The Labor Theory of Value: Origins, Meaning and Criticisms
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Studying the lessons of historical economists can prove useful to anyone who is interested in the current state of the economy or just wants to gain some historical perspective. One of the many theories popularized by Marx is the labor theory of value, which is an idea that suggests the value of a good is directly proportional to the amount of labor required to produce it. In this article, we discuss what the labor theory of value is, its origin and criticisms as well as examples of the core ideas of the theory.
What is the labor theory of value?
The labor theory of value is the notion that an item's value is directly related to the number of labor hours required to produce it. For example, if a desk requires 20 hours to build compared to 10 hours to build a chair, then the desk would be twice as valuable under the labor theory of value. While many people attribute the theory to Karl Marx, David Ricardo was the one who popularized it in the modern era.
Marx insisted that if a good's value is relative to the amount of labor required to produce it, then the compensation given to the person laboring should be a fixed amount relative to the product's price. The fundamental notion of Marx's idea was that those who owned the means of production, like factories, farms and workshops, were taking labor from their employees.
What is the origin of the labor theory of value?
David Ricardo and the economist, Adam Smith, brought the labor theory of value into economic discussions in the 1700s, but the origins of the theory go back to ancient Greeks. Many historians claim Aristotle was a supporter of the labor theory of value, while others attribute its introduction to Thomas Aquinas in the 1200s. Regardless of its origin, Ricardo and Smith brought the labor theory of value into contemporary discussion and it ultimately became associated with Marx's views on capitalism and its exploitation of the working class.
Marx's association with the theory led to its adoption by communist groups, such as Ricardian socialists and American individualist anarchists in the 19th century. Often cited as an example of ways in which capitalist owners benefit from their employees without providing a value of their own, the labor theory of value is one of the cornerstones of Marxist ideology. However, many economists after the 19th century don't put much value into this theory. Many economy students study labor theory of value to see how it influenced other economic theories and society as a whole.
Criticisms of the labor theory of value
While many accept Marx's beliefs, other economists and philosophers often disagreed with this theory. Many economists argued that Marx's idea was too simple to describe something as complex as the value of objects. Other critics argued that an item's value is different to each person, so a standard system would simply not work for everybody.
Here are some examples of criticisms to the labor theory of value:
Adam Smith's argument
Adam Smith, although one of the people who introduced the theory, ultimately argued against Ricardo's interpretation. Even before Marx's time, Adam Smith proposed that, while the labor theory of value may be effective at describing a primitive society, it's not complex enough to describe modern society.
Specifically, Smith argued that in early society, the labor to produce a good might be relative to its price, as most goods were made by the person who would use ultimately use them. Smith believed that systems of employees and employers aren't effectively defined by the theory. Furthermore, Smith argued that a more accurate definition of the theory would be that the value of a good is relative to the amount of labor it would take the buyer to produce it, not the amount of labor it took the employee to produce.
The subjective theory of value
One of the popular theories that replaced the labor theory of value is the subject theory of value. This theory argues that the value of a product, service or good is subjective to the owner. This theory comes from Smith's idea of value being proportional to the labor that the buyer would need to produce a similar good to what they're purchasing. T he subjective theory of value expands on Smith's notion by explaining that one person may value an object over another, regardless of the labor it saves them.
While Marx's theory presented the idea that an item's value is fixed to the amount of labor required to produce it, many economists argue that it's possible to expend labor producing items of no value. Examples of this idea include pens that can't write, crops that are inedible and boats that aren't seaworthy. All of these items would clearly take various amounts of labor to produce, but by their nature, they are worthless. This sort of hypothetical thinking is one of the most popular ways that some economists try to discredit Marx's theory.
A popular criticism of Marx's interpretation of the labor theory of value is that it places value only on human labor. Many machines are capable of producing goods, often more efficiently than humans. Marx's theory doesn't account for the labor of machines, as he described only human labor. Arguments against this idea explain that machines are products of human labor and need repairs. Therefore, human labor is a necessary component in the process, but many economists dispute this idea. Some economists also believe that a machine's value slowly depreciates as it wears down and eventually needs to be replaced.
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