Commentary on Political Economy

Tuesday 1 November 2011

Socialism, Keynesianism and the Law of Value

The labor theory of value confirms and consolidates the centrality of “labor” to social life, especially under the capitalist mode of production, in a number of ways that are essential to understanding the origin, development and (what we are now witnessing) the final collapse of Social Democracy in Europe first and then around the world. The first is that “labor” provides the only source of social wealth outside of “natural use values” that cannot be produced such as land, air and water. The second is that “labor”, through the “division of labor”, provides “the social synthesis” – the inter esse, the “com-unitas”, the social unity and cohesion that is needed for economic industrial production and its co-ordination to take place. A third way is that “labor” offers the most equitable and fair and just as well as efficient principle of “distribution” of the total “value” or “wealth” produced in a society.

And this is the point where “socialist” parties depart from Classical Political Economy with its strict adherence to the belief that “the market mechanism”, the Law of Supply and Demand, is the best way to distribute the “gross domestic product” (or GDP). It is the “socialist” belief that the market mechanism is really the essence of capitalism in that it distributes the social wealth (value) produced by “labor” according to the market mechanism that works through “prices” that allow capitalists to extract a “surplus value” from workers and their “labor power” – a “surplus value” (Marx) or a “monopolistic mark-up” (Kalecki to Minsky) that in turn is the basis for, first, the “inequality and injustice” of distribution and, second, for the “anarchy” of the capitalist market.

It is this “anarchy” that “Socialism” attacks, as does Keynesianism. Behind the Keynesian notions of “uncertainty”, of “rational spirits”, of aggregate and effective demand, of “debt-deflation” – behind above all the Rooseveltian notion “nothing to fear but fear itself” – lies precisely this apprehension and analysis of “market failure” due NOT to the antagonism of the wage relation, but simply due to “the lack of co-ordination” of the capitalist market system, to the “excesses” of “casino capitalism” (Keynes’s “beauty contest”), due to the “greed” of individual capitalists (Keynes’s “auri sacra fames”)!

In other words, Socialists and Keynesians agree as to the “rationality” of the capitalist system of production founded on the wage relation – on the “exchange” of living labor with dead labor in the form of the money-wage – and merely seek “to bridge” the inevitable “gap”, the “hiatus” constituted by “money” (which Keynes defined as “a bridge between the present and the future”), by bringing the two entities – money and labor – into closer “correspondence” so that money and finance correspond to the “correct” amount of labor that is contained in “industrial output” and so that market prices correspond to the “correct values” of the goods produced according to “consumer demand.

The “anarchy of capitalism” consists for Socialists and Keynesians in this: - that the “profit-seeking” decisions of capitalists through their “monopolistic mark-ups” constitute a distortion of the true labor value or content of production, causing thereby a “distortion” in the “pricing” of goods such that there results an “involuntary unemployment” of human and physical productive resources (“output”). This “distortion” is reflected in Okun’s Law regarding the “gap” between “potential” industrial output and employment.

This parenthesis on the Labor Theory of Value was needed as a preface to our discussion of the Neoclassical Revolution, to which we will turn soon.

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