u/Optymistyk

PT1: https://www.reddit.com/r/CapitalismVSocialism/s/TATHNDLA5P

In our last post we've established that the Marginalist Theory of Value is incomplete, as it's lacking a standard of market value that would explain the tradeoffs constructed by the market on which subjective valuations of individuals are based. In this post we will embark in the search of the missing pieces, so that we can uncover the context that marginal value implies. To find the missing standard we must first track down the factors that give general exchange it's characteristic regularity.

1. In search of the standard of market value

Clearly the proportions of exchange that the market tradeoffs are based on must be limited in an objective way. It is quite clear that a fixed proportion of exchange "1 loaf of bread for 1g of flour" would promptly result in the producers of bread running out of flour, and thus can't be maintained. But this limitation in exchange proportions only applies to a certain subcategory of all goods: commodities, reproducible goods made for exchange.

Goods which can not be reproduced, such as land, original Sunflowers by Van Gogh or tickets(as a symbol of a right to something) do not have this limitation. There's no inherent reason why the Sunflowers couldn't always be exchanged for 1g of flour or any arbitrary amount of anything at all, simply because the original Sunflowers can't be reproduced.

Non-reproducible goods have no inherent limitation in terms of their proportions of exchange, and as such they can't form a basis of the observed regularities in exchange. Only commodities exhibit such limitations. It is now justified and necessary to investigate this class in separation in order to understand what this implies.

2. The commodity-form and the value-relation

Commodities can only be the result of a productive process, and not just any process but a a social process in which independent producers coordinate their productive activity through exchange. Machines can not be the agents in this productive process, merely the instruments of the process, for they do not operate independently of human will. They merely act as an extension of the producer, not unlike the producer's tools.

Because of this the result of the productive activity can only be attributed to the human producer and not to the machinery, just like we can't attribute the act of soup-cooking to the stove or the kitchen utensils. This kind of productive process in which humans are the agents we call labor.

As far as trade in commodities is concerned, one thing is abundantly clear. A situation can not persist whereby market agents withdraw commodities from the market for nothing or for "too little", otherwise the market will not be able to replace the commodities withdrawn. Over any given period of time the average rate at which the commodities are brought to the market must be at least equal to the rate at which they are withdrawn; otherwise shortages will grow and the market will eventually dissolve if this tendency is not reversed.

The market must then perform two functions: firstly, it must validate each contribution in commodities - this validation takes the form of two individuals agreeing to an exchange. Secondly, it must define what batches of commodities can be withdrawn for any given contribution, such as to avoid dissolution.

Since our commodity and the commodities to be withdrawn are themselves nothing but contributions originating from various people's labor, what the market is really doing is putting the heterogeneous contributions from labor in a quantitative relation. The inherent limitations of the process of production incessantly assert themselves, causing the relation to gravitate towards a balanced state. It is thus the source of the observed regularities. This relation between contributions from labor, which we call the market's value-relation, necessarily takes the form of a relation between commodities, such as "1 coat for 20 loaves of bread".

But what the relation really expresses is not that eating 1 coat will make you as satisfied as eating 20 loaves. No, it expresses the fact that the contribution of 1 new coat "counts as much as" a contribution of 20 loaves of bread, and therefore both contributions permit equal quantities of goods to be withdrawn. It also follows that 20 loaves of bread can be withdrawn for 1 coat and vice versa. In the interest of brevity and simplicity we will not consider in this post the general laws that this value-relation implies or it's functional relation to subjective valuations of individuals.

3. The money-form

Once the market has defined the relative worth of all contributions, there still remains the problem that labor is wasted unless exchange takes place. But direct exchange of one commodity for another based on their use(barter) becomes more and more difficult as the number of distinct types of commodities grows. For commodity production to grow beyond a certain level of development, it is therefore necessary for the value-relation to assume a mediated form independent of any particular use. This mediated form is money.

Suppose the value-relation is `a contribution of 1 new coat "counts as much as" a contribution of 20 loaves of bread`. As established before, this simply establishes that both contributions permit equal batches of goods(equivalents) to be withdrawn. With money this relation takes the form `1 new coat "counts as much as" a contribution of 20 loaves of bread, which is 1$`. The '1$` here represents the contribution's equivalent in it's abstract form, detached from the contribution itself. The `1$` is functionally a stand-in for the commodity-contribution itself.

Money is thus not merely a "fortunate invention" as the theory of marginal utility holds, but it is the necessary development in the process of commodity production in which it serves the functions of universal equivalent and measure of commodity contributions(measure of market value). The source of all money is therefore labor, for money functions merely as a stand-in for some past commodity-contribution, which can only come from labor. Without the contribution money would command no power at all.

Contributions in non-commodities do not have a rationally determined equivalent, thus can't support a stable currency in money and can't serve as the measure of market value. Money based exclusively on non-commodities could at any moment become worth everything, or nothing at all, and so couldn't function as money.

Once the standard in which commodity-contributions are measured is established, it can also be used to express various things not related to the substance of the standard. For example, given that a gram is a measure of mass, I can also use the gram to express my personal preference; I can for example say that I subjectively value something as much as a gram of gold. But to say that a gram is the measure of my subjective preference would be absurd. For me to be able to use the standard of gram in this way it must be already established prior as a measure of mass. It is the same with money, which is why money can be used to express various things not associated with contributions in commodities which it measures.

Finally then, we have derived the standard based on which "economising individuals" can express their subjective preferences in a market economy! The marginal theory, while still nowhere near complete, has certainly gained from this development, for it now contains a base explanation for the social mechanisms which function at it's foundation. I would like to term this revelation "the second marginal revolution".

4. Surplus value(profit) and class conflict

Before we finish, let's consider a thought experiment. Suppose someone were to leverage another persons social dependency to make that person produce commodities for them. This hypothetical individual would then take the ready-made commodity, sell it on the market for it's money-equivalent, and return to the actual agent of the process only part of the equivalent thus obtained. In this way they would claim a share of a contribution they took no part in. The smaller the part returned, the harder the producer works, the more profit for the exploiter.

The relation between the two individuals would be not unlike that between the lord and the serf, where the lord simply takes part of the produce for himself. The difference is that here the exploitation is obscured by money and the nominal freedom of the worker to change masters.
If such a situation were to become the basis of all economic activity, then clearly the lives of the people in such a society would be constructed on a social conflict of interest; a class conflict if you will.

In "Principles of economics" Mengel furnishes an example: Two frontiersmen (living in a "virgin forest") each are in possession of something they have in excess that the other is lacking(cows and horses). They will of course only exchange as long as both parties subjectively consider it beneficial to themselves. From this and similar examples the author eventually derives a law, that price and thus the proportions of exchange are, as a rule, determined to be "equally far from the two extremes", constituted by the subjective valuations of the marginal buyer and seller. He thus considers the classical problem of exchange proportions explained.

It is abundantly clear at first glance that the gap between our everyday experience and the material situation of the Robinsonade is as wide as the gap between heaven and earth. Let us then try to apply the derived principle to an example closer to the economy of general exchange we are in today, as opposed to the accidental exchange of the Robinsonade. First of all, in our economy of general exchange as a general rule people have no direct use for the things they produce. Let us then image, instead of the two frontiersmen, a grain farmer and a miller.

The grain farmer has no mill, therefore the value in use for him of his own grain is 0. Just like in the Robinsonade we assume no established market where the farmer and the baker could sell their produce, for otherwise we'd be smuggling in proportions of exchange that we are trying to explain. The farmer therefore values all his grain combined as much as the smallest quantity of flour that he can use to bake bread, so he can survive. The miller on the other hand does value his own flour, but to make flour and survive he needs the grain of the grain farmer. He will therefore agree to any trade with the farmer, as long as he gets out of it the smallest quantity of grain he himself needs to survive and reproduce the flour exchanged.

From this "updated" Robinsonade we could in no way derive our previously observed law; but if we tried to apply it anyway, then we would determine that the proportions in which the next pack of flour will be exchanged for grain will (usually) be "equally far from the two extremes" of "barely enough for the farmer to survive" and "barely enough for the miller to survive", which is to say it can be anything at all.

Introducing money and markets into the mix does not resolve but merely complicates the problem. Money itself introduces a proportion of exchange. Suppose a baker is considering whether or not to sell his loaf for 1$ so he can buy apples or to eat it himself. An immediate question comes to mind: "How many apples is 1$?". If 1 apple normally costs 10$, he might prefer to eat the loaf. But if the 1$ buys 10 apples, he might prefer to sell the loaf. Thus even the subjective valuation between the loaf and 1$ depends on the quantities on offer for 1$.

The quantities on offer do not come from nowhere, but are in reality determined by the exchange proportions of goods on the market, and what we set out to do is to explain exactly these proportions in which goods exchange. That is the whole purpose and idea behind the classical conception of value and the ticket to fame of the "Marginal revolution" as a successor to classical economy. Even without considering the classical conception, our theory is clearly not complete if subjective valuations are it's pivot, the valuations depend on some definite context and we can't explain the origin of this context or the laws governing it. It seems like the context governing our laws has laws of it's own.

If an individual is to make a subjective valuation, he must be faced with a definite tradeoff. The tradeoff can not take the form of "X apples for Y loaves", where X and Y could be any arbitrary number; it must take a concrete form: "10 apples for 1 loaf". But the market doesn't only offer us apples and loaves as a tradeoff, it actually offers us an almost infinite series of goods to choose from, including cars and land and tickets for example. What is missing then is an explanation for how the market decides what constitutes a valid tradeoff.

In other words we are missing the explanation of the standard through which the market tradeoffs are constructed; In classical terms a standard of market value, which Mengel seems to consider 'untenable'. Without such a standard the theory can at best serve as an approximate explanation of "why" people exchange or a model of "how" a concrete exchange happens given the market context, but not as an explanation of the general laws apparent in a developed market economy.

In Part 2 we will systematically derive the standard, and along the way prove that the very core of Marginal Theory implicitly assumes all of the Marxian conclusions that the school denies, including surplus value and even class conflict.

PT2: https://www.reddit.com/r/CapitalismVSocialism/s/57VyImGtg0

PT1 https://www.reddit.com/r/Marxism/s/1etTBKQww2

In part 1 we've established that the Marginalist Theory of Value is incomplete, as it's lacking a standard of market value that would explain the tradeoffs constructed by the market on which subjective valuations of individuals are based. In this post we will embark in the search of the missing pieces, so that we can uncover the context that marginal value implies. To find the missing standard we must first track down the factors that give general exchange it's characteristic regularity.

1. In search of the standard of market value

Clearly the proportions of exchange that the market tradeoffs are based on must be limited in an objective way. It is quite clear that a fixed proportion of exchange "1 loaf of bread for 1g of flour" would promptly result in the producers of bread running out of flour, and thus can't be maintained. But this limitation only applies to a certain subcategory of all exchangeable goods: the reproducible goods.

Goods which can not be reproduced, such as land, original Sunflowers by Van Gogh or tickets(as a symbol of a right to something) do not have this limitation. There's no inherent reason why the Sunflowers couldn't always be exchanged for 1g of flour or any arbitrary amount of anything at all, simply because the original Sunflowers can't be reproduced.

Non-reproducible goods have no inherent limitation in terms of their proportions of exchange, and as such they can't form a basis of the observed regularities in exchange. Only reproducible goods exhibit such limitations. it is now justified and necessary to investigate this class in separation in order to understand what this implies.

2. The commodity-form

Firstly, reproduction of goods implies a productive process, and not just any process but in this case a market-mediated process, thus a social process carried out by human agents. This we call "the social labor-process", because it necessarily manifests itself as work. On the other hand the goods only appear on the market because they are not consumed directly but through exchange. This category of "reproducible goods" can therefore be better termed as goods produced for exchange - commodities. Considering the previous point, we can say that commodity is the necessary form taken by products whenever production is mediated by exchange.

As far as trade in commodities is concerned, one thing is abundantly clear. A situation can not persist whereby market agents withdraw commodities from the market for nothing or for "too little", otherwise the market will not be able to replace the commodities withdrawn. Over any given period of time the average rate at which the commodities are brought to the market must be at least equal to the rate at which they are withdrawn; otherwise shortages will grow indefinitely and the market will dissolve. The market must then perform two functions: firstly, it must validate each contribution in commodities - this validation takes the form of two individuals agreeing to an exchange. Secondly, it must define what batches of commodities can be withdrawn for any given contribution, such as to avoid dissolution.

Since the commodities to be withdrawn are themselves nothing but a contribution made by some other people, what the market is really doing is putting the heterogeneous contributions in a quantitative relation. This relation necessarily takes the form of a relation between commodities, such as "1 coat for 10 loaves of bread".

But what the relation really expresses is not that eating 1 coat will make you as satisfied as eating 10 loaves. No, it expresses the fact that the contribution of 1 new coat "counts as much as" a contribution of 10 loaves of bread, and therefore both contributions permit equal quantities of goods to be withdrawn. It also follows that 10 loaves of bread can be withdrawn for 1 coat and vice versa.

This is the only reason why proportions of exchange must be definite. Absent the necessity to put the contributions in a quantitative relation, the exchange proportion could be anything at all. If 2 pairs of shoes and a can of peas can be withdrawn for a contribution, we will refer to this batch of goods as the contributions equivalent. The same contribution can have multiple mutually-exclusive equivalents.

3. The relation between market contributions(value-relation)

What does the contribution consist of? It consists of bringing a commodity to the market. Certainly, one could buy a commodity and then sell it on the same market, and in a sense it would count as a contribution. But in order to buy the commodity one first has to sell a different commodity which the market considers an equivalent contribution at the time. The act of "Exchange for Exchange" therefore logically presupposes the act of "Exchange for Consumption", but not the other way around.

"Exchange for Exchange" only makes any logical sense if we expect a ready-made foundation consisting of people ready to buy from us, people in direct need of the commodity. Absent such a foundation, we will certainly find ourselves stuck with a commodity we bought that we don't even need. "Exchange for Consumption" needs no such foundation in people buying commodities for sale.

It follows that the foundation of market exchange is constituted by the repeated acts of "Exchange for Consumption", or people bringing in contributions in the form of new commodities that weren't available on the market before. The only possible source of these commodities is the process of production itself. It bears restating: the foundation of general market exchange consists of people relating their productive activities as contributions on the market. From now on we will be referring to the "productive activity of people" as simply labor.

It must be noted here briefly that our concept of "labor" includes all factors of production. A baker without flour does not function as a baker at all, and flour with no one to bake it doesn't serve as flour. Same with the oven etc. They must all be understood as constituent parts of one labor-process. "Labor" is basically short for "human productive activity". To describe human potential for work as separate from other factors of production, we use a different word: labor-power

This relation between different types of contributions in labor, once established, serves as the basis upon which individuals base all their market-related choices. The relation is necessarily quantitative due to it being mediated by commodities, and it necessarily gravitates towards a balanced state due to the inherent limitations of the process of production which assert themselves at every point. We refer to this quantitative relation between distinct labors as the market's "value-relation". In the interest of brevity and simplicity we will not consider in this post the general laws that this value-relation implies or it's functional relation to subjective valuations of individuals.

4. The money-form

Once the market has defined the relative worth of all labor contributions, there still remains the problem that no individual can be expected to keep track of all the distinct proportions in which contributions in labor are socially equalized. For commodity production to grow beyond a certain level of development, it is then necessary for the value-relation to assume a form independent of the knowledge of each market participant. This form is money.

Suppose the value relation is `a contribution of 1 new coat "counts as much as" a contribution of 10 loaves of bread`. As established before, this simply establishes that both contributions permit equal batches of goods(equivalents) to be withdrawn. With money this relation takes the form `1 new coat "counts as much as" a contribution of 10 loaves of bread, which is 1$`. The '1$` here represents the contribution's equivalent in it's abstract form, detached from the contribution itself. The `1$` is functionally a stand-in for the commodity-contribution itself.

Money is thus not merely a "fortunate invention" as the theory of marginal utility holds, but it is the necessary development in the process of commodity production in which it serves the functions of universal equivalent and measure of commodity contributions(measure of market value). The source of all money is therefore labor, for money functions merely as a stand-in for some past contribution, and without the contribution it would command no power at all. Contributions in non-commodities do not have a rationally determined equivalent, and thus can't support a stable currency in money. Money based exclusively on non-commodities could at any moment become worth everything, or nothing at all, and so couldn't function as money.

Once the standard in which labor-contributions are measured is established, it can also be used to express various things not related to the substance of the standard. For example, given that a gram is a measure of mass, I can also use the gram to express my personal preference; I can for example say that I subjectively value something as much as a gram of gold. But to say that a gram is the measure of my subjective preference would be absurd. For me to be able to use the standard of gram in this way it must be already established prior as a measure of mass. It is the same with money, which is why money can be used to express various things not associated with contributions in labor which it measures.

Finally then, we have derived the standard based on which "economising individuals" can express their subjective preferences in a market economy! The marginal theory, while still nowhere near complete, has certainly gained from this development, for it now contains a base explanation for the social mechanisms which function at it's foundation. I would like to term this revelation "the second marginal revolution".

5. Surplus value(profit) and class conflict

Before we finish, let's consider a thought experiment. Suppose someone were to leverage his social position alone to make someone else produce commodities for him. This hypothetical person would then take the ready-made commodity, sell it on the market for it's money-equivalent, and return to the actual producer only part of the equivalent thus obtained. In this way they would claim a share of a contribution they took no part in. The smaller the part returned, the harder the producer works, the more profit for the exploiter. If such a situation were to become the basis of all economic activity, then clearly the lives of the people in such a society would be constructed on a social conflict of interest; a class conflict if you will.

In "Principles of economics" Carl Menger furnishes an example: Two frontiersmen (living in a "virgin forest") each are in possession of something they have in excess that the other is lacking(cows and horses). They will of course only exchange as long as both parties subjectively consider it beneficial to themselves. From this and similar examples the author eventually derives a law, that price and thus the proportions of exchange are, as a rule, determined to be "equally far from the two extremes", constituted by the subjective valuations of the marginal buyer and seller. He thus considers the classical problem of exchange proportions explained.

It is abundantly clear at first glance that the gap between our everyday experience and the material situation of the Robinsonade is as wide as the gap between heaven and earth. Let us then try to apply the derived principle to an example closer to the economy of general exchange we are in today, as opposed to the accidental exchange of the Robinsonade. First of all, in our economy of general exchange as a general rule people have no direct use for the things they produce. Let us then image, instead of the two frontiersmen, a grain farmer and a miller.

The grain farmer has no mill, therefore the value in use for him of his own grain is 0. Just like in the Robinsonade we assume no established market where the farmer and the baker could sell their produce, for otherwise we'd be smuggling in proportions of exchange that we are trying to explain. The farmer therefore values all his grain combined as much as the smallest quantity of flour that he can use to bake bread, so he can survive. The miller on the other hand does value his own flour, but to make flour and survive he needs the grain of the grain farmer. He will therefore agree to any trade with the farmer, as long as he gets out of it the smallest quantity of grain he himself needs to survive and reproduce the flour exchanged.

From this "updated" Robinsonade we could in no way derive our previously observed law; but if we tried to apply it anyway, then we would determine that the proportions in which the next pack of flour is to be exchanged for grain will (probably) be "equally far from the two extremes" of "barely enough for the farmer to survive" and "barely enough for the miller to survive", which is to say it can be anything at all.

Introducing money and markets into the mix does not resolve but merely complicates the problem. Money itself introduces a proportion of exchange. Suppose a baker is considering whether or not to sell his loaf for 1$ so he can buy apples or to eat the loaf himself. An immediate question comes to mind: "How many apples is 1$?". If 1 apple normally costs 10$, he might prefer to eat the loaf. But if the 1$ buys 10 apples, he might prefer to sell the loaf. Thus even the subjective valuation between the loaf and 1$ depends on the quantities on offer for 1$.

The quantities on offer do not come from nowhere, but are in reality determined by the exchange proportions of goods on the market, and what we set out to do is to explain exactly these proportions in which goods exchange. That is the whole purpose and idea behind the classical conception of value and the ticket to fame of the "Marginal revolution" as a successor to classical political economy. Even without considering the classical conception, our theory is clearly not complete if subjective valuations are it's pivot, the valuations depend on some definite context and we can't explain the origin of this context or the laws governing it. It seems like the context governing our laws has laws of it's own.

If an individual is to make a subjective valuation, he must be faced with a definite tradeoff. The tradeoff can not take the form of "X apples for Y loaves", where X and Y could be any arbitrary number; it must take a concrete form: "10 apples for 1 loaf". But the market doesn't only offer us apples and loaves as a tradeoff, it actually offers us an almost infinite series of goods to choose from, including cars and land and tickets for example. What is missing then is an explanation for how the market decides what constitutes a valid tradeoff.

In other words we are missing the explanation of the standard through which the market tradeoffs are constructed; In classical terms a standard of market value, which Mengel seems to consider 'untenable'. Without such a standard the theory can at best serve as an approximate explanation of "why" people exchange or a model of "how" a concrete exchange happens given the market context, but not as an explanation of the general laws apparent in a developed market economy.

In Part 2 we will systematically derive the standard, and along the way prove that the very core of Marginal Theory implicitly presupposes all of the Marxian conclusions that the school denies, including surplus value and even class conflict.

PT2 https://www.reddit.com/r/Marxism/s/TO2AmW0auD