Marxism_101 - The Labour Theory of Value

[Petros Agapetos]

The Labour Theory of Value

It is fashionable these days for bourgeois economists and sociologists to refute the dialectical materialist method of analysis developed by Karl Marx. One of the basic ideas of Karl Marx that is constantly being denied by the bourgeois is his theory of value. This is understandable because from this very theory flow all the other conclusions of Marx, in particular that of the need to overthrow capitalism if we are to put an end to all the contradictions of this unjust system which condemns millions of human beings to abject poverty, mass unemployment, periodic economic crises and wars. In this article (divided into two parts) Mick Brooks, using up to date facts and figures, shows how the Marxist Labour Theory of Value is still valid today.


It is fashionable these days for bourgeois economists and sociologists to refute the dialectical materialist method of analysis developed by Karl Marx. One of the basic ideas of Karl Marx that is constantly being denied by the bourgeois is his theory of value. This is understandable because from this very theory flow all the other conclusions of Marx, in particular that of the need to overthrow capitalism if we are to put to an end to all the contradictions of this unjust system which condemns millions of human beings to abject poverty, mass unemployment, periodic economic crises and wars. In this article (divided into two parts) Mick Brooks, using up to date facts and figures, shows how the Marxist Labour Theory of Value is still valid today. Part Two An introduction to Marx's Labour Theory of Value (Part Two) will be published next Friday.


Marx's view of history



"Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labour of society. That this necessity of the distribution of social labour in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident. No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves. And the form in which this proportional distribution of labour asserts itself, in the state of society where the interconnection of social labour is manifested in the private exchange of the individual products of labour, is precisely the exchange value of these products." (Marx to Kugelmann, July 11, 1868, shortly after the publication of Capital.)

When looking at historical materialism, the Marxist theory of historical development as a whole, we ask the question: what differentiates humans from other animals? We find that humans differentiate themselves by transforming themselves and external nature. The process by which people define and redefine themselves is the labour process. Sure, humans are thinking beings. But why do they need to develop the capacity for thought? What are they thinking about? Usually they are thinking about survival, about where the next meal is coming from. Marxists argue that the way people organise themselves to gain their daily bread is the mode of production, the skeleton of any form of society. And insofar as we can talk of an objective notion of progress in human history, it is given by the development of the productive forces, which in turn is achieved by raising the productivity of labour, the increase of our power over external nature.

[Petros Agapetos]

The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of "socially necessary labor" required to produce it, rather than by the use or pleasure its owner gets from it (demand) and its scarcity value (supply). It does not say that the value of a commodity is determined by the actual amount of labor contained in it, but the average amount needed to produce it. This is called "socially necessary labor".

LTV is usually associated with Marxian economics, although it is also used in the theories of earlier classical liberal economists such as Adam Smith and David Ricardo and later also in anarchist economics. Smith saw the price of a commodity in terms of the labor that the purchaser must expend to buy it, which embodies the concept of how much labor a commodity, a tool for example, can save the purchaser. The LTV is central to Marxist theory, which holds that the working class is exploited under capitalism, and dissociates price and value. Marx never referred to his own theory of value as a "labour theory of value" even once.[1] Neoclassical economics tends to deny the need for a LTV, concentrating instead on a theory of price determined by supply and demand.

[Petros Agapetos]

Definitions of value and labor
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[2] 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.[3] 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.

Distinctions of economically pertinent labor
Value "in use" is the usefulness of this commodity, its utility. A classical paradox often comes up when considering this type of value. In the words of Adam Smith:

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".

[Sacrificed Ram]

Even I refute Marx: The Need Makes The Value.

[Petros Agapetos]

2.1 What is a commodity?
A commodity is...an object outside us, a thing that by its properties satisfies human wants of some sort or another... (Karl Marx 1867, Chapter I, Section 1)
Marx later adds that a commodity implies exchange; it is regarded as containing exchange-value. Thus a person who produces something to use themselves is producing a use-value, not a commodity:
A thing can be useful, and the product of human labor, without being a commodity. Whoever directly satisfies his wants with the produce of his own labor, creates, indeed, use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but values for others, social use-values. (Karl Marx 1867, Chapter I, Section 1)

2.2 What are "use values?"
Every useful thing...is an assemblage of many properties, and may therefore be of use in various ways...The utility of a thing makes it a use-value...When treating of use-value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. (Karl Marx 1867, Chapter I, Section 1)
Utility then is not the measure of exchangable value, although it is absolutely essential to it. If a commodity were in no way useful, - in other words, if it could in no way contribute to our gratification, - it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labor might be necessary to procure it. (David Ricardo 1821, Chapter I, Section I)
Note that for Marx and arguably for Ricardo, use values are qualitative, not quantitative measures along a single dimension.

2.3 What is "exchange value?"
The exchange value of a commodity is "the power of purchasing other goods which the possession of that object conveys" (David Ricardo). Exchange value "presents itself as a quantitative relation, as the proportion in which values in use of one sort are exchanged for those of another sort" (Karl Marx 1867, Chapter I, Section 1). In other words, exchange value initially presents itself as the relative prices of a commodity.

2.4 What is meant by "concrete labor" and "abstract labor?"
In Marx's view, just as a commodity is "a complex of two things - use-value and exchange-value," so labor has a two-fold nature under capitalism. Just as the physical properties of a commodity determine its use value, so concrete labor activities are required to produce commodities. Marx mentions the labor of the joiner, mason, and spinner, for example.
The rate at which a coat and linen exchange in the market shows the coat and linen to be different quantities of some common substance. The coat and linen are qualitatively different use values, and so they are produced by qualitatively different kinds of concrete labor activities - tailoring and weaving:

Just as, therefore, in viewing the coat and linen as values, we abstract from their different use-values, so it is with the labour represented by these values: we disregard the difference between its useful forms, weaving and tailoring. As the use-values, coat and linen, are combinations of special productive activities with cloth and yarn, while the the values, coat and linen, are, on the other hand, mere homogeneous congelations of undifferentiated labour, so the labour embodied in the latter values does not count by virtue of its productive relation to cloth and yarn, but only as being expenditure of human labor-power. Tailoring and weaving are necessary factors in the creation of the use-values, coat and linen, precisely because these two kinds of labor are of different qualities; but only in so far as abstraction is made from their special qualities, only in so far as both possess the same quality of being human labor, do tailoring and weaving form the substance of the values of the same articles. (Karl Marx 1867, Chapter I, Section 2).
Abstract labor is this homogeneous human labor in which abstraction has been made from concrete labor activities.

[Petros Agapetos]

2.6 How does simple commodity production differ from capitalism?
Marx uses the formula C-M-C to describe the exchange of commodities under simple commodity production, also called petty commodity production. C denotes commodities and M denotes money. The formula C-M-C shows that money, that is, a commodity's value form, intervenes in a process in which one set of use values is traded for another.
Marx contrasts the role of money in simple commodity production with its role in the formula M-C-M. Here one finds

the transformation of money into commodities, and the change of commodities back again into money; or buying in order to sell. Money that circulates in the latter manner [M-C-M] is thereby transformed into, becomes capital, and is already potentially capital. (Karl Marx 1867, Chapter IV)
The merchant who buys a commodity in order to sell it again is trying to obtain more money than with which he began. Money, or more generally, the accumulation of capital has become a motive in itself. But what a trader gains in monetary value in a trade another trader loses. So gains from trade cannot be generalized to the world as a whole as an explanation for the source of surplus value. Yet capitalism is a system in which capitalists systematically make profits from the buying and selling of commodities, including the buying of inputs into production and the selling of produced goods. How, in principle, is this possible? The Marxist theory of exploitation answers this question,
Marx later expands M-C-M to M-C...P...C'-M' where money is used to purchase commodities consisting of the means of production and labor power. The capitalist removes these commodities from the market and they enter the production process P. The products re-enter the market as commodities which sell for money.

2.7 What are the means of production?
The tools, raw materials, and technology required to produce a commodity. The means of production are privately owned in a capitalist society.

3.0 What Are Labor Values?
The labor value of a commodity is amount of socially-necessary abstract labor time embodied in that commodity.

3.1 Can you give an example?
Consider a very simple capitalist economy with a yearly cycle of production in which iron is produced from inputs of iron and labor. The inputs are purchased at the beginning of the year, and the produced iron is available at the end of the year. All the iron input is used up in producing the iron outputs. Suppose quantities flows are as shown in the following table: