The Socialists: Theory Of Value

The Extension of Classical Ideas of Value: The Socialists

Another growth which branched off from the original classical root was the socialist development of the labor theory of value. Accepting the original contentions of Ricardo that labor was responsible for all value, the early socialists, William Thompson (1783-1833), J. F. Bray (1809-1895), and John Gray (1799-1850) were ardent supporters of the labor theory as applied to value. In their socialistic doctrine, the term property is frequently, if not always, substituted for material goods. Making this allowance, we find their writings filled with declarative statements that labor is the source of all value, and that if people secure property (material goods) without labor they are defrauding the worker of what is rightfully his. Thompson believed that machinery was stored-up labor in the first instance, and that management was a form of labor; hence both had the right to a return. Bray said that labor created all value, and in exchange equal value should be exchanged for equal value; any deviation from this practice was unjust. Gray said, "It is labor alone which bestows value." The work of these men is not so much an economic analysis of values as an ethical assumption.


Implicit in the writings of socialists is the theory of surplus value as well as the labor theory of value. Marx endeavored to find a reasonable economic explanation of these ideas. In this respect he is similar to Thompson who also felt the necessity of a reasonable and not just a moral foundation for his economic beliefs. Karl Marx (1818-1883) had prepared himself to be a university teacher, but he became absorbed in the social reforms of his time and took up the writing of political pamphlets and tracts instead. Exiled from Germany, he spent the remainder of his life in England except for short excursions to the Continent. His interest in reform never flagged, and while his work was chiefly academic it was designed to establish the scientific validity and the historical necessity of his reformist views. Marx conceived of value in the Ricardian sense as the labor necessary to produce an article under average conditions, "with average degree of skill and intensity prevalent at the time." Such a modification thus accounted for the variation in market value from the time of production until sale. While differences in quality of skill may produce variations in value, the variations in skill are themselves accounted for by the variations in the cost of the worker's training. These differences are established by custom much after the fashion described by Ricardo.

The disagreement with Marx's labor theory of value is far overshadowed by the controversy stirred up by his theory of surplus value. This, too, was presaged in Ricardo's writings but never stated clearly or explained. It may be briefly stated in this way: Labor is paid on the basis of its physical reproduction and maintenance costs; but the laborer is required to work hours over and above the hours necessary to meet these costs. Thus every additional hour that he works above the point necessary to produce sufficient articles to supply the laborer's reproduction and maintenance costs (his wages), he is producing value which is appropriated by the employer. This value above his reproduction and maintenance cost is surplus value. Marx accepted the thesis of Locke and Ricardo that capital was stored-up labor. The value of raw materials was the labor necessary to produce them. Thus costs of capital and raw materials were justifiably incorporated in the final sale price which approximated the cost of production at all times. It was not in the sale price of each unit that the employer received surplus value but only on additional units produced in the extra hours of labor exacted by him.

Attempts to put the labor theory of value into practise on numerous occasions, especially in the Utopian communities founded through the inspiration of Robert Owen, proved the theory's impracticability. No one was able to solve the problem of how to equate the labor time expended by one man on one article against that expended by a second man on a second article.
Looking back across the several hundred years of economic thought on the subject of wealth and value, several issues seem to stand out clearly, not alone for the questions they raised in times past but for their pertinence to the contemporary scene. The very nature of the economic world in which we live makes money of great importance. A nation or a person accumulates money because of its intrinsic qualities—durability, ease in exchange, and relative stability in value. This was the opinion presented by the advocates of Mercantilism. It was not in the quality of their reasoning that the Mercantilists were unsound; it was that they failed to take the long-run effect of their policies into account. Mercantilism as a working principle never died. Until the Second World War it was followed assiduously, concerning itself with a short-sighted policy of amassing a store of money while neglecting the inevitable consequences of such a general thesis of selling more than one buys.


Not the least important of our modern issues is the unconscious tug-of-war between the advocates of individual wealth, in the form of exchange values, on the one hand, and the proponents of socially held wealth on the other. Is a country wealthier with a vast number of individually owned fortunes to be used at the discretion of their owners, or with state owned or controlled natural resources, public utilities, and extensive social services such as low-cost housing, health centers, play grounds, and schools? The present trend seems to favor the method of state control, not necessarily because it is more desirable as an abstract proposition but because of necessity. An extension of this question merely raises another. A stock of money or goods on hand has been considered from the economic angle as wealth; but in a larger conception a healthy, well educated, talented, and morally upright citizenry may be, in a much truer sense, considered as a store of wealth.

As the problems of wealth shade into those of value, other difficulties arise to plague the economist. No solution has been found to the question of whether subjective factors as well as objectively measurable ones should be considered in defining value. To include the former means giving up for a time at least all hope of exactness. Dealing only with the latter seems to reduce the data of economics to superficial things of questionable validity. There has been a tendency, noted frequently in the past, to describe value in terms of what ought to be rather than in terms of what is; or in terms of what is socially desirable rather than what is indifferent to social consequences.

It is hardly possible to expect to find one sole controlling factor in such a complex phenomenon as value. With our present knowledge we cannot determine with any assurance the relative importance of the several factors which influence it. Much of the economic theory of the past assumed an economic world of a particular character. Differences in theory between English and Continental economists usually can be traced to the different economic worlds in which they lived. Just so, it is entirely possible that questions of wealth and value will be decided in an altogether different fashion by the economists of tomorrow.