I've been reflecting lately and I've come to absolutely loath the labor theory of value and there are few things that have retarded the study of economics as much as this single fallacy has. The labor theory of value states that a good's value and worth are derived from that labor which it is required to produce it, it amazes me that it took 100 years between Smith and Menger to correct this immense error which gave the Marxists and socialists the building stone from which they needed to construct their doctrines, and then to use them in order to dominate the the intellectual classes.... And very nearly the world considering the popularity of socialist theory between about 1880-1950
Considering the labor theory of value and what it would imply for human nature and the universe shows us exactly how wrong that it is: The starving man does not value ipods, TV's, or even mansions, the starving man values food, so let us take this starving man, and let us produce a logical check for the labor theory of value. The starving man must desire, say, a massive palace that consumed hundreds of thousands of work hours by tens of thousands of people, infinitely more than say, a basket full of apples which I picked in half an hour from a tree that I found in the middle of the forest into which no human labor has ever been placed..... Now how many starving individuals would take this palace, assuming that no food will be available therein, would take the palace over my simple basket of apples? The answer is, very few of the intelligent ones.
Now this is, of course, a very radical example and such a situation has almost certainly never occurred, but the principal is sound, as any theory of value dealing with human economics must decide the behavior of all people definitively to be an adequate theory of value, if any exception is found then it is not a law, merely that which is a common tendancy.... Such as the common man choosing a soda over a bottle of water at a vending machine. Furthermore the labor theory of value opens up a great deal of absolutely fantastic, although absolutely and totally false, possibilities, my favorite of which is this:
Let us take an example of a man named Tom. Tom is a hard working man who has recently discovered the Labor Theory of Value, and is absolutely delighted at its implications. So he goes to a local electronics store and buys a television for 50$, from there he returns home and proceeds to smash the thing to pieces for about an hour and then glues what he can back together which takes him a few days. Afterwords Tom drives back to the store and, looking the person at the cash register in the face and, with a smile on his face and a twinkle in his eye he asks the lady standing in front of him if she would like to buy a TV for 100$, he tells her about all of the hours and the effort that he put into the TV, and the cash register operator is absolutely thrilled at how labor intensive this single TV is, indeed it is obviously worth far more than 100$, at Tom's usual wage rate and the amount of effort that he built into gluing the thing back together it is obviously worth more like 140$ and the cash register operator happily purchases the product for that price. Tom Walks out happy and contented at a job well done.
But now on to far less drastic examples. The first is the famous example about diamonds, one does not care about how much labor was put into extracting the diamond from the ground, if one simply picks up a diamond off of the ground then it is still a diamond and will still receive the market price, although the seller may choose to sell the product for a lesser amount of money than the market price because he no longer has to cover the immense costs of extraction, but this merely changes the direct cost so that the seller can afford to sell the product at a cheaper rate to receive the usual profit from such an exchange.
If the labor theory of value is true, then it inherently entails that nothing else could ever account into the price of a product, and this in turn would have absolutely diabolical implications for human psychology. If it is true then men cannot value anything except for labor, labor and human effort. It would mean that all men must rush to become owners of wealth, no human being could ever resist because there is no value in anything except for value, so all men must immediately rush off to control the most labor, and to purchase the most expensive (and by definition labor intensive) products on the market. Indeed if the labor theory of value were true no Marxist could care about the plight of the proletariat because therein there is no inherent value. Fairness, about the proletariat receiving its fair share, is irrelevant, there is no value in justice, only in labor. There could also be no donations, no gifts, because the labor of others is all that matters, whatever it takes to pull in all of the labor possible, is, and can ever only be, man's only goal.
Finally, the labor theory of value would mean that all products have an irrevocable and absolutely objective value. Let's take product X, product X has Y amount of labor put into it. Therefore, X can only be worth whatever Y translates to in terms of price. There could never, ever, be anything but a single price at any one time for a set of good which has the same amount of labor put into it. There is no such thing as an unfair price, and it is an absolutely unexplainable paradox for the labor theory of value if there is more than a single market price? Why? Because if, say someone is willing to pay Y for X, its proper price, but another man is willing to pay Z, higher than the price, then this would mean that value is inherently subjective, but this is impossible because labor is the only measure of value and it is objective in nature. So this situation, in which two people pay different prices for something must mean two things, the first of which is that the theory is definitively proven wrong, and the other is that one of the two people is being deceived as to the amount of labor put into a product, but once more this would mean that value is relative from person to person and that it is not the labor itself that the individual values, but merely the concept of it, and this line of thought inevitably leads to value being a totally subjective entity because it would mean that value is purely dependent upon the individual's perception of the physical universe, not an objective standard.
If you don't wish to read this mass of text then don't. This was more of something that I just wanted to get off of my chest (it was more a case of something to be written rather than read) because it just makes me furious to think that this was ever the mainstream view, and that this is still respected by some people. Also if anyone finds a problem with my logic feel free to present it to me.
Any further thoughts/feelings/comments on the labor theory of value?
The Late Andrew Ryan:Finally, the labor theory of value would mean that all products have an irrevocable and absolutely objective value
No, Socially Necessary Labor Time would -XD
I mull this over all the time, and it kills me that people still buy into it.
Marxists aren't denying things that are difficult to understand, they deny basic and apparent reality.
...anyways, it's time for me to put a $10 puzzle together and sell it for $200. Or should I scribble on paper for four hours and sell that for $80?
No its not.
I promise you free food, 4 hours work a day only, and voluntary, free health care, free alcohol, etc...
See, now you believe in the Labor Theory of Value, dont you?
There are two ways to interpret the labor theory of value. Descriptively and Normatively.Descriptively, it is obvious that one man's hour is not equal to another's. An engineers hour contributes more to society than a child laborer's. This of course follows from the fact that value is subjective. One might counter that in spite of our subjective valuations, the LTV posits an alternative objective measurement of value. Of course it is true that the LTV is objective, but we aren't given any reason why we have to substitute our subjective valuations for some non sequitur objective standard. As a descriptive theory of value, its on par with valuing things because they have equal mass, or start with the same letter of the alphabet.
Normatively, the LTV is easily dispensed with. It should be obvious that the LTV is a price fixing scheme. If you were ever to implement it, doctors would be paid the same as janitors, with an obvious violation of Libertarian and Utilitarian paradigms.
The costs of production do influence the pricing of items but at the same time, the seller can really only charge what the market will bear. Through marketing, people can definitely be convinced that they need something more than they actually do (I can already hear the Austrians in here screaming "you cannot place judgment on those people's choices!") Maybe I can't, but I can certainly assert that marketing can increase or decrease the subjective value that the market gives to something.
For a good example of the power of subjective value, I think of all those Jackson Pollack paintings that are selling for like hundreds of millions of dollars.
Or I look at Tiger Woods and that whole scandal. It used to be that if you put Tiger's face on certain products, they were more likely to sell. Why? Because people loved Tiger. Now not so much.
In my mind, most things are relative, prices included.
Giant_Joe: I mull this over all the time, and it kills me that people still buy into it. Marxists aren't denying things that are difficult to understand, they deny basic and apparent reality. ...anyways, it's time for me to put a $10 puzzle together and sell it for $200. Or should I scribble on paper for four hours and sell that for $80?
don't marxists believe that something has value only if it 1) has a certain amount of labor, and 2) that labor is useful (or socially necessary)?
That is why this fallacy doesn't jump out at them.
fakename: don't marxists believe that something has value only if it 1) has a certain amount of labor 2) that labor is useful (or socially necessary)?
don't marxists believe that something has value only if it
1) has a certain amount of labor
2) that labor is useful (or socially necessary)?
1) Arbitrary. 2) subjective. Hence, subjective theory of value.
Why do people still believe it?
Giant_Joe: 1) Arbitrary. 2) subjective. Hence, subjective theory of value. Why do people still believe it?
That's what I say. A rather meaningless distinction between labor and socially necessary labor and subjective value. I suppose that's what happens using dialectical "logic"?
I recently debated a Marxist over this very same issue for about 2 weeks. I must say, it was an interesting experience.
For Marxists, value isn't something people think about, in fact, it isn't even something people are aware of. Value, in their world, expresses a series of historical social relations, all of which are exploitative. For them, the economy begins with the process of production, and value is continuously passed down from one phase to the next, until it reaches the final consumer. Essentially, it is the antithesis of marginalism, which starts the investigation from the individual. When discussing the LTV with Marxists, they will tell you that economics is intrinsically linked to society and social relations/specific roles. This is why Marxists will call your logic "bourgeois logic." Starting your investigation with Robinson Crusoe's island will logically refute their framework, but they simply won't accept this. They will tell you that though it is true that Crusoe economizes, has to make choices, and may even engage in capitalistic productions, it's still not a "real economy" because the social relations are not present. Even if you add another person to Crusoe's island to show that the exchange ratio between them is not all dependent on the degree of "socially necessary labor time" (socially necessary is just how Marx sneaks in subjective value), they will still deny your logic. Thus, you can't convince the Marxist of anything, because he gets to define reality any way he wishes, and your logic is a very special kind of logic (they reject the notion of one true logic).
Also, they see the factors of production independently, that is, there is labor, land, and capital (which for them is "dead" or "stored" labor), and worry about distribution (again, intrinsically exploitative). But, as Bohm-Bawerk explained, all factors are necessarily independently barren. No factor can engage in production without the other factors. The process of production presupposes each factor working simultaneously.
You have to remember, Marx and Engles were attempting to create something, an entirely new system, while marginalists and the English classicists were merely trying to explain the system which exists.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
It's important to understand that the LTV was not a a crazy theory at the time it was developed. All of the obvious counter-examples were well known to the classical economists, including Marx. In addition, the theory has the ability to "solve" certain problems that marginalism cannot.
Marx was just taking the Ricardian system to its ultimate implications, adding a normative framework on top of it. He was, to quote Samuelson, a " minor post-Ricardian."
ziragt:In addition, the theory has the ability to "solve" certain problems that marginalism cannot.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK: ziragt:In addition, the theory has the ability to "solve" certain problems that marginalism cannot.its solves the problem of how to propagandise against freedom and property?
It solves the problem of aggregating capital, along with a few other things. However, that obviously does not mean that the LTV is correct. It just means that it has interesting implications.
ziragt:It solves the problem of aggregating capital
How so?
ziragt:along with a few other things
I'm curious. What exactly?
liberty student: ziragt:It solves the problem of aggregating capital How so?
If capital is equivalent to a certain amount of labor, then it can clearly be aggregated. Capital can be reduced to an objective quantity of labor. That's the gist of it. I have a post on my blog about how this can be done (and sort of make sense) in a one-commodity economy. On the other hand, the standard neo-classical K does not make sense on its own terms, if marginalism is correct. I can recommend some reading material on this, if you want.
liberty student:I'm curious. What exactly?
Well, it tells us what the price will be over the long run, for starters. Also, if we use it as an axiom, one can construct an entirely different sort of economics (actually, the LTV is sufficient, but not necessary, to construct a form of economics that makes little or no reference to the consumer).
One more thing: it does not really make sense to criticize the LTV on the basis of these examples involving an individual buying a product. There are implicit assumptions behind such criticisms, which the classical economists did not always hold. In other words, the classical economists theorized using an entirely different framework, in terms of epistemology and methodology. It is borderline nonsense to criticize the LTV from a modern, marginalist framework. The two worldviews are incommensurable.
You might believe the framework is wrong, but criticizing its implications is useless and needlessly indirect.
alright, I'm not super-knowledgeable on the classicals but they seemed to me to be rough empiricists or eclectic in that they half-deduced, half-took-for-granted the things which nature and other writers wrote.
J.B. Say was really the closest to a pure deductionist
I'm not that familiar with Say. I'm mostly referring to the Ricardians and certain aspects of Smith here. I think you are right to some extent that they mixed deduction and empirical propositions (as do all economic frameworks, including Austrian ones). But they also had an entirely different methodology, as well as a different conception of the purpose of economics.
ziragt: I'm not that familiar with Say. I'm mostly referring to the Ricardians and certain aspects of Smith here. I think you are right to some extent that they mixed deduction and empirical propositions (as do all economic frameworks, including Austrian ones). But they also had an entirely different methodology, as well as a different conception of the purpose of economics.
Oh, I'm definitely not familiar with Ricardo and his work. As for the methods issue, I think that they did mix methodologies but I would say that weren't consciously doing this as a methodological principle but, as a person tends to do when confronted with a new field of inquiry, they tended to apply any and all principles to economics just for the sake of getting useable answers.
fakename:As for the methods issue, I think that they did mix methodologies but I would say that weren't consciously doing this as a methodological principle but, as a person tends to do when confronted with a new field of inquiry, they tended to apply any and all principles to economics just for the sake of getting useable answers.
I wouldn't quite say that. It's not that they were inconsistent, it's that they examined the world very differently than we do. Some ideas of theirs might seem ad hoc, but I would argue that they were in fact plausible and coherent, when interpreted as part of an overall system.
ziragt: fakename:As for the methods issue, I think that they did mix methodologies but I would say that weren't consciously doing this as a methodological principle but, as a person tends to do when confronted with a new field of inquiry, they tended to apply any and all principles to economics just for the sake of getting useable answers. I wouldn't quite say that. Its not that they were inconsistent, its that they examined the world very differently than we do. Some ideas of theirs might seem ad hoc, but I would argue that they were in fact plausible and coherent, when interpreted as part of an overall system.
I wouldn't quite say that. Its not that they were inconsistent, its that they examined the world very differently than we do. Some ideas of theirs might seem ad hoc, but I would argue that they were in fact plausible and coherent, when interpreted as part of an overall system.
out of curiosity are there any methodological works by a classical economist?
fakename:out of curiosity are there any methodological works by a classical economist?
Not that I am aware of. Most of their methodology is implicit, and often difficult to interpret. In fact, there are number of competing interpretations out there, particularly of Ricardo and Marx.
The Late Andrew Ryan:Any further thoughts/feelings/comments on the labor theory of value?
My own theory is along the lines of "anything worth having is worth working for". The things that folks value will eternally be subjective, no matter the chains of conformist society, folks will always place value in what they want to. I know I appreciate more, the things I worked harder to get. I feel others may find similar analogy.
Individualism Rocks
ziragt:Marx was just taking the Ricardian system to its ultimate implications, adding a normative framework on top of it.
This is part of why I've never understood why the laor theory of value didn't more or less immiediatly bring economists to socialist conclusions.
The Late Andrew Ryan:This is part of why I've never understood why the laor theory of value didn't more or less immiediatly bring economists to socialist conclusions.
I don't think that socialism is the logical implication of LTV. Marx needed a normative theory to justify socialism, which he found in Kant.
(they reject the notion of one true logic).
"There's more then human logic in the universe."
How they reached that conclusion is beyond me.
Drew Brando: (they reject the notion of one true logic). "There's more then human logic in the universe." How they reached that conclusion is beyond me.
"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it" - Thomas Jefferson.
George Reisman claimes that Adam Smith preemptively refuted both the exploitation theory of interest and the law of falling rate of profit (both central in Marxian political economy) before Marx ever formally introduced them. I can't remember the actual argument right now, but you can find it in Reisman's Capitalism (free pdf available on line).
Esuric:For Marxists, value isn't something people think about, in fact, it isn't even something people are aware of. Value, in their world, expresses a series of historical social relations, all of which are exploitative. For them, the economy begins with the process of production, and value is continuously passed down from one phase to the next, until it reaches the final consumer. Essentially, it is the antithesis of marginalism, which starts the investigation from the individual. When discussing the LTV with Marxists, they will tell you that economics is intrinsically linked to society and social relations/specific roles. This is why Marxists will call your logic "bourgeois logic." Starting your investigation with Robinson Crusoe's island will logically refute their framework, but they simply won't accept this. They will tell you that though it is true that Crusoe economizes, has to make choices, and may even engage in capitalistic productions, it's still not a "real economy" because the social relations are not present. Even if you add another person to Crusoe's island to show that the exchange ratio between them is not all dependent on the degree of "socially necessary labor time" (socially necessary is just how Marx sneaks in subjective value), they will still deny your logic.
Such a great post. I've been thinking about this top down approach the marxist followers likes to employ. They want to create this perfect world from the top down. Making things as they personally see that they should be. They state that people's individual behavior will magically change once their pefect plan is implimented. They hint that propertarianism encourages an inherently violent, exploitative nature.
On the flip side, keeping methodological individualism in check, the Austrians come from the bottom up. Placing Praxeology first, and deducing their understanding of economies from that. So could it be argued that one of the the differences between them and us is this? They see the economy as it should be, from the top down. We see the economy as it would be from the bottom up, using the individuals as our baseline of direction.
Esuric:Thus, you can't convince the Marxist of anything, because he gets to define reality any way he wishes, and your logic is a very special kind of logic (they reject the notion of one true logic).
Yea, polylogism. Perhaps thats one of the reasons that when pointing out a logical fallacy to a Marxist its just shrugged off as if it weren't any big deal.
Another thing that bothers me. Why is it that Communism, defines itself from Capitalism. In nearly half of the definitions and explanation of Marxism/Communism I find, it definds itself in contrast to Capitalism. Shouldn't a self-standing political philosophy be able to stand on it's own self-defining terms, without the need to define itself based on, or in conrast to another?
See here, and consider how many times Capitalism is mentioned. In contrast, how many times is Communism mentioned when defining Capitalism?
Rev-Left states.
Communism is the doctrine of the conditions of the liberation of the proletariat.
Is this a coherent definition for a political philosophy? Lets assume Communism becomes the worlds primary political-economic system(Ignoring the economic consequences). What does it mean to say "Liberation of the proletariat". Liberation from who? From what?
Seems sad to me, that their entire poitical philosophy, defines itself in the contrast to or in the shadow of Capitalism. It doesn't have it's own definition independent from another external political philosophies.
The Communism wiki-page mentions Capitalism 23 times. It's catagorized in the "Anti-Capitalism" section.
In Contrast, the Capitalism wiki-page mentions Communism twice. One of those occurences is in the criticism page, no doubt added by a communist. Socialism is mentioned 3 times. Capitalism is NOT catagorized in the "Anti-Socialist" catagory.
Interesting isnt it?
could it be argued that one of the the differences between them and us is this?
Yes, this (method) is the major difference between the Austrians and the Classical school (not just the Marxians, who are, to some degree, part of the Classical school). The Classical School wasn't interested in analyzing individual human action, which is, after all, entirely subjective and in continuous flux. They wanted to analyze the entire system (society) and focus on what they considered to be objective facts and the invariable laws of nature. This is why, at least in my opinion, they employed this top-down approach, where the laws of value and production (objective natural laws) exist at the highest level (society), and where distribution is governed primarily by the varying interests and bargaining power of the three social classes (defined by their roles in production, namely land, labor and capital).
You have to remember that, according to the classicals, the economy produces tangible, material commodities. The marginalists, on the other hand, argued that the economy really produces satisfaction. This was a major theoretical breakthrough; the analysis was flipped upside down (from nature -> economy -> individual, to individual -> economy -> nature).
Yes because Marxism is inherently emotional. They are, in their minds, defenders of the proletariat, the masses, and we are the evil exploiters and pillagers, who must ultimately fail in this great historical struggle. Our arguments are nothing but the apologist reactions and self-serving rationalizations of the "capitalist superstructure" designed to keep the exploitive system going. In other words, our arguments are automated responses, dictated by the material forces of production which define our epoch. Here's Mises:
Mises: Marx and Engels never tried to refute their opponents with argument. They insulted, ridiculed, derided, slandered, and traduced them, and in the use of these methods their followers are not less expert. Their polemic is directed never against the argument of the opponent, but always against his person. -- Socialism, p. 119
Mises: The essence of Marxian philosophy is this: We are right because we are the spokesmen of the rising proletarian class. Discursive reasoning cannot invalidate our teachings, for they are inspired by the supreme power that determines the destiny of mankind. Our adversaries are wrong because they lack the intuition that guides our minds. -- Human Action, pp. 83-84
Marx shifted the focus away from the logical consistency of the arguments towards the intentions and characteristics of those making the arguments, and we still see this today.
Another thing that bothers me. Why is it that Communism, defines itself from Capitalism.
Because communism is just an ill-informed critique of capitalism which misapprehends reality and cries out against it.
Esuric: