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I think this is very good. One minor objection is that in the modern era (especially post birth control), humans are kept in inefficiently short supply, and so have output significantly above their cost of production, most of which they capture for their own surplus (their parents want them to be happy, not just survive). Animals in nature (and humans in our not too distant past) exist in the Malthusian (marginalist) equilibrium.

So humans, like land, collect rent thanks to being in short supply. Other things, of course, also collect rent thanks to monopoly power (natural or unnatural) and so contribute to value. All value is rent (not just land rent).

But maybe land is the only truly "natural" monopoly.

K: It's quite mad, of course. But it does sort of make sense, on its own terms. Just like the other LTV.

The amount of land needed to produce (human) labour is itself socially determined.

Isn't the real issue the fact that production can re-switch between land and capital?

Also, can some land gain rents over another piece of land across time using debt?

(I tried to think of an MMT-baiting point, but I lack the imaginaton and theoretical knowledge.)

WP: well, if we change the interpretation of L from labour to land, all the reswitching stuff should stay the same. There are many time periods.

That's a shorter and clearer answer than Sraffa's, but I'll take it.

lol great post

isn't the rate of profit (reclaimed land from the sea over the value of the initial outlay of land) going to become nil at some point, assuming that the surface of the planet is finite (under an implicit 'no colonization of other planets' assumption)

wouldn't that 'knowledge' make the 'standard land' ever increasing in terms of price hence impose-at some point-a decoupling of value from price?

wouldn't that last acre of land be the last 'value' left and so wouldn't its price in terms of money shoot through the roof?

does that imply that the value-price dichotomy require some sort of (an unfortunately, not attainable) unbounded quality to land which could *naturally* explain a tendency for (eventually, space) imperialism?

also, doesn't this *finiteness* of value in historical terms (there has been only such an amount of land and there can be no more than some fixed quantity, *for ever*) echo some sort of a gold-rule with the exception that in this case value eventually dries up (pun intended)?

"deracinated city burgers"

+1

TSDR. Too snarky, didn\t read.

Sandwichman: Marx and some of his followers are much snarkier, IIRC. This is gentle satire in comparison. Plus, the Land Theory of Value is worth considering in its own right, or simply as an exercise in studying value theory. Why is it wrong? What are we looking for in a theory of value? What counts as success?

rsj: I confess I had to look up the spelling, and found that the Dutch spell it "burger", so let it stand. I was trying to weave "grounded to the ground" in there, but decided it was too obscure a car-guy thing.

Thanks justn! I found your comment in the spam filter, sorry about that.

I will ask Nick van Rowe to respond to your questions:

"isn't the rate of profit (reclaimed land from the sea over the value of the initial outlay of land) going to become nil at some point, assuming that the surface of the planet is finite (under an implicit 'no colonization of other planets' assumption)"

This explains the declining rate of profit (assuming technology remains unchanged). When economists search for the reasons for economies hitting the ZLB, they should look at Holland, and not so-called secular stagnation and savings gluts.

"wouldn't that 'knowledge' make the 'standard land' ever increasing in terms of price hence impose-at some point-a decoupling of value from price?"

It would mean the use value of land falls relative to the value of the land itself. Or that the value of land itself rises relative to the use-value of that land. It is very important that you keep these two concepts distinct. So many people think they have found a flaw with the Land Theory of Value because they cannot distinguish between land-in-use and land!

But yes, the Land Theory of Value can explain imperialism, which is just the quest for new land. It's the Dutch. Changing the name from New Amsterdam to New York was just a devious subterfuge by the English.

Since the total amount of land in the Universe is fixed (and as Einstein showed, we must consider energy to be just another form of land), the total amount of value in the Universe is also fixed. Yes. But that value can never dry up, unless the Universe ends.

Nick strikes again
easily the best econ blog

How do you say inquiry in Dutch?
Ah there is nothing better than open ended query.

More questions and fewer answers!

"Why is it wrong? What are we looking for in a theory of value?"

For what it is worth, Nick, Marx's theory doesn't rest on the labour theory of value, the ltv is central to his critique of political economy because classical political economy rested on the ltv. The sense in which the ltv is "real" for Marx is in the sense of commodity fetishism. It is a projection of a mental image which takes on a life of its own. Admittedly, Marx himself gets wound up in his own narrative weave at times -- as do we all. But Marx's narrative does not begin with some primal beaver-deer ltv, as Smith's did. Marx's narrative begins with the dissolution of feudal relations of production and the simultaneous large accumulations of money capital from usury. Labour's exchange value was thus not intrinsic to labour but was contingent on fortuitous historical circumstance.

"Once upon a time, there was a wages-fund..." To situate Capital in its context, it helps to understand where Smith's beaver-deer story ended up in Mill's and McCulloch's vulgar apologetics and Hodgskin's defense of labour against that pernicious fairy tale.

Andre Orlean argues that marginal utility theory is also a "substance" theory of value and he points out what is wrong with BOTH the ltv and utility or any other substance theory of value. Your land theory of value would be another substance theory of value. Therein lies its fallacy. Any subsidiary fallacies you may bring to light in your satire thus are superfluous, just as Bohm-Bawerk's critique of Marx's system was superfluous because B-B proceeded himself from a fallacious substance theory of value. Talk about living in glass houses and throwing stones!

This whole transformation problem kerfuffle is a Wizard of Oz production, so pay no attention to the hoary wages-fund doctrine behind the curtain.

Your second question, Nick, "What are we looking for in a theory of value?" I would echo Orlean to say that we are looking for a theory of value that doesn't dispense with the indispensable role of money and liquidity in a capitalist economy.

Then there's "The Abstinence Theory of Value"

http://econospeak.blogspot.com/2015/03/the-abstinence-theory-of-value.html

(I'm sorry for insisting but I'm enjoying this post too much)

Esteemed and revered ancestor Nick van Rowe, I am a little confused with your response!

First thing's first: The use-value of land is equivalent to the stream of services it provides while the value of land is equal to the quantity of 'socially necessary land' that is required in order to reclaim it from the sea (those 10 acres you've talked about).

Isn't it the case, that as the seas dry up and continents expand (barring technological advances) the price of that last reclaimed piece of land (which is a measure of desirability of its particular qualities-of its use-value) will be infinite because all the remaining land will have been put into competitive uses already while that *last* piece of land will be the last remaining *valuable* use-value available (because all the rest of the value would have been used up in already present use-values)?

Or is it the other way around i.e. since prices embody the general rate of profit-which in the case of that last piece of land will be ultra low courtesy of accumulation/reclaiming of land-they would have to be relatively low themselves, in which case there is no decoupling?

Nick,

"Since the total amount of land in the Universe is fixed (and as Einstein showed, we must consider energy to be just another form of land), the total amount of value in the Universe is also fixed. Yes. But that value can never dry up, unless the Universe ends."

Please ask your Dutch ancestor about how proximity affects the relative values of two pieces of land. It seems to me that a "standard unit of land" is a bit of nonsense since two pieces of land can't occupy the same space at the same time.

Nick,

Great post. What about fishing? The sea is 70% of the earth. What is the relative value of sea and land?

Isn't land ownership a government service. In the US we call land "real estate". The word "real" comes from "royal" as in it's the king's land, but you get to use it. The problem with land ownership is that it all comes down to "you and what army", and once you have an army, you have to pay for it and wind up reinventing government whether you like it or not. Ownership is government's distinguishing service.

The land theory does lead to some interesting thinking. The value of land in the Atacama desert was linked to the value of European agricultural land by its presence of phosphates, but more importantly by the knowledge of said relationship. The value of nitrogen in the air is linked to the value of land as well, as the Haber process lets us use the nitrogen to increase the farm productivity. Of course, the value of farm productivity depends on whether there is someone to buy the produce. Not everyone can afford seven year old whiskey, but it might get produced if more people can afford old whiskey than basic food items.

Since economics is about constraints, land looks like a useful source of scarcity, but land scarcity isn't always the issue. Domar, for example, explains the origin of Russia serfdom as a response to land being plentiful, but there being a scarcity of labor. The aristocracy was less likely to value land, but more likely to value the serfs tied to it. You could even make a living arbitraging dead serfs between the date of death and the next census as Gogol pointed out in one of his stories.

I'm not surprised the Dutch like the idea of a land based theory given that land is scarce in the low country, but that the supply can be enlarged by collective action.

justn: The amount of land needed to reclaim one additional acre from the sea tells us the relative price of land/use-value of land, not the absolute value of either. It depends on which of the two you choose as unit of account. But as that ratio became infinite, and the rate of profit fell to zero, then yes, it would take the annual rents from an infinite number of acres to buy one acre.

Frank: good question. If (say) half the wheat from one acre of distant land is needed to feed the men and horses that take the remaining wheat to the market, then that acre of distant land is only a half acre of standard land.

Chris: thanks!

The "Sea question" nearly caused a major split in the ranks of supporters of the Land Theory of Value. Eventually it was agreed that oceans (along with lakes, ponds, and rivers) is land too, though usually of less than standard acre value, and those who opposed this sensible conclusion were purged. It caused a minor revision of capital theory, but nothing more. Reclaiming land from the sea was more properly understood as improving the quality of sub-standard land, rather than creating new land. The marginal land that can be used for either wheat or fish-farming solved the problem of the relative value of fish and wheat.

Kaleberg: It is important to distinguish short run from long run. Malthus showed that a scarcity of labour can only exist in the short run, and land is the only ultimately scarce resource. More labour can be produced by land; more land cannot be produced by labour (see the Sea Question controversy).

Ooops! Sorry everyone. The above comment was by Nick van Rowe, not by me.

The L(and)TV is probably a very good theory of the long term equilibrium. Funny then, that we teach that in the Long Run supply curves are horizontal, when in fact the LTV shows that to be exactly wrong. Apparently it was a deliberate goal of JB Clarke to expunge Land (and Henry George) from the modern marginalist canon, and apparently quite successful too.

Is Van Rowe a Georgist?

K: if all land was identical, the supply curve for each individual good would be horizontal, but the aggregate supply curve would be vertical. But if land is diverse, as it is, so that some land has a comparative advantage in wheat, and other land in barley, the supply curves for wheat and barley will slope up.

I think he would end up being a Georgist, like the Physiocrats' l'impot unique. Not sure. I will have to ask him.

this article is so bad, it isnt even wrong

>Science has proved that land existed prior to both labour and capital. The Universe existed billions of years before humans and their tools appeared. So if we seek the underlying source and origin of all value, we must look to land.

No we must not. Land has existed before humanity? Wow, you dont say. So did dinosaurs.

>The value of all commodities is determined by the socially necessary quantity of land needed to produce those commodities.

No it is driven by supply-and-demand

> So is horse labour. Human labour is just an intermediate good. Land produces wheat, wheat produces human labour, and human labour produces haircuts. So if we buy a haircut we are buying the services of the land that ultimately produced that haircut.

Umm, by that argument, why stop there and continue all the way back to the big bang?

>And machines are nothing but land transformed from one shape into another.

No they arent. Go take some dirt and throw it in the air and see if a website pops up.

>Land produces both labour and capital.

Land produces nothing. It is a resource.

>There can be neither labour nor capital without the prior existence of land.

Ok? Same can be said about oxygen.

>only someone ignorant of science, or deceived by ideological blindness

we call that poisoning the wells. A basic logical fallacy.

> could fail to see that the bourgeois

Oh god, you used that term. I know the rest is going to be awful.

>trinitarian doctrine of land, labour, and capital must be replaced by the rural monism of the Land Theory of Value.

Yes, simple ways are best: dying at 35, village elders assigning marriages, tribal genocide.

>It is only deracinated city burgers, living in their high-rise superstructures, who forget that land underlies everything.

Sigh. I cant finish this. Go buy a dirt farm and sell some barely or something to someone. I hate barley. You are sad lonely theory cant explain anything. Were is your gini co-efficient? Where is your supply and demand curves? You know that less than 1% actual farm any more? This theory explains nothing.

fred: "I hate barley."

Even in liquid form? Or distilled liquid form?? I'm shocked!

Nematodes.

Hmm

Some questions first:

Value of what, exactly? Value in which sense? Monetary value of of products sold on an anonymous market or idealistic value of humans who make those products (either themselves directly or indirectly through ownership of some non-human means of production, including land?)

And is a value theory supposed to deliver an is or an ought to either of the above?

Take two extremes:

1: All humans are equally valuable. The value of each human = 1. The fact that the goods that they produce do not create equal income or profits when sold means that market value as observed =/= human value as it should be.

So we can demand that the former (is) be corrected (by influencing the process or by correcting after the fact) so that material outcomes resemble the latter (ought). Or we define two terms, say difference and inequality, or apples and organges and hope that nobody notices they've been fleeced.

2: humans are worth what their products yield in an idealised market.

The labour theory of value is in between these two extremes. It says:

3: Human value is equal to the work effort that humans put in. It's not enough to just prove that you're human as in 1, you have to also work really hard. Marxists then say that effective outcomes ought to reflect this fact. To them, this isn't a problem since humans are said to have an intrinsic motivation to work hard. The process is captured by the slogan: From each according to his ability to each according to his need. This does not mean that they do not see that the output of one human, even with equal effort, may be more valuable when sold on a capitalist market than that of another. Nor even that the output of one person might be more morally valuable to society than that of another. It is just that such differences ought not be reflected in material inequality. You get a badge of honour instead :-).

Now, I'm not defending either of the above positions. But I don't understand what the fuss is all about. It's just a bunch of different 'Weltanschauungen'. Different particularly wrt the status of work vs. things like knowledge or ownership as well as wrt what motivates humans to bring out the best in themselves and, indeed, what 'the best' is.

I'm still trying to figure out whether fred missed the joke, or is joining in the fun?

Oliver: "And is a value theory supposed to deliver an is or an ought to either of the above?"

I think that is a key question. Is "value" just another name for (relative) "price"? Or something else? It gets used both ways in economics. There is a Consumer Reports sense of "value", which is not the same as "price". We could expand on that Consumer Reports sense, so it encompasses the central planner's problem in a general equilibrium model. The First and Second Theorems of Welfare economics tells us the conditions under which value in that sense will equal price. (Consumer Reports is strictly about the individual shopper's problem.)

Given the policy implications of this, I really think we should try to get Dr. Van Rowe and Herr Marx together for a discussion about value theory - land vs. labour. Nick could moderate and it could be recorded and posted to YouTube.

"Frank: good question. If (say) half the wheat from one acre of distant land is needed to feed the men and horses that take the remaining wheat to the market, then that acre of distant land is only a half acre of standard land."

Nick, actually I was thinking in terms space / time.

http://en.wikipedia.org/wiki/List_of_most_luminous_known_stars

What is the relative value of land that is a couple thousand light years away? The men and horses travelling on a space ship going the speed of light die before they reach the distant farm on a planet in the Carina Nebula.

@Frank Restly:

> What is the relative value of land that is a couple thousand light years away? The men and horses travelling on a space ship going the speed of light die before they reach the distant farm on a planet in the Carina Nebula.

Paul Krugman has an article on that very subject, The Theory of Interstellar Trade (pdf) from 1978 and published officially in 2010.

If there's productivity growth, the profit from land will be that 1/10 (or whatever) + appreciation in price of land. If labor is Maltusian, then the productivity growth translates into population growth. If population growth is increasing that means demand for land is increasing. And if demand for land is increasing then so is its price (this is what worried Ricardo so much). So the profit from land is that 1/10 (or whatever) + growth rate of productivity. So even with no more land to be taken from the sea it could be positive, as long as we are getting better at combing land and labor to make stuff.

If you add capital it gets weirder. By arbitrage the profit from capital has to be same as profit from land. Suppose capital depreciation is 100%. Then return on capital is (productivity of land/price of land) + land price appreciation. But even with constant price appreciation, there could be more than two solutions for this return on capital. Which... I think means that the initial price of land matters? I don't know that's where I got stuck.

Majormax,

Thanks for the link and I briefly skimmed the paper. I don't think Paul identifies the lifespan of the inhabitants on Trantor. Suppose Trantorians live for a million earth years. Does the relative value of all land in the universe differ for someone from Earth versus someone from Trantor?

Also, let's get weirder. Imagine a sci-fi society where sustenance comes in the form of "nice melodies hummed by others", rather than food. Nice melodies are produced by labor. Labor produces labor. Do we get an LVT out of that world?

@ Nick

You lost me there. What is / are Consumer Reports? Polls about subjective consumer wellbeing? And you would want to determine how far off perceptions are from an optimum (which one?) and then determine the necessary change to current distribution / prices to reach it? I'm sorry if I muddled that completely, my knowledge of welfare theorems is very poor, to say the least.

My point, I think, is that you need an independent moral theory if you want to pass judgement on observed reality. A theory about social mechanisms cannot do any moral lifting just as Darwin's theory of evolution can not tell us whether crocodiles are evil or rabbits good.

And where does economics fit in with this?

To the extent that economic laws are an exact rendering of some underlying truth, they can't at the same time be independent of observed reality and thus can't deliver any oughts.

To the extent that they represent idealised abstractions of reality, they can / do. But since they are evidently an attempt to mimic reality in some way, deriving an ought from what we think is an is, is a clear case of a naturalistic fallacy. It reminds me of an advertising slogan for distilled water where I grew up - the purity nature intended. Very wrong in very many ways...

@ Patrick

Dunno, but I have a feeling that interview would go something like this (sorry, Nick, completely off topic):

https://www.youtube.com/watch?v=kwFry159gZw

@ Nick II

Maybe welfare economics is what I'm missing. What little I have read about it, is mostly here: http://www.interfluidity.com/v2/5537.html

Oliver: Consumer Reports is like Which. It tells you which car or washing machine is best value for the price.

notsneaky: "If population growth is increasing that means demand for land is increasing. And if demand for land is increasing then so is its price..."

Price of land relative to what? Land is both the source and measure of all value.

"Imagine a sci-fi society where sustenance comes in the form of "nice melodies hummed by others", rather than food. Nice melodies are produced by labor. Labor produces labor. Do we get an LVT out of that world?"

The counterpart would be a sci-fi society where land and robots produce robots and all other goods, with labour not needed. Which is more sci-fi?

Price of land in terms of output. Corn.

Anyway, (part of) Fred's comment is wrong, but not crazy. Here is where your story falls apart. Sure, land (little "l") existed prior to Labor and Capital. But Land (big "L"), in the sense that economists use the term - a factor of production - did not. For two reasons.

First, sure, that dinosaur inhabited land "yielded" some stuff. Stuff of no value. And it was of no value because there was no Labor around to value it. Value comes embodied in Labor since it is Labor which values stuff (this is sort of Henry Ford's famous quip about wanting to hire Labor but getting workers instead). If Labor doesn't exist, then the idea of value is nonsensical to begin with. What existed there before Labor was pre-Land, or potential-Land but it was no more a factor of production than a deceased person, or better yet, a person not yet born, can be said to be Labor.

Second, it was the application of Labor which turned land into Land. Producing more Labor takes Labor as well as Land. That's why they call it "in labor". Without Labor not only does the idea of value make no sense, but land cannot be a factor of production.

Labor is consubstanital with Labor. If you want to complete the Trinity throw "knowledge" in there, but that too comes embodied in Labor.

Eeeeh. Land is consubstantial with Labor.

"Land is consubstantial with Labor"
+1

This one wasn't even in my Apple dictionary. Had to Google for it.

notsneaky: "First, sure, that dinosaur inhabited land "yielded" some stuff. Stuff of no value. And it was of no value because there was no Labor around to value it."

Speciesist! It was valued by the dinosaurs.

It is not labour that values stuff. It is people (and dinosaurs) that value stuff. They value corn, and the land and labour, and horse labour too, that produce corn. (And the pain theory of value doesn't work either, because we value the skills of hockey players and musicians even when they enjoy playing.) And they would value stuff even if it took only land, with no labour, to produce it. Which brings us to the subjective theory of value. Goods do not have value. Value is not a property of goods. People evaluate goods, and indirectly evaluate the land and labour that produces those goods.

If a new invention let you produce the same number of tons of food per acre, without any labour at all, would food be any less valuable? And if a second new invention let you produce the same number of tons of food in total with neither labour nor land, (vertical supply curve at the existing quantity), would the food be any less valuable?

"Second, it was the application of Labor which turned land into Land."

And kids don't grow up to produce labour, and people can't produce labour, if you don't feed them, with the produce of the land.

"And they would value stuff even if it took only land, with no labour, to produce it."

You can't switch up your heresies in the middle of an argument. Is it the Land Theory of Value or the Subjective Theory of Value?

Anyway, "if it took only land" is an argument about what the "true" production function looks like. Like my example above where goods are produced by humming a melody, where it only takes labor. I don't think that's an argument about what value is. It may be related (didn't Samuelson establish that LTV holds under some technological conditions? Or is that Rosenstein-Rodan's no substitution theorem?) but not the same.

notsneaky: "You can't switch up your heresies in the middle of an argument."

Sorry!

But the subjective theory of value is not a heresy. It's the real me, when I step outside my Nick van Rowe persona. Both versions of the LTV are silly, and they are both silly in the same way. In both cases we can rig the technology to make the LTV look true. I can even rig the technology to make the horse labour theory of value theory true, by assuming all commodities have the same equine composition of capital.

Well, yeah, I agree with that. But just to continue with the devil's advocate thing a bit more - we've got the no-substitution theorem which tells us that if factors can produce goods as well as other factors, and there are constant returns to scale everywhere, and there's only one "primary factor" which cannot be produced from other factors (land or labor, choose your poison) then relative prices are determined entirely by technological constants and are completely independent of the demand side (what the utility functions are or how much value individuals put on the various goods). In that case, if a new invention lets you produce more of something with less labor, then yes, the value of that something as measured by the relative price will be different than without the invention, but it will still be determined solely by technology costs. It's the P=constant MC case in general equilibrium.

This theorem is popular among some heterodox folks because they see it as saying "look! LTV is true!". I sort of see it in the same way that the heterodox folks see the 1st Fundie Theorem of Welfare: "Look! How stringent the conditions for this to be applicable are!"

Or a completely another way. Suppose you're in a Malthusian world and the production function is not Cobb-Douglas and there's some (even miniscule) exogenous productivity growth. For a steady state to exist you need the productivity growth to be the non-accumulating-factor augmenting. In Solow that's labor (that's why we need it to be AL, not AK or A*Y(K,L)) in Malthus it's land. When you put your measure of productivity next to land, you're converting land units into labor units. You're measuring stuff in terms of labor. Sort of LTV again.

notsneaky: we are on the same page.

Since we need land (and labour) for nearly all goods (and many services too), we have two primary factors. And we need preferences to determine the rent/wage ratio, and the relative prices of land-intensive vs labour-intensive goods. Plus, there are many many types of land (and many many types of labour too), so that's a very large number of primary factors. (Nick van Rowe's attempt to reduce them all to "standard land" is a cheat, since preferences affect which land is the "standard land".) And if preferences ever change in an unanticipated way (not to mention technology changing), so that some goods would not have been produced (or would have been produced in greater or lesser quantities, or by a different method) historical costs are useless. Some goods cannot be reproduced, or would not be reproduced. And since we care about the time-structure of consumption as well, "capital" matters too. Cost of production theories of value are just hopeless. We need to start with people valuing goods.

I'm behind the curve on this but I took a crack at explaining why this makes no sense (mostly for fun).

http://realfreeradical.com/2015/03/15/land-theory-of-value/

Mike: I think you explained it pretty well. It doesn't make any sense.

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