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09/21/2011: "Das Kapital and Exchange Values"

I've been slowly reading Das Kapital (yes, that* one, by Marx, or at least an English translation*) much to the astonishment of my wife and no doubt others. It seems to me that this kind of book can only be read slowly, as the text is quite dense (and occasionally convoluted, though not so bad as Keynes from what I've heard). I expect to have several more posts on this topic as I go through.

Pretty early on in the book, Marx reviews his labour theory of value. This is the theory that the value of an item is based solely on the labour that went into producing it. Seeing the obvious objection, he clarifies that an item made by a slow labourer would not be more valuable than one made by an efficient labourer. Similarly, increases in efficiencies due to mechanization decrease the value of the labour. As such, he states the value is based on the average labour required to produce an item or commodity. I think it would be much more accurate to say that the value is based on the minimum labour required to produce an item, which is considerably different than what Marx said.
Actually, I think the whole theory is rubbish, and has been thoroughly discredited economically and historically, but that's actually beside the point I wanted to bring up.

In the run up to the statement of this theory, while discussing terms and assumptions, Marx states implicitly, if not explicitly, that there is a single rate at which one commodity will exchange for another:

Let us take two commodities, e.g., corn and iron. The proportions in which they are exchangeable, whatever those proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron

(emphasis mine)

To be sure, he does accept that this exchange rate will vary in different places or times. However it still seems he is labouring (pun not intended) under the assumption that at any given place and time there is one accepted rate at which to exchange one commodity for another.

If this were true, it would make auction bidding entirely redundant. At best, such an event could be considered to be a discovery of the exchange rates. Still, everybody at an auction would understand these rates intrinsically, and bidding wars would be a non-issue. I mean, why would one person want to pay more for a thing if there is only one price for it.

To be fair, he was not the only person to propose or promote an economic theory that there might be a single exchange rate or price for a thing. In fact, the whole of economics prior to what I think is now called "neoclassical" rested on that concept. However, many people still think there is, or at least should be, one "proper" price for a thing, and that any large deviation from that price is unhealthy at best or even immoral.

If you don't believe this, consider two simple terms: price gouging and predatory pricing. Both terms are loaded with all kinds of negative denotations and connotations, but what are they? At their core, they are significant deviations from the proper price of a good, but for that to be a useful consideration there must exist a proper price for that good.

If much of Das Kapital rests on this assumption, it is a rather large crack in its foundation, if not an outright hole. I will continue reading to see what else may rest on this.