Labor theory of value
Encyclopedia
The labor theories of value (LTV) are heterodox economic theories of value
which argue that the value
of a commodity
is related to the labor
needed to produce or obtain that commodity. The concept is most often associated with Marxian economics
. Marginal utility
modified labor theories of value in mainstream economics by adding the concepts of marginality (the tendency of the consumer to substitute one product for another in the marketplace and for producers to substitute one commodity for another in the production of goods and services) and diminishing utility to the original labor theory. Thus, under marginal utility, the first unit of production of a good or service yields more than the second or subsequent units but still costs an amount of socially necessary labor determined by marginal productivity of labor. This may cause a reduction of the price of the subsequent units, but the units continue to reflect the total value ( i.e. the socially necessary labor applied at the prevailing level of labor productivity) that was used to produce the subsequent units.
, however, did not require the quantification of all past labor, nor did it deal with the labor needed to create the tools (capital) that might be employed in the production of a commodity. The Smith theory of value was very similar to the later utility theories in that Smith proclaimed that a commodity was worth whatever labor it would command in others (value in trade) or whatever labor it would "save" the self (value in use), or both. But this "value" is subject to supply and demand at a particular time.
Smith's theory of price (which for many is the same as value) has nothing to do with the past labor spent in the production of a commodity. It speaks only of the labor that can be "commanded" or "saved" at present. If there is no use for a buggy whip then the item is economically worthless in trade or in use, regardless of the all the labor spent in its creation.
). Labor which is highly skilled on the other hand owes part of its produce to an "investment
" made in training
and is almost like capital
(hence the modern concept of human capital
). So many types of pleasant labor can be described as a result of an earlier and more painful investment.
In the example of a person going to a stream at his doorstep, if this is a pleasant activity, it is not labor. If it is not pleasant it could be relevant to economics because, for example, the house could be built closer to the stream, plumbing could be installed, a person could be employed to fetch water, or investment in a better path to the water might be worth considering.
But the above way of defining value is not the only one.
Value "in use" is the usefulness of this commodity, its utility
. There is a classical paradox
which is often expressed when considering this type of value. Here, once again in the words of Adam Smith:
Value "in exchange
" is the relative proportion with which this commodity exchanges for another commodity (in other words, its price
in the case of money
). It is relative to labor as explained by Adam Smith:
Value (without qualification) as an intrinsic worth which stands without the process of exchange.
Marx defined the value of the commodity by the third definition. In his terms, value is the 'socially necessary abstract labor' embodied in a commodity. In Ricardo
and other classical economists, this definition serves as a measure of "real cost", "absolute value", or a "measure of value" invariable under changes in distribution and technology.
Ricardo, other classical economists, and Marx began their expositions with the assumption that value in exchange was equal to or proportional to this labor value. They thought this was a good assumption from which to explore the dynamics of development in capitalist societies.
Other supporters of the labor theory of value used the word "value" in the second sense, to represent "exchange value".
The value of a commodity increases in proportion to the duration and intensity of labor performed on average for its production. Part of what the LTV means by "socially necessary" is that the value only increases in proportion to this labor as it is performed with average skill and average productivity. So though workers may labor with greater skill or more productivity than others, these more skillful and more productive workers will thus produce more value through the production of greater quantities of the finished commodity: each unit still bearing the same value as all the others of the same class of commodity. By working sloppily, the unskilled workers may drag down the average skill of labor, thus increasing the average labor time necessary for the production of each unit commodity. But these unskillful workers cannot hope to sell the result of their labor process at a higher price (as opposed to value) simply because they have spent more time than other workers producing the same kind of commodities.
However, production not only involves labor, but also certain means of labor: tools, materials, power plants and so on. These means of labor — also known as means of production
— are often the product of another labor process as well. So the labor process inevitably involves these means of production that already enter the process with a certain amount of value. Labor also requires other means of production that are not produced with labor and therefore bear no value: such as sunlight, air, uncultivated land, un-extracted minerals, etc. While useful, even crucial to the production process, these bring no value to that process. In terms of means of production resulting from another labor process, LTV treats the magnitude of value of these produced means of production as constant throughout the labor process. Due to the constancy of their value, these means of production are referred to, in this light, as constant capital.
Consider for example workers who take coffee beans, use a roaster to roast them, and then use a brewer to brew and dispense a fresh cup of coffee. In performing this labor, these workers add value to the coffee beans and water that comprise the material ingredients of a cup of coffee. The worker also transfers the value of constant capital — the value of the beans; some specific depreciated value of the roaster and the brewer; and the value of the cup — to the value of the final cup of coffee. Again, on average the worker can transfer no more than the value of these means of labor previously possessed to the finished cup of coffee So the value of coffee produced in a day equals the sum of both the value of the means of labor — this constant capital — and the value newly added by the worker in proportion to the duration and intensity of their work. Often this is expressed mathematically as:
Note: if the product resulting from the labor process is homogeneous (all similar in quality and traits, for example, all cups of coffee) then the value of the period’s product can be divided by the total number of items (use-values) produced to derive the unit value of each item.
where 
is the total items produced.
The LTV further divides the value added during the period of production,
, into two parts. The first part is the portion of the process when the workers add value equivalent to the wages they are paid. For example, if the period in question is one week and these workers collectively are paid $1,000, then the time necessary to add $1,000 to — while preserving the value of — constant capital is considered the necessary labor portion of the period (or week): denoted 
. The remaining period is considered the surplus labor portion of the week: or 
. The value used to purchase labor-power, for example the $1,000 paid in wages to these workers for the week, is called variable capital (
). This is because in contrast to the constant capital expended on means of production, variable capital can add value in the labor process. The amount it adds depends on the duration, intensity, productivity and skill of the labor-power purchased: in this sense the buyer of labor-power has purchased a commodity of variable use. Finally, the value added during the portion of the period when surplus labor is performed is called surplus value (
). From the variables defined above, we find two other common expression for the value produced during a given period as:
The first form of the equation expresses the value resulting from production, focusing on the costs
and the surplus value appropriated in the process of production, 
. The second form of the equation focuses on the value of production in terms of the valued added by the labor performed during the process 
.
However, most economists would say that cases where pricing is even approximately equal to the value of the labor embodied are only special cases, and not the general case. In the standard formulation, prices also normally include a level of income for "capital
" and "land
". These incomes are known as "profit
" and "rent
" respectively. (It should be kept in mind that like the terms "labor" and "value", the terms "price, "capital", "land", "profit" and "rent" here are being used in a theoretical way which will not always correspond to everyday use, even by accountants.)
In Book 1, chapter VI, Smith explains:
The final sentence shows us how Smith sees value of a product as relative to labor of buyer or consumer, as opposite to Marx who sees the value of a product being proportional to labor of laborer or producer. And we value things, price them, based on how much labor we can avoid or command, and we can command labor not only in a simple way but also by trading
things for a profit.
The demonstration of the relation between commodities' unit values and their respective prices is known in Marxian terminology as the transformation problem
or the transformation of values into prices of production. The transformation problem has probably generated the greatest bulk of debate about the LTV. The problem with transformation is to find an algorithm where the magnitude of value added by labor, in proportion to its duration and intensity, is sufficiently accounted for after this value is distributed through prices that reflect an equal rate of return on capital advanced. If there is an additional magnitude of value or a loss of value after transformation compared with before then the relation between values (proportional to labor) and prices (proportional to total capital advanced) is incomplete. Various solutions and impossibility theorems have been offered for the transformation, but the debate has not reached any clear resolution.
LTV does not deny the role of supply and demand influencing price since the price of a commodity is something other than its value. In Value, Price and Profit (1865), Karl Marx
quotes Adam Smith
and sums up:
It is the level of this equilibrium which the LTV seeks to explain. This could be explained by a "cost of production" argument, pointing out that all costs are ultimately labor costs, but this does not account for profit, and it is vulnerable to the charge of tautology
in that it explains prices by prices. Marx later called this "Smith's adding up theory of value".
Smith argues that labor values are the natural measure of exchange for direct producers like hunters and fishermen. Marx, on the other hand, uses a measurement analogy, arguing that for commodities to be comparable they must have a common element or substance by which to measure them, and that labor is a common substance of what Marx eventually calls commodity-values.
Some statistical evidence for the theory has also been advanced by Anwar Shaikh
.
´s Politics
. He developed a "theory of the value of labor", holding that the value of labor skills is given by the goods they command in the market
. He maintained that value is not created solely by the expenditure of labor in the production process, but also the utility and labor skills are pertinent to the determination of exchange value
s and exchange ratios.
Scholastic philosophers
like St. Thomas Aquinas, based on Aristotle's theories, produced early labor values theories. Some writers (including Bertrand Russell
and Karl Marx
) think the labor theory of value can be traced back to him. In his Summa Theologiae
, he expresses that "... value can, does and should be increase in relation to the amount of labor which has been expended in the improvement of commodities".
Benjamin Franklin
in his 1729 essay entitled "A Modest Enquiry into the Nature and Necessity of a Paper Currency" is sometimes credited (including by Karl Marx
) with originating the concept in its modern form. However, the theory has been traced back to Treatise of Taxes, written in 1662 by Sir William Petty and to John Locke
's notion, set out in the Second Treatise on Government
(1689), that property derives from labor through the act of "mixing" one's labor with items in the common store of goods, though this has alternatively been seen as a labor theory of property. Other writers (including Joseph Schumpeter
) have traced back the concept even further to Ibn Khaldun
, who in his Muqaddimah
(1377), described labor as the source of value, necessary for all earnings and capital accumulation, obvious in the case of craft. He argued that even if earning “results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired.”
Scottish economist Adam Smith
accepted the LTV for pre-capitalist societies but saw a flaw in its application to capitalism
. He pointed out that if the "labor embodied" in a product equalled the "labor commanded" (i.e. the amount of labor that could be purchased by selling it), then profit was impossible. David Ricardo
(seconded by Marx
) responded to this paradox by arguing that Smith had confused labor with wages. "Labor commanded", he argued, would always be more than the labor needed to sustain itself (wages). The value of labor, in this view, covered not just the value of wages (what Marx called the value of labor power
), but the value of the entire product created by labor.
Ricardo's theory was a predecessor of the modern theory that equilibrium prices are determined solely by production costs
associated with "neo-Ricardianism".
Based on the discrepancy between the wages of labor and the value of the product, the "Ricardian socialists" — Charles Hall
, Thomas Hodgskin
, John Gray
, and John Francis Bray
— applied Ricardo's theory to develop theories of exploitation
.
Marx expanded on these ideas, arguing that workers work for a part of each day adding the value required to cover their wages, while the remainder of their labor is performed for the enrichment of the capitalist. The LTV and the accompanying theory of exploitation became central to his economic thought.
19th century American individualist anarchists based their economics on the LTV, with their particular interpretation of it being called "Cost the limit of price
". They, as well as contemporary individualist anarchists in that tradition, hold that it is unethical to charge a higher price for a commodity than the amount of labor required to produce it. Hence, they propose that trade should be facilitated by using notes backed by labor.
Classical economist David Ricardo's labor theory of value holds that the value
of a good (how much of another good or service it exchanges for in the market) is proportional to how much labor was required to produce it, including the labor required to produce the raw materials and machinery used in the process. David Ricardo stated it as, "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not as the greater or less compensation which is paid for that labour" (Ricardo 1817). In this heading Ricardo seeks to differentiate the quantity of labor necessary to produce a commodity from the wages paid to the laborers for its production. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them. For example, he said "I cannot get over the difficulty of the wine which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2 s. expended on it in the way of labour, and yet comes to be worth £100."(Quoted in Whitaker) Of course, a capitalist economy will stabilize this discrepancy until the value added to aged wine is equal to the cost of storage - if anyone can hold onto a bottle for four years and become rich, that will be done so much it is hard to find freshly corked wine. There is also the theory that adding to the price of a luxury product increases its exchange-value by mere prestige.
The labor theory as an explanation for value contrasts with the subjective theory of value
, which says that value of a good is not determined by how much labor was put into it but by its usefulness in satisfying a want and its scarcity. Ricardo's labor theory of value is not a normative
theory, as are some later forms of the labor theory, such as claims that it is immoral for an individual to be paid less for his labor than the total revenue that comes from the sales of all the goods he produces.
It is arguable to what extent these classical theorists held the labor theory of value as it is commonly defined. For instance, David Ricardo
theorized that prices are determined by the amount of labor but found exceptions for which the labor theory could not account. In a letter, he wrote: "I am not satisfied with the explanation I have given of the principles which regulate value." Adam Smith
theorized that the labor theory of value holds true only in the "early and rude state of society" but not in a modern economy where owners of capital are compensated by profit. As a result, "Smith ends up making little use of a labor theory of value."
that:
Here Marx is drawing a distinction between exchange value
(which is the subject of the LTV) and use value
.
Marx uses the concept of "socially necessary abstract labor-time
" to introduce a social perspective distinct from his predecessors and neoclassical economics
. Whereas most economists start with the individual's perspective, Marx starts with the perspective of society as a whole. "Social production" involves a complicated and interconnected division of labor of a wide variety of people who depend on each other for their survival and prosperity.
"Abstract" labor
refers to a characteristic of commodity
-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor.
"Socially necessary" labor refers to the quantity required to produce a commodity "in a given state of society, under certain social average conditions or production, with a given social average intensity, and average skill of the labour employed." That is, the value of a product is determined more by societal standards than by individual conditions. This explains why technological breakthroughs lower the price of commodities and put less advanced producers out of business. Finally, it is not labor per se, which creates value, but labor power sold by free wage workers to capitalists. Another distinction to be made is that between productive and unproductive labor
. Only wage workers of productive sectors of the economy produce value.
Unlike Ricardo or the Ricardian socialists
, Marx distinguishes between labor power
and labor. "Labor-power" is the potential or ability of workers to work, given their muscles, brains, skills, and capacities. It is the promise of creating value possessed by human labor that has not yet been expended. "Labor" is the actual activity of producing value. The profit or surplus-value arises when workers do more labor than is necessary to pay the cost of hiring their labor-power.
To explain the normality of exploitation, Marx describes capitalism
as having an institutional framework in which a small minority (the capitalists) oligopolize the means of production
. The workers cannot survive except by working for capitalists, and the state
preserves this inequality of power. In normal role of force is structural, part of the usual workings of the system. The reserve army of unemployed workers continually threatens employed workers, pushing them to work hard to produce for the capitalists.
or know-how). Nonetheless certain elements of the theory are still believed to be valid, in particular, argument that interests of employee and employer are not the same, and that markets do not have a long-term tendency towards stability and equilibrium.
Theory of value (economics)
"Theory of value" is a generic term which encompasses all the theories within economics that attempt to explain the exchange value or price of goods and services...
which argue that the value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
of a commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
is related to the labor
Labour economics
Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...
needed to produce or obtain that commodity. The concept is most often associated with Marxian economics
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...
. Marginal utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
modified labor theories of value in mainstream economics by adding the concepts of marginality (the tendency of the consumer to substitute one product for another in the marketplace and for producers to substitute one commodity for another in the production of goods and services) and diminishing utility to the original labor theory. Thus, under marginal utility, the first unit of production of a good or service yields more than the second or subsequent units but still costs an amount of socially necessary labor determined by marginal productivity of labor. This may cause a reduction of the price of the subsequent units, but the units continue to reflect the total value ( i.e. the socially necessary labor applied at the prevailing level of labor productivity) that was used to produce the subsequent units.
Definitions of value and labor
When speaking in terms of a labor theory of value, value, without any qualifying adjective should theoretically refer to the amount of labor necessary to the production of a marketable commodity, including the labor necessary to the development of any real capital employed in the production. Both David Ricardo and Karl Marx attempted to quantify and embody all of the labor components in order to set the real price, or natural price of a commodity. The labor theory of value, as presented by Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
, however, did not require the quantification of all past labor, nor did it deal with the labor needed to create the tools (capital) that might be employed in the production of a commodity. The Smith theory of value was very similar to the later utility theories in that Smith proclaimed that a commodity was worth whatever labor it would command in others (value in trade) or whatever labor it would "save" the self (value in use), or both. But this "value" is subject to supply and demand at a particular time.
The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing 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. (Wealth of Nations Book 1, chapter V)
Smith's theory of price (which for many is the same as value) has nothing to do with the past labor spent in the production of a commodity. It speaks only of the labor that can be "commanded" or "saved" at present. If there is no use for a buggy whip then the item is economically worthless in trade or in use, regardless of the all the labor spent in its creation.
Distinctions of economically pertinent labor
A person drinking water from a good stream at his doorstep must "spend" labor to gain this value, at least if this action is relevant to economics. In terms of modern orthodox terminology it is important to note that "labor", at least in Smith's approach, is defined as the opposite of utility - "disutility", pain, toil etc. Labor which is pleasant in itself is only therefore partly labor, or perhaps not labor at all (however, see opportunity costOpportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
). Labor which is highly skilled on the other hand owes part of its produce to an "investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
" made in training
Training
The term training refers to the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It forms the core of apprenticeships and provides the backbone of content at institutes of...
and is almost like capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
(hence the modern concept of human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
). So many types of pleasant labor can be described as a result of an earlier and more painful investment.
In the example of a person going to a stream at his doorstep, if this is a pleasant activity, it is not labor. If it is not pleasant it could be relevant to economics because, for example, the house could be built closer to the stream, plumbing could be installed, a person could be employed to fetch water, or investment in a better path to the water might be worth considering.
But the above way of defining value is not the only one.
Value "in use" is the usefulness of this commodity, its utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
. There is a classical paradox
Paradox of value
The paradox of value is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. The philosopher Adam Smith is often considered to be the classic presenter of this paradox...
which is often expressed when considering this type of value. Here, once again in the words of Adam Smith:
The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use ;' the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it. (Wealth of Nations Book 1, chapter IV)
Value "in exchange
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
" is the relative proportion with which this commodity exchanges for another commodity (in other words, its price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
in the case of money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
). It is relative to labor as explained by Adam Smith:
The value of any commodity, ... to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities (Wealth of Nations Book 1, chapter V; emphasis added).
Value (without qualification) as an intrinsic worth which stands without the process of exchange.
Marx defined the value of the commodity by the third definition. In his terms, value is the 'socially necessary abstract labor' embodied in a commodity. In Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
and other classical economists, this definition serves as a measure of "real cost", "absolute value", or a "measure of value" invariable under changes in distribution and technology.
Ricardo, other classical economists, and Marx began their expositions with the assumption that value in exchange was equal to or proportional to this labor value. They thought this was a good assumption from which to explore the dynamics of development in capitalist societies.
Other supporters of the labor theory of value used the word "value" in the second sense, to represent "exchange value".
Conceptual model
A simple model illustrating the concepts and workings of LTV could go as follows:In a village in Somewhereia, everyone shares a set of skills and their produce is derived from local natural resources. Through custom or inclination each person pursues a particular trade, but is capable of pursuing any other in the village.
These people exchange their products on a regular basis. Each would know how long it took their fellow to produce their good, and how long it would take them to make it themselves. They would also know how much of their own product they would produce in the same amount of time and how much they would be able to exchange for that product.
If anyone tried to overcharge for a good, people would stop buying and make it themselves (or a competitor could enter the market and undercut them). Each person would thus be able to calculate whether it would be better for them to buy a good or make it themselves.
In this scenario prices and values would be equal.
LTV and the labor process
Since the term value is understood in the LTV as denoting something created by labor, and its "magnitude" as something proportional to the quantity of labor performed, it is important to explain how the labor process both preserves value and adds new value in the commodities it creates.The value of a commodity increases in proportion to the duration and intensity of labor performed on average for its production. Part of what the LTV means by "socially necessary" is that the value only increases in proportion to this labor as it is performed with average skill and average productivity. So though workers may labor with greater skill or more productivity than others, these more skillful and more productive workers will thus produce more value through the production of greater quantities of the finished commodity: each unit still bearing the same value as all the others of the same class of commodity. By working sloppily, the unskilled workers may drag down the average skill of labor, thus increasing the average labor time necessary for the production of each unit commodity. But these unskillful workers cannot hope to sell the result of their labor process at a higher price (as opposed to value) simply because they have spent more time than other workers producing the same kind of commodities.
However, production not only involves labor, but also certain means of labor: tools, materials, power plants and so on. These means of labor — also known as means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
— are often the product of another labor process as well. So the labor process inevitably involves these means of production that already enter the process with a certain amount of value. Labor also requires other means of production that are not produced with labor and therefore bear no value: such as sunlight, air, uncultivated land, un-extracted minerals, etc. While useful, even crucial to the production process, these bring no value to that process. In terms of means of production resulting from another labor process, LTV treats the magnitude of value of these produced means of production as constant throughout the labor process. Due to the constancy of their value, these means of production are referred to, in this light, as constant capital.
Consider for example workers who take coffee beans, use a roaster to roast them, and then use a brewer to brew and dispense a fresh cup of coffee. In performing this labor, these workers add value to the coffee beans and water that comprise the material ingredients of a cup of coffee. The worker also transfers the value of constant capital — the value of the beans; some specific depreciated value of the roaster and the brewer; and the value of the cup — to the value of the final cup of coffee. Again, on average the worker can transfer no more than the value of these means of labor previously possessed to the finished cup of coffee So the value of coffee produced in a day equals the sum of both the value of the means of labor — this constant capital — and the value newly added by the worker in proportion to the duration and intensity of their work. Often this is expressed mathematically as:
-
-
-
-
-
-
,
-
-
-
-
-
- where
-
is the constant capital of materials used in a period plus the depreciated portion of tools and plant used in the process. (a period is typically a day, week year or a single turnover: meaning the time required to complete one batch of coffee, for example) -
is the quantity of labor time (average skill and productivity) performed in producing the finished commodities during the period -
is the value of the product of the period (
comes from the German word for value: wert)
-
Note: if the product resulting from the labor process is homogeneous (all similar in quality and traits, for example, all cups of coffee) then the value of the period’s product can be divided by the total number of items (use-values) produced to derive the unit value of each item.
where is the total items produced.The LTV further divides the value added during the period of production,
, into two parts. The first part is the portion of the process when the workers add value equivalent to the wages they are paid. For example, if the period in question is one week and these workers collectively are paid $1,000, then the time necessary to add $1,000 to — while preserving the value of — constant capital is considered the necessary labor portion of the period (or week): denoted . The remaining period is considered the surplus labor portion of the week: or . The value used to purchase labor-power, for example the $1,000 paid in wages to these workers for the week, is called variable capital (). This is because in contrast to the constant capital expended on means of production, variable capital can add value in the labor process. The amount it adds depends on the duration, intensity, productivity and skill of the labor-power purchased: in this sense the buyer of labor-power has purchased a commodity of variable use. Finally, the value added during the portion of the period when surplus labor is performed is called surplus value (). From the variables defined above, we find two other common expression for the value produced during a given period as:-
-
-
- and
-
-
The first form of the equation expresses the value resulting from production, focusing on the costs
and the surplus value appropriated in the process of production, . The second form of the equation focuses on the value of production in terms of the valued added by the labor performed during the process .The relation between values and prices
One issue facing the LTV is the relationship between value quantities on one hand and prices on the other. If a commodity's value is not the same as its price, and therefore the magnitudes of each likely differ, then what is the relation between the two, if any? Various LTV schools of thought provide different answers to this question. For example, some argue that value in the sense of the amount of labor embodied in a good acts as a center of gravity for price. As counter-intuitive as this may seem to those accustomed to neoclassical price theory, some empirical evidence suggests labor values are a better predictor of empirically recorded prices than prediction by any other means.However, most economists would say that cases where pricing is even approximately equal to the value of the labor embodied are only special cases, and not the general case. In the standard formulation, prices also normally include a level of income for "capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
" and "land
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
". These incomes are known as "profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
" and "rent
Economic rent
Economic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....
" respectively. (It should be kept in mind that like the terms "labor" and "value", the terms "price, "capital", "land", "profit" and "rent" here are being used in a theoretical way which will not always correspond to everyday use, even by accountants.)
In Book 1, chapter VI, Smith explains:
The real value of all the different component parts of price, it must be observed, is measured by the quantity of labour which they can, each of them, purchase or command. Labour measures the value not only of that part of price which resolves itself into labour, but of that which resolves itself into rent, and of that which resolves itself into profit.
The final sentence shows us how Smith sees value of a product as relative to labor of buyer or consumer, as opposite to Marx who sees the value of a product being proportional to labor of laborer or producer. And we value things, price them, based on how much labor we can avoid or command, and we can command labor not only in a simple way but also by trading
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
things for a profit.
The demonstration of the relation between commodities' unit values and their respective prices is known in Marxian terminology as the transformation problem
Transformation problem
In 20th century discussions of Karl Marx's economics the transformation problem is the problem of finding a general rule to transform the "values" of commodities into the "competitive prices" of the marketplace...
or the transformation of values into prices of production. The transformation problem has probably generated the greatest bulk of debate about the LTV. The problem with transformation is to find an algorithm where the magnitude of value added by labor, in proportion to its duration and intensity, is sufficiently accounted for after this value is distributed through prices that reflect an equal rate of return on capital advanced. If there is an additional magnitude of value or a loss of value after transformation compared with before then the relation between values (proportional to labor) and prices (proportional to total capital advanced) is incomplete. Various solutions and impossibility theorems have been offered for the transformation, but the debate has not reached any clear resolution.
LTV does not deny the role of supply and demand influencing price since the price of a commodity is something other than its value. In Value, Price and Profit (1865), Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
quotes Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and sums up:
- It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labor required for their production.
It is the level of this equilibrium which the LTV seeks to explain. This could be explained by a "cost of production" argument, pointing out that all costs are ultimately labor costs, but this does not account for profit, and it is vulnerable to the charge of tautology
Tautology (rhetoric)
Tautology is an unnecessary or unessential repetition of meaning, using different and dissimilar words that effectively say the same thing...
in that it explains prices by prices. Marx later called this "Smith's adding up theory of value".
Smith argues that labor values are the natural measure of exchange for direct producers like hunters and fishermen. Marx, on the other hand, uses a measurement analogy, arguing that for commodities to be comparable they must have a common element or substance by which to measure them, and that labor is a common substance of what Marx eventually calls commodity-values.
Some statistical evidence for the theory has also been advanced by Anwar Shaikh
Anwar Shaikh (economist)
Anwar M. Shaikh is an American economist, and currently Professor of Economics at the Graduate Faculty of The New School in New York City. His work in political economy has focused on the economic theory and empirical patterns of developed capitalism. He has written on international trade,...
.
The birth of the LTV
Early insights in the labor theory of value appear in AristotleAristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...
´s Politics
Politics (Aristotle)
Aristotle's Politics is a work of political philosophy. The end of the Nicomachean Ethics declared that the inquiry into ethics necessarily follows into politics, and the two works are frequently considered to be parts of a larger treatise, or perhaps connected lectures, dealing with the...
. He developed a "theory of the value of labor", holding that the value of labor skills is given by the goods they command in the market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
. He maintained that value is not created solely by the expenditure of labor in the production process, but also the utility and labor skills are pertinent to the determination of exchange value
Exchange value
In political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on the market...
s and exchange ratios.
Scholastic philosophers
Scholasticism
Scholasticism is a method of critical thought which dominated teaching by the academics of medieval universities in Europe from about 1100–1500, and a program of employing that method in articulating and defending orthodoxy in an increasingly pluralistic context...
like St. Thomas Aquinas, based on Aristotle's theories, produced early labor values theories. Some writers (including Bertrand Russell
Bertrand Russell
Bertrand Arthur William Russell, 3rd Earl Russell, OM, FRS was a British philosopher, logician, mathematician, historian, and social critic. At various points in his life he considered himself a liberal, a socialist, and a pacifist, but he also admitted that he had never been any of these things...
and Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
) think the labor theory of value can be traced back to him. In his Summa Theologiae
Summa Theologica
The Summa Theologiæ is the best-known work of Thomas Aquinas , and although unfinished, "one of the classics of the history of philosophy and one of the most influential works of Western literature." It is intended as a manual for beginners in theology and a compendium of all of the main...
, he expresses that "... value can, does and should be increase in relation to the amount of labor which has been expended in the improvement of commodities".
Benjamin Franklin
Benjamin Franklin
Dr. Benjamin Franklin was one of the Founding Fathers of the United States. A noted polymath, Franklin was a leading author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat...
in his 1729 essay entitled "A Modest Enquiry into the Nature and Necessity of a Paper Currency" is sometimes credited (including by Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
) with originating the concept in its modern form. However, the theory has been traced back to Treatise of Taxes, written in 1662 by Sir William Petty and to John Locke
John Locke
John Locke FRS , widely known as the Father of Liberalism, was an English philosopher and physician regarded as one of the most influential of Enlightenment thinkers. Considered one of the first of the British empiricists, following the tradition of Francis Bacon, he is equally important to social...
's notion, set out in the Second Treatise on Government
Two Treatises of Government
The Two Treatises of Government is a work of political philosophy published anonymously in 1689 by John Locke...
(1689), that property derives from labor through the act of "mixing" one's labor with items in the common store of goods, though this has alternatively been seen as a labor theory of property. Other writers (including Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
) have traced back the concept even further to Ibn Khaldun
Ibn Khaldun
Ibn Khaldūn or Ibn Khaldoun was an Arab Tunisian historiographer and historian who is often viewed as one of the forerunners of modern historiography, sociology and economics...
, who in his Muqaddimah
Muqaddimah
The Muqaddimah , also known as the Muqaddimah of Ibn Khaldun or the Prolegomena , is a book written by the Maghrebian Muslim historian Ibn Khaldun in 1377 which records an early view of universal history...
(1377), described labor as the source of value, necessary for all earnings and capital accumulation, obvious in the case of craft. He argued that even if earning “results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired.”
Scottish economist Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
accepted the LTV for pre-capitalist societies but saw a flaw in its application to capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
. He pointed out that if the "labor embodied" in a product equalled the "labor commanded" (i.e. the amount of labor that could be purchased by selling it), then profit was impossible. David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
(seconded by Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
) responded to this paradox by arguing that Smith had confused labor with wages. "Labor commanded", he argued, would always be more than the labor needed to sustain itself (wages). The value of labor, in this view, covered not just the value of wages (what Marx called the value of labor power
Labor power
Labour power is a crucial concept used by Karl Marx in his critique of capitalist political economy. He regarded labour power as the most important of the productive forces of human beings. Labour power can be simply defined as work-capacity, the ability to do work...
), but the value of the entire product created by labor.
Ricardo's theory was a predecessor of the modern theory that equilibrium prices are determined solely by production costs
Cost-of-production theory of value
In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it...
associated with "neo-Ricardianism".
Based on the discrepancy between the wages of labor and the value of the product, the "Ricardian socialists" — Charles Hall
Charles Hall
Charles Hall may refer to:*Charles Hall , MP for Lincoln 1727–1734*Charles Hall *Charles Hall , British economist, physician and early socialist...
, Thomas Hodgskin
Thomas Hodgskin
Thomas Hodgskin was an Englishsocialist writer on political economy, critic of capitalism, free-market anarchist and defender of free trade and early trade unions...
, John Gray
John Gray (19th century socialist)
John Gray was a British socialist economist.-Life and views:Very little personal information about John Gray is available. He lived mostly in Edinburgh. According to his own account, he was a poor student who dropped out of school early, went to London and took up factory work as a youngster...
, and John Francis Bray
John Francis Bray
John Francis Bray was a radical, Chartist, writer on socialist economics and activist in both Britain and hisnative America in the 19th century. He was hailed in later life as the 'Benjamin Franklin' of American labor.- Life :...
— applied Ricardo's theory to develop theories of exploitation
Exploitation
This article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
.
Marx expanded on these ideas, arguing that workers work for a part of each day adding the value required to cover their wages, while the remainder of their labor is performed for the enrichment of the capitalist. The LTV and the accompanying theory of exploitation became central to his economic thought.
19th century American individualist anarchists based their economics on the LTV, with their particular interpretation of it being called "Cost the limit of price
Cost the limit of price
Cost the limit of price was a maxim coined by Josiah Warren, indicating a version of the labor theory of value. Warren maintained that the just compensation for labor could only be an equivalent amount of labor . Thus, profit, rent, and interest were considered unjust economic arrangements...
". They, as well as contemporary individualist anarchists in that tradition, hold that it is unethical to charge a higher price for a commodity than the amount of labor required to produce it. Hence, they propose that trade should be facilitated by using notes backed by labor.
Adam Smith and David Ricardo
Adam Smith held that, in a primitive society, the amount of labor put into producing a good determined its exchange value, with exchange value meaning in this case the amount of labor a good can purchase. However, according to Smith, in a more advanced society the market price is no longer proportional to labor cost since the value of the good now includes compensation for the owner of the means of production: "The whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him." "Nevertheless, the 'real value' of such a commodity produced in advanced society is measured by the labor which that commodity will command in exchange....But [Smith] disowns what is naturally thought of as the genuine classical labor theory of value, that labor-cost regulates market-value. This theory was Ricardo’s, and really his alone."Classical economist David Ricardo's labor theory of value holds that the value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
of a good (how much of another good or service it exchanges for in the market) is proportional to how much labor was required to produce it, including the labor required to produce the raw materials and machinery used in the process. David Ricardo stated it as, "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not as the greater or less compensation which is paid for that labour" (Ricardo 1817). In this heading Ricardo seeks to differentiate the quantity of labor necessary to produce a commodity from the wages paid to the laborers for its production. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them. For example, he said "I cannot get over the difficulty of the wine which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2 s. expended on it in the way of labour, and yet comes to be worth £100."(Quoted in Whitaker) Of course, a capitalist economy will stabilize this discrepancy until the value added to aged wine is equal to the cost of storage - if anyone can hold onto a bottle for four years and become rich, that will be done so much it is hard to find freshly corked wine. There is also the theory that adding to the price of a luxury product increases its exchange-value by mere prestige.
The labor theory as an explanation for value contrasts with the subjective theory of value
Subjective theory of value
The subjective theory of value is an economic theory of value that identifies worth as being based on the wants and needs of the members of a society, as opposed to value being inherent to an object....
, which says that value of a good is not determined by how much labor was put into it but by its usefulness in satisfying a want and its scarcity. Ricardo's labor theory of value is not a normative
Normative economics
Normative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....
theory, as are some later forms of the labor theory, such as claims that it is immoral for an individual to be paid less for his labor than the total revenue that comes from the sales of all the goods he produces.
It is arguable to what extent these classical theorists held the labor theory of value as it is commonly defined. For instance, David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
theorized that prices are determined by the amount of labor but found exceptions for which the labor theory could not account. In a letter, he wrote: "I am not satisfied with the explanation I have given of the principles which regulate value." Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
theorized that the labor theory of value holds true only in the "early and rude state of society" but not in a modern economy where owners of capital are compensated by profit. As a result, "Smith ends up making little use of a labor theory of value."
Marx's contribution
Contrary to popular belief, Marx does not base his LTV on what he dismisses as "ascribing a supernatural creative power to labor", arguing in the Critique of the Gotha ProgramCritique of the Gotha Program
The Critique of the Gotha Program is a document based on a letter by Karl Marx written in early May 1875 to the Eisenach faction of the German social democratic movement, with whom Marx and Friedrich Engels were in close association...
that:
- Labor is not the source of all wealth. Nature is just as much a source of use values (and it is surely of such that material wealth consists!) as labor which is itself only the manifestation of a force of nature, human labor power.
Here Marx is drawing a distinction between exchange value
Exchange value
In political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on the market...
(which is the subject of the LTV) and use value
Use value
Use value or value in use is the utility of consuming a good; the want-satisfying power of a good or service in classical political economy. In Marx's critique of political economy, any labor-product has a value and a use-value, and if it is traded as a commodity in markets, it additionally has an...
.
Marx uses the concept of "socially necessary abstract labor-time
Socially necessary labour time
Socially necessary labour time in Marx's critique of political economy is what regulates the exchange value of commodities in trade and consequently guides producers in their attempt to economise on labour....
" to introduce a social perspective distinct from his predecessors and neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
. Whereas most economists start with the individual's perspective, Marx starts with the perspective of society as a whole. "Social production" involves a complicated and interconnected division of labor of a wide variety of people who depend on each other for their survival and prosperity.
"Abstract" labor
Abstract labour and concrete labour
Abstract labour and concrete labour refer to a distinction made by Karl Marx in his critique of political economy.- Origin :Marx first advanced this distinction in A Contribution to the Critique of Political Economy and is discussed in more detail in chapter 1 of Capital, where Marx writes:The...
refers to a characteristic of commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor.
"Socially necessary" labor refers to the quantity required to produce a commodity "in a given state of society, under certain social average conditions or production, with a given social average intensity, and average skill of the labour employed." That is, the value of a product is determined more by societal standards than by individual conditions. This explains why technological breakthroughs lower the price of commodities and put less advanced producers out of business. Finally, it is not labor per se, which creates value, but labor power sold by free wage workers to capitalists. Another distinction to be made is that between productive and unproductive labor
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...
. Only wage workers of productive sectors of the economy produce value.
Exploitation
Marx uses his LTV to derive his theory of exploitation under capitalism.Unlike Ricardo or the Ricardian socialists
Ricardian socialism
Ricardian socialism refers to a branch of socialist economic thought based upon the work of economist David Ricardo. The Ricardian socialists reasoned that the free-market was the route to socialism, and that rent, profit and interest were not natural outgrowths of the free-market...
, Marx distinguishes between labor power
Labor power
Labour power is a crucial concept used by Karl Marx in his critique of capitalist political economy. He regarded labour power as the most important of the productive forces of human beings. Labour power can be simply defined as work-capacity, the ability to do work...
and labor. "Labor-power" is the potential or ability of workers to work, given their muscles, brains, skills, and capacities. It is the promise of creating value possessed by human labor that has not yet been expended. "Labor" is the actual activity of producing value. The profit or surplus-value arises when workers do more labor than is necessary to pay the cost of hiring their labor-power.
To explain the normality of exploitation, Marx describes capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
as having an institutional framework in which a small minority (the capitalists) oligopolize the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
. The workers cannot survive except by working for capitalists, and the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
preserves this inequality of power. In normal role of force is structural, part of the usual workings of the system. The reserve army of unemployed workers continually threatens employed workers, pushing them to work hard to produce for the capitalists.
Criticism
Many economists believe that the Marxist labor theory of value has been "discredited". The criticism revolves around the undue stress Marx put on labor, ignoring other sources of value (such as technologyTechnology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
or know-how). Nonetheless certain elements of the theory are still believed to be valid, in particular, argument that interests of employee and employer are not the same, and that markets do not have a long-term tendency towards stability and equilibrium.
See also
- Abstract labor and concrete laborAbstract labour and concrete labourAbstract labour and concrete labour refer to a distinction made by Karl Marx in his critique of political economy.- Origin :Marx first advanced this distinction in A Contribution to the Critique of Political Economy and is discussed in more detail in chapter 1 of Capital, where Marx writes:The...
- Cost the limit of priceCost the limit of priceCost the limit of price was a maxim coined by Josiah Warren, indicating a version of the labor theory of value. Warren maintained that the just compensation for labor could only be an equivalent amount of labor . Thus, profit, rent, and interest were considered unjust economic arrangements...
- In TimeIn Time (film)In Time, previously titled Now and I'm.mortal, is a 2011 dystopian science fiction-thriller film starring Justin Timberlake, Amanda Seyfried, Cillian Murphy, Olivia Wilde, Alex Pettyfer, Johnny Galecki, and Vincent Kartheiser...
- Law of valueLaw of value-General:The law of value is a central concept in Karl Marx's critique of political economy, first expounded in his polemic The Poverty of Philosophy against Pierre-Joseph Proudhon, with reference to David Ricardo's economics...
- Prices of productionPrices of productionPrices of production refers to a concept in Karl Marx's critique of political economy. It is introduced in the third volume of Das Kapital, where Marx considers the operation of capitalist production as the unity of a production process and a circulation process involving commodities, money and...
- ProducerismProducerismProducerism, sometimes referred to as "producer radicalism," is a right-wing populist ideology which holds that the productive members of society are being exploited by parasitic elements at both the top and bottom of the social and economic structure....
- Productive and unproductive laborProductive and unproductive labourProductive and unproductive labour were concepts used in classical political economy mainly in the 18th and 19th century, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis...
- Surplus laborSurplus labourSurplus labour is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker . According to Marxian economics, surplus labour is usually "unpaid labour"...
- Surplus productSurplus productSurplus product is a concept explicitly theorised by Karl Marx in his critique of political economy. Marx first began to work out his idea of surplus product in his 1844 notes on James Mill's Elements of political economy...
- Surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
- Transformation problemTransformation problemIn 20th century discussions of Karl Marx's economics the transformation problem is the problem of finding a general rule to transform the "values" of commodities into the "competitive prices" of the marketplace...
- Unproductive labor in economic theoryUnproductive labour in economic theoryUnproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...
- Value-formValue-formThe value-form or form of value is a concept in Karl Marx’s critique of the political economy. It refers to a socially attributed characteristic of a commodity which contrasts with its tangible use-value or utility .The concept is introduced in the first chapter of Das Kapital where Marx argues...
Competing theories
- Criticisms of the labor theory of valueCriticisms of the labour theory of valueCriticisms of the labour theory of value often arise from an economic criticism of Marxism.-Microeconomic theory:Adherents of neoclassical economics, the currently predominant school, employ the theory of marginalism, which holds that the value of any good or service is determined by its marginal...
- MarginalismMarginalismMarginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity...
- Neo-RicardianismNeo-RicardianismThe neo-Ricardian school is an economic schoolthat derives from the close reading and interpretation of David Ricardo by Piero Sraffa, and from Sraffa's critique of Neoclassical economics as presented in his The Production of Commodities by Means of Commodities, and further developed by the...
- Subjective Theory of ValueSubjective theory of valueThe subjective theory of value is an economic theory of value that identifies worth as being based on the wants and needs of the members of a society, as opposed to value being inherent to an object....