The problem with price

[gendoikari]

Someone else posted this link. Thought I'd see what you guys had to say about some of my critiques

http://www.youtube.com/watch?v=alqUqdbfxhk

The problem I would like to point out with mises theory is the problem of prices under capitalism. Under capitalism, as with his critique of socialism. the value of an item is subjective. He says that under a planned economy because there is no exchange you can never have a market and therefore will never know the value of an item and if what you have created is less valuable than something else you could have done with those resources. I'll let you go on and finish watching his argument but he makes the case that because of this you will never know what the best use of your resources are because you don't have "markets" to regulate the price system which make it less economical to do things that are redundant. and counters the socialists claims about prices based on labor stating that one hour of working as a coal miner was different from one hour of being a rocket scientist.

In that part he is correct. However, the price system under capitalism does not fair any better. In theory the markets correct for redundant uses, however they do not stop the recirculation of wealth and it's concentration, in fact they accelerate this by the very mechanism of supply and demand. A section of the world that has higher standards or more money will have a higher demand and more importantly ability to pay. So production will switch over to selling to them. However we are also talking about a supply and demand based currency system.

The important thing about that, is that labor is a commodity, and will always be over abundant based solely on the nature of human civilization. So you have to make your labor scarce for it to have a good price. Well there's a problem here. if any sizable proportion of the labor force were to make their labor scarce by say getting an education, it would no longer be scarce and you have the deflated price problem all over again. There are also problems in the leverage the masses have over the owners of the means of production due to the over abundance of their labor however, i won't get into that as it is a tale for a different time.

The sole problem here, lies in the supply/demand relation to the value of currency. as with the Planned economy the "planners" or rather the market, of a capitalist society don't really know the value of their created products either, Mearly what people are willing to pay. The concept is extremely subjective. Basically what people are willing to pay is already an imaginary construct.

All this isn't even taking into account the exploitative mechanism in capitalism which reinforce the inherent flaw of a subjective price system. You don't really ever know if what you did was right, because it's all imaginary. you might get more money if something was scarce but the people there also have to be able to pay, and if they can't pay the price goes down and it's seen as not a good option even though the resources were needed there.

[Vladimir Innit Lenin]

If I understand correctly, Marx was quite explicit (if someone could quote him for me that'd be terrific!) in saying that the labour theory of value did not equalise exchange value (i.e., the price) at simply the labour input. If Marx had suggested that, then Mises' criticism (1 hour of coal mining =/= one hour of rocket science work) would be valid.

What Mises and other market proponents fail to understand are the nuances of the value mechanism. They do not seem to (excuse the awkward pun) value intrinsic value. Rather, they presume the value of a product to be its price, the exchange value.

I've been quite explicit on this in the past, that exchange value is a bit of a deformation of the actual definition of value. It's a pretty awkward phrase because exchange value actually does not necessarily correlate at all to intrinsic value. It is simply the price point at which supply equals demand. The factors that change intrinsic value, and exchange value, do not generally overlap. The former is affected by productive inputs (the sell side), whilst the latter is affected by demand side needs and wants.

As you put it so well, in Capitalism value (the price) is subjective. It is doubtful that intrinsic value can ever be absolutely objective, since in any monetary economy an exchange price will always exist that will be affected by human factors (And in fact, the same is true even in a non-monetary economy; perhaps only 'free access' would allow absolute objectivity of intrinsic value).

So really, we must be explicit that the combination of resource inputs and labour inputs should make up the intrinsic value of a product, with perhaps a small elasticity of exchange price allowed for other factors: scarcity, economic/social usefulness and so on. The problem with people like Mises is that they simply don't understand Marx's economic philosophy and base their criticisms on assumptions about Socialism, often based on the unfortunate former 'real existing Socialisms' of the 20th century.

[gendoikari]

Rather, they presume the value of a product to be its price, the exchange value.

That is a rather a glaring gaping hole in the theory of capitalism.

The problem with any of the proposed systems of value is that they are all subjective even one based on labor is inherently subjective if you try and use a baseline career. what we need is a system of currency exchange based solely in science.

[ÑóẊîöʼn]

I'm of the opinion that energy cost, not price, should form the basis of a rational and egalitarian economy. Price systems result in absurdities, while energy accounting (http://www.technocracy.ca/tiki-index.php?page=EA) would be based on measureable factors and as a result economic development would be intimately intertwined with actual material development.

[gendoikari]

I'm of the opinion that energy cost, not price, should form the basis of a rational and egalitarian economy. Price systems result in absurdities, while energy accounting (http://www.technocracy.ca/tiki-index.php?page=EA) would be based on measureable factors and as a result economic development would be intimately intertwined with actual material development.

Problem is there, how do you account for intellectual labor. Engineers, scientists, mathematicians. Or even more so mixed professions like electrical engineer.

[ÑóẊîöʼn]

Problem is there, how do you account for intellectual labor. Engineers, scientists, mathematicians. Or even more so mixed professions like electrical engineer.

A certain minimum of nutritional energy is needed to perform work, even intellectual work - try solving complex mathematical problems while tired and hungry.

Intellectual labour also demands a certain work environment, and the energy cost of providing that can be accounted for.

[Rafiq]

I was going to post something similar to what Noxion suggested, but I think he put it better in words. Is it really that hard to determine if something is more valuable than the other? Why can't things be based on pure usefulness?

And I would be happy to know how markets give us the true value of something, and if it is more valuable than the latter.

[gendoikari]

I was going to post something similar to what Noxion suggested, but I think he put it better in words. Is it really that hard to determine if something is more valuable than the other? Why can't things be based on pure usefulness?

And I would be happy to know how markets give us the true value of something, and if it is more valuable than the latter.

there in lies the problem the issue of subjectivity.

[Rafiq]

I'm sorry, I'm not so good with economics, and I don't understand what you mean there.

Also, have you read Paul Cockshotts criticism of Mises?

[KC]

Problem is there, how do you account for intellectual labor. Engineers, scientists, mathematicians. Or even more so mixed professions like electrical engineer.Value is an essential category. Price is the form of expression of value in the real world. So I'm not sure what you're arguing against.

[Vladimir Innit Lenin]

I was going to post something similar to what Noxion suggested, but I think he put it better in words. Is it really that hard to determine if something is more valuable than the other? Why can't things be based on pure usefulness?


1. There are an in-ordinate amount of goods.
2. Who would decide how useful it would be?

Indeed, having a good decided 100% upon its usefulness is a quasi-market solution. The Demand curve is decided upon by a great many micro-decisions based on utility (usefulness). The problem is that individuals cannot always act rationally on behalf of the entire economy, because they:

a) don't always have accurate information (i.e. whether there is a substitution good that provides better value), and
b) they make decisions that are rational for them or their micro-economy (their household), but don't make sense for the entire economy.

Like I said in my previous post, and as Gendoikari said, we need a scientific model to find value, based on the Labour Theory of Value. It would have to be majority based on productive inputs - natural resources (including their scarcity), labour and capital inputs (obviously capital inputs figure would have to be divided up for the entire workforce as we're not working for profit here, i.e. finding the variable capital input per unit) - and minority based on other factors, perhaps usefulness, energy and environmental cost.

Whoever comes up with such a model may literally herald the revolution. I don't think it can be done - accurately - for all goods. But then i'm a pretty 3rd rate Economist.:)

[ÑóẊîöʼn]

1. There are an in-ordinate amount of goods.

Yes, but the demand for them is not indordinate.


2. Who would decide how useful it would be?

In an energy accounting scheme, participants dictate usefulness via their consumption patterns. Further, since energy accounting aims for stability and a reduction in energy cost of production, as opposed to growth and profit, demand will be easier to predict.


Indeed, having a good decided 100% upon its usefulness is a quasi-market solution. The Demand curve is decided upon by a great many micro-decisions based on utility (usefulness). The problem is that individuals cannot always act rationally on behalf of the entire economy, because they:

a) don't always have accurate information (i.e. whether there is a substitution good that provides better value), and

In an economy without money and its attendant problems, what would be preventing people and institutions from acquiring and disseminating accurate information?

Markets fail as distribution systems because of profit considerations; if a company were to make high-quality, durable, low-cost products in large amounts, they would be put out of business in short order by their more savvy profit-oriented competitors, who have likely already cornered the market, making it even harder for our hypothetical "production-oriented" company to get off the ground. Such a company would also be likely seen as a huge threat, and subject to every legal attack in the profiteers' arsenal as well as any illegal ones they think they can get away with.

Another consideration is that under the current capitalist price system, people are constantly bombarded from all sides by what is effectively propaganda: advertisements. Although there are rules against outright lying, the incentive to do so is still there and even advertisements that do not lie will use every rhetorical trick and ploy they can in order to manipulate customers into buying brand X instead of brand Y, even if there is no real difference between them.

Post-capitalist socioeconomic organisations would not be subject to such conditions.


b) they make decisions that are rational for them or their micro-economy (their household), but don't make sense for the entire economy.

I suspect that the vast majority of examples would have their roots in the capitalist price system, or price systems in general. In an energy-accounting scheme, there is a direct incentive to reduce energy costs and improve efficiency, as doing so means a bigger share of society's output and less work for everyone.


Like I said in my previous post, and as Gendoikari said, we need a scientific model to find value, based on the Labour Theory of Value. It would have to be majority based on productive inputs - natural resources (including their scarcity), labour and capital inputs (obviously capital inputs figure would have to be divided up for the entire workforce as we're not working for profit here, i.e. finding the variable capital input per unit) - and minority based on other factors, perhaps usefulness, energy and environmental cost.

I think the LTV is a damning criticism of capitalism, but I'm skeptical as to its relevance to non-monetary economies.

[Kiev Communard]

According to Das Kapital, the price is a monetary manifestation of socially necessary labor time that is needed for the production of the good, not the concrete labor of specific individuals. In fact, Marx specifically notes that under capitalism the concrete types of labor necessary for producing one or another product are irrelevant from the point of view of socially necessary labor time calculation. Therefore the Misesian crude criticism of Marx's theory of value is completely off the mark, as Mises assumes that Marx believed that individual labor converts itself into value, while in fact this assumption is directly rejected in Das Kapital.

[gendoikari]

I think the LTV is a damning criticism of capitalism, but I'm skeptical as to its relevance to non-monetary economies.

well once we reach the non monetary economy, all the small menial labor jobs will be done by robots anyway. Unless you mean monetary as in LVT v Supply and demand style currency.

Now we do get back to the trench digger/cashier/Rocket scientist debate when talking about lVT when it concerns labor wages. Inherently when talking solely about calories burned you get percieved inequality in the job strata. off the top of my head there are three ways to look at this, all with their problems.

1. Take simply the number of hours worked- In theory this sounds nice, however The trench digger will feel he's being underpaid when he sees the cashier making the same amount. as will the rocket scientist.

2. Take total calories burned- Same situation with the trench digger only making a slight bit more than the cashier

3. Take total calories burned subtracting off baseline- Now we have a situation where the cashier and the rocket scientist are very lowly paid, probably not even enough to eat off of, and the trench worker being a rich ass mother in comparison.

Basically the problem comes down to how do you account for mental labor when it requires next to no energy. So the LVT has in itself some flaws that need correcting.

However, the most damning problem with the LVT is that when we work together, what we make and accomplish is greater than the sum of our labors.

Essentially we would have to have a LVT in valuation of resources or products, this is of no problem, it is in the wages that we would have to have some other form of valuation. but if everything being sold has less "value" than the wages being paid that presents a problem. Mind you this is not the same problem as under capitalism. Under capitalism you'd simply go out of business, but under a planned economy we would have to print more money for the laborers to claim their pay. Leading to either inflation or again, hoarding and you would again get situations where the wealthy have more power and control.

So what would have to be done is for each commune, we use a LVT for valuation of the goods and services, and then divvy up the grand total of the commerce to each individual in a fair way. Finding a scientific method for that however, is a bit of a hard problem. And the problem of printing extra currency might not even be solvable due to the "sum of all labors" factor.

[Rafiq]

Sorry but isn't this kind of Utopian talk?

The main point we should be trying to make is that many things are possible and we are sure the masses will rationalize an efficients system.

[gendoikari]

Sorry but isn't this kind of Utopian talk?

The main point we should be trying to make is that many things are possible and we are sure the masses will rationalize an efficients system.

well the original point was to point out the big flaw in miseian theory and capitalism itself.

[malcom]

counters the socialists claims about prices based on labor stating that one hour of working as a coal miner was different from one hour of being a rocket scientist.

The point that mises is making is that you cannot make economic calculations without market prices.

If you read the whole "socialist calculation debate", that claim was debunked by economists, Lange in particular. Since all production comes from labor, the cost of anything is the amount of labor time it takes to produce.

When you price everything in labor time, you can make more rational calculations than capitalists can.

The fact that a socialist system treats an hour of a coal miner the same as an hour of a rocket scientist is completely irrelevant because there is NO OBJECTIVE distinction that can be made between one or the other.

How does treating them the same impact your ability to manage an economy? It doesn't.

If there is a need for coal miners or rocket scientists, those people will find jobs. And if people have an interest in doing those jobs, there will be people to fill them.

However, if consumers demand products that require coal miners and there is a shortage in coal miners, you can increase the pay of coal miners to attract people into that field.

These are entirely rational decisions that socialist managers can make that enable you to efficiently produce the things that consumers demand WITHOUT the need for capitalism.

[Vladimir Innit Lenin]

Yes, but the demand for them is not indordinate.



In an energy accounting scheme, participants dictate usefulness via their consumption patterns. Further, since energy accounting aims for stability and a reduction in energy cost of production, as opposed to growth and profit, demand will be easier to predict.



In an economy without money and its attendant problems, what would be preventing people and institutions from acquiring and disseminating accurate information?

Markets fail as distribution systems because of profit considerations; if a company were to make high-quality, durable, low-cost products in large amounts, they would be put out of business in short order by their more savvy profit-oriented competitors, who have likely already cornered the market, making it even harder for our hypothetical "production-oriented" company to get off the ground. Such a company would also be likely seen as a huge threat, and subject to every legal attack in the profiteers' arsenal as well as any illegal ones they think they can get away with.

Another consideration is that under the current capitalist price system, people are constantly bombarded from all sides by what is effectively propaganda: advertisements. Although there are rules against outright lying, the incentive to do so is still there and even advertisements that do not lie will use every rhetorical trick and ploy they can in order to manipulate customers into buying brand X instead of brand Y, even if there is no real difference between them.

Post-capitalist socioeconomic organisations would not be subject to such conditions.



I suspect that the vast majority of examples would have their roots in the capitalist price system, or price systems in general. In an energy-accounting scheme, there is a direct incentive to reduce energy costs and improve efficiency, as doing so means a bigger share of society's output and less work for everyone.



I think the LTV is a damning criticism of capitalism, but I'm skeptical as to its relevance to non-monetary economies.

1. That the demand is not in-ordinate is irrelevant. My point was that there exists an in-ordinate number of goods, and each one will have its own distinct demand curve, dependent upon various factors. Sometimes, as you say, energy cost will be significant variable (if we think of utilities such as gas, electricity, water etc.), but at other times to rely on energy cost would be to ignore other more important variables.

2. Even in a post-monetary economy, people will still have the problem that unless there is a central state to make production decisions for them (to the extent that, as in 20th Century 'Socialist' states, people couldn't demand consumer goods because they knew that they weren't being produced anyway), there will be a wealth of goods - luxury and normal, good and bad, premium and substitute - to choose from, and people will simply not have the ability to make a rational choice on behalf of society. On behalf of their own micro-economy, sure, but not on behalf of society, that is the key. In other words, 'consumers' on the demand side should not be seen as a coherent mass but as millions of micro-economies in themselves, often not able to morph into one economic interest, even though they may be as such.

3. I agree with your two paragraphs about why markets fail and about advertising. However, with advertising in particular, it only goes to re-enforce the irrationality of consumers and the individualisation of consumerism.

4. I disagree that non-energy value systems must have their root in price. Price, or exchange value, has its roots in following the supply/demand equilibrium. What we need, is to make the s/d equilibrium irrelevant by pegging exchange value (price) at the intrinsic value of the product. Like I said, a formula for this might be written into post-Capitalist law and might include a number of factors, according to the LTV, but might also find space for ideas such as yours with energy. I simply don't believe that energy can be the main consideration in a discussion about value, though it doubtless has its place.

[gendoikari]

I don't know under true communism after the robotization of the workforce we will have consumer goods. TV's, video games those things will continue on. What I highly disagree with is this notion of premium and luxury goods. When we are producing a higher rate due to robotization than we can possible consume, what's the point of a luxury good when we could just make them all to that quality. Sure there will be multiple options available just for variety sake, but for instance the difference between toyota and acura.... they'd all be acuras.

[Vladimir Innit Lenin]

Because scarcity will still exist.

So you'll still have low-carat and high-carat gold rings, diamond rings etc.

In hotter places you will probably still have more demand for high-carb, long-life foods such as rice and pasta, whereas the European diet will probably still be more rooted in meat that won't go off in our climate.

There are many examples and reasons as to why 'luxuries' and 'premium' goods might still exist. The only difference will be that they will exist for veritable reasons, not just because some people can afford them and others can't.

[malcom]

I don't know under true communism after the robotization of the workforce we will have consumer goods. Sure there will be multiple options available just for variety sake, but for instance the difference between toyota and acura.... they'd all be acuras.

It takes more resources to make an expensive acura than a cheap toyota. People who like cars will want to spend a greater proportion of their budget on a car. People who don't care about car luxury and amenities will think it is a waste and will prefer cheaper cars so they can spend the savings on other things they want to buy.

So in order to fully meet consumer demand, you need to give them a choice in price.

The same goes for tvs, computers, clothes, houses, furniture, appliances, etc.

[gendoikari]

So in order to fully meet consumer demand, you need to give them a choice in price.

what price we're talking after the robotization of the work force.

[malcom]

what price we're talking after the robotization of the work force.

If everything was fully automated (which if possible is way beyond anything we are capable of doing any time soon), then everything would just be priced in time: the time to mine the raw material, turn it into tools and machines and assemble it into finished goods or perform services.

Consumers wouldn't be able to demand more in a year than what the economy can produce in a year.

[k101]

Could you post a link to the Cockshott piece you mentioned?

[Paul Cockshott]

Could you post a link to the Cockshott piece you mentioned?
Could be
http://ideas.repec.org/p/wop/pokear/_014.html

or

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.25.2938&rep=rep1&type=pdf

or

http://mpra.ub.uni-muenchen.de/6063/1/standalonearticle.pdf

[RHIZOMES]

Also Mises, like many free marketeers, seems to think markets can single-handedly overcome the subject-object problem inherent in prices. The problem with this utopic line of thinking is that it doesn't account for how much of price-making is simply capitalists guessing how much other capitalists think a product is worth. This has been especially problematic with the increasing financialisation of capital re: rampant speculation.

In practice (rather than theory, chortle chortle) the market is extremely irrational and driven by herd mentality.

Conclusion: anyone who claims they have an 'objective' answer to explaining 100% the subjective nature of prices, from Miseans to misguided Marxists, is an intellectual charlatan.

[ÑóẊîöʼn]

It takes more resources to make an expensive acura than a cheap toyota.

In a wider context this isn't actually true. Sure, building a quality (that is, well made with good materials, rather than bearing a high price tag) car will almost certainly incur a greater initial material cost than a crappy car (assuming a comparable manufacturing process for each), but which lasts longer? Which one doesn't need to have its shoddily-made components replaced more often?


People who like cars will want to spend a greater proportion of their budget on a car. People who don't care about car luxury and amenities will think it is a waste and will prefer cheaper cars so they can spend the savings on other things they want to buy.

If price systems and markets were a non-issue, then components and product ranges could be universally standardised, which would obviate the energy costs associated with having a multitude of seperate entities (companies) producing a profusion of different goods, with different technical standards for each.

Universal component interoperability would aid mass production but would also greatly ease customisation for specialist needs.


So in order to fully meet consumer demand, you need to give them a choice in price.

The same goes for tvs, computers, clothes, houses, furniture, appliances, etc.

No, you have to give them a choice. The relation between the demand for a good and it's price is rarely a true reflection of its actual availability.

[RED DAVE]

I'm of the opinion that energy cost, not price, should form the basis of a rational and egalitarian economy. Price systems result in absurdities, while energy accounting (http://www.technocracy.ca/tiki-index.php?page=EA) would be based on measureable factors and as a result economic development would be intimately intertwined with actual material development.Oh lord love a duck, we're headed back towards that Technocracy bullshit.

RED DAVE