On his November 29th interview with Bloomberg News, Columbia economist and Nobel laureate Joseph Stiglitz adamantly and controversially made the case that bitcoin “ought to be outlawed.” There have been several line-by-line replies to Stiglitz. I won’t rehash all of the arguments here. Instead, I will just address one of the most perplexing claims in the interview: that bitcoin is somehow based on a “Marxist theory of value.”
The Marxist theory of value is more commonly known as the labor theory of value. Karl Marx employed the theory in Das Kapital. But he was by no means the first. The labor theory of value was a staple of classical economists, including Adam Smith. In brief, the labor theory of value maintains that the value of any good or service is ultimately determined by the amount of labor used to produce it.
Few economists accept the labor theory of value today. Instead, they follow Carl Menger, William Stanley Jevons, and Leon Walras, whose pioneering work in the Marginalist-Subjectivist revolution of the 1870s spawned neoclassical economics. As these authors showed, value is not determined by the amount of time and energy that is devoted to producing an item. If it were, my rap album on the quantity theory of money–“Mo’ money, Mo’ inflation, Mo’ problems”–would be worth millions right now. And it is not, I assure you.
Rather than merely reflecting the amount of labor used in production, modern economists maintain that value is ultimately determined by the subjective valuation of consumers. Value is what the marginal buyer is willing to pay for a given item. It is this price that traces back through the supply chain and helps determine what the market wage would be for workers and capital owners.
It’s hard to think of an asset that more clearly disproves the labor theory of value than bitcoin. Bitcoin has no physical manifestation. It is not backed by some underlying commodity. New bitcoins are created every 10 minutes, as a reward for processing a batch of transaction. But the actual work being done to mine new coins is conducted by high-powered computers, not labor. Sure, those machines were produced by labor. So one might argue that using those computers more intensely is, in effect, using more labor-embedded-in-capital per unit of time. But the rising value precedes the rising cost. As such, the labor theory of value just doesn’t cut it.
Bitcoin’s value, like all other goods and services, is ultimately determined by people’s willingness to pay for it. It reflects their subjective evaluation of its value to them and others.