Tyler Cowen starts a meme "What is the biggest flaw the Labor Theory of Value"
David Henderson follows up.
Since I think two exceptionally smart economists are both wrong, it's probably my failure. Regardless, I'm not smart enough to shut up. Here's the problem in 4 words.
Value is demand side.Value is a measure of how much someone wants something on the demand side. Labor Theory of Value attempts to move value to be a supply-side issue, rather than a demand-side issue. Broken epistemology. End of story.
Tyler's explanation fails because he's talking about how to salvage LToV, not about the core issue which is that they want to define value wrong.
Henderson focuses on Randomness, rather than definitional issues.
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Very funny post!
Somehow, I think my "not smart enough to shut up" moments are a bit different than yours. (case in point: can't even properly post a blog comment)
Haven't followed the whole thread... so in the spirit of not being smart enough to shut up ill ask my question.
What was wrong with Value being an intersection of supply and demand with in the context of alternatives and weird emotional attachments?
@Rob
We have a different word for that. It's called PRICE. Price != Value. Value is a verb that got nouned.
Well yes, but remember I wrote a whole essay on "disingenuous value".
The great flaw in the Labor Theory of value is that Labor is not Fungible.
Your labor is not equal to my labor which is not equal to Rob's labor.
Your first hour of labor is not equal to your fourth hour of labor.
Labor may be divisible, but it's not Fungable.
The labour theory of value is so close, I want to forgive it its sins.
Literally, if you own a house, you've done work of equivalent value to building a house, exchanged it for cash, and exchanged cash for house.
You've built the house with your own hands, by proxy.
Prices, to any individual, are all in terms of hours worked.
Then, you can see that the limiting factor in modern economies is human labour. To purchase anything, you have to exchange hours of labour. And, ultimately, you exchange it for someone else's labour.
Land? The labour to clear and secure the land. Oil? The labour to extract and refine it. Capital? Saved up labour.
And thus in a vague way the price of something is going to be how many hours of labour has to go into it.
It's just that everyone's labour multipliers - the constant you multiply by to convert labour to wealth - are different.
Then there's Marx, who disliked that part of the wealth results of labour could be, due to property rights, allocated by someone other than the person whose labour it was. A perfectly respectable dislike.
Then he decided that to solve this we should strip all of the wealth from the labourer and have it be allocated by someone else. Apparently Marx was self-loathing.
Alrenous,
Are you reading my other stuff, or is that all you? I swear I've said the same thing in almost the same words on this blog.
I'd quibble mildly with your facile use of the term "labor multiplier". Value is value to someone, or the aggregate value to all someones. Value is not something produced, it's something desired.
If it were a labor theory of production, I'd be all over it like slick on oil...but as a theory of (specifically) value, it's atrocious.
I came up with that a while back, but on the other hand I osmose knowledge aggressively, without remembering the source, so I may have picked it up.
So say 70-30 odds.
Yeah the wealth multiplier has to take into account wealth's non-conservation effects. So perhaps it has to know in advance who you're going to trade with.
Value can't be calculated anyway, since it requires a mind-probe to measure value, so the fact it doesn't quite mathematically work out doesn't bother me as long as it works in a general sort of way.
Usually I use it to defuse price-related fallacies, such as the broken window. Who cares what the money did; how much actual stuff is there in the end?
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