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| The '''labor theory of value''' is a | The '''labor theory of value''' is a | ||
| theory in ] that the price of a commodity | theory in ] that the price of a commodity | ||
| traded on a market tends toward the labor time required | traded on a market tends toward the labor time required | ||
| to produce that commodity. The labor theory of value is | to produce that commodity. The labor theory of value is | ||
| popularly associated with ] and | popularly associated with ] and | ||
| ]. It is a theory of objective value, | ]. It is a theory of objective value, | ||
| superseded in much of Western economics by the turn | superseded in much of Western economics by the turn | ||
| toward ] | toward ] | ||
| associated with the development of ] | associated with the development of ] | ||
| in the 1870s. | in the 1870s. | ||
| The labor needed to produce a commodity includes both | The labor needed to produce a commodity includes both | ||
| labor directly expended on production of the commodity | labor directly expended on production of the commodity | ||
| and labor expended on the production of capital goods | and labor expended on the production of capital goods | ||
| used up in the production of the commodity. For example, | used up in the production of the commodity. For example, | ||
| if twenty workers are used for a year to produce capital | if twenty workers are used for a year to produce capital | ||
| goods used by twenty workers in the next year to | goods used by twenty workers in the next year to | ||
| produce a consumer good, the consumer good embodies | produce a consumer good, the consumer good embodies | ||
| the labor of forty workers. | the labor of forty workers. | ||
| This theory has political implications. In its original context, it was used to support the new notion of private-property. ], in his ''Treatise on Government'', asked by what right an individual can claim to own one part of the world, when according to the Bible God gave the world to all humanity. He answered that a person owns ones own labor, and that when a person labored -- even the mere lable of picking an apple off a tree -- that labor entered into the object, and so the object became property of that person. From this Locke and others further argued that commodities have value because of the labor invested in them. | This theory has political implications. In its original context, it was used to support the new notion of private-property. ], in his ''Treatise on Government'', asked by what right an individual can claim to own one part of the world, when according to the Bible God gave the world to all humanity. He answered that a person owns ones own labor, and that when a person labored -- even the mere lable of picking an apple off a tree -- that labor entered into the object, and so the object became property of that person. From this Locke and others further argued that commodities have value because of the labor invested in them. | ||
| ⚫ | As ] developed, this theory was used to support a very different political argument: that the role of owners in production is exploitative, since it is only the workers that add value to the product. The price of the product is said to tend towards the sum | ||
| ⚫ | As ] developed, this theory was used to support a very different political argument: that the role of owners in production is exploitative, since it is only the workers that add value to the product. | ||
| The price of the product is said to tend towards the sum | |||
| of the value of the capital goods used up in production | of the value of the capital goods used up in production | ||
| and the value added by direct labor. But profit, interest, | and the value added by direct labor. But profit, interest, | ||
| rent, etc. is only possible, according to the theory, | rent, etc. is only possible, according to the theory, | ||
| if the wages of these direct workers do not fully compensate | if the wages of these direct workers do not fully compensate | ||
| them for the value they add to the capital goods to | them for the value they add to the capital goods to | ||
| produce the product. | produce the product. | ||
| The classical economists and Marx quickly realized that | The classical economists and Marx quickly realized that | ||
| the price of a commoditiy does not tend to equal its value, as they conceived of it. | |||
| the labor theory of value could not be exactly true. | |||
| Suppose the proportion of unpaid to paid labor time is | Suppose the proportion of unpaid to paid labor time is | ||
| the same for all workers. Further suppose that workers | the same for all workers. Further suppose that workers | ||
| are paid when the product is sold. | are paid when the product is sold. | ||
| Technology will result in | Technology will result in | ||
| the ratio of direct labor to the value of capital goods | the ratio of direct labor to the value of capital goods | ||
| differing among industries. If products were traded | differing among industries. If products were traded | ||
| based on labor values, prices would result in different | based on labor values, prices would result in different | ||
| industries earning different rates of profits on the | industries earning different rates of profits on the | ||
| capital invested. But competition among industries | capital invested. But competition among industries | ||
| should be modeled as tending to remove differences | should be modeled as tending to remove differences | ||
| in profitability. Thus, the labor theory of value | in profitability. Thus, the labor theory of value | ||
| cannot be true. ] presented a numerical | cannot be true. ] presented a numerical | ||
| example of this ]: | example of this ]: | ||
| <i>Suppose I employ twenty men at an expense of 1000 pounds | <i>Suppose I employ twenty men at an expense of 1000 pounds | ||
| for a year in the production of a commodity, and at the end | for a year in the production of a commodity, and at the end | ||
| of the year I employ twenty men again for another year, at | of the year I employ twenty men again for another year, at | ||
| a further expense of 1000 pounds in finishing or perfecting | a further expense of 1000 pounds in finishing or perfecting | ||
| the same commodity, and that I bring it to market at the end | the same commodity, and that I bring it to market at the end | ||
| of two years, if profits be 10 per cent., my commodity must | of two years, if profits be 10 per cent., my commodity must | ||
| sell for 2,310 pounds.; for I have employed 1000 pounds | sell for 2,310 pounds.; for I have employed 1000 pounds | ||
| capital for one year, and 2,100 pounds capital for one year | capital for one year, and 2,100 pounds capital for one year | ||
| more. Another man employs precisely the same quantity of | more. Another man employs precisely the same quantity of | ||
| labour, but he employs it all in the first year; he employs | labour, but he employs it all in the first year; he employs | ||
| forty men at an expense of 2000 pounds, and at the end of | forty men at an expense of 2000 pounds, and at the end of | ||
| the first year he sells it with 10 per cent. profit, or | the first year he sells it with 10 per cent. profit, or | ||
| for 2,200 pounds. Here then are two commodities | for 2,200 pounds. Here then are two commodities | ||
| having precisely the same quantity of labour bestowed on | having precisely the same quantity of labour bestowed on | ||
| them, one of which sells for 2,310 pounds--the other | them, one of which sells for 2,310 pounds--the other | ||
| for 2,200 pounds.</i> | for 2,200 pounds.</i> | ||
| There are other difficulties with the labor theory of | There are other difficulties with the labor theory of | ||
| value associated with varying skills among heterogeneous | value associated with varying skills among heterogeneous | ||
| workers, land rent, and machinery. The above logical | workers, land rent, and machinery. The above logical | ||
| consequence of varying capital intensity has been the | consequence of varying capital intensity has been the | ||
| main focus of economic analysis of Marxist economics. Indeed, Marx concluded that the difference between value and price is central to ] economics. Marx called the difference between value and price "surplus value." | main focus of economic analysis of Marxist economics. Indeed, Marx concluded that the difference between value and price is central to ] economics. Marx called the difference between value and price "surplus value." | ||
| Discussion | Discussion | ||
| of this aspect of the theory goes on under the rubric | of this aspect of the theory goes on under the rubric | ||
| of the transformation problem, since it is about the | of the transformation problem, since it is about the | ||
| "transformation" of labor values to prices. | "transformation" of labor values to prices. | ||
| ---- | ---- | ||
| ] | |||
| /Talk | |||
Revision as of 15:51, 25 February 2002
The labor theory of value is a theory in economics that the price of a commodity traded on a market tends toward the labor time required to produce that commodity. The labor theory of value is popularly associated with classical economics and Marxism. It is a theory of objective value, superseded in much of Western economics by the turn toward economic subjectivism associated with the development of neoclassical economics in the 1870s.
The labor needed to produce a commodity includes both labor directly expended on production of the commodity and labor expended on the production of capital goods used up in the production of the commodity. For example, if twenty workers are used for a year to produce capital goods used by twenty workers in the next year to produce a consumer good, the consumer good embodies the labor of forty workers.
This theory has political implications. In its original context, it was used to support the new notion of private-property. John Locke, in his Treatise on Government, asked by what right an individual can claim to own one part of the world, when according to the Bible God gave the world to all humanity. He answered that a person owns ones own labor, and that when a person labored -- even the mere lable of picking an apple off a tree -- that labor entered into the object, and so the object became property of that person. From this Locke and others further argued that commodities have value because of the labor invested in them.
As capitalism developed, this theory was used to support a very different political argument: that the role of owners in production is exploitative, since it is only the workers that add value to the product. The price of the product is said to tend towards the sum of the value of the capital goods used up in production and the value added by direct labor. But profit, interest, rent, etc. is only possible, according to the theory, if the wages of these direct workers do not fully compensate them for the value they add to the capital goods to produce the product.
The classical economists and Marx quickly realized that the price of a commoditiy does not tend to equal its value, as they conceived of it. Suppose the proportion of unpaid to paid labor time is the same for all workers. Further suppose that workers are paid when the product is sold. Technology will result in the ratio of direct labor to the value of capital goods differing among industries. If products were traded based on labor values, prices would result in different industries earning different rates of profits on the capital invested. But competition among industries should be modeled as tending to remove differences in profitability. Thus, the labor theory of value cannot be true. David Ricardo presented a numerical example of this reductio ad absurdum:
Suppose I employ twenty men at an expense of 1000 pounds for a year in the production of a commodity, and at the end of the year I employ twenty men again for another year, at a further expense of 1000 pounds in finishing or perfecting the same commodity, and that I bring it to market at the end of two years, if profits be 10 per cent., my commodity must sell for 2,310 pounds.; for I have employed 1000 pounds capital for one year, and 2,100 pounds capital for one year more. Another man employs precisely the same quantity of labour, but he employs it all in the first year; he employs forty men at an expense of 2000 pounds, and at the end of the first year he sells it with 10 per cent. profit, or for 2,200 pounds. Here then are two commodities having precisely the same quantity of labour bestowed on them, one of which sells for 2,310 pounds--the other for 2,200 pounds.
There are other difficulties with the labor theory of value associated with varying skills among heterogeneous workers, land rent, and machinery. The above logical consequence of varying capital intensity has been the main focus of economic analysis of Marxist economics. Indeed, Marx concluded that the difference between value and price is central to capitalist economics. Marx called the difference between value and price "surplus value." Discussion of this aspect of the theory goes on under the rubric of the transformation problem, since it is about the "transformation" of labor values to prices.