...When Rep. Ocasio-Cortez argues that her hypothetical billionaire did not make the widgets but rather that her employees did, she is making a particular claim about what a commodity is and where its value is derived. She is articulating a theory of value. The theory that the value of a commodity can be objectively measured by the labor which produces it is the labor theory of value.
The labor theory of value was the prevailing theory among many economists of the nineteenth century, most prominently David Ricardo and Karl Marx, and had its roots in the thought of Adam Smith himself. This theory was questioned by some economists in the nineteenth century, notably Frédéric Bastiat, and later definitively refuted by William Stanley Jevons, Carl Menger, and Léon Walras during the Marginal Revolution in economics. Marginalism introduced a subjective component into the theory of value, explaining that the value of a commodity is not determined solely by any property of the commodity itself – including the labor necessary to produce it – but by the value human persons impute to it as a means to achieve their ends.
This subjective theory of value was almost universally adopted by economists, because it better described the real world. It solved the famous paradox of “value in use” and “value in exchange.” It can explain why water, necessary to human life, demands a lower market price than diamonds, which are comparatively useless. Marxists were the only notable group to resist this new theory for, as the economist Eugen v. Böhm-Bawerk exhaustively argues in Capital and Interest, the notion that employees are “exploited” by employers is only true if the value of commodities is wholly derived from labor.
Rep. Ocasio-Cortez’s account of billionaires “taking” instead of “making” assumes away the risk, uncertainty, and time accounted for in the current subjective understanding of value to engage in nineteenth-century communist sloganeering. This sort of antiquarian argument, while ridiculous, can be a catalyst to learning more about the history and development of economics. Of no value is the crass materialism involved in excusing the alleged immorality of those whom she describes as “takers” being merely the product of “this system that we live in.”
It is precisely this crass materialism – Marx’s unique contribution that the anatomy of civil society is to be found in political economy – which is most disturbing....
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Originally Posted by Common
