General Questions about the LTV

[BobKKKindle$]

I am hesitant to use the LTV when I explain why I oppose to capitalism to people that are not aware of my political views because the theory seems to be based on an assertion. I would appreciate it if someone could actually give me a better idea of what the reasoning behind this theory is, so I can use it more effectively in arguments.

As I understand it, the LTV is essentially the idea that the exchange value of a good is determined by how much labor is required to produce it. This means that if it takes twice as long to produce good A as it does to produce good B, then these goods would exchange in the ratio 1:2, and, assuming that price is a perfect indication of the value of a good, good A would sell for twice as much as good B. From this basic judgment, the theory of surplus value is easily derived - if labor is the only source of value, then profit can only be generated by paying the person who provides labor less than the value of what he produces.

However, what I don't understand is the importance of labour - why is the value of a good determined by how much labour is required to produce it? What does "labour" actually mean in this context - does "labour" also include the labour used to produce the raw materials which are used to produce a consumer good? Is there any empirical evidence that can actually be used to support this theory?

And, perhaps most importantly, is anti-capitalist critique still effective without the LTV?

[ManyAntsDefeatSpiders]

However, what I don't understand is the importance of labour - why is the value of a good determined by how much labour is required to produce it? What does "labour" actually mean in this context - does "labour" also include the labour used to produce the raw materials which are used to produce a consumer good? Is there any empirical evidence that can actually be used to support this theory?

Hello friend, I will try and answer.

What Marx said was that the fluctuations of price, caused by supply and demand, ultimately cause the price of the commodity to, over time, reflect the cost of production of that product - its labour.

And yes, the labour does include the cost of the raw materials - because those raw materials themselves result from labour power.

And for your last point, I don't know. :(

I'm not sure if that was the best explanation of things, but look here (http://www.revleft.com/vb/study-group-wage-t77483/index.html) for a better answer (and I too question that the LTV should be assessed empirically).

[gilhyle]

It is important to say that while the LTV can be reflected in empirical reality it is not an empirical thesis, it is not aiming to describe particular events or facts. Rather it is written at a very high level of generalisation. Its purpose is to explain what commodity production is so that capitalism can be understood for what it is. Does the critque of capitalism need it ? This seems to me the wrong question. Is it important science for the revolutionary marxist, seems to me a better question and the answer to that question is yes.

The reason why is that the dominant ideology seeks to explain the economy as a relationship of competition and synergy between individuals - namely economic theory based only on supply and demand. This treats production as something explicable as a by-product of the optimisation of utility by individuals (etc. etc.) By contrast, by seeing the process of the accumulation of unpaid labour by capitalists as a form of organisation of commodity production, Marxism can identify the secular patterns within the economy where the dominant ideology sees only accidents and repairable temporary problems.

[Niccolò Rossi]

And, perhaps most importantly, is anti-capitalist critique still effective without the LTV?

Gilhyle's answer was spot on (ManyAntsDefeatSpiders also provided a good response).

I would like to add one thing though. I'm not sure that Marx's theory of surplus value was at all a critique of capitalism. Critiquing Capitalism is rather like critiquing the weather. Rather, as gilhyle said, it is a means of explaining the capitalist system from the perspective of the proletariat, rather than leaving it in the hands of bourgeois political economists making the market and the law of value are unalterable laws of nature, operating out of the hands of real people.

If we are to interpret your question as "Is the call for Socialism still effective without the LTV" I would definately say yes. Marx's most important contribution as far as I am concerned is in the Materialist Conception of History. With only this, I believe, one could "justify" Socialism completely (rather than on an economic critique using ideas of "fairness" and "justice").

So many critics of Marx make him out to be a petty economist, one who was "wrong" at that. But he was far more. His economic theories, whilst making up the larger part of his life, are in reality the lesser part of his contribution.

[Die Neue Zeit]

^^^ Zeitgeist, this is probably one of those rare instances where we'll butt heads with one another on opposite sides. I'm sure ComradeRed will drop by this thread at some point.

Only about 10 percent of business use a marginal approach towards pricing, whereas the rest use a cost-plus approach (http://en.wikipedia.org/wiki/Cost-plus_pricing). This business student can't remember the website, but it has to do with cost accounting, and cost accounting is one of my "cups of tea." The most advanced variant of this approach is activity-based pricing, which is very related to activity-based costing and "management":

http://accounting.smartpros.com/x33328.xml


The same thing is true of product pricing. A price set too high becomes a lost sale that would have been profitable at a lower price. A price set too low is rewarded with unprofitable work. Only when products are priced appropriately with respect to cost does a company have a chance to both make a sale and make a profit.

While this is an oversimplified view of a complex issue, many companies are losing big money on a handful of products because they are blissfully ignorant of the relationship of the price and true cost of their products. One small company CEO was surprised to find that several products that he had quoted personally were being sold at 25% of their true cost to produce. His traditional direct labor-based cost accounting system had been unable to tell him what to do with set-up, material handling and administrative costs on low-volume or difficult products.

The fault of traditional labor-based cost accounting methods is that they arbitrarily allocate large portions of costs based on the direct labor consumed, treating all costs as if they were variable. [b]Every product has costs that are fixed, variable and step-variable. An accounting firm, for example has fixed costs related to each new audit client. Before the first year's audit can begin, "permanent files" must be created documenting the client's procedures and systems of internal control. The amount of effort to prepare the permanent files is independent of the number of years that the firm will have the audit. Preparing permanent files is a true fixed cost.

The above isn't so much a critique of LTV as it is of marginal costs (the notion that, in the long run, all costs are variable).



In spite of this, the marginalists hold a virtual ideological monopoly in the economics faculties.

What does the cost-plus approach imply? The extraction of surplus value. Granted, the exchange value of a good is not determined exclusively by how much labour is required to produce it (that would be, once more, reductionist thinking ;) ), but still...