Monday, 17 October 2016

Labour and scarcity: Ricardo's caveat

Ricardo states something interesting on the first pages of his Principles of Political Economy and Taxation. He states that although scarcity contributes to exchange value he will exclude it from his analysis. That means that his labour theory of value only concerns situations without scarcity.
Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labor required to obtain them.
    There are some commodities, the value of which is determined by their scarcity alone. No labor can increase the quantity of such goods, and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality, which can be made only from grapes grown on a particular soil, of which there is a very limited quantity, are of this description. Their value is wholly independent of the quantity of labor originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them.
    These commodities, however, form a very small part of the mass of commodities daily exchanged in the market....
    In speaking, then, of commodities, of their exchangeable value... we mean always such commodities only as can be increased in quantity by the exertion of human industry (Ricardo 1996: 18)
This passage strikes me as very suggestive in regard to the question of the relation between nature and capitalism. After all, nature is finite. Many natural resources are scarce. The way nature is priced within capitalism doesn't reflect labour, but - Ricardo seems to suggest - is better estimated through a supply and demand framework where supply is inelastic. This admission clearly makes the labour theory of value easier to defend, since many common objections to it seem to concern situations that involve scarcity.

We should note, by the way, that here "scarcity" doesn't mean scarcity in general, or scarcity in relation to human needs. It means scarcity in relation to economic demand, meaning a situation where the supply of a certain commodity cannot be easily increased to match the demand of people who would afford to buy it. Contrary to the common viewpoint that the "supply and demand" framework in economics is incompatible with the labour theory of value, Ricardo here states that this theory applies best to situations where supply and demand are perfectly elastic, i.e. free to adapt flexibly to each other. In other words, it applies precisely to the kind of idealized, unrealistic markets used in textbook economics. Just try a thought-experiment: if it had been possible to produce oil freely, the price would certainly be far lower than today, possibly reflecting the price of the labour needed to produce it. It seems clear, then, that a lot of problems with the labour theory of value might disappear if we recall Ricardo's caveat that it isn't meant to apply to situations of scarcity.

Is scarcity unimportant? Ricardo seems to think so. The assumption seems to be that we can legitimately abstract from scarcity if we wish to understand the logic of capital accumulation, since scarce commodities are few and since there can't be any long-term growth in such commodities. Against this, it is easy to argue that scarce commodities are not marginal at all, but form a substantial part of our economy. Not only nature, but also real estate, money and labour power are examples of commodities with inelastic supply. Furthermore, scarcity characterizes key commodities - such as oil - that seem central to the functioning of capitalism as a whole. Finally, we can easily realize the importance of scarcity in the economy if we recall that scarcity includes not only "natural" scarcity but also scarcity that is "socially" created, for instance by monopolies, copyrights, patents, custom barriers and so on. As Immanuel Wallerstein (2004:25) points out, all profitable enterprises are in fact monopolistic or quasi-monopolistic, since profits would evaporate if competitors were perfectly free to imitate successful innovations. From that viewpoint, scarcity is key to understanding capitalism. Far from being something that can be legitimately neglected, the role played by scarcity in the process of capital accumulation is precisely what needs to be better understood.



Marx and scarcity

Marx developed his value law from Ricardo's labour theory of value, but he also introduced important modifications to it, above all the idea of socially necessary labour-time. Does Marx's version of the labour theory of value abstract from scarcity, like Ricardo's, or do his modifications mean that it takes account of scarcity? This question is important to clarify in order to: 1) assess the persuasiveness of Marx's value law, and 2) ascertain to what extent this value law helps us understand the relation between capitalism and nature.

Unlike Ricardo, Marx doesn't - as far as I know - anywhere state clearly that he will abstract from scarcity in his analyses. In fact, it's not easy to find much explicit discussion of scarcity at all in his writings. As one commentator states: "Marx did not like to write about scarcity. Malthus ruined the question for him" (Moore 2014:92).

The lack of clarity in regard to how he stands in relation to scarcity has, I suspect, led to some confusion around to what extent Marxist analyses are applicable to "nature", "land" or "immaterial" forms of production (I include "immaterial" production in this list since it's a field where the artificial scarcity created by copyright is important). That Marx appears to neglect scarcity has been viewed as a weakness in his version of the value law since it invites the criticism that the exchange value of commodities such as natural resources, real estate or brands doesn't seem to reflect the labour needed to produce them.

But is it true that Marx disregards scarcity? To some extent, yes. Take this passage in Volume 1 of Capital where he writes about the means of production that “if... it is not the product of human labour, it transfers no value to the product. It helps to create use-value without contributing to the formation of exchange-value” (Marx 1967a: 204). Marx disregards scarcity here, since it is only in conditions without scarcity that nature creates use-value without contributing to exchange-value.

But in Volume 3 of Capital, he does discuss scarcity. A natural power:
does not enter into the determination of price, so long as the product which it helped to produce suffices to meet the demand. But if in the course of development, a larger output is demanded than that which can be supplied with the help of this natural power... then a new additional element enters into capital... a rise in the price of production takes place. (Marx 1967b: 745)
Commenting on this passage, Paul Burkett points out that it is from scarcity that rent arises and that the theory of rent solves the problem of how commodities that don’t contain labour can possess exchange-value. Furthermore, he points out that scarcity is a precondition of monopolization and that land rent is a redistribution of surplus-value derived from a monopolized force of nature (Burkett 2014: 74f, 90). Profits derived from scarcity, in other words, represent a redistribution of surplus-value produced elsewhere in the capitalist system. These profits therefore contribute to the capital accumulation only of certain capitalists, not of the capitalist system as a whole. This argument is fine as far as it goes. We can note that it seems to hold both for Ricardian and Marxian economics.

However, Burkett then adds an important argument that suggests that Marx's value law - unlike Ricardo's - does take account of scarcity: "But these conditions, together with their rents, are freely appropriated insofar as their useful effects can otherwise be produced, if at all, only through an additional expenditure of wage-labor time" (ibid. 75). This means that the value law can account at least to a certain extent for rising exchange values, even where those exchange values seem due to scarcity rather than labor. In such situations, “socially necessary labor-time” may still determine prices since the rent reflects the cost of the wage-labor that would be required to produce an additional equivalent unit. Far from excluding scarcity from consideration, Marx’s theory accounts for the higher prices scarcity gives rise to, since more labor is required to produce the commodity the scarcer it gets:
In Marx’s analysis, if a useful natural condition of production becomes increasingly scarce... the average productivity of the labor appropriating or utilizing this natural condition is, by definition, reduced... The values of the commodities produced with the increasingly scarce natural condition will, accordingly, be increased due to the greater amount of social labor time now required to produce the same use values. (ibid. 106)
What enables Marx to account for scarcity is the concept of "socially necessary labour-time". Interestingly, this concept operates with a kind of marginality: the socially necessary labour that according to Marx gives rise to a commodity's value isn't the actual amount of labour expended in manufacturing it, but the labor an imagined competitor would have to be prepared to expend in order to manufacture one more equivalent unit of the commodity (e.g. by prospecting for more of a scarce natural resource or developing an artificial substitute).

The modification that Marx introduces in Ricardo's labour theory of value then - namely that value is the product of abstract labour, reflecting the labor time that is socially necessary to produce the commodity - means that he can drop Ricardo's caveat, at least to some extent. But can he drop it entirely? Perhaps not. Even the concept of "socially necessary labour-time" cannot account for the exchange values obtained in wholly monopolistic situations, where the socially necessary labour of an imagined competitor would be infinite. Against this, one might turn the argument around and argue that it is precisely the excessive amount of "socially necessary labour-time" in situations like this that explains why a monopoly can be maintained at all. Still, the problem remains that some commodities aren't just monopolized but truly unique (e.g. celebrity items or certain pieces of real estate). In the case of unique commodities, prices seem to fluctuate only according to their desirability. The connection with labour time seems lost totally, and we're back in a situation where supply-and-demand works better. The alternative would be to deny that any commodity can be unique by stretching the concept of "equivalence". If we don't wish to take this step, however, the conclusion seems to be that we still need something like Ricardo's caveat in order to make the labor theory of value wholly persuasive.

By way of ending, let me return to the question whether scarcity is important. I've already mentioned the argument that scarcity is marginal from the standpoint of the capital accumulation of the capitalist system as a whole. After all, if profits obtained by scarcity only represent a "rent"-like redistribution of the aggregate surplus value produced in the system, then it seems legitimate to disregard it if we're interested primarily in the fundamental logic of capital accumulation as such. But it seems to me that one can make two objections to this argument.

Firstly, the argument disregards the role of "socially" created scarcity in raising profits overall by creating new rounds of capital accumulation - namely when it is accompanied by rising demand. For instance, when a new innovation is introduced in the market it is usually "scarce" in the sense that competitors don't yet have any equivalent commodity to offer. As mentioned, scarcity isn't a natural, objective property, but exists in relation to demand. If demand rises - for instance through a technological breakthrough that makes new machinery or new consumer goods available on the market - then a situation will result where scarcity is co-produced with and forms an integral part of the boost in capital accumulation.

Secondly, to disregard scarcity seems extremely unhelpful considering that, strictly speaking, no commodities are unaffected by scarcity. All commodities - both material and immaterial - require finite means of production. Neither raw materials nor energy nor labor power exist in infinite supply. If this is so, then scarcity is simply a too central component of how the economy works to be disregarded.



References


Burkett, Paul (2014) Marx and Nature: A Red and Green Perspective, Chicago: Haymarket Books.

Marx, Karl (1967a) Capital, Volume I, New York: International Publishers.

Marx, Karl (1967b) Capital, Volume III, New York: International Publishers.

Moore, Jason (2015) Capitalism in the Web of Life: Ecology and the Accumulation of Capital, London: Verso.

Ricardo, David (1996) Principles of Political Economy and Taxation, New York: Prometheus Books

Wallerstein, Immanuel (2004) World-systems Analysis: An Introduction, Durhamn: Duke University Press.

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