The problems with "refuting" the labour theory of value

[Die Neue Zeit]

[As it is late out here, I'll elaborate further on this before the weekend.]

First off, the main problem with so-called "refutations" of the labour-theory of value is that such counter-arguments are based on the ideal petit-bourgeois utopia: all the talk of "entrepreneurs" putting in their investments and "entrepreneurial" work to earn a profit (by "entrepreneur," I am specifically referring to those small-business folks who actually hire employees). In the grand scheme of things, businessmen in the big leagues hardly do any "entrepreneurial" work at all, and in fact outsource these to their employees (the researchers, the marketing staff, and so on). In this grand scheme, money capital specifically (M-C-M) is merely a [deficient] "middleman" mechanism for allocating scarce resources, much like the medieval middlemen who got their "cuts" for distributing items, and much like middlemen in today's distribution channels.

[In the smaller scheme of things, it is possible for an "entrepreneur" to extract surplus value from oneself. The profits belonging to small-business employers who do managerial and sales work are derived from both the surplus value they themselves generated and their exployees' surplus value. Then, more importantly, there are the vulturous "venture capitalists" to consider.]

Second, unlike [pseudo-]economics, corporate finance makes this apt distinction between value and price, acknowledging that there is intrinsic value to securities (the present value of future cash flows associated with those securities). "Price" tends to vary, depending on "goodwill" and other factors considered by the purchaser. If there can be intrinsic value to securities, why not with labour, as well?

[Anti Freedom]

Second, unlike [pseudo-]economics, corporate finance makes this apt distinction between value and price, acknowledging that there is intrinsic value to securities (the present value of future cash flows associated with those securities). "Price" tends to vary, depending on "goodwill" and other factors considered by the purchaser. If there can be intrinsic value to securities, why not with labour, as well?
I might be wrong, but I don't think this is really so. The fact of the matter is that the value of future cash flows is dependent upon the interest rate, the interest rate is then dependent upon market actions(or personal choice if the time value is just subjectively assigned), which involve economics and economic assumptions on subjectivity, it is just that this is usually taken outside of the corporate process as interest rates belong to the field of macroeconomics, perhaps international finance(which is just international macroeconomics).

In any case, I don't think that the major thinkers in financial theory are much different in training and perspective than the major thinkers in economics, particularly given that dual degrees in both subjects exist, that many economists strongly desire to work in the financial sector, and given the fact that many economists graduate specializing in corporate finance.

Now, I could be missing your point, or making some very wrong assumption/assertion somewhere.

[Die Neue Zeit]

The interest rate may be a "price," but behind a price is a value. In fact, even if the discount rate were set to zero, the present value of the cash flows would be infinity. :)

[Anti Freedom]

The interest rate may be a "price," but behind a price is a value. In fact, even if the discount rate were set to zero, the present value of the cash flows would be infinity. :)
Well, behind all prices are matters of value, that is why the debate exists, but I don't see the applicability of the concept to the LTV.

I mean, in as much as interest rates are not determined by subjective factors, they are controlled by government fiat, and neither supports an objective valuation. And the objective value you put forward is basically just a matter of a profit maximizing company's value system, which has no subjective elements to it, and isn't supposed to have subjective elements to it, anyway. You might as well cite accounting.

If the discount rate were 0, then the present value of cash flows would be infinite for an annuity according to the models used. And really, all you have shown is a weakness in financial models, it would be irrational to pay everything you have for a sum of 2 pennies a year, no matter how many years it was.

I dunno, am I missing something?

[trivas7]

You talk as though the labor theory of value was an unimpeachable fact, when in fact it is chock-full of problems, both logical and empirical.

[Die Neue Zeit]

^^^ I don't know what highly unorthodox "Marxist school" you've now subscribed to. :confused:


I mean, in as much as interest rates are not determined by subjective factors, they are controlled by government fiat, and neither supports an objective valuation. And the objective value you put forward is basically just a matter of a profit maximizing company's value system, which has no subjective elements to it, and isn't supposed to have subjective elements to it, anyway. You might as well cite accounting.

If the discount rate were 0, then the present value of cash flows would be infinite for an annuity according to the models used. And really, all you have shown is a weakness in financial models, it would be irrational to pay everything you have for a sum of 2 pennies a year, no matter how many years it was.

I dunno, am I missing something?

Maybe I'm the one missing something here. You mentioned accounting, which has indeed become more complex over the past three or four years with its emphasis on "fair value" (including discounting) over historical cost.

As for the "infinity" weakness in financial models, that's an interesting point to consider.

[Self-Owner]

[As it is late out here, I'll elaborate further on this before the weekend.]

First off, the main problem with so-called "refutations" of the labour-theory of value is that such counter-arguments are based on the ideal petit-bourgeois utopia: all the talk of "entrepreneurs" putting in their investments and "entrepreneurial" work to earn a profit (by "entrepreneur," I am specifically referring to those small-business folks who actually hire employees). In the grand scheme of things, businessmen in the big leagues hardly do any "entrepreneurial" work at all, and in fact outsource these to their employees (the researchers, the marketing staff, and so on). In this grand scheme, money capital specifically (M-C-M) is merely a [deficient] "middleman" mechanism for allocating scarce resources, much like the medieval middlemen who got their "cuts" for distributing items, and much like middlemen in today's distribution channels.

I don't think this is true - the counter argument to the LTV, as far as I'm concerned, is that it a) doesn't manage to explain a whole series of phenomena and that b) there is an alternative theory, the subjective theory of value, which avoids postulating an unverifiable 'objective value' in things and yet does manage to explain the vast majority of these phenomena. Note that there's no reference to entrepreneurship here: you can hold an STV and still think that most businessmen are exploitative crooks.

[tportem]

You might be getting confused with a security's market price and its book price. Book price refers literally to the value of the firms net assets divided by the number of shares outstanding. For example, if Goldman Sachs sold all their buildings, computers, etc, collected all their pending payments and paid that cash as well as their cash on hand to shareholders, and ceased to exist, that would be the book value.

However, people expect that Goldman will make money in the future, and as a stock holder, you are entitled to a portion of that. So the market value for a share of Goldman stock is generally well above its book price.

Now, as for LTV, it is empirically inconsistent with the real world. It doesn't require some kind of alternative theory in order to disprove it. The fact that we can observe in the real world that goods sell for prices significantly different from what the LTV would predict is sufficient is sufficient to prove its falsehood. There are no politics here, its just science.

[Die Neue Zeit]

I wasn't referring to book price at all. A security's market price isn't consistent with its intrinsic value, the latter of which deals with the present value of future cash flows. This is clearly demonstrated by the weakness of the "efficient capital markets" hypothesis.

Again, you are confusing price with value.

[Revolution 9]

You have not provided any coherent critique of anti-LTV positions. The fact is that society allocates resources, including labor, in ways that are the most efficient in order to produce the greatest output for the lowest price. This is the natural result of competition.

Your little tirade against "middlemen," in other words, against various fiduciary institutions like banks, hedge funds, etc. is completely pointless. It is impossible for me, a potential saver, to seek out the highest bidder for my saved money that I can loan out to. This is why people put their money into banks, hedge funds, etc. which then loan that money out. It is a convenience for both the people and the entrepreneurs.

In a properly functioning market economy (one where government doesn't exist), your wage will roughly equal your marginal input, due to the forces of supply and demand. Shareholders, banks, CEOs, managers, etc. all perform vital functions. That said, in a free market, we certainly would have a lot less top-bottom firm organization and a lot more bottom-up organization, as credit would be more available to worker cooperatives and the like.

Benjamin Tucker gave an excellent critique (http://www.mutualist.org/id72.html) of how modern corporate capitalism empowers the big at the expense of the small. Remember, capitalism and free markets aren't the same thing.

[Die Neue Zeit]

I am aware of that distinction, but only if "free markets" refers only to the consumer goods and services market. Your proposal involves the continued existence of the labour and capital markets, the foundations of capitalism.

Anyway, here's a VERY interesting article that I found by Steve Keen, elaborating on some of what he said in Debunking Economics:

http://www.debunking-economics.com/Marx/index.htm

And a PowerPoint presentation, too:

http://www.debunking-economics.com/Lectures/Thought/Week_04_Marx_to_Robbins.ppt

[According to him, and without mentioning nature's role in the production process (1875), "With the result that surplus arises from production in general, and not from any especially privileged input to production, Marx effectively freed classical economics from the many technical weaknesses that led to its defeat, in the 19th century, by the then new 'neoclassical' school. There is no 'transformation problem'"]

[Reclaimed Dasein]

I am aware of that distinction, but only if "free markets" refers only to the consumer goods and services market. Your proposal involves the continued existence of the labour and capital markets, the foundations of capitalism.

Anyway, here's a VERY interesting article that I found by Steve Keen, elaborating on some of what he said in Debunking Economics:

http://www.debunking-economics.com/Marx/index.htm

And a PowerPoint presentation, too:

http://www.debunking-economics.com/Lectures/Thought/Week_04_Marx_to_Robbins.ppt

[According to him, and without mentioning nature's role in the production process (1875), "With the result that surplus arises from production in general, and not from any especially privileged input to production, Marx effectively freed classical economics from the many technical weaknesses that led to its defeat, in the 19th century, by the then new 'neoclassical' school. There is no 'transformation problem'"]
I skimmed over your article and, from what I saw, I agree. The LTV is only one part of Marx's theory. The point that Marx also recognizes the mode of classical economics. That's a lot of what X umbrellas=X gold is about. That's the brilliance. Marx asserts both hold in capitalism. This is just another one of the many contradictions in capitalism.

We should recognize problems with both the LTV and Neo-classical economics, but we shouldn't abandon either as tools to analyze our world. Ultimately though, they are ONLY tools. Fuck the law of diminishing returns if that's what's necessary to feed everyone. I don't care if it's inefficient. For the record though, I do think many problems can be solved in the most effecient manner. That is to say, using the least amount of resources to gain the most amount of desired outcomes (products and services), but I don't agree that the market is always the best mechanism to achieve that result.

[Zurdito]

You have not provided any coherent critique of anti-LTV positions. The fact is that society allocates resources, including labor, in ways that are the most efficient in order to produce the greatest output for the lowest price. This is the natural result of competition.

Your little tirade against "middlemen," in other words, against various fiduciary institutions like banks, hedge funds, etc. is completely pointless. It is impossible for me, a potential saver, to seek out the highest bidder for my saved money that I can loan out to. This is why people put their money into banks, hedge funds, etc. which then loan that money out. It is a convenience for both the people and the entrepreneurs.

Marx hardly denied this. He acknowledged finance capital as a necessarry development of the logic of productive capitalism, and this seperates marxism from reformists who think you can regulate the financial sector and that there is such a thing as a productive capitalist to counterpose to financial parasitism.

What is undoubted though, and what Marx shows in detail, is how the logical development of capitalism is for finance capital to put all other forms of capital, which it was initially built on, at its service, and for speculation to become the normal mode of operation once capitalims enters its decadent stage.

Marx argued that withint he bounds of capitalism there was no solution to this, and no bourgeois voice is providing a coherent one with regards to this current crisis.