{"id":7478,"date":"2017-09-22T02:33:00","date_gmt":"2017-09-22T02:33:00","guid":{"rendered":"https:\/\/www.idrlabs.com\/articles\/?p=7478"},"modified":"2020-06-20T22:38:47","modified_gmt":"2020-06-20T22:38:47","slug":"criticism-of-marxs-theory-of-value","status":"publish","type":"post","link":"https:\/\/www.idrlabs.com\/articles\/2017\/09\/criticism-of-marxs-theory-of-value\/","title":{"rendered":"Criticism of Marx’s Theory of Value"},"content":{"rendered":"

2017 marks the 150th anniversary of Marx\u2019s publication of Das Kapital<\/em>. Even though Marxism has been attempted all over the world for well over a hundred years, no country has ever managed to turn Marx\u2019s ideas into a workable society. Yet every time there is a problem with the free-enterprise system, Marx\u2019s ideas become popular among the population at large again. For example, during the financial crisis of 2007\u20132008, sales of Marx\u2019s work soared to record highs. And in California, many people still believe that Marxism can be made to work.<\/p>\n

The odd thing is that among academic economists, practically no one accepts any of Marx\u2019s theories \u2013 even left-wing economists tend to agree that his take on economics is defunct. The ironic thing is that among the people who accept Marxism, many fault right-wingers for not accepting the science on climate change. Yet when it comes to economic theory, the same people happily ignore the consensus among experts.<\/p>\n

Let\u2019s just give one reason why Marxist economics are invalid. Marx believed that the value of a commodity was determined by the amount of labor that went into producing that commodity. This is also what a lot of 21st<\/sup>-century socialists believe. But it\u2019s clearly wrong. For example, according to Marx\u2019s theory, if it takes 10 hours to hunt and kill a rabbit, but five hours to hunt and kill a hare, one rabbit should be worth two hares on the market. But in reality, the value of a commodity is determined by its marginal utility, that is to say, its usefulness to the consumer. For example, if rabbits and hares taste almost the same, then the consumer will not be inclined to pay twice as much for the rabbit. Similarly, the value of something tends to decrease as you get more of it. You might be interested in buying, say, three hares, but there\u2019s no way you\u2019re going to buy a hundred. The price you\u2019re willing to pay for a hare will therefore decrease as you acquire more hares. You might be willing to buy the first hare for 10 bucks, but if you already found yourself with a hundred hares on your hands, you would not be willing to pay very much for the 101st<\/sup>. In fact, you would probably be looking for people to sell<\/em> hares to at whatever price they would pay \u2013 not going around looking for more hares to acquire.<\/p>\n

This was already known among economists at the time when Marx wrote Das Kapital<\/em> but \u2013 stubborn bugger that he was \u2013 he refused to take in these new insights and kept writing his works as if the older labor-based theory of value were true. In his mind, the labor theory of value was more objective, but the paradox is that this way of thinking about value is only more objective in the mind \u2013 in reality, it doesn\u2019t work that way. Even one of the brightest Marxist theorists alive today, John E. Roemer, has admitted this, stating that Marx\u2019s theory of value is essentially useless, given what we know today.<\/p>\n

So how does this discredited theory of value impact Marx\u2019s greater theory? If you asked most people what Marx\u2019s theory was about \u2013 or if you asked most Marxists why they support Marxism \u2013 they will say that it\u2019s about class exploitation. The rich exploit the poor, and that\u2019s not fair. The factory owner pays his workers less than the true value of the product they are producing and pockets the profits himself. That\u2019s exploitation!<\/p>\n

But if the labor-based theory of value is wrong, then there is no objective value that the factory owner is stealing from the workers and hence there is no class exploitation \u2013 at least not as Marx envisioned it. If the marginal utility theory of value is true \u2013 as even left-wing economists agree that it is \u2013 then every time an investor hazards his capital by initiating the production of something, he is taking a risk and cannot know whether his product will turn a profit until it hits the market and interacts with customers who have differing and subjective priorities of marginal utility. You might argue that it is still more fun to be the capitalist than the worker in such a scenario, and you would be right. You might also argue that in a world where the workers in some countries don\u2019t have basic rights, such as in China, there is still exploitation taking place. That would be right too. But without the labor theory of value, there is no exploitation in the sense postulated by Marx\u2019s theory.<\/p>\n

In other words, Marx\u2019s theory is flawed at its root, and both left and right-wing economists understand this. But many people have an intuitive<\/em> hunch that economic inequality is unfair, and since Marx\u2019s theory seems to lend plausible support for that hunch, they end up supporting Marxism even though the theory doesn\u2019t work.<\/p>\n

The irony of all this is that every time a country couples a free-enterprise system with democracy and basic liberty, that country does noticeably better, yet people still hate that system. And every time a country turns Marxist, it ends in poverty and famine. Yet a lot of people excuse it as being \u201cnot true Marxism.\u201d There is in other words a double standard that will keep some people believing in Marxism, no matter how many times his theory is discredited and fails.<\/p>\n","protected":false},"excerpt":{"rendered":"

2017 marks the 150th anniversary of Marx\u2019s publication of Das Kapital. Even though Marxism has been attempted all over the world for well over a hundred years, no country has ever managed to turn Marx\u2019s ideas into a workable society. Yet every time there is a problem with the free-enterprise system, Marx\u2019s ideas become popular[\u2026] Continue Reading<\/i><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-7478","post","type-post","status-publish","format-standard","hentry","category-psychology"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/posts\/7478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/comments?post=7478"}],"version-history":[{"count":1,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/posts\/7478\/revisions"}],"predecessor-version":[{"id":7479,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/posts\/7478\/revisions\/7479"}],"wp:attachment":[{"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/media?parent=7478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/categories?post=7478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.idrlabs.com\/articles\/wp-json\/wp\/v2\/tags?post=7478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}