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Reappraising the classics - the case for a dynamic reformulation of the labour theory of value

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  • Freeman, Alan

Abstract

This article argues that simultaneous equation systems, widely regarded as a standard formalisation of labour value theory, import equilibrium assumptions which rule out a realistic or consistent theory of price formation. An alternative, dynamic formalisation exists yielding time-varying or dynamic labour values free of such assumptions. We show that simultaneous equation systems, formally equivalent to neoclassical general equilibrium systems, cannot represent technical change or economic growth and apply only to hypothetical static economies in which neither the scale of output nor the technology changes. The resulting static values are a special, limiting case of dynamic values, which converge to them only tendentially and in the absence of technical change. Under conditions of technical change, dynamic values — and the prices and profit rates derived from them — differ systematically from those derived from simultaneous equation systems, and therefore provide a different foundation for economics. We show that the behaviour of dynamic values corresponds more closely to observed reality than either neoclassical equilibrium prices or static labour values by showing how, in a dynamic framework, the rate of profit can, and in general does, fall despite productivity-enhancing technical change. These results provide a rigorous foundation for the study of capital movements and technical change which is superior to conventional neoclassical price theory, calling for a radical reappraisal of the debate on value in this century.

Suggested Citation

  • Freeman, Alan, 1994. "Reappraising the classics - the case for a dynamic reformulation of the labour theory of value," MPRA Paper 1205, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1205
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    File URL: https://mpra.ub.uni-muenchen.de/1205/1/MPRA_paper_1205.pdf
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    References listed on IDEAS

    as
    1. José Alberro & Joseph Persky, 1979. "The Simple Analytics of Falling Profit Rates, Okishio's Theorem and Fixed Capital," Review of Radical Political Economics, Union for Radical Political Economics, vol. 11(3), pages 37-41, October.
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    More about this item

    Keywords

    Non-equilibrium; value theory; TSSI; Rate of Profit; Okishio Theorem; Marxist Economics;

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • B14 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Socialist; Marxist

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