Rothbard on the Main Fallacy of our Time: Marx’s Labor Theory of Value

by Stephan Kinsella on December 26, 2016

Rothbard, in The Ethics of Liberty, writes of the disastrous consequences of the fallacious Marxian labor theory of value:

“I am convinced, however, that the real motor for social and political change in our time has been a moral indignation arising from the fallacious theory of surplus value: that the capitalists have stolen the rightful property of the workers, and therefore that existing titles to accumulated capital are unjust. Given this hypothesis, the remainder of the impetus for both Marxism and anarchosyndicalism follow quite logically. From an apprehension of what appears to be monstrous injustice flows the call for “expropriation of the expropriators,” and, in both cases, for some form of “reversion” of the ownership and the control of the property to the workers.[23] Their arguments cannot be successfully countered by the maxims of utilitarian economics or philosophy, but only by dealing forthrightly with the moral problem, with the problem of the justice or injustice of various claims to property.” ¹

Rothbard also quite rightly rejected the idea that property titles are to be overturned if we cannot trace title back to Adam, that is, if there is any taint in the “chain of title”—what Jeff Tucker has referred to as “scrupulosity”. ² As Rothbard wrote in an important addendum to a seminal 1974 paper:

“It might be charged that our theory of justice in property titles is deficient because in the real world most landed (and even other) property has a past history so tangled that it becomes impossible to identify who or what has committed coercion and therefore who the current just owner may be. But the point of the “homestead principle” is that if we don’t know what crimes have been committed in acquiring the property in the past, or if we don’t know the victims or their heirs, then the current owner becomes the legitimate and just owner on homestead grounds. In short, if Jones owns a piece of land at the present time, and we don’t know what crimes were committed to arrive at the current title, then Jones, as the current owner, becomes as fully legitimate a property owner of this land as he does over his own person. Overthrow of existing property title only becomes legitimate if the victims or their heirs can present an authenticated, demonstrable, and specific claim to the property. Failing such conditions, existing landowners possess a fully moral right to their property.” ³

But Rothbard could have gone further and condemned not only the Marxian labor theory of value but the entire Lockean labor theory of property, which is equally fallacious and insidious, and possibly a progenitor of Marx’s odious ideas, and at least a close cousin. ⁴ The entire concept of labor is fuzzy and confused, in both economics and political theory. This is why I argue Locke’s Big Mistake: How the Labor Theory of Property Ruined Political Theory.

In Misesian praxeological terms, labor is merely a type of action, as distinguished, say, from leisure; these types of action are distinguished by the subjective goals and experiences of the actors (labor is something we prefer not to do if possible for its own sake; leisure is something we do for its own sake). ⁵ But the praxeological structure of action applies to all actions, no matter how some catallactic economists or psychologists wish to classify the goals or mental states of the actors. All action employs scarce means, to achieve ends; all action is guided by knowledge, or information, sometimes called “recipes”. ⁶ Human actors employ their knowledge of what ends are possible to them in the world and what they perceive will bring them more or less subjective satisfaction in the future and use their knowledge of causal laws to select means within their control to attempt to interfere with the predicted course of events to achieve some other, more desired, future end-state. Thus all action employs scarce means, which are controllable and manipulable by one’s body, to attempt to achieve some end-state in the future; and the action is always necessarily guided by knowledge of causal means available and possible ends in the future that will result from the actor’s manipulations of these causal means. The scarce means are subjects of property rights, but knowledge is not—it cannot be. This is why property rights in scarce resources are natural, make sense, and are justified, and why intellectual property rights, such as patent and copyright, are not and cannot be.

The world’s leading Rothbardian and Misesian, Hans-Hermann Hoppe, so steeped was he in praxeological reasoning (indeed, he was on the verge of independently formulating his own version of similar laws of action when he came across Mises and Rothbard) ⁷ that he was able instantly to identify the problem with intellectual property rights as far back as 1988, when asked on the spot about this issue by a questioner:

AUDIENCE QUESTION: I have a question for Professor Hoppe. Does the idea of personal sovereignty extend to knowledge? Am I sovereign over my thoughts, ideas, and theories? …

HOPPE: … in order to have a thought you must have property rights over your body. That doesn’t imply that you own your thoughts. The thoughts can be used by anybody who is capable of understanding them. ⁸

This was, by the way, far before IP was to start getting the scrutiny by libertarians that it was to start receiving later, in the Internet age.

Rothbard sensed much of the problem with IP in his condemnation of patent, and, especially, in his condemnation of reputation rights in Ethics, ch. 16, “Knowledge, True and False“. In this chapter Rothbard attacks defamation law (which includes libel, the written form of defamation, and slander, the oral form), i.e. reputation rights (he also rightly attacks blackmail law), on the grounds that reputation is just the subjective opinions of you that others have in their own heads, their own minds, and since they own their own bodies, you cannot have a property right in what they think; thus, you cannot have a right to a reputation, and defamation law is thus unjust.

And of course a similar argument applies to patent and copyright. As Roderick Long has put it, Owning Ideas Means Owning People. ⁹ The fact that similar flaws affect both IP and defamation law should not be surprising since, as I have argued, defamation law/reputation rights should also be considered a type of IP, although this is not usually how defamation law is classified. ¹⁰ However, anyone familiar with the standard arguments for trademark law (a type of IP) and defamation law should recognize the similarity. Defamation law is based on the idea that you own your reputation since it has economic value, and thus certain statements of others that reduce the value of your reputation are some kind of violation of property rights, and thus may be prohibited. Similar reasoning is made in favor of trademark, law, though here the arguments are muddled. Some say businesses have a property right in the value of their trademark (similar to one’s reputation) and that certain representations by competitors may be prohibited—sometimes the defense of trademark is based on fraud (but there are already law against fraud; why do we need another?), sometimes on contract (but we already have contract law; and in the case of contract breach it would be the customer, not the trademark user, who has a cause of action against some deceptive knockoff company), but often based on the idea that a trademark is like a reputation that “has economic value”. Of course, here, again, Hoppe’s solid rooting in Misesian praxeology has helped explode the fallacy in all these notions: as he has observed, there are no property rights in value, but only in the physical integrity of scarce resources that one owns. ¹¹

Rothbard therefore should have seen that not only is defamation law unlibertarian—along with blackmail law and even patent law—but that all IP, including trademark, patent, and copyright, are illegitimate. Instead, he makes a muddled case against modern patent and copyright law but argues instead for something he calls “contractual” or common law copyright. As I argue at length in Against Intellectual Property, this argument is completely confused. Some libertarian copyright defenders claim Rothbard is in favor of copyright. He is not. The “common law copyright” he is in favor of seems to be a contractual amalgamation of patent and copyright law (the example he gives is of a mousetrap, an invention, something covered by today’s patent law, not copyright law), and bears no resemblance to the older doctrine of common law copyright (which had to do with unpublished manuscripts and was more akin to a combination of contract and trade secret law). And Rothbard is simply wrong that his contractual approach would result in anything like what he imagines it will. This is because he loses sight of the fact that ownership is always ownership of a physical, scarce resource, and not of information or knowledge—if he had emphasized the role of scarcity to property rights, as Hoppe does, ¹² and kept in mind the praxeological distinction between scarce means, and knowledge, as Hoppe does, he would not have made this mistake. It’s perhaps why he was silent and did not object, when sitting next to Hoppe on the 1988 panel when Hoppe made a similar observation. ¹³

In sum—this is why we must object not only to the Marxian labor theory of value, but also to the horrendously confused, overly metaphorical Lockean labor theory of property. Actions are things we do; we do not own action. ¹⁴

Likewise, we do not own our labor. Nor does one own “the fruits of his labor.” We do not own metaphors. We do not own knowledge. We do not own the “consequences” of our actions. We own scarce means of action; knowledge guides our actions, but is distinct from the scarce means that are employed. Both knowledge and means play important and essential—and complementary—roles in successful action. Action is not possible without both means and knowledge. Someone having knowledge but no access to any scarce means cannot act; only the employment of scarce means can have a causal effect on what would otherwise transpire. But someone having access to means but no knowledge cannot act, either, for one would not know what ends to pursue or what means to employ to achieve a given end.

Thus knowledge, like scarce means, are essential for action. But this does not mean we own knowledge. Scarce means by their nature can be the subject of violent conflict among competing actors; property rights are allocated so that these scarce means can be used peacefully, cooperatively, productively, without violent conflict and clashing. But knowledge and information is not a rivalrous, scarce resource and may be employed by any number of actors at the same time, and the accumulation of knowledge over time is essential to human progress. As Hayek observed, the societal accumulation of knowledge is a “fund of experience,” which allows humans of every generation to benefit from innovations and discoveries of the past, to more and more successfully and efficiently create, produce, and act. ¹⁵

Rothbard was right to observe that all rights—all human rights—are property rights. In his brief explorations of the arcane topic of IP rights, he lost sight of the fact that all property rights are rights to control scarce resources; he lost sight of this because unlike his student Hoppe, he did not always focus on the importance of scarcity to property rights, and did not keep in mind the sharply different roles of scarce resources, and knowledge, in human action. We do not own labor, just as we do not own our actions, and just as we do now own reputation, or others’ minds or opinions, just as we do not own the value of our property but only its physical integrity; we do not own knowledge, since all rights are enforceable by law and force and are always directed at some material, scarce thing in the world. We do not own things we create, nor metaphors, nor the fruit of our labor. Libertarian creationism is wrong: creation is not an independent source of property rights. It is a source of wealth, but not of property rights. Production means transforming already existing things, making them more valuable, making the owner more wealthy, but does not give rise to additional property rights. ¹⁶ Only original appropriation and contractual transfer or exchange give rise to property rights—and these property rights are always property rights in and to the exclusive right to control scarce resources, not knowledge. This does not mean creation, the intellect, and labor or not important—just as they are not ownable; as with the case that truth and justice are important even though they, like lots of other referents of concepts and words, are not ownable.

If one recognizes that Locke was wrong, one will not make all these mistakes. If you realize the distinct roles played by knowledge, on the one hand, and scarce resources, on the other, in human action, you will understand why property rights always apply only to scarce resources and never to knowledge. And then it becomes easy to understand why action (and thus labor) is not an ownable resource but just the use a person makes of his body and other means, guided by his knowledge. Labor is action, and it employs scarce means, which may be owned; and it employs knowledge, which cannot and need not be.

Update: Facebook comments.

PDF and epub; quote from ch. 9, Property and Criminality, text included in chs. 6-9 excerpt here. [↩]
See Tucker, Scrupulosity and the Condemnation of Every Existing Business, archived comments here; discussed in my post Vulgarism, Left-libertarianism, Taco Bell, and “Power”; see also my posts Is Macy’s Part of the State? A Critique of Left Deviationists and The Walmart Question, or, the Unsupported Assertions of Left-Libertarianism (Apr. 26, 2009) (archived comments). [↩]
Justice and Property Rights: Rothbard on Scarcity, Property, Contracts…, Libertarian Standard (Nov. 19, 2010); see also Mises, Rothbard, and Hoppe on the “Original Sin” in the Distribution of Property Rights. [↩]
See my Locke, Smith, Marx and the Labor Theory of Value; also Locke’s Big Mistake: How the Labor Theory of Property Ruined Political Theory and Hume on Intellectual Property and the Problematic “Labor” Metaphor. [↩]
Similarly, as Hoppe writes of the distinction between private and public goods:

“A clear-cut dichotomy between private and public goods does not exist. . . . All goods are more or less private or public and can—and constantly do—change with respect to their degree of privateness/publicness as people’s values and evaluations change, and as changes occur in the composition of the population. In order to recognize that they never fall, once and for all, into either one or the other category, one must only recall what makes something a good. For something to be a good it must be recognized and treated as scarce by someone. Something is not a good as such, that is to say; goods are goods only in the eyes of the beholder. Nothing is a good unless at least one person subjectively evaluates it as such. But then, when goods are never goods-as-such—when no physico-chemical analysis can identify something as an economic good—there is clearly no fixed, objective criterion for classifying goods as either private or public. They can never be private or public goods as such. Their private or public character depends on how few or how many people consider them to be goods, with the degree to which they are private or public changing as these evaluations change and ranging from one to infinity.”

Hoppe, ch. 10 of TSC, and EEPP, ch. 1. [↩]
As Rothbard wrote in MES:

“There is another unique type of factor of production that is indispensable in every stage of every production process. This is the “technological idea” of how to proceed from one stage to another and finally to arrive at the desired consumers’ good. This is but an application of the analysis above, namely, that for any action, there must be some plan or idea of the actor about how to use things as means, as definite pathways, to desired ends. Without such plans or ideas, there would be no action. These plans may be called recipes; they are ideas of recipes that the actor uses to arrive at his goal. A recipe must be present at each stage of each production process from which the actor proceeds to a later stage. The actor must have a recipe for transforming iron into steel, wheat into flour, bread and ham into sandwiches, etc.

The distinguishing feature of a recipe is that, once learned, it generally does not have to be learned again. It can be noted and remembered. Remembered, it no longer has to be produced; it remains with the actor as an unlimited factor of production that never wears out or needs to be economized by human action. It becomes a general condition of human welfare in the same way as air.

See also Knowledge vs. Calculation, Mises Blog (July 11, 2006) [Mises blog version; archived version with comments]. [↩]
As he has explained of his early intellectual development:

Independently, I had concluded that economic laws were a priori and discoverable through deduction. Then I stumbled on Mises’s Human Action. That was the first time I found someone who had the same view; not only that, he had already worked out the entire system. From that point on, I was a Misesian.

Quoted in my Afterword to Hoppe’s The Great Fiction. See also Hoppe: First significant thinker to get libertarianism totally right. [↩]
See Hoppe on Intellectual Property. [↩]
See also his The Libertarian Case Against Intellectual Property Rights; I also make the point that IP is a form of slavery since it gives others a partial right of ownership over others’ bodies, e.g. in Against Intellectual Property and other writings; as did Tom Palmer in his late 1980s work on IP, as I noted in AIP. [↩]
See my “Types of Intellectual Property.” [↩]
Hoppe on Property Rights in Physical Integrity vs Value. [↩]
See “Foreword,” in Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Laissez Faire Books ebook edition, 2013); “Afterword,” in Hans-Hermann Hoppe, The Great Fiction: Property, Economy, Society, and the Politics of Decline (Laissez Faire Books, 2012); also “Introduction,” with Jörg Guido Hülsmann, in Hülsmann & Kinsella, eds., Property, Freedom, and Society: Essays in Honor of Hans-Hermann Hoppe (Mises Institute, 2009) (published as “Essays in Honor of Hans-Hermann Hoppe,” Mises Daily, Aug. 7, 2009). [↩]
See Hoppe on Intellectual Property . [↩]
See Cordato and Kirzner on Intellectual Property, where Kirzner cites J.P. Day as follows:

Day is sharply critical of Locke, denying that one can talk significantly of owning labor (in the sense of “working”). Laboring, Day contends, is an activity, “and although activities can be engaged in, performed or done, they cannot be owned.” [↩]
See Tucker, “Knowledge Is as Valuable as Physical Capital” .[↩]
See Locke on IP; Mises, Rothbard, and Rand on Creation, Production, and ‘Rearranging’; also my “Intellectual Freedom and Learning Versus Patent and Copyright,” Economic Notes No. 113 (Libertarian Alliance, Jan. 18, 2011) (also published as “Intellectual Freedom and Learning Versus Patent and Copyright,” The Libertarian Standard, Jan. 19, 2011). [↩]