The labor theory of value (LTV) is a normative classical theory of value that argues that the price of a good or service should be (morally) equal to the total amount of labor value (wages) required to produce it. Smith and other classical economists saw the price of a commodity in terms of the labor that the purchaser must expend to buy it.
Marx later modified this normative (moral) theory of value to become a new idea, that the economic value or price of something was literally determined by the "socially necessary labor", rather than by the use or pleasure its owner gets from it and its scarcity value. For that reason, LTV is usually associated with Marxian economics. The LTV is central to Marxist theory, which holds that the working class is exploited under capitalism, and dissociates price and value. Marx did not refer to his own theory of value as a "labour theory of value". Neoclassical economics tends to reject the need for a LTV, concentrating instead on a theory of price determined by supply and demand.
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 produce a marketable commodity, including the labor necessary to develop any real capital used in the production. Both David Ricardo and Karl Marx tried to quantify and embody all labor components in order to develop a theory of the real price, or natural price of a commodity. The labor theory of value as presented by Adam Smith did not require the quantification of past labor, nor did it deal with the labor needed to create the tools (capital) that might be used in producing a commodity. Smith's 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. However, 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 producing 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 all the labor spent in creating it.
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 anything; scarce anything 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" 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:
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).
Value (without qualification) is the labor embodied in a commodity under a given structure of production. 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. To David 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".
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.[note 1]
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 thus produce more value through the production of greater quantities of the finished commodity. Each unit still bears the same value as all the others of the same class of commodity. By working sloppily, 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, unextracted 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[note 2] 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 or ) 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 expressions for the value produced during a given period:
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 values added by the labor performed during the process .
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.
However, most economists would say that cases where pricing is given as approximately equal to the value of the labour embodied, are in fact only special cases. In General Theory pricing most usually fluctuates. The standard formulation is that prices normally include a level of income for "capital" and "land". These incomes are known as "profit" and "rent" respectively. Yet Marx made the point that value cannot be placed upon labour as a commodity, because capital is a constant, whereas profit is a variable, not an income; thus explaining the importance of profit in relation to pricing variables.
In Book 1, chapter VI, Adam Smith writes:
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 explains 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, 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:
The LTV seeks to explain the level of this equilibrium. 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.
The labor theory of value has developed over many centuries. It had no single originator, but rather many different thinkers arrived at the same conclusion independently. Aristotle is claimed to hold to this view. Some writers trace its origin to Thomas Aquinas. In his Summa Theologiae (1265–1274) he expresses the view that "... value can, does and should increase in relation to the amount of labor which has been expended in the improvement of commodities." Scholars such as Joseph Schumpeter have cited Ibn Khaldun, who in his Muqaddimah (1377), described labor as the source of value, necessary for all earnings and capital accumulation. 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." Scholars have also pointed to Sir William Petty's Treatise of Taxes of 1662 and to John Locke's labor theory of property, set out in the Second Treatise on Government (1689), which sees labor as the ultimate source of economic value. Karl Marx himself credited Benjamin Franklin in his 1729 essay entitled "A Modest Enquiry into the Nature and Necessity of a Paper Currency" as being "one of the first" to advance the theory.
Adam Smith accepted the theory for pre-capitalist societies but saw a flaw in its application to contemporary capitalism. He pointed out that if the "labor embodied" in a product equaled 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.
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, and Percy Ravenstone—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.
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 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 connection Ricardo seeks to differentiate the quantity of labour 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 stabilizes 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 would make it 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."
Pierre Joseph Proudhon's mutualism and American individualist anarchists such as Josiah Warren, Lysander Spooner and Benjamin Tucker adopted the liberal Labor Theory of Value of classical economics and used it to criticize capitalism while favoring a non-capitalist market system.
Warren is widely regarded as the first American anarchist, and the four-page weekly paper he edited during 1833, The Peaceful Revolutionist, was the first anarchist periodical published. Cost the limit of price was a maxim coined by Warren, indicating a (prescriptive) version of the labor theory of value. Warren maintained that the just compensation for labor (or for its product) could only be an equivalent amount of labor (or a product embodying an equivalent amount). Thus, profit, rent, and interest were considered unjust economic arrangements. In keeping with the tradition of Adam Smith's The Wealth of Nations, the "cost" of labor is considered to be the subjective cost; i.e., the amount of suffering involved in it. He put his theories to the test by establishing an experimental "labor for labor store" called the Cincinnati Time Store at the corner of 5th and Elm Streets in what is now downtown Cincinnati, where trade was facilitated by notes backed by a promise to perform labor. "All the goods offered for sale in Warren's store were offered at the same price the merchant himself had paid for them, plus a small surcharge, in the neighborhood of 4 to 7 percent, to cover store overhead." The store stayed open for three years; after it closed, Warren could pursue establishing colonies based on Mutualism. These included "Utopia" and "Modern Times". Warren said that Stephen Pearl Andrews' The Science of Society, published in 1852, was the most lucid and complete exposition of Warren's own theories.
Mutualism is an economic theory and anarchist school of thought that advocates a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market. Integral to the scheme was the establishment of a mutual-credit bank that would lend to producers at a minimal interest rate, just high enough to cover administration. Mutualism is based on a labor theory of value that holds that when labor or its product is sold, in exchange, it ought to receive goods or services embodying "the amount of labor necessary to produce an article of exactly similar and equal utility". Mutualism originated from the writings of philosopher Pierre-Joseph Proudhon.
Collectivist anarchism as defended by Mikhail Bakunin defended a form of labor theory of value when it advocated a system where "all necessaries for production are owned in common by the labour groups and the free communes ... based on the distribution of goods according to the labour contributed".
Contrary to popular belief Marx never used the term "Labor theory of value" in any of his works but used the term Law of value, Marx opposed "ascribing a supernatural creative power to labor", arguing as such:
Here, Marx was distinguishing between exchange value (the subject of the LTV) and use value. Marx used the concept of "socially necessary labor time" to introduce a social perspective distinct from his predecessors and neoclassical economics. Whereas most economists start with the individual's perspective, Marx started 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 labor 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 that creates value, but labor power sold by free wage workers to capitalists. Another distinction is between productive and unproductive labor. Only wage workers of productive sectors of the economy produce value.[note 3]
The Marxist labor theory of value has been criticised on several counts. Some argue that it predicts that profits will be higher in labor-intensive industries than in capital-intensive industries, which would be contradicted by measured empirical data inherent in quantitative analysis. Even if Marx has never 'mechanically' simplified the matter in these terms, as capital itself is product of past labour, thus, the 'general tendency of falling profit' does not concern or invalidate the labour origin of value, present in both live and dead labour (capital)(cf chapter 1 and 24 of Das Kapital). This is sometimes referred to as the "Great Contradiction". In volume 3 of Capital, Marx explains why profits are not distributed according to which industries are the most labor-intensive and why this is consistent with his theory. Whether or not this is consistent with the labor theory of value as presented in volume 1 has been a topic of debate. According to Marx, surplus value is extracted by the capitalist class as a whole and then distributed according to the amount of total capital, not the just variable component. In the example given earlier, of making a cup of coffee, the constant capital involved in production is the coffee beans themselves, and the variable capital is the value added by the coffee maker. The value added by the coffee maker is dependent on its technological capabilities, and the coffee maker can only add so much total value to cups of coffee over its lifespan. The amount of value added to the product is thus the amortization of the value of the coffeemaker. We can also note that not all products have equal proportions of value added by amortized capital. Capital intensive industries such as finance may have a large contribution of capital, while labor-intensive industries like traditional agriculture would have a relatively small one.
Steven Keen argues that Marx's idea that only labor can produce value rests on the idea that as capital (for example a machine) depreciates over its use, then this is transferring its exchange-value to the product. However Keen argues that the usefulness (use-value) of the machine does not necessarily depreciate at the same rate - why a machine wearing out should mean it isn't useful is unclear. Keen uses an analogy with labor: If workers receive a subsistence wage and the working day exhausts the capacity to labor, it could be argued that the worker has "depreciated" by the amount equivalent to the subsistence wage. However this depreciation is not the limit of value a worker can add in a day (indeed this is critical to Marx's idea that labor is fundamentally exploited). Indeed if it was, then the production of a surplus would be impossible. Thus a machine could have a use-value greater than its exchange-value, meaning it could, along with labor, be a source of surplus. Keen argues that Marx in fact almost reached such a conclusion in the Grundrisse but never developed it any further. Keen further observes that while Marx insisted that the contribution of machines to production is solely their use-value and not their exchange-value, he routinely treated the use-value and exchange-value of a machine as identical, despite the fact that this contradicted his claim that the two were unrelated. Keen argues that it is logically untenable to argue that use-value does not determine exchange-value while simultaneously treating use-value as the same as exchange-value.
The theory can also be sometimes found in non-Marxist traditions.[note 4] For instance mutualist anarchist theorist Kevin Carson's Studies in Mutualist Political Economy opens with an attempt to integrate marginalist critiques into the labor theory of value.
Some Post-Keynesian economists have been highly critical of the labor theory of value. Joan Robinson, who herself was considered an expert on the writings of Karl Marx, wrote that the labor theory of value was largely a tautology and "a typical example of the way metaphysical ideas operate".
Others have argued that the labor theory of value, especially as it arises in the work of Karl Marx, is due to a failure to recognize the fundamentally dialectical nature of how human beings attribute value to objects. Pilkington writes that value is attributed to objects based on our desire for them and that this desire is always inter-subjective and socially determined. He writes the following:
[V]alue is attributed to objects due to our desire for them. This desire, in turn, is inter-subjective. We desire to gain [a] medal or to capture [an] enemy flag [in battle] because it will win recognition in the eyes of our peers. [A] medal [or an enemy] flag are not valued for their objective properties, nor are they valued for the amount of labour embodied in them, rather they are desired for the symbolic positions they occupy in the inter-subjective network of desires.
Pilkington insists that this is an entirely different conception of value than the one we find in the marginalist theory found in many economics textbooks. He writes that "actors in marginalist analysis have self-contained preferences; they do not have inter-subjective desires".
In ecological economics, the labor theory of value has been criticized, where it is argued that labor is in fact energy over time. However, echoing Joan Robinson, Alf Hornborg, an environmental historian, argues that both the reliance on "energy theory of value" and "labor theory of value" are problematic as they propose that use-values (or material wealth) are more "real" than exchange-values (or cultural wealth)--yet, use-values are culturally determined. For Hornborg, any Marxist argument that claims uneven wealth is due to the "exploitation" or "underpayment" of use-values is actually a tautological contradiction, since it must necessarily quantify "underpayment" in terms of exchange-value. The alternative would be to conceptualize unequal exchange as "an asymmetric net transfer of material inputs in production (e.g., embodied labor, energy, land, and water), rather than in terms of an underpayment of material inputs or an asymmetric transfer of 'value'". In other words, uneven exchange is characterised by incommensurability, namely: the unequal transfer of material inputs; competing value-judgements of the worth of labor, fuel, and raw materials; differing availability of industrial technologies; and the off-loading of environmental burdens on those with less resources.
To resolve the above-mentioned contradiction of the theory with reality, some authors proposed to reconsider the role of production equipment (constant capital) in production of value, following hints in Das Kapital, where Marx described the functional role of machinery in production processes in Chapter XV (Machinery and Modern Industry) in the following words:
On a closer examination of the working machine proper, we find in it, as a general rule, though often, no doubt, under very altered forms, the apparatus and tools used by the handicraftsmen or manufacturing workman: with this difference that instead of being human implements, they are the implements of a mechanism, or mechanical implements (pp. 181–182). The machine proper is therefore a mechanism that, after being set in motion performs with its tools the same operations that were formerly done by the workman with similar tools. Whether the motive power is derived from man or from some other machine, makes no difference in this respect (p. 182). The implements of labour, in the form of machinery, necessitate the substitution of natural forces for human force, and the conscious application of science instead of rule of thumb (p. 188). After making allowance, both in the case of the machine and of the tool, for their average daily cost, that is, for the value they transmit to the product by their average daily wear and tear, and for their consumption of auxiliary substances such as oil, coal and so on, they each do their work gratuitously, just like the forces furnished by nature without the help of man (p. 189).
These words state that one has to account, while interpreting production of value, that the workers' efforts in production of things are substituted with work of production equipment with due effect. Really, at substitution of labourer's work by forces of the nature, that is at substitution of efforts of people by work of external forces of the nature by means of the production equipment, work operates in a complex as workers' efforts plus work of the equipment. Thus, work of machines can be appreciated only so far as this work does what people wish, replacing their efforts and, consequently, a measure of value, certainly, can be the labourers' work only.
The Cincinnati Time Store (1827-1830) was the first in a series of retail stores created by American individualist anarchist Josiah Warren to test his economic labor theory of value. The experimental store operated from May 18, 1827 until May 1830. He sold things at-cost plus a small markup for his time. It is usually considered to be the first time alternative currency labor notes were used, and as such the first experiment in what would later be called mutualism. He also founded stores in New Harmony, Indiana and at Modern Times, Long Island. The store in Cincinnati closed in 1830 with Warren being satisfied he demonstrated running and managing a business without the "erection of any power over the individual". His theory — replacing money with time — was turned into an actual practical demonstration project. It was the first such activity, preceding similar labor notes in Europe by more than 20 years, and still has implications for other concepts of currency such as cryptocurrencies. Nonetheless, at the time it was the most popular mercantile institution in Cincinnati.Commodity (Marxism)
In classical political economy and especially Karl Marx's critique of political economy, a commodity is any good or service ("products" or "activities") produced by human labour and offered as a product for general sale on the market. Some other priced goods are also treated as commodities, e.g. human labor-power, works of art and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods.
Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the labor theory of value. This problem was extensively debated by Adam Smith, David Ricardo, and Karl Rodbertus-Jagetzow, among others. Value and price are not equivalent terms in economics, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists.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. The cost can comprise any of the factors of production (including labor, capital, or land) and taxation.
The theory makes the most sense under assumptions of constant returns to scale and the existence of just one non-produced factor of production. These are the assumptions of the so-called non-substitution theorem. Under these assumptions, the long-run price of a commodity is equal to the sum of the cost of the inputs into that commodity, including interest charges.Cost the limit of price
Cost the limit of price was a maxim coined by Josiah Warren, indicating a (prescriptive) version of the labor theory of value. Warren maintained that the just compensation for labor (or for its product) could only be an equivalent amount of labor (or a product embodying an equivalent amount). Thus, profit, rent, and interest were considered unjust economic arrangements. As Samuel Edward Konkin III put it, "the labor theory of value recognizes no distinction between profit and plunder."In keeping with the tradition of Adam Smith's The Wealth of Nations, the "cost" of labor is considered to be the subjective cost; i.e., the amount of suffering involved in it.Criticisms of Marxism
Criticisms of Marxism have come from various political ideologies and academic disciplines. These include general criticisms about a lack of internal consistency, criticisms related to historical materialism, that it is a type of historical determinism, the necessity of suppression of individual rights, issues with the implementation of communism and economic issues such as the distortion or absence of price signals and reduced incentives. In addition, empirical and epistemological problems are frequently identified.Criticisms of the labour theory of value
Criticisms of the labor theory of value affect the historical concept of labor theory of value (LTV) which spans classical economics, liberal economics, Marxian economics, neo-Marxian economics, and anarchist economics. As an economic theory of value LTV is central to Marxist social-political-economic theory and later gave birth to the ideologically motivated concepts of exploitation of labour and surplus value. LTV criticisms therefore often appear in the context of economic criticism, not only for the microeconomic theory of Marx, but also for Marxism, according to which the working class was exploited under capitalism.
Many modern economists argue LTS is scientifically incorrect. One common critique is that the selling price per unit of a good or service minus the variable cost per unit determines the contribution margin which contributes to the coverage of fixed costs; thus, the selling price of a good or service in a market itself is determined by supply and demand, consumer choice, and advertising, rather than labor.Gottfried Haberler
Gottfried von Haberler (German: [ˈhaːbɐlɐ]; July 20, 1900 – May 6, 1995) was an Austrian-American economist. He worked in particular on international trade. One of his major contributions was reformulating the Ricardian idea of comparative advantage in a neoclassical framework, abandoning the labor theory of value for an opportunity cost concept.Haberler was born in Austria-Hungary in 1900, and was educated in the Austrian School of economics. In 1936 he moved to the United States, joining the economics department at Harvard University. There he worked alongside Joseph Schumpeter.
Haberler's two major works were Theory of International Trade (1936) and Prosperity and Depression (1937).
He was President of the International Economic Association (1950–1953).
In 1957 the General Agreement on Tariffs and Trade commissioned a report on the terms of trade for primary commodities, and Haberler was appointed Chairman. The report found that there was a decline in the terms of trade for primary producers, since 1955 commodity prices were said to have fallen by 5%, while industrial prices rose by 6%. Haberler's report seems to prefigure the report written by Raúl Prebisch for the United Nations Conference on Trade and Development (UNCTAD) in 1964, but when Prebisch's report came out Haberler denounced it. His particular disagreement was with the idea that there was a systematic long-term (secular) decline in the terms of trade.
In 1971, Haberler left Harvard to become a resident scholar at the American Enterprise Institute.Johann Karl Rodbertus
Johann Karl Rodbertus (August 12, 1805, Greifswald, Swedish Pomerania – December 6, 1875, Jagetzow), also known as Karl Rodbertus-Jagetzow, was a German economist and socialist and a leading member of the Linkes Zentrum (centre-left) in the Prussian national assembly. He defended the labor theory of value as well as the view, as an inference from that, that interest or profit is theft. He believed that capitalist economies tend toward overproduction.Kevin Carson
Kevin Carson is an American social theorist and mutualist known for his left-libertarianism. He is a Senior Fellow and Karl Hess Chair in Social Theory at the Center for a Stateless Society. Carson's Studies in Mutualist Political Economy aims to revive interest in mutualism, synthesizing Austrian economics with the labor theory of value by incorporating both subjectivism and time preference. His work has been addressed by anarcho-capitalist economist Walter Block and his Center for a Stateless Society colleague, the philosopher Roderick T. Long.Marx after Sraffa
Marx after Sraffa is a 1977 book about Marxist economics by the economist Ian Steedman, in which the author argues against the labor theory of value. Steedman has been criticized for alleged misunderstandings of Karl Marx.Neo-Marxian economics
The terms neo-Marxian, post-Marxian and radical political economics were first used to refer to a distinct tradition of economic thought in the 1970s and 1980s. Many of the leading figures were associated with the Monthly Review School.On the Principles of Political Economy and Taxation
On the Principles of Political Economy and Taxation (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory that free trade between two or more countries can be mutually beneficial, even when one country has an absolute advantage over the other countries in all areas of production.
Ricardo claims in the preface that Turgot, Stuart, Adam Smith, Jean-Baptiste Say, Sismondi, and others had not written enough "satisfactory information" on the topics of rent, profit, and wages. Principles of Political Economy is Ricardo's effort to fill that gap in the literature. Regardless of whether the book achieved that goal, it secured, according to Ronald Max Hartwell, Ricardo's position among the great classical economists Adam Smith, Thomas Malthus, John Stuart Mill, and Karl Marx.
In his book Adam's Fallacy: A Guide to Economic Theology, economist Duncan K. Foley highlights that in the Principles Ricardo criticizes Adam Smith's treatment of the theory of value and distribution for circular reasoning, in particular as far as concerns rent, and that Ricardo considers the labor theory of value, properly understood, a more logically sound basis for political economic reasoning.Foley also discusses the chapter On Machinery, which Ricardo included in his third and final (1821) version of Principles. Here Ricardo famously analysed the impact of the adoption of machinery on the different classes of society, revising his earlier view that mechanization could be expected to be of benefit to each of the classes of the society. The increase in productivity due to mechanization lowers the production costs and thus also the real prices of commodities. Whereas the landowning class and capitalists benefit from the lower prices, workers in contrast do not reap such benefit from the lower prices if capitalists reduce the wage fund in order to finance the expensive machinery, causing technological unemployment among workers. In this case, Ricardo points out, wages are forced down by competition among workers, and the introduction of new machines can lead to an over-all decline in the well-being of the working class.Paradox of value
The paradox of value (also known as the diamond–water paradox) 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, although it had already appeared as early as Plato's Euthydemus. Nicolaus Copernicus, John Locke, John Law and others had previously tried to explain the disparity.Sergei Podolinsky
Sergei Andreević Podolinsky (Ukrainian: Сергі́й Подоли́нський, Russian: Сергей Андреевич Подолинский) (19 July 1850 – 1891) was a Ukrainian socialist, physician, and an early pioneer of ecological economics. He set out to reconcile socialist thought with the second law of thermodynamics by synthesising the approaches of Karl Marx, Charles Darwin and Sadi Carnot. In his essay "Socialism and the Unity of Physical Forces," Podolinsky theorized a labor theory of value based on embodied energy.Studies in the Labour Theory of Value
Studies in the Labour Theory of Value (1956; second edition 1973) is a book about the labor theory of value by the economist Ronald L. Meek. The book has been praised by commentators.The Theory of Capitalist Development
The Theory of Capitalist Development is a 1942 book by the Marxian economist Paul Sweezy, in which the author expounded and defended the labor theory of value. It has received praise as an important work, but Sweezy has also been criticized for misrepresenting Karl Marx's economic theories.Theory of value (economics)
A theory of value is any economic theory that attempts to explain the exchange value or price of goods and services. Key questions in economic theory include why goods and services are priced as they are, how the value of goods and services comes about, and—for normative value theories—how to calculate the correct price of goods and services (if such a value exists).Thomas T. Sekine
Tomohiko Sekine (関根 友彦, Sekine Tomohiko, born 1933), a.k.a. Thomas T. Sekine is a Japanese economist and is considered to be one of the most important theorists on the field of Marx's labor theory of value. His main work The Dialectic of Capital was published in 1986. He is a scholar of Kozo Uno.Voluntary Socialism
Voluntary Socialism is a work of nonfiction by the American mutualist Francis Dashwood Tandy (1867–1913). First published in 1896, it has been favorably cited by many individualist anarchists, including Clarence Lee Swartz, minarchist Robert Nozick and left-libertarian Roderick T. Long, who has noted that "many of the standard moves in market anarchist theory today are already in evidence in Tandy".Tandy was a member of the "Denver Circle", a group of men who associated with Benjamin Tucker and contributed to the periodical Liberty. In the preface to Voluntary Socialism, he declares his intent to "give a complete outline of [Voluntaryism] in its most important bearings". To that end, chapters one through four outline the foundation for Tandy's anarchism, drawing heavily from Max Stirner and Herbert Spencer. Chapters five through fourteen cover specific areas of interest, including private defense agencies, the labor theory of value, mutual banking, transportation, and political strategy.
The book is dedicated to Benjamin Tucker, "whose lucid writings and scathing criticisms have done so much to dispel the clouds of economic superstition".