The Great Austrian Economists by Randall G. Holcombe

Author:Randall G. Holcombe [Randall G. Holcombe]
Language: eng
Format: epub
ISBN: 978-1-6101-6148-0
Publisher: Ludwig von Mises Institute
Published: 1999-11-06T16:00:00+00:00

THEORY OF WAGES

Fetter also recognized the larger significance of a subjective-value theory’s replacing an objective one in the history of economic thought. He said that, “the labor theory of value had been adopted by Adam Smith after only the most superficial discussion,” which led him to “his confusion of ideas regarding labor embodied and labor commanded, labor as the source and as the measure of value, rent and profits now forming a part and now not a part of price.” Fetter concluded that “the resulting confusion was felt by all of the next generation of economists.”7

In particular, David Ricardo, because he accepted Smith’s concept of embodied labor, exerted

a tremendous and evil influence in ways then all unforeseen. Labor is the source of value; . . . labor is the cause of value; labor produces all wealth. Naturally follows the ethical and political conclusion: if labor produces all wealth then labor should receive all wealth.8

This was a conclusion “the Ricardian socialists” were all too eager to embrace, and which Karl Marx later used to great effect.

The Ricardo-Mill theory put a potent weapon in the hands of Marxists who, by basing their theory of exploitation on the labor theory of value, paralyzed bourgeois economists whose own cherished theories were founded on the same conception of value. Fetter knew this by personal experience:

Well I remember the confidence and gusto with which this demonstration of the truth of Marxism was still presented by socialist speakers in the nineties, as I listened to it from Berlin to San Francisco, when it was generally though mistakenly assumed that all bourgeois economists were still orthodox Ricardians.9

It was not, however, solely Marxism that inspired the marginalists to strike a blow for reason and welfare. “Henry George’s semi-communistic doctrine of land confiscation, based on the labor theory, or rent feature of it,” argued Fetter, “impelled [economists of the 1860s] to re-examine the theory of value.” Fetter knew that “the evasive and self-contradictory labor-theory as left by J.S. Mill . . . was a broken reed against the surplus-value attack upon the system of private industry and private property.”10 The subjective-value rejoinder to the Marxist and Georgist attack was to be found, said Fetter, in the capital value concept of John Bates Clark, and “more prominently and explicitly” in Wieser’s Natural Value and in Böhm-Bawerk’s Karl Marx and the Close of His System.11 A demonstration of this process of value imputation from products back to labor formed the first part of Fetter’s Principles of Economics.

Fetter’s method of explaining these principles was Misesian. He wrote:

The aim . . . has been to proceed by gradual steps, as in a series of geometrical propositions, from the simple and familiar acts and experiences of the individual’s every-day life, through the more complex relations, to the most complex, practical, economic problems of the day.12

In addition to employing successive approximation, he was, like Mises, a strict logician in method. As Fetter saw it, “Every theory must ultimately meet two tests: one, that of internal consistency, the other that of consistency with reality.

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