Twigs and branches

I have a pet argument that is the Labour Theory of Value, in particular the no-ricardian/classic version of it (that is the version that takes the LTV as a price equilibrium model, not as an assertion about the existence of some entity that we call labour value separated from prices).

I recently came to think to this example, that I believe explains EVERYTHING about the LTV, the univers, the purpose of life, and capitalism:

In world A, everybody is a farmer, but all the land is owned by a few landowners. Worker 1 works a field and produces 10$ a day, and is paid 5$, the remaining 5 dollars go to the landowner; worker 2 works a slightly worse field and produces 9$, he still gets 5$, the owner only ges 4$, and so on, until we get to worker M who works a field that produces 5$, M gets 5$, the owner gets 0$ and therefore will not employ any other worker.
M is the famous marginal worker, every workers gets its marginal product (that is, M’s output), total profits depend on the difference between marginal productivity and average productivity.
In world A, there is a clearly defined full employment situation, that is when the last worker has a productivity so low as to just cover his/her wage.
But all this depends on the assumption that workers work with worse and worse pieces of land (this is actually Ricardo’s theory of land rent); worker’s falling productivity actually depend on capital’s falling productivity.

In world B, instead, everyone works at a shoemaking factory. Since it is possible to produce any number of equal factories, worker 1 produces 10$ of shoes and gets 5$ in wages, worker 2 again produces 10$ and gets 5$, and so on, and the profit share is allways the same. However, as new shoe factories are built and unemployment falls, workers become uppity and start asking for more, so that at some point all workers will ask for 6$, then all workers will ask for 7$ (thus reducing profits from 5$ to 4$ to 3$ per workers). At some point capitalist stop investing becuse they see their profits falling instead than rising, but as investiment in new factories was an integral part of demand, their profits actually fall even more, triggering a recession; this goees on util the economy reaches some sort of bottom, stall for a bit, and then the cycle repeats when some enterpreneurial guy chooses to invest again.
In world B, as the capital goods do not have a falling productivity, workers also do not have a falling productivity, and therefore it is impossible to determine worker’s marginal productivity: there is no worker M.
Therefore, there isn’t a clearly defined full employment situation either , but just a cycle of booms and busts (one could notionally argue that “full employment” is when workers get 10$ and capitalists get 0$, but obviously this doesn’t make sense in a capitalist economy).

Does our world look more like world A or like world B? In my opinion much more like world B.

The contention of the LTV/neo-ricardian/classic guys is that in the economic models currently in use, the economy is assumed to work like in world A (so with a falling productivity and therefore a clearly defined full emplyment and a Worker M), and then, since in reality the economy has booms and busts, keynesian economics is grafted over this model to justify the booms and busts. But hen there is a problem because some assumption of keynesian economics contradict the assumption of the underlying model (the so called microfundations problem).
In other words, the microfundation problem is just the same problem of the Cambridge capital controversy, it’s a problem caused from the assumption that we live in world A, whereas we live in world B; the technical details of the microfundations and capital controversies are very complex but, at the bottom, the root is very simple.

So, what has this to do with the LTV?
Basically if we live in world B we cannot distinguish between labour productivity and capital productivity, we have a total output of 10$ of which some will go to the worker and some to the capitalist, but not due to some techinical limit but just because of social constraints (e.g. the level of unemployment).
In world A instead there is a cclearly defined point (worker M) that determines what is the worker’s share, there fore we can say that if worker 3 on lot 3 has an output of 8$ of potatoes, 5$ are produced by the worker and the other 3$ by the lot.

But if we cannot determine how much productivity is the worker’s and how much is capital’s, all that we get is that the market will push the workers in those field where their productivity is higer until ideally all workers have the same productivity, thus leading to the LTV equilibrium (in the simple form, pricse will tend to be directly proportional to the amount of labor used in production, in the complex form there is a part of fixed capital so that there will be multipliers that depend on capital intensity, following Sraffa these multipliers also depend on the wage share so this is a pain, but still the wage share is the independent variable and the multipliers the dependent one).

I’m sure this comment will enlighten everyone!

The subtitle to Production of Commodities by Means of Commodities is Prelude to a Critique of Economic Theory. It seems to me the target was marginal analysis. General equilibrium theory as a description/justification of what is, rather than an analysis of what is required for the stability of reproduction and (or?) the optimal performance of the market, wasn’t, I think. Also, absolute rent I suspect is a useful way of looking at the real world.

But overall, Sraffa ends with a hint it’s all about interest rates after devising a standard commodity (with essentially the average capital/labor composition, the whole economy epitomized in a single product that is perfectly representative,) suggests to me something of a dead end. As in, is the standard commodity any more calculable than the marginal revenue product?

In other news, Erik Loomis at Lawyers Guns and Money tells us that the anti-vote campaigns of today are rooted in the Northern white liberals after the Civil War, as demonstrated by Jamelle Bouie. Loomis quotes Bouie, including, “The introduction of the secret ballot and the polling booth made voting less communal and put an additional premium on literacy — if you couldn’t read the ballot, and if no one was allowed to assist, then how were you supposed to make a choice?” Loomis is a vociferous supporter of Critical Race Theory. The view that the secret ballot was a white liberal plot (prompted by endemic white racism, it appears,) against people of color is presumably therefore a good example of Critical Race Theory. The current political implications of the discovery that white liberals are the problem are obvious.

@steven t johnson

There is no point in calculating the standard commodity, as you say it’s basically just an averaged commodity that Sraffa uses because, in his model, a change in the wage share causes a change in the relative prices of commodities, but in order to write the model he needed a notional unit of measure.

Ultimately after all the math is done, the difference between Sraffa/LTV/classic model on the one hand and the orthodox/marginalist model on the other is that in the first the wage share is free floating, in the second there is a supposed correct, natural and optimal wage share, but this is based on the hidden assumption of some sort of declining productivity of capital (that makes sense for land but not for other forms of capital).

The paradox is that most people assume that the LTV is the more rigid and restrictive model (why would prices be proportional to labor) but in reality it is the orthodox theory that is a special case of the LTV, the more restrictive model, and the LTV the more general one.

For example, there are various studies that show that there is actually an highish correlation between prices and labor used in production, but this can’t prove the orthodox theory wrong because this would happen also in the orthodox model. This is because at the root the orthodox model is the LTV + assumption of falling capital productivity + unrealistic assumption of full employment where the last worker eats all the output of the last, least productive chunk of capital.

This at least at best of my understanding.

On MisterMr – it’s obvious that determining the contribution of any single worker – or even group of workers, or the ‘marginal product of labour’ in any complex system of production is impossible. We only talk of these things because economic ideology demands it. In fact, labour share is negotiated based on custom, social position (higher level people have to paid more – otherwise how would anyone know they were higher?) and social muscle. The same is true for quantity theories of money – but as several economists have noted, economics is outstanding as a field in its ability to persist in error.

steven t johnson’s misreading of Eric’s post is remarkable both for its failure of comprehension and its lack of charity.

and I always wonder now:
what is the difference between telling the Germans lies about ‘the jews’ or telling Americans lies about ‘the scientists’?

steven johnson@3: You quote an article in Lawyers Guns and Money by Eric Loomis. On looking it up, I found that it was written by Scott Lemieux. Are there any significant differences between the two?

Re the Jake Gibson/Peter T spasms? The proposition that the secret ballot was a scheme to disenfranchise people of color is not the hill to die on. It is inconceivable how it is trolling to point out this is an extraordinarily obtuse thing to say. The secret ballot was and is a reform, not a white conspiracy. I can’t imagine why anyone would care to defend this.

As to the alleged misreading of Erik Loomis’ post, I must suggest that the one who read closely enough to spell Loomis’ name correctly got it right. It is equally of course that it is a magnificent failure of charity to blame me for Loomis’ misreading of Bouie. It is also a particularly funny one, given that Loomis actively prides himself on his willingness to savage humanity, in general and in particular.

@ Peter T 7
I agree, but the problem is that this concept is implicit in the economic models that in turn are (more or less) used to make economic policy.

@Gorgonzola Petrovna 12
The way Marx (and other old pro-capitalism economist) use the LTV, it is just a different economic equilibrium model, and is supposed to represent how capitalism works, not values in an abstract sense.
Then some other people have used the concept of labor value also in the sense you use, but it is not the original meaning of the term. This happened when marginalist become predominant, so people who were marxist said “ok, Karl used a theory that is now considered unscientific, but in some abstract moral sense we can still think of labor value representing something”.
I am referring to the LTV used by Marx as an economic model of capitalism, and to the subsequent minority (a very small minority) of eterodox economist that still use it or similar models (like Sraffa, or Anwar Shaikh who is still alive).
Im a big fan of Shaikh , basically.

I agree, but the problem is that this concept is implicit in the economic models that in turn are (more or less) used to make economic policy.

I know little or nothing economic models used to make economic policy. However, if it should be the case that those models rely on concepts which are erroneous or meaningless, the appropriate remedy is not to say ‘Well, we’ll have to treat those concepts as sensible then’, the appropriate remedy is to develop better models not relying on those concepts.

I’ve meant to post this in the CRT threads a few weeks ago but they were all closed, so here I am a bit late for 4th of July:

“Until 1775, most White Americans had resisted parliamentary innovations like the Stamp Act and the tea tax but had shown little interest in independence. Yet when they heard that Blacks had forged an informal alliance with the British, Whites were furious. John H. Norton of Virginia denounced Dunmore’s “Damned, infernal, Diabolical proclamation declaring Freedom to all our Slaves who will join him.” Thomas Paine pronounced the Anglo-African alliance “hellish.” “Our Devil of a Governor goes on at a Devil of a rate indeed,” wrote Virginian Benjamin Harrison, who would later sign the Declaration of Independence.

Whites’ fury at the British for casting their lot with enslaved people drove many to the fateful step of endorsing independence. In his rough draft of the Declaration, Thomas Jefferson listed 25 grievances against George III but devoted three times as many words to one of those grievances as to any other. This was his claim that the king had first imposed enslaved Africans on White Americans and was now encouraging those same enslaved people “to purchase that liberty of which he has deprived them, by murdering the people upon whom he also obtruded them.””
HOW RACISM INFLUENCED THE AMERICAN REVOLUTION, BY ERIK LOOMIS / ON JULY 4, 2021 / AT 11:14 AM (https://www.lawyersgunsmoneyblog.com/2021/07/how-racism-influenced-the-american-revolution)

These are facts. Historical facts documented in written records that we can verify. They nevertheless need interpretation and there is going to be debate and dispute about the interpretation of these facts among historians. What I find find most remarkable about these historical facts is that it is now formally illegal in at least a dozen or so US states for a teacher to bring them up and discuss them during a history lesson.

If you don’t believe this, according to Texas law, teachers can only mention the existence of slavery and racism if they falsely portray them as “deviations from, betrayals of, or failures to live up to, the authentic founding principles of the United States” .
Florida makes it illegal to “define American history as something other than the creation of a new nation based largely on universal principles stated in the Declaration of Independence” .

More about what the crusade against CRT really is about:
“In Sullivan County, Tennessee, Matthew Hawn, a white high school social studies teacher, is facing termination after assigning an essay on President Donald Trump by writer Ta-Nehisi Coates and showing a video of a poetry reading about white privilege that included curse words.”
https://www.lawyersgunsmoneyblog.com/2021/07/cancel-culture-5
https://www.nbcnews.com/news/us-news/critical-race-theory-battles-are-driving-frustrated-exhausted-educators-out-n1273595

No doubt our resident right-wing apologists will explain how this is all the fault of Ibrahim Kendi’s and Robin DiAngelo’s insuficiently nuanced writing and in particular their failure to appreciate that really “every decent person” in America is against racism anyway, now can you please shut up?

@J-D 17

MisterMr, I may be wrong, but I’m guessing that the purpose of your most recent comment was to clarify your meaning for me.

If that was the purpose, it was not achieved. (If it was not the purpose, ignore me, carry on.)

stj 24: I do not actually quote Scott Lemieux, er, Erik Loomis. I quote an article via LGM, but none of the quotes except the title are Loomis’. If you care enough about the LGM blog to hate its authors, you should at least understand the difference between LGM writers’ own words and quotes they have lifted from other writers.

The rest contains a lot of strawmannery. “Reducing the American Revolution solely to the formal declaration of independence is bad history”, sure, but Loomis doesn’t do that (nor myself). And when Loomis writes about “how racism influenced the American revolution” (those are in fact his words), “influence” is not a weasel word, it is a way to express that complex historical processes are usually multicausal and influenced by various, often contradictory forces and interests. That racism played a role in the political development of a society fundamentally based on the displacement and decimation of native communities and the enslavement of black people is so obvious it shouldn’t be controversial at all. Of course it doesn’t monocausally explain everything, duh.

You state correctly that “most teachers are already teaching what the Florida law mandates”, i. e. the distortion of history which has it that America is the home of freedom and democracy and slavery and racism and the decimation of natives and so on are either non-existent or just unimportant side-shows to the real story of American exceptionalism.
Yes of course that is true. It is obvious, all Americans alive have been spoon-fed this sanitized version of history. What is new is the passing of laws that make this historical lie mandatory and threaten teachers that try to challenge it with firing, and the threat is entirely serious as we have already seen.

That such laws are now deemed necessary, whereas in the past it could be safely assumed that American schools are teaching White American greatness, is precisely what the whole CRT controvery is about.

Every front pager at Lawyers Guns and Money endorses the articles they link to, that’s why they link to them.(It’s why skimming LGM is a way of sampling the acceptable opinions and current slogans of a Democratic Party milieu, fairly upscale with pretensions/aspirations to the “left” as seen through the Overton Window this morning.) It is likely that no front pager necessarily agrees with every word, of course. That’s why occasionally one will actually say that, even Farley, who mostly does only links. The others largely quote the parts they like, not the parts they disagree with.

This is all tediously obvious, but Tm requires it, sorry.

As to the specific claims that “influenced” wasn’t a weasel word? That the quote is offered for our delight because it shows the “complex” and “multicausal?” No, the quote reduces all issues to the declaration of independence, which is simplistic, not “complex,” no matter what Tm posts. It pretends to know that no one was thinking independence long before Dunmore’s proclamation, as if there were nothing to fear from calling for independence! That it “knows” that something that came after the revolution was the cause of the revolution, because RACISM! is an absurdity. Folly doesn’t help anyone.

“That racism played a role in the political development of a society fundamentally based on the displacement and decimation of native communities and the enslavement of black people is so obvious it shouldn’t be controversial at all. Of course it doesn’t monocausally explain everything, duh.” The fear of the native communities and the greed for land did indeed requires ideological justification, “racism,” but it was a different kind of “racism” than that required to justify enslavement of Africans. Those were two different projects. Throwing in an “and” doesn’t make them the same thing. (And for that matter anti-Semitism is another kind of project.) And the inability ever to reproduce the class society of the old country was something else too.

It is CRT, which is apparently what this is, that is monocausal, some vast undifferentiated, ahistorical mental phenomenon that is structured into white brains and is the monocause of everything about America, that it’s all and always the product of white agency aimed at the same goal. I suggest that land hunger had something to do with westward expansion and the particular kind of racism directed at justifying that came afterward. That the desire to make money from exporting plantation crops came first and the particular racism meant to justify continued slavery came after. That’s not ignoring racism, it’s just not incompetent history.

It is incompetent history, despite the weasel wording of “influenced” and “many people.” In this particular example, the real role of racism is falsified, I think. (Perhaps deliberately, there’s a lot of blatant dishonesty at LGM I think, not just stupidity.) The South, contrary to the delusions of the author Lemieux, er, Loomis, approves so much, was the place where Loyalists were so strong they could field armies.

Why? Because, despite the real fury at Dunmore—and the disapproval of Black soldiers in the North, too, by the way—in the end, it was a class society with a government strongly committed to defense of property and strong enough to do so successfully, that the planters wanted. That is, the Loyalists thought in the end things would be more of the same with the English. And yes, I believe that we must attribute some of that to the desire to racism, ideas embraced as generalization of their experience as slaveholders.

Last and least, again, every teacher in Florida who wishes to can cite the Declaration of Independence against everything the authors of the law presumably wanted to protect.

@J-D 28

The concept I’m referring to is that at some point the marginal worker’s wage will be equal to his/her’s marginal productivity, and that point is “full employment”, and that the economy naturally tends to reach that point.

I refer back to my first comment, the difference between world A and world B.