Exchange Value - Other Theories of Exchange Value

Other Theories of Exchange Value

In modern neoclassical economics, exchange value itself is no longer explicitly theorised. The reason is that the concept of money-price is deemed sufficient in order to understand trading processes and markets. Exchange value thus becomes simply the price for which a good will trade in a given market. These trading processes are no longer understood in economics as social processes involving human giving and taking, getting and receiving, but as technical processes in which rational, self-interested economic actors negotiate prices based on subjective perceptions of utility. But armed only with prices and subjective preferences, it becomes difficult to understand market realities. Professor John Eatwell has summarised the overall result of this approach as follows:

"Since the markets are driven by average opinion about what average opinion will be, an enormous premium is placed on any information or signals that might provide a guide to the swings in average opinion and as to how average opinion will react to changing events. These signals have to be simple and clear-cut. Sophisticated interpretations of the economic data would not provide a clear lead. So the money markets and foreign exchange markets become dominated by simple slogans--larger fiscal deficits lead to higher interest rates, an increased money supply results in higher inflation, public expenditure bad, private expenditure good--even when those slogans are persistently refuted by events. To these simplistic rules of the game there is added a demand for governments to publish their own financial targets, to show that their policy is couched within a firm financial framework. The main purpose of insisting on this government commitment to financial targeting is to aid average opinion in guessing how average opinion will expect the government to respond to changing economic circumstances and how average opinion will react when the government fails to meet its goals. So "the markets" are basically a collection of overexcited young men and women, desperate to make money by guessing what everyone else in the market will do. Many have no more claim to economic rationality than tipsters at the local racetrack and probably rather less specialist knowledge."

Among the very few attempts in the modern era to genuinely theorise economic exchange is the autodidactic businessman Alexander Gersch. Gersch writes in the preface to his book:

"In economics of all topics value is most disputed. This is because the theory of exchange which lies at the threshold of our science forms a connecting link between problems of a purely economic nature and the social. Moreover it acts as a point of departure for theoretical inferences affecting the entire domain of human economy. Its abstract nature renders an objective approach quite difficult and for all who have ventured to overcome these impediments it turned to be a stumbling block. Thus by its nature the theory of exchange value is a most ungrateful topic to be dealt with. Yet, being of essential importance to economics and a problem which was not solved, it invites adventurous minds to attempt its solution." (On the Theory of Exchange Value, p. v)

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However, in paragraph 101 on p. 631 he arrives at a concept of exchange value not very different from Marx's, voicing the splendid non sequitur that "Economics must take into account both the objective and the subjective background of exchange value because these interact."