Thank you for this! I've been wanting to write an essay about this for a long time but now I can just point to yours. It always bugs me when people say things like "people deserve to be compensated for their labor", or, worse, "you have to appreciate this work of art because clearly it took a lot of effort to create". It seems rude to bring up Mein Kampf as a counterexample, maybe I'll use your wavy swords thing instead.
One reason I think people hold on to this intuition is that we teach kids that effort is important, and we teach this by attaching value to effort directly. E.g. "A for effort", participation trophies, "showing up is 80 percent of life", "genius is 2% inspiration and 98% perspiration". This is fine, we want to encourage kids to put in the effort because usually effort is a good thing, and its benefits are not immediately obvious. But we don't do a good job at teaching that *productive* effort is the actual goal.
As a complete non-economist, I have a perhaps out of left field question: why do we care what Adam Smith, David Ricardo, Karl Marx etc thought? Really smart guys and all that, but hasn't the field of economics progressed far beyond them? I mean, physicists respect Newton and Maxwell but don't base their arguments on disputes among that generation of scientists, or chemists with Priestley and Faraday. And I suspect that, great as they were, Weber and Durkheim do not dominate what sociologists say to each other.
The only field that seems similar to me (based on limited knowledge) is philosophy where Hegel, Hume and the like still define much of the dialogue.
Is the labor theory of value just a curiosity from those early days or if it still represents a live debate that has continued on since their time, what would that imply?
The field of economics hasn't so much moved past Marx et al., so much as they have ignored them. I like to think current economics simply studies the economy as is, without explaining what it could be or where it truly came from. The problem with this is they can only model the capitalist economy as is, but they still struggle to deal with things like constant market crashes, externalities, etc.
For this very reason, economics is constantly evolving. They change their minds as fast as they change clothes, and theories even as old as 20 years are being thrown out constantly because they are lacking a crucial element in understanding economies. ( In fact if you ask me, it's a failure to properly consider the social elements Marx brought up)
I'm being very light about it, btw. In actuality this is an extremely sensitive topic in economics. Many will tell you that they rejected the LTV because it doesn't conform exactly to the capitalist ideal of an economy. The fact of the matter is that the economy and politics are completely intertwined, it's at least part of the reason no one talks about LTV anymore.
So, in a hard science like physics you can move past old theories, but in economics there are still unanswered questions about what exactly value should be, and it's because of that social/political element.
"but in economics there are still unanswered questions about what exactly value should be"
This wasn't even necessarily what Marx was trying to do. It's true that he was influenced by Hegel and wanted to make a name for himself, but he was still trying to be a scientist -- in the sense that he wanted to describe the world around him. He wanted to make predictions, but unfortunately, most of his predictions have been demonstrably false.
In other words, he wasn't making a normative assessment of value nor is any economist. They're trying to describe it, not figure out the morality of it.
"Many will tell you that they rejected the LTV because it doesn't conform exactly to the capitalist ideal of an economy."
No, they reject it because it fails to accurately depict what is seen in the world. It has nothing to do with how economists "feel" or "think" about a capitalist society.
“If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator. I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls. What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.”
A few misconceptions on LTV here. I think Smith, Ricardo, Marx etc said that 'value' = the amount of labor you can buy with it - they didn't say that prices = labor hours. By the 18th &19th century people already knew that prices were a function of supply and demand.
The caveat is that their conception of 'value' isn't the same as our conception of value/ usefulness/ utility. LTV says that 'value' is a constant and intrinsic property to socially necessary labor. So if you compare a chicken farmer in 1900, who produces 1 chicken per hour of labor with a chicken farmer in 2000, who produces 10 chickens per hour of labor, LTV would say that a modern chicken farmer only has to offer up 1/10 of his 'value' per chicken. 'Value' to LTV is literally just another word for number of hours of useful labor put into something.
Marx assigned an additional term to the concept modern economics now associates with the 'utility', and that's 'use-value'. So he would say that 1 chicken in 1900 has the same use-value as a chicken in 2000, but a chicken in 2000 would have only 1/10 the 'value' as a chicken in 1900. Though use-value is not EXACTLY the same thing as 'utility' though, because Marx believed that use-value was intrinsic to the good. In other words, he thought that the intrinsic properties of bottled water quenching thirst and being portable was a use-value intrinsic to the good, not the consumer. So he'd say that a water bottle is useful in the sense that it quenches thirst, even when nobody is thirsty.
And yea, he basically squares that contradiction by simply assuming that water bottle allocation is already optimal. And of course this is the root of the knowledge problem in the socialist commonwealth: by assigning intrinsic 'value' to labor, and assigning intrinsic 'use-value' to goods, you still haven't solved the problem of HOW to assign these values productively.
With all due respect, I don't think there's any misconception here! It's definitely possible to define a relative price as the amount of labor you have to exchange something, and Smith definitely does this. This is perfectly consistent with supply and demand, and fits perfectly with the modern understanding of relative prices that is taught in econ classes today. As for Ricardo, he played around with the the idea of labor costs as value added, but ultimately discarded it.
Looked into it further, and it seems the way it relates is that labor value (labor hours) is equal and proportional to 'exchange value'. And they define 'exchange value' as the "proportion at which a commodity can be exchanged with another commodity". Of course, these people thought of exchange value as intrinsic to the good, meaning two goods of the same "objective value" were interchangeable.
But they didn't view exchange value as being identical to price. They realized that S&D could render a $5 valuable commodity $10 on a market, given supply was low and demand was high enough. Marxis claimed that capitalists and traders underpaid workers (relative to their intrinsic value) and overcharged for commodities (relative to their intrinsic value), and that's how they made money. Hence why he said they were parasitic. And that actually would make some sense if value truly was intrinsic.
Marx didn't equate exchange-value with price, but are you sure Smith and Ricardo didn't? They didn't use the term "exchange-value", to my knowledge...?
Yeah, Marx termed exchange-value. But in the words of Smith: "The value of any commodity...to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities."
I read this as being a reference to what Marx called "exchange value", which is what they think of as the intrinsic value of a commodity - not its price. He's saying that the intrinsic value of an exchangeable good is EQUAL to the number of labor hours you can command. I don't think Smith was under any impression that this intrinsic value of an exchangeable good is the same thing as the price of that good.
Because if he meant "the value of any commodity" to mean price, then he must necessarily not believe in supply and demand, as it's demonstrably not the case that the PRICE of any commodity equals its "labor value" (in the LTV sense of labor value).
A quick aside on the CEO example. It seems to assume two things that are by and large not true: (1) that corporate executives have visionary decision-making abilities, (2) that they are compensated for them. For (1), going back to Herbert Simon, authors who study decision-making in corporations show that all of your typical human cognitive biases and limitations are present in executives (and often exacerbated by the hubris of status), even the highest-paid ones. And for (2), executives are extraordinarily insulated from the bad outcomes of their decisions, and so have very little incentive in becoming these decision-making oracles. Plus, in reality, the day-to-day of an executive is rarely about making these pivotal decisions (which, in any case, are always pre-massaged by armies of strategists and consultants); rather, they spend most of their time fighting fires, arbitrating disputes, and being spokesmen/figureheads for their companies.
The more interesting and realistic version of this is: top executives are *celebrities*, or more charitably, charismatic leaders. Their value comes from their trustworthiness (to employees, boards, and market analysts), ie, their perceived ability to "rally the troops" (20th century "company as army" version) or to "hold the space" (21st century "company as community of purpose" version), so that the aggregate output of the employees is decisions and products that are well aligned with the company's strategy and that make money in the market.
I like what you are saying. I thought the CEO who tries to make and design chips reminded me of Xerox-PARC - they didn't capture much value but the work done there sure created a lot (in a sense I care about.) The technological (& concommitant labor specialisation) substrate all this supervenes on may benefit from an investment, even if the firm making the investment is making a huge mistake and goes to the wall.
Founders, CEOs and financiers have their role, but it really depends what their innovations are, whether the value their firm captures has actually been created by their labor or just sucked out of employees or locales by normal old evasion of taxes, labor laws, deceptive advertising, lawfare etc in new clothes.
Or as Lou Reed sang, some people work very hard and still they never get it right.
It's very right to trace LTV back to ancient social ethics, but first we need to look at the more recent history of industrialization from which the current Marxist version sprang. In that context LTV was never really an earnest theory of how prices were set. But LTV's true function in Marxism has always been something else: as a rhetorical tool for framing a complaint that a capitalist class was exploiting an entrenched position to grab more than its fair share from a working class. This is how LTV is still used by Marxists today.
Marx and the relatively few Marxists who have genuinely cared and written about value theory indeed add on a demand factor that turns LTV into a nothing-burger. But that's beside the real issue, which is whether a capitalist class is entrenched and a working class is exploited. That issue was addressed in the 20th century with progressive taxation, regulation of working conditions and unionization. But globalization and corruption of representative politics have effectively eliminated progressive taxation for the highest income levels while dramatically weakening the bargaining positions of lower-skilled laborers in higher-income countries. This has been hard to fight as enough people respond to higher campaign spending and prefer lower prices over left or right versions of America-first ideology.
Biden's response is to try to rally enough public support for higher taxes on top earners to make vote-buying impossible, and to use the funds to create jobs that can't be off-shored. It's still very much an uphill battle.
I wrote that a bit quickly. What I meant was, Biden's goal is to make popular support for raising taxes on the top third of the top 1% too popular for donors from that group to buy enough no votes in Congress to kill it. It's an uphill battle.
It is ironic for him to claim it, since it is in fact Biden’s campaign engaged in vote buying. I believe the present price of a majority in Georgia is $1,400 per person?
It is totally false that Marx never "added a demand factor"
Marx's in the Poverty of Philosophy, as a random example:
"Labor 'is worth' more or less, according to whether food commodities are more or less dear, whether the supply and demand of hands exist to such or such a degree, etc., etc."
and again:
"If the current rate of wages rises above this natural price, it is precisely because the law of value put as a principle [...] happens to be counterbalanced by the consequences of the varying relations of supply and demand."
The term "demand" appears 31 times in this chapter alone; and the phrase "supply and demand" (a commonplace at the time Marx was writing) appears 12 times.
The timing of this article is crazy! I was just reading this morning about the water-diamond paradox and the struggle of early economists in solving it using the labor theory of value.
I think the controversy over value isn't really about value – it’s about desert. People want to live in a world where those who have wealth earned it in some moral sense. (This isn't a disagreement with the post; I think it's getting at the same thing as it starts talking about morality)
Personally, as a pretty strict utilitarian, I prefer to scrap the concept of desert altogether and just try to get at some distribution of wealth that maximizes happiness – to hell with trying to figure out who’s the most deserving. But I recognize that opinion isn’t very politically effective.
The theorists who used LTV didn't care about just deserts either, at least not in their actual work. They were trying to accurately model an economy, if anything the concept of who deserves what slipped in accidentally once Marx realised the economy was built around that concept, not the other way around.
I agree that Marx didn't intend LTV to have anything to do with desert - I know he understood himself to be advancing a purely positive social science. I don't feel qualified to speak to whether Marxism, properly understood, winds up relying on an implicit concept of desert, but I do feel that to be the case for most of people I see supporting LTV online - that's what I meant by "the controversy over value." And I don't think there is anything wrong with invoking desert! I just think it's good to have clear discussion, and not sneak in concepts without acknowledging them.
Agreed. Smith, Ricardo, Bastiat were very impressive economists but LTV was the best they could do at the time. It wasn't until Marx came around and used those tools to paint a picture of a laboring class and an extractive capitalist class that anyone really talked about desert. So originally LTV didn't have the normative and political baggage that it has today.
Just have to say, your argument today with Damon Linker was the epic anime-esque showdown I've been waiting for, and I'm looking forward to seeing the dialogue continue (I read both of you quite often).
Conservatives be like: “Just how long do you think you’ll last holding on to your precious "democracy" in this new Authoritarian Era…?”
Noah be like Saito Hajime: “I’ll do it till I die.”
I hope you read this: I don't think this is an accurate understanding. Marx didn't believe in the labour theory of value, because he defines a completely new theory of value, based on labour, in Das Kapital. It's really just his own theory. He argues that in order for 2 objects to be exchangeable, they must have some commensurability. This means they must be able to be compared with exact values, otherwise they wouldn't be able to be exchanged. He does not care what those exact values are, hence he doesn't mention price very often. He simply wants to explain how two objects can be commensurable. So he shows that everything has labour embedded into it, like a pebble has a certain shape from the labour embedded into it from a waterfall, giving it some use-value (utility). The same goes for machines. Machines were made by other machines, which were ultimately made by humans. Which humans? It doesn't matter, all humans do this and all humans share in each others products.
So then, how for example does a capitalist get objects into his hands? The argument goes that they worked to create those objects. Well what about land? You can't create land, at least not really. So how does the land fall into the capitalists hands? And there you have roughly the subject of inquiry of Das Kapital volume 1, which i recommend you go read.
Read it already! But Marx was all over the place, and his ideas are not well defined. People have spent over a century trying to figure out what he really meant and why it was right. No more! Let's just think about useful ideas NOW.
You can think of this as finding the 'common factor' of commodities. He tries to find the one thing common to all objects that explains how they make their way into society as utilities or use-values. Current econ doesn't really want to do this, they just take value as some abstract function of human psychology. To current econ, an apple is an apple, and it doesn't matter how it finds its way to the market, eg the labour process rrequired to actually produce it. Two 'free' people meet at the market, exchange apples and oranges, two seemingly incomparable things, without any consideration where they came from, and then part ways. Probably explains at least in part why capitalism is so good at creating externalities. We treat exchange like a vacuum. Marx doesn't.
Yes, and I think that modern econ is right on thar.
Value is on the human brain, defined by our minds, our spirits, and our... psychology.
I believe that Marx does recognize a rol for demand in setting values, kinda like an on-off switch: He says that a commodity is any useful object. So if an object is not useful, it has no value.
This seems wrong to me. The more I want something, the more I value it.
And the more people want it, the higher its price would be at the market.
Wouldn't Marx say the labor embedded in the pebble is the human labor required to collect it? Also, vol. 1 spends a lot of time trying to shoehorn the discussion into a dialectic framework of thesis-antithesis-synthesis. Instead of clearly explaining his ideas, he tries really hard to make there be a contradiction between use and exchange values that socially necessary labor value resolves. It's just not a very useful framework to talk about the concept.
After (in hindsight, erroneously) following my Marxist friends' advice and trying to read Das Kapital to understand Marx's labor theory of value, I can't agree with your own formulation of the labor theory of value as espoused by Marx. In the first chapter of volume 1 of Kapital, Marx unambiguously equates the exchange value of a good (which is exactly semantically equivalent to economists' term "relative price") with the labor expended in producing said good, despite vehement insistence by my friends that Marx's LTV denied this. Or rather, Marx clearly and unsurprisingly believed in the LTV as articulated by Smith, Ricardo, and every other economist that came before him.
That experience forced me to accept an inescapable conclusion: modern defenders of Karl Marx are transparent (pseudo)intellectual frauds and not worth your, my, or anyone else's time.
So the creator of the first AGI - assuming it goes well and doesn't destroy us - is responsible for the Very Big Number of value created through the ages by it? Even after they're dead?
Well, either the AIs are conscious and therefore laboring… or else I would argue this doesn’t really count as an economy, at least not from the perspective of the humans.
Not if there’s really NO labor at all (not even the labor involved in making allocation decisions or trading).
"Well, either the AIs are conscious and therefore laboring"
But the AI doesn't care about being rewarded. That's the key distinction, the reason we separate the words "work" (like in physics), and "labour" (work done by a human). This hypothetical AI is no different, economically or morally, to my washing machine. It's just more complex.
"or else I would argue this doesn’t really count as an economy, at least not from the perspective of the humans."
Just because machines do all the work wouldn't make things free. The universe dictates that things will always have a cost - the mass-energy, and accounting for scarcity (eg land on Earth - they ain't makin more of it). It actually wouldn't look significantly different to today in competitive markets (where prices are barely above cost), on the consumer side.
I think we are spending too much time proving or disproving one idea over the other . Most complex phenomena do not have just one explanation. This must be the case for the theory of value. For personal services like barber , hair dresses and may be profession teaching , Labour theory of value may have a direct explanation.
For others like CEOs jobs, innovation, Labour explains less of value created from such . Life isn’t that simple.
Economists are always falling intro this Trap of simplifying very complex ideas.
Thank you for this! I've been wanting to write an essay about this for a long time but now I can just point to yours. It always bugs me when people say things like "people deserve to be compensated for their labor", or, worse, "you have to appreciate this work of art because clearly it took a lot of effort to create". It seems rude to bring up Mein Kampf as a counterexample, maybe I'll use your wavy swords thing instead.
One reason I think people hold on to this intuition is that we teach kids that effort is important, and we teach this by attaching value to effort directly. E.g. "A for effort", participation trophies, "showing up is 80 percent of life", "genius is 2% inspiration and 98% perspiration". This is fine, we want to encourage kids to put in the effort because usually effort is a good thing, and its benefits are not immediately obvious. But we don't do a good job at teaching that *productive* effort is the actual goal.
Thanks!!
As a complete non-economist, I have a perhaps out of left field question: why do we care what Adam Smith, David Ricardo, Karl Marx etc thought? Really smart guys and all that, but hasn't the field of economics progressed far beyond them? I mean, physicists respect Newton and Maxwell but don't base their arguments on disputes among that generation of scientists, or chemists with Priestley and Faraday. And I suspect that, great as they were, Weber and Durkheim do not dominate what sociologists say to each other.
The only field that seems similar to me (based on limited knowledge) is philosophy where Hegel, Hume and the like still define much of the dialogue.
Is the labor theory of value just a curiosity from those early days or if it still represents a live debate that has continued on since their time, what would that imply?
Damn good question
The field of economics hasn't so much moved past Marx et al., so much as they have ignored them. I like to think current economics simply studies the economy as is, without explaining what it could be or where it truly came from. The problem with this is they can only model the capitalist economy as is, but they still struggle to deal with things like constant market crashes, externalities, etc.
For this very reason, economics is constantly evolving. They change their minds as fast as they change clothes, and theories even as old as 20 years are being thrown out constantly because they are lacking a crucial element in understanding economies. ( In fact if you ask me, it's a failure to properly consider the social elements Marx brought up)
I'm being very light about it, btw. In actuality this is an extremely sensitive topic in economics. Many will tell you that they rejected the LTV because it doesn't conform exactly to the capitalist ideal of an economy. The fact of the matter is that the economy and politics are completely intertwined, it's at least part of the reason no one talks about LTV anymore.
So, in a hard science like physics you can move past old theories, but in economics there are still unanswered questions about what exactly value should be, and it's because of that social/political element.
"but in economics there are still unanswered questions about what exactly value should be"
This wasn't even necessarily what Marx was trying to do. It's true that he was influenced by Hegel and wanted to make a name for himself, but he was still trying to be a scientist -- in the sense that he wanted to describe the world around him. He wanted to make predictions, but unfortunately, most of his predictions have been demonstrably false.
In other words, he wasn't making a normative assessment of value nor is any economist. They're trying to describe it, not figure out the morality of it.
"Many will tell you that they rejected the LTV because it doesn't conform exactly to the capitalist ideal of an economy."
No, they reject it because it fails to accurately depict what is seen in the world. It has nothing to do with how economists "feel" or "think" about a capitalist society.
One more Mazzucato thought (see https://evonomics.com/value-of-everything-mariana-mazzucato/)
Value-creation vs Value-extraction
“If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator. I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls. What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.”
Smart lady.
A few misconceptions on LTV here. I think Smith, Ricardo, Marx etc said that 'value' = the amount of labor you can buy with it - they didn't say that prices = labor hours. By the 18th &19th century people already knew that prices were a function of supply and demand.
The caveat is that their conception of 'value' isn't the same as our conception of value/ usefulness/ utility. LTV says that 'value' is a constant and intrinsic property to socially necessary labor. So if you compare a chicken farmer in 1900, who produces 1 chicken per hour of labor with a chicken farmer in 2000, who produces 10 chickens per hour of labor, LTV would say that a modern chicken farmer only has to offer up 1/10 of his 'value' per chicken. 'Value' to LTV is literally just another word for number of hours of useful labor put into something.
Marx assigned an additional term to the concept modern economics now associates with the 'utility', and that's 'use-value'. So he would say that 1 chicken in 1900 has the same use-value as a chicken in 2000, but a chicken in 2000 would have only 1/10 the 'value' as a chicken in 1900. Though use-value is not EXACTLY the same thing as 'utility' though, because Marx believed that use-value was intrinsic to the good. In other words, he thought that the intrinsic properties of bottled water quenching thirst and being portable was a use-value intrinsic to the good, not the consumer. So he'd say that a water bottle is useful in the sense that it quenches thirst, even when nobody is thirsty.
And yea, he basically squares that contradiction by simply assuming that water bottle allocation is already optimal. And of course this is the root of the knowledge problem in the socialist commonwealth: by assigning intrinsic 'value' to labor, and assigning intrinsic 'use-value' to goods, you still haven't solved the problem of HOW to assign these values productively.
With all due respect, I don't think there's any misconception here! It's definitely possible to define a relative price as the amount of labor you have to exchange something, and Smith definitely does this. This is perfectly consistent with supply and demand, and fits perfectly with the modern understanding of relative prices that is taught in econ classes today. As for Ricardo, he played around with the the idea of labor costs as value added, but ultimately discarded it.
Looked into it further, and it seems the way it relates is that labor value (labor hours) is equal and proportional to 'exchange value'. And they define 'exchange value' as the "proportion at which a commodity can be exchanged with another commodity". Of course, these people thought of exchange value as intrinsic to the good, meaning two goods of the same "objective value" were interchangeable.
But they didn't view exchange value as being identical to price. They realized that S&D could render a $5 valuable commodity $10 on a market, given supply was low and demand was high enough. Marxis claimed that capitalists and traders underpaid workers (relative to their intrinsic value) and overcharged for commodities (relative to their intrinsic value), and that's how they made money. Hence why he said they were parasitic. And that actually would make some sense if value truly was intrinsic.
Marx didn't equate exchange-value with price, but are you sure Smith and Ricardo didn't? They didn't use the term "exchange-value", to my knowledge...?
Yeah, Marx termed exchange-value. But in the words of Smith: "The value of any commodity...to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities."
I read this as being a reference to what Marx called "exchange value", which is what they think of as the intrinsic value of a commodity - not its price. He's saying that the intrinsic value of an exchangeable good is EQUAL to the number of labor hours you can command. I don't think Smith was under any impression that this intrinsic value of an exchangeable good is the same thing as the price of that good.
Because if he meant "the value of any commodity" to mean price, then he must necessarily not believe in supply and demand, as it's demonstrably not the case that the PRICE of any commodity equals its "labor value" (in the LTV sense of labor value).
A quick aside on the CEO example. It seems to assume two things that are by and large not true: (1) that corporate executives have visionary decision-making abilities, (2) that they are compensated for them. For (1), going back to Herbert Simon, authors who study decision-making in corporations show that all of your typical human cognitive biases and limitations are present in executives (and often exacerbated by the hubris of status), even the highest-paid ones. And for (2), executives are extraordinarily insulated from the bad outcomes of their decisions, and so have very little incentive in becoming these decision-making oracles. Plus, in reality, the day-to-day of an executive is rarely about making these pivotal decisions (which, in any case, are always pre-massaged by armies of strategists and consultants); rather, they spend most of their time fighting fires, arbitrating disputes, and being spokesmen/figureheads for their companies.
The more interesting and realistic version of this is: top executives are *celebrities*, or more charitably, charismatic leaders. Their value comes from their trustworthiness (to employees, boards, and market analysts), ie, their perceived ability to "rally the troops" (20th century "company as army" version) or to "hold the space" (21st century "company as community of purpose" version), so that the aggregate output of the employees is decisions and products that are well aligned with the company's strategy and that make money in the market.
I like what you are saying. I thought the CEO who tries to make and design chips reminded me of Xerox-PARC - they didn't capture much value but the work done there sure created a lot (in a sense I care about.) The technological (& concommitant labor specialisation) substrate all this supervenes on may benefit from an investment, even if the firm making the investment is making a huge mistake and goes to the wall.
Founders, CEOs and financiers have their role, but it really depends what their innovations are, whether the value their firm captures has actually been created by their labor or just sucked out of employees or locales by normal old evasion of taxes, labor laws, deceptive advertising, lawfare etc in new clothes.
Or as Lou Reed sang, some people work very hard and still they never get it right.
It's very right to trace LTV back to ancient social ethics, but first we need to look at the more recent history of industrialization from which the current Marxist version sprang. In that context LTV was never really an earnest theory of how prices were set. But LTV's true function in Marxism has always been something else: as a rhetorical tool for framing a complaint that a capitalist class was exploiting an entrenched position to grab more than its fair share from a working class. This is how LTV is still used by Marxists today.
Marx and the relatively few Marxists who have genuinely cared and written about value theory indeed add on a demand factor that turns LTV into a nothing-burger. But that's beside the real issue, which is whether a capitalist class is entrenched and a working class is exploited. That issue was addressed in the 20th century with progressive taxation, regulation of working conditions and unionization. But globalization and corruption of representative politics have effectively eliminated progressive taxation for the highest income levels while dramatically weakening the bargaining positions of lower-skilled laborers in higher-income countries. This has been hard to fight as enough people respond to higher campaign spending and prefer lower prices over left or right versions of America-first ideology.
Biden's response is to try to rally enough public support for higher taxes on top earners to make vote-buying impossible, and to use the funds to create jobs that can't be off-shored. It's still very much an uphill battle.
Yep, agree except for the part about vote-buying.
I wrote that a bit quickly. What I meant was, Biden's goal is to make popular support for raising taxes on the top third of the top 1% too popular for donors from that group to buy enough no votes in Congress to kill it. It's an uphill battle.
It is ironic for him to claim it, since it is in fact Biden’s campaign engaged in vote buying. I believe the present price of a majority in Georgia is $1,400 per person?
Oh, and I'm not the same Tom who found this to be a very misleading article. Guess I need a less generic name.
I tried to go with "Noah" but then everyone else copied me
It is totally false that Marx never "added a demand factor"
Marx's in the Poverty of Philosophy, as a random example:
"Labor 'is worth' more or less, according to whether food commodities are more or less dear, whether the supply and demand of hands exist to such or such a degree, etc., etc."
and again:
"If the current rate of wages rises above this natural price, it is precisely because the law of value put as a principle [...] happens to be counterbalanced by the consequences of the varying relations of supply and demand."
The term "demand" appears 31 times in this chapter alone; and the phrase "supply and demand" (a commonplace at the time Marx was writing) appears 12 times.
I think the modern take on this issue involves minimum wage and progressive taxation.
Betteridge's law of headlines (mostly) strikes again!
A non-economist, I nevertheless read your blog avidly. Coming upon the Jiro/Saburo example (a nod, I trust, to that masterpiece, RAN) made my day!
I'm glad someone got my reference! (Btw the traditional names for first, second, and third sons in Japan are Taro, Jiro, and Saburo...)
The timing of this article is crazy! I was just reading this morning about the water-diamond paradox and the struggle of early economists in solving it using the labor theory of value.
I think the controversy over value isn't really about value – it’s about desert. People want to live in a world where those who have wealth earned it in some moral sense. (This isn't a disagreement with the post; I think it's getting at the same thing as it starts talking about morality)
Personally, as a pretty strict utilitarian, I prefer to scrap the concept of desert altogether and just try to get at some distribution of wealth that maximizes happiness – to hell with trying to figure out who’s the most deserving. But I recognize that opinion isn’t very politically effective.
I agree
The theorists who used LTV didn't care about just deserts either, at least not in their actual work. They were trying to accurately model an economy, if anything the concept of who deserves what slipped in accidentally once Marx realised the economy was built around that concept, not the other way around.
I agree that Marx didn't intend LTV to have anything to do with desert - I know he understood himself to be advancing a purely positive social science. I don't feel qualified to speak to whether Marxism, properly understood, winds up relying on an implicit concept of desert, but I do feel that to be the case for most of people I see supporting LTV online - that's what I meant by "the controversy over value." And I don't think there is anything wrong with invoking desert! I just think it's good to have clear discussion, and not sneak in concepts without acknowledging them.
Agreed. Smith, Ricardo, Bastiat were very impressive economists but LTV was the best they could do at the time. It wasn't until Marx came around and used those tools to paint a picture of a laboring class and an extractive capitalist class that anyone really talked about desert. So originally LTV didn't have the normative and political baggage that it has today.
Just have to say, your argument today with Damon Linker was the epic anime-esque showdown I've been waiting for, and I'm looking forward to seeing the dialogue continue (I read both of you quite often).
Conservatives be like: “Just how long do you think you’ll last holding on to your precious "democracy" in this new Authoritarian Era…?”
Noah be like Saito Hajime: “I’ll do it till I die.”
//gratuitous Rurouni Kenshin reference.
Buahahaha 🥰
😅😅😅
I hope you read this: I don't think this is an accurate understanding. Marx didn't believe in the labour theory of value, because he defines a completely new theory of value, based on labour, in Das Kapital. It's really just his own theory. He argues that in order for 2 objects to be exchangeable, they must have some commensurability. This means they must be able to be compared with exact values, otherwise they wouldn't be able to be exchanged. He does not care what those exact values are, hence he doesn't mention price very often. He simply wants to explain how two objects can be commensurable. So he shows that everything has labour embedded into it, like a pebble has a certain shape from the labour embedded into it from a waterfall, giving it some use-value (utility). The same goes for machines. Machines were made by other machines, which were ultimately made by humans. Which humans? It doesn't matter, all humans do this and all humans share in each others products.
So then, how for example does a capitalist get objects into his hands? The argument goes that they worked to create those objects. Well what about land? You can't create land, at least not really. So how does the land fall into the capitalists hands? And there you have roughly the subject of inquiry of Das Kapital volume 1, which i recommend you go read.
Read it already! But Marx was all over the place, and his ideas are not well defined. People have spent over a century trying to figure out what he really meant and why it was right. No more! Let's just think about useful ideas NOW.
You can think of this as finding the 'common factor' of commodities. He tries to find the one thing common to all objects that explains how they make their way into society as utilities or use-values. Current econ doesn't really want to do this, they just take value as some abstract function of human psychology. To current econ, an apple is an apple, and it doesn't matter how it finds its way to the market, eg the labour process rrequired to actually produce it. Two 'free' people meet at the market, exchange apples and oranges, two seemingly incomparable things, without any consideration where they came from, and then part ways. Probably explains at least in part why capitalism is so good at creating externalities. We treat exchange like a vacuum. Marx doesn't.
Yes, and I think that modern econ is right on thar.
Value is on the human brain, defined by our minds, our spirits, and our... psychology.
I believe that Marx does recognize a rol for demand in setting values, kinda like an on-off switch: He says that a commodity is any useful object. So if an object is not useful, it has no value.
This seems wrong to me. The more I want something, the more I value it.
And the more people want it, the higher its price would be at the market.
Wouldn't Marx say the labor embedded in the pebble is the human labor required to collect it? Also, vol. 1 spends a lot of time trying to shoehorn the discussion into a dialectic framework of thesis-antithesis-synthesis. Instead of clearly explaining his ideas, he tries really hard to make there be a contradiction between use and exchange values that socially necessary labor value resolves. It's just not a very useful framework to talk about the concept.
After (in hindsight, erroneously) following my Marxist friends' advice and trying to read Das Kapital to understand Marx's labor theory of value, I can't agree with your own formulation of the labor theory of value as espoused by Marx. In the first chapter of volume 1 of Kapital, Marx unambiguously equates the exchange value of a good (which is exactly semantically equivalent to economists' term "relative price") with the labor expended in producing said good, despite vehement insistence by my friends that Marx's LTV denied this. Or rather, Marx clearly and unsurprisingly believed in the LTV as articulated by Smith, Ricardo, and every other economist that came before him.
That experience forced me to accept an inescapable conclusion: modern defenders of Karl Marx are transparent (pseudo)intellectual frauds and not worth your, my, or anyone else's time.
For any good, you can imagine a hypothetical economy without that good and it still makes sense.
With the exception of labor. If nobody’s laboring it seems like in some sense there wouldn’t be an economy.
So maybe labor does have some kind of special status, even if the Marxian labor theory of value doesn’t make sense.
Huh? It's easy to imagine an economy without labour - just imagine all work being done by machines and AI.
"Commanding the machines to do the work" counts as labor, in the same way that the CEO's decision making counts as labor.
So the creator of the first AGI - assuming it goes well and doesn't destroy us - is responsible for the Very Big Number of value created through the ages by it? Even after they're dead?
How is this a useful concept at this time?
Well, either the AIs are conscious and therefore laboring… or else I would argue this doesn’t really count as an economy, at least not from the perspective of the humans.
Not if there’s really NO labor at all (not even the labor involved in making allocation decisions or trading).
"Well, either the AIs are conscious and therefore laboring"
But the AI doesn't care about being rewarded. That's the key distinction, the reason we separate the words "work" (like in physics), and "labour" (work done by a human). This hypothetical AI is no different, economically or morally, to my washing machine. It's just more complex.
"or else I would argue this doesn’t really count as an economy, at least not from the perspective of the humans."
Just because machines do all the work wouldn't make things free. The universe dictates that things will always have a cost - the mass-energy, and accounting for scarcity (eg land on Earth - they ain't makin more of it). It actually wouldn't look significantly different to today in competitive markets (where prices are barely above cost), on the consumer side.
I think we are spending too much time proving or disproving one idea over the other . Most complex phenomena do not have just one explanation. This must be the case for the theory of value. For personal services like barber , hair dresses and may be profession teaching , Labour theory of value may have a direct explanation.
For others like CEOs jobs, innovation, Labour explains less of value created from such . Life isn’t that simple.
Economists are always falling intro this Trap of simplifying very complex ideas.