Studies in Mutualist Political Economy Part I: Labor Theories of Value

As some of you may recall, I recently read Kevin A. Carson’s Studies in Mutualist Political Economy. Here are some thoughts about this sprawling, challenging, almost-brilliant book.

Short form: I am unconvinced that what Carson offers in the first section of this book constitutes a genuine labor theory of value. I think instead that it is a not-fully-worked-out subjective marginal utility theory of value. As such, he strikes me as something of an Austrian manqué.

Long form is below the fold. It’s… um… 3,000 words.

First, we need to remember that the title is accurate. These are “studies” and nothing more — there isn’t in the final analysis a coherent ideology, or a narrative arc, or an exhaustive treatment of the subject at all. I am not even certain that I could offer a satisfying definition of “mutualism” by Carson’s lights. I found myself often wondering “How would a mutualist solve this problem?” — and coming up empty. If you’re looking for an exposition on the order of For a New Liberty, with at least rough outlines for how to find your way through to mutualist ideas, you’re not going to find it here. I’ll have more to say about the prescriptive side of mutualism in my second post, but this was a definite frustration to me.

Still, I found that many parts of it were correct and very important. This post is going to address my most serious objections, which fall primarily in the first section of the book. In my follow-up I’ll also explain why I think many of these objections are not important to understanding or agreeing with the rest of the book.

Before I get ahead of myself, it’s probably a good idea to review the classical labor theory of value, then the marginalist critique of it, followed by Carson’s attempted patch. Finally, I’ll explain what I think is wrong with the patch. (I should note that Carson’s own treatment of the history of economic thought is superlative, and that I lean somewhat on his own analysis in what follows.)

Classical Theory Why do goods have value? And why do they have the specific values that they do? One answer, and a fairly solid one, is to say that goods are painful to produce. Production means “toil and trouble,” in Adam Smith’s words, and no one toils without some hope of recompense. The cost of your goods, then, is at least partly a consideration given to elicit labor from workers. Without it, they would probably prefer leisure. Or perhaps they would only labor enough to provide for themselves in a local or family economy that might never involve a market at all. To bring goods to a market, you need to reward labor. Labor thus produces market value, and — barring outside influences — market value tends to approach the amount of labor that went into the good in question.

This is what I understand the labor theory of value to be. Logically, it has the form “All P are Q” — all market-valued goods are goods that have been labored upon. Economists have pointed out at least two serious problems with this claim.

Two Problems First, it might not empirically be the case that “all P are Q.” And indeed, we often find marketable goods that haven’t had much or even any labor done to them, despite clearly being of great value:

• The man who finds an oasis in a desert will undoubtedly value its water, even if the oasis itself is not the product of any toil or trouble. If the oasis has an owner, he may even pay for its use, and it won’t matter that the owner has done nothing very troublesome to get it. Bizarrely, thirsty travelers will pay more for the same water than those who are already well-supplied, even though the labor in both cases is the same — almost nothing.
• The man who accidentally discovers an easily worked mineral deposit on his land has not necessarily done anything involving much toil or trouble — and yet he is compensated just as he might be if he were a very hard working miner, and possibly a lot more.
• A new industrial process is discovered by accident, and it makes the inventor rich.
• A professional violinist doesn’t consider playing music to be labor — he loves every minute of it, and he’s well-paid as a performer.

At the very least, “all P are Q” doesn’t say much about the ratios of labor to value that are found from one good to the next or from time to time. All P may still be Q — I think it’s debatable — but there is obviously no proportionality. Yet it is precisely the varying proportions that we most want to know about — how’d they get there, anyway? An important question goes unanswered.

Second, even granting that all P are Q, it does not logically follow that all Q are P. Even if we grant that all valued goods are goods that have been labored upon (and even if we admit, with David Ricardo, the other classical economists, and Kevin Carson himself, that nonreproducible goods and excludable goods generate higher prices than their labor values alone), it does not follow that all goods that have been labored upon are valued goods. It takes the same effort to make a mud pie as it does to make an apple pie, yet only one of these has value; the other is a dead loss.

Now Carson finds the mud pie example frivolous and artificial, and in this he is not wrong, so let’s try another one: An oil well that produces abundantly may take the same effort to drill as a well that comes up dry. The one property is valuable; the other owes any value that it has to some other, non-oil use, one which is clearly extraneous to the story. The dry oil well has had honest labor, and hard-working laborers, but it has no value. Labor is often in vain.[1]

Problems like these brought Austrian and neoclassical economists to abandon the labor theory of value in favor of the subjective marginal utility theory, a paradigm shift that has since been termed the Marginal Revolution. Mainstream economics still works within this paradigm today. Under marginal utility theory, a given unit of a good is worth what buyer and seller agree to exchange it for. The first unit of a good is almost always the most desired, and subsequent units are almost always less desired, to every particular consumer of the good, albeit at different rates depending on the consumer’s demand schedule and the producer’s supply schedule.

Market prices — the supply and demand curves of Econ 101 — are the aggregate of all actors in a given time and place, taking into account various other assumptions we need not get into here. Exchanges start when individuals believe that they stand to gain in utility by exchanging one good for another. Exchanges stop when no further subjective utility can be had by exchanging. Among the Austrians, Carl Menger and Eugen von Böhm-Bawerk did the most to advance this view; among the neoclassicals, Leon Walras and William Stanley Jevons were the leaders in advancing, on slightly different terms, a similar theory.

Revival For a variety of reasons, Carson isn’t ready to abandon the labor theory of value. Yet if labor is to serve as the fixed point that determines the economic value of other things, then it is clearly fair to ask — How does one measure the value of labor itself? How does one quantify it? Where are the proper units, such that we get something like reasonable results when we employ them in the analysis of market value of labored-upon goods?

Karl Marx proposed that duration alone was sufficient, or, at any rate, it was becoming sufficient — in a capitalist economy, he appears to have believed, the product of labor per hour will become increasingly standardized, as machines will level any differences in skills or talents, and as the individualized aspects of labor come to mean less and less in a factory-organized economy.

As we’ve already seen, Adam Smith, who also subscribed to a form of the labor theory, held that “toil and trouble” was the appropriate standard. Who would incur either one without an expectation of reward? A rough proportionality would have to emerge over time, no? Although this approach was at least partially based on subjective utility, Smith’s was by no means a marginalist standard either. Thus it doesn’t allow us to say when or why a given laborer will start or stop working — or, in other words, when he will start or stop offering his labor in the market. [2]

Neither of these is fully adequate, as Carson appreciates. He writes,

A producer will continue to bring his goods to market only if he receives a price necessary, in his subjective evaluation, to compensate him for the disutility involved in producing them. And he will be unable to charge a price greater than this necessary amount, for a very long time, if market entry is free and supply is elastic, because competitors will enter the field until price equals the disutility of producing the final increment of the commodity.

Invoking the laborers’ subjective (and marginal) disutility is an important move in itself, one that earlier labor theorists wouldn’t have considered. In doing so, Carson hopes to satisfy the marginalist critique of the labor theory once and for all.

Still, one might ask, what about the dry wells? What about labor wasted on valueless things? Carson cites Marx approvingly here:

Marx made socially necessary labor the regulator of value. The labor theory of value applied only to commodities, which were objects of human need. Labor expended in producing goods not demanded, or excess labor wasted in methods of production less efficient than the norm, was a dead loss. It was the function of the market price, in denying payment for such unnecessary labor, that brought the producer into accord with the wishes of society.

Although Carson disagrees with Marx elsewhere, he agrees that socially necessary labor is the appropriate standard of value, seemingly averting the mud pie paradox. Yet at least three things are problematic about this passage.

The Labor Detour of Value The first problem is that, pace Marx, labor is not divided into either/or. It’s not either socially necessary or a mudpie. In the above, there is no adequate treatment of the modestly useful bit of labor, the speculative labor process, or the serendipitous discovery. While mudpies are rare, and while dry oil wells may well be a signal not to work a particular field any further, this hardly exhausts the possible relationships between labor and product that fall short of, or exceed, social necessity.

A very efficient worker may make ten shirts in a week, while a less efficient worker, working for the same length of time, produces only five. Quick — which one is socially necessary? Shirts are socially necessary, of course, yet no one is going to pay the same for five shirts as they would for ten, in view of the hard work put in to the five by the less-efficient worker. Once we concede this, we are forced to admit that social necessity is graduated — or, we could say, it is marginal. And it is proportional not to a laborer’s toil or trouble, but to his anticipated output.

The second problem is that while Carson begins by implying that labor is not a market good, he ends by conceding that labor is, in fact, a market good — one whose price is “brought into accord with the wishes of society” by way of supply and demand tending toward equilibrium in a market. Yet if labor is a market good, then it can’t serve as a fixed point by which to figure the values of goods in a market. Like all other goods, labor’s value is constantly shifting and can only be captured, imperfectly, by reference to other goods.

Once we grant these things — that labor’s social necessity attaches to its product, not to its toil and trouble; and that its return is secured by market forces, and only on a case-by-case basis — we no longer have a labor theory of value at all. Instead we have a subjective marginal utility theory of value, one that encompasses the value of labor just like everything else. It looks more or less Austrian to me, with only a detour that happens to lead, awkwardly, through labor.

Indeed, the only real difference I can see between Carson and the Austrians is that Carson’s theory insists that we express all value in terms of labor, even despite labor’s obvious shortcomings for the purpose — its lack of homogeneity, its subjective nature, and above all the fact that other things determine labor’s value — including labor’s relative productivity. Once something else determines the value of labor, labor is no longer the origin of economic value at all.

Or, if this is a labor theory of value, then I could as easily and with as much analytical force craft a gin and tonic theory of value, in which it is deemed very important to express all values in terms of gin and tonic and the eventual likelihood that some of it will be consumed in the processes at hand. Not that it would be an adequate theory, but its problems would be much the same: There would be a striking disproportionality between amounts consumed and market values; we would face cases in which no gin and tonic was consumed at all; and we would find ourselves limping back, almost furtively, to revealed preferences and things done in a market to explain where values really come from.

In answer I suspect that Carson would differentiate between labor and other economic goods, including gin and tonic, in that devoting labor to production involves toil and trouble, while devoting land or capital to production, among other things, does not. He is right, of course. The uniqueness of toil and trouble, however, still does very little to my mind to establish either the proportionality of labor to value or even a scale by which to measure labor itself, one that might eventually be used for comparisons to market value.[3]

Labor serves in Carson’s system as the medium of expression, the one that we are supposed to put all our other values in terms of. Yet the value of labor, like that of all other commodities, changes. It changes in response to supply and demand, and the tendency of human beings to trade those things they have a superfluity of (time and effort) for those things they have a dearth of (money to be exchanged for food, clothing, shelter, and the rest). To an Austrian, bringing value around to expression in terms of labor is certainly acceptable, and it may be done very easily for a given laborer or even a given firm. But it’s never necessary, and there is no reason to privilege it (or any other good, or even commodity monies) in this way.

Carson’s theory would also contain, by his own admission, many exceptions — his labor theory of value would not explain interest rates, rents on beachfront property, economies based on slavery, or the valuation of fine artworks or sentimental goods. These each call for alternate explanations — epicycles, in other words — to make the theory work at all. (My gin and tonic theory would take a few more epicycles, but I think it could work as well.)

Still, subjective marginal utility can explain all of these things as well as explaining the price of goods that have been labored on. It is preferable as a matter of method to employ theories with greater explanatory power rather than lesser. As such, we still do not need a labor theory of value.

For a great deal more on these problems, see Robert P. Murphy, “The Labor Theory of Value: A Critique of Carson’s Studies in Mutualist Political Economy.” Journal of Libertarian Studies 20:1 (Winter, 2006):17-33. There is much in Murphy’s article that I think speaks directly to the shortcomings of the classical labor theory of value, but I am unconvinced that all of his critiques necessarily apply to Carson’s labor theory. As I’ve argued, on my reading Carson offers something a lot like the Austrian theory, just with some strange hangups about labor and a bit of awkwardness about non-reproducible goods.

And as I said at the beginning, none of this dooms the rest of the project. In my second post, I’ll explain why.

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[1] One might object that oil wells in the aggregate tend toward their summed labor costs in value. Perhaps they do. There are at any rate risk-management structures in place that spread the cost of dry wells across the price of oil itself, and the reward of labor here tends — perhaps — toward that averaged cost. The real world does its best not to make mudpies, and no one disputes it. But this cost averaging across the entire industry does nothing to explain the value of a more or less productive individual well, or toward the non-value of an individual dry well. The explanation for these is a relative abundance, or a lack of, oil — and consumer demand for the stuff, relative to other goods.

[2] We can see some of the advantages of marginal utility theory when we compare it to Adam Smith’s rather primitive assertion that human beings have a “propensity to truck, barter, and exchange one thing for another.” If Smith were right, we would find ourselves trading even when trade satisfied no other need. We might even find ourselves deliberately parting with things we would otherwise prefer to keep — just for the intrinsic satisfaction of trade.

On reflection, some activities are indeed of this type, just not trade. Trade for trade’s sake is silly, but art for art’s sake is noble. We have a natural propensity to listen to music and to admire beautiful images, and even to make them when we can — simply because we can. But we always trade for some other purpose.

Note that adopting a labor theory of value doesn’t commit one to anything like Smith’s natural tendency theory of barter. I offer it only to illustrate one of the things that labor theories have had a hard time explaining and that marginal utility theory does very well at.

[3] Gin and tonic is unique, too, in its combination of flavorings, effervescence, presentation, and effect on mind and body. But uniqueness alone isn’t enough to establish a universal cardinal scale of value. For a more serious example, consider gold. Naive monetary theorists will tell you that gold is a true measure of value, but it is no such thing. Gold’s value, like all others, is in proportion to the relative demand that exists for it and for other things. In subjective marginal utility theory, there is no Archimedian fixed point to the world of goods.