[OPE-L:8373] Re: Re: Electronics and Value

From: Paul Adler (padler@usc.edu)
Date: Wed Jan 22 2003 - 12:08:36 EST

I have been following the thred on Electronic and value, and would 
like to submit to the list a cluster of thoughts -- if I have things 
right in my reading of Marx, I am hoping this might make for a 
useful, empirical research agenda. So, with you forebearance, here 

My starting point is the Grundrisse:
"As soon as labour in the direct form has ceased to be the great 
well-spring on wealth, labour time ceases and must cease to be its 
measure, and hence exchange value [must cease to be the measure] of 
use value." (705)

That is: Science becomes increasingly central to productivity 
improvement, but that makes the market system of coordination 
increasing ineffectual.

My hunch is that because of the public-goods nature of knowledge, the 
pricing of knowledge intensive goods/services/assets cannot be 
determined "economically" (classically, by socially-necessary labor 
time requirements, or even neoclassically, by supply and demand) -- 
because these requirements are essentially indeterminate.

Instead, I conjecture, these prices will be determined by social 
convention. How does a law firm set fees? Or a commercial R&D 
company? I think these firms set prices by reference to non-economic 

Expanding on this -- Is the following reasoning tenable?

1. Suppliers of knowledge-intensive goods are not sure what price 
would cover their costs, for two reasons. First, the main source of a 
firm's innovative ideas is society's total stock of knowledge rather 
than assets held privately by the innovating firm. Given the 
public-good character of much of that knowledge stock, identifying or 
justifying a "raw materials" cost for new ideas generated from this 
knowledge stock is difficult. Second, an innovative idea is just as 
likely to arise during free time as on the job, so identifying a 
"transformation" cost is difficult. Whereas competition between 
suppliers of most other types of goods drives prices toward their 
marginal costs, no comparably grounded "supply schedule" guides the 
price of knowledge.

2. The customer side is no easier. The potential customer for an 
innovation typically cannot judge the worth of the idea without 
having its secret revealed, and intellectual property protection is 
cumbersome and expensive (Arrow's old point). Moreover, intellectual 
property rights, compared to property rights in other kinds of 
assets, lack a legitimating material substratum.  See (1) on  the 
difficulty of determining the price of knowledge based on its 
production cost; the alternative basis would be rent, but rent is 
only a viable price-form when the asset in question is not 
reproducible and is rivalrous in use, whereas knowledge (at least in 
its codified forms) is reproducible at close to zero cost and 
nonrivalrous in use. Its price is therefore less grounded in any 
material considerations: it is purely a function of convention and 
relative power. Lacking a legitimating material basis, intellectual 
property is amongst the most contentious of forms of property (could 
we show this??). Perhaps that is why patent rights are so often 
bundled and bartered in dyadic trade rather than sold on open markets.

Of these 2 sets of concerns, the supply schedule ones seem more 
troublesome and we could imagine that the demand schedule ones  might 
not be insuperable. But even if only the supply schedule disappears, 
surely price formation will become very strange, no?

3. If this reasoning is approximately correct, the prices of 
knowledge-intensive goods should behave differently, be more 
"brittle," no? I imagine that we would find them more stable for 
longer periods, and changing thru radical breaks rather than gradual 
evolution. But I don't yet have a good theory with which to 
characterize the differences between conventionally-determined rather 
than economically-determined prices. Perhaps there is some literature 
that would serve as a starting point -- perhaps even the literature 
on land prices and absolute rent??

If we could straigthen out the theory -- and if there was anything 
left to my brittleness hunch when that was done -- then you could 
imagine testing that  hypothesis on:

* asset prices: compare the evolution over time of the stock prices 
of more vs less knowledge-intensive firms (as measured by R&D 
intensity or % of labor force in professional categories)

* labor prices: compare the evolution over time of the prices of more 
vs less knowledge-intensive forms of labor (i.e. more vs less skilled 
and schooled) -- this complicating the list's discussion of the value 
of complex labor!

* product prices -- compare the evolution over time of the market 
prices of more vs less knowledge-intensive 

The basis motivation of a study of these issues for me would to show 
that capitalism encounters its own limits as the forces of production 
progress and become more socialized (i.e. become more knowledge 
intensive) and bump into the limits of capitalist relations of 
production (here: market based pricing).

Marx's discussion on automation in the Grundrisse suggests that 
advanced capitalism poses  challenges to the price system's ability 
to coordinate economic activity. The labor theory of value (Marx 
says) isn't his theory, but is rather the theory that capitalism 
itself relies on, and as capitalism develops, this theory becomes 
increasingly obsolete, because labor becomes a less significant and 
identifiable factor of production. As a result, he "value form" 
wobbles increasingly unstable on a narrowing base. Thus: 
"instability" -- leaving aside the question of macro economic crises 
(that's an open question!) then, I read him to say, growing 
instability in each specific market.

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Prof. Paul S. Adler,
Management and Organization Dept,
Marshall School of Business,
University of Southern California,
Los Angeles, CA 90089-0808
USC office tel: (213) 740-0748
Home office tel: (818) 981-0115
Home office fax: (818) 981-0116
Email: padler@usc.edu
List of publications and course outlines at: http://www-rcf.usc.edu/~padler/
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