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.