David B. Shemano wrote:
I am sure I am going to butcher this and repeat arguments that you believe were refuted 100 years ago, but here goes. I disdain the labor theory of value for the reason stated by Whately: "it is not that pearls fetch a high price because men have dived for them, but on the contrary, men dive for them because they fetch a high price." <
I know that some disagree with my interpretation, but I think this is confusing two completely different things, i.e., price and value. Whately is right: the price of pearls reflects their scarcity (both natural and artificial) and demand. But that says nothing about the value of pearls (at least in the Marxian vocabulary). Whereas prices could be seen as the values attached to pearls by individuals in the market, the (Marxian) _value_ of pearls represent the labor that the pearl-divers are contributing to the economic community. (The contribution to the greater community is one way of stating what Marx meant when he talked about labor being "socially necessary.") As all Marxian political economists know, the values and the prices of individual commodities rarely correspond to each other in the real world. The production process for pearls may be more "capital-intensive" than that for swine, etc., driving up the price of pearls relative to their value (ceteris paribus). In this case, there is the issue of natural scarcity, which also drives up the price of pearls compared to their value, allowing the existence of natural-resource rents (as long as we don't see mass oyster farming, which would abolish natural scarcity).
I draw from this the conclusion that value is subjective and that economic activity is activity intended to satisfy subjective ends and desires (subjective both in absolute and relative to cost terms). <
This is what I said when I said that financial intermediaries provide use-value to people who hire them. That differs from exchange-value and value.
Because ends are subjective, all economic activity is by necessity
speculative and risky because the supplier of the good or service can never know in advance with certainty whether the economic activity will be profitable. < All economic activity is risky (except perhaps being a tenured professor). But why is it that coal miners, who risk their lives, get much less of a risk premium than do financial speculators, who only risk their money? (Is it because financiers are better people, and therefore have a higher market price?)
Precisely because all economic activity is inherently speculative and risky, the decision to allocate capital to an economic activity (as opposed to any other activity) is a critical component of the economic process. The financier, by considering all of the investment options available and then choosing and risking his capital in certain options to the exclusion of others, performs that critical role. The compensation to the financier is a product of the negotiation between the financier and the entrepreneur. The price paid by the entrepeneur in turn will depend on a myriad of factors, but the market for capital may be one of the cleanest and most competitive we have, so we can have some assurance that the price paid is rationally tethered to the process.<
As I said, financial intermediaries are rewarded a lot because they serve capitalism as a social system -- especially the rich part of the population. There's nothing about market imperfection in my story. Rather, it says that the market and market results -- like high financier pay -- reflect the social structure of capitalism that an intellectual focus on markets alone does not reveal. The big capitalists gain from being on the top of an exploitative social system. They then pay their servants -- including the financiers -- for providing services. The financiers get a piece of the action, just as the folks who sell illegal lottery tickets get a piece of the action from those who are running the game and the rest of the mafia's activity. -- Jim Devine / "When we remember we are all mad, the mysteries disappear and life stands explained." -- Mark Twain.
