Posts Tagged ‘commodities’


Special mention

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General views of Seattle-based grafitti artists Jonathan Matas and Zach Rockstad's mural called "Up and Down" depicting Karl Marx and Adam Smith located on Mott Street just north of Houston Street in

Mainstream economists refer to it as price theory, everyone else value theory. But whatever it’s called, it’s at the center of economists’ differing explanations of what happens in (and alongside) markets.

As I see it, price/value theory serves as the framework to explain a wide range of phenomena, from how and for how much commodities are exchanged in markets through the determinants of the distribution of incomes to the outcomes—for the economy and society as a whole—of the allocation of resources and commodities through markets.

And each price/value theory has a utopian dimension. It’s not just an accounting for and an explanation of the conditions and consequences of commodity exchange; it’s also a way of thinking about the fairness and justice of markets. It therefore informs (and is informed by) a utopian horizon within and beyond markets.

Let me explain. Mainstream economists today generally rely on a price theory that has been produced, disseminated, and revised by neoclassical economists in a tradition that dates from the late-nineteenth century. Students know it as what they learn in the typical microeconomics course, the rest of us by the celebration of free markets in mainstream theory and policy.*


The starting point of neoclassical value theory is that commodities exchange on markets at a price (p*) that is determined by supply and demand.** But that’s only the beginning. According to neoclassical economists, supply and demand are ultimately determined by human nature—a combination of tastes and preferences (utility), know-how (technology), and resources (factor endowments)—which are taken as given or exogenous.

And that leads to one of the major conclusions of neoclassical theory: the prices of goods and services, as well as the distribution of income, are ultimately determined by—and therefore reflect—human nature. That’s important because, if for whatever reason you don’t like the existing set of prices of commodities or the distribution of income, you face the formidable task of changing human nature.

Other significant conclusions also follow from neoclassical price theory, including:

  • Everyone gets what they pay for (since price is equal to the ratio of marginal utilities).
  • Everyone is equal (since, via the invisible hand, everyone’s marginal rate of substitution is equal to that of everyone else).
  • Everyone benefits from markets (since utility-maximation and profit-maximization lead to Pareto efficiency, i.e., a situation in which no one can be made better off without making someone worse off).

That’s an extraordinary set of conclusions—about commodities, markets, and capitalism—which is why, as I explain to my students, so much theoretical work has to be done to go from the initial assumptions to the final results.

That set of conclusions is the basis of the utopianism of neoclassical price theory.  According to neoclassical economists, the capitalist distribution of income is fundamentally fair. If every factor of production (e.g., capital and labor) is remunerated according to its marginal contribution to production, and each individual sells to firms the amount of each factor they desire (because of utility-maximization), the resulting distribution represents “just deserts.” It’s fair on an individual level and it represents justice for society as a whole. Let free markets operate, without any external intervention (e.g., by the state), and the result will be both fair and just.

It’s that powerful conclusion that serves as the starting point for value theory, the critique of the core of mainstream economics—with, of course, very different results.

Take the case of Marxian value theory. Marxian economists accept the notions of fairness and justice, a standard upheld by mainstream economists, and then shows that commodities and markets can’t but fail to achieve those goals. They do this, first, by showing that every commodity has two numbers attached to it—exchange-value and value—not just the one—price—and showing how those two numbers are equal only under a very particular set of assumptions. Then, second, they demonstrate that, even if the two numbers are equal (such that the form of value in exchange equals the value of commodities in production), the production of commodities is based on a “social theft,” that is, the exploitation of workers.

Here’s the idea: assume that all commodities exchange at their values (that is, the kind of world—of free markets, private property, perfect information, and so on—presumed by mainstream economists). Labor power, too, is allowed to be bought and sold at its value. But after the value of labor power is realized in exchange and is set to work, more value is extracted than it costs employers to purchase it. In other words, an extra value—a surplus-value—is created by laborers (during the course of production) and appropriated by capitalists (and then realized, when the finished commodities are sold, in exchange).

My view is that the critique of capitalist class exploitation forms the utopian horizon of Marxian value theory. Since exploitation violates the social norms of fairness and justice (of “just deserts,” i.e., that everyone within capitalism gets what they deserve), it points in a quite different direction: the possibility of creating the economic and social conditions whereby exploitation is eliminated.

The differences between neoclassical price theory and Marxian value theory couldn’t be more stark. The differences are even more dramatic when we compare their utopian horizons. Whereas neoclassical price theory leads to a utopian celebration of capitalist markets, Marxian value theory both informs and is informed by a utopian critique of capitalist exploitation—and therefore a movement beyond capitalism.

In both cases—neoclassical price and Marxian value theory—the story about commodity exchange, and therefore the analysis of the form that wealth takes under capitalism, has a utopian dimension. The two theories have that in common. Where they differ is the form that utopian dimension takes. Neoclassical price theory is guided by a utopianism according to which free markets and private property represent the best possible way of organizing an economy—and therefore should be created and defended by any means necessary. Marxian value theory, as I interpret it, serves as a critique of all such utopianisms. It marks their failure, on their own terms, and points in a different direction—toward the possibility (but certainly not the necessity) of eliminating the exploitation that serves as the basis of capitalist wealth, and therefore of creating a different standard of fairness and justice.

As is well known, for generations of Marxian economists that utopian horizon has been summarized as “from each according to their ability, to each according to their needs.”


*To be clear, modern neoclassical price theory extends some important aspects of the theory originally elaborated by Adam Smith—such as the focus on individuals and the general praise for free markets—but it also represents a fundamental break from Smith’s theory—especially from the classical labor theory of value Smith and other classical economists (such as David Ricardo) utilized.

**It’s actually a pretty complicated set of steps, which most students are never taught. The key is that p*, the equilibrium price, is determined not just by supply and demand, but by the imposition of a third condition—a market-clearing equation—such that the quantity supplied is arbitrarily assumed to be equal to the quantity demanded.



Special mention



Special mention



Special mention



Special mention

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It’s that time of the year again, when thoughts turn to the impossibility of the gift.

Usually (as in the ghost of Christmases past, e.g., here, here, and here), attention is given over to neoclassical economists, who bemoan the inefficiencies caused by the normal pattern of gift-giving and recommend instead that money be offered, so that recipients can buy their own presents.

This year, things are a bit different. Psychologists are the ones who are called on to identify the impossibility of the gift. In their view (e.g., the research by Jeff Galak, Julian Givi, and Elanor F. Williams and Yan Zhang and Nicholas Epley), as it turns out, much the same problem arises: givers can’t possibly know what the recipients want. 

But, psychologists add, the reverse it also true: recipients often don’t know the motivations of the givers. “It’s the thought that counts” only counts when recipients are somehow prompted to consider a giver’s act of generosity.

If gift receivers consider a gift giver’s thoughts only when triggered to do so, then gift givers are likely to have difficulty correctly anticipating the impact of their own thoughts and intentions. Gift givers, after all, have a very different perspective on the exchange than do gift receivers. Gift givers do not experience the automatic evaluation that comes from receiving a gift and thus would not be triggered to use their thoughts to predict a receiver’s feelings and evaluations in the same way as gift receivers. Thoughts may indeed count for gift receivers, but not necessarily in ways that givers will predict. The capacity to anticipate a receiver’s feelings and evaluations is a critical aspect of gift exchanges because maximizing the receiver’s happiness and satisfaction is arguably the most common objective in gift exchanges. . . Any gap between a gift giver’s predictions and a receiver’s actual evaluations will undermine the primary goal of gift exchanges.

In both cases, when they don’t know what recipients want and try to have their own good intentions recognized, givers are prone to make mistakes in choosing the appropriate gift.

The researchers therefore step in to try to help them, by suggesting gift givers make better decisions: either “choose gifts based on how valuable they will be to the recipient throughout his or her ownership of the gift, rather than how good a gift will seem when the recipient opens it” or “give priority to choosing gifts that receivers actually like rather than gifts that reveal thoughtfulness.”

What none of the teams of psychologists considers (just like the neoclassical economists before them) is that when the gift is something that is offered out of generosity, without an interest or concern in reciprocity, then as soon as the gift is identified as a gift, with the meaning of a gift, then it is cancelled as a gift. The gift, which creates a debt of a return—of an indeterminate reciprocity, concerning when and how—is thereby annulled. And that’s true even with the best of intentions or choices on the part of gift-givers.

But, I hasten to add, that is also the case with monetary exchange, since it is also replete with diverse and conflicting motivations, desires, and concerns on both sides of the transaction. As with gift exchange, those on one side (e.g., buyers) have a very different perspective on the exchange from those on the other side (e.g., sellers).

Consider the example of purchasing a car (which I recently did). The buyer has no idea what goes into the intentions and behavior of the seller: are they attempting to inform the seller of the qualities of the various vehicles being considered, looking to push unnecessary options or extended warranties, worried about meeting their monthly quota, or subject to pressure from the dealership to boost profits? For their part, the seller doesn’t know anything about their opposite number: from the financial situation of the buyer to what they’re looking for in a vehicle, not to mention the condition of any trade-in, the possibility of repeat business, and so on.

And, of course, both buyer and seller are constituted, and transformed in an unpredictable manner, during the course of the long, complex relationship that develops before, during, and after the purchase. It’s a relationship that, at various times during the transaction, both invokes and undermines notions of mutual beneficence, trust, concern, calculation, and much else.

Errors are made, then, in monetary exchange no less than in gift exchange. The goals on both sides of the transaction are only partly fulfilled even when the exchange is completed. Sellers can walk away with another vehicle sold but they don’t know, under all the conflicting pressures, if they did the “right thing” (for the buyer, themselves, their employer, and so on). And buyers, after they drive away, will be affected by all the qualities and features (both positive and negative) they were only dimly aware of when they bought the vehicle, not to mention the comments and questions from family members and friends, which influence how they look at and appreciate their new vehicle. And then of course there’s the depleted bank account or the loan, which determines what the transaction means in terms of their own and others’ wealth and property, the effects on their financial well-being, and what exactly was traded when the vehicle was purchased.

And so we muddle on—exchanging gifts, engaging in monetary transactions, or, as is often the case this time of year, combining the two (purchasing commodities with money to give as gifts)—even when we know the gift and commodity exchange, at least as modeled by mainstream economists and psychologists, are in fact impossible.