[OPE-L:8378] Re: Electronics and Value

From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Thu Jan 23 2003 - 10:05:27 EST

Re Paul A's [8373]:

I don't understand why you interpreted the following:

> 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.

Please explain.  [Note:  for the benefit of others who prefer the MECW
translation, see Volume 29, p. 91.]

> 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 
> norms.

It is entirely possible that individual prices are established "by social
convention" peculiar to 1 or more specific branches of production.
This can then give the appearance that prices no longer have a
relation to the law of value.  However, there is the question of how
surplus value is distributed among capitalists, e.g.  does the 
establishment of the arbitrary 'convention' by some capitalists come 
at the expense of other capitalists?  There is also the possibility, if 
the 'knowledge' commodities are means of consumption purchased
by the working class, that there could be a redistribution of value
from the working class to a segment of the capitalist class.  There is
also the question of rent which you discuss below.

> 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. 

Yet, there is also proprietary information held by corporations which
is only indirectly part of the social 'stock' of knowledge.  The cost of 
that  internal information is accounted for internally or at least can be 

> 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. 

An "innovative idea" is not the same as innovation.  I gather you are
referring to "discovery" (as distinct from innovation).  While it is
conceivable that the discovery of a new process or product can 
occur during one's free time, it is certainly _not_ just as likely
to occur during free time as it does during working time.  That is,
both discoveries and innovations are overwhelmingly produced
during working time (and one could argue that if one is thinking
about an "innovative idea" during one's "free time' then it really 
isn't free time at all but rather unaccounted for working time. Yet,
this working time disguised as free time  _could_ then be
accounted for as a cost.)

> 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). 

True, but there is no way that consumers can know for any class
of commodity to what extent individual prices differ from values.
Putting it in similar terms to what you expressed above, consumers
are familiar with 'conventions' for the pricing of individual commodities,
i.e. they have historical experience purchasing  different classes of
commodities, but they still have no way of _knowing_ whether those
prices established by convention are equal to the value of those

> 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.

We briefly discussed (in December, 2002?) the question of whether
rent theory could be used to comprehend the value of software.  It
was a short exchange as I remember (with Paul C participating). Perhaps
we should return to that question.   
> 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?

Yes, very strange.  

> 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. 

Re brittleness:  this sounds like something that could be empirically 

> Perhaps there is some literature 
> that would serve as a starting point -- perhaps even the literature 
> on land prices and absolute rent??

Didn't you suggest above that for determining the price of  knowledge 
commodities, rent theory was inadequate?
> 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)

This could probably be done if, as you say, your theory is
straightened out.

> * 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!

Well, this could be done empirically perhaps, but what would it tell
us in the absence of a class analysis of  struggles by different segments
of workers?
> * product prices -- compare the evolution over time of the market 
> prices of more vs less knowledge-intensive 
> commodities/products/services

Could be done subject to straightening out first.

> Marx's discussion on automation in the Grundrisse suggests that 
> advanced capitalism poses  challenges to the price system's ability 
> to coordinate economic activity. 

More anarchy?

> 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. 

Some empirical work, e.g. by  Allin and Paul C, suggests that 
underlying labor value is a good predictor of commodity prices
in  contemporary advanced capitalist nations, e.g. the UK 
and US.  This doesn't seem to me to be consistent with your 
assertion. [NB: I am not endorsing the conclusions of the AC/PC
empirical work here, I am simply noting that there are empirical
studies which do not seem to be consistent with your thesis.] 

> 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.

I'm not sure of a way that we could test that proposition, but I am 
skeptical of the idea that there has been increasing instability
over the long term in "each specific market".

Solidarity, Jerry

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