Labor doesn’t create value


Someone posted a link to an excellent economic article on the labor theory of value and how it continues to mislead people today. I found it interesting and well-written. It gave cogent explanations to things people have been saying that don’t make sense.

For example, under the labor theory of value, it is the labor that goes into something that creates value. This allowed people like Marx to see capitalists and people who took that value from the workers, value that the workers deserved.

But we all know the value of something isn’t based on the amount of labor put into it. Some things have no labor at all, like land. Others use very little labor but have great value. Some works of art are that way. So what does create value?

This article talks about the Austrian school of economics and its recognition of the subjectivity of value. What makes something valuable its the subjective perception of its usefulness in for people in pursuit of their plans and goals.

This turns the whole thing upside down. Instead of the value of labor determining the value of the goods, it is the value of the outputs that determines the value of the labor. So a good entrepreneur develops and invents outputs that have a value to the consumer/user that creates value for the labor that goes into it.

The article didn’t apply this principle the way I am going to now, but I can see how this should weigh in on minimum wage discussion. If the output being created only has a certain value to the people consuming it, you cannot increase its value by increasing the cost of the labor input. The output only has a certain value, and its value of labor is determined by that value.

If someone is willing to create the output for that cost of labor, the output is created. If the value of labor is too low no one will work it and it doesn’t get created.

If someone wants to be paid more for their labor, they need to find a field that has a higher value output. That is why some jobs are considered part-time, starter jobs, etc. and others are career moves. Each is important to society, but  holds labor of different values.

And those values change over time, as society’s needs change. But demanding value won’t create it. Which is why the minimum wage campaign always fails.


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