Lilburne, thats a powerful post, it must be admitted that MVP’s not being summable in the way that Prashanth assumed, is ‘counter-intuitive’.
I don’t know if there is an alternate restatement of the Austro-Rothbardian view on this topic that might elaborate on this theme with greater clarity than
what I have found in Man,Economy and State. If anyone has links to articles or books, that split the difference between MES detailed/lengthy exposition and Murphy’s Study Guides perhaps overly short summation. that would be awesome.
There is an alternate view on the issue of Factor Pricing , of which I have read Reisman’s exposition. Reisman claims his understanding is in the tradition of Wieser, Bohm-Bahwerk, and Mises (and Ricardo), and is the ‘Fully elaborate view’ of which the Rothbardian is the ‘Short but sweet, good for general public version’
The jury is out for me as to what to think, though I find myself drawn quite strongly to Reisman’s writing and the quotes of those other Austrians.
I also see that the two views are related, and it does indeed seem like they are of a kind, but with significant differences all the same.
I have found only a single positive reference to Reismans ‘version’ from an economist in the austrian tradition not affilliated with LvMI,“Wladimir Kraus”
and a negative/dismissive reference from P Klein of LvMI fame in his audio/video lecture on factor pricing.
I personally would derive infinite pleasure from some kind of Round-Table or discussion group wherein Reisman and a representative of the Rothbard strand would come together to see, if its an issue of saying exactly the same thing with different words and emphasis, or if its saying very similar things, but one being misleading and the other being superior. perhaps such a thing is too much to hope for. maybe we can do the next best thing and discuss it more fully on the forums, or on the LvMI’s Reisman Group Forum https://forum.freecapitalists.org/groups/reisman/default.aspx although the groups all seem to be suffering today with load-errors…
I think it’s only counter-intuitive if we slip into thinking of MVP as an intrinsic quality of the good, like its weight or volume. We need to put ourselves in the mind of acting man and realize that to him, the revenue consequences of giving up 1 wheel of a bicycle are the SAME as the revenue consequences of giving up 2. He, as acting man, doesn’t weigh the consequences of giving up 1 wheel twice over, when the consequences of giving up 2 wheels are the same, so neither should we as praxeologists.
To know that economists believe that a factor’s pay will equal it’s MVP(or discounted MVP in case of the passage of considerable period of time)
See this: “in the view of most economists, there is a tendency, on the
market, for factor payments to equal the Marginal Value product^
(MVP) of the factors.”
And this: “the Austrian school2 insists that what tends towarc
equality with wages is not MVP, but discounted MVP, or DMVP.”
Quote from this piece.
Simply because the price of the final good gets imputed backwards towards the various scarce factors that go into making it. So, in ERE, the sum of the price of the factors will equal thefinal product’s price. And since you(and other economists) say that the price of the factors must equal the factors’ MVPs, it logically follows that the sum of the MVPs of the various factors must equal the total price of the final product.
I just wanted to be sure that we’re having the same definition of terms.
So it’s basically a problem of practicality? No. In theory it is possible to ascertain the MVP of any factor by just valuing the final product without the particular factor whose MVP is to be determined. And even in theory, the MVP theory fails.
That means INDIVIDUAL factors will be paid their RESPECTIVE MVPs, not that all the factors, if sold at once, will receive the sum of their MVPs.
Why does imputation imply equation? You’re making an unwarranted leap. Besides, in the ERE uncertainty is removed, not time preference, so the sum of the price of the factors CANNOT equal the final product’s price (or else, in the ERE, the final product would never be made). In other words entrepreneurial profit is eliminated from the ERE, but not capitalist profit. And profit in the ERE necessarily implies a spread between factor prices and final product prices.
Just another quick clarification I need from Lilburne before we go forward:
MVP is defined as the monetary value that the factor adds to the value of the final whole product. I think you agree with this.
So a bike mechanic has a incomplete bike without a front wheel. He tries to sell it, but nobody is ready to buy it, except if it’s given for free(that is zero dollars). Now the mechanic adds a front wheel to the bike, and now a customer is ready to buy the bike for $200. So the marginal value product of the wheel is $200. Does my conclusion conform with the correct procedure to determine the MVP of the front wheel?
The respective MVP in the case of the front wheel is $200, no?
1 > Price of the factor = MVP of the factor
2 > Price of the final product = Sum of the prices of all factors(like labor, capital, land etc.)
Substitute 1 in 2 and you get:
3 > Price of the final product = Sum of the MVPs of all factors
But testing equation 3 would give you absurd results. So it’s wrong.
[:D] LIke I mentioned to zefreak a little while back, I like to focus almost exclusively on one scholarly interest at a time, rotating between philosophy, ethics/political theory, history, and economics. Before I started Human Action Comics, while I was building up to writing my Society vs. State in Seven Epochs article, I was in total history mode, reading almost nothing else besides history. Since starting my comics, I’ve been in full economics mode, dog-earing my copies of HA and MES. [:)]
He asked you why must the equation be made in the first place, not just to restate that you think there is an equation between summed MVPs and price…
Also… all that is worth $200 is the compound to which the wheel is added. To say that the wheel is worth $200 you’d have to argue that the owner would pay that much for it to complete the bike. But they wouldn’t, since costs would then exceed revenues and the other factors must be paid for too. So yes, the bike will only fetch $200 once it is complete. That doesn’t mean the MVP of the wheel is $200…
That’s not what I say. It’s the MVP theorists who say so. What I say is, factors will be paid based on the relative scarcity that exists in the supply of the factors.
Scarcity alone will not suffice. So what if something is scarce if it is not valued? Meaningless gibberish. And no, that isn’t what the MVP theorists say… unless you assume its MVP is $200, which it isn’t. Its MVP is $200 - the contribution of all the other factors even if the uncompleted product is worth approximately 0.
Pranash, bear in mind that we think you’re being just as obtuse as you think we are.
But please, do answer this one question before you quit, because, again, if you can’t answer it meaningfully, it betrays that “sum of MVPs” is a meaningless concept, and therefore, a meaningless test.
I’ve attempted to expand on Stephen’s contribution, by stating out Rothbard’s position (as it seems to me). I have tried to avoid putting in my own comments/bias/ideas/answers. and formulated the writing, as a series of questions, the answering of which (I hope) would lead one down the flow-chart of Rothbard’s thinking on the matter. Lets hope I didn’t muck it up. (which i may have). I have noted next to some technical words, reference to what they may be in Prashanth’s question, i have marked these out in italics hopefully I have succesfully identified these, please ignore/correct as needed.
A factor (a wheel say) is isolable where it is non-specific. i.e. is useful in more than one productive process. or its isolable where it is the only specific factor in the process. These are the two ways according to Rothbard that it could be isolable .
is it either of those?: is it…
a) non-specific? (useful in other productive processes)
b) the only factor in the process that is specific? (not useful in other processes but other factors that are with it in its process are also useful in others)
if yes to either a or b then its isolable
if no to both then its not isolable
Rothbard->: if it is isolable then its price will tend toward its discounted marginal value product and will equal its DMVP in the ERE
if its not isolable then ..(Rothbard quote ->) then a price can be given only to the cumulative product of the factors (the bike), and the individual price(wheel, frame,etc) can be determined only through bargaining. Also, as we have stated, if the factors are all purely specific to the product, then, regardless of any variability in the proportions of their combination, the factors will not be isolable.