Price and Value

[Tommy4ever]

I have a question regarding price and value.

According to Marx an item' value is determined by the amount of labour time consumed in its production.

According to the laws of supply and demand an item's price (and I guess its value) is determined by the relation of demand to supply.

Are these theories compatible?

What I mean is, is an item's value determined by the amount of labour time consumed in its production, but its price fluctuates according to the relation of demand to supply?

For example, there are two loaves of bread created at the same time in the same labour process. They are exactly the same in every way with the exact same labour time consumed in their production. One is sold instantly once it reaches the shelves, the other is not sold for several days and starts to go stale - reducing the demand for it. Then its price is lowered and it is sold.

[Nox]

edit: ignore this

[Tommy4ever]

Marx's law is designed for Communism
The laws of supply and demand are designed for Capitalism

So they aren't compatable, plus you don't 'buy' things in Communism

No, Marx's theory was to help understand capitalism ....

[Nox]

My bad, I was thinking of something else, silly me! :(

I still don't think they're compatable. Look at gold for example, the same labour goes into gold as anything else, but the prices are high because the demand is huge but the supply is low. Same with diamonds, etc.

If you're thinking of just the labour that goes into it, you're looking at it from a Communist perspective, but from a free market perspective supply and demand is the only/major thing that controls prices

[Tommy4ever]

My bad, I was thinking of something else, silly me! :(

I still don't think they're compatable. Look at gold for example, the same labour goes into gold as anything else, but the prices are high because the demand is huge but the supply is low. Same with diamonds, etc.

If you're thinking of just the labour that goes into it, you're looking at it from a Communist perspective, but from a free market perspective supply and demand is the only/major thing that controls prices

So you reject Marx's idea of how value is created entirely?

In Capital he says that in the capitalist system all goods derive their value from the amount of labour expended in their production. I was just unsure of whether that idea could be combined with the law of supply and demand.

[Nox]

I don't reject it, I just think that in a Capitalist world, the laws of supply and demand are more important than Marx's law in terms of giving a product its value.

Of course the amount of labour does have an effect on the price, but on many products, especially things such as gold, oil, etc, the supply and demand clearly affects the price more than the labour.

[Nox]

Please give me an example of any product in which the labour has more of an effect on the price than the supply and demand

[Hoipolloi Cassidy]

"Value" and "price" aren't theories, they're systems of belief that are operative in capitalism. The relationship of value to price is contingent (says Marx), that is, it cannot be predicted in advance; the fact that "value" and "price" are in a consistent dialectical relationship throughout the process of production is what's historically specific, it's what determines relationships among producers.

In other terms, whether the loaf of bread increases or decreases in value and/or price is not innate to the system of production, but to the whole system of production and distribution and all those who participate in it, willy-nilly. This is what I call elsewhere (http://theorangepress.com/publications/theredmuseum.html) "the real relationships hidden behind commodities, relationships that define our day-to-day existence."

[ArrowLance]

My bad, I was thinking of something else, silly me! :(

I still don't think they're compatible. Look at gold for example, the same labour goes into gold as anything else, but the prices are high because the demand is huge but the supply is low. Same with diamonds, etc.

If you're thinking of just the labour that goes into it, you're looking at it from a Communist perspective, but from a free market perspective supply and demand is the only/major thing that controls prices

I think you are misunderstanding the labour theory of value. It is not the labour directly spent on the production of an item that effects its value but the socially necessary abstract labour the production of a commodity requires.

Gold for example is rare, so it takes a considerable amount of time, that is socially abstract labour spent looking, to find gold. While it may look like a person simply found some gold and spent a short amount of labour extracting it there is a considerable amount of background labour that was spent by other people failing to find that gold. The same applies to diamonds.

In reality supply and demand isn't even the only thing effecting prices in a capitalist market if this were true I don't believe a monopoly would be able to affect prices, and collusion would not be a matter at all.

[ArrowLance]

So you reject Marx's idea of how value is created entirely?

In Capital he says that in the capitalist system all goods derive their value from the amount of labour expended in their production. I was just unsure of whether that idea could be combined with the law of supply and demand.

I would say supply and demand most certainly affects a commodities price. We can not simply discard all of liberal economics as systems of bourgeois obfuscation and lies. It does really work in markets and even many of the social observations are correct, even if I feel the implications they infer are unjustified. That is that the fact that incentives matter almost only ever applies to material incentives.

Again it is important to note that it is not the amount of labour directly expended on a commodities production that determines its value, but the socially necessary labour. Imagine if I spent 7 years producing one pair of shoes. They looked like shit, they didn't fit anyone as they were both left shoes. If it was simply the labour that gave them value then they should have a value of around 70,000 dollars (I use this amount because I heard that the average price of a years labour is 10,000 dollars). However I would be lucky to sell these shoes for 50 dollars to the only two left footed person. Even if my shoes had been expertly produced in those seven years they would still only have the value of any other comparable shoe on the market.

[Bronco]

I'd be interested to hear peoples thoughts on what Alexander Berkman had to say regarding value:

Political economists generally claim that the value of a commodity is the amount of labor required to produce it, of "socially necessary labor," as Marx says. But evidently it is not a just standard of measurement. Suppose the carpenter worked three hours to make a kitchen chair, while the surgeon took only half an hour to perform an operation that saved your life. If the amount of labor used determines value, then the chair is worth more than yourlife. Obvious nonsense, of course. Even if you should count in the years of study and practice the surgeon needed to make him capable of performing the operation, how are you going to decide what "an hour of operating" is worth? The carpenter and mason also had to be trained before they could do their work properly, but you don't figure in those years of apprenticeship when you contract for some work with them. Besides, there is also to be considered the particular ability and aptitude that every worker, writer, artist or physician must exercise in his labors. That is a purely individual, personal factor. How are you going to estimate its value?

That is why value cannot be determined. The same thing may be worth a lot to one person while it is worth nothing or very little to another. It may be worth much or little even to the same person, at different times. A diamond, a painting, or a book may be worth a great deal to one man and very little to another. A loaf of bread will be worth a
great deal to you when you are hungry, and much less when you are not. Therefore the real value of a thing cannot be ascertained; it is an unknown quantity

Any opinions?

[Hoipolloi Cassidy]

I'd be interested to hear peoples thoughts on what Alexander Berkman had to say regarding value:
[...]
Any opinions?

Marx never said Capitalism obeyed the laws of abstract logic - we leave that to our friend Rosa; he said it had its own, crazy system which he set out to describe.

[ArrowLance]

I'd be interested to hear peoples thoughts on what Alexander Berkman had to say regarding value:

Political economists generally claim that the value of a commodity is the amount of labor required to produce it, of "socially necessary labor," as Marx says. But evidently it is not a just standard of measurement. Suppose the carpenter worked three hours to make a kitchen chair, while the surgeon took only half an hour to perform an operation that saved your life. If the amount of labor used determines value, then the chair is worth more than yourlife. Obvious nonsense, of course. Even if you should count in the years of study and practice the surgeon needed to make him capable of performing the operation, how are you going to decide what "an hour of operating" is worth? The carpenter and mason also had to be trained before they could do their work properly, but you don't figure in those years of apprenticeship when you contract for some work with them. Besides, there is also to be considered the particular ability and aptitude that every worker, writer, artist or physician must exercise in his labors. That is a purely individual, personal factor. How are you going to estimate its value?

That is why value cannot be determined. The same thing may be worth a lot to one person while it is worth nothing or very little to another. It may be worth much or little even to the same person, at different times. A diamond, a painting, or a book may be worth a great deal to one man and very little to another. A loaf of bread will be worth a
great deal to you when you are hungry, and much less when you are not. Therefore the real value of a thing cannot be ascertained; it is an unknown quantity

Any opinions?

I think the example of the surgeon is obvious nonsense. It isn't to be that the chair is more valuable than the persons life, but it is more valuable than the act of surgery. Unless of course the labour that is in the surgery is conveyed value from the labour it is saving, that is the labour still to be expended by the person being saved. But this isn't necessary. I don't see why it can't be that 3 hours labour is more valuable than an hours in general. There is no point in scaring people about the value of their life as it is completely separate.

Of course price, which is often mistaken for a synonym of value, is a different matter. To think that you would pay more for bread when you are hungry if in an ideal market (one with complete transparency and no secrets) is also absurd. People buy food at normal prices and then eat it later, the same value is there regardless of your hunger. Value is not something that can be changed simply by a persons thoughts.

[KC]

We have seen how the changing relation of supply and demand causes now a rise, now a fall of prices; now high, now low prices. If the price of a commodity rises considerably owing to a failing supply or a disproportionately growing demand, then the price of some other commodity must have fallen in proportion; for of course the price of a commodity only expresses in money the proportion in which other commodities will be given in exchange for it. If, for example, the price of a yard of silk rises from two to three shillings, the price of silver has fallen in relation to the silk, and in the same way the prices of all other commodities whose prices have remained stationary have fallen in relation to the price of silk. A large quantity of them must be given in exchange in order to obtain the same amount of silk. Now, what will be the consequence of a rise in the price of a particular commodity? A mass of capital will be thrown into the prosperous branch of industry, and this immigration of capital into the provinces of the favored industry will continue until it yields no more than the customary profits, or, rather until the price of its products, owning to overproduction, sinks below the cost of production.

Conversely: if the price of a commodity falls below its cost of production, then capital will be withdrawn from the production of this commodity. Except in the case of a branch of industry which has become obsolete and is therefore doomed to disappear, the production of such a commodity (that is, its supply), will, owning to this flight of capital, continue to decrease until it corresponds to the demand, and the price of the commodity rises again to the level of its cost of production; or, rather, until the supply has fallen below the demand and its price has risen above its cost of production, for the current price of a commodity is always either above or below its cost of production.

We see how capital continually emigrates out of the province of one industry and immigrates into that of another. The high price produces an excessive immigration, and the low price an excessive emigration.

We could show, from another point of view, how not only the supply, but also the demand, is determined by the cost of production. But this would lead us too far away from our subject.

We have just seen how the fluctuation of supply and demand always bring the price of a commodity back to its cost of production. The actual price of a commodity, indeed, stands always above or below the cost of production; but the rise and fall reciprocally balance each other, so that, within a certain period of time, if the ebbs and flows of the industry are reckoned up together, the commodities will be exchanged for one another in accordance with their cost of production. Their price is thus determined by their cost of production.
Wage Labour & Capital

[Kotze]

To answer how the picture of supply and demand is different from production-side explanations, answer first: What is demand? Demand is the willingness and ability to buy specific quantities of specific stuff for specific prices.

Demand is not the same as an item's utility for the buyer. Demand is different from that since people have very different amounts of "votes" when they go shopping, but that's not the only difference. If people had very similar income levels, that wouldn't necessarily make a gallon of water more expensive than a gallon of some liquid that is not essential for being alive. When people buy stuff, they have expectations how low they can go from experience with buying similar stuff. Companies that are in the red for a long time cease to exist. So the willingness to pay is influenced by production cost, and for somebody who understands that and who believes that this influence is strong, saying price is set by supply and demand is not much different from saying price is basically set by production cost. How little demand has to do with an item's utility for the buyer is shown by the price of water relative to knickknack.

How could items' prices have much to do with their utility for the buyers? In a society with a very even distribution of purchase power, there could be some good examples for prices reflecting that utility with stuff of the type where the available amount cannot be influenced much by humans. But even all these qualifications aren't enough to guarantee that, what about buying something durable with an intent of selling, that is, speculation? That could be curbed by setting ownership fees that are not fixed by what the purchase price was aeons ago, but regularly adjusted and going up and down with demand going up and down.

Another way the price of stuff has something to do with utility is that working can be considered a disutility. Again this influence of utility on prices is something that can have a stronger effect in a more egalitarian society. In the current hierarchical world, shitty pay and shitty working conditions often go hand in hand. Either way, this channel for utility influencing prices doesn't help painting demand as something quite removed from the conditions of production.

One more thing about shopping budget as votes: To clarify, it doesn't directly follow from people having different budgets to buy stuff that demand is different from utility. An assumption I made, one with the real world to back it up, was that people can't rely on having choice between working long and short hours and under more or less arduous conditions with corresponding pay. In a world where there is not only full employment, but where people usually have that kind of choice and plan their lifes with that choice in mind, and that's what I expect of socialism, one can make a utilitarian argument for such income differences. "Stuff to buy" in such a society can be alternatively defined in a way that everybody has the same very high income (aside from exceptions for kids, old age, illness and disability) and long working hours and quite demanding work, and better working conditions and shorter hours are part of the stuff you buy. In that picture of socialism the way people make decisions how long to work is less removed from the neoclassical picture than what you have in this uncertain world.

TL;DR: The common picture of a demand curve that is independent from conditions of production is wrong, and the relative prices of different things usually have little to do with the utility they give to their buyers. The weight of utility in influencing prices will increase under socialism.

[RNL]

I'd be interested to hear peoples thoughts on what Alexander Berkman had to say regarding value:

Political economists generally claim that the value of a commodity is the amount of labor required to produce it, of "socially necessary labor," as Marx says. But evidently it is not a just standard of measurement. Suppose the carpenter worked three hours to make a kitchen chair, while the surgeon took only half an hour to perform an operation that saved your life. If the amount of labor used determines value, then the chair is worth more than yourlife. Obvious nonsense, of course. Even if you should count in the years of study and practice the surgeon needed to make him capable of performing the operation, how are you going to decide what "an hour of operating" is worth? The carpenter and mason also had to be trained before they could do their work properly, but you don't figure in those years of apprenticeship when you contract for some work with them. Besides, there is also to be considered the particular ability and aptitude that every worker, writer, artist or physician must exercise in his labors. That is a purely individual, personal factor. How are you going to estimate its value?

That is why value cannot be determined. The same thing may be worth a lot to one person while it is worth nothing or very little to another. It may be worth much or little even to the same person, at different times. A diamond, a painting, or a book may be worth a great deal to one man and very little to another. A loaf of bread will be worth a
great deal to you when you are hungry, and much less when you are not. Therefore the real value of a thing cannot be ascertained; it is an unknown quantity

Any opinions?
1) Marx's theory is a theory of commodity production. A surgery is not a commodity, it has no value.

2) A commodity's value is equivalent to the quantity of (abstract) labour-time socially necessary to produce it under given conditions of production. The exact quantity of (concrete) labour-time that went into a specific chair, shirt, toothbrush, etc, is irrelevant when it comes time to exchange it on the market.

[Sir Comradical]

Value is what lies beneath price. Value is the amount of socially necessary time embodied in a commodity. Prices aren't completely arbitrary, they tend to coalesce around certain norms. A car will always be more expensive than a toothbrush, a mobile phone more expensive than a pencil. Why? Because what lies beneath price is an amount of socially necessary labour time.

[ZeroNowhere]

Berkman seems to be misinterpreting the theory of value as a normative theory, which serves as a useful tip-off that he doesn't know what he's talking about. It's especially egregious in this case due to his indignant moralizing about the 'value of life'.

When it comes to price and value, price can differ from value in the same way that a straight stick can appear bent in water. On the one hand, appearance can diverge from essence (and when taken as such it is merely a semblance, and appears as the negation of essence), but on the other hand it is ultimately because of the essence that the appearance can so differ (a straight stick appears a certain way in water because it's a straight stick). Marx is quite clear that price-value divergence is inherent to value as such, precisely because it is through private labour that both supply and demand are expressed. One's supply is one's demand, and likewise the demand for one's own commodity is expressed in the supply of those of others (the unity of supply and demand is not absolute, however, given the separation of purchase and sale, and finally capital, where the end of production appears as capital itself.)

These (ie. supply and demand here) become commensurable in terms of labour, but only because labour features as abstract labour (because one could labour in different industries and obtain the same use-values), and this is what makes the distribution of social labour possible. If supply and demand are not expressed in terms of labour, there is no question of commensurability, but here if the same amount of labour would fetch different prices upon different commodities, the commensurability of these forms of labour in terms of use-values would mean that labour would tend towards that where demand was higher relative to supply. This is altered somewhat when capital, rather than use-values as such, becomes the aim of production, but nonetheless remains the basis of further movements. Of course, if there's no question of commensurability, and supply and demand are qualitatively different in principle, then we don't have exchange as such, in which the person not only gives up a product, but also retains it.

However, abstract labour is in itself nothing, and to become something must become a particular, concrete use-value and hence take on being for itself; in other words, the price-form becomes internal to the production process itself. Of course, this price is not quite equal to the price actually obtained in exchange (to which corresponds the distinction between money as measure of value and as standard of price), and this is because of the distinction between individual supply and social demand, hence ultimately individual and society, which is in fact inherent to value's existence.