Steve Keen’s critique of Marx’s Theory of Value: A rejoinder

by · July 4, 2012

Steve Keen

With good reason Sydney-based economist Steve Keen has developed a local and international reputation as a sharp critic of neoclassical economics. For performing this valuable service he has earned the scorn of the neoliberal ideologues dominating mainstream economic commentary. Yet Keen is also a critic of Marx’s approach to political economy, and Left Flank here posts a lucid rejoinder to these criticisms by Matthijs Krul, a graduate student at London’s Brunel University, from his blog Notes & Commentaries. 

Matthijs will be in Sydney to speak at the Historical Materialism Australasia conference on “The New Institutionalist Economic History: A Marxist Critique”. The conference will be held on 20-21 July, with full program details here, and ticketing here (tickets are cheaper pre-bought).


After a long period of being virtually a lone voice in the non-Marxist wilderness railing against neoclassical economics, its structure, assumptions, and ideas, Professor Steve Keen appears to finally be heard. The current crisis has dented much of public and scientific confidence alike in economic orthodoxy (as it should). Nothing illustrates this better perhaps than the story of the British Queen, Elizabeth II, writing to the colleagues of the London School of Economics and asking them the pointed question: how did you not see this coming, and if you could not, what are you being paid for? This is perhaps somewhat unfair, as the specifics of any particular crisis depend on many specific and contingent factors that the more general and imprecise nature of neoclassical (macro-)economics is barely equipped to address, and few other theories fare that much better. But Keen has rightly pointed out that he did predict this crisis, and also in its form as the collapse of a speculative bubble in real estate and finance, as he did in the previous edition of his excellent best-selling critique of political economy, Debunking Economics. This Cassandra position, now perhaps turned into one more akin to Tiresias, has given him occasion to publish a new and expanded version of this book – one I recommend all readers to buy for its excellent and systematic critiques of the inconsistency of much of the neoclassical framework beyond the sphere of mere applied mathematics.(1)

However, this is not to say one should not also examine Keen’s work itself with a critical eye. As a supporter of the contemporary (neo-)Marxist theories of economics, and since this blog has the purpose, among other things, of promoting a Marxist outlook on politics and economics suitable for contemporary conditions, it is a serious fact that in the book mentioned above Professor Keen rather sharply dismisses the contribution of Marxist economics to understanding modern political economy. (He explicitly subtitles a paragraph: “Why most Marxists are irrelevant, while most of Marx is not”).(2) While he seems inclined to rhetorically praise Marx, he quite explicitly dismisses Marx’s economic theories as inferior to his own approach, which appears based on an understanding largely derived from Piero Sraffa. To go into the specifics of Sraffianism, post-Keynesianism and so forth would require a lengthy narration of the history of economic thought, one that would interest few people. More to the point, the average intelligent layman reading Keen’s book will want to know: who is right? And quite justly so. Now in chapter 17 of his book, Professor Keen provides, after a brief overview of classical economics, essentially three arguments against what he takes as Marx’s theory of value (often called the “labor theory of value”). Therefore, I shall endeavour to rejoin these arguments Keen advances against Marx’s theory of value in due order. –I must warn the reader that this will contain a considerable amount of complex and very abstract discussion, based on Marx’s conceptual understanding and terminology as applied to his pure theory of capitalism. Although I have endeavoured to write it so it is maximally understandable for people not much used to Marx’s terms and way of thinking, one may find it boring and confusing, as I cannot summarize the entirety of his theory as well as address Professor Keen’s critiques. Therefore, one may want to skip this article, or focus only on the sections dealing with the implications of all this theorizing.–

Keen starts out by rightly examining perhaps the most important contribution of classical economics compared to the contemporary orthodoxy. This is the distinction between use value, the subjective valuation an individual gives to a commodity, which is contingent and arbitrary, and exchange value, which is the long-run ratio of exchange between a commodity and another, including commodity money. He then continues to Marx pointing out that the greatest classical economist, David Ricardo, assumed that a commodity produced would have greater exchange value than the total value of the wages paid to the workforce making that commodity (the value of the wages itself also expressed in commodities). As Marx noted, Ricardo did not explain how this came to be, i.e. where the difference came from. Marx then argued that the difference, ‘surplus value’, arose from labor and labor alone in the process of capitalist production: it resulted from the use value of labor power, which is the labor of people as sold as a commodity in a competitive labor market, being that it had the ability to produce surplus value. This is an attribute no other commodity has, according to Marx. In principle, this may sound like an arbitrary assumption, and this is then the focus of one of Steve Keen’s three arguments against Marx: why is labor ultimately the only source of surplus value, and why are not other commodities also sources of surplus value, as the Sraffians (and Keen) hold? (The neoclassical economists essentially also hold this, but do not express it in this explicit way.)

To support this thesis about the origins of surplus value, Marx provided, according to Keen, two proofs: a negative proof and a positive proof.(3) The negative proof is, as the name suggests, simply eliminating the other possibilities, as Marx does very early on in Capital, Vol. I.(4) The simple explanation is that all commodities eventually reduce to “dated labor”, as Keen calls it.(5) While it is obvious to everyone that most commodities are produced at least partially to machines, for Marx this makes no difference, as the machines themselves are made by the process of labor-power, and so are the parts of the machines, and so forth; the means of transport, the packaging, even the clothing of the workforce and their housing, all is eventually reducable to a certain accumulation of expended labor power. All this requires is, as it were, winding the tape of all capitalist production backward in one’s mind, until one reaches a logical point where no means of production are available: they first must be made by expenditure of labor-power. Of course, neither Marx nor Keen nor anyone else ever thought that this happened in reality, as it would falsely assume that the ‘year zero’ of civilization was also the beginning of capitalist relations of production, which is certainly false. This is really a fairly trivial point, and that is why Marx spends little time on it; but its status as a logical point of departure of capitalist production must be remembered. So what then is the objection?

Keen comes in here with objection 1: Quoting the Indian economist Arun Bose, he states the following.

The manufacture of any commodity requires direct labor, machinery, intermediate goods, and raw materials. All the non-labor inputs have to have been produced at some time in the past: even unprocessed raw materials had to have been either mined or harvested. They in turn were made using some direct labor, and other commodity inputs (…). These again can be reduced to even earlier dated labor, and other commodity inputs. This process can go on indefinitely, with each step further reducing the commodity content. But no matter how far back you go, you can never eliminate this commodity residue. If you could, then there would be some commodities that can be created with absolutely no commodity inputs – or, in other words, by magic. (6)

This argument is important, as it explains a fundamental but not uncommon misunderstanding of Marx’s endeavours in Capital. In that critique of political economy, Marx attempts to provide a theory of value adequate to the capitalistmode of production, in its purest and most general possible form, and of no other mode of production whatever. There are mentions of other historical periods, and Marx spends considerable time sketching the historical origins of capitalism – but these are precisely to refute the notion all societies have been substantially governed by the same logic. It is the logic of capitalism that Marx seeks to explain. With this in mind, Keen and Bose’s magical riddle is easily solved. As they both rightly point out, in principle all means of production, intermediate goods, etc. are reducible as a logical exercise to the expenditure of labor-power. But there we find the crux. Because for Marx, this fact, the fact that capitalism reproduces itself by means of the production of commodities, is not just a fact of nature, a given thing. On the contrary, it is for Marx precisely the primary historically noteworthy fact about capitalism, and only capitalism, that it does this. After all, Marx famously opens his magnum opus with the statement:

The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,” its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. (7)

This then is the solution to the Keen-Bose riddle. The supposed commodity residue they find is not in reality a logical contradiction, but is a misunderstanding created by extending the presuppositions of capitalism into history. The ‘residue’ exists because capitalism has not always existed, that is to say, that there has been non-commodity production before commodity production. Only then does it become clear how from land and labor one can proceed to all means of production, intermediate goods and so forth without having a commodity input from the beginning: namely, if land and labor are not from the outset themselves commodities! The commodity is a social form, as Marx said a form in which the “relations between men appear as relations between things”, namely when production is for the sake of accumulation through exchange, rather than for the sake of someone’s personal use (where personal use is its opposite, even if that someone is a lord or king or priest obtaining this as tribute or sacrifice). Therefore, as Simon Mohun has explained:

For Marx the value of a commodity expresses the particular historical form that the social character of labor has under capitalism. (…) This suggests first, that the generalization of the commodity form of human labor is quite specific to capitalism and that value as a concept of analysis is similarly so specific. Secondly, it suggests that value is not just a concept with a mental existence; it has a real existence, value relations being the particular form taken by capitalist social relations. (8)

So much then for Arun Bose’s ‘residue’: it is merely the residue of capitalist ideology, namely the assumption that because everything tends to take the commodity form under capitalism, it must therefore always be so.

Now we must address Keen’s further critiques. As Professor Keen promised us, having dealt with Marx’s ‘negative proof’ of labor as the origin of all surplus value under capitalism, we are now provided with the ‘positive proof’. Using various quotations, this is to establish Marx’s proposition that (as I had already briefly outlined) the use value for the capitalist in the use of labor-power, the commodified version of the general social capacity to labor, is precisely that it provides surplus value. As Keen rightly notes, this is somewhat odd, because it is the only time that Marx seems concerned with the use value of commodities; generally, Marx considers use values, because of their contingent and subjective nature, to belong outside the realm of a pure theory of capitalist production. As Marx states in Capital‘s first sentences:

A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production. (…)

The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When treating of use value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use values of commodities furnish the material for a special study, that of the commercial knowledge of commodities. Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange value. (9)

Why then this sudden interest in the use value of the capitalist? Well, as Keen quotes later on, for Marx this is precisely the historically specific nature of labor-power as a commodity, the one commodity where the use value plays a very different role than that of any other. In his answer to the critics of his own time, Marx notes:

The obscurantist [a German economist named Adolf Wagner] has overlooked that my analysis of the commodity does not stop at the dual mode in which the commodity is presented [use and exchange value], but presses forward so that surplus value itself is derived from a ‘specific’ use-value of labor-power which belongs to it exclusively etc. etc., that hence with me use-value plays an important role completely different than in previous economy. (10)

How does Marx justify this? Keen does not comprehend the relationship between this ‘positive’ claim and his ‘negative’ claim. Labor-power as a commodity can have this special use-value precisely because it is the only element of capitalism that is, in a sense, transhistorical as a prerequisite of all societies: all societies reproduce themselves through human labor, as we have seen.(11) This is why it is labor, and nothing else, that has this special use-value; this is essentially restating the ‘negative proof. Furthermore, it can have this specific use-value because this is the role labor plays in reproducing capitalism as a system: it is therefore the use and need capital has for labor-power altogether, without which no society can reproduce itself, including the capitalist one. This is Marx’s one transhistorical element, but even this element has a specific form under capitalism, namely the commodity labor-power, and therefore a specific use-value for capital, namely of producing surplus value. Outside capitalism, the theory of value as Marx describes in Capital does not apply, and there is consequently no commodity labor-power outside capitalism, and therefore no such specific use-value outside capitalism. This is not an arbitrary assumption, but goes to the heart of what Marx believed was specific about capitalism as a social relation of production opposed to other such relations in history, and therefore goes to the heart of the purpose of his theory of value. As Marx summarizes the distinction between its role in capitalism (the one hand) and other societies (the other hand):

On the one hand all labour is, speaking physiologically, an expenditure of human labour power, and in its character of identical abstract human labour, it creates and forms the value of commodities. On the other hand, all labour is the expenditure of human labour power in a special form and with a definite aim, and in this, its character of concrete useful labour, it produces use values. (12)

This finalizes then the other side of the coin as far as Keen’s first objection is concerned.

Now this convoluted and rather philosophical discussion is unfortunately necessary, because it leads us to Professor Keen’s objection 2. This objection goes as follows: because for Marx only the commodity labor-power has the use value of creating more surplus value, all other commodities have for capital only the use-value of being exchangeable for other commodities, or, in the case of means of production and transportation and of intermediate goods, the use-value of transferring their value to the new product. What this means in normal language is that machines and the like, when producing goods, do not add value in Marx’s sense to those goods, but simply transfer their value to those goods according to the rate at which they themselves depreciate in value by being used. In other words, the quantity of value embodied in the commodities produced by commodities remains always exactly equal, insofar as they still represent a certain amount of socially necessary labor (that is the value of labor-power under competitive conditions). This, in turn, is just a restatement of the principle that only labor-power produces surplus value, as we have seen. But Keen objects to Marx’s statement of this, which he finds inconsistent. He quotes Marx:

Value exists only in articles of utility. If therefore an article loses its utility, it also loses its value. The reason why means of production do not lose their value, at the same time they lose their use-value, is this: they lose in the labor process the original form of their use-value, only to assume in the product the form of a new use-value. Hence it follows that in the labor process the means of production transfer their value to the product only in so far as along with their use-value they lose also their exchange value. They give up to the product that value alone which they themselves lose as means of production. (13)

Needless to say, Keen is right to call this a confusing paragraph. He accuses Marx of ambiguously using the phrase ‘use-value’ here, as in the paragraph he does not distinguish with use-value of the final commodities, i.e. use-value for a consumer, and the use-value of the means of production, i.e. use-value for the capitalist. In this, Keen is certainly right. It is simply poorly written, as Marx often is in his overly condensed expressions in Capital. But this has no theoretical consequences. The other, more significant accusation Keen lodges against Marx here is that it is inconsistent that the loss of the use-value of a machine for the capitalist, i.e. its depreciation, should be equivalent to the value added in terms of what the machine creates. After all, weren’t use-value and exchange value supposed to be separate concepts? Why would they suddenly arbitrarily equalize in the process of production with means of production?

This, too, can be answered, but it is much more complicated than Steve Keen allows. It may be clear from our discussion that the value of the means of production will be, by definition, the amount of socially necessary labor time expended in producing it, in other words, the quantity of abstract labor. Secondly, in order for the means of production to transfer this value, they must have use-value for the capitalist as buyer, just like any commodity can only have value if someone has a use for it (whatever that use may be). In this case, its use-value is the fact it produces commodities, as a machine should do under capitalism. However, as Keen rightly notes, its use-value cannot have more consequences than this, without introducing inconsistency in the terminology. After all, its use-value as a machine, other than producing commodities, may be anything a capitalist wants: one can well use a printing press as a tray for storing coffee cups, or whatever. As long as it does not impede its primary function, this cannot affect the values of the outputs, the commodities. The solution to the riddle then is to understand the indeterminacy of the output values. The original value of the inputs used up, the exchange value at which they were bought (or its prices of production, as the definite monetary forms they become in real capitalism), do not affect the determination of the output value.(14) As Marx notes:

If the capitalist has a foible for using golden spindles instead of steel ones, the only labour that counts for anything in the value of the yarn remains that which is required to produce a steel spindle, because no more is necessary under the given conditions. (15)

That is, the socially necessary labor time, as always, determines the value of the inputs, and this remains equal independent of any real exchange value expended. What confuses Keen on this point is that Marx, for the purposes of his analysis, holds value and price (the specific form of exchange value) to be equal throughout Capital, Vol. I; but this is not actually a reality of capitalism, and he relaxes this assumption in later volumes.

But that, in turn, has further consequences. Because introducing a temporal aspect, a dynamic theory, into capitalism beyond the level of its extended simple reproduction, as Marx does in the later volumes, means that during different cycles of capitalist production, changes can occur. The productivity of labor can increase or decrease, and similarly, the technological standards of socially average production can change due to new inventions and innovations. These are very common and persistent phenomena characterizing capitalism. As a result, the value of the inputs changes along with the productivity of the labor that would reproduce them at the start of every new production cycle, irrespective of their values in the previous production cycle. This makes it possible in the course of such a cycle for the inputs to enter production with a particular value, and exit it with a greater or smaller value depending on changes in the productivity of labor. This force then operates on the outputs of a given production process,without being caused by that production process itself, within which, ceteris paribus, the equality holds. This is another aspect to the solution of Keen’s problem. The final aspect is that technical change in the means of production themselves, i.e. new inventions and innovations, can change the social standards of capitalist production. If new and better machinery with greater production of commodities per time unit is introduced, the value of the old machinery, insofar still in use, declines accordingly as its productivity is below this standard. Because any future technological change affecting the process of production via means of production or intermediate goods can have this effect on the previous generation’s means of production and intermediate goods, the value of the latter categories changes constantly. With it changes the period a capital good is used before it is replaced, its relative weight within a firm’s production, and so forth. The result is that if one allows the temporal element to be introduced, the value transferred from input to output is essentially indeterminate, as mentioned. (16)

This is not, however, a contradiction, as Keen assumes. It is in fact a real aspect of the contradictions in capitalist production: the indeterminacy over time of the value of commodities used in production leads to divergences, sometimes wild divergences, between their eventual value at the end of one or multiple production cycles and the subjective estimates of capitalists, leading to overproduction, booms, crises, and bankruptcies as endogenous results of technological change. This is a phenomenon familiar, in different terminology, to (post-)Keynesian and institutionalist economists, although they tend to focus more on the individual psychology of the capitalist than on the social process of capitalist reproduction as a quantitative force. Of course, if one does not permit temporality, and takes a single static production cycle ceteris paribus, the equality between input and output values holds, for the simple reason of labor being the sole source of surplus value, as explained before. But this has no meaning for Marx’s theory of the transfer of value by means of production.

The significance of this will become more evident when we finally discuss Professor Keen’s third objection. This is in some ways the most abstract and complicated one, and I will therefore mainly address it by reference to other economists. This objection is known generally as the ‘transformation problem’, and it concerns the relationship between Marx’s theory of value and the reality of capitalist prices. Historically, Marx’s theory of value tended to be interpreted as a static, almost equilibrium-type theory, and because of this, certain interpretations of his theory became common along these lines. It was demonstrated in the scientific debates in heterodox economics just after WWII that these interpretations contain mathematical or logical inconsistencies. Of course, whether a given theory is true or not simply relies in first instance on it being internally consistent: if there is no consistency, then it falls to the ground as stated, however compelling its conceptual content. It would then require reconstructing on a different basis, if one were sympathetic to the attempt. This is exactly what Keen suggests for Marx’s theory of value. For this, he relies on a Sraffian economist from the 1970s named Ian Steedman, who wrote an influential mathematical critique of the consistency of Marx’s transformation of values into prices. Because of the nature of this critique and the inability of many to refute it, it was believed that Marx’s theory was done for as it stood, and this is what Keen presents, fairly uncritically, in his book. Only in a few lines does he mention the attempts of Marxist economists to refute Steedman, and only to handwave them away.

But Professor Keen’s theoretical critique is here several decades out of date, and as all Sraffian critiques, misses its mark by knocking down a straw man version of Marx, one amenable to Sraffian interpretation. In order to avoid having to reproduce entirely the relevant critiques, I simply bring them to the attention of the reader in their original form, in particular those in the works of Andrew Kliman: his refutations of the Sraffian interpretation can be found in various forms on his home page. For our purposes, I can briefly summarize for the reader the underlying nature of the Sraffian misinterpretations of Marx’s theory. The mainstay of their critique rests upon interpreting a process of production as a purely physical phenomenon. That is to say, it is a question of physical inputs (labor, land, commodities), a technological vector for productivity, and a certain degree of output. Finally, there is distribution of this output, generally into wages and into new inputs. While this is mathematically tractable and appealing, it seriously reduces the meaning of Marx’s theory if he is interpreted in this way. (This way is generally known as the ‘physicalist’ approach, due to its emphasis on the physical quantities of input and output alone.)

Why Keen’s objections cannot hold can be simply explained by a counter-example, in which we follow the line of reasoning the physicalists set out. It is believed in Keen’s view, and the general physicalist interpretation, that if one were to have machines that make other machines, and ten machines were to wear themselves out over a production cycle and in so doing produce 20 machines, one would have a profit of 100%. Namely, the physical ratio of the outputs over the inputs, divided by 100. But although this seems superficially plausible, and would indeed refute and make redundant Marx’s value theory, a more serious examination quickly destroys this notion. In reality, of course, if machines were capable of making more machines without the intervention of additional human labor, the price of machines would over the course of multiple cycles tend to zero. Thereby capitalist profit would also tend to zero, and the capitalist mode of production would cease to exist. A land of nonscarcity, unbounded by the laws of thermodynamics, would be achieved. A great moment indeed for mankind, but not one that can be taken seriously as a refutation of Marx’s view. Moreover, it is not just machines that would do this; any commodity produced by means of commodities other than labor-power are subject to the same logic, if they can somehow multiply themselves indefinitely without the intervention of human labor. In fact, in such a world all prices become irrelevant themselves, and only physical quantities count. Practically, this means reducing an indeterminate number of capitalist production cycles to a single, simultaneous valuation in a single, static production cycle. As this outcome is impossible, Marx’s ‘negative proof’ does actually operate, and machines and intermediate goods do in fact not transfer more than their existing (exchange) value in the process of production. If 10 machines do produce, over the course of a singlecycle, more of themselves, the result is simply that the 20 machines are now worth each half of what the 10 were worth, expressed in price.

Kliman gives another example, in using a Sraffian ‘corn economy’ using corn as commodity inputs as well as labor, and explains why it is impossible for anything other than labor to add surplus value in production:

Our corn model also allows us to illustrate in a simple way another peculiar consequence of simultaneous valuation –– negative values. Imagine that 10 quarters of seed corn are planted at the start of the year, and the farmworkers perform 4000 hours of labor during the year. But because of bad weather, only 8 quarters of corn are harvested at year’s end. It seems to me that Marx’s theory implies that the 8 quarters of output will be worth more than the 10 quarters of seed corn, because living labor has added new value in production. But simultaneism tells us that the 8 quarters are worth only 8/10ths as much as the 10 quarters. This leads to the meaningless result that the value per quarter, measured in terms of labor-time, is –2000 labor-hours. (17)

Similarly, the tendency of the rate of profit to fall becomes quite straightforward. If capitalist companies innovate by means of labor-saving technology, they will be more productive, and can lower their prices. This causes their profit rate to go up, as they will sell more at the expense of the competition. However, this competition will then force all companies to undergo the same procedure. Assuming the demand-supply relation has not changed, the prices will have dropped in the entire industry across the board, while no company has a greater advantage relatively than they did before. The result is that the industry-wide rate of profit will have gone down.

Here we arrive finally at the more general implications of Keen’s misinterpretation of Marx. The essential errors of this interpretation of Marx must be made explicit. First, for Marx, the capitalist mode of production is a historically specific and temporally bounded phenomenon. Not all production has always been a transformation of commodity inputs into commodity outputs, which is an assumption leading to erroneous interpretation, as we have seen with Keen’s first objection. Secondly, because of this specificity, labor takes a specific form under capitalist production, because it is now a commodity (labor-power) which in the process of generalized competition is made into homogeneous,abstract labor. It is not, therefore, just like any other commodity, but it is one which, as essential prerequisite for the process of capitalist reproduction, becomes the very yardstick of its own accumulation: value, which is nothing else than socially necessary labor time needed for the reproduction of any commodity. This value is what the cycle of capital attempts to accumulate: accumulation for its own sake, not for use-values. Finally, Marx’s theory is a theory of the reproduction (in its purest form) of capitalism as a social relation, as a mode of production. It is therefore necessarily dynamic, temporal, and emphatically not an equilibrium theory of price. The purpose of Marx’s theory of value is not to explain within a single production cycle the prices of the outputs, as all non-temporal, i.e. ‘simultaneist’, interpretations assume, and as in fact neoclassical micro-economics is.

In the error of ignoring all these aspects, Sraffian theory is ironically much closer to the neoclassical view of economics, with its reduction of social scientific content for the purposes of mathematical tractability, than Marxist economics has ever been. And this has very real theoretical consequences. As Kliman has demonstrated in his various articles (often together with Alan Freeman and Ted McGlone, and other economists have also made these points, as Keen ought to know), once one adopts a temporal interpretation of the transformation of input and output values into input and output prices, the so-called ‘transformation problem’ disappears. The inconsistencies result from the need for the inputs of the one cycle to be equal to the outputs of that cycle in terms of value; and either they are, in which case there is no profit, or they are not, in which case mere physical, technological determination of production suffices to explain the difference, and the theory of value is redundant (as is indeed believed by neoclassical economists, generally). But for Marx, the theory of value is explicitly a temporal theory, and it is this not arbitrarily, but because it is first and foremost a social theory, a theory of the reproduction of capitalist society as a whole over time. Because of this, the prices of the outputs of cycle 1 are the values of the inputs of cycle 2, and the problem resolves itself, never achieving equilibrium by any necessity.

It is precisely because of this dynamic aspect that Marx was able to identify the tendency of the rate of profit to fall as a result of technological change over time coming into conflict with capitalist accumulation of value, and in turn why Marx was able to identify very temporal theories of capitalist crises resulting from this fact. (As we have seen above, there are more causes of crisis identified by Marxism than this: the possibility of speculative expansion due to precisely thedivergence of price and value, and then the reassertion of the need for value accumulation after some exogenous shock or subjective change in outlook, is another.) It would go too far in an article already long and technical like this to go into greater detail on Marx’s theory of technological change, devaluation of outputs, and the rate of profit to fall. Perhaps some other time this can be expanded upon; for now, it suffices to make Keen address the very real refutations of Steedman’s physicalist interpretation of Marx offered above, and my critiques of the Sraffian framework from which Keen critiques Marx more generally. As long as the significance of labor-power being the sole source of surplus value, its historical significance, the specificity of capitalism as a mode of production, and the nature of the theory of value as a social theory are not understood, readers of Keen will not be able to comprehend Marx’s theory adequately. This, in turn, finalizes my third anti-critique, and thereby my article.

As a parting shot, we can simply note that the hasty dismissal of Marxism by even such a critical and valuable economist as Steve Keen only serves to further entrench the inability of left-leaning economists to meaningfully, consistently, and immanently critique capitalism as a historical mode of production. Going beyond mere complaints about deregulation, blaming greed and incompetence, or desiring to go back to some Golden Age of Keynesian dirigisme, Marxist economics and only Marxist economics provides a basis that is at once historically grounded and social-scientific from which to critique capitalism as a totality. It does so, as all understanding must do, by comprehending its laws of motion, including its tendency to crisis and the very social foundations of its reproduction as a historically determinate type of society. Therefore, although all the above rejoinder may appear to be technical and incredibly abstruse, it is important insofar as it is precisely the lack of theoretical knowledge on much of the left that does not allow them to critique the easy dismissals of Marx common among the economic and political orthodoxy. Marxism is then often reduced to a merely ethical claim about capitalism, or it is reduced to a set of political statements about inequality and distribution, which can in principle be solved by any honest social-democratic politician. It is exactly notions like the supposed inconsistency due to the ‘transformation problem’, taught to any student who still receives training in history of economics at all, that makes such an attitude as prevalent as it is harmful. For this reason, with the greatest respect for Steve Keen, these type of abstract critiques will remain necessary.


(1) For the latest version: Steve Keen, Debunking Economics: The Naked Emperor Dethroned? (2011). London/New York: Zed Books.
(2) Keen, p. 412.
(3) Keen, p. 422.
(4) Karl Marx, Capital, Vol. I (1976). Harmondsworth: Penguin.
(5) Keen, p. 432.
(6) Keen, p. 432.
(7) Marx, p. 125.
(8) Cited in: Alfredo Saad-Filho, The Value of Marx (New York, NY 2002), p. 37.
(9) Marx, p. 125-126.
(10) Cited in Keen, p. 441.
(11) In this discussion it must be noted the essential elements of all production transhistorically are land and labor, not just labor, as Marx pointed out in theCritique of the Gotha Programme. But even then, no matter how generous Nature’s bounty, to pluck its rewards still requires human labor, without which no member of our species survives for more than mere days. Labor then is the sine qua non of production proper, even if it is merely the labor of gathering berries, etc. As Marx points out, labor is therefore not the only source of material wealth in the general sense of use-values. But this is independent of nature’s status as a commodity, which is specific to capitalism. “Labour… is a condition of human existence which is independent of all forms of society; it is an eternal necessity which mediates the metabolism between man and nature, and therefore human life itself.” (Marx, p. 133).
(12) Marx, p. 137.
(13) Cited in Keen, p. 436.
(14) Saad-Filho, p. 64.
(15) Cited in Saad-Filho, p. 64.
(16) Saad-Filho, p. 65-66; See Michael Perelman, “Marx, Devalorisation, and the Theory of Value”. 1999. Cambridge Journal of Economics 23:6, p. 723.
(17) Andrew Kliman, “Value in Process: On the Temporality and Internal Consistency of Marx’s Capital”. 2001. Society for the Philosophical Study of Marxism at the Eastern Division conference of the American Philosophical Association, Atlanta, GA, Dec. 28, 2001.

Discussion8 Comments

  1. skip says:

    An odd mix: half value-form, half TSSI. I prefer the value-form. This, in particular, is pretty shaky stuff:

    “Imagine that 10 quarters of seed corn are planted at the start of the year, and the farmworkers perform 4000 hours of labor during the year. But because of bad weather, only 8 quarters of corn are harvested… This leads to the meaningless result that the value per quarter, measured in terms of labor-time, is –2000 labor-hours. (17)”

    This result actually has to commit “physicalism”–that is, it has to treat physical output as equivalent to value–in order to get its negative number. Value is not “measured in terms of labor-time”, but in terms of socially-necessary labor time. The value of the corn output will depend on what is happening at all the other farms in the economy.

    Negative results aren’t meaningless. They mean that the labour turned out to destroy value rather than create it, but that this was only discovered when the product went to market. A pretty normal part of the dynamic of capitalist production. Like if I use up a hundred expensive rhinestones to make a rhinestone jumpsuit, only to discover they’ve gone out of fashion. The corn-farming capitalist has made a bad investment and suffered a loss.

    This whole process, in fact, contradicts the (good) arguments made at the beginning of the article. Abstractions like this corn-farm need to be justified dialectically. Capitalism is not a series of perfectly spherical corn-farms radiating value in a vacuum. If you’re going to present a “model” of capitalist production that abstracts away from money, capital, competition–but nonetheless appeals to value–you are going to have to have a very clear idea of how and why.

  2. mkrul says:

    I don’t see your objection. I’m definitely a supporter of the TSSI, not of the value-form; but there is no possibility in Marx’s theory for value to be negative. At worst it can be zero, for example when there is no use-value in the good, as in the case you describe; but a negative result precisely only makes sense in a physicalist interpretation, and is incompatible with Marx’s analysis. After all, if we purely measure value in *physical* terms, then value is in fact entirely redundant, and we only need price, as is the inevitable consequence of any physicalist/simultaneist interpretation.

    However, if the value of the corn at the end of the production process is dependent on the productivity changes (or the weather, as an exogenous factor, etc) in the intervening period, and therefore not necessarily the same as those of the corn inputs, then there can be a divergence between the input values and the output prices of production. This makes value not a redundant category, and also means that one does not get the result that with less of a good being available, their value goes down, as the physicalist result implies.

    Also, there are no “other farms in the economy” in a Sraffian corn model!

    • skip says:

      “but there is no possibility in Marx’s theory for value to be negative”

      You are confusing “value being negative” with concrete labour *destroying value*. There is certainly a possibility that labour destroys value. In this example, the farmer has purchased corn, put labour into it, suffered an unpredictable weather event that made the labour useless, and ended up with less valuable stuff than there was at the start.

      Nobody is imparting “negative value” into anything. They are working, but they only realise when the product goes to market that their work has been useless: they have planted corn in the wrong place and it has been destroyed. They used up valuable goods, but their work was not socially necessary.

      But, as I said, there’s actually no way in the model provided to assess the “value” of the output. As Marx says approximately a billion times, the only relevant factor will be the SNLT needed to create it. There’s no way to gather that in this model, so there’s no way to assess value. The only data given relates to the actual embodied labour that went into this round of production.

      What’s the value of the eight quarters of corn at the output? It has nothing to do with what happened at this farm, with its troubled history. That’s a cost-of-production model. It has everything to do with how much SNLT would be required to produce eight quarters of corn now. Because Marx’s value theory is not about how to add up prices from components, but how labour is exchanged and regulated under capitalist production.

      “Also, there are no “other farms in the economy” in a Sraffian corn model!”

      Yes, so there’s no meaningful way to speak about value or socially necessary labour time. At some points in the analogy, the farm is supposed to stand for an individual firm; at other points, for an industry; at other points, for *all industry* and money.

      • skip says:

        The key is here:

        “the value per quarter, measured in terms of labor-time, is –2000 labor-hours.”

        But we don’t measure value in labour-time; we measure it in socially necessary labour-time. Otherwise we really are being “physicalist”.

  3. Mike Ballard says:

    Thanks for this cogent discussion and critique. I wasn’t as aware of Keen as I am now. It does seem obvious to me that wealth would not be produced if labour went on general strike and that the whole wage system would collapse, if such a worldwide strike lasted for a month.

    I’m still of the opinion that Marx meant that commodities, not produced strictly for the use of the producer and instead, traded for other use-values were commodities e.g. CMC. Perhaps, you can convince me otherwise. The MCM’ of capitalism is the historical stage production reaches during and after the complete sublation of feudalism. Wage-labour was employed e.g. by the Egyptian ruling class to provide the skilled labour power needed to construct their pyramids. Thus, wage-labour as a commodity, traded as labour power to the rulers of Egypt for money or food and shelter was in existence. Slaves were also used as well as conscripts from peasant villages. Wage-labour always separates ownership and control of the product from the producer. Commodity=separation of the use-value from the producer. That the pyramids weren’t sold doesn’t change this basic social relation of political power. Generalised wage-labour is capitalist production and the commodities which issue from commodified labour power are marketed for profit..M’. Generalised wage-labour didn’t exist in pre-capitalist class dominated societies; but, here and there, wage-labour did exist and where there is wage-labour, there is the seed which will, over the course of time, come to fruition as capitalism.

  4. Dr_Tad says:

    John Quiggin raised the following objection to Matthijs’ post with me via Twitter:

    For me, this piece doesn’t answer the question “Why should we care about value theory”. I care about crises, but not about value.

    The problem is that Marx’s crisis theory rests on his theory of value. Even from Volume 1 of Capital it becomes obvious that Marx sees all the contradictions of capitalist society as being embodied in the contradictory nature of the commodity. By the time he gets to a crisis theory per se in Volume 3, working at a different level of abstraction, he can show how these contradictions operate in the economy as a whole. Of course that’s not to say that you can simply logically deduce the theory from one level of abstraction to another, but that there is an internal consistency to how these conceptions are connected.

    Thus, when it comes to theorising the underlying causes of crisis, a disproof of Marx’s value theory means that theory of crisis cannot be valid on its own terms, even if it (by chance) has predictive value. This has implications both for what sort of crisis theory one sees is valid and also whether one accepts that capitalist social relations make crisis unavoidable.

    Keen himself seems pretty clear on this when he writes (after claiming to find the error in Marx’s value theory):

    “The tendency of the rate of profit to fall suffers a similar fate. This ‘tendency’, like the transformation problem itself, was founded on the proposition that labor was the only source of value, and that there was a tendency over time for the ratio of capital to labor (measured in value terms) to rise. Since surplus can be garnered from all inputs to production, there is no reason why an increase in the ratio of commodity to labor inputs should lead to a decline in the overall rate of surplus.” (

    Keen is most attracted to a version of Minsky’s crisis theory, which I am only superficially familiar with, but it seems pretty clear that he and Minsky believe that instability is an inevitable part of capitalism but also that with the right institutional mechanisms and policy measures these kinds of problems can be kept at bay. I think the strength of Keen’s intervention is that he points to the deep problems the debt overhang create for trying to rekindle new economic growth, even if there is massive government spending of the sort Krugman and other Keynesian-inclined economists suggest. But while I can buy a Minsky-style instability hypothesis in terms of developments in the world economy during the neoliberal era (especially the rise of powerful tendencies to financialisation), it seems rather vague on why sometimes crises should so powerfully and intractably affect the productive economy, as in the depressions in the late 1800s, the 1930s and today.

    As I’m no economics expert, I am happy to defer to Michael Roberts’ excellent discussions of the tensions between those dissident economists who argue that lack of stimulus is the key problem and those who see debt deleveraging as the main issue. See, for example:

  5. John Quiggin says:

    A couple of comments

    1. My impression is that Minsky didn’t put much faith in Keynesian stabilization, but also didn’t see crisis as leading to a collapse of capitalism. He tended to present cycles of boom and bust as inevitable and permanent

    2. In the same vein, I agree that Marx thought his crisis theory was founded on his value theory in the way you describe. But this leads to a monotonic trend of ever more severe crisis culminating in a collapse of capitalism. As you imply, that’s hard to square with the data, which shows lengthy periods of greater or lesser volatility, as well as one striking exception, the Keynesian long boom. In general, I find Marx more interesting the further he gets away from the scheme of Vol 1 of Capital – that’s true of his discussion of crisis and lots of other things. In particular, I read him as seeing the centrality of scale economies and the resulting struggle between capitalists, something missing completely from the classical economists (Adam Smith’s pin factory notwithstanding) and mostly from modern macro as well. By contrast, Vol I talks about a fixed proportions, constant returns to scale world.

    • Dr_Tad says:

      Thanks for your comments.

      I’ll have to take your word on (1) as I’ve seen Minsky presented both as someone who did think institutional & policy measures could work and as someone who didn’t!

      On (2) I don’t read Marx as proposing a monotonic trend. Apart from the infamous “countervailing factors”, the immediate effects of investment cycles, and the conversion of non-capitalist products into commodities at little or no cost through invasion/plunder, he does propose that destruction of value (capital) as the most effective process to allow the return of high rates of profit because (at great cost) it decreases the organic composition of capital across an economy or economies.

      I think there are multiple ways this has happened in practice. At the most basic level recessions produce this effect, and depressions at even greater intensity. But it seems to me that total war (e.g. WWII) can also produce this on a sufficient scale to make a difference to the rate of profit across many advanced economies; this is part of the explanation for the post-WWII boom. Then there is the unusual phenomenon of the integration of the Soviet bloc (which I see as state capitalist pre-1989) into the European economy not because these economies were previously non-capitalist but because the privatisations and restructuring effectively destroyed value on a massive scale (Russia experienced a recession of Great Depression like proportions).

      I do think that Marx’s discussion of the concentration and centralisation of capital is useful here because not only does it underline the changing shape of competition as capitalism ages (which begets monopoly and integration with the state) but because it explains why allowing serious destruction of value starts to become very difficult to pull off for fear of plunging the economy into ever deeper crisis. Hence the current crisis has not done anywhere near enough to resolve that problem, something I think Roberts links well to the empirical data.