Month: March 2010


The Labour Theory of Value

30th March 2010

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EconLog has some chatter about the Labour Theory of Value.

That’s always been a problem for me – I’ve never understood how anyone could have believed it.

However, thinking about it now, I think I’ve worked it out. Try this:

Premise 1. A reasonable definition of the value of something is the price that it will fetch in a perfectly competitive ideal free market. (I think this is true).

Premise 2. In a perfectly competitive ideal free market, the price of something will approach its marginal cost of production. (this is also true).

Conclusion. The value of something is its marginal cost of production

That looks logically sound. If two things are both equal to a third thing, then they are equal to each other. An intelligent person might well be fooled by that argument.

It’s not logically sound though, because the perfectly competitive ideal free market doesn’t just set the “right” price for whatever randomly gets produced, it causes certain things to be produced and other things not to be produced.

Premise 2 should read, “The price of something produced in a perfectly competitive ideal free market will approach its marginal cost of production.” The cost of production of something produced not in a perfectly competitive ideal free market (in the real world, for instance) does not tell you what price it would fetch if it happened to land in a PCIFM.

(I’ve skipped over the equating of the marginal cost of production of something with the labour needed to make it, by counting a share of the capital cost as being “dead labour”, because I think that’s OK, though I’m not sure it’s useful).

Peter Kellner on Democracy

30th March 2010

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Peter Kellner is an expert on British Democracy. President of YouGov polling company, formerly political analyst of Newsnight, visiting fellow at Nuffield College, Oxford, author of books about the system from “Callaghan: The Road to Number 10” in 1976 to “Democracy, 1000 years in pursuit of British Liberty” in 2009. As the title of the recent book implies, he not only knows about democracy, he is in favour of it.

How does he reconcile those two things?

[…] George Canning, who was briefly prime minister in the 1820s, gave a speech defending rotten boroughs. One of his points was that rotten boroughs like Old Sarum, which had two MPs and no residents, produced some of the finest parliamentarians of the late 18th and early 19th century: people like William Wilberforce and William Pitt. Canning argued that if you did away with the rotten boroughs you would lower the quality of the House of Commons. Of course, this is an exact parallel to the arguments about the reform of the House of Lords today. And in a way he had a real point: so it demonstrates why, if one is a democrat, it is important to stick to the principle of democracy. Because if you get into the functionality, if you say the principle is to get the best people or the best government, you might well end up arguing against democracy, which has to be defended as a good in itself.

(my emphasis). Democracy is good in itself – even if, nay, even though, it demonstrably produces worse outcomes than its alternatives.

So that’s how. Read the whole thing at Five Books.


James Lovelock


Apparently James Lovelock is saying that democracy will have to be “put on hold for a while” in order to deal with climate change.

I don’t need to write much, I can refer my readers to the answer I gave previously the last time this idea was raised.

I would just add that the idea that democracy is a good way of managing everything except the climate seems about as likely as the idea that it’s a good way of deciding everything except MP’s salaries.


Agatha Christie in the 21st Century


Thanks to the cornucopia that is ITV3, and the regular addition to my living room of an elderly relative, I now find myself many an evening watching that staple of entertainment, the mystery drama. Taggart and Lewis make frequent appearances, but more evenings than not, of course, there is a television adaptation of the books of the best-selling author of all time, Agatha Christie.
Television has been adapting Agatha Christie for almost as long as there has been television. I first saw them played for laughs, in films with Margaret Rutherford or Peter Ustinov. Next, they was played very straight, in the early Joan Hickson Marples. The emphasis moved in the 1990s towards making them primarily period dramas, with a focus on costumes, cars, and architecture, particularly in the David Suchet Poirots with the strong Art Deco theme.
Recently, in the later Suchet Poirots and the Geraldine McEwan and Julia McKenzie Marples, the producers have turned their attention to social commentary, and to showing off their own cleverness, rejecting the purist faithful-to-the-books approach that was dominant in the 1990s.The new spirit shows itself most crudely and obviously in the Russell-Daviesesque spicing of every story with a piquant extra sprinkle of gay sex. What’s more interesting is the adjusting of the social environment of the stories to be more like the programme makers’ (or the audience’s) impressions of the period, rather than those of Agatha Christie, who, after all, only lived in it.A good example is the recent Five Little Pigs. In this, Poirot (David Suchet) investigates the cold case of the murder of a celebrated painter, at the request of his daughter, who learned only on coming of age that her mother had been convicted of poisoning her father.The story is set in the 1930s. We all know murderers were hanged back then, so the 2003 TV production shows us the execution of Caroline Crale, complete with kicking feet, all the better for us to understand the inhumanity of all eras before the 1960s enlightenment. Agatha Christie, with no such agenda, had the sentence commuted, though the wrongly-convicted murderess dies of natural causes a few years later in order to keep her out of the way of Poirot’s investigation.The daughter, in the book, is concerned to reassure her fiance that she will not inherit insane or murderous tendencies. Such a concept is too far-fetched for the 21st century, much more so than the usual intricate coincidences of a whodunnit. The ITV girl is more interested in justice and vengance, and by pulling a gun on the real murderess, displays the very attributes that her literary counterpart was most anxious to disclaim.An even more interesting plot variation was in the 2009 Geraldine McEwan version of Nemesis, which I saw last week. This was the last Miss Marple novel written, published in 1971 – closer to our own time than to the long-gone world of The Mysterious Affair at Styles. Like Christie’s other late novels, it expresses the culture shock to her generation caused by the demolition of class barriers and the other changes of the 1960s.The setting for the denoument of the novel is a house occupied by three sisters, living (like Miss Marple herself) on a small inherited income. Such rentiers were frequent characters in the Christie oeuvre, but they do not exist in the modern world, and are almost too alien to be understood by modern audiences. They were eliminated from Britain deliberately, as a matter of explicit government policy. (Indeed, their appearance in the late Christie novels is quite possibly an anachronism).The reason for eliminating the rentier class was that it was seen as parasitic and unjust. Why should some people be allowed to live while contributing nothing at all to society, when the vast majority have to work for a living? As taxes and inflation rose, the prospect of living long-term from capital alone was restricted to the super-rich.That certainly made sense at the time, and if we now lived in a society without a non-working parasite class, I think we could all look back at the destruction of the rentier and applaud. But in the context of the much larger class of parasites who live more richly than the Miss Marples of the world ever did, not from their own jealously preserved capital but on the taxes of the shrinking proportion of working people, envy of the spinster with her few hundred a year in 2½% consols seems as quaint as the air of suspicion and fear that surrounded Christie’s occasional homosexual characters.The rentiers cannot return, however. With a house and 25k a year in investment income, one could live and even raise a family. At current house prices and bond yields, that represents a capital of less than a million pounds – probably within reach of 1 or 2 percent of the population. It doesn’t happen, though. Inflation always threatens to wipe out any low-yielding investment, and after-tax inflation-adjusted returns are generally negative. The normal expectation of the better off is to build up a private pension and convert it to an annuity on retirement, but handing on a living income to the next generation is an impossibility.And indeed, even if it were possible to live from capital without consuming it, it would be stupid. Why attempt to preserve a windfall for the future, watching most of it leak away in taxes and inflation, when one can get full value for it today as a holiday, a car and a new TV, and the welfare state will fill up any gap in the future?The rentiers were raised to look down on working for a living — an attitude that cannot be said to be socially beneficial. But the partners of that attitude were thrift and independence, and it does not seem that those virtues can survive without the offer of a life of ease as a reward.And the destruction of inherited wealth has not even had much impact on inequality. The society that no longer accords status to those who preserve capital, instead gives it to the “wealth-creators” who make incomes a hundred times the average and burn through it in orgies of consumption, since it makes no more sense for them to save than it does for the successors of the rentiers. Is the executive who works 70 hours a week for his seven-figure package, most of which goes on supercars, jets, and designer clothes, really any better for the rest of us than the gentleman who dabbles in business while keeping his patrimony safe? Possibly a little, but not, I fear, enough to compensate for the example that is set for the rest of us.All that might seem a vast tangent from ITV3, but the questions I asked (and didn’t answer) are the ones that viewers will not be asking themselves, because Nemesis in the 2009 version strikes not in the now-mysterious surroundings of the last of the rentiers, but instead among the licensed weirdness of a religious order, whose sinister initates are, all regular ITV3 viewers know, capable of any crime.






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