The Labor Theory of Value

From Stanford’s Encyclopedia of Philosophy entry on Karl Marx:

Suppose that such commodities take four hours to produce. Thus the first four hours of the working day is spent on producing value equivalent to the value of the wages the worker will be paid. This is known as necessary labour. Any work the worker does above this is known as surplus labour, producing surplus value for the capitalist. Surplus value, according to Marx, is the source of all profit. In Marx’s analysis labour power is the only commodity which can produce more value than it is worth, and for this reason it is known as variable capital. Other commodities simply pass their value on to the finished commodities, but do not create any extra value. They are known as constant capital. Profit, then, is the result of the labour performed by the worker beyond that necessary to create the value of his or her wages. This is the surplus value theory of profit.

Read how Marx got this wrong here.

There is more:

Although Marx’s economic analysis is based on the discredited labour theory of value, there are elements of his theory that remain of worth. The Cambridge economist Joan Robinson, in An Essay on Marxian Economics, picked out two aspects of particular note. First, Marx’s refusal to accept that capitalism involves a harmony of interests between worker and capitalist, replacing this with a class based analysis of the worker’s struggle for better wages and conditions of work, versus the capitalist’s drive for ever greater profits. Second, Marx’s denial that there is any long-run tendency to equilibrium in the market, and his descriptions of mechanisms which underlie the trade-cycle of boom and bust. Both provide a salutary corrective to aspects of orthodox economic theory.

Your thoughts please.

6 thoughts on “The Labor Theory of Value

  1. Hi Notes,

    I think Marx makes things more complicated than they need to be. I think it is obvious that almost all value, what I would call wealth, is derived of human labor. And the expenses, operating costs and raw materials comes nowhere near matching that. So, yes, translating from that language, there is a surplus value. In particular, if you’ve read my diatribes on banking you’ll know that I’ve pointed out that quite a bit of wealth is stolen from everyone … except bankers, and its been going on for over 1000 years.

    ” … First, Marx’s refusal to accept that capitalism involves a harmony of interests between worker and capitalist … ”

    I’m not sure I understand what that means. I don’t see any harmony anywhere. One could argue I have interests in harmony with Charles Manson, but that doesn’t mean anything. Specifically, whether any harmony of interest exists or not is an insufficient cause by itself for supporting that economic system.

    ;=) Enjoyed this post, thanks

    – kk

    • Hi kk,

      Value is subjective, not derived from human labor. From the article I linked to:

      Marx’s assertion that only labour can create surplus value is unsupported by any argument or analysis, and can be argued to be merely an artifact of the nature of his presentation. Any commodity can be picked to play a similar role. Consequently with equal justification one could set out a corn theory of value, arguing that corn has the unique power of creating more value than it costs. Formally this would be identical to the labour theory of value.

      Your other musings are interesting, but may be of some more use if you could elaborate on what you mean by “bankers.”

  2. Hey Notes,
    Ahh, I see where you’re coming from … I think. I simply wouldn’t agree with that. Value is composed of both subjective and objective factors. I don’t think its one or the other. Can value in any economic sense exist without wealth? Can wealth exist without labor? Then value is causally entrained to labor. Of course, perhaps we could find some strained examples of where “wealth” exists without labor, but it is sufficient to observe that some wealth cannot exist without labor.
    When I say value “in any economic sense”, I mean to say, I’m only interested in value to the extent that it has a causal relationship to valuable consideration.
    As for “bankers”, I mean it in the most obvious sense. A banker is someone who runs a bank.
    – kk

    • kk,

      Value is entirely subjective. There are people out there who continue to suggest otherwise, of course, but they have become irrelevant; relics of a barbaric and war-torn age of yonder.

      Look, try digging a hole in your front yard and selling the dirt you dig up.

      As for “bankers” running the world or stealing everybody’s wealth, check it out:

      People who run banks are generally regarded as ‘management.’ People who work at banks are generally regarded as ’employees.’ Both types of people can own a bank, through stocks, or both kinds of people may own no part of a bank at all. There is no class of people, anywhere, that can be accurately described as “bankers.”

      Pointing to a specific (and made-up) class of people and attributing to this class an aura of omnipotence is like an intellectual canary in the coal mine.

    • Hey Notes,

      Well, this doesn’t change my mind at all. I sense an ideological bend to your reasoning as it defies rationality, as if you are compelled to find an absolute answer. Value cannot be entirely subjective. Does scarcity affect value? Does demand affect value? Are you suggesting that causality doesn’t exist? How do you define “value”? How are you defining “subjectivity”? You can continue to say something over and over but it doesn’t establish a rational argument. Again, it is a non-sequitir to claim that because something is subjective it is free of causality; which is almost a supernatural argument.

      It may well be, and I suspect it is true, that we define subjectivity differently. Do you sense some kind of divine source of cognition that gives rise to “subjectivity”, making subjectivity miraculously free of any natural causes? Or, is it merely that subjectivity is not something whose causes can be fully characterized or quantified (my view)?

      As for “class”, I think you are unwittingly setting up a straw man. I’m not suggesting anything with respect to “class”. I was merely referring to what most people think of when they speak of “bankers”. I think that is merely a matter of knowing how each other defines the terms they are using. I think most people mean to suggest that a “banker” is someone in that industry who makes the executive decisions regarding their slice of that industry. It doesn’t matter what title they hold. I don’t think David Rockefeller would be considered “management” as he hires people for that. But he certainly has made many executive decisions in that industry.

      In order to advance the conversation it would require that you respond to my points about causality and how you are defining your terms. Otherwise, you’re just speaking in circles. You might have something here, I’m just not seeing it yet.

      If we get there, my next question would be: do you think that value is entirely subjective only when considering all parties to the valuable consideration or just one? Is there a difference? In other words, when you say subjective, subjective for whom? If the market sets a value range by what it will bear, is any one party’s assessment of value entirely subjective? Yes? Are you sure? Notice how the answer depends heavily on how you are defining subjectivity.

      – kk

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