How is new value created?

[Alan]

Yes. If you can, yes, I do.

[Elystan]

Turns out I can't, at least not without an unacceptable level of tedium. Feel free to consider me rebutted.

[AshleyO]

How about retarded?

[Alan]

It's not retarded. He was making two arguments at the same time and conflating them, but the one that wasn't with his own personal definition of value is perfectly valid and something I have to account for.

Case in point, a good year in the market is that which grows 3% during the year. What does it mean for the market to grow 3%? How can it grow if value can't be added?
This is a question he didn't ask but one that I still have to account for and the question he was hinting at even if he didn't know enough about economics to phrase it.

[HumanePain]

Originally Posted by Alan

It's not retarded. He was making two arguments at the same time and conflating them, but the one that wasn't with his own personal definition of value is perfectly valid and something I have to account for.

Case in point, a good year in the market is that which grows 3% during the year. What does it mean for the market to grow 3%? How can it grow if value can't be added?
This is a question he didn't ask but one that I still have to account for and the question he was hinting at even if he didn't know enough about economics to phrase it.

The market may grow three percent or fall three percent, but the market is still inside the total system. People may have shifted three percent out of porkbellies and into gold or real estate. The total value remains constant. Am I correct or am I in over my head?

[Alan]

I want to say it's that too, but it would be just an assumption so far as I don't know enough to say if every market added up would bring up the same value.
It certainly makes sense from the induction of Marx, but then what is it that makes us say one year was a good year for the market and another year was a bad year, at an international level?

[Elystan]

I don't think that the rest of the argument really does fall apart if we allow for variation in total value. All that other stuff about wealth concentration still holds true.

[Despanan]

Yo Alan,

So I've been working on a conclusion from this argument, and also trying to find some people who might be able to point me in the direction of empirical proof.

I had an interesting objection to the argument that new value cannot be created. I don't think it's right, but I thought I'd bring it to you since I'm only recently starting to learn about this econ stuff.

Originally Posted by A guy

Uh, the problem with all of this is that Marx, and by extension your entire theory about capitalism not creating value isn't entirely correct; especially since the entire world uses fiat currency.

Short version: finding a giant cave full of gold decreases the relative value of all the rest of the gold on the market and hurts the people that had money invested in same, because the value of their gold has gone down since it's less scarce, unless the sudden influx of gold was met with an equally sudden increase in demand for gold, in which case the value of the gold wouldn't fluctuate at all.

In the Marx theory, the value of an object is determined solely by the supply of that object, whether it's meat, land, gold, or robot hookers. The problem with that, and the fundamental issue with your argument is that value is actually determined by a combination of the supply and the demand for the particular object. Marx's theory treats the economy like a zero-sum game, which makes sense when you remember that he was writing during a time when all the major nations of the world used a gold (or precious metal standard) which meant that a nation's money was a finite concept based on how much specie they held in reserve. It was still incorrect back then because value was determined the same way, but it was easier to arrive at a faulty conclusion when the paper money in your pocket was backed by actual gold somewhere.

The economy, and by extension value isn't a zero-sum game, and in fact the argument above about capitalism not adding value is just another way of phrasing the "for a man to get rich, another man must get poor" fallacy.

This doesn't seem right to me, so I responded thusly:

Originally Posted by Despanan

Marx was wrong about a lot of things, and he was right about some stuff back then, but now is wrong because the game has changed. Similarly, he's right about a lot of stuff too, and, as the game has changed so significantly, IF he's currently right about THIS particular point, it has some pretty big implications for today's market.

Correct, but even if that happened, if Marx is right the gold wouldn't just devalue gold, it would also devalue other seemingly unrelated markets.

Early Marx, like Adam Smith before him based value on the Labor Theory as well as supply and demand. However, due to the Marginalist revolution we now know that they were incorrect, value at least as most mainstream economists understand it, is not contingent on Labor necessarily, but Marginal Utility.

Modern Marxists usually consider Marx's early theories quaint, but as I said, we've moved on.

Can you provide some empirical evidence that Marx is actually wrong here, or in some way prove that value can be created? I'd be very interested to see evidence to the contrary of the theory I provided. That's why I posted it here.

To which he responded:

Originally Posted by Guy

While money isn't technically the same as value, the precise definition of value is the worth of a good or service as determined by the market, and money is the handiest way of indicating that.

The Austrian school of economics has some good ideas, but the idea that fractional reserve banking causes inflation is pretty thoroughly rejected across modern econ. There's a huge difference between FRB and the .gov adding more money to the money supply, in that the latter definitely causes inflation. FRB is like evolution: just because some crazy people in Kansas don't believe it in doesn't mean it's any less true. And since FRB proves that econ isn't a zero-sum game, Marx can't be right.

Which doesn't seem right at all, but I'm curious if you think it disproves it.

[Saya]

This thread just makes me wonder if there's an economics for dummies book.

[Alan]

The guy you're discussing with, his ideas only work if there were a way to prove than with the infusion of any new form of currency, that currency still holds its exact same value as before.
If it were to hold the same value even though more of that currency has been created, then bam, you got right there new emergent value. But that's not what happens. Marx's concept that we're addressing here is not dependent on having nations all follow a gold standard; if anything the fluctuations in different currencies' exchange rate is a better example of Marx's point than if we still had a global gold standard - I can't see how he sees it otherwise.

He mentions fractional reserve banking, and how it doesn't create inflation, and that is true, but only if a bank run doesn't happen. If it does, then you have a crisis, which shows that this doesn't challenge the internal logic of the theory we have on our hands.
It does point to something that has been hinted at, but hasn't been openly said: total market value CAN change, but only temporarily and it still goes back to the same plateau in the long run. Fractional Reserve Banking works only in good faith, meaning it can only stand if it isn't unraveled. In the same way in one day the whole totality of the market could be hypothetically purchased cheaper than it would have been the day before but that is because of the delay in affecting the whole market and varying speculations in trading futures. Once again, this is accounted for by marginal utility theory. Wealth is made in the differences of expected value from one point in time to the next, whether through supply and demand, exchange rates, or investment in futures (that last one is how OPEC fixes its prices)

[Alan]

I found this entry on wikipedia.
http://en.wikipedia.org/wiki/Quantity_theory_of_money

This quantity theory of money sort of says the same thing. I don't know enough about it yet to say if it reaches the same conclusions, but it certainly approximates them, and note how it says that "While mainstream economists agree that the quantity theory holds true in the long run, there is still disagreement about its applicability in the short run."
We're not talking about the long run here; I do believe marginal utility is right and make it accountable for short-term fluctuations.

However before passing judgment on this I also found Schumpeter's Credit Theory of Money so I have to learn if and how they conflict.