The beauty of entrepreneurship


The beauty of entrepreneurship
By Neil Lock

I thought it might be good to offer something a little bit up-beat for a change.

I’ve been contemplating the so called “labour theory of value.” That is, the idea that the value of an individual’s work depends only on the amount (and, in some interpretations, also the quality) of the labour put into it.

Now I’m no economist, but even I can see that the labour theory of value is a crock. The argument I use is to adapt the well known proverb, “Beauty is in the eye of the beholder.” In my version, this becomes “Value is in the mind of the buyer.” That is to say, what matters isn’t the amount or even the quality of labour the seller has put into the product, but the value to himself which the potential buyer perceives in it. The greater this value, the more the buyer will be willing to pay.

The labour theory of value is, nevertheless, a very popular idea. Many, many people seem to resonate to phrases like, “A fair day’s pay for a fair day’s work.” Crock though it may be, the idea isn’t going away any time soon. How can this be, I thought?

Park that for a moment. Another thread I’ve been toying with is the idea commonly called “capitalism.” Now, I define capitalism as “the condition in which no-one is prevented from justly acquiring or justly using wealth.” And I see it as an unashamedly good thing. Some libertarians, however, particularly west of the pond, see capitalism as something very different and negative. For example, I ran across the following quote from Kevin Carson: “[i]t is state intervention that distinguishes capitalism from the free market.” So when Kevin and others like him use the word capitalism, they mean what I’d call crony capitalism, or – to use a word popularized by John Stossel – “crapitalism.”

This led me to the thought, what actually does a capitalist do? (An honest one, I mean, not a crony). Well, he pays other people to labour to make stuff, and puts it together into a product, which he then sells. And he pockets the difference in value.

At which point, I said to myself: Hey, there’s another word for what this guy does. One not loaded with all the bad baggage that goes with “capitalist.” That word is “entrepreneur.” Literally, the word means “between taker.” And that’s exactly what he does. He sits between the workers and the buyers of their products. He takes responsibility for the quality and fitness for purpose of the products. And he takes the profits when they accrue.

That sounds like a pretty good deal for him, doesn’t it? So, what does our entrepreneur actually do in return for his profits? What does he have to bring to the party?

Then the thought struck me, that what the entrepreneur actually does is take on a large element of the risk. Not only does he invest in providing places and equipment to enable his workers to create the products. But he also insulates his workers from the full reality of the marketplace. He enables those of them, who are averse to risk, to live their economic lives as if the labour theory of value, which they love so much, was the truth.

Entrepreneurs are, by their nature, risk takers. And the best among them have an instinct for knowing which risks are good risks. If the risks our entrepreneur takes are good ones, and the value perceived by the buyers is more than the cost of creating the products, then all is well. The workers are OK; sometimes better off than that. And the entrepreneur becomes a (more or less) fat cat.

But if, on the other hand, he takes a bad risk and things go wrong, the worst that will happen to the workers is that they lose their jobs, and have to find another entrepreneur to work for. But for the honest entrepreneur himself, the worst is total financial disaster. A dishonest, political entrepreneur, of course – a crapitalist, forsooth! – may be able to manoeuvre himself out of trouble in the style of Donald Trump. But the honest entrepreneur has only one course of action open to him; take his punishment, learn his lessons and start again.

Entrepreneurs are a funny lot. I have to say I don’t always find them very engaging as people. In the eye of this beholder at least, they tend to be too emotionally driven, too unpredictable and too unreliable. But I’m in no doubt that what entrepreneurs do – honest ones, I say again, not crapitalists – is beautiful.

By delivering products which people want, entrepreneurs perform a great service to the economy. But their social value is even greater. They create an environment which approximates to the labour theory of value. And so, they enable many people – and most of all, those who are not self starters or risk takers – to share in the benefits of honest capitalism.

And so, when an honest entrepreneur gets rich, he deserves every single penny he has justly earned.

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6 thoughts on “The beauty of entrepreneurship

  1. Newton’s first law tells us that matter remains inert until acted upon by a force.

    The Labour Theory of Value is the economic analogue of this law … matter remains inert until acted upon by human labour.

  2. Pingback: Anarchism, justice and a vision for the future | The Libertarian Alliance Blog

  3. [quote]”I’ve been contemplating the so called “labour theory of value.” That is, the idea that the value of an individual’s work depends only on the amount (and, in some interpretations, also the quality) of the labour put into it.”[unquote]

    This isn’t a correct definition of the labour theory of value. Loosely-speaking, what the theory says is that the economic value of goods and services is derived from labour.

    [quote]”Now I’m no economist, but even I can see that the labour theory of value is a crock.”[unquote]

    It could be, but the problem is that you don’t define the general doctrine correctly, and you don’t make it clear whether you are dismissing a particular labour theory of value or all of them – there are, as you know, historically several versions, including from classical liberals like Adam Smith, as well as Karl Marx’s, not to mention anarchist interpretations. It does appear you are critiquing general notions of labour value, so for now, I will base my comments on that assumption (though you do, confusingly, refer to ‘the’ labour theory of value, which may or may not imply specificity).

    [quote]”The argument I use is to adapt the well known proverb, “Beauty is in the eye of the beholder.” In my version, this becomes “Value is in the mind of the buyer.” That is to say, what matters isn’t the amount or even the quality of labour the seller has put into the product, but the value to himself which the potential buyer perceives in it. The greater this value, the more the buyer will be willing to pay.”[unquote]

    This sounds intriguing, but the question arises: What is this ‘value’? It looks as if ‘value’ is being made to seem very subjective, but I suspect you are just peddling a tautology and that this is actually a regurgitation of the crude, but conventional, ‘price for value’ position. But whatever you are trying to say about ‘value’, to have the buyer as the sole agent of price is surely simplifying some very complex questions, since we cannot say that buyers decide price just based on what they perceive to be the ‘value’ (whatever is meant by that) in the product. Also, not all versions of the labour theory of value depend for their validity on the quantification of value as market price. For instance, Marx believed that value and price operated according to separate, but related, mechanisms, and his labour theory of value allows for the calculation of ‘normal profit’, rather than the profit of one capitalist or the other.

    Yours also seems to me not so much a critique of ‘the’ labour theory of value [whatever you mean by that], but a more fundamental challenge to the notion of labour value per se as it may apply to economic goods and services. I would respectfully dispute your comments. The purpose of the concept of labour value is to assist in valuing (some would say, pricing) goods and services in the economic sense on the basis that each good or service has a natural (or real) value or price, which in turn is based on the labour contribution. You are right in pointing out that it is important to know what a buyer will pay, but isn’t it also important to be able to understand the value (whether on the basis of exchange or utility) of the common components that are introduced to make an economic good or service? We don’t need to get too philosophical here: even a classical economist would readily acknowledge that labour is something of value in its own right, the valuation being based on a price mechanism.

    [quote]”The labour theory of value is, nevertheless, a very popular idea. Many, many people seem to resonate to phrases like, “A fair day’s pay for a fair day’s work.” Crock though it may be, the idea isn’t going away any time soon. How can this be, I thought?”[unquote]

    I can see why, from a narrow economic point-of-view, the idea of ‘a fair’s day’s work for a fair day’s pay’ could be seen as wrong or mistaken, but it does depend on where you think value comes from. It’s a matter of perspective. The conventional view seems to be that Marx was trying to scientise a political and moral critique of capitalism based on a priori notions of exploitation, but Marxian economists would counter that theirs is not a moral commentary on capitalism, they are simply identifying that commodity values are derived from a valuation of labour-power, and that this formula is essential for an understanding of normal profit.

    [quote]”Park that for a moment. Another thread I’ve been toying with is the idea commonly called “capitalism.” Now, I define capitalism as “the condition in which no-one is prevented from justly acquiring or justly using wealth.” And I see it as an unashamedly good thing. Some libertarians, however, particularly west of the pond, see capitalism as something very different and negative. For example, I ran across the following quote from Kevin Carson: “[i]t is state intervention that distinguishes capitalism from the free market.” So when Kevin and others like him use the word capitalism, they mean what I’d call crony capitalism, or – to use a word popularized by John Stossel – “crapitalism.””[unquote]

    None of these are definitions of capitalism. Your formulation: “…the condition in which no-one is prevented from justly acquiring or justly using wealth…” comes close to begging the question, but in any case doesn’t tell us what capitalism actually is. These are just rationalisations of a system that some people like and some people dislike, which probably explains the difficulty in defining it as a system. My perspective on the matter is largely amoral: capitalism is just a (probably necessary) stage in human development and has brought a lot of benefits. I define it as a global, property-based political economy in which goods are produced for profit and resources are allocated according to market forces (whether state or private, or some combination of these), and in which there is a working class, which makes up the vast majority of people, who owns no capital, and a capitalist class, which is a small capital-owning minority.

    [quote]”This led me to the thought, what actually does a capitalist do? (An honest one, I mean, not a crony). Well, he pays other people to labour to make stuff, and puts it together into a product, which he then sells. And he pockets the difference in value.”[unquote]

    Are you not, indirectly, affirming the labour theory of value here in some colloquial form? Implied in what you say is that the capitalist is pocketing the difference in value between what is received in the marketplace and what is paid for labour, which sounds a lot like a classical labour theory of value. Of course, as stated above, not all versions of the theory are about calculating price. In the Marxian version of the theory, this formula does not necessarily apply, since Marx acknowledges that value can work independently of price, and the theory is not good for micro-quantification of sui generis profits, only for calculating ‘normal profits’ – but then, that’s the whole point.

    [quote]”At which point, I said to myself: Hey, there’s another word for what this guy does. One not loaded with all the bad baggage that goes with “capitalist.” That word is “entrepreneur.” Literally, the word means “between taker.” And that’s exactly what he does. He sits between the workers and the buyers of their products. He takes responsibility for the quality and fitness for purpose of the products. And he takes the profits when they accrue.”[unquote]

    But if we’re still concerned with a critique of the labour theory of value, then you have to ask yourself: how do those profits accrue without labour? To be clear, I’m not suggesting that goods and services can be produced without workers. What I’m asking is, on the basis that goods and services require labour (whether labour or labour-power doesn’t matter for the moment), shouldn’t the price of labour (i.e. wages) have an influence on the market price of the finished product or service? Even in a naive classical model of things, this must surely be a factor, at the least. If we turn to Marx, then on the basis that labour is the only expansive facet of capital, it makes sense that labour-power (i.e. a valuation of the worker’s social position, being the labour cost of the labour) must be the source of commodity-value.

    I think you also skim over the contribution of the capitalist or entrepreneur (as you implicitly acknowledge, these are two words for much the same thing). Why can’t the working class, who make the products and services, undertake responsibility for their quality and fitness? Why is it necessary to accrue profit at all? Why shouldn’t goods and services simply be produced for use?

    [quote]”That sounds like a pretty good deal for him, doesn’t it? So, what does our entrepreneur actually do in return for his profits? What does he have to bring to the party?

    Then the thought struck me, that what the entrepreneur actually does is take on a large element of the risk. Not only does he invest in providing places and equipment to enable his workers to create the products. But he also insulates his workers from the full reality of the marketplace. He enables those of them, who are averse to risk, to live their economic lives as if the labour theory of value, which they love so much, was the truth.”[quote]

    I think this is a bold assertion that, again, depends on perspective. I don’t doubt that capitalists undertake serious risks, but workers are also exposed to economic reality at all times, just in a different sort of way. However it’s possible you have a point here in that workers tend to be people who are averse to entrepreneurial-type risk. I can see that this might be true and natural differences between people along these lines, however they may arise, might go some way to explaining the existence of capitalism (and its predecessor property-based systems) in the first place. Marxists tend to look at capitalists as a monolithic and settled ruling class, but it’s probably the case that the people we call ‘capitalists’ are just those (or the descendants of those) who were able to successfully undertake risks, whether due to superior intelligence or happenstance or whatever.

    [quote]”Entrepreneurs are, by their nature, risk takers. And the best among them have an instinct for knowing which risks are good risks. If the risks our entrepreneur takes are good ones, and the value perceived by the buyers is more than the cost of creating the products, then all is well. The workers are OK; sometimes better off than that. And the entrepreneur becomes a (more or less) fat cat.

    “But if, on the other hand, he takes a bad risk and things go wrong, the worst that will happen to the workers is that they lose their jobs, and have to find another entrepreneur to work for. But for the honest entrepreneur himself, the worst is total financial disaster. A dishonest, political entrepreneur, of course – a crapitalist, forsooth! – may be able to manoeuvre himself out of trouble in the style of Donald Trump. But the honest entrepreneur has only one course of action open to him; take his punishment, learn his lessons and start again.”[unquote]

    I accept this is broadly true. Where I dispute what you say is in your emphasis on the value ascribed to products and services by buyers. Your analysis seems to be intended to put capitalists (who you style as ‘entrepreneurs’) in a venerated position. According to you, they are just plucky people [well, the ‘honest’ ones are] who produce things which the market can take or leave.

    You must know that things are a bit more complicated than that and the labour theory of value, certainly the Marxian version, is an acknowledgement of the social relations underpinning the system. The system has to be seen ‘as a system’, not just as some sort of quaint, organic thing that has evolved innocently over millennia out of normal relations between people. it is an artifice, which is imposed on the majority working class, who must sell their labour-power whether they like it or not.

    Capitalism is about capturing surplus value. That’s why we have Third World immigration. It’s why we still have a working class, despite industrial mechanisation. Without labour, capitalists cannot profit, and so one of the tensions within capitalism, which underlines much economic debate, is the problem of labour productivity, its indirect measurement in the form of GDP, and the competing need for profit and investment.

    [quote]”Entrepreneurs are a funny lot. I have to say I don’t always find them very engaging as people. In the eye of this beholder at least, they tend to be too emotionally driven, too unpredictable and too unreliable. But I’m in no doubt that what entrepreneurs do – honest ones, I say again, not crapitalists – is beautiful.”[unquote]

    Well, I’m an entrepreneur – or at least, that’s what I like to tell people – and I have the personality traits you mention.

    [quote]”By delivering products which people want, entrepreneurs perform a great service to the economy. But their social value is even greater. They create an environment which approximates to the labour theory of value. And so, they enable many people – and most of all, those who are not self starters or risk takers – to share in the benefits of honest capitalism.”[unquote]

    That’s an interesting way of putting it. What you appear to be saying is that entrepreneurs are in effect the workers of the capitalist class. I’m not doubting your underlying premise about the value of entrepreneurs. I think you’re right here, and entrepreneurialism is an area that is under-analysed.

    [quote]”And so, when an honest entrepreneur gets rich, he deserves every single penny he has justly earned.”[unquote]

    If, by some miracle, I actually do make some money one day, I will be referring back to this essay and this line in particular.

    • I’ve come across several ways of looking at the labour theory of value. The way I put it here was the way in which the idea comes over to me when its supporters try to tell me what it is. Maybe I’m being too imprecise. But yes, I’m aware that Adam Smith had his own version of it, which was different from (and more logical than) that.

      I’ve also not lost sight of the fact that, up to the point something is ready to go on the market, there isn’t a better estimate of its value than the cost of its production. This is particularly true of artistic stuff. A film made at a cost of £10 million is “worth” £10 million – until it goes to the box office and tanks. A previously unpublished sketch by Picasso is worth very little – until he becomes famous (now that’s another good argument against the labour theory of value!) And 200 years later, when tastes have changed, it may well return to near its former valuation.

      Your view of capitalism differs from mine in that it identifies a capitalist class that benefit from it, and suggests (but doesn’t prove) that they don’t deserve that benefit. I agree, obviously, that those “capitalists” that use conspiracy or fraud, or politics, or violate the human rights of their workers, don’t deserve their riches. But I wonder, are there honest “capitalists” who don’t deserve the rewards they receive? Can you identify them?

      I’m glad that you like my idea on entrepreneurship. And I wish you every success in your endeavours, Tom.

  4. I think whether a capitalist is ‘honest’ or not, and whether or not morally he deserves his rewards, he is still entering into a social relationship that relies on one class exploiting the other.

    I like to refer back to something Felix Dennis once wrote, which is that, when you think about it, capitalism is ridiculous. Even while you’re busy earning money and accumulating wealth, and even if you go about this with deadly earnestness, you must have that niggling thought at the back of your mind that the whole exercise is ridiculous.

    I agree with him. I do find the whole concept of ‘property ownership’, owning things, faintly ridiculous. How can somebody ‘own’ a piece of land or a building? The metaphysics of it are at the least troubling. Maybe capitalism has oriented us in completely the wrong direction and what we should be focused on is not owning things and making gains, but rather in what we can fashion and create out of the inanimate? Marx’s whole metaphysical angle is very interesting, the way he describes how mass production alienates us from real work and creates this false dichotomy between ‘work’ and ‘leisure’.

    I suppose, in a way, your concept of the worker-entrepreneur, if I may style it that way, could be seen as an implicit acknowledgement of this Marxian alienation and an appeal to resolve it in some way by finding meaning and recognition in the role of capitalism’s political soldier. There’s a French word, entreprenariat, which I think literally means entrepreneurship, but which potentially also carries a nuance in that it could mean a type of intellectual worker who is able to facilitate goods and services by leveraging knowledge, risk and financial resources.

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