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Marx was wrong about economics (and everything else)

Swiss LibertarianOct 30, 2020, 4:20:54 AM

Marx was a fairly stupid man - he never even understood trade

An intelligent man is able to understand basic logic. Not so Karl Marx, who is still considered an "intellectual". Yet he made catastrophic errors right at the start of his entire thinking process that undermined everything else he ever said about economics and society.

The most fundamental error can be found on page 1 of "Das Kapital".

He claims that for a trade to be "fair", the value of the traded goods must be "equal" to some 3rd type of good that would have to be "of equal value to both of the goods traded". In other words, he thinks that what is traded has an "objective" value and that people trade for "equal value" for the trade to be "fair".

He forgets that one never trades for something of "equal" value, as that would be pointless.

People only trade for something that they see as having a greater value, to each participant in the trade, than what they give up!

The added value they each gain from the trade must also cover the transaction cost they both incur - which includes the effort of gaining information about the traded good, engaging in the trade, the communication with the trading partner, perhaps a negociation and a written contract, moving the actual goods in person or by some shipping service or arranging for the implementation of services bought etc.

Transaction costs can be quite significant and cannot be neglected and they affect both sides of the trade.

So the gain from the trade must not only be superior to the goods, money or services given to the trading partner, but superior to this value plus the transaction cost - for both participants in the trade!

To put it in a simple formula

Let us assume that there are 2 trading partners, A and B:

  • The value of what A gives up in the trade is vc (A) - the cost to A, either in terms of money, goods or services.
  • The transaction cost to A is tc (A).
  • the benefit from the transaction to A is is vb (A)
  • For A to engage in the trade and consider it a net benefit, vb (A) must be greater than vc (A) + tc (A), so vb (A) > vc (A) + tc (A)
  • If vb(A) is equal to vc(A) + tc(A), then A wasted his time as he is no better off than before the transaction.
  • If vb (A) was just equal to vc (A), A would have incurred a net loss corresponding to the transaction cost tc (A), so he would be worse off than before the trade.
  • The same applies to B. Note that tc (B) is not necessarily equal to tc (A). Transaction costs may vary enormously.
  • If one assumed that there is such a thing as "objective value", as Marx presumed, then trade becomes impossible. He claims that a fair trade would imply that vc (A) == vb (B) and vc (B) == vb (A), while totally ignoring the (variable) transaction costs and the fact that no one would engage in a trade for no benefit at all, even if transaction costs were zero.

The only way trade can be explained is if we accept that "value" is subjective.

In other words, trade happens because the perception of the value of the traded goods or services are completely different for each participant in the trade and cannot be expressed in terms of some "objective" value.

To a man who owns a lot of apples, one more apple has almost no value, but to a man who has no apples, one apple may have a enough value to engage in a trade in which he gives up something of value to the seller of the apple.

The man who builds a business growing apples gains greatly by selling apples, while his clients gain by buying apples from him. Both are better off than before, as each gained something of greater value, to each, than what they gave up.

The labor invested in the production of a good is completely irrelevant to the buyer - he does not know or care. All he is interested in is the final product or service he is buying. He judges the value he gets only in terms of his own personal value scale!

If all value is subjective, then there is no such thing as "surplus value", an absurd concept Marx introduced, unnecessarily, just as all the other ridiculous concepts with which Marx tried to "explain" value that was clearly not linked to resources or labor.

Marx was totally incapable of explaining why the same good can have zero value to one person and a very high value to another.

Example of subjective value

To illustrate this, think of a ticket to a major sports event which some people will pay hundreds of dollars for. Some people are so passionate about sports that they will pay way more than the official ticket price, if they failed to buy one on time.

To me, a ticket to a sports event would be worth nothing, unless I could re-sell it. If I could not resell it for some reason (too little time, too much effort, prohibited by rules), it would have a negative value, as I would have find a trash bin to dispose of it. I would not want to go to a sports event.

This is a perfect illustration of subjective value.

The Labor Theory of Value is absurd

It's amazing that Marx & co never saw through the logical absurdities of the labor theory of value. No one knows how much labor went into a good they buy, so the price a buyer is willing to pay has absolutely nothing to do with the labor and resources invested. One cannot put a value on unknowns. The only thing the buyer knows is what a good represents to him, personally. The same is true for services - a buyer wants to have a job done. If the worker charges by the hour, then a better worker can charge more, as he will be done in less time. To the buyer of the service, it matters if the job is well done and at a low cost.

The production cost or effort does not matter to the buyer

Take cosmetics: the actual manufacturing cost is about 1 - 2% of the market price clients are willing to pay. Businesses that try to sell cosmetics at a lower price generally do not succeed, as the clients will consider the low price as implying a lack of prestige, which is what they are buying when they buy branded products.

A study in Columbia found that even in poor households, women insisted on spending a large amount on "beauty products", even if their spending reached 15% of a tight family budget. Marxists try to claim that this is a result of "marketing", but ignore that cosmetics were already present in ancient Egypt, as proven by artifacts and references in hieroglyphic texts, and were greatly valued.

Clients are not "mislead" about the product's value. They actually want such products to be expensive, so that it confirms them social prestige when they own them. Social prestige is a very real thing. People will always find something that will fulfill that role. In Eastern Europe, under communism, carrying a lage bundle of keys conferred social prestige. It meant that one had access to goods behind locked doors. Maybe food or information.

The idea of an "egalitarian" society is a sociological impossibility that goes against every biological constraint. People always sort themselves into different social categories, which is largely driven by sexual competition. It is totally independent of economics per se.

Even in an extremely wealthy society that has totally overcome absolute poverty - as for example in Switzerland, which provides very generous social aid to poor people - social differences persist and there is nothing politics could ever change about this.

Mao tried very hard by forcing people to wear identical, ugly clothes, removing cosmetics, destroying all beautiful objects etc. but all he could do was to destroy the entire Chinese society as he made everyone equally miserable ...

Socialists' systematic logical failures

Karl Marx was an idiot - he could not think logically and coherently about anything. He took some random observation and tried to build an "explanation" for it that was always convoluted and nonsensical.

He never did any research, he never gathered data or verified facts. He made up random claims and when reality obviously failed to comply with his assumptions, he lied. Contrary to his assumptions, industrialization did not "impoverish" the workers - it enriched them enormously in an way that was totally unprecedented in human history!

Child mortality in England fell massively from 1800 to 1860, to the point that the British population exploded, triggering the mass emigration of British people to every corner of the planet. That was due to the much better housing, healthcare and food workers enjoyed.

Marx did not see that coming. He thought that the "profits" of the industrialization went all to the factory owners and that the workers were "exploited", when in reality, only a tiny portion of the wealth created by the factories went to the owners in the form of profits - what was left over after all the production costs, salaries etc. had been paid.

The workers benefited twice: by earning wages that gave them an income that they would never have dreamed of, before, and by providing them with affordable goods such as clothes, shoes and food, that would have been totally unaccessble to them, before.

In the pre-industrial age, clothes were so expensive, for poor people, that they were part of a person's inheritance - parents passed on their clothes to their children ... sometimes with whatever germs had caused their death.

Marx assumed that industrialization had "solved the production problem", which was utter nonsense. Factories had increased human productivity, but only for a small number of goods. Marx did not understand that entrepreneurs would be able to create an infinite number of new and previously unthinkable goods if they could invest capital unhindred by an oppressive State.

All socialists have a static vision of society.  They do not understand that stagnation - the attempt to live in an unchanging society - invariably leads to mass poverty and chaos, because the world itself changes at avery instant, thus requiring a flexible, rapid adaptation.

Human demographics change, people are born, others die. education and the requirements of education change, sexual competition is intense, inter-generational conflicts will always be intense, so are inter-cultural conflicts, the climate changes - 100% naturally! - resources and their availability change, illnesses come and go, animal populations change, in short, the idea that one could simply determine some fixed "distribution" of a fixed stock of goods, housing and labor is completely absurd.

No amount of data, not even with the best computers, will ever allow central planners to make good decisions about what other people should do or how resources should be used.

The latest iteration of the Marxist folly is the "Great Reset", a catastrophically stupid power grab by arrogant fools who are too dumb to understand their own limitations - if they even care and are not just in it for the power.