Labory theory of value vs Marginal utility....

[RadioRaheem84]

1. ) Consumer Origin of Value: Consumers determine the origin of value. Final demand, not labor or cost of production, determines the structure and pricing of the production process. Theory of imputation; utility imputed the value of input.

2.) Marginal Utility: Prices and costs determined at the margin, i.e. the marginal benefit cost to buyers and sellers.

3.) Subjective Value: Value entirely dependent on desires of consumers and producers. Costs are never fixed.

Also, a couple of other things:

Why did have real wages risen since the Civil War? They only capped a hundred years later.

What about art and land? These are valuable things that keep increasing in value over time with little or no labor.

Pearls are not valuable because men dive in to retrieve them. Men dive in to retrieve them because they're valuable.

[Die Neue Zeit]

Point #1 is another way of saying "use value," but obviously the marginalists don't want to acknowledge Marx's distinction between use value and exchange value. Also, most marginalists subscribe to a capital theory of value ("businesses create jobs" shit), as evidenced especially by finance material on "intrinsic value" (based on the present value of expected future after-tax cash flows). Even they distinguish between value and price!

Points 2 and 3 are distorted ways of saying "exchange value."

The usual art and land example is a case of a growing exchange value at odds with a relatively constant use value.

[black_tambourine]

1. ) Consumer Origin of Value: Consumers determine the origin of value. Final demand, not labor or cost of production, determines the structure and pricing of the production process. Theory of imputation; utility imputed the value of input.

2.) Marginal Utility: Prices and costs determined at the margin, i.e. the marginal benefit cost to buyers and sellers.

3.) Subjective Value: Value entirely dependent on desires of consumers and producers. Costs are never fixed.

Also, a couple of other things:

Why did have real wages risen since the Civil War? They only capped a hundred years later.

What about art and land? These are valuable things that keep increasing in value over time with little or no labor.

Pearls are not valuable because men dive in to retrieve them. Men dive in to retrieve them because they're valuable.

1) Nuh-uh. Barring "exploratory" ventures into wholly new types of consumer goods, the influence of demand on the structure of production can be regarded as fait accompli before the production process even starts. Assuming that capitalists are rational actors, they will only establish production in sectors where the market is likely to be cleared at a price which is "feasible" from the standpoint of production costs, including labor. They do not need to use any other criterion.

2) Again, the marginal utility to producers is dependent predominantly on production costs, i.e. how high can they get prices above said costs while still clearing the market. Assuming a competitive economy, consumer input will drive prices down into a region where they more-or-less reflect these production costs, with the "floor" being marginal-cost-pricing.

3) See #1. However unique and snowflake-like an individual consumer's configuration of preferences, the behavior of large aggregates of consumers is relatively easy to quantify. Thus the fact that "there will be adequate demand" can be taken as read in most production decisions.

Art is not, strictly speaking, a commodity (we will kindly leave the analyses of the Frankfurt School and the like out of this) and thus can be priced "subjectively" without a problem. Land is tricky in that it is the ultimate in finite resources and the majority of it is already "in use" in some way or another; distribution of land thus takes on the character of a zero-sum game. However, insofar as land functions as a "produced" commodity (i.e. it is sold based on the improvements made on it), the rules above largely apply.

Pearls and other gems and precious metals have high exchange value due to natural scarcity and the labor and capital costs involved in extraction, which we may take here as analogous to production.

[mikelepore]

The subjective theories of value are impossible. For them to be correct, there would have to be some condition of "desire" or "benefit", or some other psychological variable, in which a manufacturer would disregard the cost of production, for example, invest millions of dollars to build a jet airplane, and then put a price tag of only one dollar on it, and continue to do this on a regular basis, merely because of the states of mind of the people who participate in the marketplace. It's obvious that no economy could ever operate that way. The ratios in which commodities usually exchange with each other must depend on facts of manufacturing.

[RadioRaheem84]

So the whole marginal revolution that neo-classical economists were waiting for, the great rebuttal to Marx, were just a bunch of erroneous assumptions? The economics history book I took this from championed these ideas and Carl Menger as the great answer to Marx that plagued classical economics for decades.

[black_tambourine]

Well, marginalism has a grain of truth to it in that there are some serious problems with the LTV as it is "classically" presented. For example, it is often taken as a universal law that exchange value = labor time. This is false. Further, many Marxists would tell you that the only source of long-term profit for the capitalist is the expropriation of surplus-value. This is true most of the time, but not all of the time.

The LTV is not a timeless "law" but rather an effect of the capitalist economy itself: its validity is thus contingent on certain capitalistic conditions already existing. First, there must be a reasonable amount of competition in the production of commodities. Second, one must be operating in a sector where the margin/volume tradeoff is skewed in favor of volume, if adequate production capacity is possessed (in late capitalism this is usually the case). Third, one must have a labor force consisting of "free" labor, i.e. labor not under formal bondage (slavery).

Under these conditions, any rational capitalist will use his costs of production when calculating the feasibility of starting an enterprise - not what consumers are willing to pay for the products. The reason for this is, in a competitive economy, any "non-exploitative" surplus that our capitalist could gain from the disparity between his costs of production and what consumers are willing to pay will rapidly shrink down to nothing as competing firms enter the market and undercut current prices, compensating for the reduced profit margin by cutting into our original capitalist's market shares and/or expanding the field of effective demand for the good.

In this situation, our capitalist is faced with two choices as to the maintenance of profitability: continue to rely on the downward-trending "producer surplus" over which he has no control, or rely on the disparity between the maintenance cost of his labor force and the final "equilibrium" price of the things produced by said labor force, a disparity which the capitalist can control, to an extent, and is not "objectively" skewed in either direction. Again, if the capitalist is rational, he will choose the latter option, which is the classical Marxist definition of exploitation.

The reason why the LTV requires free wage-labor rather than slavery or serfdom to be valid is because exploitation cannot optimally take place under the latter two conditions: hence with every historical scenario wherein these forms of labor subjection attempted to exist within a capitalist mode of production, economic crisis and eventual political rupture were the result. Slaves count as fixed capital, not variable capital: they require a much larger initial outlay than wage labor ("buying" the slave), higher upkeep costs (the slaveowner must personally pay for housing and the like, as well as continual monitoring to prevent escape and guarantee labor discipline), and there is no option for the slaveowner to simply fire them and hire someone else if their performance is unsatisfactory: they must be either sold, usually at a loss, or coerced physically into doing more work, which is seldom effective and increases the likelihood of escape (and the dead economic loss that this represents to the slave holder, far more costly than a worker simply up and quitting). It would thus not be feasible for the slave-owning capitalist to use exploitation as a means of profit, and prices of goods in this case more closely reflect the more-or-less arbitrary "equilibrium" between consumer and producer preferences as portrayed in marginalist theory.

Now, apart from feudal throwbacks and the like existing within the modern capitalist economy, there are still some situations where the marginalist analysis is valid. Goods that are particularly inelastic, such as oil, afford capitalists a great deal more discretion in setting prices - production costs in this case are merely one component of a larger makeup in constituting price; most of the price can be attributed to the arbitrary "utility functions" of individual capitalists or groups of capitalists, and said capitalist can enjoy profit without the necessity of exploitation (though it is often still there, obviously). Marginalism would in this case be a better overall explanation than the LTV as to the origin of prices and profit.

I will post an examination of how the LTV applies to monopolistic/oligopolistic capital later. Suffice to say, that is the point where things get really interesting.

[KC]

Edit

[Die Neue Zeit]

Well, marginalism has a grain of truth to it in that there are some serious problems with the LTV as it is "classically" presented.

By "classically presented," are you referring to Ricardo's labour theory of price, then? You know, the one with the obvious corn problem.


Now, apart from feudal throwbacks and the like existing within the modern capitalist economy, there are still some situations where the marginalist analysis is valid. Goods that are particularly inelastic, such as oil, afford capitalists a great deal more discretion in setting prices - production costs in this case are merely one component of a larger makeup in constituting price

The primary problem I see with marginalist economics is its very rendition of supply-demand relations. It seems to counter accounting and finance material (http://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysis) in two ways!

Price and units

The supply curve seems reasonable if above a certain y-intercept to indicate that there are fixed costs - f*** the crap about long-term fixed-cost irrelevancy, which is just not true.

It's the demand curve that's problematic, since each point on that curve is supposed to give a price per unit. Further out with more units, dividing a lower price (lower y-point) by a higher unit amount (higher x-point) yields a steep drop in price per unit.

A different approach

If the demand curve isn't problematic, it is because the y-axis should be about price/unit all along. That does raise questions about what the x-axis should be, but the graph would better illustrate price/unit going down with further demand.

However, if the y-axis becomes price/unit, then the supply curve should also slope downwards! As more units are produced, the blended or mixed cost/unit goes down, because production distributes fixed costs among more units.


I will post an examination of how the LTV applies to monopolistic/oligopolistic capital later. Suffice to say, that is the point where things get really interesting.

Do you subscribe to the marginal economics of the unconventional Marxist Klaus Hagendorf? I've read his papers on his marginalist but pro-Marx take on LTV.

[Left-Reasoning]

The subjective theories of value are impossible. For them to be correct, there would have to be some condition of "desire" or "benefit", or some other psychological variable, in which a manufacturer would disregard the cost of production, for example, invest millions of dollars to build a jet airplane, and then put a price tag of only one dollar on it, and continue to do this on a regular basis, merely because of the states of mind of the people who participate in the marketplace. It's obvious that no economy could ever operate that way. The ratios in which commodities usually exchange with each other must depend on facts of manufacturing.

Comrade, I fear that you misunderstand them. This is a strawman of their position, just as they strawman Marx's.

[Left-Reasoning]

Also, most marginalists subscribe to a capital theory of value ("businesses create jobs" shit), as evidenced especially by finance material on "intrinsic value" (based on the present value of expected future after-tax cash flows).

Comrade, I can assure you that no Austrian Economist believes in what you have said above.


Even they distinguish between value and price!

Of course they do, this was never at issue. According to the Austrians, value is a subjective determination of usefulness broadly defined and the price is the ratio of exchange between commodities.

[RadioRaheem84]

Comrade, I can assure you that no Austrian Economist believes in what you have said above.

well, what do they believe in?

[robbo203]

1. ) Consumer Origin of Value: Consumers determine the origin of value. Final demand, not labor or cost of production, determines the structure and pricing of the production process. Theory of imputation; utility imputed the value of input.

2.) Marginal Utility: Prices and costs determined at the margin, i.e. the marginal benefit cost to buyers and sellers.

3.) Subjective Value: Value entirely dependent on desires of consumers and producers. Costs are never fixed.

Also, a couple of other things:

Why did have real wages risen since the Civil War? They only capped a hundred years later.

What about art and land? These are valuable things that keep increasing in value over time with little or no labor.

Pearls are not valuable because men dive in to retrieve them. Men dive in to retrieve them because they're valuable.

Many of these questions are answered in the article belowfrom the pamphlet Marxian Economics http://www.worldsocialism.org/spgb/pdf/me.pdf

Marx's labour theory of value


THE LABOUR THEORY of Value is a theory in the science of political economy (now
called economics) to explain how the working class are exploited under capitalism and
how capitalist society works.
Capitalism is the stage in the development of human society characterised by class
monopoly of the means of production, with wage-labour and commodity-production.
Thus to be explained are such phenomena as wages, prices, and profits. The Labour
Theory of Value is central to an understanding of the economics of capitalism because
capitalism is commodity production par excellence, and the Labour Theory of Value
basically explains what fixes the value of a commodity. At one time there were rival
theories of value, but now academic economics tends to deny the need for such a
theory. All you need, they say, is a theory of price. We shall see, however, that prices
cannot be explained without recourse to the concept of value.
First, some definitions. Wealth is anything useful produced by human labour from
materials found in nature. In capitalist society, Marx said, wealth takes the form of an
immense accumulation of commodities. A commodity is an article of wealth produced
for the purpose of being exchanged for other articles of wealth. Thus commodityproduction
is an economic system where wealth is produced for sale, for the market. In
its simple forms it exists only on the outskirts of non-commodity producing societies
where wealth is produced directly for use, either by the producers for themselves or by
a subject class for their masters. In the beginning commodities were bartered, but as
commodity-production developed one commodity came to assume a special role: it
became the universal equivalent, for which all commodities could be exchanged and
vice versa; it became, in short, money. Here we have a problem for the science of
political economy: what determines the proportions in which commodities exchange onefor the other?
One conclusion we can draw from the fact that commodities consistently exchange for
one another in fixed ratios is that all commodities must share some common
characteristic to a greater or lesser degree. What? As articles of wealth all commodities share two characteristics: they are useful and they are products of human labour. Which of these could provide a standard? Some have suggested usefulness (or utility), but the trouble here is that the same article can be useful to a greater or lesser degree to a different person. Usefulness is a personal matter: a personal relation between the commodity and its consumer. So utility would be a changing; subjective standard and could not explain why commodities consistently exchange at stable ratios. We are thus left with commodities as products of human labour.
Unlike usefulness the amount of labour embodied in a commodity can be objectively
measured : by how long it took to make it, for instance. However, all wealth, not just
commodities, shares this characteristic of being products of human labour.
What we want to know is how do commodities differ from other forms of wealth. Wealth,
we know, only takes the form of commodities under certain social conditions,
specifically when it is produced for sale. Similarly with labour (used-up human energy):
under the same social conditions it becomes "value". Thus value is not something you
can find in the physical or chemical properties of a commodity, for it is a social property, a social relation. However, as value only expresses itself in exchange, as exchangevalue, this social relation appears as a relation between things. This is what is behind Marx's writing about the "fetishism of commodities". Price is the monetary expression of value. Labour, says the Labour Theory of Value, is the basis of value. But how does labour determine the value of a commodity? The value of a commodity, said Marx, is determined by the amount of socially necessary labour contained in it or, what is the same thing, by the amount of socially necessary labour-time spent in producing it from start to finish. Note that the Labour Theory of Value does not say that the value of a commodity is determined by the actual amount of labour contained in it. That would mean that an inefficient worker would create more value than an efficient worker. By socially necessary is meant the amount needed to produce, and reproduce, a commodity under average working conditions, e.g. average productivity, average intensity of labour. For instance, in the British coal industry the average output is about 43cwts. per man shift and there are approximately 230 pits in operation. In some of these output per shift will be above 43cwts. and in others below, but the value of the coal is not fixed by the labour of the workers at pits of either sort. Its value is the social average brought out by the market. This means of course that what is sociallynecessary is continually changing. The whole process of producing the commodity coal also includes the labour of workers outside the pits, who are producing materials necessary for coal mining.
Under capitalism nearly everything is a commodity, or takes the form of a commodity, is bought and sold. This qualification is necessary to counter the argument often advanced against the Labour Theory of Value that some things that are bought and sold either are not products of labour or sell at prices quite out of proportion to the amount of labour embodied in them, e.g. land and objects of art. Land, under capitalism, has a price which, in its pure form, is merely the capitalisation of its rent. Land has no value as it is not the product of human labour. Paintings and antiques are indeed products of human labour but are not really commodities because they cannot be reproduced; the concept of "socially necessary labour" therefore has no meaning with reference to such articles. One silly objection is: why is a lump of gold from a meteorite valuable, when there is no
labour embodied in it? Actually, this is a confirmation of the Labour Theory of Value
since its value is the same as that of gold produced under normal conditions. If gold
were to regularly fall from the skies then its value would drop to what is needed to
collect it.
Another thing that under capitalism takes the form of a commodity is labour-power (the
ability of human beings to work, human energy). Indeed this fact is the basis of
capitalism since it presupposes the separation of the producers from the ownership and
control of the means and instruments for producing wealth. But there is one very
important difference between labour-power and other commodities. labour-power is
embodied in human beings who can think, act and struggle to get the best price for what
they are selling. Otherwise its value is fixed in the same way as that of other
commodities: by the amount of socially necessary labour spent on creating it and
recreating it. The labour spent on creating a man's labour power is that spent in
producing the food, clothing, shelter and the other things needed to keep him in a fit
state to work. Thus the value of an unskilled man's labour-power is equal to about
enough to keep him and his family alive and working. Skilled men get more because it
costs more labour to produce and maintain their skills. When the worker finds an
employer he is paid a wage, which is the price he is paid for allowing the employer to
use his labour power for, say, 8 hours. Wages, then, are a special kind of price; they are
the monetary expression of the value of labour-power.
Labour-power has a peculiar characteristic. Because wealth can only be produced by
human beings applying their mental and physical energies to materials found in nature
and because labour (the expending of labour-power) is the basis of value, labour-power
has the property of being able to produce and create new value. Let us assume that our
worker's labour-power is worth 4 hours labour a day. After he has worked 4 hours does
he stop? Of course not. Under his contract he must work for another 4. Since he is
working in his employers' place, with his employers' tools, machinery and raw materials
anything he produces belongs to his employer. Thus, in this case, the employer gets 4
hours free labour. This is the source of his profit, which he shares with his creditors as
interest and with his landlord as (ground) rent (and with the State as taxes). So the
source of all Rent, Interest and Profit is the unpaid labour of the working class.
Let us look into this process of exploitation a little closer. The first point to notice is that
it takes place at the point of production. Workers are exploited at work. When a worker
receives his wage (or salary, another name for the price of labour power) he has
already been exploited. He cannot therefore be exploited again by moneylenders or
shopkeepers or landlords or taxmen (though of course they can rob and cheat him, and
he them, but that's a different matter). So-called secondary exploitation is a myth.
For Marx capital, like value, is not a thing but a social relation; indeed it is value or
rather a collection of values. Only under certain social conditions do the means of
production become capital, specifically, when they are used to exploit wage-labour for
surplus value. Thus we find Marx describing the process of capital accumulation as the
"self-expansion of value". Capital, in its pure form, is money-capital. A capitalist invests
his capital, say, in producing cotton textiles. He must advance his capital to buy a
factory, textile machinery, raw cotton, etc, and also to buy labour-power. His capital can
be divided into categories. Fixed capital is the buildings and machinery that are not
consumed entirely in the production process; circulating capital is the raw materials and
labour power that are. More significant from the socialist point of view is the division into
constant and variable capital. Constant capital is that invested in the buildings,
machinery and raw materials. In the process of production their value, or a part of their
value, is only transferred to the finished product. Variable capital is that invested in
labour-power and is so called because this is the part of capital that expands. Labourpower
not only transfers its own value and is instrumental in transferring that of the
constant capital, but it also creates new value. We see then, that machines do not
create value. All they do, and this only when set in motion by human beings, is transfer
part of their own value (itself of course a past creation of the work of human beings) to
the finished product. Even capitalist accountants recognise this: the part of the cost of a
commodity they put down to depreciation is to cover the value transferred from the
buildings and machinery.
We saw earlier that part of the working day is spent in producing the equivalent of the
labour-power used up, and the rest in producing surplus value for the capitalist. The first
part of the working day Marx called necessary labour (not to be confused with "socially
necessary labour") and the second surplus labour. We are speaking here in terms of
parts of the day. This is not to be taken literally otherwise you make the mistake of of
the economist in Marx's day who opposed the Ten Hour Bill to limit the working day on
the grounds that all the profit was made in the last hour! In fact, surplus value is
produced each moment the worker is at work.
Marx called the ratio of surplus labour to necessary labour (which is the same as the
ratio of surplus value to variable capital) the rate of surplus value, or rate of exploitation
(s/v). It is obviously in the interest of the capitalist to increase the proportion of surplus
labour to necessary labour. There are two ways in which this can be done. The first is
by lengthening the working day itself. The extra surplus value so produced is called
absolute surplus value. The other way to increase the ratio of surplus labour to
necessary labour is to reduce the necessary labour. The crudest way to do this is to
reduce the workers' standard of living by reducing wages, which of course the employer
will always do if he can. But the same result, of reducing the proportion of necessary
labour, will occur if productivity is increased so that, for example, the labour time
necessary for the production of the articles the worker needs is reduced and their prices
fall, with the consequent reduction of the value of labour-power without reducing the
worker's standard of living. The extra surplus value so produced is called relative
surplus value.
How do the complications of capitalist production affect the value of a commodity? The
value of each unit of cotton textiles turned out will be made up of the value of the raw
materials, the value of the machinery transferred, the value of the labour power and the
surplus value, or the commodity's value = c + v + s, where c is the part of the total
constant capital (C) transferred to the product. The rate of profit is S/(C + V).
The value of a commodity is fixed by the amount of socially necessary labour embodied
in it from start to finish, not just in the final stage of its production. Thus it is inaccurate
to say that agricultural workers produce food or that car workers produce cars.
Production under capitalism is a social process in which all workers take part. An
important corollary of this is: the capitalist class as a whole exploits the working class as
a whole. The worker is not exploited just by his particular employer, but by the whole
class of capitalists.
It may come as a surprise, after all that has been said about commodities exchanging in
fixed proportions according to their values, to be told that under capitalism commodities
do not sell at their values. But this is in fact the case. This is why it is important to
understand that the Labour Theory of Value is not a mere theory of price. There are two
simple reasons why price and value can differ: prices fluctuate with supply and demand,
and with monopoly, a commodity will sell at above its value (or, with subsidies, below its
value). The third reason is more complicated but must be grasped if you want to
understand the observable workings of capitalism, e.g. what is behind the pricing
policies of businesses. Those who decide on prices, don't know what the value is, and
don't need to. What do they act or, then?
We saw that the capital advanced can be divided into constant and variable and that it
is only the variable capital that increases to create the surplus value. The ratio C/V Marx
called the organic composition of capital. Given the same rate of exploitation (s/v) in all
industries, if all commodities sold at their value this would mean that the highest rates of
profit should be made in the technically backward, labour-intensive industries. But
is this so? Not at all; the tendency is rather for capital to get more or less the same rate
of profit wherever it is invested.
How to reconcile a labour theory of value with the averaging of profits was a problem
that baffled Adam Smith and Ricardo. But Marx solved it in the only way possible: by
abandoning the assumption that all commodities sell at their values. Critics have called
this the "great contradiction" in Marx's work, but it is nothing of the sort. As we have
seen capitalist production and circulation is a social process: each individual capitalist
does not exploit only his own employees but the whole capitalist class exploits the
whole working class. Each capitalist employs so many workers who produce so much
surplus value. Instead of going to the individual capitalist this surplus value goes, as it
were, into a pool from which it is shared along with the rest of the surplus value
amongst all the capitalists in accordance with how much capital they have invested.
(This explains why, incidentally, a fully automated factory would still make a profit.)
Consider the consequences of this on prices. Say s/v is 100 per cent and that there are
three sectors with different organic compositions:
C V S value rate of profit
A 80 20 20 120 20%
B 40 60 60 160 60%
C 60 40 40 140 40%
With no averaging of profits B is the most profitable sector, but with an averaging we
get:
C V S profit value price
A 80 20 20 40 120 140 above value
B 40 60 60 40 160 140 below value
C 60 40 40 40 140 140 at value
Marx called this selling price, which is made up of cost plus average rate of profit, the
price of production. This, in fact, is how businesses do operate and is regarded by
academic economics (who, as Marx pointed out, merely take a businessman's view of
economic events) as enough. But it is not. It is all very well talking airily about price
being set at cost plus "normal profit". But what is normal profit? Something fixed by
custom! This is only what it appears to be. Only the Labour Theory of Value, with its
concept of value and surplus value, based on labour, can adequately explain why the
"normal" rate of profit is, say, 10 per cent rather than 15 per cent.

[REVLEFT'S BIEGGST MATSER TROL]

Comrade, I fear that you misunderstand them. This is a strawman of their position, just as they strawman Marx's.

Eugh, when did we start to let Agorists in?

Anyway, that aside, could you explain futher?

On a side note, it'd be great if we could get some formal debate going on between the marginalists here and someone well versed in Marxian economics.

[Hit The North]

Eugh, when did we start to let Agorists in?

Anyway, that aside, could you explain futher?

On a side note, it'd be great if we could get some formal debate going on between the marginalists here and someone well versed in Marxian economics.

Sure, but the debate would have to take place in OI, as supporting marginal utility over the labour theory of value, would be an opposing ideology and that poster would therefore be restricted.

[REVLEFT'S BIEGGST MATSER TROL]

Sure, but the debate would have to take place in OI, as supporting marginal utility over the labour theory of value, would be an opposing ideology and that poster would therefore be restricted.

I'm not sure about the revleft policy on this? I'm pretty sure there are some people on here that support marginal utility over the labour theory of value, surely one could make arguments for the overthrow of capitalism from a marginal ulitity perspective?

[Hit The North]

How so?

[REVLEFT'S BIEGGST MATSER TROL]

Well, if I understand everything correctly, it could be as simple as claiming that capitalism is inadequate at maximizing utility?

[Die Neue Zeit]

In addition to what I said above, I must say that, while there are quantitative aspects to the exploitation of labour (either LTV-as-recently-proved or Okishio's more downward mathematical proof of exploitation without using LTV), there is also a qualitative aspect not considered in marginal utility: information asymmetry.

[Hit The North]

Well, if I understand everything correctly, it could be as simple as claiming that capitalism is inadequate at maximizing utility?

Without getting into a technical discussion of marginal utility (I'm certainly no economist), what we need to recognise is that all economic theory, no matter its mathematical basis, or the more or less dubious claims towards scientific objectivity, has political implications. The labour theory of value, which posits labour as the source of value and the extraction of surplus labour as the source of profit, leads to a confirmation that the worker is exploited under capitalism and explains how this is achieved. Meanwhile, the marginal utility theory seeks to explain how value is arrived at in the absence of an exploitative relationship between labour and capital. The political implications of this is to reinforce existing inequalities and to justify capitalist relations. As Jevons, one of its early proponents argued, "so far as is consistent with the inequality of wealth in every community, all commodities are distributed by exchange so as to produce the maximum social benefit." (quoted from Mattack (1939) Marxism and Marginal Utility Economics)

Also, the key tenent of marginal utility theory is that value, or more accurately prices, derive from a subjective evaluation of utility between different commodities. It is, therefore, a theory which is based on an abstraction of individual wants from the social context of production. In other words, it glosses over the relations of the production of commodities peculiar to capitalism and, historically, represents the retreat of bourgeois economics from the implications of the classical economics of Smith, Ricardo, etc. Given this, I cannot see how it can inform our socialist critique of existing capitalism.

Comrades can find an instructive Marxist commentary on marginal utility theory here:

http://www.marxists.org/archive/mandel/works/marxist-economic-theory/marginalists.htm

[Zanthorus]

In terms of critiques of marginal utility what everyone else has posted so far is pretty good. Might wanna also check out The Limitations of Marginal Utility (http://www.elegant-technology.com/resource/MARG_UT.PDF) by Thorstein Veblen.


How so?

I guess Oskar Lange's model of neo-classical socialism could be an answer to marginal utility economics within the neo-classical paradigm since if central planning can achieve general equilibrium then it might be preferable to the market which systematically fails to do so.

[Hit The North]

Ah, Oskar Lange, one of Stalin's favourite economists. No wonder that the State Capitalists found a return to marginal utility advantageous.

Paul Mattick deals with this phenomena here: http://www.marxists.org/archive/mattick-paul/1939/marginal.htm#n3

Thanks for the Veblen link, though.

[REVLEFT'S BIEGGST MATSER TROL]

Without getting into a technical discussion of marginal utility (I'm certainly no economist), what we need to recognise is that all economic theory, no matter its mathematical basis, or the more or less dubious claims towards scientific objectivity, has political implications. The labour theory of value, which posits labour as the source of value and the extraction of surplus labour as the source of profit, leads to a confirmation that the worker is exploited under capitalism and explains how this is achieved. Meanwhile, the marginal utility theory seeks to explain how value is arrived at in the absence of an exploitative relationship between labour and capital. The political implications of this is to reinforce existing inequalities and to justify capitalist relations. As Jevons, one of its early proponents argued, "so far as is consistent with the inequality of wealth in every community, all commodities are distributed by exchange so as to produce the maximum social benefit." (quoted from Mattack (1939) Marxism and Marginal Utility Economics)

Also, the key tenent of marginal utility theory is that value, or more accurately prices, derive from a subjective evaluation of utility between different commodities. It is, therefore, a theory which is based on an abstraction of individual wants from the social context of production. In other words, it glosses over the relations of the production of commodities peculiar to capitalism and, historically, represents the retreat of bourgeois economics from the implications of the classical economics of Smith, Ricardo, etc. Given this, I cannot see how it can inform our socialist critique of existing capitalism.

Comrades can find an instructive Marxist commentary on marginal utility theory here:

http://www.marxists.org/archive/mandel/works/marxist-economic-theory/marginalists.htm

And I agree with you entirely.

The point, however, was that some comrades here believe that marginal utility is the superior theory, and manage to formulate a revolutionary leftist perspective (at least in their minds, you may disagree) within the theory.

No doubt however that accepting marginal utility would incline one to capitalist leanings, as opposed to the classical economics.

[Hit The North]

The point, however, was that some comrades here believe that marginal utility is the superior theory, and manage to formulate a revolutionary leftist perspective (at least in their minds, you may disagree) within the theory.


I think, therefore, that they must formulate a revolutionary leftist perspective despite holding to a theory who's only value is that it reinforces the existing relations.

[REVLEFT'S BIEGGST MATSER TROL]

I think, therefore, that they must formulate a revolutionary leftist perspective despite holding to a theory who's only value is that it reinforces the existing relations.

Well hold on, what are you saying here?

That believing in the whole marginal utility thing would incline one towards a right wing view? Well I agree with that.

But that means it is no different from any other "right wing" theory that communists here may hold too.

Should we put a theism/atheism debate over in OI as well?

Or a nature/nurture one?

Note i'm not really disagreeing with you here, I'm just wondering what you think? I'm not sure on my own position even, I hardly know enough.

[mikelepore]

The theory of marginal utility is a theory of WHAT? What fundamental question is it intended to answer? Price, I assume. I ask this because the Marxian law of value is NOT intended to account for prices. It is a theory about the source of the dominant social relationships, namely, classes, the historical development of that class-divided system, and the ongoing maintenance of that class-divided system as seen in the struggles over those classes' wages and profits. So, in constrast to the intent of the Marxian theory, what basic question is the theory of marginal utility intended to address -- the earth-shaking issue of what economic forces determine the digits on the price tag of a can of beans?