The concepts of socialism and capitalism have definite meanings. Socialism is defined as state ownership of the means of production. The definition has been accepted by the most consistent practitioners of collectivist creed in failed socialist countries. But certain left-libertarian theoreticians (“mutualist” Kevin Carson is prominent among them) deny that state ownership captures the essence of socialism or that it has anything to do with the state or central planning of the Soviet style. To them socialism has a cosmopolitan and innocuous meaning which is really just about voluntary cooperation. Proudhon said so, Benjamin Tucker said so, even Friedrich Engels did say so. Did they not all preach and hoped so sincerely for the withering away of the state? Were they not among the most uncompromising foes of the oppressive state – that great anathema of voluntary association and classless society?
What is going on here? In a sense, left-libertarians have a legitimate point. Upon closer examination, the definition by state ownership is indeed definition by non-essentials. It is too narrow because its focus is merely on the final stage, the practical consummation of the collectivist creed. Initially, state ownership was conceived as a mere mechanism to abolish the hated “wage system”, the “undemocratic” and “oppressive” concentration of economic power in the hands of a few industrialists, bankers, landowners. Socialism has always defined itself by the hatred of the “wage system”, not by any meaningless bromides about “true” freedom and “true” voluntary cooperation. This is the real meaning of socialism. And this is what really unites Proudhon, Marx, Engels, Lenin, Stalin, Trotsky, Mao, Carson, and probably the majority of so-called left-libertarians. Make no mistake about it, Carson and other left-libertarians are open about their desire to abolish the “wage system” and replace it somehow with something but which would be genuinely voluntary and really and finally just (of course, in the sense of labor being paid the “full product” – Carson).
The problem is that like the old crop of collectivists, the recent one does not understand that the hated “wage system” is precisely the essence and beauty of capitalism and an indispensable element of civilization and human progress. Economically, the “wage system” is an indispensable precondition for and thus a necessary manifestation of a modern division of labor society, for it is responsible for every increase in productivity of labor and standard living of all members of society, especially the wage earners.
Prior to industrial revolution, division of labor did not go very far beyond a small number of simple tasks. Self-sufficient farming was the predominant mode of economic organisation. In such economies virtually all goods and services, the quantity and quality of which were barely sufficient to provide for mere physical survival, were produced either by families or within narrow confines of a tribe or village. The wealth both in form of directly consumable goods and primitive means of production was typically jointly owned by family or tribe members and exists directly and exclusively for their own benefit; in other words, producer and consumer are almost always one and the same person.
In contrast, as Mises has shown, and which was one of his greatest contributions to economic science, because of the very nature of economic organisation in a market economy, the physical beneficiaries of the means of production owned by capitalists are those who buy consumers’ goods produced with the help of these means of production. As a matter of fact, and contrary to Marxists and other collectivists, the greatest beneficiary of capitalistic ownership and mode of production is the average wage earner in his capacity as buyer of consumers’ goods. Indeed, the actual motivation of producers, who are the owners of the means of production, is to produce commodities not for the satisfaction of their own needs but of the needs of consumers; in short, in a market economy producers and consumers are almost always different persons.
In a self-sufficient economy the extent to which one owns means of production determine directly the amount of consumption one will have. The life and well-being of a family possessing a large fertile plot of land, cultivation tools, large herds of cows and sheep etc. is directly dependent on how much of this wealth it owns. In order to benefit from the wheat, the milk or meat, one, or one’s family or tribe, has to own things that help to produce wheat, milk or meat.
Quite different is the situation in a market economy ruled by the “wage system.” Here in order to benefit from products made with the help of the means of production, one does not have to own these means of production themselves or to own stocks or bonds of the companies employing these capital goods. In order to benefit, say, from Toyota automobiles or Sony TV sets or any other product available for purchase, one does not need to be an owner of stocks or bonds of Toyota Corporation or Sony Corporation or any other company; all one needs is merely to be able to buy these goods. The buyers of these products are overwhelmingly wage and salary earners, not businessmen and capitalists. Capitalism is distinguished by the mass market for the masses of wage earners.
Wage and salary earners benefit not only in their capacity as buyers of products while the means or production used in their production are owned by capitalists, they also benefit when it comes to the monetary demand for labor which is the source of almost all wage payments in the economic system. The necessity to employ labor and to pay wages is dictated by both the unlimited need for human labor as the ultimate source of value and the competitive pressures in the market process. Continuous survival under conditions of economic competition positively requires that businessmen and capitalists plow back into the production process the far greater part of their sales revenues in order to maintain, and if economically feasible under given circumstances, to expand the scale of production. Since labor and capital goods represent the actual, physical means with which the quantity and quality improvements of products can be expanded, each and every capitalist is forced to restrict his consumption down to an absolute minimum and reinvest the far greater portion of his earnings into the maintenance and, if possible, into the enlargement of his business operations.
It is precisely in this way that with the rise of capitalism the demand for labor and capital goods has come into existence and has remained in existence and can be practiced on the presently existing large scale only under institutional arrangements of a market economy with its all pervading elements of economic competition, the profit motive and economic inequality.
As a matter of fact, by far the greatest fraction of aggregate wage payments in a modern market economy originate in business enterprises and are paid out of that portion of sales revenues which are not spent for personal consumption of businessmen and capitalists but saved and productively expended. The average wage earner in developed countries, as far as his economic status is concerned represents the overwhelming majority of population, benefits indirectly from the wealth invested into the means of production. He benefits from this particular category of wealth to a far greater degree as long it remains invested than if it were simply sold and the selling proceeds equally distributed among his fellow workers, as hoped by such “mutualist” theoreticians as Kevin Carson.
It would do no good to the economic condition of the average wage earner if accumulated savings invested in factory buildings, machinery, equipment, inventories and other capital goods were expropriated and distributed to him and his fellow workers. Rather, it would be tantamount to the case of a farmer consuming all his seeds in the present only to discover that he has nothing to plant and consequently to eat in the future.
To conclude. Semantics aside, the ultimate problem that Carson and other left-libertarians have is the hated „wage system.” In this respect, they are no different from Proudhon, Marx and all other collectivists. They have the same mindset when it comes to the analysis of capital, the capitalist “wages system”, the source of profits, the inequalities in wealth and income. Anyone who advances such views and on that basis opposes the “wage system” is a socialist. Anyone who understands the essence of the “wage system” as one of civilization’s most essential and benevolent institutions and upholds it on the basis of that understanding is a defender of capitalism.
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I don’t think Carson is opposed to all wages. From what I’ve read of his writings, he believes that there are far more wage workers than would exist in a stateless society — he believes there would be far more entrepenurs and self-employed workers in a free market.
Cited causes for this situation are (1) government monopolization of money, (2) government monopolization of land, (3) IP Laws, and (4) government-subsidized infrastructure.
1. Carson believes that the state restricts access to capital by workers — those at the top get the first access to fiat money.
How is this different from the Austrian View?
2. The land question, even Carson concedes, is the only real difference between his brand of libertarianism and others. Carson believes in usufruct property rights — not Lockean.
3. IP Laws Concentrate wealth in the hands of those that have IP monopolies.
4. National infrastructure projects favor national firms, state infrastructure projects favor state firms, etc.
Socialism has always defined itself by the hatred of the “wage system”, not by any meaningless bromides about “true” freedom and “true” voluntary cooperation. This is the real meaning of socialism. And this is what really unites Proudhon, Marx, Engels, Lenin, Stalin, Trotsky, Mao, Carson, and probably the majority of so-called left-libertarians.
If Lenin, Stalin, and Mao “defined” their socialism by their hatred of the wage system, why did the Leninist, Stalinist, and Maoist states continue to pay wages?
Good article!
Not just a good article, but a great one! I know a lot of people who could benefit from reading this. (I suppose most of us do.)
“If Lenin, Stalin, and Mao ‘defined’ their socialism by their hatred of the wage system, why did the Leninist, Stalinist, and Maoist states continue to pay wages?”
Because there is a thing out there called “reality”, and even socialists sometimes have to take cognizance of it!
This article rewrites history to make its points. If anything, Marx appreciated history and fully acknowledged the improvement capitalism/wage labor represented over the previously dominant manorial serfdom.
It is just that he understood the reality of the limits of continous growth upon which capitalism depends and made a guess what the future might bring. Meglomaniacs took his idea of a vangard party to represent those isolated in the rural areas and twisted it to meet their own ends.
So what that he did not prove any more accurate than any other futurist? You are just playing one ideology against another. This does not serve science.
Just as slavery proved unmanagable as a widespread system during the Servile Wars and manorial serfdom proved unworkable after the Great Plague now it is capitalism/wage labor that is failing because it no longer has any major markets to expand into and therefore no way to pay off the accumilating debt.
Besides, it is just plain inaccurate to insist that any form of statism represents socialism/communism as Marx wrote about it.
You only prove that if disinformation is repeated often enough the intellectually lazy will begin to believe it.
I consider myself a left-libertarian, yet I have no desire to “abolish the wage system” at all. Firstly, not all left-libertarians are mutialists like Mr. Carson; I am personally more of a Rothbardian than anything else. Let us not misrepresent what left-libertarianism is about.
Would a wage system exist in a truly free society? Would the predominant business model in a truly free market be one where a boss owns the firm and the means of production or the firm and its capital goods are owned in common by the workes of that firm?
I don’t know, nor do I think its all that important either way. I would prefer to see worker-owned firms become the dominant business model, but if it turned out that the business structure that turns out to be most efficient in a truly free market is the form where the boss owns the means of production, then so be it.
I’m a left libertarian because I believe that in a truly stateless society, there will be no conflict between socialists, communists, syndicalists, and capitalists. Communists would be free to purchase in common large pieces of land on which they would be free to work and to share their produce however they think best. Socialists would be free to form voluntary associations aimed at eliminating poverty and helping the least fortunate in society. Syndicalists would be free to form worker-owned firms while capitalists would be free to hire wage workers.
All the conflicts that exist between capitalists and communists (and et al) arise because of the state, and once the state is abolished, such conflicts would be minimal at most, if not entirely nonexistent.
This is why I no longer like to call myself a capitalist. I don’t care about capitalism, or communism, or any of the others. I’m an anarchist, I reject central planning, and I will be happy with whatever structures, organisations, and firms that arise in the free society. If I had to be pressed to label myself with a sub-label, I’d say I’m somewhere between anarchocapitalist and anarchsyndicalist, but I’d be quick to add that I’m a voluntaryist before I’m either of these, and that I will reject all initiatives put forward by self-described “anarcho”-syndicalists and “anarcho”-capitalists that involve the use of aggression (the initiation of force) as its means.
Another point I wish to stress: all libertarians are left-libertarians, including Rothbard and Mises (although Rothbard, by virtue of being an anarchist libertarian, was more left-wing than the liberal libertarian Mises).
Carson has his flaws, especially when it comes to the idea of land ownership, but I would have extreme doubts about any claim one might make that he would ever employ statist (i.e. right-wing) means in pursuit of his goals. Marx, Lenin, &c. had absolutely no problem with statist (i.e. right-wing) means to achieve their goals, and since statist means never truly yeild liberal ends, we must therefore conclude that Marxism (Leninism, &c.) is objectively counter-revolutionary.
To go back to the wage system, I fully accept the arguments put forward by Rothbard in his The Ethics of Liberty that a wage system could arise on a truly free market, and that it is neither inherently exploitative nor unethical. What many mutualists and other left-libertarians argue isn’t that a wage system would be unethical if it arises in a truly free market; what they argue is that it is an inefficient business model that is as prevelent as it is because statist intervention gives privilege to firms of that business model; they argue further that in a truly free market, worker-owned firms would outcompete and thus naturally replace (without any statist intervention required) capitalist-owned firms. Could this be the case? Since none of us truly know what things would look like in a truly free market, it is quite possible. In the very least, we can’t rule out the possibility.
Rothbard himself argued, in his essay “Confiscation and The Homestead Principle” (The Libertarian Forum 1, no. 4 (15 June 1969)) that firms that seek out statist privilege are criminal insofar as they do, and thus should be punished insofar as they do. Mr. Carson and I seem to disagree on the extent to which this punishment should be imposed, but neither of us reject the premise behind this Rothbardian principle.
Does this make me a socialist? Does it make Rothbard a socialist? That all depends, ultimately, on what definition you accept. If you define socialism in the manner that Mr. Spangler defines it, both Rothbard and I are “stigmergic socialists.” If you define it in the way you’ve done above (i.e. state ownership of the means of production), then neither Rothbard nor Carson are socialists.
Mr. Kinsella has said that the debate over whether or not we’re all “socialists” is a pointless debate, that it doesn’t matter how we define ourselves but rather merely what we advocate. (I’m probably oversimplifying Mr. Kinsella’s point.) I think there may be some merit behind this perspective, although at the same time I must admit that I found Spangler’s piece on Rothbard as a stigmergic socialist a refreshing take.
But regardless of how one wishes to define socialism (and I do believe there are three different, rather conflicting definitions of the term in total), I wanted to make it clear that us left-libertarians are not opposed to the wage system per se. We also have no inherent problem with, and I particularly have no problem with, the profit motive. These are simply false statements, and the truth needed to be clarified.
Best regards nonetheless,
Alex Peak
“Indeed, the actual motivation of producers, who are the owners of the means of production, is to produce commodities not for the satisfaction of their own needs but of the needs of consumers; in short, in a market economy producers and consumers are almost always different persons.”
I don’t think this is a true statement; isn’t everyone ultimately a consumer? Even if I am the owner of the means of production, am I not a consumer when I purchase them?
I am not an economist and have only been studying the subject for the last several months.
Les, what he means is that most goods are produced to be consumed by others, rather than the producer; thus, the owner of a widget factory produces his widgets solely for the purpose of obtaining other goods.
I believe Mr. Les brings up an important point. The claim or implication that producers are somehow distinct creatures from consumers seems to me to be just as flawed as the Marxian idea that workers are somehow distinct creatures from consumers. Further, it seems to me that a worker-owned firm, if it wishes to remain competative, would need to consider the desires of consumers just as much as would a capitalist-owned firm. Which is better suited (on a truly free market) to provide for consumer demand? Beats me, but there appears to be no reason why the capitalist has to be de facto better suited for this.
The only objection I can think of to my position that there’s nothing inherent in the capitalist that makes her better suited for bowing to consumer demand is the example from Atlas Shrugged of the factory at which Galt originally worked, the one that had instituted a Marxian policy of payment. But to this I would have to reply that (A) the firm at which Galt was employed was not actually worker-owned, so it hardly serves as a counterpoint and (B) there is no reason to assume that worker-owned firms would wish to adopt the Marxian principles adopted by Galt’s factory.
(Note that none of this is to imply in any way that I have any disagreement with the above author that those firms that tailor themselves to satisfying consumer demand would, in a free market, outperform those that do not.)
Best regards again,
Alex Peak
BioTube
“the owner of a widget factory produces his widgets solely for the purpose of obtaining other goods.”
Owner, capitalist, wage-earner are only distinctions of different kinds of producers, while “sole purpose” makes him a consumer, does it not? So, it seems to me, that “sole purpose” applies to all roles (obtaining other goods).
Am I missing something?
All this quibble is just semantic bullshit… Misesians use Mises´ definition for the word “socialism”… Carson is not Misesian and does not use the Misesian definition… So what?
If there are some charicat “left-libertarians”, our fellow writer up here is even worst… The guy said that P.J. Proudhon was a collectivist and lumped him with Marx… Only someone who have not read a single line of P.J. Proudhon would say such thing…
And plus, he said that all left-libs oppose the wage system… Gosh, I wonder if he ever read what left-libertarianism is about…
Why is this still debated? I don’t understand. Marx’s conclusions stemmed from a self-evidently wrong premise, namely the labor theory of value. The major fallacious conclusion, namely the exploitation theory of labor, has already been obliterated by Bohm-Bawerk. Marx confused profits with interest, and had no grasp of time preferences. The socialist revolution is not a grass-roots movement these days, it’s an intellectual one. The majority of people in the Unites States today are here because they FLED fascist/Communist/democratic-socialist nations.
“if it wishes to remain competative, would need to consider the desires of consumers just as much as would a capitalist-owned firm. Which is better suited (on a truly free market) to provide for consumer demand? Beats me, but there appears to be no reason why the capitalist has to be de facto better suited for this.”
You really think that decision by a committee of workers has about the same chance of succeeding in the market as an entrepreneur?
Remember, the only reason the entrepreneur could become a capitalist (or stay a capitalist in the case of those with inherited wealth) in the first place is by continually meeting the needs of the customers in a cheaper and more efficient way than others, thereby earning profits.
For every successful entrepreneur, there are several unsuccessful ones who give up and go back to wage based or salaried employment. You are saying that a committee of untried entrepreneurs will do better than a single one who has already proven his worth?
Although I do agree that without IP laws, a fiat money system favoring the well connected, (maybe public goods as well, not sure on this one) state sanctioned monopolies, licensing, and all of the other regulation and interference of the state, that there would be many more successful entrepreneurs, and less wage workers.
“Marx’s conclusions stemmed from a self-evidently wrong premise, namely the labor [sic] theory of value” [emphasis added].
It’s not self evidently wrong, just wrong in general for reasons that are not self evident. One way to see that is to examine cases where the currency was constructed around labour using poll taxes in a chartalist way, typically in colonial situations, e.g. in Madagascar. There, values were built around labour, deliberately. Another way is to recognise that, when an economy is working properly without state distortions etc. so that all unemployment is voluntary (leisure) or temporary (“frictional”), you can take anything that plugs into the economy and use it as a measure of value – land, capital, bullion, or even labour. Under these conditions, you can rearrange your accounting system to make any of them the base carrying the rest. It’s a philosophical but empty argument to claim that any of them is “really” the base – or that any of them “really” isn’t. But that goes to show that there’s nothing self evident about it. More broadly, though, there are a lot of state interventions etc., which mean that in practice you can’t use labour as a base. Oddly enough, though, that doesn’t refute the possibility that it is underlying, since the measures available have to cope with distortions on top, much as real world objects don’t tend to keep moving because of friction but that doesn’t refute Newton’s Laws of Motion.
“…..you can take anything that plugs into the economy and use it as a measure of value – land, capital, bullion, or even labour…..”
Value is completely subjective; the concept of value arises solely from the individual when he/she assumes that any given commodity, can, or may satisfy a particular desire. Value can never be measured, it’s only graded (as Bohm-Bawerk explained, and Mises further elucidated). Any theory which claims that value is objective, or universally determined, is a priori false. No commodity has any intrinsic/innate value.
Emil Suric wrote “Any theory which claims that value is objective, or universally determined, is a priori false. No commodity has any intrinsic/innate value.”
No, it’s a matter of definitions. If you start from that sort of philosophy, you are using a definition of “value” for which that is tautologically true – and any disagreements you have with someone else over that generally come from using different terms and missing the very real things that the someone else is trying to get at, from not having the toolkit. Or would you argue that (say) the eigenvalues of matrices have only subjective meanings, and that input-output models (that use matrices and eigenvalues to get values of things in terms of the other things that go into them) are meaningless because they have abstracted out personal interests and valuations of what goes on in converting things in an economy? To be sure, the personal valuation only arises after you put that back in – but objective facts determine how many apples and how much sugar go into an apple pie for a given recipe, say.
“but objective facts determine how many apples and how much sugar go into an apple pie for a given recipe, say.”
When considering inputs and output, value does not play a role. The only time value plays a role when considering production, to go back to your example, is when I want to bake that apple pie. Then the aggregate price levels of the inputs tell me how much I have to spend to create that pie. If my subjective valuation of the cost of those inputs exceeds my desire to create that pie, I will not buy the ingredients, if it doesn’t I will. Maybe I missed your point since I’m unfamiliar with “eigenvalues of matrices.” I’m in the middle of a book and don’t want to research it ><.
See? You won’t use the term “value” except in the sense that your own philosophy uses it. Up to a point, fair enough – but it does mean that you will be talking at cross purposes with anyone using different terminology from other approaches. But, objectively speaking, 2 + 2 has a value – it happens to be 4.
“Just as slavery proved unmanagable as a widespread system during the Servile Wars and manorial serfdom proved unworkable after the Great Plague now it is capitalism/wage labor that is failing because it no longer has any major markets to expand into and therefore no way to pay off the accumilating debt.”
No, it’s statist slavery that is failing, now that it is running out of wealth to leech off.
Jay Greathouse wrote “…slavery proved unmanagable [sic] as a widespread system during the Servile Wars and manorial serfdom proved unworkable after the Great Plague…”.
Both of those are wrong. Slavery remained workable on a large scale well into the Principate period of the Roman Empire, and continued for specialist labour under the Muslim conquests. Serfdom underwent a revival from about the 16th century onwards in central and eastern Europe as large areas of land were conquered and/or ceased to be unusable from raiding, and even in western Europe it only faded away over the two centuries following the Black Death (there were serf coal miners in Fife as late as the 16th century).
“See? You won’t use the term “value” except in the sense that your own philosophy uses it”
I’m sorry, I don’t understand. There’s value, then there are prices and numbers. These three concepts are entirely different. The number 4 is not the value of 2+2, it’s merely the numerical result.
“now it is capitalism/wage labor that is failing because it no longer has any major markets to expand into and therefore no way to pay off the accumilating debt.”
I don’t understand this at all. When America was most liberal, namely during the latter part of the 19th century, it had the largest surpluses, and was the worlds greatest creditor. Only when our mixed economy drifted towards socialism did we incur massive debts through entitlement programs and military spending.
“When America was most liberal, namely during the latter part of the 19th century, it had the largest surpluses, and was the worlds greatest creditor. Only when our mixed economy drifted towards socialism did we incur massive debts…”
Wrong, it was one of the largest debtors – only it welched on the debts through various means. It didn’t become the greatest creditor until the First World War.
“Wrong, it was one of the largest debtors – only it welched on the debts through various means. It didn’t become the greatest creditor until the First World War.”
Yeah, you’re right. Either way I don’t understand the socialist position which claims that capitalism requires invasion of foreign markets. If the price mechanisms are allowed to work, then there cannot be over/under production. This is why bubbles and booms are created; they are the inevitable result of artificially lowering the price of investment.
“I’m sorry, I don’t understand. There’s value, then there are prices and numbers. These three concepts are entirely different. The number 4 is not the value of 2+2, it’s merely the numerical result.”
In a way, that’s the very point I’m making – that your system doesn’t see these things as values. But they are – in other systems. So you are going to get a lot of “I’m sorry, I don’t understand”.
P.M.Lawrence-
What is the value of a 4? Four of what? Four houses?, Four apples? Four billion dollars? Four human lives? Four posts to a blog? The number 4 can never be a value. The fact that 2 plus 2 equals 4 doesn’t mean that the value of a 4 is worth twice that of a 2.
What is the value of a head of lettuce? Today it may be on sale for 50 cents. Since I have lettuce in my refrigerator, I value my 50 cents more than the lettuce.
If tomorrow, I remember I am hosting a dinner party at my house, I may go to the store and buy several heads of lettuce for a dollar apiece. The value of the lettuce is dependent on the value I place on a successful dinner party.
In all cases, value is subjective, it depends on the assumptions, goals and expectations of the future for each individual doing the valuing.
A market price derives from the fact the opportunity costs of some people are different than others. Those with opportunity costs greater than the price at which a supplier is willing to sell won’t buy it. Those with opportunity costs less than the offered price will buy it. The opposite occurs with the sellers.
The cost of an item to a supplier merely determines the minimum price at which the individual supplier can make a profit. Below this, the supplier will go out of business. But the real costs of doing business vary widely among suppliers. Those that can keep their costs below the market price will be profitable.
The price on the market derives only and always from the values that the market participants assign to the alternatives that are available. Those values are subjective and not measurable. When someone buys a product, he does not value the product at that price, he only proves that he values what he gets more than he values what he has to give up.
I have never seen anyone buy anything for a 2 or a 4. I have seen people buy things for 2 dollars or 2 bushels of apples or 4 hours of labor. Numbers are not values, and adding a non value gives a non value.
Mr. Jeremy,
You ask, “You are saying that a committee of untried entrepreneurs will do better than a single one who has already proven his worth?”
No, what I’m saying is that there is no way to know in advance whether (A) a firm that makes its decisions democratically (or however else) but that has not yet proven its worth or (B) a single person who has also not yet proven her/his worth will, in the free market, outcompete the other. Hence why I wrote, “Beats me.”
We are not central planners, and as I said before, I’ll happily accept whatever eventuality the free market gives us, so long as the polycentric legal system is one that employs the non-aggression axiom as its foundation.
Cheers,
Alex Peak
P.M. Lawrence:
In every transaction, both parties are both purchasers and buyers. The person who acquires a bushel of apples may pay 5 dollars. But it can also be stated that he is selling his 5 dollar bill for a bushel of apples. The person disposing of the bushel of apples is selling the apples for 5 dollars. That person is similarly buying a 5 dollar bill for a bushel of apples.
The fact is that everything is a measure of value in all circumstances. Value is an ordinal prioritizing of available options by individuals. The transactions that evolve, whether they involve material things, services or emotional states, such as happiness or friendship, are the giving up of something of value in order to receive something of greater value in the ordinal scale.
In a market system, the price is a partial proxy for value, and is a concrete, observable phenomenon. But virtually every market transaction includes some element of price and some elements of other things of non-monetary value, such as convenience, pride of ownership, or status symbolism.
In market systems, some sort of money evolves to make the transfer of value more efficient, but that money itself is only valued as a commodity that can be efficiently traded for other, more usable commodities and services. It just happens that certain commodities have evolved over time as the basis for money, only because the serve the objective of transferring and storing value in a safe convenient way.
It is absolutely true that nothing has intrinsic value, if we are indeed talking of economic value. It seems that semantics may be an issue in some of these discussions because value may be defined differently in some other areas of contemplation.
Objective facts determine how many apples and how much sugar go into a pie, but those objective facts won’t make me buy unless I personally value the pie more than what I have to give up to get it. If I and everyone else have to give up less for someone else’s pie that will satisfy us just as much, I’m sorry, but your pie, made with objectively measured apples and sugar, will stay on the shelf until you lower the price. The price that people are willing to pay for the pie will determine whether or not you will make a profit on the pie. If you can keep your costs down, you may make a profit at the price determined by the subjective buyers and sellers that inhabit markets.
Dan McLaughlin, you misunderstand the point I was trying to bring out in much the same way as Emil Suric earlier. It’s not that you are wrong in the points you are bringing out but that there are other mental toolkits, frameworks, which slice the world up differently and use terminology in different ways. By insisting on keeping personal valuations in at all stages and never allowing them to be handled separately to be brought in again later, you prevent certain techniques being available. It’s like the story of the blonde who was asked how many pomegranates she would have if she was given 5 pomegranates and gave away 3, but she couldn’t answer because she didn’t know what a pomegranate was. You also make it impossible to communicate with people using those different techniques and terminologies when you simply deny that those things are material simply because you won’t use language that allows them.
So, a final answer to practical issues is impossible until we add back in the personal valuations – but, like mathematicians working with imaginary numbers, there is a whole intermediate area we can go through to get out the other side, within which we can leave it out and where it actually helps to leave it out.
Oddly enough, if we insist on keeping those things in at all stages, it actually pushes us towards a labour theory of value because we get a double quantity for cost around at each stage, representing the embedded time and trouble of all the inputs and of the new work done transforming them. As that is related to the labour that went in, it is very easy for a simplistic view to read that as the labour content going to make the value. But it is more helpful to break things down as much as possible, handle them separately, and then pull them all together again.
P.M. Lawrence:
It is true that there are different ways of looking at things, and people definitely have various viewpoints. If the idea is to try to get to the truth, however, trying to understand the way things work in the real world, compromise is of little value if it leads to the wrong conclusions. Artificially twisting the way one thinks in order to make it measurable and vulnerable to techniques actually moves away from true understanding. The way I see it, many of the techniques you are talking about are the very reason for all of the confusion, complexity and incoherence of much of mainstream economics. Value is inherently personal and not measurable, at all stages, at all times with all persons.
Even with the best statistical techniques and the most up to date data, the derived price is not “the value†of the article. It is merely a historical artifact. If a hurricane hits the next day, the prices may change drastically because everyone’s priorities and value scales suddenly change. There is nothing in reality called “price†for a good overall. The price is what the marginal customer is willing to pay to the marginal seller on a particular day under particular conditions. Twisting reality to assign a number called “the price†or “the value†is a distortion.
It seems to me that you are treating “cost†as some quantity or characteristic of a good or service that is the same for everyone at all times, something measurable, quantifiable, in effect, inherent to the item. Cost, however, is merely a price determined by supply and demand. The cost that someone pays for an item today depends on the intensity of the need for the item in relation to how many others want to buy it and how many want to sell it today. The cost for that same item tomorrow depends on the circumstances with the purchasers and buyers tomorrow.
It is not that I insist on personal valuations at all stages. Reality insists on it. To me, it is the only way to coherently describe the way humans act and markets set prices. To me, mathematical economists insist on viewing the economy in a way that allows them to measure and compartmentalize things. It distorts the reality of the markets and human action itself. It is what F.A. Hayek referred to when he talked about the “pretense of knowledge†in his Nobel acceptance speech.
“… in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes. It can hardly be denied that such a demand quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world.â€
Another take on it is Albert Einstein’s insight that “Not all things that can be counted count, and not all things that count can be counted.â€
The Austrian view is that the prices of consumer goods are determined by supply and demand, based on the subjective valuations of the parties to the transaction. The prices that end customers pay determine the maximum costs that producers can incur and remain profitable. Every producer has a different set of costs, based on the various inputs used in the process. Like “priceâ€, there is no such identifiable, quantifiable thing as “cost†that is the same for every supplier at all times.
The cost of the various factors of production are all subject to the laws of supply and demand, to the subjective valuations of market participants and the uncertainties of reality, just as consumer products are. The labor theory of value views “value†as inherent in the object, something that is independent of the personal valuations of the buyers and sellers. That is obviously not the case, and it is not possible to reach that conclusion using the concept of subjective value that is the foundation of Austrian economics.
If I get your main point correctly, it is that subjective valuation leaves little room for macroeconomic analysis and political meddling to “make things better†using “techniquesâ€. The Austrian view is that there is no role for government in the economy. They cannot make it better because they can’t know what better is. They can only pretend that they do. Only the individuals know what is really better for them, given their own goals, assumptions about reality, hopes and dreams.
I’ve always felt the opposition to “wage labour” was an opposition to both competition between market actors, and the natural arrangement of a hierarchy in the division of labour.
Fantastic blog post.
To stop the waffling and get to the crux of the matter: is ‘wage slavery’ is a reasonable term or is it just rubbish? Is ‘wage slavery’ any more rubbish than the term ‘tax slavery’? (I say both term have the same weight).
Gil,
There is one tremendous difference between wages and taxes. Wages are voluntary arrangements, and thus, not slavery in any coherent definition of the term. That would be like saying voluntary slavery, a contradiction in terms. The same is true for the term “wage slavery. Only if the worker was not acting voluntarily, but under compulsion to work against his will, even if paid, could that could be considered slavery.
Taxes, on the other hand, are always under compulsion, with the threat of violence, much the same as tratitional slavery. Thus, the term tax slavery is not that far off the mark.
Mr. Gil,
I used to think the term “wage slavery” was meaningless rubbish. That was until I encountered Brad Spangler’s argument that the state’s interventions into the economy have an oligopsonising effect when it comes to the purchase of labour, an effect that in turn limits the the potential profit of wage earners. Yes, wage slavery exists, and it is a product of state intervention, not the market.
Yours truly,
Alex Peak
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