I wondered here if a couple of short quotes from Adam Smith’s Wealth of Nations might be apposite:
I would add that when comparing prices and costs, the only consistent value is the cost of labour.
Yes, labor was by far the main component of production, at least in the olden days. Increasingly however, land, capital (incl. physical machinery but also intellectual capital, and entrenched rent-seeking power), and especially highly-skilled labor form a larger and larger component of wealth growth at the expense of ordinary labor. (I think it makes sense to distinguish ordinary labor, often priced at $20/hr or less, from the $2000+/hr “wage” paid to big stars, executives, lawyers and creators, don’t you?)
This relates to Andrew Yang’s message. The ever-decreasing share of labor toward produced “value” (and the consequent diminishing of labor’s share of the economic pie) is a major change to economic paradigm.
Keeping in mind that this is GQ, I don’t think there is any dispute that at the bottom of all of the turtles, labor is what produces all value. But that is true whether I pick tomatoes at $5/hr or organize a company to be productive at $2,000/hr.
Further, capital or other assets only improve in value because of labor. My beach house (I don’t really have a beach house) that I bought for $850k that is now worth $10 million only increased in value because other people labored which made other people (who probably also labored) wealthy which made them able to afford beach houses which increased the demand for beach houses which made my house rise in value. Labor was at the bottom of it.
In a GD thread, you might argue that the little guy at the bottom is getting screwed, but the obvious point that labor creates value which creates money really doesn’t explain anything about money being valuable.
The Labor Theory of Value is now discredited, in that it’s considered a superseded theory much like phlogiston or, perhaps to be more apt, Lysenkoism. Here’s one debunking of it among many:
However, modern economists have an even more fundamental debunking in the concept of marginal utility, or how much more value one more of something gives you when you already have a certain amount of that thing. In short, the same amount of work goes into making the twentieth steak as goes into making the first, but unless you have severe problems, you can’t eat twenty steaks before some of them begin to get cold and substantially less valuable, so that twentieth steak is worthless to you. A Marxist (at least an (Eastern?) Orthodox one) would bring up the concept of Central Planning about now, I’d quote Hayek and, uh, real life in general, and everything would get Political. So I won’t.
My point is, labor does not determine value. Utility determines value.
I agree. But I won’t eat 20 steaks. I (for purposes of discussion) will eat one. Some other 19 people eat the other 19 steaks.
I also agree that Marx’s labor theory of value is, not necessarily wrong, but a tautology, as he uses the weasel word of “productive” labor or some other word that I am too lazy too google. Digging a hole and filling it in doesn’t count, nor does killing more cows and making more steaks than people want to eat.
But, give me something of value that you (or the hypo you) own that has some value that didn’t have labor at the bottom of the turtles. The guy tripping over a gold rock on his path started from someone mining it and dropping it on the road.
Why not put “the Planet Earth” in that sentence?
I don’t think there is any dispute that at the bottom of all of the turtles, the Planet Earth is what produces all value.
Is it not true that without the dirt on which we stand, not merely the resources we extract from it but the simple fact of its existence, everything we value would not exist? We could even back up another step. Perhaps even more fundamentally, what about “sunlight”? What if we put that word into the sentence?
I don’t think there is any dispute that at the bottom of all of the turtles, sunlight is what produces all value.
Is that not any less true? Would not everything we value be gone, if there were no sun? And if we’re talking about the turtle on the bottom, did not both sunlight and the Planet Earth precede human beings? How is it, exactly, that labor is the bottom-most turtle when everything we value depends, from the very beginning, on the physical world in which we live? All that the word “capital” means (in economics) is tools. We would not exist if certain of these “tools” had not preceded us in existence. So why not give those things the preeminent turtle position?
A basic fact about the creation of value is that it’s multiplicative.
Okay that’s a weird sentence. But it’s like this:
Production = SunlightAirStuffLaboretc.
In logic and mathematics, we call these things necessary conditions. Multiplicative. If even a single one of these is gone, is zeroed out, then the whole thing is zero. So does everything of value we produce depend on labor? Yes. Yes, it does. But everything we produce ALSO depends on a long slew of other things.
The problem with a flat declaration that “all value depends on labor” is not that the sentence is literally untrue. It’s that it’s superficial. All value depends on quite a lot of things, certainly including but not limited to labor. They are all necessary conditions, and so in a certain sense every single one of them is “100% responsible” for the creation of all value. One of the more important things modern civilization depends on is proper allocation of our current stuff into tools that will help us make future stuff. Arguably that’s not a necessary condition for human existence, but it is a necessary condition for the world in which we’ve built for ourselves.
For an extreme example: if we burn all of our seed corn in a pretty bonfire instead of planting at least some of it, then our civilization is going to have problems, no matter how hard we work. Allocation of present resources to useful future goals is fundamental to a functioning modern society.
Labor is important. More than that. Essential. A necessary condition. But even so, it is still not a starting point for this kind of analysis.
Marx presents some deliberately simplified toy examples, but I would like to see a rigorous derivation of what, say, a cup of coffee is really worth. Certainly, even to attempt it requires a lot of data crunching.
They’d bring up “Socially Necessary Labor Time”. It speaks directly to your example here.
Marx was just the last big name in a long tradition of the Labor Theory of Value. People had been poking those kinds of holes in the idea for about a century, and Marx created his version in full awareness of all of these weaknesses, so the beginning of his great book contains all sorts of caveats, addendums, clarifications, narrowings of scope, in the attempt to respond to questions exactly like yours, a vain scramble to patch all the holes in the boat.
I, for one, am happy to dispute this. Partly because labor on its own is limited in what it can produce, and therefore clearly not the source of all value. And the work-around for that, expressing the other resources necessary as a value of labor required to produce them, pretty soon makes a labor a medium of exchange - i.e. a form of money.
Anyway, the value of money is based on our shared delusion that it has value. As long as enough people believe that it does, it does. If not enough do, it doesn’t. If tomorrow Dunkin Donuts starts being willing to exchange seashells for coffee, seashells will have some value. If besides DD everyone else is also willing to exchange goods and services for shells, they have become money.
The trick is being reasonably sure you can exchange the money for things you want, and have this be true for most or all people. That’s why starting a local currency (which some towns etc occasionally try to do) is so hard, and getting harder: most if us want stuff from outside that system, and so needs a currency which is accepted by those who have what we want.
Yes, and what we need to realize and deal with as a society is the fact that this change is likely to continue and probably accelerate. Ultimately, automation will make unskilled labor obsolete, and AI will make even the value of skilled labor approach zero, perhaps quite quickly if there’s a sudden breakthrough in AI. It’s a good thing, in the sense that it will be accompanied by huge increases in productivity, and all human need can be satisfied without anyone needing to “work” in the historical sense. But if we approach this state of affairs under our current economic paradigm, those with capital will progressively accumulate a much greater proportion of total wealth. We really need to think carefully about how a post-scarcity society will function, and how we get there from here.
It comes to the same thing: Deny the problem by insisting that you can solve it using as-yet-unknown technology, or deny the problem by shoving all of the problematic parts into a Mysterious Answer nobody can pin down, which merely needs more study before all problems are resolved. Of course, the technology never materializes, and an answer which is Mysterious isn’t an answer at all, but a dogma.
Marginal utility is much more in line with observed reality.
Saying that all value ultimately derives from labor does not mean that all labor necessarily has the same value. Nearly anyone can create value by digging useful ditches, but that doesn’t mean that ditch-digging creates very much value. Very few people can plan out innovative high-demand products, but those few who can can thereby create a great deal of value.
As I said on another board about the prospect of total automation, “So do we end up with a world in which everyone shares in the cornucopia? Or do the descendants of the original stockholders live like archdukes, while outside the killzone perimeter the scavengers scrabble for rats to eat?”
I guess one example of why specie isn’t the best backing for currency is the Mormon bank that Joseph Smith set up in Kirtland, Ohio. Smith and his gang filled up chests with bricks and spread a thin layer of silver coins over the top of each one. When the bank auditors came around, they showed them chests apparently full of silver coins. That ruse allowed them to keep from getting shut down for a while longer. Of course, the bank crashed before long, taking all the depositors’ money with it.
It’s also just silly on its face.
A beautiful sunset has value to me. Whose brow-sweat was responsible?
It’s not factual labor is the source of value. It may be the source of some value but it’s not the only source of value and in some cases labor is actually counterproductive with regards to the creation of wealth.
Where does money get it’s value? It gets its value from faith. As long as participants in a market believe that the supply of money and the creation of money is in the hands of responsible parties money has value as a lubricant for trade and as a proxy to store value in the form of being able to facilitate future trade.
It was implicit that the statement was about economic value.
On any beach community, the second row of homes command a lower price than the first row. They also command a lower rent if rented out. The location is near identical. The difference is the view. Clearly the view has economic value.
As an atheist, I have a hard time attributing that value to labor of any kind.
I don’t think the argument is that all desirable things are produced by labor. It is that if we place a monetary value on something desirable, that price ultimately represents an amount of labor that we are willing to exchange for the desirable thing.
It’s somewhat misleading though to say labor is the source of all value and then say we mean value where money is transferred. Obviously when we add that constraint we are going to largely be talking about services, or something that took labor to produce, because otherwise why is money being transferred?
Not entirely though. If a meteorite lands in my lap, and someone buys it from me, where’s the labor there?
We could say it’s the labor of protecting and transporting the meteorite, but that may be trivial for me, and not what is adding value. Or we could say it’s the money in the buyer’s pocket that took labor, but that’s not necessarily the case: in a world where the only thing humans are capable of is being hit by meteorites and buying and selling them, there’s no reason we could not still have currency (ok we need to add “minting currency” to the list of human abilities, but still).
Or we could say “luck” counts as “labor”, which to me seems obviously to be stretching things.