tl;dr I am arguing that the value which is created (or realised) from trade is equally as valid as value created from the production of resources or services, and that it is a mistake to only consider physical goods or actual services provided as “value”.
Let me quantify what I mean by “value” here. By “value” I mean the economic concept of surplus. I assume you already know what that means but for the reader’s benefit, surplus is the difference between what an actor values a resource at and what they had to give up to obtain that resource.
All resources are inherently created by labour. In that, you are right. Labour creates initial value. But most of the surplus that exists in the economy is a result of trade. Trading the resource with others makes the resource more valuable as it passes to people who value it more and more.
Let’s just start with labour as a resource. Everyone possesses hours of their time as a resource. And for most people, their time isn’t inherently worth much to themselves (i.e. people generally would much rather work and be paid at least a little bit than to be unemployed without money), so finding a job at the Pokémon factory and working for wages generates a large amount of surplus.
An hour labour might convert $100 worth of cardstock into 100 packs of Pokémon cards. You get paid $30 for this labour, which is a large surplus to you because you would be much, much happier with the $30 than to sit around at home for an hour, especially knowing you can do this trade 40 times weekly. But what value is generated here? The value of a resource is determined, in economics, by the amount of utility that whoever owns it derives from having it. You have traded away your hour of labour. Perhaps you would only value that hour at $5 (i.e. you would be happier with the hour at home than $4.99, and you would be happier with $5.01 than the hour at home), so you have generated $25 worth of surplus for yourself by trading your hour. On the other hand, the Pokémon Company knows it can make a tidy profit on the results of your labour (the Pokémon cards), so maybe it values the labour at $50, and then banks a $20 surplus by trading its money for your labour.
But nonetheless, the product of that labour is inherently worthless from an intrinsic standpoint, and the Pokémon Company obviously derives no intrinsic utility from it. All the utility from it comes from knowing it can be resold. So when it sells those cards to a retail store for $300, it is creating nearly $170 in surplus (subtracting off the $100 in paper and $30 in labour to avoid double-counting). This surplus wasn’t derived from labour; not meaningfully so, anyway. The amount of work involved here is nominal compared to the surplus generated from the mere fact that a trade occurred.
All this extra surplus is what makes people feel richer. And the lack of this trade makes people feel poorer. The underlying physical goods are worth nothing if they stay with people who don’t value them. A country could produce ten times more rice and would still be poorer if that rice fails to find its way to the hungry people who value it most. The rice farmer doesn’t derive utility from hoarding a hundred tonnes of rice. They do not derive happiness from it. That happiness, that surplus, is only made real when the rice gets into the possession of the people who want to eat it. So trading a kilogram of it to their neighbour is what creates this value. It turns a resource which was nearly worthless to its previous owner into a resource which is highly desired and worth far more to someone else.
If trade value is equal to the labor value of something, then how is it that the trade value can fluctuate so much? You emphasize its creation of value, but what of the destruction?
Instead of Pokemon cards, lets use a trend that came and went. The trade value of a Beanie Babies skyrocketed in the mid-to-late nineties. People were using it as an investment vehicle. And then the trade value plummeted. The Beanies themselves, the cloth and the plastic filling, remained unchanged through all of it. If a good is damaged, its value is permanently reduced (sans labor to repair, anyway). If trade value is reduced… doesn’t matter. It can go up or down or anything tomorrow. You would claim that process is equal to value derived from labor?
I do. I claim that trade can destroy value, and it can destroy value that is created through labour just as much as it can amplify it. A change in how much people value something can turn productive labour which produces valuable goods into a worthless activity which wastes time.
If tomorrow, people suddenly decide rice is disgusting, repulsive, and not fit for human consumption, that would destroy all the value in rice production equipment, and it would destroy the value of all the rice that has been produced but not consumed. The rice hasn’t changed. The nutritional value hasn’t changed. But since rice no longer makes people happy, its value is now far less, regardless of how much labour was expanded to produce it.
There is no objective standard for value. Value is inherently subjective. Not even for food. After all, dandelions are edible, but also perfectly worthless because it’s simply culturally unacceptable to eat them. Blackberries are another great example. In your area they might be a rare and expensive delicacy. In my region, they grow like weeds and we pay people to remove blackberry vines.
For a similar reason, we could pour as much labour as we want into producing mud cakes, but no matter how much work it was to make them, mud cakes are worthless to everyone and so there is no surplus created by making them. Instead, everyone who expended resources (money, equipment, labour) to make them has incurred an economic loss because the resources were consumed and nothing valuable was received in return.
Suppose we imagine a fantastical world where no one is able to trade, and a second fantastical world where nobody is able to labor.
In the first world, people would still be able to get stuff done, alter their surroundings, and invent new things - they’d just have to do it each for themselves. In the second world, there would be nothing to trade.
How can the process of exchange value be equal to labor value when it can only exist with the prerequisite of labor?
This is non-sequitur. The fact that value derived from labour is required to exist for value derived from trade to be generated does not mean that either category of value is less real.
Labour gets you from 0 to 1. Trade gets you from 1 to 100. Labour generates value by adding to what’s available. Trade generates value by multiplying what’s available. The observation that zero multiplied by anything is still zero does not invalidate the fact that multiplication is still more powerful than addition. It just means that one cannot exist without the other if you want to have more than zero.
It is not a non-sequitur, I’m arguing against a claim you made;
trade is equally as valid as value created from the production of resources or services
I think you’re overstating trade and downplaying labor here. It’s not the trade that’s multiplicative, it’s labor saving tools that expand what an hour of labor can accomplish. It’s why the modern exponential explosion in economic activity correlates to industrialization, and not expanding trade routs.
I don’t agree. The explosion in economic activity is not solely because of industrial advances. The global supply chain is extremely well-connected, and it’s this system of global trade that is the real oil of the modern economy. There is almost nothing more advanced than a wheelbarrow that can be economically made without involving some aspect of global trade. Sure, industrial advances are part of it, but it’s the trade that makes any of the products worth anything.
A machine that can manufacture a million wheelbarrows in one hour produces extremely little value unless those wheelbarrows are traded.
If you want to see what shutting off trade does to a country, take a look at the current happenings of United States.
But it is labor that facilitates the logistical work! The someone has to drive the trucks, load the boats, log the inventory. It’s all still predicated on labor!
It’s a prerequisite but the amount of labor does not determine the value here. You could be performing near-exact labor to facilitate trade but get wildly different value from it.
tl;dr I am arguing that the value which is created (or realised) from trade is equally as valid as value created from the production of resources or services, and that it is a mistake to only consider physical goods or actual services provided as “value”.
Let me quantify what I mean by “value” here. By “value” I mean the economic concept of surplus. I assume you already know what that means but for the reader’s benefit, surplus is the difference between what an actor values a resource at and what they had to give up to obtain that resource.
All resources are inherently created by labour. In that, you are right. Labour creates initial value. But most of the surplus that exists in the economy is a result of trade. Trading the resource with others makes the resource more valuable as it passes to people who value it more and more.
Let’s just start with labour as a resource. Everyone possesses hours of their time as a resource. And for most people, their time isn’t inherently worth much to themselves (i.e. people generally would much rather work and be paid at least a little bit than to be unemployed without money), so finding a job at the Pokémon factory and working for wages generates a large amount of surplus.
An hour labour might convert $100 worth of cardstock into 100 packs of Pokémon cards. You get paid $30 for this labour, which is a large surplus to you because you would be much, much happier with the $30 than to sit around at home for an hour, especially knowing you can do this trade 40 times weekly. But what value is generated here? The value of a resource is determined, in economics, by the amount of utility that whoever owns it derives from having it. You have traded away your hour of labour. Perhaps you would only value that hour at $5 (i.e. you would be happier with the hour at home than $4.99, and you would be happier with $5.01 than the hour at home), so you have generated $25 worth of surplus for yourself by trading your hour. On the other hand, the Pokémon Company knows it can make a tidy profit on the results of your labour (the Pokémon cards), so maybe it values the labour at $50, and then banks a $20 surplus by trading its money for your labour.
But nonetheless, the product of that labour is inherently worthless from an intrinsic standpoint, and the Pokémon Company obviously derives no intrinsic utility from it. All the utility from it comes from knowing it can be resold. So when it sells those cards to a retail store for $300, it is creating nearly $170 in surplus (subtracting off the $100 in paper and $30 in labour to avoid double-counting). This surplus wasn’t derived from labour; not meaningfully so, anyway. The amount of work involved here is nominal compared to the surplus generated from the mere fact that a trade occurred.
All this extra surplus is what makes people feel richer. And the lack of this trade makes people feel poorer. The underlying physical goods are worth nothing if they stay with people who don’t value them. A country could produce ten times more rice and would still be poorer if that rice fails to find its way to the hungry people who value it most. The rice farmer doesn’t derive utility from hoarding a hundred tonnes of rice. They do not derive happiness from it. That happiness, that surplus, is only made real when the rice gets into the possession of the people who want to eat it. So trading a kilogram of it to their neighbour is what creates this value. It turns a resource which was nearly worthless to its previous owner into a resource which is highly desired and worth far more to someone else.
If trade value is equal to the labor value of something, then how is it that the trade value can fluctuate so much? You emphasize its creation of value, but what of the destruction?
Instead of Pokemon cards, lets use a trend that came and went. The trade value of a Beanie Babies skyrocketed in the mid-to-late nineties. People were using it as an investment vehicle. And then the trade value plummeted. The Beanies themselves, the cloth and the plastic filling, remained unchanged through all of it. If a good is damaged, its value is permanently reduced (sans labor to repair, anyway). If trade value is reduced… doesn’t matter. It can go up or down or anything tomorrow. You would claim that process is equal to value derived from labor?
I do. I claim that trade can destroy value, and it can destroy value that is created through labour just as much as it can amplify it. A change in how much people value something can turn productive labour which produces valuable goods into a worthless activity which wastes time.
If tomorrow, people suddenly decide rice is disgusting, repulsive, and not fit for human consumption, that would destroy all the value in rice production equipment, and it would destroy the value of all the rice that has been produced but not consumed. The rice hasn’t changed. The nutritional value hasn’t changed. But since rice no longer makes people happy, its value is now far less, regardless of how much labour was expanded to produce it.
There is no objective standard for value. Value is inherently subjective. Not even for food. After all, dandelions are edible, but also perfectly worthless because it’s simply culturally unacceptable to eat them. Blackberries are another great example. In your area they might be a rare and expensive delicacy. In my region, they grow like weeds and we pay people to remove blackberry vines.
For a similar reason, we could pour as much labour as we want into producing mud cakes, but no matter how much work it was to make them, mud cakes are worthless to everyone and so there is no surplus created by making them. Instead, everyone who expended resources (money, equipment, labour) to make them has incurred an economic loss because the resources were consumed and nothing valuable was received in return.
Suppose we imagine a fantastical world where no one is able to trade, and a second fantastical world where nobody is able to labor.
In the first world, people would still be able to get stuff done, alter their surroundings, and invent new things - they’d just have to do it each for themselves. In the second world, there would be nothing to trade.
How can the process of exchange value be equal to labor value when it can only exist with the prerequisite of labor?
This is non-sequitur. The fact that value derived from labour is required to exist for value derived from trade to be generated does not mean that either category of value is less real.
Labour gets you from 0 to 1. Trade gets you from 1 to 100. Labour generates value by adding to what’s available. Trade generates value by multiplying what’s available. The observation that zero multiplied by anything is still zero does not invalidate the fact that multiplication is still more powerful than addition. It just means that one cannot exist without the other if you want to have more than zero.
It is not a non-sequitur, I’m arguing against a claim you made;
I think you’re overstating trade and downplaying labor here. It’s not the trade that’s multiplicative, it’s labor saving tools that expand what an hour of labor can accomplish. It’s why the modern exponential explosion in economic activity correlates to industrialization, and not expanding trade routs.
I don’t agree. The explosion in economic activity is not solely because of industrial advances. The global supply chain is extremely well-connected, and it’s this system of global trade that is the real oil of the modern economy. There is almost nothing more advanced than a wheelbarrow that can be economically made without involving some aspect of global trade. Sure, industrial advances are part of it, but it’s the trade that makes any of the products worth anything.
A machine that can manufacture a million wheelbarrows in one hour produces extremely little value unless those wheelbarrows are traded.
If you want to see what shutting off trade does to a country, take a look at the current happenings of United States.
But it is labor that facilitates the logistical work! The someone has to drive the trucks, load the boats, log the inventory. It’s all still predicated on labor!
It’s a prerequisite but the amount of labor does not determine the value here. You could be performing near-exact labor to facilitate trade but get wildly different value from it.