The other day a conversation on here veered towards the labor theory of value*. That made me think of a really great video that Don Boudreaux recently made about subjective value. One of the brilliant things about Don's video is that he was able to cut straight through the issue by essentially doing what econometricians do in his example: holding objective or labor value constant and looking at how value varied with subjective preferences. He had two t-shirts that he made with the same iron-on technology, the same amount of time, the same effort, etc. One had an iron-on image of Che Guevara and one with an image of Milton Friedman. He was easily able to explain from there that the costs of the Che t-shirt were the same as the Friedman t-shirt. The difference in prices (everyone - particularly market skeptics - know Che t-shirts sell well!) could clearly be attributed to subjective value in this case.
In thinking about actual objective value theorists, though, I began to wonder if we should cut them some slack. What occured to me was that the genius of Don's example was entirely derived from modern product differentiation. In the early 19th century you didn't really have iron-on t-shirts. You had much less variety and product differentiation in general than you do today, so I imagine it would be hard to do a thought-experiment holding costs constant. One of the greatest sources of poverty before the industrial revolution was precisely the lack of variety, choice, and diversity. One could say that precisely because the market responds to subjective values we have more examples to draw on today of the impact of subjective value theory than we did in less prosperous times.
One of the lessons of this, of course, is that product differentiation is in and of itself a product of the market and an important element of progress. Edward Chamberlin, the American developer of monopolistic competition theory (it was simultaneously discovered by Joan Robinson in the UK) acknowledged the importance of product differentiation for value theory in the sub-title to his book: "The Theory of Monopolistic Competition: A Reorientation of the Theory of Value".**
*There's still an open invitation to Mattheus to explain what he meant when he said that Keynes had a labor theory of value - we all were confused by that and Mattheus didn't seem interested in backing it up - I don't know if that means he's conceded or not.
**People have also made a lot of the differences between Robinson and Chamberlin on this question: Chamberlin saw product differentiation as welfare-enhancing. I agree, but I think people are often too hard on Robinson in this case. Yes, product differentiation is welfare-enhancing, and yes we would rather have differentiated products and choice rather than homogenous products, but that doesn't seem like any reason to deny the market power or excess capacity issues that also come out as results of monopolistic competition. As is often the case in intellectual history, some people have built up Robinson and Chamberlin as being deep, opposing thinkers. I think this is silly - economics is not a morality play.
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