Labor Theory of Value

[pusher robot]

In another thread, this comment was made:


The tragedy is that this statement usually comes from people who are thought to be fluent in English. To say that a determination is subjective means that it varies for different people, like saying that fast music is better than slow music. If economic exchange value were subjective, the store would have to post prices in a form similar to: "Ground coffee, price for the average person, $2.00. If you want it desperately, $6.00. If you don't want it and need persuasion: $0.25." But obviously the price is anounced to be the same for everyone, therefore, whetever else it might be, one thing it certainly is not is "subjective."

I want to explain why this is incorrect.

The author of this comment is confusing "value" with "price" - understandable, I suppose, because "price" is more or less synonymous with "market value." But "market value" and "personal value" (also called "utility") are almost never the same. In fact, the only real reason to engage in a transaction is in order to increase your utility.

An illustrative example:

Suppose that you are very thirsty and come upon a lemonade stand selling lemonade. Now, the stand operator has set a specific price for the lemonade. What is this price based on? Supply and demand, of course. But remember that supply and demand are functions - they are curves that represent the entire spectrum of supply and demand. The intersection of those curves determines the optimal price. Note that these curves are objective measurements of subjective preferences.

Now, suppose that the lemonade costs were $1.00, but based on the supply and demand, the market value ("price") is $3.00. The supplier subjectively isn't willing to work for less than $.50, so the minimum she would be willing to sell for is $1.50. You are very thirsty, however, and so you would subjectively be willing to pay up to $5.00. The market value - the objectively determined price - is $3.00. Thus surplus value accrues to both parties. The supplier achieves an additional $1.50 of value beyond her subjective value, and you achieve an additional $2.00 of subjective value for free. The entire measurement of utility has gone up in the transaction.

[Demogorgon]

Yes, but the LTV specifically acknowledges that there is a difference between use value and exchange value. You haven't disproven anything.

[pusher robot]

Originally posted by [email protected] 19, 2007 02:56 pm
Yes, but the LTV specifically acknowledges that there is a difference between use value and exchange value. You haven't disproven anything.
I've disproven that value cannot be subjective as the poster claimed. It's only price that is not subjective.

[Vinny Rafarino]

Originally posted by [email protected] 19, 2007 07:56 am
Yes, but the LTV specifically acknowledges that there is a difference between use value and exchange value. You haven't disproven anything.
Showing of course why the LTV is neither applicable under market principles, either socialistic or capitalistic, or under standard "Socialist" economic models.

Within a Communist environment the theory of value is useless in its own right as value in all forms will cease to exist.

The antiquated Marxist proverb "from each according to his ability, to each according to his need " is responsible for for relic theories like the LTV still being prominent among modern leftists.

[pusher robot]

Within a Communist environment the theory of value is useless in its own right as value in all forms will cease to exist.

Come again? People will no longer have wants and desires? Because that's all that value is - a quantification of a want or desire.

[Dr Mindbender]

what is the purpose of that 'quantification'? To me, communism is about removing that very purpose.

[Vinny Rafarino]

Originally posted by pusher
Come again? People will no longer have wants and desires? Because that's all that value is - a quantification of a want or desire.

In the way that you see it?

No.

The difference is between wanting something because it's "valuable" and wanting something because it's available.

This is why the old Marxist proverb "from each according to his ability, to each according to his need " would better suit the masses by being replaced with something like "from each according to his ability, to each according what is available."

I for one won't be so bold as to define the limits of what a person "needs" versus what he does not need.

What it boils down to is increasing the quality of life for society as a whole. Removing value, in all its forms, removes both the class distinctions associated with obtaining goods and services that society has deemed "more valuable" that someone else may not be able to obtain and the economical inability to produce and distribute such goods and services.

We want to increase technological advancement for the sheer joy of increasing the quality of life for all citizens; not just the ones who can "afford it".

The LTV has never addressed this issue nor will it ever.

It's an theory best left to history.

[Whitten]

Showing of course why the LTV is neither applicable under market principles, either socialistic or capitalistic, or under standard "Socialist" economic models.

How doe sthe fact that use value and exchange value are different make it unapplicable?


Within a Communist environment the theory of value is useless in its own right as value in all forms will cease to exist.

Where did you read this? That completly contradicts the idea of materialist socialism.


The antiquated Marxist proverb "from each according to his ability, to each according to his need " is responsible for for relic theories like the LTV still being prominent among modern leftists.

No its not, that proverb wasn't used by Marx until Critique of teh Gotha Programme and bears no influence of the LTV.


The difference is between wanting something because it's "valuable" and wanting something because it's available.

So I'll automaticly want whats available and not want whats unavailable? No body wants something because its valuable, rather a commodity gains value because somebody wants it.


The LTV has never addressed this issue nor will it ever.

What issue? You just blurted out a bunch of sentimental and idealistic crap about you psuedo-communist fantasy land.

[ComradeRed]

Originally posted by pusher [email protected] 19, 2007 06:39 am
In another thread, this comment was made:
Link?


The author of this comment is confusing "value" with "price" - understandable, I suppose, because "price" is more or less synonymous with "market value." But "market value" and "personal value" (also called "utility") are almost never the same. In fact, the only real reason to engage in a transaction is in order to increase your utility. Semantics, but you don't appear to be defining the difference between value and price very well.

Marxists, which I assume the author of the quote you quoted, use the Ricardian definition of value: "The value of a commodity, or the quantity of any other commodity for which it will exchange..." from Principles of Political Economy Chapter 1 (http://marxists.org/reference/subject/economics/ricardo/tax/ch01.htm) by David Ricardo (1817).

Price is the value of a given quantity of a given good expressed through the money commodity.

I think you are trying to defend the idea that market value (exchange-value in Marxist economic jargon) is not determined by utility (use-value, again borrowed from Marxist jargon).

Well, the problem here is that indifference curves are determined by utility! That's one of the foundational principles in Economic Analysis (real analysis applied to economics).


An illustrative example:

Suppose that you are very thirsty and come upon a lemonade stand selling lemonade. Now, the stand operator has set a specific price for the lemonade. What is this price based on? Supply and demand, of course. But remember that supply and demand are functions - they are curves that represent the entire spectrum of supply and demand. The intersection of those curves determines the optimal price. Note that these curves are objective measurements of subjective preferences.

Now, suppose that the lemonade costs were $1.00, but based on the supply and demand, the market value ("price") is $3.00. The supplier subjectively isn't willing to work for less than $.50, so the minimum she would be willing to sell for is $1.50. You are very thirsty, however, and so you would subjectively be willing to pay up to $5.00. The market value - the objectively determined price - is $3.00. Thus surplus value accrues to both parties. The supplier achieves an additional $1.50 of value beyond her subjective value, and you achieve an additional $2.00 of subjective value for free. The entire measurement of utility has gone up in the transaction. Well, one of the serious problems here is that the definition of "subjective" is being misused.

"Subjective" in the sense of the subjective theory of value, value determined through subjective means of an individual's perceptions and conditions (etc.), necessitates that the value of a commodity cannot be determined objectively. It therefore cannot be quantified.

The method of finding indifference curves which are then used for the demand curves requires the use of utility, which is naturally a subjective quantity. It is, however, objective in the sense that "There either is utility or there is not"...one does not measure "units" of utility as the math of vulgar economics would lead one to believe.

The father of vulgar economics, Marshall, actually pointed this out that utility cannot be measured directly:
[1] It cannot be too much insisted that to measure directly, or per se, either desires or the satisfaction which results from their fulfilment is impossible, if not inconceivable. From Principles of Economics Chapter 3 (http://marxists.org/reference/subject/economics/marshall/bk3ch03.htm#2.1) footnote 1, by Alfred Marshall (1890).

This would lead us to say "Either the subjective theory of value is right and we can't measure anything meaningful in economics, or the subjective theory of value is wrong and we can measure meaningful things in economics."

I opt for the latter since we can do it by walking to the nearest store and looking for a price on a commodity.

The subjective theory of value would work in barter economies but not in modern ones...and even then you couldn't do much with it.

[pusher robot]

Link?

http://www.revleft.com/index.php?showtopic=70484&st=0&#


Semantics, but you don't appear to be defining the difference between value and price very well.

I was trying to use similar terminology as the OP in that link.


Price is the value of a given quantity of a given good expressed through the money commodity.

Agreed.


I think you are trying to defend the idea that market value (exchange-value in Marxist economic jargon) is not determined by utility (use-value, again borrowed from Marxist jargon).

No, I was trying to argue that even though prices are objective, valuation is still subjective, in the same way that the decision whether or not to ride the bus is subjective, but the number of people on the bus is objective.



Well, the problem here is that indifference curves are determined by utility! That's one of the foundational principles in Economic Analysis (real analysis applied to economics).

Yes - the indifference curves are determined by utility, and the indifference curves through the mechanism of supply-demand determine price. But there is a level of abstraction here - producing a curve and then fixing a point on it. The OP seemed to argue that the fact that I could buy a $3.00 lemonade that was worth $5.00 disproved the fact that the price was related to utility.


"Subjective" in the sense of the subjective theory of value, value determined through subjective means of an individual's perceptions and conditions (etc.), necessitates that the value of a commodity cannot be determined objectively. It therefore cannot be quantified.

I think that's a step too far. It's not possible to directly measure subjective value - You correctly point that out. This does not mean it is impossible to quantify it using indirect methods. For example, you cannot directly measure "pain." But I can still say I'd rather my finger be pricked with a pin 100 times than have my hand dipped in scalding water and have that be a meaningful statement. Quantification of subjective values works the same way - we use dollars as a convenient abstraction because it allows us to quantify our subjective preference for one thing against our subjective preferences for anything else.


This would lead us to say "Either the subjective theory of value is right and we can't measure anything meaningful in economics, or the subjective theory of value is wrong and we can measure meaningful things in economics."

That's a false dilemma.

[Vinny Rafarino]

Originally posted by whitten
How doe sthe fact that use value and exchange value are different make it unapplicable?

Once the concept of value in its entirety is forgotten, neither use nor exchange value will be relevant principles.


Where did you read this? That completly contradicts the idea of materialist socialism.


I didn't "read it" anywhere. I have concluded this based on historical material evidence.

Good thing.

The last thing I would want is for a Socialist to warp this theory into another way to get back to Capitalism.


No its not, that proverb wasn't used by Marx until Critique of teh Gotha Programme and bears no influence of the LTV.

Who cares "when Marx used it". The fact is that it's a principle synonymous with Marxism.

As a matter of fact it was the first thing I learned when becoming a Marxist in 1982.


So I'll automaticly want whats available and not want whats unavailable?

What you think you may "want" is irrelevant since everything that is technologically available is immediately available to everyone; your "wants" will never supersede the wants next cat.

They will also never be undermined by another.


No body wants something because its valuable, rather a commodity gains value because somebody wants it.


Sociology is not that simple. You're also wrong in this case; capitalist greed and class distinctions demand the pursuit of wealth.

You are right by maintaining that commodities gain in value based on demand. That's not the determining factor in all cases of purchase however.


What issue? You just blurted out a bunch of sentimental and idealistic crap about you psuedo-communist fantasy land.

I'm sorry you became confused. Perhaps if you ask nicely I will try to teach you a few lessons in reality.

[ComradeRed]

Originally posted by pusher [email protected] 19, 2007 12:32 pm

I think you are trying to defend the idea that market value (exchange-value in Marxist economic jargon) is not determined by utility (use-value, again borrowed from Marxist jargon).

No, I was trying to argue that even though prices are objective, valuation is still subjective, in the same way that the decision whether or not to ride the bus is subjective, but the number of people on the bus is objective.This more or less goes against the STV.

The problem is that price is determined by supply and demand by Neoclassical economics.

Demand is determined by indifference curves, which is subjective and can't really be measured. It's a sort of texas sharpshooter situation...post factum Neoclassical economists argue that their theory perfectly predicts what happened.

The point however is to predict what will happen...that's the entire point of science.



Well, the problem here is that indifference curves are determined by utility! That's one of the foundational principles in Economic Analysis (real analysis applied to economics).

Yes - the indifference curves are determined by utility, and the indifference curves through the mechanism of supply-demand determine price. But there is a level of abstraction here - producing a curve and then fixing a point on it. The OP seemed to argue that the fact that I could buy a $3.00 lemonade that was worth $5.00 disproved the fact that the price was related to utility. The problem is that utility cannot be measured!

The standard arguments in defense of this is that: 1) "We can measure utility post-factum", and 2) "We don't need to measure utility insomuch as we need to rank preferences".

Well, the problem with the first argument is that you can't predict anything, so you have a useless theory.

The problem with the second argument is that the assumption that people are "insatiably greedy", so it doesn't matter how you rank your preferences since you would prefer instead to have everything!



"Subjective" in the sense of the subjective theory of value, value determined through subjective means of an individual's perceptions and conditions (etc.), necessitates that the value of a commodity cannot be determined objectively. It therefore cannot be quantified.

I think that's a step too far. It's not possible to directly measure subjective value - You correctly point that out. This does not mean it is impossible to quantify it using indirect methods. For example, you cannot directly measure "pain." But I can still say I'd rather my finger be pricked with a pin 100 times than have my hand dipped in scalding water and have that be a meaningful statement. Quantification of subjective values works the same way - we use dollars as a convenient abstraction because it allows us to quantify our subjective preference for one thing against our subjective preferences for anything else. The problem with this is that according to economic analysis, you invoke measurement theory and make a measurement of utility!

This, empirically, cannot be done.

The "preference" operator in economics (which is basically "x < y" meaning "One prefers y to x") necessitates the measurement of x and y. Without it, a comparison is impossible.

You need to quantify the options and make them numbers, then compare the numbers to see which is bigger. That&#39;s how the preference operator works.

But we agree that we cannot assign numbers to preferences, i.e. we cannot measure utility, so that makes the operator impossible to use in real life.

[pusher robot]

Demand is determined by indifference curves, which is subjective and can&#39;t really be measured. It&#39;s a sort of texas sharpshooter situation...post factum Neoclassical economists argue that their theory perfectly predicts what happened.

No, you&#39;re conflating two different fields. Neoclassical economists argue that accepting people&#39;s subjective preferences axiomatically, we can then reasonably accurately predict their behavior. They make no claim to predict peoples&#39; preferences; that&#39;s the realm of neuroscientists and psychologists.


The point however is to predict what will happen...that&#39;s the entire point of science.Perhaps; but economists only claim to predict behavior, NOT PREFERENCES.


The standard arguments in defense of this is that: 1) "We can measure utility post-factum", and 2) "We don&#39;t need to measure utility insomuch as we need to rank preferences".

Well, the problem with the first argument is that you can&#39;t predict anything, so you have a useless theory.

No, you can predict behavior. Maybe YOU care WHY people prefer certain things to other things, but economists don&#39;t&#33; That they don&#39;t satisfy your particular curiosity, however, does not make their work "useless."



The problem with the second argument is that the assumption that people are "insatiably greedy", so it doesn&#39;t matter how you rank your preferences since you would prefer instead to have everything&#33;

First of all, even those who accept the "insatiable" assumption would concede that the curves all approach convergence at their limits even if they never reach it. But even granting that marginal utility is always at least infinitesimally positive, how does it follow that rankings cannot occur? Couldn&#39;t other things have infinitesimally higher or lower marginal utility anywhere along the curve?


But we agree that we cannot assign numbers to preferencesI did? You certainly can, by choosing an arbitrary standard of reference for x and y. It literally doesn&#39;t matter what I use because it cancels out on either side, leaving just the quantifiers - "numbers", as you say - as in my pain example.

Accepting your definitions, you argument is absurd. A preference operator is "impossible" to use in real life? Are you saying that it is "impossible" for me to express that I prefer one thing to another by a certain amount? You seem to be arguing against the existence of preferences at all.

[Kwisatz Haderach]

Originally posted by pusher [email protected] 19, 2007 04:39 pm
Now, suppose that the lemonade costs were &#036;1.00, but based on the supply and demand, the market value ("price") is &#036;3.00. The supplier subjectively isn&#39;t willing to work for less than &#036;.50, so the minimum she would be willing to sell for is &#036;1.50. You are very thirsty, however, and so you would subjectively be willing to pay up to &#036;5.00. The market value - the objectively determined price - is &#036;3.00. Thus surplus value accrues to both parties. The supplier achieves an additional &#036;1.50 of value beyond her subjective value, and you achieve an additional &#036;2.00 of subjective value for free. The entire measurement of utility has gone up in the transaction.
The logical implications of the subjective theory of value are so absurd that I believe few people would be willing to accept them.

Neoliberal economists sometimes say that it is "amazing" how value can be created just through transactions alone. I say it is not amazing, but idiotic to believe that value can be created out of thin air through an action which does not alter the physical properties of any object.

Take your lemonade example. You are very thirsty, so you would subjectively be willing to pay up to &#036;5.00 for a lemonade. In those circumstances, the value (consumer surplus) you create by buying a lemonade for &#036;3.00 is 5-3 = &#036;2.00. But suppose you wait a while longer, until you get so thirsty that you are willing to pay up to &#036;6.00 for a lemonade. Now, if you go to the same lemonade stand and buy the same lemonade for the same price, you generate a consumer surplus of &#036;3.00&#33; Congratulations - you have increased the total amount of value in the world by going thirsty.

The problem with taking subjective wants as the basis of all value is that it then becomes socially beneficial to create as many new wants as possible. It is good for people to go hungry or thirsty, so that they value food and drink more, and therefore generate more subjective value when they buy food and drink. The more people are unhappy, the more value can be potentially generated.

To go even further, according to the STV it is also possible to create value without any transaction at all. Suppose you are holding an apple, which you currently value at &#036;1. Now, if I somehow manage to persuade you to consider the apple more valuable - so that you think it&#39;s worth &#036;2, for example - then, according to the STV, value has been created&#33; Since value is subjective, you can create value simply by persuading people that the things they currently own are more valuable than they previously thought. You can create value through sheer mind power alone, without changing the physical universe in any way.

[Dean]

Originally posted by Ulster [email protected] 19, 2007 06:08 pm
what is the purpose of that &#39;quantification&#39;? To me, communism is about removing that very purpose.
Communism is about removing the social barriers surrounding value systems. It is not about destruction of value systems; indeed, it relies on a value system in order for it to be functinal and associative for the members of a society.

[pusher robot]

You can create value through sheer mind power alone, without changing the physical universe in any way.

So what?

The very concept of "value" is inherently subjective. You can&#39;t have value without a valuer. You argue that it can change arbitrarily as thought that disproves something. But all it does is prove that value is subjective. Congratulations, THAT&#39;S MY WHOLE POINT.


But suppose you wait a while longer, until you get so thirsty that you are willing to pay up to &#036;6.00 for a lemonade. Now, if you go to the same lemonade stand and buy the same lemonade for the same price, you generate a consumer surplus of &#036;3.00&#33; Congratulations - you have increased the total amount of value in the world by going thirsty.

No, not actually, because you decreased total value by going thirsty first. The increase surplus to you only restores the extra value you lost by going thirstier.

[Kwisatz Haderach]

Originally posted by pusher robot+September 28, 2007 05:43 pm--> (pusher robot @ September 28, 2007 05:43 pm)
You can create value through sheer mind power alone, without changing the physical universe in any way.

So what?

The very concept of "value" is inherently subjective. You can&#39;t have value without a valuer. You argue that it can change arbitrarily as thought that disproves something. But all it does is prove that value is subjective. Congratulations, THAT&#39;S MY WHOLE POINT. [/b]
You truly do not see the problem with saying that the entire goal of economic activity - the creation of value - can be achieved just as easily through brainwashing or wishful thinking as through real work?

MY whole point is that the goal of economic activity cannot be something that is prone to arbitrary and irrational changes. If "value" is subjective, then "value" is not a good measure of the social benefit of a given activity. You can&#39;t measure things with a yardstick that changes length all the time.


pusher robot

But suppose you wait a while longer, until you get so thirsty that you are willing to pay up to &#036;6.00 for a lemonade. Now, if you go to the same lemonade stand and buy the same lemonade for the same price, you generate a consumer surplus of &#036;3.00&#33; Congratulations - you have increased the total amount of value in the world by going thirsty.
No, not actually, because you decreased total value by going thirsty first. The increase surplus to you only restores the extra value you lost by going thirstier.
According to that logic, you decrease value every time you start wanting something. And when your wants are satisfied, you only restore the value that was lost when you began wanting the things you just got. So total value can never increase at all, and it would be best if no one ever wanted anything.

[pusher robot]

You truly do not see the problem with saying that the entire goal of economic activity - the creation of value - can be achieved just as easily through brainwashing or wishful thinking as through real work?

No, I don&#39;t. If wishful thinking were to make me JUST AS HAPPY as "actual work," give me a logical, non-moralistic reason why I should prefer "actual work."


You can&#39;t measure things with a yardstick that changes length all the time.

Sure you can. You have to, if your goal is to actually predict how people will behave. It&#39;s not the goal of economics to dictate to the world how it is supposed to work, it is supposed to describe how it actually does work, and in order to do this, you have to account for the FACT that people have subjective valuations. Economics doesn&#39;t tell us whether brainwashing is "better" or "worse" than physical labor. It can&#39;t, it&#39;s not a system of morals.


According to that logic, you decrease value every time you start wanting something.Obviously. The more you want something, the greater its value to you. But OVERALL value can still be increased if some other want is satisfied MORE. For example, I might forego eating in restaurants - something I want - to redirect those resources towards going to movies, something I want more. I lose value by decreasing dining out, but I gain back more value than I lost by using the same resources on the movies and overall value has increased from my previous situation.

[Kwisatz Haderach]

Originally posted by pusher robot+September 28, 2007 06:22 pm--> (pusher robot &#064; September 28, 2007 06:22 pm)
You truly do not see the problem with saying that the entire goal of economic activity - the creation of value - can be achieved just as easily through brainwashing or wishful thinking as through real work?
No, I don&#39;t. If wishful thinking were to make me JUST AS HAPPY as "actual work," give me a logical, non-moralistic reason why I should prefer "actual work." [/b]
First of all, I do not claim to be non-moralistic. That is a problem other comrades have in their philosophical views, but for my part I am perfectly willing to say that certain things (like private property for example) are morally wrong.

In any case, the reason why you should prefer actual work over brainwashing is because the first is a real benefit and the second is an illusion. I take it as axiomatic that happiness based on reality is superior to happiness based on illusion. In other words, suppose that having an apple would give you a happiness of X, but I could make you just as happy (or even more so) by projecting into your mind the illusion of having an apple. The real apple is still preferable.


Originally posted by pusher [email protected]

You can&#39;t measure things with a yardstick that changes length all the time.
Sure you can. You have to, if your goal is to actually predict how people will behave. It&#39;s not the goal of economics to dictate to the world how it is supposed to work, it is supposed to describe how it actually does work, and in order to do this, you have to account for the FACT that people have subjective valuations. Economics doesn&#39;t tell us whether brainwashing is "better" or "worse" than physical labor. It can&#39;t, it&#39;s not a system of morals.
Well, to paraphrase Marx, if you&#39;re saying that economists merely interpret the world, I say that the point is to change it. Or, in other words, I&#39;m saying that there is, in fact, such a thing as normative economics. Do you deny its existence?

Economists do not merely interpret the world - they also very often make suggestions for improvement. But if capitalist economists conceded that their role is only to interpret and not to bother us with their idiotic suggestions, I would be very happy.

Obviously, people do indeed have subjective valuations. I am only affirming that sometimes those valuations are objectively WRONG. The STV implies that no one is ever wrong about a judgement of value, which is of course absurd. Have you never regretted buying something?


pusher robot

According to that logic, you decrease value every time you start wanting something.
Obviously. The more you want something, the greater its value to you. But OVERALL value can still be increased if some other want is satisfied MORE. For example, I might forego eating in restaurants - something I want - to redirect those resources towards going to movies, something I want more. I lose value by decreasing dining out, but I gain back more value than I lost by using the same resources on the movies and overall value has increased from my previous situation.
Err, no. You are losing track of your own assumptions here. You&#39;re switching from the concept of wanting something to the concept of opportunity cost.

You have argued that the mere act of wanting something results in decreased value to you. The point was not that lost value = opportunity cost, but that lost value = total wants. So, if you want to dine out, that reduces your value by, say, X, and if you want to go see a movie, that reduces your value by Y. When you satisfy one of those wants - going to see a movie, for example - you recover the value you lost by wanting it, but you do not recover the value you lost by also wanting that other thing which you never got to do (eating out).

Yes, this is a rather strange interpretation of subjective value, but it is the only one consistent with your claim that the mere act of waiting to buy a lemonade (even if you&#39;re not doing anything else with that time) reduces your total value.

[pusher robot]

I take it as axiomatic that happiness based on reality is superior to happiness based on illusion. In other words, suppose that having an apple would give you a happiness of X, but I could make you just as happy (or even more so) by projecting into your mind the illusion of having an apple. The real apple is still preferable.

Well, I reject that axiom as illogical. Preferable to whom exactly?


Or, in other words, I&#39;m saying that there is, in fact, such a thing as normative economics. Do you deny its existence?

I deny its relevance.


The STV implies that no one is ever wrong about a judgement of valueValuation is a judgment, so it cannot be "objectively wrong" by definition. It can be based on erroneous foundations of course, nobody would deny that and it&#39;s one reason that valuations can change dramatically with available information.


You have argued that the mere act of wanting something results in decreased value to you. The point was not that lost value = opportunity cost, but that lost value = total wants.My point was that becoming uncomfortably thirsty is an opportunity cost, that there is a value to not becoming increasingly thirsty which is equal to the increase you&#39;d be willing to pay as you get thirstier, since that&#39;s the only likely source for the increase in valuation. Obviously lost value cannot cannot equal total wants because total wants are for most purposes infinite.

[jasmine]

My point was that becoming uncomfortably thirsty is an opportunity cost, that there is a value to not becoming increasingly thirsty which is equal to the increase you&#39;d be willing to pay as you get thirstier, since that&#39;s the only likely source for the increase in valuation. Obviously lost value cannot cannot equal total wants because total wants are for most purposes infinite.

Obviously people do what they need to do to survive and your point beyond that is what exactly?

[syndicat]

No, you&#39;re conflating two different fields. Neoclassical economists argue that accepting people&#39;s subjective preferences axiomatically, we can then reasonably accurately predict their behavior. They make no claim to predict peoples&#39; preferences; that&#39;s the realm of neuroscientists and psychologists.

yeah, and this is one of the false assumptions of neoclassical economics. The assumption is that the emergence of wants or preferences is exogenous -- independent -- of economic activity. But this is false. Economic activity shapes what preferences people have. Through advertising, through making certain kinds of activity unavailable for people. Because capitalism is a system of oppression in which workers are subordinated to bosses, personal development of their potential and satsifaction through design and control of their work is largely unavailable. People are structurall encouraged to seek satisfaction outside work through purchase of commodities, and are encouraged to adopt an attitude of deference to their superiors. All of these things mean that preference structures are created or shaped by the economic system itself.

What exactly does it mean to say that preferences are "subjective"? Something is said to "objective" if there are ways for different people to reach consensus in their understanding of it. A major way we understand the world around us by coming up with ideas, or hypotheses, to explain things. We tend to accept an explanation if it is the best one in terms of how well it accounts for what we know. This is how consensus is developed in the sciences. It is the possibility of gaining consensus among people in favor of some hypothesis or claim about the facts that is what "objectivity" is.

We also come up with hypotheses to explain people&#39;s behavior. If i see Joe walking down the street, i could explain this by saying "He wants a beer and is waling to the store." We attribute desires and beliefs to people in order to explain, and also to predict, their behavior.

We can have evidence from a person&#39;s behavior, including what they say, in favor of saying that this person prefers X to Y. What people prefer are situations. I prefer to sharpen my pencils with a pencil sharpener rather than a knife, because a knife uses up the pencil too fast and it&#39;s harder to get an even point. If you see me looking around for a pencil sharpener, even when i have a knife readily available, to sharpen a pencil, this is evidence for this preference.

But preferences in themselves cannot explain price formation in capitalism. There are various types of structures that give people more bargaining power in a market than others. There are many ways that people do not have equal power to realize their desires or preferences. Inequality in income is one such way. Things like having no means of production to earn your living, being part of a small group that has a relative monopoly over something, these are things that affect bargaining power in markets, and thus affect prices.

[ComradeRed]

I missed this yesterday:


Originally posted by pusher robot+September 27, 2007 10:49 am--> (pusher robot &#064; September 27, 2007 10:49 am)
Demand is determined by indifference curves, which is subjective and can&#39;t really be measured. It&#39;s a sort of texas sharpshooter situation...post factum Neoclassical economists argue that their theory perfectly predicts what happened.

No, you&#39;re conflating two different fields. Neoclassical economists argue that accepting people&#39;s subjective preferences axiomatically, we can then reasonably accurately predict their behavior. They make no claim to predict peoples&#39; preferences; that&#39;s the realm of neuroscientists and psychologists.[/b]
Not true, this is the very reason why the preference operator exists&#33;

See Varian&#39;s Intermediate Microeconomics Chapter 3 section 1 "Consumer Preferences" (2006).

For a more rigorous elaboration, see Chapter 3.C "Preference and Utility" of Microeconomic theory by Andreu Mas-Colell, Michael D. Whinston, and Jerry R. Green (1995).

In it they state:

Collel et al.
For analytical purposes, it is very helpful if we can summarize the consumer&#39;s preferences by means of a utility function because mathematical programming techniques can then be used to solve the consumer&#39;s problem. [...]

The assumption that is needed to ensure the existence of a utility function is that the preference relation be continuous.

Definition 3.C.1: The preference relation >= on X (X is R^2) is continuous if it is preserved under limits. That is, for any sequence of pairs {(x^n, y^n)}^{&#092;infty}_{n=1} with x^{n} >= y^{n} for all n. x = lim_{n -> infinity} x^{n} and y = lim_{n->infinity} y^{n}, we have x >= y.

As for more about the preference relation, look at section 3.B of the same book.

Further, the rest of Neoclassical economics collapses if the preference operator is left undefined or axiomatically chosen.

If it&#39;s the latter, then it does not reflect reality at all...it&#39;s just randomly chosen by convenience&#33;

On the other hand, if it&#39;s the latter, then Neoclassical economics still collapses because the utility function cannot be defined and the demand curve cannot be found.


No, you can predict behavior. Maybe YOU care WHY people prefer certain things to other things, but economists don&#39;t&#33; That they don&#39;t satisfy your particular curiosity, however, does not make their work "useless." Within the Neoclassical framework, you can predict behavior.

In reality, on the other hand, you cannot do likewise because in order to predict behavior, you need to predict choices. Choices, in Neoclassical theory, is determined by indifference curves.

For details about how to do this, see chapter 5 of Varian, and chapter 1 of Mas-Colell et al.


First of all, even those who accept the "insatiable" assumption would concede that the curves all approach convergence at their limits even if they never reach it. Yes, at the infinitieth commodity, there would be no utility derived from its consumption, very good.

You should realize that it&#39;s not kosher in math to talk about infinity as a number like that, so in practice it would never converge.

The problem is that the utility function is defined on R^{2}_{+} (the Cartesian product of the set of all Positive real numbers with the set of all positive real numbers), and that it represents the preference operator. The preference operator is defined on all of this plane.

If it weren&#39;t defined on all of the plane, there&#39;d be no problem with your argument...but then all of Neoclassical economics collapses.


But even granting that marginal utility is always at least infinitesimally positive, how does it follow that rankings cannot occur? Because you can&#39;t measure utility with a utility function as economists do mathematically.


Couldn&#39;t other things have infinitesimally higher or lower marginal utility anywhere along the curve? Irrelevant because you can&#39;t measure the curve.


I did? You certainly can, by choosing an arbitrary standard of reference for x and y. It literally doesn&#39;t matter what I use because it cancels out on either side, leaving just the quantifiers - "numbers", as you say - as in my pain example. Then microeconomics collapses because you need to have a standard by which you compare two different individuals&#39; curves.

You can&#39;t do this in your scheme, so you can&#39;t find the demand curve.

You then can&#39;t find the price of a commodity.


Accepting your definitions, you argument is absurd. A preference operator is "impossible" to use in real life? Are you saying that it is "impossible" for me to express that I prefer one thing to another by a certain amount? You seem to be arguing against the existence of preferences at all. Addition is an operation. It is represented by a cute little symbol: +

We all know what we are doing when we are adding two numbers together, the operation is well understood and unambiguous.

Now, when we have a preference operator (represented by >= and <= because they are relational operators), the operation is unknown.

It&#39;s supposed to be, like all relational operations, true or false. But comparing two numbers, like 3 and 5, is a simple straightforward operation.

How do you compare apples and oranges?

There is no operator to do this.

I am not saying that preference does not exist, I am saying that the Neoclassical economists&#39; mathematical representation of preference is decoupled from reality.

The actual comparison and decision making is subjective, the result of an apple being useful whereas an orange being useless is not necessarily represented "only" by the Neoclassical scheme.

The terrible irony is that Neoclassical economics boasts this. It bites them in the ass when they can&#39;t use their preference operator because of it. The preference operator is ill defined&#33;

Indeed the approach often taken is to just assume that there is some preference of one to another...to create an artificial preference&#33;

What we can say about preference and choice as far as we are concerned is that something is either useful or useless. It&#39;s a boolean value, a mathematical predicate.

The actual structure of the mathematical predicate is not necessary to know. All that is needed is that we know that it exists.

[pusher robot]

Not true, this is the very reason why the preference operator exists&#33;

No, and your own citations support me on this. It exists to describe the preferences that are accepted axiomatically as existing for whatever reasons.

The economist does not attempt to explain why people prefer pears to bananas. He accepts that they do, axiomatically, and then describes this preference mathematically so as to model how that preference will affect behavior.



In reality, on the other hand, you cannot do likewise because in order to predict behavior, you need to predict choices.

You predict choices by measuring preferences, which is what indifference curves represent.


You should realize that it&#39;s not kosher in math to talk about infinity as a number like that, so in practice it would never converge.

Gosh, you&#39;re right&#33; That would be a good explanation for why I never used "inifinity" as a number and I specifically said they would APPROACH convergence at the limits "even if they never reach it." If you&#39;re going to be pedantic, at least read what I actually wrote.


The preference operator is defined on all of this plane.
Okay....why is that a problem? Is the set of all postitive real number finite now?

Because you can&#39;t measure utility with a utility function as economists do mathematically.Well? Why not? No citations to economics textbooks demonstrating the proposition that "utility cannot be measured?"

Then microeconomics collapses because you need to have a standard by which you compare two different individuals&#39; curves. I don&#39;t see why. The goal is to explain how any individual person will translate their own preferences into behavior. It is not necessary for this task to make meaningful comparisons between two individuals&#39; preferences, because an individual&#39;s behavior is based only on their own preferences and not those of other people.


How do you compare apples and oranges?

You ask somebody: "Would you prefer an apple or an orange?" Whichever they answer, you follow it up: "How much would I have to pay you to choose the other one?"

[ComradeRed]

Originally posted by pusher [email protected] 01, 2007 08:18 am

Not true, this is the very reason why the preference operator exists&#33;

No, and your own citations support me on this. It exists to describe the preferences that are accepted axiomatically as existing for whatever reasons.

The economist does not attempt to explain why people prefer pears to bananas. He accepts that they do, axiomatically, and then describes this preference mathematically so as to model how that preference will affect behavior.
I have to walk you through this by the hand I see. I hope you took either chemistry or physics in high school, because dimensional analysis will come in handy.

From elementary algebra, recall you cannot mix apples and oranges.

Instead in economics, you rate apples and oranges. Or some agent rates two commodities.

This is done by assigning two real numbers to each "bundle" of apples and oranges. This assignment of a real number is described extensively in measure theory. Yes, you are making a measurement.

Unlike measuring something real like distance or time, the agent (you or whoever) is measuring the utility derived from the consumption of each bundle.

That&#39;s what is supposed to happen in theory anyways.

In practice you have some relational operator which mixes apples and oranges&#33;

The basic use of the operator is to "plug and chug" the bundles into a utility function...which is then derived from the operator you just used. This is called "circular logic".

Ignoring this, one asks "How are we to use this?" In practice (i.e. econometrics), that&#39;s a serious problem&#33; You can&#39;t even get the static supply curve for a given time, you get a single point where supply and demand supposedly intersect.

You&#39;re arguing that there is no problem, like how an ostrich would dig its head into the sand and say there&#39;s no lion.

The problem is that, assuming that the mathematical framework is coherent (which it really isn&#39;t), this cannot be applied to make unique predictions.

This problem of reducing things to the same variable is a recurring problem for economists. That&#39;s how they got into so much trouble with the "law" of constant returns; it still hasn&#39;t been resolved&#33;



In reality, on the other hand, you cannot do likewise because in order to predict behavior, you need to predict choices.

You predict choices by measuring preferences, which is what indifference curves represent. You miss the point entirely.

The indifference curve is basically a contour of the utility surface.

We cannot measure the utility surface. That&#39;s the entire problem.

The approach is to use the preference operator, which really just calls the utility function to translate apples and oranges into a common variable (utility) and then proceed to use normal relational operators on the resulting values.

Pragmatically speaking, the utility function is left undefined.



The preference operator is defined on all of this plane.
Okay....why is that a problem? Is the set of all postitive real number finite now? Because that means that an agent would want to consume an infinite quantity of commodities.

If the operator were defined on a finite set defined as the cartesian product of the subset of natural numbers from 1 to N where N is how many commodities the given industry is producing, that would be more accurate.

This alternate, lazy approach of the economists tells us that the agents act like scarcity is irrelevant.

So much for that axiom.



Because you can&#39;t measure utility with a utility function as economists do mathematically.Well? Why not? No citations to economics textbooks demonstrating the proposition that "utility cannot be measured?" I see you still fail at putting pieces together.

The utility function is defined by using the preference operator. The preference operator uses the utility function, again by definition.

This is circular.

That&#39;s a problem.



Then microeconomics collapses because you need to have a standard by which you compare two different individuals&#39; curves. I don&#39;t see why. The goal is to explain how any individual person will translate their own preferences into behavior. It is not necessary for this task to make meaningful comparisons between two individuals&#39; preferences, because an individual&#39;s behavior is based only on their own preferences and not those of other people. Because you don&#39;t have the utility surface, and thus no indifference curves.

You can&#39;t find demand, and then you can&#39;t find price.

The marginalist theory of value would fall apart.

Not that it&#39;s that much of a problem, the "MC = MR" approach already has been falsified empirically since the &#39;50s. There was a case study in West Germany in 1952 of the firm managers who follow marginalist theory and those that don&#39;t.

See Eiteman, W. J. and Guthrie, G. E. (1952) "The shape of the average cost curve", American Economic Review 42: 832-838.

If you actually performing statistical tests on this, the amount of evidence supporting the marginalist theory is so small that it appears to be probably a statistical error that anyone would follow it.



How do you compare apples and oranges?

You ask somebody: "Would you prefer an apple or an orange?" Whichever they answer, you follow it up: "How much would I have to pay you to choose the other one?" Same problem as I outlined above, how do you measure the utility of money?

What units are measuring utility? Oh, yes, you weren&#39;t even measuring it.

What you were doing was trying to find out which bundle is preferred, not the means by which this is evaluated.

[funkmasterswede]

Originally posted by pusher [email protected] 19, 2007 02:39 pm
In another thread, this comment was made:


The tragedy is that this statement usually comes from people who are thought to be fluent in English. To say that a determination is subjective means that it varies for different people, like saying that fast music is better than slow music. If economic exchange value were subjective, the store would have to post prices in a form similar to: "Ground coffee, price for the average person, &#036;2.00. If you want it desperately, &#036;6.00. If you don&#39;t want it and need persuasion: &#036;0.25." But obviously the price is anounced to be the same for everyone, therefore, whetever else it might be, one thing it certainly is not is "subjective."

I want to explain why this is incorrect.

The author of this comment is confusing "value" with "price" - understandable, I suppose, because "price" is more or less synonymous with "market value." But "market value" and "personal value" (also called "utility") are almost never the same. In fact, the only real reason to engage in a transaction is in order to increase your utility.

An illustrative example:

Suppose that you are very thirsty and come upon a lemonade stand selling lemonade. Now, the stand operator has set a specific price for the lemonade. What is this price based on? Supply and demand, of course. But remember that supply and demand are functions - they are curves that represent the entire spectrum of supply and demand. The intersection of those curves determines the optimal price. Note that these curves are objective measurements of subjective preferences.

Now, suppose that the lemonade costs were &#036;1.00, but based on the supply and demand, the market value ("price") is &#036;3.00. The supplier subjectively isn&#39;t willing to work for less than &#036;.50, so the minimum she would be willing to sell for is &#036;1.50. You are very thirsty, however, and so you would subjectively be willing to pay up to &#036;5.00. The market value - the objectively determined price - is &#036;3.00. Thus surplus value accrues to both parties. The supplier achieves an additional &#036;1.50 of value beyond her subjective value, and you achieve an additional &#036;2.00 of subjective value for free. The entire measurement of utility has gone up in the transaction.
While I don&#39;t agree with your implied endorsement of neoclassical theory, you are correct. The LTV was destroyed by Menger and Bohm-Babwerk in the 19th century, yet orthodox Marxists and the like hold on to it. It seems quite asanine to say that workers provide all of the "value" of a commodity. Does the capital that pays for the technology and the technology itself have no part in this? The only value that matters is personal value or the percieved value of the consumer. If a person values something and is willing to pay a ridiculous price for a commodity that&#39;s average social labour time is quite low, that is perfectly fine.

Marginalism makes far more sense than any theory of value.

[Nusocialist]

Originally posted by [email protected] 07, 2007 06:37 am

While I don&#39;t agree with your implied endorsement of neoclassical theory, you are correct. The LTV was destroyed by Menger and Bohm-Babwerk in the 19th century, yet orthodox Marxists and the like hold on to it.This is simply not true. In fact it was Sraffa who destroyed Bohm-Bawerk theory.


It seems quite asanine to say that workers provide all of the "value" of a commodity. Does the capital that pays for the technology and the technology itself have no part in this? Capital is past labour.


The only value that matters is personal value or the percieved value of the consumer. If a person values something and is willing to pay a ridiculous price for a commodity that&#39;s average social labour time is quite low, that is perfectly fine. They may be willing to, but why would they actually do it?



Marginalism makes far more sense than any theory of value.Marginalism has more holes than swiss cheese, I prefer institutionalist economics to the LTV but it is far better than either Neoclassical or Austrian marginalism.

[funkmasterswede]

Originally posted by Nusocialist+October 07, 2007 08:44 am--> (Nusocialist &#064; October 07, 2007 08:44 am)
[email protected] 07, 2007 06:37 am

While I don&#39;t agree with your implied endorsement of neoclassical theory, you are correct. The LTV was destroyed by Menger and Bohm-Babwerk in the 19th century, yet orthodox Marxists and the like hold on to it.This is simply not true. In fact it was Sraffa who destroyed Bohm-Bawerk theory.


It seems quite asanine to say that workers provide all of the "value" of a commodity. Does the capital that pays for the technology and the technology itself have no part in this? Capital is past labour.


The only value that matters is personal value or the percieved value of the consumer. If a person values something and is willing to pay a ridiculous price for a commodity that&#39;s average social labour time is quite low, that is perfectly fine. They may be willing to, but why would they actually do it?



Marginalism makes far more sense than any theory of value.Marginalism has more holes than swiss cheese, I prefer institutionalist economics to the LTV but it is far better than either Neoclassical or Austrian marginalism. [/b]
Sraffa showed correlation but not causation. And statistical approachs are very easy to manipulate. It is very difficult to decifer causation when observing economics. It is not like a scientific experiment where you can hold other variables constant.

A person is willing to buy a product simply because of the value it has to them. Price is determined by this and the cost to make the product. Having a high average social labour time does not make something valuable.

If at some point in the future, machinery and AI alone can create products than the LTV looks even more silly. Considering such is logically impossible no commodity has an inherent value, value is whatever a person will pay for it. Nothing that goes into a commodity gives it intrinsic value, as value presupposes that it is valuable, and unless someone considers the commodity valuable to say it has value due to labour or something else is simply ridiculous. There may be a correlation between products that take more labour to make and personal value, but that does not mean the value is given through the labour.

Value is value to somebody. Therefore human action must be related to subjective perception of utility increasing commodities or opportunies, based on explicit thought and implict biases and social norms.

Can you please explain to me or direct me to this critique of Marginalism that is so strong. As the critiques I have seen seem quite incomplete.

[mikelepore]

I did not confuse value with price. I pointed out the difference myself, but not the sort of difference claimed by those who say that economic exchange value is a state of mind, in the way that "soothing music" or "spicy food" is a state of mind. I cited the difference from a Marxian perspective.

The value is closely related to what a modern commodity trader would call the long-term moving average. It is the sluggish curve about which the daily price is fluctuating. For example, if the price of a desktop computer is lowered because of a holiday sale, that is truly the price that has been affected. However, when the the price of computers dropped from 1977 to the present because of the continuous reduction in the socially necessary labor time embodied in each byte and processor cycle, it is the value that has dropped. The new price is oscillating abound a new base line.

Neither one, neither the value nor the price, is subjective. The word "subjective" refers to assessments that are "true for me", "true for you", like the superiority of an anchovy pizza to the pepperoni variety. Anything for which we might look up the correct number in a newspaper, no matter how long or short the period of its change, is objective. Both the price or value are objective realities. If I were to claim that either the value or the price of a pencil is greater that that of a jet airplane, I would objectively incorrect.

______________________


"You would be altogether mistaken in fancying that the value of labor, or any other commodity whatever, is ultimately fixed by supply and demand. Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value, but they can never account for that value itself." --- Karl Marx, _Value, Price and Profit_

[Nusocialist]

Originally posted by [email protected] 07, 2007 05:31 pm

Sraffa showed correlation but not causation. And statistical approachs are very easy to manipulate. It is very difficult to decifer causation when observing economics. It is not like a scientific experiment where you can hold other variables constant.




I&#39;m talking about the Cambridge capital controversy that destroyed both the Austrian and Neoclassical theories of capital.


A person is willing to buy a product simply because of the value it has to them. Price is determined by this and the cost to make the product. Having a high average social labour time does not make something valuable.

If at some point in the future, machinery and AI alone can create products than the LTV looks even more silly. Considering such is logically impossible no commodity has an inherent value, value is whatever a person will pay for it. Nothing that goes into a commodity gives it intrinsic value, as value presupposes that it is valuable, and unless someone considers the commodity valuable to say it has value due to labour or something else is simply ridiculous. There may be a correlation between products that take more labour to make and personal value, but that does not mean the value is given through the labour.

Value is value to somebody. Therefore human action must be related to subjective perception of utility increasing commodities or opportunies, based on explicit thought and implict biases and social norms.I&#39;m not really sure what your point is here, it just seems like silly marginalist mumbo-jumbo to me. I&#39;m not sure I&#39;m 100% behind the LTV, I prefer the institutionalism of say Veblen, but I know its better than marginalism.



Can you please explain to me or direct me to this critique of Marginalism that is so strong. As the critiques I have seen seem quite incomplete.
I&#39;ll give you all I know that apply to at least neoclassical economics.

There are many, Comrade Red has already shown one, then their is the psychological hedonism and general view of human behaviour that the idea of marginal utility uses that is not supported by psychology or philosophy, there are the absurd assumptions, the use of static linear modelling which doesn&#39;t include things like time and the whole idea of a static equilibrium price, the SMD theorem, Sraffa&#39;s critiques of the marshallian theory of the firm, the Cambridge capital controversy and its destruction of marginalist capital theory and there are others.

How many of these relate to Austrianism I&#39;m not sure but I know several do. I&#39;m aware there are parts of Austrianism that are okay particularly to an anarchist like myself interested in institutional economics but alot is worthless.

The claims you get from the likes of Hoppe or Rothbard oor Mises that they have the complete guide to human behaviour by applying marginal utility to everything are laughable.