3 ms·

Deserving is a funny idea. I'm not talking about "does Paris Hilton deserve her money?" or even "does Bill Gates deserve his money?" which all too often devolve

by scarmig 13y ago

Deserving is a funny idea. I'm not talking about "does Paris Hilton deserve her money?" or even "does Bill Gates deserve his money?" which all too often devolve into personal attacks and minutiae and miss the broader systemic question. When you implicitly demand that people work for money, you're making an intuitive error that brilliant economists, from Adam Smith to Karl Marx, have mistakenly stepped into many times: the idea that value comes from a day's work. That's the folk version of it, but in economic's early days it was professionally argued for enough to get its own name: the labor theory of value. There's a long history of debate around it, and even today there are highly sophisticated versions of it floating around that have added epicycles and epicycles of subtlety, but the long and short of it is that it's been proven wrong. Not from a normative point of view (which is impossible anyways, as that's just moralizing), but empirically speaking. And the moral version of it doesn't make much sense either. I'd be the last to say that an investment banker doesn't work hard, but does he work harder than a single mother on food stamps holding down three part time jobs? Or, for that matter, do either of them work harder than a peasant in rural India? Lots of things determine income. But by far the biggest is economic productivity, which is heavily correlated to capital intensity. As a collective whole, we are far more productive now than we were a couple decades ago, let alone a couple centuries. For that we get far higher incomes for far less work. Does being born in a first world country in the 21st century deserve extra income? No, not really. Yet we live with it and don't beat ourselves over the head for it: we do it because we can. And even once developing countries have caught up with us, we'll still have to ask ourselves if we deserve greater income than our ancestors merely for coming after them. Capital will continue to grow exponentially for the foreseeable future. It will not be long before the labor of maybe a billion people worldwide are able to provide a standard of living for everyone that's higher than people in first world countries get today. Do the people who aren't part of that productive core "deserve" the money? I mean, maybe, maybe not, but does the answer to that question even matter? None of us really deserve what we have, so so long as we make a workable system where the incentives line up so that everyone can live rich lives with a base level of income, I'm all for it.

pdonis 13y ago
the idea that value comes from a day's work Where did Adam Smith say this? From what I understand of Smith's position, it was that value comes from either use or trade: you produce something and either use it yourself, or trade it for something else. How long it took you to produce it is irrelevant to what you can use it or trade it for.
- scarmig 13y ago
  "The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity." (TWON, Bk. 1, ch. V, p. 30) The full answer is a bit more complex than that: it's also true that Smith says contradictory things. I'm not enough of a Smith scholar to give a definitive answer, but it seems that Smith mostly purposed it for rhetorical effect, since it is so compelling on a folk level. Other classical economists like Ricardo bought into it much more heavily as an analytic tool.
  - pdonis 13y ago
    Smith is saying that the value of something to you is the labor it saves you, and the cost of something to you is its opportunity cost: what you have to give up to get it. But the "labor theory of value" says that the cost of something to me should be determined by the labor it costs you, who are trying to sell it to me. That's not the same thing. The statement that "They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity" is the closest Smith comes to saying something like the labor theory of value, but note that he says "supposed"--in other words, our intuitive sense is that, on average, equal amounts of labor should produce equal amounts of value. So he's still not saying the same thing as the labor theory of value says; he's talking about an effect of the free market, not how prices should be set in such a market. (And, as you note, the full answer is more complex: for one thing, we have to account for differences in productivity.) If you have any quotes from other classical economists like Ricardo, I'd be interested to see them; my sense is that the labor theory of value is mainly due to later schools of economics, not classical economics.

by scarmig 13y ago

pdonis 13y ago

the idea that value comes from a day's work Where did Adam Smith say this? From what I understand of Smith's position, it was that value comes from either use or trade: you produce something and either use it yourself, or trade it for something else. How long it took you to produce it is irrelevant to what you can use it or trade it for.

scarmig 13y ago
"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity." (TWON, Bk. 1, ch. V, p. 30) The full answer is a bit more complex than that: it's also true that Smith says contradictory things. I'm not enough of a Smith scholar to give a definitive answer, but it seems that Smith mostly purposed it for rhetorical effect, since it is so compelling on a folk level. Other classical economists like Ricardo bought into it much more heavily as an analytic tool.
- pdonis 13y ago
  Smith is saying that the value of something to you is the labor it saves you, and the cost of something to you is its opportunity cost: what you have to give up to get it. But the "labor theory of value" says that the cost of something to me should be determined by the labor it costs you, who are trying to sell it to me. That's not the same thing. The statement that "They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity" is the closest Smith comes to saying something like the labor theory of value, but note that he says "supposed"--in other words, our intuitive sense is that, on average, equal amounts of labor should produce equal amounts of value. So he's still not saying the same thing as the labor theory of value says; he's talking about an effect of the free market, not how prices should be set in such a market. (And, as you note, the full answer is more complex: for one thing, we have to account for differences in productivity.) If you have any quotes from other classical economists like Ricardo, I'd be interested to see them; my sense is that the labor theory of value is mainly due to later schools of economics, not classical economics.