Friday, June 21, 2019

Labor Complexity in Relation to Aggregate Marxian Value — Peter Cooper


Classical economics, including Marx, focused on economic value in real terms, i.e., a non-monetary ground for economic value expressed in markets in nominal terms as prices. That recognized that value is based on some "good" that is actual rather than nominal.

One way to do this is through a numéraire, such as gold or silver. A problem here is that monetary metals don't have actual economic value in real terms that isa determinative in production. Rather, their nominal value is depending on the cost of production. 

Marx choose labor time, following Smith and Ricardo. He expanded on their ideas, which he regarded as inadequate to the task. This is now called "the labor theory of value" (LTV), although Marx never labeled it that way. This is a bit confusing now, since "the labor theory of value" is almost automatically associated with Marx's version of it, even though it was a concept of classical economics, to which Marx was a late comer. Incidentally, while Smith and Ricardo are credited with it in the West, an LTV was first proposed by Tunisian Ibn Khaldun in the 14 century.

Neoclassical economics explains economic value in terms of marginal utility and price theory.  "Utility" purported to account for the good at the basis of value. Economic  value is determined based on opportunity cost, what has to be sacrificed in an environment where scarcity prevails to access a particular good. In nominal terms, the economic value of a good is not the market price, but rather the maximum that one is willing to pay to obtain it rather than choosing something else.

Both the labor theory of value and the marginal theory have been criticized for various reasons. And there are some other theories of economic value as well. See also Theories of Value.

The major issue now is modeling and formalization. The neoclassical theory of value based on marginalism can be formalized, although not without issues. The classical economists did not go this route, which is somewhat surprising in that Newton's work had become the paradigm of doing science. So they are not considered to be doing "economic science."

So a challenge for the labor theory of value is "doing the math."

Since value is so fundamental to economics, getting the theory right is a big deal. So far there is no universal agreement on this issue.

heteconomist
Labor Complexity in Relation to Aggregate Marxian Value
Peter Cooper

2 comments:

André said...

"A problem here is that monetary metals don't have actual economic value in real terms that isa determinative in production"

Why not? Gold and silver values are determined by supply and demand forces, and those metals are demanded at least for jewelry, art, speculation and many other uses.

"Rather, their nominal value is depending on the cost of production"

Do you believe that values are driven by cost? Values are driven by supply and demand, and costs are just one of many factors of the supply.

I believe that nowadays there is a consensus that economic values are driven by supply and demand, but economists usually don't agree what drive them.

Some will claim that people act like robots and have an inherent utility function to optimize to determine their demand, some will disagree, some will claim that the government heavily influences the supply or the demand (or both) of many markets, some will disagree; there will be many disagreements on how institutions and culture affects the supply and demand of products transacted in a market, and so on. But I guess that supply and demand are now an almost universal concept, don't know

AXEC / E.K-H said...

Links on Peter Cooper’s ‘Labor Complexity in Relation to Aggregate Marxian Value’

“Both the labor theory of value and the marginal theory have been criticized for various reasons. And there are some other theories of economic value as well. … The major issue now is modeling and formalization.”

Fact of the matter: The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit, income, value ― the foundational concepts of the subject matter ― wrong.

The Pure Logic of Value, Profit, Interest
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1838203

Primary and Secondary Markets
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1917012

Profit for Marxists
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301

Egmont Kakarot-Handtke