About Waged Labour: From Monetary Subordination to Exploitation

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Disagreements amongst economists are more important about the rate of wage than about commodity prices. These divergent theories of wages reveal a deep disagreement about the status of labour in political economy. They are not only analytical; three more general considerations are implied:

  • From the point of view of economic theory, the question is whether there are or not fundamental qualitative differences between a pure market economy (populated by independent producers only) and a capitalist one (populated by entrepreneurs and wage-earners)?
  • From the point of view of economic philosophy, the question is about exploitation, are wage-earners exploited by capitalists?
  • From the point of view of political philosophy, does it make sense to criticize modern societies as market or as capitalist economies?

The paper addresses the two first issues.

The presence of “labour services” in the commodity-space in mainstream theory is ill-founded; it is the result of a social prejudice – which takes the form of a “natural” assumption – and not of a consistent reasoning. The wage relationship has nothing to do with an exchange rules by equivalence since wage-earners are such as a consequence of their inability to produce for the market. They cannot produce for their own account but for the account of entrepreneurs.

The employment contract is illegitimate as contrary to the fundamental values of the social philosophy inherent in a market economy. Wage-earners are exploited by entrepreneurs not because wages do not respect a norm (a natural price or a marginal productivity) but because wage-earners are a means for entrepreneurs. In the terms of mainstream theory, the exploitation shows off as a difference between the arbitrages open to entrepreneurs and wage-earners: the former compare disutility of the effort with the utility of the reward given by the market; the latter compare the utility of the deviation of the effort imposed by entrepreneurs with the risk of being fired. The first arbitrage refers to the market, the second to the firm. The gap between these respective optimal efforts measures exploitation.

Posted for comments on 24 Mar 2017, 10:59 am.

Comments (3)

  • David Ellerman says:

    Comments on:
    About Waged Labour: From Monetary Subordination to Exploitation
    by Jean Cartelier

    David Ellerman
    University of California at Riverside

    To analyze this paper, I have to alternatively wear two hats: first, as if I were a defender of neoclassical orthodoxy against attacks, and second, as a critic of waged labour from an alternative perspective [Ellerman 1993, 2015, 2016]. From the first point of view, I do not think that Cartelier has successfully breached the neoclassical fortress—although there are some promising beginnings.

    In the Introduction and elsewhere in the paper, Cartelier states that neoclassical theory views the wage relationship as ‘exchange relation ruled by equivalence’ and then argues in various ways that there is no ‘equivalence.’ However, ‘equivalence’ is never defined but it seems to be a paraphrase for an ‘exchange relation in a competitive market,’ e.g., as in the Arrow-Debreu model. But neoclassicals are, of course, aware that labour markets are often noncompetitive and imperfect in many ways and they even have their own theory of ‘exploitation’ when workers are paid less than the value of their marginal productivity in noncompetitive markets. In any case, a critique based on ‘inequivalence’ or noncompetitiveness of wage labour markets is not even close to a critique of wage labour per se, but a call for greater ‘equivalence’ or competition.

    In the Introduction, Cartelier also makes the statement repeated later in the text that ‘wage-earners are not responsible for the consequences of their activities when they comply with entrepreneurs’ orders;’ [p. 2]. It is a promising beginning to mention the word ‘responsible,’ but there is no hint of the crucial distinction between factual/de facto responsibility and legal/de jure responsibility. Wage earners (in a non-criminous activity) have no legal or de jure responsibility for the positive and negative results of production [Ellerman 2016], but they still have the usual factual or de facto responsibility that is the usual basis for juridical imputation. That is the conceptual battering-ram to breach the neoclassical fortress using the labor theory of property (not the fallacious ‘labor theory of value’), but Cartelier shows no awareness of that whole tradition. Even within the narrowly French tradition, it might be noted that Pierre-Joseph Proudhon’s main work was not entitled ‘What is Value?’.

    Section 1

    After the Introduction, Section 1 of the paper is entitled: “Human labour” does not belong to the commodity space if not with human beings who perform it. Cartelier takes the Arrow-Debreu model (which has a whole set of problems of its own [Ellerman 1993, p. 188]) as the standard of neoclassical thought which accounts for the over-stylized question of whether or not human labour belongs to the ‘commodity space.’ Why not just formulate the question as to the legitimacy of the market for wage labour or the employment contract or the human rental relationship instead of a question of what can or should be represented in an l-dimensional Euclidean space, the ‘commodity space’?

    Cartelier makes a promising beginning by considering the difference between a person as truck-owner, a truck, and truck-services bought and sold in the rental market for trucks. In the employment relation, there is the worker as a ‘self-owning’ person, the worker as the asset like the truck providing the flow of services, and the person’s services that are bought and sold in the rental market for persons. In the case of trucks, there is both the market for the trucks as assets and the market for the flow of truck-services. In the case of humans, if there was a market for the underlying asset, that would be a slave market, which is assumed to be ruled out in neoclassical economics. Instead of delving deeper into the difference between trucks and persons focusing on the capacity for imputability or responsibility, Cartelier just falls back on an obiter dicta that if the humans cannot be marketed like trucks then human services don’t fit “in the commodity space.”

    “The mere fact that it is generally assumed that a choice is open to individuals between buying the “truck” in order to get its services or hiring the “truck” for a given duration confirms their common presence in the commodity space. What is true for “trucks” should be true for “workers” as well.” [Cartelier, p. 4]

    Moreover, neoclassicals are well aware of this peculiar difference between trucks and persons. Indeed, in Alfred Marshall’s list of the peculiarities of labour, it is the very ‘First peculiarity: the worker sells his work, but retains property in himself.’ [Marshall 1961, p. 560] Recent neoclassical texts make the same point.

    “The labour market trades a commodity called ‘hours of labour services’. The corresponding price is the hourly wage rate. Rather loosely, we sometimes call this the ‘price of labour’. Strictly speaking, the hourly wage is the rental payment that firms pay to hire an hour of labour. There is no asset price for the durable physical asset called a ‘worker’ because modern societies do not allow slavery, the institution by which firms actually own workers.” [Begg et al. 1997, p. 201]

    Cartelier goes on to note how the flow of services is inseparable from the underlying asset.

    ‘“Workers” and “human labour” are physically related as are “trucks” and “truck services”. … Mainstream economists not only forbid slavery but they expel “workers” from the commodity space pretending nevertheless to keep “human labour” as an element of it. By virtue of the physical bind alluded above, expelling “workers” means expelling “human labour” as well.’ [p. 5]

    Again Cartelier supplies no argument for his obiter dicta that ‘expelling “workers” means expelling “human labour” as well’ from the commodity space. Indeed, Cartelier has just discovered Marshall’s “Second peculiarity. The seller of labour must deliver it himself.” [Marshall 1961, p. 566] I am afraid it takes a lot more that a few such obiter dicta to breach the fortress of neoclassical apologia.

    Section 2
    The Section 2 entitled ‘Wage relationship is a monetary subordination; means of payment circulation makes it clear’ tries to develop a somewhat bizarre monetary argument against wage labour. Cartelier argues that in some sense (never explained) that entrepreneurs or firms in general have access to a ‘minting process’ and since wage-earners do not have such access, the wage relationship is characterized by ‘monetary subordination.’ Since I cannot make sense out of any such ‘minting process’, I must pass over that part of the argument.

    It is, however, a common critique of wage labour, particular on the basis of civic republican thought, that it involves subordination or domination (‘monetary’ or otherwise). It is hardly a revelation to conventional economists that the employer-employee relation, traditionally called the master-servant relation, involves subordination. The standard response is: ‘Of course, it does; that’s one of the reasons employees are paid for their work.’ They acknowledge that undoubtedly subordination adds to the disutility of labour and that such unpleasantness may account for part of the compensating wage payment. Like in any resource-supply contracts, the original resource owners are free to try to renegotiate the contract, go elsewhere to sell their resources, or to use the resources in their own uses. Thus throwing in the word ‘subordination’ does not really get the would-be critic of neoclassical economics anywhere.

    It might be pointed out that neoclassicals do not argue that being a wage-labourer, particularly in its blue-collar forms, is a desirable position in society. Of course, one might desire some form of non-subordinated work as in being a family farmer, shop-keeper, or independent producer—if not an entrepreneur or employer who could use the voluntary human rental contract to legally appropriate the positive and negative fruits of the labour of the rented people. In the end, neoclassicals only argue that there are no normative grounds to outlaw ‘capitalist acts between consenting adults’ (to use Nozick’s phrase) such as the voluntary human rental contract.

    At least Cartelier does not indulge in the shallow left-wing parlour-game of just escalating one’s own definition of ‘involuntariness’ or ‘coercion’ so that all or most wage-labour is definitionally ‘involuntary.’ For instance, it is argued that most workers are not born with access to some means of production (remember the warhorse examples: clearance of the Scottish highlands and enclosure of the commons) so that they could be independent producers, and thus they are ‘forced’ into wage labor contracts. One might similarly argue that most city-dwellers are not born with access to some means of consumption (unlike those born on a family farm) so they are ‘forced’ into market contracts with grocery stores or supermarkets in order to survive. Indeed, collectively-bargained human-rental contracts would seem more voluntary that the take-it-or-leave-it contracts of adhesion between the consumer and supermarkets.

    Later in the section, Cartelier points out that human labor is represented as a cost in firms and contrasts that with an ‘exchange economy’ (apparently of independent producers with no wage labour).

    “That some human beings – wage-earners – appear (and are) a cost for others – firms and entrepreneurs – is the most significative and specific characteristic of a market economy when embedded in a wage relationship. This is probably the essential feature which distinguishes that economy from an exchange one, where everybody is in a symmetric position vis-à-vis anybody else.” [p. 10, italics in original]

    Yes, human services, like all input services, are a cost item in a wage-labour firm—which only restates that fact that they are purchased as an input by the employer-firm in the wage-relationship.

    Cartelier also oddly takes Ronald Coase’s well-known idea of the firm as the ‘legal relationship normally called that of “master and servant” or “employer and employee” ‘ [Coase 1937, p. 403] as if that were definitive of firms as opposed to markets. But, here again, there is no recognition of firms such as worker cooperatives or democratic firms [Ellerman 1990] where there is still hierarchy but it is based on a delegation (‘concessio‘) of authority in the cooperative membership contract as opposed to the alienation (‘translatio‘) of decision-making rights in the employment contract [Ellerman 2010].

    Cartelier seems as unaware as neoclassicals of the whole tradition of democratic political theory where the fundamental division is not whether government is based on the consent of governed or not, but whether the consent is to a contract of alienation (traditionally called the pactum subjectionis wherein the citizen explicitly or implicitly voluntarily agrees to be a subject) or to a contract of delegation where the governors/managers only exercise authority delegated to them by the governed/managed [see von Gierke 1966; Skinner 1978]. All the functionaries in the Church of Neoclassical Economists are required by their ‘sacred professional obligations’ to be blissfully unaware of that democratic theory since their most basic defense of the institution of renting of human beings is the fact that it is voluntary—and since even the most slavish of the intellectual ‘Hirelings of the Church’ [Milton 1957 (1659)] would not try to argue that the employer was the delegate, representative, or trustee of the employees.

    Of course, understanding the distinction between contracts of person-alienation—such as:
    • the outlawed voluntary-self-sale contract,
    • the outlawed voluntary Hobbesian pactum subjectionis,
    • the outlawed voluntary coverture marriage, and
    • the not-yet-outlawed voluntary human rental or employment contract
    on the one hand—and contracts of delegation on the other hand, does not yet ‘seal the deal.’ That requires an analysis showing that there is something inherently wrong with those person-alienation contracts. And that requires recovering the largely forgotten or ignored theory of inalienable rights [Ellerman 2010, 2015] that descends from the Reformation doctrine of the inalienability of conscience down through the Enlightenment (e.g., in the Scottish, Dutch, and German variants) to the present day in the abolitionist, democratic, and feminist movements.

    Section 3
    In Section 3 entitled ‘Wage-earners exploitation by entrepreneurs is inherent in wage relationship,’ Cartelier first sets aside the exploitation theories based on some norms of wage payment such as marginal productivity in the neoclassical case of non-competitive payments or such as labour-value expended in the Marxist case. This is another promising beginning since exploitation theories based on the charge that ‘wages are too damned low’ (by whatever account) are not a critique of wage labour per se. Cartelier also applies a few blows to the long-dead horse of the Marxian labour of value and exploitation, but that is overkill since the Marxian theory is at best only a theory that labour ‘is paid below its value’ [Marx 1977, p. 357 fn. or Chap. 10, sec. 3].

    Cartelier goes on to point out a couple of obvious differences between entrepreneurs or independent producers on the one hand and wage-earners on the other hand, and then again simply asserts: ‘In this double difference lies exploitation.’ [p. 13]

    Cartelier is on seemingly more promising ground by referring to Marc Fleurbaey’s notion of:
    the exploitation inherent in wage relationship is the one he calls M-exploitation: is exploited any human being utilized by another human being as a means oriented to his/her own ends. [p. 13]
    Perhaps we have here some substance—at least in the phraseology reminiscent of one form of Kant’s categorical imperative:

    “Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end.” [Kant 1964, p. 96]

    Perhaps Cartelier and Fleurbaey will tap into the neo-Kantian tradition of the Marburg School [Keck 1977; Linden 1988; Ellerman 1988] that developed ethical theories for a non-capitalist or ‘socialist’ economy. But that expectation is severely disappointed as Fleurbaey points out that in all market relationships, one party uses the other as a means to one’s own ends since:

    “in standard economic models of trade and strategic interaction, one can think that each agent sees the other agents as means to the pursuit of his own objectives.” [Fleurbaey 2012, p. 15]

    After all, as Adam Smith famously pointed out: ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self interest.’—and the market relationship between the consumer and the butcher, brewer, or baker does not involve wage labour.

    Fleurbaey does not seek any deeper sense in which the renting of human being might be seen as treating persons as things. Indeed, Fleurbaey’s own development of ‘M-exploitation’ has no particular relationship to wage labour at all. It is a species of any ‘situation in which some take an unfair advantage at the expense of others.’ [Fleurbaey 2012, p. 6] In the case at hand of M-exploitation, one party may own a resource like a mine that has unknown or unexpected capacities, and then sell it at a low price to another party who would thus take ‘unfair advantage’ of the original benighted resource owner ‘when the reserves prove to be greater than expected’ [Fleurbaey 2012, p. 15].

    In addition to being trite, this sort of ‘normative’ analysis unsurprisingly has nothing in particular to do with the institution of voluntarily renting of human beings—but is typical of what one finds in the better neoclassical literature on ‘normative economics’ and ‘social welfare analysis.’

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    Coase, Ronald H. 1937. The Nature of the Firm. Economica IV (Nov.): 386–405.
    Ellerman, David. 1988. The Kantian Person/Thing Principle in Political Economy. Journal of Economic Issues 22 (4): 1109–22.
    Ellerman, David. 1990. The Democratic Worker-Owned Firm. London: Unwin-Hyman Academic.
    Ellerman, David. 1993. Property & Contract in Economics: The Case for Economic Democracy. Cambridge MA: Blackwell.
    Ellerman, David. 2005. Translatio versus Concessio: Retrieving the Debate about Contracts of Alienation with an Application to Today’s Employment Contract. Politics & Society 33: 449–80.
    Ellerman, David. 2010. Inalienable Rights: A Litmus Test for Liberal Theories of Justice. Law and Philosophy 29 (5 September): 571–99.
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    Linden, Harry van der. 1988. Kantian Ethics and Socialism. Indianapolis: Hackett.
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  • Jean Cartelier says:

    Comment & Rejoinder
    Jean Cartelier

    I was about to comment on David Ellerman’s article The Labour Theory of Property and Marginal Productivity Theory when I found his critique of my About Waged Labour: From Monetary Subordination to Exploitation. The present text is thus both a comment and a rejoinder.

    Most of David Ellerman’s critiques and observations seem to express a regret that my paper differs from his own. A good reason for that difference, in spite of a very general agreement I have with most of his propositions, is that we do not have the same purpose and that we tackle the wage relationship from a different point of view.

    In order to avoid as far as possible any misunderstandings, David Ellerman’s main statements I agree with are: (i) his critique addressed to “the fundamental Myth that Product Rights Are Part of Capital Rights”, (ii) his idea about “the ‘Invisible Judge’ market mechanism of appropriation”: “the property rights (or liabilities) to newly produced (respectively, finally used-up) commodities are assigned by the Invisible Judge to the first seller (respectively, last buyer) of the commodities” (p. 24) (iii) his basic principle: “assign or impute de jure (or legal) responsibility in accordance with de facto (or factual) responsibility” (p. 25). Concerning this last point I must add an important qualification: I do not interpret “responsibility” in a normative way but according to what is the basic philosophy of a market society: is responsible for a given action the person or group of persons who has the liberty of deciding upon it and bearing the consequences of it.

    Part of David Ellerman’s misunderstandings come from a difference between our respective purposes. While he is (rightly) chasing after a normative theory labour property with the view of transforming firms’ governance and making it democratic, I am (no less rightly) trying to invalidate Marx’s and mainstream value theories due to their failure to give an account of the wage relationship on their own premises. This leads me to adopt an alternative approach to value theorie(s) – called by Schumpeter monetary analysis by contrast with real analysis – and to reason at a level of abstraction common to both in order to facilitate a comparison and not to be content with a critique limited to condemn a lack of realism or an inappropriate degree of abstraction.

    Contrary to what David Ellerman affirms, it is toward the ultimate analytical foundations of mainstream (real analysis) we must orient the critique and not toward its superstructures. It is why I take Marx and general competitive equilibrium as references for value theory and not text-books or second hand commentators. The very starting point of any value theory is a postulate: a commodity space is given and it is supposed common knowledge to agents. Economic agents are defined with reference to that commodity space (they are endowments and preferences functions). All economic relations considered are voluntary exchanges, i.e. permutations of commodities amongst individuals respecting equivalence (a tautological expression for saying that agents share a common status). Wage relationship is not an exception at that level of abstraction. That neoclassical economists may introduce diverse asymmetries does not substantially alter the treatment of employment contracts. Even Simon (1951)’s authority notion is included in a voluntary exchange between “labour services” performed by workers and “real wage” given by bosses. This mere possibility of treating “labour services” on this footing arises from the presence of “human labour” or “labour services” in the commodity space. The presence of “human labour” in the commodity space is thus the crucial point and addressing this point is really “breaching the neoclassical fortress”, at least on the question of wage relationship.

    There is no analytical reason for inscribing “human labour” in the commodity space other than proving that employment contracts, even considered as a little bit specific, are reducible to exchange ones. To fight such a proposition, which relies on a social prejudice, we should prove that it has no rational support. Mainstream economics gives a scientific caution for that prejudice and makes people think that way. Only a critique of the logical roots of mainstream theory can establish that “human labour” is a “fictitious commodity” (as Polanyi said). This can be done using a proof by reduction to the absurd: following for “human labour” the usual reasoning mainstream theoreticians adopt when they deal with ordinary commodities does not lead to describe a wage relationship as an exchange relationship but as a slavery economy (which is not what mainstream intend to do!). Forbidding slavery for moral reasons does not remedy the failure. In any event, as I have shown in my article, the logic of mainstream implies in the case of “human labour” (and not for other cases) a radical difference of status between those who pay and those who are paid. Consequently, a wage relationship cannot be an exchange ruled by equivalence, i.e. not an exchange at all. “Human labour” cannot be dealt with in a general competitive equilibrium framework on the same footing as commodities, contrary to what mainstream economists usually do, violating their own.

    That failure of mainstream theory makes it necessary to resort to an alternative approach, the one called monetary analysis by Schumpeter in his History of economic analysis. David Ellerman misses this point when he is surprized by my proposition to reason according to that alternative paradigm. He finds “bizarre” such an idea of reasoning in terms of flows of payment. David Ellerman did not see what the expression “minting process” refers to in the real world as if it was not clear to him that getting means of payment from the banking system and from other financial institutions is a necessary condition for most economic activities to be engaged.

    In a sense, adopting a monetary point of view about economic relations is to go back to a historical fork, different from that alluded to by David Ellerman in his article. The relevant fork here is the one Adam Smith (and many others) did create when they have abandoned the road on which political economy has advanced before Wealth of Nations publication and have followed the glorious but somewhat illusory avenue of a value approach (a real approach in Schumpeter’s terms). That bifurcation happened nine years after Steuart’s Inquiry, a milestone of a monetary analysis. The road opened by the authors called by Smith “mercantilists”, Steuart being the outstanding one, will be followed later by some outsiders but also by Schumpeter, Hawtrey and above all Keynes himself. The view defended in this “comment and rejoinder” belongs to that important tradition and should not be dismissed in the name of a real (or value) approach which has proved to fail to offer a consistent interpretation of the wage relationship.

    Most of Keynesians have not been true to Keynes’ method. They have not adopted his “choice of the units of quantity appropriate to the problems of the economic system as a whole” (GT, p. 37). “I propose, therefore, to make use only of two fundamental units of quantity, namely quantities of money-value and quantities of employment [which are ratios of quantities of money-value]” (GT, p. 41). Keynesians [Kalecki being a notable exception] have neither followed Keynes’ views about the difference of status between entrepreneurs and wage-earners. In the Treatise on Money, normal income (that is equilibrium profits) is defined for entrepreneurs only (a difference between normal end effective profits being the main spring of dynamics) while possible frustrations of wage-earners do not play any role. In General Theory, Keynes accepts the “first classical postulate” which concerns entrepreneurs profit maximization while he denies the “second classical postulate”, introducing by that postulate a radical distinction between the two groups of agents. In my article I just try to give a more or less (implicit) axiomatic view of Keynes’ position.

    What I argue in my article is that forms of monetary circulation reveal that a decisive qualitative difference between entrepreneurs and wage-earners exists which is denied by mainstream economists. At the high level of abstraction chosen to give a sense to a comparison between general equilibrium theory and a monetary analysis (see the comparative tableau about the postulates given in the article), agents who are able to get means of payment from the banking system may become entrepreneurs (defined according to Coase’s sense) while the others become wage-earners. It may seem natural to object that this does not differ from the Classical and Marxian idea of the property of means of production since it could be that property of means of production be the means of getting money from the bank (collateral). That objection is irrelevant: property without means of payment does not allow to engage in new activities while means of payment without property does it, as testified by the rise of huge corporates which have started from scratch but have been successful enough to dominate our present capitalization . We should not forget that property of means of production is not an exogenous variable but an endogenous one.

    Here now comes the central difference between David Ellerman and myself. When David Ellerman speaks about responsibility he has in mind the idea that labour (performed by entrepreneurs, managers and wage-earners) should be considered responsible for the production, which entails that, from a normative point of view, the whole of production should be allocated to labour. What is to be observed contradicts what should be observed; consequently, employment contracts “might be taken as a fraud on an institutional scale”. I share that view but for a different reason. What I consider to be the relevant benchmark is not a world where a normative idea of justice would prevail but rather the one in which we live and the one we interpret as a market (or commodity) economy. The norms of such a world are liberty and responsibility, the two terms being the two sides of the same coin. The dominant ideology inspired by neoclassical theory tends to convince us that everybody is submitted to that norms: everybody is supposed free to engage himself in an action oriented toward the market and, as a consequence, is responsible for what happens in the market, success or failure as well. “Everybody” means entrepreneurs and wage-earners; the former produce and try to sell commodities, the latter produce and try to sell “human capital”, another (ironical?) word for “human labour”.

    Against that largely prevalent view, that any rhetorical arguments about inequalities, asymmetries and so on, are unable to destroy, it is necessary to show that, from the very point of view of a market inspired ideology, wage-earners are neither free not responsible for they are unable to engage themselves into a market activity. Not having an access to finance, they have just to choose the entrepreneur to which they freely decide to submit themselves (or to resort to extra-market resources as social allocations). The monetary analysis I plea for makes possible to theoretically represent the co-existence of market relations between entrepreneurs (or firms) on the one hand, and the wage relationship as a monetary subordination on the other. In that view employment contracts are a fraud not because they violate an ethical conception of social relations but because they contradict the norm of the market which is supposed to rule economic relations.

    Accordingly, the difference between the effective condition of wage-earners, given by employment contracts, and that they should have as independent market agents, supposed free and responsible, is an exploitation. Wage-earners are nothing but a means for entrepreneurs (Fleurbaey’s M-exploitation). They are treated effectively on the same footing as other means of production (food for the cattle and fuel for the engines, would say Sraffa). As a consequence, Wieser’s principle cited by David Ellerman p. 26 may apply if waged labour, as suggested in my article, is nothing but a means for entrepreneurs: “Land and capital [wages paid to wage-earners] have no merit that they bring forth fruit; they are dead tools in the hand of the man [the entrepreneur]; and the man [the entrepreneur] is responsible for the use he makes of them”. The effective form of a wage relationship makes it clear that wage-earners have not the same prerogatives as entrepreneurs do have. This has nothing to do with wealth: some wage-earners may be richer than some entrepreneurs (Coase’s sense); they are still deprived from deciding what, how and how much to produce. Focusing on monetary subordination inside firms and leaving wage-earners free to spend their wages as they please in the markets for commodities accounts for the “stylized fact” characteristic of a wage relationship (which differs from slavery and for the description Ricardians offers for wage-earners condition).

    David Ellerman draws a basic conclusion of his thesis given by the title of his section 9: “Workplace Democracy: the Alternative to the Employment System”. Who could disagree? A closer examination of that point suggests however a slight dissent. Democracy refers to politics. In the political organization of many countries of the West, wage-earners and entrepreneurs share a same condition; they are all citizens considered on the same footing. In the markets for (consumption) commodities nothing distinguishes wage-earners and entrepreneurs: all agents are in the same position depending only on their budgetary constraint which does not reveal their status. What is at stake therefore is the organization of firms: how could they comply with democratic principles?

    What matters here is not a political principle but an economic one. Abolishing employment contracts and replacing them by free associations of independent producers organizing themselves with the view of getting the highest efficiency or net income makes sense; this may lead to a democratic structure with an equal decision power given to all for all decisions; this may also lead to a pyramidal organization of powers but accepted by all independent producers. The relevant point of view here is not a political one but an economic one: all producers should be free of and responsible for what they do. Once this basic condition is fulfilled, the way they organize themselves is subject more to an economic rationality than a political one.

  • Stavros Mavroudeas says:

    Comments on:
    About Waged Labour: From Monetary Subordination to Exploitation
    by Jean Cartelier

    Stavros Mavroudeas
    Professor of Political Economy
    Dept. of Economics
    University of Macedonia
    e-mail: smavro@uom.edu.gr

    I. Introduction

    J.Cartelier’s article follows in the steps of his long-standing previous work (e.g. Cartelier (1991), Benetti & Cartelier (1999)) of advancing a Monetary Approach as an alternative to the Theory of Value. This approach had begun, in the past, as what was then branded the ‘Rubin School’ (e.g. Cartelier (1976), Deleplace (1979), Benetti & Cartelier (1980)), that offered a monetary interpretation of Marx’s Theory of Value (more on this issue underneath). This approach began as an internal criticism of Marx’s Theory of Value and an attempt to reinstate it in more consisted terms; that is to offer a better Theory of Value based on money. It evolved in a completely different approach from Marx’s (owing more to Schumpeter and probably to Keynes) that rejected altogether the concept of value. This paper belongs to the second breed, that is it rejects completely the Theory of Value and proposes a fully-blown Monetary Approach.
    My comment offers a critique of Cartelier’s Monetary Approach and a defense of Marxist Labour Theory of Value. The next section briefly presents and criticizes the ‘Rubin school’, the ancestor of the Monetary Approach, as much of the problems of the latter existed already in the former. The third section analyses and criticises Cartelier’s Monetary Approach as such. Finally, the last section concludes.

    II. The ‘Rubin school’ and its shortcomings

    In the 1970s Marxist economic analysis came under fire from the then emerging neo-Ricardian tradition propagated by Steedman (1977). The latter was based on the seminal work by Sraffa (1970), whose aim however was not a critique of Marxist Political Economy but a critique of the internal consistency of General Equilibrium Neoclassical Economics. The neo-Ricardian tradition argued that you can derive a theory of prices without a theory of (labour) values by simply studying the physical and technical inputs of production (practically through input – output analysis). This argument threw away not only the Marxist but also the Ricardian conception that prices (in the ultimate form as monetary prices) are determined by the labour values (that is the expenditure of labour in production’; practically labour-time). Thus, for neo-Ricardians labour value is redundant. It can only be useful as a side dish in the menu, as an explanation of the exploitation of labour by capital.
    The neo-Ricardian challenge was vigorously repelled by the Marxist tradition in the ensuing Value Debate of the 1970s and 1980s (see Fine (1986)). It was convincingly shown that neo-Ricardianism is a technicist approach that cannot grasp the social dimension of capitalism (an element central in both the Classical [and primarily the Ricardian] and the Marxist Political Economy). Moreover, the Marxist reply proved both the internal consistency of Marx’s analysis and its explanatory superiority. It also showed that, while Marxian Labour Value Theory was close to the Ricardian one (in defining values as expenditure of labour in production), they differed radically in how these labour values are defined. Thus, Ricardo’s LTV was based on embodied labour (a conception of labour focusing on its technical characteristics). Whereas Marx’s LTV was based on abstract labour (that is a conception of labour focusing not only on its technical but also on its social characteristics).
    The so-called ‘Rubin school’ (e.g. Cartelier (1976)), was part of this reaction to neo-Ricardian technicism but chose a path that subsequently led it astray (see Mavroudeas (2004), (2012)). It attempted to elaborate an abstract labour Value Theory by emphasizing the social dimension. However, it erroneously posited money as the immediate (that is without the mediation of intermediate stages) incarnation of the social dimension. Thus, value was totally divorced from the sphere of production and was relegated to the sphere of circulation: value is created in the exchange of commodities against money. It should be noted that the Marxian transformation process of (labour) values to (ultimately monetary) prices is much more sophisticated and, by the way, more realistic. For Marxist economic analysis values are created in the sphere of production (through a normalization process involving both technical and social characteristics) as labour-time magnitudes. Then they are transformed in the sphere of circulation, taking into account the long-run dimensions of intra-capitalist competition (i.e. productive structure expressed in differing organic compositions of capital), to prices of production. And, finally, they are transformed again in the sphere of circulation, taking into account also the short-run dimension (i.e. the fluctuations of supply and demand) to market prices (which are the practically observable prices). The latter are, in a fully developed capitalist economy (in which commodification is dominant and, thus, monetization is also dominant as opposed to barter) monetary prices. However, the formation of values does not require in its essence the intermediation of money but can exist in the form of barter (e.g. primitive steps of capitalism). In this sense Marx employs value theory, in Capital vol.I, in order to analyse production while abstracting from exchange and distribution. Of course, and this was forcefully explained by Marx, a fully developed capitalist economy is a monetary economy (that is not only commodification is dominant but also commodity exchange is mediated by money).
    The ‘Rubin school’ approach of Benetti and Cartelier failed to acknowledge this sophisticated and layered process of determination. By directly equated value with money it ended up in circulationism (that is the undermining of the primacy of the sphere of production within the total circuit of capital). Hence, they ended up arguing that values and prices are ‘incommensurable’ factors and attacked Marx for attempting to establish equations of the type ‘sum of prices equals sum of values’. They additionally accused Marx for adopting a Ricardian theory of labour value The necessary consequence of the ‘Rubin school’ perspective is the ultimate abandonment of Value Theory: (labour) value is discarded and money is posited is the sole main concept of the economic analysis of capitalism. Curiously enough, the ‘Rubin school’ concluded with a very similar result with its neo-Ricardian opponent: value is redundant.
    Before closing this section it is necessary to point out that the identification of this ‘Rubin school’ (and of other similar approaches that also directly equate value with money) with the seminal works of I.I.Rubin (1973, 1978) is totally unwarranted. Rubin disagreed completely with the direct identification of value with money. In many places he affirmed that value can be studied without having previously established money (Rubin 1978: 36). Additionally, he explicitly condemned the view that value is created in circulation, stating that ‘abstract labour and value are created or ‘come about’, ‘become’ in the process of direct production … and are only realised in the process of exchange’ (Rubin 1978: 125). Finally, referring to the quantitative determination of abstract labour, Rubin (1973: 154) said that it is a misunderstanding ‘to admit that the social equalization of labour in the process of exchange is carried out in isolation of dependence on production (for example, the length, intensity, length of training for a given level of qualification, and so on), and thus, the social equalization would lack any regularity since it would be exclusively determined by market spontaneity’.

    III. The Monetary Approach: a problematic theory of wage

    J.Cartelier’s paper at hand follows in the steps of the previous ‘Rubin school’ analysis and it is an exemplary case of his Monetary Approach. Value analysis is dropped altogether and all major functions of capitalism revolve around money.
    Cartelier sets out to confront both Mainstream (that is Neoclassical nowadays) and Marxist theories of wage. He argues that capitalism is based on the wage relationship (i.e. the hiring of workers by capitalists) that exhibits the following ‘stylised facts’: ‘wage-earners voluntarily accept to work under the control of the entrepreneur; they do not decide what, how and how much they have to produce but they comply with entrepreneur’s orders inside the firm as subordinates; outside the firm the wage-earners freely choose how to spend their wages.
    Then he argues that every realistic and consistent wage theory should explain the following two questions in accordance with the abovementioned ‘stylised facts’:
    (a) Define the qualitative differences between a simple market economy (in Marxist terminology a simple commodity production economy; that is a fictional and historically non-existent type of economy comprised of independent producers that work themselves and do not employ others and exchange their product in the market) and a capitalist economy (again in Marxist terminology a capitalist commodity production economy; that is one comprised of capitalists and workers where the latter work for the former).
    (b) Explain how workers are being exploited in capitalism.

    In the following lines we shall tackle first the wage relationship and second the answers to the two questions above.

    The wage relationship
    To begin with the wage relationship (later inherited by the Regulation Approach (Aglietta (1979)) is a poor substitute for the Marxian LTV. The stylized facts that Cartelier presents are clearly stated in the relevant chapters of Marx’s Capital . Marx was the first to point out the now widely accepted within legal studies indeterminacy of the employment contract. More precisely, he showed that what is sold in the labour market is not the product of labour but its ability to produce (more specifically the time to use it), the labour-power. This difference between the labour-power and its produce (the application of the labour-power in the labour process) is the basis of the employment contract indeterminacy. The employment contract defines very accurately (a) the amount of labour-power sold (that is the time which the worker offers to work for the capitalist and under its direction) and (b) its reward (the wage rate). However, it does not define the result of the application of the ability to work (the labour expended), that is the produce of its application in the capitalist production process. The latter depends primarily on the capitalist that has the managerial prerogative (i.e. the right to direct the labour process and thus the expenditure of labour (types of work, intensity etc.)). Thus, the employment contract does not define a series of crucial parameters (e.g. the specific work tasks, the intensity of work) that affect the output of the labour-process.
    Following from these, Marx argues that what is being sold at the labour-market is not the actual labour performed (and its produce) but a certain amount of time of ability to labour. Thus, it is not labour that is the commodity sold in the labour-market but labour-power. The latter is a suis generis commodity because it is not produced in a factory but outside the control of the capitalist in the family. It has a value (as every commodity), which is the socially necessary labour-time required for its reproduction. However, because it is privately reproduced outside capitalist production per se, its socially necessary labour-time is the time required for the production of the means of consumption necessary for its reproduction (which are bought in the market). As in every commodity, the value of labour-power is reflected in a price, which is the wage. The flow of value created by the application of labour-power (that is the output of the production process) must be higher than its value; or else the capitalist cannot get a surplus-value (and thus a profit) and will become bankrupt. The fact that the capitalist has the managerial prerogative enables him to extract this surplus-value (which is an amount of unpaid labour-time). In this manner, Marx combines the analysis of labour-time (paid and unpaid labour-time), with the stocks and flows of commodities (means of consumption, output) and their monetary denomination (wages, profits) in a sophisticated, structured and realistic theory of wage (see Mavroudeas (2001)).
    Cartelier (1991) rejects this theory by arguing unconvincingly that the Marxian theory of exploitation relies on two pillars (respectively Labour Theory of Value and labour-power as a commodity) which are both inconsistent with Marx’s commodity theory. He rejects the Marxian Labour Theory of Value on the basis of an erroneous understanding of Marx’s value-form analysis and a reiteration of trivial and long-ago answered arguments about values not determining prices (see Fine (1986)). And he also rejects the commodity nature of the value of labour-power because it does not satisfy the condition put forth by Marx ‘to be privately and independently produced’ (see Cartelier 1991). This thesis falls prey to the typical Neoclassical argument (pioneered by Samuelson (1982)) that seek to invalidate the Labour Theory of Value and dethrone labour from its position as the sole active creator of wealth and thus reject the notion of exploitation in capitalism. This argument has been also convincingly rejected on both analytical and empirical grounds (see Mavroudeas (2001)) and the special commodity nature of labour-power defended.
    Cartelier’s monetary approach of the wage relationship is a poor substitute of Marx’s analysis. By dropping Value Theory, he attempts to define the indirect obligation of the labourer to sell his ability to work to the capitalist by his lack of access to the mint (sic!). He argues that when only a fraction of human beings have an access to the minting process, this generates a difference of condition. Those people who have not access to the minting process cannot intervene directly in the market, which means that they are not able to run an independent process of specialization. Hence, they are obliged to work for those having access to the mint in order to acquire money. In formal terms, Cartelier drops labour-time and commodity analysis (see also underneath on the issue of Simple and Capitalist Commodity Production) and goes directly to monetary variables in a very simplistic manner. He argues that economic relations are payments (p.3). This is a very problematic definition because it cannot understand the sphere of production and the struggle within it (when even Coase admits that the factory is not a market). Then Cartelier argues that individuals are simply accounts into which payments write down quantities of money (p.3). What can differentiate the mass of individuals into different groups (social classes?) is the differential access to the mint: those that have it (the haves) are in a superior position than those that haven’t it (the have-nots). This is also a very weak explanation of the appearance of class diversification in capitalism. It is even weaker than Smith’s simplistic reference to the emergence of capitalists as those which for some mysterious reason have acquired wealth and thus cease to work and choose to employ others to work for them. Why a group of people has preferential access to the mint? Cartelier offers no serious explanation. Is it because of some mysterious inheritance (in which instance it is a case of Proudhonist labour theory of property inanity rightfully ridiculed by Marx)? Or there is some form of institutional prohibition (which Cartelier does not explain)? In any case these explanations do not fit the empirical data on how capitalism was constructed. It was not through some form of differential access to the mint (after all it was the kings that had such access) but through trade and manufacture. Last but not the least, what happens when the have-nots work for the haves and become themselves units of account (sic!)? Then how this difference of condition can be perpetuated? The argument that ‘entrepreneurs and independent producers master the two legs of their budgetary constraint (incomes and expenditures) while wage-earners master only their expenditures is unrealistic. As it is well known workers struggle over the wage rate.
    Concluding, Cartelier’s monetary approach of the wage relationship cannot explain the way capitalism was born. Moreover, it cannot explain how capitalism functions as tis basic aspect (the sphere of production) is totally neglected. It cannot also offer a convincing theory of wage determination as it cannot grasp workers’ struggle over both pay and working conditions.

    Simple and Capitalist Commodity Production
    The first question, which is trivial and obviously solved in Marxist analysis, is necessary because Cartelier lumps together all theories referring to value. Thus, he implicitly equates Neoclassical general equilibrium theories (of the Arrow and Debreu type) with Marxist analysis simply because the former makes some fleeting reference to value. However, this neglects the unbridgeable differences between these two theoretical breeds. Neoclassical general equilibrium theories derive of course from the subjective theories of value (that is theories that identify value with [subjective] utility) of the forefathers of Neoclassicism but have long ago (at least since the completion of their supply and demand analysis) ceased to make any reference to value (see Gramm (1988)). On the contrary, Marxism adheres to the objective theories of value (populated mainly by labour theories of value).
    The reason why Cartelier makes this unwarranted bundling together is that they both emphasise the role of commodities in capitalism and Cartelier’s Monetary Approach downgrades the commodity aspect in favour of the monetary dimension. In this Cartelier foregoes another major difference between them. For Neoclassical general equilibrium theories commodities do not have any social dimension. They adhere to the theory of productive factors, that is the capitalist economy comprises of very different individual agents (hence there are no social classes in the economy at least) that, curiously enough, exhibit the same max-min behaviour (maximizing utility and minimizing costs). They all produce and/or possess commodities. Moreover, the production process (to the limited extent that Neoclassicism analyses it through Microeconomics) is practically comprised not by people but by commodities (capital, labour, land etc.). For this reason, it has been rightfully criticized by Marxism as a commodity fetishist economic analysis. On the contrary, Marxism adheres to a theory of productive forces, that is (a) capitalism comprises of competing social classes (fundamentally capital and labour) with different economic behaviours and (b) labour is the sole active creator of wealth. Commodities are the products of labour; that is they are the outcome of a social process. For this reason, capital and labour have different meanings in Marxism and Neoclassicism. From this follows another major difference in their analysis: for Marxism it is labour-time that produces commodities whereas for Neoclassicism commodities are the outcome of the combination of various equally important factors. Consequently, for Marxism commodity analysis must necessarily be geared in the analysis of labour-time whereas Neoclassicism does not pay attention to this. Concluding, lumping together Marxism and Neoclassicism as similarly infatuated with the commodity is simplistic and erroneous.
    Given the abovementioned considerations, for Marxism the difference between a fictitious simple commodity production economy and a capitalist commodity economy is a non-problem. In the former the Law of Value (the determination of prices by values) operates unequivocally (i.e. prices coincide with values). Whereas in the latter the operation of the Law of Value has to pass through several mediating stages and exhibits degrees of freedom (i.e. prices fluctuate around values).
    Notwithstanding, Cartelier foregoes these crucial differences and attempts to define the differences between simple and capitalist commodity production by essentially dropping the commodity dimension and by resorting directly to monetary variables. In this he fails both to offer a superior alternative to Marxist analysis and to accurately criticize Neoclassical economics.
    We referred to Cartelier’s problems vis-à-vis the Marxist analysis above. However, Cartelier fails also to criticize Neoclassicism. His argument that because Neoclassicism accepts that labour is a commodity then a general equilibrium cannot be obtained is simple non-sensical. He accuses Neoclassicism for inconsistency because it conceives the labour-market as an exchange of equivalents and the wage as simply another commodity (‘human labour or labour-power’) whose magnitude is determined like all other commodities. He argues that this cannot explain how a contract among equals results in the hierarchical relationship lucidly presented in Marx’s excerpt.
    His criticism of Neoclassicism is inaccurate and beats around the bush because Cartelier does not grasp correctly how Neoclassicism understands the productive factor ‘labour’ (see sub-section above). In its simplest and more fundamental form, the Neoclassical theory of wage states that the price of labour (i.e. the wage rate) is determined by the interaction of demand and supply of labour in the market. Labour demand is determined according to the marginal product of labour. This slopes downward because of the neoclassical assumption of diminishing marginal returns. Perfect competition prevails in products market and in labour market. Perfect competition in product market implies that products are homogeneous and the price of the goods is given for all firms in the market. Perfect competition in labour market also implies that labour as well as firms behave as ‘wage-takers’; no one can influence the wage rate. Consequently, the labour supply curve is perfectly elastic. Since the wage rate does not change, the labour supply curve becomes the average cost curve of labour and it coincides with the marginal cost curve of labour. The equilibrium wage rate is set at the point where labour demand equals labour supply. From this follows that the labour-market is an exchange of equivalents, there is no exploitation as each productive factor (capital and labour) is paid according to its contribution. There is no logical flaw in the Neoclassical analysis unless you question its definitions of capital and labour (and hence its theory of productive factors) and its very stringent and unrealistic assumptions (e.g. perfect competition).

    The issue of exploitation: Marx or Fleurbaey?
    Cartelier’s second question emerges also because he rejects the Marxist theory of exploitation (that is the theory of surplus-value). This theory is an elaborate construction combining labour-time, commodity and monetary variables. Above all it has a very good fit in actual reality as it can grasp all the dimensions of the struggle between labour and capital (labour-time and intensity, income distribution etc.).
    Cartelier aims to show that capitalism is a system of exploitation of the wage-earners from the entrepreneurs (which are more lax substitutes for workers and capitalists). In order to achieve this, he employs Fleurbaey’s peculiar definition of M-exploitation: any human being is exploited when it is being utilized by another human being as a means oriented to the latter’s ends. Then he argues that the have-nots (access to the mint) are being exploited by the haves and this exploitation takes place in production (as the former have to work under the direction of the latter). Thus, the wage relationship is a form of monetary subordination.
    Compared to the supposedly failed Marxian theory of surplus-value Fleurbayey’s M-exploitation is a poor substitute. The first is an economic theory (based on a more general theory of surplus expropriation). The second is a triviality so general that is has no serious explanatory power. M-exploitation can be attributed to almost any field of human interaction (e.g. sentimental issues). Furthermore, it can be used either in a methodologically individualist framework or in a social class framework. This generality does not increase but rather decrease its explanatory ability. Its application in economic relations by the monetary approach to the wage determination is tantamount to this. How can such a theory explain with precision class struggle over pay and working conditions? How can it explain (particularly under its monetary form) intricate matters such as struggle over productive tasks and job descriptions?

    IV. In place of Conclusions

    We have argued that Cartelier’s Monetary Approach to wage determination is a problematic wage theory. It cannot explain the struggle between labour and capital in the production process on issues like industrial relations, intensity of work, productive tasks and job descriptions etc. It cannot account satisfactorily even for issues concerning income distribution as the latter involve a combination of labour-time, commodity and monetary variables and the Monetary Approach is restrained only to the last ones.
    On top of that the Monetary Approach seems to have two other major deficiencies.
    The first deficiency concerns its methodology. It obviously rejects Marxist dialectical materialist and its elaborate and layered structure of abstraction. However, in place of this accursed ‘violence of abstraction’ it does not have anything more satisfactory to offer apart from a mere recourse to the phenomenology of monetary circulation.
    The second deficiency concerns its theory of money. For a Monetary Approach it seems to have a very primitive and unsatisfactory theory of money. The equation of the financial system with ‘the mint’ is, to say the least, very weak. The derivation of money, the role of the state, forms of money (e.g. world money), capital markets and banking, let alone more complicated issues (e.g. credit, fictitious capital) are totally absent.
    In toto, Cartelier’s recourse to Schumpeter (and Keynes) is an inadequate alternative to K.Marx.

    Stavros Mavroudeas
    Professor of Political Economy
    Dept. of Economics
    University of Macedonia
    e-mail: smavro@uom.edu.gr


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