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WillowOne's Positions

The Labour Theory of Value

My Positions

  1. I do not hold to the Labour Theory of Value.
  2. I hold that the value of a good is determined by what people are willing to give up for it, which depends on their preferences and on how much of the good they already have (the subjective or marginal theory of value). Labour is a cost of production, not the source of value.

Notes

  • The Labour Theory of Value (LTV) is an economic theory asserting that the value of a commodity is fundamentally determined by the amount of socially necessary labour time required to produce it, under average conditions of production and with average skill and intensity.
  • The theory was held in various forms by John Locke, Adam Smith, and David Ricardo before Karl Marx adopted and significantly developed it. Marx made it the foundation of his critique of capitalism: if labour is the source of all value, then profit is the portion of that value the capitalist appropriates without paying for it ("surplus value"), and the wage relation is inherently exploitative.
  • Marginal utility theory, developed independently in the 1870s by William Stanley Jevons, Carl Menger, and Léon Walras (the "marginal revolution"), challenged the LTV by arguing that value arises from consumer preferences and the utility of the next unit of a good, not from labour input. Modern mainstream (neoclassical) economics has largely rejected the LTV, and it survives chiefly among Marxist economists.
  • The problems with the LTV, as I understand them:
  1. It gets the direction of causation backwards. Labour is expended on things because they are expected to be valuable; things are not valuable because labour was expended on them. A mud pie that took an hour to make is worth nothing. A diamond found on the ground is worth a great deal.
  2. "Socially necessary" does the work. To avoid the mud-pie problem, the theory restricts itself to labour that is "socially necessary", that is, labour that produces something people want. But this concedes that wanting is what determines value, and labour merely tracks it.
  3. It cannot account for prices without labour. Land, natural resources, works of art by dead artists, and vintage wines all command prices that have no relation to current labour inputs.
  4. The transformation problem. Marx's own attempt (in Capital, Volume III) to derive actual prices from labour values was found to be internally inconsistent, a problem Marxist economists have been working on for over a century.
  • I note that one can reject the LTV while accepting that the distribution of returns between labour and capital is a legitimate political question. The LTV is not needed to argue that workers should be paid more; it is only needed to argue that all profit is theft, which is the claim I reject. See Communism.

Also see