Marginal utility vs LTV
The beauty of the competitive free market is that in the absence of interference it makes it possible to dispose of "Marginal Utility" prices. This is why I have respect for competitive free markets in the first place.
Of course there is a disclaimer. Even a competitive free market is not a panacea. Too many things can still go wrong. It may happen that not enough information is available to consumers. Consumers could be gullible to a degree when fraud is more profitable than honest competition. There may be production bottlenecks or shortages of row materials. Markets participants could become locked in a negative-sum game, which the consumer must pay for. Or there could exist a monopolized market somewhere else, and its effects can spread like cancer, poisoning the otherwise healthy segments of the market. Not to mention the overhead when each producer has to employ its own clerical staff, and the possibility that having a large number of small competitors may destroy the economy of scale.
Having said that, in those happy situations when none of these restrictions apply, a competitive free market can be surprisingly efficient. And then we enjoy the LTV price of goods and services (LTV stands for the Labor Theory of Value) that remains the Holy Grail of Marxists. There is, of course, some extra overhead in the amount of 5-10% to allow for a small profit margin, but let's get real: 10% is not something to get obsessed about. As far as economic theory is concerned, it is well within the margin of error.
The trouble starts when American enterpreneurs begin to explain why they should derive their prices from "Marginal Utility". Wikepedia defines the concept thus: "For example, a ration of water might be used to sustain oneself, a dog, or a rose bush. Say that a given person gives her own sustenance highest priority, that of the dog next highest priority, and lowest priority to saving the roses. In that case, if the individual has two rations of water, then the marginal utility of either of those rations is that of sustaining the dog. The marginal utility of a third unit would be that of watering the roses."
So if you listen to this theory, then you have to recognize the constitutional right of businesses to charge $100,000, $1000, and $10 for the first, the second, and the third unit respectively.
But unfortunately for the Marginal Utility hypothesis, the harsh reality of competition instantly destroys these rosy income projections. What will happen in reality is that the person will dispatch the neighbor's boy to the nearest well to bring the first, the second, and the third unit for a buck apiece. Poof go the dreams of our dedicated enterpreneurs! The LTV has put a ceiling above the price of water. Water doesn't cost more than $1 per unit because producing a unit requires only $1 worth of labor. If some ambitious individual tries to charge more, then someone else is aways ready to do it for a buck.
OK, water is realy a commodity, but the same idea still applies to other consumer goods, and to production goods as well. Replace water with a tractor, a computer, or some measuring instrument. As long as there are thousands of small factories that could take the order, the situation will not be any different. Those of us who remember paying $3000 for a lousy 486 computer with a flickering screen and a dial-up modem will agree that if they had to pay $3000 for the computer on their desk, they would accept that price. Luckily for us, we can always turn to AMD if Intel takes the Marginal Utility theory too seriously.
Does it mean that Marginal Utility has no legitimate role to play? Of course not! We can't avoid it when we consider some expensive project like taking a tourist to the Moon. After all, the expenses in such a project could well exceed the maximum price that anyone will pay. One can say that here LTV is currently greater than Marginal Utility, and so it's the marginal utility analysis that discourages us from launching this money-losing project.
Of course LTV also comes with its limitations. If everybody in the village is already employed on the nearest farm, then you'll have to offer them something like $7 an hour for the water. By the same token, if every factory is already busy with other orders, you may have to pay more than LTV price, though less than Marginal Utility price. You are competing with other consumers for the valuable factory resource. So one needs to have lots of factories in order to use LTV. If Karl Marx were appointed president of Afghanistan tomorrow, electricity would still be priced based on Marginal Utility until enough power plants are built.
But of course technology marches on, and eventually you have an overproduction of capital chasing ever diminishing returns. And then one day there comes a moment when the developed state of the economy well justifies LTV pricing of both consumption AND production goods, but the capitalists still feel nostalgic about those $100,000 units of water. And then you get a Marginal Utility Theory whose purpose is to discredit the idea of a buyer's market.