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Recently, Brad Delong posted a very nice summary of why economists don’t pay any attention to the Labour Theory of Value – and hence Marxist economics - these days. The LTV goes back to at least Adam Smith; Ricardo also made use of it in his version of the theory of comparative advantage. But although the propositions about the benefits of markets and the gains from trade could be adapted to the Marginalist Revolution Marxist economics could not. AFAICT, Marxists are the only surviving proponents of the LTV, and this explains why they’re largely ignored by economists. The LTV simply doesn’t make any sense.

[Yes, I'm bored. So much so that I even read up on the Transformation Problem.]

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Well, now I get to be annoyed. Sorry, folks, for joining this debate so late in the game. But I think one of the biggest problems with most economists today is that they feel the need to become servile apologists for corporate capitalist economics, regardless of the incredible failures and flaws, at the expense of common sense.

So yer bored, Dr. Cromwell. I guess you would find the LTV boring, since, despite its overly long-winded ways of saying things, is a little too common sense to be interesting when compared to the voodoo economics of today. I guess that’s also why it doesn’t make sense to many economists today either.

Without getting into some big polemic on the LTV, let’s just compare a feature of it to some of the unquestioned “realities” economists embrace today:

LTV measures value and wealth as the interaction of labour and skills of workers converting natural resources into useable tradable goods and services.

So, as far as I can tell, this, for those equation lovers out there, L (labour)+N (Nature)=V (value); or L + N = V.

So in the case of determining the value of a house, for example, it would be the amount of direct labour and skills applied, plus the natural resources involved would equal what the house should cost, in terms of exchange (obviously using some standard form of measurement).

It sounds perfectly sensible to me and to just about anybody I talk to. Obviously, most people feel the cost, or price, of something should reflect the labour and resources that go into making it.

But, alas, that’s not the way it works in our capitalistic economy. Instead, here we have to base the price, not on the above, but on a coercive, destructive and largely stifling concept of Demand vs. Supply. That means the price doesn’t reflect its real value, but rather reflects who many people want it, how many people can afford it, and how many are willing to pay top price for it.

In other words, in the case of the house, you can buy it for a certain amount one year, have it assessed at a much higher price the next, and possibly a lower price the year after, depending on a whole variety of influences and conditions, none of which have anything to do with the adding or taking away of its value via labour and resources.

A great example on lots of folks’ minds now is gas prices. Last week here, gas cost 94.4 cents a liter. Two days later it was $1.014 per liter. Yesterday it was back down to 98.9.

There was no change (as far as I know) in the labour costs of extracting, processing and distributing the gas in this week; nor has the oil been harder to find; nor has the quality of the gas changed.

Yet the prices are fluctuating madly, and people are pulling their hair out every couple days trying to figure out how much gas they can afford, how much they should spend on it, how much they should drive, etc.

This is the chaos and outright stupidity that is considered “natural” or “sensible” economics.

It seems that history is rife with how basing prices on the demand or need for a product, instead of its real value in terms of labour and natural resources, has contributed more to mass poverty, starvation, genocide, ill health, wars, depressions, dictatorships, colonialism and imperialism, artificial scarcity and ecological destruction than anything else.

Then, of course, there’s the exciting but seemingly useless and equally oppressive practice of interest rates for borrowing money. It makes for great analysis and reading, and makes a lot of money for some folks. But why really do we have them?

Then of course, there is using money as a commodity, subjecting it to inflation, deflation, hyper-valuation, de-valuation, centralization into a few pockets, etc, instead of just using it as a means of exchange, which most people seem to think it should be used for.

The list goes on.