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# Capital Volume 1 Part 1 Chapter 1 Section 3A2b

This subsection is “Quantitative determination of Relative value”

Page 53: “Every commodity, whose value it is intended to express, is a useful object of a given quantity, as 15 bushels of corn, or 100 lbs of coffee.  And a given quantity of any commodity contains a definite quantity of human labour.  The value-form must therefore not only express value generally, but also value in definite quantity.  Therefore, in the value-relation of commodity A to commodity B, of the linen to the coat, not only is the latter, as value in general, made the equal in quality of linen, but a definite quantity of coat (1 coat) is made the equivalent of a definite quantity (20 yards) of linen.”

This is a restatement and summary of the earlier subsections: the equivalent form asserts qualitative equality in that human-labor = human labor, and quantitative equality (x of commodity A = y of commodity B).

“The equation 20 yards of linen = 1 coat, or 20 yards of linen are worth 1 coat, implies that the same quantity of value-substance (congealed labor) is embodied in both; that  the two commodities have each cost the same amount of labour of the same quantity of labour-time.  But the labour-time necessary for the production of 20 yards of linen or 1 coat varies with every change in the productiveness of weaving or tailoring.  We have now to consider the influence of such changes on the quantitative aspect of the expression of relative value.”

If the amount of labor embodied in a commodity determines the value of the commodity, then we need to determine how changes in the productivity of labor affects the value.

“I. Let the value of the linen vary, that of the coat remaining constant.  If, say in consequence of the exhaustion of flax-growing soil, the labour-time necessary for the production of linen be doubled, the value of the linen will also be doubled.  Instead of the equation, 20 yards of linen = 1 coat, we should have 20 yards of linen = 2 coats, since one coat would now contain only half the labour time embodied in 20 yards of linen.  If, on the other hand, in consequence, say, of improved looms, this labour-time be reduced by one-half, the value of the linen would fall by one-half.  Consequently, we should have 20 yards of linen = 1/2 coat.  The relative value of commodity A, i.e., its value expressed in commodity B, rises and falls directly as the value of A, the value of B being constant.”

As productivity increases, less labor is required to produced commodity A, therefore the value of A falls compared to B.

“II. Let the value of the linen remain constant, while the value of the coat varies.  If, under these circumstances, in consequence, for instance, of a poor crop of wool, the labour-time necessary for the production of a coat becomes doubled, we have instead of 20 yards of linen = 1 coat, 20 yards of linen = 1/2 coat.  If, on the other hand, the value of coat sinks by one-half, then 20 yards of linen = 2 coats.  Hence, if the value of  commodity A remains constant, its relative value expressed in commodity B rises and falls inversely as the value of B.

The obvious corollary to the above.

“If we compare the different cases in I. and II., we see that the same change of magnitude in relative value may arise from totally opposite causes.  Thus, the equation 20 yards of linen = 1 coat, becomes 20 yards of linen = 2 coats, either, because the value of the linen has doubled, or because the value of the coat has fallen by one-half, or because the value of the linen as doubled.”

“III. Let the quantities of labour-time respectively necessary for the production of the linen and the coat vary simultaneously in the same direction and the same proportion…”

Well, yeah, double them both, and there’s no change.  Cut them both in half, and there’s no change.  Seems clear enough.

“IV. The labour-time respectively necessary for the production of the linen and the coat, and therefore the value of these commodities may simultaneously vary in the same direction, but at unequal rates, or in opposite directions, or in other ways.  The effect of all these possible different variations, on the relative value of a commodity,  may be deduced from the results of I.,  II., and III.”

This seems pretty obvious.  It also gladdens my heart to see that old Marx was a believer in the serial comma.

“Thus real changes in the magnitude of value are neither unequivocally nor exhaustively reflected in their relative expression, this is, in the equation expressing the magnitude of relative value.  The relative value of a commodity may vary, although its value remains constant.  Its relative value may remain constant although its value varies; and, finally, simultaneous variation in the magnitude of value and in that of its relative expression by no means necessarily correspond in amount.”

This is a straightforward extension of the two theses: value of a commodity is determined by the amount of labor, and value is expressed relative to other commodities.

## By corwin

Site administrative account, so probably Corwin, Felix or DD-B.

## 0 replies on “Capital Volume 1 Part 1 Chapter 1 Section 3A2b”

Marx was an idiot, even if he (correctly) used the serial comma.

If I take a blown glass goblet, and add a little labor to it by shattering it on the pavement, that addition of labor has not increased the value, but destroyed it utterly.

Labor has nothing to do with value, except in the fevered imaginations of those determined to find some connection. Labor determines the *cost* of a thing; value is entirely subjective on an individual basis, and only determinable in a relative way. It is the egocentric values that vary from individual to individual that makes a market possible.

Tim, the labor of shattering a glass is not socially necessary, hence does not add value. This has been explained to you before, as well as the precise definition of value being used in the text. When you try to criticize something that you clearly have not read, you just embarrass yourself.

Duffy Prattsays:

At this point, value = human labor and only human labor. This is supposed to be an empirical proposition. But is it? Price hasn’t entered the picture yet. So how do we go about verifying or falsifying this proposition? To do so, you would need to have some objective measure other than human labor. Then you could say by that measure that two commodities had the same value, and in turn, look to see whether the same amount of labor went into producing the two. But we can’t do that, because we aren’t allowed to use price and there is no other objective measure. That’s why I think that the idea that value equals labor becomes a definition and not an empirical matter.

Let’s take a common exchange which really does lie at the heart of things. I’m sitting on a pile of gold, which is a commodity. My friend needs that gold to exchange it for some equipment so he can make coats. He borrows 2 pounds of gold from me and agrees to give me back 2 pounds and 2 ounces of gold in six months time. Does his use of my gold have any value? If you look at the real world, the answer is universally “yes.” Some people and religions thing this transaction is immoral, but even they don’t deny the value of having liquid asset to a commodity for the purpose of exchange. The labor theory of value, however, insists that there is no labor that increases the value of the gold by an extra two ounces. The transaction, thus, involves a “contradiction” because it contradicts the labor theory of value.

The question then becomes whether you believe the theory or the facts, because the facts say that the ability to use a commodity has value. The theory says it doesn’t.

You’re introducing the concept of interest, which is important, and will be coming up later. For now, we are concentrating on simple exchanges–ie, what is happening when a coat is exchanged for linen.

Duffy Prattsays:

Even in these simple exchanges, there’s no evidence that the labor underlying the exchanges is the same. Yes, its true that when you lower the labor it takes to produce a commodity, you will then be able to exchange it for less of another commodity. But is the function linear? Is there no other possible component of value for the commodity? If you measure by price, it’s pretty clear, as an empirical matter, that labor doesn’t always have everything to do with the price of the commodity. But price is not allowed. So again, how do you measure? How do you empirically test the labor theory?

Lets say that I can exchange 4 pounds of silver for an ounce of gold. (These are both pure commodities.) Do you really think it takes 64 times the work to get an ounce of gold out of the ground and to market as it does to get one of silver? If it doesn’t, which is wrong, the fact of the exchange, or the idea that the value of the commodity comes from the labor?

I’m sorry, Steve; I had presumed that you were as readily able as I to see the holes in Marx’s methodology. Obviously that was an error on my part, for which I do apologize.

All right; we’ll plod.

The notion of “socially useful labor” is bogus, an intellectual deus-ex-machina designed to paper over the huge crack that separate Marx from reality. Marx knew that this chasm would be perceptible to the average ten-year-old, and so had to deal with it proactively. Thus we discover that the famous “labor theory of value” suddenly becomes the “socially useful labor theory of value”, with “socially useful” winding up meaning whatever Marx and his entourage want it to mean at any particular moment.

The basic problem here is that Marx is not an economist, nor a historian, nor even a philosopher. Marx is a theologian, no different from Aquinas or Maimonides or Ibn Rushd — he starts with an agglomeration of irrational premises that appeal to him emotionally; then, accepting it as fact, proceeds to build this immense intellectual construct on top of it as if it actually had some connection with the real world.

Since we are practical fellows, you and I, let us ponder some concrete examples:

(1) The composer Haydn’s wife was notorious for cutting up his musical manuscripts to use as curling papers. Was this “socially useful labor”, or not? From the viewpoint of a musician or member of the intelligensia, probably not; it did not add to, but rather detracted from, the value of the manuscripts. From the viewpoing of a housewife or member of the proletariat, probably yes; it created something useful from something vain. Certainly Haydn’s wife thought so. (And where is the “commodity” here?)

(2) In 2001 the Taliban destroyed the Buddhas of Bamyan. Was this “socially useful labor” or not? From the standpoint of most civilized people, probably not; it did not add to, but rather detracted from, the value of the statues. From the viewpoint of a fundamentalist Muslim, probably so; it reduced the number of idols in the world, an unqualified Good Thing under Shari’a law. Certainly the Taliban thought so. (And where is the “commodity” here?)

(3) Consider urolagnia. Some people are apparently fond of getting peed on; there are magazines and websites devoted to the subject, and no doubt young ladies are standing by, ready to perform this service for an appropriate remuneration. Is this “socially useful labor” or not? (And what is the “commondity” here?)

These examples serve to demonstrate that utility (what Marx calls “use-value”) is completely and totally subjective; it does not form any measurable or quantifiable attribute of any object, because it exists, not in the object itself, but in the beholder of the object.

Thus, the amount of labor (even “socially useful labor”) invested in, say, a shovel is irrelevant both to its utility (“use-value”) and to its price (“exchange-value”) because any two different people will have correspondingly different (often grossly different) notions as to what those “values” are EVEN THOUGH THE AMOUNT OF LABOR (EVEN “SOCIALLY USEFUL LABOR”) THAT WENT INTO MAKING THE SHOVEL IS NOW FIXED AND DOES NOT CHANGE.

I hope that this satisfies your objections regarding my appreciation of Marx. If you want to discuss this further, I’ll be happy to dig out my notes from the two-semester course I took on Kritik der politischen Oekonomie thirty years ago as an Economics major at Yale and give you the benefit of my thoughts on the subject, although I warn you that it may mean delving into the original German text (and Marx is even more tedious in German than he is in English, although thankfully not as tedious as Hitler — sadly, German is an easy language in which to be tedious).

skzbsays:

Tim: One historical note: you seem to be operating under the assumption that the labor theory of value was Marx’s. It wasn’t. Authorship rests with David Ricardo, Adam Smith, and Benjamin Franklin.

I think you would have understood “socially necessary labor” if you had read the text.

I’m convinced you haven’t read the text because most of what you’re saying is either answered by Marx in the sections we’ve been through, or was said by him first. For example, you say that use-value is totally subjective and not quantifiable. Yes. Exactly. We covered that in, I think, the very first section.

Your example of Hayden’s wife is another reason I’m convinced you haven’t read the text. We’ve made it clear that we are discussing *commodity exchange* and we’ve made it very clear what a commodity is in this context. Do Hayden’s manuscripts qualify as a commodity? If not, why are you bringing them up?

And there is the fact that you keep changing socially necessary to socially useful; indicating, again, that you are operating on your prejudices, rather than the text. By socially necessary, we are simply pointing out that wasted labor does not add value. Do you think it does? Why would it?

Your shovel argument might make sense if, at the market, the price changed according to how much different people wanted it; since that doesn’t happen, your shovel argument falls apart.

On the other hand, we have one point of agreement: On the German language. As Twain said, “When the literary German dives into a sentence, that’s the last you’re going to see of him until he emerges, dripping wet, on the other side of the Atlantic with his verb in his mouth.”

Duffy Prattsays:

“Your shovel argument might make sense if, at the market, the price changed according to how much different people wanted it; since that doesn’t happen, your shovel argument falls apart.”

But that’s exactly what does happen. When the Miata first came out, it was selling for well above sticker price, because people wanted it so much. A year later, with no difference in labor to produce the model, the price had come down to a significant discount below sticker price. The same thing happens every time Apple introduces one of their stupid new “i” products. The initial price always tends to drop after the first burst of enthusiasm dies.

American stores give us a skewed sense of how this stuff generally works. Check any auction place, or go to a market overseas where people actually haggle. It may be true that the price at Home Depot for a shovel doesn’t fluctuate much. But take a look at what happens at other hardware stores on the Gulf Coast, when a hurricane is coming, and people want batteries, generators, and plywood. The labor in the commodities doesn’t change, but the price goes up precisely because of how much people at the market want the items.

Duffy Prattsays:

Let me try another example, one closer to my, and perhaps your, heart: Food. A chicken is ready for butchering. The butcher kills the bird, plucks it and then divides it into sections for market. For simplicity, lets ignore the neck, the feet, the liver and gizzards, and only talk about the major parts.

The bird gets split into four major cuts: breast, thigh, and wings. When the wings are separated from the breast, it takes the same labor to divide the two parts. But the parts have different value. There has to be something that allocates value to the different parts of the bird, but the same labor goes into making the parts. Thus, it’s pretty clear that something other than labor has to be involved in the allocation of value to the parts of the chicken. It’s simply not the case that wings are worth much less than breasts because less labor went into the production of the wings.

Now let’s talk about the wings themselves. For a long time, at least here in the U.S., the value of wings was very low. For the most part they sold wholesale for pet food. The a restaurant in Buffalo realized that it could get supplies of wings for dirt cheap, and sell them as something special according to it’s special hot recipe. It started a craze. As a result, more and more restaurants, and even grocery stores, started carrying wings and the value of wings went up.

When the value of wings went up, this didn’t cause a reallocation of the value of different parts of the bird. It wasn’t that some of the labor in the breast suddenly got transferred to the wing commodity. Rather, the value of the parts of the bird, in the aggregate, went up. It still took the same amount of labor to produce the four major parts, but suddenly the butcher could exchange those parts for more linen or more coats.

As an aside, I will also note that the pet food, which is perhaps the least valuable part of the butchering process, is also the part that takes the most labor.

Here, we have an example, on the one hand, of how labor is not always the only consideration in the value of a commodity. (The same thing goes on with many, many products, including corn, petroleum, types of mining, natural gas, etc…)

And, on the other hand, we have an example where the value of something — the chicken parts — goes up because of their subsequent use, and not because of the labor inherent in the product itself.

“Look, I came in here for an argument!”
“Oh, I’m sorry–this is abuse. You want 12A, next door.”

Shall I mail you some Valium and come back later?

A different Timsays:

Tim of Angle,

On behalf of people named Tim, a group of which I am honored to be a member: Please stop being a dick. You’re making us look bad.

-> Different Tim

Well, my name isn’t really “Tim”, so you can rest easy. That’s just what most people call me, so your complaint would seem to be with them, not with me.

It’s not clear in my mind how you came to be empowered to make judgments on behalf of “people named Tim”, however much honor you feel. Indeed, since you don’t deign to leave your full name and contact details, as I have, I must conclude that the honor you feel doesn’t have any resemblance to real honor as understood by honorable people

I’ll make you a deal. I’ll quit being a dick when you quit being a pussy.

skzbsays:

Duffy: Your chicken example is interesting. Let’s examine it a bit.

In order to get the chicken to the processing plant, obviously, takes a certain amount of labor on average. A butcher then expends labor in cutting it apart. Clearly, a cut chicken has more labor embodied in it than an uncut chicken; and this is reflected at the market.

So far, so good.

But, according to the Marxist theory, labor has already been expended in the cutting and sorting process–thus this labor is embodied in the cut (and, presumably, packaged; packaging also costs labor) chicken. This labor is then returned for the whole chicken. Exactly how this surplus value is divided is irrelevant.

In other words, the labor is embodied in the process chicken in total, and comes back from the sale of the processed chicken in total.

Now, if the parts of a chicken grew independently, and identical amounts of labor were involved in growing each part, and yet the consistently sold for different values, then you would have an argument.

Duffy Prattsays:

I was expecting your answer, and I think it’s a fairly good answer. But I still have a few problems with it. First, it denies commodity status to the various parts of the chicken, and I see no good reason to do this. And maybe you can do that for chickens, but I really don’t think anyone would want to deny that, for example, gasoline and benzene are separate commodities, even though both come from petroleum refining.

The second trouble I have with your explanation is the simple fact that the value of chickens did go up when the wings became popular. The labor to produce the entire bird, and then to butcher it. But the value of the full bird went up. The same thing would happen again, if someone could convince Americans how wonderful chicken feet taste.

Also, don’t get me wrong. I’m not saying that labor has nothing to do with value. I just don’t think its the whole story.

Duffy, I think I’m in your corner on this, but I have to take care of some meta-stuff first.

Steve, Dickless Tim to the contrary notwithstanding, I’m not just hanging out here because it amuses me to bicker. I was under the impression (correct me if I’m wrong) that you wanted to work through Kapital (and that’s a useful thing) and chose to do so in this semi-public forum so that everyone could benefit from the discussion.

Now, I think I have a contribution to make in this process, but perhaps unfortunately the only copy of Das Kapital I have is in German–the 1872 edition, published in Hamburg–and it sometimes is a problem (the whole “socially necessary/socially useful” things was me mistaking notwendige for nuetzliche — I told you, it’s been 30 years — and you’re right to call me on it, although I am prepared to argue that it doesn’t detract from the point I was trying to make). Now I don’t know which translation you’re using, but there is one on the web at http://www.marxists.org/archive/marx/works/1867-c1/ that appears to be the product of Real Marxists and so is presumably as close to an authoritative version as may be. If you want to continue this conversation, let’s use that as the Official Hair To Be Split. (If not, of course, just tell me to buzz off and I’m gone; it is, after all, your blog.)

Duffy: “The second trouble I have with your explanation is the simple fact that the value of chickens did go up when the wings became popular”

Um. Call me dense. Isn’t this an argument in favor of the labor theory of value? What am I missing?

Tim: You are welcome to continue the conversation. I intended to mention the edition I’m using, but perhaps I didn’t. I’m using the 1967 trade paperback edition from International Publishers.

Duffy Prattsays:

Before: Wings were sold wholesale for pet food. Other parts sold for human consumption.

After: Wings sold to retaurants and grocery stores, for much more. Other parts sold for the same amount.

The labor involved before and after was almost exactly the same. The value of the bird, as a whole, went up. Same labor, but more value.

When you say the value of the bird went up, I assume you mean the price. I’m not convinced it DID go up, except perhaps short-term. Seriously, do you forget competition and market share? If someone was selling a chicken for considerably more than it’s value, what kept his competitors from undercutting him? I’d really like to see hard numbers on this, over a long period of time, before I’m convinced.

Terrysays:

Disclaimer: I have not read the book at all.

But there’s got to be somewhere in the model an acknowledgment that new inventions and discoveries can change the world. When the cotton gin appeared, the cost of labor to produce cotton went down. I think this is the same kind of thing — if someone discovers that people will pay for wings if they have hot sauce squirted on them, then the whole model similarly changes.

Duffy Prattsays:

The demand for the wings went up. As I understand it, suppliers started producing more chickens to satisfy the increased demand for wings (and the insatiable demand for breasts). As a result, leg and thigh part prices either dropped or remained steady. But the overall price for the birds went up.

It’s possible the facts are not quite what I’ve stated. I’m basing this on an article I read many years ago, and I can’t even be sure that that article was based on a solid scientific survey. For the most part, people do economics without having alot of solid, raw data on which to base it. Before, I asked for some real empirical evidence that two commodities that were worth the same (which could be exchanged) actually contained the same amount of labor. Maybe here I’m guilty of the same failure to provide real evidence.

Terry: Discovering that people will pay for wings, unlike the cotton gin, does not change the amount of labor required to produce it.

Duffy: I would never in a million years attempt to deny the effect of supply and demand on price; or of competition. We will be dealing with both later, when we get into the relationship between price and value. But first we have to solve the mystery of money, which is what we’re in the middle of now.

Kreistorsays:

Okay, my turn. This, I think, is a better example of Marx’s use of personal opinion as fact…

” Exchange-value, at first sight, presents itself as a quantitative relation, as the proportion in which values in use of one sort are exchanged for those of another sort,6 a relation constantly changing with time and place. Hence exchange-value appears to be something accidental and purely relative, and consequently an intrinsic value, i.e., an exchange-value that is inseparably connected with, inherent in commodities, seems a contradiction in terms.7 Let us consider the matter a little more closely. ”

This statement is entirely arbitrary. Marx declares exchange-value irrelevant because he chooses to remove context. He states that the price changes depending on location and time so exchange-value is “accidental.”

Obviously not.

Let’s use our (warm woolen) coat as an example. Coats are most highly valued in the north. But sheep are better suited to warmer climes, and there, coats have no value. Wool itself has value, though, as does bolts of wool cloth.

So, in the south, we shear, make cloth, and then make coats. (It’s cheaper to not ship the excess wool of the raw bolts north, and to ship only the final product since it has less mass.) The price for the woolen coats in the south is going to be low for two reasons: a) no local demand, b) the shipper expects to profit from his own labour, so will not pay higher than his minimum profit margin. The shipper moves the product north, sells at a higher price where the use-value (and consequently exchange-value) is higher and people are willing to pay that price because there is a need to not die of hypothermia.

Marx is saying that because he sees the same coats sold at low value and high value, that there is no connection between use-value and exchange-value, but if you follow each individual transaction, there clearly is such a correlation. Marx removes context (the location and time of each transaction) in order to demonstrate a claim fundamental to his conclusions, and does so blatantly, and yet it is so easy to just overlook, if you want to believe it. Marx is dismissive of fundamental commodity market laws of supply and demand, without making a case, only by making an observation out of context.

While it is true that at times, the fickle nature of humans can cause prices to vary unpredictably, the vast majority of transactions are completed with full knowledge of the use-value and expected exchange-value. Good traders make themselves aware of these differences, in order to reduce the risk of investment in a commodity, and to create the profit necessary to fulfill his own needs. The traders are using different local values to amplify their own labour-product. In this case, their labour is the identification of locations of high use-value to sell to and low exchange-value to buy from, even if they themselves do not move with their goods (ie. hiring a ship to move the goods).

skzbsays:

Uh, this is a little embarrassing. When Marx says, “appears to be something accidental,” that is what he means. Not that it IS, but that it APPEARS to be. Which is why he later goes on to demonstrate that it is not at all accidental, and most certainly not irrelevant.

Kreistorsays:

No, it’s not embarrassing: it’s disingenuous. It’s proceeding according to a suggestion he knows is incorrect, in order to not deal with inconvenient definitions that counter the observations that form the foundation of his theories. The reader that is ignorant of market forces will proceed as though exchange-value is accidental, and will continue believing such until Marx recognizes his error, but the unlearned reader will *not* “undo” any previous conclusions based on that dismissal, even if the change in perceived usefulness suggests that you should re-examine all previous conclusions that were formed on the contrary definition.

Case in point:

Marx wrote, “Thus real changes in the magnitude of value are neither unequivocally nor exhaustively reflected in their relative expression, this is, in the equation expressing the magnitude of relative value. The relative value of a commodity may vary, although its value remains constant. Its relative value may remain constant although its value varies; and, finally, simultaneous variation in the magnitude of value and in that of its relative expression by no means necessarily correspond in amount.”

szkb wrote, “This is a straightforward extension of the two theses: value of a commodity is determined by the amount of labor, and value is expressed relative to other commodities.”
__

“value” is undefined. You pointed out that “price” has not been introduced as a concept to Tim in the previous article, so what is “value”? We have use-value, exchange-value, and labour-value, but what is “value”? The same term is being used as a variable and a constant in the same sentence (!!!), implying that there are two distinct “values” to differentiate, but without strict definition ensuring no confusion continues with the use of “value” in the next paragraph. “Value” is whatever is convenient at the time, maintained as a constant despite the conversation shifting between the three defined x-values. So, based on my own evaluation of what each use of “value” should mean, we get:

“Thus real changes in the magnitude of labour-value are neither unequivocally nor exhaustively reflected in their relative expression, this is, in the equation expressing the magnitude of relative exchange-value. The relative exchange-value of a commodity may vary, although its labour-value remains constant. Its relative exchange-value may remain constant although its labour-value varies; and, finally, simultaneous variation in the magnitude of labour-value and in that of its [exchange-value] by no means necessarily correspond in amount.”

Now what he says has absolutely nothing to do with your conclusion, and in fact is the complete opposite: exchange-value is not influenced by labour-value (which is almost a truth, but not quite) There is no “why” in that entire paragraph, proceeding as though whatever he said was self-evident, but through the use of muddying the term “value”, anyone can make it mean whatever they want to, can’t they? I did. I made it mean pretty much the opposite of your conclusion, merely by installing Marx’s own predefined terms of “labour-value” and “exchange-value” to my convenience. Is that what Marx was trying to say? It doesn’t matter: Marx has written it such that you can insert your own definitions of value to your own convenience and made it mean whatever makes you feel good.

Everyone else is doing exactly the same thing, inserting whatever definitions for “value” that they choose. Imagine an unschooled labourer. He has seen exchange-value dismissed, and from his small world perspective, has no reason to believe at this point that exchange-value is more than random. He may insert for “value” a nebulous “my products really are worth this much, even though I’m being paid that much.” At this point, he feels Marx is speaking directly to him, telling him that his products are worth what he thinks they are, not what others will pay for them, even though prices indicate otherwise, allowing the labourer to determine value without the competing interests of the consumer. Without a strict definition of “value”, anytime Marx uses it, it means whatever the reader wants it to mean. That should degrade the argument for anyone that is learned, but the unlearned will have their own belief system confirmed, regardless of Marx himself would agree with their conclusions. When exchange-value is demonstrated to not be accidental, he is not going to come back to the conclusion he reached and re-evaluate the uses of value for any mistakes he may have made: he’s going to retain the feel-good conclusion that Marx is telling him that only he knows the real value of his product.

skzbsays:

It’s just getting worse and worse. He’s saying, “This is how it appears–this is how it is.” Both statements are true. Try reading without your prejudice.

Kreistorsays:

Ah, there it is. This is what I was having trouble finding.

” Let us now consider the residue of each of these products; it consists of the same unsubstantial reality in each, a mere congelation of homogeneous human labour, of labour-power expended without regard to the mode of its expenditure. All that these things now tell us is, that human labour-power has been expended in their production, that human labour is embodied in them. When looked at as crystals of this social substance, common to them all, they are — Values.

We have seen that when commodities are exchanged, their exchange-value manifests itself as something totally independent of their use-value. But if we abstract from their use-value, there remains their Value as defined above. Therefore, the common substance that manifests itself in the exchange-value of commodities, whenever they are exchanged, is their value. The progress of our investigation will show that exchange-value is the only form in which the value of commodities can manifest itself or be expressed. For the present, however, we have to consider the nature of value independently of this, its form. ”

So, value is defined as “human labour”. So, I can now rewrite

“Thus real changes in the magnitude of [human labour] are neither unequivocally nor exhaustively reflected in their relative expression, this is, in the equation expressing the magnitude of relative [human labour]. The relative [human labour] of a commodity may vary, although its [human labour] remains constant. Its relative [human labour] may remain constant although its [human labour] varies; and, finally, simultaneous variation in the magnitude of [human labour] and in that of its relative expression by no means necessarily correspond in amount.”

Golly gee whiz, does that make a ton of sense, or not? Well, obviously, not. It’s clear that “value” must have two definitions in this paragraph, because human labour can clearly not be constant and variable simultaneously. There is a way to use this definition to try to make some sense, but it will read somewhat differently.

“Thus real changes in the magnitude of commodity A’s human labour are neither unequivocally nor exhaustively reflected in their relative expression, this is, in the equation expressing the magnitude of relative human labour when compared to commodity B. The relative [human labour] of commodity A may vary when compared to Commodity B, although its own [human labour[ remains constant. [Commodity A’s] relative [human labour] may remain constant although [Commodity A’s human labour] varies; and, finally, simultaneous variation in the magnitude of [human labour] and in that of its relative expression by no means necessarily correspond in amount.”

The problem with this replacement is in the statement where relative value remains constant while Commodity A’s value changes, because this demands that the human labour of Commodity B must change by the same proportion as Commodity A for the math to work. This makes this case identaical to the last case, where both Commority’s values are fluctuating simultaneously. Since the second case is now not unique, we have to reject this interpretation.

Marx, by changing what was initially a technically defined “Value” (note the capital and its subsequent disappearance) is now using an undefined definition of “value”. We are intended to take this definition to be “real worth”. The problem is, he doesn’t tell us that. Instead, we are expected to make that leap ourselves.

But when we do that, intermix a technical definition with a colloquial definition, we don’t ensure that our conclusion is reached. We are relying on the reader to insert the second definition of “value” anywhere that we have not intended “Value” to have been used.

And this now sets an association. Value, which is normally defined as “worth”, is now being used interchangeably with “human labour”, but without demonstrating that all worth is from human labour. It is easy to demonstrate that a silver fork is worth more than a stainless steel one, but it is not evident that the silver one required more labour. Further, a silver spoon used by Czar Nicholas is worth more than any ordinary silver spoon, but there is absolutely no human labour involved in increasing that worth.

This inability leads us to a new question: why does the use-value of the historically significant silver spoon not account for the actual higher price of the CN spoon? We have an obvious explanation for its higher value — people want to own historically significant artifacts — but labour-value obviously cannot account for the difference in value between two otherwise identical spoons. We don’t have anything except Value (which has been defined as human labour and made iedntical), exchange-value, labour-value, and use-value. Marx has not provided anything else. Labour-value cannot account for the increased exchange-value, because there was 0 labour involved in the increase in worth. Value relies on human labour, and so again, cannot account for the ifference. That leaves only use-value. So what’s wrong with use-value that explains the problem?

“The utility of a thing makes it a use-value. 4 But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity.”

Use-value includes only utility, and has no concern for aesthetic value. It is obviousthat aesthetic value exists (or else we wouldn’t have antique shops), so it must be accounted for in order to determine the actual amount of “Value” (Marx’s definition), because Human Labour clearly did not add to the value of Czar Nicholas’ silver spoon.

And yet, Marx says, “The value of a commodity would therefore remain constant, if the labour-time required for its production also remained constant.”

Clearly, that is plainly wrong. Last year’s flour is worth more during this year’s famine than it would have been if there was no famine. Environment can create a need that did not previously exist, causing exchange-value to increase because usefulness increases.

You are free to review the vast amount of literature on supply and demand. Changes in exchange-value are adequately explained solely by localized differences in need/want as well as productivity. Again, I’ll point out the lack of local usefulness of a woolen coat in a jungle vs. the arctic tundra.

Do all changes in value come from usefulness? Obvioiusly not. A talented artist that engraves a pearl-handled revolver increases its exchange-value without increasing its usefulness or use-value and the increased worth is solely due to his labour. the point is that the overly simplistic statement that commodities would not change value is foolish and ignorant, and that Marx somehow got there means only that there are flaws in his arguments that should be easily detected. The inability of use-value to account for differences in exchange-value are the most glaring flaw, indicating that use-value lacks relevance to reality, making it solely a construct that permits drawing false conclusions by creating a model that does not adequately represent reality.

skzbsays:

The problem is that you have replaced Value with human labor and then expected it to make sense. Value is the product of human labor; and the measure of human labor; it is not human labor. Because the horsepower of a motor determines it’s speed in RPMs doesn’t mean you can substitute speed for horsepower in all cases and have it makes sense.

I thought your use-value arguments, on the other hand, very convincing. I went to Target here in Austin and explained that those heavy coats they were selling were less useful here than they were in Minnesota, so they should charge less. The clerk didn’t seem convinced by my logic. Maybe you could write to Target and explain what they should be doing?

Kreistorsays:

“I thought your use-value arguments, on the other hand, very convincing. I went to Target here in Austin and explained that those heavy coats they were selling were less useful here than they were in Minnesota, so they should charge less. The clerk didn’t seem convinced by my logic. Maybe you could write to Target and explain what they should be doing?”

Because you were talking to a clerk, not a manager. The clerk has no clue how prices are determined, but the manager should (even if he himself is not always responsible for the pricing decision, he should know the store’s pricing policy). The clerk also does not have power to change prices without managerial intervention, because that power can be abused to commit theft (a major problem for all box department stores), so talking to a clerk is only going to get you blank stares. (BTW, that blank stare and ignorance of how prices are set are evidence that the clerk lacks the capacity to determine what is actually equivalent exchange, and so provides evidence that any independent exchanges involving that person are not going to be automatically equivalent, but more likely skewed in the favour of the other participant in an exchange with the clerk as an indivudal.)

However Target determines its prices, you need to talk to the person making that decision in order to understand their policy. Only that person can explain why any particular product is priced in one way or another and validate any reasons why a price should rise or fall. Perhaps it’s a local decision at that Target store. Maybe it isn’t.

So, why not go instead to a local small business and ask the same questions? In that store you will find someone that sets prices locally, and can answer your question. That manager can tell you how he selected which products to vend, the initial price, and how his price will fluctuate during the season. (Ask especially why prices are so rock bottom in Boxing week. I guarantee you, it has nothing to do with the labour used to manufacture the clothing.)

That you are in Texas does not mean there is no need for winter clothes. All I need to do is type “Texas Skiing” into Google to know tht the need for winter coats in Austin is non-zero.

You see, Marx’s presumption is that somehow, everyone with linen or coats knows that 20 linen = 1 coat, even when exchange-value fluctuates. He is treating the equivalence of some nebulous exchange or average of many exchanges as an absolute indicator of value, even when it cannot be demonstrated that either individual in an exchange is aware of the entire use-value of either commodity. While there may be a use-value that encompasses all uses of an item, the pparticipant in the exchange cannot make an accurate valuation of that use-value because no human being knows all uses for any one commodity.

Thought exercise: imagine the use-value of a straw hat. Got it in mind? Okay, I’m in Northern Canada in mid-winter, and I just fell through a weak spot in the ice of a creek I was crossing. My legs are soaked in water, and hypothermia is imminent. I have a limited amount of time to get a fire going to dry my legs and warm them up, or I will die. But snow is water and tinder difficult, until of course I remember my straw hat.

Did your valuation of “straw hat” include “Can save a life by starting a fire?” If your personal valuation of use-value excluded that, how could you imagine that a participant in an exchange can accurately gauge use-value?We can easily demonstrate that during a famine, food prices rise. But if one participant has food and is unawre of a famine in another location, the participant that knows of the famine and is buying food to supply the needy clearly indicates different use-values depending on knowledge of local usefulness at the location of the famine.

In an individual exchange, there is absolutely no equivalence. Both parties in a near equivalent exchange expect to make profit (or they wouldn’t participate, would they?). At the end of the exchange, then, both participants will feel they made profit and the exchange was not equivalent in their own favour. (Hindsight may later cahnge their opinion of profitability, but at the time of exchange, this is how it will normally be.) Marx is looking at the exchange from the outside, with no knowledge of how each participant evaluated the products being exchanged operating under the delusion that use-value is identical for both participants, and so is incapable of determining whether a particular exchange actually is equivalent. That’s hardly surprising, given his failure to recognize use-value is not constant and changes based on myriad factors. Since he can only conceive a constant use-value, he cannot conceive of a trade for profit of both participants. Mutual profit relies on different evaluations of use-values by both parties, doesn’t it? If Value does not include usefulness, each trade will be either equivalent, or one participant will be aware of losing value in the trade. But once we go down that road, Marx can’t get to his conclusion, because he cannot abstract use-value out of exchange-value. When an exchange is mutually profitable because of use-values based on secret knowledge, the exchange is not an indicator of equivalence, only of acceptable profitability for each participant. At this point, there is no clear tie to the labour in a product, because the two participants have different opinions of the real worth of the commodities involved. That’s permitted because we have already identified that exchange-value fluctuates with location and time. Each participant is only aware of certain locations and certain times, and so determines their evaluation of worth on different foundations.

skzbsays:

So, I tried it at a mall, too, and they were just unwilling to change the prices for their goods based my personal need. I repeatedly explained that the exchange-values were out of proportion to my need, but they insisted on keeping their prices the same. I can’t figure it out. Maybe I didn’t look needy enough.

Kreistorsays:

Wait for a sale. The price may lower enough to fit your need. Of course, if they sell out before they need to lower prices, there were other people with more need than you, obviously.

I’ve got a challenge for you, Steven. I’ve read ahead. I’m prep’ed for the next paragraph. Marx pulls a major league end-run around the rules of modeling reality. Can you find it? It involves declaring value can be expressed in use-value…

Jeremy Fostersays:

Some key points in the text here, that pave the way for tying off against other economic theories.

One of my major gripes with the text to this point has been that it doesn’t deal with scarcity of underlying resources. However, with a bit of transformation of some of the premises here, it can. For example, scarcity is heavily tied to the difficulty in finding & retrieving a resource (labor).

In some ways, labor-based valuation makes more sense than other methodologies, particularly in light of technological advances. We’re now capable of synthesizing precious metals (it’s not alchemy, it’s science). Right now, the effort (cost) to do so is high, so the effort associated with the cheapest methodology remains in force. If alternative methods reduce the cost of production, value falls. The fact that we can apply labor value universally makes it robust and valuable.

There are still 3 gaps leaving me discontent. The smallest gap has to do with risk premiums.

The mid-sized gap has to do with the different premiums different people place on labor vs. leisure.

The biggest one is that one-sided equations don’t ever reach equilibrium.

In re: the discussion between you & Kreistor, while I don’t have a lot of luck in malls or Target, every time I visit a market in Mexico, I have great luck explaining that their exchange values are out of proportion to my need. They usually shave 50-75% off the asking price. I’ve also had pretty good luck with car dealers.

While I would agree, under most circumstances, that labor value determines the minimum price acceptable, there’s still a range between it and the maximum valuation. Granted, we could rabbit trail down the semantic discussion of “price” vs. “value,” but from a practical standpoint, there is absolutely a range of mutually agreeable valuations – it’s not determined by a single point. If I tried to sell Kreistor the formula to an antidote for “inflamed toes from needy labrador slobber,” which I’ve developed for my personal use, he might find it worthless. You, on the other hand, might consider it “socially necessary” for poker nights when I can’t be there to distract Tuli. (Yes, I know that’s not what is meant by socially necessary. :))

Demand could fit within the theoretical framework outlined so far if we associate it with the degree to which something’s socially necessary. I don’t recall whether Marx ever goes there.

Practically, it’s largely determined by the degree to which something is useful (and yes, I see the distinction), for at least one person, and in part by the degree to which something is socially necessary to more than one person.

Jeremysays:

Please replace socially necessary in the last sentence with “useful.”

Kreistorsays:

“In some ways, labor-based valuation makes more sense than other methodologies, particularly in light of technological advances. We’re now capable of synthesizing precious metals (it’s not alchemy, it’s science). Right now, the effort (cost) to do so is high, so the effort associated with the cheapest methodology remains in force. If alternative methods reduce the cost of production, value falls. The fact that we can apply labor value universally makes it robust and valuable. ”

Without knowing the particulars of the process, you can’t know if the labour-value in one method is higher than another: right now, that would be Marx’s conclusion, but he does not compare against real-world examples to ensure his conclusion is accurate (a blatant flaw in his methodology of creating a model of the real-world).

Let’s take silver, for instance. It’s more expensive than copper, right? It must take more labour-value to produce than copper, right?

Wrong.

Most silver is produced simultaneously with copper, using the exact same labour-value: it is a byproduct of the production of copper. One labour-value produces both silver and copper simultaneously.

Since you get it with the same process and no extra labour-value, why does silver have a higher price/mass than copper? Where is Marx’s extra labour-value to explain this value difference?

Jeremy Fostersays:

A) That would be a good argument, if costs actually were similar. However, the experts disagree with you. Marginal cost to produce an ounce of silver in 2008. All-in cost was \$9.53/oz.
http://www.fool.com/investing/general/2008/11/14/wake-me-when-silver-mining-is-profitable-again.aspx

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.

Jeremy Fostersays:

A) That would be a good argument, if costs actually were similar. However, the experts disagree with you. Marginal cost to produce an ounce of silver in 2008. All-in cost was \$9.53/oz.
http://www.fool.com/investing/general/2008/11/14/wake-me-when-silver-mining-is-profitable-again.aspx

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.

Kreistorsays:

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.

Kreistorsays:

Jeremy wrote, “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.”
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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.

Jeremy Fostersays:

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

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.

Jeremy Fostersays:

“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?”

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).

Kreistorsays:

Jeremy wrote, “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.”
__

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. ”
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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.

Kreistorsays:

Rewrite E):

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.

Jeremy Fostersays:

“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.”

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.

Kreistorsays:

I’m going to stop here. I don’t think anything you said impacts anything I said, so it’s time to stop on this tangential conversation. Unless someone starts something, I’ll wait for the next installment. Really looking forward to that next paragraph.