Theories of Value
One of the oddities of economic philosophy is that, as a discipline,
it is relatively new. Adam Smith was writing in the 18th century about
matters of such importance that it seems almost inconceivable that
writers in antiquity would not have developed related theories.
But there is almost nothing. Economic philosophy - the study of
trading systems, money and prices - seems to have only become a
subject of interest to men in the past three or four hundred years.
And when, whether as Physiocrats, Bullionists, classical
or neoclassical economic philosophers, they finally do address
the matter, it is with a heady optimism about the economic system
before them. Without exception, they regard wealth as consisting
in the possession and consumption of objects of one sort or other.
For them, the economic engine is a vast machine that produces and
distributes material wealth. Their economic man is a creature full
of passions and desires, hungry for experience, for pleasure,
for amusement. He is not 'economical' at all. What drives him, and
the economic system, is an insatiable desire for pleasure and for
pleasurable things. There is no imperious necessity, no threat of
impending starvation, enslavement or death that drives him.
For him, the world appears as a great playground, full of excitement
and beauty, in which men work to make it yet more exciting and
beautiful and opulent.
But these men were writing in optimistic times, in the full flush
of the Enlightenment. And most of them were gentlemen of leisure,
from whose lives all dire need and necessity had been expelled - if
it had ever shaded them at all. For them, as their empires expanded,
and goods of every kind came flooding onto the market, wealth
perhaps inevitably appeared as a dazzling cornucopia of delightful toys.
From the perspective of Idle Theory, these philosophers appear
almost euphoric, intoxicated. By contrast,
Idle Theory appears almost icy, chilling. In Idle Theory, the world
appears more like a labour camp than a playground. Human history
appears as the continuing attempt by humanity to escape, by all means
possible, from a condition of grinding toil into a condition of
leisure and idleness. Making and trading labour-saving tools
was essential in that attempt, and for human survival. Amusing toys
were a superfluous waste of time, and perhaps even a menace.
The fundamental difference between Idle Theory's economic vision
and that of the economic philosophers of the past few centuries is
that Idle Theory's goal state - a condition of general idleness - is
the premise upon which these philosophers erect their theories.
They take a condition of general idleness to be given.
For them, human life is idle life, leisured life, and men work only
to make amusing playthings, whose utility resides in the pleasure
they afford. Adam Smith's deer and beaver are being killed, one
may suspect, not to feed hungry mouths, but to fashion elegant
deerskin jackets and beaver coats. When he writes of necessaries,
he probably means paper and ink.
In Idle Theory, this heavenly, pretty world is swept away.
It is replaced by a hellish, joyless, unfree, toiling world
in which the sole purpose of human society, human trade, and
human ethical conduct, is to rediscover lost freedom and leisure.
The Classical Labour Theory of Value
The term "value", in Idle Theory, corresponds largely to what
is usually termed "use-value" - the value-in-use of some good.
Historically, the term "value" has more usually meant "exchange-value",
or what is termed "price" in Idle Theory. It is unfortunate the same
word has two quite separate meanings. Theories of value, historically,
are theories that offer to explain how goods acquire prices.
Adam Smith, in The Wealth of Nations, offered the classical explanation
that the price of goods was determined by the amount of labour required
to produce it.
If among a nation of hunters, for example, it usually costs twice the
labour to kill a beaver which it does to kill a deer, one beaver
should naturally exchange for or be worth two deer.
In Idle Theory, this corresponds to price = cost. In this approach, the
use-value of deer and beavers is disregarded. Smith mentions "use-value"
but does not elaborate upon it. Deer and beavers are used for something,
but it doesn't seem to matter what.
The labour theory of value was used by Karl Marx to argue that if the price
of goods was determined by the cost of producing them, then the price
of labour would be the cost of producing labour - that labour would be
paid subsistence wages, just enough to keep them alive. However, those
that employed this labour to make goods would set the price of these
goods at the amount of labour required to make them. Thus if it cost
an hour's work each day to maintain a labourer, then labour would
be paid one hour per day. But the labourer working in his employer's
factory for 16 hours each day would produce goods worth 16 hours.
The employer would gain for himself 15 hours of "surplus value", after
he had paid for the labour.
The Neo-Classical Theory of Value
Towards the end of the 19th century, several economists - Jevons,
Walras, Menger - began to argue that price was determined by use-value
or "utility". Utility, at least in the Utilitarian system of thought,
meant something like "happiness" or "pleasure". The utility of final
or consumer goods thus lay in the pleasure that they afforded their
consumers. Goods that afforded their consumers the greatest pleasure
or satisfaction attracted the highest prices.
These neo-Classical theorists typically suggested that the utility
of goods, or what they termed the "marginal utility" changed with
increased consumption. The marginal utility of the first chocolate
consumed was high, and gradually diminished thereafter. The consumer
enjoyed his first chocolate a lot, and the second rather less, and
by the time he was on to the fiftieth chocolate, he was hardly
enjoying them at all, and perhaps was feeling rather unwell.
One could draw up schedules of marginal utility for different
goods. Chocolates, glasses of wine, pieces of music.
Marginal Utility Schedule |
Quantity | A chocs | B wine | C music |
1 | 100 | 126 | 70 |
2 | 90 | 50 | 40 |
3 | 80 | 25 | 20 |
4 | 70 | 18 | 18 |
5 | 60 | 14 | 15 |
6 | 50 | 10 | 10 |
7 | 40 | 6 | 5 |
8 | 30 | 5 | - |
9 | 20 | - | - |
10 | 10 | - | - |
11 | 5 | - | - |
12 | - | - | - |
|
If 4 factors of production are required to make one chocolate, and 6 factors
are required to make one glass of wine, and 5 factors to make one piece of
music, and there are 100 factors of production available, then it is
possible to show what quantities of each good should rationally be made.
Rational use of factors requires that goods which yield the highest
marginal utility per factor should be made. The first chocolate yields
the highest marginal utility ( 100/4 ), and the second chocolate yields
the next highest ( 90/4 ), and so on. It can be shown, in this way, that
10 chocolates, 5 glasses of wine, and 6 pieces of music are the rational
product. The last thing produced would the 6th piece of music. The price
of a factor of production would be 2 ( 10/5 ), the marginal utility of
the final good produced by the last factor of production. The prices of
chocolates, wine, and music are determined by the price of a factor of
production multiplied by the number of factors required to produce them.
So the price of chocolates is 8 ( 4 x 2 ), of wine 12 ( 6 x 2 ), and of
music 10 ( 5 x 2 ). These are relative prices. If chocolates are
the unit of money, the numeraire, then the price of chocolate is 1,
wine 1.5, and music 1.25.
While it is correct to say that the prices of goods depend upon their
costs of production, the price of factors of production depends upon the
marginal utility of the last or marginal good produced. Value,
according to Jevons and Menger, was determined by utility.
But in what units is Utility measured? The neoclassical economists
were vague about this. They hoped that Bentham's hedonic calculus
would provide an answer, and utility would be measured in "hedons" or
"utils".
Regardless of this, highly mathematical marginal analysis of this
kind has pervaded economic theory ever since.
Critique of Theories of Value
From the point of view of Idle Theory, implicit within both the
classical and neoclassical theories of value is a notion that humans
work to make things that they want - that the world is a sort of
playground in which idle men forego leisure to manufacture and sell
pleasurable goods. In the neoclassical system, final goods or
consumer goods are explicitly pleasant and satisfying.
In Idle Theory, such goods are luxuries, and the construction of
an economic theory around the production of luxuries alone assumes
perfect idleness, and this is unrealistic. It suggests a
world devoid of all necessity, in which the worst that could happen
would be that men would feel somewhat dissatisfied. The real world in
which humans find themselves is one in which men must work to stay
alive, and in which they are not completely idle. In the real world,
men manufacture and exchange useful tools which increase their idleness.
The use-value of these tools lies in the amount of work that is saved
through using them. Luxuries simply use up the idle time which has
been acquired by using tools. The real value of any luxury is the
amount of time that an individual is prepared to forego to acquire it
and enjoy it. Since costs of production and the use-values are
measured in time, prices are also measured in time.
From the point of view of Idle Theory, neoclassical theory misses
out half the economic problem, and the important half at that.
It discusses luxuries, but disregards useful tools. Neoclassical
theory is one which deals with the special case where men are
completely idle, and spend their time making and selling luxuries,
amusements, and toys.
In this respect, because Idle Theory doesn't introduce awkward and
undefined concepts like Utility, but deals only in human time, Idle
Theory has none of the dimensional problems of neoclassical theory,
or Utilitarian ethics.
The Idle Theory of Value.
In Idle Theory, goods are divided into two distinct sorts. Primary
goods are useful tools which increase social idleness. Secondary goods
are the amusements and luxuries which men can produce in their idle time.
In the least idle societies, there is simply not enough free or idle time
available to make luxuries. In this sense, idle time and the useful tools
which produce it are primary, and luxuries are secondary.
Primary tools and secondary luxuries are also valued in quite
different ways. The valuation of primary tools is a matter of objective
measurement. A useful tool takes a measurable amount of time to make (C),
and saves a measurable amount of time in the performance of some task (V) - which may vary from task to task. The price (P) must fall between V and C.
By contrast, the valuation of a luxury is an almost entirely subjective matter. A chess set, a gold ring, a painting, will each be valued
differently by different individuals. If nobody wants them, they will not
sell. If everyone wants them, they will sell like hot cakes.
One problem with this distinction is that a great many goods
are both useful tools and amusing luxuries at the same time. A fashionable suit serves both to keep its wearer warm, and satisfy a subjective sense of style. A cuisine dish both serves as basic nutrition and as a pleasurable
gastronomic experience. Even knives and pots and bags may be decorated.
But then, useful tools are largely used during work time and in a work
environment, in offices and factories, and here there the tendency is
towards the most utilitarian tools, devoid of luxury. By contrast luxuries
are largely enjoyed during idle time, at home or in some recreation centre.