Published on LewRockwell.com on December 20, 2006.
Mark Skousen writes on page 150 (in the chapter "Marx Plunges Economics into a New Dark Age") of The Making of Modern Economics:
Critics [of Marx's theory of surplus value] countered that capital is productive and deserves a reasonable return, but Marx offered the rebuttal that capital was nothing more than "frozen" labor and that consequently, wages should absorb the entire proceeds from production. The classical economists had no answer to Marx, at least initially. And thus Marx won the day.... It was not until the work of Philip Wicksteed, the British clergyman, and Eugen von Böhm-Bawerk, the influential Austrian economist, that Marx was answered effectively, with a focus on the risk-taking and the entrepreneurial benefits the capitalists provide.
No answer "initially"? Really? One came to me almost instantly when I read this -- and again when I read the passage in Das Kapital (Volume I, Chapter 7, Section 2) to which Skousen is alluding.
Marx instructs us to take up the lens of his manual-labor theory of value -- "the value of each commodity is determined by the quantity of labour expended on and materialised in it" -- and through it view the industrial system:
Not only the labour, but also the raw material and the product now appear in quite a new light, very different from that in which we viewed them in the labour-process pure and simple. The raw material serves now merely as an absorbent of a definite quantity of labour. By this absorption it is in fact changed into yarn, because it is spun, because labour-power in the form of spinning is added to it; but the product, the yarn, is now nothing more than a measure of the labour absorbed by the cotton. If in one hour 12/3 lbs. of cotton can be spun into 12/3 lbs. of yarn, then 10 lbs. of yarn indicate the absorption of 6 hours' labour. Definite quantities of product, these quantities being determined by experience, now represent nothing but definite quantities of labour, definite masses of crystallised labour-time [festgeronnener Arbeitszeit]. They are nothing more than the materialisation of so many hours or so many days of social labour.
And how should such a statement have been answered "initially"? Like this:
Not only the capital, but also the raw manpower and the product now appear in quite a new light, very different from that in which we viewed them in the Das Kapital thesis. The raw manpower serves now merely as an absorbent of a definite quantity of capital. By this absorption it is in fact changed into manufacturing, because it spins, because capital-fuel in the form of cotton is added to it; but the product, the yarn, is now nothing more than a measure of the capital absorbed by the spinning. If with 12/3 lbs. of cotton one hour of spinning can be turned into one hour of yarn manufacturing, then six hours' manufacturing indicates the absorption of 10 lbs. of cotton. Definite quantities of product, these quantities being determined by experience, now represent nothing but definite quantities of capital, definite masses of molten capital-material. They are nothing more than the metamorphosis of so many pounds or so many tons of market capital.
No person -- certainly not Marx -- would look at cars coming off an assembly line and assent to the assertion that they "represent nothing" but "molten capital-material" -- capital without labor. And yet Marx himself insists that every person assent to the assertion that those cars "represent nothing" but "crystallised labour-time" -- labor without capital.
Beginning with the axiological premise that all value consists of only labor, Marx the philosopher worked backward to the metaphysical conclusion that all reality -- that yarn, that car, that house -- consists of only labor -- "crystallised" labor. Far from being economic science, this is a monist materialism in which reified "labor" is ultimately the only material. And it is precisely the absurdity of this reductionist doctrine that makes it so easily -- and so deservedly -- parodied. In every constituent proposition, Marxism contains the seeds of its own refutation.
Just as the believer in idealism (consciousness without existence) imagines that the only alternative is materialism (existence without consciousness) -- to borrow an example from Ayn Rand -- so Marx conceived his antipode as "capitalism," a mirror-image monism that metastasizes capital and obliterates labor. But no "capitalist" in history, from Adam Smith to Milton Friedman, ever propagated the thesis of our parody passage. An essential distinction between socialism and the free market is the respective one between belief in an inherent labor-capital conflict and rejection of that conflict as a false dichotomy.
Labor and capital -- a man's time and property -- are his resources, his investment. They no more war within society than within his soul. Their economic value is determined by their marginal utility in a medium of free exchange -- the point at which we may bid farewell to the Marxian corpus and conversely commemorate the real Darwins of the laws of human action.
Thomas Sowell, Marxism: Philosophy and Economics:
Marx’s analysis concerned the contributions and rewards of people—classes—not impersonal inputs. Yet even within this context, he did not succeed, either logically or empirically, in establishing that present capital is simply the result of past labor. All that he did was to push back into the past the key question of the source of capital. That way leads to infinite regress, not evidence or proof. Nor is the question of the origin of capital a purely historical question. It is an analytic question concerning the ongoing sources of capital.
Once output is seen as a function of numerous inputs, and the inputs as supplied by more than one class of people, the notion that surplus value arises from labor becomes plainly arbitrary and unsupported.Factually, it is even worse off. The empirical implication of a special or exclusive productivity of labor would be that countries that work longer and harder would have higher outputs and higher standards of living. But the reality is more nearly the direct opposite—that countries whose inputs are less labor and more entrepreneurship tend to have vastly higher standards of living, including shorter hours for their workers. . . .
For all Marx’s intricate and ingenious elaborations of the implications of “surplus value,” the original postulate on which it is all based was only the common and crude impression that goods are “really” produced by those who physically handle production in a routine established by others. The early history of the Soviet Union provided the most dramatic empirical refutation of the Marxian assumption that management of economic enterprises is something to be taken for granted as occurring somehow.