The below (not excessively mathematical) paper was light years ahead of its time, and is well worth a read even now.
The article highlights two main contributions of Arrow.
One is a question of how a society can make collective decisions. A classical answer is "utilitarianism" -- if a collective decision makes me happy more than it makes you sad, then we should do it. This requires society to be able to be able to measure exactly how happy something makes me and how sad it makes you. What if we can't make those kinds of measurements? Arrow shows that (under reasonable assumptions) we're stuck. There is no good rule to decide.
His other contribution was to "general equilibrium". A set of markets are "in equilibrium" if we can find prices so that supply and demand are equal in every market simultaneously. Do such prices exist, even in theory? Arrow showed that the answer is yes.
There are a bunch of criticisms of general equilibrium. Some of these were begun by Arrow himself. If you have prices that are out of equilibrium, can you adjust them to be in equilibrium? If you see the whole demand curve, then you could. But imagine you just know that there is unfulfilled demand for some goods, and excess supply for other goods. If you just make small adjustments in prices to lower excess demand or supply, will you eventually converge on market-clearing prices? Arrow showed that the answer is: it depends.
Wulf Gaertner: A Primer in Social Choice Theory. Oxford UP 2009.
However, I personally found his proof of Arrow's Theorem cumbersome and not so accessible, and prefer the following books:
Christoph Börgers: Mathematics of Social Choice. Siam Publications 2010.
Alan D. Taylor: Social Choice and the Mathematics of Manipulation. Cambridge UP 2005.
They are both concise and easy to follow if you're familiar with this kind of mathematics (for example, if you have a CS background). As for "popular science" books on social choice, I don't know of any good one and unfortunately have heard a few colleagues in philosophy misinterpret Arrow's Theorem. In that respect it's quite similar to Gödel's Theorems.
Edit: A really good book - once I finished listening to the audiobook version I went right back to the start and listened to it again and I'm going to order a paper version.
There really were a group of economists that fit the "license to be bad" stereotype, such as Milton Friedman. But Arrow was not one of them.
Edit: I wish I had a paper copy so I could refer to it more easily!
Your argument is an example of what I mean, though. The labor theory of value lost out on "is" grounds -- there are too many things it can't explain. Now some of the people who made this argument were right-wingers, so if you think that only "ought" questions matter, the fact that people with the wrong notion of "ought" made a contribution proves that the whole thing is morally bankrupt.
There are economic historians, but economists don't talk about medieval or ancient economies just because they don't have much to say. Historians are better equipped to understand them. Though a recent paper applied a trade model (the gravity equation) to predict the locations of Assyrian ruins, so maybe there's more to be done.
> Now some of the people who made this argument were right-wingers, so if you think that only "ought" questions matter, the fact that people with the wrong notion of "ought" made a contribution proves that the whole thing is morally bankrupt.
I don't think that's the case; there is a distinct break in value theory after Marx, which totally pulls him out of the classical tradition, because he has a "truly social" (as Patrick Murray puts it) theory of value - it is the recognition of its historical specificity. And while it's true that not only neoclassicals objected to the labour theory of value, the current status quo was create through ideological objections veiled as a "revolution". Nevertheless, it is a mistake to view Marx and post-Marx value theory (and here I must emphasize not only value theory but the theory of the value-form) as merely a way to explain prices rather than to explain social dynamics. The subjective theory of value stops before that point, and by limiting its scope to analysis of capital's shadow forms it relies either on ahistorical thought experiments (Robinson Crusoe?) or atomistic views of society. By limiting its scope the theory becomes almost tautological and contentless. The Sraffian objection to the labour theory of value, which is that values are redundant, not only fetishises its claimed ability to explain price, but misses the whole point of the theory. As such, some philosophers who hold to the theory even go as far as to say that it does not hold on the level of the individual commodity, but only on aliquots representative of the lot. It is as if these commentators stopped reading Capital on section 2 of chapter 1.
My point about history is this: economics, in claiming to be scientific, should therefore be held to the same standards as any other science, to explain not only the what but also the why, and for its explanation to be full and complete regardless of time. Its object is intrinsically historical in nature, but either by the "limiting of scope" I talked about before or even projecting the laws of specific social formations on all of history, the task is relegated to economic historians.
Value theory was entombed by Marx' followers. Marx offered a theory that was a) a positive theory on how the economy functioned, b) a normative theory on why capitalism was immoral, and c) a mechanical explanation on why capitalism was doomed. In terms of a and c it has failed. I don't even think this is a damning criticism of Marx -- Smith and Ricardo were wrong about plenty as well. The neoclassicals moved on from Ricardo, but Marxists have refused to move on and instead of enveloped "the theory of value" in a cloud of words to insulate Marx from criticism. Mysteriously, while Smith and Ricardo can be criticized, critics of Marx are always "missing the whole point of the theory".
Economics is not all of social science. The core of economics is the study of markets, though it touches on history, or psychology, or sociology. Markets were pretty peripheral for most of human history, and historical, or psychological, or sociological explanations are more important. Maybe you can explain everything that has ever happened for all of human history, but I sure can't.
Marxists do not, in fact, tell people that they are "wrong" about subjective judgements, but they do say that you are wrong to say that my house is $1 even if it is valued at $100k. You are free to value it at $1. Further, both Marx's and Ricardo's theory stipulate the value of commodities given that they are already objects of demand. For Marx, the theory of socially necessary labour time is the window into that observation.
Subjective value theory actually aims to do something more - to accumulate all these preferences in order to explain price. It reconciles objective facts about the world with the fact that people have preferences - and Smith, Ricardo and Marx are no different in that respect.
>In terms of a and c it has failed.
Plenty of Marxian economists and philosophers of economics would support, with various strength, both a and c. For instance, they argue that value comes to the forefront in explaining crises, and several empirical models (such as by Shaikh and Cockshott, although I have my reservations about their theories) confirm high correlation between the best measures of labour values we have and the prices actually observed in those sectors. That's not to say that the theory explains everything (e.g why a Nike shoe costs more than an Adidas) but it was never meant to - Marx stipulated that it ought to explain the value of commodities, not the price, and that the price-form, through such things as copyrights and patents, obscures the objective labour content. The key is that (1) it doesn't make sense to apply Marx's theory of value to individual commodities, (2) Marx's theory explicitly applies to freely reproducible commodities under capitalist modes of production. Thus, collector's items (like fine art) and items not freely reproducible (like Nike shoes) are not covered. There is, however, some work in incorporating those, in the notion of "general intelligence" and the prominence of financial labour.
>Mysteriously, while Smith and Ricardo can be criticized, critics of Marx are always "missing the whole point of the theory".
Not at all, but Marx can't be criticised on the same terms, because his theory is fundamentally different. If you want to criticise Marx then you can't do so on the terms of Smith and Ricardo - there is a reason, for instance, that despite his encyclopedic knowledge of political economy, Marx claimed that the tendency for the rate of profit to fall was one of his proudest achievements - despite it being in Ricardo.
>Markets were pretty peripheral for most of human history, and historical, or psychological, or sociological explanations are more important.
I disagree. The materialist perspective is that men make history, but they do not do so as they choose, only under circumstances transmitted from the past. The leap from commodity production to generalized commodity production in capitalism was decisive, and as Marx and Darwin agreed, the past is the key to the present.
Value theory is an intellectual dead end, one that ultimately doomed Marxist economics. That's why it's necessary to say it's not about any of the things that people thought it was about for the first hundred years, but different things that suddenly became important post-Sraffa. That's why it's necessary to say that Sraffa was "missing the whole point of the theory" -- because Sraffa ultimately killed the theory.
The standards in philosophy and the social sciences are different. A philosopher can proclaim that the English Civil War or the Glorious Revolution were the result of class struggle. A historian has to actually get in there and study the evidence, and up close grand narratives tends to fall apart.
The LTV wasn't thrown out because it fails to describe how things are, because soon enough marginalists realize that the same criticisms actually apply to their own theory. It was thrown out (mostly by Samuelson and his pals) of specific issues: the transformation problem, the generalized commodity exploitation theorem, and by extension the Okishio theorem, all of which have been addressed in the Marxian economic literature.
The LTV wasn't exactly thrown out -- there are situations where marginalism and the LTV exactly coincide -- but it was superseded because outside a narrow sphere it becomes incoherent. The classic example is technological substitution -- if you have two ways of making something, one that is capital-intensive and one that is labor-intensive, then you will probably pick the one that's cheaper. So you can't calculate the labor content of a good independently of prices.
The specific issues you enumerate are issues within Marxist economics in general. The LTV was superseded well before Samuelson's paper on the transformation problem.
> So central to
capitalist reality is this motor of growth that it lies behind both imperialist conquest and the
launching of those periodic prolonged booms of which the Belle Époque and the post-war
Golden Age are the most recent examples.
This is a pretty ridiculous conclusion that is demonstrably false.