In the
previous posting on this subject, we noted that where Adam Smith said a
thing is worth what the customer is willing to pay for it, David Ricardo said a
thing is worth the labor it cost to produce it combined with its scarcity. We then asked the forbidden question, What if
it takes immense labor to produce a unique item that nobody wants? That’s where the “labor theory of value” gets
more than a little dicey.
Getting down to
the nitty gritty, did you ever really look at the explanations of the “labor
theory of value”? Both Ricardo and Karl Marx
take as a given that all things have “:utility value” even
if it is zero. “Utility value” is the
value of the thing to the consumer; in other words, what use the good or
service is to him or her.
 |
| Marx: Labor gives value except when it doesn't. |
We will repeat
that: both Ricardo and Marx start from the assumption that a thing has “utility
value” as the starting point of their respective discussions of “exchange
value.” The difference between Smith’s
theory of value and those of Ricardo and Marx, is that Smith assumed as a given
that the “utility value” to the consumer automatically determines the “exchange
value” of the thing in the market. As
far as Smith was concerned, any difference between the “utility value” and the “exchange
value” of a thing is a difference that makes no difference; “utility value” and
“exchange value” are simply two ways of saying the same thing.
Stop for a moment
and think about that. If a thing is
worth $1 to the consumer for its utility, why would he or she pay one cent
more? And why would the seller take one
cent less? Common sense tells us, then,
that “utility value” and “exchange value” must be the same, at least in a
market where everyone has perfect knowledge.
Of course, we know that doesn’t exist, and it leads to bargain hunting
and price gouging, but things usually settle down to their “real values” if
given the chance and there is no interference, e.g., governments
printing funny money, capitalists cornering markets, socialists imposing price
controls, etc.
 |
| Ricardo: Only labor gives value except for utility and scarcity. |
Now comes the
twist. Both Ricardo and Marx started
with “utility value” and pretty much admitted that without “utility value”
there wasn’t any reason to discuss “exchange value.” Both men insisted, however, that “utility
value” and “exchange value” are different things, although they didn’t say why
they are different, just how. Oddly,
however, their arguments don’t really explain anything except to disregard the
consumer . . . except when they can’t.
Hence, both
Ricardo and Marx stated that, although all things have “utility value” by their
nature, all “exchange value” comes from labor and scarcity. The price or value of something, therefore,
is not the utility to the consumer (why not? they don’t say), but the value or
price of the labor that went into producing it . . . unless it’s scarce and the
consumer really wants it, whereupon the price goes up, or it is useless, in
which case the labor doesn’t count as labor, and the thing is without value.
 |
| Smith: Pay what it's worth to you. |
No, we didn’t
make that up. Ricardo said that the
labor that goes into a thing determines its value except when scarcity and
consumer demand does, and Marx said the labor that goes into a thing determines
its value except when utility does. It’s
right there in Das Kapital: “[N]othing can have value, without being an object of utility. If the
thing is useless, so is the labour contained in it; the labour does not count
as labour, and therefore creates no value.”
In other words,
the utility of the thing to the consumer determines a thing’s value, but labor
is the only thing that gives value!!
Ricardo simply
ignored the problem of goods that nobody wants, while Marx declared that labor
both gives value and does not give value.
Problem solved . . . or not.
And if you think
that’s confusing, wait until you hear this.
According to
Smith, land can produce without the addition of human labor. People add value (not create value) by
gathering up what nature has freely offered, and by mixing their labor with it
create private property in the thing they have gathered.
Of course, if
someone owns the land, then what the land produces belongs by natural right of
private property to the owner of the land, unless a tenant has paid rent for
the use of the land. In that case, what
the land produces belongs by natural right to the tenant who purchased the
usufruct (control and enjoyment of the fruits . . . literally) from the owner.
Not so! said
Ricardo. And this is where things get “interesting”
. . . .
 |
| George: Abolish property, not ownership. |
As Ricardo
declared in his famous (or notorious) “detour,” labor is the only factor of
production. That being the case, land is
not a factor of production, except when it is.
In the latter case, land is a “cost-free factor of production” because
it gives forth its produce (at least that portion of it that does not require
human labor) without the addition of human labor. Thus, land both is, and is not, a factor of
production.
And you thought
the labor theory of value by itself was contradictory! But wait!
There’s more!
The agrarian
socialist Henry George (1839-1897) agreed with Ricardo and thought he was full
of bologna. That is, George agreed with
Ricardo that human labor is the only factor of production . . . except when it
isn’t, as in the cases of land and capital.
Where Ricardo was wrong (according to George) was in assuming that the
owner of land is due rent, even though land is a cost-free factor of
production.
According to
George, people can only own what they create with their own labor. Anything like land not created by human
beings but by God belongs not to any individual, but to humanity as a whole,
and no one has any better right to it than anyone else.
That being the
case, the collective in the person of the State should be the universal
landlord, and all rent for land should be paid as a “single tax” to the
State. This would abolish all other
taxes, turn the State into the “universal landlord,” and universal prosperity
would result . . . universally, of course.
There are,
however, a few holes in George’s theory:
 |
| "Henry George has set us free!" |
·
God made human beings, while human beings create
the abstraction of humanity. By claiming
that a manmade abstraction has rights that human beings created by God so not
have, George made man greater than God.
Oops.
·
If only a thing made by one’s own labor can be
owned legitimately, then inheritance and charity are illegitimate. Anyone who can’t produce can’t own . . . and
has no claim on the necessities of life.
Oops.
·
Livestock and pets are not created by human beings. That being the case, no one may legitimately
own animals. Oops.
·
Raw materials are not made by human labor in
most cases. Logically, then, someone can
own a thing he or she made, but not the material out of which it is made. Oops.
·
As recorded in an article in The North
American Review in the early 1880s, an economist once cornered George and
asked if tenants would pay rent. George
said no, they would get the use of the land for free. Who, then, would pay the single tax? asked
the economist. Why, the landlord, said
George. But where does the landlord get
the rent he pays? asked the economist.
George avoided the question.
Oops.
Then there is the
problem of Monsignor John A. Ryan (1869-1945), and his 1906 book, A Living
Wage, which is a most remarkable document — which we will take up in the next posting on this subject.
#30#
