LTV and theory of value in general

[Lowtech]

Hello everyone,

I am quite curious about your opinions on the theory of value. My own research has lead me to cost of production theory of value and I strongly assert that assets do not produce value.

I find that this notion of subjective value is a wasteful privileged of those not predisposed to using value to survive (capitalists), rather than an actual economic function.

We all seem to have varying expectations, however one expectation is universal to all humans, the expectation that the economy as an infrastructure provide for the needs of all citizens. Be it roads, jobs, transportation, shelter, healthcare, education, etc.

The economy is expected to function as a mechanical process that inputs raw resources, be it natural resources, human labor and outputs materials and items necessary for human life and culture.

Notions of subjective value thus runs counter to the reality of the economy as an infrastructure. One could define subjective value systems as total disregard for the logistical necessity of resources propagated within an economic structure.

No where in nature are there a species of creature that can treat resources subjectively. In nature, animals eat what their body needs or they die, they live where their body can survive the elements, or they die. Animals do what is necessary to acquire what they need to survive. Only a small group of humans (the rich) appear to escape this fact of nature, through purely sociological fabrication they "own" an "asset" and treat value with complete disregard to it's logistical necessity, produce no value, and still survive, and survive lavishly at that.

[Tim Cornelis]

I fear you are misinterpreting the subjective theory of value.

[Comrade #138672]

I am not sure whether I understand what you are getting at.

I agree with you that the subjective theory of value is subjective, when it should be obvious that objective forces shape the economy.

I also agree with you that assets do not produce value, although they do contain value, but this is merely the product of labor of the workers.

I think that only a few people here would disagree with those two things. Am I missing something here?

[Queen Mab]

The funny thing is that so far as I understand it, Marx had his own subjective theory of value: use value. He just didn't think it was how the capitalist economy organised itself.

[RedMaterialist]

Hello everyone,

I am quite curious about your opinions on the theory of value. My own research has lead me to cost of production theory of value and I strongly assert that assets do not produce value.

I would say there is one asset or commodity which does produce value: labor, and the capitalists own it while it is working. They paid for it, therefore, under the laws of capitalism, they own its product, which I mention later.

It seems to me that the bourgeois economists have been denying the LTV for the past 200 yrs because of its obvious implication that wealth is produced by the worker and not the capitalist. You never hear the neo-classicals talk about the LTV of Adam Smith or David Ricardo, although it is mostly with them that it is first mentioned. Smith and Ricardo never questioned that labor produced value, they assumed that capital had a kind of natural right to the product of that labor, just as the landowner had a natural right to the production of the farm laborer.

So, if value is not objectively created in the process of production then where does value come from? For the bourgeoisie the answer is simple: value is created when he/she exchanges the product for money. Thus, the act of sale is the source of wealth. But the problem then is that the capitalist sells millions of commodities to millions of customers. The only possible explanation the bourgeois economist can come up with is that value is subjectively determined by each individual consumer's relative demand for the utility of the commodity. Thus, the utility theory of value. If one day a customer will pay $20K for a new car, then that is the value of the car. But if the next day another customer is willing only to pay $10K for the same car, then the value of the car magically changes to $10K. It's as though modern astronomers still believed that the planets "wandered" around the sky, controlled by an invisible hand. Another problem for the capitalist is that he is not only a seller, he is also a consumer and has to buy raw materials, machines, etc. from other capitalists. Does he really believe that he can pay for these resources based on his subjective valuation of them?

Recently, the utility theory seems to be undergoing a transformation into the "opportunity cost" theory. Value is treated as a "cost," which it is, the cost of labor which is not paid by the capitalist. But the economist says that this cost is not a real cost, not an "accounting" cost but rather an economic cost or category. The subjective utility theory of value has become an imaginary opportunity-cost theory of value. [/QUOTE]


I find that this notion of subjective value is a wasteful privileged of those not predisposed to using value to survive (capitalists), rather than an actual economic function.

Commodities still have both an exchange value and a use-value. The use-value is the utility that the commodity has for an individual consumer. A diamond may have a different utility for one person, while a sandwich may have a different utility for another. The utility value, however, does not determine the exchange-value, or the price of the commodity. Only the necessary labor used to produce the diamond or sandwich determines its value or price. I think Marx said in the first Chapter of Capital that an object must be useful before it can become a commodity and then the necessary labor time used to produce the commodity determines its value, exchange-value which is expressed in its price.


We all seem to have varying expectations, however one expectation is universal to all humans, the expectation that the economy as an infrastructure provide for the needs of all citizens. Be it roads, jobs, transportation, shelter, healthcare, education, etc.

The economy is expected function like mechanical process that inputs raw resources, be it natural resources, human labor and outputs materials and items necessary for human life and culture.

Notions of subjective value thus runs counter to the reality of the economy as an infrastructure. One could define subjective value systems as total disregard for the logistical necessity of resources propagated within an economic structure.

Treating value subjectively is then an irrational privilege of those not predisposed to using value to survive (the rich). This privilege is not natural. No where in nature are there a species of creature that can treat resources subjectively. In nature, animals eat what their body needs or they die, they live where their body can survive the elements, or they die. Animals do what is necessary to acquire what they need to survive. Only a small group of humans (the rich) appear to escape this fact of nature, through purely sociological fabrication they "own" an "asset" and treat value with complete disregard to it's logistical necessity, produce no value, and still survive, and survive lavishly at that.

I think what you may be doing here is using a moral argument against capitalism which Marx and Engels both rejected doing. Marx showed, I believe, that the capitalist does own the assets produced by the worker, because the capitalist owns the means of production. In the same way, a peasant owns what he produces because he owns the land, the animals, the plows, etc. that he uses to produce the assets. The slave owner owned what the slaves produced because the slaves were the property of the slave owner.

The same theory of ownership was transferred to capitalist production: the capitalist owns the factory, the machines, the raw materials, the money-capital used to produce the "assets," therefore he owns the assets. That the capitalist and his family survive lavishly has nothing to do with the economic laws of capitalism. Which is why Marx emphasized that there must be a revolutionary destruction of capitalism and a change in ownership of the means of production to the working class and society. You can't shame Ben Bernanke or the Koch Bros into giving up anything.

Whether this can be done peacefully or by force is still in question, in my opinion. I don't mean to ramble, but I personally believe the Labor Theory of Value is crucial to an understanding of capitalism and socialism. If more workers could be exposed to the LTV they would immediately see how the whole system works. I once worked for a giant corporation and, periodically, they would give us a report on our wages, productivity, etc. This report, incredibly, had an entry for productivity per hour, along with a lot of other stuff in small print. It would show that an employee making $10 per hour was producing $20 per hour. I am absolutely certain that management never for a second realized that they were spelling out in plain English the labor theory of value. Unfortunately, neither do the employees. I am sure other companies do the same. I really needed that job.

[RedMaterialist]

I am not sure whether I understand what you are getting at.

I agree with you that the subjective theory of value is subjective, when it should be obvious that objective forces shape the economy.

I also agree with you that assets do not produce value, although they do contain value, but this is merely the product of labor of the workers.

I think that only a few people here would disagree with those two things. Am I missing something here?

I would add that the utility or use-value of a commodity could be partly subjective, partly objective. It is an object which satisfies a subjective human need.

"A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference." Capital, second paragraph.

And since it is these subjective values which the system produces, in such massive quantities, then these subjective values must partly "shape" the economy. In fact, under communism, production will only be for use-value.

Also, there is one asset or commodity which does produce or create value: labor.

[Lowtech]

I fear you are misinterpreting the subjective theory of value.

How so? I am inheriently leftist but realitivly new to economic thought, so if I have it wrong would you let me pick your brain as to how?


I am not sure whether I understand what you are getting at.

I agree with you that the subjective theory of value is subjective, when it should be obvious that objective forces shape the economy.

I also agree with you that assets do not produce value, although they do contain value, but this is merely the product of labor of the workers.

I think that only a few people here would disagree with those two things. Am I missing something here?

I suppose the point I'm trying to make is how people perceive value in a market environment (subjectivity) is not equivalent to how an economy utilizes resources as an infrastructure, and this presents a problem as we all depend on the economy to meet our needs. Just as a bridge must be built based on objectively meeting it's intended purpose, otherwise if we were all allowed to influence it's design arbitrarily based on preference alone, it would be horribly inadequate, if it held itself up at all.


I would add that the utility or use-value of a commodity could be partly subjective, partly objective. It is an object which satisfies a subjective human need.

Preferences may be subjective; what people need however is not subjective and can be measured and follow uniform patterns, be it amounts of water, food, land, materials etc. So, my question is, why do we allow preferences, a sociological property of human individuals, to arbitrarily determine how resources are utilized to the detriment of meeting global human need?


"A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference." Capital, second paragraph.

And since it is these subjective values which the system produces, in such massive quantities, then these subjective values must partly "shape" the economy. In fact, under communism, production will only be for use-value.

Also, there is one asset or commodity which does produce or create value: labor.

I'm not sure I understand what you mean by subjective values. If you value chocolate milk over gasoline, it doesn't mean you can then run your car on chocolate milk; essentially why the price of gas doesn't change how far you can travel on a gallon of gas, nor does the market "price" of rice determine how many people could be fed by a trillion tons of rice.

[Lowtech]

I would say there is one asset or commodity which does produce value: labor, and the capitalists own it while it is working. They paid for it, therefore, under the laws of capitalism, they own its product, which I mention later.

I do get what you are saying. Although in the debate of economic systems, are human laws axioms of economics or part of the larger sociological function of a society? Ownership causes much of the problems in our current economics and the sad part is that "ownership" is a sociological concept, if it inhibits the economy's ability to accomplish it's intended purpouse then we can change it, refine it, its not written in stone.


It seems to me that the bourgeois economists have been denying the LTV for the past 200 yrs because of its obvious implication that wealth is produced by the worker and not the capitalist. You never hear the neo-classicals talk about the LTV of Adam Smith or David Ricardo, although it is mostly with them that it is first mentioned. Smith and Ricardo never questioned that labor produced value, they assumed that capital had a kind of natural right to the product of that labor, just as the landowner had a natural right to the production of the farm laborer.

Ah, fascinating. I agree, capitalism "triumphing over" feudalism was really a transfer of power, its still the same basic schema.


So, if value is not objectively created in the process of production then where does value come from? For the bourgeoisie the answer is simple: value is created when he/she exchanges the product for money. Thus, the act of sale is the source of wealth. But the problem then is that the capitalist sells millions of commodities to millions of customers. The only possible explanation the bourgeois economist can come up with is that value is subjectively determined by each individual consumer's relative demand for the utility of the commodity. Thus, the utility theory of value. If one day a customer will pay $20K for a new car, then that is the value of the car. But if the next day another customer is willing only to pay $10K for the same car, then the value of the car magically changes to $10K. It's as though modern astronomers still believed that the planets "wandered" around the sky, controlled by an invisible hand. Another problem for the capitalist is that he is not only a seller, he is also a consumer and has to buy raw materials, machines, etc. from other capitalists. Does he really believe that he can pay for these resources based on his subjective valuation of them?

/nods. What they believe is amusing to say the least.
I think what you may be doing here is using a moral argument against capitalism which Marx and Engels both rejected doing.

/nods. I do come across like a strong moral objection, although I don't mean to, I try to emphasize disproportionate global economics, wish I were creative enough to do that better.

Although, I think the LTV's biggest obstacle is the collective belief that markets are an axiom of economics. Capitalists contend that the LTV doesn't reconcile with supply, demand etc, while those concepts are limited to markets and there's no reason the economy needs markets at all.

[RedMaterialist]

I suppose the point I'm trying to make is how people perceive value in a market environment (subjectivity) is not equivalent to how an economy utilizes resources as an infrastructure, and this presents a problem as we all depend on the economy to meet our needs. Just as a bridge must be built based on objectively meeting it's intended purpose, otherwise if we were all allowed to influence it's design arbitrarily based on preference alone, it would be horribly inadequate, if it held itself up at all.

The bridge has a utility value, people use it to drive over a river, etc. But its exchange-value is a different issue. That value is determined by the socially necessary amount of time needed to build the bridge. However, the exchange-value (ultimately, price) of the bridge is not determined by market competition or the interaction of supply and demand. The price of the bridge is set by a cost-plus contract with the contracting companies, the same system used by defense contractors. The construction companies would think it insane if anyone asked them what their "utility" preference was in the setting of the contract price.


So, my question is, why do we allow preferences, a sociological property of human individuals, to arbitrarily determine how resources are utilized to the detriment of meeting global human need?

I think the answer is that we in fact do not allow human needs or preferences to determine how those resources are utilized. The way we use resources now is by production for profit, which is anarchic, wastes the resources, and destroys the planet. Under socialism the resources would be socially managed.


I'm not sure I understand what you mean by subjective values. If you value chocolate milk over gasoline, it doesn't mean you can then run your car on chocolate milk; essentially why the price of gas doesn't change how far you can travel on a gallon of gas, nor does the market "price" of rice determine how many people could be fed by a trillion tons of rice.

Subjective value is the use-value, or utility, of a commodity. Chocolate milk has a utility value for nutrition, gasoline a utility for power, etc. I agree that the price of gas doesnt change based on how far you can travel on a gallon of gas; but that is because the price is the monetary expression of the exchange value of the gas, and the exchange-value (ultimately price,) is determined by the labor needed to produce the gas. The same goes for the rice. The price is determined by the amount of labor needed to produce the trillion tons. However, under capitalism, the overproduction of this much rice would cause the market for rice to collapse causing a typical capitalist crisis, resulting in starvation.

Most prices today are set not by market competition, but by monopoly control. Walmart decides what prices it will charge to consumers and what prices it will pay to its suppliers; the same for Microsoft, Exxon, etc.

[RedMaterialist]

I do get what you are saying. Although in the debate of economic systems, are human laws axioms of economics or part of the larger sociological function of a society? Ownership causes much of the problems in our current economics ...

Which I think is why Marx advocated for the social ownership of the means of production.

[Lowtech]

The bridge has a utility value, people use it to drive over a river, etc. But its exchange-value is a different issue. That value is determined by the socially necessary amount of time needed to build the bridge. However, the exchange-value (ultimately, price) of the bridge is not determined by market competition or the interaction of supply and demand. The price of the bridge is set by a cost-plus contract with the contracting companies, the same system used by defense contractors. The construction companies would think it insane if anyone asked them what their "utility" preference was in the setting of the contract price.

Right, but I'm using the analogy of the design and construction of a bridge, as a proper use of resources, in the pursuit of meeting an objective purpose (the bridge stands, supports a set amount of weight and lasts a certain number of years), same conceptual properties of a suitable economy.

Similar to the analogy of a combustion engine that objectively uses value, in the form of a fuel to produce locomotion. I believe the economy is supposed to function similarly, as a mechanical process of converting raw resources into materials, food, and items usable by people. In my mind, I do not see how subjective value fits into that at all. Like the amount of water that needs to be moved from one region to another, amounts of food and materials moved etc, would be based on known logistical requirements of sustaining people.

Your preferences would come in at the end user level, you could use basic ingredients to make certain foods, or a 3D printer to make very specific things.

Or perhaps, we could have sophisticated local depots, where you submit an order electronically for specific kinds of things, and they'll be manufactured on demand. So the economy itself as an infrastructure functions objectively while your preferences are still met.

In any case, it appears to me that value is objective, intrinsic and has a natural production cost. By natural I mean the minimum physical effort needed to convert a raw resource into a usable material or item. Perhaps I'm implying that resources have potential to be economic value (intrinsic), realized after we apply physical effort to it, converting it into something we can directly consume or use. This all occurs before value propagates a market environment. Since current production is for profit, not to meet need, value is not introduced into the economy at sufficient supply, based on this, we could define supply and demand to be phenomena of artificial scarcity within market environments.