Objective and Subjective Value

The two main forms of Value theory that are in existence right now is the Labour Theory of Value (LTV) and the Marginalist Theory of Value (MTV). Usually the proponents of one, do not recognise the validity of the other in defining the value of an object. I wish to show that these two are not mutually exclusive but that rather, we have a dualistic system of value where both play a role.

First of all, I consider that each item has an Objective utility which is the intrinsic use-value it has for the vast majority of humans. For example, a potato has an amount of kcal and it can always nourish. A car has the capability to move with a number of km per hour etc. These define a utility that remains constant no matter the subjective view on them by any human.

The only way to get this objective utility1 is to create it and the only thing that creates items is human labour. Labour can be counted in hours and thus we can find out how many hour of labour2 are necessary to create a specific objective utility in the form of a product. We can call this the objective value of the product.

It is this kind of value that the LTV attempts to define.

Now each item also has a Subjective utility which is the use-value any specific human individual assigns to it. This utility is almost never the same for any two individuals and further fluctuates for the same individual based on marginal utility. So I value a single potato when I have nothing to eat much more than a single potato when I have another 1000 of them in the warehouse. And I value a car when I have to drive 10 km every day to work, much more than a neighbour who works in the same building he lives in.

This subjective utility can only be abstracted based on the average demand for any type of objective utility. There is no other way to quantify it as each human simply thinks in a matter of priorities. For the starving, the potato is more “valuable” than a car. We can call this averaged demand the subjective value of the product.

But how do these two merge? The objective value lets us know how much work a product requires. This work needs to be repaid with an equal amount of work (in the form of another product) if one is to part with it. Thus it defines the minimum exchange value of a product. The subjective value lets us know on average how much people value a product. As a person values another product more than what they produce themselves (due to marginal utility), the subjective value tends to be higher than the objective value. Thus it defines the maximum exchange value of a product.

If there is a demand for the product then we can assume that the subjective value is higher than the objective. The higher the demand, the higher the subjective value. We can consider this difference between the number of labour hours a product requires to make and the number of labour hours we can get in exchange for it, as an objective measure of the subjective value.

In case the subjective value is below the objective value, then it means that this product will not be made as nobody will wish to make even the necessary minimum exchange for it at the objective value.

So what does this all mean? I’m not certain yet. For me, it is an obvious fact that the LTV is true but that also the MTV is also true. Neoclassical economics have used the Subjective Theories of Value as an unbeatable boogeyman to prove that Marxist theories were inherently flawed. But the Labour Theory of Value is still a very real important aspect of the value of a product as it is the only thing that can be used as a basis for the price. Certainly, Subjective Theories of Value play an important part but it is a much lesser role which only helps to show why exchanges happen and why prices fluxuate. It can in no case be considered the only way to define value.

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  1. When it does not already exist in nature []
  2. Socially necessary labour hours to be exact but I don’t want to get into such details now []
  • John Morales

    The air we breathe is valuable – it sustains life.
    How does it fit into either category?

    • http://dbzer0.com db0

      The air has practically zero objective value as it does not need any labour to produce. It has a lot of subjective value but due to abundant supply, this merges with the minimum, that is, the objective value.

      EDIT: The reason why air has the seeming irrational zero objective value, is not exactly because it does not need any labour to create. I actually needs quite a lot. The trick is that we have have a lot of, lets call it, automated machinery in the form of plants, that do all the labour for us and thus need no human labour. Due to the uncontrollable nature of the air, we have been forced to socialize the results and grant them to everyone according to their needs

  • The Barefoot Bum

    An imbalance between supply and demand measures value in a way, but only temporarily and not precisely. The imbalance doesn't objectively measure the subjective value, it denotes only that either more people should be making the commodity, or that more socially necessary labor time is justified in producing the commodity.

    Absent coercion, supply and demand will reach local equilibrium immediately: the producer will raise the price in SNLT until the demand equals supply. But this increased price is itself a higher-level disequilibrium: it will attract competition. If only productive capacity restricts supply (i.e. the first factory can make only 1,000 widgets, when there is demand for 10,000) then competition will quickly lower the price until it is equal to the cost in SNLT. If some physical circumstance limits supply then the cost will rise until it meets the price: if a shortage of locally available materials restricts production, then more time is justified to obtain materials from more distant or difficult sources.

    In either case, the difference between price and cost measures the degree of disequilibrium (i.e. the entropy) in the production of the commodity. The entropy is related to the subjective use-value, but the entropy does not directly measure the value.

  • http://dbzer0.com db0

    Hmmm, you seem to have a point. How do you think we should measure the subjective value then? Is there a way at all? Perhaps this measure of entropy does measure the temporary subjective value?

    • The Barefoot Bum

      One of the advantages of a market economy is that you don't *have* to measure subjective value accurately. Buyers will by definition always individually buy the product that has the best subjective value relative to price. There's a degree of waste — some products will be produced that have insufficient subjective value to be purchased at all, and, as you note there will be cases where the subjective value is irrational, based on false beliefs about the reality of the product — but it seems plausible that this waste would be less than the waste caused by errors of trying to measuring subjective value directly.

      I suspect that low level state planning and micromanagement of the economy is not necessary to implement socialism and communism.

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  • http://nothirdsolution.com David Z

    "Labour can be counted in hours and thus we can find out how many hour of labour[1] are necessary to create a specific objective utility in the form of a product."

    Yes, in a sense. But different people have A) different skills that make them more or less suited to creating certain forms of "objective utility in the form of a product" and B) different needs and C) differing priorities regarding the disutility of labour.

    I don't deny that labor creates all things valuable. It most certainly does. But labor doesn't imbue an object with value.

    In a freed market, absent state interference, labor will simply not be applied towards the production of goods and services which are not valuable. So it *appears* that labor creates value, only because in a freed market, there is no incentive for labor to create worthless things. The disconnect for many statist applications, IMO, is that under state capitalism the above proposition does not appear to hold.

  • http://dbzer0.com db0

    Yes, in a sense. But different people have A) different skills that make them more or less suited to creating certain forms of "objective utility in the form of a product" and B) different needs and C) differing priorities regarding the disutility of labour.

    That does not change things. What I wrote is a simplified presentation but if you want to be accurate then we're not talking about labour but about to Socially Necessary Labour Time, which is the time it takes to make the same item by a worker of average skill and with the average technology available.

  • http://dbzer0.com db0

    labor will simply not be applied towards the production of goods and services which are not valuable.

    That is a truism wether we are talking about free markets or communism. This is generally how humans work. By definition anything one works on, is of value to someone or he wouldn't be working on it.

    So it *appears* that labor creates value, only because in a freed market, there is no incentive for labor to create worthless things.

    We perform labour because we want to create value. It does not simply appear that way. There is no other way to be wether in a free market or in any other system.

    To put it a different way: It is labour that creates the exchange value of an item. An item can never have an exchange value below the SNLT cost it took to create it barring external coercion. It is marginalism that defines utility value. For a more detailed explanation of this, I'm afraid you'll need to tackle Marx's Kapital who goes into it much better than I ever could.

    May I suggest you check some of the videos here? They're pretty easy to go through and digest. Commodities is a good starting point.

    • http://nothirdsolution.com David Z

      "We perform labour because we want to create value. It does not simply appear that way. There is no other way to be wether in a free market or in any other system."

      My point was that in the current state-manipulated market, there are many people laboring towards the production of things that *wouldn't* be valued as highly (or at all) if the market were free. In the current state-capitalist system, labor *is* applied towards the production of essentially useless things. This state of affairs, juxtaposed with the labor-creates-exchange-value argument, I think is where most people fall off the rails w/regards to LTV.

      • http://dbzer0.com db0

        How do you know? Why do you assert that things people are working would not be valued or that this practice would stop if no state existed. If anything, the dotcom boom (and subsequent bust) aptly showed that people labour for worthless things regardless of state intervention or not. And if a commodity is valuable or not is anyway a subjective matter. With the same logic that Free Marketeer claim that anything that makes profit is valuable, I can claim that anything people labour towards is axiomatically valuable.

        In any case, I do not dispute that a state can assign value to things that without a state would not be valuable for anyone to pursue. We can have a debate on wether that is a good or bad thing (as I could easily point out that the state would create things that the free market would not do). But that the state assigns a value to those things does not remove the fact that this value is created only through human labour.

        • http://nothirdsolution.com David Z

          "But that the state assigns a value to those things does not remove the fact that this value is created only through human labour."

          This is not in dispute.

          "How do you know? Why do you assert that things people are working would not be valued or that this practice would stop if no state existed."

          Leverage obtained invisibly through credit expansion distorts the value conveyed by prices, the benefits of this distortion accrue primarily to the same capitalist class against which you rail, above. Prices rise first, then wages rise to some extent. Capital (intellectual, physical, material, human) is squandered in the "boom" phase of capitalist economy, fulfilling consumption demands in excess of what would otherwise manifest, a pace which cannot be sustained by the existing capital stock. Those who are first able to charge higher prices (before wages have risen) are the beneficiaries. In the "bust" phase, the opposite: wages fall first, and then prices to some extent.

          • http://dbzer0.com db0

            Dave, please use proper blockquotes for quoting as they have special formatting. Also check out the comment policy. This will allow discussions to be more readable.

          • http://dbzer0.com db0

            Leverage obtained invisibly through credit expansion[…] and then prices to some extent.

            OK, lets not get into the business cycle here as I subscribe in a different explanation (namely the crisis of overaccumulation which exists regardless of state interference)

            But you mention one specific point

            the benefits of this distortion accrue primarily to the same capitalist class against which you rail, above

            This is something that I actually point out. The state is mainly to the benefit of the ruling class, in this case the bourgeoisie. There is not way to change anything through politics because ultimately it will favour those in power. There is no way to simply remove the state, as those in power would simply reinstate it.

          • http://dbzer0.com db0

            This is not in dispute.

            But if you accept that value is only created through labour, then you accept the LTV and by extention, Marx's theory of exploitation needs to be addressed.

          • http://nothirdsolution.com David Z

            I'm still a STV/marginalist, as far as theories of value are concerned. <a href="http://http://www.nothirdsolution.com/2008/12/02/on-the-lab...target=”_blank”>I don't dismiss the Labor Theory of Value entirely, I think most people who use it say "labor determines value" whereas my understanding is that "the value one expects to create is what determines whether he will (or will not) labor".

          • http://dbzer0.com db0

            Wether someone can realize the exchange value of a commodity is not the same as defining the value of the commodity. Let's take a house. If I know that there is a demand for houses, then I can work to build one and sell it. However the price that this house will grab depends explicitly on how much labour I put in to build it. Certainly the price may fluxuate up and down depending on S&D but it will fluxuate around a specific point which is the true exchange value which is related to the labour put in to build it.

  • The_Libertarian

    So according to Marx the more socially labor time I put in a product the more value it has? disregarding whether it has any utility or the perception pr the consumers?

    Marxists are dumb. Go back to school.

    • http://dbzer0.com db0

      I suggest you find out what Socially Necessary Labour Time is before you open your mouth to call others dumb.

      • The_Libertarian

        Right, because only a smart socialist like you can possibly comprehend such an infantile and simple concept

        • http://dbzer0.com db0

          Your comment displays that you've obviously haven't understood the concept

    • Guest

      The_Libertarian – Volume 1, Chapter 1, Section 1 of Das Kapital says "Lastly nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value."

      So if you had even read the very first section of the first chapter of the first volume of Marx's Kapital, you would have known the strawman argument you erected and attributed to Marx was never believed by him – the opposite was in fact believed by him. So you attribute a belief to Marx, something which Marx thought exactly the opposite of, and then call Marxists dumb due to you believing Marx thought this, whereas even the briefest cursory reading of Kapital would have shown you he did not believe it. So who are the dumb ones?

  • The Barefoot Bum

    I think Marx's terminology requires revision. The higher the cost (labor time), the higher the price (exchange value). Applied to a single commodity produced by a single producer, higher actual labor time will result in a higher price. Applied to a commodity produced by many producers in a single market, the equilibrium market price of the item will be related to a statistical properties of the individual actual labor costs (socially necessary abstract labor time). As db0 notes, if the price exceeds the relative subjective utility, no one will buy the item.

    If an individual producer's price exceeds the equilibrium price, then (eventually) everyone seeking the commodity will buy from her competitors. If the equilibrium price exceeds the relative subjective value (i.e. if people would rather spend their own labor acquiring other commodities), then no one will buy the commodity from any of the producers.

    Although his terminology is a little different, db0 makes these concepts clear enough in his post, which the_Libertarian does not appear to have read carefully.

  • The Barefoot Bum

    The Labor Theory of Value and the Marginal Theory of Value are related: The Marginal Theory of Value (which discusses the relationship of subjective value to price) quantifies how prices reach equilibrium (and whether prices fall to cost or cost rises to value); the Labor Theory of Value states that the equilibrium price is the socially necessary labor time necessary to produce the commodity.

  • Tle_Libertarian

    I read perfectly, I just dont agree. Its nonsense because Im not tlaking about price wich is much more complex than labor value, Im talking about value, to believe that value can be increased simply by increasing the "socially necessary labor time" of the product, no matter the consumer marginal utility is absurd.

    If you assume the commodity has some real value trough utility, you can say the labor goes to cost and then it adds to price, although that is subject to supply and demand as well.

    You are going to delete my comment anyway, I dont know why I bother with marxists.

    • http://dbzer0.com db0

      to believe that value can be increased simply by increasing the "socially necessary labor time" of the product, no matter the consumer marginal utility is absurd.

      That is indeed the case however. If the cost to make a product goes up, then the objective (or exchange) value goes up as well. Of course, the SNLT cannot be increased arbitrarily.

    • The Barefoot Bum

      I read perfectly, I just dont agree.

      I was making the more charitable interpretation. Since you deny this interpretation I will go to the next most charitable interpretation that you are stupid. (Disclaim that interpretation and the next is that you're being intentionally obtuse.)

      Just because db0 uses the word "value" does not mean that you may interpret this word willy-nilly. He explicitly defines "objective value", and any intellectually honest reading of his work must conform to his definitions. You can (as I do) argue that his terminology is a little confusing, but you cannot argue he is mistaken because you are applying a definition he explicitly disclaims.

      And keep in mind that I myself can't delete shit here; it's db0's blog, not mine.

  • http://dbzer0.com db0

    Please stop the libel. I've never deleted a comment until now. Read the comment policy.

  • http://dbzer0.com db0

    And I don't delete comments either unless they are spam or persistent trolls. What happens is that sometimes a comment is caught on moderation because of heuristic scanning. It sucks I agree but I approve always immediately, and at the mostly within a day or so (ie if I'm sleeping or busy)

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  • Val Yoo

    Thanks for this post. I have a hard time grasping things, which is frustrating because I’m reasonably intelligent but have almost no formal education (literally; it’s a long story), so I’m not trained to grasp things (that’s what I tell myself, anyway). So, I always appreciate people who are able to summarize ideas that I have a hunch are correct but can’t properly argue in favor of (communism, anarchism, etc., to a lesser extent atheism, but the whole religious debate is rather silly, like debating the existence of unicorns, so I’m pretty confident in that arena). Mostly it’s economics that gets me flustered, because there’s so much misinformation out there, especially on the Internet, where right-wing “Libertarians” are… disproportionately well represented (if I may understate the matter) and VOCAL! Meanwhile, with capitalism the dominant global paradigm, anything to the left of the U.S. Republican Party is considered Marxism — which isn’t even understood to begin with! Anarchism is less of a bother, since most people hate the government for one reason or another, so it’s easier to get through to them. But economics… damn! Capitalism is the epitome of the master/slave dynamic. The slaves who live under it become slavishly (!) attached to it. It’s really embarrassing and maddening to see them adopting their masters’ ideology and arguing against their own interests and in favor of their masters’. Every time I debate one of them, especially the “Austrian school” and “anarcho-capitalists,” I envision American slaves in the antebellum South praising the virtues of the plantation owner.

    But I’m rambling. Anyway, thanks again for your efforts. Just please don’t flake out and change your politics suddenly (I’ve seen many people do so, almost out of boredom it seems, like once they’ve made all the arguments they can think of it’s time to do a 180 and argue against themselves)!

    • http://dbzer0.com db0

      heh, I don't think I'll turn coat any time soon :)

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  • RichofSpirit

    I'm a market anarchist and I really enjoyed this post. We disagree on a great many things but I find myself returning to your site to get the most intelligent thoughts from "the other side." Thanks for your contributions to the discussion.

    • http://dbzer0.com db0

      Glad to hear it. I'm happy to facilitate dialogue and thought :)

  • Martin

    How then does value relate to the workplace; I would suggest that work related value is rarely objective, even when an 'analyitical job evaluation scheme is used it is still highly subjective. Indeed the conccepts of uniqueness, dependence and replaceability whilst all highly subjec tive are as important as the tasks undertaken.

  • http://dbzer0.com db0

    One does not have to value the job another does in the workplace. The end result of such work however can be valued via the market mechanism. This is true only for market systems of course. In non-market systems, rating one's work is not important as long as they perform to the best of their abilities.

  • JayRaow

    Hi there, I'm very much new to the site and relatively new to marxian economic theory and have had a bit of trouble with criticisms of LTV but I thought from observing your posts you looked quite knowledgeable and may be able to she some light in response to these criticisms.
    The foremost of such is that from Steve Keen (from 'debunking economics' fame).
    His quite ravenous criticisms are great his book is fucking amazing in debunking neo-classical economics and it amazed me when I read it..Although he IS a post-keynesian and as such has much to critique marx and the LTV and in the past 7 years or so I don't think I've seen anyone at all respond to his critiques. So here they are if you can be bothered to go through them- :

    The misinterpretation of marx's theory of value: http://www.debtdeflation.com/blogs/wp-content/upl

    USE-VALUE, EXCHANGE VALUE, AND THE DEMISE OF MARX'S LABOR THEORY OF VALUE http://www.debtdeflation.com/blogs/wp-content/upl

    as well as his master's thesis on marx (which you may have to skim or skip bits as it is >100 pages in length): http://www.debtdeflation.com/blogs/wp-content/upl

    Hopefully you may be able to address some of the issues because I happen to think his critiques are probably the most scathing and socialists must address and defend them if we are to support LTV.

    • http://dbzer0.com db0

      I've addressed some of Keen's criticisms in the past. Look Here

      • JayRaow

        Awesome. Thank you

  • solid

    "In his Open Letter, Cockshott claims that ‘In science competing theories are supposed to be evaluated on the basis of their ability to explain observed data’ and that ‘One can propose mechanisms for the labour theory to be confronted with evidence which might refute it’. He further argues that ‘It is much harder to see how the same might be done with the utility the- ory of value, whose scientific status is thus questionable’.
    The critique of the neoclassical utility theory of value is certainly correct. One key reason why this theory cannot be tested is that its elementary particle – the util – is unknowable. Neoclassicists bypass this problem – at least in their own minds – by going in reverse: they assume that dollar market prices ‘reveal’ utility and that dollar income flows reveal ‘factor productivity’. With this revelation, they can then go on to ‘measure’ (again, in their own minds) the util quantities of the so-called ‘real economy’ – from the ‘real’ flows of production and consumption to the ‘real’ stocks of assets and capital.
    Cockshott claims that this isn’t the case with Marx’s labour theory of value. Unlike the neoclassical util, the elementary particle of Marxism – socially necessary abstract labour time – can be objectively observed and measured. ‘It is possible’, he says, ‘to use input-output ta- bles to work out how many hours of labour went into producing the total output of each in- dustry’.
    But this claim is false.
    In fact – and as Cockshott knows full well – the only way to ‘know’ labour values is the neoclassical way: by revelation. Whereas neoclassicists assume that prices reveal utils, Marx- ists assume that prices reveal socially necessary abstract labour time. And that is it.
    As they stand, the quantities of utils and labour values exist not as empirical observa- tions, but as religious-like visions. They emerge not from open-ended research and scientific exploration, but from circular rituals that make them true by definition.
    This is how Cockshott himself describe the process in one of his recent works: Unfortunately . . . we have no such independent data on values. This would require a fully
    disaggregated input-output table along with data on labour inputs in hours. When we
    - 13 –
    compute industry values in practice, our primary data are nothing other than industry costs: we infer values from these costs, with unavoidable error. There are three sources of divergence between the underlying true values and the estimates of values derived us- ing industry cost figures.
    1. Values are defined in terms of hours of socially necessary labour time, but in most empirical work direct labour hours are proxied by the wage bill.
    2. The assumption that the rate of surplus value is uniform across sectors: most if not all empirical work on value employs this assumption, yet it is not likely to be strictly true.
    3. The aggregation issue: each of the sectors or industries used in an empirical study represents the aggregation of a wide range of production processes. The aggregation is, of course, done in terms of monetary values. Thus the weights carried by each sub-sector in the formation of any given sector’s figures depend on market prices, which by as- sumption exhibit some degree of divergence from values.
    (Cockshott and Cottrell, Robust Correlations Between Prices and Labour Val- ues: A Comment. Cambridge Journal of Economics, Vol. 29, No. 2, March, 2005, pp. 312-313, emphases added.)
    The precise details of the procedure are often opaque, but the gist of it seems simple enough. First, being unable to know the quantity of socially necessary abstract labour hours embedded in commodities, Cockshott resorts to deducing this number from observable prices.[1] He does so by assuming that the direct number of hours (Marx’s v) is revealed by the dollar wage bill and that the indirect number of hours (Marx’s c) is revealed through itera- tive imputations of the dollar wage bill incurred in producing the non-labour inputs. And since, in and of themselves, labour values can never be known, this revelation, just like the neoclassical revelation of utility and ‘factor productivity’, can never be falsified.
    Second, Cockshott doesn’t correlate average unit price with average unit labour time (as revealed by average unit dollar cost with some transformation). Instead, he correlates total sales with total labour values (as revealed by total dollar cost with some transformation). This move from individual commodities to sectoral aggregates introduces the further hazard of spurious correlation (see the linked Excel file).
    Taken together, these assumptions enable Cockshott to show that there is a tight correla- tion between the aggregate dollar sales and the aggregate dollar costs of different sectors. What remains unclear is how these unsurprising price correlations relate to Marx’s labour theory of value – and, moreover, why Cockshott is convinced that they constitute a scientific proof of that theory."
    http://glasgow.academia.edu/paulcockshott/Papers/

  • http://gravatar.com/stephanloh stephanloh

    I have solved the all the puzzles or paradoxes of labor theory of value. I suggest you to read my book: The General Theory of Economic efficiency, by Stephan Loh

  • Curious

    This is bizarre. Hours of labor could never be an “objective” measure of value. Hours of labor are not commensurable and interchangable across individuals — people have vastly different skills and productivity. And value necessarily requires — and is decided by — a valuer. Marxists don’t get to stand on the sidelines and apportion “value” or “price” to anything.

    von Mises pointed out your price calculation problem in the 1920s or 1930s. His work was decisive on that score. Marxism is false. It has always been false. It is necessarily and inherently false, in the same sense that Scientology is necessarily and inherently false. If you’re unsatisfied with the world of trade and commerce, that I can understand, even if I’m not so unsatisfied with it. But Marxism is an ever poor choice of outlet for the energies of alienation.

    • http://dbzer0.com db0

      Just saying “could never” or calling it “false”, does not invalidate a theory. And yes, people have different skill and objects have value according to individuals, this is taken into account by LTV.