Karl Marx Labor Theory Of Value

Karl Marx's Labor Theory of Value

In developing a theory of relative prices, or the quantitative relationship between things or commodities, Marx essentially used Ricardo's theory of value. Com­modities manifest in their prices certain quantitative relationships, and this means, according to Marx, that all commodities must contain one element in common that must exist in certain measurable quantities. Marx considered use value, or utility, as a common element but rejected this possibility. He then turned to labor as the common element and concluded that it is the amount of labor time necessary to produce commodities that governs their relative prices. As an advocate of a labor theory of value, Marx worked through the various problems inherent in the formulation of a labor theory of value, as Ricardo had before him, and essentially followed the Ricardian solutions. Marx was able to give a clearer presentation of the difficulties of a labor theory of value, but he was no more able to solve the problems than Ricardo had been.

To Marx, the only social cost of producing commodities was labor. At the highest level of abstraction, Marx disregarded the differing skills of labor and conceived of the total labor available to society for commodity production as a homogeneous quantity, which he called abstract labor. The production of any commodity requires the use of a part of the total supply of abstract labor. The relative prices of commodities reflect the amounts of this abstract supply of labor, measured in clock hours, necessary to produce the goods. This raises what we have called the skilled labor problem, namely, that labor with varying skills will have varying outputs. Marx then reduced the level of abstraction and met this issue by measuring the amount of labor required to produce a commodity by the socially necessary labor time, which is defined as the time taken by a worker with the average degree of skill possessed by labor at the time. Labor with skill greater than the average is reduced to the average by measuring its greater productivity and making an appropriate adjustment. If, for example, a given laborer, because of greater natural ability, produced 100 percent more than a laborer with average skills, each hour of the superior labor would count as two hours of average labor. In this manner, all labor time is reduced to socially necessary labor time. We saw that Smith became involved in circular reasoning by measuring differences in labor skills by wages paid to labor. Marx sidestepped the entire issue by assuming that differences in labor skills are measured not by wages but by differences in physical productivity.

Another problem raised by a labor theory of value is how to account for the influence of capital goods on relative prices. Marx used Ricardo's solution to this problem, maintaining that capital is stored-up labor. The labor time required to produce a commodity is, then, the number of hours of labor immediately applied plus the number of hours required to produce the capital destroyed in the process. Marx's solution, like Ricardo's, is not completely satisfactory, because it fails to allow for the fact that where capital is used, interest may be paid on the funds used to pay the indirect labor stored in the capital from the time of the payment of the indirect labor until the sale of the product.

A labor theory of value must also address the issues raised by differing fertilities of land. Equal amounts of labor time will produce varying outputs when applied to land of different fertilities. The labor theory of value that Marx developed in the first two volumes of Capital completely neglects this problem, but in Volume III he met the question by adopting Ricardo's theory of differential rent: the greater productivity of labor on land of superior fertility is absorbed by the landlord as a differential rent. Competition will cause the rent on superior grades of land to rise until the rates of profit on all grades of land are equal. Rent, then, is price-determined, not price-determining.

A final difficulty inherent in a labor theory of value derives from the influence of profits on prices. One of the crucial aspects of this problem involves labor-capital ratios in various industries. Industries that are highly capital-intensive will produce goods whose profits are a larger proportion of final price than industries of lesser capital intensity. Because of his close study of Ricardo, Marx was fully aware of this problem, but throughout the first two volumes of Capital he avoided the issue by assuming that all industries and firms have the same capital intensity. He dropped this assumption in Volume III, however, and attempted to work out an internally consistent labor theory of value. But he failed in this, as Ricardo had before him. Before examining this problem more closely, we need to become more familiar with some other Marxian concepts.

Marx's Labor Theory of Value: A Summary judgment

Much has been written on Marx's labor theory of value, but, in our view, much of that writing is not essential to Marx's central argument for two major reasons. First, Marx was not primarily interested in questions concerning the allocation of resources and the formation of prices; he wanted to develop a theory that would explain the dynamic changes taking place in the economy of his time. In this sense it is proper to regard Marx as a macroeconomist rather than a microeconomist. Second, the labor theory of value could be replaced in the Marxian system by other theories of value without changing either Marx's essential analysis or his conclusions. Similarly, Ricardo's doctrine of comparative advantage is not dependent upon a particular value theory. Thus, although the ideological force of Marx's system is certainly weakened by a refutation of the labor theory of value, he could raise the ethical questions that concerned him—namely, the serious inequities in the distribution of income under capital­ism—without reference to this particular theory.

From the uses to which Marx put his labor theory of value, our view is that its primary role was ethical, or ideological. He wanted to show that the source of property income was exploitative, or unearned, incomes. He accomplished this by assuming that labor is the only commodity that creates surplus value. He maintained this position consistently throughout his analysis. One could, in principle, say that capital was the sole creator of surplus value and thus develop a capital theory of value, though it would come as no surprise to discover that a capital theory of value would contain some of the same inherent inconsistencies as a labor theory of value. As long as labor-capital ratios vary among industries, a capital theory of value cannot measure relative prices correctly. Although the ethical issues Marx raised concerning the proper distribution of income are important, he was mistaken in believing that he had demonstrated objectively and scientifically, by means of a labor theory of value, that the proletariat was being exploited by the capitalists. It may indeed have been exploited, but that conclusion involves an ethical judgment.