Welcome to Part 2 of my debunking “Kapitalism 101” series. In this entry I will focus on “Law of Value 3: Das MudPie” . Like my last post I will focus on what I view as the main point being made. Now let’s dive right in.

The problem with this argument is that Marx was very clear that labor has to be useful labor to create value. Yet he didn’t think that is was this usefulness that creates value. Labor has been doing useful things for millennia. All societies are made up of useful labor. Marx calls this useful labor that makes up a society “social labor”.

This claim clearly brings up another question. Who decided what is useful labor? I find the apps I use on my phone useful but many of the apps I use would not be useful to someone else. If labor that is useful is the source of labor (which it is not) then it still must be subjective as what is useful.

In a capitalist society we don’t produce things in order to use them ourselves. We produce things in order to exchange them in the market. We don’t care about the usefulness of the things we are producing. We only care about receiving money in exchange for our labor. We then use that money to enter the market and buy the things we need for our own personal use.

Yes because I can’t make this computer I am on, the lamp providing light, the mouse I am using, the stereo providing the music I am listening to, the glasses I am wearing or the cloths I have on. Their is no way for me to be proficient in all these skills plus everything else I need, want and desire. I may specialize in producing mouses and I will make many of those while someone else specializes in my lamp and will make many of those. So instead of having to have a little of every skill I can specialize in a single skill.

Quickly before I move on let me bring back Milton Freidman and his pencil example. No one can make a pencil. For a pencil you need wood, graphite, brass and rubber. To get the wood you need a saw and that requires steel which requires Iorn Ore. If one can produce the wood for the pencil by themselves how can they produce the entire pencil?

So yes. We can’t produce goods for ourselves rather we must produce a single good and trade to get the other goods we require. We must enter the market for our goods unless we want to have a exceptionally low standard of living.

This is a very different type of social labor than in pre-capitalist societies. Rather than being directly social, capitalist labor is indirectly social. People don’t directly decide what to produce. Instead these decisions are made through the fluctuations of market signals, a constant back and forth of buyers and sellers. But these market signals aren’t some autonomous power. They are composed of the aggregate individual labors of millions of separated producers.

To a extent this is true. When we buy a good (effecting demand for that good) we “vote” with out dollars. In a way we do decide what we produce  (if you produce a computer you can “vote” by buying a computer). We can loose this vote but in communism the same can be. On top of that no one if forced to follow market signals. Their are many instances of people not following market signals whether is be in buying or in selling.

Because producers are separated from each other by the market, because we have no collective control over production, we have no way of knowing, for sure, how much labor time society requires of us and what sort of labor it should be. We don’t know what the demand will be for our product. We don’t know how much of the product other producers are making. We have to guess these things. We only find out once the products of our labor meet the products of everyone else’s labor in the market.

First we do have collective control over what is produced and what labor is need. Through supply and demand. Second, while we may not know what demand will  be we know what it was when it called forth our production.

Labor must be apportioned between the right tasks in the right proportions. Value is the mechanism that does this since value is the only connection between individual laborers. Marx sought to explain how value acted as a force for the regulation of individual labor, turning individual labor into social labor.

Labor is allotted based on supply and demand.

The fact that we discover the social value of our individual labor in the market creates the illusion that it is the market itself which is creating value. We bring the objects of our labor to market and there they are turned into money, making it seem like the subjective decisions between buyers and sellers are what create these money prices.

Yes, the market is not crating value but neither is our labor. And, yes the value a good is determined by the consumer based on their preferences. Prices are not determined by fiat rather buy supply and demand. Sure to the eye of someone who has not studied this science it may seem that way but in modern economics this is not the case.

Yet contrary to what some vulgar economists want you to believe individuals are not free to buy and sell commodities at any price they want. This is because exchange is not just a fleeting, isolated contract between two individuals. Each exchange is part of a vast web of exchanges which unites the productive labors of society.

I am not sure any economist think this. Again prices are determined by supply and demand. They are not set by fiat.

If the socially necessary labor time changes due to changes in productivity then the individual value and social value will change too.

What is being described is a change in supply. Either increasing or decreasing supply. This will cause prices to shift upward or downward but this will not change how people value a good. I will explain this further on (look for the thermostat analogy).

The second factor is the interaction of supply and demand. Supply is determined by the total amount of labor that goes into making widgets and the productivity of that labor…

Supply is determined by a variety of variables including technology, input costs, number of suppliers, and changes in expectations.

… But when we go to the widget factory to work we do not know how much labor as a whole society is devoting to making widgets. There could be a million other people making widgets or only a few. We only learn how much labor society has put into widget making when we enter the market and compare the products of our labor with the rest of society.

Not true (technically we have econmetrics to measure). If their was a over production more labor would not be called forth by the market.

…If too much labor goes into widget making then there is an over-supply of widget their social value falls below their individual value.…

This is a confusion between price and value which will be addressed at the end. The price of a good will fall but how much a  goof is valued  will not.

…If not enough work has gone into widgets there is an under-supply and their social value rises above the individual value…

Again price and value are not the same. Prices will rise but how much  a good is valued will not.

…This fluctuation of social value around individual values is what allows labor to be apportioned.

Again value and prices are not the same.

But most important to the MudPie theory, demand doesn’t create the social value of a commodity. It only helps determine if labor has been apportioned to the right tasks. Labor is creating the value. Labor is doing the work. Demand tells us if this labor has been socially useful.

No demand does not create value but it helps prices reflect how much society values it. It helps determine if resources (of which labor is one) have been allotted effectively . Labor does not create the value and demand helps tell us if resources are being used properly.

Sellers are constantly saying, “This is how much labor went into this commodity and so this is what we think it is worth”. Buyers are constantly saying, “Less labor should go here, more labor should go there.”

Actually sellers say “here is the price. It reflects how you all value this good” while (individual) buyers say “I value this product as much or more than it is priced at. I will purchase it.) or (I value this product less that it’s price. I will not be buying.).

Underlying these fluctuations of demand and supply lies a more basic observation about human society. We only have so much time as a society to devote to the production of our needs. If we are to have food, houses, clothes, DVD’s, and beer we are going to have to devote work to these things. Some things take a lot more labor to produce than others. They cost society more in terms of its expenditure of the total social labor. In a market society this cost isn’t decided by a committee, it’s decided by prices in the market. And this is what value is.

Firstly a society does in a way decide by “committee” (and a far more efficient one that a traditional committee). That committee is the demand side of supply and demand. Secondly their seems to be a confusions in what the relationship between prices and value (the explanation is finally here!). Prices are a metric much like a thermostat is one. Prices reflect value like wise a thermostat reflects temperature. By changing the price or the or the numbers of the thermostat you are not changing what it actually in.

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Posted by Roman Bilan

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