Skip to comments.Where the Body Is, The Vultures Are Gathered, or, For Whom the Toll Peals Part II
Posted on 12/20/2011 11:30:40 PM PST by grey_whiskers
In a prior piece, Where the Body Is, The Vultures Are Gathered, or, For Whom the Toll Peals Part I, I introduced the concept of transactions, values, and prices, for both labor and finished goods. In this section, I continue, looking at the Marxist theory of value and its applications and misapplication to the present day, and then move on to newer and/or more complex economic situations.
We have seen how quickly an example of a simple exchange, between a blacksmith and a villager, becomes very complex with just the addition of more villagers, more than one blacksmith, and the presence of assistants. Blacksmiths may compete on price, on speed, or on branding; they may hire assistants to speed up their work, or to increase volume or quality, and the market forces acting upon a blacksmith competing for customers with another blacksmith, are mimicked in the market forces acting upon a blacksmith competing with other blacksmiths for assistants. But the presence of assistants immediately raises another question. What is an assistant supposed to be paid? Let us say, for example, that the heavy work, or the work which truly requires a master craftsman, is done solely by the head blacksmith. It is natural to assume that he is paid more since his work is more valued: not everyone can do it. But what of the case where it is busy work, where the master blacksmith pitches in because of a backlog; or the case where an apprentice has been in service so long that he is as skilled as the boss? It is questions of this type, together with the instinctive feeling of value as an extensive quantity dependent upon labor put in, which give rise to the Marxist theory of value. According to this holding, any amount charged for a job, which exceeds the fair pay given to the laborer, is by definition stolen in some sense from the worker, since he did the work, and yet not all the money paid for the work goes to him. What is incorrect about this, and what can we learn from the mistake?
First of all, it confuses the contract between the purchaser of the horseshoe, and the shop, with a purchase directly from the laborer. It is true, that the laborer does not receive the full amount of money paid by the customer. But on the other hand, the work provided by the laborer is not the only thing that goes into the product. The hammer, the anvil, the fuel, all of these things are considered in fixing the price when the blacksmith was a sole proprietor; they do not somehow vanish now that his assistant is doing the hammering. But the other issue is that there is no longer a simple (raw) transaction of a horseshoe for money: with the presence of one or more assistants, either the quantity of horseshoes produced per day goes up (faster service which commands a higher price from the customer), or, perhaps in the case of ruby horseshoes, new types of horseshoes become available. The fallacy here is in assuming that because the assistant performed the labor, that the net increase in value is solely due to his labor. In fact, the situation is more complex, because we have a number of coupled phenomena: the transaction is no longer just between the assistant and the customer, but between the head blacksmith, and the assistant, coupled together as the blacksmith shop, and the customer. And it is the interplay, the synergy between them which add the value. (If Woody Allen wished to try to make a living providing only highly polished ruby horseshoes, he could: but he might find the volume so low that he would go out of business before making his second sale: it is often a necessity to begin with low-cost, high volume items to pay the fixed overhead cost to support higher-value luxury goods.) In other words, the Marxist theory of value considers the transaction between the customer and the provider a given, including the price, and pretends that any increase in price is due SOLELY to the effort exerted by the laborer, and not at all due to the desires of the customer.(*)
This is applicable to the present day for the following reason. I had mentioned in the beginning that the blacksmith, faced with more demand than he could supply, could either turn away customers or hire an assistant. That is true, of course, for blacksmiths, but what should be noted is that blacksmithing is a labour intensive industry. For other industries -- say, automotive manufacturing, or even better, publishing or software -- there is the possibility of industrialization, mechanization, automation. Each of the methodologies acts as a force multiplier for the labor exerted, and removes the actual physical laborer another step from the physical or electronic finished goods: while at the same time, by increasing the unit output, greatly increases the number of goods which can be produced (and, it is usually hoped and intended, sold). (+)
The net result, then, is that there are many more finished goods produced by automation, and, other things being equal, a great deal more money flows from the customer to the manufacturer than before; while at the same time, the marginal importance of the worker to the final product is diminished. We can therefore conclude that, value is determined more by customer demand for a product than the effort of the laborer in producing the product.
(*) A good counterexample for this would be the salary being paid either to professional athletes or to Hollywood stars. According to the labor theory of value, if a star is paid $20 million for a movie, but the move grosses $120 million, then the actor has been grossly underpaid. There are two problems with this: first is how to apportion the worth? Who is to say whether it was the producer, writer, actors, or director, who gave the movie the it factor? And what about all-star movies such as Ishtar or Waterworld which nonetheless flop? Should the stars be forced to bear the brunt of the losses? (A similar question can be asked for high draft pick athletes who flop, or superstars who get injured or cause dissension in the locker room.) If not, it is clear that the privatize the wins, socialize the losses philosophy is based more on emotion than on fact: in contradiction to the claims of the objective Marxist dialectic.
(+) This would be a good place to stop and consider the old adage he who has the gold, makes the rules as applied to our friend the blacksmith, his assistants, and their customers. At the beginning, before the customer realizes that his horses left rear tire is flat, the customer has the money. And since he has the money, and the blacksmiths shop *wants* the money, the customer is in the drivers seat. After all, he can go to a different blacksmith; do without a horseshoe and take his chances; or trade in for a newer horse with brand new shoes. So the customer, since he has the money, and he is the one who decides whether to buy, is the one who determines whether a sale takes place (for a group of customers, the collective demand will determine the price). After the sale, then the customer has a horseshoe; the blacksmith has the money. Since he has the money, he then (in effect) goes and purchases the services of an assistant: and since he is the one offering to buy, and he now has the money, he determines the price for this transaction. (Strictly speaking, this is complicated both by the presence of unions (which can limit the supply of assistants at a given price) and of banks (which can loan the blacksmith money to hire assistants even before he has sold his first horseshoe); but the overall net flow of money is the same.
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