This is basically the labour theory of value and ignores the value of capital and organisation.
Some guy delivering stuff in a garage is not going to be nowhere near as productive as an Amazon worker.
The crucial bit that people miss is that it is capital, goodwill and organisation allows employees to generate so much money in the first place.
Basically the sum is greater than its parts.
If you want to know where profit comes from(assuming a well functioning market) in a modern economics point of view, look into Subjective theory of value and marginal economics.
Okay, so pg posits that the people he finds and helps to become billionaires get there because they have some special insight into a solution to something people need.
He's definitely right that it is valuable to society that people who have such insights are given the opportunity to build their solutions. We all win from being in a society where more of our needs are met.
What's perhaps slightly more dubious is the idea that, by bringing that insight, the person who has it deserves to own a billion times more of a vote in how our society is run than the average person.
Because that's what wealth, what a dollar, is: it's a voting share in how society spends its time and resources. As the owner of a dollar, you get to decide whether people spend their time growing and picking and shipping some plants and making them into some bread and then putting together a sandwich for you, or if you'd rather they dig up some rocks, extract some silicon from them, imprint it with complicated patterns, and then construct it into a device you can put in your pocket that lets you see photographs of influencers.
The pg thesis here is that instigating an idea, creating something that doesn't exist, is not inherently exploitative. That is true.
But what is perhaps arguable is, that in delivering on that original founder's vision, one which attracts many of those votes for how society should spend its time from many people, and thus accumulates billions of dollars of revenue - that many people other than the original founder end up creating the organization and building the factory and working the machines and writing the software and actually serving the customers to make that solution real - a bunch of people other than the founder are involved, and... well, if you choose to structure the rewards of that organization so that all those billions of votes in the future of society accrue to the founder, while only thousands of them accrue to the people who do the work of making it happen... that it's possible to construe that distribution of rewards as maybe slightly exploitative?
> deserves to own a billion times more of a vote in how our society is run than the average person.
The average person has $60k-ish a year. There is nobody out there with 60 trillion.
Regardless, the billionaire has to actually spend the money to get goods and services from the market. While his/her needs will dwarf an individual, they are still just a drop in the bucket compared to the middle class. This is why all of the largest companies/product markets/etc all cater to the middle class.
The only way billionaires can actually get leverage on how society is run is through direct monetary influence of politicians, but that’s going to happen whether the average income is $60k or $200k.
The average American might make 60k; the average person makes more like 2. The billionaire also doesn’t have an income of a billion a year, he has an accumulated net worth of a billion. Median wealth is measured in thousands of dollars. And the numbers on the left half of that distribution are very low indeed.
But anyway, whether it’s a billion times more or merely a million times more, the difference is still staggeringly huge.
If you have a dollar, how many more do you need to make a billion? About a billion.
If you have a million dollars, how many more do you need to make a billion? About a billion.
> deserves to own a billion times more of a vote in how our society is run
But not for all aspects of society. Pre-democracy, kings and royalties get to make these choices. But in western democracies, you at least have an unalienable vote which is independent of your economic output. This vote means that no matter how many billions get spent, this vote is up to your own decision.
Yes, the point is that democracy can exist in more places. For example in the workplace or even within certain supply chains (such as food production).
Your vote helps dictate how some of the rules of society change and how some chunk of society’s wealth gets spent. But your money is how you vote on how everybody else in society spends the most precious resource they have: their time.
The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.
Adam Smith's labour theory of value hasn't been used in modern economics. And has tons of problems with it. That and Ricardos version is probably the basis of the Marx version. They we're the popular interpretations at the time and he was probably inspired by them.
The marginal revolution happened in economics and a lot of those problems disappeared. A lot the things they couldn't explain suddenly could be using marginal economics and subjective preferences.
Marx simply didn't have the modern tools we have now. In fact if he was around afterwords it is likely he would never came up with Marxian LTV.
Frankly the only reason for it's popularity now, is because of it's association with communism. It provides the moral basis for it. As a result you've had a lot of people desperately trying to get it work in modern economic models as well without much luck.
But you can critique market economics using marginal theory of value. It just means markets have failures, not they are morally wrong at the core.
My principle point is to show that labour theory of value is not inherently or originally Marxist as is often presumed or implied.
My own view is that the entire value discussion is tremendously muddled, confuses multiple issues, and is used to justify or support any number of spurious or specious arguments, generaally over policy.
The marginalists mistake price for value. Most orthodox economics does likewise.
Really? Because value and market price are separate things in marginalism.
Using the rational model somebody will only purchase something when it's price is below how much the person values the object.
It's related to consumer surplus. To make it measurable we use money as an approximate judge to work out much somebody values it. But the market price and how much somebody values something are different things in marginalism at the core.
It may depend on who you talk to, but Isee much equivocation between concets of price and value, in both micra ('wealth creation" / 'wealth creator") and macro (GDP) domains.
But yes, costs, price, and value are three distinct, though connected, concepts.
You have to understand most writing is aimed towards the layman, so they use market price as a proxy.
I hate the term wealth creator as well. But it certainly is possible to create to wealth. If you take things that people don't value that much, use them in a way to provide something that people do value. You have created wealth.
I'm curious what you mean by that, because it seems to me the exact opposite. Orthodox Economics 101 introduces consumer surplus precisely to separate price from value.
In much debate and discussion I see "market value" substituted for "value". Often the implication is a vague one, as withmuch equivocation. pg's argumentventures there.
Keep in mind that Smith, Ricardo, and Marx each commit this error, including in the Smith passage I quoted. So do the Marginalists, or at leaast most of them.
Mariana Mazzucato may be an exception. (I've just discovered her, still going through her work.)
In theory. In practice just about every quantitative method or metric used to measure social welfare or individual well being falls back on price. And since our culture has a fetish for positivism and anything that looks like “math” those are the fixed assumptions that guide our decision making.
The fundamental principle of marginalism is, er, marginalism: that the derivative of supply or demand functions is what determines market price (not to be confused with "value", though it often is). The marginal cost or value.
> The crucial bit that people miss is that it is capital, goodwill and organisation allows employees to generate so much money in the first place.
You're ignoring the fact that capital has most of the systemic advantages such as various information asymmetries, and thus reaps most of the rewards.
Capital also exerts quite a lot of influence to ensure that labor markets don't get too tight (eg. economic policies that target unemployment rates that aren't "too low") that might somewhat counter capital's negotiating advantage.
And when that still isn't enough of an advantage, colluding to limit the mobility of labor among competitors is absolutely on the table, because even if caught the consequences aren't particularly severe.
That analysis is not inherently dependent on the labour theory of value. You can frame it that way, but value need not come into it at all. Business owners are capital owners; they have power which arises from the fact that they own a business. They can offer jobs, which everyone needs, but no individual employee is necessary to them. It's a buyer's market, and as a result, the business owner has a lot more power to set wages. This leads to the bulk of the money flowing up to the business owner.
What we wind up with is a system where business owners have substantially more money than workers, purely as a product of the fact that they can use their power to make this happen. If someone uses their power to divert money into their own pockets away from people who need it more than they do, they're exploiting others.
It's not the fact that the organization Amazon exists to coordinate labour that we have a problem with. It does increase efficiency. It's the fact that Jeff Bezos has total control over it & uses that power to massively benefit himself at the expense of all his other employees, who have a much greater need for the money.
If George Washington had argued that, by virtue of having been the one to found the country, he was entitled to rule it as a dictator, we would take issue with that. While he may be a competent leader, he must still be accountable to the public, lest he use his power to benefit himself at the cost of the public well-being. Hence, democracy. It's strange to me that people are so unwilling to apply the same analysis to corporate hierarchy.
Nothing is stopping anyone from starting a competing business, and offering a better deal to the workers.
There's no objective way to say how much "work" is worth - only subjective. This subjective measure is given by the market rate. And in a functioning free market, this should give you consensus as to what some "work" is worth.
> the one to found the country ... people are so unwilling to apply the same analysis to corporate hierarchy.
to have found the country, he could've asked to be a dictator. The problem is that the founding is based on the principle of equality (at least at the time, of men...). So if he chose to turn around and take that equality away, everyone would just reject his founding. People in the country are attracted to the idea of equality, not to the guy named Washington.
However, a business does not start on the same premise - that of equality and rights (for all employees). The business started by the business owner is based on the premise of pay for work. That's as far as the relationship goes.
Anyone (in the USA) can start a business on a different principle - no one will stop you other than natural forces like competitiveness! And i think some businesses do that - a family business for example, which shares the work, and shares all the profits between them (and don't hire employees).
> Nothing is stopping anyone from starting a competing business, and offering a better deal to the workers.
Nothing except not having the capital to do it.
> There's no objective way to say how much "work" is worth
Fortunately I explicitly said at the beginning that my argument wasn't going to involve talking about the value of work at all.
> everyone would just reject his founding
Literally every country up until that point except perhaps Athens had been a dictatorship of some sort. Democracy doesn't just happen -- you have to make it happen. There was no presupposition that everyone should have equal rights before then; that was the innovation of it. There's no reason why that same innovation couldn't be extended into industry.
> Anyone can start a business on a different principle
And anyone can start a country on a different principle. But you have to have a lot of resources to do so, and unless you found it on equality, it'll be terrible for most of the inhabitants. So, given that we have a government to regulate society, I see no reason to let people found businesses based on principles which will lead to such gross wealth inequality.
> That analysis is not inherently dependent on the labour theory of value. You can frame it that way, but value need not come into it at all. Business owners are capital owners; they have power which arises from the fact that they own a business. They can offer jobs, which everyone needs, but no individual employee is necessary to them. It's a buyer's market, and as a result, the business owner has a lot more power to set wages. This leads to the bulk of the money flowing up to the business owner.
That's how a lot of countries are governed but it doesn't actually have to be the case. There are places where there are more businesses than employers which gives more power to employees. A lot of export driven economies are basically based around the principle that workers in those countries are cheaper than any other country. Governments introduce policies that reduce the purchasing power of employees over time.
>What we wind up with is a system where business owners have substantially more money than workers, purely as a product of the fact that they can use their power to make this happen.
Yeah the real problem is that governments love to listen to what businesses have to say at the expense of workers.
> If someone uses their power to divert money into their own pockets away from people who need it more than they do, they're exploiting others
So when the dinner bill comes and you are given the power to choose how much to tip a waiter/waitress, do you exploit them by not giving them all of the money you can afford?
When shopping for a car, do you look for the dealer with the highest markup knowing how tough care salesman have it and pay asking price?
If I were especially wealthy, sure. Ultimately, the only way we can judge our actions is by their consequences. If I'm a middle-class person, giving another middle-class person extra cash won't benefit them much more than it hurts me. If I'm wealthy, the situation changes; I need each dollar substantially less than other people do.
But frankly, I'm not interested in moralizing individual's actions at all. I'm not interested in going "oh Jeff Bezos is a BAD PERSON for X Y and Z." I think that's silly. I want to use the legislative system to raise is taxes and put his money to better ends whether he likes it or not. Whether Jeff Bezos is "good" is entirely irrelevant.
And indeed those workers who get paid, can save and invest that money to enhance the productivity of other workers and get a return. Generally the higher risk of losing the money, the more return you can potentially get. Some of those workers will hit the jackpot and get a great return.
> And indeed those workers who get paid, can save and invest that money to enhance the productivity of other workers and get a return. Generally the higher risk of losing the money, the more return you can potentially get. Some of those workers will hit the jackpot and get a great return.
> Is it morally wrong?
Not per-se, but as the denominations grow, society is structured to privatize most of the upside of that risk, while socializing the downside, but at the lower end of the scale the reverse takes hold.
In other words, even aside from the way the ratio between CEO and average employee pay has ballooned over the past fifty years, upper management gets bonuses when the company does well, labor gets downsized when the company does poorly.
Another way this plays out is that if you owe the bank a few hundred thousand dollars and the company you work for goes out of business, you have a problem. If you owe the bank a few hundred million dollars and the company you work for goes out of business, the bank has a problem.
the labor theory of value isn't a theory of morality. if you don't believe that exploitation is wrong, then you're free to use the LTV to maximize exploitation, which is what many ex-communists have done to great success in places like south korea, vietnam, and china.
LTV drawn to its logical conclusion leads to exploitation of every worker almost by definition. It is the core of the market economics = exploitation argument.
Profit is simply value extracted from workers.
As opposed to the arbitrage of the subjective preferences of multiple actors. The modern interpretation of how value can just appear.
Those workers who got a return on capital delayed consumption now, for more consumption later. That's a preference. I don't think that's a bad thing. But you can see how over a long time it can generate massive inequality.
But I don't think the fundamental mechanisms of how this occured is particularly exploitive.
Where as LTV pretty much just says it your just stealing value.
yes, one might make a moral judgement that exploitation is a tendency of capitalism, if one believes that people who control more capital have structural power over those who control less or no capital, thus narrowing the viable subjective preferences in a way that is "bad".
but ltv on its own provides no such judgement, it simply describes the material relationship.
I agree with that predictive ability is important but I have seen no evidence that marginal economics has predictive ability. You yourself even say it "explains and models" which is not the same as predicts.
That is, if you assume the labor theory of value is true, then UK-Al05's criticism is wrong, so the labor theory of value remains unrefuted. That's... not a very convincing argument.
Please don't post snarky dismissals to HN. If you know more than others, the best way to respond is to share some of what you know, so the rest of us can learn. If you don't want to do that or don't have time, that's fine, but in that case please don't post. Letting the internet be wrong about everything is the primary survival skill we all have to work on anyhow.
Sorry, as you know it's a contentious issue and we get tired of repeating the same information. Then again, I'm sure you get tired of repeating yourself too.
That's certainly the case. But the internet is basically stateless. No matter how many times you've explained something in the past, statistically speaking you're always talking to an audience who's never heard it before. Since it's neither nice nor effective to punish people for that by venting one's frustrations at them, the only thing that really works is to patiently repeat oneself and manage the frustration internally.
Sometimes snarky dismissals are appropriate. Trying to hold everything to some academic standard of discourse is implausible when we have deliberate bad actors pushing disingenuous arguments that - by this standard - must be repetitively exhaustively deconstructed time and time again.
Expecting that is how you convince a large subset of folks to never bother with said deconstruction, and ultimately let bad ideas roam free and otherwise get adopted by impressionable / gullible minds.
Snark is there to suggest the reader go do their own research.
Actually snark works quite a bit better in academic discourse, where the communities are smaller and more cohesive. It doesn't work well in large, open internet forums like this one, where it basically just triggers an avalanche of tedious and ever-worse behavior. I'm not making a moral point—rather an empirical one about this particular type of internet environment. Here's a related explanation from a few weeks ago if anyone cares: https://news.ycombinator.com/item?id=25130956
In a context like this, snark doesn't encourage people to "go do their own research" or save "impressionable / gullibile minds", nor is that really what people care about. (If it were, they'd expend energy doing those things in a way that might actually work.) Rather, its function is to vent one's own frustrations by translating them into concentrated language. The effect this has on community is to pollute it with fumes.
This is destructive of the ecosystem, unless one is happy with a single species, the snark, consuming all the others. Therefore we all need to find better ways of self-regulating and containing our frustrations. Then we can address other people in a way that has a chance of connecting with them.
One thing to remember about online communities is that size is by far the most important factor. Things work very differently at different orders of magnitude. If you know of a community of HN's size or greater (millions of users a month) where snarky dismissals have helpful systemic effects, I'd like to know what it is, because I don't currently believe that's possible.
As for flagging, what thread are you referring to?
What's disingenuous is assuming people who disagree with you (and who present supporting arguments) are knowingly bad actors. Actually, they're much more likely to be normal people with sincere beliefs.
And we all know that nobody is going to "go do their own research" because you snarkily disagreed with them. People do research when you make it easy for them to do, not when you drive-by insult them with an unreasonable reply. Drawing conclusions without providing reasons is literally being unreasonable.
There are billions of people with bad opinions on the internet. Nobody is forcing you to educate all of them. If you decide to try, it's predictable that you will at some point become tired of repeating yourself. At that point, you have two choices:
A) take a break
B) post crappy comments and justify it by saying you're tired
Comments like this are useless, bc you're declaring someone is wrong without any explanation of (a) why they're wrong, and (b) what's actually correct.
The result is that I have no reason to believe you, or to even understand your point. Because you've essentially made no point.
Some guy delivering stuff in a garage is not going to be nowhere near as productive as an Amazon worker.
The crucial bit that people miss is that it is capital, goodwill and organisation allows employees to generate so much money in the first place.
Basically the sum is greater than its parts.
If you want to know where profit comes from(assuming a well functioning market) in a modern economics point of view, look into Subjective theory of value and marginal economics.