Value and valuation. posted by Richard Seymour

A Jane Austen-style title for a response to the impeccably classical Paul Craddick, who has raised a question about the Marxian version of the labour theory of value:

I'd be interested to know how anyone who still credits Marxian value, at least as a heuristic (or, better, as an apprehension of something basic and undeniable about economy and production), answers the basic "Austrian" contention:

"... a suit is not eight times as valuable as a hat because it requires eight times as much labor as a hat to produce. It is because a finished suit will be eight times as valuable [Ed. sc., desired-demanded] as a finished hat that society is willing to employ eight times as much labor for the suit as for the hat."
(Roepke, paraphrasing Wicksteed, in Economics of the Free Society, p. 20, n. 2)

Someone in the comments box adds that "the fatal flaw in Marxist economics is the inability to identify an autonomous realm of supply and demand -- the market, in other words -- which gets wholly subsumed to production."

Inasmuch as the circuit of market transactions are where value is seen to be realised, there is an element of truth in this. Value, for marxists, derives from production or, more specifically, from labour. But the answer to the commenter, which partially deals with Paul's point as well, is to be found in Marx's brief pamphlet, Value, Price and Profit, chapter I, part IV . Taking issue with a by now famous Citizen Weston over the determinants of wages Marx says:

You would be altogether mistaken in fancying that the value of labour or any other commodity whatever is ultimately fixed by supply and demand. Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value, but they can never account for the value itself. Suppose supply and demand to equilibrate, or, as the economists call it, to cover each other. Why, the very moment these opposite forces become equal they paralyze each other, and cease to work in the one or other direction. At the moment when supply and demand equilibrate each other, and therefore cease to act, the market price of a commodity coincides with its real value, with the standard price round which its market prices oscillate. In inquiring into the nature of that VALUE, we have therefore nothing at all to do with the temporary effects on market prices of supply and demand. The same holds true of wages and of the prices of all other commodities.

As I say, this partly answers Paul Craddick's query. If marginal utility can be seen as a factor regulating demand, then it becomes a factor in the fluctuation of prices around the natural value of a commodity. The example provided by the 'Austrian' merely compounds this: if the coat requires eight times as much labour to make, that itself is significant. At the moment, it doesn't require any work at all to acquire air, although this could by no means be said to be a substance lacking in utility for most people. Yet, it costs nothing, and will cost nothing until our skies become so polluted that air worth breathing requires labour.

There endeth the lesson. Naturally, I will be relying on the trained Marxian economist who hosts Dead Men Left to shore up my case with genuine expertise.