Karl Marx and the value of a product!

Factual Questions
21

Who’s talking about communism? We’re talking about a critique of capitalism. Not the same thing.

Galen is right, this is a complex issue. But I dislike the tendency to dogmatically assert that supply and demand exclude labor’s value.

Labor is not just the physical effort to produce something. It includes knowledge (people don’t like brussels sprouts pies), expertise and skill (my apple pie tastes better than yours), politics & geography (the mineworkers have to buy everything at the company store), and many other factors. All of them represent, in some way, labor.

Bill Gates’ managment of microsoft is a factor in the cost of his products. That’s labor. Different labor than the work of the programmers and designers who actually made the software, but part of the labor that went into them, nonetheless. Part of his labor was to create demand. Plenty of computer folks will tell you there are better (more stable & efficient) and cheaper (free) systems that do the same job and/or more. The labor of programming the systems was probably similar. But the labor of managment and advertising (to create demand and eliminate alternatives) was different.

Yes, there is demand. But it’s still connected to labor.

22

>> You do, anyway, admit that the difference between production costs and sale price will tend towards zero, if there is competition?

Yes in the sense that if there is a profit to be made more producers will be attracted to the market and if there is a loss to be had then producers will be driven away. This, of course, is over time but markets cannot respond so fast so there are fluctuations. When a computer chip factory goes up in flames, the price of chips rises until supply can rise again to the point where it balances demand. When war or terrorism cause a huge and sudden drop in demand for airline tickets, the airlines cannot suddenly convert airplanes into chip manufacturing plants and so they have no other solution than to keep operating even if they are losing money. Those that guess correctly the future will have a better chance than those who guess incorrectly. Airlines and big business have to guess what the market will demand years from now and that is not easy. When you make a committment to buy a 747 it’s not like you can turn around and sell it at a profit if you get tired of it.

>> As for company setting their price to what the market want to pay that’s not true

You obviously have zero experience in real world marketing. Can you show me any evidence that companies set their prices according to their production costs? No? I can show you plenty of evidence that companies set their prices according to the market and the competition. Airlines are continually testing offers and matching each other. Now you show me evidence to the contrary.

I am presently involved in the sale of ADSL microfilters. I know we are slightly above our competition but I haven’t a clue about our production costs. (The stuff is made in China like everything else). We have a huge stock we want to get rid of. Our competitors just dropped their prices significantly (about 30%) and we just had to do the same. For all I know we might be losing money on these filters but they are there and we have to sell them. If we see we cannot make a profit, then we will just move out of the field. But I can assure you, when I am discussing sales prices, our cost does not even come into it. (It may come into the minds of the CEO when he has to decide if we continue in this line of busisness though) All I am concerned with is what conditions my competitors (the “Market”) are offering. If my competitors are offering the product at about $1 and my boss tells me that our production costs are higher and we need to ask $5 what do you think I would say? “Sure, no problem boss, the customer will understand”? BTW when the airlines are losing money due to low demand, do you offer to pay more so they can cover production costs? In that fantasy world you live in I guess that’s what people do.

>> 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.

Where did you get the idea that a free market means you can have everything you want? There is a high demand for AIDS drugs everywhere there is AIDS. The high price reflects the great demand and limited supply. If it were discovered tomorrow that AIDS was cured by eating Brussels sprouts pies then the value of AIDS drugs would fall to near zero.

>> 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.

Oh come on! Let’s not play games. Free market, supply and demand, does not mean you get to live in a palace for pennies.

>> Many people demand better housing.

No. Make that everybody wants better housing (and better cars, and better appliances and more money etc). But the people who can make better housing want more money for it. So what you have is the balance where people are buying the housing that meets their willingness to spend on housing and sellers and builders are getting the prices buyers are willing to pay. The rest is nonsense…
>> Certainly the people who demand the housing could produce products to exchange with the carpenters and the people who produce the building materials.

They do produce products and they get $ a part of which they spend on housing, another part on groceries, another part on Airline seats, etc.

Again, where do you get the idea you are entitled to get everything you want. What you are entitled to in a free market is to trade with others freely. If they want for something more than you are willing to pay then they are not obligated to sell. Just like you are not abligated to sell your stuff at any price unless you want to. What’s so difficult to understand?

>> Yes, there is demand. But it’s still connected to labor.

Who said otherwise? Labor is one more component subject to market forces. I had guys come around offering to mow the lawn all the time. Because I am cheap I would do it myself but other people would hire them. The going rate represents the balance between supply and demand. If you’ll do my lawn for $1 you got the job but for $100 I won’t even consider it. Somewhere in between is the max figure I am willing to pay. Now the guy offering to do the job does the same thing in reverse and if we are both lucky we can get a figure which is satisfying to both sides.

23

I have no idea of the microchip business, so please forgive me if the numbers I present are far away from reality.

Say a microchip of certain quality costs $100 on the long-term average, which, as sailor admitted, is its production costs (I may conclude from your reply to my question you do admit that?). Now a factory goes up in flames; the price rises to, say, $120.

In the long run (as soon as the market has had enough time to react), price will go down to $100 again. Right?
So if I can expect it will, why should I pay $120 for the chip if I know I can get it for $100 in some months? I will only do this if I need the chip now; if I can afford to wait, I will do so (it even gets me interest profits, but that’s not the point).
Usually, the factors that force me to get the chip ASAP are 1) impatience, because I want to play the latest games now, or 2) I need it because I have a business that depends on computing power. In this case, I pay the higher price because I know the additional $20 I have to pay for the chip will pay off. From this POV, the price of the chip will be included in my company’s production expense.

All in all, supply&demand and labor expense are just two aspects of the same thing.

24

Not at all. As has been pointed out, labor is only a part of what goes into a product and there are many other things. If I own a piece of land I have something which has no labor cost as it was there since the world began. Now I rent it or sell it to you to build a chip factory. That is part of the cost of making chips but represents no labor. The reason land is valuable is because there is a demand for it and because supply is limited (they aren’t making any more of it). I own it and if you want it then you have to give me something I want in exchange.

If I am willing to pay a hooker $100 it is not because her “work” is intrinsecally worth anything but rather because she has something I want and I am willing to pay $100 if she’ll let me play with it. It costs her absolutely nothing to let me play with it.

A man can toil away for hours and produce something worthless while another may have a bright idea worth millions. Labor is not the measure of worth. The most you can say is that indirectly, you can measure the value of things in terms of labor as you could measure it in terms of dollars or gold or apple pies or hooker-hours or anything else of value but the value so expressed is variable as values change.

An acre in Manhattan is worth millions. Amount of labor that went into making it: zero.

Are you willing to pay the same to sleep with Claudia Schiffer as you would pay to sleep with her grandmother? The grandmother will work even harder to please you. It’s really isn’t the labor though.

How about singers and pop stars and sports figures? Why is their labor worth more than that of a factory worker?

OTOH, as many aspiring artists know, if nobody wants your stuff your labor is worth zero (then you get a job waiting tables or pumping gas)

There is no natural price for things based on cost or anything else. Mocrosoft’s game box thing tanked and they cut the price in half. Every product for sale is competing with every other product and service and the market determines their worth. If a game box is selling for the same as a round trip to Florida then, here and now, that is what it is worth. Tomorrow nobody knows because values change constantly. Lower production costs only affect in the sense that they increase supply, that is all.

25

sailor : You’re right i’m not directly involved with this kind of decision but I do happen to have some experience in the pulp and paper market and I can tell you that production cost is definitly part of the equation.

Once upon a time their was a man who invented : PAPER, many of the people wanted paper because they were tired on writing over dry pork skin :slight_smile: So the man start to sell his paper. Since their is still paper around today this suggest that the guy did not go out of buisness and that paper became more popular ( he did not sell his paper under it’s production cost ). But, taddam, some guy find a way to lower the production cost and sell it cheaper… and so everyone was happy! Our first guy was forced to lower his price to stay in competition to do so he, also, lowered his production cost. The paper market has been working this way since its very begining.

One thing you seem to forget is that people are expecting to pay X$ for a product. they get those expectation from the price they always known for that product, and then when someone lower the price they are happy and buy, everybody follow, etc. To use an example, you could never go to coca-cola and tell them your only willing to pay 25 cents for a drink, even if their were 2 gazillion people with you. The war is between the kings of soft drink and we don’t have a word to say about the price… They wage war on production cost & marketing. The same can be said for petrol and a lot of other product.

Now that’s a production environment. If you buy a finish product from someone in the goal of selling it in smaller quantity then it’s speculation, not production. You add distribution cost and sell it. You do not have real influence on the actual price. I’m also pretty sure that your boss will be pretty depressed if he’s forced to sell what he bought half the price because the market drop.

The most important thing to keep in mind is that market price is determine by many, many, many factor which include : production cost, supply & demand, competition, usage value, etc…

26

dweezil : :slight_smile: That’s a very good point you got. Ok, If i get you correctly, you say that demand is created by labor and is therefore part of the usage value of a product.

But what for a product that already have demand to it prior to transformation, then it already have a value that was not determine by labor. Is it that marx was only concerned by manufactured product? In that context, I don’t see how his theory could be wrong.

27

We are going around in circles. I am not saying production cost does not affect the market. Of course it affects the market in the sense that all manufacturers are using pretty mush the same raw materials. If I am making cardboard and my raw materials go up, they also go up for my competitors. But if my production cost is higher because my productivity is lower, a buyer won’t give a rat’s ass and he’ll buy from the competition. Production costs of a whole industry affect the supply side of the equation but any manufacturer who selss based on his costs is not going anywhere. It is done the otehr way around: How much can we sell this for and can we make a profit at that price?

Labor is but one of the factors that goes into producing a good or service and they all affect the cost. The cost of making paper can be affected by many things, not only the cost of labor. The cost of capital, diminishing supplies of pulp etc. If suddenly the price of raw materials to make paper goes up, then alternative materials (like plastic) will come in to fill many of the uses of paper. It all balances out.

Smaller industries and those with shorter response time can decide not to sell at a loss and that affects the supply side but does not in itself determine the market price.

Bigger industries and others with less flexibility may have to absorb losses and sell below cost in hopes of better times. Soime make it and some don’t. Ask the airlines.

In summary: production costs (which include labor and other costs) affect the market price but do not solely determine market price at all.

Market price is determined and defined, as I said above, buy willing buyers and sellers.

A visit to a stock exchenge will illustrate that.

28

sailor : Can settle on this ?

Market base price is determine by production cost ( which include all that we said above ) and is influenced by willing buyers and sellers which will give the real market price ( exchange price ).

And also, I think we can ( after all this ) say that Marx, wanted to analyse the effect of capitalism on labor as a starting point to try to change thing. The mistake he made was to ignore other factor that affect exchange value.

If that’s the case, does it invalidate marx theory as a whole, just part of it or not at all ?

29

First of all, I just wanted to point out that I am female.

I’m not clear about the assertion that if no one wants a brussels sprout pie it has no usage value. After all, a brussels sprout pie would probably be more nutritious than an apple pie. It certainly could be used to feed a hungry person. It is only the fact that there is no demand for the pie which makes it lose value. If “usage value” is defined as “level of demand”, then we’re back to saying that value depends not on labor, but on demand (relative to supply).

It is true that in a perfectly functioning market, prices would eventually drop to production costs plus some level of profit. But production costs are far more complex than just “labor”.

Marx’s political agenda was to improve the lives of workers and to eliminate some of the vast inequalities of wealth that are produced by capitalism. These goals have some merit, and people who subscribe to many different economic theories are still trying to find ways to address them. But in both theory and practice, Marxism has failed to come up with workable solutions, and it has ignored other essential political goals, such as freedom, individuality, creativity, etc. in an attempt to avoid the problems of capitalism.

30

We are obviously not going to settle anything but let me ask you how you would determine “production cost” for the following and how does it relate to value and sale price:

  • an acre of land in Manhattan
  • an acre of swamp land in Florida
  • A hand job by Claudia Schiffer (yes, I have my fixations)
  • A hand job by Claudia Schiffer’s grandmother
  • Mowing my lawn
  • a 1977 Datsun with 120K miles on it and rusted body
  • Picasso’s Guernica
  • A paper describing a newly discovered cure for AIDS

Further answer the following:

  • Why do airlines and other businesses often sell below cost and lose money in the process? Does this not contradict your theory?

  • I have a P233MMX computer with 64MB Ram for which I paid a pretty penny 5 years ago. The cost of producing it today would not be much lower. Why is it worthless?

  • When you are raising chickens you are raising whole chickens and yet some parts sell for more and some for less regardless of cost. Chicken feet are worthless in America and are an esteemed delicacy in China. The value of chicken feet in America is close to zero and the only reason they have any value at all is that someone is exporting them to China. Why are chicken feet cheaper in America where they are more expensive to produce?

If your theory can provide plausible explanations to all of the above I’ll begin to think there might be something to it but in the meanwhile I’ll continue to think the idea that production costs set value in any way is just absolutely wrong. Value is set by supply and demand as defined in my previous post. Sometimes each of these can be more or less elastic and that might affect the market but the fact that value is determined by supply and demand is there.

31

First, my apologies to SpoilerVirgin.

If I own real estate in Manhattan and I sell it for $100,000 (while I’d maybe get only, say, $1000 for the same area in Florida swampland), it doesn’t mean I made a profit of $100,000; I myself must have bought that same piece of land from someone else, presumably for a price that’s not too far away from the $100k I got for it. The price for which I myself bought the land can be described as its “prodcution costs” to me, no?

You don’t insist in Claudia Schiffer per se, you’d be content with someone just as attractive and experienced as her?
Then, no prob. If CS demanded $2000, but I could find someone just as attractive as her for less, I won’t go with her but with that other woman. Since I don’t have a lot of experience in that field, I can’t name you detailed possibilities to do so, but I’m sure you’re creative enough to dream them up on your own. If this process of finding and buying (“name your price”) this Claudia Schiffer substitute costs only, say, $1500, I’ll go with her, and this amount would be production cost of the handjob.
The grandmother would be cheaper because it’s easier to find a grandmother than a claudia Schiffer :wink:

I can’t see the problem here. If you hire someone to mow your lawn, it’s obvious to me that the costs of the product “freshly mown lawn” equals labor expense.

I would say an old rusty car is worth less because its intrinsic value has decreased compared to the day when it was brand new. I see you reject the concept of “intrinsic value”, but you do agree that the car’s quality is lower now than it was in 1977?

Picasso’s art is more valuable than Jimmy Fuckleworth’s art because Picasso is a better artist. He didn’t pain Guernica in his cradle; he had to acquire experience and skills that enabled him to create Guernica, and those skills are labor.

Maybe because some research work has had to be done to get that piece of paper?

It contradicts your theory as well.
Or, the other way round, it contradicts none of the two theories if we take into account that those dumping prices can’t continue forever; an airline might do this for some time, but on the long run it will either break or fix a new price.

If the computer were still in production, production costs would be much lower because the research work has already been done. Intel doesn’t need to do any research in order to find out how one can produce 233 MHz processors; if Intel launched a new, say, 2.5 GHz processor, it would cost much more because resarch ( = labor) expense has to be compensated.

32

I think Schnitte just save my ass :slight_smile: Seriously, I agree with what he says.

First, lets get back to ‘brussels sprout pie’. Maybe i expressed myself wrong. What i meant to say is that “usage value” is qualitative that exist only if their is a demand for a given product. Therefore, a brussels sprout pie may have no usage value in america because people prefer alternative but have a usage value in europe because, over there, people will buy that. But if there is no demand for a product in a given closed market, then it have no “usage value” as marx define this type of value. Because, usage value is more then X is usefull, it’s also I want X.

Second, Marx did have a political agenda and even if he didn’t wanted to his goal would have influenced his analysis. I’ll give you this for sure SpoilerVirgin! But, we must admit that he gave us an awsome study on capitalism.

Now, may i proposed a revisited definition of market price :

To first have a market price product A must have a known usage and people wanting to buy it ( demand ). The price people are willing to pay for A ( lets say x )is then advance against the production cost of A ( lets say y ).The production cost of A can be close to zero. Then, if x > y A will survive in the market as long as it’s usage value continue to exist. If y > x then two thing can happen, production ( or sell ) of A will stop. Or, someone will find a way to lower y until it’s lower then x and production of A will continue.

Would that be ok with you ?

33

I think Schnitte just save my ass :slight_smile: Seriously, I agree with what he says.

First, lets get back to ‘brussels sprout pie’. Maybe i expressed myself wrong. What i meant to say is that “usage value” is qualitative that exist only if their is a demand for a given product. Therefore, a brussels sprout pie may have no usage value in america because people prefer alternative but have a usage value in europe because, over there, people will buy that. But if there is no demand for a product in a given closed market, then it have no “usage value” as marx define this type of value. Because, usage value is more then X is usefull, it’s also I want X.

Second, Marx did have a political agenda and even if he didn’t wanted to his goal would have influenced his analysis. I’ll give you this for sure SpoilerVirgin! But, we must admit that he gave us an awsome study on capitalism.

Now, may i proposed a revisited definition of market price :

To first have a market price product A must have a known usage and people wanting to buy it ( demand ). The price people are willing to pay for A ( lets say x )is then advance against the production cost of A ( lets say y ).The production cost of A can be close to zero. Then, if x > y A will survive in the market as long as it’s usage value continue to exist. If y > x then two thing can happen, production ( or sell ) of A will stop. Or, someone will find a way to lower y until it’s lower then x and production of A will continue.

Would that be ok with you guys?

34

oups, sorry about double post. I was too fast on clicking :slight_smile:

35

The problem comes from confusing real value with subjective value. To continue Schnitte’s example about Spoiler Virgin’s pies, we’ll say that the raw materials cost $2, and the labor cost is $1. The absolute value of the pie, then, is $3. However, the pie might have a price above $3. If somebody wants to pay $5 for it, this is where we get into supply and demand, which puts a kind of subjective value over the actual value of the product. That’s how profit comes about. The object has a value (what it cost to produce, which is what Marx means when he uses the term) of $3, but people are willing to pay $5.

The problem is that you’re defining value differently than Marx did. You’re looking at it as merely subjective…merely based on what people will pay for it. Marx looks at objective value…production costs, and everything beyond that is surplus-value.

In case anyone wants to see what Marx actually says (and don’t take my word for it), here’s a link to “Capital”, Marx’s economic analysis and his attempt to set up an economic theory.

http://csf.colorado.edu/psn/marx/Archive/1867-C1/index-l.htm

36

Here’s volume II of Capital (where he does look at Smith, actually)
http://www.marxists.org/archive/marx/works/cw/volume36/index.htm

and here’s his volume III.
http://www.marxists.org/archive/marx/works/cw/volume37/index.htm

37

I like Captain Amazing’s distinction between subjective and objective value. However, one could say the subjective one is but a more elaborate concept of the objective one.

Again, pie with raw material costs $2 and labor costs $1. Objective value $3.
Some people are willing to pay up to $5 for the pie although they could get it for $3 if they baked it themselves.
Why don’t they bake? Either they’re not very good at that, which means they lack the skills. Or they’re too lazy to bother themselves, or they don’t have the time to do so. In any case, they lack something (skills, eagerness, time) that’s necessary to produce the pie and thus is part of the pie’s production costs. They are willing to pay up too $5 because to them the production costs are $5, not $3 as they are to SpoilerVirgin.

In effect, the value of a product is, on the long run, determined solely by its production costs to the consumer; if the price were higher, the consumer would manufacture the thing on his own.

38

Thanks Captain Amazing! I had made the assumption that the value of a product was the price people would pay for it but, obviously, i was a little to fast on making this assumption. That pretty much clarify everything that puzzle me in Das Capital for now.

About the pie argumentation, I know for sure that skill and time are taken into account by marx in the production cost. So yes they are already part of the 3$ The rest is only supply and demand.

39

I’m not sure if this is a particularly useful analysis. What is the production cost to me of an automobile? A personal computer? A 6-hour ride from NY to London? All would be enormously, staggeringly expensive for me to produce. Does this mean that these things have an unlimited value to me?

If someone told me that a ticket to London were $50K, I’d have to admit that this would be substantially less than what it would cost me to produce this service for myself. But I would not be interested in paying that price. I have things that make me interested in travel to London, but if the cost is anything like that, I’ll stay home.

If you’d say that the production cost to the consumer tends to put an upper limit on the value of a product, I’d agree. To say that it solely determines value seems incorrect.

40

Hey, this Socratic Q&A is really the way to go here. So I think I’ll join in…

Schnitte, let me use a real world situation and get your opinion on it…

I purchased my house for $203,000 in 1997. In the intervening 5 years it has appreciated in value. I refinanced last December and got appraised at more than twice the 1997 purchase price. So we’re looking at an average value-increase of 25%+ per year.

I have done effectively no labor to improve the house other than to drop a new roof on it (BANG!) at a cost of $16,000.

What, then, accounts for the increase in value other than ‘demand’? Even if we include the ‘labor’ cost of the new roof wouldn’t that simply make the value of the house $219,000?