Hacker News Reader

Value based only on hours of labor is far too simplistic and leads to perverse conclusions.

E.g. Is it just as valuable for a farmer to till his fields by hand with a hoe and produce food at a subsistence level as it is for another farmer to use modern equipment and provide food for 100 other individuals? This is a rough approximation - pre-industrial farming population was >90%[0] and modern farming population is <1%[1] in industrialized nations.

[0] Based on a figure from this article which gives a figure for 1862 in the US http://www.pbs.org/wgbh/amex/trouble/timeline/

[1]http://www.epa.gov/oecaagct/ag101/demographics.html

Do you know if those numbers include people indirectly putting their hours toward that farming? People who designed and built the tractor, people who pulled the tractor fuel out of the ground and refined it - and who built the machines to help with that, &c... So far as I understand it, LtV would include those things.

Note that I nonetheless believe you're correct that there's been a dramatic dropoff in the portion of labor we put toward farming, directly or indirectly.

In the case of the pre-industrial (I realize my source is mid-industrial revolution, but we can agree the percentage involved in agriculture when moving back in time, I hope) figure, the vast majority of the support labor of farming was done directly by farmers (necessary because they also made up the majority of the workforce).

In the modern figure, these hours are explicitly not included. The US is a net food exporter, though[0], so I feel comfortable with the conclusion that a modern farmer is roughly two orders of magnitude more productive than a pre-industrial farmer. Even if we disagree on the reasonableness of that conclusion, I think it is an untenable position that the modern farmer is not at least one order of magnitude more productive even accounting for indirect inputs. Please let me know if you disagree on this, as it would pull the conversation in a different direction and I like to at least be on the same page, even if we're currently at odds about what it says.

[0]I'm using the second document available on this page: http://www.census.gov/compendia/statab/cats/agriculture/agri...

For this conversation, I think the important point is that farm labor is substantially more effective, and I certainly agree with that. Quantifying that is tricky and I don't have the bandwidth to do the analysis necessary to agree or disagree.

'An hour of labor from someone with a 130-IQ might carry a higher price on the market than an hour of labor from someone with a 90-IQ, but that doesn't mean our society should perceive the former as being more "valuable."'

And an hour of time of a person who studied hard, got good grades, and went through college should be compensated same as high school dropout? Your logic while nice in a "we are all equal fairy tale" way, immediately breaks down society because it devalues education, intelligence, and hard work tremendously.

No it doesn't, it devalues effectiveness. You can argue that all of those things make you effective, and while that's true, lets make sure we're on point here.

It devalues effectiveness, not education.

That is a good generalization.

Or more simply, it ignores that the sum of an hour of labor does not exist in a vacuum, but is instead a product of the time and effort the laborer had previously invested in their craft.

There's the old joke about the repairman who charges $200 to replace a bolt. Outraged, the customer says "that's it?! how can you charge $200 for that?!", and the repairman answers "Well, that's $0.15 for the bolt, and $199.85 for knowing where to put it."

Studying hard and going through college is arguably labor spent. I don't know how we should weigh marginal vs. total labor in this framework.

But note that I don't think the parent comment was talking about compensation - indeed, the bit you quoted seems specifically to consider them different things.

Marx used the word "worth" to describe the utility of the receptionist and "value" to describe the price his or her labour is bought for. Worth is of Germanic origin which Marx connected with materialism and Value comes from Latin which Marx thought was more idealistic.

So, according to Marx, almost everyone is worth more than they are valued. The difference becomes profits. And since most companies generate profits (if they dont, they become bankrupt), it follows that most workers are paid less than their worth.

A big difference between the marxist view and mainstream economics, is that marxists consider the relationship inherently exploitative. Workers are forced to sell their labour cheaply because they are under duress. If they refuse the deal, they wont be able to buy food and then starve. Mainstream economists consider it a completely voluntary exchange (afaik -- but i could be wrong on this) and does not concern itself over "wage slavery."

Btw, Marxism never claimed that people should all be paid the same. Only that you should be paid what you are worth instead of valued.

I hear what you are saying but I think you go to far with your rant. An hour of time from a surgeon might save my life one day. An hour of time from a cashier will let me pay for my groceries ~12 times. We can certainly disagree about the precise relative merits of those two things but I think that almost everyone would agree that the former is more valuable than the latter.

The only objective way to determine the value of something is to observe what people are willing to give up in order to get that thing. And because money is the convenient means by which we exchange value, it's how we can observe how much people actually do sacrifice to get something. And price is just the expression of that money value.

As mentioned elsewhere, hours of labor is pretty thoroughly discredited. It implies that I could cause something to be worth more just by using inefficient methods. It fails to capture the idea of marginally decreasing utility. Basically, the value of something is in the eye of the beholder, and tying value to production labor just completely fails to see that.

But how much people pay is not determined only by the amount they're willing to give up. It won't go over that, but it can be quite a bit under.

Rant: the older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor. An hour of labor from someone with a 130-IQ might carry a higher price on the market than an hour of labor from someone with a 90-IQ, but that doesn't mean our society should perceive the former as being more "valuable." Because at the end of the day, each person is giving up the same hour of life on this earth God gave him.

To take this to its extreme: If Superman existed, would he be just as valuable as a normal person? If he needed a kidney, would it not make sense to move him up on the transplant list? After all, doing so would save countless lives. At some point, the disparity in abilities becomes so great that only an ideologue can claim people are equal. I agree that it's important to lift the veil of ignorance only in special circumstances (employment, limited educational opportunities, etc), but one should avoid defining people as equal when what we really should be doing is treating them as equal.

One should also note that who is doing the work isn't important. It's what is being done that matters. Whether it's an executive or a janitor, the same amount of good is being done volunteering at a soup kitchen. The difference is that the executive could do more good by working at his job and donating an hour's worth of pay to the soup kitchen. That's the sense in which a person can be more valuable to society. From Money: The Unit of Caring[1]:

> There's this thing called "Ricardo's Law of Comparative Advantage". There's this idea called "professional specialization". There's this notion of "economies of scale". There's this concept of "gains from trade". The whole reason why we have money is to realize the tremendous gains possible from each of us doing what we do best.

> This is what grownups do. This is what you do when you want something to actually get done. You use money to employ full-time specialists.

1. http://lesswrong.com/lw/65/money_the_unit_of_caring/

Value is subjective, which is why we can have concepts such as "mutually beneficial exchange". The entire concept of barter and trade, which has been the foundation of our economies since time immemorial, is built on that fact. The world is not zero-sum in regards to value; price is simply what we call an agreement where both parties are willing to give up something that they perceive to be less valuable than the thing they are receiving in exchange.

> What's the "value" of your receptionist? Well how do you measure that? Simple: get rid of her, and have your developers answer the phones. The decrease in productivity from that is the value of her position

That value is not absolute. That's just the value to me as his or her current employer. The same receptionist would have different value to an employer with a different cost structure. This is why an intermediary like price is required.

> The older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor.

> An hour of labor from someone with a 130-IQ might carry a higher price on the market than an hour of labor from someone with a 90-IQ

1. These two statements are fundamentally at odds. The mere existence of a market price directly implies that some number of market participants have made their own judgments about the value (to them) of that hour of time.

2. "hours of labor == value" is the fallacy behind make-work programs where people effectively dig ditches and then fill them back up. There's nothing changed when they're done; how do you capture that economically?

I do not disagree with the thrust of your post, but I do have a bone to pick with your point 2.

The argument for a make-work program is not based on any theory of the value of labor. It is based on vulgar Keynesianism and predicated on the multiplier effect of spending.

I agree with you that a make-work program is at best, and generously interpreted as a naive idea.

> Rant: the older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor.

If you just mean that you value things based on that criterion, I don't think anyone will have much of a problem with that. But of course, price implies an agreement between multiple parties on the value of some good.

By your analysis, it seems like the value of a tool like Google web search would be the time it saves every one of its users, in total (a huge number). (I.e. take away Google web search and see how long things take)

Since Google was created by a relatively small group of people during a relatively small period of time, wouldn't this imply that one of those hours spent creating Google web search was far more valuable than, say, an hour mopping a floor?

While true that everyone's hours take the same amount of time, don't the results of some people's hours of work save far more hours for everyone else?

If neurosurgeons got paid the same as tree surgeons, no one would become a neurosurgeon, it's too much work, too much stress.

And obviously not a lot of neurosurgeons have IQs of 90.

Some people can do more, and get paid more.

Then again, some people bust ass all day in the rain as a linesman for the electric co while risking their lives for 60k while the cast of Big Bang Theory gets a mil an episode to sit on the couch.

C'est la vie.

'Neo-classical economics says that the price of a good or service is a function of supply and demand. It says nothing about "value."'

The delta between the price generated by the supply/demand curve and the value according to the two things being traded is the entire point of microeconomics as I know it. It's why a trade is a net-positive event for society; both sides must place a greater value on the thing they are receiving from the trade than the thing they are giving up in the trade, or the trade will not take place. There's a bajillion caveats that apply to special cases, but they are, indeed, special cases.

The entire mathematical underpinning of modern economics is precisely a separation between price and value. Take that away and the whole thing is gibberish, and I do not mean a rhetorical or political sort of gibberish, I mean mathematical gibberish. It's the whole foundation.

(To be clear, I'm far more confident about microecon than any particular macroecon theory; I tend to line up with Eliezer that macroecon is anti-inductive: http://lesswrong.com/lw/yv/markets_are_antiinductive/ Note that doesn't mean "Let's just give up and decide it's Marxist"... it's means you pretty much can't know how it works, any theory you can write down is almost instantly made wrong.)

"the older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor."

Well, if by "should" you mean your own opinion, that's your own opinion. In the real world, though, it wouldn't work. Without feedback about what society needs embedded in prices, everybody would just want to do the fun stuff. Unfortunately, in this universe, "the fun stuff" and "what we need to do to live" don't always overlap. Feedback is too important, any significantly-sized system will fly apart without it, and that's why this debate is so important and why Marxism must not be allowed to win, nor any other economic system that sets out to destroy feedback because sometimes the feedback is unpleasant to certain people. If you want civilization to keep rolling along, you need feedback, and if you have feedback, some of it is going to be negative. Anything that successfully removes all the negative feedback will also destroy civilization. Within that constraint there is still a lot of freedom to work with, but it is an immutable constraint.

(And if you feel inclined to take the cheap & easy shot about it all being "negative feedback", or how only certain people are getting the "positive", you really don't understand what feedback is or how it works. Turn off your political brain for a moment, go study how negative and positive feedback interact in something like a gasoline engine. Then maybe come back and consider how those ideas may apply to an economy, rather than starting from trying to create an argument with "negative" and "positive" feedback as if they're black and white paint, as if they are "bad" and "good" respectively, when in fact that's not even the right dimension to measure them on. Studying feedback in ecosystems is also good; the economy resembles ecosystems in many ways, and in fact microecon can even be used to model certain aspects of ecosystems with no humans, too, so that might be even more apt.)

This is the reply that should be at the top of this branch of the thread. You've expressed it far better than I, or the rest of the respondents.

Perhaps capitalism, being close to "the survival of the fittest", is actually the most "natural" mode for an economy.

I belive this as well. Darwin wanted this phrase to describe "the fittest" group. This allows individual specialisation, partial/useful weakness etc. and can fit for groups as volatile and work-sharing as human modern-day societies.