An analysis of LTV from the ISIL…

The ISIL (International Society for Individual Liberty), an organization which oversees Laissez Faire Books as well as a wealth of propaganda materials, is one of the few right-wing organizations to try to publicly tackle the issue of the Labor Theory of Value. In this pamphlet, Donald Ernsberger, in the name of the ISIL, tries to grapple with, and defeat, the theory and consequences of LTV.

Fanatics are always good at pointing out the fundamental issues at work in any field. Ernsberger correctly points out that the STV/LTV issue is nothing less than a fight for and against the justification for capitalism. Without the premise that price can be anything people want it to be, usury cannot be defended, and without usury property rights and capitalism go out the window.

Ernsberger spends most of the pamphlet detailing the flaws, absurdities and fallacies he thinks LTV falls prey to (this is arranged in order of wrongness, I guess). Let’s start with the flaws.

The assertion that only labor gives an object value ignores the fact that many natural objects in which no labor has been invested – such as scenic views, pure water, gems and minerals, and wild fruits and vegetables – have economic value. Also the labor theory cannot by its nature account for the fact that people value some natural objects, such as diamonds, tremendously more than other natural objects, such as leaves.

This is a strange “flaw,” since LTV does not ignore the existence of use value. Marx himself did acknowledge that many things have use value while not being commodities, such as… natural features like land, air and water, which are not produced by man. In Marxism, these are called pseudo-commodities: things which, because of property rights, are traded as if they were commodities.

If he means that land and water are sold under capitalism, then yes, we can acknowledge that fact. From the LTV standpoint, the natural conclusion is that calling these things real, actual commodities is an error.

Most of the other “flaws” seem to proceed from the same false assumption that LTV does not recognize changes in use values, in areas like “changing consumer desires,” “time and [location],” and “leisure time.” Skipping his argument about time preference, which does not address value directly but rather the paying of wages by, we presume, an employer (which makes no sense in a libsoc system), we end up at his last “flaw”:

The final theoretical failure of the labor theory of value is the value-effort fallacy. It is folly to assume that all effort produces value. Every day each of us wastes time on fruitless efforts. To equate labor with the automatic creation of value is to fallaciously imply that all human effort is infallible and constantly productive.

This is a strange statement, as even Marx recognized that there was such a thing as unnecessary labor. This would be, in fact, one of the first thing that one learns about Marx’s theory of value, so it’s easy to conclude that Ernsberger, for all his very specific harping about Marx (pun not intended), has not actually read anything about it at all, or perhaps did not understand what he read. Suffice it to say that no one believes that “all human effort is infallible and constantly productive.” Under an LTV system, a person who wastes his time on “fruitless efforts” will find himself unrewarded, either by his co-workers or by his potential customers, unlike our capitalism system, which rewards “fruitless efforts” by unimaginable bailouts and legal favors.

In a way, this is merely a more sophisticated rephrasing of the mudpie argument. The person making mudpies is engaged in constant effort but is not producing anything that anyone would ever want. In LTV, his effort is neither creating use value (since no one has any use for the mudpies) or exchange value (since they are not commodities, they cannot have any exchange value).

Seeing that all the “flaws” were easily answerable straw men, let’s continue on to the “absurdities”:

The labor theory is even more absurd in practice. If all value is derived from labor, and entrepreneurial effort is “parasitic”, who would bother to invest the time and money necessary to build factories, plan product development or organize a production process? If all profits are “exploitation”, what incentive does anyone have to risk money on a new and untried product or service? Where will the money come from to finance new investment in tools?

First of all, this is a straw man argument, in the sense that LTV does not entail that “entrepreneurial effort is ‘parasitic’.” In fact, it’s hard to make sense of that statement unless we dissociate effort with labor altogether. The fact that “entrepreneurial effort” should not be given a disproportionate reward (that is, usury) does not mean that it should be unrewarded. All labor, no matter its nature, should be rewarded equally, without privileges. And if some of it really is parasitic, then let that parasitism stay unrewarded.

Secondly, it assumes that the capitalist system of investment would continue to exist in an LTV-based economy, which is a nonsensical, and ultimately circular, argument. Basically, it goes like this: the only way to build factories is investment with expectation of profit; there is no profit; ergo no factories will ever be built. But I hope I don’t have to point out that there are motivations other than profit, and that profit is in fact a pretty poor motivator. People actually wanting said commodity and believing in it, for instance, would be a much better motivator than profit (open-source software, anyone?).

Most of the other LTV “absurdities” are against Marxism specifically, so I won’t address them. There is, however, this doozy:

The labor theory of value is violently anti-consumer by its nature. Under this theory, sellers are compelled to price all goods by the amount of labor that goes into them, rather than how much they are demanded by consumers. Thus stores could charge no more for an aged foreign wine than for a local cheap wine (given equal labor input) or more for the work hacked out by a beginner. This inevitably produces a surplus of unskilled and shoddy work, and a shortage of skilled work – which is exactly the situation that exists in communist countries.

Let’s start with the smaller problems here. The cost of aged wine would necessarily include storage, and therefore the exchange value of the aged wine is necessarily greater than that of a new wine, all other things being equal. Also, the work of a beginner would not be sold at the same price as an expert work. Assuming we’re talking about, say, chairs, why would a consumer want to pay the same amount for a nice chair made by expert hands than he would for a chair made by a beginner, unless both objects have at least the same use value? He gives no justification for this assumption.

Now for the main problem: the reasoning just doesn’t work, even if we assume that prices would be fixed relative to quality, since higher quality products would still tend to sell more overall than lower quality ones, making it desirable for people to acquire more skill. All things considered, it is more likely that the emphasis on shoddy production rather than skill was the result of the well-lampooned “rule by statistics” method of the Soviets rather than the way prices were structured.

Now, moving on to the “fallacies” section:

Premise 1: Some factor in the production of a good gives it value. TRUE;

Premise 2: Only those goods to which man has applied labor have value. FALSE;

What? That’s not even an argument. He just said “FALSE.” Is this for real?

Okay, well moving on to the conclusion then…

An entrepreneur contributes the great value of his organizational ability, foresight, and management skills. Because value is not solely a product of labor, these abilities are extremely valuable. Profits are his just reward for risking capital in an uncertain and changing world.

How is it a “just reward” to give privileges to one person against others because of the specific nature of his skills? The only “just reward” is to reward a person proportionally to his labor, not an unlimited right to exploit others out of the full product of their labor. Besides, the job of evaluating risk is not exclusive to the entrepreneur, but no one is demanding that insurance adjusters, say, should reap some form of usury for their trouble. The same is true for organizational ability and management skills as well. There is no reason to single out any of these skills for a special reward above and beyond what is actually just.

Our capitalist system is predicated on the belief that everything voluntary is automatically ethical and just, that profit, and usury in general, is justified by people’s preferences in action on the (unfree) market. LTV defeats these predicates and establishes in its place a solid foundation for a new equitable, evidence-based economics upon which an Anarchist society can rely.

5 thoughts on “An analysis of LTV from the ISIL…

  1. David Gendron October 8, 2010 at 17:04

    “Ernsberger correctly points out that the STV/LTV issue is nothing less than a fight for and against the justification for capitalism. Without the premise that price can be anything people want it to be, usury cannot be defended, and without usury property rights and capitalism go out the window. ”

    At least, he recognizes that fact. That’s very important!

  2. Francois Tremblay October 8, 2010 at 17:07

    Agreed. Too bad he’s on the wrong side.

  3. David Gendron October 8, 2010 at 17:09

    STV is the only relevant theory, because capitalism MUST exists! ;) Profit is necessary, because profit is necessary, thus profit is necessary et it will be always necessary… ;)

  4. David Gendron October 8, 2010 at 17:10

    STV is the only relevant theory, because capitalism MUST exists! ;) Profit is necessary, because profit is necessary, thus profit is necessary and it will be always necessary… ;)

  5. David Gendron October 8, 2010 at 17:14

    “Too bad he’s on the wrong side.”

    Yeah, but that’s why it’s so important!

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