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Free & Fair, Part III – the Labor Theory of Values

Part III of a series. Click to read Part I and Part II.

“Advocates of capitalism are very apt to appeal to the sacred principles of liberty, which are embodied in one maxim: The fortunate must not be restrained in the exercise of tyranny over the unfortunate.” – Bertrand Russell

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” – Abraham Lincoln

“Possession is 9/10 of the problem.” – John Lennon

I think we should stop referring to the socio-economic system we live under as “capitalism.” This implies a rule by capital, which buys in (as it were) to the idea that the structure is impersonal, impartial and inevitable. I think we’d have a much clearer picture of reality if we started calling it “capitalist-ism.”

They call their system “the free market,” when in fact it has little to do with markets and even less to do with freedom. The system, which is as much political as economic, is about maintaining the power of the uber-rich, who treat the rest of us as pawns to be moved about and sacrificed at will. Mind you, there is some turnover in exactly who constitutes the elite — the concept of social mobility isn’t a complete fiction — but the structure of the model itself goes on, unbroken since feudalist days.

Modern elites see the world through the lens of marginal utility. That, in a nutshell, says that a thing is worth whatever you pay for it. If it wasn’t, you wouldn’t have paid. Same goes for wages: they’re paid out and accepted, hence they are what they ought to be. Whatever you can get away with is all right, by virtue of the fact that you’re getting away with it. There’s no denying the elegance of this logic… except that it ignores the power imbalance between the owner of the means of production and the worker.

What it means is that the owner sets the terms of employment. That’s what it is to be a capitalist: he (as it usually is) has a monopoly on the capital, the means of production, and hence all the leverage in the negotiation of wages. Thus, he has the power to only employ those who will provide him with surplus labor — that production which is above and beyond the value of the employee’s wages. This constitutes a subsidy, even a kickback, to the capitalist, whose only contribution to the production is the possession of the capital.

In contrast, the labor theory of value says that it is the work that workers do that gives products their value, and thus workers, not capitalists, are the sine qua non in the economy. This idea is attributed to Marx, but in fact predates him by well over 100 years. Adam Smith accepted it, but only for a society of small producers: “The whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him.”

This invites the question of why the laborer should not own the stock. If the worker must share the produce of his/her labor with the owner, then, effectively, the worker is renting his/her job from the owner. The only reason for this is the ownership of the means of production. This is why the philosophers of the capitalist class are so focused on the idea of property rights: so that the divine right of capitalists to imbalanced negotiations will not be examined too closely. They know that if workers were collectively self-employed — mutually employed — they would have no need to sponsor a capitalist. Profits would belong to those who created them.

Marx himself said that workers do not create wealth alone: nature contributes a lot to the process. I would take this a step further, and say we should understand economics not as apart from ecology, but just the reverse — economics is a subset of ecology. However, within that understanding, it is safe to summarize matters by saying that labor creates all economic value. Indeed, it’s difficult to conceive of anything else. If we consider each other important, what apart from each other’s labor could we value?

(There are exceptions — historical treasures, an aged wine, and a young child’s crayon drawing are not valued for the labor in them — but these exceptions really only serve to prove the rule.)

So, the labor theory of value expresses our mutual appreciation in a material way. The best way to do this sincerely and concretely is face to face, but this is not always, or even often, possible. But paying a fair price for fair labor still lets the echoes of that appreciation ring.

That’s why, in the face of considerable cognitive dissonance, I stand by the idea that markets are the fairest economic tool. The highest form is Adam Smith’s conception of a market, the actual marketplace that you walk to and walk through, haggling fair prices with the producers themselves. When we abstract “the market” away from this personal meeting, its advantages are diluted, though not gone entirely. The interference of either the government or a capitalist also defeats the purpose and nature of a marketplace. Left to its own devices, a market will distribute wealth and power (but I repeat myself) more or less evenly. Both the government and the capitalist will unbalance the equation, to their own respective advantages.

There are three pieces to production: capital, labor, and raw materials. As buyers, we should value raw materials by buying products that use them conscientiously and sustainably, and we should value labor by buying from enterprises where labor owns and manages capital, not the other way around. We can choose products with not only value, but values.

Continue on to Part IV


  1. “This constitutes a subsidy, even a kickback, to the capitalist, whose only contribution to the production is the possession of the capital.”

    This can be true, but is not the whole picture. For me I worked in my family’s wood working factory for 30 years, since I was 12 years old, owning 1/3 of the shares. This means I’m a capitalist! I worked like hell until my doctor told me to stop, because I was about to develop a serious industrial asthma and tinnitus. My uncle, as a capitalist, has lost almost all his fingers, and he did not do this just by sitting comfortably on the top of his capital. My father has also lost a couple of fingers and has lost the feeling in his feet and lower legs, probably because of a heavy exposure of toxic solvents, and his hearing is seriously reduced. I’ve seen my father crying after painting doors the whole weekend, and then the stands with the doors broke down and the order could not be delivered in time.

    To tell my uncle and my father that their only contribution to the production is the possession of the capital is nothing less than an insult. And they are not the only capitalists that have lost their limbs and their health due to their contributions to the production, be you sure!

  2. Even the workers own all the production means (even I don’t know if I should like it anymore, because in the end I hated every screw, every fat nipple, every chain, every noisy wood cutting machine, the heating stove frequently overheating, the dirty truck always needing to be washed, etc.), this should not increase the quality of life much without a work community.


  3. As the visible design of our work places are so important, maybe more important than the invisible design discussed in this article, I find it necessary to reprint pattern 41 here. This also in case the link above one day should be broken. Because like most of the Alexandrine patterns has shown its validity throughout history, so has surely pattern 41 done:

    “If you spend eight hours of your day at work, and eight hours at home, there is no reason why your workplace should be any less of a community than your home.


    Build or encourage the formation of work communities – each one a collection of smaller clusters of workplaces which have their own courtyards, gathered round a larger common square or common courtyard which contains shops and lunch counters. The total work community should have no more than 10 or 20 workplaces in it.

    When someone tells you where he “lives,” he is always talking about his house or the neighborhood his house is in. It sounds harmless enough. But think what it really means. Why should the people of our culture choose to use the word “live,” which, on the face of it applies to every moment of our waking lives, and apply it only to a special portion of our lives – that part associated with our families and houses. The implication is straightforward. The people of our culture believe that they are less alive when they are working than when they are at home; and we make this distinction subtly clear, by choosing to keep the word “live” only for those places in our lives where we are not working. Anyone who uses the phrase “where do you live” in its everyday sense, accepts as his own the widespread cultural awareness of the fact that no one really “lives” at his place of work – there is no song or music there, no love, no food – that he is not alive while working, not living, only toiling away, and being dead.

    As soon as we understand this situation it leads at once to outrage. Why should we accept a world in which eight hours of the day are “dead”; why shall we not create a world in which our work is as much part of life, as much alive, as anything we do at home with our family and with our friends?

    This problem is discussed in other patterns – SCATTERED WORK (9), SELF-GOVERNING WORKSHOPS AND OFFICES (80). Here we focus on the implications which this problem has for the physical and social nature of the area in which a workplace sits. If a person spends eight hours a day working in a certain area, and the nature of his work, its social character, and its location, are all chosen to make sure that he is living, not merely earning money, then it is certainly essential that the area immediately around his place of work be a community, just like a neighborhood but oriented to the pace and rhythms of work, instead of the rhythms of the family.

    For workplaces to function as communities, five relationships are critical:

    1. Workplaces must not be too scattered, nor too agglomerated, but clustered in groups of about 15.

    We know from SCATTERED WORK (9) that workplaces should be decentralized, but they should not be so scattered that a single workplace is isolated from others. On the other hand, they should not be so agglomerated that a single workplace is lost in a sea of others. The workplaces should therefore be grouped to form strongly identifiable communities. The communities need to be small enough so that one can know most of the people working in them, at least by sight – and big enough to support as many amenities for the workers as possible – lunch counters, local sports, shops, and so on. We guess the right size may be between 8 and 20 establishments.

    2. The workplace community contains a mix of manual jobs, desk jobs, craft jobs, selling, and so forth.

    Most people today work in areas which are specialized: medical buildings, car repair, advertising, warehousing, financial, etc. This kind of segregation leads to isolation from other types of work and other types of people, leading in turn to less concern, respect, and understanding of them. We believe that a world where people are socially responsible can only come about where there is a value intrinsic to every job, where there is dignity associated with all work. This can hardly come about when we are so segregated from people who do different kinds of work from us.

    3. There is a common piece of land within the work community, which ties the individual workshops and offices together.

    A shared street does a little to tie individual houses and places together; but a shared piece of common land does a great deal more. If the workplaces are grouped around a common courtyard where people can sit, play volleyball, eat lunches, it will help the contact and community among the workers.

    4. The work community is interlaced with the larger community in which it is located.

    A work community, though forming a core community by itself, cannot work well in complete isolation from the surrounding community. This is already discussed to some extent in SCATTERED WORK (9) and MEN AND WOMEN (27). In addition, both work community and residential community can gain by sharing facilities and services – restaurants, cafes, libraries. Thus it makes sense for the work community to be open to the larger community with shops and cafes at the seam between them.

    5. Finally, it is necessary that the common land, or courtyards, exist at two distinct and separate levels.

    On the one hand, the courtyards for common table tennis, volleyball, need half-adozen workgroups around them at the most – more would swamp them. On the other hand, the lunch counters and laundries and barbershops need more like 20 or 30 workgroups to survive. For this reason the work community needs two levels of clustering.”

  4. Capital is savings. Without people disciplined and wise enough to save capital we would still be in the stone age.

    Yes, much capital has been accrued via theft, force, fraud. This ought to be sorted out and brought to justice as best as possible.

    And I suppose the “greedy capitalists” who I’ve worked for in the past must not have gotten the memo about their monopoly on power and leverage. At least, they all failed to bring it up whenever I chose to quit.

  5. I just started looking into this book:

    by Terje Bongard. What strikes me is that he seems to agree with you in some sense by the way that the production should be arranged in in-groups of a tribal size. I think he means these in-groups own the production means like you suggest. He further suggests that all available recourses should be registered, and then the recourses available for a sustainable take out are shared among these in-groups. More I don’t understand by now, as I still just had a brief look into the book.

    What really makes me trust this man is that he is a permaculturist; even he might doesn’t know it himself. Almost the first thing I read when I looked up the book is that he proclaims today’s agriculture is not sustainable. He suggests we must turn to polycultures and eliminating pesticides, working with nature and not against it like today.

    This man is a 100 % permaculturist! And he is Norway’s leading expert in human ecology and tribal biology. What strikes me is: What a gain if we could make this man writing for this blog!

  6. When I continue on Terje Bongard’s book Det Biologiske Mennesket, almost the first sentence I read goes like this: “We should connect humanity into the ecosystems, not pretending we live outside of them like we do today.”

    Wow! This could have been Geoff Lawton talking!

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