Profits = Theft

In response to a students use of the phrase "normal salary."

Adam Smith David Ricardo Karl Marx

Good example of supply and demand. Concerning "value," I would like to see everyone get rid of the thought of "normal." This was a problem that plagued economics for more than a century, and is still at the heart of communist ideology.

From Smith to Ricardo to Marx, economists thought that there must be some objective way to measure value. In other words, a "normal" value for any particular thing must exist. This lead to the "labor theory of value." Smith thought that the value of an object must reflect that amount of labor that is embodied in the object (note the assumption that there is thus a "normal value for a unit of labor." )

Marx took this to its next logical step. If all value is derived from labor than any return paid for anything other than labor must be unjustly taken from those who labor. In other words Profits = Theft. (Since property rights are the theoretical basis for a right to profits, you often here the phrase property equals theft.) Thus, when Hugo Chavez stands up and declares that he is nationalizing oil companies, television companies, utilities, etc. on behalf of the people, he is justified is doing so because the returns earned by the owners of such ventures are simply theft from the working class.

It was not until the 1870s that economists developed the marginal theory of value. However, under this theory you have to abandon any idea that value is objective. Value is something that is subjectively determined in people's minds. Market value is derived from the overlap of people's subjective values and is established at a point or range in which transactions actually take place in the market. It is only when I believe that I am better off with $200,000 in cash than with ownership of my house and you believe that you are better off with ownership of my house that a transaction takes place in a free market. Assuming that we both see our situations accurately and we have access to information to make a good judgment concerning the transaction, there is a net gain in wealth as a result of the transaction. I am better off and you are better off. Multiply this result over billions and billions of transactions and you begin to see why free markets are such wonderful wealth creation machines.

		February 5, 2007 *Profits = Theft?*
	In response to a students use of the phrase "normal salary." Adam Smith David Ricardo Karl Marx Good example of supply and demand. Concerning "value," I would like to see everyone get rid of the thought of "normal." This was a problem that plagued economics for more than a century, and is still at the heart of communist ideology. From Smith to Ricardo to Marx, economists thought that there must be some objective way to measure value. In other words, a "normal" value for any particular thing must exist. This lead to the "labor theory of value." Smith thought that the value of an object must reflect that amount of labor that is embodied in the object (note the assumption that there is thus a "normal value for a unit of labor." ) Marx took this to its next logical step. If all value is derived from labor than any return paid for anything other than labor must be unjustly taken from those who labor. In other words Profits = Theft. (Since property rights are the theoretical basis for a right to profits, you often here the phrase property equals theft.) Thus, when Hugo Chavez stands up and declares that he is nationalizing oil companies, television companies, utilities, etc. on behalf of the people, he is justified is doing so because the returns earned by the owners of such ventures are simply theft from the working class. It was not until the 1870s that economists developed the marginal theory of value. However, under this theory you have to abandon any idea that value is objective. Value is something that is subjectively determined in people's minds. Market value is derived from the overlap of people's subjective values and is established at a point or range in which transactions actually take place in the market. It is only when I believe that I am better off with $200,000 in cash than with ownership of my house and you believe that you are better off with ownership of my house that a transaction takes place in a free market. Assuming that we both see our situations accurately and we have access to information to make a good judgment concerning the transaction, there is a net gain in wealth as a result of the transaction. I am better off and you are better off. Multiply this result over billions and billions of transactions and you begin to see why free markets are such wonderful wealth creation machines.