From Chapter 6 of Mandel's The Formation of the Economic Thought of Karl Marx.
....It is interesting to examine some of the objections that have been raised in recent decades against the labor theory of value as perfected by Marx.36 In this connection I will deal with the observations of Frank H. Knight, Joseph Schumpeter, Oskar Lange, and Joan Robinson.
According to Knight,37 a labor theory of value would be justified only if labor were a rigid and non-transferable “factor of production.” But the mobility of “labor,” associated with the mobility of “other agencies of production,” leads to a situation in which various combinations of these “agencies” are possible, and this entails determining their value by their “marginal productivity.”
The only trouble is that the value of machines—their cost of production—is perfectly well known.38 It is wholly independent of the number or value of the commodities these machines can produce. No industrialist, when he buys a piece of equipment, calculates the “surplus of value” that it will bring him. What he calculates is the saving that it will enable him to make in his costs of production (or, if you like, in his net cost per unit). And if one were to question industrialists, nine times out of ten they would say spontaneously that what interests them is “saving labor” (in the United States, machines have long been described as “labor-saving devices”).
Every industrialist likewise knows that machines that just lie in the factory without moving do not produce a particle of value; for them to serve in production they have to be set in motion by living labor.39 It is the latter, and the latter alone, that incorporates new value into the commodity; as to the value of the machines and other “agencies,” that is merely conserved by living labor, which transfers the equivalent value (wholly or in part) into the commodities it produces. This is also known to industrialists and statisticians, since they speak of an “added value” which is shared between the capitalists and the workers, and which is added to the “conserved value” (raw materials and machinery). The secret of this “added value” must therefore be found in labor alone. And Marx discovered this when he formulated his law of surplus value.
Schumpeter’s argument against the labor theory of value and in favor of the theory known as that of “factors of production” is of the same sort. He reproaches supporters of the labor theory of value with being inspired by “ethical philosophies and political doctrines” that have nothing to do with economic reality as such. “In other words, they failed to see that all that matters for this purpose is the simple fact that, in order to produce, a firm needs not only labor but all the things that are included in land and capital as well, and that this is all that is implied in setting up the three factors [of production].”40
To be sure, if one wishes to come down to this level of commonplace it should be added that in order to produce a “firm” needs not only labor, land, buildings, machinery, raw materials, and money, but also an organized society, police protection, a state system that includes means of communication, an infrastructure, etc., and many other things as well. Why arbitrarily isolate “three factors of production”? Why not talk of five “factors of production”: labor, land, machinery, reserves of liquid money, and state organization, and then discover five “incomes” corresponding to these “factors”: wages, ground rent, profit, interest, and taxes?
The capitalists and their ideologues raise a weighty objection to this: no “real contribution” is made by the state or by organized society to the new value created within the enterprise; they merely provide “external savings,” an indispensable general framework. But then one is equally justified in asking whether “land” or “machinery” (not to speak of “liquid money”) make any “real contribution” to the creation of new value within the enterprise, because it is recognized by implication that not everything that is a “factor indispensable for production” is thereby ipso facto a “source of new value.” And we are thus brought back to the problem of the ultimate origin of the value “added” in production, which can only come from living labor.41
A more serious and more sophisticated objection is advanced by Oskar Lange in one of his early writings.42 Lange’s argument can be summarized thus: Though Marxist theory has been able to predict correctly the laws of capitalist development, it has not proved able to supply an adequate theory of prices (and especially of monopoly prices), or an adequate theory of the optimum use of resources in a socialist society, or, above all, a theory of crises, because it is fundamentally a “static theory of general economic equilibrium.”43 Moreover, the labor theory of value is incapable of explaining the nature of wages and the survival of profit, which are supposed to be determined by the technical progress inherent in the capitalist system. But this “dynamic” element is not so much a result of the internal logic of the labor theory of value as of the institutional framework of capitalism revealed by Marx. And it is his analysis of this institutional framework, rather than the labor theory of value, that is the source of Marxism’s superiority as a tool of analysis for discovering the laws of capitalist development.
It seems to me that Lange’s very starting point is mistaken. The labor theory of value cannot be considered a “static theory of general economic equilibrium.”44 The labor theory of value, as corrected and perfected by Marx, is indissolubly linked with the theory of surplus value. The two theories taken together, far from constituting a “static theory,” form by definition a dynamic theory. They are in fact a synthesis of two opposites, a conception of equal exchange linked with a conception of unequal exchange. It is above all the exchange between labor and capital that possesses this dual quality.
Consequently, the “Marxist model” is by nature dynamic, since it leads to the conclusion that the production of new value, the increase in value, economic expansion, economic growth are inherent in the capitalist mode of production. This same Marxist model is not a “theory of general equilibrium” but, again, a synthesis of two opposites, a demonstration of the fact that the permanent (and apparent) disequilibrium of capitalist economic life is based on a more profound equilibrium, which in its turn gives rise to necessary and inevitable disturbances of this equilibrium (periodic crises, tendency of the average rate of profit to fall, concentration of capital, intensification of class struggle) that end by undermining the system.
Lange’s idea that the dynamic element (economic evolution) results from the institutional framework rather than from the internal logic of the labor theory of value is also based on a mistake. According to Lange, the element of “technical progress” is necessary if we are to understand why wages do not “threaten to annihilate the employers’ profits”;45 capitalist profit could not go on existing except in a setting of technical progress. Lange forgets that, even without technical progress, wages cannot abolish profits because the capitalists stop hiring workers long before this point is reached. They prefer in this situtation to shut down their factories and thereby also re-establish an industrial reserve army—even without “technical progress.” This is indeed what happens in all the more or less “prefabricated” recessions of neocapitalism. The capitalists can wait, whereas the workers cannot because they possess neither the means of production nor the means of subsistence.
Besides, it is not only the competition between capital and labor but also the competition among capitalists that explains technical progress, according to the Marxist model. Both forms of competition result from the twofold necessity of accumulating capital and realizing surplus value under economic conditions in which the quantity of labor socially necessary to produce a commodity manifests itself only a posteriori, and is unknown a priori. It is these two reasons, which relate to the fundamental character of the capitalist mode of production—that is, of a system of generalized commodity economy—that are the ultimate root of the “dynamic” element in Marxist economic theory. They both follow from the very nature of the labor theory of value.
I will mention in conclusion the criticism of the labor theory of value which Joan Robinson formulated soon after the Second World War.46 In her view, Marx, like Ricardo, was mistaken in seeking an intrinsic value of commodities “analogous to weight or color.” And Marx, like Smith, sought “a measure of value which would be invariable,” which he found in labor. The labor theory of value constructed on these theoretical foundations was useless, and Marx could have explained all the laws of development he discovered in much less complicated terms without resorting to the labor theory of value.
As Roman Rosdolsky has shown in detail,47 these arguments reflect an astonishing failure to grasp Marx’s ideas, although he expounded them clearly enough. Marx explicitly denied that the exchange value of commodities was an “intrinstic quality” of commodities in the physical sense; on the contrary, he showed that the common “quality” that makes commodities commensurable is not physical but social in nature. What Joan Robinson has not grasped is the difference between concrete labor, which creates use values and the physical properties of products, and abstract labor, which creates exchange value. Nor did Marx set out to discover an “invariable measure of value.” On the contrary, he showed that the measure of exchange value must itself be a commodity, that it must itself be variable. It is just because exchange value presupposes a common quality in all commodities—the fact that they are all produced by abstract labor, by a fraction of the total labor potential at society’s disposal—that it is at once social and variable, and not physical and immutable!
What all these critiques have in common is their inability to grasp the level of abstraction to which Marx ascended in order to discover the socioeconomic problems underlying the problem of exchange value....