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How physics is validating the Labor Theory of Value

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Defected to the U.S.S.R.: 28 Jan 2008, 19:10
Ideology: Marxism-Leninism
Komsomol
Post 21 Mar 2009, 01:11
How physics is validating the Labor Theory of Value

Found this interesting tidbit. Let's discuss.

By Paul Cockshott http://21stcenturysocialism.blogspot.com/

When I was a student my economics professor told us that whilst the labour theory of value had been an important historical stage in the development of economics, it was now known to be fatally flawed. 20th century economists such as Sraffa and Samuelson had shown that it was unnecessary to accord labour any special place in our understanding of prices. Instead, the structure of prices could be perfectly well understood as the result of the monetary costs faced by firms and the behaviour of profit maximising entrepreneurs. If there was in reality no such thing as labour value, it followed that Marx's theory of exploitation was an invalid incursion of moral prejudices into the 'positive science' of economics.

The professor who taught us this, Ian Steedman, was actually quite left wing, an active member of the Communist Party.

This is just an anecdote, but fact that even a prominent communist intellectual believed that the central component of Marx's theory was scientifically worthless is significant. In retrospect it gave an indication of how poorly prepared the intellectuals of the communist movement were to be, when faced with the very intense ideological attacks on socialism which unfolded in the 1980s and 1990s.

But 25 years ago help came from an unexpected source. Two mathematicians Moshe Machover and Emanuel Farjoun, wrote a book called the Laws of Chaos. Their book gave a radically new way of looking at how capitalism worked as a chaotic and disorganised system. Farjoun and Machover had the the insight to see that physics had already developed theories to describe similar disorganised and chaotic systems.

In a market economy, hundreds of thousands of firms and individuals interact, buying and selling goods and services. This is similar to a gas in which very large numbers of molecules interact, bouncing off one another. Physics speaks of such systems as having a 'high degree of freedom', by which it means that the movements of all individual molecules are 'free' or random. But despite the individual molecules being free to move, we can still say things about them in the aggregate. We can say what their average speed will be ( their temperature ) and what their likely distributions in space will be.

The branch of physics which studies this is statistical mechanics or thermodynamics. Instead of making deterministic statements, it deals with probabilities and averages, but it still comes up with fundamental laws, the laws of thermodynamics, which have been found to govern the behaviour of our universe.

Now here is the surprise! When they applied the method of statistical mechanics to the capitalist economy, they found that the predictions it made coincided almost exactly with the labour theory of value as set out in volume 1 of Marx's Kapital. Statistical mechanics showed that the selling prices of goods would vary in proportion to their labour content just as Marx had assumed. Because the market is chaotic, individual prices would not be exactly equal to labour values, but they would cluster very closely around labour values. Whilst in Kapital I the labour theory of value is just taken as an empirically valid rule of thumb. Marx knew it was right, but did not say why. Here at last was a sound physical theory explaining it.

It is the job of science to uncover causal mechanisms. Once it has done this it can make predictions which can be tested. If two competing theories make different predictions about reality, we can by observation determine which theory is right. This is the normal scientific method.

Farjoun and Machover's theory made certain predictions which went directly against the predictions made by critics of Marx such as Samuelson. In particular their theory predicts that industries with a high labour to capital ratio will be more profitable. Conventional economics predicts that there will be no such systematic difference between the profit rates in different industries. When put to the test it turned out that Farjoun and Machover were right. Industries with a high labour to capital ratio are more profitable. But this is exactly what we should expect if the source of profit was the exploitation of labour rather than capital. Their theory made predictions which not only turned out to be empirically spot on, but at the same time verified Marx's theory of the exploitation of the worker.

The next big advance was made by the phsyicist Viktor Yakovenko, who showed in his paper 'the Statistical Mechanics of Money' that money in a market economy played the same role as energy in physics.

Just as energy is conserved in collisions between molecules, so money is conserved in the acts of buying and selling. So far so obvious!

What was not obvious was what this implies. Yakovenko showed that the laws of thermodynamics then imply that the distribution of money between people will follow the same form as the distribution of energy between molecules in a gas : the so called Gibbs-Boltzmann distribution. This sounds very scientific, but what does it actually mean?

What the Gibbs-Boltzmann distribution of money says is that a few people with end up with a lot of money and a lot of people with end up with very little money. It says that the distribution of money will be very uneven, just as we see in capitalist society. In fact Yakovenko showed that the distribution of wealth in the USA fits the Gibbs-Boltzman distribution pretty closely.
There is a tendancy to think that rich people owe their wealth to intelligence or effort, but physics tells us no. Given a market economy, then the laws of chance mean that a lot of money will end up in the hands of a few people.

In fact when we look at the USA we find that the distribution of wealth is even more uneven that we would expect from the Gibbs-Boltzmann law. If the Gibbs Boltzman law held, there would be millionaires but no billionaires. Why the disparity?

Yakovenkos original equations represented an economy that is rather like what Marx called simple commodity production. It assumed only buying and selling. More recent work by Yakovenko and Wright, has shown that if you modify these equations to allow either the earning of interest on money, or the hiring of wage labour, then the equations predict a polarisation of the population into two groups. The great bulk of the population, the working class and petty bourgeois, follow a Gibbs-Boltzmann income distribution. But there is a second class, those whose income derives from capital, whose wealth with follow a different law, what is called a power-law. Again, look in detail at the distribution of wealth in and you provide exactly the distribution predicted by Yakovenko's theory. This, says Yakovenko, proves that Marx was right when he said that modern society was comprised of two distinct and opposed classes : capitalists and workers.

So modern physics has shown that not only was Marx right in his basic analysis, but he was right because his conclusions follow from the most basic laws of physics, the laws of thermodynamics.

There is also a less obvious conclusion that we can draw from physics relating to the undesirablity of Market Socialism. We can see from Yakovenko's work that a market socialist economy would also have a very uneven distribution of money. There too the Gibbs-Boltzmann law would rule. A small number of people or co-operatives would end up with a lot of money, and many such people or co-operatives would end up poverty stricken. From this capitalism would be regenerated. As Lenin wrote : "small production engenders capitalism and the bourgeoisie continuously, daily, hourly, spontaneously, and on a mass scale".

Also a good read: Farjoun & Machover - Laws of chaos: http://207.45.187.42/%7Ewright/fm.pdf
Kamran Heiss
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Defected to the U.S.S.R.: 10 Sep 2006, 22:05
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Philosophized
Post 21 Mar 2009, 01:57
This is probably one of the best articles I've ever seen you post.
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Defected to the U.S.S.R.: 26 May 2008, 04:27
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Post 21 Mar 2009, 04:56
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I must agree with Dagoth. One of the most interesting articles I've read in a while.
"Neither Maoist, nor internationalist, nor a movement" - heiss93 on the MIM
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Defected to the U.S.S.R.: 27 Oct 2006, 23:10
Politburo
Post 21 Mar 2009, 05:32
Ya, thanks alot for this article!
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Defected to the U.S.S.R.: 28 Jan 2008, 19:10
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Komsomol
Post 21 Mar 2009, 05:49
The social atoms comparison. Is almost identical to the description of psychohistory in Issac Asimov's Foundation. Krugman says thats why he went into macroeconomics.
Kamran Heiss
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Defected to the U.S.S.R.: 13 Mar 2009, 04:41
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Post 21 Mar 2009, 21:01
Dopeness. Appreciate the post - very interesting stuff.
"Discover your humanity and your love in revolution." -George Jackson
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
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Post 29 Mar 2009, 03:04
The thread is now a sticky. Going to add other posted articles (Hilferding on Böhm-Bawerk, etc...)

Great job, great blog.
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Ideology transforms human beings into subjects, leading them to see themselves as self-determining agents when they are in fact shaped by ideological processes. L. Althusser
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Defected to the U.S.S.R.: 29 Nov 2004, 20:06
Party Bureaucrat
Post 19 Apr 2009, 09:58
I am rather skeptical of this.

Proving a market analysis with natural science?
I post Here
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Pat
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Defected to the U.S.S.R.: 21 Jun 2004, 21:22
Embalmed
Post 19 Apr 2009, 23:09
wow physics and economics! How interesting!
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I hope this doesn't get me banned again-Fontis
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Defected to the U.S.S.R.: 08 Dec 2005, 10:40
Pioneer
Post 10 Jun 2009, 00:08
Quote:
I am rather skeptical of this.

Proving a market analysis with natural science?


Yes, how strange that is. Are you guys still upholding the "natural science ideal"?
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Defected to the U.S.S.R.: 16 Feb 2005, 02:51
Party Bureaucrat
Post 13 Oct 2009, 13:40
Quote:
20th century economists such as Sraffa and Samuelson had shown that it was unnecessary to accord labour any special place in our understanding of prices. Instead, the structure of prices could be perfectly well understood as the result of the monetary costs faced by firms and the behaviour of profit maximising entrepreneurs.

==Just saw this today, did anyone tell the author or Ian Steedman that Labour theory of value has little to do with price, and it about the exchange value of the commodity?
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Defected to the U.S.S.R.: 18 Sep 2004, 16:21
Politburo
Post 13 Oct 2009, 14:19
Quote:
Just saw this today, did anyone tell the author or Ian Steedman that Labour theory of value has little to do with price, and it about the exchange value of the commodity?

Precisely. The neoclassical economists have replaced the concept of value with the one-size-fits-all metric of price. Within the bounds of that one-dimensional metric, the labour theory of value literally makes no sense at all. They should have started by explaining the difference between price and value, then taken it from there.
"Comrade Lenin left us a great legacy, and we fucкed it up." - Josef Stalin
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Defected to the U.S.S.R.: 26 Jun 2006, 15:59
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Party Bureaucrat
Post 13 Oct 2009, 14:52
Quote:
==Just saw this today, did anyone tell the author or Ian Steedman that Labour theory of value has little to do with price, and it about the exchange value of the commodity?


The labour theory of value relates prices to values.
The moment one accepts the notion of 'totalitarianism', one is firmly locked within the liberal-democratic horizon. - Slavoj Žižek
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Defected to the U.S.S.R.: 14 Jul 2008, 20:01
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Philosophized
Post 15 Oct 2009, 10:45
Quote:
They should have started by explaining the difference between price and value, then taken it from there.


Do it. <3
"Don't know why i'm still surprised with this shit anyway." - Loz
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Defected to the U.S.S.R.: 04 Oct 2009, 03:09
New Comrade (Say hi & be nice to me!)
Post 16 Oct 2009, 03:15
http://207.45.187.42/%7Ewright/fm.pdf < if you are interested in reading the original boo by Moshe and Farjoun
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Defected to the U.S.S.R.: 28 Oct 2009, 14:21
Pioneer
Post 09 Nov 2009, 14:06
Dear Comrade Heiss93

Thank you for your very interesting post. This kind of forward thinking is exactly that which Kalinin advocated and encouraged in the new Socialist human being. The seeking out, and the refinement through study, of patterns of interaction and behaviour, that may be utilised toward the Communist objective.

To add to this pioneering work, I would like explore the presented idea. The Laws of Thermodynamics, are essentially the exploration of the relationship between 'heat' (fuel), and 'work' (power). Does the amount of heat provided, relate directly with the amount of work produced? In ideal 'closed systems', this might appear to be the case, but such systems are not natural. In other words, in real situations, the amount of provided heat, does not equate with the amount of work produced. As you know, the loss of heat through the system is termed 'entrophy'. For the Capitalist, the greater the work output, the greater the profit.

Quote:
What was not obvious was what this implies. Yakovenko showed that the laws of thermodynamics then imply that the distribution of money between people will follow the same form as the distribution of energy between molecules in a gas : the so called Gibbs-Boltzmann distribution. This sounds very scientific, but what does it actually mean?


If 'money' is equated with 'energy', and energy is equated with 'heat', as you model suggests, then the Laws of Thermodynamics say that 'heat' travels to the areas of 'lesser' heat. That is, heat travels to the areas that are cold. If this were applied to money, would it not suggest that money would flow from the rich to the poor? This doesn't happen of course, because those with money have various social/cultural devices that ensure that as much of their money as possible, stays within their immediate control. This behaviour, does not represent that described by the model of physics as such. The bourgeois, by their hording of their wealth, are actually preventing natural entrophy from taking place. The Socialist Revolution of course, removes this barrier to entrophy, thus ensuring the re-distribution of wealth.
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
Party Bureaucrat
Post 10 Nov 2009, 15:08
@ student: thank you! Great book.
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Ideology transforms human beings into subjects, leading them to see themselves as self-determining agents when they are in fact shaped by ideological processes. L. Althusser
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Defected to the U.S.S.R.: 22 Apr 2010, 08:22
New Comrade (Say hi & be nice to me!)
Post 22 Apr 2010, 13:50
Einstein said that creativity is more important than knowledge. That's another way of saying that the source of true wealth is intellectual capital, not material or financial capital. How do you re-distribute intellectual capital? Well, you can mandate universal schooling and ensure that every pupil will get a great state education. But what happens? Well, some schools are better than others. Some teachers are better than others. And some pupils are better than others. Some pupils work harder than others. Some pupils are smarter than others. Disparity in intellectual capital is the primary source of financial disparity in society. It has a greater impact than race, work ethic, parental background, parental wealth. In Marxist terms, it's the smart people who end up owning the means of production.

So - one way to re-distribute wealth is to let really smart people live like capitalists and make as much as they can until they are 50, and then confiscate it through taxes, and give it to everyone else. Of course, why would anyone who is smart and creative want to live in that regime? They wouldn't. So - just by having the policy in place, you chase all the smart people away to the free non-socialist countries. Then, you let that nation suffer in the disparity of wealth that will inevitably occur, and your own nation, while definitely mediocre, will be more content because there is not so much disparity. Yes, life will be more gray and bland without the intelligentsia, but oh so much happier.
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Defected to the U.S.S.R.: 28 Feb 2009, 03:41
Party Member
Post 25 Apr 2010, 17:34
i really doubt that being smart automatically means you will be sucessful, i think that connections play a much bigger role than that. also in older times wealth was acquired through plundering of nations and the effects are still measurable nowdays.
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Defected to the U.S.S.R.: 19 Mar 2005, 20:08
Embalmed
Post 26 Apr 2010, 05:26
Einstein was a socialist. Your argument is invalid.
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