Is there a place for values in the scientific study of economic activity?

One of the favorite hobbies of intellectuals, especially modern economists, is to expose predecessors as unscientific obscurantists. And there is probably no more worn topic in this pastime than the labor theory of value, on which Grigory Bazhenov posted a fairly typical post.

I would say that there is a lack of intellectual virtue in such thinking. If it seems to you that some concept important for the established tradition is completely unnecessary, or "metaphysical", then it would be a good idea to think about whether it is just a conceptualization of some quite ordinary facts, but from an angle you are not used to.

Gregory mentions "ether", but it is worth remembering about "phlogiston" - a concept rejected, but at the same time doing meaningful work, and necessary to explain the observed facts of that time. In general, the rejection of the concept of water as an element in favor of the newly appeared "oxygen" did not have serious scientific grounds at the time of the event, read Hasok Chang's wonderful book Is Water H2O about this (at least an introduction).

Things are even more interesting with classical theories of value than with phlogiston, and I would say that any economist who wants to speak outside the professional sphere should understand what real work they were doing. Yes, in modern scientific formalism there is no longer a place for them, but this does not mean that the facts that these concepts tried to capture have disappeared somewhere. Moreover, I would say that one of the reasons why these concepts have no place in modern formalism is that modern economics has simply limited its own subject, deliberately shutting itself off from some facts that the average layman would consider "economic". Economists themselves are well aware of the fact that they have to explain to the townsfolk that their science is not quite what the townsfolk think. And the classical theories of value help us explain why this is so.

It is necessary to mention the terminological problem - what is standardly called value, in the works of the classics themselves is called value and Wert, that is, more "value". But in Russian it just so happened, and I will follow this. So, according to Marx, things have four important parameters at once: value (value)-in-use, value-in-exchange, just value (value in the most complete sense) and price. Each of these concepts captures something quite meaningful even from the point of view of modern science.

Value-in-use captures the idea that, subjectively for each person, different things satisfy different needs, and are comparable in how basic needs they satisfy. In modern science, these are "preferences", which, when ordered under certain axioms, allow one to arrange all things on a numerical series according to their increasing utility, or, which is the same, to attribute to each of the things a numerical "utility".

Value-in-exchange, or exchange value, notes that where individuals have access to a common functioning market, the participation of individuals in the exchange according to their subjective preferences will establish the prevailing proportion in which a unit of one thing is exchanged for another. It's just that according to Marx, things are thus turned into commodities, but this is not very important for us now. Such value-in-exchange is not only present in modern economics, it is an essential part of any introductory course in microeconomics, it is the "price" of goods in an Edgeworth box. Marx's remark, which holds true in modern economics, was that value-in-use and value-in-exchange are largely independent quantities, the latter being conditioned by the existence of the market, and thus a strictly social phenomenon. Gregory even talks about this himself, mentioning that prices are "the result of compromises", here it is just a little more explicated what kind of compromises we are talking about.

But the most interesting, of course, with just "cost".

It is said that Marx's theory of value is almost impossible to understand, and that in some basic points it is not even clear what exactly it consists of. But I want to discuss not so much the theory as the concept of value, although there are several potentially confusing points here. However, this concept captures something quite ordinary, and something that should be grasped by any serious economic theory.

The key ideas here are socialization and abstraction. We've already seen them in action when we thought about moving from value-in-use to value-in-exchange. These proportions are social in several senses at once - they can arise only through the social institution of market exchange, they are derived from the individual needs of all participants in the exchange, and they are, in the limit, the same for all participants in the exchange. Value-in-exchange is not something inherent in things as such, but only as commodities exchanged in a particular market situation—it is something that is determined in some model of exchange.

Just as the concept of the value of things develops in the transition from individual consumption to the exchange of commodities, it develops again when we include the means of production in the field of exchange. Such a transition requires new social conditions, the commodification of labor, capital and land, and these are historically even more difficult things than the commodification of grain, tables and coats. But more importantly for the concept of value, this transition radically changes the mechanics of its formation. Where in pure exchange value was determined by the balance of needs socialized through the market, now the leading role is played by the costs of reproduction of goods. Within the framework of modern science, this is also called "price", although now we are talking about a specific type of price, the closest analogue of which is the price of the Walrasian general equilibrium.

In a competitive market for freely tradable reproducible commodities, the proportions of exchange of units of these commodities will be equal to the proportions of the prevailing costs of reproduction of those units. This is not the thesis of Marx, it is quite a thesis of modern economic science. It also involves the concept of value - the desired proportions by which goods will be exchanged, taking into account the economic logic of their reproduction; and the theory of value - how exactly the parameters of production affect these proportions. Marx's theory contains several specific points that lead him to the idea that the cost will be determined by labor costs, for any need. The thesis about the leading role of labor costs for Marx is precisely a conclusion, not an axiom. And this is the conclusion in certain social conditions in which all participants are subject to market discipline and behave in a forced-optimal manner, in particular, capitalists hire workers only because they bring them profit by producing something in demand for sale.

Why didn't the classics call all these values prices, as modern science does? So far we have spoken only of the natural proportions of commodity exchange. Since Walrasian economics began to simply define one of the commodities as a unit, numeraire, and then all proportions turned out to be "prices" in that unit. But this move is essentially just a trick to avoid introducing money into the model. The classics and Marx believed that prices are in money, and this requires a whole separate mechanics, including the analysis of credit emission, that is, the banking sector. Without this, we do not even have a theoretical model of the price.

Another reason is just theoretical. Price, in the end, is what's on the price tag in the store or in the glass on the stock exchange, and is not determined solely by considerations that the economy can hope to embrace. What the economy constructs within its models is a theoretical, abstract value that helps to understand something about prices, but will never fully explain them. It could well be described in a different way. That is the whole root of interest in "values", and there is nothing metaphysical, no fundamental difference in the method from the search for "compromise agents" here.

Artyom Seversky 2022-10-06