In the confines of a Keynesian analysis, there exists the capacity for a cordial discourse about Marxism as an economic philosophy. Topics such as the inherent value of money, the dismissal of Say's law, the monetary theory of production, and certain facets of Marx's economic ideology that seem to foreshadow Keynes himself could be broached. However, it remains crucial to recognize that the arguments put forward in Marx's Capital have grown passé, superseded by Keynesian theory for a considerable period. Whilst Keynesian economics offers substantial critique of laissez-faire capitalism and neoclassical (Austrian) economics, it still marks a distinct departure from Marxist economics. It is not a mere synonym for Marxism, and numerous leading Keynesians and scholars whose contributions shaped the Keynesian economics have rebuffed the labor theory of value, the bedrock of Marxist economics.
Keynes himself dismissed Marx's theories as being predicated on "an absurd blunder of old Mr. Ricardo's," alluding specifically to the labor theory of value. Economists such as Michał Kalecki and Joan Robinson dismissed the labor theory of value as "metaphysical," while Piero Sraffa considered it "an entirely mystical notion." If the labor theory of value is indeed fallacious, then the entire Marxist edifice erected upon it is bound to collapse.
The labor theory of value, as delineated in Part 1 of Volume 1 of Marx's Capital, is problematic for numerous reasons:
The initial case for the labor theory of value in Marx's Capital presents a logical inconsistency and later contradicts itself.
Marx grapples with the task of distilling all disparate forms of human labor into a uniform abstract socially necessary labor time unit, but does not sufficiently elaborate on how this would occur.
Even if Marx surmounted the previous hurdle, he would still encounter difficulties in defining labor value in instances of joint production, where the labor value of a good may be undefined, zero, or even negative.
There's no solid ground to assume that free human wage labor holds a unique capability that animals, slaves, or machines do not possess.
Marx's theory of money and his labor theory of value are contradicted by the existence of modern fiat currency, as Marx's theory necessitates money to be a manufactured commodity, which is not the case anymore.
Empirically, prices are not dictated by the abstract socially necessary labor time of goods or by money as a manufactured commodity.
The notion of surplus labor value, even when sufficiently defended, fails to fully account for monetary profits, as such profits can exist in slave-based economies or even in economies where machines carry out most of the work.
These points cumulatively present a formidable challenge to the labor theory of value, and even if only one of them holds true, it suffices to reveal the shortcomings in Marx's theory as articulated in Volume 1 of Capital.
Regarding point (1), it becomes clear that Marx's argument for the labor theory is a non sequitur. The notion that commodity exchanges inherently denote equality, as Marx contends, is not self-evident. Indeed, Marx himself concedes later in Chapter 1 that in certain human societies, commodities might exchange purely based on their utility.
While there is an equality in exchanges in the sense that, for instance, 2 sheep may exchange for 1 cow and only those specific items are exchanged, this is a trivial form of equality that does not bolster Marx's argument. Marx's leap to the conclusion that there must be a foundational unit of uniform labor time that quantitatively measures both goods and illustrates their equivalence simply does not logically follow. It is a non sequitur. It is entirely possible that labor value, as outlined by Marx, does not exist. Essentially, Marx's argument was erroneous and embodied a plain logical fallacy.
Furthermore, later in Chapter 1, Marx himself admits to this flaw:
“Lastly, nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.”
— Karl Marx, Capital volume 1
So, here, Marx himself concedes that labor value cannot be completely isolated or "abstracted" from use value, counter to his earlier assertion. This discrepancy within his argument further undermines the credibility of the labor theory of value.
Transitioning to point (2), Marx argues that all skilled or practiced labor can be quantified as a multiple of simple abstract labor, and that all labor can be condensed into a uniform homogeneous unit. Yet, Marx falls short in offering a satisfactory explanation of how this condensation can be implemented. Initially, Marx implies that the reduction of skilled labor to a basic unit of abstract labor can be accomplished through a tangible or scientific examination of the "expenditure of human brains, nerves, and muscles."
But, he then states that.:
“Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone. The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom.”
— Karl Marx, Capital volume 1
However, Marx's confession in the third volume of Capital that the majority of commodities do not trade for their true labor values weakens this argument and contradicts his preceding method. If the actual market exchange of products of skilled labor for those of unsophisticated labor is the only practical means to ascertain the value of skilled labor, then why attempt to explain it in terms of the "expenditure of human brains, nerves, and muscles"?
Moreover, if the exchange of products of skilled labor for products of unskilled labor is utilized to determine the value of skilled labor as a multiple of simple labor, the argument becomes circular. Exchange values dictate labor values, yet labor values are purported to be the origin of exchange values.
Progressing to point (3), the labor theory of value confronts complications when considering joint production. If a production process yields multiple commodities, how does one compute the socially necessary labor time? Ian Steedman has posited that joint production introduces the potential for undefined, zero, or even negative labor values for commodities produced under such conditions. Further exploration of this can be found in Capital as Power: A Study of Order and Creorder by Jonathan Nitzan and Shimshon Bichler.
Pertaining to point (5), modern fiat currency entirely undermines Marx's labor theory of value. According to Marx, money must be a manufactured commodity with a labor value for his theory to remain valid. However, money has long ceased to be a manufactured commodity and has metamorphosed into fiat currency. This is one of the devastating problems with Marx’s theory, and is sufficient to refute the theory, as shown here and here.
For example, Marx held that prices are determined, at a minimum, by the long-term labor value of gold, as dictated by the abstract socially necessary labor time required for gold production, and how it relates in exchange to the labor value of other commodities. Indeed, if we were to take Marx's idea seriously, it would suggest that the actual exchange value of gold as currency against other commodities should tend towards the long-term value of the abstract socially necessary labor time necessary to produce gold. This point is crucial and undermines the assertions made by Marxist defenders that Marx never intended labor value to determine individual commodity prices in the first volume of Capital. However, in the modern world with fiat money, this theory becomes irrelevant. Marx's theory of how labor values determine prices becomes utterly unfeasible.
Now onto point (6). Empirically, prices are affected by a multitude of factors, including supply and demand dynamics, market competition, technological advancements, and subjective preferences of consumers. Additionally, the role of money as a produced commodity in determining prices has been challenged by the existence of fiat money in contemporary economies. This further undermines the applicability of Marx's labor theory of value in explaining price formation.
A further point of contention with the labor theory of value, manifested in point (7), is its inability to adequately account for financial gains. Even if the concept of surplus labor value is robustly defended, it lacks in providing an all-encompassing explanation for the emergence of profits derived from non-labor inputs. In economies rooted in slavery or where machinery undertakes the majority of work, profits can still be realized despite a potential void of surplus labor value. This underscores a considerable lacuna in Marx's theory, as it overlooks the role of capital, technology, and other non-labor elements in influencing profitability and economic results. This point is critical and starkly refutes the claims put forth by Marxist defenders that Marx never intended labor value to be a determinant of individual commodity prices in the Volume 1 of Capital. However, in the contemporary world with fiat currency, this theory loses all relevance: Marx’s theory of how labor values determine prices becomes entirely unworkable. As it stands, it is contradicted by the reality of modern fiat money, as witnessed in Modern Monetary Theory (MMT).