Saturday, March 28, 2015

Measuring socially necessary abstract labor time

In his comment (and on his excellent blog, Social Democracy for the 21st Century) LK argues that it's impossible to define, much less measure, socially necessary abstract labor time (SNALT).

First, the "abstract" in SNALT refers to labor abstracted from the specific things that laborers do. Marx argues that because the specific tasks are incommensurable (how do compare sewing a seam to gluing a sole to a shoe?) the specific tasks used to create different commodities cannot be a basis of a consistent exchange value. In this sense, abstract labor time is just the fact that someone has worked for a specific period of time, without regard to the specific tasks that person has performed.

But there are definitely factors other than time that affect productivity. LK asks, "How do you take an average of a heterogeneous factor like labour, when there is so much difference in profession, skill, competence, experience, and skills to be 'averaged'?"

To get average abstract labor time per unit, first count the number of objects produced, count the total number of raw person-hours used to create those products, including the time necessary to create all the capital, all the skill training, and all externalities, and divide by the number of objects. If you want marginal SNALT, find the least efficient producer who is still in business, and do the same thing just for the last unit they produce. Standard economic theory predicts that the marginal cost of the last unit should equal the minimum average total cost and the price. (LK challenges this aspect of standard economic theory, and it might be incorrect, but marginal cost is not exactly a novel economic concept.) Any effects other than time, skill, competence, experience, etc. should all be normally distributed and should cancel out in the aggregate. This is not rocket science.

Of course, the Labor Theory of Value (LTV) is not the only thing affecting actual money prices. You would want to look for shocks (the price of gas just after the beginning of the Iraq war, for example, would probably not reflect SNALT), monopoly and monopolistic competition (SNALT is a valid predictor of prices only under perfect competition), hidden positive and negative externalities, imperfect or asymmetric information, network effects, etc.

Remember, Marx never intends the LTV to be a tool for predicting prices that hedge funds can use to make a lot of money in arbitrage. The LTV is a conceptual tool to explain what it means to say that the capitalist exploits the working class: the capitalist class expropriates labor time without compensation from the working class.

4 comments:

  1. "To get average abstract labor time per unit, first count the number of objects produced, count the total number of raw person-hours used to create those products, including the time necessary to create all the capital, all the skill training, and all externalities, and divide by the number of objects. "

    Well, that is what I also suggested in a post some days ago: look at total hours worked and divide by the number of goods produced in specific industry or firm.

    But this doesn't answer the main problems:

    (1) why should a raw hour count provide a valid homogeneous unit of measurement applicable to all goods when the labour used to produce those goods is so clearly heterogeneous in terms of different professions, speeds, levels of competence, wage rates and different skills and expertise?

    (2) and once again how do you map the raw hours onto price? how do you demonstrate how these hours determine "real" value prices?

    You will never do it, because Marxists have tried time and again and failed. I keep saying again and again, but Marxists don't understand that raw hours (or nebulous abstract SNLT hours) are not the fundamental homogeneous unit determinant of price. For one thing, how could this be true when hourly wage remuneration is also so varied?! Secondly, it is not labour time at all, but total average unit costs at a given level of output and given productivity level that determines unit costs on top of which is added a profit-up. Two firms might have the same labour time but different given levels of output and given productivity levels and different prices.

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  2. why should a raw hour count provide a valid homogeneous unit of measurement applicable to all goods when the labour used to produce those goods is so clearly heterogeneous in terms of different professions, speeds, levels of competence, wage rates and different skills and expertise?

    If you're going to move the goalposts, have the grace to admit it: you claimed SNLT was not measurable, and I gave you an approximate indirect measure.

    And why shouldn't we use raw labor time as an approximate measure? It's a model. Why can't I choose what to measure? Are you arguing that the foundations of any economic or scientific theory must be logically necessary? Is it logically necessary (regardless of its empirical utility) that objects have conserved mass but not conserved extension in space?

    In other words, is this a metaphysical objection? If so, I have little interest in arguing metaphysics. I gave up philosophy for economics.

    and once again how do you map the raw hours onto price? how do you demonstrate how these hours determine "real" value prices?

    Asked and answered. Let's move on.

    I keep saying again and again, but Marxists don't understand that raw hours (or nebulous abstract SNLT hours) are not the fundamental homogeneous unit determinant of price.

    Just that you keep saying it doesn't make it true.

    For one thing, how could this be true when hourly wage remuneration is also so varied?!

    Well, there can be violations of the assumptions. The LTV is a model. Some violations include: barriers to entry, imperfect/asymmetric information, externalities, etc. all of which are independently determinable.

    Secondly, it is not labour time at all, but total average unit costs at a given level of output and given productivity level that determines unit costs on top of which is added a profit-up.

    That's an interesting and probably perfectly good model. But what determines "unit costs" that you're averaging? Are these completely arbitrary brute facts? Nothing wrong with such a model, and it might have better predictivity, but you would have to include a lot of brute facts. What determines the size of the mark-up? I think you might well have a good model as to the mechanism whereby firms actually set prices, but what constrains them? I can't just have any old unit costs and any old mark-up and be guaranteed to stay in business.

    We often have different, good models that operate at different levels of abstraction. There's no "right" level of abstraction; there's only the level of abstraction that most conveniently achieves some project. I suspect your project is very different from Marx's and most Marxian economists.

    Two firms might have the same labour time but different given levels of output and given productivity levels and different prices.

    That's why "socially necessary" comes into play. First, two firms might well have different costs. The survival of the less efficient firm could happen only because the more efficient firm at its maximum efficient size cannot satisfy all demand; the least efficient firm sets (or helps set) the socially necessary labor time.

    And are you positing two firms that produce the same commodity at different prices? Why wouldn't the more efficient firm raise its prices and capture some producer surplus? Law of one price, and all that.

    Are you positing two firms that produce different commodities? If the production of one commodity can use labor more profitably than another, why wouldn't firms from the less efficient commodity switch to the more efficient?

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    Replies
    1. (1) "you claimed SNLT was not measurable, and I gave you an approximate indirect measure."

      I am not moving the goalposts.

      The raw labour count is not what Marx properly means by abstract SNLT.

      I am just granting you -- for the sake of argument -- that the raw labour count idea could be used but how it is still subject to severe problems.

      (2) I am not saying abstract SNLT needs to be logically necessary at all. I am saying it needs to be coherent, clearly definable and empirically relevant and supportable. It is difficult to see how it is.

      (3) the details that firms do not use nebulous abstract SNLT hours to calculate costs or even just crude labour hour measurements and how firms set prices by total average unit cost are confirmed by utterly overwhelming evidence:

      http://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html

      Of course, hours worked summed up are used to calculate *labour costs*, but firms then add all other fixed and variable costs and divide by given output quantity and add mark-up. Different wage rates and productivity levels make an utter mockery of the idea that raw hours worked are some universal, homogeneous value unit fundamentally determining price. Also, despite what Marxists want to believe, actual labour costs are often not the major component of costs either, e.g., in the airline industry wages only represent on average about 25-35% of total costs (Rigas Doganis, Airline Business, p. 24).

      Add to this the way that many companies have gutted labour costs by outsourcing and offshoring of jobs and you have even more devastating problems for LTV. For now we would have to try and figure out how nebulous abstract SNLT hours are determined or averaged by taking into account the Western labour force AND labour force in low wage countries.

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  3. I think we're at an impasse; we're just repeating ourselves.

    I do the best I can to understand the world with the mind I have, but perhaps I'm just a complete idiot. (shrugs) A lot of people think I'm a moron, or worse, and one more won't kill me.

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