anyone else read ej's twits?

[gwynedd1]

Re: anyone else read ej's twits?

Yes there is.
http://en.wikipedia.org/wiki/Subjective_theory_of_value

Also the lack of an alternative theory is not proof of the theory. Everyone believing the earth is flat doesn't make it so.


This line of thinking strikes me as a way of trying to fix a theory that doesn't work. Since it becomes obvious that price isn't entirely the product of labor then instead it's suggested that value is some kind of center of gravity for price.

I don't think many people would argue that there exists a correlation between the labor expended on a product and it's value (or its price since value can't be measured). However I think it's clear that value isn't exclusively the result of labor. There's many examples to prove this.

I think this is common with people who try defending the LToV. They keep qualifying everything and moving the goalposts until the concept is basically useless.



And how do you quantify value other than using price? You've already stated they are not the same. Can you calculate this value by calculating the labor involved?



I understand, but starting from a flawed premise does not lead reliable outcomes. I can forecast an event by flipping a coin and sometimes be right. That doesn't make it a useful framework. I'm not saying that Marx's ideas are completely useless. I just find there to be lots of evidence that the LToV is flawed and that this should be noted when discussing it.

Speculation and massive cheating are inherent to human nature. Do you believe them to be exclusive to capitalism? What evidence suggests this? Please show examples of other economic systems that are devoid of speculation and cheating. Cronyism is not capitalism and bankocrats are not capitalists.

The labor theory of value is not flawed. Misusing it certainly creates flaws.



Say I have 1 wheel with 2 ox carts having a broken wheel. The cart I want to move first will give me the highest amount of utility. Perhaps one has manure and the other perishable fruit. So I want to get the fruit moving to market first. If they take the same amount of resources and labor and I have a preference, it proves that labor is not all there is to value.

OK so is that the end of the story? No because why did that wheel have utility? Its because it was broken. It was an economic shock. What it represents is a distortion from a planing perspective. From a planing perspective I want marginal utility to be low. I want two wheels, not one. A third wheel would be a buffer stock with no marginal utility. Does that mean that having a spare wheel is of less value than being short one wheel? Does it mean that 3 wheels are worthless? What if there were wheels everywhere? It would mean wheels are worthless. Then, no one would put labor into them. That is when it meets labor. Labor is going to be quite reactive and thus very much related to economic planning.

* Labor theory pertains to economic planning.
* Marginal utility applies to economic shocks

A perfectly planned economy without restrictions will tend to be priced into the time taken to produce them. 3 people who want an apple and 3 apples does not extract economic rents. 1 apple and 3 people who want an apple does but that is a supply shock and a macro economic plan that failed. Certainly there is skill involved and producers can plan poorly.

The other point of view on this is that labor theory applies to how humans can affect value. The idea is not to make things valuable, but to add value. Something cannot have utility until it exists. The only variable we have control over is human labor. So you want a plan to motivate more labor. There is no direct means to modify the economic shock that raises marginal utility. All we can do is to throw labor at it.

However one additional complaint I have is that those who misapply marginal utility is this idea there is no free lunch. Since the determined value is clearly not related to the amount of labor put into it, by definition, value can increase with no work. How can there be no free lunch with marginal utility?


Maybe its easier to say labor has marginal utility as well and the best way to direct it to where its needed is paying them accordingly. At some point time will increase their marginal costs linking time spent with value.

On both extremes it reaches absurdity since giving a knife to someone is suicidal can hardly be seen as valuable and likewise the time it took to build a bridge that falls into the river hardly defines its value. They are both worthless.

[DSpencer]

Re: anyone else read ej's twits?

There is not an alternative theory about value to the labor one.

Yes there is.
http://en.wikipedia.org/wiki/Subjective_theory_of_value

Also the lack of an alternative theory is not proof of the theory. Everyone believing the earth is flat doesn't make it so.

Value is the cornerstone around which prices fluctuates.

This line of thinking strikes me as a way of trying to fix a theory that doesn't work. Since it becomes obvious that price isn't entirely the product of labor then instead it's suggested that value is some kind of center of gravity for price.

I don't think many people would argue that there exists a correlation between the labor expended on a product and it's value (or its price since value can't be measured). However I think it's clear that value isn't exclusively the result of labor. There's many examples to prove this.

I think this is common with people who try defending the LToV. They keep qualifying everything and moving the goalposts until the concept is basically useless.

Merchandise has two forms of value: one is not quantifiable; value of use. If something is a merchandise it has to have some kind of use for people. Otherwise it is not a merchandise.
The other form of value is exchange value. Itīs what we usually refer to as "value".
And that is determined by the "socially necessary amount of work employed in its production".

And how do you quantify value other than using price? You've already stated they are not the same. Can you calculate this value by calculating the labor involved?

But itīs not my purpose here to expose badly what classic economists presented brilliantly.
My intention was just to show how Marx forecasted many a thing happening today more than 150 years ago.
I was particularly shocked to find the term BANKOCRATS used at the time.
Speculation and massive cheating are by no means new things.
They are inherent to capitalism. Thatīs why, in my opinion, itīs not too useful to refer to BANKSTERS as some people acting out of normal capitalist parameters.
Or to rant about "excessive greed" in their behavior.

I understand, but starting from a flawed premise does not lead reliable outcomes. I can forecast an event by flipping a coin and sometimes be right. That doesn't make it a useful framework. I'm not saying that Marx's ideas are completely useless. I just find there to be lots of evidence that the LToV is flawed and that this should be noted when discussing it.

Speculation and massive cheating are inherent to human nature. Do you believe them to be exclusive to capitalism? What evidence suggests this? Please show examples of other economic systems that are devoid of speculation and cheating. Cronyism is not capitalism and bankocrats are not capitalists.

[gwynedd1]

Re: anyone else read ej's twits?

There is not an alternative theory about value to the labor one.
What marginalists define, as I understand, is price.
You can draw an infinite amount of demand-offer graphics.
All of them do nothing to define value. Value is the cornerstone around which prices fluctuates.
Merchandise has two forms of value: one is not quantifiable; value of use. If something is a merchandise it has to have some kind of use for people. Otherwise it is not a merchandise.
The other form of value is exchange value. Itīs what we usually refer to as "value".
And that is determined by the "socially necessary amount of work employed in its production".
But itīs not my purpose here to expose badly what classic economists presented brilliantly.
My intention was just to show how Marx forecasted many a thing happening today more than 150 years ago.
I was particularly shocked to find the term BANKOCRATS used at the time.
Speculation and massive cheating are by no means new things.
They are inherent to capitalism. Thatīs why, in my opinion, itīs not too useful to refer to BANKSTERS as some people acting out of normal capitalist parameters.
Or to rant about "excessive greed" in their behavior.

Labor theory of value looks wrong until you add finance and economic rent to the equation. If I have more buying power because I have more rental income the transaction going to the highest bidder hardly represents maximum utility.

Its amazing that the current dogma uses two units to describe economy, that being labor and capital. The real list is labor, capital, rent and finance.

By the 20th century they killed off rent when Keynes inconveniently brought up finance(backed up by the depression). Because they left rent out of the equation Keynes was "discredited" from the oil shock, a rent. Obviously a theory of labor, capital and finance cannot explain a resource rent issue. So now both are suppressed to allow both the real state and banker fat cats a big party at everyone else's expense.

[seobook]

Re: anyone else read ej's twits?

My intention was just to show how Marx forecasted many a thing happening today more than 150 years ago.
I was particularly shocked to find the term BANKOCRATS used at the time.

Have you ever watched The Money Masters? ;)

Speculation and massive cheating are by no means new things.
They are inherent to capitalism. Thatīs why, in my opinion, itīs not too useful to refer to BANKSTERS as some people acting out of normal capitalist parameters.
Or to rant about "excessive greed" in their behavior.

The more we normalize behavior, the more of it we get.

The issue is not just the action, but the combination of scale of damage across society as a whole AND the absolute lack of recourse due to capture of the political process.

If people are aware the political & legal system are rigged then there is some chance (however insignificant) things may change. But if they are not, things will only get worse until it all comes crashing down.

“I should have never done all my research in prisons. I should have spent my time inside the Stock Exchange as well. Serial killers ruin families. Corporate and political and religious psychopaths ruin economies. They ruin societies.” – Bob Hare, creator of the Psychopath test.

normal capitalist parameters.

Enslaving one group of people in debt to make another group that intentionally committed trillions of Dollars of fraud whole is more aligned with fascism than capitalism, unless one doesn't distinguish between the 2.

The whole concept of "too big to fail" is againsts alleged capitalistic ideals that everyone else is supposed to deal with.

Aside from it's value as end-of-the-world insurance, gold derives its value as money, which is why gold goes up when fiat money goes down as the result of inflation.

So, if the Fed started a program to slow inflation by raising interest rates, why wouldn't gold just maintain it's value, and continue to rise, albeit much more slowly, in step with whatever inflation rate was achieved by the Fed?

Different entities invest in different asset classes at different weightings for different reasons.

Some people might want inflation insurance. Some people might want global monetary breakdown insurance. If there are changes in policy or outlook then some entities might want more or less insurance coverage. And there is also a "perception creates reality" effect as well...which is what gets some people wrapped up in bubbles. I was sucker enough to own tech stocks in the late 90s as a teenager & I owned baseball cards when those were in a bubble too

There was plenty of inflation in the 1990's & early 2000's, yet gold was much lower back then than it is today & the difference in price wasn't just inflation. In 2008 when people feared deflation gold dropped significantly in the short run, while more than doubling from the bottom in the next 3 years.

[Southernguy]

Re: anyone else read ej's twits?

Except it's wrong.

There is not an alternative theory about value to the labor one.
What marginalists define, as I understand, is price.
You can draw an infinite amount of demand-offer graphics.
All of them do nothing to define value. Value is the cornerstone around which prices fluctuates.
Merchandise has two forms of value: one is not quantifiable; value of use. If something is a merchandise it has to have some kind of use for people. Otherwise it is not a merchandise.
The other form of value is exchange value. Itīs what we usually refer to as "value".
And that is determined by the "socially necessary amount of work employed in its production".
But itīs not my purpose here to expose badly what classic economists presented brilliantly.
My intention was just to show how Marx forecasted many a thing happening today more than 150 years ago.
I was particularly shocked to find the term BANKOCRATS used at the time.
Speculation and massive cheating are by no means new things.
They are inherent to capitalism. Thatīs why, in my opinion, itīs not too useful to refer to BANKSTERS as some people acting out of normal capitalist parameters.
Or to rant about "excessive greed" in their behavior.

[raja]

Re: anyone else read ej's twits?

On a separate question, say the Fed announces next year that it's raising rates by 25 bps, and intends to raise rates very very slowly over the coming decade; what happens to Au? Wouldn't surprise me to see gold drop 20% immediately, and then further. Gold is indeed insurance and continues to climb, but as soon as a whisper of tightening is heard, look out. This is the contingency I'm not sure how to handle/avoid.

Aside from it's value as end-of-the-world insurance, gold derives its value as money, which is why gold goes up when fiat money goes down as the result of inflation.

So, if the Fed started a program to slow inflation by raising interest rates, why wouldn't gold just maintain it's value, and continue to rise, albeit much more slowly, in step with whatever inflation rate was achieved by the Fed?

BTW, perhaps this time the Fed will not be able to raise rates, because it would raise the cost of borrowing -- not a good thing to do in a global slowdown. Volker got away with it because the debt to GDP ratio was a lot smaller.

[gwynedd1]

Re: anyone else read ej's twits?

Except it's wrong.

No it isn't. The labor theory of value is based upon the point of view of value that is actionable, not circumstantial. Its the point of view. The marginal utility perspective you are implying only has to do with the consumption point of view. B. F Skinner from the behavioral school of psychology would want to skin people down to their bones who would conduct policy based merely upon the utility of consumption. Who should get it more? The one who values it more or the one who creates value? Ironically this blind spot in the Austrian school defines value by consumer buying power and not the reward to the producer. Rewarding a producer $50 is worth more than giving $500 in value to a slug. According to marginal utility theory thats a $450 loss. The implication is which value should be subject to taxation.
Every swindle in economics ignores one side of the equation.

[DSpencer]

Re: anyone else read ej's twits?

Value is only created by work, that is of course the cornerstone of classic (not only Marxist) theory of value.

Except it's wrong.

[vinoveri]

Re: anyone else read ej's twits?

I think it is the MMT claim that it can and will go on "forever". At a certain point people would notice that the treasuries on the Fed's balance sheet will never be unloaded and their interest forever recycled to the treasury, meaning that these bonds may as well be thought of as "ripped up" already. And that's when the govt decides it has the leeway to the kind of public works program it takes to rein in the output gap.

EJ's last comment confuses me slightly. I thought the short answer would be "inflation", but there the mechanism still isn't always clear to me.[/COLOR]

I took EJ's answer to be "tongue-in-cheek" read between the lines response:

1. Q: Why hasn't the bond market crashed yet? A: Because the Fed's balance sheet in "infinite" and everybody knows "don't fight the fed"
2. Q: Then why can't it go on forever? A: B/c the Fed's balance sheet isn't really infinite

This is circular of course and the implication is that it will go on until it doesn't, at which point there will be a currency crisis/soverign debt run.

The appropriate follow up question would have been: At what point do the limits of the FED and other CB balance sheets manifest themselves? As far as I'm aware, no one has put forth any predictions that have not been continually time-shifted into the future as the crisis never seems to arrive.

2013, 2015, 2018, 2038, who knows?

On a separate question, say the Fed announces next year that it's raising rates by 25 bps, and intends to raise rates very very slowly over the coming decade; what happens to Au? Wouldn't surprise me to see gold drop 20% immediately, and then further. Gold is indeed insurance and continues to climb, but as soon as a whisper of tightening is heard, look out. This is the contingency I'm not sure how to handle/avoid.

[NCR85]

Re: anyone else read ej's twits?

which begs the question: why can't it go on "forever"?

I think it is the MMT claim that it can and will go on "forever". At a certain point people would notice that the treasuries on the Fed's balance sheet will never be unloaded and their interest forever recycled to the treasury, meaning that these bonds may as well be thought of as "ripped up" already. And that's when the govt decides it has the leeway to the kind of public works program it takes to rein in the output gap.

EJ's last comment confuses me slightly. I thought the short answer would be "inflation", but there the mechanism still isn't always clear to me.

[mooncliff]

Re: anyone else read ej's twits?

Or as Q said, laughing at Captain Picard (and humans): You kill each other over how to distribute resources in society!

Spoiler alert if you havent seen Prometheus. And if we really piss off the Architects, they may just come to weed the garden.

[gwynedd1]

Re: anyone else read ej's twits?

I saw a nearby foreclosure where they were about $1.25 million in debt on a house that was "purchased" about a decade ago for less than a third that amount. Home buyers were generally not as guilty and fraudulent as the banking organizations that had over 80% of their loans dirty, but whoever managed to spend nearly a million in HELOC on a home that cost 1/3 that much was certainly on a spending binge. They may have thought their behavior was rational because "housing always goes up" but even if they lost that house getting a decade of lower rent and double the house's value in HELOC for "buying" the house doesn't make them a loser in the transaction. Of course there are loads of other people who were put on adjustable rates and soaked simply because they trusted people too much & don't fully appreciate the nature of compounding interest.

I can't tell you how many people I have run into with the idea that one should pay what they agreed to pay as if any of it was purely legitimate. I think they agreed to out bid real buyers with real credit. Flooding the market with fictitious buyers bloated all values. I'd like to follow them to an auction and bid against them with monopoly money. They act as if its just on a case by case basis. A few percentage points in supply constraints when there are already shortages can cause prices to sky rocket. Water in the desert that will serve 100 when there are 90 people moving to 95 people could double and triple prices. At a demand of 105 people will give all they have for a $1 bottle of water.

To add insult to injury they have seen to it to create artificial slack in the labor market to do the exact opposite to wages.

[seobook]

Re: anyone else read ej's twits?

I read David Graeber's book Debt: the first 5,000 years & in it was a quite memorable quote that is certainly inline with the above thesis: "It is the secret scandal of capitalism that at no point has it been organized primarily around free labor."

A bunch of other quotes here http://en.wikiquote.org/wiki/David_Graeber

[Southernguy]

Re: anyone else read ej's twits?

No, housing overproduction is not in the cause of things. The cause is the need, another consequence of contradiction between social production and private apropiation, to keep the rate of profit. As fixed capital grows in relation to variable capital, that is; work, rate of profit tends to go down. Value is only created by work, that is of course the cornerstone of classic (not only Marxist) theory of value.
Then, capital must expand to lower wages places (happened in last 3 decades with outsourcing to China, for example).
But at the same time they needed not to let buying power of the masses to fall, so as to keep someone to buy production from China.
Thatīs the origin of the bubble creation. Lower real salaries necessary to keep rate of profit. Outsourcing to be able to lower salaries. Credit to keep buying power.
Then the circle closes.
The "little" problem is that, after few years debts grow so big that no further indebtment is possible. And then, the classical capitalistic crisis is inevitable.
The new factor to take account of (as EJ correctly discovered) is that, not existing (as in Marxīs time) gold based money, the otherwise inevitable deflationist depression can be avoided. Further, system managers have learnt from previous history (itīs not by chance that Bernanke is a specialist in 1930īs depression) and they have now much more and much better statistic and computing instruments. Imagine such fenomena being dealt with XIX century tools.
Instead we get the nowadays letarghic course of the world economy.
Matters are further complicated with another new matter: limits set by finite natural resources, fossil energy being the first and most important of them.
Ask for forgivnes for long post, but it helps clear my own ideas and connect modern economic thesis with classic economy.
By the way, reading "primitive accumulation of capital" by Marx I found this:
"
At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became. the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. What effect was produced on their contemporaries by the sudden uprising of this brood of bankocrats, financiers, rentiers, brokers, stock-jobbers, &c., is proved by the writings of that time, e.g., by Bolingbroke’s. ^[8]

With the national debt arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. Thus the villainies of the Venetian thieving system formed one of the secret bases of the capital-wealth of Holland to whom Venice in her decadence lent large sums of money. So also was it with Holland and England. By the beginning of the 18th century the Dutch manufactures were far outstripped. Holland had ceased to be the nation preponderant in commerce and industry. One of its main lines of business, therefore, from 1701-1776, is the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States. A great deal of capital, which appears today in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.
As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Overtaxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, DeWitt, has in his “Maxims” extolled it as the best system for making the wage labourer submissive, frugal, industrious, and overburdened with labour. The destructive influence that it exercises on the condition of the wage labourer concerns us less however, here, than the forcible expropriation, resulting from it, of peasants, artisans, and in a word, all elements of the lower middle class. On this there are not two opinions, even among the bourgeois economists. Its expropriating efficacy is still further heightened by the system of protection, which forms one of its integral parts.
Incredibly accurate description (second half of XIX century) of many things that happen today.
Well, nothing new, I think Hudson is more or less saying the same, much better than me, of course. Please note the term BANKOCRATS. Geithner et al. ?

[seobook]

Re: anyone else read ej's twits?

I think its a complex cause situation. Home buyers were in on it as well but failed to realize that savings based upon accumulating obligations is not saving macro economically. Housing more or less depends on someone else's buying power. Its not a root cellar full of goods which is real saving. Its not industrial capital. So I dispute the usual psychological claim that it was "a spending binge" which I think is important. There is much less consumer binge mentality than is claimed. If the dollar is traumatized it will only get worse. Its just a matter of what will be the savings vehicle. The more credit oriented it is the worse and that is to say saving debts is not a virtuous cycle. I don't think its a public vs private issue. Its a total failure of our combined economic culture. The entire economic paradigm is faulty everywhere you look.

I saw a nearby foreclosure where they were about $1.25 million in debt on a house that was "purchased" about a decade ago for less than a third that amount. Home buyers were generally not as guilty and fraudulent as the banking organizations that had over 80% of their loans dirty, but whoever managed to spend nearly a million in HELOC on a home that cost 1/3 that much was certainly on a spending binge. They may have thought their behavior was rational because "housing always goes up" but even if they lost that house getting a decade of lower rent and double the house's value in HELOC for "buying" the house doesn't make them a loser in the transaction. Of course there are loads of other people who were put on adjustable rates and soaked simply because they trusted people too much & don't fully appreciate the nature of compounding interest.