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Marx's theory on value- a contradiction?

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Aayu Posted: Wed, Aug 1 2012 8:38 AM
I am going through capital, volume 1- and I have a problem. Marx states that the value of a commodity is equal to the socially acceptable labour time necessary to produce that commodity. And that the exchange value, or relative value is the menifestation of that particular value in the use- value terms of the equivalent commodities. INow that we have money, I think that we have a common equivalent commodity, with a particular use vale attached to it (However, there is a chapter on Money following the chapter I am on, so about that I'm not too sure. that's not relevant to the point in hand). My question is - How would Marx explain the heterogeous price of the same commodity? The same commodity at Archies, for example, is 10 times the price of the commodity if it were at a roadside vendor. One could say that the price increases because Archies guarantees a good quality product, but that does not increase the socially acceptable labour time required to produce the good, does it? Is this a contradiction to his theory on value?
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Marx's value theory is nonsense so you should certainly not be surprised to find it unsatisfactory

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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Wheylous replied on Wed, Aug 1 2012 11:56 AM

I know very little on the topic, but maybe this is where he suggests explotation comes in? Extortion of higher prices from customers?

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In my short career as a student of economics I have yet to run across a justification of Marx's LTV that didn't amount to a subjective value judgement or groundless assertion. Hopefully this thread will provide some clarification.
"...I feel, for instance, that I have the right to do anything I please. But, if I do something you don't like, I think you have the right to kill me." -George Carlin
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David B replied on Wed, Aug 1 2012 2:50 PM

Aayu:
I am going through capital, volume 1- and I have a problem. Marx states that the value of a commodity is equal to the socially acceptable labour time necessary to produce that commodity. And that the exchange value, or relative value is the menifestation of that particular value in the use- value terms of the equivalent commodities. INow that we have money, I think that we have a common equivalent commodity, with a particular use vale attached to it (However, there is a chapter on Money following the chapter I am on, so about that I'm not too sure. that's not relevant to the point in hand). My question is - How would Marx explain the heterogeous price of the same commodity? The same commodity at Archies, for example, is 10 times the price of the commodity if it were at a roadside vendor. One could say that the price increases because Archies guarantees a good quality product, but that does not increase the socially acceptable labour time required to produce the good, does it? Is this a contradiction to his theory on value?

The way I would approach this scenario is to ask whether or not the explanation given fits the world you experience in reality.  Now before I go on, I hold that the subjective theory of value is, a priori, the right explanation of value, so you might think I'm biased.  I think Marx is a dumbass, but that doesn't mean I'm right and he's wrong.  But one would expect the proof to be self-evident.

Let's do a thought experiment.  So let's think about the value of water in different places according to his theory and then according to a "user" of that water.

If I live on the bank of a fresh-water stream relatively high in the mountains.  Water is not scarce for me.  The labor to produce it is relatively cheap.  I walk to the river and I put it in a container and carry it where I need it.  If you bring me water from a stream 2 mountains over, it will take a lot more labor to convert that water into a consumer good for my use.  But the value to me will be no different than the value of the water in front of me at my stream.  You may want to sell it to me for 5$, but I'm guessing I won't pay more than a penny for it.  You're only saving me a trip to the river bank.

Now, put me in the middle of a desert and I'm dying of thirst and I have $2million in a suitcase.  How much of that money do you think I'd be willing to part with in order to drink some water?  Let's say I have a 2 carat diamond.  Do you think I'd trade it for a gallon of water?  Now let's say the labor costs to get the water to me in the desert were $1000.  Would that change how much I'm willing to spend to get that gallon of water?  No, due to scarcity and need, I'll pay whatever I have to to survive.

Part of the flaw in Marx's theory starts with a basic misunderstanding of exchange.   Any exchange is a mutually beneficial exchange of value.  Meaning that each party to the exchange is getting something they value more than they value what they are giving up.  This is not something one can argue about it's axiomatic.  They would not participate in the exchange if there wasn't a higher valuation of what they're getting, than what they're giving up.  Note this difference in valuation originates in the human mind.  

The second flaw is a misunderstanding of the role of time preference in consumption and production.  The Robinson Crusoe explanations make it clear, that to consume one must produce, even at the most basic level.  The idea of capital is the investment of productive effort in converting natural resources into higher order goods(capital goods) that allow higher levels of production.  So when crusoe converts a rock into a basic blade for cutting the skin off of an animal more efficiently than biting through it, he's invested labor and time into making his production of food from an animal carcass into a more efficient process.  He expects to get time back from that effort which he can invest in other ways (ultimately in leisure :)).

Now, he is accurately understanding that a good produced (in order for the market to produce it) as a market good must provide a return back that is deemed valuable to the producer.  If Crusoe, finds that one of his attempts at making his food production more efficient doesn't work, he ends up losing that investment.

In the example of a capitalist vs. the laborer above.  The capitalist assumes the risk that the end products when exchanged in the market will not cover his the costs of labor and resources invested in bringing that good to market.  In exchange the laborers get a guaranteed income and are not exposed to that risk.  But that labor is bought at a discounted rate.  Dollars now are worth more than dollars later.   This is a feature of time preference.  Any good now in hand ready to be consumed is worth more than that same good at a later time.  

I hope this helps to explain why Marx had it so wrong.  He didn't understand that value exists on both sides of any transaction, and that goods now are worht more than goods later, the capitalist expects to earn at minimum a return on the investment of capital up front, and in addition will bear the risk of a loss on that investment and a profit on that investment.  The best capitalists will be those who make wise investments, and generate profits for themselves. They must provide services which are valued sufficiently to generate such a profit in the market.

They bear the speculative risk of the productive effort, the "laborers" don't bear this risk, they get cheaper dollars now at a discounted rate and avoid both the risk and the reward of the speculation.

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I don't know of any roadside stands that sell things for 1/10 of the normal price. Where are these? But given that there are some price differences, one must ask why people don't buy the cheaper one. It must be because they perceive them to have a different use-value, in which case Marx would say that they can have a different value. I don't see how this objection applies to Marx's theory of value any more than it applies to marginal utility. Marginal utility says that price is determined by the utility of the marginal unit. Given that both stores sell the same marginal unit for the buyer, why is the buyer willing to pay more for one than the other?

David B: If I live on the bank of a fresh-water stream relatively high in the mountains.  Water is not scarce for me.  The labor to produce it is relatively cheap.  I walk to the river and I put it in a container and carry it where I need it.  If you bring me water from a stream 2 mountains over, it will take a lot more labor to convert that water into a consumer good for my use.  But the value to me will be no different than the value of the water in front of me at my stream.  You may want to sell it to me for 5$, but I'm guessing I won't pay more than a penny for it.  You're only saving me a trip to the river bank.

This actually supports Marx's theory of value. The reason that the water isn't scarce (or nearly isn't) is because it takes so little labor for you to get it. That's what scarcity generally refers to--how much labor something takes to get. Thus, if someone were to sell you water, it would have to be for a very low price. Marx's theory is about socially necessary labor not the actual labor that it takes for any given commodity.

Now, put me in the middle of a desert and I'm dying of thirst and I have $2million in a suitcase.  How much of that money do you think I'd be willing to part with in order to drink some water?  Let's say I have a 2 carat diamond.  Do you think I'd trade it for a gallon of water?  Now let's say the labor costs to get the water to me in the desert were $1000.  Would that change how much I'm willing to spend to get that gallon of water?  No, due to scarcity and need, I'll pay whatever I have to to survive.

Marx's theory is supposed to explain a market economy where things are produced on a regular basis and where competition exists. He wouldn't deny that certain one-off situations might follow other rules. It's a theory not a tautology. The existence of airplanes doesn't invalidate the theory of gravity. The seller in the scenario you give has a monopoly. Nevertheless, you can see that labor still has an effect. It's because you can't obtain (produce) the water on your own that you're willing to pay anything.

Part of the flaw in Marx's theory starts with a basic misunderstanding of exchange.   Any exchange is a mutually beneficial exchange of value.  Meaning that each party to the exchange is getting something they value more than they value what they are giving up.  This is not something one can argue about it's axiomatic.  They would not participate in the exchange if there wasn't a higher valuation of what they're getting, than what they're giving up.  Note this difference in valuation originates in the human mind.

As this is a tautology, Marx surely wouldn't dispute it. The question is why are people willing to pay more for one thing but less for another? And why does everyone pretty much pay the same price for a given type of commodity? This is what Marx's theory seeks to shed some light on.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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First of all, I would seriously recommend tackling Capital with the aid of a study guide. David Harvey's 'A Companion to Marx's Caputal' is a good one, and he has free online lectures to go with it.

How would Marx explain the heterogeous price of the same commodity? The same commodity at Archies, for example, is 10 times the price of the commodity if it were at a roadside vendor.

Marx is talking only of the price when supply equals demand. In other words, of the equilibrium price of a commodity. As far as I understand, Austrians do not even accept the notion of an equilibrium price, so this is an area that may be open to an Austrian critique.

Part of the flaw in Marx's theory starts with a basic misunderstanding of exchange.   Any exchange is a mutually beneficial exchange of value.

Marx makes a distinction between use-value, exchange-value, and value. Of use-value he makes the following comment:

His commodity possesses for himself no immediate use-value. Otherwise, he would not bring it to the market. It has use-value for others; but for himself its only direct use-value is that of being a depository of exchange-value, and, consequently, a means of exchange.[3] Therefore, he makes up his mind to part with it for commodities whose value in use is of service to him. All commodities are non-use-values for their owners, and use-values for their non-owners. 

So whilst Marx says there must always be a double inequality of use-value for an exchange to take place, when it comes to exchange-value, he claims that the exchanged commodities must be equal. So for example, if I sell a day of my labour-power for $100 and exchange that $100 for a fancy meal, then it is fair to say that one day of my labour-power is equal to one fancy meal. In terms of use-value, however, it would be true that the fancy meal was of higher value to me than the days work.

This is my understanding of it anyway.

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Marginal utility says that price is determined by the utility of the marginal unit. Given that both stores sell the same marginal unit for the buyer, why is the buyer willing to pay more for one than the other?

Who says that they do? Location in itself is a differentiating characteristic for a good from the POV of the consumer.

Freedom of markets is positively correlated with the degree of evolution in any society...

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Aayu replied on Tue, Aug 7 2012 8:10 AM

 

First of all, I would seriously recommend tackling Capital with the aid of a study guide. David Harvey's 'A Companion to Marx's Caputal' is a good one, and he has free online lectures to go with it.

 

Already on it. He's awesome.

Marx is talking only of the price when supply equals demand. In other words, of the equilibrium price of a commodity. As far as I understand, Austrians do not even accept the notion of an equilibrium price, so this is an area that may be open to an Austrian critique.

 

I thought it had something to do with my inability to completely understand the term- ' Socially acceptable labour time'. Even Prof. Harvey skips over it in the initial lectures. Did anyone understand the term.

 

 

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Aayu replied on Tue, Aug 7 2012 8:31 AM

I don't know of any roadside stands that sell things for 1/10 of the normal price. Where are these? But given that there are some price differences, one must ask why people don't buy the cheaper one. It must be because they perceive them to have a different use-value, in which case Marx would say that they can have a different value.

The problem being, Marx doesn't relate the use value to its value. He says that the value of a commodity is equal to the socially-expected labour time expended on the product. And the value menifests itself in the exchange value of the product. They don't relate the use-value to the exchange value, which is why the problem arose in the first place. I was looking for someone calling me out on my inadequate understanding of ' socially acceptable'. 

And I know of many such roadside stands. In fact, Archies, in my area at least, is known to be pricey but a quality buy. 

 

 

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David B replied on Tue, Aug 7 2012 9:16 AM

Before I go on, 

I want to make clear, if you look at the history of Economic thought, you find Marx attempting to resolve some classical economics issues with some interesting ideas.  But that doesn't make him right.  Karl Menger was a contemporary who solved the value problem differently and his student Bohm-Bawerk

 

Fool on the Hill:

I don't know of any roadside stands that sell things for 1/10 of the normal price. Where are these? But given that there are some price differences, one must ask why people don't buy the cheaper one. It must be because they perceive them to have a different use-value, in which case Marx would say that they can have a different value. I don't see how this objection applies to Marx's theory of value any more than it applies to marginal utility. Marginal utility says that price is determined by the utility of the marginal unit. Given that both stores sell the same marginal unit for the buyer, why is the buyer willing to pay more for one than the other?

I do see kids with Lemonade stands occassionally selling a cup of Lemonade for 1$, which is about 30-50% cheaper than in a restaurant, and 75-80% cheaper than at an amusement park.

Because in reality they're different goods.  You have multiple issues.  Trust, Location, relationship with the seller, shipping costs, already at the location buying other goods, so transportation costs and time are reduced factors. If all things are in fact equal, then the consumer would buy the cheaper one.  If he doesn't, you'll find there is some other aspect to the transaction that changes the way he values the two "identical goods".

Fool on the Hill:

David B: If I live on the bank of a fresh-water stream relatively high in the mountains.  Water is not scarce for me.  The labor to produce it is relatively cheap.  I walk to the river and I put it in a container and carry it where I need it.  If you bring me water from a stream 2 mountains over, it will take a lot more labor to convert that water into a consumer good for my use.  But the value to me will be no different than the value of the water in front of me at my stream.  You may want to sell it to me for 5$, but I'm guessing I won't pay more than a penny for it.  You're only saving me a trip to the river bank.

This actually supports Marx's theory of value. The reason that the water isn't scarce (or nearly isn't) is because it takes so little labor for you to get it. That's what scarcity generally refers to--how much labor something takes to get. Thus, if someone were to sell you water, it would have to be for a very low price. Marx's theory is about socially necessary labor not the actual labor that it takes for any given commodity.

What does "socially necessary labor" mean?

Fool on the Hill:

Now, put me in the middle of a desert and I'm dying of thirst and I have $2million in a suitcase.  How much of that money do you think I'd be willing to part with in order to drink some water?  Let's say I have a 2 carat diamond.  Do you think I'd trade it for a gallon of water?  Now let's say the labor costs to get the water to me in the desert were $1000.  Would that change how much I'm willing to spend to get that gallon of water?  No, due to scarcity and need, I'll pay whatever I have to to survive.

Marx's theory is supposed to explain a market economy where things are produced on a regular basis and where competition exists. He wouldn't deny that certain one-off situations might follow other rules. It's a theory not a tautology. The existence of airplanes doesn't invalidate the theory of gravity. The seller in the scenario you give has a monopoly. Nevertheless, you can see that labor still has an effect. It's because you can't obtain (produce) the water on your own that you're willing to pay anything.

Then you're missing the point, if a theory explains MORE phenomena (on in this case all exchange phenomena and in fact all human action) in a more satisfactory and cleaner way, doesn't that constitute a superior theory?

Fool on the Hill:

Part of the flaw in Marx's theory starts with a basic misunderstanding of exchange.   Any exchange is a mutually beneficial exchange of value.  Meaning that each party to the exchange is getting something they value more than they value what they are giving up.  This is not something one can argue about it's axiomatic.  They would not participate in the exchange if there wasn't a higher valuation of what they're getting, than what they're giving up.  Note this difference in valuation originates in the human mind.

As this is a tautology, Marx surely wouldn't dispute it. The question is why are people willing to pay more for one thing but less for another? And why does everyone pretty much pay the same price for a given type of commodity? This is what Marx's theory seeks to shed some light on.

There's a difference between paying similar or identical prices and valuing a good the same as another person.  As Austrian Economics states, the price paid in the market APPROACHES the equilibrium between supply and demand.  In fact, with money you have two different supply and demand curves interacting, supply and demand for money, and supply and demand for the good.  The price paid is never at the equilibrium point.   Every transaction, every action in the market place changes the way things are valued.

The way that value changes is important to marginal utility.  What we have to explain is when a person has money to exchange for a specific good, and he's willing to buy x units of that good, why doesn't he buy x+1?  When you say, "why does everyone pretty much pay the same price for a given type of commodity?"  you already have an answer, it's so clear in the supply/demand graph.  We know that people value them differently, that's why exchanges happen.  The buyers (demand side) are seeking the lowest price and the sellers are seeking the highest price.  They are doing so with incomplete knowledge and satisfying an end with slightly different goods, cost, location, etc.  But those prices approach an equilibrium which is never found.  The equilibrium is a fictional point which can never be found and is always moving.  It's the balance point at which the supply and demand are equal.

The part marginal utility explains is why a purchaser stops buying after he's purchased a certain quantity, even though he COULD BUY MORE!  Marginal utility explains that the second quantity is valued less than the first quantity.  

If these explanations fit, and do so cleanly, what's the problem with this explanation?  It's cleaner?  Value is subjective, time is a component, it doesn't try to break value into different components, it explains the different behaviors without introducing a different type of "value".

Bear in mind, that Austrian Economics,  especially Menger, Bohm-Bawerk, and Mises, appears after Karl Marx wrote his works.  He was objecting to real issues introduced by classical economists, he rightly identified problems that existed.  But that didn't mean he got the right answers.  Menger solved the value problem, Bohm-Bawerk added time and marginal utility, and Mises solved the Money problem and the Business Cycle, thus binding Micro and Macro Economics together.  Marx was unable to do this, and to this day mainstream economics has the micro/macro split that they can't bridge with their mathematical models.  Austrian Economics has these answered.  

No one has refuted any of these Austrian theories.  In fact his various works, Mises answered all of the Epistemological objections that he knew of to a logical science of Human Action, including socialist/marxist critiques.  His works Human Action and The Ultimate Foundation of Economic Science are to my mind the most important works in philosophy and social science that have been written.  I agree that the Ancient Greeks laid the groundwork for modern science, and developed many of the tools we use today.  However, in these works Mises binds us into an Epistemological framework that embraces our use of logic as THE basis for knowledge, that without the use of Logic there is no knowledge.  And moreso that behind the use of logic and formation of knowledge, there is this fundamental given of purposeful action from which we cannot divorce ourselves.  The logical categories of purposeful (human) action are fundamental to all of our sciences, there is no way out of that box.  And thus he embraces it.  In doing so, he restores our tools to us.  Logic is the right tool.  Mathematics does have value and meaning even though it is purely theoretical.  Economics can be understood, and is not an empirical science, but a science of logic, the logic of human action.  The categories we form in the creation of knowledge are our tools, and our success in action is predicated on their accuracy and applicability to the world we encounter. 

The problem with modern economics and politics is that we have these incompatible jury-rigged concepts and theories that need to be wiped out, OR recovered within the logical categories of human action.

Marx's theory of value fails, because it predicts things which are not true, and because it denies or ignores or fails to explain the fundamental category of human action and it's role in all economic and social (including political) human existence.  IF there is anything in Marx's work that needs to be recovered or valued and kept, then the way to do so is via Praxeology, if it can be done.

This is what Mises gave us:

There is no way out of the Praxeological box.  It's who we are, and it's where we operate from.

 

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Marx treats use-value and value as entirely separate. Furthermore, he treats exchange-value as an expression of value, not use-value. He didn't talk about this explicitly, but I think his theory can be extended if we take into account that money prices represent the exchange-value of the money commodity vis-a-vis the other commodity. In other words, money prices ideally reflect the ratio between the amount of socially necessary labor-time needed to produce the money commodity and the amount of socially necessary labor-time needed to produce the other commodity. This is essentially an elaboration of Marx's law of value.

Why then does the same commodity have different prices? For one thing, different people may expend different amounts of labor in producing the same commodity. If so, and assuming that each person would want to be compensated for the labor he did expend, the prices of each person's commodities will be different even though the commodities are the same. But many times, the identity of commodities only goes so far. You can say that a hut and a mansion are both houses, but they're hardly identical beyond that. Likewise, a Commodore 64 and an iPad are both computing devices, but their capabilities are vastly different.

What commodity do you have in mind when you compare its price at Archies vs. a roadside vendor?

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Aayu replied on Wed, Aug 8 2012 6:30 AM

Why then does the same commodity have different prices? For one thing, different people may expend different amounts of labor in producing the same commodity. If so, and assuming that each person would want to be compensated for the labor he did expend, the prices of each person's commodities will be different even though the commodities are the same. But many times, the identity of commodities only goes so far.

 

Marx focusses on a kind of common societal homogeneous labour.  He distuingishes it from the individual labour, and correlates the value of the labour, and consequestly the price of the commodity, to the socially acceptable labour time that objectively menifests itself in the product. 

 

I quote: 

Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour power. The total labour power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary. The labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.

 

You can say that a hut and a mansion are both houses, but they're hardly identical beyond that. Likewise, a Commodore 64 and an iPad are both computing devices, but their capabilities are vastly different.

 

Yes, I agree. Then, even Marx contends we're talking about different products. The SA labour time is different, hence the value is different.


What commodity do you have in mind when you compare its price at Archies vs. a roadside vendor?

 

Particularly, the commodity that triggered the question was a teddy bear, which costed Rs. 1500 from Archies, and the same- identical product, albeit with poor stitching and fur quality was brought by me from a roadside vendor at Rs. 100. Everything was same, except the fact the the roadside buy was inarguably of poorer quality. 

But I think there are a lot of commodies that fall into this category, the brand rip- offs for one, Levi's shades and all those products have a vast differentiation of prices. 

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Aayu replied on Wed, Aug 8 2012 6:32 AM

The dominoes pizza vs a pizza from a local bakery has differentiated price.  A levi's bag and a normal unbranded bag of similar quality will show differentiated prices, won't they?

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Autolykos replied on Wed, Aug 8 2012 11:07 AM

Aayu:
Marx focusses on a kind of common societal homogeneous labour.  He distuingishes it from the individual labour, and correlates the value of the labour, and consequestly the price of the commodity, to the socially acceptable labour time that objectively menifests itself in the product.

I quote:

Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour power. The total labour power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary. The labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.

With all due respect, I think that kinda talks past my point. My point was that, regardless of that analysis, people who expend labor on things will want to be compensated for that labor, not simply the average labor that's expended on those things. So that can affect the prices that people ask for in an economy with general commodity exchange (using Marx's terminology here).

Aayu:
Yes, I agree. Then, even Marx contends we're talking about different products. The SA labour time is different, hence the value is different.

Yes, and that's a big part of it too. Some people might actually say that a Commodore 64 and an iPad are the same commodity because they're both computing devices. But they'd be ignoring the obvious qualitative differences between the two.

Aayu:
Particularly, the commodity that triggered the question was a teddy bear, which costed Rs. 1500 from Archies, and the same- identical product, albeit with poor stitching and fur quality was brought by me from a roadside vendor at Rs. 100. Everything was same, except the fact the the roadside buy was inarguably of poorer quality.

But I think there are a lot of commodies that fall into this category, the brand rip- offs for one, Levi's shades and all those products have a vast differentiation of prices.

For one thing, the two teddy bears aren't actually the same, even if they look the same on first glance. It would be like comparing a Commodore 64 with a computer that looked like a Commodore 64 on the outside, but had state-of-the-art processing hardware inside. For another, differences in the raw materials can affect the price of the finished product. A simple example can suffice:

The same amount of time is used to make two different teddy bears. However, one is made with fur and stitching that took 10 times as long to create as the fur and stitching for the other. Since each teddy-bear maker had to purchase the raw materials on his own, the first teddy-bear maker paid 10 times as much for his fur and stitching as the second teddy-bear maker paid. In order to recover his costs, the first teddy-bear maker should thus charge 10 times as much as the second teddy-bear maker.

The fact that brand-name products command higher prices than off-brand products is actually a piece of evidence against Marx's entire analysis, if you ask me. From what I understand, there are often no appreciable differences in the labor it takes to manufacture name-brand products as opposed to off-brand products. Why, then, the differences in price? They have to do with differential demand. People demand name-brand products more than off-brand products, to the point that they're willing to pay more for the former than the latter. That goes to show you that prices are in no way necessarily determined by labor-values.

Finally, keep in mind that Marx's law of value doesn't say that commodity prices must be proportional to their labor-values - it only says that commodity prices will tend to be so.

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David B replied on Wed, Aug 8 2012 2:21 PM

Autolykos:

Finally, keep in mind that Marx's law of value doesn't say that commodity prices must be proportional to their labor-values - it only says that commodity prices will tend to be so.

And this is where Marx's law is inferior to Austrian Economics, because it identifies a correlation of one (supply in terms of labor costs) to the price of the commodity without explaining the correlation of demand to price.  It assumes that the commodity price is determined by labor invested, when it's the desirabillity of the commodity (subjective value)  that determines the price by creating a pressure to bring that commodity into the market.  The fact that  a commodity price tends to correlate with the value of the labor required to bring it to market is caused by the fact that production methods which require a higher input of labor costs AREN'T PROFITABLE, and thus are not pursued.  If the demand for the commodity rises (subjective valuation of the end products by consumers) THEN more labor intensive production methods become profitable at the new higher price; the new "equilibrium" price will accomodate more expensive production methods.  But this is a side effect of a change in the demand.

Other possible effects are that less labor intensive methods of producing the good become possible through technological advances and suddenly the supply increases due to new less expensive methods of producing the good, the equilibrium price will begin to drop and seek a new equilibrium.  Demand will not change, but as the price drops, more demand can be accomodated.  Some production methods will become unprofitable at this new equilibrium price, and will cease generating supply.  The price will normalize out at a new level.

Austrian Economics explains all of it via subjective value.  Marxism only points at part of the overall supply and demand phenomena and argues the phenomena of labor costs IS therefore the explanation of value.  But it can't be because it doesn't explain the demand phenomena...  It can't.

 

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Aayu replied on Thu, Aug 9 2012 9:04 AM
Autolykos:
With all due respect, I think that kinda talks past my point. My point was that, regardless of that analysis, people who expend labor on things will want to be compensated for that labor, not simply the average labor that's expended on those things. So that can affect the prices that people ask for in an economy with general commodity exchange (using Marx's terminology here).
Oh, I thought you were donning the Marxian hat and explaining the discrepancy in my understanding of his work. Yeah, but then- how does one measure the amount of labour he expends on the product? Wouldn't he measure HIS labour in relation to the general value of his concrete labour? Why would he assume that the value of his labour is greater than the value of the labour expended by others of the same kind? A person is a small unit in the market system, an insignificant unit in the market operations.
Autolykos:
The fact that brand-name products command higher prices than off-brand products is actually a piece of evidence against Marx's entire analysis, if you ask me. From what I understand, there are often no appreciable differences in the labor it takes to manufacture name-brand products as opposed to off-brand products. Why, then, the differences in price? They have to do with differential demand. People demand name-brand products more than off-brand products, to the point that they're willing to pay more for the former than the latter. That goes to show you that prices are in no way necessarily determined by labor-values.
Yeah, that's what I thought. To be honest, I was expecting people to say how the question is ridiculous and how Marx very clearly addreses that analysis.
Autolykos:
Finally, keep in mind that Marx's law of value doesn't say that commodity prices must be proportional to their labor-values - it only says that commodity prices will tend to be so.
Wouldn't that just make the whole analysis kind of redundant?
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Aayu replied on Thu, Aug 9 2012 9:23 AM

 

Autolykos:

Finally, keep in mind that Marx's law of value doesn't say that commodity prices must be proportional to their labor-values - it only says that commodity prices will tend to be so.

And this is where Marx's law is inferior to Austrian Economics, because it identifies a correlation of one (supply in terms of labor costs) to the price of the commodity without explaining the correlation of demand to price.  It assumes that the commodity price is determined by labor invested, when it's the desirabillity of the commodity (subjective value)  that determines the price by creating a pressure to bring that commodity into the market.  The fact that  a commodity price tends to correlate with the value of the labor required to bring it to market is caused by the fact that production methods which require a higher input of labor costs AREN'T PROFITABLE, and thus are not pursued.  If the demand for the commodity rises (subjective valuation of the end products by consumers) THEN more labor intensive production methods become profitable at the new higher price; the new "equilibrium" price will accomodate more expensive production methods.  But this is a side effect of a change in the demand.

Other possible effects are that less labor intensive methods of producing the good become possible through technological advances and suddenly the supply increases due to new less expensive methods of producing the good, the equilibrium price will begin to drop and seek a new equilibrium.  Demand will not change, but as the price drops, more demand can be accomodated.  Some production methods will become unprofitable at this new equilibrium price, and will cease generating supply.  The price will normalize out at a new level.

Austrian Economics explains all of it via subjective value.  Marxism only points at part of the overall supply and demand phenomena and argues the phenomena of labor costs IS therefore the explanation of value.  But it can't be because it doesn't explain the demand phenomena...  It can't.

I think how a Marxist would answer this question would be that Marx assumes that every individual unit in a market is a producer. Capital is basically looking at a capitalist economy from a producer's point of view. What a producer is looking for is finding the exchange value of his product. The abstract nature of labour is what equates the different commodities, and the socially acceptable labour time is what becomes the quantitative value of the labour. When you say that the demand of the commodity increases, in Marxian tongue, it's not the demand, but actually the VALUE of the commodity that is increasing, the social desirability of the labour enpending on the product that's increasing, hence leading to an increase in it's value, hence price. In fact, Marx actually addresses the concerns raised by you in one of his footnotes, he stated that the common problem with such an argument is that it vulgarises the economics, focusses on the appearances rather than the actuality- the underlying reasons for the changes in the prices, for example. For him, prices are merely a symbolic representation of values of the product. 

When the productivity increases, for example, the price falls because the socially acceptable labour time falls. The value falls. That isn't actually contradicting what you're saying, there is just a difference in approach. 

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Aayu replied on Thu, Aug 9 2012 9:24 AM

 

Autolykos:

Finally, keep in mind that Marx's law of value doesn't say that commodity prices must be proportional to their labor-values - it only says that commodity prices will tend to be so.

And this is where Marx's law is inferior to Austrian Economics, because it identifies a correlation of one (supply in terms of labor costs) to the price of the commodity without explaining the correlation of demand to price.  It assumes that the commodity price is determined by labor invested, when it's the desirabillity of the commodity (subjective value)  that determines the price by creating a pressure to bring that commodity into the market.  The fact that  a commodity price tends to correlate with the value of the labor required to bring it to market is caused by the fact that production methods which require a higher input of labor costs AREN'T PROFITABLE, and thus are not pursued.  If the demand for the commodity rises (subjective valuation of the end products by consumers) THEN more labor intensive production methods become profitable at the new higher price; the new "equilibrium" price will accomodate more expensive production methods.  But this is a side effect of a change in the demand.

Other possible effects are that less labor intensive methods of producing the good become possible through technological advances and suddenly the supply increases due to new less expensive methods of producing the good, the equilibrium price will begin to drop and seek a new equilibrium.  Demand will not change, but as the price drops, more demand can be accomodated.  Some production methods will become unprofitable at this new equilibrium price, and will cease generating supply.  The price will normalize out at a new level.

Austrian Economics explains all of it via subjective value.  Marxism only points at part of the overall supply and demand phenomena and argues the phenomena of labor costs IS therefore the explanation of value.  But it can't be because it doesn't explain the demand phenomena...  It can't.

I think how a Marxist would answer this question would be that Marx assumes that every individual unit in a market is a producer. Capital is basically looking at a capitalist economy from a producer's point of view. What a producer is looking for is finding the exchange value of his product. The abstract nature of labour is what equates the different commodities, and the socially acceptable labour time is what becomes the quantitative value of the labour. When you say that the demand of the commodity increases, in Marxian tongue, it's not the demand, but actually the VALUE of the commodity that is increasing, the social desirability of the labour enpending on the product that's increasing, hence leading to an increase in it's value, hence price. In fact, Marx actually addresses the concerns raised by you in one of his footnotes, he stated that the common problem with such an argument is that it vulgarises the economics, focusses on the appearances rather than the actuality- the underlying reasons for the changes in the prices, for example. For him, prices are merely a symbolic representation of values of the product. 

When the productivity increases, for example, the price falls because the socially acceptable labour time falls. The value falls. That isn't actually contradicting what you're saying, there is just a difference in approach. 

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David B replied on Thu, Aug 9 2012 11:45 AM

@Aayu,

Do you support  Marx's position?  I don't mean that as invective or as a criticism just for clarification.  I support looking closely at his position and understanding what he is saying.

Aayu:

 

When the productivity increases, for example, the price falls because the socially acceptable labour time falls. The value falls. That isn't actually contradicting what you're saying, there is just a difference in approach. 

 
I guess my point is that Marx's economic theories don't explain all of the phenomena we see in the market, but Austrian Economics theory does explain all of the phenomena.  I think that's the normal standard for replacing one theory with another.  The more important point about doing so is that a faulty theory may come up with conclusions that are demonstrably not true.  Now the critiques I've heard of Marx, especially Mises, argue that in order for his class theory conclusions to be valid, he must assume things about human beings which are not true.  Namely polylogism.  
 
I need to go read Marx's works so I get a better first hand understanding of what he actually has to say rather than second hand (not meaning you, but later socialists) accounts of what he "meant".  For example, most public discussion focuses on his class struggle arguments, as does most Austrian Criticism that I've read (in Mises, Hayek, and Rothbard).  But there are other critiques also.
 
But, in particular here, I'd like to point out that labor value and exchange value were, if I understand correctly, already in place prior to Marx.  Classical Economics didn't understand how to unite these differing and both apparently real views of value.  I like to think of this as the difference between wave and particle views of electromagnetic forces in physics.  The subjective theory of value explained both phenomena.  Marx didn't explain the difference or unify both into one overarching explanation.  If I understand correctly he used class theory as an explanation for the different phenomena, and classified exchange value where it differed from labor value in terms of exploitation of one class by the other.  
 
But to be sure I'm right, I need to go back and look.
 
This is clearly an inferior solution, mainly because of phenomena it cannot explain without invoking various deus ex machina.  Now, one thing we ought to do is make it clear that Marx tried to find a solution because he knew there was a problem.  That doesn't make his solution right.  Karl Menger found the right answer for this specific flaw in Classical Economics.  Unfortunately, probably due to the political implications of the various Economic theory out there, Austrian Economics is not en vogue yet.
 
In the end, it's superiority(or not) as a mechanism for understanding and predicting economic phenomena will be the deciding factor as to whether or not it thrives and succeeds.
 

 

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David B replied on Thu, Aug 9 2012 12:04 PM

David B:

In the end, it's superiority(or not) as a mechanism for understanding and predicting economic phenomena will be the deciding factor as to whether or not it thrives and succeeds.

I'd also like to point out that Marx correctly identified conflict as the source of Political phenomena.

Austrian practitioners and theorists have bumped up against the Political sphere of human action and haven't found a way to expand Praxeological analysis into that sphere, except when they apply the Economic sphere of praxeology to social order.  In other words, we can explain and predict the Economic consequences of specific political behaviors.

So it looks like I'm in the business of becoming a Social Scientist, an Economist, and a Political Scientist.  If we're going to uproot Marxism, we can't just explain it's logical fallacies, I believe methodological individualism must be used to construct a praxeological framework for analysis of conflict.

We need to find a way to effectively unite the different classes.  Austrian Economics does explain interest and the roles of Entrepreneur and Laborer in an economy.  It explains that they are in fact the same qualitative type of person, with varied Time Preference structures.

Austrian Economics, via Rothbard, and currently Rockwell seem to be bound and determined to somehow establish as "Right", Natural Rights Theory.  If you pay very close attention to Mises, he made the point that Praxeology takes ENDS as ultimate givens.  We don't get to argue about the Ends of the individuals.  Praxeology was value-free, all it could tell you is the necessary consequences (or ends which would actually appear) based on the means used.  It is for the actor to determine whether or not the necessarily arising ends were in fact ones that the individual valued.

This is the same for our political systems and theory.  Where Austrian Economics points out the necessary outcome of minimum wage, price controls, regulation, taxation, etc, consumers of government services must then decide what they will ask for from governments, and in fact whether or not to accept the claims of authority made by agents of government.

That part of Praxeology is very effective currently.  The part I'm concerned about is being able to replace class struggle and collectivist political theory with a theory of politics (conflict) that is based in methodological individualism.

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Jon: Who says that they do? Location in itself is a differentiating characteristic for a good from the POV of the consumer.

Then the same could be said of Marx's use-values. (I didn't mean that as a critique of marginal utility theory, just pinting out that it treats the issue in the same way.)

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Aayu: The problem being, Marx doesn't relate the use value to its value. He says that the value of a commodity is equal to the socially-expected labour time expended on the product. And the value menifests itself in the exchange value of the product. They don't relate the use-value to the exchange value, which is why the problem arose in the first place. I was looking for someone calling me out on my inadequate understanding of ' socially acceptable'.

Commodities have to have the same use-value for the socially necessary labor time to apply. Essentially, they have to be substitutable. If they are substitutable, then if follows that there price would tend toward uniformity. In other words, why would someone pay more for a good that he can get elsewhere for less? Marginal utility theory makes the same assumption of substitutability. For example, look at Rothbard's explanation here. His graphs and tables assume that the goods are equally suited to the needs of the consumer, and thus he derives a uniform price. Things get trickier when we consider goods that are sort of substitutable. What about Coke and Pepsi, for example? I personally don't have much of a preference, so I would likely buy whichever was cheaper. But people who prefer Coke might be willing to pay more for it. But if a bottle of Coke cost $10 they might switch over to Pepsi, and yet they might still buy it at $10 if Pepsi didn't exist. This suggests a level of substitutability. Again, this is a problem that faces both theories of value, but I don't think it is an insurmountable problem.

BTW, I recommend the videos at Kapitalism101 (especially the Law of Value series). I prefer these to the Harvey lectures, actually.

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David: What does "socially necessary labor" mean?

Read the first chapter of Capital and/or watch this.

Then you're missing the point, if a theory explains MORE phenomena (on in this case all exchange phenomena and in fact all human action) in a more satisfactory and cleaner way, doesn't that constitute a superior theory?

No, I don't think so. For example, consider theories of rain. One theory could simply say that it rains whenever the humidity reaches 100%. This theory has the advantage of being able to explain every case of rain. But this by itself is a trivial explanation. It doesn't say why it rains a lot in Seattle and only half as much in Spokane. To explain this, we need to consider other factors. We develop a theory that attributes the increased rain to the rising of warm air produced by eastward moving wind as it is pushed up into colder air by the mountains. However, this theory now doesn't explain all cases of rain. It has to allow exceptions. If the wind is blowing from the east one day and it still rains in Seattle, then obviously something else is at play in that case. But the theory is useful in explaining the general trend, whereas the other one was completely useless in that regard.

I don't want to get into a big discussion about the Marxian theory of value right now. But I might start a thread on it after I finish Capital and Bohm-Bawerk's critique.

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David B replied on Fri, Aug 10 2012 12:13 AM

Before I respond, let me ask this question:  are you committed to Marx's views and theories?  

Fool on the Hill:

David: What does "socially necessary labor" mean?

Read the first chapter of Capital and/or watch this.

I just watched that one video.  And there are a number of statements in there that I categorically deny are true, but are stated as if no "reasonable" person would disagree.  I'm going to watch it again (and pause often) and write them down.  My next post in this thread will contain those statements and I hope to demonstrate why they are false.  

Please remember Marx never replied to Bohm-Bawerk.  He knew of Bohm Bawerk's criticism, and held off on releasing the remaining volumes of his work on Economics.  My understanding was that he was planning to revise the work, to answer this criticism.  Yet this never happened.  His works were released by others posthumously. 

Now, others may have responded to Bohm-Bawerk after the fact, and if so, I'd like to get references to them, but until you have such a reference, I think Marx's lack of a response indicates something interesting.  I don't think it was that he didn't believe it needed a response, or else he would have released thos volumes before he died.  My guess would be he never found the solution.  I'd like to think he began to have doubts.  But that's probably wishful thinking on my part.

More importantly Marx's work was an attempt to solve problems that appeared in classical economics.  Many, if not all, of the criticisms Marx had of classical ecnomists were valid and were also embraced by Austrians.  But they also criticized Marx's attempts to fix those issues through a labor theory of value.  Marx never answered the Austrian critique.  In fact, I don't know of anyone who has successfully.  Austrians were ignored after Keynes showed up.

Fool on the Hill:

David B:

Then you're missing the point, if a theory explains MORE phenomena (on in this case all exchange phenomena and in fact all human action) in a more satisfactory and cleaner way, doesn't that constitute a superior theory?

No, I don't think so. For example, consider theories of rain. One theory could simply say that it rains whenever the humidity reaches 100%. This theory has the advantage of being able to explain every case of rain. But this by itself is a trivial explanation. It doesn't say why it rains a lot in Seattle and only half as much in Spokane. To explain this, we need to consider other factors. We develop a theory that attributes the increased rain to the rising of warm air produced by eastward moving wind as it is pushed up into colder air by the mountains. However, this theory now doesn't explain all cases of rain. It has to allow exceptions. If the wind is blowing from the east one day and it still rains in Seattle, then obviously something else is at play in that case. But the theory is useful in explaining the general trend, whereas the other one was completely useless in that regard.

And here is an example of the thing we need to be so careful of.  In the middle of explaining how a theory of rain succeeds in defining the conditions under which all rain occurs, you change the question that your seeking an answer to.

The first question is "What conditions cause it to rain, such that whenever this condition occurs we are certain rain will happen?"

Then you say this isn't really an interesting answer because it doesn't explain why it rains a lot in Seattle.  But that's a different question.  That question is, "Why does the condition we know causes rain (100% humidity) happen more often in Seattle than in Spokane?"  That's a different question!!!!

In the second case you switch to a new phenomena (frequency of rain) and start presenting theories about how and why they occur and you look for ways to check whether or not those theories test out to be true, and then you go back and check their predicted results against real world data, and look for exceptional conditions again.  

What would constitute a superior theory is if you found an instance (and reproducible) when it does rain and the old theory's condition (100% humidity) doesn't apply.  Then if I came a long with a new theory that explained all of the cases when it rained when there was 100% humidity and also explained the rain that happens when there is < 100% humidity, you would agree with me that it was a superior theory.

This is to me the essence of critical thinking, and it needs to be engaged in very humbly and very very rigorously.  We need to be very, very careful to not switch contexts like this.  You used this analogy to suggest that my assertion wasn't necessarily true, but careful examination shows that your example doesn't fit my assertion.  You switched questions in the middle?!

Fool on the Hill:

I don't want to get into a big discussion about the Marxian theory of value right now. But I might start a thread on it after I finish Capital and Bohm-Bawerk's critique.

That's what this thread is though.  I thought you jumped in because you did want that discussion.  I sure do :)

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Aayu replied on Fri, Aug 10 2012 6:46 AM

 

@Aayu,

Do you support  Marx's position?  I don't mean that as invective or as a criticism just for clarification.  I support looking closely at his position and understanding what he is saying.

I am not really sure right now. I have just started with his works, and although I can find many discrepencies, I'm not really sure if it is because HE didn't understand economics, or because I don't understand his work. I'm still in transition, as the saying goes. I have long supported the idea of communism, for example, but have accepted that it is utopian, for the most part. So right now I'm merely rekindling my hope in communism, let us see where this goes. He is one of the most misrepresented man I've ever seen, though. 

I need to go read Marx's works so I get a better first hand understanding of what he actually has to say rather than second hand (not meaning you, but later socialists) accounts of what he "meant".  For example, most public discussion focuses on his class struggle arguments, as does most Austrian Criticism that I've read (in Mises, Hayek, and Rothbard).  But there are other critiques also.

Yes, that would be for the best. I personally have been pleasantly surprised by a lot of his claims, they went against the very essence of his personality in my mind. I plan on moving from capital to Human Action, so as to first hand declare my preference. So, as I said, I'm still progressing in my ideology. 

But, in particular here, I'd like to point out that labor value and exchange value were, if I understand correctly, already in place prior to Marx.  Classical Economics didn't understand how to unite these differing and both apparently real views of value.  I like to think of this as the difference between wave and particle views of electromagnetic forces in physics.  The subjective theory of value explained both phenomena.  Marx didn't explain the difference or unify both into one overarching explanation.  If I understand correctly he used class theory as an explanation for the different phenomena, and classified exchange value where it differed from labor value in terms of exploitation of one class by the other.  

Well, yes- It was already discussed prior to Marx. However, there was no distinction between the labour time and the Socially acceptable labour time. Ricardo, who came the closest to explaining the term value, equated it to labour time. Basically, there were differing opinions on the term- 'value'. Classical economists also did not understand the two fold nature of labour, one- as it appears as the use-value of a commodity, and two- as it appears as the exchange value of the commodity. 

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Autolykos replied on Fri, Aug 10 2012 8:59 AM

David B:

And this is where Marx's law is inferior to Austrian Economics, because it identifies a correlation of one (supply in terms of labor costs) to the price of the commodity without explaining the correlation of demand to price.  It assumes that the commodity price is determined by labor invested, when it's the desirabillity of the commodity (subjective value)  that determines the price by creating a pressure to bring that commodity into the market.  The fact that  a commodity price tends to correlate with the value of the labor required to bring it to market is caused by the fact that production methods which require a higher input of labor costs AREN'T PROFITABLE, and thus are not pursued.  If the demand for the commodity rises (subjective valuation of the end products by consumers) THEN more labor intensive production methods become profitable at the new higher price; the new "equilibrium" price will accomodate more expensive production methods.  But this is a side effect of a change in the demand.

Other possible effects are that less labor intensive methods of producing the good become possible through technological advances and suddenly the supply increases due to new less expensive methods of producing the good, the equilibrium price will begin to drop and seek a new equilibrium.  Demand will not change, but as the price drops, more demand can be accomodated.  Some production methods will become unprofitable at this new equilibrium price, and will cease generating supply.  The price will normalize out at a new level.

Austrian Economics explains all of it via subjective value.  Marxism only points at part of the overall supply and demand phenomena and argues the phenomena of labor costs IS therefore the explanation of value.  But it can't be because it doesn't explain the demand phenomena...  It can't.

Marx's analysis includes what he calls "use-value", which is equivalent to the notion of "utility" or "subjective value". Furthermore, he states explicitly, early on in Capital, that different people can impute different use-values to the same commodity. His "law of value" asserts that the ratio of values (not use-values - Marx defines "value" as "the average amount of socially necessary labor-time required for production") serves only as a "center of gravity" for commodity prices. What you say above goes along with this, but adds additional explanation. Austrian-school economics also explains, in effect, what causes the deviations in commodity prices away from this "center of gravity".

There's more to it than that, of course. For example, Austrian-school economics adheres rigorously to the notion of inhomogeneity of labor, while Marxian economics does not. However, this thread is about whether there's an inherent contradiction in Marx's value theory, so any discussion of Austrian-school economics here is tangential at best.

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Autolykos replied on Fri, Aug 10 2012 9:33 AM

Aayu:
Oh, I thought you were donning the Marxian hat and explaining the discrepancy in my understanding of his work. Yeah, but then- how does one measure the amount of labour he expends on the product? Wouldn't he measure HIS labour in relation to the general value of his concrete labour? Why would he assume that the value of his labour is greater than the value of the labour expended by others of the same kind? A person is a small unit in the market system, an insignificant unit in the market operations.

Therein lies the rub - his appraisal of the "worth" or "value" of his labor is necessarily subjective. Marx tries to objectify all this by talking about labor-time as opposed to labor. After all, time can be measured objectively. So can physical effort, in terms of energy expended per unit time. However, it's often very difficult to objectively measure physical effort within a work environment. Mental effort is even harder to measure objectively.

As I see it, Marx's point is to try to provide an objective basis for the charges levelled by socialism against capitalism, particularly that capitalism exploits labor.

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David B replied on Fri, Aug 10 2012 9:41 AM

David B:

I just watched that one video.  And there are a number of statements in there that I categorically deny are true, but are stated as if no "reasonable" person would disagree.  I'm going to watch it again (and pause often) and write them down.  My next post in this thread will contain those statements and I hope to demonstrate why they are false.  

Law of Value 6 : Socially Necessary Labor Time

Ok, here we go

That Marxist Video:

"Alone on his tropical island, Robinson Crusoe can take as long as he wants to build a cabin for himself; it's up to him.  We don't have that luxury when we produce for market exchange."

I agree, BUT there are one distinct clarification that needs to be made.

First, crusoe CAN'T actually take as long as he wants.  Any basic understanding of subsistence survival makes it clear that survival alone in a wilderness no matter how luxurious it might seem, is a microcosm for economizing action.  One must decide what to ends to aim at and that ones survival depends on not only choosing the proper ends, but also in choosing the proper means to achieve that end.  

Heat, Shelter, Food, and Water are absolutely vital to any man's survival.  Depending on the environment the prioritization of these goals will vary slightly.  There is no environment on earth that doesn't require all four.  The only one you could possibly cut out is heat, IF you have sufficient variety of plant products that don't need cooking and an environment which never drops in temperature to a point that could cause hypothermia, but I doubt this is actually possible.  This description above implies that there is an idyllic idleness that crusoe can engage in.

That Marxist Video:

When Wonderbread makes bread they're competing in the market against [competitors].  If their workers are less productive, if they take longer to make bread, that doesn't mean they can sell their bread for more money.  The social value for bread is not set by individuals, but by the average amount of time it takes to produce bread.  This is called socially necessary labor time.

Ok here's the meat of the flaw, in that this description chooses to emphasize part of what's going on and ignores other factors that are also affecting the situation in the same way.

For example, instead of saying if their workers are less productive, let's say if their production costs are higher.  The only factor is not labor.  It's one of many factors.  Now, another point here is that there's never a discussion of loss, or super-loss.  Wonderbread, or more specifically the owners/investors, bear the risk of Loss, in the event that they underestimate their production costs.  Those can be 1) underestimate the cost of wheat, 2) underestimate the lifetime of the bread making equipment, 3) underestimate the quantity of (and perhaps the hourly rates for) the labor used to run the production process.  All of those COULD incur losses  But this is the only mention in the video of this RISK that the "capitalist" bears in the production effort.  Also, this concept of "socially necessary labor time" seems like it could be restated as "labor costs".  This is one of many factors which contribute to the "production cost".  In an economy that uses money, all of these costs will be accounted for in terms of a quantity of money.  So in this case, each company will have it's own internal production cost, BUT THAT'S NOT the market price of the bread.  

The market price of the bread, will be set by 4 factors.  1) Demand for bread, 2) Supply of bread, 3) demand for money, 4) supply of money.  As these factors interact (through individual exchanges) and vary in the market place, the price will get "set", and by set I mean fluctuate around an ever changing price which is described as the equilibrium price.  It's an imaginary value that is "always sought" but is never achieved, as every interaction in the market has some modifying effect on the 4 factors listed above.

That Marxist Video:

In neoclassical economic theory there are all sorts of concepts that, though mathematically elegant on paper, have very little descriptive power in the real world.  When was a capitalist society ever in general equilibrium?   When was there ever Pareto optimality?  When do consumers ever measure their desires in utils?

We agree here about the classical school (and the neo-classical school) and it's mathematical methods and it's sterile concepts.  If you notice, Austrian Economics describes price equilibrium as a hypothetical value that is used to explain changes in prices, NOT some price that ever appears in the market.

That Marxist Video:

Socially Necessary Labor Time is not like that.  Socially Necessay Labor Time is something very real, that we can observe at work every day.  The private labor that goes on behind factory doors would not know what it's social value is until the products of that labor enter the market to be compared to the products of other workers.  In the market these private labors become social.  Socially Necessary Labor Time is asserted.  This Socially Necessary Labor Time then acts back upon production.  It disciplines what goes on in the factory.  Factories which were spending more labor than was socially necessary are considered inefficient.  They must change their production method or else go out of business.  Factories which producing under the socially necessary labor time, that were more efficient than average, are rewarded.

 

I'm going to pause here.
 
So to rephrase, the owner of the factory who pays for labor as one of the his production costs, doesn't know until a price is established for his product by consumers whether or not his production costs make his chosen production method profitable or not.  I'm not sure what is being added with a statement like "In the market these private labors become social".  The labor inside the factory is already social if more than one worker participates in the production of the good the factory produces.  I guess the question is what is meant by social here.  If it means that there is feedback from the market generated sale price of that good, then yes that does happen.  But it isn't labor specifically that's "judged" as efficient or inefficient by the market price.  It is the production method chosen by the owner of the factory that is judged in such a way.  I say this because there can be other reasons his production costs make his producion method less profitable.  This market judgement operates indirectly on the workers, in that they may lose their jobs or the factory owner may seek to hire less expensive labor because of his losses.  He's seeking a profit.  But that's not a direct indictment of the worker, it's an indictment of the factory owner who chose that method of production which was less efficient.
 
Now the objection one might make to my argument is that all of the factors of production were created through a certain number of labor hours, and thus their value is determined ALSO by the quantity of labor that produced them.  I won't respond to that yet.  But oh, how I want to.  There's a statement later that helps me much more, and makes this easy.  This seems to make sense.
 
Let me ask this question however, why does one man get paid more for the same job, and another man less?  I.e. this theory is predicated on the idea that labor is one of these equally substitutable goods.  If this is so, why would one factory worker receive a higher wage than another?  Why would a manager receive a higher wage than a line worker? 
I would contend that labor is not substitutable meaning that one man may work harder than another, one man may acquire skills that can be used in a production process that another odesn't have and thus is able to do a job another man can't.
 
How does this concept of "Socially Necessary Labor Time" deal with labor when it's not substitutable?  
 
BTW, the subjective theory of value explains all of these phenomena, and much more.
 
More coming.
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David B replied on Fri, Aug 10 2012 9:53 AM

BTW, considering where the classical school of economics was at the time it was written, some of these ideas make sense.  But that doesn't make them superior to Praxeology.  I believe I'm going to have to go through this entire series in order to compare apples to apples.  

Marx's theory of value and his description of how value plays a role in exchange is the missing feature here that's the divergence point for Austrian Economics from a classical, marxist or neo-classical view of economics.  That's not directly covered by this video as far as I can tell.

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Autolykos replied on Fri, Aug 10 2012 10:00 AM

Aayu:
I think how a Marxist would answer this question would be that Marx assumes that every individual unit in a market is a producer. Capital is basically looking at a capitalist economy from a producer's point of view. What a producer is looking for is finding the exchange value of his product. The abstract nature of labour is what equates the different commodities, and the socially acceptable labour time is what becomes the quantitative value of the labour. When you say that the demand of the commodity increases, in Marxian tongue, it's not the demand, but actually the VALUE of the commodity that is increasing, the social desirability of the labour enpending on the product that's increasing, hence leading to an increase in it's value, hence price. In fact, Marx actually addresses the concerns raised by you in one of his footnotes, he stated that the common problem with such an argument is that it vulgarises the economics, focusses on the appearances rather than the actuality- the underlying reasons for the changes in the prices, for example. For him, prices are merely a symbolic representation of values of the product.

When the productivity increases, for example, the price falls because the socially acceptable labour time falls. The value falls. That isn't actually contradicting what you're saying, there is just a difference in approach.

Marx doesn't treat changes in demand that way. He sees the demand for a commodity as being based on the use-values people impute to it. That has nothing to do with the average socially necessary labor-time required to produce it.

Marx treats prices - or exchange-values - as expressions of values (not use-values), based on his law of value. But again, that doesn't mean a price/exchange-value is based only on value.

In the context of Marx's analysis, I'd say that an increase in the demand (i.e. average/aggregate use-value) for a commodity will lead to more people producing it (ceteris paribus). This, in turn, raises the price of the commodity because either less productive means are utilized for the additional production or additional effort must be expended in creating new means of production. Following Ricardo, anyone who was already producing the commodity beforehand, and who has not expanded his own production of it, and who nevertheless raises his selling price once the production has expanded, is collecting some amount of economic rent. Marx essentially considers economic rent to be one form of exploitation.

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David B replied on Fri, Aug 10 2012 10:04 AM

David B:

First, crusoe CAN'T actually take as long as he wants.  Any basic understanding of subsistence survival makes it clear that survival alone in a wilderness no matter how luxurious it might seem, is a microcosm for economizing action.  One must decide what to ends to aim at and that ones survival depends on not only choosing the proper ends, but also in choosing the proper means to achieve that end.  

Heat, Shelter, Food, and Water are absolutely vital to any man's survival.  Depending on the environment the prioritization of these goals will vary slightly.  There is no environment on earth that doesn't require all four.  The only one you could possibly cut out is heat, IF you have sufficient variety of plant products that don't need cooking and an environment which never drops in temperature to a point that could cause hypothermia, but I doubt this is actually possible.  This description above implies that there is an idyllic idleness that crusoe can engage in.

Another point here about Crusoe, in this scenario Crusoe gets a direct reward from the fruits of his labor.  If he chooses wisely in the means that he uses to achieve his end, for example getting water.  Then he gets a direct reward.  If he invests time and labor in constructing some type of device for holding water, then he will reap the rewards of this new capability.  One would expect that he would be able to transport fresh water with him, reducing the amount of time he must spend moving to the stream for water and also expanding the distance he can afford to travel from the water to engage in other productive efforts.  Good no one can exploit him.

But wait, there's another side to this, if he makes a container that fails to hold water, then the labor he invested in this new product is wasted and lost.  He suffers the loss directly.  Crusoe doesn't know, until he's finished whether or not his production method will succeed in producing a device that is will be useful for his ends.

So my question to a "Marxist", is in the factory a product is being produced using a production method also, Who is Crusoe?  The worker or the owner?  and why.

My argument is that the owner and the worker each contain part of the overall crusoe activity we see in the example of building a water container.  Understanding which parts of that activity each party brings too the table is key to understanding why a factory works the way it does.

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Autolykos replied on Fri, Aug 10 2012 10:09 AM

Fool on the Hill:
Commodities have to have the same use-value for the socially necessary labor time to apply. Essentially, they have to be substitutable.

That's not the case at all. Marx clearly states that different people can consider the same (type of) commodity to have different use-values. Therefore the value of a commodity - the average socially necessary labor-time required to produce it - is independent of any use-value imputed to it.

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David B replied on Fri, Aug 10 2012 12:18 PM

From this page Value Can't be Created

Value Can't Be Created:

Two points should be made in response to Bohm-Bawerk. First, despite the impressions that could be had from a naive reading of the first chapter of Vol. 1 of Capital, Marx does not believe that every exchange involves an equality of labor times.  The very concept of socially necessary labor time (SNLT) implies inequalities in exchange between the social value of a commodity and the individual value (between the labor time considered socially necessary for its production and the labor time actually spent on its production.) The gap between social and private labor is the mechanism whereby value regulates private labor for social purposes. (2) Rather, Marx is claiming that value cannot be created in exchange. While there can always be inequalities in exchange, these cannot be the source of profit because no aggregate addition to the total value of society can be created just by moving commodities from one person’s hands to another’s.

So in essence, Marx's response is that exchange doesn't create additional value, THEREFORE, it cannot be the source of profit.  Perhaps this is just some gulf that can't be bridged.

I view this differently, but I'll try to clarify why I find this troublesome.  His argument is that making a new product requires labor and ONLY making a new product increases the total value of society.   If this is true, doesn't that argue that exchange must be a zero-sum transaction?    If this is true, then there are 3 possible outcomes party A loses, party B loses, or the two parties tie in the transaction, meaning they actually exchanged equivalent value.

Now there are various terms that are glossed over above, and I think they warrant attention.  This idea of the Total Value of Society is troublesome to me, in fact IMO it leads to the many theories of money that argue for the creation of money at the same time that goods are produced in order to keep sufficient money in the economy to represent the "Total Value of Society". 

Let's compare the total value of society in two different worlds.  For example, in world A, I have two toasters and you have none.  In world B, I have one toaster and you have one toaster.  Is the total value of society the same in both cases?  If it is, then who owns the goods shouldn't matter.  Or more generically who has access to the use of the specific goods in society doesn't play a role in the "Total Value of Society".

A subjective theory of value would demonstrate that changing the distribution of the goods that are in society would in fact constitute an increase in value, BECAUSE each party had improved their ability to attain their own ends as a consequence of the exchange.  But without a science that explains how the categories of economics arise out of human action, one can't logically explain why this exchange is every exchange is a win/win.

If one is stuck with a theory of exchange in which an exchange is a zero-sum game, one must conclude that each and every exchange is a battle to lose less value.  In such a world, every exchange must also, necessarily be a battle to exploit the other party in the transaction.  This would not be limited to workers, would it?  If a worker/employer relationship is a periodic exchange of labor for money, then isn't the worker also battling within that exchange to exploit the owner?

I can if necessary continue that line of reasoning and demonstrate how production would screech to a halt and society would necessarily careen back to a subsistence level existence.  In the meantime, an economic system of thought based on an assumption of a zero-sum exchange of value, must explain how societies that accumulate capital and then invest it in more advanced and longer processes of production have produced a constantly improving state of existence (lifespan, food availability, health, comfort, leisure time, etc.) for members of the society REGARDLESS OF THEIR CLASS OR STATION.

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David: Before I respond, let me ask this question:  are you committed to Marx's views and theories?

I'm not sure what you mean. I think Marx was a brilliant thinker. But I do actually have some problems with the way he explains things. Namely, I don't think he gives a good explanation of how the different qualities of labor relates to time and how they can become quantifiable.

Please remember Marx never replied to Bohm-Bawerk.  He knew of Bohm Bawerk's criticism, and held off on releasing the remaining volumes of his work on Economics.  My understanding was that he was planning to revise the work, to answer this criticism.  Yet this never happened.  His works were released by others posthumously.

Did Bohm-Bawerk make an earlier criticism of Marx before Karl Marx and the Close of His System? That work was written in 1896, 13 years after Marx's death. My impression was that Marx didn't finish the work because he was often ill towards the end of his life.

Many, if not all, of the criticisms Marx had of classical ecnomists were valid and were also embraced by Austrians.  But they also criticized Marx's attempts to fix those issues through a labor theory of value.  Marx never answered the Austrian critique.  In fact, I don't know of anyone who has successfully.

The video on Subject/Object addresses Austrianism directly.

This is to me the essence of critical thinking, and it needs to be engaged in very humbly and very very rigorously.  We need to be very, very careful to not switch contexts like this.  You used this analogy to suggest that my assertion wasn't necessarily true, but careful examination shows that your example doesn't fit my assertion.  You switched questions in the middle?!

But I don't think this is much different than what you were saying. You said something like, if someone exchanges $10 for a shirt, then that means they prefer the shirt to the $10. But if we want to explain why they exchanged $10 rather than $5 or $20, or why every one else also exchanged $10 for that same shirt, then yes, that is a different question. Obviously your observation can't explain that.

The market price of the bread, will be set by 4 factors.  1) Demand for bread, 2) Supply of bread, 3) demand for money, 4) supply of money.  As these factors interact (through individual exchanges) and vary in the market place, the price will get "set", and by set I mean fluctuate around an ever changing price which is described as the equilibrium price.  It's an imaginary value that is "always sought" but is never achieved, as every interaction in the market has some modifying effect on the 4 factors listed above.

Autolykos's reply to this point is basically the correct interpretation as I understand it. The relevant point of reference is Vol. 3, Ch. 10 (and this post from Kapitalism101).

Let me ask this question however, why does one man get paid more for the same job, and another man less?  I.e. this theory is predicated on the idea that labor is one of these equally substitutable goods.  If this is so, why would one factory worker receive a higher wage than another?  Why would a manager receive a higher wage than a line worker? 
They're equally substitutable in regards to the same end. Suppose the capitalist wants to make X. Given that any number of laborers can make X, their compensation can't be based solely on the usefulness of X. If that were so, the capitalist would have no basis for selecting which laborers to hire in order to produce X.

My argument is that the owner and the worker each contain part of the overall crusoe activity we see in the example of building a water container.  Understanding which parts of that activity each party brings too the table is key to understanding why a factory works the way it does.

I think Marx would agree.

If one is stuck with a theory of exchange in which an exchange is a zero-sum game, one must conclude that each and every exchange is a battle to lose less value.  In such a world, every exchange must also, necessarily be a battle to exploit the other party in the transaction.  This would not be limited to workers, would it?  If a worker/employer relationship is a periodic exchange of labor for money, then isn't the worker also battling within that exchange to exploit the owner?

I think this is the view of most "bourgeois" economists, who view everyone as competitive, self-maximizers. Buyers try to pay as little as possible and sellers try to charge as much as possible. So yes, in this sense it is a zero-sum game--you only get more of what you want when someone else gets less of what they want. I think this is a necessary conclusion if you view all things in terms of an exchange (which I don't).
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Autolykos: That's not the case at all. Marx clearly states that different people can consider the same (type of) commodity to have different use-values. Therefore the value of a commodity - the average socially necessary labor-time required to produce it - is independent of any use-value imputed to it.

Fourth paragraph of Capital, vol. 1 (emphasis mine):

The usefulness of a thing makes it a use-value. But this usefulness does not dangle in mid-air. It is conditioned by the physical properties of the commodity, and has no existence apart from the latter. It is therefore the physical body of the commodity itself, for instance iron, corn, a diamond, which is the use-value or useful thing. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities.

So the usefulness (utility) of the commodity varies between people but the use-value doesn't.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Karl Marx replied on Sun, Aug 12 2012 10:15 PM

 

“...So my question to a "Marxist", is in the factory a product is being produced using a production method also, Who is Crusoe?  The worker or the owner?  and why...”

 

Crusoe is both. Crusoe is the worker who owns the means by which he works. First with Crusoe on his island. He learns what few possessions he needs and the work that he must do to get them. With a sundial he measures the socially necessary labour hours that each of his possessions cost him to make. He lists the findings writing with his finger in the sand. Here is all that is essential to the determination of value.

 

The case is the same in a full sized society of free workers who own their means as a team. Except that Crusoe is just one while we are many. As with Crusoe we calculate. As with Crusoe the products belong to the producers. As with Crusoe we take the total product and split it to make two parts: one we use as fresh means of production, the other part we must share for the upkeep of the different individuals. The way to share can change with the condition of production and we the producers.  Just to compare with our present production – production for exchange, let labour time come to our help. Then labour time will help in two ways:

1. On one hand it helps us link what we want with the work to produce it.

2. On the other hand it helps us count how much work each worker does, and so how much wealth each worker may take as his share. 

It’s all here in Capital Volume One Chapter One. http://tinyurl.com/cytj5dq
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David B replied on Mon, Aug 13 2012 9:25 AM

Fool on the Hill:

David: Before I respond, let me ask this question:  are you committed to Marx's views and theories?

I'm not sure what you mean. I think Marx was a brilliant thinker. But I do actually have some problems with the way he explains things. Namely, I don't think he gives a good explanation of how the different qualities of labor relates to time and how they can become quantifiable.

I don't doubt that he was briliant.  But that doesn't make his theories true.  Aristotle was brilliant as was Plato, but modern science has evolved from both, and the same is true for all fields.  That isn't direct evidence that Marx was wrong, but it also doesn't mean that he was right.  The same is true for Mises, Rothbard, Menger, etc.

My question was one of openmindedness.

Fool on the Hill:

The video on Subject/Object addresses Austrianism directly.

I'll try to give a brief response while I'm watching it and comment on things I hear.

First of all the first 6 minutes are not an argument, but setup a background of non-arguments that simply characterize the opponents as intentionally deceitful and motivated to exploit.  Not a fan, but it's effective in preaching to the choir.  The problem is 100% of current political discours seems to be on these emotionally charged non-arguments, instead of on the substance of the argument itself.

Ok, the beginnings of the first argument.  Misuse of value.  Value = subjective judgements vs. value = exchange ratios.  The argument is that part of the misunderstanding is that there are two ways in which the term value is used and the confusion is caused by these two different meanings.  But the question is whether or not this holds up.  There is a misunderstanding of what an exchange ratio is and what it isn't.   Here's the argument: I don't know how much money you are willing to give me for the shirt mentioned below.  But I do know that you value the shirt at more than 10$ if you give me 10$ for it.  I don't know if you are willing to give me 20$, and you don't know if I would have taken 5$ for the shirt.  The only thing we know for certain is that you value the shirt MORE than you value the 10$, and I value the shirt LESS than I value the 10$.  That's all we know, in an exchange ratio, the values on each side of the exchange were inverted.   Ok, back to the video.

Ok, more character assassination and criticism based on making fun of the idea of a preference scale.  And a claim that an this idea of subjective value and preferences as an ideological abstraction which we have already learned is a bad thing.  On to video 2, BTW, I'm disappointed by very little raw example discussion and specific attacks on the logic, and simply using intentionally emotionally charged rhetoric in place of sound logic.

"How convenient that this ideal man contains within him the seed of capitalism..."  Cmon, how is that an argument?  Oh good, he says "pointing out that it's ideological isn't enough, we must also prove that it is illegitimate."  Good a real argument, right?  Man is not alone, and his values are constructed socially and not in a vacuum, therefore this example doesn't mean anything.  This needs support, to be true.  Not that he might not have external pressures and conditions that help inform and modify his internal methods of choosing his actions, but there needs to be an argument made that it somehow invalidates the idea that action displays preference and that this preference of the individual is the source of value.  Austrians acknowledge that there are factors not examined that alter how a man values things, the analysis holds true regardless of a man's values.  They hold true if a man is a worker OR if he's an entrepreneur.

BTW, "Fool on the Hill", please tell me that some personal animice towards modern "capitalist" societies won't color your perception.  What most people think is that Austrian Economics is an apology for capitalism and it is, but they think that historical Austrians and modern day libertarians think that the US and other modern democratic states actually represent capitalist economies and liberal polities.  They don't.  Austrian's DO point at the state as the author of interventions in the economy which are in our opinion the proximate causes of the very tragedies that are labeled capitalism's evils.   If you notice, the purported opponents of socialist doctrine in modern politics are the "conservative" party in various polities.  But they don't embrace Austrian Economic Theory, they embrace neo-classical economics and Keynesian's theorems about the manipulation of money supply.  Austrian Economics is just as critical of the economic arguments used to support these policies as they are of Socialist doctrines.

Second point I'd make, before I continue with the video.  There's a dismissive and chiding tone to these videos.  I am personally always offended and unimpressed by such methods of arguing.  Mises, Rothbard, and Hoppe don't argue in this fashion.  I would look for people who are able to effectively articulate the logic of their position without using such methods.  When someone tries to get an emotional response from me, I always assume he's trying to keep me from looking to hard at his logic.  I hope you haven't seen anything like that from me.

Ok, back to the video.  

"Let’s say Eugene, while back-stroking one day, discovers another island called Barter Island. Here lives Ludwig who cracks coconut all day. They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish. “Now,” says the subjectivist, “we have shown that our abstraction was legit and that we can explain exchange ratios purely through the science of preference scales.” If only it were that simple."

Ok, let's break this down.  First of all, Ludwig and Eugene are meant to be Eugene Bohm-Bawerk and Ludwig von Mises, the authors of the two most damaging criticisms of socialism.  "Each one carefully measuring their utilities for fish and coconuts on their preference scales."  That's not what's claimed.  All that's claimed for barter to happen is for one to offer to give a quantity of coconuts in exchange for a quantity of fish.  That's how barter happens, that's all.   Over a history of such exchanges, they will settle in on certain exchange ratios. That doesn't mean they're static, or "the right ratio", it just explains how a phenomena,  in this case a specific instance of an exchange which can be described by an "exchange ratio", can arise out of a subjective value.  But notice in the construction of the argument, there are excessive words added that were unnecessary to the argument. I'll put stars around words I think are intended to obfuscate the argument being made, and then restate the same argument in a more simple way, and hopefully one that shows why it's perceived as axiomatic and self-evident.

The video says "They decide to trade fish and coconuts, each one *carefully measuring their utilities* for fish and coconuts *on their preference scales*, *calculating the precise exchange ratios to maximize their utilities*, resulting in an exchange ratio between coconuts and fish."

No one looks at their preference scale.  There is no such artifact in the human mind, it's a convenient logical device for understanding the difference between ordinal value and cardinal value.  They don't measure utility, carefully or otherwise, they may reason about which of two alternative actions to take, they may evaluate whether or not an exchange they could engage in is one they want to perform, but how they arrive at those decisions is not a matter that Economics needs to consider.  The logical conclusions of Praxeology are true, regardless of the decision making process.  They do not calculate precise exchange rations to maximize their utilities....  A person may engage in accounting processes to calculate how to achieve their plans.  But that's not "maximizing their utilities..." that's simply deciding if they can afford to do the thing they're trying to do, or to decide if they are making or losing money.

Look at any barter exchange in a farmer's market, and it's a simple transaction.  You offer a price for a specific good, and you and the farmer trade offers back and forth until you both agree.  That's what happens.  For each offered transaction, there's a simple evaluation that each actor does.  1) Am I willing to accept that quantity of goods and willing to give up that quantity of goods.  The market is always this.  We just have the habit of not haggling (meaning negotiating the quantities on each side of the exchange).  In modern economies we just look at the price and perform a binary decision, buy/don't buy.  I've done some purchasing in a corporate setting.  I've negotiated prices with different vendors.  Negotiation of prices is an everyday occurence, it just doesn't happen in modern retail stores.  So we have this imaginary "stable price" concept, but it's not true.

"The first thing we might notice is that the exchanges on Barter Island can only take place because Eugene and Ludwig have different resource endowments. If they both had access to coconut and fish then there would be no reason to trade. In order for trade to continue in a sustained way, trade must reproduce these differences."

"There would be no reason to trade", is not necessarily true.  Meaning even IF they're both on the same island, there may still be a reason for them to decide to divide up the work, and exchange the results of that labor.  For example, Ludwig for some reason may be better at catching fish.  We don't have to know why he was better, or why he preferred to spend his labor on fishing.  It's only necessary to understand that IF this disparity in the way they choose to employ their productive efforts exists, AND IF they both desire to exchange the products of their labor in exchange for the products of the other person, THEN barter will occur, and nothing other than subjective value is necessary to explain the exchange ratios.

"This means that in order for a capitalist market to work there must be the constant reproduction of a certain type of property relations in which people have to enter the market in order to get what they need to live. Specifically people must be deprived of their own means of production, forced to enter the market to sell their labor in order to buy the things they need. This property relation must be continually reproduced through exchange so that there is always scarcity and people are always dependent on the market."

Whoa, so this is the root of the problem, cause barter itself couldn't have been the problem.  Even if you and I have equal access to the land, and the resources on them, and there is sufficient abundance of these resources so that scarcity isn't a reasonable restriction.  There can still be differences between our abilities to do different types of production (labor is not infinitely substitutable).  And even if there isn't, there is a limited amount of time within which to perform the different tasks.  In his theoretical island scenario, the two parties lived in environment separate from each other with different available resources, but when they travelled to meet each other they exchanged the fruits of their labor.  That's perfectly reasonable.  If you have date trees and a stream with lots of tasty fish on your island and I have banannas and coconuts on my island.  Even without assuming that you should have equal access to the resources on the island I live on, it would still be reasonable for me to collect those products from my island, travel to your island and exchange those products for your products.  I could stay and collect those resources myself, but it's probably more efficient, for me to trade, and go back to my island, than to come and collect them myself.  Travel time would be doubled if we both had to find a way to get to the other's island to get the resources ourselves.  But EVEN IF, we're on the same island and travel time isn't an issue, there might still be differences in our ability to perform the different tasks.  And barter would again make sense.

But that's not what he says here, barter isn't an issue.  It's the property relation.  But I've made what I believe is logical argument for the existence of some version of property rights in every social group, no matter what it calls its political organization.  EVEN UNDER SOCIALISM, there will be some mechanism for establishing property relations.

See that argument here : 

David B:

So, my construction of an a priori concept of the owner-property relationship consists of a 4-way intersection of human mind, matter, location, and time.  Now the only direct relationship between matter and mind is the brain/body connection.  Meaning that the mind always but only directly controls the muscles of one human body.  Thus the concept of the inalienability of self-ownership.  I can't put the direct control of my body in the hands of someone else.  All other such intersections are necessarily indirect, meaning they must be enacted by using the body to control other matter indirectly.

 

In a communal society, imagine a family, this would be a short-term use claim.  When someone gets up from his chair and moves elsewhere it's freely available to be used by others, but while he's sitting there, there's an expectation that he has a legitimate claim over the location.  Note also that in order to "get" the seat from him, another child  or parent might try a variety of mechanisms to get this premium location.  Including force, fraud, exchange, devaluing the location in some way, etc.

Note also that a conflict boils down to metaphysically incompatible arrangements of matter, time, and space.  Even more important is that the origination of these incompatible arrangements is from human minds.  Reality doesn't have a problem, each tries their plan and reality plays out what actually happens.  If the differnt actors want their plan to succeed they need to negotiate some type of compatible arrangement, or more precisely figure out how to alter the actions of each other such the  plans no longer require incompatible arrangements of matter in time and space.  

In these simple, fundamental cases of action by humans in a social reality, disputes, ownership and property in their most fundamental form fall out of human action and all of it's categories when there is scarcity relative to the ends of man."

I hope you see that property is not just some whimsical phenomena that arises because of some desire to exploit, and in fact I admire Marx's observations in acknowledging that people have to use matter, but one can't attack private property simply because some cases of a societal implementation of property rights results in situations that seem unfair or regretable or any other negative term, one can't attack use.  Not being able to establish a legitimate use claim peacably respected by his peers would result in the very thing that all mankind fears which is the "anarchist" boogeyman of every man fighting and striving violently to wrest the means necessary to his own survival from his fellow man, and even that condition might be considered a mechanism (de facto) of establishing property rights.  All discussions about property are discussions about how a social group defines the boundaries around claims the group decides are "legitimate claims".

Fool on the Hill:

This is to me the essence of critical thinking, and it needs to be engaged in very humbly and very very rigorously.  We need to be very, very careful to not switch contexts like this.  You used this analogy to suggest that my assertion wasn't necessarily true, but careful examination shows that your example doesn't fit my assertion.  You switched questions in the middle?!

But I don't think this is much different than what you were saying. You said something like, if someone exchanges $10 for a shirt, then that means they prefer the shirt to the $10. But if we want to explain why they exchanged $10 rather than $5 or $20, or why every one else also exchanged $10 for that same shirt, then yes, that is a different question. Obviously your observation can't explain that.

I answered this above, and I forget my observation, but subjective value explains this situation also, and very well I might add.  Remember to always look for what's not said, but might lead to mistaken assumptions.

  1. One might mistakenly assume I wouldn't have been willing to pay more money.  We don't have enough information.
  2. We don't know if the seller might have been willing to accept 5$, we only know that he was willing to take 10$.
  3. If the price was 20$ we don't know how many of those who did buy it at 10$ might have chosen not to buy at a price of 20$.  We can know that the number of buyers at 20$ would be lower than at 10$
  4. If the price was 5$ we don't know how many additional shirts would have been sold, we do know that more buyers would have been willing to exchange 5$ for the shirt. 

 

Fool on the Hill:

Let me ask this question however, why does one man get paid more for the same job, and another man less?  I.e. this theory is predicated on the idea that labor is one of these equally substitutable goods.  If this is so, why would one factory worker receive a higher wage than another?  Why would a manager receive a higher wage than a line worker? 

They're equally substitutable in regards to the same end. Suppose the capitalist wants to make X. Given that any number of laborers can make X, their compensation can't be based solely on the usefulness of X. If that were so, the capitalist would have no basis for selecting which laborers to hire in order to produce X.
No they aren't.  This is an illusion of industrial production processes, specifically the factories.  However, in practice different human beings operate specific steps in the assembly line very differently from each other.  The struggle of the designer of the factory production line, is to try to mitigate these differences in practice, so that the assembly process can be synchronized.  Some workers are less efficient than their fellows at different tasks in any production process.  All persons that show up to mow my lawn are not equally substitutable at satisfactorily producing a mowed lawn that satisfies me.  Think carefully about any service that you personally purchase.  Are there McDonalds that you prefer, simply because they tend to not be as clean, or not as friendly, or the food is frequently stale?  Does this indicate some significant difference in the input labor?  Meaning that even if the cooking of my burger required the same amount of raw labor, the decision to make a ton of burgers at 3pm, and then let them sit for sale until 5pm, might be a significant difference in the quality of the burger.
 
I'd like to beg my leave here however.  I've got another primary focus, which is my Praxeological Theory of Property, Conflict and Politics, and I'm not actually an Economist, or a Scientist of any type.  I'm just a lowly Computer Programmer...  So there may be others here who are better able to argue (in the "self-edification" sense, not in the "combative" sense) these issues with you.
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Autolykos replied on Mon, Aug 13 2012 10:01 AM

From that very same passage:

This property of a commodity is independent of the amount of labour required to appropriate its useful qualities.

Marx also uses a single word to refer to "the amount of labour required to appropriate [a commodity's] useful qualities". That word is "value".

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Non parit potestas ipsius auctoritatem.

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gotlucky replied on Mon, Aug 13 2012 10:05 AM

Nice post, David. +1

Btw, one example I really like for comparative advantage is a doctor and his secretary. Even if the doctor is a better typist and organizer than his secretary, he still gains by hiring one, so that he can spend more time doctoring and making more $$$. I think it's easier for people to grasp than coconuts and fish.

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