Sunday, December 23, 2007

Mankiw's Monetary Faith

My comments appear below, with Mankiw's original column in italics. -- JD

The New York TIMES / December 23, 2007

Economic View: How to Avoid Recession? Let the Fed Work

By N. GREGORY MANKIW

(N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and is advising Mitt Romney, the former governor of Massachusetts, in the campaign for the Republican presidential nomination.)

The economy is teetering on the edge. Many economists, as well as online betting sites, put the risk of recession next year at about 50 percent. Once we get the final numbers, we might even learn that a recession has already begun.

The question on the minds of many in Congress and in the White House is this: What they should be doing now to keep the economy on track? The right answer: absolutely nothing.


This advice isn't easy for politicians to follow. Because economic downturns mean fewer jobs and falling incomes, they are painful for many families. Voters can confuse inaction with nonchalance and send incumbents packing. But just as patients should avoid doctors who recommend radical surgery for every ailment, voters should be wary of politicians eager to treat every economic ill. Sometimes, bed rest and wait-and-see are the best we can do.

This slam at politicians seems unfair in general, coming as it does from a member of an even lower ilk, an orthodox economic pundit. It ignores the political push in Congress -- mostly coming from Mankiw's GOP -- to do absolutely nothing about recessions, unless it involves tax cuts for the rich or cosmetic "cures" (such as that of 2001-02).

More importantly, it ignores the all-important role of gridlock in DC: many, many different politicos can veto any kind of fiscal action. This includes the President. Indeed, these days the two DP-dominated houses of Congress and the President seem pretty good at blocking each others' initiatives.

Orthocons like Mankiw like to portray the government as chomping at the bit, ready to jump in to mess with the economy. Au contraire. Among other things, the politicians would rather that the Fed get the blame for any economic mess.


Congress made its most important contribution to taming the business cycle back in 1913, when it created the Federal Reserve System. Today, the Fed remains the first line of defense against recession.

Even if the Fed can pull the rabbit out of the economic hat, it should be mentioned that it did not become the "first line of defense" until the end of the fixed exchange-rate system in the early 1970s, which shifted the balance of power from fiscal to monetary policy. Before that, the Fed's job was mostly to keep the US$ at par, as part of a fixed exchange-rate system.

The Fed's control over the money supply is a powerful lever to move overall demand for goods and services. When its trading desk buys bonds and expands the money supply, it lowers interest rates and encourages the private sector to borrow and spend more. The influence of interest rates on the economy is particularly strong in housing, where buyers are rate-sensitive. Because housing woes are the source of the current slowdown, the Fed's tool kit is well suited for the task at hand.

Mankiw presents the "Economics One" (or is it Econ Zero?) version of monetary policy, but the Fed has admitted that it in effect lacks control over the money supply. It does have control over the availability of bank reserves and thus the fed funds (overnight bank-loan) interest rate, a very short-term rate. But in the short run (which is what's important if we're talking an on-coming recession), the fed funds rate is only vaguely connected with the (long-term) mortgage interest rate that Mankiw refers to. If the Fed encourages repeated cuts of the fed funds rate, as Greenspan did, that would likely have an effect of depressing mortgage rates. But the Fed seems loath to repeat Greenspan's policy, because it would encourage inflation and/or a disastrous decline of the US$.

Also, will the banks be willing to lend, especially in the housing market? Due to the "sub-prime" crisis, banks have a lot of "non-performing" (i.e., bad) assets. Do they really want to send good money after bad? Getting beyond such subjective matters, falling asset values hurts the banks' capital (equity). Not only does this upset the banks' stock-holders, but prudent banks would keep their capital from falling too far or too quickly. And the aftermath of a credit crunch seems like a good time to be prudent, if you're a banker.

Finally, with mortgage (and other) debt high compared to potential home-buyers' incomes and assets, they are likely loath to borrow more just to take advantage of lower interest rates. With house prices falling, also, many prospective home-buyers will likely wait for a better deal later on.

If there are problems on both the supply and demand sides, Mankiw's monetary mechanism seems meager at most.


The recession-fighting effects of monetary expansion, however, are not limited to the housing market. When lower interest rates make fixed-income investments [i.e., bonds] less attractive, investors turn to the equity [stock] market and bid up stock prices. Higher stock prices, in turn, make consumers wealthier and more eager to spend. They also make it easier for corporations to expand their businesses with equity financing.

If speculators begin to expect a replay of Greenspan's repeated rate cuts of the early 2000, they would expect bond (fixed-income investment) prices to rise. Those interested in capital gains -- and that means most or all of them -- would thus want to buy bonds (all else constant). In addition, in times of trouble (such as the period after a credit crunch), government bonds are really attractive, since they are quite safe. So again they would be bought up. These forces undermines Mankiw's purported mechanism, because the speculators' money would not be going into equities.

But some speculators and financial investors may turn to the equity market, buying stock shares and driving up their prices. This would make wealthy consumers wealthier and more eager to spend. (Somehow Mankiw ignores the skewed nature of stock ownership. I don't know why!)

The problem is that this is poor compensation for the fall in the prices of homes. It's true that this hasn't hit the rich folks much, if at all. But it's mass consumption that's the rock-bottom (secure) base of economic expansion. It's the mass of consumers -- not the rich elite -- that props up the economy.

It's the mass of consumers who are excessively burdened by consumer and mortgage debt. (It would be a mistake to forget consumer debt (credit cards, etc.) since it's far from the majority of the population that's been doing mortgage borrowing lately.) It's their stagnant consumption spending that will likely drag down the US economy for years to come, even if there is no recession.

In addition, Mankiw should invoke the phrase often used by better economists, "all else equal." The equity market is extremely flaky, subject to speculative booms and busts and impacted by extraneous events. Even if the Fed cuts interest rates more, that does not mean that stocks will automatically go up. For example, Mankiw must ask "what's happening to corporate profits?" if the recession hurts profits -- as usual -- it would depress equity prices (all else equal).

As leftist business observer Doug Henwood regularly observes, Mankiw's story is based on an illusion: corporations do not issue new stock very often as a way of financing expansion. Instead, the main story of late has been that of corporations buying up their own stock. Business expansion, if any occurs in the near future, would be paid for more through retained earnings (profits not distributed to stockholders) and borrowing (bond issuance).

And do corporations really want to "expand their businesses"? Maybe, but a recession discourages expansion. Perhaps Mankiw has heard of the "accelerator effect." It refers to the way that even slow growth of the demand for products can cause a fall in business fixed investment. A recession isn't needed to have this effect. The problem is that fixed investment causes increased ability to produce (potential supply). If fixed investment stays constant in the face of stagnant demand growth, that means that potential supply grows faster than demand. Smart business-types would refrain from further fixed investment, no matter how easy it is to raise funds by borrowing or by issuing new shares.

This effect discourages any kind of business expansion, no matter how financed. In fact, it can cause a recession.

Slow or negative growth also hurts cash flow and profits, all else equal, which undermine retained earnings and self-financing of expansion. With falling or flat rates of utilization of productive capacity, business rates of profit would be hurt, undermining expected profits and the incentive to expand, all else equal.


By making United States bonds less attractive to world investors, lower interest rates from a monetary expansion also weaken the dollar in currency markets. A depreciation of the currency is not in itself to be feared. Treasury secretaries often repeat the mantra of favoring a strong dollar, but these pronouncements are based more on public relations than hard-headed analysis.

True.

A weak currency is a problem if it results from investors losing confidence in a country's economy and currency. The most damaging cases are the episodes of sudden capital flight, as occurred in Mexico in 1994 and several Asian countries in 1997. This outcome is unlikely for the fundamentally sound American economy, but fear of it is one reason that Treasury secretaries maintain public fealty to a strong dollar.

A serious recession would undermine the image of the "fundamentally sound American economy" -- and in finance, it's image that counts. In fact, the image might be sapped by the continuation of US government fiscal deficits and/or by fears of inflation.

But if a weakened currency comes about because the central bank is trying to stimulate a lackluster economy, the story is very different. In that case, depreciation is not a malady but just what the doctor ordered. A weaker currency makes domestic goods more competitive in world markets, promoting exports and bolstering the economy. The dollar's falling value is one reason exports of goods and services have grown more than 10 percent in the past year.

The Fed can go too far, because even a strong currency can be subject to a speculative bust (or boom). This problem is most likely to hit when interest rates are lowered again and again.

Nonetheless, the boost to exports is the most effective result of expansionary monetary policy (interest rate cuts). The problem is that it simply shifts the recessionary problem to the rest of the world, or at least the rest of the world that does not fix its currency to the US$ the way China does. This is an important reason why the fraternity of Central Bankers does not want US rates falling too much. This desire discourages the Fed fully responding to the recession.


The Fed constantly monitors all these developments to ensure that the economy has the stimulus it needs, but not too much. William McChesney Martin, the Fed chairman in the 1950s and 1960s, famously joked that the Fed's job is "to take away the punch bowl just as the party gets going."

As the economy flirts with recession, we need to remember that this aphorism has a flip side. The Fed also has the job of spiking the punch with grain alcohol when the party starts to flag, and that is exactly what it has been doing.


Gee, the economy is like a drunken party? what an analogy!

The Fed has cut its target for the benchmark federal fund rates to 4.25 percent from 5.25 percent last summer. It is a good bet that we will see further cuts over the next few months. And if the chance of a recession turns into a real recession, you can count on it.

What if the financiers' fear of inflation influences the Fed?

Admittedly, monetary policy can sometimes use an assist from fiscal policy. If an economic downturn is deep, if a recovery is anemic or if the Fed is running out of ammunition, Congress can help raise aggregate demand for goods and services. In 2003, the Fed had cut its target interest rate all the way to 1 percent, the economy was still suffering from the lingering effects of recession, and there were increasing worries about deflation. A tax cut was a good complement to monetary expansion to get the economy going again, even though it increased the budget deficit.

Note: the Fed could "run out of ammunition" if the fed funds rate got down very low, like it did when Greenspan drove it down to 1 percent.

The government can't raise spending instead of cutting taxes? In fact, increased spending is a major reason (along with export expansion) why a recession may not happen. It's old-style military Keynesianism: war and militarism breeds short-term prosperity.


Today's situation is different. The Fed has plenty of room to cut rates further, if it deems such cuts necessary. [Right.] At the moment, recession is only a possibility, and inflation is a bigger worry than deflation. In this environment, there is no need for a short-run fiscal stimulus. Congress is better off focusing on longer-term problems, like the looming entitlement crunch [??] or fundamental tax reform. (But don't hold your breath.)

Does the "entitlement crunch" refer to the rich folks' expectation that they deserve regular tax cuts?

IN creating the Fed, Congress wisely made it a technocratic institution free of many of the political pressures that accompany other policy decisions in Washington. Subsequent experience in the United States and abroad confirms that more independent central banks lead to better economic outcomes. That's why, in recent years, many nations have passed reforms to insulate central banks from [democratic] politics.

This "independence" is a sham. Mankiw's statement should be re-stated as saying that the Fed is an "institution largely free of democratic accountability," i.e., free of the need to respond to democratically-elected politicians or to voters.

That's because the Fed is subject to tremendous political pressure from banks and Wall Street sorts. The presidents of the privately-owned Reserve Banks are represented on the Federal Open Market Committee, while the President of the New York Fed is always on that committee. The New York Fed has strong connections with Wall Street. The FOMC's leadership worries a lot about displeasing -- and thus hurting -- financial markets. In many ways, the Fed is nothing but a bankers' cartel that's allied with Wall Street.

BTW, if the banks have a lot of nonperforming loans, they may have to rely on their holdings of government paper (T Bills, etc.) as a reliable source of income. Expansionary monetary policy aimed at fighting a recession would hurt that income. As a result, the banks may oppose rate cuts. Back in the early 1930s, they succeeded in this program, making the economic collapse worse.

By "better economic outcomes," Mankiw means lower inflation. What he's saying is that financier-dominated central banks are pretty good at fighting the financiers' enemy, i.e., inflation. That does not refer to avoiding recessions, though the Fed will try to solve the problem if a recession hurts banks and Wall Street.


The Fed's independence [sic] was created by statute and could just as easily be taken away. The Fed is now coming under heat for not having prevented the subprime crisis, for not fully anticipating it once it was inevitable, and for not responding more vigorously now that it has occurred. Daniel Gross, a financial journalist writing for Slate, has gone so far as to liken the Fed and its chairman, Ben S. Bernanke, to FEMA and its erstwhile head Michael Brown.

The truth is that the current Fed governors, together with their crack staff of Ph.D. economists and market analysts, are as close to an economic dream team as we are ever likely to see. They will make their share of mistakes, but it is too easy to find flaws when judging with the benefit of hindsight. The best Congress can do now is to let the Bernanke bunch do its job.


The staff of Ph.D economists and market analysts are on crack? I learn new stuff every day!

Seriously, Mankiw's conclusion is that we should stop worrying and learn to love Big Brother Ben, even though his institution has messed up severely in the past and tends to reflect the short-term urges of banks and financiers?


Copyright 2007 The New York Times Company

--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.

13 comments:

rosserjb@jmu.edu said...

"Orthocons"? That's a good one. Did you just neologize it, Jim? If so, congrats!

As for the staff being on crack, well, it is a stimulant, so might help them work harder, think faster. OTOH, has a tendency to make people manic-depressive, going in psychological cycles, which could lead to, oh no! business cycles caused by the Fed?
(not to mention that if they become addicts, they might be out on the Constitution Avenue robbing tourists to pay for their wicked habits!)

Barkley

Anonymous said...

Sure 'nuf those Fed folks have everything under control...

Still, GM may want to glance at these No Problem Here charts:

Data as of December 20, 2007
Commercial Paper Rates and Outstanding
Derived from data supplied by The Depository Trust & Clearing Corporation:

Discount rate spread (2001-current):
http://www.federalreserve.gov/releases/cp/a2p2spread.gif

Discount rate history (2001-current):
http://www.federalreserve.gov/releases/cp/yieldhistory.gif

Econoclast said...

Barkley,

neologism is my middle name. I also call people like Mankiw "Ekons." They practice orthonomics.

JD

Econoclast said...

Juan,

it would help other participants of Econospeak if you were to explain your interpretation of these number.

Jim

Anonymous said...

A2 refers to an S&P rating while P2 is the roughly equivalent Moody's rating, the combination A2/P2 designates a 'medium grade' ("satisfactory ability") short term commercial paper which, in reference to the higher AA grade, gives us the A2/P2 v AA spread.

Spread is indicative of risk, so the first chart provides a picture of the much higher price of risk assigned to many nonfinancials even as and to an extent because the Fed has been lowering. OK, some of the increase can be attributed to a decline in AA CP, some may be due to a specifically end of year 'risk shifting window dressing' or change in preference by funds (we'll know which, if either, within the next ten days). Nonetheless, spread has been blowing out and, for some reason, it strikes as interesting that it's much greater now than even Sept '01.

Second chart makes fairly clear that the above two asset groups as well as two others, AA Financial and AA asset-backed, tend to parallel each other and the Fed funds rate... and that this has quite broken down over the last 6 months,,again substantially moreso than during 2001.

My posting was influenced by reading "...the aftermath of a credit crunch.." and "...in times of trouble (such as the period after a credit crunch).." on one hand and GM's touching belief in the Fed's ability to control on the other, when it seems clear that neither is correct but, whether the above, or structured product metrics at Markit, or the M-LEC ('Super SIV' which Citi and Treasury had promoted) flop and same for Bush's FHASecure program, etc, the inability of govts and central banks to either control or mitigate what, through liberalization, they very much assisted in creating.

Sorry to be trivial but my interpretation boils to three words: insolvency and uncontrollability.

Anonymous said...

I appreciate your choice of bold and Mankiw's something else...seriously, there is only so much time and so much to read.
Keep up the great bolding and I could forgive you that crack reporting on Mankiw's brain...there itiz folks, right down the middle.

Shag from Brookline said...

I just finished reading historian Thomas Bender's "A Nation Among Nations, America'a Place in World History" (Hill and Wang, 2006). In Chapter 5 "The Industrial World and the Transformation of Liberalism" Bender points to the shift from laissez faire and the progressive movement internationally. He points to the rise of the social sciences early in the 20th century in challenging economists' so-called scientific approaches on free markets without regulation. I am neither a historian, a social scientist nor an economist (being a "humble" lawyer for more than 50 years) and wonder of economists' thinking on this. Presumably Mankiw would disagree with Bender's challenges of markets without regulation.

Bruce Webb said...

Shag I am neither a social scientist or an economist. On the other hand I was a historian at one point.

I think the fundamental problem in classical economics is that it arose in a world where the relevant political base was structured differently. Was Athens a democracy? Well from the perspective of those who could vote sure, but free men represented a small percentage of the overall population. Was Republican Rome actually a republic? Well at varying times to varying degrees yes, but it might be decades or centuries before new conquered provinces were granted citizenship and so rights to vote. 'Cives Romanus Sum' was a proud boast of St. Paul, it placed him in a category above.

England at the time that classical economics was formed was no different. In the 18th century and most of the 19th century 'democracy' was among the 'better' classes quite literally a dirty word. Parliament in the 18th century was not even representative, cities like Manchester did not have representation, while abandoned medieval boroughs in Devon and Cornwall returned two MPs each. The various Reform Acts of the 19th century gradually made Parliament actually representative but Britain did not achieve manhood suffrage until 1911.

Which means for the theoretical purposes of designing classical economics the interests of the non-political classes, which at this point was the large majority of the population, could be discounted to zero. It is not I think that economists like Smith and Ricardo didn't care, from what I understand they did care about the interests of workers, they just were not considered actual economic actors. If the Invisible Hand and Comparative Advantage worked as conceived presumedly the econo-political classes that gained the direct benefit would take measures to spread the prosperity. But the fundamental system did not rely on notions of trickle down but instead on hand outs, a rich England would end up with well off Englishmen, even ones that didn't have a political voice, or if not, what were they going to do about it? That is whether the controllers of capital were benevolent or malevolent didn't really control economic and political theory, they had a stranglehold on political power and meant to keep it. In fact you can readily view the Reform Act of 1832 as a struggle between controllers of capital outside the political system (industrialists) against the people who had long controlled the system (agrarian and aristocratic interests (largely but not entirely overlapping)). But like Magna Carta six hundred years before it really was not designed in the interests of the broad majority, it just readjusted power among the economically powerful.

The problem arose when a system designed to benefit a powerful minority came into collision with small d democracy. As Professor Thoma points out Economics does efficiency pretty well, but it doesn't do equity very well at all. Equity simply wasn't built into the design specs by the initial designers, it wasn't seen as being particularly important, instead the goal was to maximize wealth.

Industrial Britain wasn't my field and actual specialists are probably wincing, but I think that my overall point that classical economics was written by and for the then dominant political class is pretty valid. Ricardian CA may not work for everyone, but it worked for everyone that mattered.

The crisis we see today among the orthodox is that they have no fundamental defense against democracy, if a solid majority decides to privilege equity (per capita distribution) over efficiency (total production) they are helpless. Their system is built around the idea of maximizing ones own self interest, its argumentation falls apart at the challenge "where's mine?" from the majority.

It's why people like Bryan Caplan have taken to a backlash against democracy itself, the majority simply doesn't comprehend the "deep truths" that privilege efficiency to equity and worse don't listen when Prof Caplan tells them they are wrong. Solution simple, eliminate democracy and return to the nineteenth century political model. One man, one vote? Hell no, it might cause some fraction of a percentage point of GDP to be lost.

Regulated markets are supposed to operate for the greater good at the possible cost of a certain amount of efficiency loss. Classical economics gives only passing attention to 'greater good' and defines it narrowly, I don't think it really can handle Bender's challenges.

Econoclast said...

Bruce Webb wrote: >Which means for the theoretical purposes of designing classical economics the interests of the non-political classes, which at this point was the large majority of the population, could be discounted to zero. It is not I think that economists like Smith and Ricardo didn't care, from what I understand they did care about the interests of workers, they just were not considered actual economic actors. <

Smith, as I understand him, was better than Ricardo. In Smith's time the social distance between the laborers and the "small masters" was pretty small. He tended to equate them (though he said all bad sorts of things about the poor). In fact, he has a chapter in the _Wealth of Nations_ about the good side of high wages. Unlike Ricardo, he was more of an outsider, shouting at the insiders (the Mercantilist monarchy).

But as usual, I bow to Prof. Perelman's superior knowledge of these folks' works.

>As Professor Thoma points out Economics does efficiency pretty well, but it doesn't do equity very well at all. ...<

This purported efficiency is based on a verbal confusion: efficiency from the capitalist's point of view (the lowest possible cost to the capitalist) is conflated with the common-sense or economic vision of efficiency (the lowest possible cost to society as a whole). In fact, capitalist involves not only the internalization of public benefits (the subordination of everything good to either the commodity form or the corporate bureaucracy's control) but also the externalization of internal costs (businesses figuring out how to dump costs on others). (E.K. Hunt calls this the "invisible foot.")

This confusion is pretty much the same as that of confusing real GDP (which capitalism sometimes excels at raising) with total production of goods and services. It's total production of goods and services sold _through the market_, serving those with the purchasing power. It ignores the benefits of public (non-market) goods such as a clean natural environment: the benefit provided by the government is valued according to the wages or salaries of its employees. GDP is added up using market prices, even though those prices do not reflect the true cost to society of production or the true benefit to society.

On the other hand, "the efficiency of capitalism" can be backed by the idea that markets in general do a better job at coordinating society's production, distribution, and consumption than did the USSR's old planning schemes. That does not say, however, that markets are superior to _all_ planning schemes or other ways of organizing the economy: after all, planning is what corporations are all about. And we don't really know how planning would work in a democratic economy (i.e., one without a class divide).

>It's why people like Bryan Caplan have taken to a backlash against democracy itself, the majority simply doesn't comprehend the "deep truths" that privilege efficiency to equity and worse don't listen when Prof Caplan tells them they are wrong. Solution simple, eliminate democracy and return to the nineteenth century political model. One man, one vote? Hell no, it might cause some fraction of a percentage point of GDP to be lost. <

this also seems to be the thrust of the "Virginia" public choice theory of economics (James Buchanan, et al.)
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.

Anonymous said...

First, more credit spreads (3-mos T-Bill yield and recessions; 3-mos CDs minus T-Bills; 3-mos CD/T-Bill spread as percentage of T-Bill rates) which may further demonstrate my above but with less obscure measures.
http://suddendebt.blogspot.com/2007/12/spreads-credit-fears-and-principal.html

Second, classical political economy - at least its major contributors - understood labor as the source of value creation, contained labor theories of value, which was fine so long as a class of revolutionary capitalists required working class assistance in its struggles against the 'ancien regimes' and feudal 'remnants', and so long as this expansive class of free wage workers did not itslf react against the new form of exploitation.

In this sense, classical political economy helped justify fluid labor-capital coalitions, was useful to a becoming dominant class. But, the further development of the capital system could only but create increasing antagonisms between former 'partners', and it's from those antagonisms which grew needs based neoclassical economics and dismissal of labor theories of value. Or, what had had some connections to political economic realities became an obstruction and was replaced.

'Classical economics' seems a reading of present into past as I'm not sure there was such a specialized division of labor as 'economics' during the classical period.

Econoclast said...

thanks for the stats, Juan. Verrry interesting...

Juan wrote: > classical political economy ... understood labor as the source of value creation, contained labor theories of value, which was fine so long as a class of revolutionary capitalists required working class assistance in its struggles against the 'ancien regimes' .., and so long as this expansive class of free wage workers did not itslf react against the new form of exploitation.<

I think my explanation is simpler. It was John Locke (as far as I know) who invented a "labor theory of value," as a way of justifying capitalist private property. Folks like Smith and Ricardo simply followed from that tradition, noting that a labor theory of price worked as a good first approximation.

Once the capitalist property system had been fully established and was being questioned by labor (by the "Ricardian socialists" and then by Marx), the labor theory had to be jettisoned.
JD

Anonymous said...

Jim,

I agree - your explanation is simpler, just as part of mine is improved through your edit but I was trying to emphasize the changing class structure (and tensions) of transition as well as a source of neoclassic econ and the ideological inversion which took place. Still, yours is, well, better.

Not sure whether Locke 'invented' a labor theory of value or whether that would be better credited to Petty. In any case, I tend to think of it as a long process of inventing which began much earlier.

Must say that your PEN-L contribution re. Marx's LTV is, IMO, excellent.

'Jim Devine in response to a question about whether the labor theory of value was correct':
http://www.marxmail.org/faq/ltv.htm

Econoclast said...

Juan is >Not sure whether Locke 'invented' a labor theory of value or whether that would be better credited to Petty. In any case, I tend to think of it as a long process of inventing which began much earlier.<

Locke's use of labor to justify private property appears in his 1689 Two Treatises of Government. I don't know Petty's work at all. But according to the Wikipedia -- not a reliable source, but a first try -- Petty developed his labor theory in 1692, in his Treatise on Taxes.

A key thing is that Locke's view is clearly politicized, whereas later thinkers tried to cover up that element.

Thanks for your kind words about the LTV.
Jim Devine