Re: [OPE-L] The Law of Value and Rib Tips

From: Gerald_A_Levy@MSN.COM
Date: Sat Feb 12 2005 - 09:21:11 EST

Hi again Phil:

Previously I reproduced  Red Kronstadt's question:

> "At every step *these two erstwhile commodities share identical costs
> of production*.  And yet, in spite of the fact that there is a greater
> weight per pig of ribs than rib tips, at any given BBQ stand *a, say,
> pound of ribs will cost you more than a pound of rib tips*. [with added
> emphasis, JL]  Why?."

You replied:

> Why not?

Your question is cryptic.

RK's  "why?"  must have been because s/he believed (mistakenly,
in my view) that the law of value requires that commodities with
equal costs of production should have equal market prices.  The
underlying presumption seems to be that the LOV requires that
the market price of any commodity should equal its value.  This
premise is incorrect in my view, but answering his question allows
one to explain the multitude of ways that individual commodity
values do not necessarily equal individual commodity market

If someone accepts the distinction between value and market
price, then your question -- "why not?" might be a reasonable
initial reply.  But, as I understand your perspective, the value
of any commodity is equal to the quantity of money it sells for.
Hence,  _you_ especially  should answer the "why?" question
since the divergence in price between ribs and rib tips can not
be easily explained if one conflates price with value.

> > RK suggested a situation in which both rips and rib tips are sold by
> > the pound.  Of course, there *are*  2 separate commodities.
> How do you know this?  There are certainly two use-value types and very
> often  the use-value type is a good marker for a commodity. But not
> always.  The use-value type and the individual commodity are different
> entities.  There is no reason why the ribs and the tips cannot be material
> bearers of a single commodity.

I recall that you have mentioned the "law of one price" (LOOP) in
previous discussions (a "law" that I have questioned the existence of).
If there is a LOOP then if there was only 1 commodity it should have
only 1 price.  Beyond that, I would say that we can observe in the
market because consumers are willing to pay prices / pound
of ribs that are different from the prices / pound of rib tips that
consumers have demonstrated that they view the use-value of
each as being different.

> The question
> -- which unless I missed it you haven't answered -- is:  *what explains
> the difference in price where you have two related commodities
> produced by  the same firm with identical costs of production*?
> > Explanations could be sought but they would have nothing to do with
> > value theory.

Nothing to do with value theory?  Not quite.  But, clearly the level of
abstraction required to satisfactorily answer RK's question is different
from the level of abstraction where prices are assumed to equal values.

> > I have a couple of  additional, special questions *for you* (which seek
> > to probe your perspective further):
> > 1. How can it be that:
> > *  the value of ribs (Rv) /pound is = to the value/pound it sells for
> > (Rp) and
> > *  the value of rib tips (Tv) / pound is equal to the value/pound it
> > sells for (Tp)
> > *  when Rp does *not*  = Tp
> > *  but the costs of production of ribs (Rcop) / pound =
> >    the costs of production / pound of rib tips (Tcop)  ?
> Again, why not?

Because according to your perspective -- unless I have misunderstood it --
Rp should equal Tp.  The challenge for you posed by RK's question
is to explain a situation that _does_ exist that your theory tells you
should _not exist_.

>>  2. Has demand no role at all in determining the relative prices of ribs
>> and rib tips?
> None, since prices are not determined at all.

One still has to _explain_ the relation of values to market prices.

> No doubt they are caused by many things including sunspots.
> But not determined.

What commodity prices are caused to change by sunspots?

> Has any economist ever determined the price of a cup of tea?

The price of tea is determined in the marketplace. Suppose, for the
sake of argument, that the price of tea equals the value of tea.  Now,
suppose that the price of tea goes up.  Unless one has a theory that
explains the divergence of price from value then one is forced to
conclude ipso facto that the value of tea has gone up. One's theory
of value then collapses into subjectivism.  For instance, if there is
a shift in demand from coffee to tea causing the  relative and
absolute price of tea to go up then one has a perspective that
allows for any number of factors other than living labor input to
cause an increase in  commodity value.

In solidarity, Jerry

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