Capitalism, Marxism and Related Matters

[3 Body No Problem]

What do you think of this? Do you think that the amount of labour hours used in the production of any given object affects your valuation of it? What if we compare the value of two identical goods (Good A and Good B), where Good B requires (for whatever reason -- produced in a country with lower total factor productivity, e.g.) twice the amount of labour time in its production. Is the value (to consumer or producer) different? Is labour value some sort of ordinal measure, or is it more concrete?

I don't know what you mean by ordinal here. The consumer cares about the price. The price does not talk (directly) about labour input. But labour input matters to producers, and the producer will reflect that cost of labour in the cost of the product. Hence, indirectly, the consumer is affected by labour input.

But the amount of labour input depends on the product. Consider the following two examples.

• 1 hour consultation with a lawyer.
• A gambling contract: a random number between 0 and 10000 is generated. If that number is below x, the other party pays you $1000000, if it is equal to or above x, you have to pay $1000000. Clearly that contract involves the same amount of labour, regardless of the choice of x, but the price you would pay to play this game depends totally on x.

These examples indicates one devastating critizism of the LTV, that it does not take into account the element of risk in economic transactions.

The second -- and more well-known -- critizism is that with complicated goods, it seems impossible to talk about the labour input of a product without references to prices of other goods. What is the labour input in the work of a pilot, say, who has to go through years of training? In simple, agrarian societies, there is a somewhat stronger connection between prices and labour input. On the whole Marx analysis makes more sense when one understands it as an analysis of a very peculiar form of capitalism, not of capitalism as such.

 

[vimothy]

I like your second example. Clearly the expected value, time frame under consideration (i.e. present value of pay-off) and standard deviation (and hence price) are unrelated to a labour input.

But I was thinking of your statement,

Moreover, value does have a labour component, clearly.​

And trying to think how this works in practice, if indeed it does. It suggests to me that more labour = more value. If so, on what level of measurement does this increase in value take place (e.g. ordinal)? Personally, I'm not convinced. I'm not sure that production has anything much at all to do with the valuation of a good, which is subjective and conditional.

In simple, agrarian societies, there is a somewhat stronger connection between prices and labour input.

Even here I'm not so sure. When a farmer takes his crop to market, what sets price is supply and demand for his crop, not the amount of labour that goes into it. For example, last year our farmer took his crop to market during a blight: supply was down, demand was up and he made a fortune. This year he goes to market during a bumper harvest: supply is up, demand is down and he is ruined. Yet the amount of labour used in these two years need never change.

 

[vimothy]

I think that some people probably would pay more for Pen A in some circumstances (for example if it was hand made rather than just built by a slower machine) but I agree that it is some kind of reflection of the value it represents to the producer rather than an actual increase in value for the consumer.

I mean really identical, as in the same model, made by the same company but in two locations, one with, say, higher total factor productivity (maybe workers are happier or more commited or healthier or whatever) or capital intensity so that it requires less labour hours to produce pens there. Both pens are exactly the same (not hand made) but one has a higher value based on the amount of labour that went into it?

 

[3 Body No Problem]

I mean really identical, as in the same model, made by the same company but in two locations, one with, say, higher total factor productivity (maybe workers are happier or more commited or healthier or whatever) or capital intensity so that it requires less labour hours to produce pens there. Both pens are exactly the same (not hand made) but one has a higher value based on the amount of labour that went into it?

In Marx LTV it is not the actual amount of labour time that matters, but the average labour time that a given society takes for this product. A copout because the average labour time is even harder to measure.

 

[Mr. Tea]

I'm pretty out of my depth here as far as the economics goes, so forgive me if this is a stupid or facile point, but: is it worth pointing out that any amount of money that is spent by anyone on anything ultimately ends up as someone's wages? In other words, there is actually no such thing as a 'raw material' cost in the final analysis, because what one person buys as a raw material has been produced by someone else's labour. So it would seem that the (market) value of something is determined ultimately by the intersection of just two things: how hard it is for a producer, or a whole chain of producers, to produce, and how badly the consumer wants it.

 

[3 Body No Problem]

I like your second example. Clearly the expected value, time frame under consideration (i.e. present value of pay-off) and standard deviation (and hence price) are unrelated to a labour input.

But I was thinking of your statement,

Moreover, value does have a labour component, clearly.​

And trying to think how this works in practice, if indeed it does. It suggests to me that more labour = more value. If so, on what level of measurement does this increase in value take place (e.g. ordinal)? Personally, I'm not convinced. I'm not sure that production has anything much at all to do with the valuation of a good, which is subjective and conditional.

Well, determining the amount of labour that goes into a product is not easy, that is one of the key problems of the LTV.

The reason that labour time must be part of the price is indirect:

• For some products one can compare the price for a product with the amount of one's own labour time, and might decide to produce a good oneself, rather than buy it.
  
• Producers try and minimise labour input wherever possible to lower prices and be more competitive. There would be no reason to do that if labour input would be immaterial.
  

Even here I'm not so sure. When a farmer takes his crop to market, what sets price is supply and demand for his crop, not the amount of labour that goes into it. For example, last year our farmer took his crop to market during a blight: supply was down, demand was up and he made a fortune. This year he goes to market during a bumper harvest: supply is up, demand is down and he is ruined. Yet the amount of labour used in these two years need never change.

Sure, but there is a point where it would no longer be lucrative for the producer to produce or for the consumer to consume a good. So labour input ought to show up in the constraints of what prices a market based pricing mechanism can achieve.

 

[3 Body No Problem]

I'm pretty out of my depth here as far as the economics goes, so forgive me if this is a stupid or facile point, but: is it worth pointing out that any amount of money that is spent by anyone on anything ultimately ends up as someone's wages? In other words, there is actually no such thing as a 'raw material' cost in the final analysis, because what one person buys as a raw material has been produced by someone else's labour. So it would seem that the (market) value of something is determined ultimately by the intersection of just two things: how hard it is for a producer, or a whole chain of producers, to produce, and how badly the consumer wants it.

This is a good point, a modern economy is circular, the price of a good depends on ... the prices of other goods ...

The way out of this conundrum is to see that markets evolved historically out of barter economies (and robbery).

At some point in time, humans decided that one gold coin is worth 6 hours of fisherman's work. This reflected not so much a metaphysical constant, but the inbalances of power at the time. But once money-based exchange got established with relatively constant (if arbitrary) prices, it continuted to function in this way.

 

[vimothy]

In Marx LTV it is not the actual amount of labour time that matters, but the average labour time that a given society takes for this product. A copout because the average labour time is even harder to measure.

Ok, so including that in my (pedantic, I admit) question (and explaining the differences in average labour time as differences in total factor productivity), is the value of the two identical goods the same or different?

 

[vimothy]

So it would seem that the (market) value of something is determined ultimately by the intersection of just two things: how hard it is for a producer, or a whole chain of producers, to produce, and how badly the consumer wants it.

Pretty much spot on, I would say.

 

[Mr. Tea]

This is a good point, a modern economy is circular, the price of a good depends on ... the prices of other goods ...

And always has, hasn't it? You can't walk into a field, throw a pile of money at the ground and hey presto, you've got a ton of wheat, can you? You either pay someone to grow it for you, or you grow it yourself, and then - in any economic system worthy of the name - sell (at least some of) it to someone. That was a true in Roman times as it is today, no?

At some point in time, humans decided that one gold coin is worth 6 hours of fisherman's work.

Isn't it more likely that humans decided one gold coin was worth a hundredweight of fish? How long it took the fisherman to catch that much fish was up to him (and, of course, the weather, available fish stocks etc.).

 

[vimothy]

This is a good point, a modern economy is circular, the price of a good depends on ... the prices of other goods ...

And prices equal... infomation.

 

[Mr. Tea]

Pretty much spot on, I would say.

I put the '(market)' in there because it seems to have a rather different meaning from how it's used in Marx's LTV - is this the case, would you say?

 

[IdleRich]

"I mean really identical, as in the same model, made by the same company but in two locations, one with, say, higher total factor productivity (maybe workers are happier or more commited or healthier or whatever) or capital intensity so that it requires less labour hours to produce pens there. Both pens are exactly the same (not hand made) but one has a higher value based on the amount of labour that went into it?"

You mean not just identical but made identically (except more slowly) - in that case then I concur that you would be a fool to think that the one that had been made more slowly was better. I'm not disagreeing with you anyway - I think that the labour time might be proportional to some sense of value in the producer and when it appears to be of value to the consumer then it is probably some kind of affinity with or reflection of how it affects the producer.

"Producers try and minimise labour input wherever possible to lower prices and be more competitive. There would be no reason to do that if labour input would be immaterial."

Well obviously labour is a cost to the producer so he tries to minimise it because it will affect the price that he needs to sell it at to make a profit. What Vimothy is saying is that if it takes longer to make that doesn't actually make it have a higher value. If I make something and my feckless workers take weeks to do it for me at a wage of x pounds per hour and then I take it to the market offering it for sale at a price that will more than recoup the money I've spent on wages I will be in trouble if someone else has made the thing more efficiently and can sell it cheaper - the people buying stuff at the market aren't going to say "I'm going to buy the expensive one because it was made by slower workers".

"At some point in time, humans decided that one gold coin is worth 6 hours of fisherman's work."

I don't think that decided is the right term here is it?

 

[vimothy]

I put the '(market)' in there because it seems to have a rather different meaning from how it's used in Marx's LTV - is this the case, would you say?

I think that 3 body no problem and josef k clearly know a lot more about Marxism than me so I'll defer to their judgement, but as far as I know, for Marx 'value' is inherent in a commodity (commodities 'embody' labour value) and its relation to actual 'market value' (i.e. price) is there somewhere, but Marx isn't sure where exactly. Wherever it is, though, the difference between labour value (whatever that might actually be) and 'market value' (price) is surplus value, which is the exploited cream that capitalists skim off everything.

 

[vimothy]

Producers try and minimise labour input wherever possible to lower prices and be more competitive. There would be no reason to do that if labour input would be immaterial.

Doesn't that depend on the price of labour relative to the other factors of production (i.e. capital)?

 

[Mr. Tea]

Wherever it is, though, the difference between labour value (whatever that might actually be) and 'market value' (price) is surplus value, which is the exploited cream that capitalists skim off everything.

We're assuming here that market value > labour value. It could of course be the other way round: consider the struggling artist who takes many tens of hours to produce a painting, really pouring his soul into it, but no-one wants to buy it, so its market value is zero.

 

[vimothy]

You mean not just identical but made identically (except more slowly) - in that case then I concur that you would be a fool to think that the one that had been made more slowly was better.

Basically, yeah, although I can also imagine a situation in which one pen factory is in, say, the US, where capital is cheaper than labour, so the factory uses lots of machines as substitutes for people, and one factory is in India, where labour is cheaper than capital, so the factory uses lots of labour and less machinery. The finished products are identical, and therefore so is the value (surely). What is different is the mix -- the amount of labour hours relative to everything else in the production process. But that doesn't determine value as I see it.

 

[vimothy]

We're assuming here that market value > labour value. It could of course be the other way round: consider the struggling artist who takes many tens of hours to produce a painting, really pouring his soul into it, but no-one wants to buy it, so its market value is zero.

Indeed. Or the ruined farmer who takes his coffee crop to market in a bumper harvest, only to see the price drop below his costs of production.

 

[3 Body No Problem]

Ok, so including that in my (pedantic, I admit) question (and explaining the differences in average labour time as differences in total factor productivity), is the value of the two identical goods the same or different?

According to Marx LTV yes.

 

[3 Body No Problem]

Isn't it more likely that humans decided one gold coin was worth a hundredweight of fish? How long it took the fisherman to catch that much fish was up to him (and, of course, the weather, available fish stocks etc.).

But there's an exchange rate between fish and gold coins where it is no longer viable for the fisherman to sell fish (e.g. when the grain he can buy with the money from fishing is so little that he's better of farming himself, or eating all his fish), then he will stop selling and do something else. Alternatively, he will have to be forced to hand over fish for a given exchange rate. In both cases, the market ceases to exist. Hence the fisherman's labour time comes in as a constraint on possible exchange rates.