The Refuted Meme:
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Value should not be set by wealthy capitalists – because value is the sum of the labor that went into creating something.
The Trojan Horse Meme
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This meme describes the labor theory of value, which was developed by Karl Marx and others. The labor theory of value has been solidly refuted and abandoned by economists for over 100 years. It has been appropriately replaced with the subjective theory of value developed by Carl Menger and others.
A very simple refutation of the labor theory of value is mud pies. That’s right – pies made from mud. A baker could spend his labor making pies from mud, but the pies would have no value, despite all the labor that went into them, because no one wants to eat mud pies. Value is not determined from the labor that went into creating something. Value is subjective and determined by how much satisfaction the product brings to its creator or others. Here is a very good description of the mud pie fallacy.
The first part of the meme is actually correct – value should not be set by wealthy capitalists. Value should be set through voluntary market transactions. In such a system, value is determined by what consumers are willing to pay for something, and business owners must meet the satisfactions of consumers or go out of business. In capitalism, the consumer is king.
It is not surprising that many people believe that value is set by wealthy capitalists. They see this happen all the time in our modern economy. But it is a misnomer that our current economic system is free market capitalism. Our current system is a crony capitalism with heavy government regulation and control of the economy. Under such a system, coercion between the government and wealthy business owners enables the distortion of market prices to the benefit of wealthy business owners. This is not capitalism, and people who engage in such practices are not capitalists – they give capitalists a bad name.
Source: Trojan Horse Memes