The effort theory of value is the foudnation of SORAnomics and is derived entirely from Adam Smith's corn-based valuation in the Wealth of Nations Book 1 Chapter 5. This system will free economies from the monopoly of money which is produced or controlled by those who are able to influence the commercial system.
The Effort Theory of Value
While building Adam Smith's resource allocation system, I've often been asked: "What measure of value does it use?"
Unlike the current economic system which uses money (because it was directly descended from the Mercantile system and merchants only care about money), Smith's system uses real value as a measure of value. He suggests grains as a long term measure of value (since everyone needs to eat), and precious metals as a measure of short term value (since metals are useful). However, what does the wheat and precious metal actually represent? Smith says that it represents 'labour'. But labour is ambiguous. Marx uses the same measure in Das Kapital and ends up with the strange concepts like 'labour power' and 'labour time' as measures of physical labour, and these lead to the oppressive rationing system in Communist countries. You can exactly ration gasoline and electricity to your cars and iPhones, but it would be absurd to do that to humans. Because they use the same words, people confuse Smith's 'labour' theory with that of Marx.
A deeper look into Smith's theory
Fortunately, Smith's explanation of his theory is condensed and fully explained in just one chapter -- Book 1, Chapter 5of The Wealth of Nations. Here, it becomes clear that 'labour' to Smith is rooted in psychology instead of physics when he equates it to toil and trouble:
The real price of everything.. is the toil and troubleof acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil.
Toil and trouble are not objective. Person A who has no interest learning how to play the guitar (whom we shall call 'Guitar Hater') might 'toil' a lot if forced to learn guitar, compared to Person B ('Guitar Lover') who naturally likes it. Therefore, the 'high toil' or suffering of Guitar Hater in learning guitar is consistently high always and everywhere he is. Likewise, the low toil or suffering of Guitar Lover in learning guitar is consistently low always and anywhere he is. This is evident in Smith's maxim:
At all times and places that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.
Playing instruments is easy for some, hard for others.
Thus, the 'cost' or 'price' of guitar learning will be consistently 'expensive' to Guitar Hater but consistently 'cheap' to Guitar Lover. If their society naturally values guitar music, then Guitar Hater will be 'poor', while Guitar Lover will be 'wealthy' especially since he can 'arbitrage' his high quality but cheaply-earned guitar skill by selling it to society at a price that is high to them.
So the core idea in Smith's theory is psychological toil and trouble instead of physical labour. To establish this core idea, we replace 'Labour theory of value' with 'Effort Theory of Value'since the word 'effort' best combines both psychological and emotional toil and trouble with physical work. 'Work Theory of Value' was also a good candidate. However, 'work' tends to mean more of the effect rather than the cause.
Update Dec 2020: This way of thinking about another person's love for guitar-playing (cause) instead of thinking about his actual guitar music (effect) is not common. When you buy bread at the grocery, you often check the label and think about its price and nutrients. You never think about the baker who baked that bread and who was the cause of the existence of the bread. His name, skills, looks, personality, doesn't enter your mind. Likewise, we see objects everday and never think about the persons or Creator that made their existence possible. Eastern philosophy solves this by using a mantra constantly which forces the mind to always think of the causal principles behind every perception. Thanks to this technicque, the mind is trained to look at the principles behind every perecption, whether it be in economics, politics, healthcare, etc. Shallow minds will think that money is the cause of economic activity because that is what their perceptions readily present to them. They will then create utility theories from this and then equilibrium and profit maximization, not knowing that such ideas naturally create crises after some time.
But effort alone will not lead to value-creation unless the person is interested in what he is applying the effort to -- he has to be deeply interested in whatever task he is doing. This is where his 'self-interest' comes in. Whatever one is interested in is a natural part of the invisible hand of his dharma. A person interested in guitars will naturally create higher quality guitar music than someone who is not interested in guitars. Society would therefore have more value and quality if its bakers baked and its brewers brewed, instead of its bakers brewing and its brewers baking.
This matching of interest and occupation isn't new. Plato put it as his core requirement of his ideal city-state, as written in The Republic.
A person works better when he has only one occupation instead of many. A work is spoilt when not done at the right time. Business does not wait for the businessman to be at leisure. Instead, the businessman must follow up what he is doing and make his business his first object. All things are produced more plentifully, easily, and with a better quality when one man does one thing which is natural to him at the right time, and leaves other things.The Simple Republic, Book 2, Chapter 2
This is the same reasoning behind the Hindu varna systemwherein a family of farmers trains its some of its children as farmers, and a family of doctors trains some of its children as doctors. Unfortunately, this system degenerated into a rigid caste system that people got trapped into. Instead of the occupations being naturally dynamic, it became static. To prevent this, one of the features of our proposed system is for the classification of careers to be done by artificial intellgence based on personality instead of heredity, so that society can have economic balance and higher quality of goods and services.
SORA Match suggests the best career or educational path for workers and students
So how do we measure effort?
Since our valuation is based on effort which is subjective until it the buyers have decided on them objectively with their purchase, then our initial measure for effort will be the thing that is needed by everyone to start the effort. With the human species, this thing is called food. Without food, no one can do any effort.
We find that this is exactly what Smith had in mind when he mentioned corn, which is shorthand for grains which represents food. You might not be able to print your own money, but you can certainly grow your own corn:
At distant times, equal amounts of labour will be bought more nearly with equal amounts of corn, the worker’s subsistence, than with perhaps any other commodity. At distant times, equal amounts of corn will enable its possessor to buy or command nearly the same amount of the labour of other people. Although equal amounts of corn will not do it exactly.
Economics and the Commercial system measures everything in currency which is controlled by government which could be authoritarian like Zimbabwe and Venezuela, or could be bought by vested intersts like in the US and most countries. Our system measures everything both in money and grains. Money valuation is used for fast transactions while grain valuation is based on slow trasactions and as a backup or safety in case of financial crisis when the value of money disappears.
From a Superphysicsperspective (the paradigm that sees everything as waves instead of particles or objects), the effort theory of value bases value on natural waves of interests and desires. This is different from the Commercial system which bases value on physical particles or objects such as money.
With that, we can safely translate Smith's 18th-century words into modern English without corrupting its deeper meaning and intention (we will discuss his corn advocacy in another post):
Original:
But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself continually varying in its own value, can never be an accurate measure of the value of other commodities. Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength and spirits; in the ordinary degree of his skill and dexterity, he must always laydown the same portion of his ease, his liberty, and his happiness. The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it. Of these, indeed, it may sometimes purchase a greater and sometimes a smaller quantity; but it is their value which varies, not that of the labour which purchases them. At all times and places that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.
Translated with 'toil and trouble'
A commodity that always varies in value can never be an accurate measure of the value of other commodities. Just as a natural foot, fathom, or handful can never be an accurate measure.. Always and everywhere, equal quantities of toil and trouble is of equal value to the worker. In his ordinary state, he must always lay down the same portion of his ease, liberty, and happiness. The price which he pays must always be the same, though sometimes it buys varying amounts of commodity. But it is the value of the commodities which varies, not his toil and trouble. Always and everywhere:
a thing is expensive if it is difficult or costs much toil and trouble to acquire.
a thing is cheap if it can be had easily or with very little toil and trouble.
Toil and trouble never varies in its own value. Therefore, it alone is the ultimate and real standard by which the value of all commodities can be estimated and compared always and everywhere. “It is their real price; money is their nominal price only.”
Smith's Effort Theory of Value is seen in lowly-paid and highly-paid jobs. The former generally requires less effort than the latter, when taking into account the physical, mental, and emotional toil and trouble involved.
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