A Brief Primer on Value Theory, Part I: From the Physiocrats to Ricardo


I would like to write a little clarification on the differences between various schools of thought where “value” is concerned, which I’ve noticed has become a major point of contention in debates between advocates of capitalism (specifically anarcho-capitalism) and socialism. One the major problems (besides theoretical differences, of course) is that we’re dealing with a semantic swamp, where the same word is being used by three or four groups in three or four different ways. Debate today tends to conflate these different meanings into two primary forms: on one hand, the subjective theory of value suggested by the marginalists, and a unified labor theory of value which is more a by-product of critics, and not really a reflection of much of anything. I want to identify (at the very least) four different forms of value in economic thought:

  • The Physiocrat approach to value
  • The Classical approach to value
  • The Marxist approach to value
  • The Marginalist approach to value

In this schema, there is more or less a direction line running from the Physiocrat to Classical schools, but the classical school itself can be (for our purposes here) divided into two sub-sections:

  • Smithian
  • Ricardian

Now, Marxian value theories, while emerging from the Classical lineage, serves as a repudiation of its predecessors, specifically the Ricardian sub-section. The marginalists constitute another break, but what is important to consider is that one of the major elements in this break is a complete and total methodology. In other words, what we are dealing with are several different “apparatuses” through which economics can be approached. Differences in apparatuses, of course, will always yield different outcomes concerning the object or system in question, but the divergence where value theory is concerned is operating at the semantic, discursive level. One can argue the merits of one school vs. the other school and seek to disprove them through various means – but using the marginalist definition of value to discredit early value theories cannot happen, for the terms are not in any alignment. Regardless of which side one is one, one is forced to shift their arguments elsewhere.

So what is value? For the marginalists, value is individualized, the worth applied by the individual to a commodity on the market. Do I want/need this commodity, and does that justify X cost? Price emerges, in their theory, as the average of these valuation. Neat, simple, straightforward, and by the time we get to Debreu’s 1959 The Theory of Value, value and price had become synonymous with one another. This very recent conflation of two terms has only served to confuse matters more, as things get a little more complicated as we go back in time.

To understand what economists before the marginalists were talking about when they say “value”, we have to understand that it is an intermingling of three things: a metaphor, a unit of measure, and a force that empowers movement. Taken broadly, value is understood as a substance that is represented, but not irreducible to, money. The Physiocrats, the classicalists, and the Marxists shared a common framework for approach economic life, which they defined as three spheres:

  • Production
  • Circulation
  • Consumption

Value as metaphor allowed a vantage point from which to observe the transformation of things between each sphere. Value as measure emerged from the need to study the laws governing the these transformations. Value as force was developed to explore the momentum and movement flowing through these spheres. It is this last one that is most important for the Physiocrats and Classicals: most of these economists were developing their theories in close relation with many of the scientific developments taking place at their time, and mutual influence radiates through both. As Philip Mirowski in More Heat Than Light illustrates, economics was conceived as following the same sets of rules as the emerging field of studies that would later be described as physics. So at this point we have the substance of value being roughly equated to energy itself, transforming from form to form.

The Physiocrats

The Physiocrats used the term ble to describe value, which roughly translates as wheat; their model, thus, is one in which all momentum and transformation in the economy emerges from agriculture. To quote Francois Quesnay, the father of the Physiocrats,

[Agriculture] gives rise to settled laws, weights, measures, and everything which is concerned with determining and guaranteeing possessions.

It’s kind of understandable why they would think this, given that at the time the society was largely organized around agriculture itself. But there is more to this picture. As any person familiar with the history or philosophy of science knows, slippages between metaphors have cascading effects that often mold or shape the apparatus being used. This is what happens in Quesnay’s work: it was common in this time to associate the functions of Nature (as a concept) with that of the human body. Quesnay, in addition to being an economist, was a court physician, and specialized specifically in the study of blood flow. As blood is in movement throughout the body, he came to draw a parallel between this and the movement of ble/wheat/value through the body of society. This was the foundation of his famous Tableau économique, which charts the movement of ble/wheat/value through society based on the flow of blood through the human body. As Mirowksi writes:

The parallels between Quesnay’s medical theories and his political economy are extensive. Quesnay’s understanding of the configuration of the cardiovascular and economic systems are identical; health in both instances means the unobstructed flow of a conserved substance through the system. More profoundly, just as the major vital processes had been supposedly reduced to the motion of a single substance, so, too, were the motley of economic activities reduced to the motion of a unique value substance across some class boundaries… Far from merely operating on the plane of broad analogy, Quesnay’s Tableau reflects his physical theories down to small details. For instance, the Tableau reproduces the tubes of tin, with all flows eventually returning to the pump/landlords. As the aim of bloodletting was to free up circulation in order to restore health, the physiocratic advocacy of freer trade was to free up the circulation of value to restore national wealth. Indeed, the physiocratic doctrine of a single tax was a projection of Quesnay’s surgical doctrine that a single incision during bloodletting was the most efficient and efficacious regimen. (Mirowski, More Heat Than Light, pgs. 157-158)

In other words, the healthy body requires blood to flow unimpeded, Quesnay reasoned that ble/wheat/value must also move unimpeded through society if the social body is to be healthy. Thus, we arrive as a laissez-faire understanding of economics.

The Classicalists

The transition from the Physiocrats to the Classicals must be contextualized in two developments:

  1. The transition form an agricultural economy to an industrial economy, with the subordination of the former by the latter.
  2. The discovery of the laws of thermodynamics

It’s worth pointing out that in many respects, the discovery of the laws of thermodynamics emerged from the Industrial Revolution itself. Many of those involved in unraveling the nuances of this new science, such as Sadie Carnot, developed their theories based on observations of steam pumps and heat engines. An obsession with machines reigned supreme in this time, with everything from the cosmos to the human body being defined in terms of the machine. This is what Amy Wendling has described as the

“energeticist model” of the interaction between humans and nature. In this model, human and natural forces are not distinct in kind. The human is not a spiritual or vital force at work in the natural, material world, transforming the latter in a form-giving way. Instead, concepts like “spiritual” and “vital” are progressively eliminated from scientific usage. Matter and form come to be seen as two expressions of a single kind of force: energy. Humans, nature, and machines all operate according to a single model—the model of energetic flow. Energy can be converted from a static material, to heat, to a mechanical activity, and back again. Such conversions subtend phenomena that were formerly portrayed as diverse and as operating according to different rules. In the energeticist model, the work of the steam engine, human labor, human intellection, natural events, animal actions, and even human political life are all portrayed in the same way, and they follow the same basic rule: the rule of energy transforming itself. (Wendling, Karl Marx on Technology and Alienation, pg. 62)

Or as Anson Rabinbach has put it: “The human body and the industrial machine were both motors that converted energy into mechanical work… The laboring body was thus interpreted as the site of conversion, or exchange, between nature and society-the medium through which the forces of nature are transformed into the forces that propel society.” (Rabinbach, The Human Motor, pg. 2) We can see from this perspective how the metaphors would begin to shift: from a constellation bringing together the transformation of ble/wheat/value through the movement from Nature to Society via agriculture with the healthy flow of blood through the body, to one on which value becomes akin to energy, transferred from Nature to Society via the labor of the human body. Interestingly, there are suggestions that Sadie Carnot’s diagram of the heat engine, which from the notion of the Carnot cycle sprung, was itself inspired by Quesnay’s Tableau économique.

Value in Smithian Classicalism

To continue with our exploration of value we’ll have to back up a little, and return to Adam Smith. Taken most broadly, Smith’s work was a transposition of Physiocratic frameworks into the newfound economic context. The Physiocratic system, he wrote “with all its imperfections is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political œconomy”. (Smith, The Wealth of Nations, Book IV, Chapter IX). By the same token, by “representing the labour which is employed upon land as the only productive labour” Quesnay and his intellectual kin had erred, as “the notions which it inculcates are perhaps too narrow and confined.”

That’s not to say that it is a perfect fit. In his transposition, Smith offers several contradictory positions on the question of value. In the first instance, he shifts the locus from agriculture to industry while retaining labor as the source of value, corresponding to a sort of measure of a given commodity’s pre-market price. “But Adam Smith,” as Benjamin Tucker would later write, “immediately abandoned all further consideration of it to devote himself to showing what actually does measure price, and how, therefore, wealth is at present distributed.” (Tucker, “State Socialism and Anarchism”) Thus later in The Wealth of Nations, a new perspective on value arises, one in which value is not based on labor, but on stocks. Yet while most approach stocks as composed the sum total of given firm’s commodities available for sale on the market,

Smith only compounds the problem by suggesting that stock is comprised of physical goods and education, talents, and abilities. Without hesitation over the enormity of the task of reduction, he then proceeded to treat this agglomeration as a coherent and homogeneous aggregate for the individual, much as an early merchant would lump together all of his assets (including even his household silverware) in a single stock book… stock will be analyzed independent of relative price changes, a formless incompressable jelly, effortlessly rendered suitable for either consumption of investment. In a manne r of speaking, Smith avoided the value conundrum that had so engrossed his predecessors by essentially bypassing it save for some early comments on labor, which are dropped in the subsequent analysis. The primary function of those comments were to keep open a few tenuous lines to the metaphor of body, which only later in classical political economy grows in significance. (Mirowksi, More Heat Than Light, pgs. 166-167)

Value in Ricardian Classicalism

It was precisely this tension running through Smith – value emerging from labor on one side, and value equating to the total stock of a nation, writ large – that gave rise to the much-maligned Ricardian perspective. In his brief adoption of labor as the source of value, Smith had inherited value-as-force from the Physiocrats, but ultimately abandoned this by making value into a synonym for aggregate wealth. Ricardo, however, sought to synthesize this perspectives (while perhaps narrowing stocks down to physical commodities), and in doing so turned to value-as-measure. Ricardo:

All measures of length are measures of absolute as well as relative length. Suppose linen and cloth to be liable to contract and expand, by measuring them at different times with a foot rule, which was itself neither liable to expand or contract, we should be able to determine what alteration had taken place in their length… There can be no unerring measure either of length, of weight, of time or of value unless there be some object in nature to which the standard itself can be referred and by which we are enabled to ascertain whether it preserves the character of invariability. (Quoted in Mirowski, More Heat Than Light, pgs. 173-174)

Ricardo had been associated with the Philosophical Radicals, a group of intellectuals who followed the utilitarianism of Jeremy Bentham and James Mill. The utilitarians had sought to measure the value of pleasure in terms of how much pain or toil had to be expended to ascertain that pleasure; this itself mirrored certain observations concerning labor to written by Smith in The Wealth of Nations: “The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it”. (Smith The Wealth of Nations Book 1, Chapter 5) Thus labor emerges through this selective line of reasoning, quite naturally, as the “object in nature” which things can be measured against. Ricardo reasons, for example, if two different commodities both took one laborer four hours of work to produce, then both commodities would have the same value.

Smith had argued that the actions of the market, be it the whip or competition and the ebbs and flow of demand, would drive the price of a given commodity down towards toward its “natural price”, that is, the costs that were incurred in the production process. As labor is a major component of these costs, and had previously played a role in the costs of the raw materials that labor works with, Ricardo assimilated this perspective with his treatment of value. His labor theory of value, then, is also a cost-of-production theory of value and a labor theory of price.

It is precisely here at this point here that I suggest we treat as the origins of the semantic confusion concerning value, price, and the ultimate difference between the Physiocrat-Classicalist and marginalist approaches to value theory and price theory. Indeed, whereas the Physiocrats and Smith (up to a point) treated value and price as separate forces, Ricardo appears to be collapsing them together through his reflections on costs. The marginalists did themselves no favors in untangling the ambiguities, as their own very different interpretation of what value was also a theory of price. When Stanley Jevons suggested “that value depends entirely upon utility”, this notion of value was detached from the preoccupations and interests that had fueled value theory (i.e., the metaphorical slippages and the borrowings from science – even though the marginalists did indeed import these elements in their own idiosyncratic way).

What Ricardo was describing as “value” was separated from market price, despite obfuscations that say otherwise. In his “Notes on Malthus”, he does argue that market prices “depend on supply and demand”, though in time they would “be finally determined by… the cost of production.” (Carson Studies in a Mutualist Political Economy, pg. 39) Furthermore, he took care to compile lists of the exception to his theory: scarce goods and luxury items and other non-reproducible goods. This caused several problems in the marginalist critique of Ricardo, such as the case of Eugen Böhm von Bawerk recounted by Kevin Carson:

Böhm-Bawerk was at his best in systematically analyzing the exceptions to the labor-theory and the cost-principle. In so doing, however, he was forced to admit a rough statistical correlation between cost and price in cases of reproducible goods; and in so admitting, he was forced to reduce his argument to quibbling over the required level of generality of a theory of value… (Carson, Studies in a Mutualist Political Economy, pg. 22)

This is not to say that there aren’t critiques to be had in the Ricardian approach to value, but to elucidate those is to jump into the next stage in the history of the labor theory of value: the Marxist stage. I’ll take this up in the next post, which it will also serve to elucidate the “energeticist model” that emerged in the wake of thermodynamics.


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