A Question to IDA Comrades: Labour Time Accounting of Inputs

Q&A
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I have watched your presentation about labour time accounting, and I am just wondering one question:

In your example, you implicitly assumed each company knows the labour time cost of every input it needs. But how does each company know them? Is there any mechanism provides such information?

I notice that in Cockshott’s model or Hahnel’s model, we don’t need labour time cost to help us approve or disapprove each company’s production plan. What is the advantage of utilising labour time cost to “filter” production plans compared to linear programming (Cockshott’s) or indicative price adjustment mechanism (Hahnel’s)?

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@Amittai_Aviram @Sebastian_L

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Hi, good question. Companies file one plan per product or service they offer. In these plans they define the labour time cost. Because all approved plans are published, everyone can know these costs.

The costs of the same product/service are then averaged (via so-called planning associations) to calculate the social average labour time cost per product. This average cost is public information, as well.

This model is easy to understand, also for non-mathematicians, and because the basic unit of calculation is labour time, it prevents effectively exploitation (defined as the appropriation of other people’s labour).

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To add to Sebastian’s answer — in our related project at Boston College (computer simulation modeling), we are exploring various methods for obtaining and publishing the average actual labor time per product, which is the empirical equivalent of the average socially necessary cost. The advantage of using the average socially necessary cost as the price of inputs to a given production plan is that they reflect the real cost, without any room for price manipulation or profit. The advantage to using labor time as the unit of measure is the same as for any aspect of a labor-time economy in general: it causes exchange value to be the same as actual value (assuming the labor theory of value). Labor time, unlike money, cannot circulate — it cannot be the vehicle for speculation, private rents, profit, etc.

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Thank you very much for your replies! But I still have some questions.

This is where my concern lies: In order to calculate and submit its production plan—which depends on the labour‑time cost of its output—each firm must first know the labour‑time cost of every input it intends to import from other firms. Then:

  1. If, in your model, all firms submit their plans simultaneously, how does each firm know the labour‐time cost of the inputs it must import from others?
  2. Conversely, if plans are submitted sequentially, how does the very first firm know the labour‐time cost of the inputs it needs from other firms?
  3. If firms rely on historical rather than current labour‐time costs for their inputs, how can they accurately calculate the current, actual labour value of their products—and, by extension, how can the economy as a whole achieve efficiency?

Another comment on the advantage of the labour-time-based plan-proposal mechanism design. You said:

I feel like it is somehow unclear for me why it can prevent effective exploitation (just) because labour time is the basic unit of calculation, and it is “transparent” for everybody. I acknowledge that choosing it as the basic unit of calculation is easy to understand for everybody. However, I feel like there is a logic gap between its transparency and “exploitation can be effectively avoided”. You may want to add some intermediate arguments to make this logic chain more complete.

Amittai proposes that another advantage of labour-time economy is that:

You may have noted that Hahnel argues that labour time per se is not actual value. However, my another concern of this argument is that: this argument seems to defend the use of labour time in the domain of exchange, rather than in the domain of (proposal of plan of) production - I think this is why Cockshott also supports labour certificate system (which also uses labour time as the basic unit, and labour certificate cannot be circulated as well) but suggests to use linear programming system to deal with production plan proposals. Furthermore, in Hahnel’s ParEcon, if my memory is correct, we can also develop a credit point system in which each member’s consumption credits cannot circulate as well. If we just talk about something that cannot circulate, then labour time is not that unique.

Of course, I am not intending to negate the labour-time system approach here. I just have some concerns on current mechanism design of labour-time system. Look forward to hearing from you.

@Sebastian_L @Amittai_Aviram

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Hi, Shujun,

Thank you for your questions! I will try to answer them in their original order. Perhaps Sebastian might like to step in later to add comments or corrections.

On the development and submission of plans

I think your three questions all relate to the problem of not knowing actual labor times before anything has been produced. The IDA application is intended for firms that have already been in operation for some time and which purchase their inputs from other firms that have also been in operation for some time. So, prior to the conversion to labor-time accounting, all the firms involved in the network to be represented in the app are presumed already to have substantial experience in their respective areas of production, which enables them to provide to each other a fairly accurate estimate of their production costs in hours of work. A fairly accurate estimate is good enough for the system to work — minute adjustments can be made in later plan cycles. Note that the costs of inputs to a given plan reflect, in effect, a previous moment in time. In particular, if the average socially necessary labor time to produce the input has decreased between the most recent plan cycle and now, the cost will be an overestimate. The IDA app does not specifically address this sort of thing, but leaves it up to the accountant (a human agent), the planning company, and the planning association to which the company belongs to tweak the numbers so as to ensure plans that conform closely to actual costs.

The approach in the BC simulation modeling project is a bit different, because we are trying to develop cybernetic controls to automate signals as much as possible and thus to minimize the need for direct human intervention in such details as pricing. In that model, we necessarily “bootstrap” the economy with human-created estimates (“guess-timates”) of the costs of various products and services, and then rely on these automatic signals and controls to adjust the numbers so as to reflect production realities. In either case (the app or the simulation model), once the system gets going, prices should be very close reflections of actually required work time.

On labor-time accounting and exploitation

Under capitalism, suppose I get paid USA $20 an hour for a product that takes exactly one hour per unit to make. When the firm sells the product, it sells it on the market at $35 an hour. This means that my employer is charging the customer $35 for an hour’s worth of product, of which he keeps $15 (about 43%) as profit and pays me $20 (about 57%). Equivalently, when I worked that hour, I was paid for only the first 34.3 minutes, and I was compelled to work the remaining 25.7 minutes for free, to give away to my employer. If I have to work for no pay for my employer, I am being exploited. Indeed, the ratio of how much unpaid work I have to do for my employer to how much I do for pay is the rate of exploitation.

It follows that, if I am paid for every minute that I work, i.e., if the money earned for the product all goes to me and to others involved in actually producing the product, there is no exploitation. This is condition is almost impossible to achieve if you use money, because money is a universal representation of value — it is easy to detach money from the actions or relations that it originally represents. Money, for instance, enables us to hide the portion of the product’s price that goes to profit, because there is nothing to distinguish the money going to profit from the money going to actual work.

Value and exchange value

I have attempted to respond to Hahnel’s point about value and exchange value in another thread, but maybe you mean some other writings with which I am not yet familiar. As far as we are concerned, I think, both in IDA and in the BC group, value is exchange value within the limited realm in which you can exchange labor certificates (or credits or records) for products and services representing an equal investment of labor. I do not see any contradiction between that idea and the use of labor time as your unit of estimation for planning purposes. That said, as I mentioned in that other thread, I do think that plans should include some in-kind accounting in addition to labor time. We do not (so far) believe that this needs to be a thorough in-kind accounting of all possible materials, resources, and outputs. We are focused only on what the society as a whole (in a periodic political process) decides to be the small set of scarce resources and the small set of undesired outputs (such as greenhouse gases, toxic waste, etc.). These should be itemized in a social budget, and then plans are allowed to partake of that social budget. This partaking may take the form either of rationing or of some sort of user fee (or “social rent”). We tend to favor rationing, but are aware of the historic links between rationing schemes and black markets. The whole idea of in-kind accounting and social budgeting is an area of research a bit further down on our agenda, to which we hope to turn in the next few months.

— Amittai

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Another note on the “bootstrapping” problem, so to speak:

As Giovanni Paiela’s recent blog post suggests, that initial estimate can be computed fairly easily from the planned direct labor expenditure. Both the cost of the inputs and the necessary labor cost must then be adjusted over time to match experience. In our cybernetics project, we are trying to automate that adjustment.

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Hi @Amittai_Aviram and @Sebastian_L, the link you provided is very interesting, since it is somehow consistent with Sraffian framework, i.e., to calculate labour values, what you need is just physical input-output data. Thus, you may want to reframe the labour time accounting based on input-output table (I think this method is more efficient, and can be done by using super-computers), rather than requiring each company report its labour time cost directly.

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The appendix B.1 of How Labor Powers the Economy provides a practical way to calculate labour content of each product-type. I feel like you guys will like it. If you accept that approach, what you need is just let each company report its own input-output data, no need to get information about inputs’ labour-time costs anymore. Therefore, each company can have a simpler information reporting task.

But there is a caveat: that approach views all direct labour input as homogeneous rather than hetergeneous (in reality, labour is hetergeneous). So, I think that approach should be viewed as a first approximation of labour-value calculation.