The Labour Theory of Value

The labour theory of value is considered heterodox nowadays - mostly the preserve of Marxists and anarchists - but it was central to the theories of classical liberal economists like Adam Smith and David Ricardo, albeit with variations. What this class of theories had in common was the philosophical pre-eminence accorded to labour and thus the consequent importance of ethics in economics. As Corey Robin summarises it (contrasting Smith's more progressive view with that of Edmund Burke, for whom value was merely the judgement of capitalists and therefore men of station), "What ultimately undergirds Smith’s specific claims about labor as the measure of value—and concomitant claims about the distortions wrought by capital’s power and control of the legislature—is a vision of labor as the prime mover in the world. Insofar as labor is a universal measure of value, it is also a marker of our common humanity: what we, as human beings, have to do in the world in order to secure what we want from the world".

The marginal revolution of the late 19th century, which proposed that value was a subjective reflection of the buyer's utility (i.e. use gained or pleasure given), essentially removed this moral dimension from orthodox economics. Labour was only incidentally valuable and (an idea inherited from Utilitarianism) there was no common scale of value beyond the aggregate of individual preferences. Marginalism not only deprived labour of its pre-eminence but conceptually divorced it from the production of value - i.e. you could potentially produce value that was so far removed from labour (ironically echoing Marx's thoughts on alienation) that the contribution of the latter was simultaneously necessary and negligible. The 19th century opens with Mary Shelley's Frankenstein, in which labour is reconstituted into a new form of being, and closes with H G Wells's The War of the Worlds, in which machines appear to have substituted for beings (until microbes save the day). As the 21st century opens, we are faced with the prospect of self-replicating capital: robots and dark factories.

One reason why the labour theory of value has never been wholly eclipsed (leaving aside for the moment the possibility that it is actually right) is that it is humanistic. The utility maximisers of marginalism, like the representative agents of modern mathematical models, lack humanity. While morality may have been marginalised in orthodox economics, it remained central to politics as a means of distinguishing the virtuous. Judging workers collectively as heroes or wreckers, rather than as the monads of economic theory, meant that politics conceded that value arose from the aggregate of labour. Even attempts to fragment it by appeals to individualism produced the collective categories of strivers and skivers. Economics and politics were eventually reconciled, to the satisfaction of both liberals and conservatives, through the concept of human capital, a developmental attribute of the individual (and thus the product of preference), free from the dead weight of class.

Human capital allowed value to be acknowledged as the product of individual labour and simultaneously denied to collective labour. What mattered was your ability to distinguish yourself from the herd in the competition of life. As the idea of investment in the personal brand would always have limited appeal (most people watch The Apprentice to laugh at the contestants, not identify with them), human capital theory was reinforced by the revival of the traditional idea (religious in origin) that work was central to a meaningful life. From being a chore whose gradual decline we eagerly anticipated in the postwar years, work was promoted as the primary route to self-actualisation from the late-70s onwards (at one point in the 80s, Hollywood almost convinced us that offices were glamorous). This has led to a state of affairs that would baffle earlier liberal thinkers like Keynes. As Ryan Avent of The Economist puts it, in a Guardian piece punting his book on the subject, "Work is not just a means for distributing purchasing power. It is also among the most important sources of identity and purpose in individuals’ lives".

The shift from value as an intrinsic property of all labour to value as the relative worth of the individual can be seen in two areas of contemporary concern: the rise of the robots and immigration. Avent presents "a world without work" as a forked path that might lead either to utopia or dystopia, but one where the risk of a bad choice lies in the response of labour, not the decisions of capital: "If the role of work in society is to shrink, other sources of purpose and identity will need to grow". He outlines the conventional expectation that technological redundancy will necessitate a dole: "Freeing people from work without social collapse will therefore require society to find ways other than pay for labour to channel money to those not on the job. People might come to receive more of their income in the form of state-led redistribution: through the payment of a basic income, for instance, or direct public provision of services such as education, healthcare and housing. Or, perhaps, everyone could be given a capital allotment at birth" (that last suggestion echoes some very old ideas).

The neoliberal assumption is that the state must take the lead because labour lacks a proper understanding of its own interests and an inability to organise itself. As Avent sees it, "One problem is that large-scale social overhaul takes a long time to emerge and have an effect. Another is that money for nothing is not necessarily what the displaced masses are interested in ... Tellingly, workers and trade unions seem least interested in the policies, such as a basic income, that break the link between compensation and work. This makes the building of our eventual utopia tricky; a hefty rise in the minimum wage would benefit lots of workers, but it would also discourage some firms from using the cheap labour they have been soaking up, forcing the jobless to get along in a world in which they cannot find work yet also lack the monetary means to stay out of poverty." Not only does Avent ignore the current debates on UBI among organised labour, but he ignores the possibility that making labour more expensive will boost capital investment from its currently low levels. The problem is always labour, never capital.

Avent also makes the topical link to immigration: "Those still in work might be less grumpy about funding a more generous welfare state if beneficiaries are deemed to be enough like them: fellow tribesmen, people of similar background and therefore felt to be deserving of charity. Around the rich world, it is interesting to note that it is not so much the generosity of state redistribution that is provoking societal unrest, but the fact that out groups – from Latinos to Poles to refugees –are grabbing a share". This is the saloon bar sociology that underpins the "legitimate concerns" guff of the likes of Rachel Reeves. The roots of contemporary "societal unrest" are more complicated than simple xenophobia, but this linkage serves the purpose of replicating the problematic nature of labour from the economic sphere (its failure to understand it own interests) to the social (the competition for limited resources). The solution is increased management, both to control state-led redistribution and restrain the instincts of the mob from looting the treasury or killing each other.

The problematic nature of immigration was outlined in the same print edition of The Guardian by Stephen Kinnock: "I am resolutely pro-immigration, yet I don’t see immigration as a value; I see it as a social and economic dynamic" (eh, you what?). Kinnock is using "value" here in the sense of a virtue-signal. Where the mangled labour theory of value comes out is in the centrist advocacy of an immigration system geared to business need (which echoes the Burkean notion that value is the judgement of capitalists). Though the right have normalised the idea of a points-based immigration system, it's perfectly clear that this is insincere and intended to avoid the charge of racial discrimination (i.e. preferring white Anglo-Saxons to others). Discrimination by labour value (formalised in work permits) is acceptable, not least because it reflects individual human capital, though Kinnock appears to lean towards the purely quantitative rather than the qualitative: "Being pro-immigration means making it an economic, social and political success in the long term: as much immigration as is possible and sustainable, limited only by our ability to create the environment for all of Britain to thrive and feel valued".

For Kinnock, "The referendum had a clear message: the limitless nature of freedom of movement, despite its proven economic benefits, is not socially and politically sustainable. That’s why opposing freedom of movement isn’t the same as opposing immigration. Two key values of the society we must build are openness and non-racism. These values aren’t defined by the number of immigrants, but by the quality of experience every person has of this country". He doesn't explain how to reconcile opposition to "freedom of movement" with support for "openness", while his primary concern appears to be numbers, reflecting a pessimism about working class sophistication: "This is facing up to a human truth: nobody is born racist, but immigration that reaches levels beyond a society’s capacity to cope can lead, in extremes, to racism. That racism fuels a vicious, ugly backlash, in which there is tremendous anger in one community and tremendous fear in another. Nobody wins and everyone suffers. It sets back our ideal of an open and non-racist society".

If no one is born racist, how are racists made? Perhaps the answer has nothing to do with immigration, given that the greatest levels of anti-immigrant sentiment are found in areas with very low immigrant populations. The liberal critique of the state is not just that it is a danger to personal liberty but that democracy encourages it to pander to the working (and non-working) classes for electoral purposes. This stance allows self-interest to be smuggled in under cover of disappointment at the failings of the common herd. Before 2010, the working class was encouraged to believe, in Ryan Avent's words, in "the generosity of state redistribution", despite many of them experiencing the opposite and despite the beneficiaries of fiscal policy since the 80s being the rich. The consequence was a media discourse dominated by the utilitarianism of "unaffordable welfare" and the immorality of "benefit cheats" and "skivers". Since then, immigration has come to the fore with the result that the existential necessity of austerity has all but disappeared, along with the "chav".

Like Avent, Kinnock sees the solution in managerial terms: "While the priority is designing a transition to a system based on work permits, this requires a comprehensive approach that stretches across almost every responsibility of government, from entry requirements and integration support, to economic and public service investment to combat marginalisation. This managed balance is what makes immigration sustainable and takes us ever closer to a non-racist, open society". The apparent inability of the UK government to successfully "manage" immigration over decades (regardless of policy goals) suggests that Kinnock's confidence may be misplaced. To cap it all, he suggests that a failure to manage immigration "means we cannot show our humanity to the refugees who need us", which is not merely a non sequitor but the sort of weaselly nonsense more usually associated with Conservatives.

What Avent and Kinnock share is a belief in the declining value of most labour (not their own, obviously) and the need to carefully manage the transition to a society in which work is the pleasurable preserve of the middle classes, who can in turn be counted upon to support the continued concentration of wealth among the top percentile. What matters is not that a basic income will be parsimonious, but that its level will be set by technocrats and not biddable politicians. What matters in respect of immigration is not the interests of immigrants or natives, but that the process should be managed to the benefit of capital through the recognition of individual economic value. The common goal is to preserve the social order (the ownership of capital) while overseeing the conclusive separation of value from labour as a class, both in the political and economic spheres.