The law of value (German: Wertgesetz) is a central concept in Karl Marx's critique of political economy, first expounded in his polemic The Poverty of Philosophy.
Table of contents
- JSTOR: Access Check
- The Multiple Meanings of Marx’s Value Theory
- Law of value
- A Monetary Value Theory
The labor theory of value suggested that two commodities will trade for the same price if they embody the same amount of labor-time, or else they will exchange at a ratio fixed by the relative differences in the two labor-times.
For instance, if it takes 10 hours to hunt a deer, and 20 hours to trap a beaver, then the exchange ratio would be two beavers for one deer. Since it was developed in the 18th century, the labor theory of value has fallen out of favor among most mainstream economists. This was not meant to be an accurate or historical reality, but as a thought experiment to derive the more developed version of the theory.
In this early state, there are only self-producers in the economy who all own their own materials, equipment, and tools needed to produce. They took the simplified example of a two-commodity world consisting of beaver and deer. If it is more profitable to produce deer than beaver, there would be a migration of people into deer production and out of beaver production.
The supply of deer will increase in kind, causing the incomes in deer production to drop — with a simultaneous rise in beaver incomes as fewer choose that employment. It is important to understand that the incomes of the self-producers is regulated by the quantity of labor embodied in the production, often expressed as labor-time.
Smith wrote that labor was the original exchange money for all commodities, and therefore the more labor employed in production, the greater the value of that item in exchange with other items, on a relative basis. While Smith described the concept and underlying principle of the LTV, Ricardo was interested in how those relative prices between commodities are governed.
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Take again the example of beaver and deer production. The total quantity of labor time is vertically integrated — including both direct and indirect labor-time. So, if it requires 12 hours to make a beaver trap and 8 hours to catch the beaver, that equals 20 total hours of labor-time. Because it's more profitable to produce beaver, people will move out of deer production and choose instead to produce beaver, creating a process of equilibration.
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.
The Multiple Meanings of Marx’s Value Theory
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: He must in most cases share it with the owner of the stock which employs him.
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. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them.
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. In a letter, he wrote: As a result, "Smith ends up making little use of a labor theory of value. Pierre Joseph Proudhon 's mutualism [30] and American individualist anarchists such as Josiah Warren , Lysander Spooner and Benjamin Tucker [31] 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 , [33] [34] and the four-page weekly paper he edited during , The Peaceful Revolutionist , was the first anarchist periodical published.
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. These included " Utopia " and " Modern Times ". Warren said that Stephen Pearl Andrews ' The Science of Society , published in , 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. 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 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 , [44] 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. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor.
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.
The Marxist labor theory of value has been criticised on several counts. Some argue [ citation needed ] 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". Whether or not this is consistent with the labor theory of value as presented in volume 1 has been a topic of debate. 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.
The theory can also be sometimes found in non-Marxist traditions. 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.
Law of value
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:. 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. 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.
The alternative would be to conceptualize unequal exchange as "an asymmetric net transfer of material inputs in production e. To resolve the above-mentioned contradiction of the theory with reality, some authors [56] [57] [58] proposed to reconsider the role of production equipment constant capital in production of value, following hints in Das Kapital , where Marx [11] 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: 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.
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Whether the motive power is derived from man or from some other machine, makes no difference in this respect p. 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. 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.
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.
From Wikipedia, the free encyclopedia. Anarchist economics and Cost the limit of price.
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Capital controversy Crisis theory Economic determinism Immiseration thesis Historical materialism Okishio's theorem Overaccumulation Overdetermination Overproduction Kondratiev wave Technological determinism Technological unemployment Temporal single-system interpretation. The mobility of labour is the only dynamic factor in the economy. As Engels pointed out in his Addendum to Capital Vol. III Marx, g, pp, , in such an economy, commodities would be exchanged at prices which would be immediately proportional to values, to the labour inputs they embody.
A Monetary Value Theory
But under the capitalist mode of production, this is no longer the case. Economic decision-taking is not in the hands of the direct producers. It is in the hands of the capitalist entrepreneurs in the wider sense of the word bankers — distributors of credit — playing a key role in that decision-taking, besides entrepreneurs in the productive sector properly speaking.
It is the mobility of capital and not the mobility of labour which becomes the motive force of the economy. Mobility of labour becomes essentially an epiphenomenon of the mobility of capital. Capitalist production is production for profit. Mobility of capital is determined by existing or expected profit differentials. Capital leaves branches countries, regions with lower profits or profit expectations and flows towards branches countries, regions with higher ones. These movements lead to an equalisation of the rate of profit between different branches of production.
We shall leave aside here the last aspect of the problem, to which extensive analysis has recently been devoted Mandel and Freeman, Nor is it true that he came upon that alleged difficulty when he started to prepare Capital Vol. In fact, his solution of the transformation problem is already present in the Grundrisse , before he even started to draft Capital Vol.
The sum total of value produced in a given country during a given span of time e.