IdleTheory 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
QuantityA chocsB wineC music
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.

Idle Theory

Author: Chris Davis
First created: 25 Sep 1998
Last edited: 30 Dec 2000