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Saturday, July 4, 2015 - 5:10pmSanction this postReply
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According to marginalist economists, the labor theory of value (used by classical economists and Marxists) has been debunked.

 

They argue that it is possible to apply a lot of labor to the production of a good (for example, breaking rocks), and yet for that good to be sold at a very low price. After all how much would you pay for some broken rocks that someone spent a lot of time and effort smashing? This contradicts the assertion that the more labor goes into producing something, the higher its price will be. Therefor the LTV is false.

 

But this is really a misrepresentation of classical economics. Classical economists borrowed the concept of a cyclical economy from the physiocrats. They believed that the economy is a self-reproducing system.

 

From a marginalist point of view, people produce food so that they can eat it. Why do they eat food? Because they want to eat food. Why do they want to eat food? We don't know, they just do. Utility is something that is a given for marginalists. It can't be measured, and where it comes from and how it changes from time to time and from person to person is regarded as either unknown or unimportant. (Imagine if a 'physicist' told you that the force of gravity cannot be measured nor can we know how it changes from time to time, nonetheless you should trust his geocentric model of the universe based on his theory of 'gravity', it's totally legit)

 

From a classical point of view, people produce food so that they can eat it. Why do they eat food? Because they need it in order to be able to work. Why do they work? So they can produce food. And so on. For classical economists, the objective technological and scarcity conditions for the reproduction of the economy determine what people produce and consume. Why does the economy reproduce itself, though? Because otherwise it wouldn't exist.

 

This theory places strong constraints on what can and cannot happen in the economy. Which is what makes it a good theory. The above example of rock-breaking, according to classical economists, is economically impossible, since broken rocks cannot be used to break more rocks. The action of breaking rocks cannot reproduce itself, nor does it contribute to the reproduction of the economy. Hence, it probably won't happen in reality.

 

Marginalists cannot explain why people don't break rocks in the desert for no apparent reason, nor why they don't sprinkle blue-berries onto goats while yodeling. For them, preferences are a given, and any preference is as good as any other. This is why marginalism is a much weaker (and ultimately useless) theory than the LTV.

 

In order to apply the LTV correctly, let's apply the cyclical model of the economy to something that does actually happen in the economy, for example the production of food. Under a given set of technological conditions and available natural resources, it takes a certain amount of labor-time to produce a certain amount of food. However, people cannot work unless they eat, so the amount of food produced now will affect how much labor is available in the future, which in turn effects how much food there will be and so on.

 

But how does this affect prices? Well, in order to get the food that they produce, people need to pay for it first. To see the relationship between labor and price, consider what would happen if the price of food increased ten-fold (without a corresponding increase in wages, so that a unit of labor can now be exchanged for only ten times less food). Many people would starve, and be unable to work. The few that aren't starving are probably not farmers. Thus, less food will be produced, which would exacerbate the starvation problem, leading to less work being done, and less food being produced and so on. Without an off-setting increase in wages, the economy would quickly collapse in a downward spiral.

 

But prices cannot be too low either. For if they were, the people who produce the food would have little to no income, and thus be unable to buy food, and therefore also be unable to work. This would lead to the same problem as before. Thus we see how the LTV uses objective, measurable variables to determine other objective, measurable variables, such as the price.

 

Marginalists often also tout the diamond-water paradox as proof that economic value is subjective. This paradox states that, while most people would say that water is much more useful than diamonds, in spite of this, water is much cheaper than diamonds are. They claim that this is because the price of a good represents the marginal value of each additional unit of that good. And since water is not scarce but diamonds are, water will be much cheaper than diamonds, as is observed.

 

But classical economists already had a very good explanation of this paradox. Their answer was that water is much more fundamental to the reproduction of the economy than diamonds are. If the price of water was as high as that of diamonds, then we know that the economy would collapse as per the analogous argument above. Diamonds, on the other hand, are expensive because the economy can afford for them to be expensive. They are almost completely unessential for the reproduction of the economy, so it doesn't matter if much less diamond can be sold than water. In fact, if diamonds were as cheap as water, then people could simply buy a lot of diamonds, and then, since diamonds are much more durable than water, pass them on to their children, essentially ensuring that no one will have to buy any new jewelery for generations. This would be a complete disaster for the diamond industry.

 

tl;dr

 

Margianlism is pseudo-science, and the classical economists were mostly right with the LTV.



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Post 1

Saturday, July 4, 2015 - 5:48pmSanction this postReply
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The above example of rock-breaking, according to classical economists, is economically impossible, since broken rocks cannot be used to break more rocks. The action of breaking rocks cannot reproduce itself, nor does it contribute to the reproduction of the economy. Hence, it probably won't happen in reality.

 

Obviously, troll, you never walked a railroad track.



Post 2

Saturday, July 4, 2015 - 11:54pmSanction this postReply
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Since the "Labor Theory of Value" is directly related to Adam Smith's mistaken understanding of "wages," on which Marx wrongly developed his "Exploitation Theory," I recommend to read the extremely well documented and reasoned analysis of the theme by George Reisman:  http://www.amazon.com/Warren-Buffett-Warfare-Exploitation-Theory-ebook/dp/B008U1I4YU/ref=sr_1_6?s=books&ie=UTF8&qid=1436078095&sr=1-6&keywords=george+reisman - It's short and straight to the point.



Post 3

Sunday, July 5, 2015 - 3:53amSanction this postReply
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Post 0: bloviate. Not one word about supply and demand.  

It would be a long bridge between 'labor produces valuable goods and services' to 'market prices are fully explained by labor', and Naomi hasn't even placed the first girder.

 

(Edited by Merlin Jetton on 7/05, 9:17am)



Post 4

Sunday, July 5, 2015 - 12:01pmSanction this postReply
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@Manfred F. Schieder

 

I appreciate the link to the book, as that's an argument I have not heard before. I don't have the book, but I did find this article by Reisman which summarizes his argument.

 

Thus, in the pre-capitalist economy, only workers receive incomes and there is no money capital. But all the incomes which the workers receive are profits, and none are wages. In the sequence C-M-C, everything is "surplus value"—one-hundred percent of the sales receipts and an infinite percentage of the zero money capital. In the sequence M-C- M?, a smaller proportion of the incomes is "surplus value"—in degree that M is large relative to M?.

 

Reisman confuses or does not understand the distinction between profit and surplus value. He thinks that they are the same thing, but they're not.

 

Surplus value is what is left over after the economy has produced everything it needs to reproduce itself. The economy obviously does not produce ONLY what is necessary for reproducing itself, (since otherwise it would never grow). It also produces a little more. This is what Smith calls the "natural recompense" and what Marx calls the "surplus value". Profit is just total revenue minus total cost.

 

Note that it is possible for profit to be zero even though the surplus value is non-zero. If some workers produce 500 bushels of wheat, and they need only 400 to feed themselves, then the surplus value is 100 bushels of wheat. If they sell the extra bushels for 10 coins a piece, then their profit is 1000 coins. However, if they don't sell the extra bushels, and just consume them or store them away, then their profit is zero, but nonetheless, the surplus value is still 100 bushels of wheat.

 

The rest of his argument is that

 

Smith and Marx are wrong. Wages are not the primary form of income in production. Profits are. In order for wages to exist in production, it is first necessary that there be capitalists. The emergence of capitalists does not bring into existence the phenomenon of profit. Profit exists prior to their emergence. The emergence of capitalists brings into existence the phenomena of wages and money costs of production. 

Accordingly, the profits which exist in a capitalist society are not a deduction from what was originally wages. On the contrary, the wages and the other money costs are a deduction from sales receipts—from what was originally all profit. The effect of capitalism is to create wages and to reduce profits relative to sales receipts. The more economically capitalistic the economy—the more the buying in order to sell relative to the sales receipts, the higher are wages and the lower are profits relative to sales receipts.

 

Neither Smith nor Marx are saying that wages (as we understand the term today) are the "primary" form of income in production. What they are saying is that "in that rude state of things" (to use Smith's terms) or under "primitive communism" (to use Marx's), the laborers retain the entirety of the surplus value (not profit). What they refered to as the wage was the "natural wage", the amount of value that a laborer receives in order to sustain himself.

 

What they receive in wages under capitalism is called the "market wage", and it consists of the natural wage plus some portion of the surplus value (this portion, at least according to Marx, is determined by political forces and not economic forces). The rest of the surplus value goes to the capitalist.

 

@Merlin Jetton

 

Post 0: bloviate. Not one word about supply and demand.

Because those concepts are completely unnecessary, and also, nonsensical.

It would be a long bridge between 'labor produces valuable goods and services' to 'market prices are fully explained by labor', and Naomi hasn't even placed the first girder.

Read Smith, Marx, and Pierro Sraffa if you want the whole story.



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Post 5

Sunday, July 5, 2015 - 4:42pmSanction this postReply
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Because those concepts [supply and demand] are completely unnecessary, and also, nonsensical.

 

  Please explain to us relying only on the LTV the phenomena of (a) gasoline prices rising just before holidays and falling shortly after and (2) many, many retail prices falling shortly after Christmas. 



Post 6

Monday, July 6, 2015 - 3:48amSanction this postReply
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Read Smith, Marx, and Pierro Sraffa if you want the whole story.

 

Adam Smith at least had an inkling of the connection between price, supply, and demand. Marx's notion of "surplus value", which you are obviously fond of, is the phlogiston of economic theory.



Post 7

Tuesday, July 7, 2015 - 8:17amSanction this postReply
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@Merlin Jetton

 

  Please explain to us relying only on the LTV the phenomena of (a) gasoline prices rising just before holidays and falling shortly after and (2) many, many retail prices falling shortly after Christmas. 

 

There is absolutely no evidence to indicate that this actually happens

 

 

Ugh... it keeps deleting my edits. 2/3 of my post is gone.

 

(Edited by Naomi Ludenberg on 7/07, 8:20am)



Post 8

Tuesday, July 7, 2015 - 8:44amSanction this postReply
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There is absolutely no evidence to indicate that this actually happens.

 

Your graph is utterly useless regarding your claim(s) or mine.

 

Edit: The website the chart was copied from doesn't reveal the plot data, but it's likely monthly. A monthly plot will obviously overlook a day-to-day phenomena.

 

(Edited by Merlin Jetton on 7/08, 3:44am)



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Post 9

Friday, July 10, 2015 - 8:01pmSanction this postReply
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I give up trying to link videos to this site.  I've never had so much trouble with something! 

 

(Edited by Teresa Summerlee Isanhart on 7/10, 8:05pm)

 

(Edited by Teresa Summerlee Isanhart on 7/10, 8:09pm)



Post 10

Saturday, July 11, 2015 - 11:44amSanction this postReply
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Teresa:

This was a subject a while ago between Dean and someone else. I copied their dialogue in case I might have to use it in the future:

 

"On the page with the YouTube that you are interested in, you need to click where it says "Copy" (follow Dean's instructions)- then you go to RoR, to the "Create New Post" page where you are building your message and you do the "Insert Video" (again follow Dean's instructions) and where it says "Embed" you paste what was copied.

 

"When you clicked the "Copy" on the YouTube page, it stored all of the needed text in your Windows' clipboard area. Because of that you can do the "paste" which moves that saved text into the RoR area to be saved.

 

"Note: On my browser I did all of this, but I didn't see any video in my message in the edit area. I clicked "Post/Preview" but it didn't fully appear on the previous page. It only appeared in my post when after I clicked "Post"  "

 

I have forgotten who wrote this but it was one of the regulars.

 

Hope this helps.

 

Sam



Post 11

Monday, July 13, 2015 - 10:15amSanction this postReply
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Thanks, Sam! However, I am sure that Tress is pretty smart, and I just tried all the ways that I know to follow those instructions. YouTube has changed and this site has changed since Dean wrote those guidelines.  As the Sidney Harris cartoon said about miracles, "You need to be more explicit in Step 2."

 

(Edited by Michael E. Marotta on 7/13, 10:27am)



Post 12

Monday, July 13, 2015 - 6:03pmSanction this postReply
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youtube:
1. Share->Embed, copy all stuff in text box starting with: "<iframe..."

rebirthofreason:
2. Put the textbox cursor where you want the video to be
3. Insert->"Insert video"->Embed, paste in text box.
4. Click OK
5. Click Preview
6. Click Post



Post 13

Tuesday, July 14, 2015 - 1:07amSanction this postReply
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 Naomi quoted George Reisman as follows:

Thus, in the pre-capitalist economy, only workers receive incomes and there is no money capital. But all the incomes which the workers receive are profits, and none are wages. In the sequence C-M-C, everything is "surplus value"—one-hundred percent of the sales receipts and an infinite percentage of the zero money capital. In the sequence M-C- M?, a smaller proportion of the incomes is "surplus value"—in degree that M is large relative to M?.

And replied:  Reisman confuses or does not understand the distinction between profit and surplus value. He thinks that they are the same thing, but they're not.

 

Surplus value is what is left over after the economy has produced everything it needs to reproduce itself. The economy obviously does not produce ONLY what is necessary for reproducing itself, (since otherwise it would never grow). It also produces a little more. This is what Smith calls the "natural recompense" and what Marx calls the "surplus value". Profit is just total revenue minus total cost.

 

True, profit is total revenue minus total cost.  The reason Reisman says that in the pre-capitalist economy, all income is profit is that the workers have no money costs to deduct from their sales receipts.  So their entire income is profit; it's also surplus value, because, according to Marx, surplus value "is the excess of value produced by the labor of workers over the wages they are paid." (Oxford English Dictionary).  Since in a pre-capitalist economy, there are no wages, as there are no capitalists (no employers), the worker's entire income is surplus value.  Since wages are zero, the value produced in excess of wages is 100%.  It is also profit, since profit is the excess of receipts from the sale of products over the money costs of producing them, which in a pre-capitalist economy is also zero, as there are no money costs of production.

 

Note that it is possible for profit to be zero even though the surplus value is non-zero. If some workers produce 500 bushels of wheat, and they need only 400 to feed themselves, then the surplus value is 100 bushels of wheat. If they sell the extra bushels for 10 coins a piece, then their profit is 1000 coins. However, if they don't sell the extra bushels, and just consume them or store them away, then their profit is zero, but nonetheless, the surplus value is still 100 bushels of wheat.

 

Remember, surplus value is the excess of value produced (in this case, 500 bushels of wheat) over the wages the workers are paid.  Since they aren't paid any wages, their surplus value is 100%.  Even if they sell only 100 of the 500 bushels, their profit (of 1000 coins) is also 100%, since (again) profit is the excess of sales receipts over the money costs of production, and in this case, there are no money costs of production.  So 1000 coins minus zero money costs equals 100% profit.  This is why Reisman says that in a pre-capitalist economy, all money income is profit.

 

The rest of his argument is that

Smith and Marx are wrong. Wages are not the primary form of income in production. Profits are. In order for wages to exist in production, it is first necessary that there be capitalists. The emergence of capitalists does not bring into existence the phenomenon of profit. Profit exists prior to their emergence. The emergence of capitalists brings into existence the phenomena of wages and money costs of production. 

Accordingly, the profits which exist in a capitalist society are not a deduction from what was originally wages. On the contrary, the wages and the other money costs are a deduction from sales receipts—from what was originally all profit. The effect of capitalism is to create wages and to reduce profits relative to sales receipts. The more economically capitalistic the economy—the more the buying in order to sell relative to the sales receipts, the higher are wages and the lower are profits relative to sales receipts.

Neither Smith nor Marx are saying that wages (as we understand the term today) are the "primary" form of income in production. What they are saying is that "in that rude state of things" (to use Smith's terms) or under "primitive communism" (to use Marx's), the laborers retain the entirety of the surplus value (not profit).

 

Well, "in the rude state of things," surplus value is profit, since profit is total revenue minus total cost and there are no money costs.  Remember, in a pre-capitalist economy, it's C-M-C, in which a worker produces a commodity C, sells it for money M, and then buys other commodities C.

 

What they refered to as the wage was the "natural wage", the amount of value that a laborer receives in order to sustain himself.

 

Then, under the "natural wage," surplus value would be the excess of what the laborer produces over what he needs for bare subsistance, correct? 

 

What they receive in wages under capitalism is called the "market wage", and it consists of the natural wage plus some portion of the surplus value (this portion, at least according to Marx, is determined by political forces and not economic forces). The rest of the surplus value goes to the capitalist.

 

This distinction between the "natural wage" and the "market wage" is confusing, given Marx's concept of "surplus value" as "the excess of value produced by the labor of workers over the wages they are paid."  My understanding is that, according to Marx, his concept of surplus value applied to capitalism, but you're now saying that under capitalism, the "market wage" includes "some portion of the surplus value."  Doesn't this contradict his definition of 'surplus value', none of which is included in the workers wages under capitalism? 

 

Also Merlin noted, "Not one word about supply and demand."  To which you replied, Because those concepts are completely unnecessary, and also, nonsensical.

 

They're neither unnecessary nor nonsensical, as they explain why some workers under capitalism receive very high wages, far above subsistence level, while other workers receive much lower wages.  Money wages are determined by the supply and demand for labor.  If the demand is high for a particular skill or talent, but the supply of workers possessing that skill or talent is low, then the wages tend to be high, because employers compete for the very valuable but relatively scarce labor, and in so doing bid up its wages.  We see this in the high salaries of CEOs and professional athletes.  Conversely, if the supply of workers possessing a particular skill or ability is high (because most people possess it) relative to demand, then the wages for those workers tend to be low.  We see this in the wages of fast food workers and day laborers.



Post 14

Tuesday, July 14, 2015 - 4:10amSanction this postReply
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Dwyer wrote: My understanding is that, according to Marx, his concept of surplus value applied to capitalism, but you're [Naomi] now saying that under capitalism, the "market wage" includes "some portion of the surplus value." Doesn't this contradict his definition of 'surplus value', none of which is included in the workers wages under capitalism?
.
Let C = the capitalist who pays the "market wage." Maybe she meant the surplus value that is part of the "market wage" is surplus value embedded in capital or materials that C purchased, e.g. a parts maker for equipment C owns and the workers use.

 

In my book review here I respond to a tweak to Marx's theory of prices as follows. "In Appendix B the authors claim to revise Marx's "essentialist" theory of price by tweaking his theory to make it an "overdeterminist" one. The tweak is to change purchased inputs other than labor to be based on market price paid rather than Marx's assumed labor value of said inputs. It seems they consider this an advance in Marxian economics. Perhaps so. Another perspective is that their tweak is in effect a partial concession to neoclassical market price theory."

 

In the same review I wrote, "The authors follow the usual Marxist assumption that surplus value is always a positive number. What if surplus value were negative instead? Suppose an employer hires workers to produce a commodity, expecting to sell it for more than the cost of labor and materials. Instead, the money realized upon sale is even less than the cost of labor. To be consistent didn't the workers exploit the employer? Wouldn't justice be served by expropriating whatever possible from the workers to offset the deficit?"

 

(Edited by Merlin Jetton on 7/14, 4:21am)



Post 15

Wednesday, July 15, 2015 - 7:04pmSanction this postReply
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Hey Sam, I tried all that jazz. Nada. 

 

Youtube "codes" have two modes: Regular hyperlink mode, and embedded hyperlink mode. I tried both ways, into both tabs on our little site here. Zero effect. 

 

I seriously fucking just give up on it. 



Post 16

Wednesday, July 15, 2015 - 7:09pmSanction this postReply
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Dean, WHICH CODE??

 

Regular hyperlink: https://youtu.be/bKxodgpyGec

 

or

 

Embedded hyperlink: 

 

 



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Post 17

Wednesday, July 15, 2015 - 7:11pmSanction this postReply
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Well, damn. 

 

I get it. Nothing shows up in the preview. Jeesh. 



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Post 18

Wednesday, July 15, 2015 - 8:59pmSanction this postReply
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Teresa,

 

With all due respect to the many and varied contributors to this thread, your video musical of "Forget You" was my favorite post - by far!

 

 I love that a fairly new tune got people all excited, when to me it sounds just like those so fine Motown hits from the 60s.



Post 19

Friday, July 17, 2015 - 8:33amSanction this postReply
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"What's Wrong with the Labor Theory of Value?" by Yaron Brook



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