The
universe of Classical Political Economy, of the Labour Theory of Value and of
the Protestant Work Ethic is still a Newtonian ordered cosmos, a universe of absolute objective dimensions. The world
of Neoclassical Theory is instead the Machian uni-verse of psychological inputs or “sensations” (Empfindungen) that are strictly
metaphysically private and subjective,
and can be rendered social and objective
only by human convention of what remain absolutely private sensations or
estimations. In this regard, Machism and Neoclassical Theory deny all relevance
to “metaphysics” as the positing of a reality that goes beyond what is
immediately perceived by each individual. From this perspective of
“methodological individualism”, given the axiomatic incommunicability of “utility”,
the principal problem of economics for Neoclassical Theory must be the problem
of economic co-ordination (Hayek, Loasby). The negatives Denken decries and denigrates the notion that labour or
anything other than the market exchange mechanism and its “prices” can provide
the social synthesis (the social “glue” or amalgam) that allows a society to
co-ordinate the activities of its members. The “objectivity” of economic science is not
constituted by the objective “necessity” of labour as a universal human use
value, but rather by the “necessity” of the competitive struggle between
absolutely egoistic self-interested in-dividuals.
For the
negatives Denken, Nature is not the essential universal sphere of
“objectification” for human beings, whether individually or least of all
collectively, but rather it is treated as a “quarry” whose resources are
unavoidably rendered “scarce” by the impossibility of human subjective
individual wants ever to be fulfilled or satiated as well as by the fact that
individuals are in competition with one another to provide for these insatiable
individual wants. Wealth is an entirely subjective
estimation of “nature” by single individuals, it is “Subjective Value”
(B-B) and is incapable of “objective” intersubjective use or even of agreement.
What is “objective” about wealth is not its “use value” or the labour-content
of values in exchange, as it was for Classical Political Economy. Rather it can
only be its “value in exchange” between individuals as determined by the wholly
independent competitive exchange of goods in the market at rates that
constitute their “prices”.
Nature
and wealth therefore do not have a universal human value, but only a subjective
individual value whose objectivity is given only by the exchange of goods for subjective estimation as manifested by
market prices. The market, not “labour”, is what makes otherwise wholly
Subjective Value become Objective Value. From the perspective of the negatives Denken, “labour” also cannot
be a uniform homogeneous commensurable “substance” that can be “embodied in” a
universal “wealth” or indeed any kind of wealth, whether use value or exchange
value. Labour simply cannot provide the social synthesis, that is to say, the
material co-ordination of human interests – the material inter esse or comunitas,
or even the spiritual summum bonum or
social goal – that commonly constitutes “the social fabric”. Rather, this
social synthesis or co-ordination is provided by the market mechanism through
the exchange of “endowments” owned by entirely self-interested atomistic
individuals through the fixing of market prices that are the only visible and
material manifestation of their utilitarian preferences.
So long
as labor was seen as the homogeneous direct creator of homogeneous wealth, then
clearly the aim of production had to be the equitable distribution of wealth in
direct proportion to the effort of each labourer. But once labor and wealth are
seen as individually subjective notions, then the aim of economic coordination
through the market mechanism can be only the redistribution of wealth in
proportion to the initial endowments of market agents at Equilibrium where
capital too constitutes an independent claim to such distribution! The
principal difficulty of Classical Political Economy was always that of
justifying how capital could constitute an independent claim to wealth once
labor was acknowledged as the only source of wealth. Neoclassical Theory
overcomes this difficulty by reinterpreting the entire metaphysics of labor and
wealth-creation or value.
In his
formidable review of Neoclassical Theory, George Stigler here dismisses and
denigrates from the point of view of
Neoclassical Theory this Classical position of the old Political Economy -
exemplified by its founder and architect, Adam Smith - as its greatest fallacy:
Drawing
upon a long line of predecessors, Smith gave to his immediate successors, and
they uncritically accepted, the distinction between value in use and value in
exchange:
The
word VALUE, it is to be observed, has two different meanings, and sometimes expresses
the utility of some particular object, and sometimes the power of purchasing
other goods which the possession of that object conveys. The one may be called
"value in use"; the other, "value in exchange." The things
which have the greatest value in use have frequently little or no value in
exchange; and on the contrary, those which have the greatest value in exchange
have frequently little or no value in use. Nothing is more useful than water:
but it will purchase scarce any thing; scarce any thing can be had in exchange
for it. A diamond, on
308
GEORGE J. STIGLER
the
contrary, has scarce any value in use; but a very great quantity of other goods
may frequently be had in exchange for it.2
The
fame of this passage rivals its ambiguity. The paradox - that value in exchange
may exceed or fall short of value in use - was, strictly speaking, a
meaningless statement, for Smith had no basis (i.e., no concept of
marginal utility of income or marginal price of utility) on which he could compare
such heterogeneous quantities. On any reasonable interpretation,
moreover, Smith's statement that value in use could be less than value in
exchange was clearly a moral judgment, not shared by the
possessors of diamonds. To avoid the incomparability of money and utility,
one may interpret Smith to mean that the ratio of values of two commodities is
not equal to the ratio of their total utilities.' On such a reading, Smith's
statement deserves neither criticism nor quotation. This passage is not Smith's
title to recognition in our history of utility. His role is different: it is to
show that demand functions, as a set of empirical relationships, were already
an established part of economic analysis.
Ambiguity.
Meaninglessness. Moral bigotry. In this opening passage, the Nobel
prize-winning Stigler (a close collaborator of Milton Friedman at the Chicago
School of Economics), throws just about every conceivable intellectual insult
at the father of “economics”, none other than the founder of Classical
Political Economy, for whom even the most invective-prone iconoclastic critic
of that theory, Karl Marx himself, could not suppress feelings of respect and
even of pious devotion. No. George Stigler – a proto-fascist bastard if ever
there was one – has an intellect so reduced, so blinded by his own training in
a repressive economics faculty, that he simply fails to see entirely the
excellent “paradox” highlighted by the great Scottish economist and
philosopher, perhaps the greatest son of the “Scottish Enlightenment” of the eighteenth
century.
In the
quotation that Stigler so absurdly misrepresents (in a distasteful show of
colossally culpable ignorance, of
intellectual turgidity coupled with moral turpitude), the great Adam Smith is
drawing our attention to what is perhaps the most palpable paradox or
contra-diction of the capitalist mode of production (in his time) and of the
society of capital (in our time) – namely, that in this rotten society the
things that are most “valuable” for human needs, the things with the greatest
“use value” (such as air, water, health), have the least “exchange value”, and
therefore are not considered “economically valuable”, whereas inversely the
things with the least use value may well acquire the greatest exchange value
and economic weight. This contradiction lies at the very heart of the society
of capital, and indeed it is assuming ever-greater apocalyptic dimensions as
capitalism poses growing “systemic risks” to human society and comes to
threaten even the very survival of our species.
On one
hand, Smith is saying that even the most useful and indispensable things, if
available in great quantities, will command a lower price. It is this aspect of
how supply and demand affect prices that Stigler acknowledges as the
historically valuable aspect of Smith’s theory:
“His role is different:
it is to show that demand functions, as a set of empirical relationships, were
already [in Smith’s time] an established part of economic analysis.”
Yet this is clearly the least
valuable aspect of what Smith is saying – because if we define “price” as the
value at which demand and supply coincide, then it is obvious that demand and
supply have opposing effects on prices. No, the truly genial part of Smith’s
economic analysis is that he was the first theoretician to suggest that “use
values” play no role in the determination of prices in a capitalist economy.
Instead, what determines prices is the amount of labour that is socially
necessary for the production of goods. Smith therefore agrees that despite the
fact that a market capitalist economy only values things that are available for
exchange, the value of these goods for exchange can still be determined
“objectively” because human needs are “social”, not “individual” or
“subjective”, and therefore their satisfaction must have a common universal
value for all human beings – and this common universal “sub-stance” of economic
value is the “effort” that human beings must make to obtain a given good or
resource.
By selecting “labour time” as the
“substance” or “content” of economic value and market prices, Smith is saying,
first, that human needs are “objective” or universal, which is why “prices” can
be “agreed upon” in a “market” that would be otherwise destructively
competitive. And second, Smith is saying that a market economy can achieve both
commutative and distributive justice by allocating social resources according
to the amount of human “effort” that goes into their production – “to each
according to his contribution”. Again, this Smithian position is a throwback to
the jusnaturalist tradition (Natural Law) of Judaeo-Christian religion
expounded by the Schoolmen in the Middle Ages – a tradition according to which
human beings atone for their original sin by having to work to assure their own
livelihood. And of course Smith is also being truthful to the Enlightenment
movement of which he was so prominent a member by affirming the ability of
human beings to order their society according to rational scientific
principles. These principles form part of a “concordant” or “harmonious” theory in the sense that its central tenet is
that the substance of economic co-operation and exchange is constituted by
homogeneous human needs and homogeneous human labour whose “value” or “price”
can be determined “scientifically” simply by calculating the labour time that
it takes to produce a given good for exchange. The contradiction in this theory
is all but evident: for if indeed “labour” is the “source” of all value, then
it becomes quite impossible to value labour itself, because the source of value
and therefore the determinant of “prices” cannot itself have a “value” or a
“price”! Yet Smith’s economic theory is based precisely on this contradiction –
that is, that “labour” has a market price just like any other “commodity”. And
we know that this is why Smith then goes on to contradict himself by stating
that ultimately market prices are determined by “supply and demand”, that is to
say, by…..”the market”! This is the contradiction on which both Ricardo and
Marx pounced to castigate Smith’s Panglossian notion of “the invisible hand” of
the market ensuring that only those goods would be produced that the market
could clear, and that this ensured the orderly reproduction or co-ordination of
what would be otherwise a hopelessly anarchical and antagonistic “marketplace
society”.
In contrast to this “concordant” or
“harmonious” Smithian economic theory, Stigler objects that there is not and
there cannot be a contradiction or discordance between use values and exchange
values – because the only “values” of which we can ever be aware are manifested
in the actual prices that obtain in the market. All we can ever know is what we
can “observe”. And whereas market prices are readily “observable”, labour
values are quite simply un-observable and indeterminable, and therefore they
are simply “meaningless” or “metaphysical”.
The paradox - that value in exchange may
exceed or fall short of value in use - was, strictly speaking, a
meaningless statement, for Smith had no basis (i.e., no concept of
marginal utility of income or marginal price of utility) on which he could compare
such heterogeneous quantities.
Labour
cannot pro-duce wealth or be the measure of exchanged wealth or “value in
exchange” because wealth is not the socially
objective quantitative sum of use
values meant for exchange but rather the “value-in-exchange” of these use
values is a purely qualitative subjective
estimation, a function of “utility”, whose objective manifestation and
calculation or “valuation” can be obtained only
through observable market prices.
From
the jusnaturalist viewpoint of Smith,
value and market prices are a dependent quantitative function of labour
productivity. For him the market mechanism can only serve to facilitate the
exchange of goods, but cannot determine the intrinsic “substantial”
value-in-exchange of goods, which must therefore be measured by a universal
“homogeneous substance” such as the amount of labour-power they contain. This
is a “rationalist and humanist” worldview in which human “labour” has a
creative universal role in the world that makes all exchange values comparable
and measurable, that is, homogeneous.
(Hegel’s dialectic of self-consciousness and Marx’s materialist elaboration are
perhaps the highest expression of this Judaeo-Christian onto-theology).
Yet
from the empiricist and positivist perspective
of Neoclassical Theory (which Smith also paradoxically promoted and probably
founded) all Value and market prices are “subjective”: there are no “use
values” – least of all “labour”! - that are universally recognized as serving
human needs and wants. It follows therefore that from this perspective, as
Stigler notes, “there is no basis on which Smith could compare such heterogeneous quantities” as use values
(utilities) and exchange values (money) because, given that utilities are
inscrutable because they are deeply subjective, it is then impossible to
measure them outside of the actual observable money prices that market agents
are willing to pay for them in the course of market exchange. Because (to quote
Stigler) “money and utilities are incomparable”. the use value or utility of a
good can be measured only by “the amount of money that agents are willing to
pay for that good” and not by some “universal homogeneous human value” such as
“labour”. Use values and wealth can be “objective” (that is, they can be
socially recognized) only through the relative
estimation of their value-in-exchange by market agents in competitive conflict with one another as displayed in and by
market prices – because only these market agents can determine subjectively the value in exchange of
goods sold on the market. For Neoclassical Theory there can be no distinction
between use values and exchange values because all Value is “Subjective Value”;
and Values can become “objective” not through a universal homogeneous human
“substance” such as “labour” but only to the extent that goods are “exchanged”
by means of “prices” fixed competitively on the market.
On any reasonable interpretation, moreover,
Smith's statement that value in use could be less than value in exchange was
clearly a moral judgment, not shared by the possessors of diamonds. To
avoid the incomparability of money and utility, one may interpret
Smith to mean that the ratio of values of two commodities is not equal to the
ratio of their total utilities.'
Consequently,
for Neoclassical Theory use values as the universally recognized qualities of
goods for human beings whose “prices” are then determined by the amount of
labour necessary to bring them to
market (to pro-duce them) simply cannot form the basis of economic analysis -
only observable market prices can. If
it were at all possible to calculate scientifically
the amount of labour time “socially necessary” for the production of a given
good, it would then also be possible to decide scientifically the just
distribution of the value produced according to the labour time expended. Yet
this “objective value”, this “common interest” or inter esse – this “community of interest”, this “social contract”
or “agreement”, this contractus unionis
- independent of market competitive conflict or “dis-agreement” that leads to
the fixing of market prices is precisely what Neoclassical Theory steadfastly
denies is possible! For Neoclassical Theory market prices are not the result of
“agreement”, except for the setting of a “level playing field” through “market
rules”, but they are exclusively the result of “haggling”, of conflict, of
individual self-interests pulling and tugging in opposite directions in their
“mechanical free-dom”!
For
Classical Political Economy and the Labour Theory of Value, all wealth is
“objective” whether it be “use values” that are not produced or “exchange
values” that are produced by means of “labour” as a universal homogeneous human value, as an inter esse (communion). Indeed, given
the homogeneity of all exchange values as products of labour and measurable by
labour, Classical Political Economy identifies “Value” with “exchange value”
because only exchange values are economically significant in that their “value”
can be quantified by measuring the “labour time” that is embodied in goods on
the market. Thus, use values are not omitted from economic analysis but are simply
replaced by another universal use value, a homogeneous substance, called
“labour” or “labour power” or “labour time” or “labour content”.
In
total contrast, Neoclassical Theory obliterates all universal homogeneous human
values: it omits use value from economic analysis because all use values are
seen as being strictly “subjective” and therefore the only objectivity possible
for goods, their Objective Values, are the observable prices in market exchange
which are the product not of a concordant and scientifically ascertainable
homogeneous human quality (labour) but rather of discordant competitive and
antagonistic subjectivities whereby these prices are determined through the
“haggling” of the marketplace. Thus, Neoclassical Theory can eliminate the
notion of “Value” from economic analysis altogether, dismissing it as
“metaphysics”, and merely concentrate on market prices that are “positively
observable”!
The
“economy” intended by Neoclassical Theory is not one that furthers human
interests understood collectively as a universal goal or aim or finality shared
by all human beings, but rather it is an “economy” that is purely instrumental
in character and therefore can serve only the interests of human beings taken
as in-dividuals and not collectively. Worse still, these individuals have needs
and wants that are antagonistic and in competitive conflict with one another! The
very notion of “utility” that subtends all neoclassical economic theory is and
must be based entirely and exclusively on the “in-commun-icability” of private
utilities. And because private utilities (a pleonasm) are incommunicable, the
only manner in which these utilities can be measured is objectively, that is, by means of competitive conflict, a struggle, between individuals that finds
its observable quantitative manifestation in market prices. (Neoclassical
Theory never explains, of course, how “market rules” or “the rules of
competition” can ever be agreed by these competing individuals!) Utility
therefore does not explain prices for the simple reason that in neoclassical
economic theory prices are the ultimate “facts” that allow of no further
“explanation”. Whereas classical political economy sought to discover a
“reality” behind prices that could enable the maximization of “welfare” as measured by a universal “substance” –
that is, labour or labour-time or labour-power -, neoclassical theory does not
admit of any such “universal substance” or “source of wealth”. Neoclassical
theory understands “wealth” in purely subjective terms – and that is why prices
must be the sole and ultimate manifestation (not explanation!) of (individual,
subjective) utilities.
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