Aziz:
"This [i.e. individually differentiated needs] leads to variations in price - different people are prepared to pay different prices for the same good or service based on their own need or want for it. While open markets and free exchange give a level of order to this process - quote prices, and moving averages - ultimately markets are moved by individuals' subjective valuation process, and the negotiation process." (See here)So, in Aziz's estimation, two main things determine prices: individuals' subjective valuations, mediated by markets.
Having established his initial position, Aziz proceeds then to compare the STV to its theoretical rival: "The subjective theory of value's chief rival - the labour theory of value [i.e. LTV] advocated by David Ricardo, Adam Smith and Karl Marx - is deeply problematic".
And what are those deep problems? "The great trouble with this is the notion of a real (or fundamental, or intrinsic) price. Prices are just functions of market participants' decisions."
That is, for Azziz, the LTV is "deeply problematic" because in it prices are not determined by individuals' subjective valuation, mediated by markets, as in the STV.
In other words the LTV is deeply problematic because it is not the STV. Case closed. Aziz advances no other reason. For instance, doesn't claim the STV to be more empirically accurate.
So, one could be tempted to ask why the rather obvious fact that the LTV is not the STV is such a troublesome thing?
The only reason Aziz hints at is this: in Aziz's estimation "the subjective theory of value is the greatest idea in the history of economics"! Starting with the premise, the conclusion is the premise itself: the cycle is complete! No more reason is required.
Aziz's personal estimation is the rule to decide whether something is problematic or not. Take that, Ricardo, Smith and Marx!
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While I myself find the invention of sliced bread a greater thing than the subjective theory of value, even among rabid anti-LTV people, particularly among some PKers, the notion that "individuals' subjective valuation, mediated by markets" determine prices is considered bogus.
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I'll be honest: I have nothing personal against John (somehow, at this moment, to address him by his first name sounds friendlier, and I am trying to be nice: you hear me, Chris?); and I have no wish to antagonize yet another young, up-and-coming, philosophically-minded writer, interested-in-economics, UK blogger, so, I'll leave things at that.
In particular I will not comment on his (to me, already strangely familiar) rather vague reference to Nietzsche and Kierkegaard. Moreover, I will not comment on the "counter examples" he proposed (particularly the extremely unfortunate Mudpie one), even at the risk of disappointing the good folks of Kapitalism101!
You're so damn civil.
ReplyDeleteI hope Chris is reading this, Hedlund.
ReplyDeleteI fear he thinks of me as a fanatic (God forbid!) ;-)
To my way of thinking marginalism or a subjective theory of value is pretty weak, economics can hardly be considered a science if its principal measure of marginal utility is a completely subjective one.At least LTV and other such frameworks attempt to be objective. Having read both for and against the LTV though I have real problems with it as well. On the premise that I actually understand what it implies "that only socially necessary labour creates new exchange value and that value is not created through the exchange process itself" I don’t know that it is actually true. Perhaps part of my confusion lies in the fact that Marx is not the easiest author to read. One wonders whether it would be best to leave off the concept of value altogether and accept that price will be determined by a combination of the cost of production and any socially constructed factors eg tariffs, monopolies, extortion, unequal exchange etcwhich may tend to raise or lower the price that a producer can sell for. AJM
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