The rise of marginalism and the STV only really began to show its effects in the 20th century, well after Marx was dead. It’s incorporation into mainstream economics during a time in which revolutionary socialism has found itself at a standstill has put it in a position where it has not been as thoroughly challenged as the classical school of thought, despite how strongly it differs from Marxian theory.

As for differences, I’d argue it fundamentally comes down to each school’s theories of value. The reason I say this is because the contrasts found in each theory can be seen as logical extensions of this one disagreement¹.

• The Austrian School abides by the principle of consumer sovereignty, whereas Marx focuses on the producer as the center of his analysis.

• Austrians judge time as a scarce resource that is granted value when a product is able to “save time” for the consumer, whereas Marx sees time as a conversion factor between raw labor and measured value.

• Marx is far more skeptical about the economic autonomy of an individual; for him, the rigid and mechanical nature and divisions found in the production process is extrapolated to the rest of economy. Contrast this with the Austrian School, which sees the economy as an aggregate of countless individual decisions.

And once we go further and further down the respective rabbit holes, away from the abstract and into the concrete, it becomes clear that the consumption-side focus put forth by the STV has major effects on our understanding of the world around us. As someone who strongly holds to the LTV, I think is important to give the STV a more thorough look.

1.1. Outlining the Differences

The first paragraph of Marx’s Capital opens as such:

The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,” its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. (Marx 1867, 27)²

The reason the commodity makes such a useful starting point is because its characteristics give us the clearest window into the fundamental logic of an economy. It is through the commodity that we are able to bridge subconscious decision-making to the tangible reality representing said decisions.

Menger seems to concur on this, opening his Principles of Economics with his own definition of a “good”.

Things that can be placed in a causal connection with the satisfaction of human needs we term useful things. If, however, we both recognize this causal connection, and have the power actually to direct the useful things to the satisfaction of our needs, we call them goods. (Menger 1871, 52)³

Thus the attempt to provide for the satisfaction of our needs is synonymous with the attempt to provide for our lives and well-being. It is the most important of all human endeavors, since it is the prerequisite and foundation of all others. (Menger 1871, 77)

Once again, we see Marx employ a similar definition:

A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production. (Marx 1867, 27)

However, it is from here when we move away from the origins of a commodity into its present characteristics (in this case, the nature of its value), that we begin to see the disagreements form:

We have seen that when commodities are exchanged, their exchange value manifests itself as something totally independent of their use value. But if we abstract from their use value, there remains their Value as defined above. Therefore, the common substance that manifests itself in the exchange value of commodities, whenever they are exchanged, is their value. The progress of our investigation will show that exchange value is the only form in which the value of commodities can manifest itself or be expressed. For the present, however, we have to consider the nature of value independently of this, its form. (Marx 1867, 28)

But whether it does so in a direct or in an indirect manner is quite irrelevant when the existence of value in the general sense of the term is in question. The skin of a bear that he has killed has value to an isolated hunter only to the extent to which he would have to forgo the satisfaction of some need if he did not have the skin at his disposal. After he enters into trading relations, the skin has value to him for exactly the same reason. There is no difference between the two cases that in any way affects the essential nature of the phenomenon of value. (Menger 1871, 228)

Immediately we’re faced with the first major break: if commodities hold a two-fold nature, both in and out of exchange, exactly how do these forms differ?

• To Menger, both are manifestations of the same concept of “satisfaction”, one direct (use-value), and the other indirect (exchange-value). Because of this, the distinction is purely one of classification rather than inherent function.

• To Marx, however, the two forms are diametrically opposed: use-value is a material reality that defines commodities qualitatively, whereas exchange-value is a social one that distinguishes them quantitatively.

And its on this topic of value that we begin to see the cruxes of each theory form:

As use values, commodities are, above all, of different qualities, but as exchange values they are merely different quantities, and consequently do not contain an atom of use value. If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour. (Marx 1867, 28)

The value of a particular good or of a given portion of the whole quantity of a good at the disposal of an economizing individual is thus for him equal to the importance of the least important of the satisfactions assured by the whole available quantity and achieved with any equal portion. For it is with respect to these least important satisfactions that the economizing individual concerned is dependent on the availability of the particular good, or given quantity of a good. (Menger 1871, 139)

So, now we have an idea of what the next question would be: taking into account both the forms value assumes, what defines value?

• For Menger, the value of a good is defined by the extent to which obtaining it would satisfy an existing need/want. In this sense, it is an intersection of utility and scarcity.

• Marx, on the other hand, looks at the common factor found within every economic good, being that it is a product of human labour. From here he posits that the value of any commodity is a measure of the labor society as a whole puts into it.

In addition to defining value, both authors have also made statements on what determines the magnitude of value for any given commodity.

There is no reason why a good may not have value to one economizing individual but no value to another individual under different circumstances. The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts. What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another. While one economizing individual esteems equally a given amount of one good and a greater amount of another good,we frequently observe just the opposite evaluations with another economizing individual.

Hence not only the nature, but also the measure of value is subjective. Goods always have value to certain economizing individuals and this value is also determined only by these individuals. (Menger 1871, 146)

We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production. Each individual commodity, in this connection, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value. The value of one commodity is to the value of any other, as the labour time necessary for the production of the one is to that necessary for the production of the other. “As values, all commodities are only definite masses of congealed labour time.” (Marx 1867, 29)

• Because the needs/wants of individuals vary, Menger defines value as a subjectively measured phenomena; however the consumer implicitly judges it is the magnitude it holds.

• Marx uses time as a measurement of expended labour power; to be more specific, the value of a commodity is based upon the average amount of labour-hours it takes to produce said commodity.

Which leads us to the final contrast: where is economic power concentrated?

But if men abandon this most primitive form of economy, investigate the ways in which things may be combined in a causal process for the production of consumption goods, take possession of things capable of being so combined, and treat them as goods of higher order, they will obtain consumption goods that are as truly the results of natural processes as the consumption goods of a primitive collecting economy, but the available quantities of these goods will no longer be independent of the wishes and needs of men. Instead, the quantities of consumption goods will be determined by a process that is in the power of men and is regulated by human purposes within the limits set by natural laws. (Menger 1871, 73)

Division of labour within the workshop implies the undisputed authority of the capitalist over men, that are but parts of a mechanism that belongs to him. The division of labour within the society brings into contact independent commodity-producers, who acknowledge no other authority but that of competition, of the coercion exerted by the pressure of their mutual interests; just as in the animal kingdom, the bellum omnium contra omnes [war of all against all – Hobbes] more or less preserves the conditions of existence of every species.

The same bourgeois mind which praises division of labour in the workshop, life-long annexation of the labourer to a partial operation, and his complete subjection to capital, as being an organisation of labour that increases its productiveness – that same bourgeois mind denounces with equal vigour every conscious attempt to socially control and regulate the process of production, as an inroad upon such sacred things as the rights of property, freedom and unrestricted play for the bent of the individual capitalist. It is very characteristic that the enthusiastic apologists of the factory system have nothing more damning to urge against a general organisation of the labour of society, than that it would turn all society into one immense factory. (Marx 1867, 246-247)

• Menger concedes that the division of labour may play a decisive role in primitive economies; regardless, he holds that a capitalist economy is primarily developed and driven by people’s wants, not by the division of the labor. In other words, economic power is to be found in mass consumption.⁴

• Marx interprets the division of labour as evidence of power in production. The division acts as a countermeasure against the decisive part labour as a whole plays in the direction and maintenance of economy.

1.2. Nature of Value

The majority of Menger’s book seems to be a response to classical economists, more specifically Smith; before we proceed, it is important to understand exactly what Menger is refuting here.

Within Smith’s economic theory, we see the concept of a “real price”, a production-side measure of the value any economic good has in exchange.

The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. (Smith 1776, 28)

Menger sharply disagrees here, saying that an investigation of price is fundamentally a dead-end.

However much prices, or in other words, the quantities of goods actually exchanged, may impress themselves on our senses, and on this account form the usual object of scientific investigation, they are by no means the most fundamental feature of the economic phenomenon of exchange. This central feature lies rather in the better provision two persons can make for the satisfaction of their needs by means of trade…

Prices are only incidental manifestations of these activities, symptoms of an economic equilibrium between the economies of individuals…

But since prices are the only phenomena of the process that are directly perceptible, since their magnitudes can be measured exactly, and since daily living brings them unceasingly before our eyes, it was easy to commit the error of regarding the magnitude of price as the essential feature of an exchange, and as a result of this mistake, to commit the further error of regarding the quantities of goods in an exchange as equivalents. The result was incalculable damage to our science since writers in the field of price theory lost themselves in attempts to solve the problem of discovering the causes of an alleged equality between two quantities of goods. (Menger 1871, 191)

Menger is right in that there are problems present within the classical concept of value, but as we will see repeatedly throughout this section, while Menger is able to challenge the objective measures of value present in the theory of “natural price”, he fails to challenge the objective relations of value that fundamentally underlie it.

Take for example, the “incalculable damage” created by the notion of equivalents. The equivalence Menger speaks of is undeniably a quantitative equivalence, as evidenced by his mention of “an alleged equality between two quantities”.

And to that extent, it does an adequate job refuting the notion of equivalent measure; an example of an equivalent measure being “ten yards of linen is worth the same as one coat”. However, it is not sufficient enough to wholesale reject the notion of an equivalent relation itself, which Marx presents without affirming the idea of an equivalent measure:

When one commodity, such as a coat, serves as the equivalent of another, such as linen, and coats consequently acquire the characteristic property of being directly exchangeable with linen, we are far from knowing in what proportion the two are exchangeable. The value of the linen being given in magnitude, that proportion depends on the value of the coat. Whether the coat serves as the equivalent and the linen as relative value, or the linen as the equivalent and the coat as relative value, the magnitude of the coat’s value is determined, independently of its value form, by the labour time necessary for its production. But whenever the coat assumes in the equation of value, the position of equivalent, its value acquires no quantitative expression; on the contrary, the commodity coat now figures only as a definite quantity of some article.

For instance, 40 yards of linen are worth – what? 2 coats. Because the commodity coat here plays the part of equivalent, because the use-value coat, as opposed to the linen, figures as an embodiment of value, therefore a definite number of coats suffices to express the definite quantity of value in the linen. Two coats may therefore express the quantity of value of 40 yards of linen, but they can never express the quantity of their own value. A superficial observation of this fact, namely, that in the equation of value, the equivalent figures exclusively as a simple quantity of some article, of some use value, has misled Bailey, as also many others, both before and after him, into seeing, in the expression of value, merely a quantitative relation. The truth being, that when a commodity acts as equivalent, no quantitative determination of its value is expressed. (Marx 1867, 38)

Marx affirms this notion of qualitative equivalence even while he is criticizing Smith on the very same front Menger was, filling a space left open by Menger failing to consider this distinction:

On the surface of bourgeois society the wage of the labourer appears as the price of labour, a certain quantity of money that is paid for a certain quantity of labour. Thus people speak of the value of labour and call its expression in money its necessary or natural price… But what is the value of a commodity? The objective form of the social labour expended in its production. And how do we measure the quantity of this value? By the quantity of the labour contained in it. How then is the value, e.g., of a 12 hour working-day to be determined? By the 12 working-hours contained in a working day of 12 hours, which is an absurd tautology…

…Classical Political Economy borrowed from every-day life the category “price of labour” without further criticism, and then simply asked the question, how is this price determined? It soon recognized that the change in the relations of demand and supply explained in regard to the price of labour, as of all other commodities, nothing except its changes i.e., the oscillations of the market-price above or below a certain mean. If demand and supply balance, the oscillation of prices ceases, all other conditions remaining the same. But then demand and supply also cease to explain anything…

… This price which always finally predominates over the accidental market-prices of labour and regulates them, this “necessary price” (Physiocrats) or “natural price” of labour (Adam Smith) can, as with all other commodities, be nothing else than its value expressed in money. In this way Political Economy expected to penetrate athwart the accidental prices of labour, to the value of labour. As with other commodities, this value was determined by the cost of production. But what is the cost of production – of the labourer, i.e., the cost of producing or reproducing the labourer himself? This question unconsciously substituted itself in Political Economy for the original one; for the search after the cost of production of labour as such turned in a circle and never left the spot. (Marx 1867, 377-378)

Throughout this whole passage Marx does not deny that there is a relation between labour and value, but rather instead targets Smith’s quantitative equivalence on the grounds of it being a tautology. Taking that into context, it makes sense why Menger would call such a thing into notion; without any further investigation, it simply appears to be little more than an axiom.