Marx vs. Bawerk: Labor Theory of Prices

As early as 1847, Marx wrote that prices were determined on a microeconomic scale by the everyday interaction of supply and demand. Böhm von Bawerk criticized Marx’s analysis on the grounds that products cannot exchange in proportion to their values if there is such a thing as a general rate of profit.  He was right, but this was exactly the point that Marx was making. The brilliance of Marx’s model consisted in showing how an advanced system based on production for exchange would inevitably diverge from the premises of simple commodity production. “The transformation of values into prices of production serves to obscure the basis for determining value itself,” as he wrote. Marx did not predict that individual prices would express labor values, but that individual prices would diverge further and further from labor values as capitalism developed. The purpose of labor theory is not to allow us to predict the prices of individual commodities, but to understand how a system of value production inevitably collapses.1


  1. Reynolds, Ben. The Coming Revolution: Capitalism in the 21st Century (Kindle Locations 1510-1520). John Hunt Publishing. Kindle Edition.

10 thoughts on “Marx vs. Bawerk: Labor Theory of Prices

  1. Note quite: “…[I]n volume 1…[Marx] maintains that surplus value is created by labor
    alone; in volume 3, however, he shows how the specificity of value as a
    form of wealth and the specificity of the labor that constitutes it, are
    veiled. Marx begins by noting that the profit accruing to an individual
    capital unit is not, in fact, identical to the surplus value generated by the
    labor it commands. He attempts to explain this by arguing that surplus
    value is a category of the social whole which is distributed among
    individual capitals according to their relative shares of the total social
    capital. This means that on the level of immediate experience, however,
    the profit of an individual capital unit indeed is a function not of labor
    alone (“variable capital”) but of total capital forwarded…hence, on an
    immediately empirical level, the unique features of value as a form of
    wealth and social mediation constituted by labor alone are hidden.”

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    • Point taken, but the point above is not your point: “Marx did not predict that individual prices would express labor values, but that individual prices would diverge further and further from labor values as capitalism developed.” – which is the point of agreement with Marx against Bawerk, nothing more. I wasn’t trying to explicate the intricacies of Marx’s theory of value, only this one point. 🙂

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  2. In your post you noted that, “Marx did not predict that individual prices would express labor values, but that individual prices would diverge further and further from labor values as capitalism developed. The purpose of labor theory is not to allow us to predict the prices of individual commodities, but to understand how a system of value production inevitably collapses.”

    That makes sense to me. What I’ve been wondering is whether it is possible to preserve markets on a small scale. In other words, if we sort of “un-develop” capitalism by democratizing industries and infrastructure then can markets work for artisans, small towns, and small businesses? I don’t see this as saving capitalism so much as it would be preserving markets (on a small scale), and the reason I like small-scale markets is that they really do seem to give individuals, artisans, and communities the opportunity to make free and creative choices, without feeling that there is a Big Other out there, somewhere, controling and manipulating all of the details of our lives.

    I appreciated Seth Ackerman’s article, The Red and The Black, a few years back in Jacobin. He seems to be coming from a similar place. He notes that Communist nations with planned economies were able to get the prices rights. As the Soviet Union was collapsing, researchers were noting that the Communist bureaucrats had actually succeeded with their price calculation models. Ackerman suggests that central planning wasn’t the problem. It wasn’t so much about the numbers because planned economies could get the prices right:

    “But beyond that, the system ran into trouble. Here a prefatory note is in order: Because the neoliberal Right has habit of measuring a society’s success by the abundance of its consumer goods, the radical left is prone to slip into a posture of denying this sort of thing is politically relevant at all. This is a mistake. The problem with full supermarket shelves is that they’re not enough — not that they’re unwelcome or trivial. The citizens of Communist countries experienced the paucity, shoddiness and uniformity of their goods not merely as inconveniences; they experienced them as violations of their basic rights. As an anthropologist of Communist Hungary writes, “goods of state-socialist production . . . came to be seen as evidence of the failure of a state-socialist-generated modernity, but more importantly, of the regime’s negligent and even ‘inhumane’ treatment of its subjects.”

    “In fact, the shabbiness of consumer supply was popularly felt as a betrayal of the humanistic mission of socialism itself. A historian of East Germany quotes the petitions that ordinary consumers addressed to the state: “It really is not in the spirit of the human being as the center of socialist society when I have to save up for years for a Trabant and then cannot use my car for more than a year because of a shortage of spare parts!” said one. Another wrote: “When you read in the socialist press ‘maximal satisfaction of the needs of the people and so on’ and … ‘everything for the benefit of the people,’ it makes me feel sick.” In different countries and languages across Eastern Europe, citizens used almost identical expressions to evoke the image of substandard goods being “thrown at” them.”

    Link: https://jacobinmag.com/2012/12/the-red-and-the-black

    I’m curious as to your thoughts and responses.

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    • Yea, Utopian at best… let’s face it capitalism is built of growth and accumulation…. that’s the thing that leads to crisis. We’re running out of territory unless we expand into space industry, which seems the direction that entrepreneur capitalists are going. What you’re suggesting is what many Anarchists in the past have done already… think – Bookchin, Black, others… markets without capitalism wouldn’t work unless capitalism is dismantled or fails… it’s the world system and encompasses everything at the moment, and no amount of wishful thinking is going to change the power structures of the various States that bolster this beast up. Even China and Russian in their own way are bolstering it up to their own benefit. So we either expand into space or we will probably be facing a world war in the next twenty years if not sooner… that’s how they sacrifice all that accumulated capital and the out of work proles… happened in WWII and will happen again if the fascist trends continue.

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      • Capitalism in the 21st century faces three major contradictions, each of which might be significant enough on its own to cause its collapse. Capitalism accumulates wealth by exploiting labor, but it is making labor increasingly obsolete (think of all the advances in robotics, automation, AGI, etc.). Capitalism requires monopolistic control of the means of production by one class, but it is creating a new distributed digital production paradigm that will permanently erode monopoly production. Finally, capitalism requires infinite growth, but we live on a finite planet ( so unless we expand off-planet we will play out an end game war for the remaining scarce resources – think of rare metals that support the whole digital economy… China controls 90% of that industry on earth… a monopoly.). We are witnessing the simultaneous development and intensification of each of these contradictions. I do not believe that they can be resolved within the capitalist framework. Therefore, the collapse of capitalism within the 21st century is very likely.

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      • I must not be expressing myself very clearly, because that’s not really where I’m coming from. I agree with everything you just said about capitalism, especially when you say that capitalism’s contradictions can’t be resolved within a capitalist framework, “framework” being your word, and I think that’s well put. I agree, but what I am thinking through is whether markets can be employed on a small scale by artisans and small businesses within a socialist framework. Employing markets, in this scenario, is not for the purpose of building wealth for shareholders, it’s in the service of human creativity and self-determination.

        Within a socialist framework, workers control capital, not capitalists. Capitalism is a system where capital is controlled by the few in a hierarchy of control where violence is the underlying basis of this concentration of power.

        Your post was about value, which is why I commented. If capital is no longer concentrated in the hands of the few, does this open up the possibility for markets to operate in a way where value would reflect reality in a more true way, reflecting fair distribution to labor and to society and where ecological costs factor into value?

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      • Theoretically, yes… but your very question is just that: theory… pragmatically, as with the failure of communism in the past century, delivering on such a theory requires a great sea change in bottom-up activist and proletarian revolt and change that I just don’t see happening anywhere on this fucking planet. So we can talk theory all day long from an academic or any other form, but until we act on such theory we’re just spinning Utopian dreams in the sky. So, yea, Capitalism is based on privilege and plutocrats, oligarchs, and an elite corps of scientific, academic, and engineering (social and technological) relations that have a lock down on the real movement of change in the world.

        I know I myself love to dream of such change, of taking out of the hands of these capitalists the concentration of money and power and handing it back to the people. Forget labor… the point of the socialist message is to do away with labor, which does not mean we will not work: it means that the privileged few will no longer extract profit from the living labor. Until we do away with this system of exploitation it’s just silly to speak of anything else. Marx taught us to push capital to the end game of full automation, only then would the capitalist fail through the sheer idiocy that the contradiction of capitalism requires living labor and surplus value. Full automation and the reduction of living labor will drive profits down to zero so that the game of capital will end its own life through its very success.

        What we do after will entail a complete revolution not only in economics but in our very notions of what it means to be social creatures, because we in the west – and, I mean radical leftists forget about all those others who do not share our vision of life in countries around the world. So a complete revisioning of religious and secular systems of value will be central to any transformation or revaluation-of-values going forward. Much of the discourses surrounding the critiques of humanism: the post-human, non-human, and inhuman discourses currently vying for a voice in academic philosophy and socio-cultural theory and praxis is at the center of such leftist thought. The human animal produced this mess, and we will have to clean it up… do we have the guts or not? All this abstract talk is fine, but action still speaks louder than all the books we can muster. I’m sixty-seven years old so my time is about over. All I have to offer is my experience and thought, nothing else… No single human has all the answers: only the combined distributed power of our collective intelligence working on this issue can resolve it. But we must act now rather than to continue talking and talking and talking…. and I just don’t see that happening, anywhere, period! Do you?

        Don’t get me wrong: I agree with exactly what you said above, but how to get there from here… how to convince the majority of workers and proles of the world whose religious ideologies, secular ideologies, and psychological forms of thought and life so drastically differ from most of us radical leftists? How to change the message, to overcome the inertia of our social, political, and spiritual baggage associated with the totalitarian use of Marx in the failed states of communist Russia and China of the last century. So much misunderstanding and misuse of history. We need to start with education – to re-educate the very core of our own radical leftist vision of life, politics, and culture. It has to start with the long view back and a deep critical gaze upon our failures so that we can learn from our mistakes. Unless we can accept our failures, how will we ever begin again to create a viable path forward?

        Look around… the EU is an Economic Dictatorship where democracy and capitalism have severed their relations, America has turned inward toward authoritarianism and protectionism under Trump – the rise of anti-intellectualism, affective politics, and strong arm tactics spells a new fascist ideology arising, and with the rise of China as the new economic power in the East we are on a collision course with a greater war than the first two over resources and territorial rights. America is failing in both leadership and economics, our politics is so polarized that we cannot bridge the gap between Left/Right to get anything done in the real world. We are poised for a deadly era of war, famine, and disease the likes of which humans cannot fathom. And, yet, I believe we can and will need to create a vanguard of workers and intellectuals to begin this accelerating process of revaluation of all values on the planet or human kind will enter a new dark age…. sadly there is no other option. Act or go down… climate change, massive economic and political instability, and the psychopathic authoritarianism we see in the EU, Russia, China, and America are spelling disaster ahead… What can be done? (Lenin)

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  3. You note that “…we must act now rather than to continue talking and talking and talking…. and I just don’t see that happening, anywhere, period! Do you?”

    I tend to think that we aren’t talking enough, especially here in the United States. I’m 40, and the level of political ignorance in the U.S. continues to astound me.

    Human language and communication is difficult and has always required time and patience and care, which few Americans engage in, at least not seriously. Most just want to get by: dashing around in their cars with the radios playing songs they hardly listen to, working jobs they hate to buy shit they don’t need. What leisure time they have tends to be devoted to various forms of consumer escapism, to supress the resulting emptiness from a pointless and futile form of life.

    Consumer capitalism has created people with extreme disconnects between themselves and their bodies, their neighbors, and their world. It’s the logical outworking of capitalism, of course, and that’s why I’m skeptical of your template for allowing capitalism to work itself out to full automation and “resolve” its contradictions by way of completely destroying itself. I think the end game of those who hold power within a capitalist system is power, pure power, power for power’s sake.

    The logic of capitalism is death and destruction, this means to body, mind, spirit, and to the earth. Just because capitalism comes to an end doesn’t mean that rulers will not continue to rule, probably with even greater brutality and cruelty. In such a world, revolution will likely be even more difficult since it will be based on the will to power. Will the human masses find the ability to revolt in such a world? Will they have opportunity? And if they do, what will be left of the world?

    You asked….”How to change the message, to overcome the inertia of our social, political, and spiritual baggage associated with the totalitarian use of Marx in the failed states of communist Russia and China of the last century. So much misunderstanding and misuse of history. We need to start with education – to re-educate the very core of our own radical leftist vision of life, politics, and culture. It has to start with the long view back and a deep critical gaze upon our failures so that we can learn from our mistakes. Unless we can accept our failures, how will we ever begin again to create a viable path forward?”

    I think we need more conversations, greater awareness. The damage is deep and it is wide. It is deep in the psyche of the individual and spreads across our entire society, permeating all areas of culture and thought. I agree that action must occur. Talking, in itself, is not enough, but the level of ignorance and the immense degree that people are disconnected from their bodies and their world and from others will require a great awakening. I see the stirrings of this. Things that I would have thought of as radical to say a decade ago are on the table for discussion among regular folks. That’s certainly true among young people.

    I’m not meaning to create a dichotomy between action and talk/thought/contemplation. Quite the contrary.

    I’m not convinced that there is a template for what will happen next. That’s where I tend to become unconvinced in certain Hegelian or Maxist circles. History, in my view, is not predictable. I speculate, like everyone else. It’s fun and it’s useful. But I’m not banking on any template, Marxist or not. I try to do what I can, as a writer and as an activist in my community. I try to see opportunity and take advantage of it. I’ll take whatever progress I can get — incremental or reformative or revolutionary — and if progress comes, I’ll keep working for more. If it doesn’t come, or if we regress, then it’s the same: I go back to work. The future is not mine to control.

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    • I hope your right… but for me being a pessimist in search of hope (optimism) I doubt conversation per se will ever obviate this error prone and ignorant animal homo politicos… ‘raise awareness’… in whom? The average citizen, the activist, the intellectual tribe, the capitalist…. we do not need more awareness… take a gander at your local library or Amazon.com’s books … you see an thousand and one x ten thousands conversations repeating the same basic patterns in variations of a them… we’re fucked, and we’re beginning to realize it. Yes, we are aware, more than aware… but awareness will not change one thing, period… actions, goes the cliché, speak louder than words… when will we, my friend, begin to act rather than speak? Tell me that… either way been good to have feedback in this lonely stretch of blogsville 🙂

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      • Don’t confuse access to information with awareness. It’s possible to be ignorant while floating through vast oceans of information…..Where I see awareness is among the young, and as I said, it’s only the beginnings, just a little glimmer, really. DSA (the activist organization I am active in) membership is increasing exponentially, Black Lives Matter challenged all Democratic candidates in 2016, and young women are fed up with sexual abuse that targets them. It’s the stirrings. I’m not trying to convince you to be any less pessimistic. Your pessimism is justified. It’s just that I don’t personally think much in terms of “optimism” or “pessimism” because I don’t really see the point, one way or the other. As Jesus said, “each day has enough trouble of its own,” so I take each day, one at a time, without worrying too much about the future. There’s plenty of work to be done, and I guess I just feel like, for me, “optimism” and “pessimism” can distort my perception if I sink too deep into them.

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