9. One Man's Bread

CHAPTER 9 ONE MAN'S BREAD We must return to Adam Smith. This great economist and father of the modern theory of free markets propounded an error· which has haunted us ever since . .Smith's "labor theory of value" was mistaken. However, Ricardo accepted it and elaborated it. As elaborated by Ricardo, the labor theory of value was still further developed by Marx. Thus, we have a socialist theory of economic value 190-THIS BREAD IS MINE resultant from a douhly compounded error. This error has become the moral fulcrum on which the .political socialist lever rests. What Smith was getting at, and what most individualists would agree with, is the moral certainty that the laborer is entitled to the full product of his own labor. Indeed, earlier in this essay that has been listed as a basic right of every human being. Getting All That You Earn The "surplus value" theory of Marx is derived from the "labor theory of value" of Smith· and Ricardo. Briefly, the theory can be explained thusly: It is evident that natural re sources do not prepare themselves for the use of man. Human energy and tools must be applied to the resources before they can be converted into usable fonn and transported to places where a demand for them exists.

One does .not pay money. to natu~al. resources. Nor does o.ne pay money to tools. It may ·be an essential· to pay the ONE MAN'S BREAD -191 person who owns the resources or the tools. But essentially, all money passes from one human hand into another human hand. And the passage relates to the amount of labor per formed by the human energy supplied in each case. Thus, one does not buy logs or lumber for building; one purchases the labor that has gone into the felling of the trees, thp milling of the lumber. What are the logs worth while they are still trees? Fundamentally, they are worth whatever it costs to convert them. And here is Marx: If more than that basic cost of labor is included. in the purchase price, the ele nlent of profit or "surplus value" appears. If you must pay a lumbennan $5.00 to fell a tree, trim it, saw it into usable lengths and thicknesses, and then deliver it, the tree is worth $5.00, no more, no less.

Superficially, this is reasonable enough - reasonable, that is, if this were a world in which hand tools were all that· could ever be employed, land could never be privately owned, and our wants were such simple things as log houses. Weare far from such· a world; ·such a world is contrary to the nature of 192 - THIS BREAD IS MINE man's basic rights; there is no desire for such a world. The "labor theory of value"is fallacious and the notion of "sur plus value" based upon it is equally in error. What Smith, Ricardo and Marx have done and what the followers of the latter two continue to do, is to confuse the meanings of two important words: cost and value. While it may be true in the above instance that it might cost $5.00 to produce the lumber from a given tree, the value of the lumber from that tree has no immediate relationship to cost. Value, as Bohm-Bawerk, Ludwig von Mises and others demonstrate is inevitably the result of a subjective judgment.

Lumber may cost $5.00, but the intensity with which you, as a purchaser, desire the lumber determine& whether it is worth $1.00 or $20.00 to you. If it is worth only $1.00 to you, YOUr will not purchase it if. it is priced above that sum, regardless of the cost expended in producing it. Similarly, if you would be glad to pay as much as $20.00 for it, you will consider it a bargain if it is priced at $10.00, even though the cost of ONE MAN'S BREAD -193 producing the lumber was $5.00 and the other $5.00 repre sents a profit to the producer. In short, as a purchaser, you do not consider either cost or profit to others. You concern yourself with value, which relates to your own· desire and your own ability to pay. It is in this area that Smith, et aI, come to grief. They conclude that cost and value are the same thing. Two Kinds of Pies Perhaps an illustration will best provide the demonstra tion. Weare indebted to Leonard E. Read of the Foundation of Economic Education for the illustration. Let us suppose that "AU has a bakery. He hires a number of workers, buys the best raw materials, and produces the finest mince pies in town. His costs, including the interest on the money he has borrowed, the rent of the land he uses, and all of the other factors that enter into the equation, make it· possible for him to produce these pies and deliver them to your door for 40¢.

He charges SO¢.

194-THIS BREAD IS MINE Marx would insist that he should sell at a figure. which excludes interest. But he may pay himself a salary for his pains. Marx in "Das Kapital" recognizes the validity of man agerial work, contrary to popular belief, and wishes it to be paid for at a modicum. Marx will not recognize a profit as a legitimate part of the economic cycle. So in the above case, he would hold that the man who has run the riSk, borrowed the money, bears the responsibility, manages the enterprise and owns· the tools, should receive only a salary and no more. We will deal with this idea in a moment. Let us concentrate on the SO¢ mince pie. At this price, the owner and manager can pay himseH a salary and in addition ean accrue a profit if business is brisk. Now, let us consider "B/' "B" also has a bakery. He hires the same number of workers as "A," buys the best raw materials, and produces the finest· mud pies in town. His costs, the interest on the money he has borrowed, the rent ~f the land he uses, and all of the other factors that enter into the equation make it possible for him to produce theSe mud ONE MAN'S BREAD -195 pies and deliver them to your door for exactly the same price as the mince pies of his competitor, "A." Now whether "B"

insists on a profit or nQt, the fact of the matter is that it is almost inconceivable to imagine a going business in mud pies. But, if Smith, Ricardo and Marx are correct, then the product of "A's" factory which costs 40¢ to produce must be valued at precisely the value of the product of "B's" factory, since this' product, also, costs just 40¢ to produce. If value is determii:led by cost, the mud pies and mince· pies are of equal value if the sum expended to produce is equal. Certainly, this is ridiculous. But this is.the labor theory of value, to wit: The cost of the human energy expended in the production of any commodity, is the value of the commodity. One has only to imagine a situation such as this: Some enterprising genius discovers a way to manufacture yachts by an extrusion process which makes the cost of a yacht so small that it can be· purchased in quantity lots for as little' as $100 each. A second individual discovers a way to make elaborate 196-THIS BREAD IS MINE igloos of ice and snow, completely equipped with air con ditioning, which cost $1,000 each because of all the hand labor which must be utilized in the construction. In the Marxian catalogue, the igloo would be worth ten times what. the yacht would be worth, regardless of the fact that many people would like to buy the yacht and there are virtually no takers for the igloos.