According to Bailey, the value of labour is equal to a certain quantum of use value given in exchange for it. On this basis, whether these use values are plentiful or scarce, labour will always be exchanged for this same quantum, so that its value remains the same. But, in that case, the same should be true for every other commodity. If, today, I have €1, and it exchanges for 10 apples, then, tomorrow, whether apples are plentiful or scarce, it should still exchange for 10 apples, whether more or less labour is required to produce apples.
“The most ordinary merchant does not believe that he is getting the same value for his £1 when he receives 1 quarter of wheat for it in a period of famine and the same amount in a period of glut.” (p 150)
For Bailey, the only determining factor is how much of A, at any particular time, the owners of A are prepared to give up, in exchange for B, as opposed to how much the owners of B are prepared to give up in exchange for A. In other words, the basis of this exchange relation is purely arbitrary and uncertain, from one moment to another. The Austrians, like Bailey, do not seek to provide any underlying basis for it, other than the Earth shattering observation that “people act”! The marginalists attempt to provide a psychological basis for the rate of exchange, based upon the preferences of individual commodity owners. But, none are prepared to accept that whilst the demand for my commodity is a function of these preferences, the producers of these commodities do so on the basis of value, and not use value. The producer of widgets does not supply 1,000 widgets, because the €100 they obtain in selling them represents greater use value/utility. They do so, at least if they want to stay in business, because this €100 represents a greater quantity of exchange-value than they have had to expend in producing the 1,000 widgets, or, more correctly, than they will have to expend to produce a replacement 1,000 widgets.
It seems a very odd aspect of theories of subjective value that the one thing they refuse to include as one of the factors determining these preferences, particularly the preferences of commodity producers, is the actual cost of production of the commodities they are considering in the process of exchange. I had a discussion with a supporter of the neo-Austrian School, once, in which they put forward this concept. We must establish a firm basis free of other complications that can apply for every exchange, they began. Such an approach is, of course, ridiculous, because it is ahistorical. Suppose, they went on, you found a bicycle behind your barn. You have no great use for the bicycle, but need a comb. Would you not then be prepared to exchange the bicycle for the comb? If I were to endlessly find bicycles behind my barn, I replied, in other words, if they were free goods, like air, which has no cost of production, the question of value does not arise, and nor does the question of exchange-value. I will be happy to give away an infinite quantity of such free goods that miraculously appear behind my barn like a cornucopia, to obtain other things I desire. But, in that case, why not assume that any other commodity I desire magically appears behind my barn? Or, why not imagine that every other person exchanging such goods gets theirs in infinite quantity from behind their respective barns, in which case it is impossible to determine any limitation on rates of exchange, so that the concepts of value, exchange value, and price all become redundant.
But, in the real world, commodities, like products before them, have to be produced before they can be consumed, or exchanged, and that inescapable fact, which is the basis of The Law of Value, is the determinant of the value of products, and commodities, which thereby forms the basis of exchange-value. Tell me what it would cost me to reproduce the bike, and what, therefore, I have to obtain in order to be able to reproduce it, as opposed to what it would cost me to reproduce the comb, and I will tell you whether I would exchange it or not, I replied to my antagonist, or whether I would exchange the bike, instead, for €10, with which I could buy 100 combs!
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