Tuesday 19 September 2017

The Austrian School Dismissed - Part 2

“The value of the harvest is reckoned by multiplying the supply, the quantity of in-gathered harvest-units, by the marginal utility.” (Weiser, ibid)

But what is the value of this marginal utility that we are using as a multiplier? What is its numeric value, for it must have one to act as a multiplier. In what units is this utility measured. The Neoclassicists can’t agree themselves about it. They divide into two camps the “Ordinalists” and the “Cardinalists”. One group believes that you cannot measure the utility only compare it with the utility from other commodities whilst the other created a new unit of measure the “util”, but can find no means of assigning values to this unit other than by recourse to yet another undiscovered measure. But if utility cannot be quantified (and Weiser himself later in the piece admits it can’t) nor can marginal utility which is its derivative. If no quantitative number can be placed upon marginal utility then it cannot be used to multiply anything, including the supply Weiser refers to. So this statement from Weiser turns out to be like the rest of the theory just smoke and mirrors.

“All the utility above the margin, all 'surplus utility' (Uebernutzen), including precisely that which relieves necessity in the highest degree, is neglected and finds no place in value at all.” (ibid)

In other words that supply which is the most needed i.e. the most useful has no value. For a theory which wants us to believe that value derives from utility that is a most convincing argument (not). It is like saying medicine has the most value to the well person and none to the sick.

“The agents of production, land, capital, and labour, derive their value from the value of their products, ultimately, therefore, from the utility of those products.” (ibid)

So from this we can deduce that if I come across a piece of fertile virgin land that produces all the food I require, and thereby provides me with considerable utility this land should be very valuable, and I should pay highly for it. But in fact I pay nothing. Moreover, that high price should be reflected in the high price of products of the land if I choose to sell them.  In fact, the very opposite occurs. Despite the fact that American agricultural wages, following colonisation, were much higher than UK wages, American products undercut British agricultural products i.e. they contained less value. The reason was simple the more fertile soil meant that less labour was required to produce the same amount of products so that this higher labour productivity more than offset the higher wages.

(Note, if it were true that say machines added value in accordance with their contribution to output, as opposed to simply transferring their own value piecemeal, then we should see the value of total output rising in proportion with the rise in total output, which these machines bring about.  But, we see the opposite.  I will deal with this in my translation of Theories of Surplus Value Part 3.  The massive rise in the value of output we have seen in the last 200 years, is not a consequence of machines contributing additional value, but is the consequence of more labour itself being employed, and because the rise in productivity the machines brings, reduces the value of labour-power and raises the rate of surplus value.  The increased mass of surplus value, means the accumulation of capital can rise significantly, and the rise in productivity means that more materials can be produced and processed, so that even with lower unit values of materials, the total value of materials in total production rises proportionately.  But, the rise in the volume of output is many, many times the rise in the value of output.  That is why the unit value of commodities progressively falls.

Weiser's argument is a repetition of the argument put forward by J.B. Say that value is created by the agents of production.  Ricardo, dismisses that argument by Say, writing,

"“M. Say … imputes to him” (Adam Smith) “as an error, that ‘he attributes to the labour of man alone, the power of producing value. A more correct analysis shows us that value is owing to the action of labour, or rather the industry of man, combined with the action of those agents which nature supplies, and with that of capital. His ignorance of this principle prevented him from establishing the true theory of the influence of machinery in the production of riches.’ In contradiction to the opinion of Adam Smith, M. Say … speaks of the value which is given to commodities by natural agents… But those natural agents, though they add greatly to value in use, never add exchangeable value, of which M. Say is speaking…” (David Ricardo, Principles of Political Economy, and Taxation, third ed., London, 1821, pp. 334-36).

“… machines and natural agents might very greatly add to the riches of a country,” but they do “not … add any thing to the value of those riches” (loc. cit., p. 335 [note])."

And Marx comments,

"But since the machine, for example, performs a greater piece of work than the men displaced by it, it is even more “obvious” that the product of the machine will not fall but rise in value compared with the value of the product of the men who “perform the same work”. Since the machine can produce 10,000 units of work where a man can only produce one, and every unit has the same value, the product of the machine should be 10,000 times as dear as that “of man”." (Theories of Surplus Value, Chapter 20))

“Land, capital, and labour yield a return only by their combined agency.” (Weiser, ibid)

That is true to the extent that labour alone cannot produce, for example, agricultural products without land on which to work, and to the extent that labour is employed in manufacture it also requires generally raw material and machinery with which to work. But this tells us nothing. The fact remains that I can pick an apple from a tree without it having any exchange value, which I must attribute to the land – I pick it freely. The only time this is not true is if a landowner intervenes in the process and demands payment from me. In other words the value imputed to the land does not derive from the land at all, but derives from the relative shortage of land which allows the landowner to act as a monopolist and demand payment. In the event that the land is free (for example, as was the case for Native Americans, until their land was confiscated, then no matter how useful its products the only cost to them derives from the expenditure of labour to harvest them.

But an interesting thing happens after I pick the apple. It has no cost, no exchange value to me, but it does have a use value. If, however, instead of eating the apple, I walk several miles, to where no such apples grow, and offer it for sale it does acquire an exchange value. So, if the apple had no exchange value when I picked it, but it does now, from where has that value come? Precisely from the fact that now as a commodity it includes the value of my labour expended in finding it, picking it, and transporting it to market. If I were a buyer of this apple what value would I place on it? For my part, the equivalent of how long it would take me to go to where the apples are, pick one, and return, in other words my own labour time.

But Weiser is somewhat dishonest in his presentation here. What he presents is a version of Ricardo’s Theory of Rent. But Ricardo’s Theory of Rent was derived from his application of the Labour Theory of Value. Weiser fails to accredit the basis of the argument for obvious reasons. In fact the Marginalist theory is based not just on Ricardo’s Theory of rent, but also on Marx’s Theory of Rent which takes further and clarifies Ricardo’s use of the concept of marginal land. Marginalist theory does so in a corrupted and inapplicable manner.

The reason it is inappropriate to take Ricardo and Marx’s concept of marginalism as applied to land and turn it into a general theory is quite simply the unique nature of land, and its monopoly ownership. In a completely capitalist economy that monopoly by landowners would disappear and the concept of rent with it.

Back To Part 1

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