Steve Keen and the Labor Theory of Value

With his persistent snipping from the Post-Keynesian left, Steve Keen has managed to get under the skin of Paul Krugman, the prominent Nobel laureate economics professor at Princeton and New York Times op-ed resident columnist at the public forefront of the demand for macro policies centered on fighting global unemployment.  This has granted Keen a measure of public attention to his Minskyan version of monetary economics.  Publicity-wise, this may not be the worst time to snipe at Keen from the extreme left.

In his piece, “Use-Value, Exchange-Value, and the Demise of Marx’s Labor Theory of Value,” Keen opens up his left flank.  In this article, Keen observes that the “logical problems” in said value theory have split Marx’s followers into two groups: (1) those who cling to the theory and (2) those who “wish to continue the spirit of analysis begun by Marx without the labor theory of value.” Keen decidedly joins the latter, contending that Marx’s labor theory of value is invalid, because of an inconsistency that, he believes, vitiates Marx’s argument on how surplus value is produced. The inconsistency–Keen thinks–lies in the “asymmetrical” manner in which Marx dealt with labor and non-labor inputs in surplus value production.

Since Keen makes a praiseworthy effort to locate his critique in the context of Marx’s intellectual evolution, it is fair to say something about the import of Marx’s work on value theory.  At least from where I stand, it must be absolutely clear from the outset that the crucial question is is not whether or to what precise extent Marx was correct in his views as stated in his various manuscripts and published works, but rather what we may learn from all that about the character of the currently existing social order, how a deeper understanding thus attained may helps us to overthrow it.  I feel no compulsion to vindicate or, for that matter, to refute Marx.

That said, Marx’s crucial contribution to our understanding of value, i.e. to our understanding of the structures that underpin modern capitalist societies, lies not in his rendition of how market prices are concretely determined in capitalist society, the specific relations between use value and exchange value, the logical mediations through which value translates into market prices, etc., i.e. what Paul Sweezy called the quantitative aspect of value theory, but instead on its qualitative aspect—i.e. in locating what in Hegelian but adroit terms Marx called the substance of value, namely human labor.

I am painfully aware that, with economists and other social thinkers imbued in intellectual traditions that deem such matter “metaphysic,” the room for meaningful engagement is vanishingly small.  But those of us who believe that this is the most essential aspect of Marx’s contribution to our understanding of modern social life must insist on it, even if such insistency may cause sighs of impatience and some eyes to roll back into their sockets.  Roman Rosdolsky, in The Making of Marx’s Capital, complained that a large number of the critiques of Marx’s theses, sympathetic or adversarial, stemmed from a misunderstanding–if not sheer ignorance–of his method.

Gravely, the misunderstanding or ignorance of Marx’s method leads all too frequently to missing the key socio-ontological distinction that Marx made traversing the entirety of his critique of capitalist society, namely the distinction between the material content of social life and its specifically social form.  To intellectual strangers, this sounds like a foreign language, but–as Gerald A. Cohen reminded us–earlier versions of this distinction can be traced back to the Sophists in Ancient Greece, who separated nature from convention, or to paraphrase Plato’s Protagoras: what is given to “men” by Zeus from what is granted by Prometheus.  As Cohen also noted, this distinction between the aspects of our social life that we can change and those we must manage, because they are inherent to the human condition, lies at the heart of any attempt to mend or subvert the status quo.

Throughout Marx’s and Engels’ works, the same fundamental distinction reappears  under various–but clearly connected–guises: the productive force of labor and the social relations of productionrace and slaverysocial cooperation and the statesocial cooperative labor and commodity exchangesexual and age differences and family structure (e.g. patriarchal family)use value (both in its qualitative and its quantitative aspect as “material” or “determining factors of value,” as “proportions in the allocation of aggregate labor,” or as Engels’ comparison of “useful effects”) and exchange value (and, hence, value and surplus value), concrete labor and abstract laborsocial labor and private labor (a.k.a. private and independent labor), labor process and value production (and, hence surplus value production), labor power and variable capitalmeans of production and constant capitalwealth and capital, etc., etc.

(The refusal to consistently keep this fundamental distinction in mind underlies the Cambridge capital critique inspired by Piero Sraffa’s work.  Yes, Virginia, commodity value in general is to be logically determined independently from distribution!)

Keen notes–correctly–that Marx’s thesis in Capital on how surplus value (i.e. the specifically capitalist social form of surplus labor and surplus product) is produced hinges on the use value of the commodity labor power. While the capitalists may (in the abstract case) purchase the workers’ labor power at its value, they are entitled to using their rightfully acquired commodity as they please (within the confines of of the legal contract, political conditions, social norms, workers’ workplace conformity, etc.), and the use value of the commodity labor power is precisely its use as an input productive of other use values and hence—in a society where use values are produced for exchange—of values.

Thus, the capitalists are able to extract a flow of labor activity, i.e. activity productive of value, from the workers’ labor power, above and beyond that required to merely reproduce such labor power under given social conditions. This is what makes it possible for surplus value and, hence, capital to be produced and reproduced. Thus, the ultimate source of surplus value, i.e. the source of all “non-labor” or “property” income under capitalism—to use the felicitous terms used by the U.S. Bureau of Economic Analysis—is duly exposed.

Keen then suggests that this same logic should be applied to the means of production (e.g., machines), the material content of the constant capital advanced by the capitalists. Why discriminate—as Marx does—against constant capital, viewing surplus value as directly resulting from variable capital alone, the portion of total capital advanced adopting the form of the labor power purchased in the labor market and deployed at the workplace?  This is the inconsistency that–Keen alleges–invalidates the labor theory of value.

If Marx’s argument is that the use value of labor power is the material labor process, the process of production of use values, which under capitalist conditions is as well a process of production of value and surplus value, then shouldn’t have Marx also argued that, while machines have a given value when purchased by the capitalists, their use value—which consists of their being used as such concrete machines in the production of concrete use values appropriated by the capitalists, i.e. capitalist commodities—is a value exceeding their cost?

Well, no!  Absolutely not.

Marx’s argument that labor power alone (and not means of production, including natural resources) is productive of value does not hinge on any case for surplus value production. The opposite is true: Marx’s argument on surplus value production hinges on his argument on value production. In Marx, labor power is alone productive of surplus value because it alone is productive of value. Surplus value is nothing but value beyond a certain threshold—the threshold being determined by the amount of social labor time required to reproduce such labor power. If workers can produce their ability to work, their ability to undertake and guide the production process, their ability to transform the world purposefully, in a fraction of their conscious time, then there is a surplus labor time, which—if employed productively—will translate into a surplus product, which—in a society where goods are produced for sale—will translate into a surplus value.

Keen views the existence of a “surplus” (presumably, the existence of a certain amount of surplus labor time as “represented” in a certain amount of surplus product) as unproblematic or self evident; in his words, a “truism.” Marx doesn’t take such a cavalier attitude, and spends a whole chapter of Capital, volume 1 (chapter 16), nailing this down. There Marx rivets the idea:

“If the labourer wants all his time to produce the necessary means of subsistence for himself and his race, he has no time left in which to work gratis for others. Without a certain degree of productiveness in his labor, he has no such superfluous time at his disposal; without such superfluous time, no surplus labor, and therefore no capitalists, no slave-owners, no feudal lords, in one word, no class of large proprietors.”

Keen seems to believe that, if Marx’s description of how surplus value is produced is inconsistent, then his labor theory of value falls apart. But the seeming inconsistency that Keen alleges in Marx would not affect Marx’s notion that only labor power is productive of value, because such inconsistency would refer to the distinction between value and surplus value, a quantitative distinction, and not to the distinction between value and use value, which is a qualitative distinction.

As important as the distinction between value and surplus value is—and it is a distinction that allows us to separate simple commodity production from capitalist production proper, the distinction between value and use value and, therefore, the notion of labor power alone as productive of value, is even more fundamental. Such distinction (between use value and value) is based on the distinction between (1) the productive power of labor as the ultimate resource that any society has in its quest to reproduce itself, and (2) the specific social structures in which such productive power may be deployed.

All forms of a society’s wealth, in their rich heterogeneity, be it the productive or the consumptive wealth of society, either in their human or non-human modalities, derive their places and roles in social life from their socially-validated significance to the needs, passions, and powers of individuals.  In a society in which the productive wealth of society is privately held by individuals, in which–therefore–society’s labor activity exists as fragmented into private and independent activities, in which–therefore–the social division of labor is bridged through the exchange among individuals of privately-held pieces of wealth (commodities), such socially-validated significance takes the form of commodity valuation.

Ultimately, the value of all productive inputs and outputs in a capitalist society is the answer to the question, “What does this or that item mean to us, individuals?  What does it matter to us, people?” as the question is posed in a social context in which wealth ownership (value, political power, etc.) is unequally distributed and gets reshuffled through the markets and the mechanisms of the political, legal, and state administrative and punitive system.

Even if we were to apply the reasoning of conventional economists, the conclusion would be the exact same.  If we are to determine the valuation of a piece of wealth by its opportunity cost, by the forsaking of the next best option available, the conclusion follows: What is it that a human society ultimately gives up when it produces and reproduces a particular piece of wealth?  What if not its own purposeful activity, its own conscious lifetime?  What else is there to sacrifice for humans but themselves, their powers as producers?

The real reason why machines cannot be productive of value (although they are, indeed, productive of wealth, of use value) is because our society is not (at least not primary) a society of machines, but a society of human beings.  Ours is a human society, and the significance of things (and the significance of one another) to each one of us as individuals–a significance that must one way or the other be socially validated as we can only produce wealth through cooperation, through the mediation of social structures–can only be determined by comparison between (1) the amount of humanity gained by producing, acquiring, using, or consuming the thing and (2) the amount of humanity foresaken by producing, acquiring, using, or consuming the thing.

It is not the amount of sheer life time gained or sacrificed that determines the significance of a piece of wealth to us.  Instead, it is the amount of human purposeful or conscious life time gained or sacrificed.  Because it is purpose or consciousness that separates us from machines, and from the rest of nature in general.  What characterizes us as humans is not that we live in the space-time continuum, but that we live in it–partly at least–consciously.

Thus, the key qualitative insight owed to Aristotle or William Petty–on whose broad shoulders Smith, Ricardo, Marx, and others stood–keeps holding water, however much it remains ignored by the economists:

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body. (Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, 1776.)

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not as the greater or less compensation which is paid for that labour. (David Ricardo, Principles of Political Economy and Taxation, 1817.)

Now we know the substance of value. It is labour. We know the measure of its magnitude. It is labour time. The form, which stamps value as exchange-value, remains to be analysed. But before this we need to develop the characteristics we have already found somewhat more fully. (Karl Marx, Capital, vol. 1, first edition, 1867.)


  1. “Marx’s crucial contribution to our understanding of value … [lies not in] … the quantitative aspect of value theory, but instead on its qualitative aspect … [in] the substance of value, namely human labor.”

    I would say this is a very important point. Almost 30 years Kay Hunt argued in a similar way with regard to Joan Robinson’s critique of Marx. Hunt, E. K. (1983), “Joan Robinson and the Labor Theory of Value,” Cambridge Journal of Economics, vol. 7, pp. 331-42.

    I think Marx (and Engles) made the point about the centrality of human labor clearest in The German Ideology: “Men can be distinguished from animals by consciousness, by religion or anything else you like. They themselves begin to distinguish themselves from animals as soon as they begin to produce their means of subsistence, a step which is conditioned by their physical organisation.” Yes, this is the use of first principles, but they are not arbitrary ones.

  2. Socially necessary labour time is a ‘pre-existing condition’ of constant capital. Constant capital i.e. the means of production, are produced through the the employment/use of socially necessary labour time. This crystalised value is transferred to the commodities which issue out of its use via amortisation.

    An interesting aspect of this process in our modern era is the fictious capital which left behind in outmoded means of production through the scientific-technological revolution and the inability to use constant capital up quickly enough to realise amortisation costs in commodity sale/profit.

  3. Economics like other fields of science attempts to model reality to solve various problems in practice.

    Marx chose to use labor time for modeling the economy, he could have used gold or energy but that would have illustrated different problems. For instance, in solar energy the break through comes when solar cells generate more energy than it takes to make them.

    Wage laborers don’t have much more to give than their time, so it makes sense to base economics on labor time to include the whole of society. I think Marx did a good job of showing how an economy could be modeled using labor time as the metric. Depreciation and education can all be included.

    Steve Keen and others note that the amount of labor time can’t be determined for a single commodity or service, but Marx’s model wasn’t designed to do that since it is an aggregate (macro) theory.

    Surplus value is then what the workers don’t get which is divided between capital and government.

    1. @Ron Peterson Actually you are completely wrong. Marx didn’t ‘choose’ labor time to ‘model’ economy any more than Einstein chose speed of light to model universe. And maybe even more important he didn’t choose economy to model society. If this was the case he could arbitrarily choose between let’s say music and wrestling… He actually disliked economy. If you believe theories are about arbitrary choices which theoreticians make out of their free will depending on what they want to ‘model’ you will never get Marx’s point.

      1. I don’t see how I can be completely wrong since I wasn’t making any significant claim.
        Sure political economy (economics) only models parts of society.
        Where does Marx say that he disliked political economy?
        It seems that Marx has a lot of points, which one are you referring to?

  4. The labour theory of value can be easily tested for validity. Ask yourself this: if no labour time were put into ‘the economy’ for a month, how much value would have been produced during those 30/31 days?

    1. There is more to validity (of the labor theory of value) then asking ourselves a question.

      For instance, Marx says: “Political economy errs in its critique of the Monetary and Mercantile systems when it assails them as mere illusions, as utterly wrong theories, and fails to notice that they contain in a primitive form its own basic presuppositions. These systems, moreover, remain not only historically valid but retain their full validity within certain spheres of the modern economy. At every stage of the bourgeois process of production when wealth assumes the elementary form of commodities, exchange-value assumes the elementary form of money, and in all phases of the productive process wealth for an instant reverts again to the universal elementary form of commodities. The functions of gold and silver as money, in contradistinction to their functions as means of circulation and in contrast with all other commodities, are not abolished even in the most advanced bourgeois economy, but merely restricted; the Monetary and Mercantile systems accordingly remain valid.”

      If we stay home from work and clean the house or till the garden, we are producing something of personal value, but not exchange value.

      We have to look at the conclusions of Marx’s labor theory of value to see if they are giving results consistent with observation.

      1. Quite right. Maybe that old phrase, ‘labour theory of value’ should be re-stated as the, ‘labour theory of exchange-value’.

        Marx often used the concept ‘value’ as shorthand for ‘exchange-value’. Of course exchange-value is always locked in/unified with use-value. However, as Marx pointed out, use-value doesn’t necessarily depend on having exchange-value tied to it. Even though many, many use-values have labour time embodied in them, they don’t always have an exchange-value i.e. they are not destined for sale in the labour market. Lots of liberal feminists have pointed this out from various angles e.g. the demand for putting an exchange-value on housework. .

        I guess the point I was trying make is that commodified wealth does have exchange-value and that abstraction (i.e. exchange-value) is directly locked in/unified with socially necessary labour time. Withdraw socially necessary labour time in the world for a month and you get a grand total of zero value added to capitalist balance sheets—and probably the collapse of the capitalist system.

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