Theories of Value

Blue Marx
Blue Marx.
One thing I didn’t discuss in any detail in yesterday’s
review of Paul Mason’s “Post-Capitalism” was his fondness of the Labour Theory of Value (LTV).

The LTV basically says that the value of something is the amount of labour that went into producing it (counting also the labour used for producing the materials and the energy used). The main competing theory is the “theory of marginal utility: that there is no intrinsic value to anything, except what a buyer will pay for it at a given moment” [p.160].

As a small business owner I must says that the LTV doesn’t make any sense to anybody who’s ever run a company — the price I can charge for a product does not depend on the number of hours I put into making it. It would be nice if I could just bill by the hour, but I cannot. It does make sense as a minimum pricing guide — I would like to sell my product at the LTV or more — but then it’s not a theory of value any longer.

The reason Paul Mason is fond of the LTV is because it assigns value to Open Source products such as Linux and Wikipedia which are not for sale and thus not assigned a value by the TMU, but it’s quite easy to work out their LTV.

Using the LTV and the fact that the nature of the info-tech revolution is continually reducing the cost of capital and labour he then makes an interesting observation:

Let’s run this spreadsheet down to an end-state, over several time periods where capital and labour get shrunk towards zero marginal reproduction costs. Now the labour expended is mainly focused on providing energy and physical raw materials. [p.170f]

Paul Mason seems to think this means capitalism is coming to an end. I’m not so sure, however. Even if robots start producing everything more or less on their own (food, energy, raw materials, products), many things will still cost money. Somebody will be owning the fields the food is grown on, the mines the raw materials are extracted from and the hills the windmills are placed on. Also, all homes aren’t equally attractive, so of course some will be worth more than others.

We might thus be heading for a situation where value derives from land (for living on, growing food on and extracting materials from) and energy (which ultimately derives from land, too). So an app or a book will be practically free, whereas a house, a gold ring or a trip to Barbados will still cost real money.

In spite of what Paul Mason is saying, we’re therefore not heading for a future without money. Even if you tried, you’d get USSR-style black markets and corruption in order to get the most attractive house or the newest smartphone before everybody else.

I guess the real question is where people will get money from in the first instance if their labour isn’t needed. Landowners will be rich, but apart from them only people doing important work (such as building and maintaining robots) will be necessary. The rest can then to some extent make money by providing personal services to the landowners and robot builders and to each other, but it doesn’t sound like a very prosperous future to me.

My personal guess is that the only real way forward in that situation is by taxing land and using this money to pay everybody a basic income. That would ensure there’s enough money in the economy, and it would enable some people to spend their time producing Open Source products for the benefit of everybody.

If we don’t do that, the danger is that we might be heading for a modern version of the Middle Ages, where the landowners are rich, most people are poor, and in addition there will be robot builders as a futuristic version of the medieval Church.

I reckon that rather than trying to resurrect the LTV, we should perhaps be starting to look again at the ideas of Henry George and the other Georgist thinkers:

Henry George (September 2, 1839 – October 29, 1897) was an American writer, politician and political economist, who was the most influential proponent of the land value tax and the value capture of land/natural resource rents, an idea known at the time as ‘Single-Tax’. His immensely popular writing is credited with sparking several reform movements of the Progressive Era and ultimately inspiring the broad economic philosophy often referred to today as Georgism, the main tenet of which is that people legitimately own value they fairly create, but that natural resources and common opportunities, most importantly the value of land, belongs equally to each person in a community.

Perhaps Paul Mason’s Marxist vision of a Post-Capitalist society will ultimately only be realised if we follow Henry George instead of Karl Marx.

34 thoughts on “Theories of Value”

  1. There is no competition. The sole cost of any production is the cost of the labour used to produce it; its value is the amount that anybody might be prepared to pay for it.

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