Anything New Since Karl Marx?
In its simplest form, we can say that PRODUCTIVITY = OUTPUT/INPUT. But, of course, that tells us little. It tells us nothing about the value of all the various inputs to a product or service. In fact, it tells us nothing about the social value of the output, either. Fortunately, we have invented something called the “marketplace” which can assign arbitrary exchange values for goods and services (denominated in money) – likewise, that same coin-of-the-realm can value all the input costs for those goods and services, thus making the formula banal.
We usually associate the concept of the “Labor Theory of Value” (LTV) with Karl Marx, who defined the exchange value of a product or service as the amount of “socially necessary labor” required to produce it. But Marx lifted the idea from earlier classical economics, namely Adam Smith and David Ricardo. While labor was an acute concern of Marx and his socialist followers, Smith had originally conceived economic value as whatever a consumer was willing to pay to save him the labor of making it himself! At any rate, over the last 300 years, markets have taken on multiple layers of complexity. While we can still use that simplistic definition of productivity, there is much discussion (and disagreement?) about just what are the inputs for any product or service, its “factors of production.” And its value is also dependent on much more than the amount that one consumer is willing to pay for it – what about aggregate demand? The role of marketing? Depreciation? Distribution networks? The list of factors goes on and on.
Not least in the pantheon of complex factors of production is the lack of clarity in our own definition of “labor.” Does labor consist only of time spent by a worker to make something, or to deliver a service? If that worker owns his time, it is capital. Or, if he is compensated only at the minimum level needed to retain his services, it is indentured servitude (slavery if he is not free to leave!). Indeed, some would differentiate “labor” (commodified, interchangeable workers) from “work” (more akin to a calling, an inspiration). There exists a marketplace for labor just as there is a marketplace for the worker’s output. And both these markets depend on social and political conditions, exploitation strategies, and even entrepreneurism (competition, risk, etc.). As far as I know (though I’m not a scholar), Marx didn’t want to deal with any of these things in his time, much less those classical economists like Smith or Ricardo. The emerging industrial capitalism of Marx’s time, and the agricultural or craft-centered trades of those earlier thinkers, were no match for the techno-utopian dreamland that would develop during the long 20th century. Technology is, indeed, capital – and it seems to follow an inverse supply/demand dynamic from the less technology-centered world of physical plant and land economics known to those 18th and 19th century classical economists. Since at least the last quarter of the 20th century, Moore’s Law seemed to imply that supply growth would far exceed demand growth. Technological development has become relatively low cost compared to labor (perhaps also connected to social concerns, power of organized labor, and overall growth in purchasing power for much of the world). So, technology has become cheap. But labor, at least the commodified, interchangeable kind, might also be too cheap! Where does this leave productivity? Who really determines the “social value” of goods and services? What if the artificiality of pricing, with its bubbles and outright fraud, leads to a global market crash like in 2008? Growth stops. Then, there are those planetary limits – ecological threats. Should we have more data centers but fewer workers as consumers?
It’s not clear to me that Marx and Engels foresaw any of this in predicting their ultimate crisis of capitalism. What replaces it? It seems that the “socially necessary labor” of LTV should now be defined not by the amount of workers’ time needed to produce a product so much as by the total social cost of producing it. That would include costs to the environment, to future generations, to world peace. If we substitute broad enough definitions of both inputs and outputs, we might arrive at a more reasonable formula for productivity (including even in the public sector!). But that’s only valid for the largest macroeconomic measure of productivity – for the entire world economy. Surely, productivity for an individual worker, for a given publicly traded corporation, for a small business, for a non-profit, does not need to be so global. But even with national account statistics, you must ask some questions about what goes into the calculations of both costs and value – who bears the costs? who obtains the value? Are costs diffuse over the entire population (or corporation, or worker’s family) – or are they concentrated? And benefits: are they also diffuse? Or are they concentrated on a CEO and a few shareholders? Diffuse benefits and concentrated costs are the way the public sector is supposed to function – given an appropriately progressive tax regime!
In the year 2025, I am reluctant to call myself a “Marxist,” but I must concede there are some real systemic problems with the capitalism we have come to know in our world. That trite nomenclature for our times, “late-stage capitalism,” at least implies hope for a better system to follow. Labor productivity may not even be the worst problem. Economic growth may need to be reimagined for the world of the not-so-distant future. I still like thinking about “socially necessary labor.” It does have a certain elegance of phrasing.
–– William Sundwick
Warp and Woof 