Tuesday, July 19, 2005

Competing Theories of Value

Eugene Plawiuk, of LE REVUE GAUCHE - Libertarian Communist Analysis And Comment, recently commented on one of my posts, which led me to his blog.

One of Mr. Plawiuk’s pieces (a rather lengthy one) is a critique of capitalism, which is not surprising, since he refers to himself as a “Libertarian Communist”. In the aforementioned post, he extols the virtue of the Labor Theory of Value (LTV). This theory, more or less, links the value of a commodity to the amount of labor involved in its production. One of its most notable adherents is none other than Karl Marx.

Now I’m certainly not an economist, nor am I an economic theorist, but despite my ignorance, it seems rather obvious that Marx’s economic philosophy has failed miserably each time it has been tried (relative to market capitalism). To grossly over-simplify the issue, I’ll say that, in my view, LTV all but discounts basic supply and demand. In other words, LTV assigns undue import to labor, as though human exertion, the sweat of one’s brow, were objectively valuable to another party.

For example: John Doe toils in the elements, as a member of a ‘foundation crew’, manually digging the footings (ditches filled with concrete) that support poured-in-place concrete foundations (basements) for single-family residences. Then, there is Joe Smith, who, in the comfort of a climate controlled office, generates the architectural plans that describe the particulars of the very foundations that John digs. Now, according to LTV, John Doe’s manual labor is more valuable than Joe Smith’s intellectual efforts. The fatal flaw of LTV becomes apparent when both John and Joe decide to resign and must be replaced. Which position is more easily filled, given the skill-sets of the general population? The fact is that the value (price) of a given service is directly related to the supply-demand ratio for that servive (the same is true of goods). Think of the difference between a successful baseball pitcher and a ‘ticket taker’, a diamond cutter and a diamond miner, a CEO and a janitor, etc…

Again, I’m not an economist (it's self-evident, I know), but I would say that the Austrian School of economics is that to which I subscribe. For unlike the LTV, the Austrian School considers the consumer choices of individuals, rather than collective decision making. Furthermore, it emphasizes laissez-faire and the non-expendability of property rights. Need I say more?