The Effort Theory of ValueJanuary 30, 2022 2015-10-30
While building Adam Smith’s resource allocation system, I’ve often been asked:“What measure of value does it use?”
Unlike the current economic system which uses money (because it was directly descended from the Mercantile system and merchants only care about money), Smith’s system uses real value as a measure of value. He suggests grains as a long term measure of value (since everyone needs to eat), and precious metals as a measure of short term value (since metals are useful to all).
However, what does the wheat and precious metal actually represent?
Smith says that it represents ’labour’. But labour is ambiguous.
Marx uses the same measure in Das Kapital and ends up with the strange concepts like ’labour power’ and ’labour time’, which are measures of physical labour. These then lead to the oppressive rationing system in Communist countries.
You can exactly ration gasoline and electricity to your cars and iPhones, but it would be absurd to do that to humans. You could ration $1,000 to a software developer to build a wooden cabinet, and $1,000 to a carpenter to build an app. But their actual outputs would be inferior.
People confuse Smith’s labour theory with that of Marx simply because both use the word ’labour’. To separate those two ideas, we have to look into how differently Smith sees human labour.
A Deeper Look Into Smith’s Theory
Fortunately, Smith explains his theory in just one chapter – Chapter 5 of The Wealth of Nations . It is clear that ’labour’ to Smith is rooted in psychology instead of physics when he equates it to toil and trouble:
Toil and trouble are not objective.
Person A who has no interest learning how to play the guitar (who we shall call ‘Guitar Hater’) might ’toil’ a lot if forced to learn guitar, compared to Person B (‘Guitar Lover’) who naturally likes it. Therefore, the ‘high toil’ or suffering of Guitar Hater in learning guitar is consistently high always and everywhere he is. Likewise, the low toil or suffering of Guitar Lover in learning guitar is consistently low always and anywhere he is.
This is evident in Smith’s maxim:
Enter Relativity and the Constant of Personal Interest
Thus, the ‘cost’ or ‘price’ of guitar learning will be consistently ’expensive’ to Guitar Hater but consistently ‘cheap’ to Guitar Lover.
If their society naturally values guitar music, then Guitar Hater will be ‘poor’, while Guitar Lover will be ‘wealthy’ especially since he can ‘arbitrage’ his high quality but cheaply-earned guitar skill by selling it to society at a price that is high to them.
So the core idea in Smith’s theory is psychological toil and trouble instead of physical labour.
To establish this core idea, we replace ‘Labour theory of value’ with ‘Effort Theory of Value’ since the word ’effort’ best combines both psychological and emotional toil and trouble with physical work. ‘Work Theory of Value’ was also a good candidate. However, ‘work’ tends to mean more of the effect rather than the cause.
Personal Interest as the Invisible Hand
But effort alone will not lead to value-creation. No matter how hard a carpenter works to make an app, he will never make it better than the software developer can make it.
Thus to succeed, a person must be interested in what he is applying his effort to – he has to be deeply interested in whatever task he is doing.
This is where his ‘personal-interest’* comes in. Whatever one is interested in is a natural part of the invisible hand of his dharma or tao.
*The Invisible Hand of Dharma or the Tao separates self-interest from selfish-interest. In order to make the separation permanent, we shall call self-interest as “personal interest” in order to remove the vice of selfishness from it.
A person interested in guitars will naturally create higher quality* guitar music than someone who is not interested in guitars.
*We can call this a ‘superabundance’ in guitar music
Society would therefore have more value, quality, and abundance if its carpenters focused on making furniture, and its software developer focused on software instead of the other way around.
This value and abundance are then spread through exchange, such as through money, barter, credit, or donations, onto places where there is lack*:
*This balancing of abundance and lack manifests as entropy of thermodynamics in the physical dimension
Matching Interest and Action
The matching of interest and action or occupation is the key to wealth. This is why Socrates put it as the core requirement of his ideal city-state and even for life itself:
This is the same reasoning behind the Hindu varna system wherein a family of farmers trains its some of its children as farmers, and a family of doctors trains some of its children as doctors. Unfortunately, this system degenerated into a rigid caste system that people got trapped into. Instead of the occupations being naturally dynamic, it became static.
To prevent this, one of the features of our proposed pantrynomic system is for the classification of careers to be done by artificial intellgence based on personality instead of heredity, so that society can have economic balance and higher quality of goods and services.
So how do we measure effort?
Since our valuation is based on effort which is subjective until it the buyers have decided on them with their objective purchase, then our initial measure for effort will be the thing that is needed by everyone to start the effort. With the human species, this thing is called food. Without food, no one can do any effort.
We find that this is exactly what Smith had in mind when he mentioned corn, which is shorthand for grains which represents food. You might not be able to print your own money or mine your own gold. But you can certainly grow your own food:
An Egyptian man in 3000 BC would need a similar amount of food that a modern man needs, even if the food yield of a hectare of wheat in both times might be very different.
From a Superphysics perspective (the paradigm that sees everything as waves instead of particles or objects), the effort theory of value bases value on natural waves of interests and desires . This is different from modern economic systems which base value on physical particles such as money.
With that, we can safely translate Smith’s 18th-century words into modern English without corrupting its deeper meaning and intention:
Translated with ’toil and trouble’
- a thing is expensive if it is difficult or costs much toil and trouble to acquire.
- a thing is cheap if it can be had easily or with very little toil and trouble.
Smith’s Effort Theory of Value is seen in lowly-paid and highly-paid jobs. The former generally requires less effort than the latter, when taking into account the physical, mental, and emotional toil and trouble involved.
This post series will explain how the Effort Theory of Value can replace the Utility and Marginal Pricing paradigms of Economics to create a new economy called a “pantrynomy” that has zero inflation while having superabundance.