A few points:

1) I’ve always thought the Austrians’ distinction between their own time-preference and earlier attempts to treat time as a factor(e.g. Marshall’s waiting as a “real cost,” and the “abstinence” of Senior and Longfield) was largely artificial. Rothbard himself, in the language he used, occasionally blurred the distinction between time-preference and “waiting.” See also Roger Garrison, “Professor Rothbard and the Theory of Interest,” in Man, Economy and Liberty: Essays in Honor of Murray N. Rothbard .

2) Even as an old-fashioned individualist anarchist who believes in the labor theory of value, I don’t dispute the existence of time-preference as a form of scarcity-rent of present as opposed to future labor. But Professor Heinrich’s factors of the “natural market rate of interest,” taken together, probably compose a minority of actual interest rates under “actually-existing capitalism.” A major part of existing interest rates are monopoly returns, based on state banking regulations like capitalization requirements, licensing, and other entry barriers that privilege the ownership of capital.

Then, too, time-preference itself is not a constant. As Bohm-Bawerk argued, it can be greater or lesser depending on an individual’s wealth and security. In a genuine free market economy, where the laboring classes had not been expropriated from the land and legally barred from many avenues of mobilizing their own capital for adopting improved methods of production, production would largely be worker-owned and worker-organized. In such a market economy, with labor having much greater direct access to the means of production and subsistence, the rate of time preference would be much lower. And the calculations of time-preference that did take place would be much more straightforward calculations of present vs. future labor, by worker-owners determining how much of their present labor-product to forego consuming in order to increase future productivity.

3) Finally, there is an arbitrary element involved in imputing the value of finished goods to finished goods, or pricing factors according to their marginal product. Classifying a material productive good as a “factor” and attributing its productivity to an owner requires only someone in a position to forcibly withhold access to it and then charge for its use. One could, by this token, attribute the marginal value-contribution of a slave to its owner. Questions of rightful ownership–like the fundamental differences between mutualists and lockeans on the nature of property in land–must first be dealt with.

And this imputation theory of factor pricing, like the Austrian theory of value in consumer goods, assumes a supply that is fixed at the point of exchange–thus abstracting from the theory of value the feedback effects of changing supply on price.

And to say that labor’s value is determined by its marginal product, in the same sense as that of land and capital, is misleading. Labor is unique in possessing cost in the sense of a positive disutility. The value of other productive goods, whether in terms of opportunity cost or marginal product, depend entirely on legalistic or situational calculations of whether one is in a position of power to withhold them from production. In this sense, Dennis Moore could attribute an “opportunity cost” to forbearing to stand in the highway and shout “stand and deliver!” All that is necessary for “opportunity cost” or “maginal value product” to come into play, is for a member of a privileged class, with help from the state, to fence off access to a factor of production and charge for its use.

This is not to say that ownership of land and capital is morally equivalent to ownership of a man–that would be begging the question. But it does mean that the nature and justice of various kinds of ownership must first be considered before the value contribution of “factors” can be discussed in a meaningful way. And it means that, no matter what the set of property rules you start with, land and capital are not “costs” in the same sense as labor.

Kevin,

These are not my lectures. The series I’m slowly posting is my notes on lectures given by Austrian professors (I am not a professor). I’ll look at your comments, and see if I misinterpretted what they said; however, I am trying to be true to what they have said, and give an accurate “summary”.

Don,

Thanks for the comments, I’ll fix those things.

–David Heinrich

Response to Kevin:

1) There is a distinct difference between time-preference and time as a factor of production. Production takes place in time. Time isn’t something that is “used up” in the process of production. Time will pass one way or another. Labor, however, is a factor of production. It doesn’t just happen. It must be willfully put into the productive process. The same goes for capital and land. As for the distinction between time-preference and the “price of waiting”, there is still a distinction. For one, time-preference is not a price. Secondly, the interest rate, which is the market manifestation of time-preference, is also not a price. As Don points out from Mises, it is a ratio of future money to present money, not a price.

2) Much of what you say regarding the actual market rate of interest is true. However, there is no claim that the natural rate of interest rate is the actual rate of interest. In fact, an important part of Austrian theory (business cycles) is an exposition of the consequences of a potential deviation of market rates from natural rates. As far as a major part of existing interest rates being monopoly returns, I think you are purely wrong, especially considering how low interest rates have been recently. While monopolies do clearly exist in the banking system (the whole Federal Reserve system is quasi-government, with a pretty weak “quasi”), I think it is false to say that such monopolization is a “part of” existing interest rates. In Austrian theory, we understand that a monopoly in a fractional reserve banking system actually leads to a DECREASE in interest rates. In short, there’s no need for monopoly returns through interest rates in this system, banks can create money out of thin air (under 10% reserve, 9 of every 10 dollars are such) and loan this money out in the credit system. Such a policy decreases interest rates below what they would otherwise be. If there is a “bank monopoly” component to interest rates, it is NEGATIVE rather than positive.

You’re right on one thing. Time-preference is not a constant. And, indeed, there is a tendency when there is greater wealth and security for time preference to be lower (more patient and future oriented). And, indeed, if legal barriers against workers using the land that they had rightfully homesteaded did not exist, they would be wealthier. After making these statements, though, you begin to run into problems. For one, what do “worker-owned” and “worker-organized” mean? Are we talking about family businesses? Or are we talking about large collectives? “Direct access to the means of production and subsistence”… To me that doesn’t sound like private property rights. It sounds like the groundwork for the tragedy of the commons. Then you make your greatest error yet. “Calculations of time-preference”. Time-preference is not calculated, or even calculable. It is a fact demonstrated in human action. The way that it is seen in the market is in the interest rate (though it composes only part of it). Interest rates are a ratio, as stated before of future money to present money. Such a comparison is possible and sensible. Also, it is interpersonally comparable. However, a ratio of “future labor v. present labor” just doesn’t make sense for several reasons. (1) Labor takes place in time. You can’t say “I will work 2 hours of labor NOW” in the same sense that you can say “I will spend $2 NOW”. Labor has to span an amount of time. You can’t work the 2 hours in the same moment. Appropriately enough, it takes 2 hours to work 2 hours. (2) “Labor” is not a homogeneous good capable of being used for arithmetic operation. In short, you can’t make a ratio of future labor over present labor, because labor, by nature is heterogeneous. Working in the morning while it’s cool is different than working in the afternoon when it’s hot. Working in an office is different from working in a textile mill. (3) Okay, so we can’t compare future labor time with present labor time. We can’t compare two kinds of labor. So, can we compare labor at all? In short, no. Any attempt to compare labor directly to labor for the purposes of calculation is bound to fail. That is why the other universal (the first being time) in a market economy is necessary (and does arise naturally, even without government): money. Money is a physical good that is essentially homogeneous. Therefore, it CAN be used for intertemporal (and also interpersonal) calculation and determination of interest rates.
3) Once again, you are wrong. Your entire argument here equivocates on the word “value”. You switch freely between the moral and the economic meanings of the term, with no regard for the confused thinking that results. I agree that moral values are objective. However, this has nothing to do with the imputation theory of value. The theory of imputation realizes that value in exchange or use (both part of “economic value”, as I will call it) is derived, ultimately from the subjective evaluation of individuals. The purpose of economics, then is to examine use and exchange value, NOT moral value. Actually, I’m going to agree with the statement that you try to shy away from having to defend. “Ownership of land and capital IS morally equivalent to ownership of a man.” The problem, you see, isn’t ownership in man. It’s ownership in OTHER men. I doubt that you, as an individualist anarchist, would argue that I don’t own myself. And, just as it is wrong for me to claim any ownership in or control of another man without their consent, it is wrong for me to claim any ownership in or control of another man’s land without their consent. Ownership of self is natural to our understanding. Also natural to our understanding is that if noone else has claimed a nature-given resource, I can claim it by using or altering it in some way. Property ownership is derived from the right to self-ownership. And to deny the first is to deny the second.

This moral case made (read Rothbard’s Ethics of Liberty for a better exposition), let’s move to the relevant issue: imputation theory. It should be obvious that the subjective evaluation of individuals determines the value of consumer goods. If it’s not, let me explain the other alternatives. Let’s look at another theory… the labor theory of value. Based on this theory, wine sitting in a cellar aging gains no value. However, just looking at the market shows that it’s price increases! (This fact bothered David Ricardo, a classical economist who held to the labor theory of value.) So, how do we explain it? Well, exploitation of course. The person who has possession of the wine is demanding a higher price (surplus value) than the intrinsic value. But, this misses the real point. Why would someone pay more for something than what it’s worth? The only real answer is that they are forced to for some reason or other (never well explained…). But what could force someone to buy something that is so obviously a luxury as wine? Or a Rembrandt (which also gains value with age, though no work is done on it)? Or what about cases where investments of labor destroy exchange value? I can invest a lot of labor in bashing the walls of my house. Is my house any more valuable when I’m done? Of course not. In fact, it’s worth less than when I started. Well, clearly this drop in value is just people who have exclusive control over the means of payment refusing to pay as much as the house is actually worth. Yet, they would have been perfectly willing to pay MORE before I invested this labor! The labor theory of value just doesn’t add up. In fact, all input or intrinsic theories of value fall into the same abyss that the labor theory does.

The subjective theory of value, however, can explain these things. And, in fact, other things as well. The wine gains value because people prefer aged wine to new wine. The house loses value because people prefer nice houses to houses with bashed in walls. Rembrandts gain value because people want more genuine Rembrandts, and, obviously, none are forthcoming. I trust, from your comment, that you are aware of the imputation theory, so I need not explain it. I won’t rehash it either, since you seem to believe that it rests on establishing the morality of ownership in land and capital.

But, the idea of “positive disutility of labor” is a farce. Ultimately, each individual acts as they believe will serve their subjectively determined best interest. If someone values working for $1 an hour more than lazing around, then they experience no “disutility”. Effectively, what the “disutility of labor” really means is that the worker would rather get paid for lazing around! But this is not an option, and the worker has no demonstrated right to demand that it be an option.

This idea that demanding money for the use of land and labor is just the result of coercion is true and false. True in the sense that that is the way it has tended to work out in recent history. My right to charge you to use my land has rested upon the government saying that I own my land. However, you are false in claiming (implicitly) that no one would charge for the use of land and capital in a free society (meaning no government). The falsity comes from a simple fact: scarcity exists. Ultimately, SOMEONE must control a piece of land if it is to be used as a factor of production. SOMEONE must control a piece of capital equipment if it is to be used. This isn’t any moral claim. It’s just a fact of reality. The question then isn’t WHETHER someone should own a piece of land. Ownership (meaning control) is unavoidable. The question is whether THIS person should own THIS piece of land. There must be a rule for this, and Rothbard provides one, though his idea is not unique. The first appropriator from nature rightfully owns whatever he appropriates from nature. He rightfully owns what he makes with what he appropriates, and he rightfully owns what he trades for with someone (or receives as a gift from someone) who has a rightful claim to what they trade. It’s that simple.

The laws of reality itself (scarcity) DEMANDS that ownership exists. The only question is WHO owns what. Either individuals own the productive factors or the community does. And, it is impossible for the “community” to decide on what to do with what it owns except by a governing body (as unity of mind is almost always lacking in reality). This a version of what is popularly called a government. You cannot deny individual (private) ownership (control) in the means of production (labor, land, and capital) without demanding that a government exists. You need to either reconsider your anarchism or your view on private property in the means of production. I suggest the latter.