Marx points out that most of Bailey's comments are plagiarised from the anonymous “Verbal Observations” discussed earlier.
Bailey makes a near identical comment to the verbal observer. He says,
““Riches are the attribute of men, value is the attribute of commodities. A man or a community is rich; a pearl or a diamond is valuable” (op. cit., p. 165).” (p 162)
But, Marx points out that diamonds and pearls may represent riches for Man, who places a high regard upon them, but there is nothing intrinsic about a diamond or a pearl that makes it valuable, any more than there is anything intrinsic about gold that makes it more valuable than, say, iron. What determines the value of both gold and iron, is not their intrinsic qualities, as metals or use values, but the labour-time required for their production. Much less labour-time is required to explore for, and extract a given quantity of iron ore, and to turn it into metal than is required in the case of gold, which is why gold has a much higher value, for any given weight, than iron. And, it is only on that basis that an exchange relation between them can be established.
“There is, in actual fact, a very significant difference (which Bailey does not notice) between “measure” (in the sense of money) and “cause of value”. The “cause” of value transforms use-values into value. The external measure of value already presupposes the existence of value. For example, gold can only measure the value of cotton if gold and cotton—as values—possess a common factor which is different from both. The “cause” of value is the substance of value and hence also its immanent measure.” (p 163)
By contrast, Bailey, unable to identify an objective third term, which can act as a common quality, and thereby quantitative measure of value, descends into psychology to seek an answer to the problem. But, as described previously, the later theorists of subjective value also pursued this route, and despite 150 years, and billions of Dollars in trying, they still have been unable to provide any psychological basis upon which the utility of an apple can be compared with the utility of an orange, so as to establish any rational exchange relations between them.
Bailey writes,
““Whatever circumstances … act with assignable influence, whether mediately or immediately, on the mind in the interchange of commodities, may be considered as causes of value” (op. cit., pp. 182-83).” (p 163)
But, the irony is that the one characteristic of a commodity, which Bailey, and the other proponents of theories of subjective value exclude from the process, which influences the mind, in determining their preferences, is the value itself of the commodity, or indeed simply the market price. They have to do so, because their theory requires them to discuss the category of value as something independent of what goes on inside their heads. However, in that case, as stated earlier, how explain the high demand for gold, when its price rises, during periods of uncertainty and inflation? Its utility, its intrinsic physical qualities change not one iota during such periods. The demand for gold, during such periods, can only be explained on the basis that the main characteristic of it, its major utility, is that it itself represents a large store of value, in a relatively small volume. If the value of gold, according to the subjectivists, is only a function of consumers' preferences for it, they are left in the ridiculous position of explaining the high value of gold, by the high level of consumers' preferences for it, and and then explaining those high level of consumer preferences by the high value of gold!
And, that is true also of all forms of speculation. It was not the utility of tulip bulbs that drove demand for them to astronomical levels, but purely their rapidly inflating prices. It was not the utility of technology shares that caused their prices to rocket in the late 1990's, but their rocketing prices that caused the demand for them to rise. It is not any fundamental change in the utility of houses that has caused house prices to rocket, but their rocketing prices that caused speculative demand for them to rise, in turn driving up land prices. As soon as those speculative prices stop rising, the consumer preference for all of these objects of their gambling disappear overnight, and their prices collapse. In each of these cases, it is not consumer preference that drives price, but price, and changes in price that drives demand. The main utility they provide is nothing intrinsic to the object of the speculation, but purely the belief that the price will rise further.
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