Question on the Law of Value

[Jacob Cliff]

Prices are something that perplexes me – if the value of a commodity is determined by its socially necessary labor time, are prices derived from this too?

If not, then What even is value and how do we prove it exists?

If it is, then what's the difference?
I was at a tree farm to find an X-mas tree to cut down, and obviously different ones were of different prices. Clearly, this is from the seller's opinion as to what is deserving of a higher price and what isn't – it is based on quality having nothing to do with the amount of labor crystallized in the production of the tree (planting, transporting; whatever).

Does this kind of commodity differ from others in pricing? Or am I missing something?

[Anglo-Saxon Philistine]

Prices represent fluctuations around (the money-equivalent of) the value of a given commodity. We know value exists because, contrary to what one would expect if prices depended on the psychological preferences of the buyer and seller, they don't fluctuate wildly. A Christmas tree in Croatia is on average, ah, 200 kn I think? It's been years. Now we can assume the money-equivalent of the value of Christmas trees is around 200 kn. So you may see trees go for 210 kn or 180 kn, but you won't see them being sold for 5 kn or 1000 kn.

[RedMaterialist]

Prices are something that perplexes me – if the value of a commodity is determined by its socially necessary labor time, are prices derived from this too?

If not, then What even is value and how do we prove it exists?

If it is, then what's the difference?
I was at a tree farm to find an X-mas tree to cut down, and obviously different ones were of different prices. Clearly, this is from the seller's opinion as to what is deserving of a higher price and what isn't – it is based on quality having nothing to do with the amount of labor crystallized in the production of the tree (planting, transporting; whatever).

Does this kind of commodity differ from others in pricing? Or am I missing something?

Price is the monetary expression of value, but not necessarily the exact expression. It is supply and demand which determine the day to day prices of xmas trees, but over time the average price is the "natural" price (or value), as Adam Smith said, of the commodity.

The xmas tree price is based on the seller's estimate of what they can charge, the buyer's estimate of what they are willing to pay; also, there is the competition between sellers and buyers.

The value is determined by the cost of production. The tree farm corporation adds up the amortization of the land, materials, seed, fertilizer, rent, machinery, labor-power, etc. These costs are what the corporation has paid, they are not the total costs of production. What the corp has not paid out is the value added by the worker, the corp keeps that value without having paid for it. The owner has only paid for the labor-power in wages, it has not paid for the value created by the labor-power, which are two entirely different amounts.

If the paid costs of the tree are $100, the value of the tree will be, say, $125, the extra being the value added by the workers.

The height of the tree, shape, species of the tree, etc. are usually controlled very carefully, especially on a giant tree farm. Better parts of the farm will produce better trees; some parts will require more or less labor, etc. Different consumers will pay different amounts for different trees, but only if the seller agrees. This competitive anarchy in the distribution of the production process is what causes capitalist crises, which is why gigantic monopoly xmas tree farms develop. They want to control not only production costs but also closely regulate prices.

Value is socially necessary labor contained in the total amount of commodities produced by a society, I think. So, how can it be proven to exist? My opinion is that you have to look at it from a socially quantitative point of view. You look at the value of all commodities produced in a society, subtract from that all costs paid for the production (wages, non-labor, etc.) The difference is surplus value, value-added, profit.

How to measure the value of all goods and services produced during the year in the US? Just look at the GDP figures. Right now it's about 10 trillion dollars a year excluding government expenditures. Wages and non-labor costs are about 90% of that. The price of all this stuff (including xmas trees) is $10T, the costs paid are $9T. At this level of abstraction, the price is equal to the value. But at the individual commodity level the price and value will always diverge.

This is why Marx said that commodities, on average, always sell for their actual value. The capitalist hasn't paid for their actual value, but they sell the commodities for their actual value.

If you went to a small family owned tree farm then the family (the workers) own all of their means of production: land, machinery, tools, etc. Therefore they keep the surplus value they created.

[Anglo-Saxon Philistine]

Price is the monetary expression of value, but not necessarily the exact expression. It is supply and demand which determine the day to day prices of xmas trees, but over time the average price is the "natural" price (or value), as Adam Smith said, of the commodity.

Yes, that's what Smith claim. Marxist economics, however, rejects the notion that supply and demand ever reach equilibrium values where they would determine prices in accordance with the hackneyed old Sayean model:

"Let us suppose that in a certain capitalist country there is under-production of leather footwear in comparison with the existing effective demand for this commodity on the market. First, the disproportion is revealed post factum, after the increased demand has come into existence. It could not happen otherwise where there is no social organization of production, no estimation of the dimensions of production and of effective demand. True, capitalist society has worked out its palliative methods of estimating future demand, but they only mitigate the inevitable fluctuations without being able to eliminate them, in so far as the system of distribution of productive forces remains a system of commodity economy. (Under monopoly capitalism, which means an increase in the organized character of production and exchange on the same capitalist basis, estimation of production, and to some extent also of effective demand, is of course carried out better than under completely free competition.)

The increased demand causes an increase in the prices of footwear and consequently leads to an unforeseen re-distribution of the national income (involving surprises which are pleasant to some and unpleasant to others), different from what it would have been if there had been equilibrium between supply and demand. After this comes an increase of production in the existing enterprises of the leather industry, an influx of new capital, perhaps fresh construction. Just as the amount of additional demand was not exactly known, because previously, before the market gave warning, the fact of under-production was not known, so the additional production may overflow, and usually does overflow, the limits of the additional demand, the phase of under-production thus being succeeded by a phase of overproduction, with a consequent fall in prices, a new spontaneous redistribution of the national income and of capital between different branches of production, and so on into the next disproportion. Any correspondence between supply and demand happens by accident; disproportion one way or the other is the rule. This is the way in which, through the operation of the law of value, the necessity of attaining equilibrium between production and effective demand asserts itself. The laws of man's social activity in the sphere of production confront the agents of production as forces external to themselves, blind, uncontrolled forces of nature. Just as, in order that equilibrium may be achieved in any system, a regulator is needed in the sphere of reality, a regulator specific to the given system alone, so also, in order to understand all this mechanism and the regularities peculiar to it, we need specific methodological procedures."

(Preobrazhensky, Method of Theoretical Analysis of the Soviet Economy)

[DOOM]

This is why Marx said that commodities, on average, always sell for their actual value. The capitalist hasn't paid for their actual value, but they sell the commodities for their actual value.

Well if he really said that, why did he put so much effort in explaining the transformation of value into prices and how the former deviates systematically from the latter?

[RedMaterialist]

Well if he really said that, why did he put so much effort in explaining the transformation of value into prices and how the former deviates systematically from the latter?


Marx, Value, Price and Profit:

The capitalist would consequently realize the profit of three shillings, not by selling his commodity at a price over and above its value, but by selling it at its real value.



Well, he also said that commodities do not "stalk about" with their values, like price-tags, hanging on them. I'm not sure he ever successfully solved the transformation problem, but I'm not sure it's really a problem any more. Does it really matter why or how values become prices? The point is to get values out of the hands of capitalists and into the hands of society, and then to transform production for exchange value into production for use value.

He explained that prices deviate from values because changes in productivity are always either making commodities cheaper or more valuable. And, more specifically, that value is determined by what it costs to produce the same commodity the next day.

But the issue is not the price and value of an individual commodity at any particular time, but the average price and value.

[RedMaterialist]

Yes, that's what Smith claim. Marxist economics, however, rejects the notion that supply and demand ever reach equilibrium values where they would determine prices in accordance with the hackneyed old Sayean model:
[I]


It's true that Marxists reject the idea of any permanent equilibrium of supply and demand. In fact, its the inevitable dis-equlibrium which is one of the main factors in a capitalist crisis.

But its not supply and demand which determine price; price is only the expression of a previously determined and created value. And as the Soviet author noted, in a monopoly capitalist economy prices, costs of production, marketing, etc. are more and more regulated and determined by corporate bureaucracy. That doesn't, in my non-economic opinion, change the underlying nature of value: it is surplus-labor created by worker-commodities paid by the wages system, and that surplus-labor is never paid for by the capitalist.

[Anatoli]

Some say that the law of surplus value is valid. Yes, only if there is a monopoly since the capitalist is assured of his profits. However, if there is perfect competition, surplus value is not assured which some say is where surplus value theory is not valid. It is void. Why? If a capitalist is dislodged from competition then the workers get laid off. It's one of saying, because of that, capitalism does not work. Economic security to all. Socialism!:grin:

[Dave B]

There is a bit of a chicken and egg thing with supply and demand, but?

When, lets say, demand starts to exceed supply a producer making an average rate of profit can increase the price of his product without any necessary increase in the price of his raw materials and labour etc.

That increase in price adds to his profit and increases his rate of profit.

His brother capitalists notice it and pile in (or invest ‘new’ capital) to get a piece of the action; that increases supply, which reduces the ‘demand deficit’, and following on from that the price.

The supply-demand equilibration point is approached when the average rate of profit is reached.

The ‘new’ capital comes from spheres of production that are making below average rate of profit from disinvestment, where they slowly bail out; by running down fixed capital and not pumping back surplus value back into the business etc.


In fact the supply and demand people don’t have a formal or in fact any definition or criteria as to when supply =demand , or measure of when it doesn’t and how much etc etc.

A Marxist analysis has the advantage that it can ‘define’ and measure ‘supply and demand’ in any sphere(s) of production by the degree to which it is making, or not, an average rate of profit.

It is not as if the ‘Marxist’ theory, with the ‘average rate of profit’ here, is creating an abstract thing of the air.

It is a matter of envy, greed and pique amongst the capitalists themselves.

And there is a rate of profit (which is a capitalist perspective),and it varies, Ergo, it has an average.

So you could ask a supply and demand theoretician how can you tell and measure that, with a product. it is in disequilibrium or not?

As a Marxist I would say when supply = demand in a the sphere of production it is making an average rate of profit.

Thus according to Karl when supply = demand , the average rate of profit is made and the product sells at its value, or the Adam Smith ‘natural price’, same thing.

There maybe the issue here of the cart before the horse, the tail waging the dog and the chicken and the egg etc; but that is dialectics for you.

Actually it also works on a more fundamental theoretical level in simple commodity production, without capitalists, as Rubin made clear.

If I am spending 40 hours a week as necessary labour time making blue suede shoes in a simple commodity producing village, and the demand suddenly goes up I can double the price and cut back to 20 hours a week.

The goose herder and plough maker who has been doing the above average 50 hours a week to make ends meet will quickly switch profession.

Which is that much easier when minimal amounts of productive capital are involved.


The same thing goes on in capitalism , lower down, with workers selling their concrete labour power as a commodity which is just as susceptible as regards its ‘price’ to the vicissitudes of supply and demand.

Who doesn’t want to get a piece of that action when there is a ‘supply and demand’ problem with a certain kind of concrete labour like Harry Enfield’s ‘loads of money’ plasterers.

As far as the alienated workers are concerned one job, abstract labour, is just as much a 40 hour week pain in the arse and effort as another.

You clock in and you clock out.

If you are lucky and a little bit un-alienated and, well, like what you do and think it has a fulfilling purpose well you are lucky.



I really believe that Karl attempted to cover all the bases after drafting a model.

And went into stuff like market value and market price with his own pig in a poke socially necessary labour time etc etc.

Thus what happens if overnight some scientists or engineer, as they all too often did, by a ‘thought’ dramatically reduces the ‘socially necessary labour time’ required to produce something.

What is it then?

The far seeking capitalist class might run with it and then say 5% of production might be produced using the new method.

But what is the ‘socially necessary labour time’?

I am a chemist and if anybody within the pure science community has to understand dynamic equilibriums it is us!

[Comrade #138672]

Price is indirectly determined by value. Price also depends on competition (or lack thereof), maximizing turnover, and other things (such as relative quality). However, as has been said, price tends to fluctuate around the value. Given that commodities have a value, and there is sufficient competition, price wil approximate value more or less. Value is what gives rise to the relative stability of price. Without it, price would be completely arbitrary, which is certainly not what we observe in general.

[cyu]

Price exists only when property claims are enforced with violence or threat of violence. Without violence or threat of violence, prices would not exist, but value would still exist.