We’re anticipating a little, but we think that today should
be celebrated as “Capital Day,” or (if you prefer) as “Widespread Direct
Ownership of Capital Day” (“WDOOCD”), which just rolls off the tongue. The only question in the minds of our
millions of viewers is . . . why?
Simple. Most people
recognize human labor as a factor of production. That’s a somewhat dehumanizing way of putting
it, and tends to lead to the categorization of human beings as “homo œconomicus,”
or a mere cog in the economic process, but we know what people are trying to say.
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| Nineteenth Century Labor Parade |
Labor Day is supposed to be a recognition of the fact that
labor has a special dignity simply because it is inextricably linked to the
human person. That’s true, it does.
Recognizing that the human person who supplies labor for
production has a special dignity, however, does not mean that human labor, one,
is the sole factor of production, or, two, that the products of human labor and
non-human capital are inherently different.
Assuming so is one of those seemingly small errors that can lead to big
errors.
The Labor Theory of
Value
Take, for example, the labor theory of value. First, of course, we have to say what we mean
by that term. Do we mean what Adam Smith
meant, or what David Ricardo meant?
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| Adam Smith |
Adam Smith’s “labor theory of value” assumes that a thing is
valued in terms of its utility to the consumer, and that the consumer measures
utility of a thing in terms of the “labor” (Smith actually meant something more
like “effort” or “trouble”) it cost the consumer to obtain whatever it is the
consumer trades for the thing the consumer consumes.
Thus, if it cost the consumer a great deal of “labor” to
obtain the penny (1d) the consumer pays for a loaf of bread, the
utility of the bread to the consumer must be at least as equally high, measured
against the “labor” expended to obtain the 1d. Otherwise the consumer will keep the 1d,
and the baker will keep the bread.
David Ricardo’s “labor theory of value” is different. Ricardo believed he was correcting Smith’s
error by claiming that a thing is valued not for its utility to the consumer
measured in terms of the consumer’s “labor,” but for the amount of human labor
required to produce the thing. Thus, if
it cost a human laborer £1,000 to produce a loaf of bread, the value of a loaf
of bread — and thus the price — is £1,000.
If it cost the owner of a bread-making machine a farthing (¼d)
to produce the same loaf of bread, the value/price of a loaf of bread is ¼d.
What if the consumer pays 1d for both
loaves? According to Karl Marx, in the
first case the consumer is stealing surplus value in the amount of £999 19/ 11d
from the human laborer, and in the second case the capitalist (the owner of the
bread-making machine) is stealing surplus value from the consumer in the amount
of ¾d. If the capitalist pays
a worker ¼d per loaf to operate the bread-making machine and charges
the consumer 1d per loaf, the capitalist has stolen ¼d
worth of surplus value from the consumer, and ¼d worth of surplus
value from the human laborer.
The Factors of
Production
Obviously we in the Just Third Way go with Smith’s “labor
theory of value.” What it cost to
produce a thing is irrelevant to the consumer.
All the consumer cares about is whether the thing’s utility is at least
as great as the effort it takes for the consumer to obtain it.
This also applies to how a thing is produced. Everything else being equal, it doesn’t
matter to the consumer whether a machine produced a good or service, or a human
being produced it. The consumer will
select whatever product best serves his or her needs, i.e., whatever is most useful in terms of the effort expended to
obtain it.
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| David Ricardo |
To Ricardo, it was not a question whether a human being or a
machine produced a good or service.
Human labor is the only factor of production. Technology — capital — is only accumulated or
congealed human labor. Land (assuming we
accept Ricardo’s somewhat baffling theory of rent) is a “cost free” factor of
production, and therefore does not contribute to the value of a good or
service. (To Henry George, amending
Ricardo’s theory, labor is the only factor of production. Land is not only “cost free,” it is “input
free.” Progress and Poverty, 333-346.)
Thus, to Smith, both capital (including land) and labor
produce marketable goods and services and, as far as the market is concerned,
do so in the same way, or at least in a way to which the consumer is
indifferent, everything else being equal.
To Ricardo, only human labor produces marketable goods and services.
Thus, we have two schools of thought in classical economics,
the “Smithian School” and the “Ricardian School,” although many people think
they are the same. Not surprisingly,
Smith and Ricardo also disagreed on money and credit — but that’s another, if
related issue.
The question we need to look at is how we deal with a
situation in which labor and capital both seem to have legitimate claims to the
same thing. We’ll look at that in
tomorrow’s posting.