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

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.