I suppose the origin of this particular column came from a rather comical conversation held over dinner. My wife mentioned that her father used to tease a cook he knew about her efforts in the kitchen. Her father contended that cook’s efforts were proof that Marxism was wrong about the value of a thing made in the economy. According to Marxism, the value of any object is determined by the total amount of labor required to make it.
The cook would select a great recipe for the main course, would purchase the finest ingredients, and would labor long and diligently over the preparation. Of course, the meal would often be a great disappointment and, sometimes nearly inedible. Any restaurant serving such a dish would soon go out of business.
The inverse situation also occurs. There seems to be many instances were by accident, an entrepreneur just happens to ‘catch lightning in a bottle’. A simple idea brought to market with minimal effort makes a fortune for its owner. If you are thinking about the pet rock then you are reading my mind.
A very comic example of this latter situation occurs in the original movie version of the Producers, where Max Bialystock moans:
So what to make of this Marxist idea? How much truth is there in the idea that if it took twice the amount of effort to grow one type of crop, say a bushel of wheat, as it did to grow another, say a bushel of corn, then the bushel of wheat holds twice the value as the bushel of corn.
Oddly enough the idea originated well before Marx, with roots being traced back to the philosophical works of the Middle Ages. Thomas Aquinas is credited for noting in his Summa Theologica that:
This concept also shows up in the classical school of economics. It was touched on by Adam Smith in his Wealth of Nations but it doesn’t seem that Smith actually embraced the idea as being applicable for anything more than the most primitive of societies (or rude societies as he put it).
Other classical economists, for example Ricardo, held more broadly to this concept making it part of their structure for economics. Although even then, there were doubts about the universality of this idea. The labor theory of value was embraced by Marx as an important and operative principle but it seems clear that the notion, with no additional provisos, is untenable. The notion that the buyer in the transaction has no place in determining the value of the thing being purchased is short-sighted and laughable.
Perhaps the best illustration of how much of value lies in the eyes of the customer is the following passage from Chesterton’s The Queer Feet:
If the labor theory of value is not a viable approach for determining value, what is? That is a question that occupies a great deal of economic discussion even until today and there is no universally held belief. Mainstream economists do lean toward the idea that free trade best uncovers the value of a good or service because in the free market the value of the thing will be determined best by the currency that will be offered to purchase it.
As a result, trade is actually seen as the mechanism by which value is created or imparted to a good or service. Free trading allows for the assessment of value by letting lots of people ‘vote’ on the value. To paraphrase Churchill, this economic democracy is the worst form of finding value except all the others that have been tried.
Please pass me the pet rock.