The story shown in the picture below is typical of most who, though, constrained by reality, fail to see reality. Thus, they suffer. Their faces emote their anguish much like the old woman painted by the Dutch master, Rembrandt.
Though the story is touching, it's fallacy. The fallacy is Ricardo's labor causes value theory, which foolish socialists like Marx took up. The fallacy was put to bed more than 160 years ago.
Labor has nothing to do with prices. Prices get set by winning bidders.
Take two people. One can spend one million dollars buying equipment and mining rights to mine for gold and after all that effort only find an ounce of gold. Another could find gold while walking spending exactly nothing.
Is the ounce of gold worth a million because that is what the miner paid, what it cost him to get? No!
Right now, both the miner and the finder could get $1242.80 (as of 2014.Jan.30) for selling that ounce and that much alone. Why? The price gets set by winning bidders against all gold on offer for sale right now.
The miner put in time, effort, dedication, smarts, training, and much more. The finder put in nothing.
Or say someone has inherited purported fine-crafted gold jewelry from a dear lost relative and melted that jewelry down to support a meth habit, the gold in that jewelry would fetch at the same rate of all gold, $1242.80 an ounce. Once again, no outlay was made for that gold coming into the methhead's possession as property.
All prices adhere to the one and only true law of trade, the Law of Price — the winning bids of purchase and sale in the face of what is on offer sets the price. Prices get set by winning bidders who possess the means — these days legal tender cash or credit — in the face of what is on offer.
If no one bids for anything made, no matter how skillfully done, it's worthless. If bids are below cost, oh well. That is an signal that most everyone in a society of property deem the work worthless and a waste of resources. The artist should find other work.
Labor is the poor man's capital. The expression of skills through time, which is called work, is a product. Labor is the outlay to turn something into property and nothing more. Only things of property can be bought and sold in purchase and sale for cash or credit.
Trade is predicated on property and profits and not effort and skill. Anyone must gain property, which is the right of ownership and never the thing owned, before enjoying or possessing a thing. If anyone fails to buy something to gain property in it, but instead takes it, that is called stealing.
Anyone can buy stuff because that one has produced profit (earnings) in past and has been rewarded or others expect another shall produce profit in future, which we call confidence, and thus give credit to another.
Profit arises because of property others want to possess under the constraint of the great Axiom of Profit — the sum of sales must at least equal the cost of production, otherwise the producer goes to ruin. And of course, the sum of sales arises from the quantity of things sold times price. And price gets set by winning bidders of purchase and sale in the face of what is on offer.
So the whole trick of producing property in pursuit of profits is to produce what others want, to be in service to others. And that is what being in society of property is all about, the only society in which strangers can live, even when government has grown to take control of that society and has distorted all relationships of man with man in society of property.
If labor were what caused price, then why can Apple earn a premium on iPhones relative to all other touch screen phones? Why aren't Apple execs accepting bids ( charging ) for what it cost them to get the phones made?
If labor set prices because cost were to be the cause of price, then why does anyone go out of business? Labor has nothing to with price. Prices get set by winning bidders who must first gain property in something before they can use it.
No one works at a loss (Wages - Living Expenses or Sales - Outlay) unless politicians swoop in and subsidize that one with Section 8, SNAP and the like. When politicians give workers welfare to subsidize their living, in effect, politicians subsidize firms that can pay wages precisely because of welfare given to workers (see: GREEDY CAPITALIST COMPLAINS ABOUT UNEMPLOYMENT INSURANCE EXPENSE AND QUITS HIS BUSINESS and Wile E. Coyote, Campground Businessman Super Genius).
Any worker gets paid to produce. His or her wage arises against the lack of willingness of another slightly better and smarter, who absent what she or he is doing, could bid lower than the worker being more efficient at living or could bid higher than the worker being able to produce more in any time span.
All the same, prices get set by those willing to cough up the cash or credit to buy. Sellers must accept those bids to get sales. Would-be sellers can refuse those bids and earn nothing. They can hold back inventory in hopes of future bidders bidding up prices.
People fail to appreciate the role of marketers and those in advertising who help to present products to those who most willingly can appreciate how a product can fit within their lives.
Marketers are quite like commodities speculators in the respect of pushing prices along to keep prices high enough so that manufacturers, be that automated or hand-crafted, can live to make another day, and yet against each other, low enough so that many can enjoy the fruits of others.
It's too bad that many perceive, wrongly, that marketers are "middlemen" who are little more than tricksters and knaves. Marketers keep people in business.
The successful stick to their knitting as it were and hire marketers to get them the best price possible. The reward for doing so is a share of the increase.
To savages, a Rembrandt likely would be worthless compared to spears. The savage wouldn't know he could sell the Rembrandt to someone who would esteem it and buy thousands of spears.
Yet, where art gets esteemed by others, it is the winning bidder who sets the price for a Rembrandt as nothing in trade ever can violate the Law of Price, the same as nothing can violate the Laws of Thermodynamics or the Law of Gravity. So even a one-off like a famous artwork sells, not because of purported scarcity, but because someone else has property (right of ownership) in it.
The price of a Rembrandt arises not because it is rare (scarce), but because of rivalry of bidders, only one of whom can win with the highest bid precisely because that one has the most cash or credit, which he is willing to sell in a purchase and sale, to buy a Rembrandt.
Egghead Ph.D. academicians, who call themselves economists, long ago realized the error of Ricardo. Rightly, they came to see that labor is not the source of value (price). Yet, the next round of economists decided to commit their own fallacy and from which they base their entire myth of economics, that of scarcity and utility cause value (price). See my work WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE to discover in less than 3 minutes, why economics is bogus, a myth, a b.s. story.
Utility as a source of price (value) is quite false as it imbues into things intrinsic value. Scarcity as a source of price also is quite false.
The earth is awash in water, but men are successful sellers of bottled water right next to giant lakes and rivers. Why can do they do so? Bottling creates property.
Many would believe that a Rembrandt is worth much because he is dead and thus can not make any more. So any Rembrandt is a one-off. Yet, millions have watched and learn to paint from Bob Ross, each creating their own one-offs. Each one being unique makes each one scarce. Each Joe Blow also is a one-off.
Yet, no one trawls garage sales bidding outrageous sums for the one-offs of the Joe Blows of our world.
And so, because economists believe from false premises, their conclusions are false, necessarily so, even when remaining logically consistent from false premises to false conclusions. It doesn't matter if that neoclassical school is the Keynesian school or the Austrian school.
There is no escaping reality. Anyone can only deny reality.
Enjoy some Rembrandt!
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