# [OPE-L] Value and price (again)

Date: Sat Mar 03 2007 - 18:39:52 EST

```To indicate my interpretation more clearly, a simple sketch - consider the
value-forms of a produced commodity at different stages:

1) production stage: the commodity has an emergent value and possibly a
hypothetical price;
2) finished product, before sale by the producer: it has a value, but just
exactly what that value is, is rather indeterminate; we can say it took a
certain amount of labour hours to produce (its unit labour-cost) and we can
estimate this is above/below or equal to the current general norm for that
product in a branch of industry; even so, there is no perfect mathematical
exactitude possible here. We do not know exactly what fraction of society's
total labour-hours is involved.
3) Exchange value of the commodity: this refers to the quantity of (any)
other commodities that it would normally exchange for, providing somewhat
more exactitude about its value. Once we know a trading ratio, we could also
e.g. compare the respective quantities of labour-time involved, but there's
no guarantee that the trading ratio expresses an equal exchange of labour
hours, or that it will stay constant.
4) The potential supply price of the commodity: the exact money price that
is the asking unit-price, or the price it will most likely fetch.
5) The actual unit-price of the commodity that is realised upon sale.
6) How the actual price result is accounted for.

Point (1) is that in real business, ideal prices and current sale prices for
that commodity are data, which are being used at every stage from production
to sale, i.e. the producers operate within a certain "price regime", in
which real or ideal money-units act as an ongoing yardstick to indicate the
commercial viability of the proceedings, and account for the capital
involved. Even here no mathematical perfection is possible, insofar as
prices change over time, costs are not completely quantified or open to
interpretation, losses of some kind occur during the process, transaction
charges apply, there are misinterpretations or calculation errors, the
time-factor changes prices etc. Nevertheless money-prices are the most exact
measure practically possible, and the bottom line is that the commodity is
sold for a specific actual price. At all stages, an active process of
"valuing" is thus going on (these days finance controllers talk about
"value-based management").

Point (2) is that although the ideal and real prices used seem very exact,
in reality they are changeable and sometimes conditional (subject to
qualification). It is not just that there may be a discrepancy between the
potential price and the actual price fetched, but also that the currency may
be subject to inflation, that some kind of price negotiation goes on, that
the use of credit modifies the prices, that conditions change within an
accounting period etc. Yet, for the purpose of accounting for production
costs and revenues in an interval of time, we require definite prices
obtained with a standard procedure. Then it turns out, that pricing is not
necessarily as simple as sticking a price-label on a product, since to
arrive at standard prices we may have to make some adjustments. We might
begin to reckon with all kinds of prices to arrive at price aggregates
reflecting the valuation standards required by the auditor, and thus, the
valuation we achieve in the end may differ to some extent from the actual
prices obtained (perhaps even by an unknown amount); we have in effect some
price aggregates which are ideal prices.

Point (3) is that prices are numbers, and numbers can be computed exactly,
giving the glamour of precision, yet in the real world prices are changeable
and sometimes it is difficult to establish exactly what they are or were, so
that we have to impute or estimate. So although prices seem to offer
scientific precision, in reality they often don't. Prices are nice when
they're predictable in a regular trading process, but they can be
unpredictable in an irregular trading process.

Point (4) is that "aggregate labour hours worked" cannot be established with
exactitude at any level of analysis, even if hypothetically we knew exactly
when every employee clocked in and clocked out for a whole year. Because
apart from sickies, accidents and the like, we do not know the actual amount
of time each employee is "on task" producing something. In the best of
cases, "aggregate labour hours worked" is only an estimate.

Point (5) is that when you think all of this through, as Oskar Morgenstern
did, you might well ask: how is it possible to have any precise knowledge
about an economy at all, or even an individual business? All we really have
is the law of averages, ranges of likelihood, margins of error, and known
norms in describing a trading process in motion, that in reality evades the
sharp and exact definitions such as we might construct.

If anything is clear here, it is that it takes theory to understand the
economic process, but the real question is what knowledge the theory can
achieve.

Jurriaan
```

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