The Classical Economists’ Theory of Value Was More Sophisticated than You Think

[@briangilton782]

@BobMurphyAncap -not sure if you see these notes, but if you do. Please do an episode with your telltale breakdown on what economists mean by "margins" or "on the margins." It's something you (of course) say constantly and which takes a front seat in this episode. Land that plane for us!

[@billhartig4805]

Another great video. Love the history episodes.

[@andyroth619]

Stripped down acoustic-version album of songs from the last 4 years please 😍

[@geoffgjof]

It's crazy to me how a lot of the new pop economists who lean left just completely ignore marginal utility.

[@lorenzobolis5166]

Bob is the GOAT of economic podcasts

[@BenEthridge]

If I were dying of thirst I'd give a lb of diamonds for a gallon of water

[@DollyRanch]

explains airport and themepark pricing doesn't it

[@Paul-A01]

If you were dying of thirst, Id charge you a pound of diamonds for my gallon of water

[@John-c4r1o]

If I knew you were dying of thirst I'd charge you more...

[@zigoter2185]

Nice inside. This really brings me to thinking about classical cost-value theory as compared to Marxist LTV. Are they really basically the same thing as many Marxist want you to believe or are there some things in place that separate Marxist and non-marxist LTV (even surplus-value stuff aside)

[@jimothy9943]

The fundamental point is the same, that labour time is the common quantitative measure of exchange. But there are criticial differences, not just in Marx, but in Ricardo and Smith as well. Smith knew that his theory was incomplete and he worked on ironing out the details. Ricardo aimed to complete it, however he too was unable. His primary contribution to the theory was that of differential rent. There were also many points on which he disagreed with Smith. Marx was a great admirer of both Smith and Ricardo, but also a great critic. His primary contribution to the theory was that of surplus value. Marx's LTV is by far the most complete and theoretically robust. There is a reason that Marx is considered to be one of the three "fathers of social sciences". LTV is likely to be the most theoretically and empircally robust theory within the entire discipline.

[@billmelater6470]

@@jimothy9943 How would you assert that LTV is robust at all?

[@jimothy9943]

@@billmelater6470 LTV is internally consistent, has predictive novelty, high predictive scope and is more parsimonious in its explanation of phenomena than other competing theories. It is also highly corroborated empirically.

[@billmelater6470]

@@jimothy9943 So if I were to price one of the knives I make, how would LTV say to do that?

[@jimothy9943]

@@billmelater6470 The LTV is a descriptive theory. Its not normative. It does not say how you should do anything. It attempts to explains what is.

[@garrettpatten6312]

When all you have is a Bob Murphy everything looks like a dead horse

[@jimothy9943]

Your basic introduction to classical theory is okay but it is severely lacking in depth, which is understandable because as the video title suggests, these theories were quite sophisticated. The problem with your video is that you jump from a very simplistic understanding of classical theory to an even more simplistic understanding of marginalist theory and conclude that marginalist theory is superior without any reasoning beyond your own personal biases. You’re aware that Smith and Ricardo had explained the things that you say marginalism simply does better, and insist that marginalism “just makes more sense” so that you must start with a subjective approach. You gave a basic summary of Ricardo, commented very briefly on Smith and virtually nothing else. You do give one of the better explanations of the labour theory of value I've heard from the marginalist side, but you have critical misunderstandings that likely stem from your bias towards marginalism, because marginalism does not even remotely address the questions that the classical economists were concerned with. You mentioned cardinal and ordinal utility but moved on extremely quickly because that is fundamentally where the problem lies. The fundamental question that the labour theory of value was proposed to address is the common quantitative measure of exchange. If (x) of commodity (a) is equal to (y) of commodity (b) or (z) of commodity (c), then a common quantitative measure is a mathematical necessity. It’s an open question what this common measure is, and if it’s not labour time, then it must be something else. Ordinal utility does not qualify, as no quantitative ratio can possibly be derived from ordinal rankings. Take the marginal rate of substitution where MRS = MUx/MUy. If utility is taken to be an ordinal ranking then this calculation becomes mathematically meaningless. In order to make the calculation sensible, cardinal utility must be assumed. However you cannot just simply assume cardinal utility, you must actually quantify it in some meaningful fashion that can also make predictions. This is famously impossible to do, and without a common quantitative measure, the question remains unanswered. Subjective theory and marginalism never intended to answer this question, because it couldnt. They reject the use-exchange value distinction and simply define value as utility then say "a-ha, see value is subjective, therefore labour theory of value is false." The marginalist critique of LTV boils down to two very basic informal fallacies. Equivocation on the definition of value, and begging the question by assuming its own conclusion. The theory is tautological and wholly unscientific. Its unfalsifiable because its consistent with any and all observations.

[@BobMurphyAncap]

Did you read my JLS article? And no, you're simply wrong for assuming we have to find some other thing that is equal, to explain market exchange rates between commodities. We can literally provide (simple) numerical examples in a model economy a la Walras, to show there is nothing lacking in an ordinal ranking approach.

[@jimothy9943]

​@@BobMurphyAncap I did not read your article. I was responding to your video, but based on the reply you gave i doubt it will be any more informative. That's a great argument you have there. Proof by assertion, always a classic. I did not assume that you need to find another common quantitative measure. I gave the argument for its mathematical necessity, which is the basis for the concept of a numeraire, which is essential to any value comparison, both for commodities and currency. This was evident even to Walras. I also gave reasoning for why ordinal utility cannot possibly qualify. This has less to do with economics and more to do with (simple) math. You cannot derive quantitative ratios from ordinal data. Ordinal data is incommensurable with quantitative analysis. There are severe problems with equilibrium theory in general and Walras in particular, such as Hahn's problem and the Sonnenschein-Mantel-Debreu theorem. This is not news to anyone who is seriously engaged in the field.

[@mouisehay930]

Spotted the communist!

[@briangilton782]

@@BobMurphyAncap If I may be so bold, please do a show where you do your telltale user-friendly breakdown on what economists mean by "margins" or "on the margins." It's a turn of phrase you use constantly-in nearly every paragraph you speak. I have a sense for "on the margins" meaning your next choice relative to all other choices. But I'd love for you to break that down a bit more if you're willing? All the best to you, Bob. Love seeing another Grateful Dead fan out there who's a libertarian. With all that peace, love, and freedom stuff those hippies are always talking about, you'd think there'd be more of us out there, right? Now the real question is: Are you a Phish fan, too? ;) Appreciate you tons, Brian Robert Gilton

[@BobMurphyAncap]

@@briangilton782 Maybe try Lesson 6 in this book? cdn.mises.org/essons_for_the_young_economist_murphy_0.pdf

[@goldenplayroblox5985]

.-.