Thursday, December 29, 2011

The Labor Theory of Value.

After reading the neo-mutualist thinker Kevin Carsons books, "Studies in Mutualist Political Economy", "Orginsation Theory" and his rejoinders to the Austrians straw men that rained upon him after publishing SiMPE,plus some posts on the swedish blog http// I've become more interested in the LTV, or the labor/cost theory of value.

According to Wikipedia:

 The labor theories of value (LTV) are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity

According to some economic thinkers, especially those of the Austrian school, it is false, because it doesn't take subjective value and marginal utility in to account, (which according to Carsons "Austrianized" LTV is false).

They also use the so-called "mudpie" argument. It says that the LTV would mean that a pie made of mud, and a pie made of for example cherries would have the same price, since the same amount of labor was put into it. Therefore, since most people would rather buy a pie made of cherries rather than a pie made of mud because of subjective values.

Sure, the cherry pie has higher utility for the consumer than the mud pie has. No follower of LTV denies this, at all. But do they pies have the same value? The follower of LTV says "yes". The value, or the labor that was put into making the pie is still the same, and the person who made the pie would still charge the same. Just because the consumer would not PAY the producer the FULL VALUE of the mudpie, it does not change the VALUE of it.

Now, let's say there's a man who is extremely poor, and walks into the café where the mud pies and cherry pies are sold. If the mud pie required an equal amount of labor for the baker as the cherry pie did, and sets the cost as such, then the poor man would surely buy the cherry pie over the mud pie. If however, the baker finds a way to reduce the amount of labor needed to create a mud pie so much that the price would be virtually nothing, the extremely poor man (emphasis on the EXTREMELY) might consider buying the mud pie, just to have something to eat. Of course, most people are not extremely poor, and not to fond of mud pies, so it would largely be a waste for the baker to make them.

The labor theory of value does not deny that subjective value plays a part in deciding market PRICES, it only says that labor is the equilibrium value that price tends toward. Desire may affect the price of a good, but labor CREATES the value. We all desire oxygen, for instance, but even though air is high on our value scale, it doesn't have market value. That is because there was no LABOR involved with creating the air. Now, if we all ran out of air, Space Balls style, and labor would be required to produce air, it would have VALUE. The cost of producing the air would be a key factor to deciding the price of a good.

DESIRE does not create value. We desire a lot of things that we would not pay for in a market, as the aforementioned "air" example.

Kevin Carson writes on his blog:

.....the LTV and other production cost theories of value simply assert that the price of reproducible goods gravitates toward a "normal" equilibrium value determined by cost of production (which is nowhere directly refuted by the subjectivists, since their claim to have replaced cost with utility as the basis of value is based on a very specialized and artificial understanding of those terms, and not on their meanings in ordinary usage).
So, the LTV is not about asserting that people value mud-pies as much as they value cherry pies. It's the idea that price is dictated or gravitates toward production cost, and it does not deny that subjective wants exist.

Now, while I do not have the economic knowledge fit to defend the LTV on court at all, and I don't have any authority to say that marginalism is wrong and LTV is correct, I at least hope this made some of my marginalist friends think about. I'm not entirely certain of my analysis, I have some trouble grasping the economic language, especially in English, at times.

Wednesday, December 28, 2011

How to dismantle capitalism*: Open-source industrial revolution.

Left-wing market anarchists and other people who oppose the hierarchical functions of state capitalism really need to watch this TED talk. It discusses the open-source website and project If this idea is spread world-wide, imagine the society we'd have!

*Capitalism meaning wealth that is centralized to the hands of a few people through government theft and privilege, not the principle of free trade (which can happen under any political system, communist or fascist).