces and regions, yielding welcome profit to merchant traders. In capitalist society, differences in capital yields are constantly being leveled out by competition on a larger and larger scale, creating industry norms for normal returns on investments. The corollary in capitalist production is the increasingly free movement (or, at least, mobility) of labour and capital among branches of industry, in other words that capital and labour can be traded and shifted around fairly freely, with the aid of better transport and communication systems.

In ''Capital, Volume I'', Marx largely ignored price fluctuations for the given inputs and outputs of production.{{citation needed|date=April 2013}} He assumed that the prices of commodities were equal to their values. There were, however, three main reasons for this simplification: {{citation needed|date=April 2013}}
*Whether or not commodities used or produced traded for a bit more, or a bit less, than their socially average value, made no substantial difference to the capitalist relationships of the production process which he sought to analyze.
*Marx aimed to show, that even if all commodities traded exactly at their value (equal exchange), and regardless of short-term price fluctuations, capitalists could still make money from production, since, in the normal business situation, workers always created more value for their employers than was represented by the total wage bill. If that wasn't the case, capitalists would be defeated by market fluctuations very quickly. Economic exploitation was, therefore, not simply a matter of unfairly short-changing people in market trade, but rooted in the permanently unequal position of employers and employees in production.
*Although it appears like trading relationships determine the relationships of production, Marx argues that in aggregate (in an overall sense) it is just the other way round: the relationships of the direct production process (the mode of production) determine the relationships of exchange. This justifies the initial analysis of production in abstraction from all kinds of price fluctuations.

=== Economic significance of price-value divergences ===
The fact that products can be traded above or below their value (and hence that more labour can exchange for less labour) became a fundamental theoretical problem for classical political economy. That is, the classical political economists failed theoretically to reconcile the law of value with unequal exchange (the exchange of unequal values). For Marx, the exchange of non-equivalents was not an aberration in the exchange process at all, but instead the pivot of business competition among producers in capitalist society. Price-value differences for labour-products determined how much of the new [[Finance:Surplus value|surplus value]] produced by enterprises, potentially contained in an output of commodities, could be realized as profit by those enterprises.

Capitalist economic exchange, Marx argues (contrary to David Ricardo's theory), is not a simple exchange of equivalent values.<ref>Christian Girschner, ''Politische Ökonomie und Weltmarkt; Allgemeine Weltmarktdynamik in der Marxschen Kritik der politischen Ökonomie''. Cologne: Papyrossa, 1999.</ref>  It aims not to trade goods and services of equivalent value, but instead to make money from the trade (this is called [[Finance:Capital accumulation|capital accumulation]]). The aim is to buy as cheaply as possible, and sell as dear as possible, under the competitive constraint that everybody has the same objective. The effect is that the whole cost-structure of production permanently includes profit as an additional impost.<ref>Paul Bairoch, ''Victoires et deboires'', Vol. 3, Gallimard 1997, p.&nbsp;699. Gross profit in Marx's sense has three main components: the fees of corporate officers; undistributed profit used to finance investment; and profit distributed as dividends to shareholders or owners. A fraction of income from depreciation write-offs (where government incentive schemes are applicable) and net increases in the value of inventories may also be counted as part of gross profit.</ref>  In an overall sense, Marx argues the substance of this impost is the unpaid [[Finance:Surplus labour|surplus labour]] performed by the [[Social:Working class|working class]]; part of society can live off the labour of others due to their ownership of property.<ref name="vol1" />{{rp|chapters 7 & 18}}{{psc|date=April 2013}}

In this situation, output values produced by enterprises will typically deviate from output prices realised. Market competition for a given demand will impose a ruling price-level for a type of output, but the different competing enterprises producing it will take more or less labour to produce it, depending on productivity levels and technologies they use. Consequently, output values produced by different enterprises (in terms of labour-time) and output prices realised by them will typically diverge (within certain limits): enterprises can get more or less income for the value of what they produce. That divergence becomes a critical factor in capitalist competition and the dynamics of the production system, under conditions where the average price-levels for products are beyond anyone's control.<ref name="vol3" />{{rp|Part 2, pp. 241–375}}{{psc|date=April 2013}}

=== Competition between producers ===
If [[Finance:Capital accumulation|capital accumulation]] becomes the dominant motive for production, then producers will do everything they can to cut costs, increase sales and increase profits. Since they mostly lack control over the ruling market prices for their inputs and outputs, they try to increase [[Finance:Productivity|productivity]] by every means at their disposal and maximise [[Finance:Surplus labour|surplus labour]]. Because the lower the unit-costs of goods produced by an enterprise, the greater the margin will be between its own cost-prices and the ruling sale prices for those goods in the market, and therefore the larger the profits that can be realised as result when goods are sold. Producers thus become very concerned with the [[Finance:Value added|value added]] in what they produce, which depends crucially on [[Finance:Productivity|productivity]].

In the classical competitive situation, capitalists basically aim to employ workers to:
*produce and sell a greater volume of products more quickly,
*at a competitive market-price which is below the socially established normal valuation for that kind of product which applies in market-trade,
*principally by means of a better labour-exploitation rate and higher productivity than their competitors,
*which lowers the cost-price per unit of product in the total turnover,
*yet provides a superior profit rate on capital invested, even if the selling price is below the normal valuation.

Such price-cutting competition is limited in scope however, because if competitors adopt the same production methods, the productivity advantage will disappear. In addition, beyond a certain point workers will begin to resist their exploitation, and they may join trade unions. And, if market prices for products were reduced to their most competitive cost-prices only, profits would fall to zero. This leads to constant attempts worldwide to improve production techniques to cut costs, improve productivity and hold down labour-costs, but ultimately also to a decline in the labor-content of commodities. Therefore, their values will also decline over time; more and more commodities are produced, for a larger and larger market, at an increasingly cheaper cost. Marx claims that this trend happens "with the necessity of a natural law"; producers had no choice about doing what they could in the battle for productivity, if they wanted to maintain or increase sales and profits.<ref name="vol3" />{{rp|Part 3}}{{psc|date=April 2013}} That was, in Marx's view, the "revolutionary" aspect of capitalism.<ref group="note">In the Communist Manifesto, Marx and Engels state somewhat rhetorically: "The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such [[Social:Productive forces|productive forces]] slumbered in the lap of social labor?"</ref>

Competition among producers inexorably gives rise to market monopolies for products, which may constrain further significant advances in productivity and innovation.<ref>[[Biography:Josef Steindl|Josef Steindl]], ''Maturity and Stagnation in American Capitalism''. New York: Monthly Review Press, 1952.</ref> According to Marx, monopolies and competition always co-exist; monopolies in the production of goods and services are rarely permanent, and as soon as competition is blocked at one level, it reappears at another level.{{Original research inline|date=April 2013}}{{refn|group="note"|"In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists are made from competition; competitors become monopolists." – Karl Marx<ref>Karl Marx, ''[[Philosophy:The Poverty of Philosophy|The Poverty of Philosophy]]'', Chapter Two: "The Metaphysics of Political Economy", section 3, "Competition and Monopoly".</ref>}} However, Marx never discussed all the different forms of economic competition in capitalist society. His main concern was to explain what the competition was ultimately about, and what structural factors were involved, from the point of view of the production system as a whole.{{citation needed|date=April 2013}}

The negative influence of the tendency of the rate of profit to fall on business income could, Marx argued, be overcome in the long run only by organizing production and sales on a larger and larger scale, or by technological revolutions which reduced the cost of raw materials, labour and fixed equipment.{{citation needed|date=April 2013}} That was capitalist progress. But to be able to compete in product markets in the end requires enormous amounts of investment capital, which (1) cuts out most would-be producers and (2) lowers the profit rate on investment capital. In turn, investors will no longer commit very large amounts of capital to investment projects if they are uncertain about whether those projects will yield an adequate return in the future. The more uncertainty there is, the more difficult it is to "securitize" (insure) their longer-term investments against losses of capital. If the state will not provide financial backing, private finance must provide it, but the latter is reluctant to do so if the risks outweigh the yields. This causes a powerful development of capital markets and supporting financial services, including [[Finance:Shadow banking system|shadow banking]] (credit facilities by non-bank organizations).{{Original research inline|date=April 2013}}<ref group="note">See: Financial Stability Board, ''Global Shadow Banking Monitoring Report 2012''.{{cite web|url=http://www.financialstabilityboard.org/publications/r_121118c.pdf |title=Archived copy |access-date=2012-12-13 |url-status=dead |archive-url=https://web.archive.org/web/20121202080719/http://www.financialstabilityboard.org/publications/r_121118c.pdf |archive-date=2012-12-02 }}</ref>

In a developed capitalism, the development or decline of the different branches of production occurs through the continual entry and exit of capital, basically guided by profitability criteria, and within the framework of competition. Where demand and profits are high, capital moves in, and when demand and profits are low, capital moves elsewhere. Thus, supply and demand are reconciled, however imperfectly, by the incessant migrations of capital across the economy. Yet, Marx argues, this whole process is nevertheless still regulated by the law of value; ultimately, relative price movements for products are still determined by comparative expenditures of labour-time.<ref name="vol3" />{{rp|280}}{{psc|date=April 2013}} Thus, market prices for outputs will gravitate towards [[Finance:Prices of production|prices of production]] which themselves are constrained by product-values expressible in quantities of labour-time.{{Original research inline|date=April 2013}}{{refn|group="note"|"We have seen that the price of production of a commodity is not at all identical with its value, although the prices of production of commodities, considered in their totality, are regulated only by their total value, and although the movement of production prices of various kinds of commodities, all other circumstances being equal, is determined exclusively by the movement of their values.” – Karl Marx<ref name="vol3" />{{rp|chapter 45}} }}

=== Law of value and crises ===
In serious economic crises, Marx suggests, the structure of market prices is more or less suddenly readjusted to the evolving underlying structure of production values.<ref name=perelman>Michael Perelman, ''Marx's crises theory: scarcity, labor, and finance''. New York: Praeger, 1987.</ref>{{Page needed|date=April 2013}} The economic crisis means that price and value relationships have gotten badly out of kilter, causing a breakdown of the normal trading process. According to Marx,{{citation needed|date=April 2013}} the basic meaning of crises for capitalists was, that they could not longer invest their capital at an adequate profit income, which usually meant also that their capital lost part of its value. For workers, crises meant an increase in unemployment, and wage-cuts. Some output and assets might also be destroyed, because they could not be sold, or because they did not make money. Solving the crisis meant reorganizing production and trade, to meet the new requirements for profitable sales. Usually, crises were happening all the time somewhere in the capitalist economy, but those crises were limited to specific industries going bust – such crises normally did not spread to the whole economy. However, at some point, the crisis of particular branches of activity could set off a chain-reaction which would spread to the whole economy.

Marx himself never developed a substantive theory of capitalist crises, beyond commenting about the economic crises he was able to observe himself.{{refn|group="note"|Marx refers to crises in ''Das Kapital'', ''[[Finance:Theories of Surplus Value|Theories of Surplus Value]]'' and the ''[[Philosophy:Grundrisse|Grundrisse]]''; in a number of newspaper articles for the ''Neue Rheinische Zeitung'' and ''New York Daily Tribune'' (MECW Vols. 9, 11, 12, 14, 15); and in his correspondence with Friedrich Engels.<ref>Karl Marx, Letter to Friedrich Engels, 31 May 1873. ''Marx-Engels Werke'' Vol. 33, p. 821.</ref> }} His main claim was that the crises are ''system-immanent'' (due to endogenous causes), and not an accidental aberration, i.e. they are a necessary feature of capitalist development. A large Marxist literature on "crisis theory" nowadays exists, in which different authors defend various ideas about the "ultimate" causes of capitalist crises (see also [[Finance:Crisis theory|crisis theory]]) – basing themselves on a few scattered comments by Marx on the topic.<ref>"Books on the Global Financial Crisis and Capitalism". Modkraft.dk progressive portal.[http://spip.modkraft.dk/tidsskriftcentret/linkbox/article/marxistiske-boger-om-finanskrisenMarxist]</ref> Such theories are very difficult to prove scientifically, for five reasons: {{citation needed|date=April 2013}}
*The theories are very abstract, making it difficult to test them convincingly.
*Even if reliable data is available, the data can be read in different ways.
*There exist a very large number of different factors which can influence business profitability, investments and market sales, while it is difficult to prove how these factors are all related, or to prove which ones are the most important ones in an overall sense (since different kinds of business operate in different circumstances).
*The final causes of crises might not be exactly the same in every crisis occurring in the last two centuries, except if particular causes are accepted as the main ones "by definition".
*Marx's ideas about crises were based on the kind of capitalism that existed in the mid-19th century, without it being very clear what the continuities and discontinuities are with present-day capitalism.

According to a popular Marxist interpretation, crises are the necessary result of the falling profitability of production capital, which, according to Marx, was an effect of rising overall productivity (raising the organic composition of production capital and lowering the value of commodities).<ref>Rick Kuhn, ''Henryk Grossmann and the Recovery of Marxism''. University of Illinois Press, 2007; Guglielmo Carchedi, ''Behind the crisis''. Brill Publishers, 2010; Andrew Kliman, ''The failure of capitalist production: underlying causes of the great recession''. London: Pluto Press, 2011.</ref> But supposing that we can prove definitely that profitability did gradually decline across (say) 25 years, it is still not proved why a serious economic crisis would occur precisely at the end of that period, rather than (say) after 5 years, or 10 years, or 15 years. That is, by demonstrating an empirical profitability trend, the main causes and effects of the trend are not yet proved. In addition, production capital is a smaller and smaller fraction of the total mass of capital accumulated, and thus, it is not proved how the reduced profitability of only a minor part of the total capital can, by itself, throw the whole of capitalist society into crisis.<ref>Anwar Shaikh, "Explaining the Global Economic Crisis: A Critique of Brenner" in Historical Materialism, No. 5, 1999, p. 104.</ref>

What can be definitely proved, is that slumps have happened fairly regularly in the history of industrial capitalism from the 1820s onward,<ref>{{Cite web|url=https://study.com/academy/lesson/economic-fluctuations-definition-model-quiz.html|title=Economic Fluctuations: Definition & Model – Video & Lesson Transcript|website=Study.com|language=en|access-date=2019-09-19}}</ref> some being more severe than others. In the real economic history of capitalism, there is therefore no evidence of a spontaneous tendency toward economic equilibrium: capitalism develops spasmodically, through booms and slumps. Every crisis is supposed to be the last one, until a new crisis occurs. That was, for Marx,<ref>{{Cite web|url=https://www.versiondaily.com/inequality-in-capitalism-according-to-karl-marx/|title=Inequality in capitalism according to Karl Marx|last=Alfarsi|first=Haroun|date=2019-02-04|website=Version Daily|language=en-US|access-date=2019-09-19}}</ref> a good reason for doing away with the capitalist system, and bringing production under planned, collective control by the freely associated producers.

== Modification in the world market ==
Marx believed that the operation of the law of value was not only modified by the [[Finance:Capitalist mode of production (Marxist theory)|capitalist mode of production]], but also in the world market (world trade, as contrasted with the home market or national economy).<ref name="vol1" />{{rp|702}}{{psc|date=April 2013}}

The main reason for this was the existence of different levels of the intensity and [[Finance:Productivity|productivity]] of labour in different countries, creating for example a very different cost structure in different countries for all kinds of products.<ref group="note">The Marxist [[Biography:Ernest Mandel|Ernest Mandel]] argued that even before differentials in productivity between nations became apparent through foreign trade, there already existed regional disparities within countries; these disparities tended to fade with more market integration. See: Ernest Mandel, ''Capitalism and Regional Disparities''. Toronto: Hogtown Press pamphlet, 1971, reprinted under the same title in: ''Southwest Economy and Society'', Vol. 1, 1976.</ref> Products that took 1 hour of labour to make in country A might take 10 hours to make in country B, a difference in production costs which could strongly influence the [[Finance:Exchange value|exchange value]]s realised in the trade between A and B. More labour could, in effect, exchange for less labour internationally (an "[[Finance:Unequal exchange|unequal exchange]]" in value terms) for a prolonged time. In addition, the normal rate of [[Finance:Surplus value|surplus value]] could be different in different countries. That makes a huge difference not only to profitability, but to the ability to sell products at competitive prices.

So traders would try to use this differential to their advantage, with the usual motto "buy cheap, sell dear". This promotes the internationalization of business. The result, some Marxists argue,{{who|date=April 2013}} is an international transfer of value, from countries with a weaker bargaining position to those with a stronger one.<ref group="note">See Anwar Shaikh, "Values and Value transfers: A Comment on Itoh."[http://homepage.newschool.edu/~AShaikh/Values%20and%20Value%20Transfers,%20A%20Comment%20on%20Itoh.pdf] {{Webarchive|url=https://web.archive.org/web/20111129160305/http://homepage.newschool.edu/~AShaikh/Values%20and%20Value%20Transfers,%20A%20Comment%20on%20Itoh.pdf |date=2011-11-29 }} and Enrique Dussel & Anibal Yanez, "Marx's economic manuscripts of 1861–63 and the 'concept' of dependency". ''Latin American Perspectives'', Vol. 17 No. 2, Spring 1990, pp. 62–101, as well as the literature cited in the article on [[Finance:Unequal exchange|unequal exchange]].</ref>  The differential in labour valuations becomes a source of profit (see also [[Social:Global labor arbitrage|global labor arbitrage]]).

Among German Marxists, Marx's fragmentary remarks on the law of value in a world market setting stimulated an important theoretical debate in the 1970s and early 1980s.<ref>See  *Oliver Nachtwey and Tobias ten Brink, "Lost in Transition: the German World-Market Debate in the 1970s". ''Historical Materialism'', issue 16,  2008, pp. 37–70; Christel Neusüß, ''Imperialismus und Weltmarktbewegung des Kapitals''. Erlangen: Politladen, 1972; Wolfgang Schoeller, ''Weltmarkt und Reproduktion des Kapitals''. Frankfurt: EVA, 1976; Tilla Siegel, ''Kapitalismus als Weltsystem'';  Tilla Siegel, "Politics and Economics in the Capitalist World Market: Methodological Problems of Marxist Analysis", in: ''International Journal of Sociology'', Vol. XIV, no. 1., Spring 1984; Klaus Busch, ''Die Multinationalen Konzerne. Zur Analyse der Weltmarktbewegung des Kapitals.'' Frankfurt: Suhrkamp, 1974; Klaus Busch, Gunther Grunert, and Walter Tobergte, ''Strukturen der Kapitalistischen Weltoekonomie''; Gunther Grunert, ''Technologische Innovationen und internationaler Handel''; Henrike Hilwig, ''Wertgesetz und Wirtschaftssystem- Probleme der Preisbildung in warenproduzierenden Gesellschaften''. Frankfurt: Campus, 1977. Fritz Helmedag, ''Warenproduktion mittels Arbeit – Zur Rehabilitation des Wertgesetzes''. Marburg: Metropol Verlag, 1992; ''Wissenschaftlicher Streit um die modifizierten durchsetzungsformen des Wertgesetzes auf dem Weltmarkt''[https://web.archive.org/web/20070712005634/http://apronsknie.de/mxks/files/ag/Value.Weltmarkt.html]</ref>{{synthesis inline|date=April 2013}} One aim of this debate was to move beyond crude Ricardian interpretations of [[Finance:Comparative advantage|comparative advantage]] or comparative costs in explaining the pattern of world trade. To some extent similar debates took place in the US, France and Japan.<ref>See Anwar Shaikh's work, Samir Amin's work in France, and [[Biography:Makoto Itoh|Makoto Itoh]]'s Japanese work available in English.</ref> In particular, when the volume of [[Finance:Intra-industry trade|intra-industry trade]] (IIT) between countries grows (i.e. the same kinds of products are both imported and exported by a country), and when different branches of the same multinational import and export between countries with their own internal price regime, international comparative advantage theories of the Ricardian type do not apply.

Nowadays, Marxian scholars argue,{{who|date=April 2013}} comparative advantage survives mainly as an [[Philosophy:Ideology|ideology]] ''justifying'' the benefits of international trade, not as an accurate ''description'' of that trade (some economists{{who|date=April 2013}} however draw subtle distinctions between comparative "advantages" and comparative "costs", while others{{who|date=April 2013}} switch to the concept of [[Social:Competitive advantage|competitive advantage]]).<ref>Guglielmo Carchedi, ''For Another Europe: A Marxist Analysis of the EU''. London: Verso, 2001; Branko Horvat, ''The theory of international trade; an alternative approach''. Palgrave Macmillan, 1999; John Weeks, "International Exchange and the Causes of Backwardness", in ''Latin American Perspectives VI'' (Spring 1978)[http://jweeks.org/]</ref> Ultimately, the "comparative advantage" ideology is based on a very simple ideology about trade. This ideology says, that if everybody specializes in what they are the best at producing, this provides the greatest amount of wealth for everybody, because then everybody will be operating in the most efficient way. But this ideology is hopelessly naive.<ref>Andre Gunder Frank, ''Capitalism and Underdevelopment in Latin America''. Harmondsworth: Penguin, 1971, pp. 183–84.</ref> The simple reason is that, even if products are produced very efficiently, this says nothing about the terms on which products will be traded, and the incomes which producers will get for their work. They might work very efficiently, but get very little money for their effort.

The operation of the law of value in the world market might however seem rather abstract, in view of the phenomena of [[Finance:Unequal exchange|unequal exchange]], differences in accounting norms, [[Finance:Protectionism|protectionism]], debt-driven [[Finance:Capital accumulation|capital accumulation]] and gigantic differences in currency exchange rates between rich and poor countries. These phenomena can create very a significant distortion in world trade between final market prices for goods, and the real production costs for those goods, resulting in [[Finance:Superprofit|superprofit]] for the beneficiaries of the trade. The value and physical volume of manufactured exports by developing countries increased gigantically more than the actual income obtained by the producers. Third world nations relatively speaking received less and less for what they produced for sale in the world market, even as they produced more and more; this is also reflected in the international [[Finance:Terms of trade|terms of trade]] for manufactured products.

The postulate of the law of value does however lead to the Marxian historical prediction that global [[Finance:Prices of production|prices of production]] will be formed by world competition among producers in the long term.{{citation needed|date=April 2013}} That is, the conditions for producing and selling products in different countries will be equalised in the long run through global market integration; this will be reflected also in [[Finance:International Financial Reporting Standards|International Financial Reporting Standards]]. Thus globalisation means that incipiently the "leveling out of differences in industrial rates of profit" through competition begins to operate internationally.<ref>Lowell Bryan, "Globalization's critical imbalances". ''McKinsey Quarterly'', June 2010.</ref> Trading ratios and exchange-values for products sold globally would thus become more and more similar, in the long term.<ref>See Anwar Shaikh, "Foreign trade and the law of value."[http://homepage.newschool.edu/~AShaikh/lawvalue1.pdf] {{Webarchive|url=https://web.archive.org/web/20111129161428/http://homepage.newschool.edu/~AShaikh/lawvalue1.pdf |date=2011-11-29 }} [http://homepage.newschool.edu/~AShaikh/lawvalue2.pdf] {{Webarchive|url=https://web.archive.org/web/20111129164132/http://homepage.newschool.edu/~AShaikh/lawvalue2.pdf |date=2011-11-29 }} [http://homepage.newschool.edu/~AShaikh/Foreign%20Trade%20and%20Law%20of%20Value%20II%20Appendix.pdf] {{Webarchive|url=https://web.archive.org/web/20111129162657/http://homepage.newschool.edu/~AShaikh/Foreign%20Trade%20and%20Law%20of%20Value%20II%20Appendix.pdf |date=2011-11-29 }}</ref>

== In Soviet-type societies ==
There has been a long debate among Marxists about whether the law of value also operates in [[Social:Planned economy|command economies]] where production is directed mainly by the state authorities.<ref>Catherine Samary, ''Plan, Market and Democracy'', IIRE Notebook for study and research 7/8, 1988.[http://fileserver.iire.org/nsr/NSR7.pdf]</ref> This debate occurred separately from the [[Social:Socialist calculation debate|socialist calculation debate]]. There is still little agreement on the issue,{{citation needed|date=April 2013}} because different Marxists use different definitions and concepts which are often influenced by political attitudes.

=== Joseph Stalin ===
In his famous pamphlet ''Economic Problems of Socialism in the USSR'', {{wipe|Joseph Stalin}} argued that the law of value did operate in the economy of the Soviet Union.<ref>[http://www.marxists.org/reference/archive/stalin/works/1951/economic-problems/index.htm Joseph Stalin, ''Economic Problems of Socialism in the USSR.'']</ref> Stalin was primarily concerned at the time with the problem of wasted labour, in an economy where workers often could not be easily fired (they had a constitutionally guaranteed right to a job, and there was considerable [[Finance:Featherbedding|featherbedding]] of employees), and where there was often no clear relationship between salary-levels, work performance and actual output. The Stalin theory of the law of value was critically discussed by Włodzimierz Brus in ''The market in a socialist economy''.<ref>Włodzimierz Brus, ''The market in a socialist economy''. London: Routledge, 1972.</ref>

=== Yevgeni Preobrazhensky ===
Apart from Stalin, the most influential theorist of the law of value in the 20th century was Yevgeni Preobrazhensky.{{citation needed|date=April 2013}} In his book ''The New Economics'' (1926, published in English in 1965), Preobrazhensky tried to specify clearly what the law of value should be understood to mean, for the purpose of economic policy. His main thesis was as such:
{{Quotation|Both the law of value and the planning principle, the basic tendencies of which assume in the Soviet economy the form of the law of primitive socialist accumulation, are operating within a single economic organism, and are counterposed one to the other as a result of the victory of the October revolution.<ref>Eugene Preobrazhensky, "The Method of Theoretical Analysis of Soviet Economy", in ''The New Economics''. Oxford: Clarendon Press, 1965.[http://www.karlmarx.net/transitional-economics/theneweconomicsepreobrazhensky1926/method-of-theorectical-analysis]</ref> }}

This influential analysis equated the law of value with market economy, and counterposed it to state-organized economy.{{citation needed|date=April 2013}} There was, in other words, a structural conflict between the market principle and the collective planning principle. Preobrazhensky then aimed to show how state-organized economy could prevail over market forces in such a way, that the economic growth path would be optimal.{{citation needed|date=April 2013}} His basic idea was that a tax on the millions of farmers in the Russian empire could finance urban industrialization. Preobrazhensky's approach to the law of value became the common assumption of left-wing Marxists discussing the transition to socialism,<ref group="note">see, e.g., [[Biography:Ernest Mandel|Ernest Mandel]], ''Marxist Economic Theory'', Vol. 2. London: Merlin Press, 1968, chapters 15, 16 and 17; Catherine Samary, ''Plan, Market and Democracy'', IIRE Notebook for study and research 7/8, 1988 [http://fileserver.iire.org/nsr/NSR7.pdf]; Paul Sweezy, “Toward a Program of Studies of the Transition to Socialism,” ''Monthly Review'' Vol. 23, no. 9 (February 1972): 1–13.</ref> until the theorists of [[Social:Market socialism|market socialism]] began to challenge it and gained more intellectual influence. According to Fred L. Block, nowadays "Contemporary scholarship rejects the assumption...that state and market are distinct and opposing modes of organizing economic activity."<ref>Fred Block & Peter Evans, "The state and the economy". In: Neil J. Smelser & Richard Swedberg, ''The handbook of economic sociology''. Princeton University Press, 2005, p. 505.</ref>

=== State capitalism theorists ===
Supporters of the theory of [[Social:State capitalism|state capitalism]] in the [[Place:Soviet Union|Soviet Union]] (such as [[Biography:Tony Cliff|Tony Cliff]] and [[Biography:Chris Harman|Chris Harman]]) and scholars such as [[Biography:Andre Gunder Frank|Andre Gunder Frank]] have also believed that the law of value operated in Soviet-type societies.<ref>Andre Gunder Frank, "In Memoriam: Tribute To Ernest Mandel" [http://www.rrojasdatabank.info/agfrank/mandel_tribute.html]; John Lister, ''The Fallacies of State Capitalism: Ernest Mandel and Chris Harman Debate the USSR.'' Socialist Outlook, 1991.</ref> However, it is not always clear what they mean by the law of value, beyond the vague idea that the direct producers remain dominated by their own products, or that labour costs remain important, or that Soviet-type societies remained influenced by the world market. In 1979, Tony Cliff explained:
{{Quotation|When I came to the theory of state capitalism [in 1947], I didn't come to it by a long analysis of the law of value in Russia, the economic statistics in Russia. Nothing of the sort. I came to it by the simple statement that if the emancipation of the working class is the act of the working class, then you cannot have a workers' state without the workers having power to dictate what happens to society.<ref>"Tony Cliff Interview", ''The Leveller'', September 1979, p. 21. Cited in Marcel van der Linden,''Western Marxism and the Soviet Union. A Survey of Critical Theories and Debates since 1917.'' Haymarket Books, 2009, p. 119.</ref> }}

Many Western Marxists reasoned that if workers were oppressed in the Soviet economy, the Soviet system could not be socialist, and that if it was not socialist, it must be capitalist – be it a special kind of capitalism, a capitalism mainly directed by the state.<ref>See Marcel van der Linden, ''Western Marxism and the Soviet Union.''Haymarket Books, 2009.</ref> A similar theory was adopted in 1967 by the Chinese communists: after Stalin died in 1953, according to this theory, a sort of coup d'état had occurred in the Kremlin, which led to the "restoration of capitalism" throughout the USSR. The 1965 Soviet economic reform was interpreted as a proof of that theory. Some Western Maoists followed this interpretation.<ref>Martin Nicolaus, ''Restoration of capitalism in the USSR''. Chicago: Liberator Press, 1975; Marcel van der Linden,''Western Marxism and the Soviet Union. A Survey of Critical Theories and Debates since 1917.'' Haymarket Books, 2009, chapter six.</ref> A 1977 resolution of the Bay Area Communist Union, an American Maoist group, stated that: "In socialist society, commodity exchange, as well as value and the law of value continue to a certain extent. Only communism obliterates all aspects of commodity exchange, value, money, etc. However, one commodity does disappear under socialism: labor-power."<ref>Bay Area Communist Union, ´´Marxism-Leninism-Mao Tsetung Thought. Resolutions of our Fourth General Meeting (July 1977)´´. San Francisco, 1977. [http://www.marxists.org/history/erol/ncm-5/bacu-2/resolution5.htm]</ref>

From the 1930s to the 1950s, when Soviet industrialization seemed to be forging ahead, many Western Marxists theorized that Soviet state capitalism was a "higher stage" of capitalism than ordinary capitalism. But when it became very clear, in the 1980s, that Soviet economic growth was lagging behind the West, the Soviet state-capitalist stage was often reconceptualized as a ''lower'' stage of capitalism,<ref>Marcel van der Linden,''Western Marxism and the Soviet Union. A Survey of Critical Theories and Debates since 1917.'' Haymarket Books, 2009, chapter 7.</ref> which would in due course lead to "ordinary" capitalism (in Cliff's theory, all capitalisms in all countries are "state capitalisms" of one sort or another – some more developed, and others less developed).

In his famous book ''State capitalism in Russia'' (1948), Tony Cliff theorized that the law of value "tends to equalise supply and demand, a situation in which price is equal to value, or more correctly, is equal to price of production." Although there seemed to him to be little internal evidence that the law of value regulated the Soviet economy, he believed the law of value was "the arbiter of the Russian economic structure as soon as it is seen in the concrete historical situation of today—the anarchic world market."<ref>''State capitalism in Russia'' (1948), chapter 7 (originally published in 1955, republished by Bookmarks in 1996).[http://www.marxists.org/archive/cliff/works/1955/statecap/ch07-s1.htm#s2]</ref> Critics of this interpretation argue that the Soviet economy was, in reality, rather autarkic (self-sufficient), that foreign trade was state-directed and played a comparatively small role in the economy as a whole, and that the foreign transactions were often non-commercial (often a form of barter, subsidized transfers or counter-trade).<ref>Albert Szymanski, ''Is the Red Flag Flying? The Political Economy of the Soviet Union.'' London: Zed Press, 1979.</ref>

[[Biography:Rudolf Hilferding|Rudolf Hilferding]] regarded state capitalist theories as conceptually incoherent, because – he argued – the law of value presupposed market competition among private enterprises. If the allocation of resources was performed by a state dictatorship, there was no capitalism at all.<ref>Rudolf Hilferding, "State Capitalism or Totalitarian State Economy". ''The Modern Review'', June 1947, pp. 266–71.[http://www.marxists.org/archive/hilferding/1940/statecapitalism.htm]</ref>

=== Ernest Mandel ===
According to [[Biography:Ernest Mandel|Ernest Mandel]],<ref>Mandel's ideas are discussed in: Manuel Kellner, ''Gegen Kapitalismus und Bürokratie. Zur sozialistischen Strategie bei Ernest Mandel''. Cologne: Neuer ISP Verlag, 2009.[http://www.trotskyana.net/Trotskyists/Ernest_Mandel/ernest_mandel.html]</ref> the law of value, as a law of exchange, did influence non-capitalist societies to some extent, inasmuch as exchange and trade persisted, but because the state directed the bulk of economic resources, the law of value no longer ''ruled'' or ''dominated'' resource allocation.<ref>Ernest Mandel, "The Laws of Motion of the Soviet Economy". In: ''Review of Radical Political Economics'', Vol. 13, No. 1, Spring 1981, pp. 35–39.[http://www.ernestmandel.org/en/works/txt/1981/laws_of_motion_of_the_soviet_economy.htm]</ref> The best proof of that was that there was mostly no clear relationship at all anymore between the exchange-value of goods traded, how they were allocated, and what it really cost to produce them; [[Finance:Accounting|accounting]] information, insofar as it was valid, might in fact be unable to show anything about the real nature of resource allocation. The prices in the Soviet economy were, for the most part, not market prices but [[Finance:Administered prices|administered prices]] set by the planning boards (there was also a [[Finance:Black market|black market]], mainly for consumer goods).<ref>David Remnick, "Soviet Union's `Shadow Economy' – Bribery, Barter, Black-Market Deals Are The Facts Of Life." ''The Seattle Times'', September 22, 1990.[http://community.seattletimes.nwsource.com/archive/?date=19900922&slug=1094485]</ref>  Insofar as the social priorities of state policy ensured that people got what they needed, that was a good thing; but insofar as resources were wasted because of a lack of sensible cost-economies, it was a bad thing. Cost-accounting is, of course, no more "neutral" than profit-accounting; a lot depends on what costs are included and excluded in the calculation.

Mandel blamed the waste of resources in the Soviet economy on bureaucracy, and regarded the USSR as a bureaucratically [[Social:Degenerated workers' state|degenerated workers' state]]. He believed that if there was genuine democracy instead of bureaucracy, there would be no more waste.<ref>Ernest Mandel, "Some comments on H. Ticktin's "Towards a political economy of the USSR", in: ''Critique'' (Glasgow), 1974 (3), pp. 23–26; Ernest Mandel, "Ten theses on the social and economic laws governing the society transitional between capitalism and socialism" in: ''Critique'' (Glasgow), 1974 (3) : pp. 5–21; [[Biography:Ernest Mandel|Ernest Mandel]], ''Power and money. A Marxist theory of bureaucracy''. London: Verso, 1992.</ref> Mandel's critics believe this is a naive theory because:
*It presents democracy as a solution, without considering property forms and institutional arrangements in any detail.
*In the real world, there exists – as Mandel sometimes admitted<ref>Ernest Mandel, "Economics of the transition period", in: ''Fifty years of world revolution: an international symposium'', ed. and with an introd. by Ernest Mandel. New York: Merit Publications, 1968 : pp. 275–303.</ref> – no "quick-fix" or panacea for the problems of bureaucracy.
*According to Mandel, "the bureaucracy" is a purely parasitic social caste, which has usurped the power to rule over society; it has no productive function at all, it is only "ballast" for society. Thus, if the bureaucracy is wiped out through a political revolution, the bureaucrats would not be missed and society would be better off.<ref>Ernest Mandel, "Why the Soviet bureaucracy is not a new ruling class",
in: ''Monthly Review'' (New York) Vol. 31, 1979, No. 3, pp. 63–76.</ref> This interpretation is difficult to sustain in reality, since the bureaucrats performed essential managerial, organizing, development, service and coordination functions.
*Democratic decisions are not necessarily any better-made or more efficient, than bureaucratic or entrepreneurial ones; at most, democracy allows for errors to be corrected more easily, and permits bad managers to be ousted more easily, instead of bad managers becoming entrenched in positions of power.
*The real issue is not ''democracy'' as such, but the specifics of democratic procedures, mechanisms and organizational forms.<ref>Claus Offe, "Democracy in crisis: two and a half theories about the operation of democratic capitalism." ''Open Democracy'' (online), 9 July 2012.[http://www.opendemocracy.net/claus-offe/democracy-in-crisis-two-and-half-theories-about-operation-of-democratic-capitalism]</ref>
*Mandel misunderstands the core idea of communism, which is to change the way human beings relate and are related, so that they can all have good lives in a cooperative commonwealth.
*Economists have made many arguments along the lines that inefficiency in the Soviet economy resulted precisely from the lack of any clear relationship between pricing and economic value (in the sense of true economic cost).

[[Biography:Charles Bettelheim|Charles Bettelheim]] complained that Mandel lacked a "dialectical synthesis", because, in a somewhat Cartesian way, Mandel tried "to deal with the complex reality of the transitional society by means of the simplest and most abstract categories of "pure" and fully developed socialist society."<ref>[[Biography:Charles Bettelheim|Charles Bettelheim]], ''The transition to socialist society''. Hassocks, Sussex: Harvester Press, 1975, p. 150.</ref> Other critics think the problem is rather different: it is that almost all Marxists have created a theoretical dichotomy between "market economy" and "planned economy", suggesting that ''either'' there is market anarchy, ''or else'' a planned, non-market economy.<ref>Diane Elson, "Market socialism or socialization of the market?" in: ''New Left Review'' I/172, November–December 1988, pp. 1–44.[http://www.newleftreview.org/?view=424]</ref> In the real world, such a dichotomy rarely exists—almost all economists agree that planning and markets are ''compatible''; in fact they usually depend on each other.<ref>[[Biography:Michael Hudson (economist)|Michael Hudson]], "A planned economy for the 1%". Interview in ''The Real News'', 26 February 2012.[http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=7949]</ref> According to Peter Frase, "The Market has been so mystified by its apologists that we no longer recognize a planned economy when we see it."<ref>Peter Frase, "The Market as a plan". ''Jacobin'' magazine (New York), 1 January 2012.[http://jacobinmag.com/blog/2012/01/the-market-as-plan/]</ref>

=== Che Guevara ===
In socialist Cuba, [[Biography:Che Guevara|Che Guevara]] adopted the view that if more resources were directly allocated to satisfy human needs, instead of commercially supplied, a better life for people would result.<ref group="note">See, for more information, Helen Yaffe, ''Che Guevara: The Economics of Revolution''. Palgrave Macmillan, 2009.</ref> Guevara organised an interesting conference at which the theoretical issues were debated.<ref>Bertram Silverman, ''Man and Socialism in Cuba; The Great Debate''. New York: Atheneum, 1971.</ref> At that time, Cuba benefited from plentiful subsidies by Eastern bloc countries, principally the [[Place:Soviet Union|Soviet Union]], which compensated for the US trade boycott against Cuba. However, the Cuban Government defaulted on most of its international debt in 1986, reducing its access to foreign credit, and from 1989 the support of the Eastern Bloc disappeared, causing a steep decline in the Cuban national product. The Cuban economy was thereafter sustained to a large extent with foreign tourism, foreign remittances, foreign counter-trade and joint-ventures with foreign companies. In recent years, there have been a number of pro-market reforms, and attempts to reduce state-bureaucratic regulation.<ref>Marc Frank, "Cuba plans massive shift to "non-state" sector". Reuters press release, 23 April 2012.[https://www.reuters.com/article/us-cuba-economy-idUSBRE83M19Y20120423] Nicholas Ward, "In Cuba will new rules mean new markets?". ''Financial Post'' (Don Mills, Ontario), 20 March 2012.[http://business.financialpost.com/2012/03/20/in-cuba-will-new-rules-mean-new-markets/]</ref> The modal standard of living and quality of life in Cuba is still among the best in Central and Latin America.<ref group="note">The United Nations [[Engineering:Human Development Index|Human Development Index]] for 2011 ranked Cuba at #51 out of 173 countries (in the top 30% of countries). This ranking was surpassed by Chile at #44, Argentina at #45, and Uruguay at #48.</ref>

=== New Left ===
Generally, the Western [[Social:New Left|New Left]] adopted the idea that true [[Social:Socialism|socialism]] would involve the abolition of the law of value, since [[Finance:Production (economics)|commodity production]] would be abolished – goods and services would be allocated according to need, and primarily according to non-market principles. This recalled an idea by [[Biography:Nikolai Bukharin|Nikolai Bukharin]] and Yevgeni Preobrazhensky in ''The ABC of Communism'' (1920):
{{Quotation|The communist method of production presupposes ... that production is not for the market, but for use. Under communism, it is no longer the individual manufacturer or the individual peasant who produces; the work of production is effected by the gigantic cooperative as a whole. In consequence of this change, we no longer have commodities, but only products. These products are not exchanged one for another; they are neither bought nor sold. They are simply stored in the communal warehouses, and are subsequently delivered to those who need them. In such conditions, money will no longer be required.<ref>[[Biography:Nikolai Bukharin|Nikolai Bukharin]] and Yevgeni Preobrazhensky, ''The ABC of Communism''. Penguin Books, 1969, chapter 3, §&nbsp;20.[http://www.marxists.org/archive/bukharin/works/1920/abc/03.htm#020]</ref> }}

=== John Weeks ===
John Weeks has argued that the law of value is unique to an economy based on the [[Finance:Capitalist mode of production (Marxist theory)|capitalist mode of production]].<ref>John Weeks, ''Capital and exploitation''. Princeton: Princeton University Press, 1981.[http://jweeks.org/]</ref> He rejects the claim by Engels that the law of value is associated with the entire history of economic exchange (trade), and modified when the vast majority of inputs and outputs of production have become marketed, priced commodities. Marx himself said that the law of value "develops fully only on the foundation of capitalist production", implying that the law of value already asserted itself ''before'' capitalist production, although not fully.<ref name="vol1" />{{rp|1038}}{{psc|date=April 2013}} Indeed, in a criticism of Adam Smith, Marx specifically refers to the law of value governing "simple commodity exchange"—the point being that this law is transformed in capitalist exchange where "more labour is exchanged for less labour (from the labourer’s standpoint), less labour is exchanged for more labour (from the capitalist’s standpoint)".<ref>[[Biography:Karl Marx|Karl Marx]], ''Theories of surplus value'', chapter 3, section 4.[http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch03.htm#s7].</ref>

Other Marxists (including [[Biography:Ernest Mandel|Ernest Mandel]], Michael Perelman and the Japanese scholar [[Biography:Kozo Uno|Kozo Uno]]) followed Marx and Engels in believing that the law of value emerges and develops from simple exchange based on simple commodity production.<ref>Ernest Mandel, ''Marxist Economic Theory''. Monthly Review Press, 1969; Kozo Uno, ''Principles of Political Economy''. Harvester Press, 1980.</ref>{{refn|group="note"|Marx himself states: "Apart from the way in which the law of value governs prices and their movement, it is also quite apposite to view the values of commodities not only as theoretically prior to the [[Finance:Prices of production|prices of production]], but also as historically prior to them. This applies to those conditions in which the means of production belong to the worker, and this condition is to be found, in both the ancient and the modern world., among peasant proprietors and handicraftsmen who work for themselves. This agrees, moreover, with the opinion which we have expressed previously, viz. that the development of products into commodities arises from the exchange between different communities, and not between the members of one and the same community." – Karl Marx<ref name="vol3" />{{rp|277–78}} In ''Theories of Surplus Value'', chapter 3, section 4, Marx argues that [[Biography:Adam Smith|Adam Smith]] failed to understand how the law of value applying to simple commodity exchange was "turned into its opposite" in capitalist exchange.[http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch03.htm#s4]}} If the law of value was unique to capitalism, it becomes impossible to explain the development of pre-capitalist commodity exchange or the evolution of trading processes in a way consistent with [[Philosophy:Historical materialism|historical materialism]] and Marx's theory of value. So a better approach, it is argued, is to regard the application of the law of value as being modified in the course of the expansion of trade and markets, including more and more of production in the circuit of capital. In that case, a specific society must be investigated to discover the regulating role that the law of value plays in economic exchange.

=== Heinz Dieterich's equivalence economy ===
In contemporary Venezuela, the German socialist economist Heinz Dieterich has argued{{citation needed|date=April 2013}} that the production and distribution of products should occur in accordance with their true labour costs, as shown by special macro-economic labour accounts estimating how much work-time products take to make (in [[Social:Socialism of the 21st century|socialism of the 21st century]] this is called "equivalence economy"). The idea here is that people "get even" when they get just as much work back, as they put in themselves.{{citation needed|date=April 2013}}

However, this argument is very controversial. Its critics{{who|date=April 2013}} claim equivalence economy is practically impossible, and some{{who|date=April 2013}} indeed point to Marx's rejection in the ''[[Philosophy:Grundrisse|Grundrisse]]'' of the "time-chit" theory of allocating goods proposed by 18th and 19th century utopian socialists such as John Francis Bray and John Gray.<ref group="note">See Marx, ''[[Philosophy:Grundrisse|Grundrisse]]'', chapter 2 [http://www.marxists.org/archive/marx/works/1857/grundrisse/ch02.htm]. In ''Capital, Volume I'', Marx states: "I have elsewhere discussed exhaustively the shallow utopianism of the idea of 'labour-money' in a society founded on the production of commodities". (Penguin ed., p. 188). see also: Alfredo Saad-Filho, "Labour, money and 'labour-money: a review of Marx's critique of John Gray's monetary analysis'", ''History of political economy'', Vol. 25, issue 1, 1993, pp. 65–84.</ref> On this view, Dieterich at most shows that the allocation of goods according to commercial principles is ''only one method'' of allocating resources; other methods such as sharing, redistribution, subsidization, barter, grants and direct allocation according to need may often serve the interest of fairness, [[Physics:Efficiency|efficiency]] and [[Social:Social justice|social justice]] better, provided that people accept a common ethic about what is best for all, if they can see that adopting such an ethic has good results. Thus, while integrated labour accounts are certainly useful to have as a planning tool, allocating resources according to the labour-time they represent is most likely not useful as a general economic principle (it could be useful in specific areas of activity).

One feasible alternative to Dieterich's labour-equivalents is a new type of digital credit system, in which people gain or lose credits (and therefore gain or lose access to resources) depending on what they verifiably do, and on what age they are. This alternative has not yet been very popular among socialist theorists,{{citation needed|date=April 2013}} because generations of socialists have been educated in the idea that socialism aims to abolish monetary instruments, and because the idea seems to many to be too close to "social-democratic subsidization" or "funny money" [[Philosophy:Social credit|social credit]] theories. Nevertheless, monetary transactions in modern capitalism are increasingly only digital credits and debits, the technology exists to make transactions by mobile phone, and more than 90% of all money in developed capitalist countries is bank money, not cash or cash deposits.<ref>"Almost all of the money in a contemporary economy consists of the liabilities of financial institutions. In the eurozone, for example, currency in circulation is just 9 per cent of broad money (M3)." – Martin Wolf, "Intolerable choices for the eurozone". ''Financial Times'', 31 May 2011 (in the US, it is about 7%; in 1960 according to Federal Reserve data series, it was about 50%)</ref>

=== Ongoing debate ===
The international debate is still continuing.<ref>Jayati Ghosh, "The Emerging Left in the "Emerging" World". Ralph Miliband Lecture on the Future of the Left, London School of Economics, London, U.K., 28 May 2012. ''MR Zine'', 26 June 2012.[http://mrzine.monthlyreview.org/2012/ghosh260612.html] Among the 9 unsolved questions of Marxism which [[Biography:Perry Anderson|Perry Anderson]] named in ''Considerations of Western Marxism'' (London: New Left Books, 1976, p. 121) were "How can established systems of bureaucratic privilege and oppression be attacked and abolished? What would be the structure of an authentic socialist democracy?". Although the number of Marxist academics proliferated, none of the 9 questions was really solved.</ref> How progressive the Soviet Union really was is still being debated even today, for example by Bob Allen in his book ''Farm to factory.''<ref>Robert C. Allen, ''Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution''. Princeton University Press, 2009. See also Wendy Carlin, Mark Schaffer & Paul Seabright, "Soviet power plus electrification: what is the long-run legacy of communism?" [http://paulseabright.com/wp-content/uploads/2012/05/Carlin-Schaffer-Seabright-Legacy-2012-subm-CEPR-DP-sp-115.pdf]</ref> For some socialist economists, the socialist economy is an end in itself, for others it is only a means to an end. Some socialist theorists (such as Paul W. Cockshott) are ''monothetic theorists'': they wish the whole of the economy to be dominated by one economic principle, such as labour-value, or a few basic economic principles. Other socialist theorists (like Alec Nove) are ''pluralist theorists'', believing that the economy functions best if there is a variety of different systems for producing/distributing different kinds of products and services, using a variety of property forms.

Historical research is being done on the commons, often inspired by [[Biography:Elinor Ostrom|Elinor Ostrom]].<ref>Amy R. Poteete, Marco A. Janssen, and [[Biography:Elinor Ostrom|Elinor Ostrom]], ''Working together; Collective action, the Commons and Multiple Methods in Practice''. Princeton University Press, 2010. Tine de Moor, "What do we have in common? A comparative framework for old and new literature on the commons". ''International Review of Social History'', Volume 57 Part 2, August 2012.</ref> This is an attempt to understand empirically how people were able to manage land use collectively for 500 years or more, without significant state support or supervision.<ref group="note">In 2014, the ''Review of Radical Political Economics'' features a special issue on the commons.</ref> A frequent complaint in the discussion is that socialists, like their liberal and conservative counterparts, confuse an ethical principle of resource allocation (the "why") with the economic technique of resource allocation (the "how") – the result being an economic policy in which the means and the ends are confused.{{citation needed|date=April 2013}}

In almost any society, market and non-market methods of allocating resources are in practice ''combined'',<ref>Costas Lapavitsas, "Commodities and Gifts: Why Commodities Represent More than Market Relations". ''Science & Society'', Vol 68, # 1, Spring 2004.</ref> which is acknowledged in official [[Finance:National accounts|national accounts]] by the inclusion of market and non-market sectors. The real question for economists is how the two can be combined to achieve the best economic result for citizens, and what the effect is of market and non-market methods on each other.<ref group="note">See e.g. the works of János Kornai.</ref> This can be a highly politicized and contentious dispute, since the chosen methods can advantage some and disadvantage others; it is very difficult to devise allocation methods which distribute the gains and losses of economic policy in an equal or equitable way among all economic actors.

Typically, pro-capitalist theorists{{who|date=April 2013}} argue that "[[Finance:There is no alternative|there is no alternative]] to the market", and the anti-capitalists{{who|date=April 2013}} argue that markets ''could not even exist'' without many non-market mechanisms and supports (i.e. marketisation merely shifts the burden of unpaid work effort onto someone else).{{citation needed|date=April 2013}} Almost all modern economies are "mixed economies" meaning that they combine market allocation of resources with non-market allocation, in various ways. That is why the modern economic controversies are almost always about the relative importance which different kinds of allocation mechanisms should have.<ref>Carmelo Mesa-Lago, ''Market, socialist and mixed economies. Comparative policy and performance – Chile, Cuba and Costa Rica''. Baltimore: Johns Hopkins University Press, 2003.[http://www.mesa-lago.com/]</ref> This debate is, of course, very strongly influenced by the income which the different economic actors can get, if particular economic policies are realized.

== Criticism ==
Traditionally, criticism of Marx's law of value has been of three kinds, i.e. conceptual, logical and empirical.

=== Conceptual criticism ===
The conceptual criticism concerns the concept of value itself.

For Marx, economic value in capitalist society was an objectified social characteristic of labour-products, exchanged in an economic community, given the physical reality that products took a definite amount of society's labour-time to produce, for a given demand. A product had a value, regardless of what any particular person might think about it, priced or unpriced (see [[Finance:Value-form|value-form]]). Marx regarded the law of value as analogous to an objective [[Physical law|physical law]], since people could never escape from the fact that the products they consumed presupposed an objective cost in human labour time. Critics however argue that economic value is something purely [[Finance:Subjective theory of value|subjective]], i.e. a personal valuation determined by personal preferences and [[Finance:Marginal utility|marginal utility]]; only prices are objective.<ref>Simon Clarke, ''Marx, Marginalism and Modern Sociology: From Adam Smith to Max Weber.'' Palgrave Macmillan, 1991.</ref> One of the first Marx-critics to argue this was the Austrian Eugen Böhm von Bawerk.<ref>Eugen von Böhm-Bawerk, ''Karl Marx and the close of his system, followed by Bohm Bawerk's criticism of Marx, by Rudolf Hilferding''. Porcupine Press, 1984.[https://mises.org/books/karlmarx.pdf]</ref> Marx himself never denied that subjective valuations existed, but argued rather that they ''co-existed'' with objective values which were ultimately not determined by  preferences but by real production costs.

In the real world, many prices are not "objectively manifest" either—they are only [[Finance:Real prices and ideal prices|ideal prices]] used for the purpose of calculation, accounting and estimation, not actually charged or applying directly to any real transaction.<ref>"Every trader knows, that he is far from having turned his goods into money, when he has expressed their value in a price or in imaginary money, and that it does not require the least bit of real gold, to estimate in that metal millions of pounds' worth of goods. When, therefore, money serves as a measure of value, it is employed only as imaginary or ideal money. This circumstance has given rise to the wildest theories." – Marx, ''Capital Vol. 1'', ch 3, section 1. [http://www.marxists.org/archive/marx/works/1867-c1/ch03.htm#S2a]</ref> Yet, these notional prices can nevertheless influence economic behaviour, inasmuch as the prices estimated affect expectations of incomes and expenditures.  Economists then debate about when a price can be said to be "objective".

Marx argues that products have different objective costs of production, reducible to different amounts of labour-time. Against this view, one could also argue that the physical amounts of ''comparable resources'' (such as energy, land, water, etc.), necessary to manufacture a car, are much larger than resources necessary for growing a carrot, explaining why the cost (and, hence, minimal price) of a car is larger than the cost of a carrot. In other words, it is the total input costs (including costs of labour), not the amount of labour per se, which create the difference in costs (and, therefore minimal equilibrium prices) of the goods. However, Marx argues in the first chapters of ''Das Kapital'' that most of such costs (i.e. insofar as they refer to reproducible goods) are again reducible to direct and indirect costs in human labour time. When we see a car, we do not see the worldwide cooperation of labour-efforts that produced it at a certain cost,<ref>Barry Park, "States of origin: where cars come from". ''Drive'' (Sydney), 7 April 2012.[http://news.drive.com.au/drive/motor-feature/states-of-origin-where-cars-come-from-20120405-1wdps.html] {{Webarchive|url=https://web.archive.org/web/20120626092931/http://news.drive.com.au/drive/motor-feature/states-of-origin-where-cars-come-from-20120405-1wdps.html |date=2012-06-26 }}</ref> yet those labour efforts, weighed against other labour efforts, determine its value.

Austrian economics explicitly rejects the ''objectivity'' of the values of goods as logically and conceptually unsound. On this view, we cannot validly say that products took a certain amount of labour, energy and materials to make, and compare them on that basis. It follows that the Austrian School thinks most contemporary economic theory is invalid, as it relies in one way or another on the aggregation and comparison of actual and ideal prices. This is forcefully argued by Friedrich von Hayek who therefore was skeptical about the objectivity of [[Finance:Macroeconomics|macroeconomic]] aggregations as such.<ref>Friedrich von Hayek, ''Individualism and economic order''. London: Routledge, 1948. Andrew Gamble, ''Hayek: the iron cage of liberty.'' Westview Press, 1996, p. 67-68.</ref> However, this raises the question of "what is the explanatory power of Austrian economics", if all we can say about a realized price is that it expresses a subjective preference, given that there are billions of subjective preferences which are all different.<ref>See further e.g. Bruce Caldwell, ''Hayek's Challenge: an intellectual biography of F.A. Hayek.'' University of Chicago Press, 2004, part 3.</ref>

Ecologists and environmentalists have criticized Marx on the ground that natural resources have (or should have) a value which has nothing to do with production costs in labour time, because in fact they are entropic ''non-reproducible'' goods.<ref>See e.g. Harry Rothman, ''Murderous providence; a study of pollution in industrial societies''. London: R. Hart-Davis, 1972; Elmar Altvater, ''Gesellschaftliche Produktion und ökonomische Rationalität – Externe Effekte und zentrale Planung im Wirtschaftssystem des Sozialismus.'' Frankfurt: EVA, 1969; Barry Commoner, ''The closing circle : confronting the environmental crisis''. London: Cape, 1972; Andre Gorz, ''Ecology as Politics''. South End Press, 1979.</ref> However, Marx himself never denied this; he was merely referring to the ''bourgeois'' valuation scheme, originating from commercial trade, [[Finance:Double-entry bookkeeping|double-entry bookkeeping]], private property theory and the theory of prices.<ref>Ernest Mandel, "La dialectique de la croissance: à propos du rapport Mansholt". In: Mai (Bruxelles), 1972 (Nov./Dec.): pp.&nbsp;7–14. Translated as "Marxismus und Ekologie" in: Ernest Mandel, ''Karl Marx: die Aktualität seines Werkes'', ed. Willy Boepple. Cologne: ISP verlag, 1984.</ref> Precisely ''because'' natural resources were for a long time either non-reproducible or freely available goods (i.e. not reproducible commodities) the whole tendency in the market economy was for those resources to be ''plundered'' for private gain, rather than economized appropriately.<ref>John Bellamy Foster, ''Marx's Ecology: Materialism and Nature''. Monthly Review Press, 2000.</ref> Their "value" became apparent only when they became scarce.

Ecologists also note that Marxist theories of value caused large-scale environmental problems in the industrialization of the [[Place:Soviet Union|Soviet Union]],<ref>Boris Komarov, ''The Destruction of Nature in the Soviet Union''. Pluto Press, 1980</ref> {{wipe|China}}<ref>Vaclav Smil, ''China's Environmental Crisis: An Inquiry into the Limits of National Development''. M.E. Sharpe, 1982; Judith Shapiro, ''Mao's War against Nature: Politics and the Environment in Revolutionary China''. Cambridge University Press, 2001.</ref> and other countries ruled by communist parties; thus, whether or not an economy is a market economy or a state economy does not seem to make much difference, the problem is rather with the values of human cultures themselves or with industrialization processes as such. This more complex debate<ref>For some thoughtful insights into the current controversies, see: Daniel Ben-Ami, ''Ferraris for all: in defence of progress''. Polity Press, 2010 [http://danielbenami.com/]; [[Biography:George Monbiot|George Monbiot]], ''Heat: How to Stop the Planet Burning''. Allen Lane, 2006. [http://www.monbiot.com/] Richard Smith, "Green capitalism: the god that failed". ''Real-world economics review'', issue no. 56, March 2011.[http://www.paecon.net/PAEReview/]</ref> cannot be dealt with in this article; it may be noted only that newly industrializing countries to a large extent ''imitated'' technical methods used in industrialized countries, and that Marx can hardly be held responsible for all the things done in his name—he had explicitly referred to problems of environmental despoilation quite a number of times, including in ''Das Kapital''.<ref>Karl Marx, ''Capital, Volume I'', chapter 15 section 10.[http://www.marxists.org/archive/marx/works/1867-c1/ch15.htm#S3a] In ''The German Ideology'' (1845), Marx and Engels commented that "In the development of productive forces there comes a stage when productive forces and means of intercourse are brought into being, which, under the existing relationships, only cause mischief, and are no longer forces of production but forces of destruction (machinery and money)". [http://www.marxists.org/archive/marx/works/1845/german-ideology/ch01d.htm#d1)])</ref> He never dealt systematically with socialist economics, amongst other things because he lacked an evidential basis for theorizing about that.<ref>See further, Alec Nove, ''The economics of feasible socialism'', 2nd ed. Harper Collins, 1991; Makoto Itoh, ''Political Economy of Socialism''. New York: St Martins Press, 1995.</ref>

=== Logical criticism ===
The logical criticism revolves around the idea that Marx is unable to reconcile the domain of value relations and the domain of price relations, showing exactly how value ''magnitudes'' correspond to price ''magnitudes''.

Various arguments are made to show that Marx's theory of value is ''logically'' incoherent. The most famous of these is the controversy about Marx's [[Finance:Prices of production|prices of production]], sometimes called the [[Finance:Transformation problem|transformation problem]] in which it is argued that total output value must equal total output production prices, and total profits must equal total surplus value, so that the distributions of particular output values and output prices can then be ''inferred'' from each other, via mathematical functions and a tidy accounting sum, assuming the same rate of profit on capital invested by all sectors.<ref>See, for this interpretation, Maurice Dobb, ''Theories of value and distribution since Adam Smith''. Cambridge University Press, 1973, p. 159).</ref> However, it cannot be proved, whether logically or empirically, that the total output value is equivalent to total output production prices, or, for that matter, that total profit equals total surplus-value. On that ground alone, many critics argue, there is already no proof that there is any necessary quantitative relationship between them (Marx simply assumes that relationship, but does not prove it).<ref>Paul A. Samuelson, "Understanding the Marxian Notion of Exploitation: A Summary of the So-Called Transformation Problem Between Marxian Values and Competitive Prices". In: ''Journal of Economic Literature'', Vol. 9, No. 2, 1971, p. 400.</ref> If that is so, then, the critics argue, there is no sense in which the Marxian product-values can ''explain'' market prices for products as the ''determinants'' of those prices. An additional problem discovered in mathematical modelling is that the assumption of the identity of total production prices and total values (or the identity of total surplus value and total profits) cannot be maintained simultaneously with the assumption that the rate of profit on production capital is ''the same'' for all industries—to create a consistent theory requires making additional assumptions.<ref>The debate is usually considered to have begun in earnest with an article by Ladislaus von Bortkiewicz, "Wertrechnung und Preisrechnung im Marxschen System", in:  1906/7, ''[[Social:Archiv für Sozialwissenschaft und Sozialpolitik|Archiv für Sozialwissenschaft und Sozialpolitik]]'', [[:File:Bortkiewicz.1906.pdf|XXIII-1 (1906) pp. 1–50]], [[:File:Bortkiewicz.1907a.pdf|XXV-1 (1907) pp. 10–51]], [[:File:Bortkiewicz.1907b.pdf|XXV-2 (1907) pp. 445–488]]. This article was translated into English in 1952 as "Value and Price in the Marxian System", ''International Economic Papers'', no. 2, 1952.[http://classiques.uqac.ca/classiques/Bortkiewicz_ladislaus_von/value_and_price_marxian_system/value_price_marxian_system.pdf] A fairly readable exposition of the transformation problem controversy is provided e.g. in M.C. Howard & J.E. King, ''The political economy of Marx'', Longman, 1975, chapter 5, or in Ronald L. Meek, ''Smith, Marx and after: ten essays in the development of economic thought.'' London: Chapman & Hall, 1977, chapters 5, 6, 7.  However, there exists no book which reviews ''all'' the transformation problem literature. A brief overview is provided online in Gérard Duménil and Duncan Foley, "The Marxian Transformation Problem."
[http://www.jourdan.ens.fr/~levy/dfo2006b.pdf] {{Webarchive|url=https://web.archive.org/web/20110814003846/http://www.jourdan.ens.fr/~levy/dfo2006b.pdf |date=2011-08-14 }}</ref>

Although this is often overlooked by economists<ref>Participants in the "transformation problem" controversy assumed the necessity of a uniform rate of profit, while the followers of Moshe Machover and Emmanuel Farjoun (more correctly) argued that a uniform rate of profit had never existed.[http://sites.google.com/site/iwright/probabilisticpoliticaleconomy]. But no one in the debate clearly posed the question of ''why'' Marx had assumed the same rate of profit for all industries, even when he himself indicated in several places in ''Capital Vol. 3'' that there are continuously ''differentials'' in industrial profit rates.</ref> Marx himself used a uniform rate of profit for all industries in ''Capital Vol. 3'' ''only'' for modelling purposes, to show in a simple way how the ruling profit rates on capital impacted on the development of production system, and he explicitly ''denied'' that a uniform rate of profit obtained in reality;<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', Penguin ed., p. 490.</ref> he only argued that at any time there would exist an average "''minimum acceptable''" profit rate on capital invested in industries, and if there was no realistic possibility at all of reaching at least that profit rate sometime in the future, capital would very likely be disinvested after a while, since the relevant business would then simply lack commercial viability; alternatively, the business would be taken over, and restructured to restore an acceptable profit rate. This minimum profit rate applying to new investments is closely linked to the ''ruling interest rates'' applicable to producing enterprises.<ref>Anwar Shaikh, "Crisis and distribution", ''New School Economic Review'', Volume 4(1), 2010, pp. 72-76, at p. 72. [http://newschooljournal.com/files/NSER04/NSER4-1_shaikh-72-76.pdf] See also Carlo Panico, ''Interest and profit in the theories of value and distribution'', introd. John Eatwell. London: Macmillan Press, 1988.</ref> Marx's "general rate of profit" specifically represents the "minimum profit rate" on capital, below which the producers, in the normal run of events, cannot stay in business for long.<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', chapter 22, Penguin ed., p. 490.</ref> It is ''neither'' an empirical average of many profit rates, ''nor'' merely a theoretical ratio, but a real systemic constraint.

Marx and Engels explicitly denied that ''in reality'' total product-value would be equal to the total of production prices (see [[Finance:Prices of production|prices of production]]). Such an "accounting identity" was ruled out in the real world by continual variations in labour productivity and because, at any time, no competitive force existed that could exactly cancel out the difference between goods sold above value and goods sold below value.<ref>See e.g. chapter 49 in ''Capital Vol. 3'', p. 972. See also Engels's letter to Conrad Schmidt dated March 12, 1895.</ref> It was also ruled out by the imperfections of the price-form itself, which, the fetishization of price statistics notwithstanding, permitted the expression of product-values only in an approximate way (see [[Finance:Real prices and ideal prices|real prices and ideal prices]]). At best—Marx assumed—there was a reasonably close correspondence between total product-value and total production prices.<ref>Marx, Capital, Volume III, Penguin ed., p. 261.</ref> He believed economic fluctuations implied that if some products were sold below their value, this necessarily meant that other products were sold above their value, and vice versa.<ref>Karl Marx, ''Notes on Adolph Wagner's “Lehrbuch der politischen Ökonomie” (Second Edition), Volume I, 1879''.[http://www.marxists.org/archive/marx/works/1881/01/wagner.htm]</ref>
The divergence between total product-values and total production prices on the whole was, Marx believed, probably not so very large, in an open, competitive market within the domestic economy, where enormous price-value discrepancies were ordinarily impossible to maintain commercially for any length of time.<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', Penguin edition 1981, chapter 49, p. 971.</ref>

A measuring unit of value can exist only as a ''theoretical'' entity (or as an ideal price comparable to an empirical price) which is also exactly how Marx used it in his simplified illustrations of value relationships. He simply uses a number for the value-quantity and another number for the price-quantity, to indicate a proportion. Empirically, one can only get as far as establishing a "grand average" for the price of an hour of work (this is often referred to in Marxian economics as the "monetary equivalent of labour time", or MELT) and one can discuss the extent to which labour is undervalued or overvalued in a ''relative'' (comparative) sense.<ref>See: Simon Mohun and Roberto Veneziani, "The Temporal Single-System Interpretation: Underestimation and Inconsistency", ''Marxism 21'', Vol. 6 No. 3, 2009, pp. 277–99.</ref> This interpretation is not accepted by all Marxist scholars, because—the critics argue—all price-value differentials among different outputs are ''necessarily'' and ''by definition'' cancelled out at the aggregate level, not just in an assumed theoretical model, but in reality. They point to passages where Marx suggests that the sum of product-values must be equal to the sum of production prices, implying that there can never be more new product-value or less product-value than is expressed by the sum total of output production prices.<ref>Compare [[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', Penguin ed., p. 259 and p. 273.</ref> If they argue that equality does not hold, then there cannot be any determinate quantitative relationship between production prices and product-values.

Product-''values'' in Marx's sense quite simply ''cannot'' be directly observed, only ''inferred'' from the actual behaviour of trading relations.<ref>Karl Marx, ''Capital, Volume III''. Penguin, 1981, p. 134.</ref> In that regard, Marx's concept of ""value" has exactly the same status as the official category of "value added" (which is an inferred magnitude). Product-values manifest themselves and can only be ''expressed'' as trading ratios, (ideal) prices, or quantities of labour-time, and therefore the academic "transformation controversy" is according to many modern Marxist theorists ''misguided''; it rests simply on a false interpretation of the relationship between the [[Finance:Value-form|value-form]] of commodities and the [[Finance:Real prices and ideal prices|price-form]].<ref>Alan Freeman "Marx without equilibrium" (July 1995)MPRA Paper No. 1207, posted November 2007.[http://mpra.ub.uni-muenchen.de/1207/1/MPRA_paper_1207.pdf]</ref> What Marx really meant by the "transformation" was that the direct regulation of the exchange-value of commodities according to their labour-value is, in a capitalist mode of production, transformed into the regulation of the exchange of commodities by their [[Finance:Prices of production|production prices]]—reflecting the fact, that the supply of commodities in capitalist society has become conditional on the accumulation of capital, and therefore on profit margins ("no profit, no sale"). As soon as we admit that product-prices may fluctuate above or below the socially average product-values for all kinds of reasons—a central determinant of market dynamics—the quantitative relationship between product-values and product-prices is at best ''probabilistic'', not a fixed function of some type.<ref>Emmanuel Farjoun & Moshe Machover, ''The Laws of Chaos''. London: Verso, 1983.[http://staffnet.kingston.ac.uk/~ku32530/PPE/fm.pdf]{{dead link|date=February 2020 |bot=InternetArchiveBot |fix-attempted=yes }}</ref><ref>See further: Ian Wright, "Implicit Microfoundations for Macroeconomics". ''Economics: The open access, open-assessment e-journal'', Vol. 3, No. 19, May 11, 2009.[http://www.economics-ejournal.org/economics/journalarticles/2009-19]</ref> The structure of Marx's argument in ''Capital Vol. 3'' is that there is a constant ''contradiction'' in capitalism between the inescapable labour-costs incurred to produce products, and the laws of price competition which create pressure to maximize the return on capital invested—a contradiction which must constantly be mediated in practice, bringing about the "real movement" of the production system (ideally, capitalists would prefer just to trade assets without the nuisance and trouble of hiring labor, but the assets have to be ''produced'', that production requires ''labor'', and therefore that labor has to be ''organized'' in a commercially effective way).<ref>Steven Mufson and Jia Lynn Yang, "Capital gains tax rates benefiting wealthy feed growing gap between rich and poor", in: ''Washington Post'', 12 September 2011.</ref>

The only way to transcend the scientific "arbitrariness" to which the young Marx already referred, was by understanding and theorizing the dynamics of the capitalist system ''as a whole'', integrating all the different economic forces at work into a unified, coherent theory that could withstand the test of scientific criticism.<ref>Karl Marx, ''Capital, Volume III'', Penguin ed., chapter 1, p. 117.</ref> Thus, Marx's value ''theory'' offers an interpretation, generalisation or explanation concerning the "grand averages" of the relative price movements of products, and of economic behaviour in capitalist production as a social system, but it is not possible to deduce specific real product-prices from product-values according to some mathematical function, among other things because, to find labour-values, a relationship between product-prices and labour hours worked must already be assumed. What we ''can'' verify is as follows:
*How systems of exchange have functioned in history.
*To what extent production-costs and the ruling profit rates actually determine market prices for products.
*The relationship between hours worked and outputs produced.
*Whether the capitalist production system does indeed evolve historically in the way predicted by value theory.<ref>See e.g. Willi Semmler, ''Competition, Monopoly, and Differential Profit Rates; On the Relevance of the Classical and Marxian Theories of Production Prices for Modern Industrial and Corporate Pricing''. Columbia University Press, 1984.</ref>

=== Empirical criticism ===
The empirical criticism is that Marx's law of value contradicts the known facts about the allocation of resources in capitalist society.

The main empirical criticism is simply that there is no observable quantitative correspondence at all between changes in relative expenditures of labour-time, and changes in relative market prices of products, however measured (the measures are also contested, for example on the ground that qualitatively different kinds of labour cannot be compared and equated).<ref>Shane Mage, "The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy". Phd Thesis, Columbia University, 1963 (available from Scribd). See further: Anwar Shaikh, The Empirical Strength of the Labor Theory of Value. In: Riccardo Bellofiore (ed.), ''Conference Proceedings of Marxian Economics: A Centenary Appraisal''. London: Macmillan, 1998 {{cite web|url=http://homepage.newschool.edu/~AShaikh/labthvalue.pdf |title=Archived copy |access-date=2010-04-25 |url-status=dead |archive-url=https://web.archive.org/web/20091002214656/http://homepage.newschool.edu/~AShaikh/labthvalue.pdf |archive-date=2009-10-02 }}; a classic study is Anwar Shaikh & Ergutul Tonak, ''Measuring the Wealth of Nations: The Political Economy of National Accounts''. Cambridge University Press, 1994.</ref> Most critics have tried to refute Marx's theory with a mathematical model, rather than looking at real data to see if the capitalist economy really behaves in the way Marx claims it does.<ref>See e.g. Anwar Shaikh, "Neo-Ricardian economics: a wealth of algebra, a poverty of theory". In: ''Review of radical political economics'', Vol. 14 no. 2, 1982.[http://homepage.newschool.edu/~AShaikh/Neo%20ricardian%20Economics,%20A%20Wealth%20of%20Algebra,%20A%20poverty%20Theo.pdf] {{Webarchive|url=https://web.archive.org/web/20111129161625/http://homepage.newschool.edu/~AShaikh/Neo%20ricardian%20Economics,%20A%20Wealth%20of%20Algebra,%20A%20poverty%20Theo.pdf |date=2011-11-29 }} Shaikh and his students subsequently developed a number of empirical tests of Marx's theory of value.</ref>

A recent empirical criticism has to do with what Marxists call "[[Finance:Financialization|financialization]]".<ref>See e.g. by John Bellamy Foster, "The financialization of capitalism"". ''Monthly Review'', Vol. 58, issue 11, April 2007 [http://monthlyreview.org/2007/04/01/the-financialization-of-capitalism];"The Financialization of Accumulation". ''Monthly Review'', Vol. 62, issue 5, October 2010 [http://monthlyreview.org/2010/10/01/the-financialization-of-accumulation]; "The Financialization of Capital and the Crisis." ''Monthly Review'', Vol. 59, issue 11, April 2008 [http://monthlyreview.org/2008/04/01/the-financialization-of-capital-and-the-crisis].</ref> In developed capitalist economies, the majority of workers and capital assets no longer directly participate in the production of new commodities by private enterprise. Many workers work in service industries which manage, maintain or distribute already existing resources. That is the result of two centuries of industrialization and mechanization in developed capitalist countries (plus outsourcing to newly industrializing economies). The bulk of capital assets in developed capitalist countries are not physical means of production used by private enterprise to create new commodities; they are financial assets, real estate and other types of property not used for production. This means that human labour is no longer regarded as the mainspring of wealth-creation, and it raises the question of how the law of value could, in that case, be a regulative force in the allocation of resources, or how it could determine prices. According to Professor [[Biography:Hillel Ticktin|Hillel Ticktin]]:
{{Quotation|We see the constant tendency to replace the law of value with [[Social:Business administration|administration]], resulting in increasing [[Organization:Bureaucracy|bureaucracy]], both private and public, [[Philosophy:Managerialism|managerialism]] and a tendency to [[Social:Authoritarianism|authoritarianism]].<ref>[[Biography:Hillel Ticktin|Hillel Ticktin]], "The theory of decline and capital", ''Weekly Worker'' (Communist Party of Great Britain), issue 595, 6 October 2005.</ref> }}
This issue has not yet been resolved, because there is little scientific agreement about how the "real economy" (producing goods and services) and the "financial economy" (trading property and assets) are related to each other,<ref>For more information, see Willi Semmler, ''Asset Prices, Booms and Recessions: Financial Economics from a Dynamic Perspective'', 2nd edition. Springer, 2006; Jan Toporowski, ''Theories of financial disturbance''. Edward Elgar, 2005.</ref>  or how the "developed world" is related economically to the "developing world". Because "globalization" can mean almost anything, it does not explain anything about the world economy.<ref>David Chandler, ''Hollow Hegemony: Rethinking Global Politics, Power and Resistance''. London: Pluto Press, 2009.</ref> Additionally, although Marxists have written many articles in which they very precisely try to classify [[Finance:Productive and unproductive labour|productive and unproductive labour]], there has been no comprehensive organizational analysis of the modern [[Social:Division of labour|division of labour]], or a critical analysis of the statistical categories used to understand it.<ref>See, however, Christian Girschner, ''Die Dienstleistungsgesellschaft. Zur Kritik einer fixen Idee.'' Köln: PapyRossa Verlag, 2003.</ref>

== Responses to criticism ==
These three lines of criticism lead the critics to the conclusion that Marx's law of value is [[Philosophy:Metaphysics|metaphysical]] and theoretically useless.

Austrian economics goes a step further by attributing no special objective meaning to price levels at all, which it considers a mere "statistical outcome" of comparisons between each party's ratios between the value of money (taken to be just another kind of a good) to values of goods being sold or purchased. The prices, therefore, are ''knowledge'', which may (or may not) influence behaviour of economic agents differently ''in each particular case''. However, it can be argued{{who|date=July 2012}} that this approach is inconsistent, insofar as nothing in their theory entitles the Austrians to aggregate prices at all; ''because'' each price expresses a unique subjective preference, adding up prices is like adding up apples and pears; each price refers to a unique set of circumstances. If the Austrians are correct, there can really be nothing "objective" about the "statistical outcome"—it is merely an interpretation based on numerous valuation assumptions.

Marx himself thought that the concept of value was necessary to explain the historical origins, the development and mode of functioning of capitalism as a social system, under conditions where traded, priced assets were only a subset of total assets possessing a potential exchange-value. Short-term price fluctuations could not say anything about the long-term development of the capitalist production system; that required an analysis of the determinants of long-term average price movements, and ''structural'' factors. According to primitive economics, all prices are of the ''same kind'' and differ only quantitatively; they only express more or less money, and can only go up or down.<ref>John Authers, "Why 'efficient markets' collapse", video interview with [[Biography:Benoit Mandelbrot|Benoit Mandelbrot]], in: ''[[Social:Financial Times|Financial Times]]'' website, 30 September 2009.</ref> For Marx, this idea was not only false, but totally absurd, since different kinds of prices can assume different valuation principles, contractual obligations, conditionalities, inclusions/exclusions as well as relationships between economic actors. Different kinds of prices express different kinds of trading relationships. Marx noted that the forms prices take are highly ''variegated'', and he drew a sharp distinction between [[Finance:Real prices and ideal prices|real prices and ideal prices]].<ref>[http://www.marxists.org/archive/marx/works/1867-c1/ch03.htm#S2a Marx, ''Capital Vol. 1'', ch 3, section 1]</ref> That is why businessmen assumed a theory of value, even if they were not aware that they were doing it. The ''scientific theory'' merely made explicit what they were implicitly assuming for the purpose of doing business.<ref>Howard Nicholas, ''Marx's theory of price and its modern rivals''. London: Palgrave Macmillan, 2011.</ref>

The economists ''assumed'' all sorts of things about an economy and economic actors, in order to build models of price behaviour; Marx thought ''those assumptions themselves'' needed to be looked at and theorised consistently, based on insight into the historical formation of economic categories.  However, his critics claim that his own approach has hidden assumptions as well, and that these assumptions contradict [[Philosophy:Praxeology|praxeology]]. Marx anticipated this criticism, which he regarded as very shallow.<ref>Letter of Karl Marx to Ludwig Kugelmann, London, 11 July 1868 (MECW, Volume 43, p. 67).[http://www.marxists.org/archive/marx/works/1868/letters/68_07_11.htm]</ref> In his pamphlet ''Wages, price and profit'' (1865), Marx argues that the way economic relationships observably appear to the individual is often the inverse of the real process, considered as a whole.<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', Penguin ed., Part 7, pp. 953ff.</ref> It is perfectly possible not only to participate in market trade without much knowledge of markets and their overall effects, but also to participate in markets with a ''false'' or ''one-sided'' interpretation of what is really going on in the exchanges. After all, the participants in trading activity all have their own interest in the matter, and look at it from their own point of view. In this sense, Marx warns that market trade can stimulate all sorts of delusions about what relationships are really involved.<ref>[[Biography:Karl Marx|Karl Marx]], ''Capital, Volume III'', Penguin ed., chapter 48, pp. 965-970.</ref> Marx also argued that if one could not explain the simplest cases of an economic phenomenon, one could not explain all its variations either; in fact, one could not explain anything at all.<ref>[[Biography:Karl Marx|Karl Marx]], ''Value, Price and Profit'', section 6.[http://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c10]</ref>

Marxists often assumed that Marx provided a theoretical system of what they call "the totality" (the whole economy, or the whole of society).<ref>Martin Jay, ''Marxism and totality : the adventures of a concept from Lukács to Habermas''. Cambridge: Polity Press, 1984.</ref> In reality, Marx only aimed to portray the essence of capital, by means of a study of the [[Finance:Capitalist mode of production (Marxist theory)|capitalist mode of production]] in Western Europe (using illustrations from English industry). According to [[Philosophy:Historical materialism|historical materialism]], production is the basis of society, and Marx analyzed that basis. Marxists have also often assumed wrongly that Marx's abstract theory can be applied ''directly'' and ''immediately'' to observable reality. Yet Marx's historical and logical analysis of economic forms is often an ''abstraction from'' observable reality. It is an analysis which only aims to define the ''essence'' of economic phenomena (i.e. what their true or overall significance is), based on a critical inspection of the evidence. Thus, Marx often offers only a ''simplified'' or ''idealized'' account of economic phenomena. The largest part of Marx's economic writings was never published in his lifetime, and was never prepared for publication by Marx himself. The ideology of "Marxism" was formed already long before all the facts and all the texts became available, which meant that Marx the man, his life and his work were frequently interpreted in a false way.

== See also ==
*[[Philosophy:Abstract labour and concrete labour|Abstract labour and concrete labour]]
*[[Finance:Capital accumulation|Capital accumulation]]
*[[Finance:Cambridge capital controversy|Cambridge capital controversy]]
*[[Finance:Cost-of-production theory of value|Cost-of-production theory of value]]
*[[Philosophy:Critique of political economy|Critique of political economy]]
*[[Finance:Criticisms of the labour theory of value|Criticisms of the labour theory of value]]
*[[Finance:Marxian economics|Marxian economics]]
*[[Finance:Primitive accumulation of capital|Primitive accumulation of capital]]
*[[Finance:Socially necessary labour time|Socially necessary labour time]]
*[[Finance:Use value|Use value]]
*[[Finance:Valorisation|Valorisation]]
*[[Finance:Value-form|Value-form]]

== Notes ==
{{reflist|group="note"}}

== References ==
{{reflist}}


[[Category:Theory of value (economics)]]
[[Category:Marxian economics]]

{{Sourceattribution|Law of value}}