The Labor Theory of Value in Everyday Life: The Soylent Brown Fallacy

The labor theory of value stipulates, in a nutshell, that the value of a product on the market represents the value of the labor input in the course of its production (plus evil, pilfered, bourgeois profits if you're an old-fashioned Marxian).  This theory, though it is intuitive and attractive on its surface, is fundamentally flawed.  This doesn't stop it from being applied in everyday life, especially by the common layman who has never heard of the formal theory.  For example:

1. I once had a coworker who, fresh out of his undergraduate schooling, declared all advertising to be wasteful.  Therefore, he claimed, it would be better for the government to distribute all relevant product information and for advertising to be illegal.  The primary driving force behind his thinking was that embedded in the price of goods that are advertised is a unit related to advertising costs, and if that were to be removed, the savings could be passed along to the customers.
2. Similar to the previous notion is the often heard proposition that generic grocery items cost less because the companies that produce them don't have to pay for advertising.   
3. The development of costs in grant proposals is usually based in part on a number of employees at a percentage of effort for a fixed period of time.  
4. The bottom line on your invoice from the auto shop or your contractor includes "parts" and "labor".

This is not to say that the going rate of labor an other inputs is not involved in the calculus of prices paid.  These activities simply contribute to the misguided notion as to the origin of value.  Consider the following:

Imagine that you intended to open a restaurant based on the sale of reconstituted  excrement.  Of course, assume that you have developed a laborious and expensive technique to sterilize the manure through a process involving intense heat.  Assume also that this process has been approved by the various regulating bodies and that you have obtained contracts with local farms and sewage agencies to acquire the raw material at a fire sale price.  How do you arrive at a list price for your various incarnations of, for lack of a better name, Soylent Brown.  You would probably start by adding up the cost of the raw material, shipping charges, labor expenses for you and your employees, a function of your rent on the building and a percentage markup that you think is reasonable and that you expect to represent your profit.

Now it's all a matter of raking in the dough.  Will the product sell?  I haven't done any market research, but probably not.  You think that maybe your list price was too high; perhaps you are too far up the demand curve for anyone to be interested in your curried excrement over rice.  You then might decide to invest in an advertising campaign to get the word out about your new lower priced delicacy.   You've had to cut into your potential profits to do this because raising your prices is clearly not an option.  Still, in spite of your efforts, you are not successful.  What to do?

Inspiration strikes!  You decide to sell your product to local ranchers who are less squeamish about what they feed their livestock than the average soccer mom is about what to feed her children.  You realize that this must be done at a lower price point and that you have the opportunity to sell a larger volume, so you ditch the expensive rent for a restaurant downtown in favor of a small factory on the outskirts.  You let your sandwich artisans go in favor of lower paid and less skilled workers.  You scale back your operation by eliminating hoagie buns and guacamole from your inventory, and you finally settle into an operation that can return a profit selling the region's lowest form of refuse to a couple of cheapskate farmers.

Admittedly, this is an unlikely scenario and a business plan that I wouldn't recommend, but I hope it illustrates the origin of the value of your product.  It wasn't some intrinsic value in your labor (how wonderfully circular that would be) or the quantity of it.  It wasn't the money you spent advertising your low-priced fecal sundaes.  It was the subjective valuation of your product given by those farmers.  Your profits, were you be lucky enough to have them, were not milked out of your employees or reaped from operant conditioning of the masses through clever advertisement but from your hard-earned knowledge of what someone valued and how to deliver it to them.    


Related Post: Starship Mises

How are you supposed to pronounce Iraq?

I was 5 or 6 during the first war in Iraq.  I seem to recall that everyone, including the newscasters, pronounced it "eye-rack" at the time.  Obviously I was pretty young then, so I could be mistaken, but it seems that the pronunciation has changed in this country to something more like "ear-rock".  I recollect that this occurred around the build-up leading to the second war.  I wonder if this was because we felt that we had progressed as a country or become more cultured in the decade since our last attack that we felt the need to change the pronunciation.  Doubtless it is perceived as more politically correct by some to pronounce the name of a country more akin to the way natives say it, but I maintain that this does not give the impression of higher culture.  I rather believe that it gives the impression of one who attempts at the mere appearance of it.  Does the president think that he is connecting with the people of "pawk-i-stawn" on their level when he rises above the low-brow, Americanized "pack-u-stan"?  If you think so, consider the last English-speaking white dude you heard say "Mehico" in lieu of "Mexico".  Assuming he was sober and not physically in a Spanish class, you probably thought he was quite a douche, and you were right.

All I'm saying is, you don't need to be ashamed of the language you are speaking.  If you don't pronounce some country the way it sounds in the native tongue, that's cool. You wouldn't expect a German speaker to switch mid sentence from the strict, halting rhythm of their native speech to a drawn and mumbled "Nawlins Lusana".  He might get some laughs, but I doubt he would fool anyone.   

Mandatory Blood Donation

I gave blood yesterday...no, no, thank you, please hold your applause...Anyway I gave blood yesterday and got to thinking, perhaps due to lack of blood flow to my brain, how grand it would be if everyone who was able donate blood on a regular basis or even just gave it a shot.  It's really not difficult or unpleasant.  I mean I am a particularly weak individual, and I have never had any trouble during or after donation.  Maybe the government should require all able-bodied citizens above a certain age to regularly be screened for blood donation eligibility, and if they pass the criteria, be compelled to "donate" a pint under penalty of law.  Maybe a simple tax on anyone who didn't show up for screening and a stiffer one for anyone who passed screening and didn't submit to the needle.  You would probably want to impose a stiffer penalty (tax, I meant tax, sorry) on anyone who willfully made themselves ineligible through international travel, living in the UK for a period exceeding 5 years, having sex for money, sharing an apartment with someone who has hepatitis etc.  Based on recent precedent, this should all be quite constitutional in the US.

Just think of the potential savings, not just in lives, but more importantly, in the federal budget.  I'm no medical expert, but it should be fairly straight forward to come up with a figure spelling out the cost savings for Mr. John Q. Taxpayer due to the ready access to compatible blood in the ER, since he is paying for so many of those visits for the uninsured and the insurance for the insured (Author's Note:  remind me to draft a plan on an O negative blood type breeding program).  Further, think of all the money it will save the blood banks.  If everyone is forced (sorry, incentivized) to give blood, they can stop calling me three times a day and asking me to donate.

More thoughts on the subject - More on Mandatory Blood Donation

"You Didn't Build That" - A response in favor of peace

For those of you living under a rock, there has been a recent uproar over something our gentle public servant Obama said the other day.  If you search for "you didn't build that", you will doubtless find a great number of  news items describing, quoting, misquoting, spinning and backpedaling on the statements of the president.  I will not sully my site with the banal news cycle.  I simply wish to provide my thoughts on the subject.

There are various arguments of the type, "You couldn't have accomplished (or you wouldn't have possession of) X, Y or Z without the government.  The government invested in the internet, microchips, space exploration, your education, and roads.  They provided laws and boots for your protection including such things as patents, police, armies, navies and courts.  Governments paid Columbus to "discover" the new world and Lewis and Clark to explore and document it.  Therefore, you have no cause to complain about taxation or other government interventions which have provided for your general welfare."

These arguments are generally given by the left, though the right is only conditionally allergic to them.  They are given in opposition to the simplistic, dare I say Randian, portrayal of the rugged individualist entrepreneur standing alone against the world to profit in a capitalist paradise.  They so often end with some variant of, "You didn't accomplish this alone."  Well of course is it overly simplistic to think that anyone succeeds in business (or in life for that matter) purely on the merits of their own efforts, but does it follow that we should back off any opposition to government based on this fact?

Of course we all rely on the kindness, savings, investments, intelligence, innovation and business of others in extraordinary and unpredictable ways.  You must receive your business inputs, you must obtain the capital and skills to produce your output and your customers must find you and decide to purchase your product at the price you have set.  You stand on the shoulders of inventors and discoverers who have come before you and presume that somehow a population will have the wealth and the desire to purchase your wares.  You didn't plan all of this; you would have had to start before you were born.  So if you succeed in business through loss of your own blood, sweat and tears, whom do owe and how much?

Certainly you can account for the prices paid for your raw materials, your capital equipment, your employees and your education.  You will pay interest or give up a portion of future profits to investors.  Your parents are unlikely to insist repayment for your upbringing, so you're off the hook there.  You either pay rent for your property or you purchased it outright.  Last but not least, your customers pay you, which ultimately allows you to pay for all of your inputs.  So maybe you owe your customer the most; you clearly couldn't have done it without them.  But wait a minute, they received something in this transaction - your product.  Did they pay too much?  Should you give something back, if not to them then to society?  Unless you defrauded them, forced them or sold a defective product, you should not feel the need to repay anyone.  The price paid for any good is a reflection of the subjective valuation of that good to the purchaser at the given place and time.  You give a man a hamburger, he gives you $5 and you owe each other nothing but mutual thanks.  This relationship recurses back through every transaction in the chain of production and we end up with this beautiful, spontaneous, chaotic order in which we can peacefully make progress and profits off the backs of our neighbors and owe them nothing but our thanks.    

Now enter a gang of thieves who disrupt this harmonious relationship with force or subterfuge.  Their guns represent an attempt to get something from the beautiful order of man without giving anything in return.  The gang may in special circumstances provide money in exchange for their takings, but this "price" is meaningless on account of their weapons and their "right" to use them.  Imagine a gang large enough to repel all other gangs between the sea and the nearest mountain range.  The pragmatic gang will not disrupt the order enough to destroy it as it provides for the welfare of all.  They will protect their borders with troops and the order on their streets with police.  They will take their cut of commerce flowing in, out and within their realm.  The population will become so accustomed to these takings that the guns will be rarely taken out of their holsters for the robbery, which then will be called a tax.  If possible they will monopolize the currency used by the populace to aid in extracting the resources required to "maintain" the order, which preceded their existence.  Finally, the populace will thank them and sing their praises for false promises written on paper to constrain the power they have already usurped for themselves.  They will put roads and build bridges where it pleases them and pay prices that mean nothing for materials and labor.  With funds taken from the people, they will pay meaningless fees to scientists to discover things they think people are interested in knowing and engineers to build things they think people will want.  In the same way they will enforce a curriculum upon the youth.  They will mistake progress with comfort and destroy both by paying men to dig ditches and fill them in.  For all of this they will claim a right to thanks from the citizenry.  They will shout down objections to their power with claims that the order would not exist without them and that their theft was necessary and beneficial.  And at this point, their resemblance to the state is complete.          

Conscription vs. Slavery

I don't know why I torture myself with useless and difficult thought experiments, but I find myself debating which is worse between military conscription and chattel slavery.  This brings to mind the schoolyard debate over whether it would be worse to burn or freeze to death.  I think in order to openly debate myself on this question without bringing offense to too many readers I must remove the quandary from its historical context.  To clarify, I am not considering the difference between being a slave in the antebellum American South or an Egyptian pyramid laborer on the one hand and fighting for the "good guys" in any of the various attempts to "make the world safe for democracy" on the other.  I don't think such a question could be answered, and frankly, it doesn't interest me in the slightest.

So imagine the situation that a war started tomorrow and a draft was instituted the day after.  Your number was called and your only opportunity to avoid compulsory military service was to submit to slave labor to a private farmer for a period of time equal to the alternative military term.  What would your preference be?

When placed in this context, I think the decision is easy.  I would much prefer private slavery to groveling before the state for the privilege of having my ass shot off.  Clearly the risk of death is less in slavery, and the risk of killing is practically zero.  Further, in slavery I could appeal to the good nature of a single person as opposed to the mob (a.k.a. the democratic majority), an entity with no heart and no brain.  I have no delusions of being set free as that would sort of ruin the thought experiment, but it is nice to know that I could  at least try for favorable treatment.  

Independence Day

This is the first 4th of July that I would describe myself as an anarcho-capitalist, and I am struggling to pinpoint exactly what it is I should be celebrating and how I should show it.  As someone who recognizes the illegitimacy of states in general, it is difficult to muster any nationalistic pride or go along with any of the myriad activities that can only be described as state worship - singing God Bless the USA, taking my hat off for the Anthem, wearing the national colors, honoring a flag, pledging allegiance, thumping my chest for the spreading of "democracy" etc.  On the other hand, I have come up with a few things that I can get on board with:

1. Blowing things up in a nonviolent way - I like the idea of having a good time demonstrating man's power over nature in a mostly nondestructive and nonaggressive way.  I also like the activity of snubbing your nose at states who don't allow certain fireworks (for your own protection of course) by crossing state lines for your purchase.  
2. Celebrating actual independence - Casting off the yoke of an oppressive regime is always something I can get behind, and some of my ancestors in the American colonies risked their lives to do just that.  It doesn't logically follow however that I should stand in reverence to the oppressive regime that has since then taken its place.  
3. Getting together with loved ones to eat too much and celebrate our "American" culture - It is our personal relationships that fulfill and sustain us, not the promises of the government.  Further, it our customs - our food, our languages, dialects and pastimes - that bind us together in peace, not the imaginary lines on the map.  It is our societal customs and the good nature of our neighbors and our selves that we rely on to keep us safe and free.  To believe that government alone can provide this is a fantasy.  To paraphrase the insidious cliche, freedom is indeed not free, but never fall under the misconception that it can be preserved or defended by proxy.

I wish everyone a wonderful day of thoughtful celebration!