Economics Questions

Re: I need clearing up on the labor theory of value

Smiling Dave — Wed, 28 Sep 2011 16:01:00 GMT

1. Why the worker is always ripped off, supposedly.

2. Yes.

3. No.

Search my blog for info on LTV, if you wish

Re: I need clearing up on the labor theory of value

Southern — Tue, 27 Sep 2011 16:51:35 GMT

Maybe the two sides of this discussion could clarify something for me.

What exactly is the LTV attempting to explain? Is it to be used as a foundation from which to understand the formation of all prices in an economy? Or is it trying to decribe the process which capitalists use to determine what they should (want to) sell thier products for?

It dosent seem like everyone is on the same page here.

Re: I need clearing up on the labor theory of value

EmperorNero — Tue, 27 Sep 2011 10:54:28 GMT

bzfgt:
"Price — at any given snapshot of spot conditions in time — will reflect the subjective utility of the marginal unit, without regard to production cost."

This is an absurd claim. Nobody can make money selling items below the cost of production.

Sure but "value" does not care whether you can make money. That's up to the businessman. Products end up being sold below production cost all the time. Prices will only reflect the subjective utility of the marginal unit, without regard to production cost. (Of course what customers perceive to be a fair price depends on production cost.) We can make some prediction about the natural equilibrium value, to which we think the price of goods will gravitate. But that would merely be an interesting intellectual exercise. The second we conceded that prices are set by supply and demand, instead of existing intrinsically in the object, we're making a statistical observation, not a statement about value.

Re: I need clearing up on the labor theory of value

bzfgt — Tue, 27 Sep 2011 02:50:20 GMT

See the thread above, where I explained numerous times that, for Marx, an item has no value unless somebody wants it. Value is not an inherent ontological property of the object for Marx but expresses a social relation. (I already posted something like this but it disappeared, so sorry if it shows up as a duplicate.)

Re: I need clearing up on the labor theory of value

TANSTAAFL — Tue, 27 Sep 2011 00:49:15 GMT

What happens to the value of cars when they become obsolete? That is, NOBODY wants to buy a new one. Say that it would only cost $500 to build a brand new car, but regardless of the cost to build it, no one wants to buy a new one. New cars only have value today because people value what a car can do for them more than they value whatever else they could instead buy with their money.

Re: I need clearing up on the labor theory of value

bzfgt — Mon, 26 Sep 2011 19:26:35 GMT

"Furthermore labor, as I listed above, is not a homogeneous good, nor does the Marxist concept of "simple labor" vs. "complex labor" relate to the real world. It is something that can be traded against other good, services, or activities."

Sorry, Logistic, I'm not sure what this means or how it relates to the rest of your argument. Simple labor is an abstraction made from complex labor to render it commensurable. If you don't hold a LTV, then this will be a useless abstraction, so it seems to beg the question to argue against it as the basis for rejecting the LTV unless there is more to your objection than I am seeing.

Re: I need clearing up on the labor theory of value

bzfgt — Mon, 26 Sep 2011 19:22:09 GMT

According to Marx, a commodity has to have a use value in order to have an exchange value, but they are not the same thing. Use value is not quantitative. The question is, how can useful items be brought into a quantitative relation? I misspoke when I said the labor saved was the "basis" of the LTV, that is a useful speculative genealogical point but of course the amount and variety of commodities are too vast for me to measure them all against my ability to produce them myself. It is the fact that someone else--not necessarily me--could produce the item more cheaply that keeps the price low, if someone else could produce iot more cheaply and still make a profit then they would undercut the producer making it more expensively, all else being equal. Thus it is competition that ensures that value regulates prices.

The point isn't that supply and demand are ever actually in equilibrium, it's that the ideal situation where they are would find them trading at their value but, according to Marx, price almost never equals value. Again, if the supply of cars vastly outstrips demand, this doesn't mean cars sell for a dollar, it means a lot of car makers go out of business. Cars get cheaper, but only to a certain point--this is limited by the cost of making cars, i.e. if I can't sell a car for more than it costs to make it I go out of business.

Certainly I would buy carrots today even if I could grow them more cheaply, because I wouldn't want to wait three months for carrots. But if they could be sold at a profit by Farmer A more cheaply than they could be sold by Farmer B, Farmer A will take Farmer B's business and Farmer B will eventually go belly up.

Naturally this doesn't take into account variations in quality or the effect of advertizing, it is a but of an abstraction. I may have a need for better quality carrots at a higher price. Again, if Farmer A can produce carrots of such high quality they will be cheaper, and he will get Farmer B's business.

Except, of course, in cases where brand name and prestige, or even the higher price itself, makes the item more desirable. In that case, the item will sell above its value. It seems to me this is just as much an exception to any "rational decision-making" theory of price as it is to the LTV. The LTV doesn't claim that price=value, as you've already pointed out, it just posits a norm around which prices fluctuate.

"The utility of a good, service, or action in achieving an individual's goals is not soley dependent on the labor-time." According to Marx, the utility is not at all dependent on labor time. The value, expressed in exchange value, is what is dependent on labor time. Air has more utility than computers but less (actually no) value because it takes no labor to produce it.

Re: I need clearing up on the labor theory of value

LogisticEarth — Mon, 26 Sep 2011 15:26:28 GMT

Logistic: "A person may ask themselves "is this carrot worth 1-hour of labor, when I could also spend that hour on leisure activity?" "
I think this statement is actually kind of the basis of the LTV--it's the fact that we would otherwise have to labor for something... that makes us willing to actually pay for things to begin with. That's why it is labor that we value (in the sense of being willing to pay for, not personally "value"--we "value" air more than gold but it takes no labor to produce or procure air).

I wanted to address this too, but forgot. First off, if you're adopting that position, then you've got the LTV backward, as it's all about the production of commodities, and what I'm talking about there is what prompts trade, consumption, or investment. The reason humans value labor is because it is a useful thing that can be used in order to satisfy our wants and needs. Furthermore labor, as I listed above, is not a homogeneous good, nor does the Marxist concept of "simple labor" vs. "complex labor" relate to the real world. It is something that can be traded against other good, services, or activities.

A person can choose to spend time growing a carrot garden, in doing so they give up many other possibilities. They could grow another crop, spend the time learning a skill, building a shed, etc. All these things have use-value, yet even though they may require the same amount of labor-time, it would be ridiculous to say that they all would weigh equally when a person is deciding what to do. The utility of a good, service, or action in achieving an individual's goals is not soley dependent on the labor-time. Consider the carrot example. Lets say that it takes three months to grow a carrot patch that will yield 1 bushel of carrots. So, it takes X amount of hours to prep, plant, and care for that product. When it's merely an individual deciding what to do with his own time, they may consider how much labor goes into whatever the final product is.

However, when a person is buying a bushel of carrots at market, they're not thinking "oh, is this bushel worth X amount of my time?", they're thinking "what do I currently have at my disposal to trade for that bushel, and would I rather have that bushel over my available tradable resources?" Put in more common terms, they aske themselves if having the bushel is worth the cash they'd fork over for it. Now, a person can use a variety of ways to decide that. And you'd be right in saying that some people would judge a "fair" price by saying "well I could grow that bushel myself in three months!". But what they're comparing there isn't simply labor-time versus the carrots. They're comparing a bushel of carrots today with a bushel of carrots three months from now. Of course, this also involves the trades in available money, and labor-time invested if they choose to grow them themselves.

Hopefully you can see how, again as I've pointed out before, the Marxian LTV, and the conclusions drawn from it, don't adequately take into account time or utility when determining value. Furthermore, the idea that "supply and demand" can be "in equilibrium" for any one product, let alone many product, isn't really a coherent idea. As all products on the market are inevitably compared against many, many, many others, demand can be nearly infinite. Consider the car. Now, one might claim that "supply meets demand" when every individual on the planet can afford to buy a brand new car. But what about people who would want to have a second car, maybe a convertable for the summer and an SUV for the winter. Or what about people who collect cars, or smash them into eachother for fun? The point is that, if supply were to truly meet "demand", then that means that virtually all human wants that could possibly be statisfied, are. We're very, very far from that point.

Re: I need clearing up on the labor theory of value

LogisticEarth — Sun, 25 Sep 2011 12:15:59 GMT

JJ, yes but I'm trying to break it down in a way that he can understand. Marxist constantly reiterate that "supply and demand can't fully explain price formation". But when you think of trades as basically comparing two ordinal value scales, you can see how supply and demand actually gives things value and price.

Re: I need clearing up on the labor theory of value

John James — Sun, 25 Sep 2011 09:54:11 GMT

LogisticEarth:
It's not just supply and demand. Things need to have percieved value and scarcity in order for a price to form.

Oh you mean like...demand...and supply?

Re: I need clearing up on the labor theory of value

bzfgt — Sat, 24 Sep 2011 22:48:47 GMT

Marx doesn't define value as "objective," it's a social relation--the way time is allocated, through the market. There is an objective moment, but value is meaningless without human behavior.

Logistic: "A person may ask themselves "is this carrot worth 1-hour of labor, when I could also spend that hour on leisure activity?" "

I think this statement is actually kind of the basis of the LTV--it's the fact that we would otherwise have to labor for something (including the labor required to attain the competence to produce something, which is why the surgeon's time is worth more) that makes us willing to actually pay for things to begin with. That's why it is labor that we value (in the sense of being willing to pay for, not personally "value"--we "value" air more than gold but it takes no labor to produce or procure air).

Re: I need clearing up on the labor theory of value

Malachi — Sat, 24 Sep 2011 22:32:44 GMT

Look dude, value exists in the human mind. It doesnt have any external manifestation besides individual actions. Between the objective and the subjective lies the inter-subjective. The economic decisions of the market participants define the price of a good or service, and they base those decisions on subjective notions of value.

Marx had to figure out a way to denigrate the contributions of capitalists, because, you know, fuck the rich. So he created a tangled web of misapprehensions in order to define value as an objective, so he could label capitalists as oppressors and exploiters. You dont need to define value as an objective, because it is not.

Re: I need clearing up on the labor theory of value

LogisticEarth — Sat, 24 Sep 2011 22:30:51 GMT

Supply and demand cause prices to fluctuate but they don't explain why prices are what they are to begin with.

You're absolutely right. It's not just supply and demand. Things need to have percieved value and scarcity in order for a price to form. Nobody's disputing this. The problem is that Marx claims this basis of value comes from abstracted labor time. Cars exchange for carrots at some fundamental ratio X:Y because of the (simple) labor-time needed to create them.

In reality though, people don't exchange or value goods that way. They don't even value thier labor that way. What really happens is all about opportunity costs. A person may ask themselves "is this carrot worth 1-hour of labor, when I could also spend that hour on leisure activity?" Labor itself cannot be a fundamental source of value, because it itself has subjective utility.

The Austrian source of value is all in the individual's mind. Ie. subjective utility. How can A serve me in a way that achives Goal X, and how is that better than using B? The source of "value" that is, the "ratios" that objects exchange for, are based on what people want to do, what thier goals are, and how they percieve those goals would be best completed with the available resources. It's not just labor, it's also time, scarcity, percieved costs, etc.

Re: I need clearing up on the labor theory of value

bzfgt — Sat, 24 Sep 2011 21:24:21 GMT

I realize that many of you find the notion plausible that S&D are the sole determining factors, and also that most of you are not stupid, and probably none of you are. I seem to have succumbed to the tone set by John James but I don't want to sound dismissive or condescending, since that is absolutely unnecessary in a genuine debate. Also, I acknowledge that, even if we accept Marx's LTV, it's unclear what we wind up with--certainly not a reliable prognosticator of price, which isn't what Marx is after in any case. I do think, however, that a concept like value is somewhat indispensible, because if we reduce value to price we attempt to quantify something that is not only unquantifiable, it's not even clear that it's one thing--the subjective worth an item has for a consumer. To say that this is quantifiable because it's just what someone is willing to pay is begging the question.

Re: I need clearing up on the labor theory of value

bzfgt — Sat, 24 Sep 2011 20:29:25 GMT

"Price — at any given snapshot of spot conditions in time — will reflect the subjective utility of the marginal unit, without regard to production cost."

This is an absurd claim. Nobody can make money selling items below the cost of production. Furthermore, if the only determining factors were supply and demand, we'd see things like merchants pricing a stick of gum at 10,000 dollars before they discovered consumers didn't "value" it that highly. Supply and demand cause prices to fluctuate but they don't explain why prices are what they are to begin with.