The second flaw is perhaps the more contentious. The labor theory of value is still believed today by many people. Like the belief in astrology, otherwise rational people hang on to it. Discredited over a century ago by the marginalist revolution in economics, the labor theory yet survives.
There are reasons for this flat earth view of economics. First, some of the original economic luminaries held the labor theory of value. Adam Smith and David Ricardo supported it. It's fair to say that the high priests of "capitalism" planted the seed for the main criticism of "capitalism." Karl Marx quoted Smith and Ricardo to support his condemnation of capitalism. A second reason for the continued popularity of the labor theory of value is that it contains a kernel of truth, at least in its descriptive formulation. The price of a good (or service) can be gauged by the amount of labor expended in producing it. One can argue that other measures are more accurate, or more easily determined. One can argue that the subjective theory of value - supply and demand - is more general in that it explains a broader range of phenomena. One could argue that labor-time is an effect rather than a cause. But as a rough gauge for many goods, labor often suffices as a workable measure of price.
The problem with the just price doctrine is that it goes beyond the descriptive claim that labor-time can be used to measure or predict price; it claims that the measure should be the exchange price. In other words, it makes a normative claim - what the price ought to be - rather than a descriptive claim of fact.
There are other weaknesses in classical anarchist economic theory: it doesn't recognize the information function of price or know the meaning of scarcity, it ignores or underestimates the advantages of a division of labor, its theory of money is non-existent or naive. This is not surprising, given that the theories were worked out in the 19th century. But whatever other economic errors it makes, classical anarchism's most fatal economic flaw is its reliance on that creationism of the left - the labor theory of value as a normative principle.
Before we look at how it may work, focusing on the history of anarchism and the economic aspects - the differences between anarcho-socialism and anarcho-capitalism - let's cover the basics. We first will examine "legitimate authority" in an effort to discover its essence.
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