I made a post a few days ago questioning whether or not what we consider capitalism is actually the result of the free market. In it I mentioned a political-theorist named Kevin Carson, who has done extensive work in this area. The post has received over 50 comments, so I felt I should do a bit of follow-up. I unfortunately do not have the time to write a complete summary of Carson's work and a response to every comment, but I can point to two pieces of writing by Carson that hopefully can give a bit more insight into what I am referring to.
Firstly, there is this article which simply deals with the use of the word capitalism. While this might seem trivial, it is something we should be careful to understand when talking to people who do not consider themselves libertarian and do not necessarily give capitalism the same definition that we do. Carson writes:
The Freeman editor Sheldon Richman, speaking at George Mason University, raised the question of just what mainstream libertarians mean when they call a country “capitalist.” What qualifies a country as “capitalist”?
A lot of countries with relatively low indices of economic freedom (including those ranked as “mostly unfree”) are conventionally regarded as “capitalist,” and referred to as such in neoliberal agitprop comparing them favorably to non-capitalist countries like Cuba. And the talking heads at CNBC and scribblers in the business press commonly refer to “our capitalist system,” even though it’s doesn’t even remotely approximate a free market.
Now, on a more serious note, many people have been asking me to explain exactly what Carson's theory of value is, as mentioning the words "labor theory of value" tends to bring down a hailstorm in libertarian circles. Again, this would be a several hundred word essay at least, which I simply cannot do at the moment. But, I can point those interested in the right direction.
Before stating what this theory of value is, Carson summarizes what he plans to do in his book Studies in Mutualist Political Economy, which focuses largely on this point. He was quite aware of the already exposed problems with the labor theory when writing this book, as he begins his work with the following quote from Bohm-Bawerk:
I have criticized the law of Labour Value with all the severity that a doctrine so utterly false seemed to me to deserve. It may be that my criticism also is open to many objections. But one thing at any rate seems to me certain: earnest writers concerned to find out the truth will not in future venture to content themselves with asserting the law of value as has been hitherto done. In future any one who thinks that he can maintain this law will first of all be obliged to supply what his predecessors have omitted--a proof that can be taken seriously. Not quotations from authorities; not protesting and dogmatising phrases; but a proof that earnestly and conscientiously goes into the essence of the matter. On such a basis no one will be more ready and willing to continue the discussion than myself.
--Eugen von Bohm-Bawerk. Capital and Interest p. 389.
It was in fact the placement of this quote that truly piqued my interest in Caron's work, because it made it plain that he knew what he was up against. One could say that Studies in Mutualist Political Economy is a direct response to this quote, as Carson writes in the preface:
This book is an attempt to revive individualist anarchist political economy, to incorporate the useful developments of the last hundred years, and to make it relevant to the problems of the twenty-first century. We hope this work will go at least part of the way to providing a new theoretical and practical foundation for free market socialist economics.
In Part One, which concerns value theory, we construct the theoretical apparatus for our later analysis. In this section, we attempt to resurrect the classical labor theory of value, to answer the attacks of its marginalist and subjectivist critics, and at the same time to reformulate the theory in a way that both addresses their valid criticisms and incorporates their useful innovations. Part One starts with an assessment of the marginalist revolution and its claims to have demolished the labor theory of value, and then proceeds either to refute these criticisms or to incorporate them.
I hope that this makes it plain that in not responding to every comment on my last post, I am not trying to be rude or dismissive, I simply do not know how to briefly summarize what is done in this book. Regardless of whether or not you end up agreeing with Carson, it still is a great lesson in the history of economics, as Carson draws from sources ranging from Mises to Marx.
Here is a hypothetical for anyone buying into the LTV: if I was to randomly stumble upon a quarter sized diamond, would it be 'worth' the same if it were mined in the midst of a civil war in Africa? I exerted pretty much no effort whatsoever, aside from bending down to pick it up, whereas in Africa mines have to be built, militias employed to protect the land, and numerous other measures have to be taken in order to ensure the diamond is mined and safe. Then, let's say, I along with my African pal go to the exact same diamond dealer. We each give the guy our diamonds (same size and carat) explaining the circumstances of acquiring them. The diamond dealer is obviously not going to price his diamond higher than mine. Why? Because goods don't only take into account how much labor goes into it. They also take into account subjective valuing by consumers (is it a diamond craze era? or are rubies now fashionable instead?) and the demand for them.
This is the same strawman nonsense that Bohm-Bowerk himself was trying to put forth in his original critiques of LTV. You find these rare exceptions and then claim that they are somehow the rule. No one is arguing that LTV is an absolute truth that never ever is wrong. If you had read even 3 chapters of this book before attempting to criticize based on nothing but your Austrian-fueled preconceptions, you would know that. He is saying that LTV works for reproducible goods with an elastic demand curve. It's not meant to tells us how much things should be worth (as Marx wanted), but instead as a guide to know when there is a massive difference between the labor someone puts into doing something and the revenue they receive from their labor. You may think that the Austrians have already dealt the death blow to LTV, but of course if you frame your argument from their perspective you are going to think that. It's like studying nothing but communist views of libertarians, and then claiming to know all about why libertarianism doesn't work.
It's neither straw man nonsense, nor exceptional. Many industries rely on the ability to reduce the amount of labor as much as possible, and maximizing the output.
Say man #1 can build a house in a month. Say man #2 can build an identical house in 2 months. Man #2's house is not worth more than man #1's house. Quite to the contrary, a house completed in less time could be worth much more in a market. The quantitive value of either house is not determined by the labor involved therein, the value is determined by the product itself, and also other factors such as opportunity costs like man #1's house entering the market before man #2 completes his.
You have once again posted meaningless information. The fact that Carson intends to prove something doesn't pique my interest. Lots of people try to prove lots of nonsense. You still have not posted anything of substance from his work.
Perhaps in your pursuit in whatever degree field you are seeking, you could look for a class on technical communication, or something equivilent. Engineering departments usually have very focused classes to teach their students how to deliver information clearly and concisely. I'm going to give you the benefit of the doubt that the failing here is not Carson, but your ability to communicate him. In either case, I still see no reason to bother reading his unpublished PDF file, especially when others who are reading it are entirely nonplussed.
You point proves nothing about Carson's LTV being false. The labor put into the house and the time taken to build it being huge aspects of its cost, all this means is that the cost to build a house for a first man is less than that for the second man. So, if they both enter the same market, man # 2 could make his price exactly equal to cost, and still not be able to compete with man # 1, whose costs were much lower. However, in a competitive market with no artificial constraints like IP, people will either adapt to compete, lower their prices, or leave the market. As more and more people enter a market, it will become more and more difficult to have such a superior advantage in labor quality. Thus, over time, the price will approximate the cost until eventually profits are eliminated.
In other words, your hypothetical situation would quickly be eliminated by increased market entry, because man # 1 would be making massive profits compared to man # 2, and this would be a signal to other entrepreneurs to enter the market. As more and more people enter, there is less and less of a chance of one person being so superior at labor compared to the rest of the market.
I never made the claim that Carson's LTV ideas were false. I have no idea if they are, because you have never posed them to be reviewed. Like I said before, I can't really argue against an argument that hasn't even been made.
The burden of proof is on you, not me.
I think there's a fundamental misunderstanding/miscommunication of what I'm advocating. In Carson's words:
"Since Böhm-Bawerk and others made so much of the various scarcity exceptions to the cost principle, we will examine the treatment of such exceptions in the writings of the classical political economists and socialists themselves. If, as we shall see below, the classicals freely admitted such exceptions, it follows that the marginalists and subjectivists were attacking a straw man; or at the very least, that they had a far different idea of the level of generality necessary for a theory of value."
If you're looking for an exactly theory of value, then the only thing you can use is STV, value being always dependent on innumerable factors. LTV is just supposed to be a general guide to apply in a given situation, like the industrial revolution in England, to ask whether or not what is occurring is truly the result of voluntary exchange with easily accessible goods or whether other factors (like natural or unnatural inelasticity of supply, state coercion, or bribery) are in play.
I think I see what you're saying, but it's pretty presumptive. (or, at least, Carson is)
It's a fine thing to believe that every person could only make decisions where the possible outcomes are good ones. However, sometimes a man has to choose between two bad choices, and make the best of the situation. That's what can happen in a free market. I think I follow what you're saying about LTV now, in that as a guideline it's probably more moral to approach a situation understanding all of the players involved, their needs, and the social conditions which allow the transactions to be carried out.
However, it's a really terrible plan to make a rule based off of it. Any rule made in due to emotional appeal, including principles of fairplay and equality, only ends in a system that becomes morally ambiguous. Every person will have their own estimation of fairness. I would rather have a system that is completely divorced from emotion and humanity than one subject to the whims of whatever moral compass is currently being carried.
Ok, if you want an example of LTV in the framework of "reproducible goods with an elastic demand curve" then let's look at video game systems. Video game systems are reproducibile and have a very elastic demand curve. What explains, then, why as soon as the Xbox came out, the price of a PS2 dropped? This is clearly indicative of many forces affecting the price of an item unless, of course, the manufacturing process for PS2's was changed overnight (very unlikely and which is the only possible explanation if adhering to the LTV). People saw another system that was just as good, if not better, and they flocked to it. The price was influenced by taste, demand, labor, and countless other factors. It's absurd to think that labor costs are almost the sole reason for an item's price. There are many other factors than just that.
"It's absurd to think that labor costs are almost the sole reason for an item's price."
Yes, it is. I don't recall ever saying that. What I am saying is that labor is a major determinant of cost, and in a competitive market price will eventually reflect cost. Before the xbox came out, Sony was able to charge much more for the PS2 than they were after it came out. This is because there was increased market entry with the xbox. However, if you can find me an example of someone selling an item at less than cost (with the exception of clearances, etc.) I would be very surprised. It is the cost that determines when one is willing to continue selling things, as eventually it becomes better for the individual to simply keep the item whenever cost becomes greater than price. Your example actually shows the workings of LTV, as PS2 was forced to cut the price even closer to its original costs. It's not an absolute rule, it's simply a good method of understanding why people enter and exit markets, and helps analyze situations where people are forced into markets by statist policies.
You just said it yourself. Labor is a major determinant of cost. However, it isn't a major determinant of value. That's a completely separate issue altogether. If you want to argue the merits of Labor Theory of Cost, then by all means, let's hear it.
Okay, I think I understand what you're getting at now. The reason Carson, and myself, are advocating for a general labor theory of value is based in labor theory of cost. It asks the question: why does cost approximate price in a free market. It comes down to Mises idea that human beings are rational maximizers, attempting to keep disutility at bay. If we consider labor anything that a person will do that they consider "disutility," then the only reason a person would perform labor is because they expect to value the outcome of that labor as much or greater than the disutility that they have sustained from doing the labor itself. It's simply saying that someone performs labor because they value the potential result. Of course it's not an absolute and concrete rule, but it's what would tend to happen in an unhindered free market, as the only labor that someone would perform would be labor that they would expect to reap profits from. And as profits are a signal to more people to enter a market, the price will get closer and closer to the cost as people try to lower their prices to compete with one another.
I hope that makes some kind of sense. I'm trying to both write this and eat a bowl of sticky grapefruit. I suppose that the disutility of having sticky grapefruit all over myself and my computer is supposed to end up being worth the taste of the grapefruit.
The way LTV is usually expressed is in that some sort of arbitrary definition of the value of labor is determined by the person in question, or by some third party. When you consider comparative advantage, perhaps a person would rather make their labor in a certain area, but has to choose a less appealing option due to either their ability in that area (even without desire) or an overabundance in their preferred area, or a shortage in the less appealing one. None of these things really affects the value of their labor... the value of their labor is predetermined based on market principles, and is what leads them to make their decisions, not the other way around.
I think it's a misleading assumption to believe that cost mirrors price in a market. In many cases, only once labor prices have reached a certain low plateau do certain acts of labor even become valuable. Art and cosmetic appeal are valueless until a surplus in the market creates a new market for "useless" goods. The intrinsic value of such goods is still zero, though their price increases. Only in established economies do these arguments even hold water.
For some reason I want to use the phrase "you're putting the horse in front of the cart" because I think it fits here, but unlike your grapefruit habit, I succumb to the use of alcohol, and defining this exactly would take more effort that my mind is willing to put forth.
You put sugar on your grapefruit too? :-]
In other words, the more producers that enter a market for a good that is reproducible with an increasing demand, the closer price will approximate cost. And what is the first and primary cost of anything? As Adam Smith noted, it is the toil of getting it - the labor.
I just read through Part 1 of the PDF posted and found no meaningful contributions to the already existing labor theory of value. For anyone else who was interested in possibly reading Part 1, do not waste your time. The reason I say this is because it was basically a synopsis of the criticisms of the current LTV, and the responses from those who support it. There were no additional theoretical developments that haven't already been discussed.
On Wikipedia, it says that "his book he attempts to synthesize Austrian economics with the labor theory of value, or "Austrianize" it, by incorporating both subjectivism and time preference." But, as far as I can tell, he did not originally contribute any new ideas, he merely argued for the ones that had already been presented.
did you read the entire first part, or just the first chapter? The first few chapters are supposed to just be theoretical foundations for the forthcoming discussion.
I read pages 1-113, which was supposed to be the part about the LTV. Is there another part in the book I am unaware of?
I'm not going to personally denounce LTV myself, but based on what I know, other theories make more sense.
The part you read is about traditional views on labor theory of value - he later talks about a subjective recasting of the theory incorporating Austrian views on human preference constantly coming into play. Marx's problem was that he wanted LTV to be an absolute law, when no value theory can ever be absolute, they all have to incorporate some level of subjectivity. This isn't to argue that subjective theory of value is wrong and LTV is right, it's simply to say that LTV is useful in trying to figure out if a group of people is being exploited or not, usually by state policies. This was the philosophy that Benjamin Tucker of the individualist anarchist movement wanted to push forward, but he needed the work of the Austrians, which had not yet been completed, to do so.
From the Table of Contents:
"Chapter Two--A Subjective Recasting of the Labor Theory of
Value----67
Chapter Three--Time-Preference and the Labor Theory of Value
----104
Part Two--Capitalism and the State:
Future----113"
Clearly, pages 1-113 includes the recasting of the LTV. I don't personally have anything against LTV, and it does have applications in certain areas. I'm just saying that I read the part that supposedly recast LTV in a new light, but that nothing was different at all.
Also, I would comment that no one is being exploited, so long as both parties agreed to what was stated in the contract.
That is a very general statement, that needs quite a bit of tightening up for it to be relevant. What you really need is a definition of consent, what it implies, and how it is gained; then we can have a real debate on exploitation.
"no one is being exploited, so long as both parties agreed to what was stated in the contract"
So a contract to exchange a kidnapped victim for money (contract being made between the kidnapper and a loved one of the victim), being one to which both parties were in agreement as to the terms, is not a form of exploitation?
Honestly, (not than I'm at expert at LTV) I think what LTV best demonstrates is the most ethical form of value. It's not necessarily what happens in reality, but that doesn't mean that it isn't right. I thinks its fair to assume that people deserve adequate compensation for the labor they put into their work, and a system that denies them that is ethically bunk. Given, what I'm saying is very much a generalization, and is definitely a loose working/application of LTV, I still think it works as an ethical rule of thumb. STV is clearly what any market does, but LTV seems to more closely mirror what values should be in a true free market, especially ones approaching the infamous Evenly Rotating Economy.
Value isn't determined by ethical standards... that's just ridiculous. Value is determined by demand. If you spend hours carving a block of wood into a chicken, I don't care if you put your heart and soul into it, or even if it's the most lifelike wooden chicken ever created. It has no value to me.
Ethical form of value? GTFO.
I am not saying that this is necessarily how it works, but I think most people could say that it is a) one of the only determinants of value in a true free market, or an ERE, and b) it is ethical for workers to be equitably compensated for their work.
STV is a market mechanism that will always exist, regardless of the market type. However, LTV is generally what we should aim for (ethically speaking), and is probably what a true, robust, decentralized free market would look like anyway.
correction: didnt mean value in the a) section, meant cost
When you enter into arbitrary assumptions about ethics in a non-existant marketplace, it gets really fuzzy, really fast. Ethics is pretty subjective on its own, well before you start trying to tie labor theory to it. Ethically speaking, if an owner pays a laborer any more than his labor is worth, to me, that's inequitable. If they both agree to a contract, then there is no ethical dillema. If the employer has the laborer by the proverbial balls, perhaps because of the laborers current financial position, that's of no ethical fault of the employer.
Personally, I think that a free market will look much more like monarchal states than like anything you're describing. Some people are going to be better at manipulating groups and investing more soundly. They will acquire more property, more interest, and more control over the markets in which they operate. Once they have a decided capital advantage in any market, it will be hard to dislodge them, and you will simply have to choose between elites, given that no other options truly exist.
Just because something is subjective, especially something like ethics, doesn't mean that it should be discounted. Of course ethics is fuzzy; saying ethics is fuzzy is like saying the sky is blue or water = h2o. However, these subjective mores are integral in the definition, quality, and survival of societies. So whale away on subjectivity, but it really means nothing.
If it means nothing, then why bother bringing it up?
I strongly believe some objective ethics can be rationally uncovered just like 2 Hydrogen+1 Oxygen atom yield water can be rationally uncovered. The latter is rooted in nature, the former rooted in humanity. (i.e. natural law) Have you read the Ethics of Liberty, Nathan?
a) objective ethics are pretty shady. as i recall, the last person to do that was ayn rand, and she made the world a worse place.
b) natural law is a myth; i hate to say it because it is a very intriguing field of political philosophy, but its true. ive studied natural law; its bunk.
plus, im talking about the subjective preferences of a society. things like market types, etc.
The really ironic thing is that the majority of people on this blog are giving Carson the treatment that the majority of the academic community gives the Austrians - finding rare exceptions to their rules, claiming these exceptions prove their theory defunct, and then insinuating how fringe and misunderstanding of basic concepts they are.
No one is attempting to undermine Carson's theories, because as far as I can tell, none have even been presented.
Basically, the fact that the LTV was adopted as a prescriptive theory by Marx and socialist theorists is the reason it is so vigorously denounced by the Austrians and others as a reaction to the rise of Marxism.
In reality, the LTV was originally developed (and is resurrected by Carson) as a descriptive theory to explain how values are developed in a free market.
Although there are some types of goods for which the market value is not determined, ultimately (and over the long term), by the subjective "cost" of the labor associated with the production of the good - for most goods the opposite is true.
As Carson points out, in a free market, the price always tends towards labor cost (because there are no artificial barriers to entry; nor are there artificial rents or profits that depress the relative bargaining power of certain parties) although it may not actually reach it in any given short term. The STV is the mechanism by which the LTV operates - it is the means by which prices in a free market always tend (with some exceptions, and absent non-free market conditions) toward the results predicted by the descriptive LTV.
Oh and LOL @ all the people getting pissed at Elliot for bringing up this topic.
If you aren't open-minded enough to question some of your own beliefs, question some aspects of the intellectuals you identify with, or investigate alternative views thoroughly - how the hell did you become a libertarian to begin with?
Last thing we need is to become as intellectually-bankrupt and dogmatic as the establishment we are trying to undermine.
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