Monday, June 1, 2009

Where Marx's Pricing Theory Falls Apart

Karl Marx believed that all things could be priced based upon the hours of work input in their creation. So, for instance, a wooden cabinet is worth the hours a person put in making that wooden cabinet. He might have made some arguments that the hours it took to build the machines used for making the box would also go into the cost of the good, but he still primarily focused on the idea that the cost of something was related to the work put into it.

The idea sounds great on the surface. It ignores the different values of other inputs - the raw materials being worked on - as a predictor of value. That's one of the more glaring flaws. He also assumes that all goods are, in essence, commodities. One wooden cabinet is the same as another, in this example. So a cabinet made of press board sold at Wal-Mart only differs in value from a handmade, custom-built oak cabinet by the number of hours a person (or persons) took to build it. Certainly, one might argue that more hours go into the oak cabinet - but only if the person putting together the press board is generally good at doing so. If the same number of hours are used in the end, then the value of the two is the same, according to Marx.

The difference in the value of those hours begins to appear in my comparison. Is the value of an hour of work by a trained carpenter the same as the value of the hour of an untrained (in relation to carpentry) purchaser of a Wal-Mart do-it-yourself pre-fabricated cabinet? Certainly not, at least not in the eyes of consumers. Marx may have tried to account for the difference by suggesting a multiplier be used for skilled labor versus unskilled. Whether he actually did make such a suggestion is unclear. The problem, therefore with Marx's theory about pricing stems from his own misunderstanding of the marketplace. Goods are not commodities - one good is not the same as another, in many ways. Certainly a desk is not the same as a lawn mower or the same as a computer. Nor are people commodities, or their skillsets - the worker who can build a computer might be able to be build a desk, but not at the same speed as someone skilled in carpentry. In other words, he ignored specialization, the value of training, and - quite frankly - the value of human ingenuity. So many of the rest of his theories built on this sameness his pricing theory relied on, that the whole idea of Marxism falls apart. Since Marx was one of the father's of socialism, it begs the question, is socialism equally flawed as a theory? If the theory is flawed, then should we plan our government around it?

I say no. I leave the rest of the world to decide for themselves.

-- Robert

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