Value and Labor

[agrippa1]

*** Mod's note: Split from a previous topic. - sN ***

The value of anything has nothing to do with how much it labor it took to produce. This is the labor theory of value you are spouting here.

If I spend 100 hours making a mudpie, it's still a mudpie, value zero.

If it takes too much labor to produce something for what people will value it for, it won't get produced.

I think what I said was:

"If it takes an unskilled laborer 100 hours to dig up and refine an ounce of gold, then he has established the price of labor."

Which is to say that the price of gold establishes the value of labor in that endeavor, not the other way around. So what I'm "spouting" is not the labor theory of value, but the value theory of labor, if there is such a thing. If you spend 100 hours making mud pie, and you get paid nothing for it, you have established the value of your labor at zero. Being a rational person (I'll go out on that limb for you), you would likely rather spend your time on some other effort that places the value of your labor at something a little more livable.

NOt necessarily. He could just decide to sell at the market and take a bigger profit. I doubt that he alone would be able to halve the price even if he could produce for half the cost, unless he could expand his works to meet *all* world demand.

Yes, he could just decide to just about anything... Again, I'm assuming a rational person, who will lower his price to increase sales and maximize his profits. I'm also assuming a free market where he's not the only person in *all* the world able to produce it at that cost, in which case competition will drive prices down to the point where profits are in equilibrium with other profit opportunities.

Neither gold, nor anything else has "intrinsic" value, it is of value to someone who values it,hopefully for objective reasons. In any case you come close to contradicting yourself here saying the value depends on the labor and then claiming it has an intrinsic value.

I think I said that it did not have intrinsic value...

"Gold does not have intrinsic value, except in the recognition of its cost of production, in congress with the other attributes that make it useful as money."

Which means that the "other attributes" which make gold commonly valuable, limited (not determined) by the cost of production, give the value of gold.

I disagree that gold (qua money) does not have intrinsic value. While I understand what you're saying philosophically, if gold is used as a means of exchange, then it has as much value as the most valuable thing (to you) that you can buy with it. True, it does not have a specific, intrinsic value, but it does hold value intrinsically as a means of exchange.

Edited March 14, 2009 by softwareNerd
Topic split

[Steve D'Ippolito]

I think what I said was:

"If it takes an unskilled laborer 100 hours to dig up and refine an ounce of gold, then he has established the price of labor."

Whoops! You are completely correct; somehow I misread you.

The rest was based on that misunderstanding so I withdraw it as well.

Steve

[KendallJ]

I think what I said was:

"If it takes an unskilled laborer 100 hours to dig up and refine an ounce of gold, then he has established the price of labor."

Which is to say that the price of gold establishes the value of labor in that endeavor, not the other way around. So what I'm "spouting" is not the labor theory of value, but the value theory of labor, if there is such a thing. If you spend 100 hours making mud pie, and you get paid nothing for it, you have established the value of your labor at zero. Being a rational person (I'll go out on that limb for you), you would likely rather spend your time on some other effort that places the value of your labor at something a little more livable.

Steve shouldn't have backed away so quickly. Call it the value theory of labor or the labor theory of value, it's still sheer bunk.

The value of labor has no relevance to that which is being produced, outside of the supply / demand context for the skills it takes to extract it. It is true that when labor and scarce and gold is cheap to mine, that a producer can afford to incur more costs (say to ship his labor in) than other producers, but the cost to mine gold is not the natural "yardstick" which your "value theory" would indicate.

The economics of producing any commodity are fairly well developed and they don't relate to what you say. The marginal cost of producing commodities (i.e. mining gold, pumping oil) is very low for some producers (oil in Saudi Arabia) and very high for others. The prevaling price of gold determines which mines, oil wells are in operation and which are idled waiting for a higher price to make their economics profitable. Labor is only one component and it has very little relation to the price of the commodity; moreso to the replacability (i.e. supply/demand) for the skills required.

[agrippa1]

Steve shouldn't have backed away so quickly. Call it the value theory of labor or the labor theory of value, it's still sheer bunk.

The value of labor has no relevance to that which is being produced, outside of the supply / demand context for the skills it takes to extract it. It is true that when labor and scarce and gold is cheap to mine, that a producer can afford to incur more costs (say to ship his labor in) than other producers, but the cost to mine gold is not the natural "yardstick" which your "value theory" would indicate.

The economics of producing any commodity are fairly well developed and they don't relate to what you say. The marginal cost of producing commodities (i.e. mining gold, pumping oil) is very low for some producers (oil in Saudi Arabia) and very high for others. The prevaling price of gold determines which mines, oil wells are in operation and which are idled waiting for a higher price to make their economics profitable. Labor is only one component and it has very little relation to the price of the commodity; moreso to the replacability (i.e. supply/demand) for the skills required.

You're right. It's not just the price of labor, I was being overly simplistic in my response. My use of labor in the original post was for illustration purposes only - what I said was: "Gold is usable as money because its production has a cost, relative to all other goods." Now I'm not as sure...

Your point about different marginal costs of production is a good one. I questioned when I read it, that it applied to gold as much as it does to oil. Since gold is considered a good backer of money, I would have thought that gold production was more widely distributed than oil, so that no one producer could have a disproportionate influence on production - which would destabilize the supply and reduce the value of gold as a trusted store of wealth.

Turns out gold production is far more concentrated than oil. Whereas 50% and 75% of oil production are concentrated in 7% and 25%, respectively, of geographic area (measured by nation), and in 7 and 15 nations, respectively; the same percentages of gold production are found in only 3.25% and 12%, respectively, of geographic area, and in 3 and 7 nations, respectively. (extracted from oil, gold, area stats for all nations - land areas are measured by nation, and based on highest national ratios of production to area. Number of nations are based on highest national production, without regard to area). So gold is roughly twice as geographically and politically concentrated as oil, which means it's more susceptible to market manipulations by a small cartel of producers than even oil is.

That being the case, I'm wondering now if the uneven distribution of gold production would be a serious technical barrier to the adoption of a gold standard.

[agrippa1]

The value of labor has no relevance to that which is being produced, outside of the supply / demand context for the skills it takes to extract it.

I think that's wrong. The value of labor has everything to do with the profitability of that which is being produced. The price of labor is based on the value of that labor to the producer and the value of the wage to the worker. Somewhere between those two points, the exchange of labor for wage is made to the benefit of both. That point is the price at which the supply of labor is equal to the demand for labor. Since all industries compete with wage levels for available labor, and since all industries attract or repel productive investment based on their profitability, the price of labor in any one industry indirectly reflects the profitability of that industry (in the long run), and thus (in combination with all other costs of production) the price of the thing being produced. If the going price of the skill sets required to produce gold result in an inordinate profitability, investments will be attracted into gold production until that inequality is leveled out. While it's true that barriers to entry, such as access to raw materials and ownership of intellectual property, can lead to inordinate profitability of some producers, to say that the "value of labor has no relevance to that which is being produced" is incorrect.

[KendallJ]

MOD: thread split please.

I think that's wrong. The value of labor has everything to do with the profitability of that which is being produced. The price of labor is based on the value of that labor to the producer and the value of the wage to the worker. Somewhere between those two points, the exchange of labor for wage is made to the benefit of both. That point is the price at which the supply of labor is equal to the demand for labor. Since all industries compete with wage levels for available labor, and since all industries attract or repel productive investment based on their profitability, the price of labor in any one industry indirectly reflects the profitability of that industry (in the long run), and thus (in combination with all other costs of production) the price of the thing being produced. If the going price of the skill sets required to produce gold result in an inordinate profitability, investments will be attracted into gold production until that inequality is leveled out. While it's true that barriers to entry, such as access to raw materials and ownership of intellectual property, can lead to inordinate profitability of some producers, to say that the "value of labor has no relevance to that which is being produced" is incorrect.

Well, you've changed my statement a little bit. My statement wasn't that it had no relevance, but that it had none outside of the context of it's own supply/demand balance. I think you've essentially said the same thing with your development of the idea here. My broader point was that the price of gold has no direct causal impact on the price of the labor to extract it, assuming you have a generally unskilled set of skills required (as your 100 hr of unskilled labor might indicate).

Now here you've sort of said that the value of gold does have some sort of impact, but it is highly indirect and diffuse. That is, if you consider all of the things to be produced and their relative value to each other, and the total labor supply available to produce it, then gold as a component of that basket could be said to affect the cost of labor, but I think that's a spurious way to think about it. It essentially requires you to claim a causal relationship only through a direct integration of the entire economy. Ugh. I thnk you might be able to make a case for it if producion for a commodity like gold took up a large percentage of the labor pool, but rarely is that the case. Relative change in the price of gold aren't going to cause a change in wages of the laborers who extract it.

This of course changes depending on how scarce and specialized the skills to find an extract the commodity are, but that is just another way of saying that the price of labor is dependant on it's own supply demand dynamics, which is what I was claiming.

Another way to think about it using a commodity such as oil is, if the price of oil goes up, but that increase in price makes no new capacity for oil economically viable, will the wages to the oil laborers go up? The answer, I think, is no. No new oil production will be brought online, and thereby no new demand for labor will be created. Even if new oil production is brought online, to the extent that the labor is replacable, and mobile, it probably won't change the cost of labor at all.

By the way, the marginal cost curve for oil production can be seen here: slide 18.

[KendallJ]

Forgot link:

http://www.ceem.unsw.edu.au/content/docume...ReserveBank.pdf

[agrippa1]

Relative change in the price of gold aren't going to cause a change in wages of the laborers who extract it.

This of course changes depending on how scarce and specialized the skills to find an extract the commodity are, but that is just another way of saying that the price of labor is dependant on it's own supply demand dynamics, which is what I was claiming.

Another way to think about it using a commodity such as oil is, if the price of oil goes up, but that increase in price makes no new capacity for oil economically viable, will the wages to the oil laborers go up? The answer, I think, is no. No new oil production will be brought online, and thereby no new demand for labor will be created. Even if new oil production is brought online, to the extent that the labor is replacable, and mobile, it probably won't change the cost of labor at all.

You're saying here that demand for labor doesn't affect its price. (In bold are the premises behind that assertion. While these premises may hold true under certain circumstances, where a high barrier to entry exists, as in oil; they can almost certainly not exist in gold production, which has a great many individual producers.)

In any case, my original point, which I believe we can probably agree on (given the right assumptions), is that the price of gold and its cost of production are interrelated, assuming higher prices make expanded production profitable. In commodities whose production depends on purification from natural ores, it is almost certainly the case that supply of profitable lower-grade ores increases at a greater than linear rate as a function of market price. If we can agree that that is the case, then the conclusion I draw is that the relative price of gold (and the value of a gold-backed currency) is self regulating such that deflation, i.e., lower gold-based-price levels, drives up the production of gold to inflate the money supply to counteract the lag in gold wrt economic production.