I’m currently reading ‘Das Kapital’ of Karl Marx. I’ve been across his description of the trade value of a product. The trade value, in marx opinion, is proportional to the amount of work required to give a usage value to the product.
I’m wondering, how come marx did not talk about the rarity of a product as related to his value ?
And, What about offer and demand… those also influence the trade value ?
In most cases, rarity is related to the amount of effort, i.e., labor required to procure or produce them. It takes a tremendous amount of labor to extract diamonds or gold, for example, and to build the necessary machines. Seawater contains millions of tons of gold, but to hire someone to build the infrastructure to procure it would be prohibitively expensive. Therefore, gold is considered rare, when in fact, there is plenty around.
Diamonds are a bad example, since if DeBeers did not control the supply they would be very cheap. Probably they would be an example of why Marx had his BVDs in a wad.
Marx, as has been noted worldwide, was wrong about quite a number of things.
The value of a product is NOT determined by how much work has been put into making it. No one cares how much effort I’ve made in creating the world’s biggest hubcap sculpture: if it’s hideous, it’s still a piece of junk that’s still worth less than the effort needed to dismantle it.
Things are worth exactly what other people will pay to get them, period. That is the definition of “worth”. We could also call it “value”, in which case it’s easier to see the connection with what people will pay for the thing. They value it as much as they will give up the option to use their buying power for other things.
You want to find out what something’s worth? Put it for sale on ebay.
galen : I tought about that but if we think about product A which has a very high usage value and require no work to produce ( let’s say you just have to pick it up ). If this product is very rare it’s value will be high. Because if rarity is caused by the work needed to give an usage value to a product then Marx Theory hold.
For monopoly, It’s a particular problem, and i think we can forgive marx to have remove it from it’s theory since it’s effect are easily predicted.
And, finally, yes, it seem that marx has been wrong about something, never the less, it seem to me that Waldo equation to determine the value of a product is a little too simple to get someone started on economic theory 
So, if we take out rarity caused by a great amount of work and keep only pure rarity. Why did marx felt that it was not necessary to talk about it ? or has he in another book ?
While I’m (contrarily to what one might suspect, regarding several threads I was engaged in in the past days) a Marxist, and I think Marx’s “value added theory” is wrong, I would like to add one might say your definition of “value” equals Marx’ one.
It’s true that a product is worth what other people are willing to pay for it; but if they can choose between different prices demanded for that product, they will, of course, choose the lower one.
So if you’re able to pay up to, say, $500, for a certain product, but you manage to find somebody whom you can “hire” to manufacture this product in same quality and who demands only $450 for his efforts, you will choose the latter option. From this POV, the product’s value actually is “what it takes to produce it”.
I think that’s Marx’s argumentation.
>> So if you’re able to pay up to, say, $500, for a certain product, but you manage to find somebody whom you can “hire” to manufacture this product in same quality and who demands only $450 for his efforts, you will choose the latter option. From this POV, the product’s value actually is “what it takes to produce it”.
Um… no. The fact that he demands $450 does not mean that figure is related in any way to the cost of producing it. Say I have two hookers to choose from. One wants $500 and the other $450. How does that relate to the cost of getting me off?
Value is strictly supply and demand. A painting by Picasso might have less work in it than one by Jimmy Fuckleworth and yet has greater value because someone is willing to pay more.
No matter how essential something is, if supply is huge the value is very low. We cannot live without air but because the supply is limitless, air is worth nothing. That will change when air is in limited supply. The same can be said about water. Some things require zero work and yet have value. If I find oil in my back yard, the oil already has value even before I put any effort into getting to it.
Except in really odd instances, air is not (for economic purposes) a product. Bad example.
In addition, It’s really insulting to suggest that the same value of labor went into a Picasso and a “Fuckleworth.” First, because expertise is more expensive labor, and I’m assuming here that we think Picasso knows more about art (subjective, granted).
But secondly, (and probably more importantly) a Picasso is worth more because a lot of art dealers and auctioneers have hyped Picasso’s works to make people think they’re worth gazillions (hence, more “expert” labor–of hype–went into them).
In other words: demand is a manufactured quality. Expert labor (in the form of good advertising) creates “demand,” creating value.
sailor, I like your hooker example, so let me focus on this (and please bear in mind that I personally think Marx is wrong here; I just love playing the devil’s advocate).
Maybe the hooker did have expenses (which, in the end, are always labor expenses) of $450 to provide you her services. She has to get food for herself; she has to pay her pimp who (by means of his own labor) grants her the conditions under which she can do her business; she has to buy cosmetics in order to stay attractive, because nobody wants to establish a flourishing business relationship with an ugly whore; she might have to bribe policemen, or whatever; and if she’s in large demand, this might be because she has more experience than other, new, hookers. This experience has to be taken into account, because it took her time to acquire it.
Of course this all sounds idiotic, and I wouldn’t be too surprised if this got me into the Teeming Millions’ [url=]Page o’ Fools, but you get the general idea. Take it with a grain of salt.
And again, if you can have something produced by someone else who’d charge you $450 for his efforts, why buy the same product of same quality in a store for $500?
I feel compelled to point out a few detail.
product A cost 10$ a piece to produce including raw material, labor forces, infrastructure, etc. Their is enough raw material to produce 10 Unit a month. If we assume that A has a real usage value several thing can happens.
The market is in a state of real competition in which case the prize of A will tend toward 10$ a piece.
Someone has monopoly, in which case their’s no limit to prize of A.
The demand for A exceed the limited supply of 10/month and the prize will raise accordingly.
The demand for A is so low that production will stop.
In situation 1, we’re likely to have people trying various way to increase their market share and there’s publicity, rebate, etc…
( There can be variation on those theme, but that’s pretty much it )
That’s how it works, not theory… What puzzle me is why marx did not talk about those aspect of a product value in ‘Das Kapital’? He seem like an intelligent guy… I’m sure he would have made a kick ass doper
If you’re keen on the TM link, it’s http://fathom.org/teemingmillions/pofools.adp , sorry.
I should make more extensive use of the preview function.
** Schnitte**, so hookers charge in proportion to their expenses? No! Hookers charge what the market will pay them. Imagine two hookers with same expenses in every way except one looks like Claudia Schiffer and the other like a 60 year old grandmother. Now tell me you’d be willing to pay the same.
>> Except in really odd instances, air is not (for economic purposes) a product. Bad example.
Someone is missing the point. The point is that it is scarcity (the balance between supply and demand) which makes things valuable and abundance (more supply) makes them less valuable. Whne the population of the planet was small, land was not very valuable because you could just go grab some elsewhere. Right now land in Africa is not very valuable because there is plenty of supply and little demand. But an acre in the Island of Manhattan might cost you a pretty penny. Water is valuable in the measure that it is scarce. In some places on earth it is free and in others it is a valuable commodity. The only difference is scarcity. So we get to my example with air. There is nothing more necessary to sustain life and nothing would be more valuable . . . if supply were limited. Today it is still unlimited but imagine places where pollution was so bad the air was unbreatheable. You don’t think people would pay for clean, breathable air? It is already beginning to happen if you look at air filters etc.
The value of things is determined by the free market: the proverbial seller who is willing, but not forced, to sell and the buyer who is willing, but not forced, to buy.
Maybe we should try looking at this problem from the demand side.
Suppose that I bake pies and sell them. My pies come in two different varieties, apple and brussels sprout. It takes exactly the same amount of labor to bake an apple pie as it does to bake a brussels sprout pie. (The labor that goes into producing the apples for one apple pie is exactly equal to the labor that goes into producing the brussels sprouts for one brussels sprout pie, and my work to produce them is identical).
According to Marx, my pies should cost the same amount. But in the real world, my apple pies command a premium price (they’re quite tasty), while I can’t even give away my brussels sprout pies (even when I tried that “buy one apple pie, get two brussels sprout pies free” deal).
Here the scarcity of the product is not an issue. It doesn’t matter whether there are millions of brussels sprouts available or a limited number, if no one wants brussels sprout pie, no one is going to buy it.
You’ve grasped an essential flaw in Marx’s theory – value is not determined by the amount of work put into a product, it is determined by the law of supply and demand.
As for why Marx didn’t include the law of supply and demand in his theory, well he was trying to come up with an economic system based on the value of the ordinary working man. Unfortunately, as much as Marx would have liked it too, the market doesn’t value the ordinary working man, except insofar as his work plays into producing supply for which there is a demand.
Say SpoilerVirgin pays $2 for the raw materials it costs him to produce a pie (no matter whether apple or brussel sprouts), and the amount of labor it takes him to turn those raw materials into a pie equals $1 in both cases.
According to Marx, the price for the product would be $3 in both cases.
Now people love SpoilerVirgin’s apple pies and buy them heavily. The supply/demand theory suggests SpoilerVirgin rise the price to, say, $4. So he does.
But after this price change, other people, just as excellent pie experts as SpoilerVirgin, start to offer apple pies as well, for $3.50. Competition breaks off, and the prices for the product will decrease; the absolute lower limit is $3 (because if the price drops below $3, pie production would come to a halt). So the “crystallized labor” theory is correct here - price equals production costs, providing that there’s no monopoly in which case the situation gets out of control anyway.
What about the brussel sprouts? If there are consumers willing to buy them (no matter how many consumers), SpoilerVirgin will produce and sell them, for $3. If there aren’t, he’ll stop brussel sprouts pie production anyway, so they get meaningless for the economy.
Anyone who does not understand value in a free market is set by supply and demand has not taken one single minute to think about it.
If value was set by the cost of producing goods or services then no company would ever go broke as they would just charge the cost of production plus their profit.
In fact, the influence of the production cost in setting the sale price is close to zero. The sale price is set by the market and the lower your production cost, the bigger your profit. As simple as that. And if your production cost is greater than the sale price. . . then you lose money. As simple as that.
The value of a seat on an airplane flying from A to B varies with many factors including time of day, time of year, type of passenger, etc. As a passenger, when I am shopping for a ticket, the last thing in my mind is the production cost of the airline. A few days before 9/11 the value of airplane seats was higher than a few days after but costs were the same. In winter the value of airplane seats is lower than in summer. To a businessman the value of a ticket is greater than it is for a broke youth. Airlines take all these factors into account when they set tariffs and set different prices and discounts depending on a multitude of factors.
Of course, we are talking about a free market where consumers are free to choose. In Cuba things are quite different as both supply and demand are strictly controlled by the government who tells you what you want and what you get.
The problem with SpoilerVirigin’s brussel sprouts pie is that their is no “usage value” to it, so it can not be an exchange product.
As for marx, If I’m not getting his book wrong, the first part try to explain the capitalist system not to create a new system. Maybe the supply and demand theory was not a common knowledge ( or was it even there ) in 1850. After all it was the beginning of open market economy as we know it today. So the question remains! Was it an intentionnal omission to prove his point or just ignorance on marx part ? ( God! I hate to link ignorance and marx in the same sentence )
As for company setting their price to what the market want to pay that’s not true. The only company who set the price lower then their production cost are HUGE HUGE cie like sony or microsoft so they can increase their market share and then put the price back up ( And that’s bad competition there are law against this ). And, the company who go bankrupt!! You, as a newspaper reader, don’t care about the price of the paper new york times buy but it is directly reflected in the price you pay for your news.
Hmmm… Let’s point out that i’m not trying to implie that microsoft or sony use illegal practices here :eek: but just to give example of big corporation… the two sentence are unrelated… or are they 
You do, anyway, admit that the difference between production costs and sale price will tend towards zero, if there is competition?
You know, whenever I see a discussion on Marxism, I think back on the words of Homer Simpson: “In THEEEEEORY, Communism works!”
I think even cavemen were aware of the “law” of supply and demand. I think that the situation is considerably more complex than brussel sprout pies and hookers. There is the questions of “socially necessary” labor to consider, for example.
In Africa, there is a high demand for AIDS drugs. There is a supply, but the price doesn’t fall to the level the people there can buy them. There is likewise an overproduction of many commodities even though there is demand. In the US, there is a demand for medical care while many hospitals are closed.
Many people demand better housing. There is an oversupply of building materials, ample land, and many unemployed carpenters. Why doesn’t the demand become satisfied? Certainly the people who demand the housing could produce products to exchange with the carpenters and the people who produce the building materials.
If this was a simple situation, there would not be the centuries-long debate on the subject.