Marx's Labour Theory of Value is Superior to Subjective Value Theory

I look forward to some academic discussion, and many hours of brushing up on my economic textbooks! I’ll begin with a brief analysis of this debate and the various sides/theories. Debating academic theories is always tricky when a set of criteria for weighing each theory isn’t present. A simple way to think about these criteria is this: how much of a phenomenon does a theory successfully explain? Think of an apple falling on Newton’s head (I’m modifying this story for my own purposes). An apple falls on Newton’s head (the phenomenon) and he seeks to explain why this is the case and comes up with a few theories. Theory One states that the apple was attracted to his head. Theory Two states that the apple was attracted to the ground. He takes the apple, tosses it in the air, and moves out of the way. Theory One would suggest that the apple would follow his head, while Theory Two would suggest that the apple would fall to the ground. Seeing that the apple falls to the ground, logic would dictate that Newton should prefer Theory Two over Theory One. In this debate, you can imagine this phenomenon to be production, consumption, and the driving force that facilitates what people buy and for how much. Obviously, what the phenomenon is can certainly be a matter of debate in its own right, but I’ll focus on this more simplistic version for now. In doing so, both Pro and Con can measure each theory based on how well this phenomenon is accounted for. With this foundation in mind, let’s first consider the Pro’s position. Pro’s opening remarks about Marx’s Labor Theory of Value (LTV) is more than adequate for explaining the fundamental “mechanics” of how this theory explains the phenomenon of consumption through labor-time driven intrinsic value. There is nothing that I fundamentally disagree with, and will save myself some valuable labor-time by not disputing his analysis. But let’s measure this against the mandate that the Pro set forth in his initial challenge: “My argument in this debate will be that Marx's labour theory of value, as outlined in Capital and elsewhere, is the only valid theory of value, and in particular that it is superior to the theories currently being touted by contemporary advocates of the subjective value theory proposed by the Austrian school… My opponent will need to argue that, contrary to my position, subjective value theory is a superior critico-economic tool, and that Marx's value theory can be proved invalid. ” On the Con, my first responsibility is to measure how well the Pro’s opening arguments satisfies his own mandate for this debate. In short, while I take no issue with Pro’s explanation of LTV, there is no line of argument that establishes how LTV is the only valid theory of value, nor how it’s superior to Subjective Theory of Value (STV). I’m sure the Pro will provide this line of argument in further rounds, but I hope that he is also able to account for one troubling aspect of his mandate without having to significantly alter or abandon his mandate. First off, having to argue that LTV is the “only” valid theory puts quite the burden on the Pro. Given that STV isn’t the only theory on value, eliminating all possible contenders is quite the task. Second, what constitutes a “valid” and “invalid” theory is a tricky thing to define, particularly without the kind of criteria I provide above. Is a theory “valid” if it completely accounts for the phenomenon? Is a theory “invalid” if it fails to account for any part of the phenomenon regardless of how large or small? Why is this a problem? Well, without getting too academic, having ambiguous, undefined terms and ideas like this prevents the Pro from “knowing” when they’ve satisfied their burden. In other words, how can the Pro ever know that LTV has been proven to be “valid” if we don’t understand what the state of being “valid” actually means? More so, how will the Pro know when LTV is successfully the “only” valid theory left standing? LTV vs. STV The big picture of this clash between LTV and STV can be wrapped up in an important question, “What role, if any, does the human mind have in determining the value of something? ” The Labor theory comes from a larger family of theories called the “Intrinsic Theory of Value”. This family defines value as objective. The value of an object is as concrete as the matter that makes up that object. The human mind, and its subjective nature, thus has no influence on this objective value. STV is actually an umbrella term for a variety of theories originating from the works of William Stanley Jevons, Carl Menger, Leon Walras, and others1. These theories share two important concepts1: economic phenomena can only be understood from the actions of individuals since groups can’t act without individual actions; and, this understanding must take into account the subjective preferences, thoughts, and knowledge of these individuals. In other words, economic theories must consider the influence of the individual human mind. Like Newton’s apple, let’s look at a real world example to see which theory may offer a better explanation. Diamonds are highly valuable in today’s market as “rare gems”, and yet as recently as 1930 this wasn’t the case. Other gems such as rubies and sapphires were considered more exotic2. Diamonds were scarce until the second half of the 19th century when South Africa experienced a diamond rush which flooded the market, thus killing demand3. Shortly after this, De Beers solidified its hold on the production side of diamonds through buying and controlling diamond mines and distribution arms3. However, it wasn’t until De Beers brought in advertising agency N. Y. Ayer, that a unique phenomenon occurred: supply of diamonds continued to grow, while demand reversed and grew. How? Four words: “A diamond is forever”. N. Y. Ayer created what is widely considered one of the most successful ad campaigns, and created an increase in sales of 55% in the US alone by 19384. Thus began De Beers’ near century long domination of the diamond industry4. Here we have an example where the labor-time and process of mining diamonds remained fairly the same; the supply of diamonds increased; and the naturally declining demand for diamonds was reversed by an ad campaign. LTV would predict that the value of diamonds would remain consistent since the labor-time remained fairly constant, and yet the outcome is quite different. We also have a real world example that seems to contradict the Pro’s theory that the “law of values forces prices to closely orbit intrinsic values over time”. If this was accurate, then De Beers’ story would be quite different. From this, can we make the claim that LTV is the “only valid theory of value”? Obviously not. In this case, this phenomenon is explained by the influence of human subjectivity: N. Y. Ayer successfully managed to create a unique, subjective value in the minds of many. Karl Popper would argue that this counterexample is reason enough to consider LTV as a falsified theory5, but let’s finish with an overview look at the theory’s shortcomings. To deny the influence of the subjective means that LTV ignores a bigger picture. First, LTV is unable to account for particular outliers or unique cases. Under Marx’s own definition of use-value as material usefulness, LTV can’t even consider a diamond to be a commodity since diamonds offer more of an aesthetic value. In the example of the four factories, LTV can’t allow or predict a case where Factory One can deviate its prices on chairs from the “average labor-time driven market price”, even though this example completely eliminates marketing or consumer demand that would also naturally influence prices (and not just temporarily as the De Beers example demonstrates). Finally, LTV relies on a few assumptions that require further reasoning to be accepted in this debate. First is the assumption that labor is the natural common denominator of intrinsic value. There is no line of reasoning provided by the Pro – other than an underlying appeal to Marx’s authority – that puts labor on the mantel of “common denominator of value”. Second, the Pro simply assumes that labor-time is a satisfactory measurement of intrinsic worth. Once again, the assumption remains unsupported, and more so, seems to ignore the complexities that go into labor: supplies, equipment, experience, outside influences, etc. LTV tries to eliminate these complexities through “average labor-times”, but how are these averages quantitatively determined? STV provides a far superior analytical tool by taking into account subjective demand and marginal supply. It brings into account the possible influence of the subjective, and invites entire branches of psychology, communication, and economic research to contribute to the explanation of the economic phenomena we observe. Finally, it challenges the most fundamental assumption of Intrinsic Value theories: that subjectivity can be escaped. Ending on a point I’m happy to expand on in the following rounds: contemporary STV rests on a bed of research and literature that demonstrate the social, and subjective qualities of our reality6. Perhaps a final question remains: can LTV truly escape the influence of human subjectivity? 1. “An Introduction to Economic Reasoning” by D. Gordon 2. "Twenty Ads that Shook the World" by J. B. Twitchell 3. “The Incredible Story Of How De Beers Created And Lost The Most Powerful Monopoly Ever” by E. GoldShein 4. “Have You Ever Tried to Sell a Diamond? ” by E. J. Epstein 5. “Bias-Free Research” by S. Greenfield 6. “The Social Construction Of The Market” by V. Storr