Sunday, January 27, 2008

Labor Theory of Value

I got some relatively quick responses to that last post, both of which ignored what I originally was trying to write about to talk about the LTV, which is a mere afterthought I added to the post on an immediate insight. So here's a bit about the LTV.

First of all, I think the LTV is valid. This does not mean that I think everyone's labor is worth exactly $10 per hour, or that mudpies sell for $10 if they take 1 hour to make, or any of that stuff. I associate the LTV with Adam Smith and David Ricardo, not Karl Marx. And I'm not going to defend Marx's version and I'll dismiss any objections based on Marx's version as a strawman.

Adam Smith:

"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people."

Notice he says "what every thing really costs", not "the price that everything sells for". All costs can be expressed as labor costs.


"The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not as the greater or less compensation which is paid for that labour."

What's being said here is basically "cost and price are different; costs are always ultimately labor costs". That ought to put Ricardo's statement that value (stated in terms of costs or disutilities) derives only from labor into the correct perspective. Prices tend toward reflecting costs because where price exceeds cost, production ceases until that condition changes. Thus, the LTV does not say that the price that something sells for is always directly and solely coming from the labor put into it, only that it's costs are.

What is not being said here is that "people only want something as badly as the labor that went into it", or that "value is tied directly to the object and has nothing to do with evaluation by individuals" or that "two people can't value the same thing differently". It is not irreconcilable with STV. As I said in my last post, they are complementary if you understand them (or at least, if you don't start off with the belief that they are incompatible and then look for validation of that hypothesis). The LTV doesn't have to "provide a means for discovering when labor should not be done at all", or "comparing the value of alternative uses for labor." As I said, it is complementary, not exclusive, to a subjective understanding of value. I don't know how I can say "they're compatible" and get an objection like "LTV can't account for X that the STV can". Apply the immortal ethic of ARFCOM: "Get Both."

And I'm going to recommend this to anyone wanting better understanding. Studies in Mutualist Political Economy by Kevin Carson.


Anonymous Rorshak said...

Oh, ok. Thanks for clearing that up.

The version of the LTV, I've been hearing thus far is the Marxian version so I hope you see what I meant on my last post. I've only just begun reading about this subject.

8:08 PM  
Anonymous Kyle Bennett said...

A major confusion here is a sloppy use of the terms "cost" and "value" almost interchangeably. They are separate and unrelated things. Clearly define those, and a lot fewer points might get missed.

Depending on how you define "value", Smith and Ricardo are saying two entirely different things. Smith talks about cost at first, then contrasts it to value ("worth"). It's the labor of acquisition vs the labor it replaces - two entirely different things.

Ricardo uses the term "value" and leaves it at that. You go on to say that Ricardo meant cost when he says "value", but as it stands quoted, it looks like he really meant value, and it's pretty much the classic LTV. There really is an LTV out there that means a specific thing. It's not a strawman to refer to it when you cite it.

Smith refers to the value of something as determined by what it does for him - the labor it saves him. Ricardo here refers to value as a function of the cost to acquire it - the labor it took to produce it.

They are incompatible. It's not like one is saying "the rock falls", and one is describing how fast, it's like one is saying "the heavier rock falls faster".

5:53 AM  
Blogger Zhwazi said...

Wow, you're really on the attack here. I like how you managed to weave in the Marxian version again after I said I wanted nothing to do with it and did not subscribe to it. It was either irrelevant or logically fallacious, and I don't know why you'd bring it up if you thought it was irrelevant.

I think the only real incompatibility here is your want to prove anything called the LTV to be nonsense and my want to get you to understand what I'm talking about.

Also I assume you didn't even look at the link I provided to a more thorough explanation of LTV than I care to write on my own.

Comments are a terrible platform for debate so if you want to debate find another way of contacting me. I provide information on the sidebar of the main page.

3:01 PM  
Anonymous Kyle Bennett said...

I'm not attacking, I'm telling you I think you're wrong, and why. There's a difference. I continue bringing up the good old fashioned LTV we all know and love because what you're saying continues to point back to it, whether you intend that or not. I know you're meaning is something other than that, and that you have another point, but the terminology, at least, is still not letting us get at it. And I think it's because you're conflating cost with value.

I don't have to prove the Marxist LTV nonsense, that's practically a given. I do want to point out to you that, while you may have a worthwhile point to make (and the reason I'm bothering with it is that your past writing makes me believe that you do), I don't think you've worked it all the way through yet.

I'll email you later this evening, if you prefer that way, and if the second entry in your contact bar (gmail) is the address you want me to use.

3:28 PM  
Blogger Matt said...

Nice post- Smith and Ricardo do differ over what can be a source of value but contrary to Kyle, I think you are right there is agreement here.


5:13 PM  
Blogger Zhwazi said...

I actually don't use that address for email. I use it for, as I said, Windows Live/MSN messenger. I don't even remember the password. Try zhwazi at gmail instead.

9:52 PM  
Anonymous Anonymous said...

You've made an argument for a labor theory of cost, and not of value. How much something costs, i.e. what it takes to get that thing, could be thought of in terms of labor, if you expand the meaning of that word. But it's certainly wrong to think that how much something is valued depends on the labor that went into it. Ever heard of consumer (or producer) surplus? Basically, sometimes it only takes a bit of labor to get something for which you would have given a lot of labor. So the cost (the actual labor performed) is not equal to the value (the labor one might have performed). That's really just a minor adjustment, and you might actually have meant the way I've described it now.

The bigger issue is the extent to which you have to expand the definition of labor. Suppose you agree to give me a cookie for the right to slander my good name among my closest friends. Now, just for the sake of argument, lets say I'm not the type of person who'd respond to accusations that are made against me: if they're false, then I have nothing to worry about because my opponent can't prove anything; and if they're true, I'm not going to lie about it. So your permission to slander me won't get me to do anything, but it certainly counts as a disutility (a cost) of getting the cookie.
And even if you expand your definition of labor to include all disvalued experiences, what if I wanted you to slander me? Then the contract for the cookie still involves your slander as a "cost" since it's a right that I have to forego in order to get you to agree to the deal. However, it doesn't even fit in the disutility framework for labor. (Technically, what I might be giving you in this particular trade is also the price of the trade; but it's the cost as well, inasmuch as it represents what I have to do in order to get the trade I want.)
That's part of the mistake that Marx makes. He saw people living on interest and rent and concluded that, since they weren't doing anything, they must be getting something at no cost. But the disutility of facing the risks involved with these investments, even though it isn't "work", is most certainly on okay thing for a contract to stipulate as the price of the capitalist's potential investment gains (and his or her costs for these gains, if this is the particular investment he or she chooses).

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