I’d also like to point out that Marx correctly identified conflict as the source of Political phenomena.
Austrian practitioners and theorists have bumped up against the Political sphere of human action and haven’t found a way to expand Praxeological analysis into that sphere, except when they apply the Economic sphere of praxeology to social order. In other words, we can explain and predict the Economic consequences of specific political behaviors.
So it looks like I’m in the business of becoming a Social Scientist, an Economist, and a Political Scientist. If we’re going to uproot Marxism, we can’t just explain it’s logical fallacies, I believe methodological individualism must be used to construct a praxeological framework for analysis of conflict.
We need to find a way to effectively unite the different classes. Austrian Economics does explain interest and the roles of Entrepreneur and Laborer in an economy. It explains that they are in fact the same qualitative type of person, with varied Time Preference structures.
Austrian Economics, via Rothbard, and currently Rockwell seem to be bound and determined to somehow establish as “Right”, Natural Rights Theory. If you pay very close attention to Mises, he made the point that Praxeology takes ENDS as ultimate givens. We don’t get to argue about the Ends of the individuals. Praxeology was value-free, all it could tell you is the necessary consequences (or ends which would actually appear) based on the means used. It is for the actor to determine whether or not the necessarily arising ends were in fact ones that the individual valued.
This is the same for our political systems and theory. Where Austrian Economics points out the necessary outcome of minimum wage, price controls, regulation, taxation, etc, consumers of government services must then decide what they will ask for from governments, and in fact whether or not to accept the claims of authority made by agents of government.
That part of Praxeology is very effective currently. The part I’m concerned about is being able to replace class struggle and collectivist political theory with a theory of politics (conflict) that is based in methodological individualism.
Jon: Who says that they do? Location in itself is a differentiating characteristic for a good from the POV of the consumer.
Then the same could be said of Marx’s use-values. (I didn’t mean that as a critique of marginal utility theory, just pinting out that it treats the issue in the same way.)
Aayu: The problem being, Marx doesn’t relate the use value to its value. He says that the value of a commodity is equal to the socially-expected labour time expended on the product. And the value menifests itself in the exchange value of the product. They don’t relate the use-value to the exchange value, which is why the problem arose in the first place. I was looking for someone calling me out on my inadequate understanding of ’ socially acceptable’.
Commodities have to have the same use-value for the socially necessary labor time to apply. Essentially, they have to be substitutable. If they are substitutable, then if follows that there price would tend toward uniformity. In other words, why would someone pay more for a good that he can get elsewhere for less? Marginal utility theory makes the same assumption of substitutability. For example, look at Rothbard’s explanation here. His graphs and tables assume that the goods are equally suited to the needs of the consumer, and thus he derives a uniform price. Things get trickier when we consider goods that are sort of substitutable. What about Coke and Pepsi, for example? I personally don’t have much of a preference, so I would likely buy whichever was cheaper. But people who prefer Coke might be willing to pay more for it. But if a bottle of Coke cost $10 they might switch over to Pepsi, and yet they might still buy it at $10 if Pepsi didn’t exist. This suggests a level of substitutability. Again, this is a problem that faces both theories of value, but I don’t think it is an insurmountable problem.
BTW, I recommend the videos at Kapitalism101 (especially the Law of Value series). I prefer these to the Harvey lectures, actually.
Read the first chapter of Capital and/or watch this.
Then you’re missing the point, if a theory explains MORE phenomena (on in this case all exchange phenomena and in fact all human action) in a more satisfactory and cleaner way, doesn’t that constitute a superior theory?
No, I don’t think so. For example, consider theories of rain. One theory could simply say that it rains whenever the humidity reaches 100%. This theory has the advantage of being able to explain every case of rain. But this by itself is a trivial explanation. It doesn’t say why it rains a lot in Seattle and only half as much in Spokane. To explain this, we need to consider other factors. We develop a theory that attributes the increased rain to the rising of warm air produced by eastward moving wind as it is pushed up into colder air by the mountains. However, this theory now doesn’t explain all cases of rain. It has to allow exceptions. If the wind is blowing from the east one day and it still rains in Seattle, then obviously something else is at play in that case. But the theory is useful in explaining the general trend, whereas the other one was completely useless in that regard.
I don’t want to get into a big discussion about the Marxian theory of value right now. But I might start a thread on it after I finish Capital and Bohm-Bawerk’s critique.
Before I respond, let me ask this question: are you committed to Marx’s views and theories?
I just watched that one video. And there are a number of statements in there that I categorically deny are true, but are stated as if no “reasonable” person would disagree. I’m going to watch it again (and pause often) and write them down. My next post in this thread will contain those statements and I hope to demonstrate why they are false.
Please remember Marx never replied to Bohm-Bawerk. He knew of Bohm Bawerk’s criticism, and held off on releasing the remaining volumes of his work on Economics. My understanding was that he was planning to revise the work, to answer this criticism. Yet this never happened. His works were released by others posthumously.
Now, others may have responded to Bohm-Bawerk after the fact, and if so, I’d like to get references to them, but until you have such a reference, I think Marx’s lack of a response indicates something interesting. I don’t think it was that he didn’t believe it needed a response, or else he would have released thos volumes before he died. My guess would be he never found the solution. I’d like to think he began to have doubts. But that’s probably wishful thinking on my part.
More importantly Marx’s work was an attempt to solve problems that appeared in classical economics. Many, if not all, of the criticisms Marx had of classical ecnomists were valid and were also embraced by Austrians. But they also criticized Marx’s attempts to fix those issues through a labor theory of value. Marx never answered the Austrian critique. In fact, I don’t know of anyone who has successfully. Austrians were ignored after Keynes showed up.
And here is an example of the thing we need to be so careful of. In the middle of explaining how a theory of rain succeeds in defining the conditions under which all rain occurs, you change the question that your seeking an answer to.
The first question is “What conditions cause it to rain, such that whenever this condition occurs we are certain rain will happen?”
Then you say this isn’t really an interesting answer because it doesn’t explain why it rains a lot in Seattle. But that’s a different question. That question is, “Why does the condition we know causes rain (100% humidity) happen more often in Seattle than in Spokane?” That’s a different question!!!
In the second case you switch to a new phenomena (frequency of rain) and start presenting theories about how and why they occur and you look for ways to check whether or not those theories test out to be true, and then you go back and check their predicted results against real world data, and look for exceptional conditions again.
What would constitute a superior theory is if you found an instance (and reproducible) when it does rain and the old theory’s condition (100% humidity) doesn’t apply. Then if I came a long with a new theory that explained all of the cases when it rained when there was 100% humidity and also explained the rain that happens when there is < 100% humidity, you would agree with me that it was a superior theory.
This is to me the essence of critical thinking, and it needs to be engaged in very humbly and very very rigorously. We need to be very, very careful to not switch contexts like this. You used this analogy to suggest that my assertion wasn’t necessarily true, but careful examination shows that your example doesn’t fit my assertion. You switched questions in the middle?!
That’s what this thread is though. I thought you jumped in because you did want that discussion. I sure do
Do you support Marx’s position? I don’t mean that as invective or as a criticism just for clarification. I support looking closely at his position and understanding what he is saying.
I am not really sure right now. I have just started with his works, and although I can find many discrepencies, I’m not really sure if it is because HE didn’t understand economics, or because I don’t understand his work. I’m still in transition, as the saying goes. I have long supported the idea of communism, for example, but have accepted that it is utopian, for the most part. So right now I’m merely rekindling my hope in communism, let us see where this goes. He is one of the most misrepresented man I’ve ever seen, though.
I need to go read Marx’s works so I get a better first hand understanding of what he actually has to say rather than second hand (not meaning you, but later socialists) accounts of what he “meant”. For example, most public discussion focuses on his class struggle arguments, as does most Austrian Criticism that I’ve read (in Mises, Hayek, and Rothbard). But there are other critiques also.
Yes, that would be for the best. I personally have been pleasantly surprised by a lot of his claims, they went against the very essence of his personality in my mind. I plan on moving from capital to Human Action, so as to first hand declare my preference. So, as I said, I’m still progressing in my ideology.
But, in particular here, I’d like to point out that labor value and exchange value were, if I understand correctly, already in place prior to Marx. Classical Economics didn’t understand how to unite these differing and both apparently real views of value. I like to think of this as the difference between wave and particle views of electromagnetic forces in physics. The subjective theory of value explained both phenomena. Marx didn’t explain the difference or unify both into one overarching explanation. If I understand correctly he used class theory as an explanation for the different phenomena, and classified exchange value where it differed from labor value in terms of exploitation of one class by the other.
Well, yes- It was already discussed prior to Marx. However, there was no distinction between the labour time and the Socially acceptable labour time. Ricardo, who came the closest to explaining the term value, equated it to labour time. Basically, there were differing opinions on the term- ‘value’. Classical economists also did not understand the two fold nature of labour, one- as it appears as the use-value of a commodity, and two- as it appears as the exchange value of the commodity.
Marx’s analysis includes what he calls “use-value”, which is equivalent to the notion of “utility” or “subjective value”. Furthermore, he states explicitly, early on in Capital, that different people can impute different use-values to the same commodity. His “law of value” asserts that the ratio of values (not use-values - Marx defines “value” as “the average amount of socially necessary labor-time required for production”) serves only as a “center of gravity” for commodity prices. What you say above goes along with this, but adds additional explanation. Austrian-school economics also explains, in effect, what causes the deviations in commodity prices away from this “center of gravity”.
There’s more to it than that, of course. For example, Austrian-school economics adheres rigorously to the notion of inhomogeneity of labor, while Marxian economics does not. However, this thread is about whether there’s an inherent contradiction in Marx’s value theory, so any discussion of Austrian-school economics here is tangential at best.
Therein lies the rub - his appraisal of the “worth” or “value” of his labor is necessarily subjective. Marx tries to objectify all this by talking about labor-time as opposed to labor. After all, time can be measured objectively. So can physical effort, in terms of energy expended per unit time. However, it’s often very difficult to objectively measure physical effort within a work environment. Mental effort is even harder to measure objectively.
As I see it, Marx’s point is to try to provide an objective basis for the charges levelled by socialism against capitalism, particularly that capitalism exploits labor.
I agree, BUT there are one distinct clarification that needs to be made.
First, crusoe CAN’T actually take as long as he wants. Any basic understanding of subsistence survival makes it clear that survival alone in a wilderness no matter how luxurious it might seem, is a microcosm for economizing action. One must decide what to ends to aim at and that ones survival depends on not only choosing the proper ends, but also in choosing the proper means to achieve that end.
Heat, Shelter, Food, and Water are absolutely vital to any man’s survival. Depending on the environment the prioritization of these goals will vary slightly. There is no environment on earth that doesn’t require all four. The only one you could possibly cut out is heat, IF you have sufficient variety of plant products that don’t need cooking and an environment which never drops in temperature to a point that could cause hypothermia, but I doubt this is actually possible. This description above implies that there is an idyllic idleness that crusoe can engage in.
Ok here’s the meat of the flaw, in that this description chooses to emphasize part of what’s going on and ignores other factors that are also affecting the situation in the same way.
For example, instead of saying if their workers are less productive, let’s say if their production costs are higher. The only factor is not labor. It’s one of many factors. Now, another point here is that there’s never a discussion of loss, or super-loss. Wonderbread, or more specifically the owners/investors, bear the risk of Loss, in the event that they underestimate their production costs. Those can be 1) underestimate the cost of wheat, 2) underestimate the lifetime of the bread making equipment, 3) underestimate the quantity of (and perhaps the hourly rates for) the labor used to run the production process. All of those COULD incur losses But this is the only mention in the video of this RISK that the “capitalist” bears in the production effort. Also, this concept of “socially necessary labor time” seems like it could be restated as “labor costs”. This is one of many factors which contribute to the “production cost”. In an economy that uses money, all of these costs will be accounted for in terms of a quantity of money. So in this case, each company will have it’s own internal production cost, BUT THAT’S NOT the market price of the bread.
The market price of the bread, will be set by 4 factors. 1) Demand for bread, 2) Supply of bread, 3) demand for money, 4) supply of money. As these factors interact (through individual exchanges) and vary in the market place, the price will get “set”, and by set I mean fluctuate around an ever changing price which is described as the equilibrium price. It’s an imaginary value that is “always sought” but is never achieved, as every interaction in the market has some modifying effect on the 4 factors listed above.
We agree here about the classical school (and the neo-classical school) and it’s mathematical methods and it’s sterile concepts. If you notice, Austrian Economics describes price equilibrium as a hypothetical value that is used to explain changes in prices, NOT some price that ever appears in the market.
I’m going to pause here.
So to rephrase, the owner of the factory who pays for labor as one of the his production costs, doesn’t know until a price is established for his product by consumers whether or not his production costs make his chosen production method profitable or not. I’m not sure what is being added with a statement like “In the market these private labors become social”. The labor inside the factory is already social if more than one worker participates in the production of the good the factory produces. I guess the question is what is meant by social here. If it means that there is feedback from the market generated sale price of that good, then yes that does happen. But it isn’t labor specifically that’s “judged” as efficient or inefficient by the market price. It is the production method chosen by the owner of the factory that is judged in such a way. I say this because there can be other reasons his production costs make his producion method less profitable. This market judgement operates indirectly on the workers, in that they may lose their jobs or the factory owner may seek to hire less expensive labor because of his losses. He’s seeking a profit. But that’s not a direct indictment of the worker, it’s an indictment of the factory owner who chose that method of production which was less efficient.
Now the objection one might make to my argument is that all of the factors of production were created through a certain number of labor hours, and thus their value is determined ALSO by the quantity of labor that produced them. I won’t respond to that yet. But oh, how I want to. There’s a statement later that helps me much more, and makes this easy. This seems to make sense.
Let me ask this question however, why does one man get paid more for the same job, and another man less? I.e. this theory is predicated on the idea that labor is one of these equally substitutable goods. If this is so, why would one factory worker receive a higher wage than another? Why would a manager receive a higher wage than a line worker?
I would contend that labor is not substitutable meaning that one man may work harder than another, one man may acquire skills that can be used in a production process that another odesn’t have and thus is able to do a job another man can’t.
How does this concept of “Socially Necessary Labor Time” deal with labor when it’s not substitutable?
BTW, the subjective theory of value explains all of these phenomena, and much more.
BTW, considering where the classical school of economics was at the time it was written, some of these ideas make sense. But that doesn’t make them superior to Praxeology. I believe I’m going to have to go through this entire series in order to compare apples to apples.
Marx’s theory of value and his description of how value plays a role in exchange is the missing feature here that’s the divergence point for Austrian Economics from a classical, marxist or neo-classical view of economics. That’s not directly covered by this video as far as I can tell.
Marx doesn’t treat changes in demand that way. He sees the demand for a commodity as being based on the use-values people impute to it. That has nothing to do with the average socially necessary labor-time required to produce it.
Marx treats prices - or exchange-values - as expressions of values (not use-values), based on his law of value. But again, that doesn’t mean a price/exchange-value is based only on value.
In the context of Marx’s analysis, I’d say that an increase in the demand (i.e. average/aggregate use-value) for a commodity will lead to more people producing it (ceteris paribus). This, in turn, raises the price of the commodity because either less productive means are utilized for the additional production or additional effort must be expended in creating new means of production. Following Ricardo, anyone who was already producing the commodity beforehand, and who has not expanded his own production of it, and who nevertheless raises his selling price once the production has expanded, is collecting some amount of economic rent. Marx essentially considers economic rent to be one form of exploitation.
Another point here about Crusoe, in this scenario Crusoe gets a direct reward from the fruits of his labor. If he chooses wisely in the means that he uses to achieve his end, for example getting water. Then he gets a direct reward. If he invests time and labor in constructing some type of device for holding water, then he will reap the rewards of this new capability. One would expect that he would be able to transport fresh water with him, reducing the amount of time he must spend moving to the stream for water and also expanding the distance he can afford to travel from the water to engage in other productive efforts. Good no one can exploit him.
But wait, there’s another side to this, if he makes a container that fails to hold water, then the labor he invested in this new product is wasted and lost. He suffers the loss directly. Crusoe doesn’t know, until he’s finished whether or not his production method will succeed in producing a device that is will be useful for his ends.
So my question to a “Marxist”, is in the factory a product is being produced using a production method also, Who is Crusoe? The worker or the owner? and why.
My argument is that the owner and the worker each contain part of the overall crusoe activity we see in the example of building a water container. Understanding which parts of that activity each party brings too the table is key to understanding why a factory works the way it does.
That’s not the case at all. Marx clearly states that different people can consider the same (type of) commodity to have different use-values. Therefore the value of a commodity - the average socially necessary labor-time required to produce it - is independent of any use-value imputed to it.
So in essence, Marx’s response is that exchange doesn’t create additional value, THEREFORE, it cannot be the source of profit. Perhaps this is just some gulf that can’t be bridged.
I view this differently, but I’ll try to clarify why I find this troublesome. His argument is that making a new product requires labor and ONLY making a new product increases the total value of society. If this is true, doesn’t that argue that exchange must be a zero-sum transaction? If this is true, then there are 3 possible outcomes party A loses, party B loses, or the two parties tie in the transaction, meaning they actually exchanged equivalent value.
Now there are various terms that are glossed over above, and I think they warrant attention. This idea of the Total Value of Society is troublesome to me, in fact IMO it leads to the many theories of money that argue for the creation of money at the same time that goods are produced in order to keep sufficient money in the economy to represent the “Total Value of Society”.
Let’s compare the total value of society in two different worlds. For example, in world A, I have two toasters and you have none. In world B, I have one toaster and you have one toaster. Is the total value of society the same in both cases? If it is, then who owns the goods shouldn’t matter. Or more generically who has access to the use of the specific goods in society doesn’t play a role in the “Total Value of Society”.
A subjective theory of value would demonstrate that changing the distribution of the goods that are in society would in fact constitute an increase in value, BECAUSE each party had improved their ability to attain their own ends as a consequence of the exchange. But without a science that explains how the categories of economics arise out of human action, one can’t logically explain why this exchange is every exchange is a win/win.
If one is stuck with a theory of exchange in which an exchange is a zero-sum game, one must conclude that each and every exchange is a battle to lose less value. In such a world, every exchange must also, necessarily be a battle to exploit the other party in the transaction. This would not be limited to workers, would it? If a worker/employer relationship is a periodic exchange of labor for money, then isn’t the worker also battling within that exchange to exploit the owner?
I can if necessary continue that line of reasoning and demonstrate how production would screech to a halt and society would necessarily careen back to a subsistence level existence. In the meantime, an economic system of thought based on an assumption of a zero-sum exchange of value, must explain how societies that accumulate capital and then invest it in more advanced and longer processes of production have produced a constantly improving state of existence (lifespan, food availability, health, comfort, leisure time, etc.) for members of the society REGARDLESS OF THEIR CLASS OR STATION.
David: Before I respond, let me ask this question: are you committed to Marx’s views and theories?
I’m not sure what you mean. I think Marx was a brilliant thinker. But I do actually have some problems with the way he explains things. Namely, I don’t think he gives a good explanation of how the different qualities of labor relates to time and how they can become quantifiable.
Please remember Marx never replied to Bohm-Bawerk. He knew of Bohm Bawerk’s criticism, and held off on releasing the remaining volumes of his work on Economics. My understanding was that he was planning to revise the work, to answer this criticism. Yet this never happened. His works were released by others posthumously.
Did Bohm-Bawerk make an earlier criticism of Marx before Karl Marx and the Close of His System? That work was written in 1896, 13 years after Marx’s death. My impression was that Marx didn’t finish the work because he was often ill towards the end of his life.
Many, if not all, of the criticisms Marx had of classical ecnomists were valid and were also embraced by Austrians. But they also criticized Marx’s attempts to fix those issues through a labor theory of value. Marx never answered the Austrian critique. In fact, I don’t know of anyone who has successfully.
The video on Subject/Object addresses Austrianism directly.
This is to me the essence of critical thinking, and it needs to be engaged in very humbly and very very rigorously. We need to be very, very careful to not switch contexts like this. You used this analogy to suggest that my assertion wasn’t necessarily true, but careful examination shows that your example doesn’t fit my assertion. You switched questions in the middle?!
But I don’t think this is much different than what you were saying. You said something like, if someone exchanges $10 for a shirt, then that means they prefer the shirt to the $10. But if we want to explain why they exchanged $10 rather than $5 or $20, or why every one else also exchanged $10 for that same shirt, then yes, that is a different question. Obviously your observation can’t explain that.
The market price of the bread, will be set by 4 factors. 1) Demand for bread, 2) Supply of bread, 3) demand for money, 4) supply of money. As these factors interact (through individual exchanges) and vary in the market place, the price will get “set”, and by set I mean fluctuate around an ever changing price which is described as the equilibrium price. It’s an imaginary value that is “always sought” but is never achieved, as every interaction in the market has some modifying effect on the 4 factors listed above.
Autolykos’s reply to this point is basically the correct interpretation as I understand it. The relevant point of reference is Vol. 3, Ch. 10 (and this post from Kapitalism101).
Let me ask this question however, why does one man get paid more for the same job, and another man less? I.e. this theory is predicated on the idea that labor is one of these equally substitutable goods. If this is so, why would one factory worker receive a higher wage than another? Why would a manager receive a higher wage than a line worker?
They’re equally substitutable in regards to the same end. Suppose the capitalist wants to make X. Given that any number of laborers can make X, their compensation can’t be based solely on the usefulness of X. If that were so, the capitalist would have no basis for selecting which laborers to hire in order to produce X.
My argument is that the owner and the worker each contain part of the overall crusoe activity we see in the example of building a water container. Understanding which parts of that activity each party brings too the table is key to understanding why a factory works the way it does.
I think Marx would agree.
If one is stuck with a theory of exchange in which an exchange is a zero-sum game, one must conclude that each and every exchange is a battle to lose less value. In such a world, every exchange must also, necessarily be a battle to exploit the other party in the transaction. This would not be limited to workers, would it? If a worker/employer relationship is a periodic exchange of labor for money, then isn’t the worker also battling within that exchange to exploit the owner?
I think this is the view of most “bourgeois” economists, who view everyone as competitive, self-maximizers. Buyers try to pay as little as possible and sellers try to charge as much as possible. So yes, in this sense it is a zero-sum game–you only get more of what you want when someone else gets less of what they want. I think this is a necessary conclusion if you view all things in terms of an exchange (which I don’t).
Autolykos: That’s not the case at all. Marx clearly states that different people can consider the same (type of) commodity to have different use-values. Therefore the value of a commodity - the average socially necessary labor-time required to produce it - is independent of any use-value imputed to it.
Fourth paragraph of Capital, vol. 1 (emphasis mine):
The usefulness of a thing makes it a use-value. But this usefulness does not dangle in mid-air. It is conditioned by the physical properties of the commodity, and has no existence apart from the latter. It is therefore the physical body of the commodity itself, for instance iron, corn, a diamond, which is the use-value or useful thing. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities.
So the usefulness (utility) of the commodity varies between people but the use-value doesn’t.
“…So my question to a “Marxist”, is in the factory a product is being produced using a production method also, Who is Crusoe? The worker or the owner? and why…”
Crusoe is both. Crusoe is the worker who owns the means by which he works. First with Crusoe on his island. He learns what few possessions he needs and the work that he must do to get them. With a sundial he measures the socially necessary labour hours that each of his possessions cost him to make. He lists the findings writing with his finger in the sand. Here is all that is essential to the determination of value.
The case is the same in a full sized society of free workers who own their means as a team. Except that Crusoe is just one while we are many. As with Crusoe we calculate. As with Crusoe the products belong to the producers. As with Crusoe we take the total product and split it to make two parts: one we use as fresh means of production, the other part we must share for the upkeep of the different individuals. The way to share can change with the condition of production and we the producers. Just to compare with our present production – production for exchange, let labour time come to our help. Then labour time will help in two ways:
On one hand it helps us link what we want with the work to produce it.
On the other hand it helps us count how much work each worker does, and so how much wealth each worker may take as his share.
It’s all here in Capital Volume One Chapter One. **http://tinyurl.com/cytj5dq**
I don’t doubt that he was briliant. But that doesn’t make his theories true. Aristotle was brilliant as was Plato, but modern science has evolved from both, and the same is true for all fields. That isn’t direct evidence that Marx was wrong, but it also doesn’t mean that he was right. The same is true for Mises, Rothbard, Menger, etc.
My question was one of openmindedness.
I’ll try to give a brief response while I’m watching it and comment on things I hear.
First of all the first 6 minutes are not an argument, but setup a background of non-arguments that simply characterize the opponents as intentionally deceitful and motivated to exploit. Not a fan, but it’s effective in preaching to the choir. The problem is 100% of current political discours seems to be on these emotionally charged non-arguments, instead of on the substance of the argument itself.
Ok, the beginnings of the first argument. Misuse of value. Value = subjective judgements vs. value = exchange ratios. The argument is that part of the misunderstanding is that there are two ways in which the term value is used and the confusion is caused by these two different meanings. But the question is whether or not this holds up. There is a misunderstanding of what an exchange ratio is and what it isn’t. Here’s the argument: I don’t know how much money you are willing to give me for the shirt mentioned below. But I do know that you value the shirt at more than 10$ if you give me 10$ for it. I don’t know if you are willing to give me 20$, and you don’t know if I would have taken 5$ for the shirt. The only thing we know for certain is that you value the shirt MORE than you value the 10$, and I value the shirt LESS than I value the 10$. That’s all we know, in an exchange ratio, the values on each side of the exchange were inverted. Ok, back to the video.
Ok, more character assassination and criticism based on making fun of the idea of a preference scale. And a claim that an this idea of subjective value and preferences as an ideological abstraction which we have already learned is a bad thing. On to video 2, BTW, I’m disappointed by very little raw example discussion and specific attacks on the logic, and simply using intentionally emotionally charged rhetoric in place of sound logic.
“How convenient that this ideal man contains within him the seed of capitalism…” Cmon, how is that an argument? Oh good, he says “pointing out that it’s ideological isn’t enough, we must also prove that it is illegitimate.” Good a real argument, right? Man is not alone, and his values are constructed socially and not in a vacuum, therefore this example doesn’t mean anything. This needs support, to be true. Not that he might not have external pressures and conditions that help inform and modify his internal methods of choosing his actions, but there needs to be an argument made that it somehow invalidates the idea that action displays preference and that this preference of the individual is the source of value. Austrians acknowledge that there are factors not examined that alter how a man values things, the analysis holds true regardless of a man’s values. They hold true if a man is a worker OR if he’s an entrepreneur.
BTW, “Fool on the Hill”, please tell me that some personal animice towards modern “capitalist” societies won’t color your perception. What most people think is that Austrian Economics is an apology for capitalism and it is, but they think that historical Austrians and modern day libertarians think that the US and other modern democratic states actually represent capitalist economies and liberal polities. They don’t. Austrian’s DO point at the state as the author of interventions in the economy which are in our opinion the proximate causes of the very tragedies that are labeled capitalism’s evils. If you notice, the purported opponents of socialist doctrine in modern politics are the “conservative” party in various polities. But they don’t embrace Austrian Economic Theory, they embrace neo-classical economics and Keynesian’s theorems about the manipulation of money supply. Austrian Economics is just as critical of the economic arguments used to support these policies as they are of Socialist doctrines.
Second point I’d make, before I continue with the video. There’s a dismissive and chiding tone to these videos. I am personally always offended and unimpressed by such methods of arguing. Mises, Rothbard, and Hoppe don’t argue in this fashion. I would look for people who are able to effectively articulate the logic of their position without using such methods. When someone tries to get an emotional response from me, I always assume he’s trying to keep me from looking to hard at his logic. I hope you haven’t seen anything like that from me.
Ok, back to the video.
“Let’s say Eugene, while back-stroking one day, discovers another island called Barter Island. Here lives Ludwig who cracks coconut all day. They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish. “Now,” says the subjectivist, “we have shown that our abstraction was legit and that we can explain exchange ratios purely through the science of preference scales.” If only it were that simple.”
Ok, let’s break this down. First of all, Ludwig and Eugene are meant to be Eugene Bohm-Bawerk and Ludwig von Mises, the authors of the two most damaging criticisms of socialism. “Each one carefully measuring their utilities for fish and coconuts on their preference scales.” That’s not what’s claimed. All that’s claimed for barter to happen is for one to offer to give a quantity of coconuts in exchange for a quantity of fish. That’s how barter happens, that’s all. Over a history of such exchanges, they will settle in on certain exchange ratios. That doesn’t mean they’re static, or “the right ratio”, it just explains how a phenomena, in this case a specific instance of an exchange which can be described by an “exchange ratio”, can arise out of a subjective value. But notice in the construction of the argument, there are excessive words added that were unnecessary to the argument. I’ll put stars around words I think are intended to obfuscate the argument being made, and then restate the same argument in a more simple way, and hopefully one that shows why it’s perceived as axiomatic and self-evident.
The video says “They decide to trade fish and coconuts, each one carefully measuring their utilities for fish and coconuts on their preference scales, calculating the precise exchange ratios to maximize their utilities, resulting in an exchange ratio between coconuts and fish.”
No one looks at their preference scale. There is no such artifact in the human mind, it’s a convenient logical device for understanding the difference between ordinal value and cardinal value. They don’t measure utility, carefully or otherwise, they may reason about which of two alternative actions to take, they may evaluate whether or not an exchange they could engage in is one they want to perform, but how they arrive at those decisions is not a matter that Economics needs to consider. The logical conclusions of Praxeology are true, regardless of the decision making process. They do not calculate precise exchange rations to maximize their utilities… A person may engage in accounting processes to calculate how to achieve their plans. But that’s not “maximizing their utilities…” that’s simply deciding if they can afford to do the thing they’re trying to do, or to decide if they are making or losing money.
Look at any barter exchange in a farmer’s market, and it’s a simple transaction. You offer a price for a specific good, and you and the farmer trade offers back and forth until you both agree. That’s what happens. For each offered transaction, there’s a simple evaluation that each actor does. 1) Am I willing to accept that quantity of goods and willing to give up that quantity of goods. The market is always this. We just have the habit of not haggling (meaning negotiating the quantities on each side of the exchange). In modern economies we just look at the price and perform a binary decision, buy/don’t buy. I’ve done some purchasing in a corporate setting. I’ve negotiated prices with different vendors. Negotiation of prices is an everyday occurence, it just doesn’t happen in modern retail stores. So we have this imaginary “stable price” concept, but it’s not true.
“The first thing we might notice is that the exchanges on Barter Island can only take place because Eugene and Ludwig have different resource endowments. If they both had access to coconut and fish then there would be no reason to trade. In order for trade to continue in a sustained way, trade must reproduce these differences.”
“There would be no reason to trade”, is not necessarily true. Meaning even IF they’re both on the same island, there may still be a reason for them to decide to divide up the work, and exchange the results of that labor. For example, Ludwig for some reason may be better at catching fish. We don’t have to know why he was better, or why he preferred to spend his labor on fishing. It’s only necessary to understand that IF this disparity in the way they choose to employ their productive efforts exists, AND IF they both desire to exchange the products of their labor in exchange for the products of the other person, THEN barter will occur, and nothing other than subjective value is necessary to explain the exchange ratios.
“This means that in order for a capitalist market to work there must be the constant reproduction of a certain type of property relations in which people have to enter the market in order to get what they need to live. Specifically people must be deprived of their own means of production, forced to enter the market to sell their labor in order to buy the things they need. This property relation must be continually reproduced through exchange so that there is always scarcity and people are always dependent on the market.”
Whoa, so this is the root of the problem, cause barter itself couldn’t have been the problem. Even if you and I have equal access to the land, and the resources on them, and there is sufficient abundance of these resources so that scarcity isn’t a reasonable restriction. There can still be differences between our abilities to do different types of production (labor is not infinitely substitutable). And even if there isn’t, there is a limited amount of time within which to perform the different tasks. In his theoretical island scenario, the two parties lived in environment separate from each other with different available resources, but when they travelled to meet each other they exchanged the fruits of their labor. That’s perfectly reasonable. If you have date trees and a stream with lots of tasty fish on your island and I have banannas and coconuts on my island. Even without assuming that you should have equal access to the resources on the island I live on, it would still be reasonable for me to collect those products from my island, travel to your island and exchange those products for your products. I could stay and collect those resources myself, but it’s probably more efficient, for me to trade, and go back to my island, than to come and collect them myself. Travel time would be doubled if we both had to find a way to get to the other’s island to get the resources ourselves. But EVEN IF, we’re on the same island and travel time isn’t an issue, there might still be differences in our ability to perform the different tasks. And barter would again make sense.
But that’s not what he says here, barter isn’t an issue. It’s the property relation. But I’ve made what I believe is logical argument for the existence of some version of property rights in every social group, no matter what it calls its political organization. EVEN UNDER SOCIALISM, there will be some mechanism for establishing property relations.
See that argument here :
I hope you see that property is not just some whimsical phenomena that arises because of some desire to exploit, and in fact I admire Marx’s observations in acknowledging that people have to use matter, but one can’t attack private property simply because some cases of a societal implementation of property rights results in situations that seem unfair or regretable or any other negative term, one can’t attack use. Not being able to establish a legitimate use claim peacably respected by his peers would result in the very thing that all mankind fears which is the “anarchist” boogeyman of every man fighting and striving violently to wrest the means necessary to his own survival from his fellow man, and even that condition might be considered a mechanism (de facto) of establishing property rights. All discussions about property are discussions about how a social group defines the boundaries around claims the group decides are “legitimate claims”.
I answered this above, and I forget my observation, but subjective value explains this situation also, and very well I might add. Remember to always look for what’s not said, but might lead to mistaken assumptions.
One might mistakenly assume I wouldn’t have been willing to pay more money. We don’t have enough information.
We don’t know if the seller might have been willing to accept 5$, we only know that he was willing to take 10$.
If the price was 20$ we don’t know how many of those who did buy it at 10$ might have chosen not to buy at a price of 20$. We can know that the number of buyers at 20$ would be lower than at 10$
If the price was 5$ we don’t know how many additional shirts would have been sold, we do know that more buyers would have been willing to exchange 5$ for the shirt.
No they aren’t. This is an illusion of industrial production processes, specifically the factories. However, in practice different human beings operate specific steps in the assembly line very differently from each other. The struggle of the designer of the factory production line, is to try to mitigate these differences in practice, so that the assembly process can be synchronized. Some workers are less efficient than their fellows at different tasks in any production process. All persons that show up to mow my lawn are not equally substitutable at satisfactorily producing a mowed lawn that satisfies me. Think carefully about any service that you personally purchase. Are there McDonalds that you prefer, simply because they tend to not be as clean, or not as friendly, or the food is frequently stale? Does this indicate some significant difference in the input labor? Meaning that even if the cooking of my burger required the same amount of raw labor, the decision to make a ton of burgers at 3pm, and then let them sit for sale until 5pm, might be a significant difference in the quality of the burger.
I’d like to beg my leave here however. I’ve got another primary focus, which is my Praxeological Theory of Property, Conflict and Politics, and I’m not actually an Economist, or a Scientist of any type. I’m just a lowly Computer Programmer… So there may be others here who are better able to argue (in the “self-edification” sense, not in the “combative” sense) these issues with you.
Btw, one example I really like for comparative advantage is a doctor and his secretary. Even if the doctor is a better typist and organizer than his secretary, he still gains by hiring one, so that he can spend more time doctoring and making more $$$. I think it’s easier for people to grasp than coconuts and fish.
