Do you believe in the debunked labor theory of value?

I sent out a tweet the other day that said:

Many hate those with wealth; but when did a poor person ever build a factory or a store and create jobs?

Some deluded leftist on twitter who actually calls himself “Unlearn Economics” (@UnlearningEcon) took exception with that obvious truth and told me in so many words that the poor build everything and create all wealth. I suppose the fool wants us to “unlearn economics” because basic economics teaches us that it takes accumulated wealth to have investment capital to build new production capacity. This is the typical envy of the left rearing its ugly head yet again — no wonder envy is listed as one of the seven deadly sins. The modern American left hates anyone, other than themselves of course, who become wealthy.

The delusion that this poor envious fellow is laboring under is his mistaken belief in the discredited “labor theory of value”. Classical econom­ics from the 1770′s until the margin­alist-subjective schools arose in the 1870′s were confused by the problem of value. Economists believed that there was a relationship between how much human labor went into making a thing and how much that thing was “worth” or how much it was “valued.” Their theories were that the laborers on the job “produced the value” all by themselves or in other words that labor alone was the creator of wealth.  Reality told us that these economists were wrong since the price of a thing does not depend upon how much you spent to produce it or how “hard you worked”. Some things that have taken much human labor to produce can only be sold at a fraction of the cost in labor that it took to produce it, and sometimes it can not be sold at any price at all. Back then there was the observation that an uncut diamond would bring a higher price on the market than an in­tricate mechanism like a clock and that told many observers that the labor value theory was clearly wrong.

Of course, in my tweet I talked about building a factory or store and creating jobs. The deluded left seems to think that all that is necessary is for a crowd of men to walk to an empty field, build a factory equipped with machinery, and start producing computers or cars! The lunacy of the wealth hating left is beyond comprehension. Who paid for the land? Who paid for the tools to work with? Surely you don’t expect men to start with only their bare hands and build a modern factory.

What about a retail store? That would be simpler to build I guess, but who pays for the land to build it on? If you could manufacture building materials by hand you would still be left with the fact you only have an empty store and one in a non-prime location since you had no money to buy prime real estate.

In 1871, Austrian economist Carl Menger’s book appeared, Principles of Economics. The Mises Institute makes it available for free here. Menger took issue with the classical economists, including Karl Marx, who had argued that the value of any asset is derived from the value of the labor that was used to create it. Not so, said Menger. Economic value today derives from forecasters’ expectation of future demand by consumers.

Of course, this expectation may be wrong. Future consumers may decide not to buy the item or service. In this case, the asset’s value will be close to zero. The producer will suffer a big loss. The fact remains that the labor invested in the production of the item is a sunk cost. It’s gone forever. Its value is gone forever. Think “dry hole so far”

In short, economic value is not intrinsic and objective. It is imputed and subjective. This insight launched Austrian economics. ~ Dr. Gary North

I have members of my extended family that came originally from a very poor fishing village in the Philippines. Until a few years ago the village did not even have electricity. The idiots who hate wealth accumulation must think that the only thing stopping these villagers from building a modern car factory is pure laziness since no accumulated wealth is required according to them. I do however notice that no group of left-wing Americans have ever rounded up a crowd of destitute Americans and shown them how to produce a factory and products with only their bare hands so that they could make themselves better off — and why they have not is obvious to all people other than the American Left itself.

American leftists are all some flavor of communist to this day. Since the fall of the USSR and given the sad example of poverty in North Korea or Cuba few modern leftists will claim to be communists anymore. In fact many will even claim to be libertarians! But when push comes to shove they want to loot the rich: they preach theft and violence.

As a side note, it is often the free market, one without any force, intimidation, or fraud (no government intervention in other words) that the leftist really hate. They hate the idea that a free market will produce great wealth as it did in the West during the industrial revolution, but that some will become much more wealthy that others. Modern leftists would rather see an impoverished world where all are equally miserable — well, other than a tiny group of ruling wise ones. By coincidence the ‘ruling wise ones’ that the leftists envision just happen to be themselves!

Murray Rothbard once described the free market thusly:

The Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a news dealer for fifty cents, the news dealer and I exchange two commodities: I give up fifty cents, and the news dealer gives up the newspaper. Or if I work for a corporation, I exchange my labor services, in a mutually agreed way, for a monetary salary; here the corporation is represented by a manager (an agent) with the authority to hire.

Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.

Modern liberals (or progressives) just hate the idea of free and voluntary exchange as they believe that the unwashed masses need their protection and of course they intend to “protect you” via government intervention.

As a disclaimer, I would like to note that in the US today we do not have a laissez-faire free market but rather have massive government intervention and a crony-capitalist (economically fascist) system. There are many, many people who became wealthy by using the force, fraud, and intimidation of the state rather than by serving their fellow man in a voluntary free market. These evil bastards don’t deserve their ill-gotten gains, but that does not mean that that a market freed from state intervention is evil like the deluded leftists preach.



6 thoughts on “Do you believe in the debunked labor theory of value?

  1. Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange value.

    • Jehu,

      I read the various tweets this morning. At times you say “labor theory” and at times “value theory” and I assume that was just twitter shorthand for “labor theory of value” or LTV for short.

      I saw your tweet that “Value theory doesn’t explain any particular price; it explains prices themselves — why things have prices.” Economists will be surprised to know that all LTV does is try to explain why prices exist in our world. Very surprised I wager. The Austrian School will explain to you that the price of a thing depends on the subjective value put on it by the prospective buyers. Their subjective evaluation is impacted by many things, marginal utility among them.

      But, you must have missed the reason for the post itself. It was right there in the first part of the post. I was responding to the idiot who claimed that all that was needed to produce value was labor. If you are trying to argue that, then I think you will have to agree that you have just disagreed with economists of all schools of thought. What economist would argue you can build a car from scratch with your bare hands?

      But as to the LTV itself, it ignores the problem that we need labor, capital, and land for production, not just labor. Marx’s so-called “transformation problem” tries to square that circle but the simplest response is to give up the labor theory of value and admit that the Austrian School’s ideas on subjective value and marginal utility have won the day in economics.

      For example, if you pay 10 men $10 per hour for 10 hours to turn lumber into furniture LTV might assign the furniture produced a value of $1,000 times 2 or $2,000. If you pay the men the same amount for the same time to turn the wood into sawdust would the sawdust be worth 2,000? Good luck selling it!

      The Austrian School’s subjective theory of value is simply the only idea that makes any sense except where they use the raw force of government to assign prices to things by the whim of some committee someplace and even then there will exist a black market that operates as the Austrians describe.

      • Yes. I do mean labor theory of value, or LTV for short. Let me make a few comments. My purpose is not to establish the LTV is “right” and economics is “wrong”, but to show why the two should not be confused with each other. If after my comments you still think economics is “rgith”, that is fine. On many questions economics comes to the same conclusions as labor theory.

        Economists will be surprised to know that LTV seeks to explain prices because, in their conception, prices have always existed. On this basis they have decided prices do not require an explanation in general, but why a particular object has a particular price. This is a distinction that must always be maintained between economics and LTV: nothing is taken for granted until its existence has been explained as a category of analysis. It should be clear based on this that LTV is not a school within economics, nor a different approach to economics. It is a description of how societies develop directly social labor out of labor carried on individually (understood broadly as production on the basis of kinship groups) and for the satisfaction of the needs of the producer herself.

        I did not miss your response, but to address a particular point you made. The person making the assertion that all that was needed to produce value is labor is absolutely correct: In labor theory this is not at all surprising, since we know that even a singer, who employs no other instrument or means than her own voice, can produce value just as readily as a mining operation employing equipment and land — hence, tickets sales for opera.

        In any case, to be clear: It is not true that LTV ignores the problem that we need labor, capital and land for production. It simply states that the source of value is labor. Land as well as labor are the source of material wealth, but this material wealth is distinct in LTV from value itself, while, in economics, value and material wealth (usefulness or use value) are assumed to be one and the same. This is another critical distinction that must be made between economics and LTV: material wealth, i.e., the product of nature and labor, is not value. Value is a historically constituted form of material wealth, not wealth itself.

        Contrary to popular opinion even among most labor theorists, the transformation problem is not intended to “square the circle” on the problem of prices in a capitalist society, but to demonstrate why it is impossible to “square the circle” on the problem of prices in a capitalist society. In this sense, Bohm-Bawerk was entirely correct that a contradiction lies at the heart of Marx’s model. He was, however, wrong when he assumed this contradiction was the result of Marx’s model. Marx only disclosed the contradiction at the heart of capitalist prices. Economics has “won the day” on prices, because LTV does not seek to resolve the contradiction between capitalist prices and value, but to explain why it cannot be resolved and the implications of this fact.

        I like your example of the ten men paid ten dollars for ten hours to produce either furniture or sawdust. (I assume that with the multiplication times two you are including an average rate of profit of 100%. Is this true?) Let me offer something startling here regarding your example: This is exactly the point of Marx’s argument: Both the sawdust and the furniture must have the same value so long as the furniture or the sawdust have usefulness for someone other than the producers. Saw dust, for instance, is used in particleboard, insulation, and even food products. The key thing here is not the form — furniture versus sawdust — but that either must find a social use, a use for someone other than the producer, and that this must result in a transaction involving money. On the other hand, the price of each might vary greatly, depending on various forces in the market.

        Marx’s response to your final point might be that value must appear as a subjectively determined category because the price of any object can vary wildly, although the value of the object remains unchanged. This is why it is necessary to go beyond the fluctuations in the market — which explain nothing — in order to investigate not any particular prices, but the nature of price itself in order to arrive at a proper understanding.

        • As I understand your words, you are saying that your use of the word “value” stands outside of economics which seeks to explain human action in the face of scarcity. Hence, I suspect you are just looking for some mystical and universal “value”. If so, have fun with that but don’t expect many to care what your personal take on any theory of value is.

          Austrian economic theory is really praxeology or the study of human action. It is obvious that people seek to trade objects and services to make their own situation better. Some fellow will put a value on a thing A and offer to trade that thing to another fellow who has put a different value on that thing. It is the difference in subjective valuations at a given point in time that makes barter or trade in “money” work. A thing that you value highly today such as a bottle of wine on Saturday night might be of much less value on Sunday morning. So we see that time plays a part to boot.

          You say that a singer might sell tickets to a concert on the “worth” of her voice alone. Fine. Who built the hall? Who made the instruments for the band? Who provided the tables to sit at? Who printed the tickets? Who paid the ticket takers? There is a lot that might go into a concert and someone has to front some capital — and experience — to pull it off.

          If a thing, like air, is in super abundance then it is not a subject of economics and is “free”. If a thing is not wanted by any human then it is of no value. But if a thing is both scarce (to whatever degree) and is also desired or needed by humans then we say it has economic value, and if it have value we seek a theory to explain that value.

          The value of a thing can not be just labor, nor just labor along with means of production and land on which to work. There is also the judgment of what will be needed and wanted by the consumers in the future. Will the people want my produce a year from now after I go to the trouble of investing in having it made?

          Consider the movie made for $250 million dollars that no one wants to see. A colossal bomb. The subjective theory of value explains that while the labor theory of value is worse than useless.

          There is a raw hatred of any accumulation of wealth by certain people, and many rich people are god damn jerks, but it takes accumulated wealth (capital) to start an enterprise and create jobs for the common man. I don’t care for many large corporations in this country as they are in bed with the government and so are part of the evil that the state is — but in a laissez-faire free market situation then we will still see companies and some may even grow to be large outfits. Whatever the market decides. NOTE: “The Market” is just shorthand for saying what 7+ billion people decide by their voluntary actions as they trade with one another.

        • To be sure, I am most certainly not talking about my “personal take on any theory of value”. Everything I stated to you can be confirmed by reading section 1, of chapter 1, of Capital, Volume 1, where Marx sets out his fundamental premises on the distinction to be made between value and material wealth (utility) that will guide his analysis.

          If you think I am misrepresenting him on anything, please call me out on it. You can find that section here:

          There is no question that subjective valuation comes into play in prices. Any number of subjective or other concerns determine what one will pay for one object versus another of similar quality. All we can take away from this is that every particular price paid for objects in the market is inexplicable. Again, economics seeks to establish what determines a particular price, while LTV seeks to explain prices themselves — why things have prices.

          Your objection to my example of the singer can be resolved simply by asking what the singer will charge for a concert in her living room, where everyone stands, she is performing acapella, there are no tickets, and her sister collects the gate.

          Air, water and virgin land, of course, have no value in labor theory. They are themselves the natural wealth which form the premise of all human life and productive action. Including them in this discussion only confuses things. But, in any case we agree that these natural objects, which do not rely on human action for their existence are outside the discussion. And we both agree that if an object has no usefulness to others it cannot have any value.

          As to your argument, “The value of a thing can not be just labor, nor just labor along with means of production and land on which to work. There is also the judgment of what will be needed and wanted by the consumers in the future”: In individual production, where the producer provides only for her own needs, all production consists of just this minimum of necessaries. There is no judgement about “will be needed and wanted by the consumers in the future”, since the producer is also the immediate consumer of the product of labor. Since she is both producer and consumer, she need labor no longer than is necessary to satisfy herself.

          Once the producer is no longer producing for herself alone, but for society at large, she now has the problem of estimating the social need for her product and of regulating her labor time to satisfy this need. But this is no easy thing: not only does she not know all the possible consumers of her product, she has to contend with other producers who also seek to satisfy this same need with their products. How long she should labor and to what end is now a matter of a guesstimate. She no longer has any knowledge of the value of her product — whether she will receive in return all, a portion, or none of the labor she advanced.

          Finally, Yes. There is a lot of hatred of the accumulation of wealth by the capitalist, because the creation of wealth is in fact a common undertaking of the whole society whose product is monopolized by a handful. Marx argued they “usurp and monopolize all advantages of this process of transformation”. Even you, who feel threatened by this popular sentiment, can clearly see this usurpation expressed in the collusion of the large corporation and the state. However, this collusion is not exceptional; it is simply an attempt by magnates to monopolize for themselves the product of the labor of 7 billion people.

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