I came upon a video explaining the Marxist view of use value and exchangeable value and immediately saw the difference between the values of Marx and those of Smith.
|Use Value||Usefulness of an object||Usefulness of an object to a person|
|Exchangeable Value||Purely relative, intrinsic value of an object
“(value) expressed in terms of something common to (all commodities)” (Capital 1.1)
|Value of an object to society
“The power of purchasing other goods which the possession of that object conveys” (Book 1, Chap. 4)
|Labour Theory of Value||Value based on mechanical human labour
“human labour in the abstract” (Capital 1.1)
|Value based on pain or pleasure
“toil and trouble”
By reading Marx’s flow of ideas in Section 1 of Capital, I noticed that his mind seems to view every economic thing from the viewpoint of matter first, generaly disregarding the human mind or the perceiver of that matter. In contrast, Smith’s mind in The Wealth of Nations sees everything from the viewpoint of the human mind first by going into the interests of each sector of society. Marx’s mind jumps from physical matter to physical matter, while Smith’s mind jumps from mind to mind, a technique he explains in full in The Theory of Moral Sentiments, wherein he puts himself in the shoes of other people. In a nutshell, Marx takes the materialist approach, similar to Say and Malthus, while Smith takes the metaphysical approach, similar to Hume and Locke.
So what’s so bad with the materialist approach in Economics, or with ignoring the human aspect?
1. Limitations are created.
Matter is immediately finite, mind is less finite. In the lecture, Prof. Harvey correctly acknowledges that ‘exchangeable value’ is the cause of the current economic problem. However, he is unable to create a clear, direct solution. This is partly because Marx defined exchangeable value as something assignable to all objects, and this ‘something’ can only be money. Whereas Smith defines exchangeable value as rooted in the purchasing power of a good, which is then rooted in the toil and trouble saved.
Materialism traps Marxist economics into money, which of course is the expertise of the rich or the bourgeoisie. Marx has no other way to solve this, so his ultimate solution is to eliminate exchangeable value altogether and use only use value. However, without a means to exchange, rationing becomes the only way to circulate commodities in a society. Rationing puts immense burdens on the rationer, usually the government, and opens up possibilities of great injustice, as seen in North Korea and Venezuela. Any attempt to eliminate exchangeable value will only cause those with money to leave, who are usually the experts in industry, creating a bigger problem than the original. This is easily observed in Communist countries.
2. Without the factoring in the mind, economics becomes mechanical and real economic justice becomes non-existent.
By focusing on the physical aspect of labour and removing its psychological aspect, Marx inadvertently turns humans and human economics into machines and machine economics. It is easy to ration fuel to a fleet of cars to keep them running, but no mathematical method can be used to fairly ration food to a nation’s citizens. Even if a country’s whole resource allocation system were condensed into a precise formula, the people would merely play the system to get more resources, leaving more economic injustice to those incapable of playing, which is what ails current Capitalism. In the real world, this is seen in the rise in corruption in Communist countries as people play the system and court the favour of the party leaders.
Materialism caused the problem, so it cannot possibly create the solution
The whole problem of unstable and unjust exchangeable value was created by negating psychology or the toil and trouble of various sectors of society, in favor of either materialist production in Communism or profitable production in Capitalism. Thus, neither system, nor any materialist system that focuses of prices or products, can provide the solution. In fact, the possible solution of Capitalism of Modern Monetary Theory and the Communist solution of eliminating exchangeable value, will only worsen the problem.
Smith’s non-materialist Political Economy can easily solve the problem by focusing on the trade or agreement between the people themselves, instead of focusing on the objects they are trading with. This is embodied in his commodity-based valuation which is explained fully in Book 1 Chapter 5 and Book 4, Chapter 5 of The Wealtth of Nations, and is integrated into our proposed resource allocation system.