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Hello, I am InstaHayek, and together with MrCredible, I am debunking Kapitalism’s video and WordPress series in the Marxist Labor Theory of Value. In this installment, I will be critiquing Kapitalism’s post on “Law of Value 7: Production and Exchange.”

The beginning is an introduction as to how we fail to see things in isolation. I will be focusing on the later claims.

PART 1: FREEDOM AND EQUALITY.









“What kind of society is required to have a world where buyers and sellers are free to sell labor (labor power to be specific) and commodities as equals? We need more than just money, markets and bourgeois states. We need a particular type of production relation.”

This society would be a free market. Capital markets strengthen property rights and allow the free trading of goods and services without oppression from an outside source. As MrCredible has stated in his rebuttal, the amount of labor that goes into producing a good or service has nothing to do with determining the value of said good or service. It all has to do with marginal utility. So labor and commodities are not seen as equal. You don’t really sell labor on the market like you would with inanimate goods. Labor power is a living commodity, so it does not obey the laws of other commodities. Another reason why labor power is not seen as being equal in terms of selling on the market has to do with the law of scarcity or wage setting. Marx incorrectly assumed that labor power traded at its value, in order to show that the worker was economically exploited by the “bourgeoisie.” This would lead some to assume the more labor put into the production of a product the more valued garnered from it, thus, the greedy capitalists would overwork their workers to add value to their products. This is wrong because certain social conditions, such as a scarcity of labor or because of unfavorable wage-setting conditions, affect the value that labor power trades at.

“Though individuals are free to choose whom they buy from and sell to they are not free to not buy and sell. This is because we can only access our subsistence through the market. Such a situation does not occur naturally. It presupposes a specific type of relation between producers.”



Of course. That is the point of free markets. You do not have the right to be readily provided a good or service. You must work in the market and make money working for a business or establishment. You then use that money to purchase subsistence to live on. As economic growth increases under free markets, incomes will rise, allowing for increased purchase of goods and a more comfortable living standard.









“In order for individuals to have to enter the market to buy their subsistence they can’t be able to create their subsistence on their own. They must be deprived of means of production. Means of production must be a private commodity owned by the few, compelling the majority to enter the market to sell their labor and buy their subsistence. In contrast to the perspective of the market where all actors meet as legal equals, in production we see the division of people into classes, workers and capitalists. The world of market equality presupposes a world of inequality in production.”

Um, yes they can. No one is forcing anyone to enter the market. Individuals can own farms and live off of the land. Private property rights under free markets would mean little to know taxes on goods that are produced, ergo, the farmer can keep his or her goods without having to give it up for the sake of collectivism like he would under socialism. They can produce whatever they wish. Obviously, they have to work to get enough money to purchase farm land, or they live on the farm their ancestors owned. But once they do, they can easily grow their own crops. Most farmers can go into the cities and sell their crops for a profit too.

The means of production of large businesses are a private matter, not a commodity. Are you aware of what a commodity is? It is a marketable item that satisfies a want or need. The means of production are not private commodities, rather, they are non-human inputs used to produce a certain good. They are used to produce a commodity.

In production we do see the division of labor — employees and employers. Employees voluntarily work for an employer. They don’t have to work there, but they choose to. Employees produce a good or service using the means of production. This occurs under the guidance of employers and those that run a business. Sure, there is inequality in the world of production and equality in the market. However, this isn’t a problem. Obviously a small group has to control the means of production of an individual business. Who else would do it? The workers? Would you leave controlling the means of production up to thousands or millions of workers? That wouldn’t be a viable solution, as the workers would eventually fight to individually control the means of production. Also, an uncoordinated collective effort to control the means of production among workers would be a nightmare to do. The employer pays the employee for work done. The employee can then use that money to purchase a good or service, and yes, even the one they work to produce. That is the point of the market. Your hard work pays off in the end. It also depends on the product you produce. Obviously making high-tech gadgets will garner you a lot more money than producing a staple food product like rice. And that is the point of the discrepancy between those two wages. The high-tech engineer probably has a degree in a subject and is producing complicated and expensive machines. He gets paid more because his labor is more valued than the employee who digs up a root. Don’t complain just because you chose to go into a low paying job.









“This implies a specific type of production: production for exchange. In production for exchange products are not created for the use of the laborer. They are produced to fetch a price in the market. And because the means of production are owned by the capitalist class the goal of production becomes not meeting the needs of humans, but generating profit for the sake of profit, at the expense of the laborer. The more work that can be squeezed from the worker, the greater the profit of the capitalist.”

Obviously products are not created for the direct use of a worker. In exchange for the labor you perform producing a good or service that will be traded on the market, the employer pays you in money. You may then use that money to purchase any good or service. In response, the market says “enjoy your choice!” The more labor that is generated from workers, the more products that are produced. If it is a staple product, then there is can be a surplus of it and it is available on the market for everyone. If you and your fellow employees work hard then you will generate more goods and services and bring increased revenue into a business. In turn, that business gives you a raise or some form of benefit. Work hard, and you will be rewarded.

“Yet when worker and capitalist meet in the market to buy and sell commodities and labor-power they meet as free, consenting, legal equals. There is a contradictory relationship between the freedom of the market and the despotic plan of the factory, between the equality of the market and the asymmetry of class. Yet though the two sides contradict each other they also depend on one another. We can’t have market freedom without class and the inequalities of capital. If we just said that bourgeois freedoms are an illusion draped over a real world of coercion and inequality we would be venturing too far into a one-sided analysis of production. We can never forget that capitalist production is production for exchange, inherently linked to the freedom of the market. Market freedoms are real. But they contradict their own material base.”



Again, that is the point of the division of labor. If you are simply tearing roots out of the ground you’re not seen as important as the CEO who runs the entire business. Thus, you are lower in the division of labor and therefore get paid less. It all depends on how much work you do for the company. Work your way up in the company and you will see your wages rise. If you are not happy with the way you are being treated at a company, then either sue the company if it is a serious matter or leave and go to a different company.

*Side Note: The more employees that a company has, the more profit it gains. This is because an increase in labor means an increase in production. But, the less employees that a company has, the more it pays its workers due to the fact that it doesn’t have to pay so many workers and can afford to up its employees’ wages.

PART 2: SCARCITY AND UTILITY.











“If you were to open a standard economics textbook today you would read that economics is the study of how the autonomous decisions of utility-maximizing individuals allocate the use of scarce resources. The optimal allocation of resources is reached naturally when individuals are free to make autonomous decisions in the market. But this doesn’t mean that we can have everything we want. We live in conditions of scarcity. We always want more than is possible for us to have. Therefore we always have to make trade-offs. So our textbook reminds us that the fact that we may want more from the current state of affairs, that we aren’t happy with the world, is just part of life: we will always want more than we can have.”



Where are you going with this…









“For one, we do no form our desires in a vacuum. We are taught what to desire. We are also taught how to pursue the objects of our desire. In different societies people carry out these intents/purposes quite differently. In a capitalist society we purchase our desires. But this requires that we sell our labor in the market. Thus our utility-calculating isn’t just an abstract measure of how much we want things. There is a social context that structures these calculations. We have to consider our incomes and the social values of commodities. Neither one of these things (wages and prices) can be explained solely by the world of exchange. They both require an analysis of production.”

We are not taught what to want or desire. We are taught what is necessary to survive in a market economy: food, clothing, and shelter. These are to be achieved by you working within the economy and earning money for your labor. You can then use what you earned to purchase what you need. We are, however, guided by our own desires. The money we earn can be used to purchase what we both want and desire. The market makes many abundant selections.

Production does not determine price or value. I can easily pick a flower out of the ground that grew on its own without my human capital. However, my neighbor can spend weeks growing the exact same type of flower and put tremendous labor into it. However, they both sell for the same price on the market. That has to do with utility as well as with supply and demand, not with labor.









“The logic of production does not follow the same logic of utility maximization. Capitalists don’t invest in production in order to maximize utility. They invest in order to make profit, in order to gain value in the abstract. The pursuit of money for its own sake is not a pursuit of utility. It is a separate logic, a blind, calculating logic that pursues its own interest, transforming the capitalist into a mere personification of this logic.”

Yes, it does. A maximization in utility means an increase in revenue as well as a decrease in loss to competitors. Companies are always looking for ways to maximize utility in order to make more money. So, they invest in new projects and develop new and better products. They of course take a risk, but if it maximizes utility, then it maximizes profit. This is how innovation happens; this is how capitalism breeds new ideas, new innovation, and a more advanced society as companies are always competing against one another for the most advanced, most efficient, and most utility-maximizing product they can make.









“Cleverly our focus has been diverted from any activity that actually brings commodities into being. But how can we actually understand scarcity without understanding the production process? How do we compare the scarcity of coal to wood without an understanding of the fact that wood merely requires the cutting of a tree while coal requires an elaborate mining process? (How do we understand the scarcity of intellectual work without realizing that a Mozart CD can be duplicated an infinite amount of times at the click of a button while a Van Gogh can never be painted again?) Scarcity is only an inversion of production. It is the work of people that produces things in given quantities. Our “choices between scarce resources” are actually choices between different distributions of labor.”

That is what marginal utility is for. I do not know what you are trying to get at, though. As explained by MrCredible, the amount of labor that goes into production does not increase the value of a product. It all has to do with utility.

PART 3: EXCHANGE.









“Exchange value is an observable phenomenon in our world. Commodities exchange in certain ratios. A commodity’s exchange value is the ratio at which it exchanges with another commodity. At first glance exchange-value can seem random, accidental. But we observe that in reality exchanges are not accidental and random. Stocks of commodities are replenished, creating a regularity to exchange ratios. What could this process be that takes away the accidental nature of exchange and replaces it with a social regularity?”



Stocks and commodities can be replenished, but this isn’t always the case. Companies suffer losses all the time, causing the exchange value of stocks and commodities to plummet. But if the company gains profit, then the value of its stocks and commodities will rise. But replenishing stocks and commodities don’t create “regularities” as a sudden fluctuation in the economy can change the exchange value. It has everything to do with utility, supply and demand, and how well the company is doing overall. This is completely random and subject to arbitrary changes in the stock market.

“What is the substance that intrinsic value is made up of? It can’t be the use-value of commodities because use-values can’t be quantitatively related. You can’t compare the use of an apple to the use of a car quantitatively. The only logical place to look is the labor process, the process whereby individuals create the world in which they live.”



“This answer to the question of intrinsic value was not accepted by Marx’s critic Bohm-Bawerk. Bohm-Bawerk argued that there are many other things that could make up this intrinsic value like scarcity or utility. Yet, as we have seen already, scarcity and utility are incomplete, one-sided concepts that can’t be understood unless they are grounded in a theory of production.”

Intrinsic value is determined by a variety of factors. When you try to find out what the company or what the stock/commodity is worth, you can use the company name, profit, or other means. Another way is through use. For example, let’s say that I have two products — paper towels and a diamond. The paper towels are used on a daily basis and are so staple that their value declines and thus does their intrinsic value. However, a diamond is not used as much as the paper towels. Ergo, it’s value increases as it is not viewed as a staple commodity. There are many factors determining intrinsic value, but labor isn’t one of them as labor does not add value to anything.

The entire economy is grounded in production. Everything in the economy was obviously produced in some way, so you’re argument makes little actual sense.

“It makes sense that this notion of value might not be intuitive for some to accept. In a capitalist society we are separated from our labor. Our working power is a commodity that we sell to a capitalist. The capitalist owns our labor and the product of that labor. We don’t have a sense of our labor as a purposeful activity, or a social activity. Our labor must take the form of a commodity with a market value before it becomes social labor. Value obscures the social nature of our labor.”



Again, labor does not add value to anything, and neither does it have value. Labor is neither a commodity nor does it have a market value. The goods produced from your labor have market values that rise and fall due to fluctuations in the market as well as supply and demand.

“The content of value is labor. By this we mean that the “social substance” that makes up value is labor. (Later on Marx will have to examine what kind of labor this is, socially necessary abstract labor, and what kind of society produces it.) But we don’t see this content when we examine a commodity. No matter how we may poke, prod, smell it or take it apart, we can’t see its social content. That’s because this content takes a material form. This form is exchange-value. When we say it takes a material form we mean this literally. The value of the book takes on the form of pencils or tires or baritones. So Marx makes a distinction between the content of value, labor, and the form of value, exchange-value.”

Again, value is not created via labor. It is created through a variety of market factors, but none have anything to do with labor. Obviously we cannot see its “social content” as its social content plays a role neither in its market value nor in its exchange value.

“This means that value and exchange-value are different. And since price is just a special form of exchange-value, price and value are different. Prices are just the surface appearance of value. But this value has no fixed, physical form independent of its material expression in pencils, tires or money. We only see the form of value, not the content.”

You are correct, value and exchange value are SLIGHTLY different. Value is how much value the good garnishes from utility, supply and demand, etc. and exchange value is either a decrease or increase in that value based on trading in the market. Price is subject to changes in the market, and does not necessarily represent the value of the good. In some instances, a good can sell for a high price but be cheaply made, while another good can sell for a low price and be of high quality. Price does not necessarily determine value, and vice versa. Value is gained from, as I stated, utility, supply and demand, etc.

“It also leads him ask an important question that Smith and Ricardo had never asked: What type of labor produces value? Because Smith and Ricardo saw labor and price as identical they assumed all labor, in all times, created value. As we know, these sort of appeals to universality and eternal concepts are problematic. It is only a specific type of labor that produces value: labor for exchange. Thus only a specific type of society, in which there is a regular, predictable, disciplining of labor to the needs of market exchange, can be a society ruled by the law of value.”

Again, labor does not determine value, and neither does this concept of “labor for exchange.”

“Rather than seeing value as a universal aspect of human labor, Marx sees it as something unique to a specific form of labor: production for exchange. Thus in distinguishing between content and form Marx is able to also distinguish between the universal and particular, to show that the properties of the market are specific to a certain type of production: capitalist production.”



Not necessarily. As I stated, labor does not create value. The means of production neither add nor take away value from a product.

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