Eugen von Bőhm-Bawerk wrote the most famous criticism of Karl Marx’s economic theory, and all students of Austrian economics know his Karl Marx and the Close of His System and his discussion of Marx in the first volume of Capital and Interest. Marx’s labor theory of value could not withstand the criticisms that Bőhm-Bawerk, writing from the standpoint of the subjective theory of value, directs against it. Bőhm-Bawerk, though, is not the only proponent of the subjective theory to examine Marx’s economics.
The nineteenth- and early twentieth-century clergyman, Dante scholar, and economist Philip Wicksteed wrote a remarkable article critical of Marx that appeared in October 1884, one year after Marx’s death, in the English socialist journal To-day. One argument in that article hasn’t received the attention it deserves. It strikes a fatal blow at Marx’s account of surplus value.
Marx defends the labor theory of value, and he uses it to explain how capitalists earn profit. According to this theory, the value of a commodity is the socially necessary labor time required to produce it. In the capitalist system workers sell their labor power to the employer. The cost of labor power, then, is the socially necessary time required to produce it. Marx takes this to be the socially necessary time to produce the goods that enable laborers to survive and reproduce. Suppose a laborer works for ten hours each day and suppose further that the cost of labor power is only six hours. The employer then gets four extra hours, and this is what Marx calls “surplus value.” The employer hasn’t paid the laborer less than he is worth, according to the labor theory of value, but he still earns extra value. Remember, according to Marx, labor power is the source of value, and that is why the extra hours result in a gain in value.
As Marx explains in Value, Price, and Profit,
In buying the labouring power of the workman, and paying its value, the capitalist, like every other purchaser, has acquired the right to consume or use the commodity bought. You consume or use the labouring power of a man by making him work, as you consume or use a machine by making it run. By buying the daily or weekly value of the labouring power of the workman, the capitalist has, therefore, acquired the right to use or make that labouring power during the whole day or week…
The value of the labouring power is determined by the quantity of labour necessary to maintain or reproduce it, but the use of that labouring power is only limited by the active energies and physical strength of the labourer. The daily or weekly value of the labouring power is quite distinct from the daily or weekly exercise of that power, the same as the food a horse wants [i.e. needs] and the time it can carry the horseman are quite distinct. The quantity of labour by which the value of the workman’s labouring power is limited forms by no means a limit to the quantity of labour which his labouring power is apt to perform.
Wicksteed uses the subjective theory of value to show what is wrong with this argument. He says,
It only remains to apply our results to Marx’s theory of surplus value. The keystone of the argument by which that theory is supported is, as we have seen, the proposition that the value of labour-force [Wicksteed’s translation of the German term for “labor power”] is fixed by the amount of labour needed to produce it, whereas in its expenditure that same labour-force liquefies into a greater amount of labour than it took to produce it, so that if a man purchases labour-force at its value, he will be able to draw out at one end of his bargain more labour (and therefore more value) than he puts in at the other.
We have now learned, however, that value does not depend upon “amount of labour contained,” and does not always coincide with it. Under what conditions does it so coincide? And does labour-force comply with those conditions? Whenever labour can be freely directed to the production of A or B optionally, so that x days of labour can be converted at will into y units of A, or z units of B, then, but then only, will labour be directed to the production of one or the other unit until the relative abundance or scarcity of A and B is such that y units of A are as useful at the margin of supply as z units of B. Equilibrium will then be reached.
For example, suppose that labor can be shifted easily between the production of books and newspapers. Then, according to the subjective theory of value, labor will shift until there are no gains in utility from changing the amounts of newspapers and books produced. Wicksteed, who here follows Jevons, says that labor will shift until units of newspapers and books have equal utility. (Mises and Rothbard wouldn’t phrase it this way, but for our purposes this isn’t relevant.)
What happens, though, when labor can’t be easily shifted to produce a different amount of a particular good? Then, Wicksteed says, there isn’t a reason to think that the value of the good will be related to the amount of labor time needed to produce it. And, crucially, labor power is a good of this kind.
But if there is any commodity C, to the production of which a man who has labour at his disposal can not direct that labour at his will, then there is no reason whatever to suppose that the value of C will stand in any relation to the amount of labour which it contains, for its value is determined by its utility at the margin of supply, and by hypothesis it is out of the power of labour to raise or lower that margin.
Now this is the case with labour-force in every country in which the labourer is not personally a slave. If I have obtained by purchase or otherwise the right to apply a certain amount of labour to any, purpose I choose, I cannot direct it at my option to the production of hats (for instance) or to the production of labour force, unless I live in a country where slave-breeding is possible; and therefore there is no economic law the action of which will bring the value of labour-force, and the value of other commodities, into the ratio of the amounts of labour respectively embodied in them.
Wicksteed’s brilliant point is that, outside of a system where employers could direct laborers to breed more laborers, labor power isn’t a good that employers could easily shift to produce more labor power. Only if labor power could be shifted to produce more labor power would its value be related to the time needed to produce it, i.e., to the cost of producing and reproducing the laborer. Hence Marx’s account of surplus value fails.
This isn’t the easiest argument to grasp, but if you think it through, you will see that it is deep and illuminating.
