Babes in Economics Land

Late last month, US Rep. Alexandria Ocasio-Cortez tweeted a criticism of Ivanka Trump, who had said she was against the idea of a guaranteed minimum wage because "I don't think most Americans, in their heart, want to be given something. ... People want to work for what they get. So, I think that this idea of a guaranteed minimum is not something most people want."Ocasio-Cortez responded, "A living wage isn't a gift, it's a right. Workers are often paid far less than the value they create."

This random proclamation will undoubtedly be translated by her fans and critics as a restatement of Marx's Labor Theory of Value which states that the profits of production were taken from the worker who provided the product's value and given to others, capitalists, which raised the product's cost out of the very worker-creator's grasp and created a separation, an alienation, between the worker and his work. It is a pillar, perhaps the pillar, of Marxism.

As with all of these revolutionary utopias, there are obvious problems. What about the capital expenses, the land, the engineering costs? It goes on and on. What about the shortstop or the painter, how is his value calculated?

The insight came from Carl Menger, who eventually created the Austrian School, and others who argued that value was subjective. Rather than the labor input that created it, value of a good emerges from human perceptions of its usefulness for the particular ends that people had at a particular point in time. Value is not something objective and transcendent. It is a function of the role that an object plays as a means toward the ends that are part of human purposes and plans.

So Marx was turned on his head: The value of inputs like labor were determined by the value of the outputs they helped to produce. Labor gets rewarded according to its ability to produce things that others value.

Probably beyond AOC's survey course. But you can always smooth over the rough edges with a little violence.