In this post, I continue my series on left-libertarian economics by examining Kevin Carson’s arguments for the labor theory of value (LTV) in Studies in Mutualist Political Economy. I argue that this is one area in which left-libertarian economics does represent a degenerative research program, that is, a body of scientific theories that protects itself from refutation by redefining itself in such a way as to render itself nonfalsifiable. The problem is not that the LTV as Carson formulates it is false, but that it is simply a relabeling of the Marshallian synthesis with scientifically irrelevant normative claims added on.
Carson begins his book with a discussion of classical political economists’ understanding of the LTV. He persuasively demonstrates that the LTV of the classical political economists was not as naive as the later marginalists made it out to be. Both Ricardo and Marx recognized that demand played a role in determining prices, and that labor effort could not cause a good to become valuable. The classical political economists held a “correlational” LTV, that is, that in most markets the price of a good would correlate strongly with the amount of labor used to make it – and the “amount” of labor had to be understood as its opportunity cost. Expending labor on making a mud pie would not make it valuable, because no one would be willing to pay for it. Alfred Marshall synthesized the marginalist-utility and labor theories of value by modeling the way in which the interaction of supply (determined by cost of production) and demand (marginal utility) determines prices. In the short run, Marshall argued, utility tends to be the dominant determinant of prices, while in the long run, cost of production predominates. For instance, imagine an increase in consumer demand for a product. In the short run, production can’t be increased – supply is inelastic. Therefore, the price rises solely because of the increase in demand, and producers enjoy super-normal profits. But as production increases, prices will fall to clear the market.
So far so good. Carson further notes that the quantity of labor supplied to produce goods is itself determined by subjective considerations. The opportunity cost of labor is leisure. To the extent that laboring to produce is not what one would otherwise have preferred to do, one must be compensated for spending one’s time in that way. Thus, Carson endorses a thoroughly subjective “labor theory of value” in which the supply of labor is determined by its opportunity costs to workers and in which prices are only in the long run determined by the cost of production. Nothing in this theory contradicts standard, neoclassical economics.
So why call it a labor theory of value, given that that’s not really what it is? Here enters some intellectual sleight of hand. Carson introduces moral considerations. Carson writes:
Unlike labor, which is an absolute sacrifice in the sense of the actual expenditure of effort, the “sacrifice” or “opportunity cost” of a capitalist or landlord is only foregoing the further receipt of a good that did not cost him anything, and exists at all only in the context of a set of alternative returns heavily influenced by statist privilege or monopoly (78).
He makes this point to support a claim that not all costs of production are created equal. Profit and land rent are exploitation, because the “value” that the capitalist or landowner adds to production is merely the willingness not to use the state to exclude the worker from “his” resources. (Carson does concede that a rate of return to investment to compensate for time preference is economically productive and, apparently, morally justifiable (111-12).) The problem with the Marshallian synthesis, for Carson, is that it “sets aside the question of whether one’s control of access to a property or one’s acquisition of it is legitimate, and thus whether one has a legitimate right to demand income from it. The only way to address such questions is to go back to the ethical question of what constitutes legitimately acquired property” (79).
Fine – but when you’re addressing the ethical question of what constitutes legitimately acquired property, you’re doing moral philosophy, not economics. Carson faults positivist economics: “[A] marginalist might with a straight face write of the marginal contribution of the slave to the product (imputed, of course, to the slave-owner), and of the ‘opportunity cost’ involved in committing the slave to one or another use” (79). Yes, of course! That’s precisely what we want from economics: the wherewithal to make predictions about the consequences of economic interactions. Like all sciences, economics is properly a positivist discipline. Whether the price of slaves rises with the price of cotton, say, is completely unrelated to the question of whether slavery is justified. We can investigate questions like the former while denying that slave owners’ incomes are morally legitimate. The moral status of slavery makes no difference to how the institution actually worked, except to the extent that people involved in the system themselves took moral considerations into account.
Instead of a subjectivist, cost-of-production theory of prices, what Carson is ultimately trying to do is to provide a labor theory of “Value” with a capital “V,” meaning not price but something like total human welfare and/or justice. The chapter on classical economists and the Marshallian synthesis turns out to be totally irrelevant to this project, then. After all, Carson’s objective is not to come up with any new insights on how prices in markets are formed, but merely to come up with a principle for morally disapproving of profits. Profits are morally wrong because capitalists do not legitimately own their capital.
It is only by equivocating on the concept of “value” that Carson is able to argue that only labor creates value (84). There are no scientific implications to Carson’s innovation. He’s simply attached moral judgments to different economic categories and chosen to redefine them. We can use Carson’s language if we want, but it will not help us to understand how markets actually work one iota better. Thus, when it comes to price theory mutualism has nothing to offer to the discipline of economics.
Is Carson right about capitalists and landowners not contributing anything to Value with a capital V? To the extent that this is a moral-philosophical question, I will not address it in this series of posts. However, there is a kernel of an economically testable hypothesis here: that profits and land rents are unnecessary to economic growth, that growth could be just as high (or higher) in a society with no profits and no land rents. I will turn to that question and Carson’s argument in the next post in the series.
PILEUS 
Since we have no idea what “Value” could encompass this week, there’s really no way to answer the question.
From an economics perspective, do capitalists–er, private owners of durable properties–provide value? Of course: they contribute the use of their valuable properties to a productive activity that would otherwise not occur.
I doubt profits and rents are strictly necessary and sufficient for economic growth.
But because the timely allocation of scarce resources is often driven by information about where those resources might be used to create new value by a person motivated to employ those resources, whispers of profits serve as a market signal to allocate resources to more value-creating activities. One might reasonably expect “profit-allowing” systems to experience greater economic growth than a “no-profit” system. Perhaps much more.
An enormous flaw in all this LTV nonsense is that any purported allocation of “full value” to labor ignores the LTV’s own theoretical sandbox. For example, all the workers in an enterprise might own a factory and its equipment collectively. But the market price of fungible labor is still determined by exogenous market forces. When the workers reap the spoils of their enterprise, they aren’t just receiving a return on their labor alone; the use of capital means they’re receiving factor-model interest on that capital too. They ARE capitalists; they just also happen to be laborers.
By collapsing the traditional factor model’s roles into the same individuals, they simply forget to do the accounting that the factor model itself demands. The ball is hidden. But profit by any other name…
From an economics perspective, do capitalists–er, private owners of durable properties–provide value? Of course: they contribute the use of their valuable properties to a productive activity that would otherwise not occur.
Carson’s argument is that this point assumes that capitalists have a “right” to their capital. If they don’t, then choosing not to withhold it in a given instance isn’t providing Value with a capital V, just as choosing to use a slave you own doesn’t provide Value with a capital V. But his point doesn’t refute your point that economics deals with marginal productivity, not with moralized Value. If you want to know how a slave economy works, you do have to talk about the marginal productivity of slaves. There’s no moral judgment implicit in that.
And your point about workers owning a factory is right on. Carson just redefines profit of that kind to be labor income. Of course, we can define things however we want – but that doesn’t change how the economic process occurs. So by all means, adopt a labor theory of value in which time preference and entrepreneurship are labeled “labor” – just don’t think you’re adding anything to our understanding of how economies work.
Hmm. I thought I commented a follow-up.
It’s not just that he’s asking questions that economics can’t answer. It’s that he’s really contradicting himself.
He starts with two premises: (1) LTV (ye Olde model allows us to make class distinctions); (2) capitalists have no right to their property.
But applying #2 to #1 in a labor-owned scenario, means that labor isn’t entitled to some portion of its total profits either. He adopts LTV (it lets him make class distinctions). Then declines to apply what LTV actually defines those classes to be.
Really, the only leg to stand on is original assertion: “capitalists don’t have a right to their property.”
And if they don’t, does anybody?
I do think he avoids the contradiction – but he manages to avoid it because he doesn’t believe in ye olde LTV, but a redefined LTV that is no different from standard neoclassical price theory. So he ends up redefining a capitalist not as someone who owns capital but as someone whose ownership over capital is dependent (in a morally suspect fashion) on state privilege. Capitalists create value and Value so long as they don’t control the means of production through unjust means. It’s a different class distinction from the one we’re used to seeing from Marxists. So he would be perfectly fine in applying the same standard to labor, I think (if a worker obtained wages through unjust state privilege, the worker would have no right to those wages).
The devil is in what we consider unjust state privilege to be. More on that next time.
Very helpful discussion, Jason. Thanks much!
How many would go to a racetrack and bet if the odds were perfectly aligned with the probabilities of the horses winning? No one! In many ways it is disinformation that moves the world forward (or backwards in the case of some AAA rated instruments)
Thanks again, Jason. In general, I don’t think any paradigms are falsifiable; you can add epicycles to anything. And I think a revived LTV contributes analytical insights that are obscured by vanilla-flavored marginalism (like the normal relationship between cost and price for reproducible goods, and the intersection of the Tuckerite theory of artificial property rents with the Ricardian theory of rents as a subtraction from wages).
I see the subjective mechanism for the LTV not so much as moral as — believe it or not — praxeological.