About value
Things offered in a market have a price. In a money economy, price is expressed in terms of money. In a barter economy, price is expressed in terms of what people will swap for it. Either way, prices vary-over time, between places, sometimes between sellers in the same place.
Marxian economics differentiates between price and exchange value. There is no particularly good reason to do this and a good reason not to-it adds a completely unnecessary and distracting layer of conceptualisation to analysis of markets and economic behaviour. However, given the patent effervescence of prices, if one wants to ground value in something “objective”, then it is an attractive move to make.[1]
There are many objections to objective theories of value, but the fact that such theories differ so hugely, not only in what the basis of value is but, more fatally, in what is of value and why, is fairly damming. Valuations vary (both between people and across time with the same people) far more than ordinary perceptions (of shape, colour, form, etc) do. Evidence for such valuations having, at the very least, strong subjective elements.
As I have noted before, objective theories of value are also naturally belittling of people’s “subjectivities”-their beliefs, attitudes and aspirations. Take this useful summary of Marx’s concepts of alienation and surplus value.
Consider the claim that: Workers therefore are alienated from the process of production because they produce for another (the capitalist) rather for themselves. Any notion of mutually beneficial exchange is replaced by one of “objective” exploitation, regardless of what workers believe or choose to do. So consent-as in actual people’s actual choices-and their beliefs are profoundly devalued.[2] That choice takes place in a social context is clearly true, but it is also completely unavoidable. Blanket denigration of the social context is therefore an effective way to undermine the value of consent as it actually operates in society. (It is also striking how the occasional and highly aggregated consent of democratic elections is treated as legitimating in a way the pervasive, myriad, individual acts of consent in the market place are not.)
The problem with “subsistence”
But Marx’s subsistence notion of production (a necessary process to create the “means to subsistence”, becoming a problem only when the aim of work is not subsistence but commodities in and for themselves, or rather for another’s profit. These conditions lead to the worker spending more time and activity working then living, which Marx’s considered this a hallmark of slavery) is both ludicrously limiting and internally incoherent.
Yes, folk have to work to live, but they can get a lot more from working than mere subsistence. And whose “subsistence” counts here? Workers have spouses and children. Is supporting them “subsistence” or are they “exploiters”? Workers may wish to retire. Is putting funds away to do that “subsistence”? Folk may enjoy living longer with more choices. Is paying for research and development “subsistence”? Where does training come in? The more capital that supports a worker, the higher the return to labour. How is one to get such capital except by setting aside a surplus beyond subsistence?
Marx, of course, claimed that the accumulation of capital in the hands of capitalists would be “impoverishing” of workers. But this is nonsense. The more capital, the greater the scarcity of labour compared to capital, hence the higher the return to labour. Wages are much higher in countries with more capital per worker. Is this increased scarcity value “subsistence”?
The virtue of “subsistence” is it implies necessity (one has to live), constraint (working or starving is not much of a choice) and some objective standard. Start making work something people do for a whole lot of varied purposes and all these features leach away.
As does the notion of (exchange) value being equal to the labour applied in production. For labour itself is a very varied thing. One has diligent and effective workers, workers who are neither, works of apposite skills, workers lacking skills, having inappropriate skills, etc. It is fine to talk of “labour” in the abstract provided one is not trying to put too much analytical or explanatory weight on it. But if one makes labour the measure and creator of value, then actually existing labour’s heterogenous nature becomes a problem. As is the fact that labour can be well or poorly directed. (After all, if labour is the only contributor of value to the production process by what measure do we say such is well or poorly directed without putting varying valuations on the attributes of what it produces?)
It is always a good question in social analysis: can this abstraction really bear the explanatory or analytical weight being placed on it? Given the diversity of people, and what they do, the more such weight that is placed on an abstraction, the more likely the answer is no. Marxian class analysis, for example, regularly fails this test-see above comments and comments here about “impoverishment”.
The value of what is produced
The basic ways to get hold of something you do not already have are take, make, trade: who does which to or with whom are basic to how human societies work.
Hunter-gatherers live by taking from the environment around them. Which is why their numbers have to be so limited. Their bands also operate by implicit or explicit exchanges (such as between hunting men and gathering women). If you told one of our hunter-gatherer ancestors that the value of a freshly killed deer was the labour that went into the killing of it, such a hunter would look at you as if you were mad. And the hunter would be right. He did not create the juicy meat, the soft skin, the … He just acquired it, however skillfully.
The hunter, in the old-fashioned phrase, “mixes his labour” with the deer and thus appropriates it: his labour is the path by which the deer enters the hunter-gatherer economy. But the hunter so “mixes his labour” because of the value of the deer. The value of animals varies wildly, and not according to the labour in hunting them. Many are not hunted because of their lack of value, just as many plants were not gathered for the same reason. (Among those that are hunted, the difficulty in doing so will affect their scarcity value but it will only be worth going to that effort depending on the value attributed to those attributes in given circumstances.) The labour of the hunter-gatherer is directed to what has use and/or exchange value. Once we admit that people ascribe value to attributes-hence their application of labour to achieve said valued attributes-there is no need to create a “back story” about the value coming from the labour used to acquire, amend or create the attribute.
In hunter-gatherer society, exchange value flows from use value. Contributing to production is a form of use value. In any society, if a valued attribute, or bundle of attributes, has scarcity value, and can be sufficiently delineated and controlled to be exchanged (implicitly or explicitly), then it has exchange value. If something is not so controlled, it cannot be exchanged and so has no exchange value.
But, while labour is necessary to acquire the use value of a hunted deer or gathered plants, neither the use nor the exchange value rests on the labour: it is a contributing but not determining factor. (That labour is almost invariably necessary for something to enter the economy makes it is easy to conflate what labour does with what has had labour applied to it.) Both use and exchange value rests on the attributes of the thing hunted, fished or gathered affected, in the case of exchange value, by scarcity. It is simply and clearly not true that labour determines exchange value because it is the contributor of value to production. The most skilled hunter in the world is useless if the animals have fled or been eaten out. His labour is an essential part of the productive process but not even remotely the only thing that contributes value to production. It is a contributor, not the contributor. Which is why hunter-gatherers typically have to keep moving from areas depleted of things valued to areas where things valued are more plentiful: their valuation of attributes driving their behaviour.
Natural resources (in conventional economic parlance land) contribute exchangeable value to production and do so regardless of what specific structure of what property rights there is, provided someone has control over the item-just as the labour of a slave is a contributor to production regardless of the fact that the slave is property. As long has someone has control over it, there can be implicit or explicit exchanges (and so implicit or explicit prices). Property rights are merely about who has control over an attribute and what incentives flow from such control. Land has alternative uses, therefore it has scarcity value, therefore it (or, as in the above situation, its products: depending on what is controlled by whom) has exchange value (i.e. a price). The specific structure of property rights will a major factor determining how well or badly such is used-hence Demsetz’s classic 1967 article on the development of property rights in beaver among Amerindians due to the fur trade: burblings about the evils of property can be largely discounted-property is always with us.
In a farming society, one can, of course, think of farmland as land-to-which-labour-has-been-applied. But is such land more or less valuable depending on how much effort has to be applied to achieve a given level of productivity? The answer is, of course, that the relationship is an inverse one. The more labour has to be applied to achieve a certain level of productivity, the less valuable the land, exchange values (entirely rationally) reflecting such. Indeed, some land requires the application of so much labour it has no value as farmland at all.
Hunter-gatherers also make various items, some of which were clearly traded. A traded spear (or whatever) is as much the property of the person who bought it as it was the person who made it (by “mixing” his labour with materials selected due to their attributes). But the exchange value of the traded item will depend on its attributes and circumstances (including scarcity), the labour being part of the path that puts those attributes into the economy, affecting (but not solely determining) both the quality of the attributes and their scarcity. It is the attributes of the thing itself that matter: always the way in trade-as in our own purchases.
Just as a hunter without useful animals can produce no exchange value, so a modern worker without a factory and the capital therein can produce no exchange value. As with natural resources, so with capital: it is the attributes of it that matter-the labour to create it only matters to the extent it produces things of useful attributes and affects the scarcity thereof. The valuing of the attributes drives the application of labour, not the other way around. Hence the way technological change can dramatically reduce or destroy the exchange value of capital items: as does prolonged use-the continual application of labour to a capital item can easily progressively wear down its exchange value. (Any labour theory of value explanation of depreciation would be an interesting exercise in casuistry: or simply not make much sense.) Sometimes the labour is itself a valued attribute, as in the admiration and scarcity value of being a genuine Rembrandt, for example. But that just emphasises the point of the valuing of attributes is the key element.
That we apply criteria to the attributes of natural resources, to capital items, to finished products and services (i.e. commodities) to judge their value-and those valuations drive their exchange value-also applies to labour itself. Hence all the above issues about whether a worker has the right skills, is diligent, available when needed, etc.
The exchange value of labour is subject to the same push and pull factors as everything else. So labour is naturally (though far from perfectly reliably) directed to producing what people value. If changes in relative scarcities and preferences mean that the some product increases in value, then so does the value of the labour that produces it. If one type of labour necessary for the production of something (strictly speaking, the human capital embodied in the labour, since skills are also produced means of production) becomes more plentiful, it falls in exchange value even if the product itself does not (though competition is likely to ensure it does as well). If the product decreases in value, so does the value of the labour that produces it. There is no mystery in things suddenly losing exchange value even though their labour content has not changed. Or the labour used in producing such a product losing exchange value even if the product does not.
The value of what produces
Differentiating between labour and labour power is about as useful as differentiating between land and land-power or capital and capital-power. So why is labour’s exchange value to be somehow privileged over that of land and capital?
One answer is it is the disutility of labor and the need to persuade the worker to bring his services to the production process, unique among all the "factors of production," that creates exchange value. Actually, all controllers of factors of production have to be persuaded to bring their whatever’s to some specific production process. More to the point, the various factors of production contribute to the production process, so have use and (if exchangeable) exchange value. The claim that the natural wage of labor, in a free market, is its product is just an assertion: and, moreover, an assertion that it clearly false: for labour is not the only thing in the production process with either exchange or scarcity value, since these are generated by the existence of competing uses where wants exceed resources. (Provided an item is controlled by someone: as noted above, the specific property rights structure will affect who, how well defined and the efficiency, but it is being controlled by someone that is the essential point.) It would be impossible to run for any length of time an economic system where labour was the only factor of production paid-as the socialist calculation problem brings out. Even in an anarchist society with no taxes. Labour is not the only thing that produces value. That workers are people creates moral issues but does not alter that labour simply is not the only contribution of value (use or exchangeable) to production. It is not some weird delusion to treat land and labour as useful, contributing, exchangeable value to production. The disutility of labour affects how labour operates, it does not make labour analytically or metaphysically privileged.
Suppose we agree that the value of the labour is what is produced (rather than its contribution to production). The land and capital used in production, is it also the product of labour? If it is, then such also has to be paid. So the product of a firm is not merely the product of its labour, but also the products of previous labour used in the production process. We can, of course, keep this regress going: a problem in itself. But why would a firm use the products of previous labour in its production process? Because of the attributes of the land and capital. We have already seen that neither the use nor the exchange value of land is equal to how much labour has been applied to it. A similar point applies to capital: as anyone dealing with poorly made, inappropriate or worn out equipment can testify.
One is struck in the aforementioned general attempt to put the labour theory of value on a subjective footing how very, very partial the analytical connection to actual economic activity is and how much effort is spent on lining up appeals-to-authority on the claim that labour is the only contributor of value to production. (Catholic natural law theory is similarly partial in its consideration of the natural world.)
More widely, the entire alienation-and-surplus-value structure has a ludicrously attenuated concept of social functions and roles. (For example, workers need protection from violence, where does providing that service fit in?) An attenuated concept, moreover, that profoundly drains society of achievement-the explosion in productivity and social possibility becomes a structure of alienation and exploitation: more alienating and more exploiting the more capital, and so expanded production and social possibility, it creates. Success is failure! Success is evil! What such analysis does is morally elevate those who not engaged in the “polluting touch of commerce”. Unsurprisingly, Marxists tend to be wildly disproportionately academics and other people who can status grandstand on the basis of not being engaged in “polluting” commerce[3][4]: Marxism providing “objective” support for congenial subjective valuations (though it is clearly well past its prime in academe).[5]
Doing it subjectively
The great analytical virtue of subjective theories of value is that they provide a much simpler analysis of human behaviour (including economic behaviour). Or, as von Mises put it, of human action. (Which is not to endorse Austrian economics as such.) And does so without self-contradiction or needing to explain away, or desperately re-construe, lots of economic phenomena. Overlaps in valuations come from similarities of people and circumstances, and from interactions between people, while differentiation and fluctuation of valuations is natural. Similarly, coordinating well can increase value, coordinating poorly can decrease value (such coordinating including commercial discovery). So the “ puzzle of residual income” goes away: indeed, one of the ways Marxian analysis is most belittling about commerce is its simple-minded, “crank the wheel and the value comes out” characterisation of it. Issues such as, for example, complexity costs from regulation do not figure in the world view.
Trying to source exchange value wholly from within the economic system-as, for example, the Physiocrats did with land-simply does not work. If, for example, exchange value is determined by labour content, how do people differentiate between things of equivalent exchange value? Why do people produce such varied things of exchange value in the first place? (Perhaps because they value different attributes?) Why is exchange value deemed to be so different in its origins from use value?
The subjective theory of value avoids these conceptual complexities and difficulties, which is why mainstream economics abandoned the labour theory of value in particular (even as only a historical explanation) and cost theories of value in general.
People have wants, aspirations etc which lead them to make (subjective) valuations of things. These aspirations and consequent valuations motivate their actions. (As in the current psychology [pdf] of such.) Including providing their labour. Interactions between valuing actors both generate institutional structures and actions within those structures, including prices. That two things might have the same price tells us about how the mass of subjective valuations are playing out in current circumstances. But there is no difficulty-given the reality of subjective valuations-in people differentiating for themselves between things of equivalent price. Exchanges occur at points of compatible valuations: the sheer variety of individual valuations is what produces variety in products, product differentiation, the need for advertising, sales effort, etc-most people having little interest in much of what is one sale at any one time. And there is no need to differentiate between price and exchange value. Nor analytically privileging the exchange value of labour, wonder why people bother producing such varied things, where profit-and-loss comes from, etc.
As noted above, going through the complexities of Marxian analysis reminds me powerfully of Catholic natural law theory and how a series of “logical”, “rational” and “objective” premises and consequences (including an “objective” concept of human flourishing) led perfectly naturally to the conclusion that men who had sex with other men were “clearly” in rebellion against the Creator, so should be burnt alive (or suffer whatever level of anathematisation the standing and power of the Church means it can get away with).
Another advantage of subjective theories of value is they have no need to differentiate between mythical “real” exchange value (allocating the total value of production to labour regardless of the contribution of land and capital to production: the ones that the analytical initiates can “see”) and “market” exchange value (aka prices: the “false” exchange values that poor, deluded fools and evil, malicious exploiters operate on in the actual economy). An exercise in metaphysical casuistry similar to what Catholic natural law theory does with the “real” “proper” functions of sexual organs (strictly reproduction) and the actual biological functions of sexual organs (reproduction and pleasure, the latter having connective and cathartic roles).
The labour theory of value provides no sensible basis for differentiation between people’s valuations, nor between products of equivalent labour content, nor does it incorporate motivation in a sufficiently complete and effective way. Nor for over-time fluctuations in exchange value. Indeed, the lack of such full grounding in human motivation and differentiation leads to the aforementioned socialist calculation problem. (One of the striking things in visiting Moscow, St Petersburg and Kiev in 1995 is that one could see the results of an economic system than could not calculate value well.)
And morality
That economic action provides an example of how subjective valuations can lead to apparently “objective” valuations (prices) throws light on how to understand morality. The notion that value is subjective is akin, in philosophy, to Emotivism. The problem with Emotivism is that it does not deal with the apparent logic of morality well. But if we treat morality as a necessary element in any functioning society, then the fact that obligations, constraints and commands are built into morality (just as truth is built into the structure and function of language) does not make morality being ultimately grounded in subjective valuations as problematic as it might appear. If we use Haidt’s definition (Moral systems are interlocking sets of values, practices, institutions, and evolved psychological mechanisms that work together to suppress or regulate selfishness and make social life possible) then morality simply has to have that sort of form and resultant logic to function as the required constraints on, and channellings of, behaviour. What one might call the reason of rules.
But morality works (to the extent it does) by tapping into human valuation as subjective ascription and motivator. Such an analysis of morality also makes sense of how social morality changes over time. Shifting relative scarcities and exclusions mean shifting social valuations.
For example, the degree of a group’s excludability from public debate and decision-making is a measure of vulnerability. So, Jews in Christian or Islamic societies, women in monotheist ones, were highly excludable, so very vulnerable to hostile valuations, social morality and laws. As excludability declines so does vulnerability: as vulnerability declines so does excludability, in an iterative process that, in the examples of women and Jews (or blacks, or gays, or whoever) can lead to full civic equality as they become “just folks” or “real people”. So social morality does change over time as the underlying subjective valuations, and their social manifestations, shift.
Just as prices shift in line with shifting valuations and circumstances: subjective valuations motivating behaviour leading to prescriptive logics and objective outcomes.
NB I would prefer 'usefulness' to 'use-value' and 'price' to 'exchange value', since the latter language implies value is an objective thing rather than statements of value expressing either one's own valuations or that people value something. But it is more effective critique if one uses the same terms as much as practicable.
[1] As it is also in separating the analytical initiates who see the “real” economy hidden behind the surface of things from those lost in the “surface” “falsities and delusions”: a sort of sociological gnosticism.
[2] Particularly (and this is surely much of the appeal) compared to the far greater understanding and perception of those clever folk armed with the “correct” understanding.
[3] As distinct from living off commerce's coercively transferred benefits-a social placement that provides another reason to be dismissive of consent in the market place, and of economic freedom generally: of course, how such coercive transfers get to be magically less “exploiting” than consensual exchanges for mutual benefit in markets is a whole another level of casuistry.
[4] Which makes market-based think tanks particularly evil-they not only deny the polluting nature of commerce, they celebrate commerce, they actively solicit direct, consensual support from it (rather than being paid through righteous penalties on such: i.e. taxes) and they are competitors as purveyors of ideas.
[5] And those who regularly sneer at masses of their fellow citizens-indeed, are theory-bound to do so: clearly part of the appeal of said theory-are likely to be outraged by being served with a milder form of their own rhetorical medicine.
Marxian economics differentiates between price and exchange value. There is no particularly good reason to do this and a good reason not to-it adds a completely unnecessary and distracting layer of conceptualisation to analysis of markets and economic behaviour. However, given the patent effervescence of prices, if one wants to ground value in something “objective”, then it is an attractive move to make.[1]
There are many objections to objective theories of value, but the fact that such theories differ so hugely, not only in what the basis of value is but, more fatally, in what is of value and why, is fairly damming. Valuations vary (both between people and across time with the same people) far more than ordinary perceptions (of shape, colour, form, etc) do. Evidence for such valuations having, at the very least, strong subjective elements.
As I have noted before, objective theories of value are also naturally belittling of people’s “subjectivities”-their beliefs, attitudes and aspirations. Take this useful summary of Marx’s concepts of alienation and surplus value.
Consider the claim that: Workers therefore are alienated from the process of production because they produce for another (the capitalist) rather for themselves. Any notion of mutually beneficial exchange is replaced by one of “objective” exploitation, regardless of what workers believe or choose to do. So consent-as in actual people’s actual choices-and their beliefs are profoundly devalued.[2] That choice takes place in a social context is clearly true, but it is also completely unavoidable. Blanket denigration of the social context is therefore an effective way to undermine the value of consent as it actually operates in society. (It is also striking how the occasional and highly aggregated consent of democratic elections is treated as legitimating in a way the pervasive, myriad, individual acts of consent in the market place are not.)
The problem with “subsistence”
But Marx’s subsistence notion of production (a necessary process to create the “means to subsistence”, becoming a problem only when the aim of work is not subsistence but commodities in and for themselves, or rather for another’s profit. These conditions lead to the worker spending more time and activity working then living, which Marx’s considered this a hallmark of slavery) is both ludicrously limiting and internally incoherent.
Yes, folk have to work to live, but they can get a lot more from working than mere subsistence. And whose “subsistence” counts here? Workers have spouses and children. Is supporting them “subsistence” or are they “exploiters”? Workers may wish to retire. Is putting funds away to do that “subsistence”? Folk may enjoy living longer with more choices. Is paying for research and development “subsistence”? Where does training come in? The more capital that supports a worker, the higher the return to labour. How is one to get such capital except by setting aside a surplus beyond subsistence?
Marx, of course, claimed that the accumulation of capital in the hands of capitalists would be “impoverishing” of workers. But this is nonsense. The more capital, the greater the scarcity of labour compared to capital, hence the higher the return to labour. Wages are much higher in countries with more capital per worker. Is this increased scarcity value “subsistence”?
The virtue of “subsistence” is it implies necessity (one has to live), constraint (working or starving is not much of a choice) and some objective standard. Start making work something people do for a whole lot of varied purposes and all these features leach away.
As does the notion of (exchange) value being equal to the labour applied in production. For labour itself is a very varied thing. One has diligent and effective workers, workers who are neither, works of apposite skills, workers lacking skills, having inappropriate skills, etc. It is fine to talk of “labour” in the abstract provided one is not trying to put too much analytical or explanatory weight on it. But if one makes labour the measure and creator of value, then actually existing labour’s heterogenous nature becomes a problem. As is the fact that labour can be well or poorly directed. (After all, if labour is the only contributor of value to the production process by what measure do we say such is well or poorly directed without putting varying valuations on the attributes of what it produces?)
It is always a good question in social analysis: can this abstraction really bear the explanatory or analytical weight being placed on it? Given the diversity of people, and what they do, the more such weight that is placed on an abstraction, the more likely the answer is no. Marxian class analysis, for example, regularly fails this test-see above comments and comments here about “impoverishment”.
The value of what is produced
The basic ways to get hold of something you do not already have are take, make, trade: who does which to or with whom are basic to how human societies work.
Hunter-gatherers live by taking from the environment around them. Which is why their numbers have to be so limited. Their bands also operate by implicit or explicit exchanges (such as between hunting men and gathering women). If you told one of our hunter-gatherer ancestors that the value of a freshly killed deer was the labour that went into the killing of it, such a hunter would look at you as if you were mad. And the hunter would be right. He did not create the juicy meat, the soft skin, the … He just acquired it, however skillfully.
The hunter, in the old-fashioned phrase, “mixes his labour” with the deer and thus appropriates it: his labour is the path by which the deer enters the hunter-gatherer economy. But the hunter so “mixes his labour” because of the value of the deer. The value of animals varies wildly, and not according to the labour in hunting them. Many are not hunted because of their lack of value, just as many plants were not gathered for the same reason. (Among those that are hunted, the difficulty in doing so will affect their scarcity value but it will only be worth going to that effort depending on the value attributed to those attributes in given circumstances.) The labour of the hunter-gatherer is directed to what has use and/or exchange value. Once we admit that people ascribe value to attributes-hence their application of labour to achieve said valued attributes-there is no need to create a “back story” about the value coming from the labour used to acquire, amend or create the attribute.
In hunter-gatherer society, exchange value flows from use value. Contributing to production is a form of use value. In any society, if a valued attribute, or bundle of attributes, has scarcity value, and can be sufficiently delineated and controlled to be exchanged (implicitly or explicitly), then it has exchange value. If something is not so controlled, it cannot be exchanged and so has no exchange value.
But, while labour is necessary to acquire the use value of a hunted deer or gathered plants, neither the use nor the exchange value rests on the labour: it is a contributing but not determining factor. (That labour is almost invariably necessary for something to enter the economy makes it is easy to conflate what labour does with what has had labour applied to it.) Both use and exchange value rests on the attributes of the thing hunted, fished or gathered affected, in the case of exchange value, by scarcity. It is simply and clearly not true that labour determines exchange value because it is the contributor of value to production. The most skilled hunter in the world is useless if the animals have fled or been eaten out. His labour is an essential part of the productive process but not even remotely the only thing that contributes value to production. It is a contributor, not the contributor. Which is why hunter-gatherers typically have to keep moving from areas depleted of things valued to areas where things valued are more plentiful: their valuation of attributes driving their behaviour.
Natural resources (in conventional economic parlance land) contribute exchangeable value to production and do so regardless of what specific structure of what property rights there is, provided someone has control over the item-just as the labour of a slave is a contributor to production regardless of the fact that the slave is property. As long has someone has control over it, there can be implicit or explicit exchanges (and so implicit or explicit prices). Property rights are merely about who has control over an attribute and what incentives flow from such control. Land has alternative uses, therefore it has scarcity value, therefore it (or, as in the above situation, its products: depending on what is controlled by whom) has exchange value (i.e. a price). The specific structure of property rights will a major factor determining how well or badly such is used-hence Demsetz’s classic 1967 article on the development of property rights in beaver among Amerindians due to the fur trade: burblings about the evils of property can be largely discounted-property is always with us.
In a farming society, one can, of course, think of farmland as land-to-which-labour-has-been-applied. But is such land more or less valuable depending on how much effort has to be applied to achieve a given level of productivity? The answer is, of course, that the relationship is an inverse one. The more labour has to be applied to achieve a certain level of productivity, the less valuable the land, exchange values (entirely rationally) reflecting such. Indeed, some land requires the application of so much labour it has no value as farmland at all.
Hunter-gatherers also make various items, some of which were clearly traded. A traded spear (or whatever) is as much the property of the person who bought it as it was the person who made it (by “mixing” his labour with materials selected due to their attributes). But the exchange value of the traded item will depend on its attributes and circumstances (including scarcity), the labour being part of the path that puts those attributes into the economy, affecting (but not solely determining) both the quality of the attributes and their scarcity. It is the attributes of the thing itself that matter: always the way in trade-as in our own purchases.
Just as a hunter without useful animals can produce no exchange value, so a modern worker without a factory and the capital therein can produce no exchange value. As with natural resources, so with capital: it is the attributes of it that matter-the labour to create it only matters to the extent it produces things of useful attributes and affects the scarcity thereof. The valuing of the attributes drives the application of labour, not the other way around. Hence the way technological change can dramatically reduce or destroy the exchange value of capital items: as does prolonged use-the continual application of labour to a capital item can easily progressively wear down its exchange value. (Any labour theory of value explanation of depreciation would be an interesting exercise in casuistry: or simply not make much sense.) Sometimes the labour is itself a valued attribute, as in the admiration and scarcity value of being a genuine Rembrandt, for example. But that just emphasises the point of the valuing of attributes is the key element.
That we apply criteria to the attributes of natural resources, to capital items, to finished products and services (i.e. commodities) to judge their value-and those valuations drive their exchange value-also applies to labour itself. Hence all the above issues about whether a worker has the right skills, is diligent, available when needed, etc.
The exchange value of labour is subject to the same push and pull factors as everything else. So labour is naturally (though far from perfectly reliably) directed to producing what people value. If changes in relative scarcities and preferences mean that the some product increases in value, then so does the value of the labour that produces it. If one type of labour necessary for the production of something (strictly speaking, the human capital embodied in the labour, since skills are also produced means of production) becomes more plentiful, it falls in exchange value even if the product itself does not (though competition is likely to ensure it does as well). If the product decreases in value, so does the value of the labour that produces it. There is no mystery in things suddenly losing exchange value even though their labour content has not changed. Or the labour used in producing such a product losing exchange value even if the product does not.
The value of what produces
Differentiating between labour and labour power is about as useful as differentiating between land and land-power or capital and capital-power. So why is labour’s exchange value to be somehow privileged over that of land and capital?
One answer is it is the disutility of labor and the need to persuade the worker to bring his services to the production process, unique among all the "factors of production," that creates exchange value. Actually, all controllers of factors of production have to be persuaded to bring their whatever’s to some specific production process. More to the point, the various factors of production contribute to the production process, so have use and (if exchangeable) exchange value. The claim that the natural wage of labor, in a free market, is its product is just an assertion: and, moreover, an assertion that it clearly false: for labour is not the only thing in the production process with either exchange or scarcity value, since these are generated by the existence of competing uses where wants exceed resources. (Provided an item is controlled by someone: as noted above, the specific property rights structure will affect who, how well defined and the efficiency, but it is being controlled by someone that is the essential point.) It would be impossible to run for any length of time an economic system where labour was the only factor of production paid-as the socialist calculation problem brings out. Even in an anarchist society with no taxes. Labour is not the only thing that produces value. That workers are people creates moral issues but does not alter that labour simply is not the only contribution of value (use or exchangeable) to production. It is not some weird delusion to treat land and labour as useful, contributing, exchangeable value to production. The disutility of labour affects how labour operates, it does not make labour analytically or metaphysically privileged.
Suppose we agree that the value of the labour is what is produced (rather than its contribution to production). The land and capital used in production, is it also the product of labour? If it is, then such also has to be paid. So the product of a firm is not merely the product of its labour, but also the products of previous labour used in the production process. We can, of course, keep this regress going: a problem in itself. But why would a firm use the products of previous labour in its production process? Because of the attributes of the land and capital. We have already seen that neither the use nor the exchange value of land is equal to how much labour has been applied to it. A similar point applies to capital: as anyone dealing with poorly made, inappropriate or worn out equipment can testify.
One is struck in the aforementioned general attempt to put the labour theory of value on a subjective footing how very, very partial the analytical connection to actual economic activity is and how much effort is spent on lining up appeals-to-authority on the claim that labour is the only contributor of value to production. (Catholic natural law theory is similarly partial in its consideration of the natural world.)
More widely, the entire alienation-and-surplus-value structure has a ludicrously attenuated concept of social functions and roles. (For example, workers need protection from violence, where does providing that service fit in?) An attenuated concept, moreover, that profoundly drains society of achievement-the explosion in productivity and social possibility becomes a structure of alienation and exploitation: more alienating and more exploiting the more capital, and so expanded production and social possibility, it creates. Success is failure! Success is evil! What such analysis does is morally elevate those who not engaged in the “polluting touch of commerce”. Unsurprisingly, Marxists tend to be wildly disproportionately academics and other people who can status grandstand on the basis of not being engaged in “polluting” commerce[3][4]: Marxism providing “objective” support for congenial subjective valuations (though it is clearly well past its prime in academe).[5]
Doing it subjectively
The great analytical virtue of subjective theories of value is that they provide a much simpler analysis of human behaviour (including economic behaviour). Or, as von Mises put it, of human action. (Which is not to endorse Austrian economics as such.) And does so without self-contradiction or needing to explain away, or desperately re-construe, lots of economic phenomena. Overlaps in valuations come from similarities of people and circumstances, and from interactions between people, while differentiation and fluctuation of valuations is natural. Similarly, coordinating well can increase value, coordinating poorly can decrease value (such coordinating including commercial discovery). So the “ puzzle of residual income” goes away: indeed, one of the ways Marxian analysis is most belittling about commerce is its simple-minded, “crank the wheel and the value comes out” characterisation of it. Issues such as, for example, complexity costs from regulation do not figure in the world view.
Trying to source exchange value wholly from within the economic system-as, for example, the Physiocrats did with land-simply does not work. If, for example, exchange value is determined by labour content, how do people differentiate between things of equivalent exchange value? Why do people produce such varied things of exchange value in the first place? (Perhaps because they value different attributes?) Why is exchange value deemed to be so different in its origins from use value?
The subjective theory of value avoids these conceptual complexities and difficulties, which is why mainstream economics abandoned the labour theory of value in particular (even as only a historical explanation) and cost theories of value in general.
People have wants, aspirations etc which lead them to make (subjective) valuations of things. These aspirations and consequent valuations motivate their actions. (As in the current psychology [pdf] of such.) Including providing their labour. Interactions between valuing actors both generate institutional structures and actions within those structures, including prices. That two things might have the same price tells us about how the mass of subjective valuations are playing out in current circumstances. But there is no difficulty-given the reality of subjective valuations-in people differentiating for themselves between things of equivalent price. Exchanges occur at points of compatible valuations: the sheer variety of individual valuations is what produces variety in products, product differentiation, the need for advertising, sales effort, etc-most people having little interest in much of what is one sale at any one time. And there is no need to differentiate between price and exchange value. Nor analytically privileging the exchange value of labour, wonder why people bother producing such varied things, where profit-and-loss comes from, etc.
As noted above, going through the complexities of Marxian analysis reminds me powerfully of Catholic natural law theory and how a series of “logical”, “rational” and “objective” premises and consequences (including an “objective” concept of human flourishing) led perfectly naturally to the conclusion that men who had sex with other men were “clearly” in rebellion against the Creator, so should be burnt alive (or suffer whatever level of anathematisation the standing and power of the Church means it can get away with).
Another advantage of subjective theories of value is they have no need to differentiate between mythical “real” exchange value (allocating the total value of production to labour regardless of the contribution of land and capital to production: the ones that the analytical initiates can “see”) and “market” exchange value (aka prices: the “false” exchange values that poor, deluded fools and evil, malicious exploiters operate on in the actual economy). An exercise in metaphysical casuistry similar to what Catholic natural law theory does with the “real” “proper” functions of sexual organs (strictly reproduction) and the actual biological functions of sexual organs (reproduction and pleasure, the latter having connective and cathartic roles).
The labour theory of value provides no sensible basis for differentiation between people’s valuations, nor between products of equivalent labour content, nor does it incorporate motivation in a sufficiently complete and effective way. Nor for over-time fluctuations in exchange value. Indeed, the lack of such full grounding in human motivation and differentiation leads to the aforementioned socialist calculation problem. (One of the striking things in visiting Moscow, St Petersburg and Kiev in 1995 is that one could see the results of an economic system than could not calculate value well.)
And morality
That economic action provides an example of how subjective valuations can lead to apparently “objective” valuations (prices) throws light on how to understand morality. The notion that value is subjective is akin, in philosophy, to Emotivism. The problem with Emotivism is that it does not deal with the apparent logic of morality well. But if we treat morality as a necessary element in any functioning society, then the fact that obligations, constraints and commands are built into morality (just as truth is built into the structure and function of language) does not make morality being ultimately grounded in subjective valuations as problematic as it might appear. If we use Haidt’s definition (Moral systems are interlocking sets of values, practices, institutions, and evolved psychological mechanisms that work together to suppress or regulate selfishness and make social life possible) then morality simply has to have that sort of form and resultant logic to function as the required constraints on, and channellings of, behaviour. What one might call the reason of rules.
But morality works (to the extent it does) by tapping into human valuation as subjective ascription and motivator. Such an analysis of morality also makes sense of how social morality changes over time. Shifting relative scarcities and exclusions mean shifting social valuations.
For example, the degree of a group’s excludability from public debate and decision-making is a measure of vulnerability. So, Jews in Christian or Islamic societies, women in monotheist ones, were highly excludable, so very vulnerable to hostile valuations, social morality and laws. As excludability declines so does vulnerability: as vulnerability declines so does excludability, in an iterative process that, in the examples of women and Jews (or blacks, or gays, or whoever) can lead to full civic equality as they become “just folks” or “real people”. So social morality does change over time as the underlying subjective valuations, and their social manifestations, shift.
Just as prices shift in line with shifting valuations and circumstances: subjective valuations motivating behaviour leading to prescriptive logics and objective outcomes.
NB I would prefer 'usefulness' to 'use-value' and 'price' to 'exchange value', since the latter language implies value is an objective thing rather than statements of value expressing either one's own valuations or that people value something. But it is more effective critique if one uses the same terms as much as practicable.
[1] As it is also in separating the analytical initiates who see the “real” economy hidden behind the surface of things from those lost in the “surface” “falsities and delusions”: a sort of sociological gnosticism.
[2] Particularly (and this is surely much of the appeal) compared to the far greater understanding and perception of those clever folk armed with the “correct” understanding.
[3] As distinct from living off commerce's coercively transferred benefits-a social placement that provides another reason to be dismissive of consent in the market place, and of economic freedom generally: of course, how such coercive transfers get to be magically less “exploiting” than consensual exchanges for mutual benefit in markets is a whole another level of casuistry.
[4] Which makes market-based think tanks particularly evil-they not only deny the polluting nature of commerce, they celebrate commerce, they actively solicit direct, consensual support from it (rather than being paid through righteous penalties on such: i.e. taxes) and they are competitors as purveyors of ideas.
[5] And those who regularly sneer at masses of their fellow citizens-indeed, are theory-bound to do so: clearly part of the appeal of said theory-are likely to be outraged by being served with a milder form of their own rhetorical medicine.