A critique of von Mises et. al.?

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jura
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Aug 16 2009 21:28
A critique of von Mises et. al.?

Does anyone know about any marxist critiques of the Austrian School in general, and von Mises' Human Action in particular? Specifically, I'd be interested in a critique of the basic presuppositions like marginal utility etc., not the more famous topics like economic calculation. It seems to me that while there is a lot of literature on the latter, the former remains somehow unnoticed. It could be interesting to compare Marx's methodology and the views on society it implies with the Austrian ones, which Marx would probably describe as vulgar political economy and tautologies. (I've read Hilferding's reply to Boehm-Bawerk and it's not exactly what I'm looking for, even though some parts were almost it.)

Thanks in advance for any ideas.

Parker
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Aug 17 2009 09:58

Many of the standard ideas behind Austrian economics were already dealt with by Marx in Capital. For instance, the concept of "time preference" from Bohm-Bawerk is an updated version of Nassau Senior's abstinence theory. Austrianists rely on Say's Law, which says that a general crisis of overproduction is impossible, and which Marx debunked early on in Capital Vol 1.

Marginal utility is based on a tautology (prices are determined by marginal utility but the degree of utility can only be measured with reference to price). Engels deals with Jevons's marginal utility in the Preface to Cv3, stating that it is possible to construct a simple socialism out of marginal theory. The reasoning goes, that one dollar is worth more to a poor man than a rich man, hence the degree of social utility can be increased by redistributing wealth by means of the tax system.

I think Mises tries to undermine this by saying that utility is ordinal, not cardinal, based on the subjective preferences of the individual that cannot be measured numerically (with reference to price), but this still means that he is unable to say that redistributive polices which might increase the degree of social utility are in themselves bad and it wholly undermines the Austrianist position against taxation.

There is also no marginal theory of money, as far as I know, and the quantity theory of money, which Austrianists all seem to hold, is obviously incompatible with a subjective theory of value, which would indicate that their theories are logically inconsistent.

Beyond Hilferding's riposte to Bohm-Bawerk, and occasional treatments of Austrian economics by Marxists such as Paul Mattick, I don't know of any lengthy Marxian critiques of the school at all, but if anyone else does know of one, I'd like to read it. Maybe Marxists don't think they are worth arguing with, that Austrianism is basically a form of vulgar capitalist apologetics?

There is plenty of stuff on the Anarchist FAQ dealing with the Austrian School. It seems that most of the major intellectual battles with Austrian economics were fought before the Second World War with Sraffa, Kaldor, Keynes, Robinson et al.

Anarcho
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Aug 17 2009 20:19

More specifically:

General introduction and critique:
http://anarchism.pageabode.com/afaq/secC1.html#secc16

On time preference
http://anarchism.pageabode.com/afaq/secC2.html#secc27

On entrepreneurial activity
http://anarchism.pageabode.com/afaq/secC2.html#secc28

On Business Cycle Theory:
http://anarchism.pageabode.com/afaq/secC8.html

On "the Calculation Argument"
http://anarchism.pageabode.com/afaq/secI1.html#seci11

and:

http://anarchism.pageabode.com/afaq/secI1.html#seci12

On uncertainty:
http://anarchism.pageabode.com/afaq/secI1.html#seci15

Steve Keen's "Debunking Economics" has some useful material, as does Bukharin's "Economics of the Leisure Class"

While the "Austrians" consider their ideology as the single most important thing ever, very few others agree..

petey
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Aug 17 2009 22:07
Anarcho wrote:
While the "Austrians" consider their ideology as the single most important thing ever, very few others agree..

both halves of this statement are true in my experience.

ajjohnstone
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Aug 18 2009 17:09

Another good article on Mise and ECA is from World in Common , ex-SPGBer , Robin Cox ,

http://www.cvoice.org/cv3cox.htm

Also of interest is an exchange between Adam Buick of the SPGB and David Steele of the Libertarian Alliance

http://www.la-articles.org.uk/FL-6-2-6.pdf
http://www.la-articles.org.uk/FL-6-4-7.pdf

Parker
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Aug 18 2009 17:21

I completely forgot about Simon Clarke's Marx, Marginalism and Modern Sociology.

IIRC, there were only a couple of chapters looking at the Austrian School itself and it didn't go into much depth - well, not as much as I'd have liked.

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Aug 19 2009 09:56

Thanks everyone for your contributions. Parker, yeah, I know Clarke's book and so far it is the best I found.

Parker
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Aug 19 2009 10:26

I was disappointed with it because I would have liked a more systematic and empirical critique of central claims of Austrian economics, such as claims over "lengthening the structure of production", "roundaboutness", etc.

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Aug 19 2009 11:18

I agree, there are a lot of directions it could be expanded it in. But anyway, considering the lack of marxist analyses of the Austrians, I think it is one of the best attempts.

I would really like to find something more "methodological", concerning the very basic views on Man, society, human activity and interaction, which are behind the Austrian theory and behind the more specialist problems of economic calculation etc, in contrast to eg. the part of Grundrisse on method and some of other Marx's writings. It should be fairly easy to do and I'm surprised that (as it seems) noone's ever done that.

Angelus Novus
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Aug 19 2009 18:24

Not specifically about the Austrian school, but the Gegenstandpunkt group has the best critique of "marginal utility" I've encountered (though admittedly I don't know the Clarke book):

Die Mikroökonomie
Von der Erklärung des Werts
über die Erfindung des Grenznutzens
zum mathematischen Lob des Marktes

http://www.gegenstandpunkt.com/vlg/mikrooek/moekin.htm

Unfortunately, only the table of contents is available online, not the book itself.

Anarcho
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Aug 19 2009 20:01
Parker wrote:
I was disappointed with it because I would have liked a more systematic and empirical critique of central claims of Austrian economics, such as claims over "lengthening the structure of production", "roundaboutness", etc.

Try: Robert L. Vienneau's "Some Capital-Theoretic Fallacies of Austrian Economics"
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1024311

Bukharin's work goes into some detail, but "Austrian" economics has moved on somewhat. Now it is all lip-service to disequilibrium (while keeping equilibrium analysis close at hand, as per its theories of the business cycle and unemployment). Also try The market, competition, and democracy : a critique of neo-Austrian economics by Stavros Ioannides ( E. Elgar Pub , 1992). Then there is post-Keynesian Paul Davidson's classic essay:

THE ECONOMICS OF IGNORANCE OR IGNORANCE OF ECONOMICS?
http://archives.econ.utah.edu/archives/pkt/2001m02/msg00014.htm

although, obviously, Davidson is coming via Keynes rather than Marx...

As for empirical critique, you do realise that any good "Austrian" will dismiss all empricial evidence and will only listen if you find some logical fault in their long chains of deductive reasoning?

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Db0
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Aug 21 2009 16:12
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As for empirical critique, you do realise that any good "Austrian" will dismiss all empricial evidence and will only listen if you find some logical fault in their long chains of deductive reasoning?

Exactly! This is what has always peeved me most about them. It's all about "irrefutable axioms of human existence" and other such nonsense which they assume a-priori in order to build their logical edifice.

Even if you do point out that the axioms are flawed, they will simply deny it.

Fortunately, most people ignore them and they are largely irrelevant outside of the net. Unfortunately they seem to have a dis-analogous existence online.

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jura
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Aug 21 2009 17:10
Db0 wrote:
Fortunately, most people ignore them and they are largely irrelevant outside of the net. Unfortunately they seem to have a dis-analogous existence online.

In Central and Eastern Europe, they actually have some following in think-tanks and Austrian economics is often considered to be the summit of economic thought.

Parker
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Aug 22 2009 08:23

there are two broad trends in Austrian economics. There are the Hayekians, who are somewhat more mainstream and who included Mrs Thatcher, who once brandished a copy of Hayek's The Constitution of Liberty at a cabinet meeting saying, "This is what we now believe!"

And then there are the Rothbardians ...

Quote:
Even if you do point out that the axioms are flawed, they will simply deny it.

Yes. I was reading Murray Rothbard's book on the history of economic thought the other day. He wrote about Jean-Baptiste Say's rationalist method, which is similar to that of Mises. It is worth quoting to get an idea of where Misean/Rothbardian Austrianists are coming from:

Quote:
A particularly outstanding feature of JB. Say's treatise is that he was the first economist to think deeply about the proper methodology of his discipline,
and to base his work, as far as he could, upon that methodology. From
previous economists and from his own study, he arrived at the unique method
of economic theory, what Ludwig von Mises was, over a century later, to call
'praxeology' . Economics, Say realized, was not based on a mass of inchoate
particular statistical facts. It was based, instead, on very general facts (fait
generaux), facts so general and universal and so deeply rooted in the nature
of man and his world that everyone, upon learning or reading of them, would
give his assent
. These facts were based, then, on the nature of things (la
nature des choses), and on the deductive implications of these facts so broadly rooted in human nature and in natural law. Since these broad facts were true, their logical implications must be true as well.

My emphasis. The notion that people will be converted upon hearing the message simply reinforces what to me is a missionary zeal.

Quote:
in arguments about public policies, when 'facts' are allegedly
set against the 'system' of economic theory, it is actually one theoretical
'system' poised against another, and, again, only theoretical refutation can
prevail
.

This is why, when Austrianists (particularly of the mental Rothbardian variety who populate the internet) will, when you cite someone else's research against them, always say "The proof of a theory lies in its logic, not in its sponsorship" (ie "I can disclaim anything I like").

Parker
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Aug 22 2009 08:20
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Try: Robert L. Vienneau's "Some Capital-Theoretic Fallacies of Austrian Economics"

thanks! that's very useful.

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darren p
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Sep 17 2009 10:21

There's a chapter on "the marginal revolution in economics against the labour theory of value' in Binay Sarkar and Adam Buick's new book 'Marxian Economics and Globalization'. (available from spgb@worldsocialism.org)

RedHughs
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Sep 17 2009 21:51
Quote:
available from spgb@worldsocialism.org

This "email me and I'll send you a copy" stuff is really old, Can't you just upload it to the libcom library or something?

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darren p
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Sep 18 2009 08:03

I don't own the copyright or have the text files, but I'll make some enquiries... (A hard copy of the book is CHEAP btw.)

kapitalism101
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Dec 29 2009 05:23

I second the recommendation of Bukharin's "Economic Theory of the Leisure Class". Also perhaps try some essays by Maurice Dobb.

edmundosullivan
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Jan 12 2010 14:22

Jura,
Here’s a late reply to your question.

First, let's look at the basic methodological differences.
1 Marx used a Hegelian methodology, which is essentially collectivist
2 Von Mises is essentially Kantian and uses an individualist methodology
Applying the methodology of the former to critique the conclusions of the latter might, therefore, be an impossibility.

Second, there's economics.
1 Marx was a materialist and only accepted objective theories of value. He argued, logically, that the value (whether measured in terms of cost or value) had to originate in the original objective factor of production which was labour.
2 Von Mises is a subjectivist and argued that the value of anything is purely what an individual thinks it is worth. You can see why Marx rejected this approach, but only by deduction. You can see what Von Mises thought of Marx explicitly in his book Socialism, which is a classic.

I shall stick to the economic issues. Objective theories of value are, I am sorry to say, logically flawed. And Marx's attempt to demonstrate that embodied labour values would be reconciled with exchange values (or price) were unconvincing. Suggestions that, in the long-term, there is a close proximity between labour content and prices falls short of a complete proof. Most modern Marxists have abandoned the labour theory because they can't make it work. I don't blame them. Trying to reconcile the labour theory of value with prices is like trying to measure the height of a building using bathroom scales.

Marx died without critiquing subjective value theory work done in 1870-71 by Stanley Jevons in the UK, Karl Menger in Austria and Leon Walras in Laussane. Austrian school thinkers including Bohm Bawerk, Von Mises and Hayek had the benefit of reading and criticisng Marx at their leisure. Mr Bukharin, who is recommended, attended Bawerk's seminars when he was studying in Vienna. Small world.

I too would like to see a coherent Marxist critique of Austrian economics but fear there isn't one. This is not just because of the conflicting philosophical approaches. It is because Marxist economics depends upon objective theories of value.

It is impossible to avoid the conclusion that prices must always reflect subjective factors: or what an individual or groups of individuals think something is worth. The price of something will reflect common estimation as well as costs of production. The claim based on science that all the surplus generated by production is due to workers consequently founders once this is accepted. It follows therefore that it is logically impossible to see how the whole Marxist system doesn't founder as well.

I say that with no pleasure at all. (I also believe the Popperian critique of falsification is also false).

There is, however, a fruitful approach to criticising Austrian economics (and all neoclassical economics) that produces conclusions that Marx might have liked. Let me take you on a logical journey. This involves understanding that Austrian and neoclassical economics depends upon the idea of equimarginal choice. The theory of equimarginality, presented in every economics text book, shows an individual making choices between bundles of two different products: say bread and wine. The theory argues, quite coherently, that an individual will have in mind a range of combinations of two products that are equivalently satisfactory (this is sometimes known as an indifference curve). The idea of an indifference curve or a trade off between two products -- that reflects the fact that the more someone has of something the less additional pleasure he or she will get when he or she gets another unit -- is the key logical bridge between subjectivity (wishes, wants, needs, desires) to objectivity (things or things regarded to be things).

All neoclassical economics then quite logically carries out an exercise to show how changes in relative prices lead to a fall in demand for the good that becomes relatively more expensive; hence an individual demand curve, hence a market demand curve. On supply, Austrian economists diverge from some neoclassical economists, because Austrians argue that the decision to supply things is also determined in the same manner: it is driven by subjective trade offs (most economics text books fudge this matter, but the reality is this is a contentious theoretical issue for Austrians).

If you can remain within the conceptual model used by neoclassicals and Austrians (and it's not difficult to grasp), then the logic of the existence of a market looks indisputable. Austrians, unlike most economic theorists and many neoclassical economists, argue that it is logically impossible for the spontaneous order emerging from this process to be improved by government intervention. Most economists, in contrast, argue that there are many instances of market failure: monopoly, public goods, externalities, network failures etc. These failures constitute all the technical grounds socialists use to argue for government intervention (the other main one is equity).

But Austrians and neoclassicals agree that equimarginality is the key bridge between the subjective world of wishes and desires to the real world of goods and things.

The outstanding logical failure of their approach, and one that no one has yet spotted, is that this line of thinking founders when dealing with pure intangibles (ie products that have no physical embodiment like teaching, medical treatment or management consultancy). Since they don't have a shape, taste, smell, weight or the capacity to make a sound, intangibles have nothing that human senses can recognise. Therefore, a rational person seeking to choose between bundles of goods will be confounded: he/she won't be able to tell the difference between the intangible equivalent of wine and the intangible equivalent of bread. They will all appear to be the same.

If this is the case, and I am confident my logic is correct, then there can be no individual demand curve for any and all intangibles (which account for 80 per cent of UK GDP for instance). If there is no individual demand curve, there can be no market demand curve. If there is no demand curve, there can be no market. The logical application of the analysis of supply in intangibles producing the same outcome: no supply curve.

So in intangibles, logically and using the methodology deployed by Austrian School thinkers, the market not only doesn't work. It doesn't exist at all.

That means that price has no decisive role in determining the supply and demand of pure intangibles. The price paid for them can move around completely at random. Financial derivatives are pure intangibles. The volatility in financial markets since 2007, which will soon be repeated, is essentially explained by that.

There are vast implications flowing from this analysis, which I have presented to many conventional/Austrian economists with no effective response. If price is meaningless, as the logic of the Von Mises system suggests, then business corporations will suffer from the same impossibility of calculation that Von Mises charged in 1920 the socialist state would experience. It's a delightful paradox.

The conclusion is that both the state and business corporation will founder and wither as the proportion of tangibles grows in advanced economies. Economic efficiency demands intangible production should come solely from employee-owned partnerships with no external finance. And that all supporting infrastructure should not be run for profit (or perhaps the collective ownership of the means of production).

This is most peculiar. Because starting with the Kantian, individualistic and subjectivist methodology deployed by Von Mises and Hayek, you finish up, quite logically, with the conclusions that Marx reached using a Hegelian collectivist and objectivist methodology.

My conclusion is that Von Mises and Hayek are methodologically right but reach incomplete conclusions because they ignored intangibles, now the majority of GDP in all OECD countries. Marx was methodologically wrong, in some instances wildly so as in the labour theory of value, but his conclusions are startling correct: as economies advance to their full productive potential, business corporations will collapse, the state will wither, individuals will find full freedom and the means of production will no be owned for the purposes of profit.

I have a complete manuscript explaining this in full, including the history of the theory of value since Aristotle, that I am happy to share.
Yours Aye

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Khawaga
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Jan 12 2010 17:59

Marx operated with both objective and subjective value forms, hence the dual character of the commodity. Exchange-value is the (capitalist) expression of both the subjective and objective categories of value. If you haven't grasped this elementary contradiction then you can't really understand Marx's theory of value.

edmundosullivan
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Jan 12 2010 19:40

Khawaga

Question one Can you explain to me how the following passage from Capital can be anything other than an objective theory of value?

“A commodity has a value, because it is a crystallization of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labour necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labour, worked up, realized, fixed in them.”

“In saying that the value of a commodity is determined by the quantity of labour worked up or crystalized in it, we mean the quantity of labour necessary for its production in a given state of society, under certain social average conditions of production, with a given social average intensity, and average skill of the labour employed….If then the quantity of socially necessary labour realized in commodities regulates their exchangeable values, every increase in the quantity of labour wanted for the production of a commodity must augment its value, as every diminution must lower it.”

Chapter 6, Value Price and Profit, Karl Marx, 1865 (published in 1898).

Marx of course didn't say all value is produced by labour or production as this passage from the Critique of the Gotha Progamme shows. But again, value is an objective (intrinsic) concept).

“Labour is not the source of all wealth. Nature is just as much a source of use values (and it is surely of such that material wealth consists!) as labour which is itself only the manifestation of a force of nature, human labor power.”
Chapter 1, Critique of the Gotha Programme, Karl Marx, written 1875, published in 1891.

Second question:

Can you quote a passage from Marx that even approximately suggests that he accepted a subjective theory of value? I can't find one, though I'm constantly told that Marx had a synthetic theory of value that combined both objective and subjective factors.

Third question:

A broader one. How could Marx, who was philosophically a materialist, have accepted any definition of value (which is the cornerstone of his economics) that involved subjectivity, perception, belief, estimation and other pyschological and/or metaphysical explanations?

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Joseph Kay
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Jan 12 2010 19:53

because labour has to be validated as socially necessary by consumption of the finished commodities; that demand could be completely whimsical and subjective, e.g. some fad product that took X amount of labour would have no value if the fad had passed by the time the goods reached market. Marx's whole approach to value is based on this interaction between objective and subjective processes, it's certainly not an 'embodied' theory of value as a thing but a theory of value as a social relation.

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Khawaga
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Jan 12 2010 21:43

What Joseph Kay said.

The problem with the passages you cite is that you've cherry picked them. The passages you do cite refer to objective value, whilst ignoring those that refer to use-value (If you want to read about the subjective element of Marx's value theory, just read the first chapter of Capital Vol. 1. It's there in plain text (in fact, on the first page of that chapter.)).

The quote from Marx's critique of the Gotha programme demonstrates that you have not understood the value and use-value distinction. In Marxist lingo wealth refers to use-value, not value. Natural wealth can only become value through human labour and objectified in the commodity. If I plucked an apple from a tree and ate it would have a use-value for me, but no value. If I maintained an orchard in order to sell the apples after harvest, they would have a value.

Boris Badenov
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Jan 12 2010 22:56

Things could not be exchanged as commodities if they were not scarce, owned and useful. But these are not "objective" properties of the things themselves, and Marx never says otherwise. All are relations between things and people. Usefulness is dependent on physical properties, but it is not itself a property.
Similarly, commodities differ as the products of different sorts of useful, concrete labor. But when we look at what they have in common, nothing physical, concrete or useful is left. What is left is an abstraction, "a phantom-like objectivity, they are merely congealed quantities of homogenous human labour... As crystals of this social substance, which is common to them all, they are values - commodity values." (Capital vol. 1, 128).
Use-value itself is also a value, "the resume," to use Marx's term (see his essay on alienation in Early Writings), of the alienation of the workers from their activity. The embodiment of labour as value is not a transhistorical, technological "objectivity," but an alienated and fetishitic relation between subject and object: "it is only a historically specific epoch of development which presents the labour expended in the production of a useful article as an "objective" property of that article, i.e. as its value. It is only then that the product becomes transformed into a commodity." (Capital vol. 1, pp.153-4, my italicization).
This is the case in a capitalist society, and that is of course the object of Marx's work. Value is historically specific and not eternal; in a society where labour is communal relations between people do not manifest themselves as 'values' of 'things,' and Marx says as much himself.
Rather than constructing an empty self-contained philosophical system in Hegelian fashion, as he is often accused by Austrianists, Marx sets out to understand the concrete internal reality of capitalism by analyzing its "elementary form," the commodity.

Anarcho
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Jan 12 2010 22:54
edmundosullivan wrote:
Question one Can you explain to me how the following passage from Capital can be anything other than an objective theory of value?

You do realise that in classical economics there is a difference between prices and values? Exchange value is not the same as price. Exchange value is what the price market graviates to overtime. That is based on the costs of production and is pretty "objective" (if something cost £10 to produce, it cost £10 to produce no matter how much the capitalist subjectively wants it to be £5). The market price changes and how much a specific good's price is depends on market conditions.

Unless you understand this pretty basic point, classical economics (and Marx) will be lost on you. Needless to say, von Mises did not have a clue on this (as on so many issues!). For more information:

http://anarchism.pageabode.com/blogs/afaq/secCapp.html

edmundosullivan wrote:
Can you quote a passage from Marx that even approximately suggests that he accepted a subjective theory of value? I can't find one, though I'm constantly told that Marx had a synthetic theory of value that combined both objective and subjective factors.

No classical economist ignored utility (or use-value, as they called it). The only reason why exchange value (price) existed was because people subjectively valued the product and were willing to exchange money for it!

I should also note that utility theory is pretty much a mess, as admitted by the high priests of neo-classical economics. Given that the "Austrians" argue that utility is subjective and cannot be compared between people, it logically means that they cannot generate market-wide demand curves. Although that did not stop Rothbard drawing them...

On the mess which is mainstream economics:

http://anarchism.pageabode.com/afaq/secC1.html

and I would suggest reading Steve Keen's excellent Debunking Economics:

http://anarchism.pageabode.com/anarcho/review-debunking-economics

Oh, and I should suggest reading Nicholas Kaldor's critiques of von Hayek in the 1930s. The first made von Hayek totally re-write his theory. The second made him give up on business cycle theory... And I should also point to Sraffa's critique as well. Both are referenced here:

http://anarchism.pageabode.com/afaq/secC8.html

However, the first stage in seeing the difference between Marx and Mises would be to understand classical economics -- the framework Marx was working in.

edmundosullivan
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Jan 13 2010 08:06

Thank you respondents.

First on question one, no one has explained to me how the ideas expressed in the passage from Value and Profit can be interpreted in other way than suggesting that the writer saw value as being objective. It's in print. He wrote it. Explain how anyone reading this might reach any other conclusion? Saying he wrote something different somewhere else is not a complete answer.

There's been no cherry picking. But even if there was, this passage suggests, if the contributions others have made are accurate, that Marx had several theories of value, not just one. In his absence, how can anyone be certain which one he preferred? Wny should I accept someone else's belief in what he really meant?

Some contributors suggest that the Marxist concept of value was a synthesis between objective and subjective factors. This implies that he was in more in line with Alfred Marshall, who reconceptualised value theory in 1890 as an interaction between supply and demand that produced the market-clearing price. This showed that price could be higher or lower than the value many consumers and producers attached to it but that, in the absence of any certain way of tracking the behaviour of individual consumers and producers, there was no way of quantifying it. What then is distinctive about the Marxist theory of value apart from being less clear than Marhall?

Others say, no Marx was actually a subjectivist: value is a social relationship and an intangible. But if that is the case, how can that be reconciled by the objective idea that surplus value has been extracted from workers? In fact, how can a subjectivist concept of value be reconciled with a materialist epistemology?

Classical Economists like Smith recognised there was a difference between prices and values. In fact, every thinker since Aristotle, and before, has struggled with the difference between market prices and what something is really worth (either objectively or subjectively). Marx answered this by saying the difference between the price of labour and the real value of labour was surplus value and this was acquired by capitalists through a process of objective exploitation that took value out of workers' pockets and put it in capitalists' pockets.

Classical economists were pretty clear that they based their analysis on the idea that the value of goods and products was wholly or largely due to objective factors.

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations."
Chapter 1, Book 1, An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith, 9 March 1776.

So economic value starts with labour and then is increased through trade (presumably with other places creating things through labour).

“The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour.”
Chapter 1, Principles of Political Economy & Taxation, David Ricardo, 1817

Both Smith and Ricardo both saw that market prices seemed to have, at least on occasions, no relationship to values. They tried to answer that, but failed. Marx was attempting the same question and also did not succeed, at least judging by the fact that people can interpret what he wrote as showing he was an objectivist, or a subjectivist or both. You simply can't be all three: it would be the equivalent of reproducing the concept of the Holy Trinity.

The argument that Classical economists were objectivists is supported by the criticisms of their work by a contemporary as follows:

“To the labour of man alone he (Adam Smith) ascribes the power of producing values. This is an error. A more exact analysis demonstrates, as will be seen in the course of this work, that all values are derived from the operation of labour, or rather from the industry of man, combined with the operation of those agents which nature and capital furnish him.”
Chapter 1, Treatise on Political Economy, Jean-Baptiste Say, 1803.

The refutation of objective theories of value, which suggests that the conventional wisdom, in Britain at least, during the 20th century was objectivist is expressed by one of the founders of the utility-based/marginal/subjectivist school.

“Repeated reflection and inquiry have led me to the somewhat novel opinion that value depends entirely upon utility. Prevailing opinions make labour rather than utility the origin of value; and there are even those who distinctly assert that labour is the cause of value. I show, on the contrary, that we have only to trace out carefully the natural laws of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence.”
Chapter 1, The Theory of Political Economy, W Stanley Jevons, 1871

That is a very clear definiton of what Jevons meant. He could be right. I think he's wrong (for reasons I won't present now). But at least it's comprehensible.

The default position remains: Marx was an objective value theorist (most of the time).

edmundosullivan
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Jan 13 2010 09:07

At the risk of being a complete bore, I present section one, chapter one of Capital. How this can be interpreted either as a subjectivist theory of value or a synthetic theory of value defeats me:

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,”[1] its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another."

Strong implication that a commodity itself is a thing, a tangible.

“The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference.Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.”

Reaffirms that a commodity is an object, a thing which is separate from our subjective wants and needs.

"...Every useful thing, as iron, paper, &c., may be looked at from the two points of view of quality and quantity. It is an assemblage of many properties, and may therefore be of use in various ways."

Marx persists with the view that a commodity is an object and a thing not an idea or an intangible. He uses paper and iron as an example. He talks about qualities but seems to suggest these are objective qualities like colour and material content, not what we think the qualities of commodities are. Measurement is of a quantity, a volume which means the commodity must have a physical characteristic.

Marx introduces utility next. But Marx’s utility is not the utility of neoclassical economists, Jevons and the Austrians. It’s an objective characteristic (could Marx be any more clear?).

"..The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful."

So value is objective, tangible, measurable. What is price? Marx prefers to use the term exchange value.

"Exchange value, at first sight, presents itself as a quantitative relation, as the proportion in which values in use of one sort are exchanged for those of another sort,[6] a relation constantly changing with time and place. Hence exchange value appears to be something accidental and purely relative, and consequently an intrinsic value, i.e., an exchange value that is inseparably connected with, inherent in commodities, seems a contradiction in terms."

Marx now tries to explain why use values are different from exchange values (either through barter or through money).

"...A given commodity, e.g., a quarter of wheat is exchanged for x blacking, y silk, or z gold, &c. – in short, for other commodities in the most different proportions. Instead of one exchange value, the wheat has, therefore, a great many. But since x blacking, y silk, or z gold &c., each represents the exchange value of one quarter of wheat, x blacking, y silk, z gold, &c., must, as exchange values, be replaceable by each other, or equal to each other. Therefore, first: the valid exchange values of a given commodity express something equal; secondly, exchange value, generally, is only the mode of expression, the phenomenal form, of something contained in it, yet distinguishable from it."

It’s all objects, things not ideas or subjectivity. The best way to measure the value of a commodity is by reference to the amount of labour (power) used to make them.

"……If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour. But even the product of labour itself has undergone a change in our hands. If we make abstraction from its use value, we make abstraction at the same time from the material elements and shapes that make the product a use value; we see in it no longer a table, a house, yarn, or any other useful thing. Its existence as a material thing is put out of sight. Neither can it any longer be regarded as the product of the labour of the joiner, the mason, the spinner, or of any other definite kind of productive labour. Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labour embodied in them, and the concrete forms of that labour; there is nothing left but what is common to them all; all are reduced to one and the same sort of labour, human labour in the abstract."

Marx in the following uses the term embodied labour (Ricardian concept)

"Let us now consider the residue of each of these products; it consists of the same unsubstantial reality in each, a mere congelation of homogeneous human labour, of labour power expended without regard to the mode of its expenditure. All that these things now tell us is, that human labour power has been expended in their production, that human labour is embodied in them. When looked at as crystals of this social substance, common to them all, they are – Values."

What follows is a clear statement of the embodied labour theory of value

"…We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production.[9] Each individual commodity, in this connexion, is to be considered as an average sample of its class.[10] Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value. The value of one commodity is to the value of any other, as the labour time necessary for the production of the one is to that necessary for the production of the other. “As values, all commodities are only definite masses of congealed labour time.”

Marx moves on and tackles the old chestnut: why are diamonds, which are not useful, so much more costly than water? It’s all to do with labour value. It's objective factors.

"…. Diamonds are of very rare occurrence on the earth’s surface, and hence their discovery costs, on an average, a great deal of labour time. Consequently much labour is represented in a small compass. Jacob doubts whether gold has ever been paid for at its full value. This applies still more to diamonds. According to Eschwege, the total produce of the Brazilian diamond mines for the eighty years, ending in 1823, had not realised the price of one-and-a-half years’ average produce of the sugar and coffee plantations of the same country, although the diamonds cost much more labour, and therefore represented more value. With richer mines, the same quantity of labour would embody itself in more diamonds, and their value would fall. If we could succeed at a small expenditure of labour, in converting carbon into diamonds, their value might fall below that of bricks. In general, the greater the productiveness of labour, the less is the labour time required for the production of an article, the less is the amount of labour crystallised in that article, and the less is its value; and vice versâ, the less the productiveness of labour, the greater is the labour time required for the production of an article, and the greater is its value. The value of a commodity, therefore, varies directly as the quantity, and inversely as the productiveness, of the labour incorporated in it."

Now Marx tries to deal with the problem that some useful things occur in nature. This things have use value, but not value. Value only comes about from the application of labour.

"....A thing can be a use value, without having value. This is the case whenever its utility to man is not due to labour. Such are air, virgin soil, natural meadows, &c."

oisleep's picture
oisleep
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Jan 13 2010 16:01

edmundosullivan - I don't have the time to engage properly with your posts at the moment,but there's a few things that jumped out at me from your last post that I wanted to quickly respond to

Quote:
At the risk of being a complete bore, I present section one, chapter one of Capital. How this can be interpreted either as a subjectivist theory of value or a synthetic theory of value defeats me:

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,”[1] its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another."

Strong implication that a commodity itself is a thing, a tangible.

“The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference.Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.”

Reaffirms that a commodity is an object, a thing which is separate from our subjective wants and needs.

"...Every useful thing, as iron, paper, &c., may be looked at from the two points of view of quality and quantity. It is an assemblage of many properties, and may therefore be of use in various ways."

Marx persists with the view that a commodity is an object and a thing not an idea or an intangible. He uses paper and iron as an example. He talks about qualities but seems to suggest these are objective qualities like colour and material content, not what we think the qualities of commodities are. Measurement is of a quantity, a volume which means the commodity must have a physical characteristic.

everything you've mentioned above seems to me that you're trying to prove that marx's value is objective through showing that commodities themselves are physical objects/objects - now putting aside the fact that the determining condition here that a commodity is a 'thing that by its properties satisfies human wants' doesn't mean that that thing is required to be a tangible - the key thing you're missing is that while a commodity may be a bearer of value it doesn't mean that the physical commodity and the value it reflects/bears are the same thing - just because the commodity may be tangible/objective it doesn't mean that its value is - if you take a commodity that currently bears value and transport it to robinson crusoe's island/the moon/a pre/post capitalist society - the physical thing may be transported but its value certainly doesn't travel with it - so asserting that a commodity is a physical tangible object does not get you any further down the road of proving that value itself is objective

Quote:
Marx introduces utility next. But Marx’s utility is not the utility of neoclassical economists, Jevons and the Austrians. It’s an objective characteristic (could Marx be any more clear?).

"..The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful."

So value is objective, tangible, measurable.

In contrast to my point above re value not being one and the same as the object which reflects that value - here all marx is saying is that the properties which contribute to making a thing a use value to someone (in contrast to its value/exchange value) is inherent within the object itself - however the ultimate test of whether something is a use value or not is not wholly dependent upon the object itself but by the person (or society) who may or may not have a use for it - so you're wrong to project from this that use value is an objective charactersitic - if all human beings were wiped out tomorrow leaving everything else exactly the same, those objects would no longer have a use value even though their physical (utility giving) characterstics are unchanged. The object talked about above that we transport to robinson crusoe's island would most likely cease to be a use value upon it's arrival, despite it's physical properties remaining intact and unchanged. So it's wrong to project from this that use value is an objective charactersitic. You even provide a quote from marx in your own post that demonstrates this, i.e .a commodity [which by definition is a use value] is a

'thing that by its properties satisfies human wants'

i.e. a thing is only a use value if it's properties satisfies human wants - it's properties are certainly necessary in it being a use value but they're not on their own sufficient, a human/society has to have a need for those satisying properties for the thing to be a use value

So your assertion at the end of the quote above that value is 'objective and tangible' is not supported by, and bears no connection to, the quotes from marx which you provide - It would be easy to provide countless other quotes from that same first section of capital vol1 back at you to support this point, but there doesn't appear to be any need to do this. I'd agree however that if a commodity's use value (and therefore the socially necessary labour required for it's reproduction) is validated by the complexities of society's needs & wants then its value - post this complex subjective validation - is then objective (although continually dependent upon these subjective contingencies) and in theory measurable (although in practice, probably not) - however even then there's no way you can get from that to claiming that its value itself is tangible - objective but immaterial is as close as you're going to get in that regard.

So in summary you seem to think for marx value is some kind of objective, tangible thing that has an existence independent from the social relations that give rise to it, this may have been the mistake of classical political economy prior to marx that he was (somewhat unsuccessfully in my opinion) trying to transcend, but it's certainly not something that can be attributed to him. For what it's worth I think marx is quite weak on the subjective parts and often seems far too happy to abstract away the issues that they raise, and while this is a tool that's required to illuminate/explore other areas it at times seems less than satisfying.

I've got some observations on the rest of your post(s) but don't have time to properly respond at the moment, i'm urgently needed in libcommunity

Boris Badenov
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Jan 13 2010 18:02

Marx is describing capitalist society, edmund. He is not making any metaphysical claims as to value being a transhistorical Objectivity. As he clearly states, 'value' could only exist in capitalism. We speak of use-values in a society defined by the commodity form. A caveman would not think of his tools or his game as "use values." These are not absolute qualities, inherent in the physical object regardless of the social makeup.

edmund wrote:
“The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,”[1] its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity. A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another."

Strong implication that a commodity itself is a thing, a tangible.

What Marx is saying here is that the commodity is a real thing and that it is the building block of the society he's analyzing. A commodity is not a thing outside of capitalism.

He is emphasizing the "thingness" of the commodity however because outside of the act when exchange-value is manifested through purchase, we tend to not think of the commodity at all; it is so basic to capitalism that it is almost entirely obscured.
As Marx says, the commodit is accepted as it "appears at first sight..., an extremely obvious, trivial thing." (Capital vol. 1, 163). He specifically argues that it is a "mistake [to treat the commodity] as [an] eternal natural form [and therefore] necessarily overlook its specificity." (174) In other words, the commodity is not perceived as being a value in addition to a use-value, a "thing" which exists only in a specific kind of society.
Replying to Adolph Wagner (an "academic socialist"), Marx wrote that "neither 'value', not 'exchange-value' are my subjects, but the commodity... What I start from is the simplest social form in which the labour-product is presented in contemporary society, and this is the 'commodity.'" (Marx "Notes on Adolph Wagner" in Texts on Method, 1975, pp.183, 198)

Quote:
It’s all objects, things not ideas or subjectivity. The best way to measure the value of a commodity is by reference to the amount of labour (power) used to make them.

I'm not sure what the objection here is. Marx is talking about the "third thing" that commodities have in common, which, as it turns out is, "a phantom-like objectivity, they are merely congealed quantities of homogenous human labour... As crystals of this social substance, which is common to them all, they are values - commodity values." (Capital vol. 1, 128).
He explicitly critiques the so-called objectivity of the commodity value; only because it is the product of dead labour does it appear so. But he goes beyond that in Capital obviously, he goes beyond the postulations of the classical economists.
On the subject of embodied theories of value, when Marx says that abstarct labour is embodied in the commodity as value, he is NOT just echoing Ricardo's observation that labour is "bestowed" on commodities and adding a bunch of weird philosophical shit. Again, Marx viewed the embodiment of labour as value not as a transhistorical reality but a specific relation within capitalism.
One reason that Marx's work is seen as too "philosophical", I think, is because of the empiricist tradition which condones only investigation into how things behave, not into the nature of what they are. But Marx is not falling into metaphysical mumbo-jumbo by analyzing what the commodity is either.
I would love to continue this post, as looking up quotes gives me a chance to brush up on my Marx and this is an interesting topic anyway, but I have to leave it at that for now.

edmundosullivan
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Jan 13 2010 18:02

Thank you oisleep and Vlad.

Couple of reactions.

1 There sees to be a division within Marxist economics, and within critics of Marxist economics as well, about whether the Labour Theory of Value is objective, subjective or synthetic (ie both subjective and objective). But I can refer you to people (who should know) who either aren't explicit about it or who imply that the LTV is so obviously objective they don't even bother to explain it. Here's one example among many:

"Marx began with the simple assumption, accepted by classical political economy, that the price of a good was determined by it's value: that is, its labour. ...Marx solved this conumdrum by a beautiful conceptual device. Labour time was, of course, a way of measuring value QUANTITATIVELY...So the price of labour time, and the price of material input, must be explained by the same theory of value." Meghnad Desai Marx's Revenge 2002

Desai taught economics at the LSE for about 30 years and was, probably, the only economist there at some points who claimed an intimate knowledge of Marxist economics.
WHY DID NOT DESAI SAY SIMPLY: But value, as Marx understood it, was not objective, at least not objective in the sense that the Classical economists Smith and Ricardo accepted it?
He never manages it in more than 360 pages. Why?

2 The point that you both seem to make is this: there is the value of something as it is perceived (subjective) and value as it is in itself (objective/intrinsic). The parsing appears to be: but there are objective perceptive comptences (measurement, quantification) and subjective perceptive competences that involve feelings, emotions. Hence the expression (not used by Marx himself: why not?) that value is objective but immaterial (I like it!).

If that is definitely what Marx meant (and absent an explicit statement, or a voice from the grave, how can I be sure?) then I agree: Marx's theory of value was subjective. But if he didn't say that explicitly -- and given the host of sentences that at least imply objective value theory -- and Marxist economics only works with a subjective theory, then Marx was wrong, at least part of the time.

3 If the Marxist theory of value is subjective (and objective but immaterial must mean that), what are the implications for the assertion that Marxism proves capitalism objectively exploits workers (not just gives the impression it does or can stand accused that it does, but concretely, tangibly, materially, universally, historically etc does)? Doesn't it imply that the forecast that capitalism will collapse because of the decline in the profit rate is, in fact, an expression of hope, wish and desire? But it won't necessarily happen, ever (this seems to Desai's final conclusion).

4 I'm not blogging to garner support for an objective LTV. I'm trying to place Marx's theory of value within the history of theories of value from Aristotle to the present day. Some are purely objective. Some are purely subjective. Some are synthetic. I had placed him with the objectivists like Smith and Ricardo. Now I'm not so sure. But it's not important.

5 What I'm really after is an understanding of what Marx really thought value was and how it was created. I thought he thought that value was a tangible thing, embodied in tangible things. The bloggers here say no: he thought it was an intangible thing within a tangible thing (a commodity). They also say that value is created in social relations, an intangible, subjective process. Now this much makes sense.

The theory of value creation that originated this exchange is inspired by an attempt to understand the implications of the rise of service production (intangibles), now accounting for more than 80 per cent of UK GDP.

Intangibles, by definition, can't be seen, touched, tasted, smelt or heard. If they could be, they would be tangible. An intangible is, for example, a conversation. This is just a word to describe an indescribable. It doesn't exist like a book exists. The conversation is an interaction: a social relation. And it is this interaction that creates value: an intangible that only exists in the minds of the participants in the conversation. It is objective but immaterial. Why does an interaction create value rather than take existing value and just transform it? It is because humans have the capacity to encourage each other to be more productive. Examples that instantly spring to mind are teacher and pupil; doctor and patient. The teacher, like Robinson Crusoe before Friday, creates no value on his or her own. He only does so by encouraging a pupil to think and do more. And the pupil in turn encourages the teacher to teach better. So that point is dead right.

Reversing out of intangibles into tangibles, this idea can still hold. Tangibles support value creation through their use (use value). But value is actually created in the human interaction (social relations) these tangibles facilitate. The price of the table is not the determined by the table itself but the use to which the table is put to support a human interaction (social relationship). Same for shoes. Same for cars. Same for everything. These are all commodities, but they don't contain value or transfer value (break with Marx's logic as presented by Oisleep here!). They FACILITATE value creation.

If you can grasp all that, the powerful conclusion is that price (or the exchange value) in a service transaction is determined by the subjective value each of the participants attaches to the human interaction. There is no determinate way, logically, to say what that price might be.
This means that price has no direct traction over, not suborbination to, value creation in intangibles. That in turn means the prices in service transactions can fluctuate wildly and have no impact on value creation. This is precisely what we have seen in the financial market which involves trade in derivatives and other instruments that are documentary expressions of an intangible.

That means that in intangibles, there can be no demand curve, no supply curve and no market. In intangibles, the market doesn't just not work. It actually ceases to exist.

There are a host of other implications that can be logically derived from this foundation: business corporations in an economy dominated by intangibles will suffer from the impossibility of calculation that Von Mises validly charged would cripple the state in an economy dominated by tangibles. Business corporations exist, and the only justification for their existence, is to capture, process and react to prices. If price has no purpose in vallue creation, neither does the corporation. Same goes for much of what the state does.

Business corporations in economies dominated by services/intangibles will suffer inexorably declining profit rates as they are forced to bid up the wages of workers (this might be the subject of a further discussion). The capacity of business corporations producing services to drive down wages because of their control of the means of production is much lower than that wielded by corporations producing tangibles because the means of production required by intangible/service workers are on a much smaller scale. All we needed for this process of value creation is a cheap laptop costing less than one month of an average worker's wage in the UK. The big threat is private control of the web, which is the potential threat of Google and the search engine corporations.

So in intangibles, the state and the business corporation will wither. The only viable alternative is an economy where people creating value through human interaction are entirely liberated from the state and the corporation to interact as they as individuals wish, like us, now.

This will be an obligations based economy rather than the rights-based economic system required when tangible production and trade dominates (and where the transfer of the right to enjoy a commodity is secured through contract enforced by a legal code, the courts and the state. If a thing is intangible, how can anyone be sure the right to enjoy it has been transferred? This leads to a discussion about the role of intellectual property rights and other intangible assets (capital) which I shan't initiate now).

Finally, the means of production -- the tangibles that support service value creation -- should be owned and operated on a non-profit basis (not sure if that necessarily means state ownership, at least not in the way it applied in the Soviet Union and the UK and elsewhere.) This will widen access to the means of production that is necessary for expanded value creation in a service economy.

Thank you. You've helped a lot.

By the way, to original bloggers, Steve Keen argues that Marxist economics would be improved if the entire LTV were disposed of.

Sraffra's system works beautifully only because it excludes prices (exchange values) entirely, and, by implication, subjectivity and its infernal elusiveness.

Finally, this line of reasoning presents a potential anti-Von Mises approach, though its logic should be acceptable to Von Misesians too!