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Comment by sethg | Hacker News Reader

I once saw a slogan on a T-shirt that said “Labor creates all wealth”. I would suggest that if your first reaction to that slogan is anywhere in the range from “that’s an exaggeration, but yeah, it’s mostly true” to “HELL YEAH!”, then you are (should be?) a socialist.

The various flavors of socialism, from anarcho-syndicalism to Marxism to Scandinavian-style social democracy, represent different answers to the question of “OK, granted that labor creates the wealth, but in a country with one iron mine, five steel plants, and twenty steel-consuming factories, who decides how resources get distributed from the mines to the steel plants to the factories?”

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Of course, the labor theory of value is false.

I can expend enormous amounts of energy engaging in the labor of banging pots and pans together. At the end of the day, I am left only with dented pots and pans. No wealth has been created; in fact, some total wealth may have been lost, as the value of the cutlery has been diminished by damage.

Wealth is created by the transformation of inputs - whether material or not - into an more useful set of outputs. Human labor may or may not be the means by which this transformation is accomplished. But the nature of the transformation can only be defined by human intelligence, and the evolution of technology seems to be shifting the weight of importance even further away from labor and further toward ideas.

The labor theory of value has an old and distinguished pedigree:

http://en.wikipedia.org/wiki/Labor_theory_of_value#The_birth...

There's no socialism involved in accepting some version of this theory. Yes, most if not all socialists believe in it, but the converse is not true.

But it has no economic significance. People thought the earth was flat a long time ago, and that theory has the same amount of scientific basis.

Seriously, economics is a science and it is easy to demonstrate that a unit of labor time, like and hour worked, does not create the same amount of value.

Specifically, ignoring the power of capital, the labor theory of value would say a carpenter can create as many cars in an hour as a laborer working with a factory of robots.

The reality is, the capital to build the factory changes the value of the labor, thus disproving the labor theory of value.

the labor theory of value would say a carpenter can create as many cars in an hour as a laborer working with a factory of robots

No, it wouldn't, at all, not even kind of.

Depending on the version you took, it would either say that the "real" price of the car coming off the factory floor would be set by the value of all the labor put into producing it (including the cost of the labor of building the factory itself, all the way on back), or that the price would simply be the value of the labor it would save the purchaser.

The labor theory of value has always struck me as self-refuting--if a given good is only worth the labor used to produce it, why not conserve the labor? Profit happens if you produce something worth more than the labor you put into it. This is true whether you're producing profit for yourself (a sandwich is worth more to you than conserving the effort it would take to make the sandwich) or whether you're selling your labor to someone else, who in turn uses that labor to produce profit. (As you point out, this might produce more wealth, since manufacturing labor is more productive in a robotic factory than in a back yard.)

It may be more economically sound for socialists to make a moral argument that profit morally belongs to laborers more than it belongs to the capitalists (in the sense of "people who provide capital"). The economic argument seems to fall down.

The same reasoning refutes the moral argument as well.

If the new wealth created is the difference between the value of the inputs and the value of the outputs, then the key factors that determine whether or not wealth is created are the definition of the output, the definition of process by which the inputs are transformed into outputs, and the allocation of resources (including the assumption of risk) necessary to initiate that process. These functions are undertaken by "capitalists" rather than "laborers".

Labor is an essential input, but in your model, it is not at all responsible for the creation of wealth.

> The labor theory of value has an old and distinguished pedigree:

It's funny how you imply that the socialist concepts are neither old not distinguished.

I'm not implying any of those things. My point is that the labor theory of value is quite well established in itself, independently from socialism. E.g., Adam Smith was one of its key proponents, and his thought is rather associated with free markets and "invisible hand" capitalism.

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