The Inverted Labor Theory of Value Fallacy

Anybody who says they believe in the Labor Theory of Value is derided as a Communist. I prefer to refer to The Free Market Labor Arbitrage Process, because "The Labor Theory of Value" is a phrase that makes pro-State trolls brain shuts down.

In a true free market, a worker's salary is always directly proportional to the actual economic value of his work. If workers in an industry were overpaid, then new workers would enter the industry, driving down salaries. If workers are underpaid because business owners are earning surplus profits, then workers will raise capital and form new businesses. If workers are underpaid due to excess supply, then some workers will switch careers.

A true free market allocates workers and capital efficiently. In the present, State restriction of the market prevents the above arbitrage from occurring.

For example, I can't say "Lawyers are overpaid! I'll go work as a lawyer!" To work as a lawyer, I must invest 4+ years and $200k+ going to law school and getting a State law license. Further, if I don't behave the way that insiders demand, I will be stripped of my law license. For example, suppose I work as a criminal defense attorney and someone hires me to represent them in a possession of marijuana case. If I present a "jury nullification" defense, arguing that the law criminalizing marijuana is a bad law, and I persist when the prosecutor and judge object, then I will be stripped of my law license. Since I invested a lot of time and money in my State law license, I am unable to disobey the illegitimate orders of the judge.

Similarly, I can't say "Doctors are overpaid! I'll go work as a doctor!" I need a State doctor's license to do that. I can't say "Hedge fund managers are overpaid! I'll go work as a hedge fund manager!" Unless I have the right connections, working as a hedge fund manager isn't feasible.

I can't say "CEOs are overpaid! Their business is inefficient! I'll start a competing business!" State restrictions of the market make it hard for me to start a business. If I start an on-the-books business that competes directly with an established large corporation, then the taxes I pay are partially used to subsidize my large corporate competitor. The regulations I must obey cost a larger percentage of my revenues than for my larger competitors; I probably have to hire a lawyer to make 100% sure I am obeying the regulation. If the large corporation starts feeling threatened, they can lobby State enforcers to crack down on my small business, fining me for minor violations.

When justifying above-market salaries, pro-State trolls like to cite the Inverted Labor Theory of Value. They say "CEOs/bankers/doctors/lawyers/etc. are highly paid. Therefore, they provide a valuable service to society of a whole. If they were not providing a valuable service, then they would not be paid so much." They are really citing the Labor Theory of Value when they say this.

The fallacy in their reasoning is that the current market is not a free market. In a true free market, someone can earn a huge salary only when they provide a genuinely useful service. In the present, there are artificial State restrictions that make it hard for workers to enter careers, such as State licensing requirements for doctors/lawyers/accountants. There are artificial State restrictions that make it hard to start a new business, providing surplus profits and salaries for the executives who control existing businesses.

In a real free market, capital owners earn the free market interest rate, plus a salary for their labor, plus a risk premium for operating a business. In a true free market, there are no surplus unearned profits for capital holders.

Pro-State trolls say "CEOs/bankers/lawyers/etc. must be providing a useful service to society as a whole, because they get paid a lot. If they were parasites, they wouldn't get paid as much." When a pro-State troll says this, they are really citing the Labor Theory of Value. The fallacy is that the current market is not a true free market. "Salary is directly proportional to the economic value of your work" only holds in a free market.