The Ethic of Marginal Value

October 1st, 2013  |  Published in Political Economy, Politics, Socialism  |  4 Comments

Recently David Graeber has gotten some attention for an essay on ["the Phenomenon of Bullshit Jobs"](, which is notable mostly for getting some important arguments about the nature of work into wider circulation than usual. Mainstream economists have taken notice of Graeber's contention that much of the activity that people are compelled to perform in return for their wages is "effectively, pointless".

But the result of mainstream engagement, as often as not, is little more than a demonstration of the narrow perspective of the conventional economist. In that vein, I'm particularly enamored of [this contribution]( from Alex Tabarrok at Marginal Revolution. Tabarrok seizes on an element of Graeber's essay that echoes something I wrote about [a couple of years ago]( the weak relationship between the importance of the jobs people do and the reward they receive for doing them. As I put it back then, "it sometimes seems that the distribution of wages is, to a first approximation, the exact inverse of the social utility of work." Or in Graeber's formulation,"the more obviously one’s work benefits other people, the less one is likely to be paid for it."

Tabarrok---along with, apparently, [Brad DeLong]( this as an elementary error of reasoning, an example of "the diamond-water paradox":

> Water is cheap and its value low because the supply of water is so large that the marginal value of water is driven down close to zero. Diamonds are expensive because the limited market supply keeps the price and marginal value high. Not much of a paradox. Note that, contra Graeber, there is nothing special about labor in this regard or "our society."

> Moreover, it’s good that prices are determined on the margin. We would be very much the poorer, if all useful goods were expensive and only useless goods were cheap.

The impressive thing is just how much misdirection and and willful obtuseness Tabarrok manages to pack into a few sentences. The argument crumbles at whatever level one chooses to engage it.

To begin with, the chosen example is an amusing one, since it in no way exemplifies what it purports to demonstrate. Diamonds may be scarcer than water, but that is not what dictates their price. The price of diamonds has been maintained over the decades by the [powerful DeBeers cartel](, which has kept up prices through a combination of marketing and buying up excess supply. I suppose Tabarrok could counter that the phrase "market supply" doesn't imply that the availability of a commodity is a function of physical scarcity. But I hardly think he would subscribe to the notion that supply in capitalist markets is or should be primarily determined by the actions of powerful monopolists.

Leaving this aside, Tabarrok is avoiding Graeber's point by bringing up the marginal cost and the supply of different kinds of labor-power, rather than the social value of different kinds of labor. But even on these terms, it's a pretty dubious argument. Let's contrast a couple of the job categories that Graeber brings up: advertising and nursing. According to [Bureau of Labor Statistics](, there are about 620,900 people employed as "Advertising, Marketing, Promotions, Public Relations, and Sales Managers", and 2,590,600 employed as "Nursing, Psychiatric, and Home Health Aides". If the nurses make less money, even though there are more than four times as many jobs for them, then by Tabarrok's account it must be because the skills involved in marketing are so rare, and [those involved in nursing]( so plentiful. And yet by many accounts there is a serious [nurse shortage](, while I've yet to hear of a serious PR flack shortage afflicting the nation.

The more obvious explanation would be that wages are largely determined by how powerful workers are, and how powerful their industries are. In the extreme case of high finance, you have a sector that has succeeded in extracting large rents from the economy, as [Felix Salmon explains](, and has shared those spoils with a privileged layer of bank employees. But to understand this you would have to understand economic outcomes as the result of power relations, not immutable and impersonal market forces.

The most grievous illusion that Tabarrok propagates, however, is that "there is nothing special about labor" when it comes to the determination of prices by marginal value. This a good illustration of the argument that Seth Ackerman and Mike Beggs make in [the most recent *Jacobin*]( marginal productivity theory is an ethical theory masquerading as a description of social reality. What Tabarrok means is not that there *is* nothing special about labor, but that there *should* be nothing special about it. Just as DeBeers can increase the price of diamonds by buying up excess supply, the capitalist class ought to be able to keep the price of labor down by [flooding the market with the desperate unemployed]( The socialist tradition, however---whether in its [Marxist]( or [Polanyian]( form---holds that there is and should be something special about labor, because labor is *people*, and the freedom and welfare of the people is the proper subject of political economy.

Of course, the apologists for capitalism insist that they are the ones looking out for the welfare of the people, hence Tabarrok's clucking reminder that "we would be very much the poorer, if all useful goods were expensive and only useless goods were cheap." But even on its own terms, such defenses only work on a very abstract collective level, where total wealth matters but its distribution does not. After all, who's "we" here? As [Steve Waldman observes](, this means that "it is socialists who are the individualists, attending to the sum of individual welfares, while unsympathetic capitalists rely upon collectivism to justify their good fortune and the policy apparatus that magnifies and sustains it." Or as Oscar Wilde [put it](, "Socialism itself will be of value simply because it will lead to Individualism".

Tabarrok seems to think that Graeber is recommending that wages be brought into line with some standard of inherent social value, but this is to miss the point. The point, rather, is to do what we can to [separate the right to a decent standard of living from the labor one happens to perform]( And, just as important, to break free from the illusions of both libertarianism and meritocracy---that is, from the belief that the price of labor either is or should be the measure of its value.


  1. Sandwichman says:

    October 1st, 2013 at 5:14 pm (#)

    As far as I’m concerned, they could just replace these “economists” with parrots, who would do a better job and wouldn’t cost as much. It doesn’t seem to me as though Tabarrok would have ever actually read John Bates Clark on the determination of wages by marginal product value. If he had, he might have noticed that such a thing only exists in the “perfectly competitive market with full employment” fairytale land.

  2. Wednesday Links Have Been Deemed an Essential Service | Gerry Canavan says:

    October 2nd, 2013 at 9:21 am (#)

    […] Peter Frase takes up Graeber’s “On the Phenomenon of Bullshit […]

  3. Ralph Haygood says:

    October 2nd, 2013 at 5:53 pm (#)

    “marginal productivity theory is an ethical theory masquerading as a description of social reality”: It’s even worse than that. It’s an ethical theory masquerading as a description of natural law. As a scientist, I find that very offensive.

  4. Dragoon says:

    October 2nd, 2013 at 6:04 pm (#)

    “Diamonds may be scarcer than water, but that is not what dictates their
    price. The price of diamonds has been maintained over the decades by the
    powerful DeBeers cartel, which has kept up prices through a combination of marketing and buying up excess supply.”

    Well, OK, but the diamond-water paradox goes goes back as far as Pudendorf and Grotius, if not to antiquity, so DeBeers can’t be the whole answer to it. That Tabarrok brought it up struck me as surprising in that the classical economists use it to introduce the argument that labor time creates, measures, or regulates value.

    Tabarrok’s argument (and DeLong’s) that we want useful labor to be cheap so that “we” may be well off and not poor irritates me, but I’m not sure what its point of greatest weakness is. That “we” in this construction (as whenever trade restrictions or unionization are discussed) are equated with consumers rather than wage-earners? That the ad man only has “marginal utility” to his buyer because the endowments of this latter are so large that his “margin” falls well outside the range of services an ordinary person considers important? Because the concept of “productivity” invoked is at best circular and at worst not defined?

    I often think that the Veblenian treatment of the distribution of the surplus adds something to simply saying that “political power” determines distribution. But from an economic point of view, I suppose both are just admitting a certain level of indeterminacy. Either is probably better than crediting “productivity” or “the market”, as if it were as simple as just letting nature take its course.

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