So, Jmullaney, would you value a Picasso as much as any painting that took as much labor to create?
As I stated in the begining, this isn’t an area of expertise, it isn’t even close. I started it because of something posted in another thread. I felt the need to offer further explanation. When I started, I warned you that I was still working on the concepts, and might have to backpeddal or redefine at certain points. Now is one of those points.
A
lso, apologies for not posting in the last two day (step away for a minute and everything goes to hell). I’ve had other priorites.
And a last point before I continue on. I haven’t said anything to jmullaney or dal_timgar. Quite frankly, the majority of what you guys are posting is off. I would be arguing against you except that 1) the “capitalists” of the board are doing it quite well, 2)I’m too busy trying to defend my own statements.
So here is where we start. These paragraphs basicly answer a whole host of questions, and state why the criticism leveled against Marx in this thread (and enough with the ad hominem attacks (of which a fair ammount are based on historical falsehoods), what are we, in 6th grade?) comes from a misreading and a misunderstanding of his theories.
blah blah blah.
ahem…
We need to start from scratch. Since Marx himself never used the phrase “labor theory of value” except to describe others’ theories, I’ll use his phrase, “the law of value” (LoV) instead. So from now on I’ll be throwing around the LoV acroynm. Love, it even has a good name. Who could be against love?
One thing that I need to make clear is that the “LoV” does not assert is that “average market prices” for each market equal “labor values.” Quite the contrary: deviations of prices from values are just as important as their connection with each other. Marx was quite conscious before he started Capital that values and prices deviated from each other. In fact, each commodity has both a value and a price. They should be seen as two different characteristics of each commodity. The price represents how a commodity is “valued” by individuals in the market. (which is what Smartass and Sam Stone were talking about) The value, on the other hand, represents how that commodity is “valued” by capitalist society as a whole (which is what I was attempting to but failing to get at). It represents the contribution of the labor that went into producing that commodity to the total societal labor process.
Marx’s “law of value” is first and foremost not a theory of prices. Economists have typically approached Capital assuming that it’s about prices and pricing, but that seems more a symptom of commodity fetishism than a product of a serious reading. That assumption gets in the way of a serious understanding. If Marx had wanted to study pricing, he would have started with supply and demand. Rather, the LoV is a theory of social relations between people. He sees prices as obscuring these social relations (that’s his theory of commodity fetishism in a nutshell), so he uses values instead. If prices actually equaled values, then much of the social relations of capitalism would be more obvious to the casual observer within the system and to the economist. But they don’t so, Marx needed the “acid of abstraction” to cut through surface appearances. That’s what the law of value is for.
Much of the confusion come from Capital Volume 1. In it Marx starts with the abstract, it isn’t until the thrid volume that you getconcrete situations. In volume I, he starts with an abstract commodity-producing society, one without labor-power, capital, or exploitation. Under these weird conditions, on average, prices equal values, because of the zero degree of exploitation. Even then, there are lots of deviations due to the constant fluctuations of supply and demand. This analysis also provides some insights into commodity exchange in general and sort of a moral yardstick (from the capitalists’ own point of view) for judging capitalism, i.e., equal exchange under which prices equal value.
It turns out that capitalism fails according to its own moral yardstick, since capitals are able to exploit labor despite equal exchange – and in the end such equal exchange does not prevail. That’s the subject of Capital volume I after chapter 3: he deals with capitalism, bringing in labor-power, capital, and exploitation (while showing that profits cannot be created simply via buying and selling but must be produced by labor). However, it’s a very abstract capitalism, since he abstracts from the differences amongst the various capitals. So we can talk about volume I describing a “representative capital” – or alternatively, about a “societal factory” in which capital in general faces labor-power in general in an abstract class conflict.
In this story of abstract capital, one of the key differences between capitals that is abstracted from is differences in the “organic composition of capital” (differences in technology). Nor are there any land or scarcity rents. So, just as in the first three chapters, values = prices. “It’s much more intelligent that the common orthodox economist’s assumption that an aggregate production function exists, since Marx is talking about the shared characteristics of diverse capitals, i.e., the exploitation of labor and the accumulation of capital”. But it’s an aggregate theory, a macrofoundation for the microeconomics of volumes II and III. Here, he developed the central conservation principle that defines the “LoV” more than anything else except the theory of commodity fetishism: as any point in time, the total of all surplus-value produced in the exploitation process of capitalism as a whole equals the total of all property income (profits, interest, rent, some of taxes) in that society, just as the total labor done in capitalist society equals the total price of the commodity produced.
It’s only in volume II that Marx gets to microeconomics of the sort that economists like to talk about (and typically talk about exclusively). He brings in the role of time – metamorphoses of capital, the circuits of capital, turnover time, introducing the differences amongst capitals. He turns to discussions of the relations between different types of industries while being very explicit that he is assuming that values = prices.
In volume III, he not only brings up the differences among capitals but looks at how they interact with each other. At this point what was obvious all along to Marx comes out: prices don’t equal value, while individual profits don’t equal the surplus-value that each individual capitalist organized the production of (since in reality, organic compositions aren’t equal between industries). Supply and demand work to make sure that some capitalists are rewarded more than indicated by their workers’ contribution to the societal surplus-value. suppose that an enterprise has extremely “capital intensive,” having a high organic composition of capital. If this firm were to be rewarded according to its workers’ contribution of surplus-value, then its rate of profit would be below average for society. Thus, the capitalist running the business would like to leave this sector post-haste. But this exit from the industry reduces the supply of the commodity being produced, raising its price. This makes the enterprise’s operations more profitable, keeping most firms from leaving. In sum, prices (and supply and demand) work here to allocate profits in a way that tends to equalize the rates of profit between sectors.
In fact, someone can earn revenues and profits without actually contributing to total value or total surplus-value, as with those unproductive folks in the FIRE (finance, insurance, & real estate) sector who simply gain from the redistribution of surplus-value from other sectors. They receive revenues and profits because people within the system find that they have little choice but to deal with financiers, insurance companies, and real estate agents. “Supply and demand” redistribute surplus-value to that sector. And a redistribution it is, since the conservation principle referred to above applies. The FIRE sector is able to capture a piece of the aggregate surplus-value pie even though they don’t contribute to it.
The theory of land rent is very similar. The ownership of land does not contribute to the total surplus-value produced in society. However, land is a necessary input to production, so that those who own it can deny its use to others. Thus, they can and do receive a chunk of society’s surplus-value. (This, in short, is the theory of “absolute rent.”) Further, some land is better than other land, so its owners can get more than this basic amount of rent (“differential rent”).
To summarize, Marx’s “LoV” is a societal theory (seeing the “economy” as implicitly embedded in society), emphasizing the way in which commodity fetishism – volume III’s illusions created by competition – obscures the reality of capitalist society, using values as a conceptual tool for prying out that reality, while seeing that society as a unified totality involving the exploitation of labor, so that those who receive profits, interest, or land-rent benefit from exploitation even if they don’t exploit labor themselves.
Is the LoV “true”? What are the criteria used to answer such questions? Using the standard ones, this theory is logically consistent and hardly contradicts empirical reality (though the discussion above was still at a high level of abstraction). It hardly contradicts supply and demand theory. Further, this theory, unlike the orthodox economists’ one, does not leave out important issues of societal relations and exploitation.
whew…
Now, to get to another point on the OP. Marx didn’t state that capitalism would fail due to the LoV. He stated it would fail due to, primarily, over production. You do not need to accept LoV to accept his theories on overproduction.
I realise that there are probably many minor points, and some majore one’s I haven’t addressed. Sorry, If you would be kind enough to repost anything you want me to comment on, I should be free again for the next couple of days. If you don’t repost it, I’ll probably still read and respond to it, it’ll just take longer, and there is the possibility I might miss something.
Don’t look at me. Lemur, I guess, would claim a bad painting makes a Picasso more valuable by comparison, and those who make bad paintings and couldn’t compete with Picasso would just go and do something else which merited proper compensation.
And those guys digging ditches make Quicksilver’s intelligence intensive labor more valuable too, according to Lemur. Thus, I would think they should all share in the profits since they are all increaing the value of everything. I don’t know what Lemur thinks about that.
Well, doesn’t modernity fix this? By paying workers enough that they can comsume the over-production, but not so much they can be free of continuing to produce, and constantly encouraging them to buy as much as they can, over production isn’t a problem. Capitalist basically pay people extra so, in their “spare” time, they’ll go off and consume enough to prop the system up.
Glad you asked. I think that might be the first on-topic post in the entire thread 
ahem…
No it doesn’t work, for two reasons. One, you are assuming a direction relationship between capital and consummer. Much of the production and trade occurs between various capitals, that must also be taken into account. But, let’s ignore that for a moment. Let’s take your scenario as given, a direct relationship between capital and laborer/consumer. If the capitalist wants the employees to be happy, they will pay them more. Yes, there will be raises, and consumption will rise. More and more companies will form to sate that consumption. Then we get into the falling rate of profit.
"First, the employers want to accumulate, thus to increase the surplus-value produced (therefore exploit more the workers), to incorporate it in the capital to accumulate more in the next step and get a profit in constant progression. It is that way that they can become rich and powerful. And if ever they wouldn’t like to follow this path, the competition will push them for it, since a big capital accumulates faster than a small one and tends to eliminate the latter.
To accumulate, the capitalist must ceaselessly expand the level of production. That means to invest in new buildings, new factories, new machines. The most visible aspect of this phenomena is the construction of new production facilities.
The decision to accumulate is individual, proper to each capitalist. It takes place in indirect relation with the competitors. It is not because the rival built a factory of such kind for such particular product that the capitalist will not build a quasi identical one. It is even the opposite which happens. Because the goal is not to satisfy a need but to make a profit. Thus if the competitor embarks on a slot, that means that there is probably a market to take and for the employer of a company that means the obligation to get also involved in it.
But, if there are too many factories, too many capabilities with respect to what the consumers can buy, the capitalist will do his best in order that the other firms suffer the consequences: they have to reduce the price of their commodities, realising thus losses which will lead them to close workshops, even factories, thus dismissing workers."
In other words, the capitalists can only afford to pay the workers good wages during boom times. As soon as a slump hits, those wages go down (hell they go down in boom times if it can be gotten away with) and with it capitalism starts another crises.
so why don’t the workers think like capitalists and pay off mortgages instead of depreciating consumer goods?
Dal Timgar
Where has Lemur said anything of the sort? I’ve looked through his postsa bit and can’t find anything of the sort.
Collounsbury:
I think there is enough off-topic stuff in this thread already. I wasn’t denying my bias–just pointing out that your position is equally biased.
OldScratch:
C’mon, Scratch, you know better than this. I don’t have to dispute conclusions. I can just dispute premises. Which is what I am doing.
When does this start to happen? As has been pointed out, the booms and slumps appear to be decreasingly bad.
I’ve never seen a libertarian post anything of the sort. If it helps, I don’t deny that society exists.
So, the use-value of a gun would be the max use that the most proficient gun user could put it to? Seems to me that a gun is of use to me or it is not. This isn’t so much a property of the gun as it is a property of my need (or want) for a gun.
You can speak of it, but that doesn’t make it a property of the object.
You cannot just say “this is why” and have it be accepted. This is what we are debating.
Of course not. The value is not in the object, it is in the person thinking about trading it.
You can call it “Scratch, Jr.” if you like.
Please elaborate on this. I wasn’t aware that society “as a whole” was placing values on commodities. Your argument is starting to grow a little circular:
You first say that the “value” of a commodity is an attribute of the commodity. You can’t measure it in any obvious way (price would be misleading, use-value is different). However, you define it is the sum of labor inputs. So, if we add up labor, we have the “value”. Unfortunately, there is no way to examine the object to determine if this value is “correct”.
Then you explain that, since the capitalist doesn’t add labor, he can’t be adding “value”, so his profits must be a theft from those who did add value. (Maybe his profits are just from the difference between the price and the value.)
You see that this is circular, right?
You certainly haven’t established this. If this is what you want to focus on, let’s drop the Lov-In and please elaborate on this point.
Not so. You tend to speak of market sectors as if they were all monopolies, and it is limiting your understanding.
Interesting, you said before that they would not do this, because it would raise prices for their competitors. Also, you assume that they cannot change product lines or go into a completely different kind of production.
There is too much clutter in your arguments. You say that the Labor Theory is not the basis of your argument, yet you started the thread with that very thing. Either it is quite important, or you are deliberately throwing out stuff with no other purpose than to confuse people debating you.
My request:
Please restate exactly what it is you want to debate, and a short summary of your position and why you think it is correct. I don’t care if it came from Marx or Gladys Knight. You should be able to hit the high points fairly quickly. Maybe we can go from there. At this point, I’m not sure which things you want to debate and which things you just want to share. All these side debates aren’t helping much either, by the way.
btw, I probly won’t be able to post again until some time next week.
-VM
So what’s missing in Marx’s Labor-Value relationship? What about management? Risk? Entrepreneurship? Vision? Innovation?
Capitalists add value to products in many ways, but they also do something else: They add value to LABOR. This is a critical point that Marx doesn’t seem to understand, and one I alluded to earlier. The concentration of capital magnifies the value of one’s labor. If a worker joins a company, he doesn’t just get the privilege of offering his labor to the capitalist in exchange for a percentage of the ‘value’ he contributes. He offers his labor, and in return the capitalist offers him a work environment that includes automation, management experience, best practices, access to expertise, etc. This magnifies his labor and allows him to earn far more than he could on his own. It’s a win-win relationship, rather than an adversarial dialectic like Marx would have you believe.
As I said before, all the unions in the world couldn’t get an auto worker more than minimum wage if it were not for the fact that each worker has millions of dollars worth of tools at his disposal, which acts to magnify the value of his labor.
But so what? Marx would say that the Capitalist is simply gathering together the means of production, then charging the poor worker to use it. If the workers actually owned it themselves, they could keep the surplus.
The problem with this analysis is that Capitalists offer far more than just raw materials - they offer *excellence. The free market acts as a filter. Bad capitalists fail. People with bad ideas fail. The best ideas and hardest working people succeed, and through their success they acquire more capital. This means the best, smartest, most efficient people hire the most workers. In the end, it means the workers earn more money.
Which brings us to the concept of *risk. Inherent in the capitalist economy is the ability to take a chance. Very few companies are guaranteed a profit. Many people will invest huge amounts of money in a company AND LOSE IT. The chance of losing what they have means they have to be rewarded in some way for taking the risk at all. That reward is profit.
BTW, did you know that the average company in the U.S. only operates on about a 2.5% net profit margin? That’s not a whole lot of ‘surplus’ in the first place.
‘Value’ in Marx’s LoV is really the value of a product TO THE CREATOR. In other words, it’s the replacement cost. Clearly, labor is a factor in that. But it’s not a linear relationship even in this simple sense, because of the time-value of money, opportunity costs, inventory costs, costs of delays to market, etc. In short, value of any kind is a moving target and has no fixed relationship to labor, although clearly labor is one variable in the equation.
Now THIS shows a glaring misunderstanding of economics. You think these companies add no value to the economy? They’re merely trolls at the bridge, exacting a toll for allowing things to pass through their hands?
All of these companies add value to the economy. They optimize the use of resources, they act as controls on behaviour, they manage risk, they supply information to markets, etc.
Banks optimize the flow of capital, making it more available to companies and consumers. The combination of banking and a fractional reserve system lets us spread out capital and allow it to grow. Banks also act as a clearinghouse for information, and they free up capital that would be in the hands of small investors. If you didn’t have banks to deposit your money in, you’d have to hoard it. This would take it out of circulation, which would reduce the velocity of money and make it harder for the economy to grow. Banks provide a mechanism to keep the money flowing, while protecting individuals from the vagaries of individual companies. Of course, they do many other things as well.
An insurance company buys risk, which allows a company to use more of its capital in production rather than holding it in reserve for disasters. This makes the company more efficient, and in return it pays a premium to the insurance company. Insurance companies are also an extremely powerful controlling mechanism in the marketplace. If you want to sell lamps, they’d better be UL approved or you’ll never get them distributed. UL approval comes from Underwriter’s labs, an arm of the insurance industry.
For private individuals, insurance companies allow you to reduce your risk for a price. This means you have to keep less of your hard-earned money in reserve for emergencies, which means you can live a better lifestyle with the same income. You also buy peace of mind and financial stability.
Real Estate Agencies fulfill the same function as any other sales force - they provide information, speed up transactions, handle all the dirty details, etc. Let’s say you have a house, and you could sell it yourself in six months. But that house is tying up $100,000 in capital. At 10% interest, your opportunity cost is $5000. That, plus the actual labor involved in showing the house, preparing paperwork, etc. makes up the total cost of the sale.
Along comes a real estate agent, who offers to sell the house for $3500, in an average of a month. Not only do you save $500 in opportunity costs this way, but the real estate agent also does all the work. The labor you saved can be applied to other things, creating more value. In the meantime, a professional real estate marketplace helps move information between buyers and sellers, meaning you’re more likely to buy the house you want and more likely to sell the one you don’t. Also, the speed and efficiency added to the sales process allows your capital to be used more efficiently. For cutting all these costs and adding this value, the real estate agency charges a fair commission.
You’ve really got to get past the Marxist worldview, in which every worker is a sweaty man hunkered over an anvil with a hammer. And this is where Marx blows it with his Labor Theory of Value - he is unable to recognize the importance of systems to the productive process.
Overproduction
Remember when I said that Marx’s chief failing was one of vision? Just like the patent officer who retired in the late 1800’s “because everything had already been invented”.
Marx lived during the early years of the Capitalist revolution, he saw a lot of massive changes to society. But from that early perspective, it surely would be very hard to see just how much farther we could go. From his standpoint, people were already living in relative luxury. It must have been hard for him to imagine the average person controlling the kind of power we have today. We all live like Kings, even the poorest in our society. Factories produce orders of magnitudes more products than they did in his time.
I don’t blame him for believing that his world had to be reaching a crisis of overproduction - people still believe that today, after nearly 300 years of almost non-stop growth. But really, Capitalism is just getting started. We’ve barely managed to learn how to use a tiny fraction of the crust of a tiny planet orbiting an average star in an average galaxy. There are currently NO limits to growth. Our population growth is stabilizing, the poorest nations are becoming wealthier, and we’re just getting started.
Become an optimist. It’s really much more fun. Capitalism organizes our resources and optimizes them. Along the way, it liberates us all from the shackles of class, and lets anyone rise up to the best of their ability. For those won’t or can’t take advantage of all it offers, it makes us wealthy enough to afford charity the likes of which has never been seen before on Earth.
It’s not perfect - it’s simply the best we can manage.
Excuse me? Sorry, but considering that at the time Marx wrote Capital the Laws of Supply and Demand had not been articulated. Further, the notion of price being set by Supply and Demand would not be articulated for at least another 20-30 years.
Call it whatever you want, but the fact is Marx’ theory of value is essentially a variation of the Classical economists theory of value. This was a Labor Theory of Value. He uses a dichotomy between the natural value of a good and it exchange value.
While this may be true Marx did not articulate a knowledge of supply and demand.
Cute. However, by this statement you demonstrate your lack of knowledge on this subject. A model is by definition an abstraction from reality. A model is only useful when it is unrealistic, because to model literal reality is 1) an oxymoron and 2) would be so cumbersome as to be completely worthless from the perspective of answering questions about the phenomena we are modeling and at making predictions.
Can we say begging the question here. Marx is assuming as true that which should be demonstrated. Marx is assuming the profits are derived from a “surplus-value”, but what Marx fails to consider is that the labor may not be valued at a dollar amount equal to the price. The worker is taking no risks here. The capitalist is providing the factory, the machinery and is out there hustling to sell the goods. The worker does not have to worry about any of these things. This has value no?
I have specialized in micro-economic theory and I don’t know what the heck you are talking about here.
And once again, at the time Marx was writing there was no notion of supply and demand. The Laws of Supply and Demand were articulated much later. The person who usually gets credit for this is Alfred Marshall (this is were you get your Marshallian Demand curves).
Sorry but the above makes no sense. For the above to make sense some firms would have to earn profits greater than their surplus value and others less. That is the sum of the profits had better equal the sum of the surplus values. Further, how can a firm collect more than its surplus value in profits.
LOL. You are saying that having insurance makes one worse off? Then how come people purchase insurance? Insurance essentially smoothes out consumption between the good state (i.e. your house does not burn down) and the bad state (your house burns down). The fact is that people are risk averse hence they would rather have less wealth and face less risk.
Well that is all I have time for.
People do NOT equally contribute to society. Some people are more productive than others. If you produce more, you tend to be paid more.
I’m a terrible mechanic. If I had to be paid for my mechanical skills I’d make a negative amount of money. I have a friend who’s a great mechanic. He DESERVES to make more money than I do, right?
And yes, the ditch diggers contribute to my wealth…without them I’d have to pay more for ditches.
oldscratch:
I know because of our previous encounter you probably will not want to answer this, but I will put this out anyway because I think there’s good info here:
This comes from Table 725 of the American Almanac, 1995-1996 edition. Since I get this almanac once every few years, I know that the money values in this table may change, but the overall illustration of what it shows is true.
The below is a condensation of the data contained in the table:
Median household income: 31,241
15-24 years: 19,333
25-34 years: 31,281
34-44 years: 40,862
45-54 years: 46,207
55-64 years: 33,474
65+ : 17,751
(Median is defined as the point where half of all households make more, while the other half makes less.)
Income varies greatly depending on your age, as can be seen, a point not many people keep in mind in discussions about income. Only at the points that contain large numbers of people below or above the average working age, below 25 and over 65, does the average person at that age live in a household with less than the median income on average for the nation, as weird as that seems. Since what this means is that people in their working years make considerably more than the median, and since that median is considerably to the north of the defined poverty line, it doesn’t appear we have much of a crisis going on for the average working man or woman. Most of us have a piece, however small, of the “surplus”, or we would never make more than a subsistence wage.
Which goes to the LoV: I was surprised to read that the law of supply & demand was elucidated considerably after Marx had lived & wrote, but it certainly dovetails with my thoughts on that theory: it’s a static theory, looking at an object and attempting to define its essence. As you put it in a very early post, it defines for Marx what is common to all commodities. It’s the economic version of the Philosophy 101 question: what is the one behind the many? Plato’s answer was similar to Marx: all objects of a similar kind shared a characteristic common to all those objects, which defined their ideal essence. The law of supply and demand is the Aristotelian answer to that question in two ways: it says, first, forget the ideal, what happens in real life? In real life, the price is set by the supply of the object versus the demand for that object. Secondly, it’s dynamic: whereas Plato always defined change as a change from one static form, or ideal, to another, or a move towards or away from an ideal, Aristotle’s definition of change was that an object would keep an underlying characteristic (here he agreed with Plato) but change the form according to the energy applied to it, much in the way that what I am writing now is a bunch of digital 1’s and 0’s, to be transformed (!) to changes in voltage down a telephone wire to a computer which will re-translate it back into digital 1’s and 0’s. The form changes, the message stays the same. Platonic theory could never account for this, whereas with Aristotle it’s all accounted for.
Ditto with value: with Marx, as has been said before, you simply can’t predict what the price of a given object is at any given time, because the theory is fundamentally static. With the law of supply & demand, it becomes, suddenly, far simpler, because it is completely dynamic. And predictable: you can figure out the price, to within, I’m sure, a standard deviation (the economists on this board can say whether this is correct or not).
So, to summarize: after more than 200 years, it doesn’t appear that capitalism is having much trouble keeping people employed & well-paid, and Marx’s LoV a) wouldn’t be able to account for this, and b) isn’t of much use in predicting the actual value of a given object at a given time, because it simply is too static and too concerned with digging up an ideal value for an object and then trying to explain why it varies from that ideal, rather than a dynamic explanation of why a given object has a given value at a given time. Which is because Marx was trying to give an ideological answer, whereas Marshall, and modern economics, is attempting to give pragmatic answers to the actual problems of economic life.
Much like Plato & Aristotle: Plato’s ultimate goal was to convince you his Republic would be good for you, whereas Aristotle was just trying to explain the world as it is.
Oldscratch in full flow:
**
**
As others have, I must take exception to this in particular. I illustrate:
Suppose the risk-free rate of return available is r%. Shareholders require a return from investing in a company of x%. x > r, else shareholders are not being compensated for their extra risk.
In the absence of insurance, companies must keep some kind of catastrophe reserve, else they will fold at the first sign of disaster, whether that be from fire, flood, employees suing them after an accident in the workplace, clients suing them after bad advice or customers suing them after buying a faulty product (thalidomide anyone?)
Since they cannot afford to play silly buggers with this reserve, they must invest it risk-free, at r%.
This means that the company must earn more than x% with the rest of its capital.
Insurance is worthwhile to the company at the point where the loss due to paying for insurer’s profits and expenses just compensates for not having to hold these capital-inefficient reserves.
(Insurance also allows for the extremely large catastrophes (eg asbestosis claims) that companies would never be able to fund for, even with a reserve.)
In short - insurance turns extremely volatile risk into small manageable risk for a premium. Companies purchase insurance because this premium is less than the loss in production from tying up capital in disaster reserves.
The company can then (and this is the key) use its efficient capital to actually produce more for society.
So the insurance sector has resulted in more total surplus-value.
I could go on and on about shipping that would simply not take place if insurance wasn’t there to cover losses and an individual’s loss of capacity if they had to personally cover themselves against the possibility of loss of income but I’ll just leave it with this thought:
Those running a business aren’t stupid. If insurance premiums were just “surplus” down the drain they wouldn’t bother. They feel that the loss of “surplus” allows them to generate more “surplus”.
regards,
pan
here it is again, waterj2
Lemur – you continue to explain capitalism as this wonderful utopia for everyone, even those lucky sweatshop laborers, but you keep backtracking. If ditch diggers increase your wealth, don’t they deserve a share of your wealth and everyone elses as well as the wealth they have made? OK, so if you are a bad mechanic, go do something you are good at. If you aren’t good at anything, society should pay you not to screw things up, and by your logic, by not working you’d be contributing to the value of everyone elses labor by making their labor more valuable, right?
And I don’t see why everyone is being hard on oldscratch – the financial, insurance, and real estate industries don’t contribute any real value outside of capital redistribution. Ok, that’s “valuable” to capitalism, but does produce value in and of itself. Even a clerk at a convenience store doesn’t do anything productive 7 hours of his shift after sweeping and stiring the nacho cheese sauce. He basically makes sure no one steals anything and everyone pays. He’s a petty banker – he doesn’t “make” anything but change.
I mean, here it is again. Good luck – oldscratch! These people think when they invest their money think their dollar bills actually get up and walk around and create value. They don’t realize it is just one big protection racket. Money just comes in and solves a problem it created in the first place.
This is just not true. There are a variety of insurance coverages that are totally voluntary and people do indeed avail themselves of these services. This fact alone, puts the lie to your statement above.
Also stop being sloppy in your terminology. Capital refers to the various machinery used in production (drills, computers, hammers, lathes, etc.), your comment above is for money not capital.
Ahem…
Last night after reading oldscratch’s post about Marx not using the Labor Theory of Value (LTV), I went and got out my copy of Adam Smith’s The Wealth of Nations. I wanted to see if Smith used the term LTV. Guess what, couldn’t find it. I have a hunch he didn’t refer to it as the LTV either. So what, the wording in Smith is quite similar to what Scratch has been ascribing to Marx. Marx essentially took many of the Classical views and adapted them to suit his own purposes. So say he didn’t use the LTV because he didn’t call it the LTV is like saying I don’t drive a car because I never call it car.
For heavens sake j - did you actually read my post? The point was that since reserves against disaster need not be kept, the company can invest in more machinery etc (i.e. capital), thereby producing more goods.
After studying insurance in tedious detail for the last year, I don’t need you patronising me as to what I ‘think’.
regards,
pan
Kabbes, nice comment. I was making a similar point above without the x’s and r’s. I hope you aren’t holding your breath here as the “marxists” here don’t seem to want to consider such views. My guess is that they are inconvenient for them and so they ignore the concept of risk. This also explains their whacky views on insurance. What they have against real estate agents is beyond me. I suppose if we conclude that the services they provide are valueless then all service industry jobs are valueless
Money solves the problem that money created? I think you’ll find that for many forms of insurance, money solves the problem nature created. We’re talking, storms, floods, subsidence, tidal waves, earthquakes etc etc.
Without insurance and without some method of reserving for such catastrophe, what is your utopia going to do the first time nature wipes out the productive capacity of a city? Try asking Bangladesh.
regards,
pan