Socially necessary abstract labour time
The Marxian theory of value says value is created by socially necessary abstract labour time. Any particular worker working on any particularly thing may, in fact, not successfully create value. But, if something has value, that value is equal to the socially necessary abstract labour time embodied in that thing.
Thus labour as-it-is-in-the-world (“crude labour”) is distinct from labour-that-creates-value. A distinction necessary to give the labour theory of value any chance of working, since it is perfectly obvious that labour can be misapplied to varying degrees.
The problem with this distinction (apart from difficulties with it as a theory of value) is that it destroys the moral judgement that is derived from the labour theory of value - that is, that surplus value is exploitative because only workers create value.
If crude labour =/= value, then we do not know, until it is validated by exchange, whether any particular labour effort has created value or not (and how much). So, clearly there is a role in organising labour to attempt to create value. There is also the matter of covering risks involved in producing value. This not a matter of risk per se - any form of income in the production process involves risk: hence, for example, the risk premium for particular jobs. It is a matter of providing a guarantee for income variability from the uncertainty about whether exchange-value will be created or not sufficient to cover the costs of production.
The owner of a firm is the guarantor of such income variability - so, as Barzel points out, the boundaries of the firm are determined by the scope of the guarantee by the equity capital.
Why is said ownership purchased? ("Sweat equity" being a different sort of purchase.) Because the owner is the guarantor of income variability and such a guarantee requires capital. The capital put up is the size of the guarantee. So the share of the ownership is the share of the guarantee purchased.
The owner, as the guarantor for income variability, thus receives the residuum - the variable net income of the firm: the profit or loss made by the firm after all other claimants on the firm’s income have been paid. Hence the residuum being the return to ownership, given not all capital is owner-capital.
The owner is also the final authority in the company. Purchasing ownership is purchasing that authority (whether a tiny bit, a more substantial bit or all of it). And matching authority with being guarantor means aligning final say with [final risk with] final return. Hence that authority having the final responsibility for coordination.
Hence profit is not exploitation, it is the return on a necessary social role given that crude labour =/= value.
Moreover, wider returns to capital are also justified, since the level of capital determines how much socially necessary abstract labour time is needed to create value. The more effectively applied the capital, the more value is created and the higher the return to labour.
So, while the analytical form of the labour theory of value separates the socially necessary abstract labour time that creates value from “crude labour”, it does so at the cost of demolishing the basis for the normative conclusions of Marxism embodied in the theory of surplus value-as-exploitation.
Thus labour as-it-is-in-the-world (“crude labour”) is distinct from labour-that-creates-value. A distinction necessary to give the labour theory of value any chance of working, since it is perfectly obvious that labour can be misapplied to varying degrees.
The problem with this distinction (apart from difficulties with it as a theory of value) is that it destroys the moral judgement that is derived from the labour theory of value - that is, that surplus value is exploitative because only workers create value.
If crude labour =/= value, then we do not know, until it is validated by exchange, whether any particular labour effort has created value or not (and how much). So, clearly there is a role in organising labour to attempt to create value. There is also the matter of covering risks involved in producing value. This not a matter of risk per se - any form of income in the production process involves risk: hence, for example, the risk premium for particular jobs. It is a matter of providing a guarantee for income variability from the uncertainty about whether exchange-value will be created or not sufficient to cover the costs of production.
The owner of a firm is the guarantor of such income variability - so, as Barzel points out, the boundaries of the firm are determined by the scope of the guarantee by the equity capital.
Why is said ownership purchased? ("Sweat equity" being a different sort of purchase.) Because the owner is the guarantor of income variability and such a guarantee requires capital. The capital put up is the size of the guarantee. So the share of the ownership is the share of the guarantee purchased.
The owner, as the guarantor for income variability, thus receives the residuum - the variable net income of the firm: the profit or loss made by the firm after all other claimants on the firm’s income have been paid. Hence the residuum being the return to ownership, given not all capital is owner-capital.
The owner is also the final authority in the company. Purchasing ownership is purchasing that authority (whether a tiny bit, a more substantial bit or all of it). And matching authority with being guarantor means aligning final say with [final risk with] final return. Hence that authority having the final responsibility for coordination.
Hence profit is not exploitation, it is the return on a necessary social role given that crude labour =/= value.
Moreover, wider returns to capital are also justified, since the level of capital determines how much socially necessary abstract labour time is needed to create value. The more effectively applied the capital, the more value is created and the higher the return to labour.
So, while the analytical form of the labour theory of value separates the socially necessary abstract labour time that creates value from “crude labour”, it does so at the cost of demolishing the basis for the normative conclusions of Marxism embodied in the theory of surplus value-as-exploitation.