Wheylous’s post disappeared, as did my response…
But if no one wanted to spend 30k on it, you wouldn’t be able to sell it either. Demand is certainly a determining factor in the price of an item. Again, it doesn’t matter if it cost you 100k to produce the car. What matters is how many of them there are, and how many of them are wanted (and how badly). That’s it. Supply and demand.
Just because you spent a certain amount making the item and have a desire to make a certain amount of profit, so you set your sale price at a certain amount…that means absolutely nothing to the market value of the item. Just because you set a price doesn’t mean anyone will pay it. Supply and demand determine price…and prices are the objective result of the subjective valuations of individuals in the market. Input labor has absolutely nothing to do with it.
The sooner you let go of “the horizon is flat, and the sun disappears as if going around a corner…therefore the Earth is flat”, the better off you’ll be.
- Actually, Marx allows for the fact that things appreciate and depreciate in value over time. If new technologies are developed within the 5-year period that make manufacturing a steam engine cheaper and/or quicker, the 1/5 of a steam engine will only be worth 1/5th of a steam engine’s current value (at the time when it is finished), regardless of the amount of labor it took to make it. So there isn’t really a difference if the laborer sells after a year or keeps working–in either case there is the danger that the value of steam engines will drop and the laborer will not be compensated adequately for his first year’s labor (or, if he sells to the “capitalist,” the latter is just assuming the same risk).
Humor me for a moment, and forget about new technologies decreasing the labor time, that’s a dodge to my point. My point is that 1/5 of a finished widget that is useable today is not the same product as a 1/5 completed widget useable 4 years from now, even though they both have use-value, and the same amount of labor-time invested.
“But if no one wanted to spend 30k on it, you wouldn’t be able to sell it either.”
Yes, I’ve said that myself several times above. And Marx nowhere denies that demand is a determining factor in price. The point of the LTV is that supply and demand cause price to fluctuate around value. But if supply and demand are in equilibrium, they cease to explain anything about price. The point is that a car cannot sell for 3 dollars, no matter how much the market is glutted with them, because that would drive car makers out of business. Supply and demand are not sufficient to explain the difference in price between different types of products, which would otherwise all sell for the same price given the same level of demand.
“Just because you set a price doesn’t mean anyone will pay it.”
Of course it doesn’t. Nobody has suggested otherwise. There has to be a demand for something in order for it to have value at all. But what that value is is not adequately explained by demand.
Logistic,
Actually, I just brought up technological innovation as a possible reason why the widget depreciated. The simple answer is that anyone buying a widget in 2011 buys it at 2011 value, regardless of what the value of that same widget will be by the time it gets used. That’s just a risk of investment. Actual invested labor time does not determine value, average socially necessary labor time does, so the value of an unsold or unused widget changes when the conditions for producing widgets changes.
Wrong. You just don’t understand how they do explain it, and you’ve adopted an “well the Earth must be flat” solution to fill that void.
I guarantee you I could find you a car that was “sold” for less than 3 dollars. I guess that debunks your theory right there?
False. Demand is not the only factor in determining price. Supply is just as important. Did you forget the part where I said “supply and demand”?
False. This is where it is made blatently obvious you have no understanding of what you’re saying. If the physical resources existed to make such a glut of cars in the first place, they would sell at that price. You readily conceded earlier that prices go down as production efficiency increases. Cars sell at the price they do because that is the point at which the supply and demand curves intersect. It has nothing to do with how the car was made.
If there were a planet where cars were sold for 3 dollars, and someone took one of those cars and transported it to Earth…They would still have a $3 car. The car cost less than $3 dollars to make, it wouldn’t sell for any more than that on its home planet. But it cost a trillion dollars to be transported to Earth. I guarantee that car (when sold as just a car, not an alien product) would sell for just as much as all the other cars like it. The fact that it cost less than $3 to make makes no difference. And the fact that a trillion dollars went into it’s transportation cost make no difference. The price is determined by supply and demand.
Um, yes. You did. In the very post I quoted before: “The fact that a car costs 30,000 is not determined by how much I, as a buyer, subjectively “value” a car, but by the fact that I couldn’t sell it for drastically less and still make money.”
You’re suggesting that the only reason people pay 30k is because that’s the price you set. Which is completely false. I guarantee the buyer could not care less how much you need to sell the car for to turn a profit. The only thing that determines the buyer’s price (i.e. how much he will spend) is the value he places on the utility of the car.
Right. It is explained by supply and demand, like I said. Are you just not reading the posts? Did you miss the first day of economics 101?
Your answer is absurd. There is no scarcity of cars, and thus that has nothing to do with the price. There is no shortage of materials to make cars. In 2008 there were 255,917,664 registered passenger vehicles in the US, according to Wikipedia. If I want to buy a car, or a television set, or a computer, I can choose between hundreds of options. Demand does not in any way outstrip supply in these cases, and yet these are all relatively (and differently priced) expensive items. If they were sold at less than the cost of producing them, their manufacturers would go out of business fairly quickly. The only way an item can be sold for less than cost is if it’s somehow subsidized.
Your contention that you can find a car that sold for three dollars is completely besides the point. Of course I don’t contend that there cannot be an individual case where this has happened. Value is not the same as individual prices, which I have already explained above. I have also already explained the necessity of somebody finding an item personally valuable in order for it to sell numerous times above. I also explained above that just because I set a price doesn’t mean anyone will pay it. This is getting tiresome. You are quick with sarcastic comments about my intelligence and comprehension but I have to explain things over and over. Try to understand what you’re arguing against before replying next time. Usually when someone is insulting in a debate it’s because they lack the skills to argue cleanly.
Sigh. I almost feel bad that you actually took the time to look up the number of registered vehicles as a way to try and “prove” resources aren’t scarce.
Anyone else care to deal with this?
There is no scarcity of air on earth, that’s why it is free. I want a rare Ferrari but dont have the extra $1.2 million for it.
Value is subjective. One man’s noise is another’s music.
But, but, Marx’s LTV calculates that, when supply and demand are at an equilibrium, an average person would value an average rare Ferrari EXACTLY at the value of the socially neccesary labor performed by an average Ferrari worker that made it. Marx clarifies matters greatly. LTV calculates a parameter (“value”) by introducing four to six new parameters that are infinitely less calculable than it. Q.E.D. /sarcasm
It’s not that I don’t have the $1.2 million, rather that I only value it at $150,000 and the only seller I can find values it at $1.2 million …sigh, will keep lookin though! (actually I prefer a trick locost 7)
There is an interesting discussion on LTV below this article…
http://www.thefreemanonline.org/headline/macroeconomics-needs-smut/
This is a new twist I have not seen before:
"Nice explanation of SMUT theory, but I think you’re misstating the classical LTV. The LTV and other classical cost theories of value didn’t attribute inherent or essential value to goods. It was an empirical prediction of the natural equilibrium value to which the price of reproducible goods would gravitate over time. The laws of supply and demand were the actual mechanism by which the process worked. Some political economists stated this explicitly. Others, despite using language that sounded essentialist at times, implicitly assumed supply and demand as the operative mechanism.
And of course this long-term process governed by supply and demand included such things as writing off as sunk costs the products of labor which turned out to be socially unnecessary. None other than Marx himself informed Proudhon, in Poverty of Philosophy, that the worker learned after the fact — from the market — whether her labor had been “socially necessary.”
As James Buchanan pointed out re Smith’s beaver-and-deer illustration, the illustration assumes that the ratio of exchange tends toward the ratio of embodied labor because both parties are rational utility maximizers. They will make make-or-barter decisions based on whether it takes more labor (say) to acquire deer by hunting them or to acquire the same number of deer by trapping beaver and exchanging for them.
It’s more accurate IMO to describe the law of marginal utility as a theoretically elegant model for describing the mechanism by which the classical theory of value operated, rather than a refutation of it. As Jevons himself pointed out, marginal utility varies with the number of units, and the number of units varies over time in response to price signals — so the supply brought to market will fluctuate over time till the utility of the marginal unit to the consumer equals the marginal disutility (effort) of producing it.
Price — at any given snapshot of spot conditions in time — will reflect the subjective utility of the marginal unit, without regard to production cost. But once you bring in the factor of time and view marginal utility in terms of a dynamic process, it essentially says the same thing the classicals did. It’s more a complement than a refutation."
That seems more like it. Although, if the labor theory of value merely makes an empirical prediction of the natural equilibrium value to which the price of goods will gravitate, that completely refutes Marxian exploitation theory. As the theory goes, the workerz are exploited because we do know the objective value of the products they are producing. That’s how we can tell that they are exploited and that the capitalist extracts surplus value. But if wages and profits are determined by supply and demand after all, and the LVT merely is a prediction of where the equilibrium price will gravitate, then that theory doen’t hold true.
“Price — at any given snapshot of spot conditions in time — will reflect the subjective utility of the marginal unit, without regard to production cost.”
This is an absurd claim. Nobody can make money selling items below the cost of production. Furthermore, if the only determining factors were supply and demand, we’d see things like merchants pricing a stick of gum at 10,000 dollars before they discovered consumers didn’t “value” it that highly. Supply and demand cause prices to fluctuate but they don’t explain why prices are what they are to begin with.
I realize that many of you find the notion plausible that S&D are the sole determining factors, and also that most of you are not stupid, and probably none of you are. I seem to have succumbed to the tone set by John James but I don’t want to sound dismissive or condescending, since that is absolutely unnecessary in a genuine debate. Also, I acknowledge that, even if we accept Marx’s LTV, it’s unclear what we wind up with–certainly not a reliable prognosticator of price, which isn’t what Marx is after in any case. I do think, however, that a concept like value is somewhat indispensible, because if we reduce value to price we attempt to quantify something that is not only unquantifiable, it’s not even clear that it’s one thing–the subjective worth an item has for a consumer. To say that this is quantifiable because it’s just what someone is willing to pay is begging the question.
- Supply and demand cause prices to fluctuate but they don’t explain why prices are what they are to begin with.
You’re absolutely right. It’s not just supply and demand. Things need to have percieved value and scarcity in order for a price to form. Nobody’s disputing this. The problem is that Marx claims this basis of value comes from abstracted labor time. Cars exchange for carrots at some fundamental ratio X:Y because of the (simple) labor-time needed to create them.
In reality though, people don’t exchange or value goods that way. They don’t even value thier labor that way. What really happens is all about opportunity costs. A person may ask themselves “is this carrot worth 1-hour of labor, when I could also spend that hour on leisure activity?” Labor itself cannot be a fundamental source of value, because it itself has subjective utility.
The Austrian source of value is all in the individual’s mind. Ie. subjective utility. How can A serve me in a way that achives Goal X, and how is that better than using B? The source of “value” that is, the “ratios” that objects exchange for, are based on what people want to do, what thier goals are, and how they percieve those goals would be best completed with the available resources. It’s not just labor, it’s also time, scarcity, percieved costs, etc.
Look dude, value exists in the human mind. It doesnt have any external manifestation besides individual actions. Between the objective and the subjective lies the inter-subjective. The economic decisions of the market participants define the price of a good or service, and they base those decisions on subjective notions of value.
Marx had to figure out a way to denigrate the contributions of capitalists, because, you know, fuck the rich. So he created a tangled web of misapprehensions in order to define value as an objective, so he could label capitalists as oppressors and exploiters. You dont need to define value as an objective, because it is not.
Marx doesn’t define value as “objective,” it’s a social relation–the way time is allocated, through the market. There is an objective moment, but value is meaningless without human behavior.
Logistic: "A person may ask themselves “is this carrot worth 1-hour of labor, when I could also spend that hour on leisure activity?” "
I think this statement is actually kind of the basis of the LTV–it’s the fact that we would otherwise have to labor for something (including the labor required to attain the competence to produce something, which is why the surgeon’s time is worth more) that makes us willing to actually pay for things to begin with. That’s why it is labor that we value (in the sense of being willing to pay for, not personally “value”–we “value” air more than gold but it takes no labor to produce or procure air).
Oh you mean like…demand…and supply? 
JJ, yes but I’m trying to break it down in a way that he can understand. Marxist constantly reiterate that “supply and demand can’t fully explain price formation”. But when you think of trades as basically comparing two ordinal value scales, you can see how supply and demand actually gives things value and price.