The just price doctrine and cost–price theories of value
The medieval notion of just price permeates socialist thought. It holds that there is a God–given or intrinsic price of a good, regardless of people’s wants, needs, and desires, or supply and demand. In the industrial–era form of this doctrine, the value of a good is deemed to be equal to the cost of production, usually in terms of labour time expended (see labour theory of value below). This cost–price notion was refuted in the 1800s by the marginalist revolution in economics, but nevertheless many socialists remain mired in this creationism of the left. The marginalist economists, notably the Austrian School, consider value to be subjective. It depends on each person and his or her particular situation and values. In the desert, one may prefer a cup of water to a diamond.
The labour theory of value
The labour theory of value (LTV) is the cost–price doctrine which holds that all value springs from labour. In other words, it purports that land, capital, and entrepreneurship are all non–productive, and can impute no value to a good (except insofar as they represent past labour). The general invalidity of all just price doctrines has already noted. The modern (marginalist) thought is that value is not determined by cost at all, but by the subjective preferences of the buyers interacting with the available quantity of the good in question. This is known as the subjective theory of value. Even on it’s own intrinsic price terms, the LTV fails to account for factors of production other than labour. Standard counter–examples abound, for example: No matter how much time you spend producing mud–pies, they are still worthless; A fresh bottle of wine gains value simply by ageing; and so on. It is possible to formulate a purely descriptive LTV, which uses labour time as the measure of the productivity of land and capital, as Kevin Carson does in part one of his book Studies in Mutualist Political Economy, however the usefulness of this is dubious, and the temptation to slide into the prescriptive interpretation is enormous, as Carson does without justification in part two of the same book.
The exploitation theory
An ‘exploitation theory’ is any theory which purports to justify the claim that one “class” exploits another. In socialist theory, the claim is that a capitalist class exploits a proletarian class. Most exploitation theories are based on the antiquated LTV notion described above. Other socialists realise the weakness of this argument, and base their exploitation theory on unequal negotiating positions. While this latter approach may explain outcomes of bargaining, it evades the relevant issue — whether the trade was voluntary. Thus this approach also fails to support the claim that (so–called) “exploitation” is undesirable or unethical.
Note that even stipulating the “creationist” LTV, the socialist argument is insufficient for proving exploitation. It lacks an explanation of why workers voluntarily exchanging labour time for wages is exploitative. Bohm–Bawerk of the Austrian school of economics showed long ago (1884 in Exploitation Theories) that profit from wages could be explained by interest on advanced pay, that is, workers getting paid prior to their produce being sold.
Denial of scarcity (property, money)
This is a favourite of utopian socialists. The purpose of property is to solve the scarcity problem — that man’s desires exceed available goods. This myth simply assumes away scarcity, as if this human condition was merely an effect of a particular property system rather than a fact of reality and human nature. The socialist denial of the validity of property involves an internal contradiction and much resulting “double–think.” For example, Proudhon writes that he’s against contract property, but for possession property; yet he refuses to acknowledge that his “possession” is a type of property.
Another naive denial of scarcity is the claim of some socialists that a modern society can get along without money. Hayek made a living by refuting that view: In short, an economy needs the informational function of money to balance supply and demand. Without the amalgamation of the desires and preferences of the producers and consumers into price, chaos results. Shortages and surpluses abound when the communication of preferences is prevented or co–opted by rulers. Money is simply and ultimately the most liquid commodity in a market. There will always be a most liquid commodity in any market; ergo, there will be something used as money.
Human nature can be changed by social engineering
Many statist socialists have plans and programs to transform society into their vision of community and the good life. Unfortunately, the nature of man is not infinitely elastic. These socialists tend to overestimate their ability to “mould the clay” of mankind, and underestimate his natural proclivities and the evolutionary nature any major advance in his moral faculties. In fact, as quasi–anarcho–capitalist Herbert Spencer pointed out, many of the statist schemes are counter–productive to human progress, and have results perverse even by the social engineers’ standards.
Unit Fifteen
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