Recorded 15 October 1988. [Transcript (provided by Mr. Kaan Dişli. The text is also available in Turkish.)] 100 years ago If you are an economist living in the United States you might have subscribed to a journal called the “Quarterly Journal of Economics” and you might have gone out to the mailbox one day in October 1888 and found the latest issue and if one found the latest issue of the Quarterly Journal of Economics October 1888 you would have opened it to its lead article and its lead article was by a man named James Bonar. 100 years ago this month, and the title of the article was the “Austrian economists and their view of value”. 100 years ago this month was the first English exposition in detail of the Austrian school. In this exposition James Bonar, an admirer of Menger and Böhm-Bawerk, offered to the English-speaking world the first systematic, thorough, methodical understanding of how the Austrians viewed value, how from value they explained the emergence of price and market processes. Now what Bonar enabled the reader in America and England to see was that the Austrians were developing an alternative way of understanding the economic process. One that on the other one hand challenged the classical economists ,including Marx as a labor theorist, and offered a new vision of how to construct economic theory for an understanding of the real world. Right there the first English exposition this month 100 years ago Now what Böhm-Bawerk did was more in his writings than just present a positive theory, he was a brilliant economist who had mastered all of the economics literature up to his own time and he proceeded to first criticize and attack his opponent before he went on to present his positive theory. In fact, it was Böhm-Bawerk who opened the first clash that the Austrians had with the socialists. In the 20th century we are most familiar with the Austrian challenge to socialism through the works of Ludwig von Mises, his challenge against the socialists, how would a central planning system work where the planners had overthrown private ownership of the means of production and eliminated therefore the price mechanism ,for as I'm sure most of you are familiar with, Mises argued that where there is no private property there is nothing to buy and sell, when there is nothing to buy and sell, there is nothing to make offers or bids for, when there are no bids and offers there are no agreed-upon terms of trade, when there are no agreed-upon terms of trade there are no prices, and when there are no prices, there is no way for agents in the market to form estimates concerning the value that individuals are placing upon the means of production as a calculative device to determine how to an efficient and economizing manner apply the means of production to alternative uses in a society of scarcity. But that was really the second challenge, the first one was Böhm-Bawerk’s. He first made this challenging criticism in Volume one of “Capital and Interest”, his history and critique of interest theories, in 1884 the year after Marx passed away. He had a chapter on the exploitation theory, in which he criticized another German named Rodbertus and Marx. Then he had another opportunity to extend and elaborate on his criticism and that was in 1886, shortly after volume 3 of ” Das Kapital” had appeared posthumously. Böhm-Bawerk was asked to give a contribution for a German economist. And his contribution was a hundred page monograph called “Karl Marx and the close of his system” in which he attempted to update his criticism in the light of the second and third volume coming out and showing that there were insoluble problems in Marx’s system. In fact, the interesting thing that one can understand historically is that if one looks at most accounts today on Marx and his economic system and his social system and his conception of the social order, most proponents will present a conception of Marxist theory of exploitation, his notion of alienation, his idea of superstructure, his idea of exploitation and potential search for imperialist capture of markets via the Leninist interpretation… But there is one thing that they tend to brush over now, one thing that they devote little attention to in their expositions of Marx and that is the “Labor theory of value”. They usually devote the least amount of time to it, they give short expositions, they mention that it was essential to Marx’s conception but they basically brush over it. They go on to other aspects of Marx's critique of the capitalist order. Now this is in contrast to earlier in this century, at that time the heart of Marx's system was considered the labor theory of value. It was only with the labor theory of value, it was argued, that one could have a scientific analysis to explain why capitalism inherently was exploitive. Now why has the labor theory of value fallen into the background? Why has it become an embarrassment, something that is briefly talked about rather than made the center of the exposition and the discussion? I would like to suggest that it's precisely because of the critique that Böhm-Bawerk made a hundred years ago. Because through this critique, Böhm-Bawerk raised questions about the logic of the labor theory itself and the inconsistencies of Marxist theory with the empirical workings of real market processes. But before one can understand Marxist criticisms, it is useful and important to briefly summarize Marxist system itself. Marx begins volume one by emphasizing that no commodity can have exchange value unless it has use value, unless it is wanted by someone for some purpose. In other words, unless it has use value it cannot have exchange value. But it is not sufficient for a commodity to have use value to have exchange value, he argues that one has to search for something else than just its usefulness if one wants to understand from whence exchange values between commodities arises. He argues that use values are of a qualitative and diverse nature and therefore cannot be compared, there is no common denominator from which one can look at them and evaluate them. One has to look for what is it that commodities have in common other than their quality of being useful because uses are so diverse. He therefore says we have to look beneath it and to ask what quality do all commodities have in common other than their diversity of their uses and he says the quality that they share in common is a quantitative dimension and that is, they all share the common attribute that they are produced by labor. He therefore argues that one has to abstract from the use values of commodities to that more general quality of merely having been the product of quantities of labor input. Only when one has understood the nature of labor as a physical input in the production of commodities can one then return to the surface of the analysis and understand why useful things have exchange ratios in the ways they do in the market. He therefore is looking for a common denominator among all commodities and he argues that when one strips it away what one finds therefore is that all commodities are produced by labor. But what kind of labor? Well he argues that if we are to strip away the particular concrete attributes of commodities that make them useful for particular purposes, we need to strip away the concrete types of labor that go into their production and to understand labor purely as an abstraction, quantities of labor in abstract form. He argues that therefore what determines the value of commodities in their specific forms are their more generic aspect of having been the product of labor of an abstract type. Now how shall one measure the amount of labor that goes into a product and therefore to determine what the value of one commodity should be in relation to another? Marx argues that measurement should be the duration of labor time entering into its production. However, he then emphasizes that it is not going to be a conception of concrete labor time but a thing that he calls “socially necessary labor”, that is labor necessary to produce an article under normal conditions of production, an average degree of skill and intensity prevalent at the time. It is these values set as an average sampling of the class that determines what shall be the measurement of labor. Now as an extension of that, one says that the amount of labor that is going into a product is going to be a socially necessary amount of labor, that is that time duration raised another question. Well what does one do with the fact that there seems to be a great diversity of types and qualities of labor, that is simple labor and complex labor, skilled labor and unskilled labor? Marx argues that is not a difficult matter one merely has to realize that skilled labor is a multiple of simple labor; such as a doctor is ten times the labor of a simple worker digging a ditch. Now Marx argues that with these basic concepts one can understand that on the basis of socially necessary labor that the value of a skilled professional is merely a multiple of unskilled labor of this more abstract type, that one should easily see that individuals would trade and exchange commodities in terms of their labor values. But this then brings him to his notion of the relationship between the worker and the social system in which he resides. He then makes a distinction between “necessary labor” and “surplus labor”. Necessary labor is the amount of time duration that an individual has to incur sufficient to produce enough products or the value of enough products to sustain himself and his family. Necessary labor is therefore enough for the worker to be able to maintain oneself. Surplus labor would be the amount of product or value of product produced during a period of time in excess of what is required for one's own sustenance and it is this conception of the amount of labor n
