Heinlein views on thoery of value

Economics Economics Questions
1

In his 1955 masterpiece “Starship troopers”, Robert A. Heinlein says the following about the theory of value:" "Nevertheless — wake up, back there! — nevertheless the disheveled old mystic of Das Kapital , turgid, tortured, confused, and neurotic, unscientific, illogical, this pompous fraud Karl Marx,nevertheless had a glimmering of a very important truth. If he had possessed an analytical mind, he might have formulated the first adequate definition of value… and this planet might have been saved endless grief. “Or might not,” he added. “You!”…
“Exactly!The prize for first place is worthless to you… because you haven’t earned it. But you enjoy a modest satisfaction in placing fourth; you earned it. I trust that some of the somnambulists here understood this little morality play. I fancy that the poet who wrote that song meant to imply that the best things in life must be purchased other than with money — which istrue — just as the literal meaning of his words is false. The best things in life are beyond money; their price is agony and sweat and devotion… and the price demanded for the most precious of all things in life is life itself — ultimate cost for perfect value.”

Heinlein, it seeems draws the theory of value back toward the labor, because of it’s subjectivity. Somehow it corresponds with R. Eliyahu Desler’s “Kuntres hahesed”, where he spells out the following formula -since the men values his life and effort, the value can be subjrectuvly derived from the effort (=labor) one had put into creating/aquiring the evaluated.

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2

For some reason, people have a mental block regarding the Labor Theory of Value. I’ve received more hate mail for that post than any other. I should have called it “The Free Market Labor Arbitrage Process”. Viewed this way, it’s a free market concept and not a communist concept.

In a free market, labor is usually the largest cost of manufacturing something.

If labor is underpaid (relative to its fair value), then workers will form competing businesses, arbitraging away the difference.

If labor is overpaid (relative to its fair value), then new workers will enter the industry, again arbitraging away the difference.

In the present, State restrictions of the market prevent this arbitrage from occurring. Either there are State restrictions preventing people from starting new businesses, or there are State licensing requirements preventing people from entering the industry. For example, I can’t say “Lawyers are overpaid! I’ll go work as a lawyer!” I can’t work as a lawyer unless I have a State lawyer license. I can’t easily start my own company, because raising capital is hard due to the Federal Reserve credit monopoly.

Here’s a sample calculation. Suppose a worker produces 1 unit per hour, using equipment provided by his employer. The unit sells for 3 ounces of silver. The worker is paid 2 ounces of silver per hour. The employer makes a profit of 1 ounce of silver per hour. Assume 2000 hours worked per year. This is a profit of 2000 ounces of silver per year for the employer. The fair free market interest rate is 2% per year. What is the value of the emplyer’s equipment?

The value of the equipment is 50x the profit. In other words, the equipment is worth 100,000 ounces of silver. If it was worth less than that, it would pay for the worker to raise capital (paying 2%) and start his own business. If it was worth more than that, then the employer should sell his equipment and invest the proceeds elsewhere (earning 2%).

This is the way I understand the Labor Theory of Value, although this isn’t the common definition. I should call this by a different name, “The Free Market Labor Arbitrage Process”.

3

Yes, I’ve noted that in FSK’s blog the notion of the perfect competition with its imposible assumptions exchanged for the "Free market’ idea. Qustion that arises here , should this new conception inherit some of the missfittings of perfect competition assumptions.

4

Ok, not that it matters since you will just ignore this and call me a troll but…

You leave out both the producer goods and time element from your calculation that also goes into the consumer good (unit) along with the labor. Plus only in an evenly rotating economy can it be expected that profits would be equal to simple interest as there are other factors involved.

I’m seriously starting to wonder if you’ve read any Austrian economic theory at all.

5

You’ll never have absolutely perfect competition. Skilled workers will always earn more than unskilled workers. Skilled workers will enter fields with the greatest disparity between price and cost.

The problem is State distortion of the market. In a free market, the trend is for interest rates and return on capital to converge. If returns on capital exceed interest rates, then workers will borrow and start new businesses. In the present, the power of the Federal Reserve credit monopoly and State restrictions of the market is greater than the power of workers to arbitrage away the difference.

You can’t cite historic examples of free markets. There aren’t any.

You can add the cost of raw materials to the calculation. I’ll leave it to you as an exercise.

6

It’s not about can and can’t but about the fact that if you don’t account for time throughout the whole of the production cycle and add the various inputs of producer goods then you are simply wrong.

I also have been thinking about your example a bit and think that the ‘profits’ you ascribe to the production process are really just interest on the initial investment and not really profits at all. Well, if you accept that ‘profit’ is the amount of money that you make above and beyond simple interest as is the Austrian way.

So let’s say that the going rate of interest is 2% and the business in your model starts to make 3% profits. The employees see this ‘theft’ and decide to strike out on their own, they raise the required capital to buy the machine and start churning out the same product. Just for the sake of argument we’ll say that they too make the same 3% as their former employer. What this really means is after they pay off the 2% interest on the loan for the machine they are now making 1% profits while the other company is still making 3% because one of the basic assumptions of your model is that they own the production machine outright.

If the original company was to cut their profit margin back down to 2% they could drive the other business out of the market as they would now be making zero profits or even down to 1.5% and make the upstart run at a loss.

That’s not even adding in the cost of the raw materials or taking into account supply/demand pressures.

7

I used “perfect competition” as an economical term, not to say really perfect competition. This one holds behind a set of assumptions, which I thought fsk transcribing to his free market. for an example he expects the worker no only to see the gap between 2% and 3% but to act to close it. In real life, would that be as easy?

8

It isn’t clear how big the gap has to be before workers profitably exploit it. I don’t know whether the “edge” required to start a business in a free market is 1%, 2%, or 5%. Right now, the “edge” for starting an agorist business is over 50%, which is the direct savings you get when you avoid taxes. If you include the benefit of avoiding restrictive regulations, the edge is even higher.

In the present, the Federal Reserve keeps interest rates artificially low. This guarantees that capital and tangible assets will always outperform cash/bond investments.

In a free market, the trend is for interest rates and return on capital to converge. If the disparity is too great, then workers will borrow and start new businesses. In the present, this does not occur, due to the huge State distortion of the credit market.

9

Yes, you should call it by a different name.

10

How come you never account for the legal risks of agorist activity? Because if it was true that 50% was your pure edge, vs say 5 or 10%, entrepreneurs are not so stupid as to not make the decision to pursue agorism from a profit perspective, all things considered equal.

This is one of the thing that agorists, specifially theoretical agorists annoy me with. They love to extoll the virtues of agorism when they themselves are not always practicing what they preach, and what they preach has serious legal ramifications.

It’s hard to take someone seriously when they themselves are not practicing agorism.

11

Shh, he who shall not be named will hear you, you prebuscent gnat! [:P]

-Jon