Nouriel Roubini : "Karl Marx had it right. At some point capitalism can self-destroy itself because you cannot keep on shifting income from labour to capital without not having excess capacity and a lack of aggregate demand, and that's what's happening." - in an interview with The Wall Street Journal this week
Smiling Dave breaks it down. I'll make explicit the silly notions, then show why they are ridiculous:
- Capitalism shifts income from labour to capital. The simplest thing is to ask where and when this happens. Marx has his well known answer, based on the labor theory of value, which has been proven ridiculous many times. He argues that since the worth of an object comes from how much labor was put into making it, and the worker, by definition, does all the work, then his employer deserves none of the profits.
Here are the well known flaws in the Labor theory of Value, compliments of David Gordon:
First, the value of some goods seems clearly not to depend on the labor time needed to produce them. Böhm-Bawerk noted that wine often increases in value the longer it is stored. The labor required to gather the grapes and turn them into wine contributes very little to the price of wine.
Second, the circular definition involved in "socially necessary". Marx realized that an expert works much faster than an incompetent, yet they both might make identical products. So the amount of labor in otherwise identical objects differs depending on who made it, but the prices are the same. Marx got round this by saying that what counts is the "socially necessary" labor needed to make it. And how much labor is socially necessary to make, say, a pizza? That depends on the market price of the pizza. If it sells for $10, then ten dollars worth of labor is the socially necessary amount.
We have a circular definition here. The market price of a good comes from how much socially necessary labor went into it, and how much labor is socially necessary comes from the market price of the good. Put another way, why doesn't the pizza cost $20, based on the labor of the guy who takes twice as long to make it? On the other hand, why doesn't it cost a buck, based on the labor of the expert who makes pizzas ten times as fast?
[Have a look at Gordon's book to see another variation of this fallacy that Marx makes.]
Third, Marx admitted that in the real world, the Labor Theory of Value just doesn't work. He tried to weasel his way out of it, but has been shown to be mistaken. We refer the interested reader to Gordon's book.
Continued in Part Two.