Larry Summers’s Insight and Misunderstanding

Value and cost are not the same.

I remark often to students that, all things considered, I would probably rather have the life and the opportunities of a lower-income student in today’s United States in material terms than the life of John D. Rockefeller.

This is from Lawrence Summers, “Liberty, Optimism, and Superabundance,” Cato’s Letter, Winter 2023, Number 1.

The article is Larry’s comment on Marian L. Tupy and Gale L. Pooley, Superabundance. The book is on my shelf but I haven’t read it yet. My impression, like Larry’s, is that the book is quite good and quite important.

After the quote above, Larry explains in some details why he would rather be a lower-income American student today than John D. Rockefeller a century ago.

An excerpt:

The chance of suffering a fatal illness at a young age would be much lower. The range of goods that would be obtainable would be much larger. The extent of the entertainment op- tions available would be much greater. The comfort of being
able to live in a room whose temperature was adjusted to suit would be vastly better for that student. The ability to get to a place 3 or 5 or 6 or 10,000 miles away quickly would be immensely larger. The number of things about which that person could learn would be far greater. The freshness, the range of foods that would be available to eat would be substantially more, and the comfort of the available clothing would be substantially greater.

Then Larry says something strange:

There is something slightly odd about using the notion of time cost in a Cato Institute publication, since, after all, it was Karl Marx who put forward a labor theory of value and sought to explain the value of all things based on the extent of labor input that went into them.

The idea of using time cost is not odd at all; it says nothing about value. Value and cost are distinct. The time cost of an item is the number of hours you would have to work at a given wage to earn enough to buy the item. It says nothing about how much you value the item. So recognizing time cost is not at all like accepting a labor theory of value.

Fortunately, Larry gets the gist anyway, writing:

But I think it is a very powerful way of capturing the progress that we have all observed. The truth is that an hour of labor cur- rently translates into far more in the way of goods that provide necessities for satisfaction or services that provide utility than has been the case at any point in human history.

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