Compendium: Theories of Value (Pt. I of II)

Is the Value of a good or service determined by the value-judgments and attitudes of the beholder? Or is the Value not informed by anyone in particular and can be measured objectively? Assuming if the Value can be judged intrinsically, how is that feasible?

Key to discerning what something should be worth is a “Theory of Value.” A Theory of Value refers to the epistemological basis by which something can be judged based on an inherent Value. From those judgments, a Price can be decided upon. Ultimately, the decision-making process, ontology, and the methodology itself are what separate the interpretation of one Theory of Value from those of another. Although lesser-known Theories of Value exist, with the Work-Standard relying on its Theory of Value, the most well-known examples within economics have been the Subjective, Utility, and Labor Theories of Value.

The best way to understand the Subjective Theory (STV), the Utility Theory (UTV) and the Labor Theory (LTV) is the “Water-Diamond Paradox.” This is the well-known Paradox that was originally popularized by Adam Smith in The Wealth of Nations during the Enlightenment. Consider the following passage from Book 1, Chapter 4 (“Of the Origin and Use of Money”):

[12] What are the rules which men naturally observe in exchanging them either for money or for one another, I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods.

[13] The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called “value in use”; the other, “value in exchange.” The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.

[14] In order to investigate the principles which regulate the exchangeable value of commodities, I shall endeavour to show:

[15] First, what is the real measure of this exchangeable value; or, wherein consists the real price of all commodities.

[16] Secondly, what are the different parts of which this real price is composed or made up.

[17] And, lastly, what are the different circumstances which sometimes raise some or all of these different parts of price above, and sometimes sink them below their natural or ordinary rate; or, what are the causes which sometimes hinder the market price, that is, the actual price of commodities, from coinciding exactly with what may be called their natural price.

[18] I shall endeavour to explain, as fully and distinctly as I can, those three subjects in the three following chapters, for which I must very earnestly entreat both the patience and attention of the reader: his patience in order to examine a detail which may perhaps in some places appear unnecessarily tedious; and his attention in order to understand what may, perhaps, after the fullest explication which I am capable of giving of it, appear still in some degree obscure. I am always willing to run some hazard of being tedious in order to be sure that I am perspicuous; and after taking the utmost pains that I can to be perspicuous, some obscurity may still appear to remain upon a subject in its own nature extremely abstracted.

What Smith was describing is the argument that the diamonds have a higher Price than water has to do with the usefulness and the labor that went into them. This particular interpretation of Pricing is the same LTV that later influenced Marxist Theory. The reason why I am refusing to refer to “labor” as Arbeit is because Smith believed it was Zeit that made the diamonds more expensive than water. In essence, it was how long it would take for the producer to mine the diamonds and refine them into something tangible without the input of the consumer.

When Karl Marx adopted Smith’s LTV as part of conceptualizing Scientific Socialism with Friedrich Engels, he reinterpreted LTV on the basis of “socially necessary labor time.” From the outset, Smith and Marx’s conceptions of LTV are based on a quantitative amount of Zeit required in the production of goods and services. The Marxist interpretation differs by focusing on how much did someone create based on how long it will take to produce it on average. Marx referred to this average as the “average unit labour-cost.”

Consider the following from Marx’s Wage-Labour and Capital/Value, Price and Profit:

“Take the example of our spinner. We have seen that, to daily reproduce his labouring power, he must daily reproduce a value of three shillings, which he will do by working six hours daily. But this does not disable him from working ten or twelve or more hours a day. But by paying the daily or weekly value of the spinner’s labouring power the capitalist has acquired the right of using that labouring power during the whole day or week. He will, therefore, make him work say, daily, twelve hours. Over and above the six hours required to replace his wages, or the value of his labouring power, he will, therefore, have to work six other hours, which I shall call hours of surplus labour, which surplus labour will realize itself in a surplus value and a surplus produce. If our spinner, for example, by his daily labour of six hours, added three shillings’ value to the cotton, a value forming an exact equivalent to his wages, he will, in twelce hours, add six shillings’ worth to the cotton, and produce a proportional surplus of yarn. As he has sold his labouring power to the capitalist, the whole value of produce created by him belongs to the capitalist, the owner pro tem. of his labouring power. By advancing three shillings, the capitalist will, therefore, realize a value of six shillings, because, advancing a value in which six hours of labour are crystallized. By repeating this same process daily, the capitalist will daily advance three shillings and daily pocket six shillings, one half of which will go to pay wages anew, and the other half of which will form surplus value, for which the capitalist pays no equivalent. It is this sort of exchange between capital and labour upon which capitalistic production, or the wages system, is founded, and which must constantly result in reproducing the working man as a working man, and the capitalist as a capitalist.”

Outside of Marxist Theory, LTV fell out of disuse among Liberal Capitalist economic circles in the latter half of the 19th century, when Carl Menger of the Austrian School introduced STV as his interpretation of the Water-Diamond Paradox. The crux of STV was that the diamonds got a higher Price because of their Scarcity and for giving the consumer less Marginal Utility than water. Conversely, water received a lower Price due to its Availability in giving the consumer greater Marginal Utility than the diamonds. “Marginal Utility” was derived from the Utilitarian worldview of English Liberals like Jeremy Bentham and judged the Value on whether something provided the most pleasure for the least pain. Or, put another way (and Oswald Spengler pointed out in Prussianism and Socialism), “the greatest happiness for the greatest number.”   

STV did not focus on whether the water and diamonds took a certain amount of Zeit or their overall usefulness for the producer. It instead emphasized whether a quantifiable amount of water or diamonds will achieve the most pleasure for the least pain, the “greatest happiness for the greatest number.” The one who ultimately decides is the consumer as an Individual rather than the producer as an Individual. It was because of this not well-understood and false dialectic that Spengler had suspected that Marxism still operated in the framework of Liberal Capitalism.

Even so, STV served as the prerequisite for the Liberal Capitalism’s UTV, which was a refinement of what STV set out to achieve. Here, Liberal Capitalist ideology emphasizes not just on the Marginal Utility, but also the personal preferences of the consumer. This in turn enables the consumer as an Individual to claim that something should be worth more than something else or vice versa. It allows the consumer to gain the most pleasure from something while also inflicting the most pain toward the producer in trying to cater to the Incentives of Supply and Demand. Kapital becomes the means by which such a relationship can be made possible.

A similar variation of LTV, STV, and UTV is the Cost-of-Production Theory of Value, as favored by David Ricardo and later supported by Marx and Engels in Volume I of Das Kapital. It argues that the Price of a good or service is based on the materials that went into its creation, the labor required to produce it, as well as other costs related to Kapital, land, and taxes. Going back to the Water-Diamond Paradox, the Price is dependent on the Kapital required to obtain the materials and labor (as well as the material and labor themselves), the Zeit that took to produce it, the facility and equipment needed for its production, and the taxation rate (if any).

Another lesser-known, albeit more recent, Theory of Value is the “Power Theory of Value” of Jonathan Nitzan and Shimshon Bichler in Capital as Power: A Study of Order and Creorder. Rather than the perception of Kapital as an exponent of material forces as the other Theories of Value defined it, Kapital is power itself. The Value of Kapital is not for its own sake, but as an instrument of the Liberal Capitalist Will-to-Power (to quote Friedrich Nietzsche’s Der Wille zur Macht) over the Totality. The Prices that Kapital permits under Liberal Capitalism has little to do with the producers and consumers, production and consumption. It has everything to do with whether Kapital itself is able to seize control of the Heideggerian “Authentic Dasein” of the Individual, the Class, the State, the Church and the Totality. By replacing “Authentic Dasein” with a counterfeit “Inauthentic Dasein,” increasing abstract forms of Kapital is capable of existing as “Fictitious Commodities” (to quote Dr. Karl Polanyi from The Great Transformation).

The term Nitzan and Bichler chose to describe this Liberal Capitalist perversion of Total Mobilization is “Differential Accumulation,” the logic of which is fundamental to the Liberal Capitalist pursuit of Capitalization. The diamonds were only able to be Price higher because somebody wielded enough Kapital to be in the position that diamonds are more expensive than water. Thanks to Globalization, it is now easier for privatized commercial firms to exert a monopoly or oligopoly on Prices in whole nation-states. As Nitzan and Bichler wrote:

“What is being accumulated are claims on the future flow of profit. The pace of accumulation therefore depends on two factors: (a) the institutional arrangements affecting profit expectations; and (b) the normal rate of return used to discount them into their present value. The effect of rising industrial capacity on these factors is not only highly complex and possibly non-linear, but its direction can be positive as well as negative. But then if capital is not ‘tangible’, how should its accumulation be measured? Surely, the mere augmentation of money values tells us little about power, particularly in the presence of inflation or deflation. The answer is rooted in the relative nature of power. The power of the absentee owner is the power to control part of the social process, and that becomes meaningful primarily against the power of other owners.”

Does the Work-Standard rely on the Power Theory of Value or the Labor Theory of Value, seeing how both contain similar themes? No, the Work-Standard relies on its own Theory of Value that functions differently from PTV and LTV. The justification has to do with Kapital distorting the Authentic Dasein of Currency and how it affects all economic and financial activities. Just consider what Spengler had written in Prussianism and Socialism:  

“Capital” is the grand expression that describes the English view of property. “Capital” means economic energy; it is the armor one puts on before joining the battle for success. Instead of the French cavalier and pensioner, what we see here is the magnate of the stock market, of petroleum or steel, whose pleasure consists in the feeling of economic omnipotence. He understands property to mean exclusively private property. As he sees it, one man’s sniffle can cause the market to plunge all over the world; a telegram of three words can unleash catastrophes on the far side of the planet; and the trade and industry of entire nations are a function of his personal credit. “Private” property—it is important to grasp the term in its full dramatic sense. The billionaire demands absolute freedom to arrange world affairs by his private decisions, with no other ethical standard in mind than success. He beats down his opponents with credit and speculation as his weapons. His state and his army are his trust, and the political state is little more than his agent whom he commissions with wars such as those in Spain or South Africa, or with treaties and peace negotiations. The final goal of these genuine mastertypes is to turn the whole world into one huge trust. As far as he is concerned the average citizen’s nominal right to property can remain inviolate; he can enjoy complete freedom to give away, sell, or bequeath his possessions as he sees fit. But the economic value of his possessions as commercial capital is made to move in certain directions by a remote central agency that is utterly beyond his control. Thus the money magnate is a property owner in a very special sense. Whole peoples and nations can be forced to work according to his tacit command and his omnipresent will.

Therefore, it is more realistic to expect practical applications Work-Standard to be operating its own Theory of Value. It is possible for someone to claim that the Work-Standard functions on the Labor Theory of Value, but the evidence for it could potentially be superficial and not demonstrative of its true Theory of Value. Exactly what that Theory of Value is will be the topic of the next half of this entry in the SMP Compendium.

Categories: Compendium, Economic History, Philosophy, Politics

Tags: , , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: