Value and cost are not the same.
I remark often to students that, all things considered, I would probably rather have the life and the opportunities of a lower-income student in today’s United States in material terms than the life of John D. Rockefeller.
This is from Lawrence Summers, “Liberty, Optimism, and Superabundance,” Cato’s Letter, Winter 2023, Number 1.
The article is Larry’s comment on Marian L. Tupy and Gale L. Pooley, Superabundance. The book is on my shelf but I haven’t read it yet. My impression, like Larry’s, is that the book is quite good and quite important.
After the quote above, Larry explains in some detail why he would rather be a lower-income American student today than John D. Rockefeller a century ago.
An excerpt:
The chance of suffering a fatal illness at a young age would be much lower. The range of goods that would be obtainable would be much larger. The extent of the entertainment op- tions available would be much greater. The comfort of being
able to live in a room whose temperature was adjusted to suit would be vastly better for that student. The ability to get to a place 3 or 5 or 6 or 10,000 miles away quickly would be immensely larger. The number of things about which that person could learn would be far greater. The freshness, the range of foods that would be available to eat would be substantially more, and the comfort of the available clothing would be substantially greater.
Then Larry says something strange:
There is something slightly odd about using the notion of time cost in a Cato Institute publication, since, after all, it was Karl Marx who put forward a labor theory of value and sought to explain the value of all things based on the extent of labor input that went into them.
The idea of using time cost is not odd at all; it says nothing about value. Value and cost are distinct. The time cost of an item is the number of hours you would have to work at a given wage to earn enough to buy the item. It says nothing about how much you value the item. So recognizing time cost is not at all like accepting a labor theory of value.
Fortunately, Larry gets the gist anyway, writing:
But I think it is a very powerful way of capturing the progress that we have all observed. The truth is that an hour of labor cur- rently translates into far more in the way of goods that provide necessities for satisfaction or services that provide utility than has been the case at any point in human history.
READER COMMENTS
Knut P. Heen
Feb 20 2023 at 8:23am
It is a good joke. I was invited to talk to a Cato audience, and I talked about Karl Marx.
Henri Hein
Feb 20 2023 at 3:12pm
Yes, that’s how I read it too. Maybe David is correct and it’s a little thin, but I always appreciate a dose of humor.
Richard W Fulmer
Feb 20 2023 at 9:48am
Astronomers didn’t reject the theory of an Earth-centered solar system because the Earth has no value, they rejected it because it because it couldn’t explain the movement of the planets. Similarly, Economists didn’t reject the labor theory of value because labor has no value, they rejected it because it doesn’t have as much explanatory power as does the theory of marginal utility.
Saying that labor produces value is not to say that labor is a useful measure of value. Labor content is a clumsy yardstick for comparing the relative values of apples and oranges or even of the same apple at different times and under different circumstances.
Physecon
Feb 20 2023 at 4:57pm
I like this syllogism a lot. Useful for a whole range of topics.
Michael Rulle
Feb 21 2023 at 8:55am
I enjoy playing the game of would I rather be, for example, John D than a middle to upper middle income person today.
Yet, it is an absurd concept—-a complete non-sequitur. For example, we have no idea what it will be like to live 100 years from now. Under some linear concept of improved standard of living over time, we have to assume it will be better 100 years from now. Really?
what is so great about today? I will concede a middle class person is better off today than 100 years ago——too many young deaths back then. But comparing oneself to the richest man in the world then——-of course his life was better. He could not fly——so what? He could take trains that were luxurious. He could not read junk on the internet———but clearly was able to be spectacularly creative. He could make phone calls around the world. He could communicate with Morse code instantaneously. He could have virtually anything delivered to him almost as fast as non prime Amazon.
he could move to a different mansion in different seasons. He could see live music. He could read any book in the world.
ETC. But since we cannot know the future we cannot compare today with tomorrow—-therefore we cannot compare today with yesteryear——because it assumes knowledge we did not have. Rockefeller may have been miserable —-don’t know—-but plenty of people today are miserable.
MarkW
Feb 21 2023 at 9:57am
He could not fly——so what? He could take trains that were luxurious.
Right. And to cross oceans, he could easily afford the most luxurious accommodations on the newest, safest ocean liner … like John Jacob Astor IV.
Michael Rulle
Feb 21 2023 at 11:00am
Of course private planes never crash.
MarkW
Feb 21 2023 at 12:22pm
The risks involved in transportation have dropped dramatically in 100 years. Horse drawn vehicles were more dangerous than early autos and early autos were much more dangerous that modern vehicles. I’m pretty sure that rail has also become vastly safer than it was in the late 19th-early through early 20th century life of John D Rockefeller (though I wasn’t able to find a reference on historical rail safety with a quick Google). The overall point is that that modern travel is not only much faster, it is also much safer (and much less expensive). A middle class person can fly from the U.S. to Europe in ~8 hours with a nearly zero chance of a fatal accident and at a price that’s a tiny fraction of what a berth on an ocean liner cost a century ago.
Richard W Fulmer
Feb 21 2023 at 10:12am
John D. Rockefeller’s grandson died of scarlet fever. For all his money, Rockefeller couldn’t buy penicillin in 1901.
Jon Murphy
Feb 22 2023 at 6:23am
This conclusion doesn’t make sense. What dj you mean “assumes knowledge we did not have?” We have lots of knowledge about the past. We can say pretty easily whether something in the last
Jon Murphy
Feb 22 2023 at 6:34am
[continued from above because my phone glitched and posted too soon]
We can pretty easily say whether things in the past were better or worse than now.
And I don’t understand your point about the future at all. We’re talking about the past. The fact the future could be better, worse, or the same doesn’t matter.
Now, your points about Rockefeller actually strengthen the case that life is better now. He had to pay enormously for luxuries that are considered necessities today. Your example of a railroad car: true, he could travel via luxurious railcars. But that is an extraordinary slow method of travel compared to flying. Given the opportunity cost of his time, a train is absurdly expensive compared to travel methods now (there’s a reason why plans replaced trains for travel in the US). I, a middle class dude in rural NC, can travel faster and cheaper than Rockefeller.
The same point about time comes in with your point about multiple homes. If you need multiple homes to avoid the negative effects of the seasons, you have to spend time moving from place to place, not to mention upkeep. I, however, need only flip a switch in my condo.
Rockefeller can communicate via Morse code? Whoopty do. I can have a real-time video call with my nieces and nephews in Korea for free.
All the examples you give strengthen the case life is better now.
Robert Horst
Feb 21 2023 at 2:52pm
Am I wrong, or did we miss the concept of consumer/supplier surplus?
David Henderson
Feb 22 2023 at 10:00am
You write:
I don’t know if you’re wrong, because I don’t know whom you mean by “we.” If you’re referring to me, then yes, you are wrong. I didn’t address the issue, which doesn’t mean that I missed it. For virtually every item you buy, you get consumer surplus.
David Seltzer
Feb 21 2023 at 3:48pm
Value and cost are distinct. The time cost of an item is the number of hours you would have to work at a given wage to earn enough to buy the item. I learned the difference when I was twelve. My father owned an industrial supply outlet in a NW Indiana steel town. I asked him for one dollar so that I could go to the movies and buy popcorn and a soda. He said work on Saturday, and you can earn the dollar. I declined because playing baseball with my friends was more important to me than working to see a movie. In an ordinal sense, I ranked playing ball above seeing Roy Rogers save the day. Later that summer I asked for five dollars. I wanted to see the CUBS play our hated rivals, the St. Louis Cardinals. The fiver would pay for the train to Chicago, the El to Wrigley, the ticket to the game and a soda. My father said I could earn five dollars if I worked at the warehouse on both Saturday and Sunday. I jumped on it because I valued seeing the game more than the cost of getting there. BTW. it was a double header.
MarkW
Feb 21 2023 at 4:04pm
Regardless of considerations about Rockefeller, it seems to me that showing historical changes in costs by work time is potentially one of the most powerful rhetorical approaches to communicate to ordinary people just how much better things have gotten, and the approach seems under-utilized. Older folks often forget how long people had to work to afford things when they were young and young people never knew. Don Boudreau’s 1970s Sears Catalog exercises were great examples, but those early blog posts have mostly been forgotten, I think. Perhaps somebody should maintain a public page showing how many hours of work it takes an average American to afford basic goods and services.
Capt. J Parker
Feb 22 2023 at 12:15pm
Good idea. Here’s my contribution: In 1980 an undergraduate engineering degree from a “prestige” university cost around $20,000 in tuition payments. In 2020, an engineering degree from the same university cost $200,000 in tuition payments. In 1980 an recent engineering graduate could reasonably expect to make $20,000 so the time cost of her education would be one year. In 2020 the very upper end of salaries for recent graduates might approach $100,000, making the time cost of an engineering degree two years, double that of 40 years ago.
Technical advances in manufacturing, food processing, agriculture, transportation and finance have reduced the cost of many, many goods, but not all goods. The reasons for the lack of superabundance of some goods are sometimes easy to discern – think housing and government building and zoning regulations. I highlight education because it is so fundamental to human flourishing. Failure to achieve superabundance in that commodity is particularly striking.
MarkW
Feb 22 2023 at 5:30pm
By and large, we have achieved superabundance in both housing and education. WRT housing, the number of square feet of living space per-person has gone way up as have the quality and quantity of household amenities. Of course in the coastal zones where building restrictions have limited supply, prices have been artificially inflated by bad policy. But that represents a minority of the country (albeit a loud and influential one). And education has become ‘too cheap to meter’, while the cost of credentials has risen substantially — though nearly not so dramatically as the ‘rack rate’ tuition makes it seem. Most students pay much less and the median student loan balance is around $30K while the average starting salary of a freshly minted electrical engineer is close to $70K. Many of the top engineering schools are state schools where even the rack-rate in-state tuition is around $20K/year. Still, yes, the cost of credentials has grown faster than inflation.
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