Ernie: Marx stood Hegel on his head; it is only fair that we stand Marx on his head.
What determines value in an economy? Whatever labor and goods that are required to win the favors of the opposite sex. Since this will vary from one man to the next, one woman to the next, the economic system will always be structurally irrational. Not totally crazy, but not at all wholly rational, indeed, far from it even if anyone can detect some modicum or order -which is dictated by the logic of production and exchange. Yet all the fuss is ever and always the result of desire for the services of the opposite sex. Each sex has need of the other, like it or not, and love makes the economy go 'round. To say the same thing, this also means taking into account the needs of families, of the kids involved, of any pets, of gardens that may be grown to cultivate veggies for the household, and so forth even if, in our world, "gardening" is by proxy, in Iowa or the San Joaquin Valley or Mexico. Throughout all of history wars have been fought for access to women and women have played the economic game to procure decent homes for themselves in which to raise children. A man by himself, is satisfied with simple things, hell, next-to-nothing will do just fine it it includes what he considers necessities, whether enough beer or enough smokes or enough gas money to run his jalopy. Add a woman to the equation and you get a man possessed. His needs now become gargantuan: A fine house that costs $350,000, a new car that costs $29,995, clothes for everyone concerned, only quality garments will do, not worn out jeans that had been good enough in an earlier time, and so forth, for computers, TV entertainment, discretionary money for restaurants or concerts, and so forth. This results in a lot of concern about what government policies will facilitate one's new lifestyle and which political movements may threaten security or affluence. It also means new priorities. A single man may not give a hoot about jewelry, and why should he? Why get hung up about glittering trinkets? But with a woman in the picture, by God he had better buy her some diamonds or emeralds because gemstones are her insurance against his dying early, or his philandering, or his illness that ruins a family finances. And there had better be expenditures for status items more generally, so that the kiddies, when they grow up, can make their families proud and the best way to do that is to trade on status to get them admitted to a quality university or take vacations where they will meet other high-status young people, and so forth. It all hangs together. Take sex out of the equation and economics is a crap shoot with twenty different theories each making some sense but by no means are any of these theories the last word and to take any literally is to guarantee failure. The motor of economics is sex, plain and simple. Or plain and complex s'il vous plait, but you get the idea. In other words there is a reason why prostitution is called the world's oldest profession. Sex has intrinsic value; as a rule it results in the perpetuation of the species, and what could be more valuable than that? But it also means pride in self, hence all kinds of positive feelings that make life seem worthwhile and worth the trouble. Whether or not women value sex intrinsically you can decide for yourself, but for sure they value it for purposes of motherhood and if for no other reason it therefore has the highest possible value, worth any sacrifice. This is the real foundation of economics. Billy Chicago School of New Economics _____________________________________________________________ ________________________________ From: radicalcentrism@googlegroups.com <radicalcentrism@googlegroups.com> on behalf of Centroids <drer...@radicalcentrism.org> Sent: Tuesday, April 3, 2018 4:22 PM To: Centroids Discussions Subject: [RC] Why Marxists obsess over labor This was really helpful. I could never understand why Marxists obsessed so much over labor, and utterly disregarded the multiplicative power of capital investment The Diamond-Water Paradox and the Subjective Theory of Value http://partiallyexaminedlife.com/2018/04/03/the-diamond-water-paradox-and-the-subjective-theory-of-value/ [http://partiallyexaminedlife.com/wp-content/uploads/Carl-Menger.png]<http://partiallyexaminedlife.com/2018/04/03/the-diamond-water-paradox-and-the-subjective-theory-of-value/> The Diamond-Water Paradox and the Subjective Theory of Value | The Partially Examined Life Philosophy Podcast | A Philosophy Podcast and Blog<http://partiallyexaminedlife.com/2018/04/03/the-diamond-water-paradox-and-the-subjective-theory-of-value/> partiallyexaminedlife.com Why do diamonds cost more than water, when water is essential to life? The answer eluded both Smith and Marx before its resolution arrived in the form of the Marginal Revolution. (via Instapaper<http://www.instapaper.com/>) ________________________________ In his famous work The Wealth of Nations, Adam Smith<http://partiallyexaminedlife.com/2017/10/16/ep174-1-adam-smith/> articulated a paradox that he could not resolve: water is essential to life; diamonds a mere decoration. Yet for all that, we are willing to lavish enormous sums on pretty rocks while taking clean water for granted. What could explain this disconnect? Smith’s confusion stemmed from his understanding of the source of economic value. The eighteenth century, while an age of enlightenment and revolution, was still very much mired in the religious worldview of the Medieval era, and many great thinkers believed that God imbued the world with value. It must have been quite difficult to imagine any sort of value, let alone that of economic goods, originating from some source other than the Creator of all things. Indeed, Smith, like many of his contemporaries, ascribed to an intrinsic understanding of value, one which saw prices as a manifestation of some “objective” quality of the thing being sold. That quality was the amount of labor that went into the production of the commodity in question. “The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it,” asserted Smith.[1] His view has a certain intuitive appeal to it. Now known as the “labor theory of value,” this perspective holds that the prices of goods on the market are ultimately determined by the effort expended in their production. This, of course, begs the question: what determines the price of labor? On Smith’s account, there is nothing else to turn to: Labor was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labor, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labor which it can enable them to purchase or command.[2] In this way, labor can be understood as the genesis of all value, the first building block upon which all economic goods rest. It is easy to see why this account took hold in the eighteenth and nineteenth centuries. It seemed to explain the inflated prices of labor-intensive goods such as cotton and saffron, which demanded hours of sweat from peasants (and slaves) for a relatively small amount of raw material. It also entails that an informed expert could, with the proper information, calculate the “true price” of a good. Yet that’s not all: the labor theory of value instills a sense of justice into market transactions. According to the labor theory of value, those goods that people must work hard to produce are highly valued. On the other hand, those goods that are produced with ease do not fetch an impressive price. This characterization of market value has an obvious appeal, because it seems to reward human effort. Many great thinkers followed Smith in ascribing to this view. David Ricardo, the famous nineteenth-century defender of free trade, further refined Smith’s position, which was taken up by another famous economist, Karl Marx<http://partiallyexaminedlife.com/2013/01/30/ep70-marx/>. Marx was careful to differentiate between what may be simply called “effort” and “labor.” For example, he believed that there is a difference between skilled and unskilled labor, so that one hour of skilled labor may be equal to two hours of unskilled labor. Yet despite this differentiation, Marx was obsessed with aggregates, and his formulation of social necessity is just one example. To a Marxist proper, the amount of time actually expended in the production of a good does not matter as much as the amount of time that it should take to produce something. As Marx put it, “that which determines the magnitude of the value of any article is the amount of labor socially necessary, or the labor time socially necessary for its production.”[3] Social necessity is derived from the average level of productivity in a given society, regardless of the time spent on any item in particular. Marx wrote Das Kapital<https://amzn.to/2GmSvxd> nearly 100 years after Smith’s The Wealth of Nations made its debut in 1776. The continuity of the labor theory of value between these two otherwise diametrically opposed works is remarkable, and speaks to its hegemony in classical economics. It also gives evidence of the intractability of the diamond-water paradox: in 1860, there was still no explanation for the fact that diamonds fetch a higher price than water. Yet a few years before Marx published his magnum opus, a new theory arrived on the scene, proposed by three thinkers almost simultaneously. Three economists developed an alternative explanation of economic phenomena in the 1860s and 1870s. While working independently, William Stanley Jevons (British), Carl Menger (Austrian), and Marie-Esprit-Léon Walras (Swiss) all proposed that economic value comes not from any quality of the good in question, but from the human mind. [http://partiallyexaminedlife.com/wp-content/uploads/Carl-Menger.png]Menger gives an unusually artistic description of this development in his If the locks between two still bodies of water at different levels are opened, the surface will become ruffled with waves that will gradually subside until the water is still once more. The waves are only symptoms of the operation of the forces we call gravity and friction. The prices of goods, which are symptoms of an economic equilibrium in the distribution of possessions between the economies of individuals, resemble these waves. The force that drives them to the surface is the ultimate and general cause of all economic activity, the endeavor of men to satisfy their needs as completely as possible, to better their economic positions. But since prices are the only phenomena of the process that are directly perceptible, since their magnitudes can be measured exactly, and since daily living brings them unceasingly before our eyes, it was easy to commit the error of regarding the magnitude of price as the essential feature of an exchange, and as a result of this mistake, to commit the further error of regarding the quantities of goods in an exchange as equivalents. The result was incalculable damage to our science since writers in the field of price theory lost themselves in attempts to solve the problem of discovering the causes of an alleged equality between two quantities of goods. Some found the cause in equal quantities of labor expended on the goods. Others found it in equal costs of production. And a dispute even arose as to whether the goods are given for each other because they are equivalents, or whether they are equivalents because they are exchanged. But such an equality of the values of two quantities of goods (an equality in the objective sense) nowhere has any real existence. The error on which these theories were based becomes immediately apparent as soon as we free ourselves from the one-sidedness that previously prevailed in the observation of price phenomena.[4] This theory of value thus focuses not on visible economic phenomena, but on the forces that bring them into being: “the endeavors of men to satisfy their needs as completely as possible.” Indeed, all three of the authors of what is now known as the Marginal Revolution emphasize the role that an individual’s mental states play in the creation of value. What explains economic value, in this new system? On Menger’s view, “value is the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs” (115). This implies that goods that are always and everywhere readily available do not attain an economic value—we are not dependent on command for them for the satisfaction of our needs if we already have them at hand. Only scarce goods can come into our consciousness in this way. It also implies that “true prices” do not exist, because prices are the result of subjective valuations. This focus on mental phenomena helps explain why certain goods that might be seen as important resources today had no monetary value hundreds of years ago. It is not any immutable and unchanging feature of an item that gives it value. Rather, value comes from human perception. Yet how does the subjective theory of value resolve the diamond-water paradox? Put another way, why do human subjects not recognize the greater importance of water in their purchases? The answer lies in the crucial focus on individual goods and services. Classical economists saw diamonds and water as aggregates, or categories. However, Jevons, Menger, and Walras perceived that people interact only with individual goods. In other words, no one chooses between “all of the diamonds” and “all of the water.” Rather, people select discrete units of water and discrete units of diamonds. Hence the “Marginal” Revolution. When people ascribe value to a good, they value each unit of each good according to the least urgent need that can be satisfied by that good. Or put another way, goods attain their value through their marginal utility. As one classic example goes, a farmer who has five sacks of grain may devote the first two to foodstuffs, then, one to feeding her animals, the fourth to distilling hard liquor, and the final sack to feeding birds that perch on her barn. If the farmer were to lose one sack of grain, she wouldn’t reduce each of these activities by one-fifth. Instead, she would stop the least valuable activity—that of feeding birds—and preserve the most valuable activities intact. Thus, the value of one sack of grain to the farmer is precisely the satisfaction she stands to lose if she is unable to feed birds. This is the marginal utility of each sack.[5] In normal circumstances, people intent on buying diamonds have no further need for any concrete quantity of drinking water. They don’t stand to lose any amount of satisfaction if they pass up the chance to use more water. Yet the same isn’t true of diamonds, which are typically scarce enough so that, in Menger’s words, “even the least significant satisfactions assured by the total quantity available still have a relatively high importance to economizing men.”[6] This explains the higher price of a unit of diamonds compared to a unit of water. It’s also worth noting that the marginal approach also holds true in unusual circumstances. If someone on a desert island must choose between a chest full of diamonds and a gallon of water, chances are they’ll prefer the water. Jevons, Menger, and Walras succeeded in explaining diverse economic phenomena, and resolved a paradox that had befuddled Adam Smith, Karl Marx, and all who came between and before them. Their insistence on the subjective nature of economic value, and the impossibility of calculating the “true cost” of any good, continues to challenge many notions widely held today. [1] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (MetaLibri, 2007), https://bit.ly/2fvwmCh (PDF). [2] Smith, Wealth of Nations, 28. [3] Karl Marx, Capital, A Critique of Political Economy (Marxists.org<http://Marxists.org>, 2015), https://bit.ly/1qHtn3M (PDF). [4] Carl Menger, Principles of Economics (Mises Institute, 2007), https://bit.ly/2urdKMA (PDF). [5] Eugen von Böhm-Bawerk, The Positive Theory of Capital <https://amzn.to/2GUhI30> (G.E. Stechert & Co., 1930). [6] Menger, Principles of Economics, 40. Adam De Gree is a freelance writer and homeschool history teacher based in Prague. He studied Philosophy at UC Santa Barbara and can be reached by email here<mailto:celsiu...@gmail.com>. 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