This is the point I’m trying to make with this:

“Their accounting most likely either allocates costs to the precious metals differently, precisely because of the reduced amount retrieved for the labor, or they might back out what they sell the precious metals for out of their production costs for zinc if that’s their primary business (which is GAAP treatment for a lot of businesses that have ancillary benefits not related to their primary LOB”

Upshot is, just because copper happens to show up when the primary ore being sought is silver, and there’s a lot more copper than there is silver, you wouldn’t divide the cost evenly into silver & copper. If you did, you could have extremely high profit margins on the silver, and the margins on the copper could be so deeply negative that a business case would never be made for it.

For those reasons, we see a cost allocation that differs by metal, and the biggest factors driving that cost allocation will be a) how much of each ore is mined with each unit of effort, b) the price each ore commands and c) overhead and shared expenses that may make the overall effort either profitable or not.

E) One ore fills a more critical want. Since, for the buyer, value is a function of want based on particular use and not use-value (Marx will eventually state that, BTW, we just haven’t got there), an ore that is wanted more will create more competition, driving prices up. In the aircraft industry, if the Company A makes planes of titanium and Company B of steel, Company ‘s planes will require higher ongoing costs in fuel because of the added weight. That titanium is more expensive can be entirely irrelevant depending on how much fuel it saves, and in fact, it does save so much that titanium is clearly a better choice, but titanium is of limited production. The cost-savings in fuel costs can allow Airlines buying from A to be profitable while driving Airlines buying from B into losses if they charge the same price. If that’s the situation the two companies are facing, whoever pays the titanium manufacturer more survives, which drives the price up, driving out other potential buyers of titanium until both companies can use titanium.

Having read forward, I can guarantee you that we *will* get into that. But not for weeks, I think, depending on when Steven drops the next bit in for us. Marx does talk about “want” eventually, but only briefly (but in a way taht is actually extremely damaging to his argument to anyone willing to take it back into his previous arguments). It’s actually remarkable that Marx identifies many aspects of modern economic theory, but he chooses to “abstract” it away, or simply declare it all irrelevant, without evidence to support his decision. (It’s obvious to him, so he doesn’t think he needs to, I guess.) I don’t know if he gets it from other economic theory of his age, or if he was a visionary on those bits, but he was certainly not visionary on its importance.

See, I presented “value” only from the seller’s perspective. The seller does not have a significant need for his own product in a mass production situation, so his own need does not factor into his own valuation. That’s why I said the value I calculated was a minimum, and did not touch the maximum.

If we switch to the perspective of the buyer, who is unaware of resource and labour costs and frankly couldn’t care a whit about those factors, value is certainly some function of “want”, and the particular capacity of the product in question to fulfill that want. Note that this is particular to the specific use to which the product will be put, not the nebulous and entirely irrelevant “use-value” Marx creates, which is based on all uses of the product. I can demonstrate that different commodities solve the same problem in differing ways by looking at infrastructure of aircraft — the competing materials include steel and titanium. Titanium is more expensive, but it provides the same strength with lower mass and higher volume. (In this case, titanium probably does have a much higher labour-value.) All I’m pointing out here it that two substances fill the same use with different effectiveness, and the cheapest choice doesn’t always get chosen.

An exchange, then is a comparison between two competing estimations of value — the minimum profitability of the seller (where profit margin may be based on historic exchanges that indicate a certain expectation of profit) and how well that particular commodity fills the want of the buyer. In Marx’s barter exchange, it is four-fold instead of two-fold.
__
“Also, PAAS kind of makes my point. Logically, if someone can retrieve silver and copper for the same cost, why would anyone do silver only?”
__

Well, to me it’s obvious that core sampling suggested that it was the next most profitable mine at the time it was begun, compared to other available opportunities and the prediction of which way silver prices would go in the future. That goes again to the fact different mines have different amounts of useful ore/ton. Companies maximize profit, not tonnage produced. (Or, since that region is pretty corrupt, it was the only place they could afford the bribes to get permission to start the mine. It’s not always about legal restrictions.)
__
“I would venture to guess it’s because either A) certain types of mines are rich in both, so you can kill two birds with one stone efficiently, while other land is richer in one or the other, or B) there is additional effort (labor) involved in processing the copper, which some businesses choose not to incur. ”
__

C) The initial core sampling did not indicate the presence of the second commodity, and it was only discovered after the mine had plunged far enough into the vein.

D) The second ore is irregular and unreliable, and so costs are absorbed by the primary ore, wiht all of the second ore considered as pure profit.

E) One ore fills a more critical want. Since, for the buyer, value is a function of want based on particular use and not use-value (Marx will eventually state that, BTW, we just haven’t got there), an ore that is wanted more will create more competition, driving prices up. In the aircraft industry, if the competitor makes planes of titanium and you of steel, and you pay higher ongoing costs in fuel because of added weight, that titanium is more expensive can be entirely irrelevant. The cost-savings in fuel costs can allow you to lower prices to attract more customers and drive the company with steel planes right out of business. If that’s the situation you’re facing, whoever pays the titanium manufacturer more survives, while the other company may be facing failure and bankruptcy because it cannot compete.

F) Going to stop there, but I think I’ve pointed out that there are often far more factors in why something is worth more.

Yes, but you probably wouldn’t allocate it EVENLY. In fact, the link you sent for Myra doesn’t indicate anywhere that they’re apportioning the cost equally. It tells us their cost to produce zinc, but doesn’t tie back to per unit costs on the other metals, or to the total cost of production so that we would know it’s being allocated evenly. Their accounting most likely either allocates costs to the precious metals differently, precisely because of the reduced amount retrieved for the labor, or they might back out what they sell the precious metals for out of their production costs for zinc if that’s their primary business (which is GAAP treatment for a lot of businesses that have ancillary benefits not related to their primary LOB). The link to Myra doesn’t tie the per-unit cost back to bulk costs at all. If they displayed total production cost and showed that they allocated the same cost to all the metals on a per-unit basis, you’d at least have evidence that one company measures the cost against what the industry as a whole does, but as it stand, you haven’t even shown that.

Also, PAAS kind of makes my point. Logically, if someone can retrieve silver and copper for the same cost, why would anyone do silver only? I would venture to guess it’s because either A) certain types of mines are rich in both, so you can kill two birds with one stone efficiently, while other land is richer in one or the other, or B) there is additional effort (labor) involved in processing the copper, which some businesses choose not to incur.

The connection of B to labor cost is pretty self-explanatory in this context. A is a little subtler, but can still be made pretty clear. If some land allows more profitable mining (either silver only or a mix of silver and copper), it’s because you can retrieve those resources with less effort (direct labor or labor transformed into technology).

I couldn’t agree more. My point is that with a single extra step, i.e., recognizing that the cost of resources can be measured in the effort it takes to procure those resources, your formula basically boils down to (cost of labor to procure resources + cost of labor to transform those resources)*(1+margin). This extension can be used take scarcity of resources into account, which has been my second biggest gripe with Marx all along. Do I think it’s an oversimplification? Sure.

For one think you’ve got to factor in margin on resource acquisition as well as each stage of transformation if you’re relying on a market to handle those transformations. Marx might argue that he wouldn’t. I would argue that in that case, profit margin has to be replaced in the equation with the cost of discovering need and processing the transactions (which, as a die-hard free-market guy, I believe are considerably higher than profit margin in a truly competitive market). Still, sometimes oversimplification is useful.

I’m still not satisfied with the lack of a demand component (as I’ve stated several times), but this section can be used to address one of my biggest concerns.

Overlooked that you mentioned it, yeah, maybe I did: I don’t remember. Unaware of it, no I’m not. I don’t need to comment on something I agree on, do I?

The minimum price of a product comes from the nature of the competitive labour market. If a person knows that he can get another job at a lower price, or if he knows that a certain amount of money is necessary to survive if not, he will not accept pay below that value. At that point, the employees leave, and the company fails, so yes, an expectation of a certain wage by the employee ensures that the sale value of an object can not fall below a particular minimum.

In general, I’m trying to attack Marx from within Marx’s position, not trying to demonstrate modern economic theory. I will bring that in concepts from modern theory at times in order to demosntrate common sense things that Marx seems to overlook, but I’d prefer to demonstrate that Marx is internally inconsistent than compare it to what I consider a more reasonable model. That’s why I continue to use his terms and ideas, and attack his foundations, instead of presenting the modern version as a competing theory. It’s more challenging this way, but it’s also more likely to succeed in casting doubt on him.

For instance, item pricing. Marx would have you believe that items are valued only at exchange time. Malarky. Businesses set the value of their goods using a formula similar to the following:

Price = (cost of resources + cost of labour)x (1+profit margin)

It’s not rocket science nor impossible to understand. To a business, that is the minimum price they’ll accept in any deal.

And you can see that the prices will fluctuate as the cost of resources changes, the cost of labour changes, and the desired profit margin changes.

Marx doesn’t need to jump through all of these hoops to demonstrate that value is affected by labour costs (sorry, the more abstract labour-value): it’s right there on the accountant’s ledger for anyone that wants to see it. Of course, he’d have to face that the cost of resources also fluctuate (and he admits it), which would tear down his conclusion that only labour-value fluctuates.

PAAS deals only in pure silver mines, and does not mine copper (a little zinc and other substances). There is no copper to help recoup the costs. If this process were to, say, produce 1000x as much copper as silver, because copper in the ore is much more common, you’d divide the costs over a much larger mass, wouldn’t you, and thereby bring the apparrant cost of production way down?

http://www.mining-technology.com/projects/myra/

“Its concentrate output contained 48,084t of zinc, 7,640t of copper, 31,750oz of gold and 1.17Moz of silver, giving a cash production cost of US$0.47/lb of zinc. ”

If I’m using the right conversion, 1.17M oz is 4 tons. (Sorry, Canucks are metric types, so I might have converted to the wrong type of ton.) The cost of producing 7640 tons of copper also produced 4 tons of silver. If this ore lacked any zinc, gold or silver, it would provide a cost of production 1/1800th on a per mass basis compared to an ore of the same silver quality, but with no copper, zinc, or gold. The process would be the same, the costs the same. SIlver sells at $432/lb and copper at $3,83 per pound, so the copper-only mine would actually be far more profitable than the silver-only mine.

BTW, the silver at today’s value is approximately worth about $30M US, while the copper is $58 million, while the gold is $42M. Just to save some number crunching for you.

Ore quality is a determiner of how much it costs to produce copper and silver (and, you’ll notice, gold and zinc as well), since you will use the same effort regardless of ore concentration and then divide the costs by your production, so that low quality ore has higher costs to produce per mass vs. high quality ore. A mine is profitable so long as the cost to produce is less than the sale price. Silver is currently at $27US/oz, so the ore in the PAAS mines could become 2.5x less concentrated, and they might still run it since it would still turn a small profit (depending on the other costs to do business besides produce the silver). So cherry picking one mine doesn’t provide evidence that it’s representative of the cost to produce in all mines, because it may have higher or lower ore quality than other mines.

Copper, on the other hand, has production costs between .80 & $1.20 per POUND over the last few years. (Found that spread across several different companies).

Just because they can kill two birds with one stone doesn’t mean the costs are similar. If they get one ounce of silver for every 5 pounds of copper from moving the same amount of dirt, the silver is more expensive.

I would also suspect that precious metals work in a way similar to oil in that, when demand rises, producers are willing to put forth the extra effort to retrieve deposits less accessible, increasing the cost, but retaining healthy margins due to higher prices.

B) You completely missed my point that cost will generally provide a floor of some sort on the valuation. (The link I sent actually has a very slight exception), but that demand will drive the ceiling of the range.

Copper, on the other hand, has production costs between .80 & $1.20 per POUND over the last few years. (Found that spread across several different companies).

Just because they can kill two birds with one stone doesn’t mean the costs are similar. If they get one ounce of silver for every 5 pounds of copper from moving the same amount of dirt, the silver requires more effort (labor) to retrieve, and hence is more expensive.

I would also suspect that precious metals work in a way similar to oil in that, when demand rises, producers are willing to put forth the extra effort to retrieve deposits less accessible, increasing the cost, but retaining healthy margins due to higher prices.

B) You completely missed my point that cost will generally provide a floor of some sort on the valuation. (The link I sent actually has a very slight exception), but that demand will drive the ceiling of the range.