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Old 01-30-2012, 07:52 PM   #1
Alan
 
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How is new value created?

I was reading Marx's Wage, Labour and Capital, and it explains the relationship between profits and wages.
A lot of Marx's economic ideas are outdated, but I saw something that is interesting and I can't put my finger on how it would be accounted for today. It might still be applicable, and if so, it has huge implications.
I believe Desp is gonna love this.

So, long story short, we know that capitalism creates abundance, even if most of us criticize it for creating inequality. Maybe it creates its own scarcity; maybe it monopolizes this abundance and most people end up worse off; maybe it is ecologically devastating.
Regardless of this, we know that capitalism is a juggernaut that extracts resources and creates new things at an impressive speed.
Few would question the fact that capitalism constantly creates and expands every day.

But this creation of new products, this extraction and refining of previously unused resources, can it create new value? If it can't create value, how can a profit be made?

Karl Marx explains the workings of supply and demand and then says this:

If the price of a commodity rises considerably owing to a failing supply or a disproportionately growing demand, then the price of some other commodity must have fallen in proportion; for of course the price of a commodity only expresses in money the proportion in which other commodities will be given in exchange for it. If, for example, the price of a yard of silk rises from two to three shillings, the price of silver has fallen in relation to the silk, and in the same way the prices of all other commodities whose prices have remained stationary have fallen in relation to the price of silk.


As I was reading it, I immediately saw something that I couldn't agree with. If the price of a product increases, the price of some other commodity must fall? That doesn't sound right.
But this gets taken care of with the example in the next sentence. A new yard of silk has been introduced to the market at a particular point in time in which there was a very specific, albeit immensely large, amount of global capital. This global capital thus must take into account the introduction of this new yard of silk into the market. Because no new money has been created, the yard does not create new value, but rather becomes relativized by the market and is valued to a certain amount of existing capital, existing capital which must be drawn from everything else that was already valuated.
Of course, because of the amount of money and the seemingly infinite amount of products in the market, the introduction of one meager yard of silk, or even a thousand miles of silk, does not devalue the price of any product in any observable manner. If we were to pinpoint this devaluation we'd be talking of percentages of fractions of femtopennies. But the devaluation does become manifest in the daily changes of supply and demand of unrelated products when consumption or production of such products remain stable.

Sure, one could say that new money is created all the time. The United States prints millions and millions of new dollars every day. But this creation of new money just devalues the current power of a currency. We all understand inflation.

What does this all mean? That capitalism cannot create new value. Obviously it DOES create new products, it does create innovation, and it creates amazing economic growth, but all this innovation, all this production, and all this growth, is just relativized into the market instead of creating new value for the market.
This is a marxist interpretation of what liberal economists would consider a truism: value depends entirely on marginal utility.

Capitalism is a regulatory force, and thus it is not a system that creates wealth, but only redistributes wealth. If there is nothing wrong with Marx's understanding of price fluctuations, capitalism is indeed a zero-sum game once you make a distinction between real wealth and relative wealth, i.e. value.


So, so far we have this conclusion: capitalism is not an economic system that can create value, but it is a rational regulatory system of the redistribution of value. Value doesn't change, it just changes hands.
This is a neutral statement on capitalism.



But the Marxist aspect comes in place here.

If value does not change, then new capital is not added value but rather a stretching of value. That's what happened with the infusion of gold and silver after the discovery of the New World. The Old World could not absorb this inflow of precious metals, so the metals were devalued, but at the same time this is what allowed for new markets to emerge and put this new gold to good use. No new value was added; the only thing that happened is that the total value of production could eventually be anchored to devalued gold and thus more transactions could happen.

But what happens when capital grows but wages don't? It means that the purchasing power of the workers goes down, going back to the differences between real wealth and relative wealth, or in this case real wages and relative wages.
Because there's no new value added with new production, if profits grow faster than wages, this does not make a richer world but just shifts the concentration of wealth in the world.

Here's how Marx explains it:

A rapid growth of capital is synonymous with a rapid growth of profits. Profits can grow rapidly only when the price of labour – the relative wages – decrease just as rapidly. Relative wages may fall, although real wages rise simultaneously with nominal wages, with the money value of labour, provided only that the real wage does not rise in the same proportion as the profit. If, for instance, in good business years wages rise 5 per cent, while profits rise 30 per cent, the proportional, the relative wage has not increased, but decreased.

The living conditions of the workers have indeed improved; but that shouldn't be enough for the workers. Because capital growth does not mean new value but just a bigger influence over the market, the impact of the workers' labor in the market proportionally increases too, but their wages do not, and thus the more they work, the more they devalue their own labor unless the capitalist increases their wages in proportion to profits.


All this rests on the observation that no new value can be created in the market. Obviously the market has expanded by leaps and abounds since the time where capitalism per se was bounded to Birmingham and neighboring regions, but this expansion just means that the purchasing power has been spread as capitalism absorbs more markets, not that there was less purchasing power than there is today.
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Old 01-30-2012, 08:05 PM   #2
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That's.... a very rational observation. I'm not sure if there's anything I can actually add to the conversation just yet. I'll have to read it a couple more times to digest it.
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Old 01-30-2012, 08:09 PM   #3
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Now will you please explain what the fuck MARGINAL UTILITY is?

I showed the last article you sent me to a Pakistani Econ student and he couldn't make heads or tales of it.
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Old 01-30-2012, 08:19 PM   #4
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Yeah, I thought that article was going to explain marginal utility and how marxism accounts for it but it just attacked marginalist economists without explaining the theory.

Basically, classic liberal economists like Smith and Ricardo, and the younger Marx, believed that the value of a product is directly tied to labor.
Thus if a pound of sugar takes two hours of labor to be processed, a pound of sugar should cost the same as the price of two hours of labor.

But we know this is wrong, and it's best explained by the paradox of water and diamonds. Diamonds are much more expensive than water when water is a lot more essential to us, and if anyone were just lucky to find a mine, he would need very little labor to become immediately rich.

Marginal utility fixed this apparent paradox very simply. All profits are but the value of marginal utility, meaning the difference between the purchase and sale of a product b playing with supply and demand. A product has no value in itself but has only relative value depending on how much the product is desired and how scarce or abundant it is. Same for services.
This also goes against the early Marxian concept of profit as surplus labor and the Lasallean Iron Law of Wages.
The iron law of wages is wrong, capitalists don't need to pay the bare minimum to workers to make a profit, they just need to manage the market to make a good marginal profit.
Equally, the profit of the capitalist is not surplus labor, meaning the part of the worker's labor that the capitalist refuses to pay to the worker (e.g. imagine a worker is paid 50 bucks a day, but in that day he makes 100 bucks worth of, let's say, microchips; the idea of surplus value is that the worker effectively gave 50 bucks of his labor to the capitalist for free) but instead it's merely the purchase of a workers' labor power at a negotiated price and the acumen to sell the product of this labor power at a higher price than the price of the labor power.
Thus, a capitalist is not like a slaveowner paying workers for certain hours of work but demanding that they also work extra hours which the capitalist pockets, but rather a very shrewd merchant who buys a product or a service at some price and finds a market in which he can sell it at a profit.
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Old 01-30-2012, 08:40 PM   #5
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If we examine the market as an absolute value then we can evaluate the value this closed system started with : people.(labor)

So what changes is what people value: gold then oil, now rare earths like neodymium etc. The definition of value changes, but the root of value is labor, which aside from population growth is static in terms of adding "new value" because the other side of new labor is new demand, the two canceling out over time.

The new value you are questioning may not exist in such a closed system.
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Old 02-05-2012, 03:54 AM   #6
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Who says total value has to remain constant? What a ridiculous assumption.
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Old 02-05-2012, 01:56 PM   #7
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I just showed why value remains constant.
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Old 02-05-2012, 05:05 PM   #8
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Old 02-08-2012, 04:42 PM   #9
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I just showed why value remains constant.
if I have a bunch of flints, then I knap them to turn them into arrowheads, they're now more valuable. Likewise a castle is more valuable than a quarry etc.
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Old 02-08-2012, 05:08 PM   #10
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Ugh... I don't actually disagree with you, but did you even read what I wrote?
We're talking about market value.
Market value of particulars fluctuates but total market value has always remained constant, which means that if something becomes more valuable, everything proportionally gets devalued.
That's what I'm talking about.

You're even right in that an arrowhead is more valuable than just flint, and you'll get more money selling these arrowheads than just selling the flint, but that's because of two things:
1) By selling the arrowheads, you're not just selling the flint but the flint plus your labor in turning them to arrowheads. Thus, it's not that new value has been created, but that value has been compounded, i.e. you sell the former (flint) at $5, or you sell the latter (flint + work = arrow) at $8, meaning that the three extra bucks aren't new emergent value, but rather the work you put into them.
2) In the immanent world, you HAVE indeed created something more valuable by making an arrowhead out of flint, but this is use value, as opposed to market value. All I wrote above points to the lack of correlation of use value and market value, which means that unless there's some hidden variant that bridges them, use value always increases while market value remains constant, which dialectically in capitalism translates to the fact that as markets grow, the value of labor and natural resources gets devalued.
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Old 02-08-2012, 05:09 PM   #11
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Well duh, Elysian or whatever your name is.

The problem is that once that happens, something else or actually quite a lot of things go down in value because the demand for that castle or your useful arrows sways those values.

Honestly, I can't really imagine anything in the market in fact raising new value without it affecting the value of everything else.

But you missed that point. We will try to be patient with you.
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Old 02-08-2012, 07:54 PM   #12
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The distraction to some folks caused by the value transference (valuation/devaluation) inside the system is hard to ignore since we as individuals are at the microscopic level in relation to the total system (at the "macro" level).

I, Humane, command a relatively high salary in exchange for my skills. In balance, the system devalues a McDonald's drive through worker. Here is the reason why I used to be a Republican: IF we, as a nation raise the income of the drive through worker, then my salary becomes devalued (either through higher taxes to subsidize income, or through less money available to businesses to hire workers etc.). So instinctively knowing this, I favored keeping my salary high at the devaluation of the McDonald's worker.

Eventually I became enlightened (thanks in large part to the members of Gnet and their insidious logic), and now am willing to voluntarily submit to higher taxes in favor of providing health care to others along with other value increases (a disadvantaged worker accessing expensive health care means his work value increases). But the actual economic function remains true: devaluation here, valuation there. In an enlightened society water seeks its own level.

But observant and diligent individuals can place themselves between these internal and unequal economic poles and derive a living by intercepting the cash flow, the delta between the higher value and lower value.

It is an economic ecosystem similar to many biological ecosystems on Earth.
A circle of life, but a circle is closed and finite.

By the way, I am not telling from any educated perspective, but speaking from experience.
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Old 02-09-2012, 04:31 AM   #13
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Ugh... I don't actually disagree with you, but did you even read what I wrote?
About a third of it.

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We're talking about market value.
Market value of particulars fluctuates but total market value has always remained constant, which means that if something becomes more valuable, everything proportionally gets devalued.
That's what I'm talking about.
I don't see how that follows.

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You're even right in that an arrowhead is more valuable than just flint, and you'll get more money selling these arrowheads than just selling the flint, but that's because of two things:
1) By selling the arrowheads, you're not just selling the flint but the flint plus your labor in turning them to arrowheads. Thus, it's not that new value has been created, but that value has been compounded, i.e. you sell the former (flint) at $5, or you sell the latter (flint + work = arrow) at $8, meaning that the three extra bucks aren't new emergent value, but rather the work you put into them.
Your work is potential, there's no fixed quantity of it. It costs you nothing to do, perhaps an increase in self maintenance overheads (hard physical labour means being properly fed) but you're going to be paying most of that anyway, and caloric expenditure isn't proportional to the added value of labour. It's not like everyone has a known quantity of work they can take out of a box and sell.

Since we have to do more than sharpen flint to turn natural resources into useful tools these days, the cost of materials used to make one iphone in their raw unrefined form isn't going to be nearly as valuable to most people as an iphone will. And of course they're produced at a grander rate.

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2) In the immanent world, you HAVE indeed created something more valuable by making an arrowhead out of flint, but this is use value, as opposed to market value. All I wrote above points to the lack of correlation of use value and market value, which means that unless there's some hidden variant that bridges them, use value always increases while market value remains constant, which dialectically in capitalism translates to the fact that as markets grow, the value of labor and natural resources gets devalued.
wth is market value, is that even a thing? Is it the total amount of money because I heard that was not a constant either. I'll give your OP another skim.
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Old 02-09-2012, 04:51 AM   #14
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Alright I read the whole thing, nowhere do I see a justification of the assumption that total value must remain constant apart from some loose conjecture.

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All this rests on the observation that no new value can be created in the market. Obviously the market has expanded by leaps and abounds since the time where capitalism per se was bounded to Birmingham and neighboring regions, but this expansion just means that the purchasing power has been spread as capitalism absorbs more markets, not that there was less purchasing power than there is today.
In 1400 if I wanted to buy 7 million pigs I couldn't do that. Today a person potentially could, and then so could someone else. Less purchasing power right there.

Marx's example about silk.

t=0
Assume the following constants:
Units of silk = N
Units of silver = n
Denote variables:
Price of silk = P
Price of silver = p

Total market value = NP + np
silk/silver relative value = P/p

t=1
Increment P by i>0
Total market value = N(P+i) + np > NP + np
silk/silver relative value = (P+i)/p > P/p

Obviously this extends to any number of commodities and making the units available into variables would do nothing to help model a constant total value.

So you see while it follows that your units of silver will now earn you less units of silk, that total value remains constant seems to come out of nowhere and is not required for the conclusion. While everyones 'capital' as a fraction of total capital must always add together to make 1, this is a tautology.
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Old 02-09-2012, 10:33 PM   #15
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I respect your objections, because this is precisely the reason I made this thread. I'm trying to see whether I'm wrong and why. However I don't think what you're saying actually proves me wrong.

You couldn't buy a million pigs in 1400's because there was no pig farming at such a massive scale. You certainly wouldn't be able to buy a million pigs today if there were only let's say 4 million pigs in the world.
Equally if in the 1400s pigs were abundant enough, it would be very easy for a king or even a lord to have a million pigs.

What you say about an ipod being more valuable than the sum of its parts is just another way of talking about marginal utility. It doesn't create emergent value, it just plays with demand. If the demand was merely for the functionality of an Ipod-like device, seeing how mp3 technology is abundant and ignoring copyright law, such a music player would really gravitate its price to its cost of material, labor, and distribution. I say 'gravitate' because as I have explained, price is set by marginal utility, not labor itself.

And that brings me to my final point. The idea that there's no fixed quantity of labor, thus labor CAN be created. And you're right, and this is precisely why Adam Smith and David Ricardo and Karl Marx initially believed that only labor can create value.
But again, market value and exchange value are separate. Labor is indeed emergent, and as such it creates new things, things which didn't exist before, but this is immanent value. When these things enter the market they must be relativized by the market, and thus their price is fixed in relation to everything else in the market. The total value of the market does not change with the introduction of new objects, it just gets shifted.

You yourself said this is a tautology. Not quite, but it does seem to be axiomatic and that's what I'm trying to prove. If you say this is tautological then you're not really arguing new value can be created, the opposite of what you were saying at first.
Of course it has to be tautological, or as I'd rather say, axiomatic. If it were otherwise, there would not be a law of supply and demand.

New value, we have seen, cannot be created. The existence of more money is nothing but inflation. The expansion of the markets is not a growth of the market but a diversification of it.
It is precisely because new value can't be created that capitalism can be a regulatory force on production and a rationalizing force on economics.
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Old 02-09-2012, 11:04 PM   #16
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And while that's a very salient explanation of the phenomena, I just have to ask if this is actually right or WORTH playing.

So it would seem that the problem is that capitalism in this sense is just a fusion of a cage match and King of The Hill. The object of the game is to get as much of the market value that you can possibly get while working to keep others from doing the same because the buying power of the poor being raised lowers the value of your horde.

Honestly, the game itself just sounds way too vicious for my tastes.
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Old 02-09-2012, 11:31 PM   #17
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Not at all. In fact, capitalism can't be a game of king of the hill. Capitalism expands by expanding its markets (another almost redundancy but it's an important one). To expand its markets means either to open new trade routes, increase production, or find (or even create) new demand.
The point is that in the end all these fall back to the mean, and the created growth just redistributes capital into new hands or reconfigures capital into new modes.
If one were to amass everything in the market, it would imply that there's no buyers, the market paralyzes, and it collapses. Not just as an economic crisis; I mean its epistemic truth collapses. It stops being.
This is why there can't be a perfect monopoly. You can't corner THE market, but you definitely can corner A market. Capitalism is actually very democratic.... for capital.

And that's the ultimate point of this investigation. Capitalism works on a two-tiered Kantian model. There's the immanent layer and the rational layer.
New value, in the sense of use value, in the sense of more stuff, of more infrastructure, of higher living conditions. It would be stupid to deny that.
However that layer is completely disconnected to the second layer of rationalized economy. The fact that capitalism creates wealth is a merely contingent outcome of its own stability. When people point out to the wealth that capitalism creates, they're pointing at something external to capitalism. And in the end to balance itself, capitalism creates its own scarcities and inequalities, which in many cases become more brutal than the basic scarcity that preceded it.
It's easy to understand this connection after the financial crash in 2008. Finance capital was and is increasingly becoming the most lucrative form of capital, and finances play a level above actual products and services. The way to make money in the world is not by making a marginal profit in one product at a mass scale, but in investing in the futures of such endeavors and gambling them in the stock market. By the supply and demand of stocks you can create massive wealth just at buying and selling this, toying around with their market values, without that company having had changed its production.
Likewise, capitalism is 'democratic', as much as we can use that word when there's no 'demos'. Capitalism grows by spreading its wealth, but spreading its wealth not to people but to markets, and these markets can be cornered.
The trillions-dollar world economy is worth as much as what capitalism was worth when it only extended to the outskirts of Brimingham, but it expansion allowed even more markets to have an impact on the cemented total market value. There's no reason, however, why this diverse market needs diverse people to function.
In the last 40 years, capitalism has expanded yet centralized, not in states but in multinational businesses and groups like the IMF. This does not contradict what I'm saying about the spread of capital, because they just need to make sure that their capital is in constant movement. The rationale of capital has no relation to the rationale of human welfare.

Marx said that capitalism is the best and worst thing to have happened to humankind, and this is why. It creates abundance, but it creates it as a happy aftermath. There's no reason why we shouldn't go beyond a system whose sole redeeming features exist in spite of its structure and not because of it.
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Old 02-10-2012, 10:16 AM   #18
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I respect your objections, because this is precisely the reason I made this thread. I'm trying to see whether I'm wrong and why. However I don't think what you're saying actually proves me wrong.

You couldn't buy a million pigs in 1400's because there was no pig farming at such a massive scale. You certainly wouldn't be able to buy a million pigs today if there were only let's say 4 million pigs in the world.
Equally if in the 1400s pigs were abundant enough, it would be very easy for a king or even a lord to have a million pigs.
There are way more than 4 million pigs today and there weren't then. So ifs are besides the point.

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What you say about an ipod being more valuable than the sum of its parts is just another way of talking about marginal utility. It doesn't create emergent value, it just plays with demand. If the demand was merely for the functionality of an Ipod-like device, seeing how mp3 technology is abundant and ignoring copyright law, such a music player would really gravitate its price to its cost of material, labor, and distribution. I say 'gravitate' because as I have explained, price is set by marginal utility, not labor itself.
Sure. By the way have you heard about the conditions in the factories where apple gets its parts from? Suicide nets.

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And that brings me to my final point. The idea that there's no fixed quantity of labor, thus labor CAN be created. And you're right, and this is precisely why Adam Smith and David Ricardo and Karl Marx initially believed that only labor can create value.
But again, market value and exchange value are separate. Labor is indeed emergent, and as such it creates new things, things which didn't exist before, but this is immanent value. When these things enter the market they must be relativized by the market, and thus their price is fixed in relation to everything else in the market. The total value of the market does not change with the introduction of new objects, it just gets shifted.
Simply reaffirming that market value is constant, not justifying it.

[quote=Alan;690164]You yourself said this is a tautology. Not quite, but it does seem to be axiomatic and that's what I'm trying to prove. If you say this is tautological then you're not really arguing new value can be created, the opposite of what you were saying at first.[/quite]

No, pay attention.

If you add together everyones share in the market you arrive at the totality of the market. Commodity prices and personal net worths are all relative to one another within this system, but it's not a closed system. The total utility of all property can increase or decrease over time.

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Of course it has to be tautological, or as I'd rather say, axiomatic. If it were otherwise, there would not be a law of supply and demand.

New value, we have seen, cannot be created. The existence of more money is nothing but inflation. The expansion of the markets is not a growth of the market but a diversification of it.
It is precisely because new value can't be created that capitalism can be a regulatory force on production and a rationalizing force on economics.
We haven't seen anything, you've just asserted it.

Let's talk about value. Does an artist create value? Is the best determinant of it the value of his labour?
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Old 02-10-2012, 10:26 AM   #19
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And that's the ultimate point of this investigation. Capitalism works on a two-tiered Kantian model. There's the immanent layer and the rational layer.
New value, in the sense of use value, in the sense of more stuff, of more infrastructure, of higher living conditions. It would be stupid to deny that.
However that layer is completely disconnected to the second layer of rationalized economy. The fact that capitalism creates wealth is a merely contingent outcome of its own stability. When people point out to the wealth that capitalism creates, they're pointing at something external to capitalism. And in the end to balance itself, capitalism creates its own scarcities and inequalities, which in many cases become more brutal than the basic scarcity that preceded it.
It's easy to understand this connection after the financial crash in 2008. Finance capital was and is increasingly becoming the most lucrative form of capital, and finances play a level above actual products and services. The way to make money in the world is not by making a marginal profit in one product at a mass scale, but in investing in the futures of such endeavors and gambling them in the stock market. By the supply and demand of stocks you can create massive wealth just at buying and selling this, toying around with their market values, without that company having had changed its production.
Likewise, capitalism is 'democratic', as much as we can use that word when there's no 'demos'. Capitalism grows by spreading its wealth, but spreading its wealth not to people but to markets, and these markets can be cornered.
The trillions-dollar world economy is worth as much as what capitalism was worth when it only extended to the outskirts of Brimingham, but it expansion allowed even more markets to have an impact on the cemented total market value. There's no reason, however, why this diverse market needs diverse people to function.
In the last 40 years, capitalism has expanded yet centralized, not in states but in multinational businesses and groups like the IMF. This does not contradict what I'm saying about the spread of capital, because they just need to make sure that their capital is in constant movement. The rationale of capital has no relation to the rationale of human welfare.

Marx said that capitalism is the best and worst thing to have happened to humankind, and this is why. It creates abundance, but it creates it as a happy aftermath. There's no reason why we shouldn't go beyond a system whose sole redeeming features exist in spite of its structure and not because of it.
Man screw the rational Kantian layer. I couldn't give two shits about the metaphysical value of objects. I do like being given a modicum of state support just for being alive though. I like that, we should have more of that, 'specially for me. If I had my own place and a housekeeper/maid I could do things for the benefit of the human race. Or play more skyrim, whichever I felt like.
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Old 02-10-2012, 10:48 AM   #20
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Alright, I thought you really wanted to talk about what this thread was about, but you 'don't give two shits' about the definition of market value and you just keep talking about YOUR arbitrary definition of what is valuable.
That's a great way of talking about economics.
This was a waste of time.
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Old 02-10-2012, 11:14 AM   #21
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I don't put much stock in your definition to be sure
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Old 02-10-2012, 11:25 AM   #22
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I'm not using MY definition. I'm using THE definition of exchange value.
I thought for once you were using your head here but you reverted back to "an argument is saying what I like despite the massive volume of literature and investigation that precedes me. Fuck scientists, I got it right at age 20."
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Old 02-10-2012, 11:46 AM   #23
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The difference is you're fighting a moral battle about capitalism and I'm just trying to pick you up on a dodgy piece of reasoning. There is no way that the modern world economy is worth as much as the outskirts of Victorian Birmingham in any meaningful sense.
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Old 02-10-2012, 12:08 PM   #24
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Alright, then tell me how exactly are prices fixed and why does the creation of more money create inflation?

And the fact that you think this thread is a 'moral battle about capitalism' tells me you haven't really read anything I've written.
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Old 02-10-2012, 02:35 PM   #25
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Alright, then tell me how exactly are prices fixed and why does the creation of more money create inflation?

And the fact that you think this thread is a 'moral battle about capitalism' tells me you haven't really read anything I've written.
Have you read any of it back to yourself?

Exchange rates are all a part of consensus reality. But you don't need a constant total value for an overabundance of money to lead to the devaluation of money, or for prices to fluctuate. Want me to prove it algebraically?
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